The problem with the Democratic Party and the White House isn't a matter of positions, but a matter of stance. The American people want out of Iraq, they want a different economic course and a different structure to the economy. The faster home prices drop, the less attached to the current order they become. When gas was cheap and homes were dear, people were willing to go along. Now, they poll heavily on the description of America, being on the "wrong track".

This means that the salient fact isn't liberal/conservative identification, it is right track/wrong track. The Republican Congress needs to convince a third of the people who believe America is on the wrong track to vote for the status quo. That is, they have to sell the idea that the only thing wrong with America is that people have too much access to health care, and are expecting too much from Social Security. There simply aren't that many people who believe that God is punishing America for allowing homosexuals to marry in three states.

The individual who offers the most incisive comment is possible Republican Presidential candidate – Newt Gingrich. His advice to the Democrats was to run on "Had Enough?" Given that a swath of Democratic activists have adopted "Enough is Enough" as the informal slogan of this campaign – it isn't coming completely from right field.

The challenge – as presidential scholar Wilentz notes, is that to revive a Democratic grand coalition, requires someone who can do it. It should be noted that in 1930 the Democrats muddled out gains, simply because the economy had already begun sinking like a stone, but they did not have a clear idea of what they were too do. That Congress produced "Smoot Hawley" and a house that fiddled with intentions without ideas.

However, for all of its faults, that Congress served as the springboard to FDR's electoral existence, because it meant that FDR's coattails needed to give him a strong working majority, and not merely a bankshot play for a merely numerical one.

Thus we are treated to a very one sided article that is a paean to one particular viewpoint, that of "the swingers". The swingers believe that the focus should be on the most stupid 1% of the electorate that votes, but is only marginally attached to the political system. The friends of people who barely pay attention to politics, but can be mobilized by peer pressure. It's led to the longest losing streak for the Democrats in Congress since the 1920's – but once again is demanding complete control of the party. Dean's rise is, to no small extent, the result of a mounting frustration, not just among adherents, but by state party committees – with this "media bomb the battlegrounds" approach. As in Vietnam, just dropping bombs hasn't done the trick, so the top downers want to drop more bombs.

And this is one of the key issues that Goldberg looks at, and then side steps – the internal contradiction of the swinger electoral strategy. On the one hand Rahm Emmanuel criticizes Dean for putting money all over the map – and on the other hand, moderate patron saint Warner attacks the notion of a "16 State Strategy" – hoping for a "triple bankshot" win in Ohio or Florida. Which is it? Are elections won by "opening up new areas of the country" or in pouring resources into swing areas. If Holding the base and attacking into Florida and Ohio is bad for Kerry, why is attacking only into close swing districts in 2008 good for Emmanuel?

Arrayed against the swingers, are those who seek a transformation by building a movement. The builders look at the swingers failure, and wonder why it is media consultants demand that the party and the movement spend all of the available money every election cycle on ads whose effects are, to use a Keatsian phrase, writ on water. The progressive side of the ledger has a coherent idea, namely, to turn a nation that is split 20-50-30 Liberal-Moderate Conservative, to one that is split 30-50-20 Progresive/Centrist/Reactionary. All three words are important. The key to this conversion is to talk to the third of people who are "modetate" on the 1960's division of the country, but who fee a growing frustration with business as usual. These people are not part of the party's metropolitan or near metropolitan base, they are found in rural areas hit by the price of gasoline, and pressures from immigration and lack of basic industry.

The "swing" strategy pays a great deal more attention to a group of people who are both farther away from the Democratic Party base, and who are harder to persuade of the need for transformation, easier to drift on hot button issues, and, vote for vote, far more expensive. Than the progressive moderates.

However, going after either group involves what could be called "pain" and not optional pain.

The reasons for this are two fold, the people who are most likely to go over to being full time progressives are represented, on the whole, by the individual politicians who have made more of a career out of bashing the base than most. The paradigmatic example is Joe Lieberman. Taking out a few cardinal moments, and Joe Lieberman is a progressive – and even on many occasions a Liberal. The Department of Homeland Security is a big government liberal approach.

However the asides are large, and the reasons for this are obvious politically: first, he must hold onto a large sliver of votes who have to have passionate differentiation from politicians who are "left" of Lieberman. Secondly, his state consists of people who are connected with the metro-economy, but do not want to live in the metropolis itself. For these reasons, the intensity of identification must be stronger. As a result, Lieberman has made himself "George Bush's favorite democrat". Even though, for example, Ben Nelson of Nebraska is much more conservative than Lieberman is.

But Lieberman represents the left flank of the moderates who are ready to bolt from George Bush. More important to progressive aspirations are the moderate 6 of the North east – Specter, Collins, Snowe, Chaffee, DeWine and Voinavich. Voinavich and Specter survived challenges in 2004 – protected by the wave of stasis in the country – DeWine and Chaffee face challenges this year, along with the probable defeat of Santorum by Conservative Democrat Bob Casey.

And it is in Casey that we see the difference between the two strategies and their effects. Casey, a dynasty politician had no effective opposition in the primary, even though he is against key issues that the base supports – possible challengers were cleared out. It is not that the DSCC needed to nominate a conservative to win the race in Pennsylvania – it is that it is cheaper to do so, and that is seen by the swing strategy moderates as freeing up resources for other races. In the swing moderate strategy, getting two Senators who will often vote against the party, is much better than getting one that will always vote with the party. Conservative Democrats, breed other conservative Democrats.

Lieberman, who is to the left of Casey, has a very serious challenge in Ned Lamont – it isn't that bloggers and internetizens were not willing to back a challenge to Casey in Pennsylvania, it is that local passions in Pennsylvania were not aroused by stopping Casey, where as the anger at Lieberman's neglecting of the party stalwarts in Connecticut was the powder on which ideological sparks fell. Even with credentialing out pro-Lamont delegates from Hartford, Leiberman had 30% of the delegates go against him. In some cases whole towns voted straight slate against Lieberman.

There in lies the difference – in Pennsylvania Democratic support is heavily concentrated in two cities, and a few patches around the capital. In Connecticut, there are Democrats everywhere. In PA, pay attention to the local base in two cities, and there is no possibility of revolt.

These two facts – that a more liberal sitting Senator has more opposition than a conservative nominee – and that part of the difference is that in one state there are Democrats everywhere, and in the other races are fought by piling up big margins in the cities, and then swinging key suburbs – define the conflict between the swing strategy moderates, and the transformation strategy progressives. To a moderate the base is a geographic fact, and the moderates are defined by hot button images that evoke the instability of the 1960's and early 1970's.

What this points to is that the swing moderates are thinking as old politics media politics. The race is about whatever CNN Headline News puts in tight rotation. Even in the case of Warner, who is billing himself as the first dot com presidential campaign, the question, in the end is hot button images, and geography. And when a swinger talks about geography, he means "the Sowth". Not the south, the Sowth. Bubbaland. It's not an authentic South, any more than DeLay, Gingrich or Bush are authentic southerners, but it is a south which has a highly stylized sense of its identity, which passes for authenticity.

The transformers – even though their strategy is as geographically based as the swinger's strategy, do not think of themselves as being located in a particular geographic place.

The transformers, if they are to have power at the party table, must win over the course of the next 6 years, the 8 seats which are the natural proof of the transformative thesis: that there are a wave of people willing to defect: Santorum, Lieberman, Chaffee, Collins, Snowe, DeWine, Specter and Voinavich.must be replaced by transformation progressives. They must also win in the region which would shatter the notion that the transformation progressives are merely angrier lefties with better websites.

This reach is the Rockies and the desert southwest ex-Utah and Idaho. Montana, Wyoming, Colorado, New Mexico, Nevada and Arizona. Currently these states are home to some of the most conservative of Republicans, they are seen as being naturally conservative areas. But if one looks at the "red pole" of America – that band running parallel to the Mississippi, only 350 miles West from the Texas Border to Idaho – these states are not in that batch of counties where George W. Bush is still doing, as far as the locals are concerned, a good job.

The builders then see the Northeast as "the new South" the place where there will be a radical shift in party allegiance to a new ideology. They also see the super sunbelt – Robert David Sullivan's southern most presidential band in his influential article on Beyond Red and Blue.

The builders see the challenge as taking the presidential dominance in the Upper Coasts region, the Great Lakes region and the Northeast Corridor, and translate that into Congressional dominance – meaning the flipping of a host of House seats and the core Senate Seats. Added to this is making inroads in Northern Virginia which is beginning to creep into the Northeast Corridor, and tactical assaults into the Southern Lowlands. But most importantly, it means welding El Norte into the Democratic Presidential and Congressional Coalition.

In this world view – the attacks into the areas of Republican dominance – even into core Republican areas like Southern Comfort and Sagebrush, are not diversions which waste money, but key to the concept of making it so that the Republicans, rather than the Democrats, enter every election with a defensive mindset, thinking about how to protect their candidates from the Democratic line of attack. By pressuring even the Republican base - it places elections outside of the Republican advantage in money.

A large part of the reason for this is not merely that the Republicans have the money advantage, but because the Republicans, as keepers of the pork, are able to marshal the resources of the Defense Department and other federal apparatus to bomb real money, not just media money, on marginal races. They did it successfully in 2002 and 2004 – and are going to try and do it again in 2006.

The builder's moderates are not Southern anti-cosmopolitan voters, but

With a geographic base of Upper Coasts, Great Lakes, Big River, Northeast Corridor and El Norte – the Democrats will begin with a larger base of electoral votes than the Republicans, and have more places to attack. The key to the workability of this strategy is to shift Colorado, New Mexico, Arizona and Nevada into the "toss up, leans Democrat" colum from the Republican to toss up leans Republican categories – and most importantly, flipping Ohio into the Presidential coalition. The key to Republican victory since 1988, as been the shifting of Texas to being the anchor man of the Republican coalition. By shifting Ohio to the Democrats, the net value of Texas is limited – instead of a huge block of electoral votes, money, candidates, and ethos – all rolled into one, the Republican Party is the Texas Party – the Republicans will have traded Texas for the rest of the old North, and for the hot southern rim of the country.

- - -

This leads to two fundamentally different futures. The builders see the Party's base as being people with aspirations to a better life, while the swingers see the base as being people who have no choice but to vote to protect ever eroding programs and rights. The swingers tell the base "vote for us, serfs, or it is so much the worse for you." In the world of apocalyptic direct mail appeals, and media bombing of the guns, gays and god crowd with the latest big government bribe – the base is something to be attacked in order to get swing votes. Trade 10 base votes in New York for one precious one in North Carolina or Virginia.

The sign is that institutionally, the swingers are winning the battle to be the institutional party. One indicator of this is that Hillary Clinton is the hands down favorite to be the Democratic nominee – and that Mark Warner is the hands down favorite to be the Vice Presidential nominee. Warner's candidacy contains a second proof – Jerome Armstrong's joining of his campaign team to reach out to the "net roots". Warner, with enough money is trying to coöpt both a center of anti-Hillary sentiment – according to polls 12% of all Democrats see Hillary unfavorably, but the proportion in the electronic space is much larger – and to establish that if she wants to have swinger credibility, she has to make him the Vice Presidential nominee, and thus the front runner in 2012 should she lose.

