One way to think about the political impact of the GFC is to look at the range of political positions it’s rendered untenable. This range is large, encompassing, in the US context, everyone from Bill Clinton to Newt Gingrich. More generally, it covers anyone who embraced the claim that a US-style economic system, as of, say, 1995-2005, was the best that could possibly be achieved, and could only be improved by making government smaller and/or more business-like.
Minus the US-specific triumphalism, this range includes the positions held by most major political leaders in the developed world at the time the crisis erupted, notably including both John Howard and Kevin Rudd, not to mention George Bush and Barack Obama. It covers anyone who saw the growth of the financial sector and the explosion of global financial transactions as beneficial and who regarded with equanimity phenomena like the growth of inequality and the decline of trade unions which both resulted from and reinforced these trends. Virtually everyone holding this view downplayed or disregarded the looming crisis until it exploded in late 2008.
A critical assumption underlying this views is that the system is stable enough to maintain equilibrium without substantial government intervention and without collapsing into crisis. As far as I can tell, no one seriously argues this in relation to the current financial crisis. There are those who argue that the kind of massive intervention we’ve seen shouldn’t be undertaken and/or will only make things worse. But, AFAIK, no one seriously suggests that, without intervention the system could right itself fairly fast and return to the situation prevailing in, say, 2006.
What are the implications of the collapse of such a large section of the political landscape, both for those who formerly occupied it, and for the rest of us?
Whatever their original position, politicians who actually have to manage national economies have scrambled to find some tenable ground to the left of the chasm that has opened under them, whether this means nationalising financial institutions (Bush was actually the first to do this, I think), taking over financial markets (Ruddbank for example), large-scale Keynesian stimulus packages (Rudd, Obama) or raising taxes on the rich as a first step to paying off the bills that are now piling up (Obama, Brown, hopefully Rudd in the near future).
Unsurprisingly, the immediate reaction (most evident in the Geithner plan) has been to aim for the minimal possible shift, in the hope that as much as possible of the status quo ante can be restored when the crisis is over. But it should be obvious by now that large and irreversible changes are already underway. Rudd has probably gone further than most in recognising this, at least in rhetorical terms.
The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.
For those out of power, there are rather more options. The most common is simple wishful thinking, scoring cheap political points by opposing bailouts and stimulus packages while offering no reason to believe that the system can be sustained in their absence. This is the line taken by the Liberals in Australia and the Republicans in the US. It was evident in a lot, though not all, of the talk surrounding the teabag rallies in the US recently.By contrast, and as I predicted, the National-ACT government in NZ is offering stimulus packages Australia dvd and abandoning promised tax cuts.
The remaining option is the view that a catastrophic collapse of the existing system is both inevitable and desirable, and that, out of its ashes will emerge something new and better. For different values of “something” this is the view of Marxists, Austrians and Randite libertarians, some Greens and at least some of the populists who turned up at the teabag rallies. Obviously, the crisis implies a much higher probability for the “inevitable” part of the story than most people would have given it a year ago. On the other hand, there’s very little agreement on the desirable alternative that might emerge.
Adding-up constraints imply that the political mass that occupied the now-exploded part of the political landscape must be redistributed over the remaining territory. It will be interesting to see how this process evolves.