Even after massive infusions of taxpayers’ money, European and American financial institutions remain shaky. Some had to take a “haircut” on loans made in high-risk markets; only intergovernmental finance has held off collapse. Almost all face a continuing effort to strengthen their balance sheets after ill-considered expansion during the bubble. But stock markets have regained their buoyancy, most recovering what they lost and some soaring to new highs. Initial public offerings are again producing profits (and again for a mixture of firms with serious products and profitability and those with little more than hopes and image). Investment banks and other firms have resumed paying big bonuses, thus renewing one of the incentives to excessive risk-taking (though more now pay bonuses in corporate stock and ban its immediate sale in order to tie employees’ interests to the firm’s well-being). But some are also laying off employees in recognition of “excess capacity”; fears of return to recession are serious. Regulatory reform has been minimal, leaving derivatives markets far from transparent and allowing massive leverage against modest assets. Banking is even more concentrated in a few giant firms than before the crisis. Housing prices remain low, and while rising in some places are falling again in others after seeming to stabilize. Credit remains tight; interest rates remain low and expected rises are feared.
The “real economy” remains depressed—if not quite “in depression.” Growth in GDP is low; unemployment remains high; new job creation recurrently fails to meet analysts’ expectations. Yet anxieties about inflation and government debt lead some to argue that the pursuit of growth must be foregone in favor of fiscal austerity. The long-term fiscal position of many US states is almost as bleak as that of Greece or Spain (despite short-term recovery in some), and though the federal government has fiscal tools states lack, it faces massive deficits without an agreement on a budget to cut or finance them in any combination. Economic discontent is a primary factor in widespread and deep political discontent. Populist anger at corrupt, self-serving, or incompetent government is linked to both more conventionally right-wing and left-wing ideologies. Weakened political legitimacy is a challenge to the continuity of capitalism.
But the developing European path seems to be neither collapse nor revolution but rather stagnation. Europe lacks growth, but still enjoys a relatively high standard of living and basically functional economic systems. There are goods in the shops (though more and more shops close). Most governments pay their bills (though they continue to cut expenditures). The dominant policy response has been austerity, the attempt to overcome deficits in state accounts. As this has had little positive effect, however prudent in the abstract and long term, politicians look more and more for growth but so far find few palatable mechanisms to produce it.
Having failed to address its financial problems as a Union, Europe faces a series of nationally structured financial crises. Yet there remain enough economic strength and political will in the EU to bail out banks and financial markets in each case. There is widespread popular discontent but so far no large-scale social movements challenging existing political parties or processes. Huge rallies and sometimes occupations in public squares signal the unhappiness but so far haven’t found a way to turn this to new political programs rather than only objections to old. Right-wing populists have seized the moment with anti-immigrant and other reactionary programs, but even though they have seen ominous growth so far they remain fringe movements, their biggest effect being to pull mainstream conservative parties to the right. Europe’s Left is barely visible unless one counts basically self-interested strikes and statist manifestoes in France. What has instead emerged is rather a series of essentially “antipolitical” movements, exemplified by Italy’s Five Star movement under Beppe Grillo but echoed in other countries where citizens vote not for more effective government but against government and especially politicians. Popular response to economic crisis and weak government legitimacy has often included right wing and xenophobic agitations.
The United States tried more pro-growth stimulus and is being rewarded with modest economic improvement: perhaps 2% growth—vastly better than Europe’s 0% to 1% but nothing to cheer about. United States prospects are improved at least temporarily by new energy resources and longer term by a more entrepreneurial economy. But the country’s dynamism is undercut by a deadlocked political process. While the Tea Party is now organized electorally mainly as a wing of the Republican Party, its roots are much more antipolitical—not unlike Italy’s Five Star movement. Its legacy pulls the Republican Right not toward different solutions so much as a resistance to compromises and thus to all available political options. The Obama administration is mainly technocratic centrist, though making its major policy innovations on a handful of liberal issues. But it has been unable to bring about a major reorientation in the wake of the crisis. In finance the same organizations remain dominant and pursue agendas largely similar to before the crisis. Some of the biggest threats to the US economy lie in deficit-ridden state and municipal governments. Cost cutting at these levels reduces the impact of federal stimulus spending, but more basically state and local governments face long-term obligations that could spell fiscal collapse unless a combination of growth and inflation reduces the burden.
Though the roots of the 2008 crisis were centered in the United States and the European Union, its effects have been worldwide. The dense interconnections and rapid flows of global capitalism and global media made it seem immediately obvious that the crisis was simply global. This was half fact and half illusion, or perhaps a distortion based on perspective. The roiling of capital markets did have far-flung effects. Plunging asset prices damaged sovereign wealth funds in Abu Dhabi and nearly bankrupted its neighboring emirate, Dubai. Exacerbated unemployment—especially among youth—may have helped to spark the so-called Arab Spring (though clearly the economic crisis can be no more than part of a more complex story). Stock markets in Shanghai, Tokyo, and Johannesburg sank with those in New York and London, though they regained ground much faster. Factory workers in China and Vietnam were laid off with sagging global demand, though after faltering briefly the Chinese and Vietnamese economies kept growing. Prices for energy and other natural resources became extremely volatile. After first falling dramatically, they recovered on demand from still growing economies like China, then in some cases sagged again as the Chinese economy did the same.