Massive System Failure

The political system in this country is failing. The GOP is fracturing along a Tea Party Bircher versus Rovian establishment fault. At the end of last month longtime political commentator Thomas Edsall, wrote a story, "The Republican Autopsy Report," that appeared on the New York Times "Opinionator" blog. In it he discusses a 97-page post-2012 election assessment commissioned by RNC chairman Reince Preibus:

The G.O.P. report is an extraordinary public acknowledgment of internal discord and vulnerability, which has intensified the battle between the deeply committed conservative wing and the more pragmatic, pro-business wing for control of the Republican Party. With just a few exceptions, it does not mince words. 

At the federal level, it says, the party is “marginalizing itself,” and, in the absence of major change, “it will be increasingly difficult for Republicans to win a presidential election in the near future.” Young voters are “rolling their eyes at what the party represents.” Voters’ belief that “the G.O.P. does not care about them is doing great harm.” Formerly loyal voters gathered in focus groups describe Republicans as “ ‘scary,’ ‘narrow-minded’ and ‘out of touch’ and that we were a party of ‘stuffy old men.’ ”

What's going on is the GOP establishment, which made a Faustian bargain with the Tea Party to combat the Obama tidal wave following the 2008 election, is now, with Karl Rove still the #1 strategist, attempting to eradicate the Bircher jihadists:

More broadly, the alliance between Rove and the R.N.C. does substantiate the view that establishment forces are driving the reform movement within the Republican Party, an establishment that includes much of corporate America, including the Chamber of Commerce, the Bush family and its allies, and the more moderate, traditionalist donor community. 

Conservative analysts like Timothy P. Carney of the Washington Examiner and Ramesh Ponnuru of the National Review quickly spotted the establishment tilt in the Priebus report. Carney wrote:

Republican elites tend to favor mass immigration and be ambivalent or supportive of legal abortion and gay marriage. So, shouldn’t we take it with a grain of salt when the Republican leadership puts out a document saying that the G.O.P. should change only its rhetoric on economic issues, but change its substance on social issues?

Similarly, Ponnuru wrote that the recommendations “come naturally to Republican elites” who “are more likely to favor same-sex marriage and comprehensive immigration reform on principle.” The report reflects “elite conventional wisdom perfectly, just perfectly.” 

In January, I pointed out that “If the conservative movement continues on its downward trajectory, the American business community, which has the most to lose from Republican failure, will be the key force arguing for moderation.” 

That moment has come. The Priebus report and Rove’s Conservative Victory Project together mark a significant escalation in the battle between the center and the right over the soul of the Republican Party. What has yet to be determined is whether they are fighting over a patient who can be quickly resuscitated or a patient with a chronic but not fatal illness — or a corpse. 

The very bluntness of the Growth and Opportunity report reflects the seriousness of the moment the Republican Party faces: increasing difficulty holding on to its House majority; weakening prospects of regaining control of the Senate; and the threat of unending Democratic control of the White House.

For the Democrats it appears that it is TINA ("There Is No Alternative") to Obamaism, which after much hope and longing on the part of a progressive majority in this country seems to be nothing more than Clintonism. Obama's failure to get a gun control measure out of the Senate along with his proposal to chop Social Security benefits presage an impotence -- a mere six months after his landslide reelection -- that can only grow more pronounced. The AFL-CIO is rapidly shrinking and looking to overhaul its organizing model. How many times have we heard that before? So there is no hope there. Occupy Wall Street, barring another economic meltdown, is unlikely to recapture its former glory.

I was looking to Cyprus to show us a way forward by voluntarily rejecting the euro. We need courage, experimentation. But in the last couple of weeks there is no indication that this will happen. So for now it appears that our best bet is Beppe Grillo's Five Star Movement. Rachel Donadio has an excellent story, "President of Italy Nominates Center-Left Official as Premier," in today's paper about the latest political developments in Italy. Luigi Bersani resigned the leadership of the Democratic Party after two months of unsuccessfully attempting to form a government and getting his presidential candidates to succeed President Giorgio Napolitano. With no resolution on the horizon, the 87-year-old Napolitano agreed to serve another term and was reelected. Now, as Donadio reports,

After months of political paralysis capped by a week of turmoil, President Giorgio Napolitano on Wednesday named Enrico Letta, a high-ranking official in the center-left Democratic Party, to form a broad coalition government to try to steer Italy out of political chaos and its worst recession since World War II. 

