Obama’s campaign was blessed by the financial collapse only a few months before the election. When it struck, few of the voters could absorb or analyze the cause, and with a compliant press it was natural to blame the party in power, although few seemed to realize that for two years that party had been the Democrats.

This is not to take credit away from the Obama campaign’s ability to use modern technology far better than the opposition, their ability to exploit every opening handed to them, their ability to read the voters and to craft and communicate a message that stuck, and their ability to defuse a history of radical ties. And one should not slight the aura of competence Obama projected to a population who clearly felt it was lacking in the previous administration.

But given the recoil from an incredibly unpopular war, an uninspiring campaign from McCain, and most of all the disastrous credit collapse on the eve of the election, I am still struck by how close the election was. The spread was 7.2% of the popular vote;- 52.9 to 45.7%; more substantial than recent elections, but still modest considering the conditions. A change of only 3.5% of the voters would have changed the outcome.

It is not uncommon for a new president to see his poll numbers drop after inauguration and Obama is no exception. But given the radical reordering of our economy and society, I would expect a tremendous pushback and a hardening of the opposition. I think many independents and moderates who supported Obama, frustrated with the Bush Administration for any number of reasons, are having great remorse.

The Democrats seem galvanized at the moment because the Republicans seemed so fragmented and neutered. They seem to recycle old faces. Personally I think their savior has yet to arise. They need a leader with populist appeal AND enough intellectual heft to get beyond dogma, and understand the complexities of global policies and American politics. A successful leader must dominate the unaffiliated center.
We used to observe that candidates ran to the left or the right and governed to the center. This described Bill Clinton. But Obama got the independents to believe he was a centrist, yet has governed far to the left. Some blue dog democrats are already feeling the heat from their voters. The Democrats are pushing their toughest programs recklessly through now, hoping the economy will be in recovery and the changes will be forgotten during the 2010 Congressional elections.

Just as the Republicans got drunk with power when they took Congress under Clinton, the Democrats are abusing their majority power now and underestimating how fragile their majority is. Obama is a formidable leader and has the magic that people will support him even when they disagree with many of his policies. I do not believe that the Democrats in Congress have that advantage.

The question that belies the new administration’s infinite number of programs is whether each additional initiative adds followers or deletes them.

Will the gain of union support for the attempt at the card check legislation be more than offset by the loss of business owners, managers, and entrepreneurs? Will the quasi nationalization of the major auto companies gain or lose support? Will his stand on the Middle East gain or lose followers? Will his huge deficits attract or detract supporters?

Obama won with 52.9 % of the vote, and that was running against a very unpopular party tied to a very unpopular war with a disastrous economic collapse just months before the election. Many supported the new president, hoping he would govern more to the center than he ran.

There are liberals who are disappointed that he has not been as aggressive in winding down the war as they hoped, that he has not fully endorsed gay marriage as much as they wished. And there are independents whose support dwindles with each new program.

The danger of so many and such ambitious programs is that each one will erode a little support and the total will turn his support upside down.

Yet even this erosion may be moot if the Republicans cannot articulate a clear alternative and present a leader that can effectively deliver the message. Recycling Newt and Sarah will not work.

While the Republicans still seem lost in the wilderness, every new program Obama announces may be costing him support. With such an ambitious agenda he may sow the seeds of his demise- one cut at a time.

Paul Krugman referred to the period between 1930 and 1980 as the Great Compression, referring to a flattening of the incomes from the very rich and the very poor of the Gilded Age and the growing income inequality from the Reagan era onward.

In “the Conscience of a Liberal” he credits this compression to FDR’ New Deal and its higher taxes on the wealthy and on the rise of unions in the American workplace.
He further notes that the higher wages and benefits had no negative consequence for the auto and steel industries. While that seems foolish in light of GM and Chrysler being bankrupts wards of the government it is correct for the period between 1930 and 1980.

But that economic environment was also very different. The stock market crash like our recent collapse brought the rich down much faster and further than the poor. And while the unions were able to bargain better conditions and wages they were bolstered by the wartime demand stimulation and more so because all of American industry’s overseas competition was destroyed by the war.

The growth of global completion changed everything as we tended to import low wage jobs and export high wage jobs, increasing the wage spread. The growth of the technology sector added to the spread.

Like the Crash of 1929 we are seeing a replay of a flattening of incomes but it should not be compared to a period stimulated by war and protected by the destruction of its trading partners.

There has been outrageous bonuses and pay on the high end, but the market will likely correct it without government interference.

Higher taxes and union pressure should not be expected to yield the same result as it did in very different time. Without the protections enjoyed during the Great Compression it would have just been call a longer Greater Depression.

