Money and politics

In cash we trust

Money still matters in America's election, but its role is changing

BARACK OBAMA is the most prodigious fund-raiser in the history of American politics. In March, the latest month for which figures are available (new ones are expected soon for April), he raised $41m. Compare the freshman senator’s haul with that of the former first lady, Hillary Clinton, who is on first-name terms with more than a few billionaires. She raised $20m, an outstanding figure in any other context.

A further contrast is provided with John McCain. The Republicans traditionally enjoy a fund-raising advantage, but not this year (especially not if the Democrats’ pots of money are eventually combined). The Arizonan senator raised just $15m in March and has just seen a senior fund-raiser quit over links to lobbyists. Mr McCain will probably join the public financing system for the general election, which provides public money but puts limits on his spending. Mr Obama will thus have far more to throw around, although Mr McCain may embarrass his rival for backing away from saying last year that he would “aggressively pursue” an agreement between candidates for both to take public financing.

But raw money may not be quite as important as it was long thought to be. Cash may—or may not—flow to strong candidates, but it does not simply make candidates strong. Consider the evidence from the Republican primaries, where the two best-funded campaigns were those of Mitt Romney and Rudy Giuliani. The former sank slowly but inexorably; the latter foundered after a delayed launch. In contrast, the dirt-poor campaign of Mike Huckabee ran strong for surprisingly long; he won the Iowa caucus and shook up the race. And Mr McCain, the eventual nominee, ran on fumes for much of 2007.

Even rich campaigns covet “earned media”, or positive coverage in the news, rather than the kind that is bought. Any number of expensive 30-second commercials would fail to counteract a few bad news cycles in a row. Mr McCain’s strategy of granting the press close and frequent access, honed in his 2000 presidential run, may have kept his campaign alive in the darkest days of last year. Nor is it clear that money has been an overwhelming boost to Mr Obama so far. He has flourished because of his personality, his organisational savvy and disciplined message. The races in which he tried to overcome a deficit with Mrs Clinton through big spending (Ohio, Pennsylvania) he failed to turn around.

But Mr Obama’s fund-raising has given him one clear advantage: an army of small, activist donors. Such people are more likely than average to vote, and to volunteer to get others out. Battalions of such volunteers will produce a formidable operation in November, one that was honed in the long primary season. His activists and his money may also help to lure new voters—notably the young and the black—to the polls.

Money matters in particular for television advertising, which is expensive and which will play a role in close states; less informed voters make up their minds late, influenced by television ads. Here, however, Mr McCain may be able to blunt some of Mr Obama’s advantage. The Republican National Committee can spend on supporting his run. But so can outside groups, so-called “527s” (named after the section of the McCain-Feingold law that created them). Such groups can place political ads as long as they do not co-ordinate with campaigns.

They can be both nasty and effective. Famously Lyndon Johnson used one in 1964 to suggest that Barry Goldwater would be too quick with the nuclear trigger. In 2004 a devastating ad was taken out by “Swift Boat Veterans for Truth”, an outside group that disputed John Kerry’s heroism in Vietnam. Mr Obama has asked donors not to give to 527s this year, but rather to give directly to his campaign.

Finally, there is the wild card of the internet. With the maturation of YouTube and other non-traditional channels, neither campaign can control what is broadcast or watched. Several home-made ads had wide reach in the primary season. So while the Obama campaign’s wealth may be a sign of vigour, it guarantees little.

Leading Economic Indicators Index in U.S. Rose 0.1% (Update1)

May 19 (Bloomberg) -- The index of leading U.S. economic indicators rose in April for a second month, a sign the economy may not keep weakening in the second half of the year.

The Conference Board's gauge increased 0.1 percent for a second month, better than forecast, the New York-based research group said today. The measure points to the direction of the economy over the next three to six months.

Seven consecutive reductions by the Federal Reserve in the benchmark interest rate and its efforts to pump more money into the banking system, combined with $117 billion in tax rebates, may promote borrowing and spending. The boost may help the economy start to recover in the second half of the year.

