Cezary Salad

One of my readers - Morgan Oliviero from New Brunswick, Canada - recently commented on my three-part series on oil prices:

To the extent that energy is considered in many countries to be a national security interest, and thus to be heavily regulated, how does governmental interference affect the way that oil prices have been climbing?

Good question, and something well-worth considering given the current clamor from Democrats, including Sen. Obama, for an “excessive profits tax” to be levied on American oil companies.

Government interference in markets comes in two basic flavors: subsidies and taxes (spicy or mild, respectively). Both can have a significant impact on a market, though in opposite directions. Subsidies, by virtue of lowering prices, will have an upward impact on demand and incentivize suppliers to produce more to meet that demand. Taxes, by virtue of raising prices, will have a downward impact on demand and incentivize suppliers to produce less to match that decrease in demand.

How has this played out in the oil markets? Oil is traded on a global market, so energy policies in large world economies can have a marked impact on the price we pay for it in the U.S. And unfortunately, developing countries - particularly Mexico, Malaysia, India and China - heavily subsidize energy prices in an effort to keep inflation low and spur growth. Naturally, this drives demand up and decreases the incentive for oil consumers in those countries to conserve or replace their fuel consumption with greener alternatives. And that, in turn, offsets the demand destruction that we’ve been witnessing in the U.S. over the last year, making oil prices “sticky” on the way down. As Keith Bradsher of the New York Times pointed out in this well-written piece on the subject:

The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the world’s increase in oil use last year — growth that has helped drive prices to record levels.

Other numbers in Bradsher’s piece are equally frightening: China devoted $40 billion to oil subsidies this year alone, Indonesia followed with $20 billion, and Malaysia - before it raised gasoline prices by 40% earlier this summer - was spending 7.5% of its GDP on oil subsidies.

How big are these numbers relative to global spend on oil? Doing some back-of-the-envelope calculations, the U.S. consumes about 20.7 million barrels of oil per day (2007 figure), which at oil’s current $114/barrel price tag comes to about $2.4 billion/day, or about a quarter of the world’s total daily spend (all these figures, and many more, are available on the EIA’s petroleum statistics page). So hundreds of billions of oil subsidies a year from developing countries are not just a drop in the bucket: a significant amount of the world’s daily spending on petroleum is subsidized, and hence insulated to some extent from the rising oil prices.

The U.S., of course, is not so insulated and hence we’ve been paying the price for rising demand in developing countries that subsidize gas prices. This is not to say that the U.S. doesn’t give out its own subsidies to the oil industry in the form of tax breaks, but that is far different from wholesale price controls on gas prices.

But despite Washington D.C.’s increasing pressure on developing countries to lower or discontinue their massive subsidies for oil prices, doing so is not so simple. Consumers who have grown accustomed to paying low prices won’t give up that right without protests or anger at the politicians who dare take it away. As Bradsher points out, the Malaysian government faced public anger and outcry when it raised the price of gasoline by 40%. So don’t expect these subsidies to go away anytime soon.

What can the U.S. do? Again, the only long-term solution to this problem is for the U.S. to decrease its reliance on petroleum and switch to home-grown alternative energy sources: all the more reason why the Pickens Plan stands out as a painful thorn in the side of Republican cries of “drill, drill, drill.”

Moving to the tax side of the equation, taxes on oil consumption have had the opposite impact and, as expected, the bigger the tax, the bigger the drop in demand for oil. But here it is important to consider at what level the taxes are being levied: the producers or the consumers. Taxes aimed at producers tend to decrease their incentive to produce more since they get less of a reward for their investment; taxes aimed at producers will tend to decrease demand when prices rise. One decreases supply, the other demand. Either way, consumption falls.

But it is important to consider these effects in concert with other market conditions. If oil prices are skyrocketing to record highs and demand abroad - thanks in part to the subsidies discussed earlier - shows no sign of abating, then oil producers have little incentive to cut back on their production just because they may be forced to pay a higher marginal tax rate on their output. In other words, the incentive to produce less as a result of higher taxes is outweighed by the incentive to produce more as a result of soaring prices and growing demand.

A perfect example of this is the situation with Canada’s Tar Sands - a lucrative source of petroleum in Canada’s Alberta province that ranks among the biggest oil reserves in the world. As Morgan points out:

Oil producers in Canada’s Tar sands have been preparing themselves for a potentially punitive redistributive carbon tax that the Liberal Party has vowed to implement should it take power . . . Aside from forcing the producing corporations to prepare for significantly increased overhead, fund managers on Bay Street have been understandably concerned that this new tax could significantly damage profits, and therefore share prices.

