America's Political Crisis
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Article: “America’s Political Crisis: The Unsustainable State in a Time of Unraveling” Author: Lawrence Jacobs and Desmond King Issue: April 2009 Journal: PS: Political Science & Politics This journal is published by the American Political Science Association. All rights reserved. APSA is posting this article for public view on its website. APSA journals are fully accessible to APSA members and institutional subscribers. To view the table of contents or abstracts from this or any of APSA’s journals, please go to the website of our publisher Cambridge University Press (http://journals.cambridge.org). This article may only be used for personal, non-commercial, or limited classroom use. For permissions for all other uses of this article should be directed to Cambridge University Press at [email protected]. In Focus ............................................................................................................................................................................................................................................................. America’s Political Crisis: The Unsustainable State in a Time of Unraveling Lawrence Jacobs, University of Minnesota Desmond King, Nuffield College, Oxford he American economy and financial system is expe- The systematic failure of government agencies such as the Secu- riencing upheaval on a scale not seen since the Great rities and Exchange Commission (SEC) and members of Con- Depression of the 1930s. A number of the largest gress to identify the risks of the new financial system and to and most established banks and investment firms regulate them are manifestations of the American state’s compar- have declared bankruptcy (including Bear Stearns atively weak administrative capacity and easy penetration by the Tand Lehman Brothers) or been taken over at fire-sale rates (as financial sector and other related societal interests. Although the was the case, for example, with Merrill Lynch). In the fall of 2008, George W. Bush administration has been the principal target of Congress and the U.S. Treasury along with the Federal Reserve criticism, the truth is that the failure to monitor and constrain Bank committed more than eight trillion dollars in payments, subprime loans, credit swaps, derivatives, and over-leveraged loans, and guarantees of various sorts to prop up financial insti- investments represents a philosophical deference to private mar- tutions (including the semi-governmental mortgage entities, Fan- kets and a pattern of administrative practices that crosses party nie Mae and Freddie Mac) as well as the country’s largest insurer, lines (Brown and Jacobs 2008). Indeed, the roots of the policies American International Group (AIG). The speed, number, and pursued by the Bush administration extend to previous adminis- scope of these interventions lack historical precedent. trations of both parties including the Clinton administration, The immediate cause was the collapse of a new and largely which terminated the Glass-Steagall Banking Act that had been unregulated “shadow” financial system consisting of over-the- enacted in the 1930s to stabilize the banking system. Put simply, counter derivatives, credit-debt swaps, and a little recognized (and the immediate media focus on assigning blame to a party and to a under regulated) sector of the housing mortgage market—loans small circle of individuals misses the institutional and adminis- to so-called subprime borrowers who failed standard creditworthi- trative sources of the economic turmoil, which themselves have ness tests based on stable income or employment. The devastat- resulted from uniquely American political developments. ing impact of defaults in this financial system was magnified by The meltdown of the American economy not only reflects com- the loosening of capital requirements for investments. (Govern- paratively porous and underdeveloped administrative capacities ment agencies acquiesced in the drive by financial firms to heav- but unsettles the legitimacy of the American state as a represen- ily leverage their assets until they accumulated $33 of debt for tative democracy. The massive direct and explicit government “res- every dollar in equity.) cues” of private businesses have starkly revealed chummy personal Despite the overwhelming focus on the mistakes by Wall Street relations among government officials and business and the depen- and key industries, the economic and financial unraveling is funda- dence of government on private markets. It is telling that the harsh- mentally a political crisis of the American state. The collapse of est initial criticism of the Bush administration’s first proposal for private markets both reflects and propels an unsustainable con- a $700 billion infusion of money into the financial sector was for stellation of government administrative practices and claims to its poor messaging; its use of the language of “bailout” rather legitimacy. than “rescue” stripped bare the purpose of government. More than creating opportunities for personal favoritism, the Lawrence Jacobs isWalter F. and Joan Mondale Chair for Political Studies and director of American state’s policies themselves (including loans to automo- the Center for the Study of Politics and Governance in the Hubert H. Humphrey Insti- tive companies that required further reductions in wage and non- tute and department of political science at the University of Minnesota. His most recent wage benefits for workers) worsened the circumstances of some books include The Unsustainable American State (coedited with Desmond King, Oxford American families while failing to directly respond to those of University Press, 2009); ClassWar?What Americans ReallyThink about Economic others (including those who experienced home foreclosures by Inequality (with Benjamin Page, University of Chicago Press, 2009); The Private Abuse of the Public Interest (with Lawrence Brown, University of Chicago Press, 2008); and banks that the government propped up). Government “help” to Talking Together: Public Deliberation in America and the Search for Community business turned out to hurt or fail to do much for everyday fami- (with Fay Lomax Cook and Michael Delli Carpini,University of Chicago Press, 2009). lies. The resulting backlash has taken aim at the government’s Desmond King is AndrewW Mellon Professor of American Government at Nuffield Col- focus on Wall Street rather than Main Street. Implicit in these lege, Oxford University. His research is in American political development and compar- attacks are challenges to the government’s creedal foundation— ative political economy. Among his books are Actively Seeking Work: The Politics popular sovereignty and the idea of government by and for the ofWork andWelfare in the US and Britain (University of Chicago, 1995), Making Amer- people. icans: Immigration, Race, and the Origins of the Diverse Democracy (Harvard Uni- versity Press, 2000), Separate and Unequal: African Americans and the US Federal The economic and financial crisis that culminated in the fall of Government (2nd ed. Oxford University Press, 2007) and The Unsustainable Ameri- 2008 was a political crisis. It both reveals the unsustainability of can State (coedited with Lawrence Jacobs, Oxford University Press, 2009). the current American state and poses warnings for the new Obama doi:10.1017/S1049096509090568 PS • April 2009 277 In Focus: America’s Political Crisis ............................................................................................................................................................................................................................................................. administration, which is pursuing a mix of fresh but also recycled 1985); deficiencies include but are not confined to the operation policies in the face of daunting obstacles to stabilizing the U.S. of key regulatory agencies. Second, the internal deliberations and economy and democracy. In this essay and in an edited volume independent decisions of civil servants and authoritative policy- with a lineup of leading scholars (Jacobs and King 2009), we crit- makers are persistently compromised by the interference of out- ically examine the unsustainability of the American state and the side interests (see, e.g., Keohane and Milner 1996; Snyder 1991; nature and degree of the crises it faces. Jacobs and Page 2005). 1. The Administrative Liability of Under-Qualified Staff and Internal Disagreements Missing the Early Warning Alarm: In hind- I. THE NATURE OF UNSUSTAINABILITY sight, the inept response of the Bush administration to the dev- The nature of the crisis facing the American state has been astation and destruction wrought by Hurricane Katrina in New obscured and clouded by a preoccupation with the missteps of Orleans was a warning siren about the broader threat posed by individual government officials, such as president GeorgeW. Bush the administrative turmoil of the national American state. The or president Barack Obama, or individual government entities, president’s public praise of his FEMA director Michael Brown— whether Congress or particular agencies such as the U.S. Depart- “Brownie, you’re doing a heck of a job”—jarred with media images ment of Treasury. Identifying the fundamental sources of the cur- of a devastated city and shocking hardship for refugees forced to rent economic and political breakdown requires a wider analysis flee the city (Lee 2006). The tragically inept response to New of the tensions and contradictions embedded in the