The Republican Party is most assuredly going through an identity struggle, and the pundits obfuscate the issues by speaking in only the most general terms. The controversy within the party is whether it should become more conservative, faulting moderation for its losses, or whether to become more “centrist”, adapting its message for the new demographics and polls.

It is fine to call for free markets, but that does not mean unregulated markets, and their message must contain a realistic measure of freedom and oversight. Financial institutions central to our well being should no more be totally unrestricted than our civil institutions. Even our most precious freedoms do have limits. Every town has courts and jails.

The party could start with an honest discussion of foreign policy- what has worked and what has not. Realism is a good word to bring to bear. We must address the relationship between a profligate economy and our place in the world. It is time for Johnny to cut up his credit cards and live within his means.

It is time to realize that promised benefits must be paid for. Sacrifice is sellable if it is shared.

It is time to realize that America’s strength is in its ideas, not wealth nor military power. It is not coincidence that America has originated so many inventions that have been a source of wealth and power. But our ideas did not originate here because of the soil and water content. We struggle to provide better and better safety nets without destroying the human power that has created our nation.

But the Republican Party’s message of freedom must be consistent. We can not ask our soldiers to die for the freedoms of others and then refuse to sell them liquor on Sundays.

It will be harder to justify some choice but not others. Individual freedom means allowing others to make choices that you may not approve of. The tent must be widened to include pro choice and pro life candidates, acknowledging the legitimate concerns of each. Republicans suffer from disparate groups who each have a litmus test.

Democrats have their divisions but they generally disappear for a few weeks in early November.

The perfect is the enemy of the good and suicide is a poor growth strategy.

Yet …..

All who wander are not lost.

The coming political fight after the inauguration will be among the Democrats. The Republicans will still be wounded severely. For an out of favor and out of power force the Republicans would be wise to pick their battles wisely; they do not have the force to squander on partisan attacks with little meaning to the general voting populace.

Facing a record deficit the Democrats will be forced to take action on entitlements spending; something they have fought against for some time. We simply can not live up to the promises made in the name of Social Security and Medicare. There will be means testing, benefits reduction, and tax increases.

Tax increases will target the richer, but expect to see limits on mortgage interest deductions and an increased upper threshold on social security.

Failure to address these expenses will mean inflation and a long term devastation of our economy and our currency. The global financial market will not let our government have its cake and eat it too, as we tried to do from Kennedy to Reagan.

Fiscally conservative Democrats (Blue Dogs) will counter the ultra loyal Democrats (Yellow Dogs). The Blue Dogs realize that if they do not steer to the middle in financial matters they risk losing the Congress as they did under Clinton. The Yellow Dogs may feel they have a mandate and a window to accomplish more extreme objectives.

The origin of the Yellow Dogs is take from the 1920’s when southern Democrats claimed they would vote for a ‘yellow dog’ before they would vote for a Republican.

Texas Democratic Rep. Pete Geren created the ‘Blue Dog’ label when he said that the party had been “choked blue” by “extreme” Democrats, from the left.

Corruption in business and politics is nothing new but it seems the Democrats have a real problem in their midst. It is a common refrain to insist that both parties are corrupt but basic empirical evidence indicates otherwise.

Baltimore Mayor Sheila Dixon was recently indicted for perjury as was Detroit Mayor Kwame Kilpatrick some months ago. Charles Rangel did not pay some property taxes, something that could have and should have been quickly remedied.

Elliot Spitzer and John Edwards apparently can not be trusted by their own spouses. Louisiana Congressman William Jefferson prefers freezer space to bank accounts.

The Senate Subcommittee on Military Construction awarded a number of defense contracts to contractors that Diane Fienstein’s husband had a stake in. She was on the Subcommittee but has since resigned. Nancy Pelosi exempted American Samoa from recently enacted minimum wage laws. The main employer on American Samoa is a tuna packing company with substantial stakes owned by her husband. Nancy is still speaker of the house.

Both Bill and Hillary Clinton had serious problems with campaign fundraising, in my opinion their most serious allegations. Bill had to return million in funds traced to a Chinese national, a seriously illegal and treasonous act. Hillary third largest fund raiser and bundler went to jail, and she had to return a large sum of money. There were other suspected campaign issues such as her ‘cattle gate’ profits and the comingled funds from her husband who got substantial board and speaking fees from foreign nationals.

Even more recently Acorn was indicted in several states for campaign irregularities, all in the name of Democrats.

And I have not even mentioned Blagojevich.

Yes there are Republicans who have been less than exemplary as well, most recently Ted Stevens and Larry Craig. But the number of indictments and resignations in Congress since 1990 are slanted toward Democrats by a factor of three.

The Democrats have and elephant in the room and it ain’t Republican.