James Bianco at The Big Picture has all the details, and there’s also coverage at Naked Capitalism.

What’s the big picture here?

On the short term political front, Scott Brown’s win in Massachussetts exemplifies the frustration felt by many with politics as usual. Whether it’s expressed as concern over deficits (and that’s a much more salient touch point with Indendent voters on health care than the rhetoric of the wingnuts), or just as disgust with the jobless recovery’s disjunction with business as usual on Wall Street, there’s no doubt that an election year is starting to focus minds on the politics of financial decision making.

… and that brings us to the bigger picture. The whole entrenchment of the reign of ‘the markets’ and the institutions which serve to reproduce financialised global capital (such as the US Federal Reserve) could not have taken place without the depoliticisation of discussion of decisions about its governance. In Australia, and in the UK, we saw the independence of central banks proclaimed as a touchstone of orthodoxy, while politics in the EU was and still is under the long shadow of first the Bundesbank, and lately the European Central Bank. This depoliticisation is a much more accurate signifier of what neo-liberalism actually is than any concern about the size of the state (which has often increased under right wing governments). In America, Alan Greenspan became something of a fetish for markets.

In the longer term, the fact that the personnel and the policies of the US Federal Reserve are now open to political challenge (at the same time as bankers become a political football in the UK) is undoubtedly the most central ideological and political result of the Global Financial Crisis.

Since September, I’ve been wading through far more reading matter than I’d ever imagined possible on economics and finance. Much of it has been, by necessity, somewhat ephemeral. However, it’s good to see some commentators coming out with something of a longer view.

Immanuel Wallerstein’s conclusion won’t be any surprise to anyone who’s been following his work:

We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times.

As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms. And we are moving into acute social conflict within states, as everyone competes over the smaller pie. In the short-run, it is not, by and large, a pretty picture.

As I’ve previously commented, I’m not at all sure that he’s right that what we’re seeing is the final death throws of capitalism. But I do think he makes another very important point in his commentary:

The characteristics of a Kondratieff B-phase are well-known and match what the world-economy has been experiencing since the 1970s. Profit rates from productive activities go down, especially in those types of production that have been most profitable. Consequently, capitalists who wish to make really high levels of profit turn to the financial arena, engaging in what is basically speculation. Productive activities, in order not to become too unprofitable, tend to move from core zones to other parts of the world-system, trading lower transactions costs for lower personnel costs. This is why jobs have been disappearing from Detroit, Essen, and Nagoya and factories have been expanding in China, India, and Brazil.

As for the speculative bubbles, some people always make a lot of money in them. But speculative bubbles always burst, sooner or later. If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be – the U.S. Treasury and Federal Reserve Bank, the International Monetary Fund, and their collaborators in western Europe and Japan – have intervened in the market regularly and importantly – 1987 (stock market plunge), 1989 (savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long Term Capital Management mismanagement), 2001-2002 (Enron) – to shore up the world-economy. They learned the lessons of previous Kondratieff B-phases, and the powers that be thought they could beat the system. But there are intrinsic limits to doing this. And we have now reached them, as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.

I think it’s incredibly important to underline the point made in the second paragraph of that extract. I feel like I’m sounding the same note over and over again when I’m arguing that what we’ve seen during the global financial crisis reveals the incapacity of ideology for understanding events. Dichotomies about states v. markets are nonsense. There are no “free markets”, except in the fervid imaginings of Hayek’s disciples. The bubbles which are now bursting simultaneously are to large degrees artefactual creations of state power – the self same mob – the Bernankes and the Paulsons of the world – who have now totally lost control of what’s occurring. It is just foolhardy to believe otherwise, and it also should signal that “state action” doesn’t necessarily equate to action in the public interest, another theme I believe has gone missing in action as folks on the left have rushed to claim some sort of revenge of socialism moment with strategies such as the TARP bailout.

