It is not just that the Democrats will win a crushing victory in both houses of Congress, perhaps reaching the 60-seat Senate threshold that lets them steam-roll legislation. It is also that the incoming class of 2008 is of a new creed. Many no longer believe – or actively reject – the free trade and free market catechisms. As commentator Markos Moulitsas put it in Newsweek: "The big question is, will Democrats nationwide simply 'win' the night–or will they deliver an electoral drubbing so thorough that it signals the utter rejection of conservative ideology and kills the notion that America is a 'center-right' country?" he said. No matter that statist policies were responsible for this global crisis in the first place. It was Western governments that set interest rates too low for too long, encouraging us all to abuse credit. It was Eastern governments that held down their currencies to pursue mercantilist trade advantage, thereby accumulating vast foreign reserves that had to be recycled. Hence the bond bubble. This is the deformed creature known as Bretton Woods II. Protectionist Democrats are right to complain that the game is rigged. Free trade? Laugh on. But at this point I have given up hoping that we will draw the right conclusions from this crisis. The universal verdict is that capitalism has run amok. In any case the damage caused as credit retrenchment squeezes real industry is likely to be so great that Barack Obama may have to pursue unthinkable policies, just as Franklin Roosevelt had to ditch campaign orthodoxies and go truly radical after his landslide victory in 1932. Indeed, Mr Obama – if he wins – may have to start by nationalizing the US car industry. For those who missed it, I recommend Edward Stourton's BBC interview with Eric Hobsbawm, the doyen of Marxist history. "This is the dramatic equivalent of the collapse of the Soviet Union: we now know that an era has ended," said Mr Hobsbawm, still lucid at 91. "It is certainly greatest crisis of capitalism since the 1930s. As Marx and Schumpeter foresaw, globalization not only destroys heritage, but is incredibly unstable. It operates through a series of crises. "There'll be a much greater role for the state, one way or another. We've already got the state as lender of last resort, we might well return to idea of the state as employer of last resort, which is what it was under FDR. It'll be something which orients, and even directs the private economy," he said. Dismiss this as the wishful thinking of an old Marxist if you want, but I suspect his views may be closer to the truth than the complacent assumptions so prevalent in the City. To those who still think that business can go on as normal now that EU taxpayers have had to rescue the financial system, I can only say: what will happen to London if EU exchange controls are imposed, or if leverage is restricted by draconian laws – as demanded by the German, Dutch, and Nordic Left? Does the UK still have a blocking minority under EU voting rules to stop a blitz of directives that could shut down half the activities of the City – or the 'Casino' as they say in Brussels? I doubt it. Who thinks that the three key Commission posts – single market, competition, and trade – will still be held by free marketeers when the new team comes in next year? In Germany, Oskar Lafontaine's Linke party now has 23pc support in Saarland on a Marxist pledge to nationalize banks and utilities. Needless to say, the Social Democrats (SPD) are shifting hard Left to protect their flank. "The rule of the radical market ideology that began with Margaret Thatcher and Ronald Reagan has ended with a loud bang," said Frank-Walter Steinmeier, Germany's foreign minister and SPD candidate for chancellor next year. "We need a comprehensive new start, so we can reestablish our society on fresh foundations. People create value, not locusts," he said. France has its own Gaullist version on this, seizing on the crisis to launch the most far-reaching strategy of state intervention since the 1970s. "Laissez-faire, c'est fini," said President Nicolas Sarkozy. "We will intervene massively whenever a strategic enterprise needs our money." Such language can now be heard daily across Europe. It can only intensify as the fall-out from the EU's €1.8bn trillion (£1.4 trillion) bank rescue becomes clearer, and as Europe's elites discover that their own banks are the most leveraged in the world and have played their own Wagnerian part in Gotterdammerung. European and UK banks are five times more exposed to emerging markets than US banks. They alone hold the collective time-bomb of $1.6 trillion (£990bn) in hard currency loans to Eastern Europe – now starting to detonate in Hungary, Ukraine, Romania, and even Russia. At some point, Europe's political class will face the awful truth that their own credit bubbles are just as bad – and perhaps worse – than the excesses of US sub-prime property. As that occurs, the shock will move by degrees from revulsion to political rage. Professor Hobsbawm, who spent his youth watching Hitler's rise in Berlin, has a warning for those who think this will help the Left in any recognizable form. "In the 1930s, the net political effect of the Depression was to enormously strengthen the Right," he said. America was the great exception, as it may prove to be again. I for one will take the enlightened "socialism" of Barack Obama any day over the Hegelian broth nearing the boil in Europe.
Revenge of the Left across the world
Whatever the exact result of the US elections tomorrow, we must assume that the whole governing machinery of Washington and the state capitols will soon be hostile to laissez-faire thinking.
Monday, 3 November 2008
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