Saturday, October 4, 2008

"The risks for price stability have diminished ..."

"The risks for price stability have diminished but not disappeared." So says Jean-Claude Trichet, head of the ECB. This statement, in the oracular style cultivated by central bankers, is widely taken to presage an impending rate cut, which could come at any time, despite the fact that the ink on the ECB decision to hold its basic rate steady at 4.5 is not yet dry. The crisis is evolving quickly. And when the cut does come, I will refrain from reminding you that I predicted it weeks ago (though I think George Soros and his hedge fund were there with their checkbook well before me).

What other prognostications might one make with some confidence? No doubt there will be sweeping political changes. And I don't just mean throwing the bums out. True, incumbents haven't been doing well in recent elections. The Christian Social Union just suffered a heavy loss in Bavaria, the extreme right is on the march again in Austria, Gordon Brown's fortunes are sinking in Britain, and Obama has surged in the polls in the United States. To be sure, there are local factors at work in each of these cases, but there is also--to my mind, at least--a distinct sense that the old orthodoxies are breaking up. What is to replace them remains murky, however. We are, I think, in a phase of tâtonnement. When the New Deal came to power in 1933, it didn't have a doctrine so much as an attitude. Its political persona was forged in action, and an opposition was forged in reaction. I think that's what we will see in Europe in the dawning post-neoliberal era.

In a sense it has become easier to defend the European welfare state. The need for it becomes less abstract with each passing day, and the argument that the market imperfections it introduced need to be swept away in the name of efficiency has suddenly lost much of the persuasiveness it had acquired in certain quarters. Yet what this transformation of the ideological landscape means in terms of practical politics is hard to predict, as a glance at the French left shows. The crisis has fueled the anger of the nongovernmental left without enhancing its lucidity, but it has also weakened the presumption that the center-left, the social liberal left, to which I myself belong, has a more realistic grasp of the dynamics of global capitalism.

Some of us saw trouble coming, but I don't think anyone saw how pervasive and ferocious the trouble would be. Humility would be in order, yet urgency seems to require boldness, which assorts ill with humility. Hence we can anticipate action on a grand scale, and therefore the possbility, if not the likelihood, of colossal mistakes, with colossally bad consequences.

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