It’s understandable that ideology continues to operate as a frame through which to view events which appear unprecedented and frightening, even when the events themselves show up its inability to provide understanding. In this context, LSE political economist Robert Wade’s analysis in the latest New Left Review is very instructive indeed:

Since the 1930s the non-communist world has experienced two shifts in international economic norms and rules substantial enough to be called ‘regime changes’. They were separated by an interval of roughly thirty years: the first regime, characterized by Keynesianism and governed by the international Bretton Woods arrangements, lasted from about 1945 to 1975; the second began after the breakdown of Bretton Woods, and prevailed until the First World debt crisis of 2007–08. This latter regime, known variously as neoliberalism, the Washington Consensus [1] or the globalization consensus, centred on the notion that all governments should liberalize, privatize, deregulate—prescriptions that have been so dominant at the level of global economic policy as to constitute, in John Stuart Mill’s phrase, ‘the deep slumber of a decided opinion’.

Neoliberal economics has powerful antibodies against evidence contrary to its way of seeing things. However, the current crisis may be severe enough to awaken economists from the ‘deep slumber of a decided opinion’, and render them more receptive to proof that the post-Cold War globalization consensus has strikingly weak empirical foundations.

[My emphasis.]

Wade’s article is well worth reading in full. Written on 7 October, it’s a relatively up to date analysis incorporating a historical view with a sound understanding of the current conjuncture. He’s less apocalyptic than Wallerstein, but I think well captures the actual significance of the global financial crisis as a turning point:

The shocks of the past year—another thirty years on from the last major shift—support the conjecture that we are witnessing a third regime change, propelled by a wholesale loss of confidence in the Anglo-American model of transactions-oriented capitalism and the neoliberal economics that legitimized it (and by the us’s loss of moral authority, now at rock bottom in much of the world). Governmental responses to the crisis further suggest that we have entered the second leg of Polanyi’s ‘double movement’, the recurrent pattern in capitalism whereby (to oversimplify) a regime of free markets and increasing commodification generates such suffering and displacement as to prompt attempts to impose closer regulation of markets and de-commodification (hence ‘embedded liberalism’). [3] The first leg of the current double movement was the long reign of neoliberalism and its globalization consensus. The second as yet has no name, and may turn out to be a period marked more by a lack of agreement than any new consensus.

Wade also emphasises something I wrote about in comments on a recent post:

The uk’s role in the crisis deserves emphasis, because contrary to conventional wisdom, the dynamics at its heart started there. The Thatcher government set out to attract financial business from New York by advertising London as a place where us firms could escape onerous domestic regulation. The government of Tony Blair and Chancellor Gordon Brown continued the strategy, leading Brown to boast that the uk had ‘not only light but limited regulation’. In response, political momentum grew in the us over the course of the 1990s to repeal the Depression-era Glass–Steagall act, which separated commercial from investment banking. Its repeal in 1999 produced a de facto financial liberalization, by facilitating an unrestrained growth of the unregulated shadow-banking system of hedge funds, private equity funds, mortgage brokers and the like. This shadow system then undertook financial operations which tied in the banks, and it was these that eventually brought the banks’ downfall.

Wade’s final suggestions about a reform of economic thought and global policy are also measured, stimulating and worth reading and discussing.

In The Guardian, Will Hutton explains why measures to halt the cascading crisis have been ineffectual to date. He might have made more explicit the implication that one of the basic structural problems is that action taken at the level of the nation state can be counter-productive given the disseminations and movements of capital, and that there are real domestic political barriers to coordinated action, as well as all the obvious problems of concertation through institutions such as the EU and the G20.

But he does make this point – harmonising with the note I’ve been sounding repeatedly – very clearly indeed:

There was no effective opposition. The left and organised labour collapsed as intellectual, social and political forces; there was no conviction that any alternative to this shareholder value-driven, financial, ‘securitised’ capitalism existed, or any political muscle to support it even if there were. Mainstream culture moved away from public purpose and fairness; the new priorities were individual self-fulfilment, personal experience and loyalty to self.

Hutton is perhaps more sanguine than I am, though, about the capacity of state action to turn all this around. In essence, he’s making an argument he’s been making for some years – about the virtues of other forms of capitalism than that which has been hegemonic in the neo-liberal Anglosphere. He briefly had some success in influencing Tony Blair in the early days of New Labour – in opposition, to be precise – in pushing ideas about “Stakeholder capitalism”. Whether a reorientation to a capitalism focused on the medium rather than the short term and on the real rather than the financial economy would work now – or whether as John Quiggin seems to think the Gordon Browns of the world are predisposed to be pushed, however much they might kick and scream, in something like the correct direction, is perhaps anyone’s guess as events continue to move at breakneck pace.

