Analysis: Economic upheaval shakes up campaign debate

WASHINGTON -- After a week in which the political debate kept coming back to lipstick and pigs, this week's economic implosions have refocused the nation's policy debate and threatened to reconfigure the political landscape.

"We're facing, essentially, an economic 9/11," says Leon Panetta, White House chief of staff and budget director under President Bill Clinton. "Rather than deciding who's wearing lipstick, they're focusing on your basic pocketbook issues."

Last week, newspapers featured a photo of Barack Obama arriving for a taping of the Late Show with David Letterman. Obama's latest starring role on TV is in a two-minute ad laying out his prescriptions for the ailing economy.

Much of the coverage of John McCain's campaign last week centered on his running mate, Sarah Palin. By Wednesday, the talk of the campaign was all about reforming Wall Street.

The renewed attention to the economy gives both candidates a chance to move away from their parties' pasts. For McCain, that means an activist approach to changing Wall Street and Washington, not the deregulation for which Republicans are known. For Obama, it means including tax cuts and energy production in his mix of more liberal salves.

Wednesday, Obama denounced McCain's "eleventh-hour conversion" to the cause of regulation, while McCain promoted his record of government reform and softened his earlier opposition to a government rescue of the American International Group.

The economy was at the top of voters' minds in the latest USA TODAY/Gallup Poll. More than two in three respondents cited an economic issue, including energy or health care costs, as their biggest concern. The cratering of Wall Street titans and its impact on jobs, pensions and portfolios are likely to cement those worries.

"I always thought this was a campaign about the economy," says Doug Holtz-Eakin, McCain's top policy adviser. "In the end, it's about will this disaster on Wall Street roll over and crush the Main Street economy."

Though more talk about the economy may be a good thing for voters, it poses a risk for both candidates: McCain acknowledged early in the campaign that the economy wasn't his strong suit, and Obama has a short economic résumé.

Obama emerged from Wall Street's wreckage Wednesday with the better chance of making gains, some analysts say. Polls show voters side with Democrats on the economy.

"The tectonic plates shifted, and it's the economy, it's the financial sector, it's Wall Street," says Robert Reischauer, president of the non-partisan Urban Institute. "The Republicans have been identified with market deregulation, with low taxes on financial executives, and let capitalism and markets show their stuff."

Others say McCain can point to his support for tighter regulations on Fannie Mae and Freddie Mac, last week's federal bailout targets. And he can tout his opposition to tax increases.

"I think the jury's out on who this is going to benefit," says Pat Toomey, a former Republican congressman who leads the anti-tax Club for Growth. McCain, he says, "is on the right side of the tax issue, in the minds of the general public."