``This particular slump seems to be milder than any recession since the Great Depression,'' said John Lonski, chief economist at Moody's Investors Service in an interview with Bloomberg Television in New York. ``Growth is decidedly subpar.''

The index was forecast to be unchanged, according to the median estimate of 53 economists surveyed by Bloomberg News. Projections ranged from a drop of 0.6 percent to a 0.2 percent gain.

The increase in March was the first gain since September.

Treasury securities were little changed after the report, while stocks added to gains. The Standard & Poor's 500 index was up 0.4 percent to 1,431 at 10:11 a.m. in New York.

Smaller Declines

A decline in the index of around 4 percent to 4.5 percent at an annual pace over six months is one signal a recession is imminent, according to the Conference Board. The gauge met that requirement in January, when it dropped at a 4.7 percent pace.

The gauge through April was down at an annual pace of 2.3 percent over the prior six months.

``The small increases in the leading index in both March and again in April could be a signal that the economy may not weaken further,'' Ken Goldstein, a Conference Board economist, said in a statement.

Six of the 10 indicators in today's report contributed to the gain in the index, led by rising stock prices and a widening spread between the Fed's benchmark rate and the yield on the 10- year Treasury note, also known as the yield curve.

A slump in consumer expectations about the economy and a decline in manufacturing hours were among the components that restrained the index.

The S&P 500 index rose 1.2 percent over the month after reaching a 10-year low in early March.

Sentiment Drops

The Reuters/University of Michigan sentiment index decreased in April to a 26-year low, while its expectations gauge fell to the lowest level since 1990. The measure of prospects dropped even more this month, sending sentiment to a 28-year low, the group reported last week.

``The generally poor economic outlook, including well-known housing pressures, rising food and fuel prices and a more negative employment picture eroded consumer confidence and impacted discretionary purchases for the home,'' Robert A. Niblock, chief executive officer at Lowe's Cos., the world's second-largest home-improvement retailer, said today in a statement.

Mooresville, North-Carolina-based Lowe's said first-quarter profit fell and forecast more declines for the year as the worsening housing slump slowed spending on remodeling.

Factories Hurting

The real-estate recession is also hurting manufacturing as owners can no longer count on tapping increases in home equity to buy automobiles or furniture. Sales of cars and light trucks in April slid to a 14.4 million annual rate, the fewest since 1998, according to industry figures.

Factories trimmed employee workweeks by 18 minutes last month, the most since June 2004, according to figures from the Labor Department. Manufacturing output fell 0.8 percent in April, the biggest decline since September 2005, the Fed said last week.

While economists forecast growth will pick up later this year, the rebound may not be vigorous.

The economy will grow at a 1.2 percent rate for all of 2008, compared with a 2.2 percent pace in 2007, according to the median estimate of economists surveyed earlier this month.

After growing at a 0.5 percent annual pace this quarter, the weakest in 17 years, consumer spending will climb at a 2.3 percent pace in the third quarter as the bulk of the rebates are spent, according to the survey median. Spending, the biggest part of the economy, may then slow once again in the last three months of the year.

Risks for Consumers

Falling home prices, mounting job losses and soaring prices for food and fuel will continue to threaten American consumers for much of the year.

Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said in a Bloomberg Television interview May 6 that the economy was ``sliding into a recession.''

``If you compare where the economy is now, with where it began at the beginning of the year, just about every indicator is down,'' he said.

The Cambridge, Massachusetts-based National Bureau of Economic Research that Feldstein heads defines recessions as a ``significant'' decrease in activity over a sustained period of time. The declines would be visible in gross domestic product, payrolls, production, sales and incomes. In November 2001, the NBER affirmed that a recession had begun eight months earlier.

Obama Shifts to Countering Republican Attacks on His Patriotism

May 19 (Bloomberg) -- The flag pin that appeared on Barack Obama's lapel is just the opening salvo of Operation Patriotism for the Democratic presidential candidate.

The Illinois senator overcame his longstanding reluctance to wear a flag pin after he was presented with one by a veteran in Charleston, West Virginia, on May 12. Obama is trying to head off what advisers expect to be a Republican effort to impugn his patriotism. His campaign plans to emphasize his family's military ties, his work on behalf of veterans and his life story, said Richard Danzig, an adviser who was Navy secretary under former President Bill Clinton.