However, for the time being, those worries seem to be outweighed by the huge potential for greater profits from increasing oil exports in the current environment of sky-high prices and increasing demand abroad. As the AP reported last month, Canada’s TransCanada Corp. and Texas’s ConocoPhillips announced that they will spend $7 billion to nearly double the amount of oil flowing from Canada’s Tar Sands to the U.S. Gulf Coast. So rest assured, Morgan - Canada will remain the U.S. top oil exporter to the U.S. in the near future.

This implies, though, that now would be a great time to raise taxes for oil companies since their business is so profitable that they’d probably be willing to cough it up. After all, as Sen. Obama is fond of saying on the stump, ExxonMobil took home nearly $12 billion in profit last quarter. Hence the argument for a “windfall profits tax” or “excessive profits tax” that would clip the wings of their soaring profits and hand some of this money - which didn’t result from any technological innovations or greater efficiencies on the part of oil companies - back into the hands of ordinary Americans who made it possible.

But this ignores one obvious fact about the global oil industry: it is dominated by global, multi-national firms that don’t have an allegiance to any one tax code. They can just fold up their headquarters and move their tax burden elsewhere, in which case the U.S. would be worse off than it was before. More to the point, though, the flimsy concept of “windfall” or “excessive” profits is so subjective that it is likely to leave many in the business community wondering what defines “excessive” profits and whether they’re next in line for getting a haircut on their earnings from Uncle Sam. In other words, there has to be a better way.

Again, though, the better way involves hard choices and sacrifices that America as yet doesn’t seem prepared to accept. Investment in green technologies like wind and solar energy, electric and hybrid cars and just plain old conservation are not yet considered mainstream ideas on Main Street or in Congress.

Luckily, though on Wall Street - with many investment banks and private equity firms devoting talent and resources to capturing profits in green energy - the idea is catching on. And so if it is distortion of the markets from public funds that is making the oil crisis worse, it may well be private pockets that, in the end, help make it better.

By now, the idea that 2008 is a “change” year has become commonplace conventional wisdom for the media and Beltway insiders alike.

But, as countless turnovers of conventional wisdom throughout this election cycle have shown - from Sen. Clinton’s invincibility to Sen. Obama’s supposed inability to win over white voters and Sen. McCain’s campaign being toast last summer - heavy lies the crown of conventional wisdom.

Which is why it is time to rethink the 2008-is-all-about-change paradigm.

It’s not that the change paradigm is unequivocally wrong. After all, it’s for a reason that 82% of Americans said the country is seriously off on the wrong track and 66% disapproved of President Bush’s job performance in May’s ABC News/Washington Post poll. They don’t want more of the same, and any politician with an ounce of tactical skill can see this as an opening for an anti-establishment message that is sure to catch fire.

As the change paradigm has it, first among the Presidential hopefuls to realize this - long before Mr. Romney put out the “Washington is Broken” banner after losing the Iowa caucuses and Sen. Clinton advised the country that she was “running on 35 years of change” - was Sen. Obama.

Now, critics may ponder how big a force for change Sen. Obama has been in his political career or how consistently he has expressed this message to the public. But the fact remains that Sen. Obama embraced an anti-establishment message of change from the outset of his campaign (he mentioned it no fewer than nine times when he announced his candidacy in February 2007) and thus managed to brand himself as an agent of change much more powerfully than his opponents. This helped him achieve his upset victory over de-facto incumbent Sen. Clinton in the Democratic primary and - the change paradigm dictates - if he plays his cards right, can help land him in the White House.

Perhaps. But if it was Sen. Obama’s prescient ability to sense the mood of the country that helped him ride a wave of discontent and desire for change to victory in the primaries, then his trimph in the last leg of the journey may well rest on his ability to navigate the next wave sweeping the country: that of sheer, utter confusion.

Somewhere between January, when the Presidential contests began, and June, when they slowly screeched to a halt, the mood of the country went from being discontent and wanting change to being, well, even more discontent but also much more confused about the source of the discontent and how to fix it.

