IN THE early 1990s, President Bill Clinton ushered in a new political period when he declared that the era of big government was over. Thereby, his Democratic Party joined the Republicans in lionising free markets and a minimalist state.
Last weekend, under the watch of a Republican president dogmatically opposed to it, a new era of big government began. In announcing its willingness to bail out the mortgage-lending giants Fannie Mae and Freddie Mac, Washington indicated it would sooner manage the economy than risk its collapse.
Maybe it was a Hobson's choice. The crisis of confidence besetting the United States (US) economy does threaten to tip it into an economic downturn of potentially Depression-era proportions. Rather than wait to see if that happens, the US Treasury decided to minimise the risk by acting now.
That action carries heavy risks of its own, though. Aside from rewarding firm managers for bad decisions - an action that might haunt it for years - the US administration may have to add trillions of dollars to the national debt. This could mean higher interest rates for years to come. And higher interest rates could, in turn, both delay and restrain the much hoped-for economic rebound.
Painless prosperity
The finger-pointing at who is to blame for this mess will go on for years. But the criticism rightly crosses party lines. Back in the go-go '90s, when the economy was booming, a few sage voices warned the US was headed for trouble if it stuck to its profligate ways. But such Cassandras were easily derided on both sides of the political aisle. Everyone was too busy trumpeting the glorious new era of painless prosperity.
Credit for the boom was given to the government's withdrawal from the economy and its reduced activism. Academics criticised this 'market fundamentalism'. But it was a brave politician who took it on. Al Gore arguably tried in the 2000 election. He lost.
The term 'market fundamentalism' was coined by the Nobel-winning economist, Joseph Stiglitz, to describe a belief that the free market is a perfectly self-regulating mechanism. The philosophy holds that, left to its own devices, with as little government intervention as possible, the market will always produce optimal outcomes in resource allocation and distributive justice.
Too meddlesome
Defenders of this ethos maintain that the problem with the market has not been that it has been too free, but that the Government has been too meddlesome. In particular, they criticise the government's rescue plan for the financial firms that blew their calls on the future direction of house prices. The market will work just fine, they maintain, if firm managers are, in fact, left to pay the price. Instead, taxpayers will absorb the cost, while firm managers - having paid themselves handsome bonuses - will walk away scot-free.
Regardless of whether it is an unfettered market or a nosey government which is to blame for the current woes in the US, it is probably safe to say that the age of market fundamentalism is now at an end. On one hand, by nationalising so many assets to stave off a crisis, the US government has taken a deeper stake in the economy than it has in generations. On the other, with corporate bonuses generous while real wages fall, angry taxpayers will demand more accountability from the people whose backsides they're now covering. A populist theme will certainly enter this year's US election campaign.
The old adage has it that you can pay now or pay later. Back when they were racking up huge debts to support the lifestyles befitting a 'new era', Americans opted to pay later. My, how they are doing so now.
John Rapley is president of Caribbean Policy Research Institute (CaPRI), an independent think tank affiliated to the UWI, Mona.