Warner then can tell Hillary that if she wants a crack at the South - particularly the possibly in play Arkansas, Virginia and North Carolina electoral votes - she has to come to him. And if she wants to quell the rebellion on her flank, she has to come to him.

However, it is not clear whether this strategy is going to be enough – the builders have been unhappy with personnel in the Democratic Party, but they are not solely about candidates. Instead, the very steps that a swinger party wants to take – emphasize the Democratic Party as a service delivery party – are exactly what the builders don't agree with.

The builders, however, need a candidate. The road to builder candidacy is a realization among "The Big Five" of unHillary candidates – Kerry, Edwards, Gore, Clark and Feingold – that as five candidates they are fighting over 40% of the vote, and cannot conceivably beat Hillary's base of 40% - with 10% due to head to the right flanking VP candidate, of whom Warner is going to clobber Biden and Dodd who are currently in that pool.

With an agreement among the big five to choose one of them as the candidate – by, for example, agreeing to have a series of "preprimary" internet tests which will determine which is given the chance to be the standard bearer – and a decision that they must gut Hillary early and establish the builder ethos as their own – the 2008 race becomes interesting, because at that point Hillary is squeezed. On the right Warner will eat into the South, blocking Hillary from rolling up early victories, on the left, she will get hammered on the war, budgets and basic bread and butter civil libertarian issues. Warner will have an incentive to keep hammering Hillary, because the builder candidate will need him as much, if not more, than Hillary does.

In the general election, with a builder running against McCain, the circumstances are different. Rather than being the last television election between two well known media brands, it will be McCain's television brand, against the builder's electronic one. And McCain can be beaten at close quarters, because he is personally brittle and can be cracked. Hillary can't crack McCain on television, in no small part because she, like him, is a brittle television personality.

So in the end, the future comes down to whether the builders get a chance to flip the left most moderates into a permanent stance as progressives, or whether the swingers get their way and spend millions, again, convincing a few people that they hate the Republicans a little more than they fear the Democrats.

Which is why his Newsweek column is so disappointing. It is a poorly researched, poorly thought out, factually inaccurate. He gets basic terms wrong, such as what "Open Source" means. He didn't do his research, since he contacted no one who is an acknowledged creator of the term or the idea. He instead commits a series of intellectual dishonest catagorical blunders, in a dishonest attempt to push top down thinking. In every respect, this article is a disservice to his readers, in that it lies to them about the basic mean of terms.

he first point is the meaning of the term "Open Source". Alter instead pushes a top down viral project. There is no "open source" here - there is no core code, nor submission of code - as opposed to preference - to that center, tested beyond consensus. SEIU's "Since Sliced Bread" is partially open source, but Unity '08 is simply American Idol on the internet.

Open source is the process of opening not merely expression of preferences - which is consumerism - but basic material. Unity08 doesn't do that, the source is closed, the ideology is closed. It's not digitality - it's cheap post-modernism.

What is worse is that Alter stenos basic inaccuracies. The biggest historical howler is on how "extremes" have seized the nominating process. Looking at the Democratic Party, other than in the case of LBJ in 1964 and Clinton in 1996 each of whom had no competition - one has to go back to Adlai Stevenson to find a case where the most liberal/left viable candidate was nominated. In 2004 Dean was considered left of Kerry, in 2000 Bradley left of Gore. In 1992 Clinton was not the left most candidate, but an intentional product of a southern "Super Tuesday". In 1998 Brown and Jesse Jackson Jr. were to the left of Dukakis, neither Hart nor Mondale established themselves as left of the other, Carter beat a left challenge from Ted Kennedy in 1980, he was the centrist who beat Mo Udall in 1976. McGovern was not the farthest left Democrat in 1972, that was McCarthy. As it was in 1968 when HHH was the nominee. In 1960 Stevenson hoped for a third draft. JFK ran as being to the right of LBJ, as a "conservative" Democrat.

In short an examination of the record shows that the nomination of the Democratic Party isn't beholden to its extremes, or to its left base. And Alter's supposed to be historian - why didn't push back?

New - that's the one thing this isn't. The attempt to use fake viral is as old as marketting - hiring a crowd.

Alter writes about "New Open Source Politics" and gets three words wrong. But one thing was write - it has gone viral - to the Washington Post. The The Post and the Post have both jumped on board accepting the astro-smurfing.

What is astrosmurfing? Astrosmurfing is simply fake netroots, just like astroturfing is fake grass roots. The "Unity 08" is a bunch of washed ups who can't get in the big game, trying to use cheap hit and run and their rolodex to gin something up. There is, in fact, alot of demand for a third party run - but Unity 08 is a bunch of consultants looking for a candidate to raise money and pay them.

Viral isn't the same thing as open source, something can be viral, and still closed. Word of mouth is viral, but not everything passed by word of mouth is open source. A party can exist on a laptop, but if people are only given consumerized, bottom, preferences, it is no more open source than MS Windows is - another thing which spread virally through pirating, but is not open source in any way.

Thus what we have is cheap old politics, fascinated by the low barrier to entry of the internet, trying to get in on the game. This isn't the first time. For example, the telecos tried to create a libertarian astrosmurfing of net neutrality, begging libertarians "not to regulate" the internet. It didn't work, because the "don't get it" nature of the astrosmurfers is still out there.

How do I know that people like Alter don't get it? Where is his email address? It isn't on his site, it isn't on his piece. Any time someone can bellow at you, and you can't even email back to him, it is a clear sign of being a top downer.

Astrosmurfing - coming soon to a K Street lobbying group near you.

No one should really care. And yet the dollar has taken a sharp drop and the markets are engaged in another sell off.

With the end of those effects - while US profits are still healthy, they are no longer suprising to the upside, and the Fed seems to be ready to pause their rate campaign as other nations are beginning to ready to raise rates - has come the end of the brief dollar revival, and a return to the dropping dollar against floating currencies, and pressure on those that keep a formal or informal dollar peg to either buy dollars or see currency appreciation.

Thus Snow leaving and being replaced by Paulson, a Bush pioneer, is simply an affirmation that this is an administration that is collapsing into to its core and circling the wagons. It has no monetary meaning, and yet, it seems to be the signal to both currency markets and equity markets, that the balance of risks has moved to a weakening dollar and rising oil.

Normally a Wall Street Treasury Secretary would be seen as a sign that the dollar was going to be defended and strengthened, however, the handwriting is on the wall.

It is not that Paulson is a poor choice for Treasury - since increasingly the problem the administration has is in placing the large volumes of bonds that the current federal budget deficit necessitates. Having a well respected figure from a premier financial institution such as GoldmanSachs is a strong step towards building confidence. Indeed, in other circumstances, appointing Paulson would be a welcome move - Paulson is well known as an environmentalist, and has been one of the motivating forces behind GS investing in new energy sources, such as cell-eth (cellulose ethanol).

However he enters the picture at a point where it is clear that this administration has played all of its cards, and has now new sources of stimulus, at the same time it is facing pressures on the wage and resource inflation front.

The weak dollar means rising oil prices, which puts pressure on companies such as Wal-Mart, and on homebuidling, which is already stumbling under oversupply, falling prices, rising interest rates and an exhausted consumer. While bulls hope this is "finding a bottom", the reality is that investment flows simply are not there for a sustained rally higher in the short term.

Europe in the mean time - and I remind people of my February bearish call on Europe - has not just sold off, but been taken a hit in a full scale retreat into correction.

The fear is that this short term pressure from a summer oil bulge and a hiring market which is just now beginning to see upward wage movement - will become a sustained drag on the economy in the second half of the year and going forward. This fear, in turn, means that the financial community is looking to the Federal Government for leadership. But leadership is precisely what is not allowed in the Bush administration. By not picking an individual who would have a mandate to press sharply for fiscal restructuring, and that would include revenue increases as well as massive spending reductions, and a restructuring of the US borrowing curve - Bush has presented an indication that he was merely looking for someone else's credibility to burn through. Having burned through Snow's - which never recovered after the dishonest social security proposals that were touted last year - and having not established credibility on issues such as trade or willingness to stand up to Republican protectionist interests, the administration must bring fresh credibility in to burn.

Paulson himself has credibility in the sense that he is personally wealthy, but also because has led Goldman Sachs through a turbulent time, and established it as the foremost seeker of alpha on the planet - that is investment advantage over others in the same sector. Goldman Sachs under Paulson has consistently invested smarter and gained more than its competitors in the same spaces. Some believe that this is luck, or aggression. But it is also Paulson's forward looking style of leadership, and ability to run a very tight ship. Not in the sense of micromanaging, but a very focused organization which pursued advantage.

This kind of individual, if he had been appointed early in an administration, or even during the peak of power during core policy establishment periods, would be taken as an extremely positive sign - to do for Treasury what he had done on Wall Street. It would have been seen as a Rubinesque choice - a sign that Treasury would be at the table and a focus of activity.

Coming in the waning days of an administration it has the reverse effect, it seems shallow and symbolic - putting someone in charge after Snow had carried all the water that he could carry. Which is unfortunate, because there are significant challenges that Treasury should be addressing, as the world monetary system is in the process of being restructured. While the shape of that restructuring will require a new executive, and an election to determine his or her mandate, there are numerous steps that must come in preparation for this, as well as the above mentioned short term pressures on the US economy and the global equity and currency markets. The Secretary of Treasury, by forcefully laying out a road map to US fiscal and trade sanity, and backing this with such measures as can be taken - including ending the mania for throwing tax cuts on an inflationary fire which the Congress and other parts of the executive are indulging in - could help give the global financial system time to work through the structural adjustments.

Paulson should be speedily confirmed, but also told that the Congress expects him to vigorously attach the same intensity to his new shareholders - the American public as a whole, as well as our allies and trading partners - as he did at Goldman Sachs.

While this urge is often acted upon by demogouges and politicians engorged by ego, it afflicts even the most dedicated. It is for this reason that we must remind ourselves of the evils, the moral evils, of closed societies. The danger of course, is to be hypnotized by its own rhetoric. Closed societies exist all over the world, but they can no more be made into open societies by fiant than paper can be made into money by fiat. It is the value and functioning of the whole society which makes an election, or a dollar, work.

The case of Saddam Hussein serves as an example of the difficulty. There is no question that his regime was both abhorent and dangerous - a cominbination which called for a continuous and direct pressure by the open societies of this world, and a realiation that in the end, Iraq would have to breath free.

But the very nature of this realization also carries with it a second one, that the time to have attempted to establish such a new regime, and backed it with a package of aid and transitional authority which would have ended with the creation of, in all likelihood, a federal or even partition set of states - remaking both the imperial overthrows of the nacent democratic governments that had occured in the 1950's and the colonialist imposition of boundaries in the wake of the collapse of the Ottoman Empire in the face of Western pressure after World War I.