Witness the current debates on everything from rising food, gas, oil and commodity prices and the state of the economy to whether American power and infulence are declining and who is Sen. Obama, anyway? On a typical day, an average American turning on his or her TV might find him or herself bombarded with thousands of tough questions with no simple answers and plenty of experts and talking heads on both sides debating:

• Why are food prices rising so drastically? Is it because of ethanol production? Rising foreign demand? Speculators?
• Why are we paying more for gas? Would we pay less if we didn’t have ethanol? How much less? Is ethanol good or bad for us, on balance?
• Why is the price of oil skyrocketing so fast and furiously? I thought $100/barrel was something, but now it’s approaching $150; when will it stop? And what could stop it? Who do we blame? Speculators? Environmentalists? Our weak currency? Fundamental supply and demand? Would it cost less if oil weren’t denominated in dollars? How much less?
• What should Congress do, and how soon could it have an impact? Is more regulation of commodity markets necessary? If so, how much? What about further regulation of the mortgage markets and investment banks? What role did they play in the housing bubble?
• How much lower will house prices go? Or have we already seen the bottom? What about the economy as a whole - are we in a recession already, have we emerged from one, or has it not even begun yet? Is the worst yet to come?
• Is America in a permanent crisis? Are we doomed to see our power, wealth and prestige inevitably decline as the rest of the world thrives? Could it have been - can it still be - prevented? If so, how?
• What can Sen. Obama do to change any of this? Who is he, anyway?

But it’s not just the American public that’s feeling the pinch of confusion from being bombarded with so many difficult questions all at once; more importantly, lawmakers feel it just as well. So much so, in fact, that at a recent Congressional hearing on the future of oil, a feisty Rep. John Larson (D-CT, 1st District) repeatedly asked - sometimes to eerie silence - whether the laws of supply and demand have been suspended and whether “the dark markets have taken over in terms of speculation” so that “we [lawmakers] can’t from a policy perspective get our arms around this?” (see clip below).

From a policy perspective, though, Americans demand action - and quickly. But as an equally-confused Congress stalls and the public grows weary of hearing conflicting policy proposals on topics as esoteric and arcane as CFTC regulation and closing the “Enron” loophole, all eyes inevitably turn to the presidential candidates to ask “what will you do about it?”

Hence, the national mood of confusion will have a huge impact on the Presidential race. For it means that there is no longer just one “c” in play - change - but rather three: a state of confusion, a need for clarity and the opportunity to leverage both for change. And both Sens. McCain and Obama will need a new strategy for successfuly navigating all three if they hope to claim the White House in November.

The first “c” - confusion - presents an opportunity for the candidates to broaden their support by demonstating to the public a multi-faceted understanding of the litany of interrelated problems and potential solutions facing this country. This means going beyond policy proposals targeted at their political bases - something that both Sens. Obama and McCain need to do a better job of doing. Thus far, while Sen. Obama seems to have bet most of his chips on overdue speculation and greater regulation of the commodity markets as the biggest potential cause and solution to rising oil prices, Sen. McCain, at the risk of flip-flopping, has so far has taken the opposite bet: rising demand coupled with shrinking supply, to be eased by lifting the moratorium on offshore oil exploration in America’s water (but not the Arctic National Wildlife Refuge). To be sure, we should applaud the clear policy differences evident here, but at the same time, each is a direct appeal to a specific group: for Sen. Obama, an appeal for Democratic populists and for Sen. McCain, to pro-business Republicans. To better capitalize on the public’s confusion regarding this and other mutlifaceted, interconnected issues, Sens. Obama and McCain will need to broaden their support by better demonstrating that they are not just trying to pander to the arguments of any one special interest or populist agenda but are instead truly advocating for comprehensive solutions that are genuinely in the public’s best interest. Doing so may mean the difference between winning or losing the independent vote, and in an election where both candidates have strong appeal to independents, this may prove crucial.

This leads directly to the second “c:” clarity. Out of confusion arises a need for clarity, and this means giving the American people a clearer idea of what Sen. Obama’s “change we can believe in” and Sen. McCain’s “change that you deserve” really mean. This, again, is an area in which both candidates need to beef-up their strategy so that the hazy notion of “change” that each espouses doesn’t remain an empty vessel to be filled by pundits and campaign surrogates. Sen. McCain, despite enjoying a three-month lead over Sen. Obama in securing his party’s nomination, has yet to build a consistent message and campaign theme, as well as a strong-enough campaign organization to enfore either in the public’s perception. Meanwhile, Sen. Obama, under constant fire from conservatives over everything from his patriotism to his supposed elitism and Muslim “Manchurian candidate” status, is still in serious danger of losing votes in November because many voters simply do not know enough about him to avoid falling prey to misinformation and swift-boating. Clarity in policy, in order to be meaningful and to stick in the voters’ minds, must be preceded and reinforced by clarity of campaign message, theme and candidate identity. But as evidenced by Mr. McCain’s lack of message and Mr. Obama’s as-yet uncertain identity, neither candidate has yet achieved all three.

