Page 2 of 2 DISPATCHES
FROM AMERICA The perfect storm of
campaign 2008 By Steve
Fraser
reasons those operating them can't
fully anticipate, or correctly respond to, once
they're underway. This is so precisely because
they never fully understood the labyrinthine
intricacies and ramifying effects of the way they
worked in the first place.
Likening the
current subprime implosion to such a "normal
accident" is more than metaphorical. Today's Wall
Street fabricators of avant-garde financial
instruments are actually called
"financial engineers". They
got their training in "labs", much like Dr
Frankenstein's, located at Wharton, Princeton,
Harvard and Berkeley. Each time one of their
confections goes south, they scratch their heads
in bewilderment - always making sure, of course,
that they have financial life-rafts handy, while
investors, employees, suppliers, and whole
communities go down with the ship.
What
makes Wall Street's latest "normal accident" so
portentous, however, is the way it is interacting
with, and infecting, healthier parts of the
economy. When the dot.com bubble burst many
innocents were hurt, not just denizens of the
Street. Still, its impact turned out to be
limited. Now, via the subprime mortgage meltdown,
Main Street is under the gun.
It is not
only a matter of mass foreclosures. It is not
merely a question of collapsing home prices. It is
not simply the shutting down of large portions of
the construction industry (inspiring some of those
doom-and-gloom prognostications). It is not just
the born-again skittishness of financial
institutions which have, all of sudden, gotten
religion, rediscovered the word "prudence", and
won't lend to anybody. It is all of this, taken
together, which points ominously to a general
collapse of the credit structure that has shored
up consumer capitalism for decades.
Campaigning through a perfect storm of
economic disaster The equity built up
during the long housing boom has been the main
resource for ordinary people financing their
big-ticket-item expenses - from college educations
to consumer durables, from trading-up on the
housing market to vacationing abroad. Much of that
equity, that consumer wherewithal, has suddenly
vanished, and more of it soon will. So, too, the
life-lines of credit that allow all sorts of small
and medium-sized businesses to function and hire
people are drying up fast. Whole communities,
industries, and regional economies are in
jeopardy.
All of that might be considered
enough, but there's more. Oil, of course. Here,
the connection to Iraq is clear; but, arguably,
the wild escalation of petroleum prices might have
happened anyway. Certainly, the energy price
explosion exacerbates the general economic crisis,
in part by raising the costs of production all
across the economy, and so abetting the forces of
economic contraction. In the same way, each
increase in the price of oil further contributes
to what most now agree is a nearly insupportable
level in the US balance of payments deficit.
That, in turn, is contributing to the
steady withering away of the value of the dollar,
a devaluation which then further ratchets up the
price of oil (partially to compensate holders of
those petrodollars who find themselves in
possession of an increasingly worthless currency).
As strategic countries in the Middle East and Asia
grow increasingly more comfortable converting
their holdings into euros or other more reliable -
which is to say, more profitable - currencies, a
speculative run on the dollar becomes a real, if
scary, possibility for everyone.
Finally,
it is vital to recall that this tsunami of bad
business is about to wash over an already very
sick economy. While the old regime, the
Reagan-Bush counter-revolution, has lived off the
heady vapors of the FIRE sector, it has left in
its wake a de-industrialized nation, full of
super-exploited immigrants and millions of
families whose earnings have suffered steady
erosion. Two wage-earners, working longer hours,
are now needed to (barely) sustain a standard of
living once earned by one. And that doesn't count
the melting away of health insurance, pensions and
other forms of protection against the vicissitudes
of the free market or natural calamities. This,
too, is the enduring hallmark of a political
economy about to go belly-up.
This perfect
storm will be on us just as the election season
heats up. It will inevitably hasten the already
well-advanced implosion of the Republican Party,
which is the definitive reason 2008 will indeed
qualify as a turning-point election. Reports of
defections from the conservative ascendancy have
been emerging from all points on the political
compass. The Congressional elections of 2006
registered the first seismic shock of this change.
Since then, independents and moderate Republicans
continue to indicate, in growing numbers in the
polls, that they are leaving the Grand Old Party.
The Wall Street Journal reports on a
growing loss of faith among important circles of
business and finance. Hard core religious
right-wingers are airing their doubts in public.
Libertarians delight in the apostate candidacy of
Texas Republican congressman Ron Paul.
Conservative populist resentment of immigration
runs head on into corporate elite determination to
enlarge a sizeable pool of cheap labor, while
Hispanics head back to the Democratic Party in
droves. Even the Republican Party's own elected
officials are engaged in a mass movement to
retire.
All signs are ominous. The
credibility and legitimacy of the old order
operate now at a steep discount. Most telling and
fatal perhaps is the paralysis spreading into the
inner councils at the top. Faced with dire
predicaments both at home and abroad, they
essentially do nothing except rattle those sabers,
captives of their own now-bankrupt ideology.
Anything, many will decide, is better than this.
Or will they? What if the opposition is
vacillating, incoherent, and weak-willed - labels
critics have reasonably pinned on the Democrats?
Bad as that undoubtedly is, I don't think it will
matter, not in the short run at least.
Take the presidential campaign of 1932 as
an instructive example. The crisis of the Great
Depression was systemic, but the response of the
Democratic Party and its candidate Franklin Delano
Roosevelt - though few remember this now - was
hardly daring. In many ways, it was not very
different from that of Republican President
Herbert Hoover; nor was there a great deal of
militant opposition in the streets, not in 1932
anyway, hardly more than the woeful degree of
organized mass resistance we see today despite all
the Bush administration's provocations.
Yet the New Deal followed. And not only
the New Deal, but an era of social protest,
including labor, racial, and farmer insurgencies,
without which there would have been no New Deal or
Great Society. May something analogous happen in
the years ahead? No one can know. But a door is
about to open.
Steve Fraser is a
writer and editor, as well as the co-founder of
the American Empire Project. He is the author
of Every Man a Speculator: A History of Wall
Street in American Life. His latest book,
Wall Street: America's Dream Palace, will be
published by Yale University Press in March
2008.
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