But once this moment slipped by, and the attempt to topple Saddam by coup and economic coercion takein, the reality is that there was no turning back. The very process of attempting to overthrow Saddam by proxy was pulverizng the base of his society, was also destroying the social infrastructure which would have made a democracy possible.

With the coming of the new millenium, a difficult choice faced the United States and what used to be called "the free world". It was a choice that both electorates and elites refused to face, and instead there was the pretense that the disputes were merely a matter of partisan politics, and were, in effect, about patronage, not policy.

The result was that the United States was on a collision course - the only large expansion in global oil capacity was in Iraq. And yet the regime could not be trusted with the revenues that lifting of sanctions would have allowed. Saddam had complied with the requirements of disarmament, but he had done so in a manner which left no trust that he would stay disarmed any longer than was needed.

Lfiting sanctions was, in theory, required, and the economic pressure would make it required. Iraq's attempt to evade "Oil for Food" kicked into higher gear. It was with the coming of Bush that there was a systematic attempt by Iraq to evade the requirements of the program, and the selling of illegal concessions.

Many of Saddam's worst crimes against humanity were in the distant past, ironically, disarming him took away the ability to engage in acts that were flagrantly worse than the admitedly low standards that dictators are held to. By removing WMD and the means to deliver them, the international community saved lives, but made it more difficult to build a case. After all, if the international community had felt that his actions fell below the standard of international law, then they should have taken him out when they had the chance.

George H. W. Bush blundered, but it was a forced error - leading a nation that could not afford war and occupation, he was forced to accept a truce rather than a peace. His successor in the White House never had the freedom of action than to do more than back a coup.

The result is a failed state that was the source of yet more failed policies. These failed policies would continue to compound.

The first dividend would be the need for a lack of public debate over Iraq. There were two questions on Iraq, the first was the question of whether, and the second of how. There was wide acceptance of the inevitability of regime change in Iraq by 2001, and with September 11th, this became a virtual article of faith in the policy making classes. But there was still the matter of how.

Bush required not only an invasion of Iraq, but an invasion on his terms for his purposes. He needed to combine the invasion with slashing of tax rates, leaving only enough for "invasion lite". The reason that Bush could not tolerate a public debate on means and ends and had to create a fraudulent rationale - is that there could be no questioning of how he was to accomplish his end, or how he was to spend the money once invasion began.

Only in this way could invasion lite win approval, and could the money be funnelled into the "Project for the New American Century" idea of replacing bases in Saudi Arabia, with an even weaker proxy state in Iraq, and without the war material to effect such a strategy. It was the best war that a broke nation could afford. The difference that Bush gambled on is that the rise of Asian central banks and other nations desiring a trade advantage with the United States would buy treasuries to keep their own currencies down. In essence, hold devaluing dollars to pay for his war.

On the other side of this, it is clear that the worst part of the invasion of Iraq was a lack of debate on both of these points. It is not clear how the public would, in the end, have acted.

However an engaged and participatory public might still have decided on intervention, or a more interventionalist course, but it would not have adopted "invasion lite" and the budgetary horrors which have accompanied the Bush war strategy. For Bush, it was paramount not to even risk the possibility that the public, or even the informed public, would demand a consensus rather than an "Just so long as I'm the dictator" approach that was taken.

Here is where the deceptive use of liberal morally normative language was essential t to the project. Using proxies such as Christopher Hitchens, the fallacy of the excluded middle never received a more loving demonstration - either Saddam had to be removed with Bush in absolute and indeed absolutist control, or one is betraying the morally normative aspects of liberalism - the belief in the dignity of freedom itself, and the necessity that all peoples should be free.

The reality of course is that freedom is not merely a negative - the absence of a dictator does not make a people free. The question that needed to be asked, but was not, was what was required to make Iraq free. This is a different question than the question of meeting some empty procedural definition of "not under a dictator." As Hobbes argued in the 1600's, life under a leviathan is preferable to death under the "war of all against all". The natural state of affairs in a failed state is, indeed, the war of all against all.

Given the long standing liberal belief in being grounded in empirical reality, arguing against the false use of liberal doctrine of internationalism was as simple as arguing in favor of positive, versus negative, freedom.

- - -

The failure to do this shows that those who nominally were thought of as the leaders of hawkish liberalism have a fundamental misunderstanding of the credo of the philosophy. Political change is an internal, and to some extent revolutionary, state - it is not merely the overthrow of the old order which is essential for liberty, but the coming of a new order. This is the liberal critique of the French Revolution, for all of its high ideals, it did not change the fundamental nature of the public, and thus France would spend much of the rest of the next 80 years under one form or another of monarchy - restored, Bourbon or Second Empire.

The failure of liberal hawks to make this argument, or even bring it up, indicates that the trap - of desiring certainty, of giving into what one famous despot called "the need to obey" - indicates that the reform of liberalism as a doctrine - beyond modern liberalism, or any particular partisan formulation, must proceed from a reassertion of basic world view, and basic axioms. The first of these is that only a people can make themselves free, even if other peoples assist them in the mechanics of this process.

The Iraqi people were not, and are not, ready for self-government. There is no reason to believe that they cannot become ready for self-government, and at this point there is a quasi-moral imperative to attempt this transformation. But it will take longer and cost more blood than other methods of containing Saddam which could have been effectuated without violence to the international order, even if they might have entailed some use of military force now or in the future to finalize the transition.

The basic realization of liberal thought is that one must make choices, and make them between the present real alternatives. Removing Saddam did not save lives, though it did alter which lives were lost - the people who "would have" died under an extended addition of his regime have been replaced by others bombed, murdered, shot, starved, beaten, squashed and dismembered under the present conditions of chaos and civil war. Liberalism does not see the state of anarchy as preferable to the state of despotism, indeed the two share a host of traits that make them more alike than either are to a functioning state.

Part of the reason for the pragmatic failure of liberalism was the adherence to a kind of nationalized "cheap" liberalism, which had lost its ability to produce, and then advocate and implement, visionary actions which have costs in the present. The Clinton era saw the margins where change could be made as very thin, and placed deficit reduction as the first and, in the end, only policy. The failure of liberalism to make present sacrifice worthy and worthwhile, allowed those who took foolish risks with other people's lives and money, seem more bold and innovative than they were. In fact, the Bush executive merely has red green color-blindness: American's bleed red, and all they see is green.

These failures of the liberal ideology's spokes people indicates that it is time for a renewal which can only be accomplished by a changing of the guard. There are no more six month extensions for those whose judgement has been shown to be consistently wrong, nor any more excuses as to why, out of both ideological and pragmatic failure, those who were supposed to be defending liberalism capitulated to a need to obey.

He has just been reading Sandburg's Lincoln, he knows that Nelson Rockefeller has great dreams for New York and America. Further he knows that Lyndon Baines Johnson set good men to die in a war we did not need, and that it was the Democratic Party that supported slavery to the bitter end. He does not yet know very much, but he knows, because he goes to school in a city, filled with faces of all shades of the human rainbow, that all people are the same and should be held in the same regard before man's courts, and God's judgment. So he is taught in school, and so he learns in church. And thus his allegiance belongs to the party that stands for this equality, for everyone, at all times. And thus he believes himself to be a Republican.

In these days his faith is shaken by the actions of Richard Nixon, and by the probing questions of a lawyer whose drawl he recognizes as being from the old South. The Senator gives, with "specificity", the details of a cover up by the White House of illegal actions intended to take and hold power by corrupting an election. The young boy knows that this is not something Lincoln would have done.

He lives in the land of late summer corn, and country fairs, of old decaying industrial cities that cling to memories of better times, and of complacently shabby country towns scattered across the rolling hills of upstate New York. The Midwest begins only a hundred miles away, where "pop" replaces "soda" in people's vocabularies, and the cluster herds of cows grow thicker and larger. It is the country of a proud poverty, and an even prouder aversion to those from outside.

It would be many turnings of days later, when a supremely confident Ronald Reagan would come into office, smiling broadly, and telling America that "government isn't the solution, government is the problem." It would be through the dry days that followed, as fear came to haunt the faces of friends and family, the pain grew, and even when finances turned in the summer of 1982, and a roaring recovery began in 1983, it was not the same. There was something hollow, something forced, forged, fictional and faked about the process.

That fiction would make him listen with attention as a Senator from Colorado would declare that it was time for "new ideas", and a new direction. He watched the fall of that politician over the issue of adultery and false piety.

In the years that came, the impression that the Republican party was no longer the party of Lincoln, that of responsible and powerful government, descendant of Hamilton's high Federalism and Teddy Roosevelt's Progressivism, but instead had absorbed those influences that were most repulsive of the proudly provincial, and bombastically bigoted, reaches of the American psyche. Cold days spent in bare apartments watching friends fade and waste away. The sounds of Republicanism had changed, filled with nasty fat faced young men, with an edge to their voice and a kind of absolute certainty that faith overwhelmed fact.

It was 1994, and a young man warned Democrats, his adopted party, that there was an electoral wipe out coming. It came, and a blizzard of the very men who had repelled that young man from the Democrats fell from positions of power, to be replaced by Republicans who were in every way worse. In the rage of days that had filled the dry years of the early 1990's he had read certain words that had convinced him that it was not the party, but the principle, to which he owed his loyalty. That principle was of a liberal spirit, and the possibility of affluence for all. In the words of a President he had come to rate above all others, even his youthful hero Abraham Linooln.

"Freedom for everyone, everywhere in the world."

This sharp decline in savings has had important implications for United States and for the global economy. It has reduced productivity-enhancing net business investmnet in the United States to less than four percent of GDP and made the United States increasingly dependent on capital from the rest of the world to finance that investment. At the same time, the decreased national savings rate – and the increase in consumer spending that it implies - has induced a rise in US imports. Those imports have contributed to the growth of output and employment in many countries around the world.

The downward trend in US household saving will likely soon be reversed. In the long term, a substantial rise in houshold saving will have a postive effect on the US eocnomy. But the initial effects will pose problems for the United States and its trading partners. If these efects are not managed well, the results could be delcines in output and employment and a corresponding rise in US protectionism.

Right, but backwards - it is increasing US protectionism that is behind the rise in consumption, and the shift from production to consumption as the mainstay of US employment. Protectionism breads more, not less, pressure to import other goods to offset the inflationary effects of protectionism.

He notes the reason:

Between 2000 and the start of 2005, the overall net worth of the household sector increased by nearly $7 trillion.

And notes that mortgage refinancing is a large part of the reduction in savings. He correctly argues that this is not "savings" even though it might feel like it. this stands in sharp contrast to those who argue that increases in net worth do amount to savings. His warnings about the sustainability of the funds flow that is propping up the asset prices are well taken and backed by rigorous economic analysis. As the CEO of the National Bureau of Economic Research, this should be expected.

But he fails to connect the trading piece correctly. US protectionism is already here, and is already rising, and not, in the main, in connection with protectionism in industrial goods production, which is the area where protectionism, called as such, is still semi-respectable among its adherents.

Instead, it is protectionism in allocation - mesoëconomic protectionism, rather than pure micro protectionism, that is protection against specific goods or countries, or macro protectionism, rather than currency manipulation or capital controls, that is at the root of the issue.

