A Western frontier version of Thatcher?
Gov. Palin did mention oil and gas drilling, and she effectively connected her Alaskan natural gas pipeline to Tsar Putin's global aim of energy blackmail. The lady knows a bit more about high table geopolitics than her critics think. Alaskans know a lot about Russian territorial ambitions, which are just across the pond from them.
But I do not think she connected with folks on the economic slump, nor did she present an economic growth recovery plan. Rudy Giuliani made the first foray into that area in his speech when he talked about restoring economic growth through tax cuts and drilling. But he did not get to gas pump prices and the oil shock-driven consumer shortfall in real purchasing power, or the threat of more job losses and higher unemployment which casts a shadow over public confidence and the investor class stock market.
Wouldn't it be great if she and McCain adopted a strong pro-growth tax reform plan to reduce tax-rates across the board, get rid of the corrupt loopholes and tax earmarks defended by the old order in Washington, and combine their ethical corruption cause with prosperity tax cuts? Even a currency reform to restore King Dollar? Along with America First energy reform, where Palin made such a good start this evening?
Watching her phenomenal communication skill, and her disciplined yet positive style, I can't help but be optimistic. In part because she herself is clearly an optimist. I'm a sucker for optimism. Lord knows this country, and the GOP, needs it. Sarah America. I like it.
McCain Top Fund-Raisers Set New Target
Gap With Obama
Will Start to Close
MINNEAPOLIS -- John McCain's top fund-raisers met privately here Wednesday to begin a new effort to raise $100 million in the final two months of the Republican presidential candidate's campaign.
If the target is met, the new financing, combined with the $75 million already raised by the Republican National Committee and the $85 million Sen. McCain will get from the government, would go a long way toward closing the money gap with Democratic rival Barack Obama.
That would give Republicans at least $260 million to spend on Sen. McCain's behalf this fall. Sen. Obama, who starts the general election with money in the bank, hopes to raise an additional $220 million in the next two months, Democratic fund-raisers said.
![[Chart]](http://s.wsj.net/public/resources/images/NA-AS284_MCMONE_NS_20080903185633.gif)
During the primary campaign, Sen. Obama set fund-raising records while Sen. McCain struggled to meet monthly budgets. Now it appears Sen. Obama's money advantage is far smaller than it was assumed to be early on.
Sen. McCain's fund-raising operation has rebounded since he emerged as the presumptive Republican nominee. One reason is due to a fund-raising account that allows Republicans to solicit individual donations of as much as about $70,000, far above the normal limit of $2,300 per individual per election.
The account, called the McCain Victory Committee, collects large donations and divvies them up into legally acceptable chunks to other political entities to spend on Sen. McCain's behalf, including the Republican National Committee and state-level Republican parties in key states. Though Democrats have set up a similar system, they haven't merged their various fund-raising committees, making for a more cumbersome procedure for donors.
Because Sen. McCain is accepting government funding for the general election, he can't solicit or spend private donations once he formally accepts the nomination Thursday.
Sen. Obama turned down the government funds, opting instead to raise money from the public. When he secured the Democratic nomination in early June, Sen. Obama's campaign said it hoped to raise a total of $480 million for his campaign and the Democratic National Committee.
Fund-raising reports through July show that the DNC and Sen. Obama have raised about $150 million but spent much of it already; going into August, the campaign reported having $68.5 million on hand. The reports also showed that in July, the campaign was spending at a rate that was faster than donations were coming in.
The Obama campaign declined to comment on its fund raising or spending in August. One major donor said it is likely the campaign has only a small cash cushion at the moment.
The point of the Minneapolis meeting was to shift Sen. McCain's top fund-raisers from soliciting money for his primary-election campaign to doing so for the joint fund-raising account with the RNC and state parties.
The 150 lobbyists, corporate executives and Republican loyalists who attended the meeting received blue folders with the McCain campaign logo. The folders contained information on how to participate in the program, specifically asking fund-raisers to recruit donors to contribute as much as $67,800 each. Of that, $28,500 would go to the RNC, $37,000 to state-level parties and $2,300 to a legal and compliance fund for the McCain campaign.
