Monday, April 07, 2008

Peeking over the fence...

I don't have much, specifically, to say about the American presidential race. I wish our neighbours well, whoever they choose, and I greatly admire the oratory of Barack Obama, a speaker who leaves me reassured that the art of political rhetoric remains alive and kicking. But the combination of the ongoing decline in the American economy and the ongoing slugfest of the Democratic party nomination leads me to draw a connection. In short, unlike an increasing number of American commentators, I believe that Hillary Clinton's candidacy, and even her most desperate tactics, actually serve a solid purpose for the Democratic party.

Going back 28 years, in 1980, Americans had a choice between Jimmy Carter, a man who told them it would take hard work and sacrifice to carry on the American enterprise, and Ronald Reagan, a man who told them they could have everything they wanted without the tiresome matter of paying for it. Since the American people voted for Ronald Reagan, the United States has run a solid trade deficit (yes, even during the boom years of the Clinton presidency), and a government accounts deficit (what we think of when we talk about a government running a deficit) for most of the period. At the same time, a combination of government policies and economic trends generated greater and greater economic inequality.

To make this system work, or at least look as though it worked, American and international governments and financiers engaged in repeated maneuvers to keep the money flowing in the "right" direction. First came the Savings and Loan bubble, crash, and scandal. A few years after the savings and loan dust settled came the tech bubble. Analysts told us the rules of economics had vanished in a puff of silicon, until the resulting crash and scandal blew away the smoke and mirrors, and left the tiresome realities of accounting and limits to wealth intact. Then, through the Bush years, the propaganda for the fading illusions of "Reaganism" grew increasingly shrill, desperate and vicious, and nakedly unjust tax policies steadily directed wealth to the wealthiest. Middle-class Americans had no way to preserve the illusion of increasing personal wealth and "good times", except to tap the value in their houses, leading to the real estate bubble and the latest crash and scandal. This time, most of the pretenses have disappeared completely. Much of the money in this latest disaster has come from international investors, which means when we speak of tightening credit in the United States, we mean that teacher's pension funds in Canada and mutual funds in Europe will no longer agree to keep up the capital flow that finances the American trade deficit. To fill the gap, foreign governments, especially the Chinese, have moved in to buy up large parts of the American financial system.

The United States has lost its financial independence, in a way it has not since the Civil War. Even the American media have started to notice the huge debt the American government has accumulated, much of it held by the rising rival of the United States, China. As part of the fallout from this financial meltdown, Americans have lost their houses and other assets in record numbers.

In this context, Hillary Clinton's campaign makes a lot of sense. I suspect that intelligent democrats appreciate that in order to make real change, they will have to dismantle large parts of the legacy of Ronald Reagan, and they cannot do that unless the majority of Americans realize how badly those policies have failed them. As Harriet Tubman famously said,

I freed thousands of slaves. I could have freed thousands more, if they had known they were slaves.
The democratic party cannot save the American middle class until they stop listening to people like O'Reilly, Malkin, and Coulter, and face up to the reality of their situation. To have a Democrat in the White House without the support needed to make real change would mean disaster for the party; without real change, the next occupant of 1600 Pennsylvania will simply sputter along as things get worse for the average American. If Barack Obabma can't win with the head of steam it will take to overhaul the system, then the Democrats would really do better to run Hillary, let McCain win, and let the Rebublicans deal with the unfolding mess. If Barack Obama can't overcome the slings and arrows of Hillary Clinton, I see no way he can overcome the larger crisis in American public and financial life.

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