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Meso- scale distribution is the poor step child of economic thinking. In part because meso distribution is seperable from both functioning microëconomic equilibrium, and from macroëconomic stability of purchasing and investing decisions. One can have stocked shelves, a stable relation of prices and interest rates, and still have tremendously maldistributed wealth. While the liberal, and intuitive, argument is that maldistribution of what Amartya Sen calls "entitlement bundles" will lead to lower levels of production and economic activity, proving this is no easy task.

As such much of the late 20th century was spent trying to prove the opposite - that micro distribution was always as correct as possible, and that macro distribution flowed from micro economic foundations. Inequality, it was argued, was no threat to the basic economy, defined as the ability of demand to be sufficient to met the debt obligations of existing assets.

One of the important memes behind this drive was the ideological egalitarianism behind socialism, and the claim of Stalinst and revolutionary Marxist-Leninist-Maoist groups that rapid radical egalitarianization was necessary. This "big bang" approach led to a sufficient number of catatrophes, the most recent being the conversion of Zimbawbwe from bread basket to basket case - that egalitarianism itself was considered disreputable by American other conservative economists. However, this was, and is specious. Big bang liberalization has produce an equally large number of disasters, and is propped up in many cases only by the huge flow of dollars in. Russia, if it were not for rising resource prices, would still be mired in depression.

What has been missing is an economic theory which understood that entitlement bundles are not always monetary in their expression. A choice to rebel is an economic choice, in that it is a declaration of a large number of people that the entitlement bundles available to them by abstract or direct exchange economics are insufficient, in many cases, even to live. Better to die on your feet than die on your knees.

In this mode, one can see why meso-maldistribution leads to suboptimal economic activity relatively quickly, as people opt out of abstract exchange market economies, or indeed any form of civil exchange, the entire information apparatus of the market is weakened. Liberal industrialized economies out produce others, only so long as everyone plays. When people opt out of them on a large scale, it is called "a panic" which leads to "a depression". Depressions are often masked by their corresponding economic benefit - the creation of capital is much easier when labor, land and resources are cheap because the society is artificially depressed.

Violent opting out - war, revolution, revolt, and on a personal scale suicide, murder and crime - reduces economic activity, and is a direct result of perceived maldistribution. Sen documented the other, and probably more common, form - as people are opted out of the economic system, their entitlement bundles are no longer sufficient to purchase basic subsistence, and they starve. By some estimates 10 million people die from extreme poverty - or let us be more blunt - deprivation - every year. Assuming the difference between life expectancies in developed and under-developed worlds, and the reductions in fertility - that is a child who dies of poverty is far more likely to be followed by another sibling - this means that every year 15 million years of human life span which would have happened, are snuffed out. That is 150 million years per decade. A billion years of lost history in a human life time.

This is a sketch of the mesoëconomic argument that distribution, even among nominally pareto optimal distributions, matters, since there are boundaries to the pareto manifold that, once crossed, deteriorate. In equality may be a driver to ambition and action, but beyond this range, it becomes a burden.

I will leave aside the arguments over and and the replies to the attacks on it for another day, because we need to get back to America's current run of protectionism.

- - -

While the most celebrated form of mesoëconomic maldistribution is vertical - that is inequality of wealth, wages and assets - more prosaic and more common is the maldistribution of national effort between sectors of an economy. In theory, this should not be a problem. However, theory talks about an economy with several features that are not present in any real economy, and the reality is that economies often maldistribute effort. Theory says that this is from some political externality, and not from economics itself, and that, anyway, in theory, there is no difference between theory and practice - market forces should punish maldistribution quickly enough that such maldistribution should be short lived, and that markets will adjust.

But there in lies the problem. Short term is a debatable quantity in economics, because markets can stay irrational longer than individual actors can stay solvent, and what happens when two nations maldistribute in equal and opposite ways? For example, what happens when one economic actor maldistributes in favor of consumption, while the other maldistributes in favor of exporting production? The result is quasi-stable, because each has, in the not so short run, an incentive to avoid the inevitable macroëconomic effect of the exporter's currency rising dramatically, while the importer's currency falls dramatically.

But economics adjusts, what has happened in the US is that investment has fled any industry were wage competition - and while people say "China" it is important to remember that what has really happened is that the tiger economies have shifted the lowest end of the value add chain to China - from international trade. This is why housing, health care and homeland security have been the drivers of hiring in this economic cycle, and why Americans have placed their faith in asset inflation of houses. While overt protectionism still gets sneers from every right thinking economist, and justifiably so, this kind of stealth protectionism, where non-tradable goods are favored by monetary policy - specifically interest rates and the distribution of treasury bond sales - and fiscal policy - which has overseen a massive increase in discretionary defense, pharmaceutical and expansion of the bureaucracy around Washington DC.

It is this twin effect - neo-mercantilism in Asia, and neo-colonialism in the United States, because it is important to call things by their proper names - that allows the misallocation of capital to go on as long as it has. There has been a great deal of "blaming of China" and some theorizing by the Federal Reserve Chairman of "a savings glut". This is, patently, absurd, and unworthy of serious individuals. There is almost no such thing as a savings glut. There are however ample situations where those who save are not allowed to invest productively, and are not allowed to spend. This occurs frequently in mercantile states - dating back to France in the 1700's. The central government wants to draw hard currency and savings in, and then have that accessible for its own purposes - war, strategic development, and all too often, national self-aggrandizement. Those working to drive these states upwards often face high consumption taxes. For example, on iPod accessory that I priced in China was twice the price it is in the US. Despite being made in China. Luxury taxes.

The system is, instead, driven strictly by US policies - China could not maintain their current policies if the United States were still pursuing a strong dollar/dollar shortage policy, rather than the current weak dollar/dollar glut policy. Higher savings in the US would strengthen the dollar, and would reduce the current dollar glut in the world - because there is a dollar glut. It is the continuation of this dollar glut that drives both the increases in commodity prices, and the flight of national production from export, to non-tradeable goods. This cannot go on. And that which cannot go on, won't.

The off handed estimate is that the United States needs to shift roughly 5% of GDP from non-tradeable production to tradeable production. This is worse than it sounds, because instead of shifting marginal non-tradeable production - the proverbial burger flipping - to tradeable production, the United States must shift relatively high value non-tradeables. The people currently working on computer algorythms for domestic spying need to be put to work on exportable software, the people currently working on the F-22 Raptor - which is the plane without a purpose - need to be put back to work on civilian aviation. This means making painful choices, because it is not a matter of moving low value add workers, but high value add workers and high value add capital. Since it is far cheaper to hire a lobbyist to change a Congressman's mind, than to change the research program of a company, that is what high value capital in the non-tradeable space is doing. Hence, even as we heard pieties about American competitiveness, energy independence and budget discipline, the Senate passed another budget busting, savings slurping and non-tradeable funding "emergency" defense allocation.

In previous military cycles, direct government intervention in the economy was used to prevent permanent investment of capital in strictly defense structured ways - World War II's very successful wage and price control system, which included production location before price control under the supervision of John Kenneth Galbraith, being the premier example. In this cycle the market has been allowed to send out the false signal that Washington DC is now the place to build real estate, among other false signals. Thus the relocation from non-tradeable production is going to entail larger dislocations in relation to the percentage of GDP than did previous shifts. The mid World War II dislocation, and the first post-war recessions, with their extremely steep drops in GDP and employment relative to the size of the economy, are the examples of this kind of rapid shock. While the GDP shift to be accomplished at that time was much larger, and therefore we should not expect recessions of similar speed of onset or depth, the large dislocation of production workers caused will be similar in shape, if not in magnitude.

In short, because of poor decision making in the US, the US, and its trading partners, have misallocated capital. Trading partners, particularly China, have focused on export, and not on domestic non-tradeable GDP, except in real estate speculation. The United States has tried to use enforced savings on the future - for that is what inflated asset prices are, trying to get others in the future to save to buy houses and so on - in place of real savings in the present.

Neither of these trends are sustainable. But let us be blunt and honest, it is not that coming protectionism is the danger when the dislocation, it is that there has been a wave of neo-colonial protectionism, using fiscal and monetary policy in the US to promote non-tradeable, that is protected, sectors of the economy, and financing this with neo-mercantile protectionism from Asian economies. The result has been a stagnation in real wages, and drops in real discretionary income - even in the face of deflationary pressures from dropping wages from globalization. While the US has been "successful", if that is what one chooses to call it, in preventing macro-deflation, it has created meso-deflation instead. That is what falling real discretionary income, falling real savings and falling real median wages are, reduction in the value of an hour of labor. This reduction has become a marginal disincentive to workers entering into the job market, despite increasing signs of a shortage of service workers.

The reality is that now, if the economics profession has integrity, is the time, not to be merely warning of the possibility of increased protectionism from industrial sectors of the body politic, but to face up to the massive wave of protectionism driven by the Republican Party, though aided and abetted by the willingness to sell out on agriculture bills, Iraq and other military spending by the Democratic Party. In fact, the Democratic Party this year is campaigning on its ability to manage stealth protectionism in the form of artificially low gas prices and protecting home values better than the Republican Party.

Since the effects of a deterioration in savings rates are well known, since any economist, or indeed anyone, who can read a chart knows that there is going to be a rapid increase in the retired population, with the resulting rise in spending on this retired population, even if retirement age is pushed back - there is no reason to be couching warnings in vague or misleading terms. America is already foundering under the weight of a misallocation of effort driven by protectionist policies. It is these policies that are creating global trade imbalances, and these trade imbalances have created currency imbalances. There would be no material reduction in the amount of employment created in developing economies in a more frugal American world order, since there is still the same need to globalize production to reduce costs.

First Begala apologizes both at the beginning and end of this post - to Zack and to the organizers in general. He admits it was a "smart ass quip" that he regrets.

Second he believes that the void is "message" - he and carville are pushing the idea of "progressive patriotism" as the basic meme. Good old fashioned TR New Nationalism type images there. He also notes that the state program isn't that cheap, but it isn't the cause of the budget void at Dean's DNC.

Sure this is a turf war, and like all turf wars it comes down to who gets the check to do what everyone knows needs to be done - which is why turf wars are so vicious, everyone knows that who gets the check is largely arbitrary. It's like getting into med school, there are three over qualified applicants for every slot, so people sandbag each other.

But then he goes back to quippery:

"I've lived almost my entire life in red states -- not Berkeley, not Burlington -- but Texas and Virginia."

Hey Begala - California has been turned blue. It was for a long time part of the Republican coalition. Gave the second half of the 20th century two Republican Presidents and a Republican Chief Justice of the Supreme Court. It was the home of the Republican Tax Revolt. It has continued to elect Republican governors. If California is blue now, it is because it has been flipped.

Ditto Vermont. Vermont was, until not that long ago, a Republican State - like next door New Hampshire, now also turning blue.