Immanuel Wallerstein puts a contrary view. I’m not quite sure if I agree – though he’s right more often than most. It is certain that what is occurring is Schumpeterian “creative destruction”, but whether or not the capacity to begin the cycle of valorisation and capital accumulation anew exists is something I think it’s better to be agnostic about at this stage. While I dare say he’s right about the end of a Krondatieff cycle, beyond that, prognostication seems to have a very short shelf life in these times.

It’s also interesting to observe that some are suggesting that the Canadian Tories’ “steady as she goes” approach is precisely what is leading to their decline in support in the campaign which has reached its final stretches. It may well be that Stephen Harper has more problems than just perceived inaction in the face of the credit crisis, but it probably is significant that voters are demanding state action to propitiate fear. In the Australian context, I wouldn’t be at all surprised if Kevin Rudd and Labor are able to consolidate their support at a time when their momentum may have been sagging. The “cut through” of the opposition really diminishes at times of crisis, and it may be that Rudd has a chance to entrench himself with his response. To some degree that’s dependent on how far Australia is able to resist the global push towards recession, and again, I really would hesitate to place much value in any predictions at this stage.

Iceland right now is apparently in a state of shock and gives a snapshot of what a depression with the Great in it will look like everywhere – “cafes were half-empty, real estate agents sat idle, and retailers reported few sales” says the AP.

This after the government basically took over its banking sector, with Russian money, which as noted in the linked post, has real geopolitical implications.

Meanwhile, the British government is laying out 500 billion pounds to take equity in its banking sector, but basically proposing business as usual. Co-ordinated interest rate cuts are having very little impact on the stock market, and more worryingly, on the liquidity crisis. Paul Krugman writes:

We’re way past the point at which conventional monetary policy has much traction.

In America, in the eye of the economic storm, the Fed has basically become the financial system, but to little avail:

The time for a recession was 2005. At that time simple macroeconomic policy; simply raising interest rates, would have ended the bubbles in credit and housing at the cost of a standard if somewhat nasty recession. Trillions of dollars of intervention would not have been needed. Just standard macro policy. Even in 2006 it might still have worked. The Fed blew it, and they broke the system, and now with the system broken they may have to either buy it all out (and Paulson may be considering that after all) or just become the system. And even if they do that may not work, because, well, who wants to borrow and invest right now?

Bernanke and Greenspan are certainly in the “worst Fed chairman of all time” stakes in a big, big way.

So what does all this mean? It’s not “financial socialism” or the “end of capitalism”. While there are some truly absurd narratives circulating about how the meltdown is all the fault of… you guessed it, regulation, the Left and/or Bill Clinton, this nonsense is not unrelated to the coincidence between the financial meltdown and the American Presidential election, and it can be disposed of very easily:

Although financial institutions were evaluated for compliance with the act, it never required they lose money on mortgages or that they be given to people with slim prospects of repaying them. Even if, as some claim, the legislation ultimately played a part in encouraging excesses, such as the bundling of sub-prime loans into packages that hid their riskiness, that was a failure not of too much but of too little regulation.

[Mike Steketee]

What conservatives can’t point to, ultimately, is any form of regulation that actually caused the crisis. No one put a gun to the head of US bank executives and made them lend to people without the means to repay loans. No one threatened dire retribution to investment bankers unless they packaged sub-prime securities. And no one compelled Standard and Poor’s and Moody’s to inexplicably and wholly irresponsibly rate those securities at AAA levels even when they didn’t understand the packaging mechanisms being used.

[Bernard Keane]

As Keane points out, this sort of thing is a classic example of the moveable feast that is the right wing opinionating machine – an “ownership society” and aspirational citizens were the mark of the success of right wing governments yesterday, and today evil lefties encouraged passive banks to lend money to all sorts of unsuitable poor people.

While it may be difficult at the moment for the Right to point to capitalism as a roaring success story, what’s occurring in response is very far from being socialism, or even nationalisation.

