The second shoe to drop

It is remarkable that, so far, the global crisis which started in 2007, has had very few disruptive fallouts in the political domain.  There have been two casualties so far, Prime Ministers Berlusconi and Papandreou in Italy and Greece respectively.  In both cases, traditional parties have rallied behind governments led by technocrats and have approved austerity budgets.  In the US, where it all started, the situation is even more benign:  after causing a stir and some concerns, the Tea Party has overplayed its hand and failed to organize into a potent force, and President Obama, while inspiring faint enthusiasm, may be reelected come November.

Yet this may change.  Indeed, as governments in Europe, and soon in the US, cut spending (including social benefits) and raise taxes in order to reduce public debts and balance their budgets, populations may well revolt and seek alternatives.

In particular, the perception that such sacrifices are demanded by a foreign power, such as Germany, or by faceless financial markets which have been demonized by politicians and the media, combined with the absence of tangible forthcoming benefits may well cause populations to balk, to reject further austerity and loss of purchasing power, and to become receptive to the most demagogic promises of fringe politicians.

Granted this didn’t happen in the US during the Great Depression, but it did in Europe and I would argue that the explosion of media and social electronic networks make such a threat more serious today. Although in a different context, the Arab Spring is the clearest illustration of how a movement can gather irresistible strength.

In particular, what we are witnessing today is the squeezing of the middle-class throughout the West, and such a trend is unlikely to stop any time soon.

In April 1932, the liberal journalist Paul Scheffer of the Berliner Tageblatt wrote a powerful article on Hitler and how he seduced a despondent German middle-class.  This article was reproduced in the January/February issue of Current Affairs, and I am reproducing an extract here.

Hopefully, we will avoid a similar fate. But I do expect that, while the Great Recession mostly impacted financial markets and economies initially, it will have a much larger impact on politics and government in the next few years.