Let’s take a look at the process. The clumsy working patterns of democratic legislatures result in key measures spending years lost in committees. And yet, a virtually lame-duck US Congress and a retiring US president pushed through the unprecedented TARP (Troubled Asset Relief Programme) legislation. Despite hiccups (it was first rejected), despite it being in the middle of a hotly contested election season, the law was passed. Money was lent out and as we have noted a lot of it has been returned in less than a year. The executive branch of government rose to the challenge of the crisis by stretching to the limits their powers and nationalising AIG. The process has worked well apropos of General Motors also. Here the traditional laws pertaining to orderly bankruptcies were used. The shabby treatment meted out to GM bond-holders is worrisome and one hopes this does not become a precedent which will be used to violate property rights in the future. But on balance, this crisis too seems to have been resolved, if only for the time being. The argument that democracies get paralysed in the face of crises has been shown to be the myth which it is.

What about learning lessons and medium-term reform? Here too the first steps are being taken. Fairly radical regulatory reform giving the Federal Reserve (itself created as a result of the economic crisis of 1912) expanded powers is now in the works. One can argue that more needs to be done. One can argue with equal credibility that over-reacting and doing “more” purely for cosmetic feel-good reasons is not smart. In the middle of this explosive crisis, there are still voices of sobriety that any new regulations should not eliminate risk-taking or innovation without which wealth-creation would come to an end. This is an amazing value that democratic discourse provides. An unelected know-all Planning Commission would not have let this happen. Americans have become net savers changing directions quickly and reversing a trend that was considered inevitable just twelve months ago. If this trend persists, the global structural imbalance that American profligacy is supposed to have created may be a thing of the past. And wonder of wonders, the US is actually crawling towards the fundamental reform of its bloated health care system. Again, the messy debates and dissents are likely to ensure that any new system does not kill the incentives for medical progress for after all most life-extending and life-enhancing medicines and procedures in the last fifty years have been born in the US.

... contd.