Three more great articles from The Economist on this past Tuesday’s election excerpted below. The first article deals with the expectations that President-elect Barack Obama will face once he takes the Oath of Office on January 20th.

Great expectations of Barack Obama | The Economist
Nov 6th 2008, From The Economist print edition

Barack Obama has won a famous victory. Now he must use it wisely

NO ONE should doubt the magnitude of what Barack Obama achieved this week. When the president-elect was born, in 1961, many states, and not just in the South, had laws on their books that enforced segregation, banned mixed-race unions like that of his parents and restricted voting rights. This week America can claim more credibly than any other western country to have at last become politically colour-blind. Other milestones along the road to civil rights have been passed amid bitterness and bloodshed. This one was marked by joy, white as well as black.

The second article examines how Mr. Obama won the election, where he won his support and how he held off Senator McCain.

How Barack Obama won the presidency | Signed, sealed, delivered | The Economist
Nov 6th 2008 | WASHINGTON, DC, From The Economist print edition

Barack Obama owes his victory to blacks, Hispanics, the young, women of all races, the poor and the very rich

IT WAS a suitably exhilarating end to the most thrilling presidential race in a generation. This was the longest election in American history, and the most expensive by far. It was also, on the Democratic side, the hardest-fought, with Hillary Clinton amassing almost as many primary votes as Barack Obama. But on November 4th the result was clear: Mr Obama beat John McCain by six points in the popular vote (52% to 46%) and 190 votes in the electoral college (364 votes to 174).

A sense of history in the making hung over the election: a country that has been torn apart by race peacefully elected a black man to the highest office in the land. Mr Obama’s volunteers wore T-shirts inscribed with the slogan “Making history”. People across the country cheered and wept when the result was announced. Both Mr Obama and Mr McCain gave speeches worthy of a turning point.

The final article discusses the many challenges, especially in foreign policy matters, facing the future President.

The challenges facing Barack Obama | Obama’s world | The Economist

How will a 21st-century president fare in a 19th-century world?

BLISS it is in this dawn to be alive. That will be the reaction of many people around the world to America’s election of a thrilling new president—young, black, with political and intellectual gifts well above the ordinary. But the world that will face Barack Obama when he moves into the White House in January is not very heaven. It is, in fact, a mess.

Just because the election is over does not mean that everything is going to be all wine and roses over the next four years. Stay educated, read the three articles linked above, and keep reading over the next four years.

The challenges facing this nation are not going away anytime soon, if ever. As each challenge is surpassed, another will surely present itself, and we the people need to make sure that we continue to make the correct choices as face each new obstacle.

That is what made the United States a great nation, once upon a time, and that’s what will bring us back to the fore.

Sometimes, I really wish I didn’t have to turn to the foreign media to get the best news from an unbiased and objective perspective. The Economist has long been one of those foreign sources of news to which I have turned to get a broader perspective of world events.

The Economist generally has a center-right leaning … it is a British magazine concerned with world events and the economy, after all … and yet, like so many other media outlets, it is giving its endorsement to Barack Obama.

If there is anyone out there reading this blog that is still undecided about whom to vote for, please read this article … for once, I’ve quoted the entire article, rather than just an excerpt. Hopefully The Economist won’t come after me for copyright violation.

Read the article, and then go vote. Cast your ballot for whomever you think will better lead the United States over the next four years. I feel that man will be Barack Obama, which is how I cast my ballot in early voting. Even if you vote for the other guy, please make sure you get out today, brave the lines and the weather and exercise your right, your privilege … and as far as I’m concerned, your duty to vote.

Just vote.

An endorsement of Barack Obama | It’s time | The Economist
Oct 30th 2008 - From The Economist print edition
America should take a chance and make Barack Obama the next leader of the free world

IT IS impossible to forecast how important any presidency will be. Back in 2000 America stood tall as the undisputed superpower, at peace with a generally admiring world. The main argument was over what to do with the federal government’s huge budget surplus. Nobody foresaw the seismic events of the next eight years. When Americans go to the polls next week the mood will be very different. The United States is unhappy, divided and foundering both at home and abroad. Its self-belief and values are under attack.