John Quiggin writes:

This kind of instalment-plan nationalisation seems to offer the worst of all worlds. At some point, a more systematic approach will have to be adopted, and given the rate at which markets are plummeting, the sooner that point comes the better. This isn’t the return of socialism, but it certainly looks like the end of the kind of financial capitalism that has prevailed for the last few decades.

And his opinion is echoed by a socialist blogging sociologist:

And what about the future of capitalism itself? No one is saying the system itself has collapsed, rather what has gone down the tubes is a particular way of organising capitalism. It is too early to tell what could replace it, though a number of participants flagged up the possibility of a more regulated capitalism, albeit without the welfare and full employment commitments of post-war Keynesian capitalism. It’s also likely that Neoliberalism will continue to cast its shadow.

And in a rather pithy article from Andrew Crook of Business Spectator:

Western economies, with their manufacturing industries gutted and the entrails shipped abroad, are struggling to actually produce anything beyond amorphous “services” and intellectual property. This has mirrored the spread of cancerous and impossible-to-decipher debt instruments, producing the biggest financial bubble in world history. That bubble has just burst.

Sub-prime mortgages may have been the bitter pill, but it’s the yawning distance between these debt vehicles and the bricks-and-mortar of our everyday lives that could prove fatal.

Assuming the current crisis doesn’t result in the second coming of socialism, we’re left with the familiar remedy of ever more-regulated domestic markets. But the genuine policy levers of an earlier era remain out of reach.

Over the last 30 years, the Keynesian social fabric has being steadily eroded by the slavish adherence of Western governments to global market forces (“external harmonisation”) as a non-negotiable pre-cursor to domestic policymaking. Despite the tinkering of Rudd and co, this remains broadly the case. Not that they’d have you believe it.

As I’ve been arguing, the political logics behind neo-liberalism remain well entrenched, despite the recourse had by panicked “free markets” to the “nanny state”. Mark Davis agrees neo-liberalism isn’t finished:

It’s a nice idea, but underestimates just how deeply embedded neoliberal ideas are in the global finance system. My sense is that the bail-out, now passed by the US senate and to be revoted on in Congress tomorrow, will happen, even if it won’t necessarily work because there’s more to this than simply lancing a boil. Regulatory noises are being made and some tightening will take place. But the system will stay relatively unchanged because too much depends on it and because money and power have little respect, in the end, for principle.

We have essentially two problems at the moment from the point of view of the conjuncture of political economy and the alignment of social and economic forces. The first is that social democratic parties have bought into the logic of the dominant paradigm to such an extent that there are very few alternatives on offer. The second is that neo-classical orthodoxy has led to such a mismanagement of the global economy that states appear bamboozled in the face of a liquidity crisis, and few orthodox solutions appear to offer any hope of turning the situation around in the short term. We will probably see some sort of stabilisation, though perhaps not for a while, and we will also see the emergence of a new orthodoxy not too dissimilar to the old one as the superficial lessons of the crisis are absorbed and the wagons of the powers that be circle the camp.

So, if the policy cupboard is bare, and ideologues are trying desparately to readjust themselves to some version of “culture wars as usual”, what is to be done? Andrew Crook, once again, is absolutely on the money:

The broader challenge for the Left, and for politics, is to imagine a radically-different regulatory framework with actual meaning for alienated individuals struggling, in a world of tumult, to carve out a viable identity and a cohesive personal narrative. This won’t come from centre-left policy elites—it requires a new breed of social movements to organise around these faultlines and assert their right to economic and cultural autonomy.

But the outline of such a movement is only just being sketched and echoing Paulson’s doubters on Wall St (the Dow has lost 13 per cent of its value in the last five sessions), there’s little reason to believe conditions on Main St, or anywhere else, will begin to improve any time soon.

Update: New post here. Comments are now closed on this one.

From my (sociological) point of view, the shorter answer to the question is – no.

