As Wolf notes:
‘US housing finance has been brought under direct government control, and in the process the gross liabilities of the US government, properly measured, have increased by $5,400 billion (£3000 billion), a sum equal to the entire publicly held debt and 40 per cent of gross domestic product
It is interesting too – as the FT reports separately - that the debate on the longer-term policy options after the bail-out is now seeing different approaches emerge from the Presidential candidates which throw light on their approaches to the relationship between government and the market. Obama is charged with being what Americans call ‘liberal’ but, as I noted in a New Statesman column this week, he is unabashed in the use of social democratic language about the protective role of government. His convention speech spoke about:
A promise that says government cannot solve all our problems, but what it should do is that which we cannot do for ourselves - protect us from harm and provide every child a decent education, keep our water clean and our toys safe . . ."
That is a harder argument in the United States than it is here. Yet we struggle to have that debate in Britain. The Northern Rock crisis in the UK saw a linguistic dance about whether the word ‘nationalisation’ would pass the lips of the Prime Minister. This was a primary concern of media commentators. It was one of the reasons why George Osborne was significantly outclassed by LibDem spokesman Vince Cable - as many Conservatives will admit: he prioritised political positioning over the economic argument, and was keen to pin the ‘back to the seventies’ tag on Gordon Brown.
And this mattered to the government too, which steadfastly refused to utter the word nationalisation, even as it bowed to the inevitable, preferring to talk of ‘temporary public ownership’. Yet both of the main frontbenches misread the public mood. There is no sign at all that the public cared about this. There was a similar linguistic dance over the collapse of Railtrack – which was ironic when polls show a majority of Conservative voters in favour of rail nationalisation. That time, the Labour government lost a political opportunity to remind voters how we got into that mess.
What the Bush administration is doing with this move is acknowledging that there is no such thing as the ‘free market’. All markets depend on the framework of governance which makes market exchange possible in the first place – and which is also necessary to sustain the public support and legitimacy on which the licence to operate of market systems depend.
So the key question of political economy in the current downturn and credit crunch is about the legitimate and effective role of government. In concrete terms, that is recognised by the US Right and across the political spectrum, even though it contradicts the dominant strand of Anglo-Saxon business and economic analysis of the post-Reagan/Thatcher era.
The next left question for European social democrats is not how to make a ‘fundamental break with capitalism' - but how to govern markets so that they meet economic, social and environmental goals. Indeed, the historic task of social democracy has frequently been to save capitalism from its own most fervent advocates.