November 16th, 2010 | Published in Politics
Felix Salmon has an interesting post in which he notes how the Federal Reserve is being politicized by the debate over Quantitative Easing 2: Electric Boogaloo:
Bernanke “was already making a high-stakes economic bet with QE2,” he says, “and now it’s a political bet, as well”. If QE2 doesn’t work — Sloan raises the specter that it “could imperil the dollar and our financial system” — then it’s not just the economy which will be harmed, but also the Fed’s long-term credibility and pre-eminence. In fact, the politics of QE2 are already hobbling the Fed’s freedom of movement . . .
It’s worth recalling how the Fed found itself in this position. Most Keynesian economists believe that the first-best policy choice under present economic conditions is another stimulus bill. But congress will not pass such a bill. QE2 is an inferior second-best policy, which is being employed because the Fed is able to act independently without getting permission from politicians. But this in turn exposes the Fed to the kind of political battles that Salmon is describing.
Which makes me think that we’re watching as the entire American system of government is destabilized by what we might call “contagious delegitimation”. What happens is that one part of the government loses its ability to act in the face of a crisis, which causes it to lose its legitimacy. This puts pressure on other government institutions to take up the slack. But because of the inability to coordinate with other, now non-functional parts of the government, these institutions are less effective than they might be, and so they to lose their legitimacy. There is a feedback loop here, as a loss of legitimacy leads to a diminished capacity to act, which in turn further erodes legitimacy.
The legitimation crisis in the United States probably begins in the states. They are required to balance their budgets, and are thus forced to make pro-cyclical budget adjustments that deepen the recession. Moreover, in big states like New York and California, existing dysfunctions of the political system have accreted over time and made the government both ineffectual and illegitimate in the eyes of voters.
The federal government was able to step in and support the states to some extent, through programs like the extension of unemployment insurance and the stimulus bill. But congress, too, is increasingly unable to act, because Republicans have realized that their best chance of winning the Presidency in 2012 is to sow chaos and intransigently block all of the Democratic initiatives.
Which brings us back to the Fed. Kevin Drum suggests that the real impact of QE2 is likely to be relatively small no matter what, which means that Republicans will be able to spin the result in their favor and thereby delegitimate the Fed. So where does the political system go after that? The Supreme Court has been somewhat insulated from the wave of delegitimation, but that’s partly because the Roberts court has been careful to promote conservative policy goals quietly, while paying false deference to precedent. If the court chooses to make a major political play–by ruling Obama’s health care bill unconstitutional, for example–than it will be sucked into the vortex as well.
This is the backdrop against which the 2010 midterm elections ought to be understood. Control over congress seems to be whipping back and forth between the parties–not because either party can put a compelling vision before voters, but rather because the electorate delivers one no-confidence vote after another to parties which are both captured by narrow ruling class interests. As the political scientist Thomas Ferguson puts it, “The political system is disintegrating, probably heading toward a real breakdown of some sort.”
And this is not to speak of what is happening internationally, where American legitimacy also appears to be decaying even though the U.S. remains economically and militarily central to the global order.