In fact, I think the way the question’s posed reflects a number of category mistakes. The first is to take the theoretical apparatus that accompanies various ideologies too seriously. As I’ve argued previously, ideologies are ensembles of political forces and political interests and their theoretical baggage is necessary for their reproduction but still contigent and able to be discarded or modified where circumstances dictate. Debating the finer points of “Austrian economics” might be an interesting diversion for those who might have been debating how many angels can dance on the point of a pin in Thomist times, but it’s a side show when it comes to political action. Phil BC at A Very Public Sociologist makes this point succinctly and elegantly:

Academics, armchair economists, libertarians and House Republicans are the only ones who take the “principles” of neoliberalism seriously. Governments here and across the Atlantic only stick with it in as far as it entrenches the rule of capital.

The second error is to assume that neoliberal governments are serious when they talk about shrinking the state. Again, I argued previously that the size of the state is governed by much longer term secular trends, which are less amenable to political management than often thought. Just as the “nationalisation” of banks in the UK and the TARP bailout in the US don’t represent some form of socialism because the state buys junk paper or takes over failing financial institutions, so too an increasing tax take and its redistribution don’t signal the presence of social democracy.

Historically, the equation of socialism with public ownership is an artefact very much of the British (and to a lesser degree the Australian) experience. The Swedish Social Democrats were never all that exercised by it, preferring to shape product and labour markets by other means. And the French dirigiste planners of the right were quite enamoured of public ownership, while German social and Christian democrats intervened at the level of the firm through entrenching co-determination in governance rather than through public ownership.

This brings me to the third mistake – the failure to ask the critical question – cui bono? Neoliberalism historically has been much more about benefiting finance capital at the expense of manufacturing capital (and disciplining labour) than about freedom from government intervention per se. Thatcher’s embrace of monetarism was a massive re-engineering by the state of the economy, forcing up unemployment (deliberately, as Norman Lamont admitted) to destroy manufacturing and coal mining and with them the power of organised labour.

The deep reservations expressed about the beneficiaries of the TARP bailout should make it crystal clear that the American state’s intervention is not directed by any sense that power should be shifted within the economic field as a whole. The power of the state is being employed in this instance to recapitalise financial markets, through a sort of reverse redistribution. Incidentally, the objection about moral hazard has some force here. It’s part of the “Washington consensus” which has only been applied to the finance and banking sectors in other nations – for instance Korea and Indonesia during the Asian financial crisis. We can also see revealed in these events the myth of globalisation as some sort of process floating free of state strategies. Rather, globalised financial markets, and the consequences of their pathologies, are deeply imbricated with the stategies of the US state (and to a degree those of others – as in the G20).

The real significance of the credit crisis lies not in sounding a death knell for neoliberalism, but for what it can tell us about the decline in the power of the American state. That’s been touched on here before, and John Gray has something interesting to say about it in The Guardian.

Russia has already called the US’ bluff in geopolitical terms on Georgia. Now the sovereign owners of the US debt are getting restive. The American power elite is about to find out that debtors can’t continue to call the international tune indefinitely.

The next administration will be presiding over a deeply diminished United States after eight years of George W. Bush. The likelihood is that the TARP bailout won’t be the end of it. US taxpayers will be subsidising the ruins of American financial dominance for some time to come, and US economic and military power will have to come to terms with a more multipolar world. And if (as appears more likely recently) Barack Obama is elected, his ability to bring about any change will be severely constrained by the steps that have been taken in the last week.

Investors, and especially foreign investors, want to know that if they buy in again, they’re protected. Since they aren’t going to be allowed to buy up the US’s financial sector for pennies, that means they need to know that prices will be maintained so they aren’t buying pigs-in-a-poke.

Which is also why the Paulson or Dodd bailout is still on the books. Because if the US doesn’t bail out its own financial sector (by borrowing money it doesn’t have) then the only people with enough money are foreign sovereign funds and large investors. And they willbail it out for cents on the dollar at fire sale prices. The end result is that New York would definitively no longer be the world’s financial center. Odds on favourite to be the new one? Dubai. London doesn’t want it (they want to be middlemen). Tokyo can’t quite do it. Shanghai isn’t ready.

But Dubai is raring to go. And that’s one real reason why Congressional leaders and Wall Street CEOs are panicking. If Wall Street isn’t bailed out by Congress, the executives will all be either working for Chinese and Arabs, or they’ll be out on the street, drowning their sorrow in their 50 feet yachts drinking $100,000 dollar bottles of whine. Er, wine.

