McCain, Obama and the Finances

Senator Barack Obama has opted out of the public financing system in his contest for the U.S Presidency, and John McCain has decided to stay in the system. It appears that Obama may have about $250 million to invest in the months of September and October, and McCain may have only about $85 million.

Should McCain be afraid? No and Yes.

No, because I do not think that Obama's financial edge will do much for him in advertising (traditional and non-traditional) for his candidacy and causes. The reason is simple -- time is short, and there will be galore free publicity. Here are some ways that Obama may use his financial resources to increase the scale and scope of advertising. Let us look at various elements of this advertising.

First, Obama can and will probably advertise in almost all the 50 states -- even as his campaign will concede that several states like Alaska have not voted for a Democratic candidate for a very long time. The goal of this exercise to merely scare up McCain's campaign and force him to spend some of his valuable resources -- money and time -- in some of those states lest he should lose. Will this be effective? I rate the effectiveness about 3 on a 1-10 scale (10 being most effective) because when push comes to shove McCain will not divert his resources (he cannot afford to) and thus would call the bluff (not out of choice but out of necessity.)

Second, Obama can use micro-segmenting and try and use different media for diffusing his image. Money provides that luxury. Obama can also try non-traditional approaches and media.

Will be this an effective strategy? Better than the 50-states strategy but not overwhelmingly so. I would rate this strategy to be about 5. The reason is simple. The Presidential race will get plenty of free media coverage from networks, cable channels, print media, blogs, u-tube productions and those Presidential debates. Additional reach -- over and above these -- is likely to have marginal impact. Further, the content/message of the candidate does matter.

The message will determine the basic positioning of the candidate, and no amount of volume of reach can necessarily change that positioning. Two examples of this are: one, though Barack Obama invested thrice as much as Hillary Clinton in Pennsylvania Democratic primary and twice as much in Ohio, the ultimate preference numbers did not change from the forecasts three weeks before the actual voting; two, with less than $1 million investment the 'Swift Boat' advertisement against John Kerry was devastatingly effective. In the first case, the message was the same but in the second case, the message was sharply different and new (whether that was true or not is besides the point -- further, since Senator Kerry did not effectively and immediately repudiate the attacks the message assumed a level of truthfulness as a default.)

Final aspect of this element is that Obama is likely to receive somewhat of a negative coverage from the mainstream media for his rejection of public financing -- this is not huge but one cannot ignore the word-of-mouth value of major networks and newspapers. In this case, the word-of-mouth effect would be negative.

Yes, because Obama might gain a very substantial advantage in voter registration, and mobilization with paid staff and localized promotion and patronage. It takes almost one-on-one to persuade a voter to register, and then actually vote on the election day. The upside of such voter mobilization is monumental. Particularly when the enthusiasm for McCain's candidacy is somewhat muted thus far. For example, in the recent USA Today-Gall Up survey 61% of Democrats said they were more enthusiastic than usual about voting in this year's election, while just 35% of Republicans said that.

Obama can employ this vast resource to mobilizing voters through registering new voters and individual contacts -- paid staff (and volunteers) knocking on the doors, telephonic calls, mobilization on the day of the election. Here, the resources can make a very big impact. I would rate the potential effectiveness of this approach about 7. There is substantially higher marginal benefit to be achieved here.

For illustration, let us examine Ohio (20 electoral votes.) In 2000, Al Gore lost the state only by about 350,000 votes even without any campaign investment. In 2004, John Kerry lost Ohio by less than 120,000 votes. If only Kerry had mobilized 10 extra votes in every precinct in Ohio, he would have won Ohio and the Presidency. Obama can pour his resources in the ground game in Ohio and quite possibly win it given the current sour political climate. Similarly, Kerry lost New Mexico and Iowa by less than 20,000 votes each -- and that can be easily overcome with strong election-day mobilization. In a state like Georgia where about 600,000 African-Americans have not registered to vote are rich Obama-votes. If they can be mobilized to register to vote and actually turn up to vote, Obama can put Georgia in play. In Florida, more than half a million black registered voters stayed home in 2004. Hundreds of thousands more African Americans are eligible to vote but not registered.

Off-shore drilling: The case by and for McCain

McCain has reversed his stance against off-shore drilling, and now advocates it. Obama continues to oppose this. The U.S. Congress currently has a statutory ban on off-shore drilling. What are the pros and cons?

With the high gas prices and improved technologies, voters are open to this idea -- all public polls show that 55-60 percent of Americans support off-shore drilling. It is estimated that there may be about 21 billion barrels of proven oil reserves that are left untouched because of a federal moratorium on offshore exploration and production.

So that should help McCain, right? Not much for two reasons. One, the voters will always be reminded that McCain might be opportunistic and runs counter to McCain's tough-it-out but do the right thing image. Two, the blue-collar, working class, lower income voters who are most affected by high gas prices are also surprisingly principled and tough (they would rather tough it), so McCain may gain no traction with this most plausible demographic group.

The principled-stubbornness of the working class demographic group came to most vivid demonstration when Clinton's advocacy of temporary suspension of gas tax (and Obama's opposition) did not fetch her any favors with this group in the Democratic primaries.

Finally, even if the federal ban on the off-shore drilling was removed it would be a long time before there can be any potential oil production because the individual states such as California and Florida have to make their own determination and then the business of drilling oil has to begin.