Texas and Virginia have, by contrast, turned red over the course of the last 30 years. Texas gave the US a Demcratic Vice President under FDR, an another who went on to become President. Virginia, likewise, was a reliable Democratic state in the Presidential coalition, even as the deep south slipped away.

So on one hand Begala's appeal is that he is an ideolog at heart. He is one who, however, lives in the top down media age - which is dying - and he is one who lives in an age where democratic bastions turn republican. He is, fundamentally, in the era of Reagan and Gingrich.

In this era, it is about the air war. Total superiority on the airwaves is what it is about. And don't doubt the air waves now - Mass Media Moves the Majority - it is that that rouses people. To take an example: I can't tell you how many phone calls I have gotten because the Lowell floods are in the news - I'm up on higher ground. It was last year when a snap freeze caused a pipe to burst and some tree roots backed up my sewer that I, personally, had water problems. But my personal problems aren't news - the destruction of the floods in this area isn't to be understated, people have lost everything. But even my friends and acquaintances know more about Lowell the dateline, than Lowell the place I live in. And I am an internetizen.

The other part of Begala's basic frame comes from his last quip - where he criticizes people who have lived in "Berkeley and Burlington" rather than "Texas and Virginia". Note, first, the apples to oranges comparison. One can live in Austin Texas and be in a relatively progressive bubble. There are plenty of Virginia commuters who really live in Washington DC, and are more in the bubble than anyone in Berkeley is.

But note the bigger difference: California used to be a Republican State - in fact, California Republicans Nixon and Reagan were in every Presidential election but 1964 from 1952 to 1984. Before he was a liberal chief justice, Warren was a California Republican governor and Vice-Presidential candidate. That means that California Republicans headed two of the branches of government. California was the base for the Prop 13 tax revolt. Vermont used to be the solid center of ordinary Repbulicanism. Was the birthplace of a Republican President - though he rose to prominence in Massachussetts. It still elects Republican governors.

We all know how Texas has turned and how Virginia as well used to be mainly Democratic, even as the rest of the deep south slipped away.

Berkeley and Burlington may be the homes of techno optimists, for the same reason that Arlington and Austin are the homes of media-pessimism. In Burlington and Berkeley - and I might add Boston - the world looks as if it is turning Blue, and that it is better to be dead than Red. It looks like all that needs to be done is draw people into the new internet world, into the 21st century, and the Republican mantras will fade away, because they are fights over things that don't matter. What matters is the future.

So on one hand it is a good thing that we've reached the stage where when an insider makes a smart ass quip, he gets his ass kicked hard enough to start behaving like an adult. It's also heartening to see that Begala has substance beneath the veneer, and basic root of that substance is not that far different. One could, and the Democrats Begala's quip on nose picking was met with a torrent of anger. In no small part because it was field organizers who fought the civil rights battles that are the mythic heart of present day social progressivism. It's like knocking minutemen in Massachusetts, Texas Rangers in Dallas, or taking a piss on a town's World War II memorial - it just ain't smart.

To his credit Begala apologizes. And in his answer are both the points that unite, and divide, Begala and his world from Exley and his.

have, done a lot worse than "Progressive Populism" as a message.

But it is also important to realize that while Begala's instincts may be for a more Progressive America - his reflexes are trained by having large gobs of manure hurled at him from a Lee Atwater made Howitzer, backed by a ton of money. And by a world that is rolling Reagan Red, not blushing bush-bashing blue.

Since media is still powerful, and since much of the country still lives in Bushistan, Begala's serious points need to be taken seriously. On the other hand, Deans willingness to hire young political guns from the internet is essential - how else are people going to be able to enter into politics, unless the can make their livelihood in it? Perhaps Begala's "crisis" is that there isn't enough money left for him after paying dozens of Tim Tagris. Begala's a blue chip political investment, all the value is priced in. But the young guns - that's venture capital, and some of them are going to return thousands of times what they cost.

Begala's world is where an election is fought over the 10% of districts decided by 10% of voters that are marginally attached to the political system. They can drop off if there is "no reason to vote". They can only be reached by word of mouth from people who watch the news more regularly. They vote, and poll, their pocketbook - gas prices, consumables, availability of jobs. They don't have a great ideological attachment, and they need constant "bucking up" to keep their morale high. Often the are more patriotic than political, and believe in their hearts that Congress could meet for about a month every year and then go home. They may be right about the world, maybe American Idol is more important than Bush's latest speech. It certainly looks and sounds better.

In that world a barrage of media changes people's minds, and they change the minds of that marginally attached voter. It is about saturation, the point where 90% of the electorate is fed up with the ads, is the point where the last 10% has finally been influenced by them. It takes a lot of mass media to get inside the skulls of this least participatory 10%.

Thus for Begala "Control of the House" rests on that media bombing campaign. He sees it as a powerful weapon. In reality, it is nothing of the sort, and is, instead, as vulnerable as a blimp would be to an F-14 Tomcat.

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The reality is that Begala's weapon is a pistol - he can shoot it at the map and put a hole in one congressional district. Maybe a full magazine will make it 10 districts, or 25. But that is it, it is a retail attempt to locate districts that swing the election. This is why there is such despair among consultants, as the price of barrages has gone up, and the country has gotten more geographically hardened politically, it gets harder and harder to swing an election. Just two months ago, most insider Begala types were saying that the Republicans would probably hold both houses of Congress.

What people don't realize is that this is normal for Congress. Look back over the 20th century, and you find that normally only a few seats change hands. The House itself doesn't change hands with a few seats - instead, it tips with large shifts. The DLC-DCCC-DSCC strategy of trying to incrementally win back the House a few seats a year may have looked like the "safe" play, but in fact, it was quite radical - it had never been done before.

What made them believe in it was Clinton, and the success of Democats in off year elections. It seemed to them that if only every election could be made into an off year local election - about who would build the most schools, deliver the best services - then the Democrats could do as well on year as they had done in off years. The problem is, this is the strategy of the out party trying to grab a seat or three - the LaGuardia "there's no Democratic or Republican way to collect the trash". It led to candidates who ran away from the party and its identification, away from progressivism, and into elections that turned on narrower and narrower issues among narrower and narrower constituencies.

The reality is that the house changes hands on big shifts - 1930 and 1932 combined, 1994 - these are the normal way to shift power - convince a different 5% of the country, an identifiable 5%, that their interests are with the other party.

These people are influenced by television, but not by the ads. They are also influenced by their friends and neighbors, but not necesarrily geographic friends and televison watching neighbors. They have an ideology, they aren't marginally attached to the political system, they are often quite political. But they are marginally attached to their party system. Some of them walked to vote for Perot, some even twice - that is 6% of the electorate. Some of them have voted for independent candidates for governor. That's another 3% of the electorate. If this roughly 10% of the population can be split, instead of roughly 50-50 as they are now, to 70-30 Democratic, that is the same net effect as overwhelmingly winning the air war. And you don't have to keep renting their votes every cycle. They can't be easily turned by Bush dumping a ton of money on their districts. They aren't quite that localized.

Now you can see why the South offers a hypnotic appeal to the media campaign - a disproportionate number of districts decided by the anti-political swing voter are in the South, and are socially conservative. This the Airwave War party is one that stands for renting swing with the wind voters. The only reason they are looking beyond that now is that the mood of the country is so anti-Bush, and anti-Delay, even if they don't know Delay's name - that they see a chance of making bigger in roads.

But the other Party, and the other strategy, isn't in the South. The people who are marginally attached to the Republican Party disproportionately live in the Northeast - in Connecticut, Pennsylvania, Maine - in the upper Mid-west, and in the Southwest. The reason the Republicans are gambling with immigration, is that the good people of nowhere Nevada are paying very high gasoline prices, and not getting oil pumping profits. The republicans need a good round of crypto-racism to get them to show up to the polls. And if these people don't show up, then the rising urban centers of Phoeniz, Las Vegas, Albuquerque will swing Nevada, Arizona and New Mexico to the Democrats. The hispanic vote will put California out of play, and it will put Colorado - which has trended heavily Republican in the last 20 years - back into play. This list of districts - which Matt Stoller and I identified back in 2003 - would, alone, give the Democrats a narrow majority in the House and a stronger one in the Senate. 10 Republican Senators live in these areas - Collins, Snow, Chaffee, Santorum, Specter, Voinovich, DeWine, Ensign, Kyl, McCain, Allard. If the Democrats can be the natural replacement for these senators when the seat becomes open, as the Republicans became the natural replacement for Souther Democrats like Breaux, Hollings, Byrd - or be able to flip or defeat 2 or 3 - that is the backbone of a long run of control of the "World's Greatest Deliberative Body".

The last important area was the upper mid-west, which began trending red, but is now headed back to the Democratic column, because even farmers are beginnig to realize that where ever the "Free market" is, it isn't in their home towns. The Republicans are, again, gambling on ethanol subsidies as a vast bribe to keep Iowa onside.

Adding up these seats in 2003, we found that there were 40 House seats which, if the identifiable second ring suburban, and microurban constituencies could be shifted, would result in a new Democratic majority in the House. This advice was ignored in 2004, in no small part because 2004 was the "last push over the top" for the strategy of winning over the apolitical 10%. The Republicans proved that swift boating through astro-turf still works. Lee Atwater's dead hand almost wrote the copy.

Having been one of those "desktop strategists" who saw media and money consultants come in and turn a front runner into a laughing stock, and then seeing it again in a Congressional race where a slick media and money consultant came in, quit when he couldn't raise enough money, and left the candidate to get only 3% more of the vote than a guy running on legalizing pot had a few years before - Begala should be carefully about spraying accusations. The media and money consultants have presided over the longest time out of Congresional power for the Democrats since the 1920's. They have lived off of the Clinton political dynasty - but Clinton never won, or even held, a house of Congress on his coat-tails. That puts him behind Albert Gore, whose coattails brought the Democrats all too brief control of the Senate.

As a "desktop strategist" - I suppose that means I can use a spreadsheet and understand basic addition, subtraction and a few simple statistical functions that rely on basic addition and subtraction - these numbers were as plain as day in 2003, and they are equally plain as day now. The people who will give control of Congress back to a progressive Democratic Party aren't in Lousiana. They aren't in Alabama. They aren't in North Carolina for the most part. They aren't in the Southern states over all - though a national shift will be visible everywhere.

But they are in Montana. Ohio. Iowa. Arizona - states seen as reliably Red.

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What Begala and Carville did not see, nor did anyone inside the top down media bubble, is that there is a new economy. The people attached to that new economy, even if they are not liberals or Democrats, are not attached to the war for oil economy, except in so far as they directly work for the military-industrial complex. Want to meet an anti-government libertarian? Call up Raytheon's missile systems department and ask to speak to one of the engineers. The reality of the new economy is that the people in it aren't old line union Democrats who want a "super-union rep", they are people who are much more akin to the ground level populists of the last century, who see control over rights of way, and access to the money needed to start businesses, as being the key questions.

Back then they were populists and "Silver Republicans". If you do a close reading of "The Wizard of Oz", you will know they hated "The Wicked Witch of the East" - that is the banks - and the "Wicked Witch of the West" - that is, the railroads. Liquidity and rights of way.

