Eduardo Porter in today’s New York Times has an intelligent discussion about the current state of the economy and its impact on politics, both in the U.S. and Europe. He writes:
It’s hard to overstate the shock dealt by the Great Recession to the political order. In the United States it gave rise to the Tea Party — born from the rant of a cable TV business commentator against an administration plan to help underwater homeowners. It spawned the Occupy Wall Street movement, angry at the concentration of wealth among a fortunate few who rebounded smartly from the crisis while the rest of the nation wallowed.
In Europe, 11 euro area governments have fallen in just over a year — it happened twice in Greece — punished by electorates who see no end in sight to the downturn. Extreme populist parties are on the rise, like France’s right-wing National Front, which garnered a record 18 percent of the vote in the French presidential elections last month. Battle lines have been drawn across the Continent between a political establishment that defends austerity at all costs in the name of preserving the euro, and increasingly radical oppositions.
This kind of political polarization may be a standard feature of financial crises. Economists have noted that such crises naturally widen the chasm between the interests of creditors — like banks, investors and even governments — and debtors, who are suddenly made insolvent by a crisis that takes away their jobs and destroys the value of their homes.
Creditors push austerity as the best way for debtors to repay their debts. They oppose efforts to write down or renegotiate loans, or to allow higher inflation to erode their value. And creditors, better financed and organized, usually gain the upper hand. Debtors, who are generally poorer, lose.
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