End of era as Bush bows out

If Barack Obama can walk on water, then change really is coming to the United States and the world.

If there are no more big unexploded bombs buried in the world's financial systems, then this may be just an ordinary recession. But the most telling image of 2008 was Iraqi journalist Muntadhar al-Zaidi throwing his shoes at President George Bush.

Al-Zaidi's brother says that Muntadhar changed his shoes after he heard that he was being sent to cover the Bush press conference: he wanted to be sure that the ones he threw were Iraqi-made. What he did had enormous resonance elsewhere.

This is the end of an era, and everybody knows it. It coincides with the end of a year because of the rules on presidential succession in the United States constitution, but we are not just saying farewell to 2008.

In the minds of most people, a majority of Americans, and the overwhelming majority of people elsewhere, we are saying good riddance to a long period when brutal and ignorant policies reigned supreme. We are saying goodbye to George W Bush, and Muntadhar al-Zaidi himself said it most eloquently.

Bush was a relentlessly partisan president who saw no harm in using his office to help his friends, but his main fault was ignorance, not malevolence. It was wilful ignorance, for he is not a stupid man, and the damage it did was immense.

We are bound to be disappointed by the change, of course. Bush did not create all of the world's problems, and they will not vanish when he does. In particular, the global financial crisis that exploded when the Bush administration decided not to save the foundering Lehman Brothers investment bank in September still has some distance to run, and the full extent of the damage is still not yet known.

A recession was due around now regardless of who was running the US Government, or indeed, all the governments put together. Until some genius discovers a way to abolish the business cycle, which is driven by basic human psychology, recessions are bound to occur from time to time. What frightens people is the possibility, eagerly touted in the media, that this might be not just a recession, but an actual depression.

It's a big difference. In the case of the United States, the difference between unemployment rising to a peak of nine or 10 per cent before dropping back to normal after a couple of years, as in the recessions of recent decades, and unemployment rising to a peak of 25 per cent and not returning to normal for 10 years, as in the Dirty Thirties.

It is clear that the Masters of the Universe no longer have any idea what to do, and that they are very frightened. The levers of power are no longer attached to anything, and none of their normal tricks, like dropping interest rates, seem to stop the headlong decline. But the truth is that it always feels like this on the way down into a major recession, and yet it's usually over after about 15 or 18 months.

Where is the evidence that it will be different this time? The banks are in much more trouble than they usually are in a mere recession, but governments have reacted much faster than they did on the way into the Great Depression, and relatively few banks have actually gone under.

You can't accuse the Bush administration of a foxhole conversion to deficit spending, because it ran huge deficits as a matter of course. But, in the rest of the world, conservative governments and even some supposedly "socialist" governments, really tried to balance their budgets, and often succeeded.

Now they are all Keynesians, desperately hoping that big government spending will pull their economies out of a nosedive because they can't think of anything else to do.

Keynes is probably the right point of reference, but nothing is going to pull these economies out of their nosedives for a while. You can't short-circuit a recession; you have to go though the misery one month at a time.

The good news is that the G7 economies are not shrinking faster now than they were going into the last three recessions (early 1980s, early 1990s, early 2000s), which suggests that what is coming will not be much worse than those were despite the severity of the current banking crisis. If that is the case, then most countries should be seeing an upturn by mid-2010, and even the United States (where recessions tend to be worse) by the end of that year.

This suggests that the current frenzy of deficit spending may indeed be more than is strictly necessary to keep the world from sinking into a depression, but nobody wants to take that chance, least of all Barack Obama, who seems well aware that a big crisis, real or perceived, creates opportunities for major change.

It is therefore possible that Obama's election, and not the financial meltdown, was really the key event of 2008. One of the longest, tightest presidential races in American history has produced not only the first non-white president, but a president who, thanks to his innovative fundraising methods, is almost uniquely free of the usual debts and obligations to special interest groups.

For a time, possibly a quite extended period of time, Obama will be free to do what he thinks is right, and to justify it in terms of the crisis. His cabinet and other high-level appointments suggest that he will make few initiatives in foreign policy, limiting himself perhaps to speeding up the timetable for withdrawing American troops from Iraq that has already been forced on President Bush. But domestic affairs will see a whirlwind of change.

The United States, the world's biggest emitter of greenhouse gases, is just about to switch from being the main obstacle to global action to being its chief proponent.

Obama is not only going to change the laws in this area to encourage emission cuts. He is going to spend the money, justifying it as dual-purpose expenditure that both creates jobs and serves a genuinely useful purpose. It is still unlikely that there is enough time to negotiate a successor to the Kyoto accord that mandates adequate cuts in emissions internationally by the current deadline of 2010, but if Obama is as serious about this as he seems, it could be done by the end of his first term.

So there's a bit of unadulterated hope. In other domains and regions, the picture is more mixed, but it is not all dark.