The recent weeks’ mayhem in the markets – and the authorities’ apparent inability to do more than slow it down somewhat – establishes one fact: that the economy, global or national, has not been fixed.
The administration’s response to the crisis has been massive bail-outs and cash transfers. This has somewhat eased the electorate’s pain, but only postponed the final explosion of anger and frustration prolonged downturns tend to generate.
The Federal Reserve’s prescription was to put the financial system on life support with huge injections of no-cost (zero interest) money. The goal has been to “save the banks” and pump up the stock market, creating the hoped for “wealth effect”. While there have been temporary remissions, the patient has swooned each time the tubes were removed.
Nor are future repeats of the same likely to do any better, since none addresses the root cause: the massive imbalances that were created, and are still being aggravated, by globalization.
The causes for this apparently willful ignorance and blindness we leave aside at this time, for their political consequences are now at the door, and they are both grave and inescapable.
America is heading for a key presidential election and the two established parties are in danger of collapse.
Let us look at both in turn:
The Republicans are undergoing an extraordinary narrowing of the ideological spectrum. Building on the Tea Party momentum and cheered on by triumphant Talk Radio hosts, libertarian activists are taking over the party’s grass roots machinery and primary process. Every candidate will either submit to the libertarian ideology or be selected out in favor of some truer believer.
The result will be a slate of candidates so far to the right they will be mostly unelectable. While satisfying the right-wing fire eaters, this will confine the party to indefinite minority status. Cowed by vigilant radio show hosts, the party establishment is essentially powerless to influence the outcome.
Democrats are no better off. They do have one candidate in Barack Obama, but his popularity is dropping so fast it is likely to have disintegrated by primary season. Democrats and their all-important union supporters will then face a choice and maybe a split: lose with Obama, still supported by public employees unions; or ditch the President and attempt to recover with a more palatable candidate, be it Hillary, Mario Cuomo or even Al Gore, backed by the industrial unions and the middle class party members.
All of the above will likely be in the context of a severe double-dip, with public money running out and business in a panic.
Are we then to witness complete political dissolution? It is possible, but by no means inevitable.
First, there are real, workable solutions. The effects of globalization can be neutralized and, when necessary, reversed. National sovereignty can be restored, the financial system returned to its primary investment task, and the economy reset towards a productive future. But all these require political will as well as ideological flexibility.
The vast majority of voters are deeply frustrated with both parties. Republican moderates are the worst off, as their party’s slide towards radical libertarian positions will be hard to arrest. But there will be some moderate “R’s” left, as well as potential conservative Independents.
Democrats will be handicapped by the presidential issue, and this will divide the party. But for congressional races they will have the option of fielding centrists acceptable to moderate Republicans, or supporting compatible Independents, leading to a nominally Democratic majority under a “big tent”.
Finally, there is the unpredictable creativity of the American system. The challenge is great, but the Republic has weathered similar ones in the past. The outcome might yet surprise us, and lift the current gloom far faster than now expected.
This could be the jolt that our political system needs, and it will require everyone’s participation.