WASHINGTON -- Sen. John McCain faces not one but two opponents in this election: freshman Sen. Barack Obama and the U.S. economy.
Polls show McCain in a virtual dead heat against the Illinois lawmaker who is a youthful and eloquent-speaking candidate with zero experience in statecraft, legislative deal making and free-market economics. But the glib Chicago Democrat has the ability to persuade and inspire, and the political and economic climate this year favors the Democrats.
The economy, though, may be McCain's tougher opponent. He is in a race with its recovery, hoping the economy turns upward in the next five months, and praying that it will arrive in time to rob the Democrats of their strongest issue long before Election Day.
Right now, the economic landscape is mixed, showing some signs of faint recovery in places but weaknesses in others. We are not in a real recession -- the economy is still growing and showing some signs of strength.
Nationally, the economy is expanding at 0.9 percent, and it is expected to grow by perhaps 2 percent or more in the second half. Unemployment, a lagging indicator, jumped to 5.5 percent from 5.1 percent in May, rattling the stock market and giving Democrats more ammo to fire at McCain's candidacy.
A gallon of regular gasoline is more than $4 in many parts of the country, squeezing consumers' pocketbooks, the financial sector is still struggling with the credit crunch, while a still ailing housing market looms over the economy with unsold inventory and falling home values.
A CNN/Opinion Research poll reported Friday that when they asked 1,035 Americans what was their most important issue in the presidential election, 42 percent said the economy. The war in Iraq, which seems to be improving every week, has fallen to second place at 24 percent.
Americans are gloomier than ever about the economy, with 87 percent saying it is getting worse. But the question is, worse than what? Worse than the 1981 to 1983 recession when the unemployment rate was more than 10 percent?
By historical standards, 5.5 percent unemployment is relatively low and by many economic standards is considered full employment.When President Reagan was running for re-election in 1984 on an optimistic "morning in America" campaign heralding the economy's comeback, the jobless rate was a bleak 7.4 percent. But he won in a landslide, carrying 49 states.
"Right now, I think the economy is in neutral. Half of the indicators are looking positive, and half are looking negative. There's a heck of a lot of economic stimulus kicking around, so it's possible the economy might rebound by the fall," said Kevin Hassett, an economist at the American Enterprise Institute and a senior adviser to the McCain campaign.
"If we are in a recession, it will be one of the shallowest ever," he told me last week.
Looking for silver linings in this economy is not something that either the Obama campaign or the nightly news shows spend their time doing. But it is worth doing, if only to show that there is still a lot of life left in the ever-resilient U.S. economy that never ceases to surprise the doom-and-gloomers.
Let's take the housing picture, for example. In the past two weeks, the Commerce Department reported that new-home sales rose 3.8 percent and existing-home sales rose more than 6 percent in April -- the highest since October.
Lower prices and still historically low interest rates are luring buyers back into the market. Banks are increasingly eager to make loans to qualified borrowers, and we are seeing the beginning of an upturn in the housing industry that is going to lead this economy out of its lethargy.
We are also beginning to see a rise in durable-goods factory orders, and the latest 3 percent rise in U.S. exports in the first three months of this year gives every reason to believe that we are going to see a record in export sales in 2008.
McCain's growth prescriptions are all about lowering taxes and boosting investment capital for new-business formation and expansion. Obama, on the other hand, doesn't think or talk in terms of venture capital or capital investment, the bodybuilders of a thriving economy.
McCain's economic arsenal calls for making the tax cuts permanent, doubling the personal exemption for dependents, cutting the 35 percent corporate tax rate to 25 percent and repealing the alternative minimum tax that is squeezing the middle class with higher tax rates.
Obama's jobs agenda contains no broad-scale tax incentives to boost businesses and hiring. Instead, it is loaded with more federal spending for basic research and for "clean technologies" and "renewable energy" that he says will "create high-paying jobs." Don't hold your breath.
Indeed, he would raise the capital-gains tax on investors and push the top tax rate to nearly 40 percent, punishing the sector that is the wellspring of capital formation, economic opportunity and growth.
McCain is saying you can't have a healthy capitalist economy without capital. Obama is saying, "Give me the capital, and I'll do the investing."