Economic battle is joined in US race

Unemployment is rising in the US as the credit crunch hits home

With just two months to go before the US presidential election, the state of the economy is far and away the biggest concern for most US voters.

The credit crunch has inflicted severe damage on Wall Street, left millions at risk of losing their homes, and millions more in negative equity.

Unemployment has risen above 6% while high petrol prices and rising inflation have squeezed household budgets to the limit.

Things are unlikely to get any better soon. Most economic forecasts suggest that the economy will slow sharply in the rest of 2008. The first official figures will be published in late October – on the very eve of the election.

TOP ISSUES Economy: 39% Iraq: 14% Gas prices: 4% Source: Washington Post/ABC News telephone poll, 19-22 August 2008, sample size 1108, margin of error +/- 3%

This is the background for a battle over economic policy that has so far been dominated by two issues – energy prices and taxes.Senator McCain made headlines by calling for a temporary suspension of federal gasoline taxes over the summer. He favors a major expansion of nuclear power and further drilling for oil on the US continental shelf. His running mate Sarah Palin, meanwhile, is a strong advocate of further development of Alaskan oil and gas reserves.

Mr Obama has called Mr McCain’s proposals “the same old gimmicks” though he has recently softened his outright opposition to drilling.

His energy plan calls for a big effort to shift the US towards cleaner energy, a windfall tax on oil companies, and a $50bn government investment plan to promote “energy independence”.

Tax cuts

To boost the economy, Senator Obama and many Democrats in Congress would like another stimulus package, worth around $50bn – following on from the $168bn package already put into effect – and more aid to help people at risk of foreclosure to stay in their homes.

But the growing size of the government’s budget deficit, which is expected to more than double to $400bn next year, limits the scope for further action of this kind.

It’s the size of that deficit that has put taxes at the heart of the economic debate between the two candidates.

Mr Obama wants to repeal the “tax cuts for the rich” of the Bush administration, and use the money to give further tax breaks to the “middle class” (all taxpayers earning less than $250,000), including special tax relief for college education.

He also has ambitious plans to use the tax system to boost jobs, provide subsidies for healthcare, and help redistribute income to the working poor.

PORK- BARREL POLITICS Commerce: $9bn Defence: $9bn Military construction: $6.6bn Energy: $4.6bn Transportation: $3.2bn Foreign aid and exports: $14bn Congressional earmarks in FY 2005. Source: Congressional Research Service

Senator McCain, however, reversing his earlier position, wants to keep the Bush tax cuts, which he argues will help small businessmen and lead to more job creation, while balancing the federal budget by eliminating wasteful spending.He has attacked “earmarks”, the system of “pork-barrel” politics where individual Congressmen and Senators get extra spending projects for their districts by attaching riders to important bills.

The most infamous of these pork-barrel projects was the $400m “bridge to nowhere” – which would have linked the 7,000 people in Ketchikan , Alaska, with their airport on Gravina island, replacing a three-minute ferry ride – promoted by the now-disgraced Alaska Republican Senator Ted Stevens.

It was Sarah Palin’s role as governor of Alaska in ultimately blocking this project which first brought her to the attention of Senator McCain.

But earmarks make up only $50bn of the $2,000bn Federal budget, according to the Congressional Research Service, and two-thirds of them relate to military spending or foreign aid, which Mr McCain has pledged to preserve.

Balancing acts

The ability of both candidates to project bold economic policy initiatives has been limited by disagreement within their own camps.

Wall Street wants a fiscal conservative – but small businessmen want tax cuts

Mr Obama’s economic instincts appear to lie with the moderate wing of the Democratic party, to judge from his appointment of Jason Furman, a close associate of former US Treasury Secretary Robert Rubin as his economic advisor.These “Rubin” Democrats persuaded the last Democratic president, Bill Clinton, that balancing the budget was more important for long-term economic growth than new spending programs.