The third “c” - change - comes about as a result of successfully leveraging the first two for public support. Faced with widespread confusion and a lack of clarity about the candidates and their messages, voters are unlikely to let Sen. Obama coast through the general election by simply turning public discontent with the status quo into support for an anti-establisment message. In any case, doing so is not so much a way to change the ways of Washington as it is a shallow plan for getting elected. Instead, real change in 2008 means building a broad base of support for a multi-faceted policy platform that doesn’t simply alter the status quo or differ from the other candidate but also clarifies the candidate, the message, and his campaign theme. It is change in this sense that is not only likely to lead to victory but to also allow the victor to have a strong enough public consensus behind him to actually enact any meaningful changes once in office. And it is this kind of change that the voters are likely to demand and reward at the ballot box come November.

November, of course, is still a long way off (four months can be an eternity in politics). And so far, as the 320-218 electoral college count in favor of Sen. Obama (as of July 6) suggests, Sen. Obama may still be riding the prevailing change paradigm to his political advantage. If he wishes to keep this lead, though, he will have to figure out how to turn the widespread confusion of 2008 to his political advantage; otherwise, Sen. McCain may well have the perfect opening from which to launch his promised comeback.

A turnover of this sort would be neither surprising nor unexpected, given that we’ve witnessed just about everything this election season. But it would certainly confuse anyone who has adhered to the conventional wisdom throughout this election - all the more reason why 2008 may be, above all else, the year of confusion.

It’s no coincidence that Sen. John McCain chose April 15th to give a major economic policy speech.

The Senator’s speech (see the full-length C-SPAN video, read the New York Times transcript), delivered at Carnegie Mellon University in Pittsburgh, gave voters the clearest indication yet that, come November, a vote for Sen. Obama or Clinton is a vote for higher taxes, whereas a vote for him is a vote for lower taxes.

Among the laundry list of tax cuts that Sen. McCain solidly put his support behind were: reducing corporate taxes from 35% to 25%, making the Bush income tax cuts permanent, eliminating the alternative minimum tax and doubling the exemption for dependents from $3,500 to $7,000. And if that’s not enough, a President McCain would also ban the government from taxing your cell phone and the internet - though he wouldn’t stop short of telling you to read his lips.

Among the tax policy differences that he correctly identified between himself and Senators Obama and Clinton is the fact that both of them favor rolling back the Bush tax cuts once they sunset in 2010, ostensibly to pay for Medicare and Social Security. It is a strategy which he implies would only buy time and leave “the great challenge of entitlement reform for others to deal with.”

(Combine that with the fact that Sen. Obama - the (current) Democratic front-runner - is on the record stating a preference to raise the capital gains tax as high as 28%, and all of a sudden the Republican siren call of supply-side economics begins to sound even louder).

But, sharp as these differences on tax policy may be, history has taught us that it is wiser to look to a Presidential Candidate’s governing principles than his or her promises. And in that sense, the most insightful comment that Sen. McCain made in Pittsburgh was his proposal to suspend the 18.4 cent per gallon Federal gasoline tax between Memorial Day and Labor Day this year (see excerpt below).

Suspending the gas tax, Sen. McCain argues, would provide “an immediate economic stimulus.” And gas prices would certainly trend lower, he argues, because we would combine the gas tax holiday with a suspension in the government’s buying of petroleum for the U.S. Strategic Petroleum Reserve.