Obama, 46, may be vulnerable on the patriotism question because he doesn't have a personal narrative that people can easily understand, and not wearing a flag pin and other issues have ``put him on the non-patriot side,'' said Peter Hart, a Democratic poll-taker unaligned with a candidate.

``He has to plant his roots,'' Hart said. ``His mother has to become an important part of his story and he has to show people he lives an all-American life, with his children and other things, so voters can say, `we understand that; he's one of us.'''

With a lead in delegates to the nominating convention over his Democratic rival, New York Senator Hillary Clinton, Obama is pivoting to a general-election campaign against the presumptive Republican nominee, Arizona Senator John McCain. Obama's advisers are trying to avoid the fate of the 2004 Democratic candidate, Senator John Kerry of Massachusetts, whose campaign was undermined by attacks on his Vietnam War record by the Swift Boat Veterans for Truth.

Obama's Values

``It is making sure people know who Barack Obama is and his values,'' said Robert Gibbs, Obama's communications director. ``We would not let any campaign or any group of people characterize or attack Senator Obama as somebody who didn't love his country.''

Obama plans to use speeches and campaign events to reinforce his patriotic image to America by evoking his grandparent's military background. He also plans to speak sometime this summer near Punchbowl National Cemetery in Honolulu, where his grandfather is buried.

``My grandfather -- Stanley Dunham -- enlisted after Pearl Harbor and went on to march in Patton's Army,'' Obama said in Charleston. ``My grandmother, meanwhile, worked on a bomber assembly line while he was gone, and my mother was born at Fort Leavenworth.''

Uniquely American

Obama's advisers said he would describe his life story as a uniquely American one. The campaign also will roll out more supporters among retired military figures and younger veterans, and plans to highlight Obama's legislative record.

That strategy was on display at a May 13 campaign event in Cape Girardeau, Missouri, where Democratic Senator Claire McCaskill introduced him by describing his work on the Senate Veterans' Affairs Committee.

``There has been a lot of misinformation out there about who this man is and how much he loves his country,'' McCaskill, 53, said in an interview. ``It is one of the things he needs to communicate about.''

The flag and other patriotic props will be displayed more often, Danzig said.

``It's very important to convey a sense that these symbols don't belong to one party or another, they belong to all the American people,'' said Danzig, 63, a fellow at the Washington- based Center for Strategic and International Studies.

McCain's Service

As he runs against McCain, who spent five-and-a-half years as a prisoner of war in North Vietnam, Obama plans to argue that patriotism signifies more than a flag pin or military service.

``When our troops go into battle, they serve no faction or party, they represent no race or region, they are simply Americans,'' Obama said in Charleston. ``Allegiance to these ideals has always been at the core of American patriotism.''

Obama told a May 12 rally in Louisville, Kentucky, that Republicans ``are going to try to run a campaign that's about me, they want you to think, maybe, Obama, you know, sometimes he doesn't wear a flag pin, sometimes his former pastor says some offensive stuff.''

Republicans said the attacks won't come from McCain, 71, who will take the high road, likely emphasizing his own service. Instead, independent groups and individual activists will be the ones pointing out Obama's liabilities.

Independent Groups

``You'll see a lot more things coming from people who aren't running the traditional 30-second ad,'' said John Feehery, a Republican strategist.

In addition to video sound-bites of his former pastor, the ammunition may include a photograph of Obama not holding his hand to his chest during the national anthem; false charges that he is a Muslim; his acquaintance with former Weather Underground member Bill Ayers; and video of Obama's wife, Michelle, saying she has never been proud of her country before this year.

To counter these attacks, Obama is calling attention to the congressional debate over an expanded G.I. Bill that helps veterans pay for college. Obama supports the bipartisan measure, while McCain doesn't.

McCain ``thinks it's too generous,'' Obama said in Charleston. ``The true test of our patriotism is whether we will serve our returning heroes as well as they've served us.''