And former Prime Minister Silvio Berlusconi, the great survivor of Italian politics, emerged as a kingmaker by default, having outlasted most of his adversaries. 

“It’s undeniable that this is a victory for Berlusconi,” said Giovanni Orsina, the deputy director of the School of Government at Luiss Guido Carli University in Rome. “He got what he asked for, from Napolitano’s re-election to a political government with broad, bipartisan support.”

Like the current Greek government, a three-party coalition in which historical enemies on the left and right have joined together out of fear of extinction and a lack of viable alternatives, Mr. Letta is potentially the last gasp of a political cycle that in Italy began in the early 1990s with the collapse of the postwar political order and the rise of Mr. Berlusconi.

The party system is collapsing. Television is said to have led to the erosion of political organization in the United States. Now TV is being replaced by the Internet. Life is migrating online. Is this good or bad? Judging from the stasis of the status quo one can only conclude that so far it's not good. We might be at the point where there is so much information available that we are paralyzed -- the "dream machine" that Jean-Francois Lyotard predicted in his seminal La Condition postmoderne: Rapport sur le savoir (The Postmodern Condition: A Report on Knowledge) (1979).

We Need New Political Formations

Today's Economic Scene column by Eduardo Porter, "From Mexico, Some Lessons for Europe," looks at Europe's allegiance to austerity and compares it to Mexico's attempt to deal with its sovereign debt problems in the 1980s. Porter was a college student in Mexico City at the time. 

Tweak a few of the details and Mexico in the 1980s looks a lot like most Southern European countries today. In Mexico’s case, runaway government spending in the 1970s, fueled by high oil prices and greased by foreign debt, threatened to bankrupt the country after the Fed sharply raised interest rates to curb rampant inflation in the United States, increasing Mexico’s interest payments even as oil prices crashed to earth. 

Similarly, money poured into Spain and Greece when investors persuaded themselves that the bonds of all members of the euro zone should be as safe as Germany’s, the region’s most creditworthy country. In Greece, this allowed a government spending binge. In Spain it ignited a housing bubble. Both countries were left with an unbearable burden when the world economy hit a wall, creditors took flight and the money stopped.

In the five-plus years it took me to get a degree (Mexican degrees take longer) the Mexican economy contracted about 2 percent. By the time I got my graduate degree two years later, gross domestic product per person was 8 percent less than it was in 1982. Yet despite the enforced austerity, Mexico’s foreign debt in 1988 still amounted to 56.5 percent of Mexico’s economic output, more than it had six years before. 

This must sound familiar to Europe’s unemployed. If anything it’s far worse there. The Greek economy has shrunk more than a fifth over the last five years. Government debt amounts to about 170 percent of the economy; it was 100 percent when the crisis started. The economies of Ireland, Portugal, Spain and Italy are smaller, too, than they were five years ago. Their debt burden is heavier. And still, European leaders insist that more of the same must be the solution.

Porter says that Brady Bonds helped solve the Latin America debt crisis, but then he questions the applicability of a similar solution in Europe's case:

What can Europe learn from this experience? Proponents of austerity will probably note that the harsh years planted some of the seeds of Mexico’s recovery. Bankers will remark that Mexico’s absolute debt reduction package was small — much less than the 50 percent or so already granted to Greece. Economists will note that Mexico had a degree of freedom that no member of the euro area has: it could devalue its currency to gain export competitiveness. 

Nonetheless, the Brady plan was a crucial ingredient. It not only reduced Mexico’s interest costs, it also produced a jolt of confidence that pushed down domestic interest rates and buoyed the peso — reducing the burden of foreign debt. It prompted flight capital to return to the country and set off an investment boom.

The cold war, Porter argues, was a critical ingredient in getting the nations to agree to debt restructuring. Leaders in the West were afraid of Mexico tilting socialist.

The only hope of that we have today is for a genuine transformation in our politics. Occupy Wall Street for a month or two in the fall of 2011 fulfilled this hope. Political parties are captured by business-as-usual money; we need a clean sweep. Then, as a result of a police crackdown and the presidential election of 2012, Occupy evaporated seemingly overnight. Now, from what I can tell, our best hope for a political reboot is Italy's Five Star Movement.