Senator Obama has emphasized “nudge” economics, where the government tries to encourage individuals to take out private pensions and healthcare, rather than big new government programs.

But he faces pressure from the Democratic base, which is expecting him to tackle the lack of healthcare coverage for one in six Americans, and from the unions, which want him to do more to protect American jobs from “unfair” foreign competition.

Expanding health coverage to all children, as he has proposed, could cost at least $100bn a year.

And his support for renegotiating trade talks to include clauses recognising workers’ rights has worried businessmen.

Senator McCain, meanwhile, also has to appease two conflicting constituencies.

Many traditional Republicans share Mr McCain’s original beliefs in small government, low taxes and a balanced budget – as, mostly, does Wall Street, the US financial centre.

However, the Republican Party in power increased spending, especially on defence, while cutting taxes, leading to growing deficits.

Mr McCain backs higher defense spending, and in recent months he has increasingly leaned to the “supply-siders”, Republicans who believe that tax cuts are more important than balancing budgets – a view many small businessmen on Main Street, struggling in the economic downturn, would endorse.

Empathy

Both parties are also divided on how far the government should go in bailing out homeowners and banks who are the victims of the credit crunch.

Many Main Street Republicans are outraged by the idea that people who undertook irresponsible home loans, when they knew they could not afford them, should be bailed out – a view Mr McCain sometimes reflects.

And many left-leaning Democrats believe that the big banks and their shareholders who irresponsibly promoted sub-prime lending should be allowed to fail, rather than being bailed out by the US Treasury – as happened with Wall Street investment bank Bear Stearns and now the government-sponsored giant mortgage lenders Fannie Mae and Freddie Mac.

The policy solutions so far put forward to ease the credit crunch have been agreed on a bipartisan basis between Congress and the Bush administration.

WHO DO YOU TRUST MORE TO HANDLE THE ECONOMY? Barack Obama: 50% John McCain: 39% Neither/None: 9% Source: Washington Post/ABC News telephone poll, 19-22 August 2008, sample size 1108, margin of error +/- 3%

But voters have consistently expressed more confidence in the Democrats’ ability to handle the economy than the Republicans’ – so it’s a puzzle why this has not translated into a decisive poll lead for Senator Obama.

This may be because the battle is really over perception – which candidate has more empathy for the economic plight of ordinary Americans.

The choice of Sarah Palin as Mr McCain’s vice-presidential candidate was partly an attempt to put an “ordinary hockey mom” at the heart of his campaign.

Senator Obama, for his part, devoted much of his speech at the Democratic convention to the difficulties faced by hard-working Americans – perhaps hoping to banish the memory of his comments in March about “bitter” small-townspeople.

“It’s not because John McCain doesn’t care – it’s because John McCain doesn’t get it,” he said.

If Americans are persuaded that one candidate both understands their problems and can fix them, that could be the key to an election victory.

So far there is still everything to play for.

Bush backs McCain for president

President George W Bush has praised John McCain’s service and leadership in a speech to the Republican convention.

Speaking via video-link from the White House, he told delegates in St Paul, Minnesota, that Mr McCain was “a great American and the next president”.

Mr McCain is due to be nominated on Thursday as the party’s presidential candidate for November’s election.

The main talking point so far has been the news that the teenage daughter of Mr McCain’s running mate is pregnant.

Alaska Governor Sarah Palin, chosen as the vice-presidential nominee last week, announced on Monday that her 17-year-old daughter, Bristol, would have the baby and marry her boyfriend.

In his eight-minute address, Mr Bush described Mr McCain as a president ready to make the tough decisions needed “in a dangerous world”.

John McCain’s life is a story of service above self President George W Bush

“John McCain’s life has prepared him to make those choices. He is ready to lead this nation,” Mr Bush said.

He also spoke of Mr McCain’s life as “a story of service above self” and emphasized the “independence and character” he showed in backing the administration’s “surge” strategy of pouring more forces into Iraq.

