Does this economic crisis make the State stronger – or is it another step in the decline of the state?
How will this economic downturn end? I have forecast its economic consequences here:
This cycle will end with a re-balancing of the global economy — and a decline of the US dollar so that the US goods and services are again competitive. No more trade deficit, and we can pay our debts.
What of its political consequences? Here is some speculation about the outcome of this cycle, the end of the post-WWII geopolitical regime. This article goes to the heart of the dynamics at work:
“In praise of an explicit number for inflation“, Frederic Mishkin, Financial Times, 11 Janaury 2009 — Mishkin is a Professor of Economics at the Columbia Business School; was on the Board of Governors of the Federal Reserve System from 2006 to 2008. See his Wikipedia entry for more information.
For all his knowledge and experience, Mishkin apparently cannot conceive of the State’s impotence in the face of an economic cycle of great (even historical) magnitude. He sees these things as a matter of technique, correctly marshaling and applying the State’s awesome powers to manage the economy.
This down cycle might shatter Mishkin’s god, the State. This down cycle will not just mean lost income and wealth, but loss of the government’s credibility. Mishkin describes the climax of this era, in which desperate governments attempt to affect the economy by making bold promises which they cannot fulfill. Failure of these promises might initiate fundamental change, in ways we cannot now foresee.
This goes to the question Michael Finley asked at Defense and the National Interest (5 January 2009): “Is the global financial crisis a “bear market rally” in the decline of the state, or its resurgence?”
There are two opposign sides to this debate, both plausible.
(I) The government’s power has grown during this crisis, and will grow far more during the next few years. It is the the opposite of the State’s decline.
- Governments has already nationalized much of the financial system, and will absorb more as their capital evaporates from corporate and household loan defaults.
- Governments will become the primary source of investment capital as households and businesses remain unwilling to risk their capital.
- Government’s regulatory authority will grow beyond anything seen in our history — even during the 1970’s — as free market solutions are discredited by the long deep downturn.
(II) This cycle might bring the State to its climax of power and authority. But growth in power and reach without effectiveness will only undercut people’s loyalty, leading to weakening of the regime. If so the modern State’s overreach might follow that of Philip II of Spain and Louis XIV of France. We can only guess at the speed and timing of this process, and how far it runs along the spectrum from weakness to regime change.
More on this on another day.
About the “decline of the State” theory
All discussions about the possibility of the decline of the nation-state take place in the shadow of Martin van Creveld’s magnum opus Rise and Decline of the State.
- For an brief introduction to his theory see “The Fate of the State“, Parameters, (Spring 1996).
- For a links to his online works see The Essential 4GW reading list: Martin van Creveld.
- His newest book is comes The Culture of War, a must-read for anyone seeking to understand the nature and role of war in the 21st century.
If you are new to this site, please glance at the archives below. You may find answers to your questions in these.
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For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar. Of esp interest these days:
These posts discuss our Constitution and government:
- Forecast: Death of the American Constitution, 4 July 2006
- The Constitution: wonderful, if we can keep it, 15 February 2008
- Congress shows us how our new government works, 14 April 2008
- See the last glimmers of the Constitution’s life…, 27 June 2008
- Remembering what we have lost… thoughts while looking at the embers of the Constitution, 29 June 2008
- A report card for the Republic: are we still capable of self-government?, 3 July 2008
- Another step away from our Constitutional system, with applause, 19 September 2008
- What comes after the Consitution? Can we see the outlines of the “Mark 3″ version?, 10 November 2008