[Welcome to the many new visitors who have arrived courtesy of nakedcapitalism.com .I hope you will do some browsing through the archives here and I particularly recommend the July 4, 2010 post referenced below and the October 21, 2004 post on George W. Bush. You might also enjoy the review of Sebastian Mallaby's book on Hedge funds from October 20, 2011, and the review of Harry Markopolos's book on his hunt for Bernie Madoff on May 15, 2010. I hope you will return. Posts appear every weekend, and you can subscribe via the feedblitz link on this page.]
During the periodic crises that mark the death of an old order and the birth of a new one, the party that seizes power can take advantage of panic, uncertainty, and its own ideological fervor to impose long-lasting changes on government and society. Four years ago I thought Barack Obama and the Democrats might be the party that would do that. Two and a half years ago--on July 4, 2010--I concluded that I had probably been wrong, and that the job had already been done by the administration of George W. Bush. This past week, a story in the New York Times showed how that took place in a critical area of the American economy: energy.
For the last 40 years we've had huge, ongoing controversies and debates about energy in this country. President after President has called for energy independence. The Left has warned of global warming and argued for less dependence on fossil fuels. Meanwhile, the increasingly higher price of oil and environmental regulation led to a significant decline in energy production in the US. When the Bush Administration came into office they decided to do something about this, just as they decided to throw out half a century of bipartisan foreign policy. Dick Cheney formed a secret energy task force composed of energy executives like
the President and himself. In 2005, while our attention was focused on the deteriorating Iraq War, they passed a bill which, among other things, took a new drilling method called "fracking" out of the jurisdiction of the EPA. I do not know if that was reported in the press at all. Fracking, and a relaxed attitude towards offshore drilling, was going to be the answer to our problems and lead to a revival of energy production in the US. These steps would benefit from a long-term rise in energy costs.
As the story shows, this has all been coming to pass, thanks to fracking (for oil as well as gas) in the last ten years or so. An economic boom has hit much of the energy-rich west, including Bush's home town of Midland, Texas, and we now produce more than half the energy we consume at home, which is trumpeted as a move towards long-delayed energy independence. The environmental consequences of all this have become a matter of huge debate, thanks in part to the movie Gasland, from which I first learned about the key provision of the 1995 law.
Barack Obama, of course, campaigned on a platform of more green energy. He has now largely abandoned it and gone nearly whole hog for the Bush program. He is in the process of approving, in stages, the Keystone pipeline. His Administration will not reverse this trend even if it lasts another four years, as I suspect it will. It's campaign this year will focus mostly on social issues.
The Bush Administration also cut taxes, crippling the revenue base of the federal government while it led us into two very long wars. Barack Obama has continued this trend as well. He agreed to extend the Bush tax cuts and added a very expensive payroll tax cut which has, for the first time, but Social Security in the red. Banks, health insurance companies, and the food industry, as well as the energy industry, flourished under Bush, with disastrous consequences. It is not clear, as I have noted, whether the Dodd-Frank bill will effectively regulated banks or not, but it's clear that the health insurance reform, if the Supreme Court upholds it (I think they will) will make the insurance industry richer and stronger without doing much of anything about the real problems in American health care, which were too hot to touch. The organization, strength and effectiveness of the Republican campaign to transform America is also reflected in two op-ed pieces in Monday, March 26's New York Times: one by Paul Krugman on the influence of the conservative organization ALEC, which drafts legislation that has passed state legislatures all over the country, and one by Steven Rattner on the extraordinary extent to which the benefits of the current recovery have gone almost exclusively to the very richest Americans. There is no remotely comparable campaign on the left on any issue except gay rights.
All this is very reminiscent of the Civil War era. While they were fighting that war, the Republicans in Congress also implemented a sweeping economic agenda, including a national banking system, high protective tariffs, and generous legislation to make the transcontinental railroad possible. (The railroads, as a recent book by Richard White has made clear, were the big banks of their time; they fueled booms and busts, and frequently had to apply for government bailouts.)
There is however a paradox to our current crisis. Our current Republicans have not enjoyed the political advantages of their Civil War counterparts. Now as then, the country remained quite evenly balanced politically throughout the Crisis era. The earlier Republicans could do anything they wanted for more than eight years because the South had seceded and was originally re-admitted under Reconstruction governments. The Bush Administration originally got into office only thanks to a purge of Florida voters, Democratic ineptitude and a cooperative Supreme Court, and it relied upon a highly divisive base of religious conservatives that has turned into an electoral millstone around its neck. The shape of the coming campaign has become clear: the Democrats, to judge from the numerous fund-raising appeals I receive, will be focusing almost entirely upon social issues, counting on them to turn out the younger voters upon which they depend. (The Silent generation is solidly Republican and Boomers split evenly in the last election.) And Obama looks very likely to be re-elected, but without regaining a majority in the House of Representatives.
Thus we face an economic future in which we look more and more like a Third World country, with enormous economic inequality, fewer rights for workers, and declining public services, coupled with reinforced women's and gay rights--at least in the blue states. (The Republicans are working harder than ever at imposing their social agenda where they hold local power.) Had either party triumphed on both fronts, one might speculate, the country might actually break up again. (I do expect a burst of secession talk in the deep south if Obama is re-elected, but I don't expect it to go anywhere.) As it is, each side gets what it wants most. The Republicans get unrestrained economic freedom and the political power that goes with it; the Democrats get women's and gay rights, and their domination of university life will continue. No one will do much of anything to benefit the nation as a whole. That is the result of the great revolution that began 40 years ago, when the Boom generation started putting its own feelings above the accumulated rationalist legacy of the last two centuries. Their effect has indeed been profound.