Former Senator Fred Thompson, who ran against Mr McCain in the party’s primaries, opened a lively speech with criticism of the Democrats and the media for their scrutiny of Mrs Palin and her family.

He also spoke of Mr McCain’s military service, his courage while a prisoner of war in Vietnam and his commitment to reform in Washington.

Mr Thompson went on to attack the Democrats and their record since taking control of Congress in the 2006 mid-term elections.

Independent Senator Joe Lieberman, a former Democrat who was Al Gore’s running mate in 2000, spoke of Mr McCain as “the best choice to bring our country together and lead our country forward”.

Gustav appeal

Most of the first day’s political events were suspended out of respect for communities affected by Hurricane Gustav.

Instead, Mr McCain’s wife, Cindy, and First Lady Laura Bush made calls to support those under threat.

Mrs Bush told delegates that such events transcended party politics and reminded people that they were Americans first.

Gustav was downgraded to a tropical storm after making landfall on Monday west of New Orleans, where hundreds of thousands of people had been evacuated.

The storm came three years after Hurricane Katrina struck, killing more than 1,800 people and resulting in huge damage to the city and its surrounding area. President Bush was strongly criticised over his handling of the crisis.

Palin talking point

The Republican Party convention is now getting down to work after the uncertainty brought on by Hurricane Gustav.

Tuesday’s events are focusing on Mr McCain, a concentrated piece of political image building with a keynote speech from Joe Lieberman, the Democrat-turned-independent senator, who has decided to support the party’s candidate, our correspondent says.

Sarah Palin’s announcement has so far overshadowed the convention

President Bush cancelled his planned opening night speech amid concerns that overt political campaigning would play badly with voters at a time of potential crisis.

But many Republicans will be glad he is not here in St Paul in person, our correspondent says, and much of this week will be about defining Mr McCain as very different to his unpopular predecessor.

Meanwhile, media attention has continued to focus on Mrs Palin, who is facing an ethics investigation in her home state and whose daughter’s pregnancy made headlines on Monday.

The Associated Press reported on Tuesday that Bristol’s boyfriend, named as 18-year-old Levi Johnston, would be joining the Palin family at the convention in Minnesota.

The AP quotes Mr Johnston’s mother, Sherry, as saying he had been put under no pressure to marry and that the pair had been planning to wed before they knew she was pregnant.

Our correspondent says Mrs Palin’s selection as vice-presidential candidate has caused great excitement among social conservatives and evangelical Christians here.

But across the broader Republican Party there seems to be some unease – she is an unknown quantity, and when she is finally brought out on to the convention stage on Wednesday, many McCain supporters will be crossing their fingers and hoping she performs, he adds.

The 72-year-old Arizona senator is expected to formally accept his candidacy in a prime-time speech on Thursday evening.

---

What is your reaction to the Republican convention? Tell us your thoughts on the event so far

Obama launches historic campaign

Obama launches historic campaign

Barack Obama has accepted the Democratic Party’s historic nomination to run for president of the US in front of a crowd of some 75,000 people.

In an address at the party’s national convention in Denver, he promised he would do his best to keep alive the American dream of opportunity for all.

“America, we are better than these last eight years,” he told cheering crowds. “We are a better country than this.”

Mr Obama is the first African-American to be nominated by a major US party.

In his speech at Denver’s Invesco stadium, Mr Obama promised to reverse the economic downturn afflicting the US and restore the nation’s standing in the world.

I will restore our moral standing, so that America is once again that last best hope for all who are called to the cause of freedom Barack Obama

“We are here because we love this country too much to let the next four years look just like the last eight years,” he said.

He also attacked the record of the Bush administration and his Republican rival for the presidency, John McCain.

“This moment – this election – is our chance to keep, in the 21st Century, the American promise alive.”

Mr Obama criticized Mr McCain as out of touch with the concerns of ordinary Americans and said he had failed to help them on issues such as the economy, health care and education.

