Daniel Altman called it the
the Neoconomy, the radically deliberalized state, where a corrupt central government fed out favors to a circle of contributors, and everyone else, was on the outside. You can call it corporate socialism, or Japanification of America if you like. But the Neoconomy was designed to do this to the whole world, particularly to "Old Europe". For those who wonder where the "George Bush MBA" is, he is right in front of you - a CEO doesn't get rich by making his share holders rich, he gets rich by raking off money that the shareholders would get.
A few months ago, it seemed as if all that was left was endgame, it was high tide for the neoconomy.
Riptide has followed high tide. Katrina is the visible part of this, but the reality is that she only accelerated the problems beneath the neoconomy. And over the weekend, the neoconomy went 0 for 3 in elections in Japan, Germany and New Zealand.
[Right, I've finished the Quartet in B. What about putting out the two recent quartets as a CD to benefit Oxfam's Katrina effort? Yes? No? Take the poll.]
The failure of the European Constitution was a major victory for the neoconomy, because it broke up the only monetary pole which could have forced the dollar on to a more austere path more quickly. This allowed the money supply to balloon. It seemed for a brief moment like high tide for the neoconomy, as radical neocrats seemed ready to take power in Germany first, and then France, and finally the UK.
George Bush is like most CEOs of large corporations, he has a plan, he sticks to that plan come hell or high water, knowing that "the first guy who blinks loses". And if it doesn't work, well, golden parachute out, it was, after all, OPM - Other People's Money. The business plan for the Neoconomy was to invade Iraq, slash taxes, and give out free money. Get the oil from OPEC, and outsource jobs to India and China to cut costs here. It was a dramatically accelerated, and even radicalized, version of what many thought Reaganomics was about. 75 years of Hoover seething could finally be put to rest.
The idea was to borrow and squander, breaking the monetary system, and thus force players to dump the social safety net. It is already working in the US, as pensions and health care are being dumped by corporations that can no longer afford them. The tide of dollars would force up the price of energy, and force other nations to align with Bush, and the US, to get dollars to buy the oil. In effect, Bush was going to tax the developed nations of the world to pay for the massive tax cuts he slammed through for the privileged.
With the failure of the European Constitution, the road seemed open. There were still problems, but all over Wall Street, the Repbulican rooting section was in full cheer. The culture of corruption seemed to be in the driver's seat: end play Iraq, and hold on for the ride.
Katrina exposed for many what is underneath the neoconomy, as with the growing visibility of the opposition to Iraq, it stripped people's illusions away. Iraq and New Orleans were both disasters, and seeing Bush management up close meant that they could no longer accept that a city half a world away was in good hands, when one in our own backyard was not.
However, these were merely visible manifestations of a basic reality, and that reality is that the neoconomy rested on a flood of oil, and on the ability of China to continue to pressure down US wages and prices by enough to compensate for the rising costs of oil. This would control nominal macro-inflation, even as it allowed raging micro-inflation of energy and housing. The Neoconomy was a huge play to profit from inflation that it, itself, created.
Into this moment three very unfortunate things happened for Bush. One is that he ran out of leash of oil production. The gamble of two wars was that one of them would open up energy - either the heart of Asia, or Iraq. Both turned out to be dry holes, and the remaining world capacity of oil is not enough to feed the runaway bubble economy. The second was that these factors hit the rest of the world much harder than expected. Europe pays more for oil than we do, the plateauing of light oil - a prelude to peak light oil in about a decade - hits those that need light oil first. OPEC has no more light oil to pump - it is selling heavy and sour to fill the pipeline, but this does not reduce the price of petroleum for transportation. The last is that the US budget situation ran out of wiggle room. Any unexpected expense would be hard to manage.
The rising price of oil ate away at the support of "independents", the people who are consumers of government, but who generally stay asleep unless their pocket book gets hit. And with spiraling oil prices, it did. The budget situation caused the next problem: the need for jobs, never a neoconomy strong point, caused politicians, anxious for re-election, to slam through a massively corrupt pork barrel transportation bill. This had the effect of maxing out the last credit card. There was no more wiggle room.
The Republican Party had very carefully parceled out pork - pouring money into Florida and Ohio as the key swing states. The transportation bill ate up all there was to parcel out. When Katrina hit, it caused a massive rupture - the only place to get money, was to take it away from those who had been promised it. The spectacle of Rep. Young of Alaska demanding that his bridges to nowhere come before getting evacuees out of the middle of nowhere is merely the most laughable moment.