Rachel Donadio has a story this morning, "Upstart Party in Italy ‘Occupies’ a Parliament That Is Already Paralyzed," about the continuing gridlock in Rome. The parties can't form a government and soon there will be an election to select a new president:

The pressure is rising because the seven-year term of Italy’s 87-year-old president, Giorgio Napolitano, ends in May, and his replacement must be elected with a two-thirds majority of the same divided Parliament.

Italy’s Constitution forbids a president to dissolve Parliament and call new elections in the final six months of his term. 

The presidency has traditionally been a largely symbolic office, but Mr. Napolitano has become a bulwark against political instability. Last month, he named a committee of 10 politicians, experts and technocrats and asked it to produce a list of issues on which the squabbling parties could find consensus. They are expected to issue their findings this week.

On Tuesday, some of the Five Star Movement lawmakers “occupied” the Senate, meaning they remained in their seats after the day’s session. The group said they would stay until midnight to protest a decision by the presidents of the Lower House and Senate not to form permanent committees until Parliament forms a government. 

They passed the time by reading aloud from a legal code. 

Mr. Grillo, who does not serve in Parliament but runs the Five Star Movement with what critics say is an autocratic hand, accused the two parliamentary leaders of having carried out “a coup” by blocking the creation of committees.

The last paragraph of Donadio's story is not encouraging:

Mr. Bersani [leader of the center-left Democratic Party] has so far failed in his efforts to try to persuade some of the Five Star lawmakers, all of them first-time politicians, to support a center-left coalition. But as time passes, the movement appears to be splintering and may not vote as a bloc.

New political formations are hard to hold together. Grillo is smart to keep the Five Star Movement in motion doing actions like its occupation of the Senate. My experience with the Green Party coming out of the 2000 presidential election is that we did not do enough actions to keep people focused and engaged. We spent our time in a tedious bylaws revision process which lasted months, created division and killed any flame. So far the Five Star Movement seems to be avoiding these mistakes. The best thing for the Five Star Movement would be new elections as soon as possible.

Austerity Suffers Defeat at the Polls in Italy

It's hard to believe that the results of Italy's election yesterday caused a 200-point drop in the Dow, as is being reported in a story today by Rachel Donadio, "Split Vote in Italy Brings Political Deadlock." This outcome, underperformance by the Democratic Party of Pier Luigi Bersani along with continuing support for Berlusconi's People of Liberty Party, has been predicted for months. The wild card was the Five Star Movement of comedian (and blogger!) Beppe Grillo. And, as Donadio writes,

The outstanding success of the elections was the Five-Star Movement of comedian Beppe Grillo, which led a grass-roots and Web-based campaign and won more votes than any other party, with about 25 percent of the ballot. The group drew support from a powerful protest vote as Italians from both right and left — and the wealthier north and poorer south — were drawn to Mr. Grillo’s opposition to austerity measures and appeal to oust the existing political order. It has indicated that it is not inclined to form a governing alliance with Mr. Bersani or Mr. Berlusconi.

The big loser? Mario Monti, who Paul Krugman referred to in his column yesterday, "Austerity, Italian-Style," as "the proconsul installed by Germany to enforce fiscal austerity on an already ailing economy." According to Donadio,

The election offered a stinging defeat for Mr. Monti, the caretaker prime minister, a newly minted politician whose lackluster civic movement appeared to win around 10 percent in both houses. “Grillo had a devastating success; the rest of the situation is very unclear,” said Stefano Folli, a political columnist for the daily business newspaper Il Sole 24 Ore. 

“No doubt Italy has an imperfect political culture, but this election, I think, is the logical consequence of pursuing policies that have dramatically worsened the economic and social picture in Italy,” said Simon Tilford, the chief economist of the Center for European Reform, a London research institute. 

“People have been warning that if they adhere to this policy there will be a political cost, there will be backlash,” he added. “It couldn’t have taken place in a more pivotal country.”

We don't often get an outbreak of democracy. And without a doubt the grand coalition of Bersani and Berlusconi will be a disappointment. But Beppe Grillo's political movement is a hopeful development. Austerity will not be beaten back with one election, but it lost a battle yesterday in Italy.