What the US government is really seeking to do (among other things) is to engage in its own version of state capitalism in order to fend off the accelerating shift of power from America to Asia. And that’s one of the motivations they don’t particularly want to foreground, because the US taxpayer will be footing the bill. Make no mistake, this is just as much about geopolitics as finance.

Elsewhere: More at BBC blogs from Robert Peston:

It’s a world in which the Chinese state, if it co-ordinated the investments of its cash-rich institutions, could end up owning more-or-less the entire financial system of the US and the UK.

Update: Guy Rundle reports in Crikey that Bernanke and Paulson got more than they bargained for (or rather, less) in testifying before Congress:

Heading towards the middle of the last week of September, with the first debate only days away, it suddenly became clear to everyone that America was lurching towards genuine crisis. Not problem, not dilemma, but crisis. As Fall — season of death and tragedy — came to the northern half of the country, the Senate banking subcommittee assembled in Washington to hear evidence from Fed Reserve chief Ben Bernanke and evil disembodied floating head Treasury secretary Hank Paulson.

In the days prior, Paulson had made a few preparatory noises about how there was no alternative to this move, dire consequences etc, and in his testimony he really dialled it up to eleven. After a few preparatory remarks by Committee chair Chris Dodd, Paulson basically said that if the plan wasn’t voted in immediately the whole American economy would grind to a halt, as major corporations wouldn’t be able to make the short-term loans they need to cover week-to-week payroll demand surges, etc.

If he was hoping that this would stampede the committee, he was direly mistaken. One by one the committee members went on the record with their “frustration, desperation, anger” at this desperate and hastily put together measure. “We don’t want to be stampeded,” Dodd said. “There is no second act.” “I’m going to have to answer to the people after january 21,” another said. Jim Bunning, Republican Senator from Kentucky said “this is financial socialism, this is un-American”.

This was rather more token resistance than either Paulson or Bernanke had counted on, and you could see the consternation in their faces. You could also hear in Paulson’s voice, unless I am mistaken, genuine fear, as he detailed the cascading process by which the whole economy would fall apart.

The whole thing wrapped came off the airtubes mid-morning, with everyone suddenly realising that this bailout wasn’t a done deal anymore. As the full cost began to focus people’s minds – a four person American household is paying ten thousand dollars for this thing, with no guarantee that it’s the last ask — the sort of zombie drift to passing the thing was halted. What were we really getting for this?

The second is more specific and recent – the tendency to replace ‘heavy-handed’ forms of regulation with ‘regulation with a light touch’ and self-regulation. This has been most marked in Anglo-American economies, but other countries (in continental Europe and elsewhere) have faced persistent ideological pressures to move in this direction. This is a large chunk of the so-called ‘reform’ agenda that the Economist magazine, the OECD and other such bodies keep pushing. Both of these shifts are largely ideological – that is, they gained much of their impetus from changes in the ideas which constitute policy-makers’ shared collective wisdom about how to deal with the economy.

The second shift (the reform agenda) is now a busted flush. Its proponents are in disarray (if I’m feeling in a vindictive mood, I may well buy a copy of the next Economist to see how its editorialists try to rationalize all of this).

Any reasonable assessment of the actions of the Fed and the US Treasury would suggest that they’re driven by confusion and are very much ad-hoc measures. Neither Bernanke nor Paulson seems to have much of a big picture grip, and politicians reciting “the fundamentals are sound” is clearly not going to cut the mustard now, even, as with John McCain, precipitating something of a backlash.

John Quiggin has speculated on how all this will play out. The confusion has led to some quite bizarre moments, such as pundits on Lateline Business declaiming “capitalism is in crisis” and “the financial markets may not be viable”. What we’re seeing – among other things – is a decomposition of that abstraction “the markets” and a reduction of these so-called impersonal forces to the panicked reactions of individuals. If Robert Skidelsky is right, and a tipping point has been reached, it begs a very big question, which Farrell answers in terms of process (because no one can know the outcome of such a fluid conjuncture).