The last thing that happened to Bush was that the rest of the world woke up, enough. You see, for the neoconomy to work, it has to take over every place. It is not possible to have a race to the bottom, unless everyone joins in. The radicals needed not only to push the United States down the spiral of plutocracy, but everyone else as well. The elections of September 2005 were a near thing, but in all three, the party pushing for neoconomization, failed. In New Zealand, the National Party came up short. In Japan, Koizumi's play for time got approval from the voters, and the more reactionary forces in his own party and in the opposition were pushed aside. Finally, and the most complex case, Gerhard Schroeder's huge gamble of his own, is close to paying off.
What was that gamble?
Schroeder, remember, took power in 1998. He inherited a huge budget mess from Kohl, and only had two years of prosperity before the down turn of 2000. He did not start off well. He badly misplayed European Monetary Union, failing to liberalize when there was a clear chance to do so. He misplayed Bush's invasion of Iraq. He misplayed the European Constitution and the rise of the Euro. He was well on his way to being a failure.
But then, in the wake of the defeat of the European Constitution, facing an ignominious end to his career, he did an extra-ordinary thing: he took a huge chance. Schroeder is not, by nature, a neo-liberal. Liberalization of the Germany economy is, to him, a means to an end, and that end is generating enough growth without inflation to make it through the current crisis. His own party stopped even these small efforts, and he could not get support from the other side of the aisle, as we would say in Anglo-Saxon countries, because they demanded much more than he wanted to give.
His gamble was to call snap elections, knowing his own party would splinter and take a hit. The result, he reasoned, would be a political end play: he could form a minority government, since the left flank splinter would support it, in preference to Merkel's radicalism. He could demand being the Chancellor of a grand coalition, and thus limit liberalization, perhaps not as much as he would like, but without the huge tax cuts that would be designed to create fiscal crisis. The CDU would then have to sign onboard to the painful restructuring, and would not be able to simply claim the results of his hard work and heavy lifiting.
His gamble was that he could out campaign Merkel, and that when it came down to it, he could win the battle of personality for the Chancellorship. It remains to be seen whether he can close this play - he has to keep the Greens out of the arms of the CDU, something that seems very likely, given that the price of joining the government is backing US policy in Iraq, which Fischer, the Green leader and Foreign Minister is loathe to do. But he has come close, and the world has come close.
Victories are often not resounding, but equivocal. Antitem was an equivocal victory, as was Monmouuth in the American Revolution. High tides are often stopped by the last twig. And that seems to be the case here, at the moment of high crisis, the attempt to neoconomize a string of industrial nations - Korea and Taiwan earlier this year, New Zealand, Japan and Germany, have all fallen short. Often just short, but short enough.
Now the road ahead for the neocrats is not as rosie, if the rest of the world doesn't take huge wgge cuts, then there is not enough oil on the planet to keep the blast furnace economy going, and the price of commodities - gold, aluminum, oil, iron - is already spiraling out of control. Inflation is not global yet, but there are no margins left to shave in China, or in the US.
The neocrats may get one more chance - with France and the UK, but both of these are slipping out of their grasp. France because there is an increasing awareness in the electorate that their problems are external, rather than internal. And the UK because it is buoyed up by the neoconomy, and Blair has been mortally wounded in his own party. Brown, not Blair, will face the Tory resurgence, and the Liberal Democratic Party's move to the right, and he is likely to defeat it.
In three short months, the situation for the neocrats and neocons, has turned from near victory, to defeat, simply because they have run out of time, and even their own base is now turning on them. Since the whole plan required an absolutely corporate complete control over resources, this cracking is a grave danger. They have cards left to play, but not many, and they have almost no time.
What is happening now then is a third rejection of the neo-conomy and neo-conservative world. The first was from those close to it - as pictures of Abu Ghraib and stories from insiders such as Wilson began to circulate. The second was from the public, which started to realize last year, and became aware this spring, that this was not the society they wanted to live in.
The wave going on now is among elites, who see that it cannot hold together, and that the promise that everything could be managed is turning out to be false. Like the angr Board of Directors of a failed merger, they are not going to restructure, but they are going to pull back from the cliff, and will no longer back the capital expenditure plans of a binge squandering CEO.