As I suggested the other day, the pivotal role in the tortuous process which produced the deal was played by the Tea Party aligned GOP members in the House:

The Tea Party Republicans have not got all they wanted but they have got a lot of it, and sacrificed almost nothing in return. They will vote against, maintaining ideological purity, insisting the cuts could be deeper.

George Monbiot writes of the consequences:

There are two ways of cutting a deficit: raising taxes or reducing spending. Raising taxes means taking money from the rich. Cutting spending means taking money from the poor. Not in all cases of course: some taxation is regressive; some state spending takes money from ordinary citizens and gives it to banks, arms companies, oil barons and farmers. But in most cases the state transfers wealth from rich to poor, while tax cuts shift it from poor to rich.

So the rich, in a nominal democracy, have a struggle on their hands. Somehow they must persuade the other 99% to vote against their own interests: to shrink the state, supporting spending cuts rather than tax rises. In the US they appear to be succeeding.

Partly as a result of the Bush tax cuts of 2001, 2003 and 2005 (shamefully extended by Barack Obama), taxation of the wealthy, in Obama’s words, “is at its lowest level in half a century”. The consequence of such regressive policies is a level of inequality unknown in other developed nations. As the Nobel laureate Joseph Stiglitz points out, in the past 10 years the income of the top 1% has risen by 18%, while that of blue-collar male workers has fallen by 12%.

The deal being thrashed out in Congress as this article goes to press seeks only to cut state spending. As the former Republican senator Alan Simpson says: “The little guy is going to be cremated.” That means more economic decline, which means a bigger deficit. It’s insane.

John Quiggin, describing the US as a society that is “massively unequal, and economically stagnant”, argues that the only serious way to improve outcomes in America is to focus on the wealth of the top 1% of the population. The reverse has been the case in the debt ceiling deal: the 1% have prevailed over the 99%.

This will accelerate US decline, but that’s an outcome its elite appear to be relaxed and comfortable with. If ever there’s an example of how plutocracy disconnects itself from national interest, we’ve just seen it.

NB: Previous post on the US debt ceiling crisis is here.

The tension in the party was highlighted in a clash between Senator John McCain, the Republican contender in the 2008 White House race and a veteran who has done deals all his political life with colleagues from the Democratic party. He described as “bizarro” the newer members and dismissed them as naive, seeing the world as a Lord of the Rings battle between good and evil. One Tea Party senator elected for the first time in November, Rand Paul, in one of the stranger exchanges of the week, responded that he was happy to regard himself as a hobbit.

The dynamic of the crisis has pivoted on the intransigence of a small number of Tea Party aligned Republican House members. Hence, as Paul Krugman points out, the usual process of compromise has seen Barack Obama offer up cuts to social spending which “are far to the right of what the average American voter prefers”.

If the Tea Party legislators are in fact obsessed with ideological purity to the exclusion of most everything else, then we are observing something very interesting indeed. Slogans about “small government” have morphed from vague statements of orientation and political differentiation into a threat to the continuance of governance as usual. Fantasies about 18th century Republics threaten to have their effect on reality in 2011.

While neo-liberal rhetoric has enveloped American politics in the last few decades, the reality has been “big government conservatism”. Now that reality awaits its showdown with an ideology sundered from any real concern with consequences.

Ideology is always part fantasy. But, usually, the fantastic element is contained within political structures and routines. If it prevails to the exclusion of a relation to reality, then the result will indeed reshape reality, but not in the way that the ideologists might want.

You can follow the trainwreck here. Some impetus to a resolution comes from the spectre of a meltdown when Wall Street opens on Monday morning. But the forces working against a compromise may yet prevail.

NB: Previous discussion of the debt crisis on LP is here.

Of course, now that one of the two parties has started to act much more like the disciplined parliamentary caucuses found in Westminster democracies, not everyone is so enamoured of this notion.

But it’s interesting to see a bit of momentum building for a Question Time in the US, which would represent a distinctly different relation between the executive and legislature.