When I heard the Senator say this, I immediately thought of this chart that I saw in a 2006 GAO report on U.S. Highway Trust Fund (statement of Katherine Siggerud, director of physical infrastructure assets, before the House Subcommittee on Highways, Transit, and Pipelines, Committee on Transportation and Infrastructure):

Current Highway Trust Fund Year-End Balance Estimates

Since 2006, this picture hasn’t gotten any less bleak: the U.S. Highway Trust Fund - whose primary source of income (64%) is the paltry $18.4 cent gas tax that no politician has the courage to even tie to inflation - is projected to run out of money as early as next fiscal year. In testimony before the House Committee on the budget on the same topic in October of last year, Congressional Budget Office Deputy Director Robert Sunshine confirmed the bleak realities of the 2006 GAO report and made it clear that we had two options: raise revenues (i.e. raise, not lower, the gas tax) or cut costs (i.e. give less money to states to maintain our nation’s highways). Doing solely the latter, of course, is reckless public policy, given that gridlock on our nation’s highways is only getting worse and our highways are badly in need of maintenance and expansion. But no politician wants to do the former or even some combination of the two, so Congress has chosen to conveniently do neither and leave this challenge - to borrow Sen. McCain’s terms - for others to deal with.

On top of that, Sen. McCain ignores the fact that the other other trends driving oil prices higher - nascent supply pressures in Russia, geopolitical instability in the Middle East, financial speculation, higher demand from developing countries - will likely continue to drive gas prices toward the $4 mark that the Department of Energy predicted some areas in the U.S. might see this summer. Or that a short-term gas tax holiday would likely be offset by a predictable spike in demand. Or that the non-inflation indexed 18.4 cents is now such a paltry percentage of the total cost per gallon that it would really only take “a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up,” as Senator McCain put it, diminishing any multiplier effect we might expect from it.

Suspending the gas tax in the middle of all this is thus, at best, reckless and, at worst, dangerously irresponsible - especially at a time when the U.S. is spending $3 billion dollars a week on a war in Iraq. Where is the money supposed to come from? The fiscal responsibility that Sen. McCain promises once he maybe enters office next year? At best, that’s wishful thinking; at worst, it is doing exactly what he charges the Democrats of doing: putting difficult spending issues off for the future generations to deal with.

But I don’t point this out to say - “aha! here’s a contradiction!” That’s irrelevant because we can find plenty of them on either side of the aisle. Rather, I point it out because it evinces a very unhealthy ideological path in Sen. McCain’s thought: cutting taxes is always good, and I’m sure we’ll pay for things by shrinking the size of the government.

Sens. Obama and Clinton, on the other hand, cognizant of the financial strains that higher entitlement spending under their plans is likely to cause on the Federal Budget, seem to be taking a much more pragmatic, less ideological approach toward tax policy. In fact, Sen. Obama has repeatedly said that the governing principle that he would adhere to as president would be pay-as-you go. Sen. Obama wants to pay as the ship of state sails by raising some taxes (while, he insists, lowering others - most notably, middle-class income taxes); Sen. McCain wants to pay as we sail by hoping that Congress will be able to control pork-barrel spending and that entitlement spending and the Iraq War won’t get in the way of the fiscal responsibility he promises to bring to the White House. While governments under both Republicans and Democrats have proven equally capable of derailing both approaches, the former is admittedly more pragmatic and realistic than the latter.

So while, admittedly, the higher-tax, lower-tax distinction between the Republicans and Democrats during this election couldn’t be more clear, the same could be said about the underlying philosophies that influence it and are likely to influence much of how this country is governed in the next 4-8 years. And in the end - if we have learned anything from the Bush years - that is what really matters.

As the old addage reminds us, in politics, mud thrown is ground lost.

The trouble with this election season for the Democrats is that it’s hard to figure out whose ground is being sacrificed: that of Sen. Clinton or the party’s chances in November?

Increasingly, Democratic Superdelegates are beginning to point the finger at Sen. Clinton. That is why over the past few days Sen. Hillary Clinton has heard increasing calls from party Superdelegates to step out of the race - most poignantly (and bluntly) from Sen. Patrick Leahy, (D-VT).

Superdelegates like Leahy have reason to be nervous. Granted, polls in this primary season have been about as prescient as a broken compass , but witness Sen. John McCain’s gradually increasing strength in both an Obama-McCain match-up or a Hillary-McCain match-up. Now, you can make like Cheney and say, “So?” to the wisdom of polls, but chances are that if you’re Democratic Superdelegate, it’s not that easy.

Hence the growing pressure for the Democratic primary to come to a conclusion, with survival of the fittest favoring Sen. Clinton - who is down in the delegate count, popular vote, number of states won and (the real primary?) fundraising - to drop out.

This weekend, Sen. Clinton tried to put an end to all this chatter by insisting that she is in it for the long haul - be it through the last primary in June or the convention in August: “I think I believe that a spirited contest is good for the Democratic Party and will strengthen our eventual nominee,” she said, as quoted by Jeff Zeleny of The Times.

