Change May Be Coming, But Less Than You Think

"We feel we're on the brink of a whole new life in this country," said Betsy Whitman, 69.

That quote came from a resident of Londonderry, New Hampshire at a rally for Barack Obama this weekend.  It was reported in a story from the UK's Daily Telegraph.

Americans on both sides of the political spectrum are energized.   Political memory is long, political tolerance is not.   It seems everyone is simply ready to get the election over and move on.   Right now the only certainty is that we will have a new President and administration as of January 20th, 2009.    There will be differences and there will be changes.   But a "whole new life?"   Unlikely.   Ms. Whitman's comment though does pose an interesting question: just what will really change on January 21st, 2009?   Initially, not much.

Both candidates have latched firmly on to the "change" message.   It's been the basis of Barack Obama's campaign.   John McCain has also lobbed the term around.   Both can say it, and voters can buy it, but we need to realize the message will be different than the political reality.

"Change" is not a new political message.    Every generation of politician wants you to believe he or she is different than the others before them.   That the era of big government is over and finally the people are taking it back.  The New York Times recently pointed out that Massachusetts Governor Deval Patrick - who ran on the same "change" platform that Obama is using (they have the same chief strategist) - is facing a tough road getting anything done now that he's in office.   The harsh political reality is that Congressional supporters on the campaign trail can turn icy once their own interests are threatened.  There are 535 women and men on Capitol Hill who have their own interests to serve, regardless of who resides at 1600 Pennsylvania Avenue.   Both sides are saying what they need to say to get their slate elected, but once the election is over the rhetoric, infighting and dealmaking will heat back up, much as it has since Mr. Washington took the very first oath. The reality is that regardless of who becomes President in three months, many of today's biggest problems will remain in the headlines years from now because they are beyond governmental power to solve, or Congress and the President won't get together to solve them.

The weak economy:  It's clear to nearly everyone we are in recession.    The question remains how long we will stay in the slowdown.   Is there any chance either candidate's economic and tax plans will pull us out faster than the others?    Doubtful.    Obama wants to give a $500 credit to the 95% of Americans who make less than $250,000 per year, or $1,000 for many two paycheck homes.   This extra cash may help some stretched family balance sheets, but is it going to help the economy as a whole?    There is no new creation of money here, just a transfer from one taxpayer to another.   Remember that many households received an amount greater than Obama is proposing now - the $1,200 stimulus check this summer - and that is not keeping us out of recession.   Debt burdens are great enough on many families that even the extra $1,000 per year, around $80 per month, is unlikely to impact the overall American economy and stimulate growth.   Individual tax burdens are important, but not when money that may be used for spending is instead being used to pay down debt service.

Housing:  Neither candidate has a real plan to prop up housing.   Each comments on "helping the homeowner" and there is talk of more direct investments in troubled mortgages.   But artificially injecting cash into a market that's coming down from the biggest five year bull run in its history is likely to do little to solve the crisis.    Until credit eases up and the current inventory of unsold homes is flushed out and buyers and sellers realign, housing markets around the country will remain in flux.   Mortgage rates aren't likely to move lower, and many banks are going back to the 20% down requirement.   Time will be the only healer here.   The problem is bigger than either of the candidates.

The Credit Crisis: The $700 billion dollar rescue plan has been passed, and the total cost of helping "save" the American credit system is already more than $2 trillion dollars.   The Fed has cut rates and will likely cut them again to stimulate lending and borrowing.   Both candidates know the problem and (hopefully) the solution were crafted before their new Presidential term.   And for that they are thankful.   Obama and McCain are passengers on this global credit journey like the rest of us.

Health Care:  Each candidate has their plan for health insurance and Medicare/Medicaid changes.    Any change to what we have now is a positive.   Neither candidate though has addressed the real issue - making America healthier and pushing costs down over the long term.    Rising health care costs are the greatest inflationary force in the American economy.   Obama and McCain both talk of change to the medical system, but none has spoken to changing American habits and investing more money in preventative care to stem the rise in costs.   The statistics vary depending on your definition of "preventative," but conservative numbers show than more than 95% of all medical-related spending goes toward treatment and not prevention.   Obesity levels are soaring and cancer rates remain at the same levels of thirty years ago.   The Milken Institute notes that the seven most common chronic diseases cost our economy more than $1 trillion per year.   Five of those are directly linked to obesity.   Until the political dialogue changes from "how do we pay for this" to "how do we keep people healthier and avoid paying for this" then we will likely face major medical and insurance problems well past the next President's term.

The stock market: Stocks rise when investors are optimistic about corporate earnings.   A stock price at its core is just the future value of a companies earnings.   McCain's lower corporate tax rates should help profitability and thus stock prices.    Obama has discussed "windfall profit" taxes on industries such as oil.   When investors are unsure about a companies prospects they tend to avoid it.   We need clarity on exactly what will change and what won't in corporate before any significant move higher can begin.

Foreign policy: America is not the world's favorite country and many around the globe are also excited for change.   The massive showing for his speech in Germany indicates that Europeans in particular are energized by a potential Obama presidency.  There is a sense that when the Administration changes the feeling of animosity many feel toward America will soften.   And while it is nicer to be liked than disliked, but does being "liked" more by Europe have any real impact on foreign policy?   Isn't the real threat is coming not from countries but from rogue organizations such as Al Qaeda?   The most militant and dangerous threats to our security are from individuals who are taught from birth to despise America and all that "the West" stands for.    It's hard to see how institutional hatred many of the most extreme feel toward America will change unless we soften our dealings with terrorists, a trade we should never make.   Giving in to bullies only makes them bully more.   Both candidates need to remain strong and vigilant.

Alternative Energy: Both McCain and Obama talk about addressing our need for other sources of energy rather than fossil fuels.   But whatever change comes in alternative energy is likely to depend more on the price of oil than presidential policies.   If oil prices move lower it will remove some of the recent push for other sources of power, primarily as a transport fuel.   Additionally, legislation passed in the next term will take multiple years to move finally have an impact on the grid.    This shouldn't dissuade either candidate from passing important legislation for future generations, but don't hope for real change in the energy situation and oil consumption levels in the next decade.

This is more of a general exercise and a simple skimming of the big issues we face.   The point is not to be negative, but rather to highlight that while change of any type can often be positive, there will remain for some time large challenges regardless of who takes the oath on January 20th, 2009.   The good news is that this is nothing new.   America has faced many more serios challenges for more than 200 years.   As Warren Buffett recently noted, in the last century we've come through two world wars, a great depression, the cold war, and numerous recessions.   America is still standing, and we will be standing in four years for the next election.   The most serious crisis always seems to be the one we are in at the moment.

Change in the administration is coming.    We aren't voting on the problems, we are voting on the subtle differences in the solutions.   The nature of the challenges we currently face remain.   And when we pass through these, as we no doubt will, different challenges will present themselves in the generations to come.    That change is constant is the one thing Republicans and Democrats can't disagree on.