For all the shortcomings of the campaign, both John McCain and Barack Obama offer hope of national redemption. Now America has to choose between them. The Economist does not have a vote, but if it did, it would cast it for Mr Obama. We do so wholeheartedly: the Democratic candidate has clearly shown that he offers the better chance of restoring America’s self-confidence. But we acknowledge it is a gamble. Given Mr Obama’s inexperience, the lack of clarity about some of his beliefs and the prospect of a stridently Democratic Congress, voting for him is a risk. Yet it is one America should take, given the steep road ahead.

Thinking about 2009 and 2017

The immediate focus, which has dominated the campaign, looks daunting enough: repairing America’s economy and its international reputation. The financial crisis is far from finished. The United States is at the start of a painful recession. Some form of further fiscal stimulus is needed (see article), though estimates of the budget deficit next year already spiral above $1 trillion. Some 50m Americans have negligible health-care cover. Abroad, even though troops are dying in two countries, the cack-handed way in which George Bush has prosecuted his war on terror has left America less feared by its enemies and less admired by its friends than it once was.

Yet there are also longer-term challenges, worth stressing if only because they have been so ignored on the campaign. Jump forward to 2017, when the next president will hope to relinquish office. A combination of demography and the rising costs of America’s huge entitlement programmes—Social Security, Medicare and Medicaid—will be starting to bankrupt the country (see article). Abroad a greater task is already evident: welding the new emerging powers to the West. That is not just a matter of handling the rise of India and China, drawing them into global efforts, such as curbs on climate change; it means reselling economic and political freedom to a world that too quickly associates American capitalism with Lehman Brothers and American justice with Guantánamo Bay. This will take patience, fortitude, salesmanship and strategy.

At the beginning of this election year, there were strong arguments against putting another Republican in the White House. A spell in opposition seemed apt punishment for the incompetence, cronyism and extremism of the Bush presidency. Conservative America also needs to recover its vim. Somehow Ronald Reagan’s party of western individualism and limited government has ended up not just increasing the size of the state but turning it into a tool of southern-fried moralism.

The selection of Mr McCain as the Republicans’ candidate was a powerful reason to reconsider. Mr McCain has his faults: he is an instinctive politician, quick to judge and with a sharp temper. And his age has long been a concern (how many global companies in distress would bring in a new 72-year-old boss?). Yet he has bravely taken unpopular positions—for free trade, immigration reform, the surge in Iraq, tackling climate change and campaign-finance reform. A western Republican in the Reagan mould, he has a long record of working with both Democrats and America’s allies.

If only the real John McCain had been running

That, however, was Senator McCain; the Candidate McCain of the past six months has too often seemed the victim of political sorcery, his good features magically inverted, his bad ones exaggerated. The fiscal conservative who once tackled Mr Bush over his unaffordable tax cuts now proposes not just to keep the cuts, but to deepen them. The man who denounced the religious right as “agents of intolerance” now embraces theocratic culture warriors. The campaigner against ethanol subsidies (who had a better record on global warming than most Democrats) came out in favour of a petrol-tax holiday. It has not all disappeared: his support for free trade has never wavered. Yet rather than heading towards the centre after he won the nomination, Mr McCain moved to the right.

Meanwhile his temperament, always perhaps his weak spot, has been found wanting. Sometimes the seat-of-the-pants method still works: his gut reaction over Georgia—to warn Russia off immediately—was the right one. Yet on the great issue of the campaign, the financial crisis, he has seemed all at sea, emitting panic and indecision. Mr McCain has never been particularly interested in economics, but, unlike Mr Obama, he has made little effort to catch up or to bring in good advisers (Doug Holtz-Eakin being the impressive exception).

The choice of Sarah Palin epitomised the sloppiness. It is not just that she is an unconvincing stand-in, nor even that she seems to have been chosen partly for her views on divisive social issues, notably abortion. Mr McCain made his most important appointment having met her just twice.

Ironically, given that he first won over so many independents by speaking his mind, the case for Mr McCain comes down to a piece of artifice: vote for him on the assumption that he does not believe a word of what he has been saying. Once he reaches the White House, runs this argument, he will put Mrs Palin back in her box, throw away his unrealistic tax plan and begin negotiations with the Democratic Congress. That is plausible; but it is a long way from the convincing case that Mr McCain could have made. Had he become president in 2000 instead of Mr Bush, the world might have had fewer problems. But this time it is beset by problems, and Mr McCain has not proved that he knows how to deal with them.

