The US has been rather snotty for the last 20 years, preaching our version of capitalism around the world. Although most countries these cays call themselves capitalist, there is significant world-wide debate on what capitalism means and what the result is. In relatively pure capitalism, practiced mostly only in Hong Kong, there are a few clear winners and a lot of losers. In fact, lab experiments indicate that in pure capitalism a small number of people wind up owning all the assets - think J.P.Morgan and John Rockefeller. On the other side of this debate is egalitarianism, the idea that everyone is equal and everyone should therefore equally share in the "lucky returns" of the few. In this country, for example, the left wing of the Democratic party is very suspicious of unregulated capitalism because there are so many "losers." Those of us on the conservative side like to point out that even our "losers" have housing that is the envy of more than half the world's population, flat panel HDTVs, two cars, and enough food that they have serious problems with obesity (the latest: there's a growing epidemic of teenagers requiring liver transplants because their over eating killed their own). Oh well, anyway, the debate is how much capitalism should be allowed to run relatively unshackled (laissez-faire), and how much it should be regulated and results redistributed. The US position since the Ford administration started serious deregulation has been in favor of "Creative Destruction," a term coined by Joseph Schumpeter to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."
Japan, China, France, Germany and the Scandinavian countries would represent the other side of this argument, each in a different way claiming that government regulation of capitalism and redistribution of benefits creates better results for more people. In Europe, for example, firms are basically not allowed to fail and lay off workers, with the result that new companies almost don't exist. Unfortunately for them, the US growth rate and creation of societal wealth has dwarfed all but China's rate. Unfortunately for us, in the last ten years the US middle and lower classes have not participated in the slightest in the growth of the US economy.
When the banking crises started about a year ago, there was massive world-wide schadenfreude(delight in the suffering of another) in these countries, as the holier-than-thou US seemingly was being brought to its unregulated knees, while Europe and Asia steamed on to new highs in productivity and wealth. The talk was that the US was no longer the leader of the world's economy, and that Asia and Europe could do very well without us, thank you very much. You'll recall that for some weeks now I've been saying that Asia was overdue for a massive fall. Well, that fall started about two weeks ago, and really gained momentum last week. The Asian stock market, already down 45% from their '07 highs, lost another 45% of its value in the last two weeks. The Asian market is currently at about 29% of its value a year ago with no end to the drop in sight. We're at about 55% and seemingly holding (my own stock market losses have been due to mistakenly thinking our bottom would come at about 35% down, not 45% down). The results in Europe are equally striking if perhaps a bit less spectacular. Suddenly the quiet snickering has dried up and been replaced with noisy panic.
Well, back to our story. In my non-humble opinion, the US is due for a bear market correction, a several week rally that would raise prices temporarily. However, this last week there was a near collapse of European and Asian stock markets - several stock markets were shut off entirely last week for hours or even days. The resulting panic saw a massive need for cash, and an external sell off of US stocks to raise this cash. Friday morning, for example, US stock futures in Europe dropped right up to the point where the computers would have shut off trading in them for the rest of the day, a 5% drop. When the US market opened, it duly opened down 5%, seemingly on the way to an 8% or even 10% drop. In fact, as we're already at a price level where US investors seem to think our stocks are already a bargain, we would up down about 3.5% on the day. This was considered a big win on Wall Street.
Next week I expect there will be continued chaos and market drops in Asia and Europe, accompanied by government promises of bank bailouts and stock buy-backs, and this will be reflected in the US markets in continued volatility and an inability of our bear market rally to gain any traction.
As I see it, due to the Bradley effect and the well documented fact that democrats consistently out-poll republicans before elections, this election remains too close to call, although I believe Obama maintains a slight advantage. Currently I see it as Obama 255 to McCain 232 electoral votes, 270 needed to win. I'm calling states where Obama has a 3% advantage or less as a McCain state, and states where Obama has a 10% advantage or more as an Obama state. I'm calling states where Obama has a roughly 6% advantage "battleground states." Historically the democrats poll about 5% better than they get votes. The Bradley effect is perhaps another 5%, however historically Blacks don't vote much; this time I think that will change. I'm calling the sum of these two effects as about 6% because that makes the election interesting. You get to make your own estimate.
The battleground states are Ohio, Colorado, and Virginia. McCain needs all three of these to win. New Hampshire and New Mexico are also too close to call, imo. If I'm off in my estimation and Obama takes any of North Carolina, Florida or Missouri, McCain loses by a big margin. I can't imagine McCain winning by a big margin, I think his best case is to squeak by.
If Obama wins, he will have been elected by the Pacific coast, New England, and the Great Lakes states. McCain will have been elected by farmers, ranchers, southerners, and "bitter [people who] cling to their guns and religion."
The 50 states, listed in order of most for McCain to most for Obama:
|State||Electoral Votes||Ahead||Poll 11/02||Actual 11/04|