His Campaign Was an Extension Of the New Economy Into Politics McCain Mutiny

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It’s no accident that John McCain’s success in disrupting the Republican Party has come at a time when upstart companies everywhere are threatening giant established corporations. The new schism in the Republican Party mirrors the new schism in American business.

The McCain Mutiny may have failed, but broadly speaking it can be viewed as an extension of the New Economy into politics. The Arizona senator, who is a friend, has disrupted the old order, created a giddy feeling of anarchy, and given the individual voter a new feeling of importance which is why the electorate is once again keen to vote.

What’s strange about this is that it’s the campaign of Texas Gov. George W. Bush not McCain’s that has had the most distinctively New Economy look to it.

I’m not the first to notice that Bush’s bid to become president has a lot in common with an Internet IPO. Right from the start, the logic of the Bush campaign had an Internet-like circularity to it. People joined not because Bush offered some compelling new message or possessed extraordinary political gifts. If elected, as Nicholas Lemann wrote in the Jan. 31 issue of The New Yorker, Bush would have the thinnest resume of anyone to occupy the White House in this century. People joined the Bush campaign because they thought Bush would win.

Role of middlemen

This perception was created by a relative handful of Republican bigwigs (old friends of his father, former President George Bush) and a few large political fund-raisers. These people play a similar role in the Republican Party as, say, Kleiner Perkins and Morgan Stanley play in the Internet business. The amazing thing, in retrospect, is the size of the bandwagon these people built for Bush.

It wasn’t long before people were raising money for the Bush campaign simply because Bush had raised the most money. I know some of these financial backers, and so I also know how shallow was their knowledge of their candidate. In spirit they weren’t a whole lot different from people who buy shares in Yahoo! Inc. because Yahoo is going up.

This sort of behavior isn’t necessarily irrational. It’s just speculative. A clever speculator in Yahoo doesn’t waste his time worrying about whether Yahoo will one day turn a profit. Instead, he tries to figure out what others believe about Yahoo. Buying Yahoo because it is going up is a smart strategy, if everyone else is doing it. So long as that happens, Yahoo will rise, thus causing others to buy Yahoo. A virtuous upward spiral will ensue.

That’s the second thing the Bush campaign strategists borrowed from the people who orchestrate hot Internet IPOs: a deep understanding of the way perceptions create reality. There has never been a time when the perception of success is as intoxicating as it is in America today. This is as true in politics as it is in finance.

If a company or a candidate enjoys the perception of success, even if the perception is one inch deep, they can use it to acquire a more durable success. Even the most hazily conceived Internet startup, if it gets its hands on huge sums of capital and many smart employees, can buy itself a real business (witness Healtheon). Similarly, even the less well-defined political candidate, if he gets his hands on enough money and endorsements, can create at least the aura of leadership.

The trick in both New Economy politics and New Economy finance is to maintain the illusion of success long enough for it to become a reality.

Exit costs

But a politician who constructs a New Economy campaign enjoys at least one big advantage over an Internet entrepreneur: It’s much harder for an investor to extract himself from a losing political campaign than a losing financial enterprise. All the holder of a sinking Internet company need do is to sell his shares.

The supporter of a sinking political campaign, on the other hand, is stuck. If he jumps ship for another campaign he runs the risk of being branded a traitor, without the great hope of getting anything in return, as he will always be regarded with suspicion by any rival camp he seeks to join.

That may be the only reason the Bush campaign did not come completely unglued following primary election losses in New Hampshire, Michigan and Arizona, and the revelation that he has spent all but $10 million of the record $74 million that he has raised, compared to the $27 million raised by McCain.

At one point, Bush’s financial advantage over McCain was just $1 million or so. As the general election shapes up, it’s a point worth noting. Even an Internet investor would have trouble tolerating this sort of performance.

Michael Lewis, the author of “Liar’s Poker” and “The New New Thing,” is a columnist for Bloomberg News.

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