I wonder, though, whether many of its proponents have taken the time to watch Australia’s Question Time, or Britain’s Prime Minister’s Questions.

Nate Silver at FiveThirtyEight.Com thinks that the move is, politically speaking, a “brain freeze”. He also queries “the wisdom of curtailing government spending in the middle of a massive consumption deficit”.

Obama’s move will placate ‘Blue Dog Democrats’, including champion deficit hawk Evan Bayh of Indiana, whose seat is looking shaky. In a broader sense, it’s further evidence of the triumph of politics over economics, albeit in a somewhat different register; a return to a sort of pre-Keynesian mindset, or Maggie Thatcher’s petit bourgeois rhetoric of ‘household budgets’ without the monetarism.

David Dayen:

Obama is basically saying that the stimulus fixed the economy, that there will be no further government support measures and that he’ll govern like a hybrid of John McCain and Herbert Hoover for the rest of his term to curry favor with the deficit maniacs.

Andrew Leonard at How The World Works:

If ever there was a time to pull out the old Karl Marx chestnut, “History repeats itself, first as tragedy, second as farce,” that moment is now. Prominent members of Obama’s own administration have warned against repeating the errors of 1937, namely, Franklin Roosevelt’s decision to cut spending and balance the budget too quickly, thus strangling a nascent recovery from the Great Depression. But with the U.S. economy far from healthy, the president has decided, once again, to bow to the political winds and make the deficit priority number one.

It’s also the effective decoupling of the US from the G20 stimulus agenda, and further proof that America is mired in the politics of domestic decline. What happens to a globalised economy when the globalisers opt out?

Incidentally, this is additionally the sort of policy u-turn the Coalition in Australia have long been advocating. If further sclerotic growth, or even a double dip recession in America, is the result, it won’t be without its ramifications for the political debate here.

Update: Robert Reich on how Obama’s political panic could ruin the economy.

Update: Michael Lind.

Update: Brad DeLong: This is such a disaster in the making.

Update: Krugman: Obama Liquidates Himself.

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.

Writing for Crikey today, David Hirst observes:

Luckily for the Republicans, who doubted they had a chance at taking a seat Ted Kennedy had held for 47 years, they nominated a nobody called Scott Brown who drove a truck?—?a fact the Democrats somehow allowed to become an issue. Naturally Brown, equipped with political advisers as the Republicans smelled not blood but a bloodbath, drove at their behest to Wall Street, where he somehow managed to park.

It wasn’t a huge issue but it played well?—?the message presumably was that sophisticated people from places such as Boston were not represented by folks who drove trucks. Kennedy sure didn’t drive a truck.

The shell-shocked mainstream media better get used to it, for there are many shocks to come. That the Republicans had the sense to see “truck” and “Wall Street” and bring the two to one was clever indeed.

His analysis suggests that the result is born of the sentiment of a plague on the US political classes, bailing out banks with abandon, but doing nothing perceptible for ‘Main Street’, and the straightened economic circumstances many Americans face after the GFC. He also suggests the Republicans will be emboldened to escalate their anti-Obama rhetoric, but that they themselves have nothing effective to offer; short of pandering to anti-government sentiments deeply embedded in American political culture.

In truth, the US party system is incapable of doing anything other than slightly tacking in the direction of popular sentiment; something confounded by the hyperbolic checks and balances, whose frustration of a majority in the Senate is precisely what made this special election so important.

Previous discussion on LP: Here.

Update: Nate Silver on the swing.

He didn’t explicitly refer to a Tobin Tax, but I suspect that’s what he had in mind, and it’s something that has popped up higher on the agenda over 2008 and 2009. So it’s worthwhile to point to a comprehensive article by John Langmore in Inside Story on just that measure.

From my point of view, one key advantage of a tax on cross border financial transactions would be its contribution to transparency and thus the ability of states (and others) more easily to grasp what’s occurring in the ‘shadow banking’ sector. Whether or not future bank bailouts are politically feasible is another question entirely. I suspect that might be political suicide in the USA, no matter how dire another financial shock.