Mark Blyth’s book, Great Transformations has a theory of the relationship between economic crises and economic ideas. Very roughly speaking, when a crisis occurs that is difficult or impossible for the prevailing wisdom to explain or deal with, intellectual entrepreneurs have an opportunity to create a new (partly self-reinforcing) collective wisdom. We’re most likely in just such a crisis now. Which set of intellectual entrepreneurs are going to succeed in reshaping a new collective wisdom – economic nationalists like Sarkozy and Putin, social democratic globalizers like Dani Rodrik, or some other crowd entirely – I have no idea.

Farrell rightly quotes Tyler Cowen:

The economic fallout from these events is dominating the headlines. The intellectual and ideological fallout we are just beginning to contemplate.

There’s no doubt as well, particularly in the US and in the UK, that an enormous climate of fear has been created and that there will be huge pressure on politicians to act. In the UK, Gordon Brown’s last shred of credibility – his claim to be a competent economic manager – has collapsed as the realisation has sunk in that his own out-deregulate the Americans strategy to make the City of London a more attractive financial node than Wall Street in the wake of Sarbanes-Oxley puts the British economy at great risk, even if the bursting of the housing bubble has not been as acute as it has in the States. It can confidently be predicted now that Brown’s premiership is terminal.

Many within the Labour Party are suggesting that the time has arrived for the British government to shut the door on neo-liberalism, including Jon Cruddas MP, who was recently in Australia and spoke to Labor MPs about the successes and failures of the “Third Way” project. Cruddas writes in The Guardian:

Labour now has an historic opportunity to seize the political high ground. The era of selfish individualism is on the wane. The electorate is increasingly concerned with social insurance, safeguarding living standards and ensuring social stability and ecological sustainability. From stranded holidaymakers to pension holders, to those falling ill, they are discovering that these collective goods are in dangerously short supply. The future will demand a more active and democratic state engaging with economic development and regulation. The redistribution of wealth and resources will be essential in rebalancing a dysfunctional economy.

However, it’s very difficult to see how these sentiments could be easily translated into policy action – here and now.

I don’t have any particular glee, unlike others, in observing that the US government has now become a huge player in its own economy. The US Treasury, if you read anything about the history of globalisation and global finance, has long been a massively influential player – as the point at which the state and capital meet in the world’s central financial node. Having 80% of equity in Freddie and Fannie and the AIG rescue has no particular implication for any project to use the power of the state for truly public purposes. In fact, even such minimal redistribution and healthcare reform as Obama has promised is likely to be impossible in the face of the enormous costs now being borne by the US state. We’ll end up, if Obama is elected, with the same “Eisenhower Republican” strategy Clinton bemoaned.

Nor do I necessarily think that state ownership is either a good in and of itself or some sine qua non of social democratic respectability. It has its purposes, but it shouldn’t be turned into a shibboleth. The lack of participatory and democratic administration of nationalised industries – a fact whose legacy can be traced back to the elitist Fabians – opened the door for privatisation, by failing to actually involve citizens democratically in the economy.

But here’s the rub – there may be an opening here for a revived social democratic economic policy framework. As far as I can see, though, no one has really developed such a framework at the very time it’s needed – so blinded have the left been by the nostrums of neo-liberal “no alternativism” in macro-economic policy. Many of those assumptions, as Farrell indicates, are now collapsing like a house of cards.

The sorts of questions being asked now are precisely the ones that can’t be answered by orthodox economics with a human capital theory supply side twist or by chanting mantras drawn from exogenous growth theory. If there’s a historical moment here that needs to be seized, then the intellectual resources to make a difference appear lacking.

We will probably just have to rely on muddling through. Fingers crossed. But I can’t help feeling that the left is in as much ideological and intellectual disarray here as the right.

Update: Gary Sauer-Thompson:

The significance of this is that politicians are on the sidelines watching like the rest of us despite their claim to inside information from those who really know what’s going on. They really don’t know what is happening or what to do about it.

Or the politicians could ghave mentioned how this financial crisis was different from the previous ones. The previous ones started on fringes of the global financial system– in the developing or emerging economies in Latin America, Asia or Russia— and the West (G7) worried about the contagion. This crisis was made in the US–the heart of the global financial system— and it is the emerging powers of the east that fear contagion. Doesn’t that highlight the big shift in economic power in the world?