Sprited? It certainly will be. Good for the party? Not in the least.

Under a two-party system, there are two scenarios under which Sen. Clinton’s strategy of staying in it for the long haul while throwing the “kitchen sink” at the frontrunner could indeed be advantageous or at least do no harm to the party and the eventual nominee. First, so long as one party is still squabbling over its nominee, it is ok for the other to do the same without losing the key advantage of time. Secondly, even if one party has already settled on its nominee, a spirited contest for the nomination within the other party can still be a good thing - long as there are vital policy differences between the candidates that need to be settled before the general election planks are put in place.

The trouble for Sen. Clinton is that neither of the above is the case - and hence the danger to Democratic prospects for the White House from her decision to continue her campaign no matter what.

The danger from the absence of the first scenario is self-evident. If it is indeed true that 9 out of the last 10 U.S. presidential contests have been won by the party that selected its nominee first (which may be nothing more than a reflection of incumbents’ advantage - nothing new), then Sen. McCain could be the luckiest man in American politics right now. With his general election campaign de facto beginning on March 4th and Democrats’ primary battle going on until June and possibly until August, Sen. McCain has a crucial 4-6 month head start in spreading his message - as he did last Friday with his first general election campaign ad - coalescing his party’s support, introducing himself to voters and - should the father of McCain-Feingold opt out of public funding in the general election - fundraising.

Moreover, absent strong and clear policy distinctions between Sens. Clinton and Obama, Sen. McCain will not only get the advantages of time but also extra bounce from the personal attacks and negativity that will surely continue to surface on the Democratic side. Let’s face it: the Democratic primary is no longer about the issues or the policy distinctions between the candidates. It was earlier, when the field of candidates was larger. But the final two agree either explicitly or in principle - with minor variations, such as the use of mandates in health care - on so much of their policies that discussing issues and policies doesn’t really help the voters see a sharp contrast between them.

But in absence of that, character and integrity take the lead as the most important distinctions between the candidates that the voters will use to decide in the voting booth. Naturally, then, what is Sen. Clinton to do but throw mud - and lots of it - and hope that some of it sticks and begin to stink? Whether it be charges of plagiarism, childhood presidential ambitions, or insinuations by campaign subordinates that Sen. Obama is a Muslim, if the Democratic primary goes on for two or three more months, this is likely to be only the beginning for the mudslinging. It is going to get very dirty, very fast.

Granted, thus far Sen. Clinton has paid for her mudslinging (kitchen sink throwing?) with increased negative ratings. But her ground isn’t the only thing at play here; as more Democratic Superdelegates will undoubtedly come to realize, the longer she goes on, the less ground they have beneath their feet come November.

It’s a little past midnight and voters in the snowy hamlet of Dixville Notch, NH - all 10 of them - have already cast their first-in-the-nation primary votes for President of the U.S.

It feels a little bit like the night before Christmas, doesn’t it?

It would, except if it weren’t for the fact that there’s little what-am-I-getting-tomorrow surprise here. The voters of Dixville have already chosen Obama and McCain as their standardbearers, and we don’t need polls or pundits to tell us that they’re likely going to win the top spots in the Granite State’s primary contests today, largely thanks to the nearly 45% of the electorate in this state of 1.3 million who register themselves as neither Democrat nor Republican. As Jeff Zeleny of The Times correctly notes, in this race, independents are the prize, and no other candidates in this race have a broader appeal to them than Obama and McCain.

2nd prize will most likely go to big-spender Mitt Romney on the Republican side who, thanks to Mike Huckabee, has found himself to be the Hillary Clinton of his party’s campaign. Huckabee may well ride his minimal (in this decisively non-Evangelical state) momentum to a third-place finish, but if he does it will likely be a razor-thin margin above Giuliani, who enjoys reasonably strong 2nd-tier support in this state thanks to his noun + verb + 9/11 record.

Meanwhile, the real Hillary Clinton will move a notch up from her 3rd place finish in Iowa, ahead of Edwards but still behind the high expectations she set for herself of being the inevitable winner in all the early states.

But if all this comes to pass, what does it mean for the rest of the race?

It means that, try as they might, the I-am-for-change-too (post-Iowa) candidates in either party will have a much harder time catching up to the first mover in this field, Obama, while those who represent anything anti-establishment and non-conventional in the voters’ minds will continue to still have a shot. Read: no third Clinton term, no first Mormon president.