Is Mr Obama any better? Most of the hoopla about him has been about what he is, rather than what he would do. His identity is not as irrelevant as it sounds. Merely by becoming president, he would dispel many of the myths built up about America: it would be far harder for the spreaders of hate in the Islamic world to denounce the Great Satan if it were led by a black man whose middle name is Hussein; and far harder for autocrats around the world to claim that American democracy is a sham. America’s allies would rally to him: the global electoral college on our website shows a landslide in his favour. At home he would salve, if not close, the ugly racial wound left by America’s history and lessen the tendency of American blacks to blame all their problems on racism.

So Mr Obama’s star quality will be useful to him as president. But that alone is not enough to earn him the job. Charisma will not fix Medicare nor deal with Iran. Can he govern well? Two doubts present themselves: his lack of executive experience; and the suspicion that he is too far to the left.

There is no getting around the fact that Mr Obama’s résumé is thin for the world’s biggest job. But the exceptionally assured way in which he has run his campaign is a considerable comfort. It is not just that he has more than held his own against Mr McCain in the debates. A man who started with no money and few supporters has out-thought, out-organised and out-fought the two mightiest machines in American politics—the Clintons and the conservative right.

Political fire, far from rattling Mr Obama, seems to bring out the best in him: the furore about his (admittedly ghastly) preacher prompted one of the most thoughtful speeches of the campaign. On the financial crisis his performance has been as assured as Mr McCain’s has been febrile. He seems a quick learner and has built up an impressive team of advisers, drawing in seasoned hands like Paul Volcker, Robert Rubin and Larry Summers. Of course, Mr Obama will make mistakes; but this is a man who listens, learns and manages well.

It is hard too nowadays to depict him as soft when it comes to dealing with America’s enemies. Part of Mr Obama’s original appeal to the Democratic left was his keenness to get American troops out of Iraq; but since the primaries he has moved to the centre, pragmatically saying the troops will leave only when the conditions are right. His determination to focus American power on Afghanistan, Pakistan and proliferation was prescient. He is keener to talk to Iran than Mr McCain is— but that makes sense, providing certain conditions are met.

Our main doubts about Mr Obama have to do with the damage a muddle-headed Democratic Congress might try to do to the economy. Despite the protectionist rhetoric that still sometimes seeps into his speeches, Mr Obama would not sponsor a China-bashing bill. But what happens if one appears out of Congress? Worryingly, he has a poor record of defying his party’s baronies, especially the unions. His advisers insist that Mr Obama is too clever to usher in a new age of over-regulation, that he will stop such nonsense getting out of Congress, that he is a political chameleon who would move to the centre in Washington. But the risk remains that on economic matters the centre that Mr Obama moves to would be that of his party, not that of the country as a whole.

He has earned it

So Mr Obama in that respect is a gamble. But the same goes for Mr McCain on at least as many counts, not least the possibility of President Palin. And this cannot be another election where the choice is based merely on fear. In terms of painting a brighter future for America and the world, Mr Obama has produced the more compelling and detailed portrait. He has campaigned with more style, intelligence and discipline than his opponent. Whether he can fulfil his immense potential remains to be seen. But Mr Obama deserves the presidency.

Copyright © 2008 The Economist Newspaper and The Economist Group. All rights reserved.

From the Economist:

Richard Baldwin, Professor of International Economics at the University of Geneva, in Switzerland, has the following to say at Economist.com:

Crisis roundtable: Which world are we in? | Free exchange | Economist.com

It seems that banks and bank-like financial firms have two fundamental problems:

1) An investment problem.

They have investments that cannot be traded at anything like face value, for one of two possible reasons:

• the toxic assets turn out to be bad investments that must be written off (ie, what we are seeing is fundamentally an insolvency problem), or
• the toxic assets will pay off eventually (ie, this is fundamentally a liquidity problem)

These are two fundamental states of the world that really matter for the design of the policy response—and no one really knows which one we’re in.

