I think that John Quiggin is voicing an opinion held by a lot of people on the Left: the current financial crisis has somehow discredited American-style capitalism, that the only way out of the mess we're in is to embrace a more social democratic society.
One way to think about the political impact of the GFC is to look at the range of political positions it's rendered untenable. This range is large, encompassing, in the US context, everyone from Bill Clinton to Newt Gingrich. More generally, it covers anyone who embraced the claim that a US-style economic system, as of, say, 1995-2005, was the best that had ever been seen anywhere, and could only be improved by making government smaller and/or more business-like.
. . . The only tenable position for anyone who wants to maintain any part of the existing economic and social order is Keynesian social democracy, modernised to deal with the developments of the last few decades, and disciplined enough to avoid the disasters that brought down the Bretton Woods system in the late 1960s and early 1970s.
I believe that many on the left believe this. I even believe that it may have some political salience, although not nearly as much as John Quiggin wishes. But as an empirical matter, it is high-test hokum.
Or perhaps John Quiggin has some different, special meaning for the words "Keynesian social democracy" that have nothing to do with aggregate demand management, and everything to do with regulatory oversight of credit growth. But at Chicago, we had a different word for those who thought that the unchecked growth of the credit supply was the main problem confronting macroeconomists. We called them "monetarists".
Monetarist theory is, of course, not especially helpful when it comes to thinking about the current banking crisis, but then, neither is Keynesian theory. The idea that the writings of Lord Keynes offer us the key to adequately managing global capital flows and the level of Tier One regulatory capital is no less bizarre than the notion that one could divine such a blueprint from the work of Milton Friedman.
Especially odd is the notion that the only tenable position, unless we are to go Marxist, is social democracy. Would we not have had a financial crisis if we'd had really super single-payer health care?
It is true that the belief in both tighter bank regulation and a larger welfare state cluster on the left, but if social democracy is some sort of preventative cure-all, how come the US economy is outperforming places like Denmark, Sweden, and Germany, not to mention the OECD as a whole? Why, if the problem is "American style capitalism", are the biggest GDP declines found elsewhere? I understand that the left finds it politically convenient to link the uninsured and the banking crisis, but this seems only very slightly less silly than blaming it on gay marriage--indeed, looking at the countries worst effected, the latter's correlation seems stronger.
But is he right poliically? The cluster may be irrational, but that doesn't make it any less politically salient. Maybe. On the other hand, it was less than five years ago that we were talking about a permanent Republican majority based on the obvious political victory of a militant foreign policy. I'm not sure I'm quite ready to write capitalism off the electoral map.
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