McCain aides also rolled out a new set of fund-raising titles for certain levels of fund-raisers. Super Innovators must raise $250,000, followed by $100,000 for Super Trailblazers and $50,000 for Super Aviators.
The McCain campaign handed out invitations for four major fund-raising events that Sen. McCain will headline this fall and which could draw in tens of millions of dollars combined. The first will be held Sept. 8 in Chicago followed by events in Miami, Los Angeles and New York City.
Following Sen. Hillary Clinton's concession in early June, the Obama campaign told its fund-raisers it wanted to raise $300 million for the campaign in the five months before the election and an additional $180 million for the DNC.
As of July 31, the latest date for which campaign-finance records are available, the campaign had raised about $103 million and the DNC had raised about $50 million. After accounting for unreported August tallies, that would leave them approximately $220 million short of the combined goal.
The Obama campaign's best reported fund-raising month was in February when it raised $55 million; to meet the goal, it will have to do far better in August and September.
Sen. McCain's advantage is that he can stop fund raising now, collect the $84.5 million he is due in federal matching funds and concentrate on campaigning.
Some of Sen. Obama's top fund-raisers say they see an advantage for themselves: A good number of his top donors are political newcomers and aren't up against the limit set by the Federal Election Commission restricting individual donors to giving a combined $140,000 to federal campaigns within a two-year period.
The most an individual can give to Sen. Obama's joint fund with the DNC is $30,800, so the money can be raised in big chunks. His wife, Michelle Obama, headlined one such high-dollar event in Hollywood Wednesday.
Sen. McCain reported raising $40 million in August, by far his best fund-raising month. Sen. Obama, meanwhile, has a sprawling campaign, a staff of several thousand and hundreds of offices scattered across the nation. As a result, he was spending at a deficit in July, according to his campaign reports.
Big fund-raisers are becoming increasingly important to the Obama campaign, which has long touted its broad stable of small donors. Sen. Obama is devoting much more time to big-donor fund raising than he used to. In early August, the Obama campaign added a class of $500,000 fund-raisers -- a doubling of the old top level. Sen. Obama has about 40 of these fund-raisers, compared with about 60 for Sen. McCain.
Sarah Palin's Address to the RNC
By Sarah PalinSt. Paul, Minnesota
Mr. Chairman, delegates, and fellow citizens: I am honored to be considered for the nomination for Vice President of the United States...
I accept the call to help our nominee for president to serve and defend America.
I accept the challenge of a tough fight in this election... against confident opponents ... at a crucial hour for our country.
And I accept the privilege of serving with a man who has come through much harder missions ... and met far graver challenges ... and knows how tough fights are won - the next president of the United States, John S. McCain.
It was just a year ago when all the experts in Washington counted out our nominee because he refused to hedge his commitment to the security of the country he loves.
With their usual certitude, they told us that all was lost - there was no hope for this candidate who said that he would rather lose an election than see his country lose a war.
But the pollsters and pundits overlooked just one thing when they wrote him off.
They overlooked the caliber of the man himself - the determination, resolve, and sheer guts of Senator John McCain. The voters knew better.
And maybe that's because they realize there is a time for politics and a time for leadership ... a time to campaign and a time to put our country first.
Our nominee for president is a true profile in courage, and people like that are hard to come by.
He's a man who wore the uniform of this country for 22 years, and refused to break faith with those troops in Iraq who have now brought victory within sight.
And as the mother of one of those troops, that is exactly the kind of man I want as commander in chief. I'm just one of many moms who'll say an extra prayer each night for our sons and daughters going into harm's way.
Our son Track is 19.
And one week from tomorrow - September 11th - he'll deploy to Iraq with the Army infantry in the service of his country.
My nephew Kasey also enlisted, and serves on a carrier in the Persian Gulf.
My family is proud of both of them and of all the fine men and women serving the country in uniform. Track is the eldest of our five children.
In our family, it's two boys and three girls in between - my strong and kind-hearted daughters Bristol, Willow, and Piper.
And in April, my husband Todd and I welcomed our littlest one into the world, a perfectly beautiful baby boy named Trig. From the inside, no family ever seems typical.
