Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.Joseph of Cannonfire comments, "Future historians may one day recognize Obama's refusal to nationalize the "too big to fail" banks as the greatest mistake ever made by an American president. . . ." And asks: "So tell me -- in what book is kowtowing to Wall Street considered socialism?"
Of course, public trust in government has not only being squandered with respect to "bank-friendly policies."
What if -- as seems increasingly likely -- the Democratic Congress produces a health bill that amounts to a give away to the insurance and pharmaceutical industries, while leaving many Americans uninsured? Looking to the future, progressives could find themselves identifying with those misinformed right-of-center voters who exhibit a paranoid fear of government.
In other words, a bad healthcare bill -- an industry give-away -- would prove the loony right wing tea-baggers were not altogether wrong to have feared Obama: Except that it wasn’t Obama’s “socialism” that they needed to fear, but his “corporate socialism” or corporatism. This distinction, while crucial, seems to be lost on the population at large.
A confluence of developments suggest how Obama's lost year could become America's lost decade.