In our own time the fight over "Net-Neutrality" is a right of way fight, and even anti-Democrat libertarian constituencies have lined up against the Big Telecom bill that the Republicans have put foward, and voted for almost to a man. It is why artists, who are, like farmers, beholden to rights of way

This new economy is the heart of the New Politics - one which is driven by urgency, connection and psychographics, rather than the complacency, alienation and demographics of the old media politics. Look a the Republican churn of bills and amendments now - they are having to pander to their base, and that base is outraged at people who speak spanish, gay men who want to get married, and umm. Well people who speak spanish.

Begala comes out of a word where this is the game, and who are frigthened and demoralized because our outrage factors - say CEOs who make hundreds of times what even professionals make - don't seem to have the same "umph". Only gas prices seem to reach down into the marginal world of the apolitical. What is a party to do, if it wants to fight over a group of people who are socially reactionary, but like big spending government, when faced with a socially reactionary, but borrow and squander governing party?

The reason those on the internet are far more optimistic, is they see a different group of people in play. They see people who use the internet to get jobs, get sex, get community who are outraged about having to pay a Telecom Tax. They see people who are going from pink collar and blue collar jobs into white collar back office jobs. They see people who are entering the 21st century, a century where we are going to stop using rocks to power our economy. Begala wants to win over voters driven by neaderthal instincts, the new politics wants to finally put an end to the stone age.

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So it is important to see through these differences of mileu and time, because Begala is, at bottom, one of us ideologically. And when he can see the new ways beginning to work, he will use them and join in them. Carville and Begala have been taking punches in that world for a long time, hoping to be able to deliver a bunch back. The differences between them and the new political world go deeper than tactics, even deeper than strategy. But they don't go to the level of basic outlook.

The reality is that the mass media world is going to continue to shrink, and it is going to continue to favor the Republican faux-outrage for some time. Peter Daou of the Daoureport has made this one of his long running themes - top down media supports the better top down party in an energy and media alliance that is seen the world over. Their economy is about turning gas into consumption, and the top down media, deep in its spine, is about telling people to do this, and how to do it most profligately.

Peter's "Triangle model" is where Begala needs to get to - and remember Peter is an insider, who did this for the Kerry campaign. Don't listen to the financial consultant who dabbles in politics like me, listen to one of Kerry's top internet guys - only by combining the power of many to many media with the power of one to many media in pursuit of a governing idea will there be a shift in the political landscape that will allow Democrats to actually be Democrats.

Begala looks back at Clinton and the 1990's when "hope" was seen as the way of replacing outrage as the way of moving the country politically. Well one of the products of that was the internet society - the people that Begala is pushing away from the table are the people who are children of the political and economic environment that Bill Clinton and Albert Gore worked to create. It isn't the way that Begala and Carville thought it would go down, but the new politics is a direct descendent, not of "triangulation" but of cross the bridge to the 21st century. And now that we are here, the 21st century needs to evolve towards the distant, but visible, 22nd century economy that will supplant the oil and broadcast economy with one based on wave and wire connection and production.

The next step in this transformation politically is to change the map of the US politically - flipping the northern moderates, the southwest boomburgs and the upper heartland. These areas fundamentally are not going to do well in a world run by OPEC, Exxon and Clear Channel. These areas do not share Bush's obsession with neo-colonialism, nor the economic "trickle down" top down model. They have people who are energetic and active, but who are blocked by money that is locked up at the top, and by rights of way that are being fenced in.

This map does not ignore the south, but it does not see the Southern Swing Voter, as the model voter. It does not see the airwave saturation campaign as the future, but as a component of the present. A component that consumes huge amounts of money and delivers few returns.

Instead of bashing the new politics, Begala needs to embrace it. He, personally, would find a warm reception. He and Carville are heros to many of the people in it. If Begala were to go to Yearly Kos they wouldn't find a hostile reception, but instead, a large group of people who take inspiration in "Fight Back" and the ragin' cajun.

But first both sides, but the insiders particularly, have to stop getting into what Duncan Black calls "The Lump of Campaign Money Fallacy..." that "...seems to have infected most of Washington" - that there is only so much money to be raised, and the fight is a zero sum way of how to spend it.

Check out this graph.

Inflation has been redefined in the business press as "core inflation". That is, energy inflation doesn't count any more for public discussion. This is an interesting caveat. As anyone who follows bls statistics knows "core inflation" is an inflation number without energy, the argument being that this "strips out" the "volatile" food and energy sector. However, this is doubly dishonest. First, food and energy have been running ahead of the rest of inflation for some time now, second there are simple financial formulas to get rid of what is called "marginal behavior". If people want to know what the "non-volatile" number for inflation is, then the simplest tool is to take a moving average, not to remove particular components. If one wants a more sophisticated tool, one can take kendall's tau of the inflation series over time – which is a statistical tool to find the correlation between two data sets removing the differences in volatility from both. Finally one could apply GARCH – an algorithm for analyzing numbers that are not only volatile, but have changing rates of volatility.

The above graph is the ratio between CPI-U and its "core" number, and CPI-W and its core number. If removing "Core" inflation was simply removing a series that was simply stripping out volatility, one would see the same curve, – as it was in the 1990's – then you would see rises and falls above and below a mean value.

In 1983 the asset inflation in housing was removed from CPI. This has the effect of allowing booms to go on longer, because it eliminates the "housing bubble" effect, and thus allows the Fed to keep interest rates lower long, and it means that recessions will be slower to recover from, because when housing bubbles "pop" that doesn't show up as a drop in inflation. It has also masked the massive housing bubble that we have now. This is important because money is created when banks lend, they can lend based on assets, and housing asset prices are counted there. This may sound simple, but it is John Kenneth Galbraith who noted that "the process by which banks create money is so simple, the mind is repelled."

The net effect of this is that the money supply is based on asset inflation, but the interest rate is not. This has created a perverse incentive for administrations and the Federal Reserve – allow housing inflation. Since housing does not generate export, but, on the contrary creates import demand for energy and consumer goods such as home electronics – the net effect of this is to increase the money supply, which drives general inflation, and to increase the trade deficit.

There have been calls for consumption taxes, but this is backwards, the better mechanism – the free market one – is simple to make it so that the Fed is no longer allowing asset inflation in the first place. Otherwise what one is really doing is using home owner equity as a means of creating money to speculate with.

This may sound complex, but the effect is visible: an ever growing trade deficit, as more and more effort is poured into housing, which runs well ahead of inflation, and that housing creates demand for imports, both by creating the desire, and providing a "wealth effect" to fund it with. That's demand in economics – desire plus money.

The redefinition allowed inflation numbers to be reduced – very important both for consumer and business confidence, and because the government is "on the hook" for inflation in the form of Social Security – lower inflation means smaller Cost of Living Adjustments to Social Security. This means smaller social security checks.

However, even this adjustment is no longer enough – instead, inflation is, effectively, being redefined again to exclude energy costs. Energy inflation no longer "counts" for considering economic condition. This means there is a direct transfer of real wealth from everyone else, to energy producers. Don't blame Exxon for high energy prices, blame policy which now has the implicit objective of transferring money to energy producers, without any requirement that they reduce inflation.

There is a good reason for this. Energy producing nations provide much of the liquidity to cover our trade deficit. They will want an assurance that we are not going to tax them in order to fund our deficits, or indeed anything else. This indicates that a fundamental mechanism of neo-liberalism is dead. Namely, that developed nations will not impose self-discipline to prevent energy prices from going up.

To explain, between 1982 and 1998 an important pillar of policy in the G-8 was not to import more energy from OPEC and other energy producing nations than they exported. The idea was that this would squeeze energy exporters, and prevent them from gaining too much control over the world financial system. For what ever the problems with this system, it worked – energy prices marched downward, and with them commodity prices. While the gold bugs are screaming about it now, the current trend of energy getting more expensive than other goods began with the response to the Asian financial crisis, and somewhere in 2003 the decision was made, or not made, to restrain federal spending in the US, or use monetary or tax policy, to bring the movement of energy inflation back into line. This has become general commodity inflation – gold, steel, copper and so on.

This means that this new "redefinition" of inflation is directed at keeping the holders of US instruments, namely energy exporters who don't have stake holders, and so can invest abroad, not at any underlying fundamental irrelevancy of energy to general inflation. Or as Barry Ritholtz puts it "Inflation is fine so long as you don't move or eat."

In short, since 1983 we have been pretending that housing inflation doesn't count, and now even that isn't enough, and we are having to pretend that energy inflation doesn't count either. The first allows loose money, but creates excessive energy demand. This worked so long as policy kept inflation prices in line. Now policy has let the energy genie out of the bottle, and is trying to hide behind a talking point that is rotten to the core.

The first redefinition produces chronic current account deficits, because it shifts efforts from production, to consumption. It also creates a pool of easy money looking for returns. The second shifts real wealth from the US and developed nations, to energy producers and resource producers. This produces wealth in poor countries - among those who control the energy supplies. This is why Putin of Russia is becoming more and more aggressive, this is why energy socialism is sweeping Latin America - because there is a fight to use that energy money to do more than buy luxuries for the upper classes. In places like Dubai, there is the reverse effect - conspicuous super-consumption by the small elite that receives all of the oil revenues.

This is creating a more and more unstable situation, as the financial power in the world is flowing to groups that do not have an interest in the political or economic stability of the developed world. Far from being a "clash of civilizations", our present problems are driven largely by a series of attempts to delay dealing with problems.

Perhaps that was the right decision in the early 1980's, as many technologies required to move away from a petroleum driven economy were in their infancy. But in the present, it is a bad decision, because it leads down a road that is more costly than the other choices - the opportunity cost of building mcMansions and inflation wagons, that's SUVs - is very high at this point.

The continual repetition of "core inflation remains tame" is not a good sign, because industrialized nations make "core" items, and import "non-core" items. One man's inflation is another man's pricing power - saying "core inflation remains tame" is another way of saying that manufacturing does not have pricing power globally.

This leads into a discussion of currencies, and why the current currency problem is the result of this basic dynamic of needing to appease bond holders with oil revenues.

Not long after Bernanke's first announcment the IMF stated that it was going to seek immediate negotiations to produce normalization of currency rates, a cryptic statement which is fraught with deeper meaning in the back drop of something else which came out of the IMF recently: namely that "globalization" could no longer be counted on to hold inflation in check. While this statement received little attention, it is, in fact, a nail hammered into the coffin of what was once the great consuming narrative of political elites around the world for the last twenty years, and of economics for the last thirty years – namely, neo-liberalism.