That's how it is with us.
Our family has the same ups and downs as any other ... the same challenges and the same joys.
Sometimes even the greatest joys bring challenge.
And children with special needs inspire a special love.
To the families of special-needs children all across this country, I have a message: For years, you sought to make America a more welcoming place for your sons and daughters.
I pledge to you that if we are elected, you will have a friend and advocate in the White House. Todd is a story all by himself.
He's a lifelong commercial fisherman ... a production operator in the oil fields of Alaska's North Slope ... a proud member of the United Steel Workers' Union ... and world champion snow machine racer.
Throw in his Yup'ik Eskimo ancestry, and it all makes for quite a package.
We met in high school, and two decades and five children later he's still my guy. My Mom and Dad both worked at the elementary school in our small town.
And among the many things I owe them is one simple lesson: that this is America, and every woman can walk through every door of opportunity.
My parents are here tonight, and I am so proud to be the daughter of Chuck and Sally Heath. Long ago, a young farmer and habber-dasher from Missouri followed an unlikely path to the vice presidency.
A writer observed: "We grow good people in our small towns, with honesty, sincerity, and dignity." I know just the kind of people that writer had in mind when he praised Harry Truman.
I grew up with those people.
They are the ones who do some of the hardest work in America ... who grow our food, run our factories, and fight our wars.
They love their country, in good times and bad, and they're always proud of America. I had the privilege of living most of my life in a small town.
I was just your average hockey mom, and signed up for the PTA because I wanted to make my kids' public education better.
When I ran for city council, I didn't need focus groups and voter profiles because I knew those voters, and knew their families, too.
Before I became governor of the great state of Alaska, I was mayor of my hometown.
And since our opponents in this presidential election seem to look down on that experience, let me explain to them what the job involves.
I guess a small-town mayor is sort of like a "community organizer," except that you have actual responsibilities. I might add that in small towns, we don't quite know what to make of a candidate who lavishes praise on working people when they are listening, and then talks about how bitterly they cling to their religion and guns when those people aren't listening.
We tend to prefer candidates who don't talk about us one way in Scranton and another way in San Francisco.
As for my running mate, you can be certain that wherever he goes, and whoever is listening, John McCain is the same man. I'm not a member of the permanent political establishment.
And I've learned quickly, these past few days, that if you're not a member in good standing of the Washington elite, then some in the media consider a candidate unqualified for that reason alone.
But here's a little news flash for all those reporters and commentators: I'm not going to Washington to seek their good opinion - I'm going to Washington to serve the people of this country. Americans expect us to go to Washington for the right reasons, and not just to mingle with the right people.
Politics isn't just a game of clashing parties and competing interests.
The right reason is to challenge the status quo, to serve the common good, and to leave this nation better than we found it.
No one expects us to agree on everything.
But we are expected to govern with integrity, good will, clear convictions, and ... a servant's heart.
I pledge to all Americans that I will carry myself in this spirit as vice president of the United States. This was the spirit that brought me to the governor's office, when I took on the old politics as usual in Juneau ... when I stood up to the special interests, the lobbyists, big oil companies, and the good-ol' boys network.
Sudden and relentless reform never sits well with entrenched interests and power brokers. That's why true reform is so hard to achieve.
But with the support of the citizens of Alaska, we shook things up.
And in short order we put the government of our state back on the side of the people.
I came to office promising major ethics reform, to end the culture of self-dealing. And today, that ethics reform is the law.
While I was at it, I got rid of a few things in the governor's office that I didn't believe our citizens should have to pay for.
That luxury jet was over the top. I put it on eBay.
I also drive myself to work.
And I thought we could muddle through without the governor's personal chef - although I've got to admit that sometimes my kids sure miss her. I came to office promising to control spending - by request if possible and by veto if necessary.
Senator McCain also promises to use the power of veto in defense of the public interest - and as a chief executive, I can assure you it works.
Our state budget is under control.
We have a surplus.
And I have protected the taxpayers by vetoing wasteful spending: nearly half a billion dollars in vetoes.
I suspended the state fuel tax, and championed reform to end the abuses of earmark spending by Congress.
