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.

While the technical details can be debated, the current financial crisis has also exposed an interesting sidelight: the double standards many prominent economists and international financial institutions used in dealing with the United States. The blunt truth is that all the indignation that so many economists heaped on so many hapless Asian countries during the Asian financial crisis seems overblown in comparison to the muted and almost academically detached treatment the American crisis is receiving. When the other parts of the world produced a crisis they were declared fundamentally irrational, incompetent and corrupt and subject to all kinds of worries about moral hazard. A crisis in the US, by contrast, is seen fundamentally as a question of credit instruments becoming more complicated, a product of a kind of over-competence rather than incompetence, incentive structures being out of line, and all worries about moral hazard being put aside for the public interest. But there is little doubt that this crisis will, in the long run, damage the authority of American policy-makers; and worry is beginning to surface.

If delegitimisation of the regulatory state was one prong of the self-identity of American politics, globalisation was the second. While many in the rest of the world think of globalisation as being driven by American interests, there is now a subterranean current that is beginning to argue that globalisation in its current form may not exactly be in America’s own interests. Perhaps the most dramatic illustration of this is the worries expressed by as ardent a proponent of globalisation as Lawrence Summers. In a column in Financial Times, he argues that there is some reason to think that “economic success abroad will be more problematic for American workers in the future.” Why? Because developing countries are now genuine competitors and put pressure on wages in America. Because the success of India and China is raising the costs of energy, and the price of “gas” is one of the hottest issues in American politics. But more surprisingly, “growth in the global economy encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they were headquartered.”

To be fair, Summers has not (not yet, anyway) advocated a rollback of globalisation. But it cannot be taken complacently for granted that calls for its rollback will not become a potent issue in American politics; Hillary Clinton for instance, wants to renegotiate aspects of NAFTA. It is also supremely ironical, that the very proponents of an ardent globalisation in the US are now advocating a more contextual approach, arguing for a greater democratic legitimisation of globalisation. Indeed all of Summers technical arguments — the spectre of increased inequality, the challenge of deep structural adjustment to a world where, for the perhaps the first time since the 17th century, the West will face serious competition in both muscle and brain power, and the prospect of rootless elites — have been around for a while. But, as Benjamin Friedman argued, economic contraction can also lead to an intellectual and political contraction. While there is no reason to be alarmist yet, a deep recession could turn ideological currents more swiftly than we realise.

The third prong of American politics was a great confidence in American power. There is no question that Iraq has shaken American politics in all kinds of subtle and unsubtle ways. But surprisingly, its effect on America’s intellectual and policy elites is more muted than one might suppose. First of all, there is still the widespread tendency to think of the quagmire in Iraq being a result of merely contingent incompetence and mistakes, not something that was structurally built into the way America conceives of its power and role in the world. Second, across the board, whether it be realists or liberals, there is still an ardent desire to hold on to American pre-eminence and hegemony. While people disagree on the means, there is still no candid acknowledgment that the American role in the world will have to undergo a massive readjustment. The new fascination with the Concert of Democracies in policy-making circles for instance, where democracies of the world band together against a whole range of countries — such as China and Russia — is another attempt to give the US an ideologically based role in the world. Phillip Bobbit’s recent argument, in his otherwise powerful Terror and Consent, for the European Union and the US to bandwagon together is another symptom of this closing of ranks. This is where arguments over the looming challenge of China will work politically.

None of these three trends — a reconsideration of the role of the state and a corresponding re-articulation of the image of American Capitalism, a worry about globalisation, and a worry about the basis for American hegemony — has yet acquired overwhelming momentum. But there are unmistakable signs that an ideological storm is gathering on the horizon.

The writer, president of the Centre for Policy Research, Delhi, is a short-term visiting scholar at the University of Pennsylvania

pratapbmehta@gmail.com