So much uncertainty

Editorial

It is difficult to overstate the revolution that has upended the political and economic status quo in the last two weeks. Banks in the major Western economies have been partially nationalized. Mere days before Americans elect a new government, the assumptions that have underpinned the economic and political foundations of that country are being challenged in the most brutal fashion.

A global crisis of liquidity credit access, plummeting (and, this week, rebounding) asset prices, collapsing banks and desperate corporate mergers are symptoms and causes of what may turn into a whole new reality. The confluence of events is a perfect storm for one of the most significant realignments since the 1930s.

The impetus for epochal change is not merely the outcome, but the perceived cause. American candidates are suddenly fighting each other to define themselves as the most interventionist and to compensate for past records supporting deregulation. It is a stunning reversal of ideology. (And it brings to mind Ayn Rand's apocalyptic vision in Atlas Shrugged, published in 1957, of a socialist America devoid of innovation and prosperity but abundant in political manoeuvring and poverty.)

As unprecedented as these developments are, they are not entirely unforeseen. The basis of Keynesian economics, which dominated thinking until the Reagan era, is that the economy will rise and fall, if not predictably, at least with predictable regularity, and that governments have a role to play in ameliorating the impacts of these ups and downs. And, while letting the markets take care of themselves is ostensibly the ideological cornerstone of the American Republicans (less so Canadian Conservatives, whose unique "red Toryism" traditionally accepts government's hand in the economy), in reality, they have never let the markets take care of themselves and now some of the most ardent "anti-interventionists" are showing their true colors, retrenching to the prescriptions of Keynes.

In Canada, the political repercussions have been less dramatic – because the economic impacts have been mercifully more muted – but the reversion to 1970s-style Keynesianism has been amusing to watch play out among party leaders whose long road to accepting the concept (if not the practice) of free market economics has often seemed forced. To whit, on the day last week when economists from every major Canadian bank warned that budget deficits were the only way to soften the blow of an economic tsunami, there was NDP leader Jack Layton, in what must have seemed a cruel irony, insisting that he is as ideologically committed as the other leaders to a balanced budget – at the height of an election campaign when the left's instinct toward interventionist high spending is gaining ascendancy among voters and economists. That had to hurt.

For Canadians, there has been a dangerous smugness that we are more insulated from the worst of the crisis. Our banks, we are told, are far more solid than those of other countries, and the budgetary cushion we enjoy from putting our fiscal house in order in the 1990s is holding us up better than our cousins to the south, with whom we are so economically integrated. Inevitably, though, change there will mean change here. And change is not always for the better.

Will 2008 go down as a year of revolutionary change like 1980, 1968 or 1932? Is this a monumental time of upheaval and renewal, like when the Berlin Wall fell or other moments in history when empires collapsed? Is this the time when Western economic power shifts back, after 60 years, to the other side of the Atlantic?

If American economic and military power recedes, what role will North America play in the global future? And, if Israel's one reliable friend in the world is economically and militarily sidelined, just when history tells us economic anti-Semitism is likeliest to increase, what added burdens will this place on Israel?

There is another, more optimistic, line of inquiry. Could a parallel economic and military decline in America usher in a more multilateral, co-operative era in international relations? Is it possible that an altered economic order would allow for the amelioration of disparities within and between nations?

Like everyone, we have more questions than answers. Even those with a sense of history are at a loss over how the coming years will play out. Much will rest on the United States, where the crisis began. And what comes next likely depends less on which man becomes president after November than on what popular consensus determines to be the best course. Hopefully, calmer and more rational heads will prevail, as the next president will have unprecedented power, and likely a strong mandate, if polls are to be believed, to remake the economy as definitively as did Franklin Roosevelt, if not precisely in the same fashion.

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