Leader of Germany’s Free Democrats, Guido Westerwelle, looking smug. And rightly so
As the world economy gasps for breath there is a struggle to form a narrative for the momentous events of the last two years.
On the one hand we have the likes of Richard Posner who, in his new book ‘A Failure of Capitalism’, treads the familiar ground of blaming greedy bankersand other such out dated clichés for the credit crunch. On the other are those like Thomas E Woods who, in his book ‘Meltdown’, lay the blame at the door of interfering legislation like the Community Reinvestment Act and the Federal Reserve’s irresponsibly lax monetary policy.
It is a struggle worth fighting. In the wake of the Great Depression of the 1930’s the standard story came to be that unregulated capitalism had conned innocent investors into putting their life savings in a bubble market in stocks which burst in 1929. The ‘do-nothing’ president Herbert Hoover vainly trusted in the free market to revive the economy and recession turned into Depression. Franklin Roosevelt was then elected who rescued the economy with vast amounts of Keynesian deficit spending.
Excellent recent books by Amity Shlaes and Burton W. Folsom comprehensively demolish this myth. But it was a myth which persisted for decades and it was used to justify ever more debilitating levels of taxation and government spending culminating in the economic chaos of the 1970’s.
So ideas matter. If the wrong conclusions are drawn and false lessons learned from the last two years of turmoil we could find ourselves, once again, saddled with its doleful effects for decades.
Unsurprisingly the ‘market bashing’ explanation has found favour on the left. In the US President Obama castigated Republicans for filleting financial regulation “for the sake of a quick profit at the expense of a healthy market”. In the UK Gordon Brown condemned “the right wing fundamentalism that says you just leave everything to the market” in his party conference speech in late September.
But there are encouraging signs for the right that this view isn’t becoming received wisdom as the Depression myth so damagingly did.
Back in June the voters of Europe went to the polls to elect the European Parliament in one of the biggest elections in the world. Or it would be if more than 43% of voters turned out. Even so, the results were an unequivocal slap in the face for the centre left whose largest grouping in the Parliament, the Party of European Socialists, slumped to just 161 seats compared to 264 for the centre right European People’s Party’s 264.
On September 27th Germany went to the polls. The Social Democrats (SPD – imagine the Democrats inlederhosen) were dumped out of government after 11 years with their lowest share of the vote since the 1930’s. Even more encouraging was the nature of the parties who benefited. The SPD’s former grand coalition partners, the centre right Christian Democrats (imagine Arlen Specter in lederhosen – on second thoughts, don’t) and Christian Social Union saw a modest decline in their share of the vote and will form a coalition with the elections big winners, the Free Democrats, a small government party in the Goldwater/Reagan mould.
The same day the Portuguese electorate slashed the Socialist party’s share of the vote from 45% to less than 37%. Next year the UK votes and with the Conservative party holding a lead of between 10% and 14% in the opinion polls a further advance for the right looks on the cards.
So we have a real dissonance here between the narrative exampled by Posner, Obama and Brown, of the perils of free market capitalism and the decisions of voters in the midst of this crisis. True, the circumstances are wildly different. The SPD had run Germany for 11 years, the Socialists in Portugal have been in office for 11 of the last 14 years and the Labour Party have run Britain since 1997. For them to have only just come to their conclusions about capitalism suggests a doziness which would do Rip van Winkleproud.
But the clear signal from voters of the realisation that it will be the private and not the public that pulls us out of this, of the necessity of fiscal responsibility and the rejection of government as a solution can only be encouraging for the Republican Party as it heads into the midterms late nextyear.