He also stressed that he would call for the withdrawal of troops from Iraq, whereas Mr McCain stood “alone in his stubborn refusal to end a misguided war”, he said.

“I will restore our moral standing, so that America is once again that last best hope for all who are called to the cause of freedom, who long for lives of peace, who yearn for a better future,” he said.

Tens of thousands of people gathered to hear Mr Obama’s speech

He rejected criticism by the McCain campaign that he is a “celebrity”, pointing to his family’s past financial hardships, and said his rival should stop questioning his patriotism.

In a final rallying call, Mr Obama recalled the message of Martin Luther King, who – 45 years ago to the day – gave his “I have a dream” speech in his historic march on Washington.

“America, we cannot turn back,” he said. “We cannot walk alone. At this moment, in this election, we must pledge once more to walk into the future.”

Joined on stage by his family and running-mate, Joe Biden, Mr Obama was given a standing ovation by the crowds.

‘Not ready’

Earlier in the day, Mr McCain ran a TV advert in which he congratulated Mr Obama on the historic nature – and date – of his nomination, saying it was “truly a good day for America”.

The political truce was short-lived, however, with a spokesman for the McCain campaign issuing a statement following Mr Obama’s address that dismissed his words as “misleading”.

If you like the Bush-Cheney approach, John McCain’s your man. If you want change, then vote for Barack Obama and Joe Biden Former Vice-President Al Gore

“Tonight, Americans witnessed a misleading speech that was so fundamentally at odds with the meagre record of Barack Obama,” spokesman Tucker Bounds said.

“The fact remains, Barack Obama is still not ready to be president.”

The BBC’s Justin Webb in Denver says that this needed to be a serious speech by Mr Obama and it was.

One feature was that Mr Obama made frequent reference to the future, our correspondent says. The Obama camp knows that Americans are worried about Mr McCain’s age and ever so subtly they are making an allusion to it.

Martin Luther King’s eldest son, Martin Luther King III, had earlier told the convention that his father’s dream lived on in Mr Obama’s candidacy.

“He is in the hopes and dreams, the competence and courage, the rightness and readiness of Barack Obama.”

Former Vice-President Al Gore also called on the Democrats to “seize this opportunity for change” and elect Mr Obama.

Linking Mr McCain firmly to the policies of President George W Bush, Mr Gore said it was vital that Americans changed course if they wanted to tackle a “self-inflicted economic crisis”, protect the rights of every American and halt global warming.

Mr Gore added that the US was “facing a planetary emergency” and that the ties of Mr McCain and the Republicans to big oil firms meant they would not act to end the country’s reliance on fossil fuels.

‘Open convention’

Mr Gore’s address, warmly received by the crowd, followed performances from singers Stevie Wonder, Sheryl Crow and John Legend.

The Obama campaign took the unusual move of holding the closing night speeches in the sports stadium to allow ordinary voters, as well as party delegates, to attend.

His supporters and those sympathetic to him are breathing a sigh of relief BBC North America editor Justin Webb, on the Obama nomination

Mr Obama’s much-anticipated appearance was the highlight of the party’s carefully choreographed four-day event.

Questions remain as to whether Mr Obama can cement his standing within his own party, and reach out to those parts of the electorate that are yet to be convinced by him, the BBC’s Matthew Price in Denver notes.

He was resoundingly endorsed by ex-President Bill Clinton on Wednesday, which may help consolidate his standing.

Earlier that same day, in a moment of high drama, his defeated rival Hillary Clinton cut short a roll-call vote to endorse Mr Obama’s candidacy by acclamation, in a powerful gesture of unity.

The presidential election on 4 November will pit Mr Obama against Mr McCain, who will be nominated next week at his party’s convention in St Paul, Minnesota.

Republican officials say Mr McCain has chosen his running-mate, but the person’s identity has not yet been announced.

Mr McCain is due to hold a 10,000-strong rally in the swing state of Ohio on Friday, at which it was expected he would present his vice-presidential candidate.