I told the Congress "thanks, but no thanks," for that Bridge to Nowhere.
If our state wanted a bridge, we'd build it ourselves. When oil and gas prices went up dramatically, and filled up the state treasury, I sent a large share of that revenue back where it belonged - directly to the people of Alaska.
And despite fierce opposition from oil company lobbyists, who kind of liked things the way they were, we broke their monopoly on power and resources.
As governor, I insisted on competition and basic fairness to end their control of our state and return it to the people.
I fought to bring about the largest private-sector infrastructure project in North American history.
And when that deal was struck, we began a nearly forty billion dollar natural gas pipeline to help lead America to energy independence.
That pipeline, when the last section is laid and its valves are opened, will lead America one step farther away from dependence on dangerous foreign powers that do not have our interests at heart.
The stakes for our nation could not be higher.
When a hurricane strikes in the Gulf of Mexico, this country should not be so dependent on imported oil that we are forced to draw from our Strategic Petroleum Reserve.
And families cannot throw away more and more of their paychecks on gas and heating oil.
With Russia wanting to control a vital pipeline in the Caucasus, and to divide and intimidate our European allies by using energy as a weapon, we cannot leave ourselves at the mercy of foreign suppliers.
To confront the threat that Iran might seek to cut off nearly a fifth of world energy supplies ... or that terrorists might strike again at the Abqaiq facility in Saudi Arabia ... or that Venezuela might shut off its oil deliveries ... we Americans need to produce more of our own oil and gas.
And take it from a gal who knows the North Slope of Alaska: we've got lots of both.
Our opponents say, again and again, that drilling will not solve all of America's energy problems - as if we all didn't know that already.
But the fact that drilling won't solve every problem is no excuse to do nothing at all.
Starting in January, in a McCain-Palin administration, we're going to lay more pipelines ... build more nuclear plants ... create jobs with clean coal ... and move forward on solar, wind, geothermal, and other alternative sources.
We need American energy resources, brought to you by American ingenuity, and produced by American workers. I've noticed a pattern with our opponent.
Maybe you have, too.
We've all heard his dramatic speeches before devoted followers.
And there is much to like and admire about our opponent.
But listening to him speak, it's easy to forget that this is a man who has authored two memoirs but not a single major law or reform - not even in the state senate.
This is a man who can give an entire speech about the wars America is fighting, and never use the word "victory" except when he's talking about his own campaign. But when the cloud of rhetoric has passed ... when the roar of the crowd fades away ... when the stadium lights go out, and those Styrofoam Greek columns are hauled back to some studio lot - what exactly is our opponent's plan? What does he actually seek to accomplish, after he's done turning back the waters and healing the planet? The answer is to make government bigger ... take more of your money ... give you more orders from Washington ... and to reduce the strength of America in a dangerous world. America needs more energy ... our opponent is against producing it.
Victory in Iraq is finally in sight ... he wants to forfeit.
Terrorist states are seeking nuclear weapons without delay ... he wants to meet them without preconditions.
Al Qaeda terrorists still plot to inflict catastrophic harm on America ... he's worried that someone won't read them their rights? Government is too big ... he wants to grow it.
Congress spends too much ... he promises more.
Taxes are too high ... he wants to raise them. His tax increases are the fine print in his economic plan, and let me be specific.
The Democratic nominee for president supports plans to raise income taxes ... raise payroll taxes ... raise investment income taxes ... raise the death tax ... raise business taxes ... and increase the tax burden on the American people by hundreds of billions of dollars. My sister Heather and her husband have just built a service station that's now opened for business - like millions of others who run small businesses.
How are they going to be any better off if taxes go up? Or maybe you're trying to keep your job at a plant in Michigan or Ohio ... or create jobs with clean coal from Pennsylvania or West Virginia ... or keep a small farm in the family right here in Minnesota.
How are you going to be better off if our opponent adds a massive tax burden to the American economy? Here's how I look at the choice Americans face in this election.
In politics, there are some candidates who use change to promote their careers.
And then there are those, like John McCain, who use their careers to promote change.
They're the ones whose names appear on laws and landmark reforms, not just on buttons and banners, or on self-designed presidential seals.