2) A leverage problem.

They don’t have enough capital to ride out short- and medium-term fluctuations in their assets and liabilities.

Art is an extremely intelligent man, and I’d like think I’m pretty smart too … we agree on a lot of things; but with the bailout we seem to have a fundamental disagreement.

Art thinks it’s an insolvency problem. I think it’s primarily a liquidity problem. Time will tell which one of us is right.

Professor Baldwin goes on to say:

Under either plan, the bailout-or-not issue boils down to the unknowable state of the world. If this is the mother-of-all-liquidity problems, then the taxpayers would profit from the assets that they bought (directly under the Paulson plan, or indirectly under the Calomiris plan). If this turns out to have been the mother of all bad investments, then the taxpayers lose—again under both plans.

The real difference between fixing the leverage problem indirectly (Paulson) or directly (Calomiris) is the future shape of the financial sector. If financial firms are largely publicly owned for a few years, you can be sure that the wild-ride pay packets are a thing of the past. Moreover, the American Congress may be tempted to use its shareholder position to investigate the perpetrators of this toxic-waste spill and maybe try to get them to fund an Exxon-Valdez-sized clean up fund.

You can read the details of the Calomiris Plan by clinking the link.

Terrific article on Economist.com this week analysing how Hillary Clinton’s campaign fell apart …

The Economist is a British newsmag, with a moderate lean to the right … but their articles are incredibly insightful and researched, and presented more objectively than any American media outlet.

The post-mortem | The fall of the House of Clinton | Economist.com

THIS time last year it looked as if Hillary Clinton’s path to the Democratic nomination would be a cakewalk. She had the best brand-name in American politics. She controlled the Democratic establishment. She had money to burn and a double-digit lead in the opinion polls. And as the first American woman to have a chance of breaking the presidential glass ceiling, she had a great story to tell.

And Barack Obama? He was a first-term senator with few legislative achievements and a worrying penchant for honesty (in his autobiography he admitted to using marijuana and even cocaine, “when you could afford it”). He knew how to give a good speech. But how could that compare with Mrs Clinton’s assets—a well-oiled political machine and a winning political formula that combined a carefully-calibrated appeal to the centre with hard-edged political tactics?

Today, Mrs Clinton has not only lost the Democratic nomination. She has humiliated herself in the process. She has been forced to lend her campaign more than $11m of her own money. She has cosied up to some of her former persecutors in the “vast right wing conspiracy”, notably Richard Mellon Scaife, a newspaper magnate. She has engaged in phoney populism, calling for a temporary break on petrol taxes, praising “hardworking Americans, white Americans”, vowing to “totally obliterate” Iran and waving the bloody shirt of September 11th. The conservative Weekly Standard praised her as “a feminist form of George Bush”. So how did one of America’s most accomplished politicians turn a cakewalk into a quagmire?

Read the rest of the article.

Keep it up, and McCain will win the election …

The financial system | What went wrong | Economist.com

“A COMPANY for carrying out an undertaking of great advantage, but nobody to know what it is.” This lure for the South Sea Company, published in 1720, has a whiff of the 21st century about it. Modern finance has promised miracles, seduced the brilliant and the greedy—and wrought destruction. Alan Greenspan, formerly chairman of the Federal Reserve, said in 2005 that “increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago.” Tell that to Bear Stearns, Wall Street’s fifth-largest investment bank, the most spectacular corporate casualty so far of the credit crisis.

It seems like whenever there’s a a major disaster in one of the markets, the comparison to the South Sea Bubble inevitably gets trotted out … but rather than bore you all with a history lesson, I’m going to recommend a wonderful novel by David Liss, entitled A Conspiracy of Paper, a historical mystery set during the the world’s first stock market crash, which will give some insight into what happened nearly 300 years ago, wrapped up in a story of pugilism and prostitution.

And then, once you’ve finished A Conspiracy of Paper, you can read The Coffee Trader (the introduction of coffee to the commodities exchanges in Amsterdam in the mid 17th Century) and A Spectacle of Corruption (about the machinations involved in an early 18th Century British national election) … all are timely novels to read in the current political and economic climate … a little history to put current events into perspective.