And, incidentally, when the Democrats inevitably lose Senate seats in November, it will become more or less impossible for anything of any size to pass the US Congress.

In my previous post, I reproduced Brian Davey’s piece from Open Democracy, which expressed skepticism about the capacities of the political system to deal with complex phenomena, permeating all sectors of the economy and lifeworld, such as climate change. I agree with the diagnosis, but I think that a different mode of politics could find solutions.

There are three similarities between the design of the CPRS and the American Health bill (and for that matter, the US cap and trade bills):

(a) Both started out with an ambit, seeking to find the limits of giveaways and concessions to political and particularly corporate constituencies; rather than from the position of a solution;

(b) Similarly, both come with implicit rhetoric that any action is a good start, and a messy compromise can later be made purer and more effective;

(c) Both seek to accommodate existing interests and shift behaviour only at the margins, rather than constructing a new frame which would require actors to reconfigure behaviours, and create new actors (and destroy or reshape old ones).

In short, this sort of approach to governance is inherently conservative, in that it seeks to match political imperatives to already existing situations, rather than to transform the situation politically. This tends not to work, for reasons which are fairly obvious. Yet, notions like ‘nudge’ and using quasi-markets to achieve social ends are the hallmarks of postmodern progressive policy wonk-dom.

In an interesting parallel, Andrew Norton recently typologised different sets of beliefs on the Australian right, while a number of writers in Salon, riffing off Ed Kilgore’s article in The New Republic, pointed to an ideological split in the American centre-left. However variously characterised, there’s a difference between what Glenn Greenwald calls corporatism and social democracy. Kevin Rudd has often described himself as a social democrat. But I think he’s more of an undifferentiated statist, with a vague notion that the power of the state should be used for doing good. Hence, we don’t have any particularly strong political direction from Labor on climate change (the actual choice, domestically, now lies between The Greens and the Coalition, as the middle path of tinkering begins to fall to bits).

Among other things, the lesson we should learn from the failure of Copenhagen is that a weak and conciliatory strategy designed to buy off as many special interests as possible (particularly through compensation for the right to future profits, which is now – quite bizarrely – represented as if it were a property right) leads not just to a milquetoast solution but also to political failure.

Michael Lind is quite right to suggest that American progressives need to reflect on their ideological differences, exposed by the defeat of Bush, and I think we need to, as well. In so doing, we also need to recover a sense of the possibilities of progressive politics, and not to rest content with a vaguely progressive desire to steer social and economic forces and actors this way or that. The times demand something much more urgent, and something which would require the spending of political capital, some of which needs to be used to take on the vested interests of polluters. But if Australian progressives were to frame the choices more sharply, and offer genuine action on climate change, my bet would be that would pay a political dividend.

Update: The third part of the ‘After Copenhagen’ series, on domestic politics, has now been posted here.

It may be that this is actually inherent in the American system of government – it’s a very difficult balancing act for one figure to be simultaneously symbolic head of the nation and executive of the political state. It’s pretty clear, too, how the particularity of Obama’s identity can be mobilised by the Fox News noise machine to disrupt the first identification, leading the President to spend far too much time rising above politics rather than practising it. It’s always going to be more difficult for a president of the centre-left to straddle this divide, but as Bromwich suggests, it’s rather puzzling that a man as intelligent as Obama goes on making the same mistake again and again.

Update: In the New York review of Books, Michael Tomasky writes on the right wing street protests and the noise machine, and Elizabeth Drew examines Obama’s performance in office through the prism of the healthcare debate:

In fact, the question has arisen of whether Barack Obama’s particular—one might say idiosyncratic—governing style is right for these times.

So it’s really quite intriguing to consider the possible implications of a Fifth Circuit court decision giving Hurricane Katrina victims standing to sue corporations for damages. Such a development might well concentrate legislative and corporate minds.