Among politicians, there is the idealism of high-flown speechmaking, in which crowds are stirringly summoned to support great things.
And then there is the idealism of those leaders, like John McCain, who actually do great things. They're the ones who are good for more than talk ... the ones we have always been able to count on to serve and defend America. Senator McCain's record of actual achievement and reform helps explain why so many special interests, lobbyists, and comfortable committee chairmen in Congress have fought the prospect of a McCain presidency - from the primary election of 2000 to this very day.
Our nominee doesn't run with the Washington herd.
He's a man who's there to serve his country, and not just his party.
A leader who's not looking for a fight, but is not afraid of one either. Harry Reid, the Majority Leader of the current do-nothing Senate, not long ago summed up his feelings about our nominee.
He said, quote, "I can't stand John McCain." Ladies and gentlemen, perhaps no accolade we hear this week is better proof that we've chosen the right man. Clearly what the Majority Leader was driving at is that he can't stand up to John McCain. That is only one more reason to take the maverick of the Senate and put him in the White House. My fellow citizens, the American presidency is not supposed to be a journey of "personal discovery." This world of threats and dangers is not just a community, and it doesn't just need an organizer.
And though both Senator Obama and Senator Biden have been going on lately about how they are always, quote, "fighting for you," let us face the matter squarely.
There is only one man in this election who has ever really fought for you ... in places where winning means survival and defeat means death ... and that man is John McCain. In our day, politicians have readily shared much lesser tales of adversity than the nightmare world in which this man, and others equally brave, served and suffered for their country.
It's a long way from the fear and pain and squalor of a six-by-four cell in Hanoi to the Oval Office.
But if Senator McCain is elected president, that is the journey he will have made.
It's the journey of an upright and honorable man - the kind of fellow whose name you will find on war memorials in small towns across this country, only he was among those who came home.
To the most powerful office on earth, he would bring the compassion that comes from having once been powerless ... the wisdom that comes even to the captives, by the grace of God ... the special confidence of those who have seen evil, and seen how evil is overcome. A fellow prisoner of war, a man named Tom Moe of Lancaster, Ohio, recalls looking through a pin-hole in his cell door as Lieutenant Commander John McCain was led down the hallway, by the guards, day after day.
As the story is told, "When McCain shuffled back from torturous interrogations, he would turn toward Moe's door and flash a grin and thumbs up" - as if to say, "We're going to pull through this." My fellow Americans, that is the kind of man America needs to see us through these next four years.
For a season, a gifted speaker can inspire with his words.
For a lifetime, John McCain has inspired with his deeds.
If character is the measure in this election ... and hope the theme ... and change the goal we share, then I ask you to join our cause. Join our cause and help America elect a great man as the next president of the United States.
Thank you all, and may God bless America.
Weak sterling
Vote of no confidence
The pound’s fall is signalling deeper worries about the economy
WHATEVER reassurances ministers may offer about the prospects for the economy, the judgment of the foreign-exchange markets is more telling, for it is backed by money. That judgment is a harsh one. The pound has fallen sharply against the dollar over the past month, closing at $1.84, its lowest for over two years, on August 26th.
Sterling has not been alone in slipping against the dollar. The euro fell almost as steeply during August. But the latest setback to the pound follows a bigger and longer devaluation against the euro that started a year ago (see chart). Altogether, sterling’s trade-weighted index (in which the euro has a weight of 54% compared with the dollar’s 16.5%) has declined by over 13% in the past 12 months, reaching its lowest point since 1996.
The pound’s new bout of weakness has arisen from concern about Britain’s deteriorating economic outlook. This took a turn for the worse when the official number-crunchers revealed on August 22nd that the economy had recorded zero growth in the second quarter, rather than expanding by 0.2% as they had previously estimated. The long run of steady growth—63 successive quarters in which GDP expanded—that started in the second half of 1992 has come to an end.
When the Bank of England gave warning in mid-August that the economy would stagnate over the following year, many found the forecast gloomy. Now that it is clear the standstill has already begun, that prediction may prove too upbeat. Capital Economics, a consultancy, is especially pessimistic. It expects the economy to contract in the second half of this year and predicts that GDP will fall by 0.25% in 2009, which would be the first yearly decline since 1991.
