“What do we do now?”

That’s the question Robert Redford asks no one in particular at the end of the movie “The Candidate.” (Redford plays a lawyer who runs against a supposedly unbeatable California Senator).

I’ll suspect a lot of people are betting Governor-elect Arnold Schwarzenegger is having similar thoughts; I’ll also posit that its a losing bet. There have been too many deliberate, well thought-out acts for Ah-nold not to have given this serious consideration a long time ago. See “Schwarzanoia strikes deep: Was he behind the recall all along?” to get a better idea of how Arnold’s actions have been consistent with a potential run for public office for quite a while.

I first visited the issue of the political/economic repercussions of a Schwarzenegger governorship back in August; It was in the context of Warren Buffett legitimizing political neophyte Arnold by joining his campaign as financial/economic advisor:

“Schwarzenegger scored an enormous coup landing longtime Dem Warren Buffet as his economic advisor. That turns what was going to be an electoral circus into a legitimate race; It likely spells a knock out punch for Gov. Davis.”

Warren, well known for his straight shooting realism, spouted off that Prop 13 was on the table. Once the defibrillators were put away, Arnold (and political advisor George Schultz), kept Warren stifled for the rest of the campaign. Since then, there have been no more Prop 13 induced heart attacks.

With the election now over, I expect to see Warren come out of the shadows to play a major role. The first hint of this will be Schwarzenegger convening some kind of “special blue ribbon bipartisan panel of experts” to propose ways to fix California’s budget.

The actual purpose behind the blue ribbon panel will be to provide the political cover for Warren’s nasty medicine. There will be no sacred cows– everything will be on the table: Tax hikes for the wealthy, service cuts, and yes, Prop 13, will get its share of unwanted attention.

That’s the political advantage newcomers, outsiders and novices bring: They can ask the questions others already know the answers to, and do unthinkable political acts. Since Arnold can’t run for higher office, he will be focused on Cal-ee-forn-ee-a for his full term. (Unless, of course, Arnold gets recalled too . . . )

To me, what’s fascinating about Governor Schwarzenegger and his relationship to Buffett is how that plays out on the national political stage:

Buffett commands respect in the financial world, but his critique of the White House economic plan fell on mostly deaf legislative ears. He is potentially one of the most devastating critics of the present economic policies. In our opinion, Buffet’s joining Schwarzenegger has less to do with California politics, and everything to do with ascending to a national political platform. The lack of traction his economic observations received in the political world had to be part of his motivation for joining the California circus . . .

I’m curious how this not so little drama in three acts plays out; I want to know how the 5th largest economy
in the world is going to be governed, and how the most populous state in the Nation is going to behave politically.

Relative Size of California’s Economy
Source: CNN/Money

Stay tuned . . .

Update (5:07 pm):
Marc Brazeau of Blogonaut looks at whether Arnold will govern to the right or the center, and the political benefits of the loss to the Dems: Gubenator (a little blogrolling never killed anyone . . . )

Update [2] (10:07 am, 10/09):
Exit polls show Californian’s negative view of the economy outweighed concerns about Ah-nold.
California voters.gif
Courtesy of WSJ

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  1. Stewart Noyce commented on Oct 8

    If you don’t live in California, it seems like a weird place. This recall only supports that assertion.

    The reality is that 72% of Californians disapproved of their governor and 56% were sufficiently tweaked to risk the long-term political consequences of actually recalling the man.

    Unfortunately, Gov. Ah-nold will have a short honeymoon. He is a political neophyte and California can’t wait for him to grow into the job. The budget is only part of the problem. The fifth-largest economy in the world needs some people to pay attention to its growth engines.

    The smart money (SF Bay Area, where most venture money gets invested) did not vote for the recall despite intense dissatisfaction with Gray Davis. Some comments I have heard indicate that a dose of Warren Buffett economics might not hurt. For example, Prop 13 needs to go. It has been weakening the schools for years and forcing bitter battles between local and state interests.

    But let’s remember what Buffett has to say about businesses based on technology – he doesn’t invest in them because he doesn’t understand them. Well, investors here understand technology and need state governance that understands it as well.


  2. Barry Ritholtz commented on Oct 8

    Excellent point Stewart — but I’ve always thought Buffett was being a bit glib when he said that . . .

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