Even though the surface of American politics seems placid, there are signs that underneath there are stirrings that could once again alter the ideological landscape. For almost two decades, American politics has been shaped by ideological contours that are now being challenged, primarily as a result of the recent financial crisis. Ever since Reagan, the legitimacy of the state had been under attack. The government was, typically, seen as the problem, not the solution. The ideological delegitimisation of the state was varied in its effects. It was never as complete as its defenders wanted or its critics feared. The irony was that even its ardent proponents, like Reagan and Bush, ended up expanding the state in unprecedented ways. Though the effect of this delegitimisation on the size of the state is debatable, it did have corrosive effects on the regulatory structure of the state. With a financial crisis in the works and recession now looming, the whole range of regulators, including the Federal Reserve, the Securities and Exchange Commission and most recently the FAA, have come under widespread criticism for their recent performance.

Essentially, the nub of the criticism is this: Instead of appropriately regulating the private sector, these institutions gave the sector a default pass. This created the conditions where, as a manager of one hedge fund put it, the profits were all private, but the risks were all socialised, something that is manifestly apparent in the recent financial crisis. Now the abdication of government becomes part of the problem, not the solution. What form the new regulatory state will take remains to be seen, but in some ways, these episodes are lessons in the dangers of over ideologised policy-making.

... contd.