The more the economy weakens, the swifter the Bank of England is likely to be in lowering the base rate from its present level of 5.0%. Half of City economists expect a quarter-point cut by the end of 2008, according to a Bloomberg News poll on August 22nd, compared with a quarter of them on August 8th. This is one reason why the pound has slipped against the dollar: international investors now expect lower yields from holding sterling.
As often happens, however, markets may have run ahead of themselves. The further the pound falls, the more this will raise the cost of Britain’s imports and add to the surge in inflation, which remains the central bank’s main concern. Even excluding oil, prices of imported goods rose by 8.3% in the year to the second quarter of 2008, the highest rate of increase since 1993. This suggests that interest rates are likelier to come down in early 2009, after which consumer-price inflation is forecast to tumble, than later this year, when it will be close to its expected peak of 5%.
But even if rate cuts come later than anticipated the pound is set to remain weak for some time. Consumers, for so long the mainstay of demand, are pulling in their horns and need to save more in order to restore finances debilitated by excessive borrowing. Household spending declined by 0.1% between the first and the second quarter of the year. Fixed investment fell by a hefty 5.3% over the same period. As the engine of domestic demand sputters, the economy will have to rely more upon the efforts of exporters; and they will need the help of a weaker currency, especially as foreign markets slow.
The pound’s protracted strength while Labour has been in office reflected an exceptional decade of sustained growth and low inflation. Now that the long boom has ended and harder times have returned, the gloss has been rubbed off sterling as well as the economy.
Georgia and the Balkans
Parallel bars
Serbia and Kosovo ponder their positions after the war in Georgia
RUSSIA’S road to South Ossetia went through Kosovo. Or so many Russians and even some Western diplomats believe. It has become commonplace to assert that Russia’s invasion of Georgia and its recognition this week of the independence of South Ossetia and Abkhazia flowed directly from Kosovo’s declaration of independence from Serbia in February, which was recognised by many Western countries. The parallels are superficial at best, but they have led to new calculations in Serbia and Kosovo over which stands to gain or lose the most from the war in Georgia.
Russia has long supported Serbia’s claim that Kosovo, 90% of whose 2m people are ethnic Albanians, has no right to independence. The reasoning is that it was a province of Serbia and not, like Montenegro, a republic in the federation of Yugoslavia. Only former republics within the old communist federations, together with the two parts of former Czechoslovakia, have become independent since 1989. Yet America and 21 out of 27 European Union countries have endorsed Kosovo’s independence.
Now the West and the Russians seem to have exchanged arguments. Sergei Lavrov, Russia’s foreign minister, says that the world can forget about Georgia’s territorial integrity, whereas Western countries are demanding that it be respected. With their patrons apparently flip-flopping like this, it is no wonder the authorities in Belgrade and Pristina feel embarrassed—and that both have been largely mute over Georgia.
An early test will come on September 17th. A United Nations committee will decide whether to put on the agenda of the UN General Assembly a Serbian motion to request from the International Court of Justice an opinion on the legality of Kosovo’s declaration of independence. If the motion were proposed, Serbia would need only a majority of those voting to get it passed.
The Russian action in Georgia “may have helped us”, claims one senior Serbian official, noting that many countries agnostic about breakaway states were frightened by Russia’s war. Or maybe not, retorts Lulzim Peci, a Kosovar foreign-policy analyst. Since Russia backs both the motion and self-determination for the South Ossetians and Abkhaz, it may seem no more than a cynical manoeuvre, “because Russia’s claim to be helping Serbia will no longer seem like a matter of principle but rather like a political game. Russia has now lost credibility.”
Serbian sympathies have always lain with Russia because of its support over Kosovo. But it is clear to Serbia’s leaders that they are to some extent in the same boat as Georgia. However, Veton Surroi, publisher of Kosovo’s main daily, insists that, if one wants comparisons, “we are Georgia”. He argues that since Kosovo is independent, the Serb-run north of the country is the new potential breakaway, no longer Kosovo itself.