It is a strange sight, a line of mourners for an idea. It is an idea that, simultaneously, was beloved of elites, and loathed by the dispossessed – and ignored by the broad range of people who lived under it. Not since the divine right of kings has their been an idea which seemed so obvious to those who benefited from it, and so opaque to almost the entire rest of humanity. The paeans to neo-liberalism that have gushed forth from various pens read far more like the paeans to absolutism in The True Law of Free Monarchy, than anything else. Neo-liberalism is not, merely, globalization, or free trade, or even free movement of capital, but instead, it is a story, a story of how the world should work

Neo-liberalism, Free Trade and Globalization are often confused – because those who advocate for one often slurry their arguments into one of the others, as if one factor proved all the others. This isn't the case. Globalization is, ultimately, the realization that all of human activity is interconnected. FDR's Four Freedom's speech globalized the idea of rights, in the midst of a global struggle against the darkness. If you believe in combating global warming, then you too, are an advocate for globalization, in that there is one atmosphere, one vast ocean, and we are all connected to both. Even Free Trade and Neo-liberalism are not the same thing. It is entirely possible to have free trade, without free capital movement, in fact, the original theory of comparative advantage assumes just that, that capital is immobile and must accept the returns of where ever it is located..

But all of these words are inconsequential, because neo-liberalism is being buried. And this past weekend one of the most unexpected of attendees to its funeral threw a handful of dirt on its coffin: The International Monetary Fund. To understand why, a bit of history.

It was after the second world war that three institutions were supposed to be set up, the International Monetary Fund to stabilize currencies, the World Bank to fund development, and the International Trade Organization to harmonize trade rules and lower barriers to commerce. The United States, in all irony, torpedoed the creation of the ITO, fearing that it would act against American business. America, having the only large industrialized economy untouched by war, did not want any restrictions. One history professor of mine quipped that in 1945 there was an ITO, it was called the US Congress.

But there was the Global Agreement on Tariffs and Trade, set in motion in 1947 as a provisional organization, producing a series of "rounds", which created agreements on lowering tariff barriers and a host of other issues. But it would be the "Uruguay Round" which would create the "World Trade Organization", which was intended to be the place where trade differences were ironed out, but with the teeth to back and force agreements.

Reading the WTO treaty, it does not sound like an instrument for rampant Thatcherization, it does not have a ringing mandate for free trade at all cost, in fact, its charter mission seems to include the idea that trade rules must make room for the needs of developing as well as developed nations. Where then, if not in the WTO charter, was the heart of neo-liberalism.

The person to ask is Joseph Stiglitz, whose book "Fair Trade for All" dissects how developing nations are often given take it or leave it deals that have little to do with either economic ideas or economic realities. In the chapter "Trade can be good for development" he writes:

"But many of the developed countries' negotiators have turned this argument on its head, they suggest that the reduction of one's own tariffs is beneficial, and hence the developing countries would be helping themselves by liberalizing in the WTO, irrespective of the actions of the developed countries. On this basis they argue that the developing countries should accept almost any offer that is put on the table."

He then says that "matters are not so easy", and summarizes the argument in the chapter "Trade Liberalization and Costs of Adjustment":

"Trade Liberalization creates adjustment costs as resources move from one sector to another. This chapter has described several sources of adjustment costs (broadly defined) and concludes that adjustment to a post-Doha trading regime will be disproportionately costly and difficult for developing countries because of the loss of preference margins, the loss of revenue from trade taxes, institutional weaknesses including the absence of adequate safety nets, large implementation costs, lack of the finance required to restructure the economy, and the limited ability of poor populations to manage short-term unemployment."

And remember, this is from someone who believes trade can help development. But it takes him only to page two of his book to introduce the villain of the work: the Washington Consensus, which he notes, is a series of policies advocated particularly in the 1990's, which amounted to having developed countries open their markets unilaterally, and impose fiscal discipline and market reforms. It is in the Washington Consensus that neo-liberalism found embodiment, and institutions such as IMF, World Bank, WTO and the trade negotiation rounds were merely instruments to advancing the ideas behind this consensus.

Thus if there is a gospel to neo-liberalism, it is in the Washington Consensus as it came to be implemented.

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On pages 20 and 21, Stiglitz outlines the narrative behind neo-liberalism. In the 1980's Latin American growth foundered, and inflation, even hyper-inflation, entered the picture. At the same time the "Tiger" economies of east Asia – which promoted exporting – grew rapidly. Thus, declares the neo-liberal, it is import substitution and state intervention that causes inefficiency, inefficiency that causes government spending, and government spending that drives an economy to zero growth and high inflation. In short, what Latin America needed, was Reaganomics.

This much Stiglitz can tell us, but what his book does not talk about is the reverse side of the coin, that neo-liberalism is what scholar Jennifer Mercieca would call "a tragic narrative" of the world. Tragic in that it views the public with suspicion, and fears above all the exercise of the public will as the source of disasters. Not merely in the developing world, but in the developed world as well. The medicine offered to Latin America, was the medicine that developed countries were prescribed: slash social spending, allow people to fall through the safety net, and let the free market do everything. Guided by such voices as Milton Friedman who stamp their rhetorical feet and declare that the private sector can do anything for half the cost of the government, neo-liberal ideas fundamentally view the people as the source of the wrong turns that lead to fiscal and eventually macroëconomic catastrophe. The same yoke put on the developing world, must also be on the electorates in the developed world as well.

And it is this feature which has lead to the death of neo-liberalism as a vital force in geopolitics.

Neo-liberalism believes that left to their own devices, electorates will vote to protect their jobs and subsidies, and grow lazy and inefficient. Thus only the heavy hand of market discipline, budget discipline and monetary discipline can prevent inflation without growth, which free market fundamentalism views as the inevitable result of government intervention in the economy. Only with these weights on their back could electorates be trusted to make choices about which marginal benefits they could have: slightly lower taxes, or slightly better services. At the same time, developed countries had to place their monetary policy in the hands of the developed nations, pegging their currencies to the dollar, or even promising to have a "dollar board", where one local note could be issued for each dollar the government held.

Neo-liberalism then, imposed its tragic weight on both the developing world, and the developed world. Paradoxically, this child of free market conservative economics, Reaganomics and Thaterism brought to power Bill Clinton, Tony Blair and Gerhard Schroeder, parties of the left in the very nations that had formed the core of the conservative consensus of the 1980's.

The believers in "the third way", as it came to be called, had a burning passion for neo-liberal trade regimes, in no small part, because they believed the tragic narrative more powerfully than their political right did. They really believed that if not for free market liberalization, then the developed world would plunge into stagnation, and they really believed that if developed world electorates did not impose fiscal self-discipline, then there would be more painful cuts in services and the social safety net.

Perhaps the creepiest testimony to this is the documentary Our Brand is Crisis which follows an American political consulting firm as it aids the election of a neo-liberal Presidential candidate in Bolivia, one who passed a social security law and promised more public works and education, who was then driven from power because of his ham handed handling of the very economic crisis which was used as his main campaign theme. The firm in question was not a Republican one, but, on the contrary, one headed by Democratic guru James Carville. At the end of the film consultant Jeremy Rosner looks into the camer soulfully, and shrugs that perhaps Democracy needs more help in the beginning. A message that he could have learned from Stiglitz.

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Thus neo-liberalism is a narrative of the world that says that developing nations must restrain their impulses to nationalism and socialism, while developed nations must maintain fiscal discipline. The 1990's saw the world placed on a diet, with "do more with less" being the mantra in civilian and military circles alike. The US created a dollar shortage, which kept its own budget restrained, and other nations were forced to trade with the developed core to get the hard currency they needed to buy oil and technology. The gain was the continued constriction of inflation, and the continuation of "the Great Commodities Depression".

It also sparked a huge wave of investment – but in the wrong direction. The theory of neo-liberalism was that since developing nations were cheaper than developed ones, that free capital flows would make investment flow from developed nations to less developed ones. Developed nations would get lower prices for goods, and developed nations more and more incentive to hew closely to the market oriented export path.

Instead, money, fearful of the effects of financial crisis, fled to the US. In retrospect there is an obvious mesoëconomic reason for this. Consider the wealthy individual in a developing nation under neo-liberalism's open capital movement, dollar drought situation. If he stays in his home country, then he suffers a large risk: that there will be, through no fault of his own countries policies, a currency crisis. The stock market in his own country will plunge, and foreign investors will snap up shares quickly, taking advantage of the short term cash crunch. He will be skinned alive, and there is little he can do to stop it, because free capital movement is the cornerstone of the neo-liberal order. Elites in South Korea experienced this first hand. Instead he will put his money out of the country, which he can do, because of free capital movement, and hold only enough in country to maintain economic advantages. And if everything goes wrong, he will make sure that any IMF bail out package will be a life raft for the rest of his assets.

For people who need a demonstration of this, Russia makes an excellent case study – a vast IMF bailout did little but allow wealth to flee the country. As one colleague of mine says "Russia is a rich nation, it just happens to be a hundred guys who all live in Moscow." Think on how that city now has more billionaires living in it than New York.

But it was not the details or the peripheral nations which laid law the neo-liberal idea, but the flaw in the basic narrative itself. Neo-liberalism, remember, believes that elites are better to be trusted to come to the right decisions than volatile and easily deceived masses. In a very Leo Straussian way, it believed in marketing its ideas to the public, even if that meant a certain amount of deception of that public. In the final analysis, elites would be shown to be more disciplined than the electorates that they governed. Because that is what the system required: elites willing to live within the constrictions of a monetary order with little room to maneuver.

And in from April 2000 to somewhere in late 2002, that very thesis, of the disciplined nature of elites, was tested and found wanting.

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What ended neo-liberalism was not the protests in Seattle against the WTO, nor even a concerted political push from the left. On the contrary, parties of the right won a string of victories after the turn of the millennium, and enacted policies which have dramatically changed the trade and international financial landscape. It was the response of elites to the fears of 2000, the 9/11 attacks of 2001 and the final crash of 2002 which would unravel the underpinnings of a disciplined fiscal order. To put it bluntly, faced with economic difficulties, and a chance to seize control of a country in the heart of the Middle East, George W. Bush spent like a drunken sailor. The dollar drought was dead, and in came a dollar glut.

The world of the dollar glut reversed the polarity of the trade order. Instead of other nations begging the US and the institutions it dominated for bail outs, it was the US that counted on other nations, particularly the Asian central banks, to soak up the dollar glut to keep their own currencies from appreciating too much. Instead of relying on the cooperation of other free trade states, the US came to see its future as cooperating with mercantile states that were locked in a vicious battle with each other to supply the lowest cost labor and land.

Out went the US as the world's investment banker, and in came a United States policy that was the world's designated loser in the trade game. Whatever the theory behind the move, the result has been to shift the global trade order from a multi-lateral, to a unilateral one. No one can stop the US from simply printing dollars, without suffering the consequences.

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The sound of wind rattling through the rotten branches of neo-liberalism began before any elections had taken place. When in 1997-98 a major fiscal crisis rolled through the world and roiled markets, the response from the American Federal Reserve was to flood the world with liquidity, intending to "sanitize" the operation later when the troubles had passed. If the US had been disciplined, its Congress and President would have found a way to increase taxes, pay off more of the national debt, and thus keep people from overspending. But the motto of the age was "laissez les bons temps rouler."

The resulting bubble, for a short time, made people lose sight of the very underpinnings of value, and of ethical values in general. It seemed so clear that there would never be such an era of loose money again, and executives at Computer Associates, WorldCom, Adelphia and others engaged in freelance law bending to make sure that some of it slopped onto their own plates.

