The second debate

Stephen Green writes, “Instant analysis? McCain won, but not by nearly enough to matter. He was up against a punk kid, and barely came away on points. Barely. McCain is answering the questions for real. I’m not sure it serves him much better than Obama’s smooth (if silly) segue.” For some on each side of the aisle the fine points of the policy debate are less important than beating the opposition. This is the intensity which some viewers would have preferred the debates to have been conducted but Gary Cooper’s gone and Sarah Palin‘s not running for President this year.

But events may now be driven by forces that are beyond short term human control, as if some dynamical system boundary into nonlinear response has been crossed.  In that chaotic environment, Presidential leads don’t switch on things like ‘who won the debate’ any more than the financial meltdown is responding to bailout packages. They respond to a combination of things which we don’t understand, though we pretend to. So we pull back on the stick and stomp on the rudder pedals but the crate just has a mind of its own. The WSJ reports that the more governments try to tame the financial beast, the more it rampages.

The global financial crisis has taken a perilous turn: As government efforts to tame it grow more aggressive, markets are becoming less confident those efforts will succeed.

On Monday, the Federal Reserve and European governments stepped up relief efforts, above and beyond the $700 billion rescue package approved by the Congress last week. But markets around the world responded with a massive vote of no confidence. European stocks saw their biggest drop in at least 20 years, and the Dow Jones Industrial Average dropped below the 10000 mark, a stark sign that the crisis may be outpacing policy makers’ ability to contain it.

It used to be a case that if you did X then Y resulted. If 2X then 2Y. But the old certainties don’t hold any more. Maybe part of the problem, if there is still some linearity as I have written elsewhere, is that the bailout efforts don’t clearly signal that the bad old ways of doing business have ended. During World War 1, the more troops the generals fed into the machine guns the less confident the home publics were of victory. Only when they started doing things differently was confidence somewhat restored. To some extent the circumstance that governments are resorting to these desperate rescue packages conveys more clearly than anything else that they are firing into the dark; and the market understands this, even if the politicians don’t. They’ve tried the rescue packages.  Now maybe they should try handcuffing a couple of dozen senior politicians and sending them to the graybar inn. That might restore confidence in a way untold trillions won’t.

If the events have gone nonlinear, then Barack Obama and John McCain may ironically be struggling for the privilege of sitting in the cockpit of an airplane which has become aerodynamically unstable. In such a situation, second prize is getting the White House.  Barack Obama will be to politics what the bailout package has been so far to financial markets. There’s an old joke about dogs who chase cars and can’t figure out what to do when they catch them. Now Presidents and Central Bankers all the world over know how it feels to reach the perches they always dreamed of and finding themselves spectators just the same.