BP in Russia
Back to business
BP and its Russian partners appear to make up and vow to move on
LITTLE more than a week after Russia’s government had declared itself ready for a new cold war, one big foreign investor has emerged intact from a nasty dispute with its local partners and the authorities. TNK-BP, an oil company that produces 1.6m barrels a day and which is owned jointly by Britain's BP and Russian private investors, AlfaAccessRenova (AAR), was for months paralysed by war in the boardroom. The Russian investors, unhappy at the way the company has been run by Bob Dudley, an American appointed by BP, blocked the renewal of work permits for many foreign staff. This included Mr Dudley, who since late July has tried to direct TNK-BP from a secret location abroad. Despite denials, Russia’s tax and immigration inspectors seemed to be helping AAR. BP looked poised to join the ranks of foreign oil companies forced to sell stakes in big projects, on the cheap, to Kremlin-friendly concerns.
On Thursday September 4th, however, the two sides agreed to make up. BP’s 50% stake appears to be safe. Mr Dudley will go at the end of this year, to be replaced by a BP nominee who must be approved by the board. One AAR director and one BP director will also depart, making way for three independents. Much could depend on how independent these individuals really are. The squabbling management committee will be shrunk and the most disruptive members thrown out. In time, as much as 20% of the venture could be sold in an initial public offering (IPO)—if both partners, plus Russia’s regulators, agree.
The fight had centred on how TNK-BP was run. AAR, with its short-term outlook and expectation of fast-growing returns, was dismayed to see a dynamic company turning into a Big Oil bureaucracy. BP, meanwhile, focused on the long-term through investment in new fields. So long as it could book a quarter of its reserves and a fifth of its oil output via the Russian venture, BP cared little about slower growth. In any case, the money was rolling in—it has recouped its initial $8 billion investment and made another $2 billion in little more than five years.
BP has agreed that the new boss will be a Russian-speaker who has worked in the country. He will have to pay rather closer attention to output growth and the share price than did Mr Dudley. Yet BP has paid a small price in agreeing to a shift in company strategy, at least compared with a potential loss of its investment.
For all the talk of an aggressive Kremlin bent on nationalising any oil asset that its jaundiced eye chances upon, TNK-BP does not look to be a repeat of the Yukos affair or the mugging of Shell and its Japanese partners at SakhalinII. In those cases, Russia’s rulers and state companies were actively engaged; AAR, by contrast, had the help of a few friendly mid-level state officials. That was enough to land TNK-BP in bother with the taxman and to make Mr Dudley's job impossible. But the Russian investors still lack the clout to appoint their own boss or to force BP to sell—hence the need for a negotiated solution.
And yet no guarantee exists for BP of a happy future in Russia. Disputes could flare again, as a fundamental difference in outlook exists between it and the Russian investors. BP will still worry that AAR might use fair or foul means to get what it wants. The IPO, if it happens, would cut BP’s stake to below 50% and perhaps leave it vulnerable. And while the Kremlin apparently stayed on the sidelines this time, Gazprom or Rosneft could one day make AAR an offer it cannot refuse. If that happens, do not expect either state champion to settle for shared control of Russia’s third-biggest oil producer.
McCain, Bush and the Dollar
When John McCain speaks to the Republican convention tonight, one of his priorities will be explaining his economic plans to a restive American middle class. He'll help his campaign, and the country, if his program includes separating himself from the Bush Administration's malign neglect of the dollar.
In debates over the Bush economic record, the dollar's decline and its companion rise in prices are the great missing links. Democrats don't mention it because they'd rather indict the Bush tax cuts as a way to justify a huge new tax increase. Wall Street and big business don't talk about it because they've been complicit in urging devaluation. And the media mostly ignore it because so few of them even think about monetary policy. The mystery is why more Republicans don't regret it because the political consequences have cost them dearly.