India-US Nuclear Agreement -- An Update

The India-US Nuclear agreement is the subject of hope and debate, yet again, in India. Apart from the substance of the pact, the politics (and timing) of the negotiations are mystifying.

First, the substance of the pact. The benefits -- immediate access to nuclear technology and nuclear fuel -- are very robust. India's need for energy is monumental and nuclear energy must form a part of the energy portfolio for India.

The United States -- President Bush -- has made an extra-ordinary offer to India. The President is championing exception (for India) to the 1978 congressional mandate that the non-signatories of Nuclear Non-Proliferation Act cannot under any circumstances receive any nuclear technology or fuel from the United States. The so-called Nuclear Suppliers Group follow the United States lead on this matter.

So this is truly historic. India owes a debt of gratitude to President Bush and the United States. However, the Hyde Amendment is troublesome.

The Hyde Amendment which requires the President to advise the Congress every year that India was not diverting nuclear technology and material for weaponry. While it is very true that President George Bush has high respect for India’s integrity and trust. However, what the political landscape would be in 10 or 20 years is anyone guess – it is not clear that a nation’s future can be so tenuously linked to certification by an individual. Look at what happened to Pakistan. The then President Bush in 1990 failed to certify Pakistan’s intentions regarding its nuclear ambitions, and the Pressler amendment called for economic and military sanctions which reverberated till recently.

But President Bush cannot do much about Hyde Amendment -- this is the requirement that the U.S. Congress is imposing for the extra-ordinary exception that it is ready to make for India. This requirement is entirely reasonable from the perspective of Congress, however troublesome that it may be to India or subject to the vagaries of time and the whims and fancies of a future President who may be annoyed with India on some other matter and may decide not to certify based on that irritation. There is no basis on which President Bush can push the Congress to do away with the Hyde Amendment -- President Bush is already facing strong opposition from the Congress, particularly from the Democrats.

Having said this, if India is ready to accept the risk with the Hyde Amendment the Indian Government must have moved with greater dispatch. It was India's responsibility to sign India-specific accords with the International Atomic Energy Agency (IAEA) before the U.S. Congress can approve the nuclear agreement.

But India has dithered on this matter for almost one year. That is because of the Communists parties who have about 60 parliamentary seats and who have been electoral partners with Congress party are strongly opposed the nuclear agreement -- their opposition is well thought-out, and it is mostly based on the Hyde Amendment.

The Congress party has spent one year trying to persuade the Communists parties -- and it has not been successful. Finally, the Congress party is threatening to go ahead with the negotiations with IAEA but why now? This is so late.

By the time, India concludes its negotiations with IAEA it will be atleast a couple of months. So the agreement cannot placed before the U.S. Congress before fall. But the agenda for fall for the Congress is set in place -- and the Congressional leaders have already said that it is too late for debate and approval of the nuclear agreement.

Unfortunately, President Bush can do only so much -- particularly with the U.S. Presidential and congressional elections looming ahead so close. Once the November elections take place (Democratic party is likely to gain substantial number of seats in the U.S. Senate and the House of Representatives, and quite likely even the White House), President Bush's influence will diminish dramatically.

So what is point of Congress party being so decisive so late? It appears that the Congress party did not want to risk alienating the Communist parties but now since the national elections are only 6-9 months away the Congress party appears ready to roll the dice. Politically, that is not in the self-interest of the Congress party. Unless the Congress party can hold the Communist parties in its fold for the next general elections, its probability of winning those elections will diminish dramatically.

So what is the point? It just does not compute. The nuclear agreement is most unlikely to be approved by the U.S. Congress given the serious time constraints and the dynamics of U.S. political environment. The Congress party is also likely to lower its odds of winning the next elections.

The probability of Obama winning the Presidential Elections

The probability of Obama winning the Presidential elections in November appears to be pretty robust. Here is why --

(1) Based on public polls, it is becoming evident that Obama is most likely to hold all the states (Michigan appears close but it is trending Obama's way) that Kerry won in 2004. That would give Obama 252 electoral votes. Add to this Iowa which is almost certain to go to Obama -- 7 electoral votes. That gives Obama 259 electoral votes.

On the other hand, McCain -- at this stage -- is not likely to win all the stages that Bush won in 2004 (284 electoral votes.) McCain is almost sure to lose Iowa (7 electoral votes.) Add to this mix, Ohio (20 electoral votes), Virginia (13 electoral votes), Colorado (9 electoral votes), and New Mexico and Nevada (each with 5 electoral votes) -- there is substantial doubt if McCain can hold these states. That puts McCain at about 225 electoral votes.

(2) The more compelling arithmetic is this. Repeatedly, in large numbers of public polls about 37-38 percent of the likely voters identify themselves as Democrats and about 30 percent as republicans. That leaves about 30 percent as independents.

Assuming both Obama and McCain get 80 percent of their party votes, the differential gain for Obama would be about 6.5 percent. In the cross-over vote of 20 percent, Obama would lose about 1.5 percent leaving a net lead of about 5 percent for Obama. Assuming that Obama and McCain split the independents, Obama's overall lead would be about 5 percent.

The only caveat is the potential Bradley-Wilder effect which accounts for about 5-7 percent.

(3) What adds to the odds of Obama's victory are the extra-ordinarily low approval ratings (in low 30s) of President Bush and the perception that the country is heading in the wrong direction (over 64-70 percent of Americans say this.)