The Citizen (Dar es Salaam)
Adolf F. Mkenda
6 October 2008
opinion
The financial meltdown in the US has come during the final lap of the campaign for presidential and congress elections.
The timing of the crisis has made it a little bit more difficult for the congress to enact legislation for the financial bail out because it touches on the ideological matters that may now be scrutinized and voted for or against by the electorates.
This crisis has also brought economic issues at the centre of presidential election, and may yet play decisive role in the final outcome of these elections.
The financial crisis touches on ideological differences between the conservatives in the Republican Party and the liberals in the Democratic Party. The Republicans have successfully championed privatation, de-regulation and anti-welfare system, labelling the government as part of the economic problem and the market the ultimate solution.
It is now widely acknowledged that the financial crisis could have been averted or at least significantly minimized had there been more well-enforced regulations in the financial markets.
It had been known for sometimes now that irrational exuberance drove up the housing prices and that once the frenzy is over there would be a financial meltdown on sub-prime creditors, and this would have far reaching repercussions in the financial markets because of the wide-spread use of mortgage-backed securities in the financial sector.
Because of the ideology that castigates regulations as anti- business and anti-economy, it was not possible to even propose regulations to avert the impending crisis.
Electorates may now be suspicious of candidates who cling to the mantra that regulations are always bad, and that government is ever part of the problem, not a solution.
What is more, the US government has nationalized some financial houses such as Fannie Mae and Freddie Mac, heralding a significant policy reversal by the Republican government.
Nationalization of the commanding heights of the economy was a preserve of socialists, but today we have a Bolshevik Bush, who however, is a through and through conservative! Taunting liberals as leftists and socialists, hitherto the electioneering credo of the Republicans against the Democrats may no longer carry its magic.
The financial bail-out proposed by the treasury secretary was a welfare package for financial institutions, no wonder some called it socialism for the rich.
The conservative ideology should be in disarray, and this should galvanize the liberals who have been long subdued by the intellectual onslaught of the likes of Milton Freedman, a libertarian economist, and implemented by the likes of Ronald Reagan and Margaret Thatcher.
To be sure, some conservative Republicans saw this contradiction to there core faith, and proposed an insurance-based bail-out scheme that would minimize the use of the tax-payers money to bail out the rich. In any case the fangs for attacking welfare schemes for the poor have been blunted, and may no longer be as deadly election weapon as before.
There ought to be a resurgence of liberal ideology that champion the role of the government and seek to formulate policies that minimize inequality in the US. The post World-War history shows that the US had enjoyed less income inequality during each democratic administration, a trend that has consistently been reversed by the Republican Administrations.
Now that even some republicans are bemoaning the unbridled corporate greed, it is time to re-examine again the policies that gave tax breaks to the rich and dismantle regulations to favour business and strangulate any policy and law that favours labour. In this spectrum, the Democrats are favours by the prevailing circumstances.
How this unfolding drama translates into election outcomes is yet to be seen. However, recent opinion polls have shown that electorate have tended to think that Democrats are better placed to handle the economy than the Republicans.
The same polls have shown that electorates tend to consider the Republicans as being better placed to handle national security issues. If the unfolding financial crisis dominate the thinking of the electorate, the democrats are likely to maintain an edge in the electoral outcomes.
Adolf Mkenda is a senior lecturer of economics at the University of Dar es Salaam.
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