But it was the response to the popping of that bubble which was fatal to the Washington Consensus, both as an ideology, and as a pragmatic reality of government. Instead of doing the minimum required, and keeping the pressure on commodities producers, the first act of a newly seated Congress and newly sworn in executive, was to slash revenues dramatically. The ideology of "always cut taxes" trumped the ideology of "always restrain deficits." It had worked the previous fiscal crisis, why not this one?

What it led to however was a vast change in the structure of world trade and world currencies. Instead of neo-liberalism's structure of the developed center mediating between emerging nations that were seen as needing to liberalize, and the resource rich nations, which were seen as needing to be kept from political instability and strategic threat. The first invasion of Iraq was a typical neo-liberal war – restoring the balance of power, and preventing one nation with an unstable leader from becoming a threat. The new structure was that of triangular trade – between the United States, OPEC, and China acting as the point of assembly for the tiger economies that had been hammered by the financial crisis of the late 1990's and the crash of 2000-2002.

This change also brought another change – the long standing lid on gasoline prices was blown off, and China accelerated into high gear to produce its own consumer economy. While OPEC fed America with oil, China fed it with cheap goods, and both propped up its dollar. The rest of the world was dragged along in this new direction.

And a new direction it was. Neo-liberalism, remember, is a narrative that says that it is discipline that holds the world economy together. The new narrative was one of profligacy – American could have both guns and caviar, OPEC could pump at full speed, and China could run the factories as hot as possible. It was no longer about efficiency and working smarter, but about brute force. China's growth comes despite not being transparent, open, or neo-liberal. Despite its having low value add in its products, despite having terrible efficiency of GDP per barrel of oil. It is, in many respects, the 1980's and 1990's in reverse.

Under this new structure, "Old Europe" as Rumsfeld derisively called it, has suffered mightly – with high unemployment and linger recession. This despite being staunchly free trade, open, and neo-liberal. As England showed, it is all about the oil. While Germany, France and Italy felt the weight on their backs of higher energy prices and a world that was moving towards cheap goods – England and Norway, no paragons of fiscal virtue themselves, grew rapidly.

Thus neo-liberalism's end is not the end of globalization, nor the end of "free trade," or what is often called free trade, but of the layer that sits on top of this, and promises prosperity. But the next wall to crack is globalization as it has been known. Globalization rests, ultimately, on supply chains being internationalized, and each country being willing to sell at the border what is most inflation effective for that supply chain. With the seizures of the gas fields in Bolivia, and the growing import substitution policies of China, the cracks in this wall are now becoming gaping holes. With the accelerating demand for prosperity, "globalization" can no longer be counted on for restraining inflation, because now those who toil in China are going to push up the prices of resources by as much as they reduce them in the manufacturing phase. What used to be labor arbitrage that lowered resource prices, is now labor arbitrage that raises them.

Internally in the US, perhaps the most signal moment of the end of neo-liberalism comes from where it began: the regulation of gasoline prices. When in the 1970's federal gasoline price regulation caused misallocations of gasoline itself, and along with it gas lines and shortages, the free marketers interpreted this as the crucial sign that government could not regulate price in a market effectively. In Joseph Kalt's classic study The Economics and Politics of Oil Price Regulation, it was determined that billions went from domestic oil production, to consumers and refiners, and that the result was bad for the market place. MacAvoy and Breyer mad the same argument in Energy Regulation by the Federal Power Commission for natural gas shortages.

And yet now, if you listen to right wing talk radio, the increase in gasoline prices is a great threat to the American Republic. The reality is that de-regulation as a regime has not faced a gas crisis of the scale that rocked American in the late 1960's and early 1970's – and it is already losing political credibility when faced with the first waves of what is a growing stormfront. Matters have indeed, come full circle – with the very people who are the political heirs of the deregulators, marketers and anti-government philosophers, acting first in manner which disrupted the free trade world economy, and now facing growing pressure to reregulate or ameliorate the price of the very commodity that they road to power.

If this is not the end of an idea, then what is? After all, it was the libertarian icon Hayek who theorized that governments create booms by falsely creating demand for goods that does not exist. What, exactly, is Bill Frist's proposal to hand out $100 dollar checks for gasoline, than doing just this?

Thus the tragic narrative has foundered on one of its own assumptions. Tragic narratives rest, ultimately, argue that the populace is undisciplined, and will wantonly vote itself a subsidy out of the pockets of those who have been industrious and cautious. Only elites who have been insulated from this mob can think clearly, and behave with the sober discipline required. Neo-liberalism argued that if the core nations disciplined themselves – Maastricht, the treaty that forms the basis for the Euro requires that budget deficits be kept in check – then they could impose this discipline on emerging nations, forcing them to become industrial democracies, with transparent laws and institutions. This narrative did not take into account that elites are not superior beings, but merely people who have risen to power. The have fears and appetites, and are as prone to trampling like a mob when the see either a chance for great profit, or the fear of great loss.

The very people who neo-liberalism as a narrative, placed its faith in, betrayed it by making a reckless gamble on a new structure. This new structure, where multi-lateralism is trying to rein in the excesses of neo-mercantilism, is producing hope in unexpected quarters, long time bearish economist Stephen Roach says he believes the world will normalize without a currency crisis. He notes the last time he was so enthusiastically bullish, was in 1999.

We may have another funeral for an elite affection before long.

Perhaps the most amusing bit in this morning's Martin Wolf column is how economists at Deutsche Bank call the present global monetary arrangement "Bretton Woods 2". If so, it is the worst sequel of all time. But that is because the agreement they are naming it after is the wrong one. The right agreement is "The Smithsonian Agreement". There is a reason why no one has ever erected a monument to this agreement, it was a disasterous failure, and the beginning of the end of Nixon's ability to juggle the economy by sleight of hand.

In December of 1971, the Bretton Woods system, created in the waning days of World War II as a way of creating a flow, rather than stock, based gold standard, was under heavy pressure. The US was importing more and more, and the global dollar glut was showing up both as increased inflationary pressures, and as a constantly rising price of gold. Since gold was the nominal peg of the Bretton Woods agreement – the US agreed to buy gold at a fixed price, set at $35 dollars an ounce – there was an external lever against the US currency, namely, buying gold. As more and more gold was held, the price rose dramatically. As the US continued to allow inflationary pressure, and continued to import, it was clear that something had to give way – there needed to be a greater inducement to hold dollars.

The result was, in the typical style of those who want to delay the inevitable, an agreement that attempted to block the symptom rather than cure the disease – in December 1971, slightly larger trading bands were allowed for currencies, and the dollar was moved to 1/38 of an ounce of gold. This is roughly the size of the adjustment to the Chinese Yuan that was just made. If you didn't notice that, you have some idea why the Smithsonian Agreement collapsed less than two years later. In 1972 the pound was allowed to float, and by 1973, the world's currencies were unpegged from the dollar.

Over the alst 15 years, in some part because of the role of the United States Consumer as the designated loser of the world system, by spending more than it saves, the US provides a market for dozens of other countries. These countries, in effect, have reestablished a fixed exchange rate. Most maintain this by some form of currency control and monetary policy combination which is designed to allow their central banks the ability to buy and hold dollars. The situation, as the US has spent further and further into deficit territory, is not something out of the earlier days of the IMF and the tranches of the Bretton Woods system, but similar to the holding of Eurodollars in the late 1960's and early 1970's. Then, as now, the idea of taxing holders of foreign notes by devaluation seemed the cure.

However, devaluation, fast or slow, almost never produces the effect of moving economic activity from non-tradeable to tradeable goods. Instead, as with the Argentine devaluation, or the devaluation that occurred earlier in Bush's term, it moves the country towards more protectionism. As the value of a currency drops, consumers continue to spend, but transfer money from the local economy, to exporting – deficits continue to rise, and investment in the home country falls. Or the home country proceeds to halt exports of materials far down the value chain, and attempts to add value and engage in import substitution. In effect converting inefficient non-tradeable parts of the economy to inefficient trading.

The result is a loss of the advantages to trade – as work that could be done more efficiently elsewhere is done inside the devaluing country. Since labor prices have dropped, this lower value add strategy works. This is what weak currencies really do – by lowering the relative cost of labor, they make lower value add strategies more effective. Afterall, it isn' t the efficient non-tradeable production that goes first, it is the marginal non-tradeable production that will be shifted first.

This is why devaluation only works if combined with some form of economic restructuring to radically shift incentives. Generally at the root of all overvalued currencies was an incentive to engage in the protected economy – often through excessive budget outlays, but just as often through corrupt or collusive market practices. For example, a large and unproductive war for the benefit of a few industries.

Such restructuring is painful, as people who have skills and capital lose out – just ask American high tech workers, or Argentinians of any walk of life. This is why while devaluation – which hurts mainly foreigners at first, is often a popular step in lieu of restructuring. The problem of course is that most nations import oil. For nations trying to reign in consumption, this is not a problem – making oil more expensive acts as a luxury tax. For those with enough energy to support themselves, or nearly so, it is a burden, but a manageable one. For a nation like the US, which neither wishes to change its driving habits, nor wants to even begin restructuring, it is unlikely that difficult decisions will be made.

On the contrary, the most recent action of the US government was to continue the red queen's race of cutting taxes on the wealthy here, so that they can stay even with the oil exporters that can hold dollars to prop up the US currency. Clearly the belief in Washington is that Reaganomics can be run a few more cycles, and damn the long term consequences. This is why devaluing to avoid a recession usually doesn't work, because it is the recession, with its enforced rationing, that is generally the trigger for restructuring in an economy. People in pain are more willing to make decisions that are painful, since they have come to understand that they cannot defer the pain, nor make it fall on someone else instead.

Devaluation isn't an evil in itself, however, by itself, it generally produces more evil than good. Of more use is the ability to unpeg a currency and float it when it is pegged in a manner that distorts the economy, but this too has its perils. Countries unpegged from gold in the 1930's successful, if they had an export market and an internal economy in good order. However, the floating of currencies in 1972-73 merely turned inflation into another round of stagflation. Once again, the ability to shift production is required.

Thus the current drive for "normalization" of currencies - which is to say dollar devaluation - is unlikely to do more than drive up the price of gasoline, and shift effort out of marginal service production in the US, leading to slower job creation, since marginal service jobs represent the bulk of jobs created, while the real deadweight non-tradeables - large houses - and the real sponges of US import - gas and consumer electronics - continue to spiral upwards.

That's the problem - by itself, changing marginal behavior does not deal with the core of the problem, since each consumer slagged by the loss of a service job only reduces import pressure slightly, and in a regime of rising import prices, some other consumer with more income is happy to take up the slack. Instead there needs to be a fundamental change in incentives, and in this case that will mean, sooner or later, a change in the monetary basis of the US economy and the world currency order. The sooner the IMF gets on this task, the better off the world will be.

But don't hold your breath - because before that happens we will have Bretton Woods 3 and Bretton Woods 4...