Former Arkansas governor Mike Huckabee’s win in the Iowa Republican caucus raises the possibility of a contested Republican convention, while Senator Barack Obama’s substantial win throws the Democrat race wide open. Uncertainty is the big winner.
Iowa is several hundred miles from the nearest international border and leads the nation in per capita farm subsidies, pulling further ahead recently through the ethanol boondoggle. Insulated thereby from the market and global concerns, it tends to favour protectionists and “social conservatives,” rejecting free-market liberals.
For example, the protectionist Dick Gephardt handily won the 1988 Democrat caucuses, while in 1980 Iowa Republicans distinguished themselves by preferring George H. Bush to Ronald Reagan.
The win by Huckabee, the least market-friendly Republican candidate, should thus not have surprised. He is unlikely to thrive on the East and West coasts, where among Republicans the free market is stronger and religious fundamentalism weaker.
However, the other Republican candidates also revealed weaknesses. Mitt Romney’s second place was a poor result, given the resources he devoted to Iowa. He will be hard placed to hold on against John McCain and Rudy Giuliani in New Hampshire, Michigan and Florida. Fred Thompson, third in Iowa, has a weak campaign organization and little money, while the well funded Ron Paul and Giuliani finished fifth and sixth. Hence after 5 February, when more than half the convention delegates will have been chosen, several candidates may well have substantial numbers of delegates. There could be no clear winner before September’s convention, a competitive disadvantage to the Republicans and a considerable source of market uncertainty.
On the Democrat side, a winner is more likely to emerge on or shortly after 5 February, since only two candidates, Hillary Clinton and Obama, will probably have obtained the great majority of delegates. However, Clinton’s air of invincibility has been severely dented by finishing well behind Obama; if she loses New Hampshire also, her overall chances must be slim. That may be good news for the markets, as Obama appears more market-friendly and less divisive.
If Wall Street hates uncertainty, it lost in Iowa.