![[The 'Misery Index']](http://s.wsj.net/public/resources/images/ED-AI159_misery_NS_20080903220224.gif)
Consider the nearby chart, which chronicles the rise and fall of what the late economist Arthur Okun called the "misery index" in the late 1970s. By adding the national unemployment rate to the annual rate of inflation, the misery index offers a simple but revealing look at American economic well-being. As you can see from the chart, it's also a useful political indicator. Jimmy Carter was run out of office as the index soared above 20 in 1980, while Republicans benefited as it fell throughout the following decade. George H.W. Bush suffered as it spiked in the early 1990s, while Bill Clinton prospered through the 1990s as it fell again.
As for the political challenge that Mr. McCain faces, look no further than the "misery" spike of 2008. At 5.7% in July, the U.S. jobless rate isn't much worse than it was (5.4%) when Mr. Clinton ran for re-election in 1996. The difference is the rolling 12-month inflation rate, which at 5.6% puts the misery mark at 11.3 -- back to heights not seen since the early 1990s.
The opinion polls support what the misery index and common sense tell us. According to a Pew Research poll in July, no less than 45% of the public cited rising prices as the top economic problem. That was nearly double the 24% who cited prices in February. "Nearly two-thirds (64%) now say their incomes are not keeping up with the rising cost of living," according to Pew. By marked contrast, only 5% mentioned unemployment as the main issue.
This misery spike is the direct result of the dollar plunge and soaring commodity prices that began last August. That's when the Federal Reserve responded to the credit crunch by sprinting to cut interest rates to their current level of well below the anticipated level of future inflation. In other words, much as we also experienced for most if not all of 2003-2005, the U.S. again has negative real interest rates. The price of the first episode was the credit mania and housing boom and bust. Understandably, investors responded to this second round by shorting the dollar and fleeing to other stores of value, such as oil and commodities.
Chairman Ben Bernanke insists the Fed has had no other choice to stave off recession, and that in any case "core inflation" (which excludes food and energy) is contained. We've tangled with those arguments many times and won't do so again today. But there's no denying that the result of the Fed's reckless easing has been a spike in consumer prices, especially in food and energy, and thus a decline in real middle-class purchasing power. American consumers -- aka voters -- are justifiably angry about this because they don't buy Cheerios and gasoline with "core" dollars.
As a political matter, President Bush appointed Mr. Bernanke and thus shares responsibility for this policy outcome. He also appointed Fed Governors Donald Kohn and Frederic Mishkin, the other intellectual architects of the Fed's dollar neglect. More broadly, the Bush Administration has tolerated -- even encouraged -- a policy of dollar decline throughout its tenure.
All three of its Treasury Secretaries have lectured us that a falling dollar is useful to help exports to reduce the trade deficit. In any case, they like to add, the dollar's price is set by a "free market" -- and don't we favor free markets? They seem not to understand that a currency is not like bananas or wheat; its supply is set by a monopoly known as the central bank.
As for exports, they are the excuse used for centuries by politicians who believe nations can devalue their way to prosperity. Exports have provided an economic lift over the last two quarters or so, though that may end as the rest of the world economy slows. But the export boom has been more than offset by the harm that the commodity price spike has done to the U.S. middle-class consumer, as well as to the auto, airline and many other industries. Rising exports are best used politically as an argument for freer trade. As a justification for dollar devaluation, they are a siren song.
The good news is that the dollar has rallied in recent weeks, while commodity prices have fallen from their peaks. Markets had overshot on the upside as they often do and have since had to cover themselves. Slower growth outside the U.S. may also play a role. The widely advertised dissents from further easing inside the Fed have helped, as perhaps did Barack Obama's recent remarks that he favors a stronger dollar. When the liberal candidate for President comes out in favor of sound money, the world notices.
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Which brings us back to Mr. McCain and his challenge -- and opportunity. The Arizonan needs to separate himself from the Bush economic record, and he is doing so with credibility on spending. But he can also do so by describing how this Administration has lost its way on the dollar and inflation. This would allow him to address middle-class anxiety without violating his free-market principles.
The Bush economy has been better than Democrats claim, especially given the bubble it inherited from Mr. Clinton. But its Achilles' heel has been that Republicans forgot that Reaganomics was about more than keeping taxes low. Central to its success was also sound money and low inflation. Mr. McCain can begin to help the GOP reclaim that lost half of the Reagan legacy.
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