Nov. 5 (Bloomberg) -- There are many ways to think about Tuesday’s election, some of which are completely wrong. “The real story here is, I think, this thing is ambiguous,” White House adviser David Axelrod said. That’s true only if ambiguous is a synonym for frightening.

There’s one piece of good news for Democrats. They won in New York’s 23rd congressional district for the first time since the mid-19th century, largely because Republicans were in turmoil. NY23 might suffice as a face-saving story offered by Democratic mouthpieces, so long as they don’t actually believe it or foist it on the boss in the Oval Office.

The Democrats’ problems concern direction and mood; the Republicans’ loss in the 23rd showed a weakness of tactics. They weren’t prepared to succeed in driving out the establishment Republican candidate and didn’t have a strong alternative in Doug Hoffman, a charisma-less accountant with the smarts of a fifth grader. Conservatives will surely field a better candidate in 2010. Congressman-elect Bill Owens would be wise to rent, not buy, in Washington.

As hard as it may be for the GOP to contain Sarah Palin (R- Facebook), Rush Limbaugh, Glenn Beck and their various allies, it’s a lot harder to deal with a public that’s losing faith in government to improve their lot.

According to exit polls in both Virginia and New Jersey, more than 85 percent of voters said they were worried about the country’s economy. While Obama didn’t create the economic meltdown, it’s his to cure. Not since the Gilded Age has there been more of a concentration of wealth in America, a fact the working and middle classes let slide until they were caught up in the biggest financial catastrophe since the Great Depression.

Rigged Game

In a game exposed as rigged, the fixers were too big to fail, ordinary Americans too small to save -- a mindset that didn’t change enough from George W. Bush to Barack Obama. Among the first things Obama did was to cut a deal with Big Pharma and coddle the medical insurers. Forget single-payer health care. He preemptively compromised away the public option.

The loss in Virginia is less troublesome (no one of the same party in the White House has become governor in 36 years, and the Democratic candidate was weak) than the one in New Jersey, a state so blue Picasso could have painted it.

In the middle of a recession it’s hard to identify with a candidate like Governor Jon Corzine, a wealthy former senator and Goldman Sachs alum. Against a guy who screams Jersey Boys and anti-corruption -- Chris Christie was U.S. attorney before running for office -- Corzine looked like a bad mix of Washington elitism and New York privilege.

Dirt Galore

In the middle of an ethics pandemic in the Democratic Congress, it didn’t help Corzine to be presiding over a state where three mayors, a couple of assemblymen and five rabbis were hauled off on criminal charges after a two-year investigation of corruption and money-laundering.

The bailout and stimulus bill helped some but not enough. When the financial industry gets a cold, New Jersey gets swine flu. Unemployment in the Garden State is near 10 percent and foreclosures, along with property taxes, painfully high.

Corzine also made a ridiculous attempt to go after a heretofore unidentified demographic, the thin vote. An ad showed Christie struggling out of his sport-utility vehicle, revealing an expanse of white shirt over an ample gut, with a voice intoning that he “threw his weight around” to get out of a traffic violation. Not only are the adult overweight a considerable plurality in the country, the older ones are the most likely to vote.

Two in One

It’s not smooth sailing for the Republican Party -- or two. Several movements converged in NY’s 23rd. Conservative radio and TV talk-show hosts and Palin were joined by former House Majority Leader Dick Armey’s FreedomWorks, which has channeled the tea party movement, and the Club for Growth, the granddaddy of defining who is and isn’t a true Republican on strict fiscal grounds.

Of the four entities, the Club is the steadiest and could channel the energy of the other three, if they stick to the principles they share.

Club for Growth activists are not energized by social issues or birthers, like many of the tea partiers. But they are the birthers of economics. They believe scant spending, low taxes, massive deregulation and widespread privatization would be nirvana, not government by the Sopranos.

Club Wins

The Club is pragmatic. While Palin is running her insurgency from Facebook, the Club, founded in 1999 by Stephen Moore, has lots of money, works from offices on K Street and dines at the Palm. In general, it recruits better candidates than Hoffman and has more winners than losers under its belt.

The Club’s other big accomplishment this year was to drive Pennsylvania Republican Senator Arlen Specter out of the party. Specter would rather take his chances as a Democrat than face a rematch in 2010 with former Congressman Pat Toomey, who, with the Club’s backing, came within two points of defeating Specter in the 2004 primary election.

With polls showing government in remarkably low esteem and falling, running in 2010 is likely to be easier as an outsider of either party than as an insider. Incumbents should be afraid, very afraid.

Whether Palin and the insurgents prevail depends in part on whether they smooth their sharpest edges by hewing more closely to fiscal purity than to the social kind. The GOP purists already have started a campaign against conservative Utah Senator Robert Bennett -- hardly a model of Republican Lite -- for failing to reject every element of health-care reform.

You can’t last for long as a species if you are feasting on your own. There’s no ambiguity in that.

(Margaret Carlson, author of “Anyone Can Grow Up: How George Bush and I Made It to the White House” and former White House correspondent for Time magazine, is a Bloomberg News columnist. The opinions expressed are her own.)

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To contact the writer of this column: Margaret Carlson in Washington at mcarlson3@bloomberg.net

Last Updated: November 4, 2009 21:00 EST