Why no Mitt? In a way, the “Washington is Broken” message that all of a sudden has found its way to the Romney campaign is Mitt’s greatest, and most lethal flip-flop. As Chuck Todd, MSNBC Political Director, rightly points out, Mitt has spent his entire campaign positioning himself as the gold-standard Republican that can carry the flag (i.e., status quo). All of a sudden, he gets the message that - surprise - voters want change and that’s what he stands for and has stood for all his life and his entire campaign. A (rightfully so) skeptical press corps won’t buy it, and neither will voters.

All of which may well mean that as Dixville goes, so will the nation, since Obama and McCain probably stand the best chance of making it to the general elections right now.

And had you told me that last Christmas Day, I would have been surprised.

* * *

(Quick note: yes, I owe you guys a piece on the elephant-in-the-room that is the economy; coming soon).

The weather today in Des Moines is forecast to be “partly cloudy” and “not as cold” as today, with a low of 15 to 20 degrees and a south wind of 10 to 15 mph.

Ah, if only the Iowa caucuses were as easy to call predict.

Indeed the very fact that less than three weeks before the caucuses the Iowa weather forecast for caucus day was a hot topic of discussion on the blogosphere indicates just how fluid and unpredictable this race really is.

Nothwithstanding, after weeks of following the polls, reading the blogs and watching the non-stop election coverage, here are my predictions for the Iowa Caucuses:

On both the Democratic and the Republican fronts, two powerful trends will shape the outcome of the election: voters’ desire for candidates who represent change and a shift away from “conventional wisdom.”

The first is a logical outcome of the obvious. As the Wall Street Journal reported yesterday, the U.S. has experienced the most prolonged period of public dissatisfaction in 15 years (measured by the percentage of voters who say the nation is on the wrong track). If that’s so, the “throw the bums out” & turn-a-new-page message - which worked wonderfully for Mayor-elect Michael Nutter in (of all places) Philadelphia - will resound particularly well with voters during this election cycle.

The second trend is really a result of the first: hungry for change, voters are less likely to accept the conventional wisdom of the beltway. And so the candidates and the issues that Washington insiders & the mainstream media predicted would dominate this year’s presidential races, whether it be Clinton vs. Giuliani or Iraq & tarrorism, have failed to materialize.

Considering these, I’d place my chips as follows:

On the Democratic side:

• Obama will be able to mobilize enough independent voters - who are expected to overwhelmingly caucus with the Democrats - to narrowly win top pick in the caucus. Independents are more likely to vote for Obama, the self-anointed “change” candidate, so if enough of them come out today, he is likely to score a victory.
• Edwards will come in second, based on his campaign’s well-placed strategy of courting less-populated rural districts that have been ignored by the other candidates. A very similar rural-focus strategy worked for Democrat Rod Blagojevich during the 2002 gubernatorial primary in another corn state, Illinois, and it may well work for Edwards here
• Hillary Clinton will, defying conventional wisdom, come in third. Her strongest asset in Iowa is her organization and her resource$ - not her appeal (voters prefer change to experience almost by a 2:1 margin) - and given the strong organization of both Obama and Edwards, that won’t be enough to tip the outcome in her favor.

On the Republican side:

• Huckabee will ride his support among Evangelical Christians to victory, buoyed by his alternative, populist message (again, what voters perceive as a “change” message and candidate and, again, an unconventional outcome to this race).
• Romney will come in second, thanks to his heavy spending and solid organization, not so much the “Bush - but more competent” appeal.
• McCain, written off earlier last year by the mainstream media and recently dubbed the “comeback kid” by many of those same media outlets, will be able to keep his campaign alive by coming in a strong third. His record of siding with Bush notwithstanding, many voters still perceive him as a palpable alternative to the Bush-Reagan era and so he also carries an appeal for voters who desire change and a new direction. Plus, voters’ positive perceptions of his integrity and ability to straight-talk will serve him well against his principal rival, Romney, who’s shot himself in the foot (with another gun he doesn’t own?) by going on a last-minute negative offensive against him and providing Huckabee with free ammunition.

The Ron Paul revolution? Not in Iowa, but there’s 49 states left, and Feb. 5th is right around the corner.

Chances are the Des Moines weather forecast will out-forecast me on these predictions, but that’s half the fun of watching election night coverage anyway, so I encourage everyone to place their chips on the table, come home a bit early today, grab a beer, and enjoy the caucus night 08!