One question about market turbulence that I'll be watching is its effect on the 2008 presidential race. It's not clear the disruptions will prove long lasting, much less lead to an economic recession. If it proves a short-term blip, the effects will be negligible.
But to the extent this week's angst is followed by sustained weakness or a downturn, it will certainly add fuel to the public's unhappiness with Washington and its desire for change. Generally speaking, that should help Democrats since Republicans hold the White House. But not in all cases.
The Democratic front-runner, Hillary Clinton, represents partisan and ideological change. Her pollster Mark Penn notes that current circumstances raise the value of her experience in the Senate and her husband's White House, which famously presided over the late 1990s boom.
But Clinton doesn't represent a change in the tone and style of Washington politics. Barack Obama argues that he does, which in turn could bring improved results to policy-making on economic policy and other issues. And John Edwards, who is offering somewhat more ambitious policy prescriptions, sees an opportunity to galvanize discontent with the status quo. If financial market uncertainty lifts the political market for populism, as an Obama adviser told me, Edwards may be best positioned to benefit.
Of course, there's a populist voice in the the Republican nomination race as well. That's former Arkansas Gov. Mike Huckabee, now seeking new traction on the heels of his solid second-place showing in the Iowa straw poll. He thinks this week's angst may help. "It certainly bolsters my message that there's a world of hurt out there," Huckabee told me in a phone interview today.
He isn't offering specific policy responses to the credit squeeze mushrooming out from the housing downturn. He praises the Bush administration's cautious rhetoric, and says doing much more would raise the specter of bailouts for risk-takers whose bets have turned sour. "Do you want a market, or a manipulated economy?" he asked me.
But the more upscale investors begin feeling the same squeeze that Wal-Mart Republicans have felt for some time, the more Huckabee sees a market for his call for fundamental change in the tax code. He favors abolishing the income tax in favor of the "Fair Tax" plan for a national sales levy that would discourage consumption and encourage savings and investment.
We'll see. Republican strategist Mike Murphy, to the contrary, says increased exposure for the Fair Tax could kill the Huckabee boomlet. Many in the GOP consider it atrocious politics to discuss any new tax, even one designed to allow the ELIMINATION of the income tax.
Murphy, in fact, says market uncertainty should make the real-world financial and managerial experience of Mitt Romney (his former client) even more attractive for Republican primary voters. That may be true, and the ex-Bain Capital founder is already on a roll; he WON the straw poll that the financially-squeezed Huckabee was thrilled to finish second in. But whether Romney Wall Street cred helps in a general election -- at a time when voters are worried and distrustful of the financial industry -- is another matter altogether.
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