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Ten months ago I bet a symbolic $10 on a Republican win. According to elections models and the bookies, it’s more likely than not that I’ve lost it.

Not that I’m saddened by this development of course. (That said, if the economy slumps sharply in Q3, then a Romney win becomes entirely possible).

(Republished from AKarlin.com by permission of author or representative)
 
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And ironically, despite my blog’s focus, to date my US predictions have been more accurate than my Russian ones. Obama to become President? Check. Republicans to win 2010 mid-terms? Check. The emergence of “a new party, a new politics”, with “the feds [facing] challenges from the far-left and the far-right”? Check (Tea Party, Occupy Wall Street). Dammit, even the prediction about falling fertility rates is panning out (to Mark Steyn’s presumed chagrin, it now equals “decadent” France’s) – though that wasn’t a particularly hard one to make, given the recession and looming economic collapse and all. Perhaps I should give up on this Russia-watching thing and just analyze the US? ;)

Anyhow, back to Obama’s impending loss. To be fair, the title is a bit of a misnomer. I’d actually put his odds at 35% (Republicans – 65%). There really isn’t much to explain, is there? The economy sucks and is almost guaranteed to get better than worse. Output remains below peak 2007 levels. The deficit remains stubbornly high and the budget crisis will rear its head again in January 2012. Lord knows what it will become if there is another recession on the scale of the last one. Unemployment remains stuck at over 9%. Obama’s net approval rating is -12%. By the metrics I used to predict McCain’s defeat in 2008, Obama looks like he’s in deep trouble.

For what it’s worth, the InTrade prediction market is coming to the same conclusion. The latest figures created by gamblers who put their money where their mouths are give Obama a 48% chance, but as you can see since the market became high-volume in around April this year he has been trending down. (PS. Note the spike in early May, that was the Osama bin Laden assassination).

obama-bets

Incidentally, it was right around this time that I gambled $10 at Bodog on an Obama loss, immediately after the OBL assassination to take advantage of the cacophony of voices proclaiming Obama’s victory was now sealed. Yes, it would have played a huge rule had it happened a few days before the elections. But in May 2011? A year is an eternity in politics. New issues will cover over any lingering legacy of the OBL assassination. And that is why, with the bookies offering very favorable odds of 17/10 – and at the time, assessing Obama’s chances at only 45% – I made the bet below on Bodog.

obama-will-lose

In retrospect, with Obama’s re-election metrics continuing to decline, this was a very good bet if I say so myself. If things pan out, I will almost make back the $20 I lost betting on Medvedev as Russia’s next President.

Now a few words on the consequences (and refraining from bringing my own ideologies into this). Obama is not going to solve America’s economic problems. Nor is a Republican President. In any possible political configuration arising post-elections, raising taxes is nigh impossible – and that is the only way to alleviate the budget deficit which has been running at banana republic levels of 10% of GDP since 2009. Not cutting spending will lead to default, either outright or as is more likely by inflation (cue Argentina 2002). Both will be deleterious. Cutting spending at a time when the private sector is too over-leveraged to take up the slack will knock the legs out from the economy and likely result in a big collapse in output (cue Latvia 2008).

The fundamental problem is high oil prices, and the fact that any marginal increases in supply of this commodity that underpins all modern economies is being bid away by emerging markets that can make more productive use of them – primarily, China, with its factories and surfeit of cheap, relatively high-skilled labor (what’s the better return for a barrel of oil – the gas tank of an American SUV, or a Guangzhou factory making useful widgets?) – or the oil exporters themselves. To make the best of the current situation, the US needs long-term investments in raising its human capital (which, elite universities aside, is fairly low by developed country standards, as measured by international standardized tests) and raising energy efficiency. But these are only good in the long-term, and even here special interests are doing their best to prevent anything from being accomplished.

That is why the entire debate in the US over austerity vs. stimulus (both are suicide), or “American exceptionalism”, or the Presidential elections (given Obama’s stance on the War on Terror, Wikileaks, interventions, poker, weed, etc., to what extent to they really matter?), are all so tiring and mundane. In the face of uncompromising fiscal and energetic realities, which the US can mitigate to a degree but chooses not to, they are nothing but meaningless distractions.

(Republished from Sublime Oblivion by permission of author or representative)
 
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But will Obama really bring change?

As I predicted he would, Obama has won overwhelmingly. As I argued, this was the best possible outcome for America – Obama understands the importance of investing heavily in renewable energy and new infrastructure, and would withdraw from the financially ruinous Iraq adventure. Just by his election, he has bolstered America’s battered image around the world.

The margin of his victory also gives him latitude to decisively sway the course of American policy, domestically and internationally – although in practice this latitude is greatly constrained by financial and institutional realities.

But do not expect change on all fronts. His two main Russia advisors are Russophobes – McFaul, champion of the Russian “authoritarianism” dogma, and Brzezinski, high priest of the Promethean Project to weaken, encircle and break up Russia. A tough Russia policy will deflect conservative attention from his domestic ambitions.

So it’s important to look at things realistically – do not expect too much change from Obama on Russia. Though it’s OK to hope otherwise. :)

(Republished from Sublime Oblivion by permission of author or representative)
 
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Read these two posts by Krugman at Conscience of a Liberal, here and here.

1. A looming recession, after seven years of stagnation in the US median wage, means that the likelihood of positive income growth this year is very small. Even assuming it’s 0% would mean that the incumbent party’s nominee, McCain, can be expected to lose by an 8% margin in the straight line fit below. To break even income needs to grow by around 2%, which looks more unlikely with every new financial breaking story.

More likely, it will be around 0% or worse and McCain would be facing a landslide defeat, as in 1980.

2. Q1 growth was at 0.9% (practically all of it down to improvement in the balance of trade), although a slight amelioration is expected this summer due to the tax rebate coming into effect. But after that, with the housing bubble still far from popped, hundreds of banks facing the spectre of insolvency and the full ramifications of 130$+ oil coming online, it is hard to see the US avoiding a recession. So let’s say first half growth will be at 1%.

This would imply McCain getting 45-51% of the vote. And this is the part on which he performs best

3. According to opinion polls, Bush’ approval hovers around 30% and disapproval around 65%, giving a net approval of -35%. As the graph below shows, this is a record.

Going from this graph, McCain would do well to scrape 45%.

4. To add to McCain’s woes:

Also, a number of models find that there’s an 8-year itch: voters tend to turn against the incumbent party if it has held the White House for two or more terms.

In conclusion,

Right now, GDP is flat (falling in the monthly estimates); Bush has a negative net approval of 30 percent or more; and people are tired of Republicans. So it ought to be a smashing Democratic victory. When I plug current numbers into the Abramowitz model (making a guess about 1st-half GDP and assuming that Bush approval in June will be about where it is today), it says 57-43 Democrats.

Despite Obama’s numerous gaffes (Wright, gun-toting Bible-bashers, etc), even in (usually unreliable) pre-election opinion polls he is getting a lead over McCain. Of course there’ll also be a few third part candidates who’ll hack off 3-4%, and McCain has taken care to distance himself from Bush. Perhaps the Democratic win will be 44-52. Nonetheless, still crushing. Political science might be full of uncertainties, but those uncertainties must reveal miracles for McCain to have a chance.

This is why Obama will almost certainly win. I have put my money where my mouth is and bet 100$ on Obama (too bad the bookies are certain Obama will win too, lol). And I congratulate Americans for their good sense.

(Republished from Da Russophile by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.