The revival of the markets has postponed the sensation that violent revolution is imminent. No longer are the sages telling us the entire system is minutes away from total collapse. The first aid, devised by Gordon Brown and hailed and emulated from the US to the eurozone, seems to have soothed the fevered brow of the moneymen. For now at least.
Still, even if the mob is not about to storm finance ministries from Paris to Washington, few doubt that we are witnessing an epochal event, living through one of those moments on which history pivots. Newsweek International editor Fareed Zakaria writes that he had always wanted to experience the kind of event "one reads about in books. Well, this is it". In the Financial Times, Philip Stephens says that two centuries of US and European domination are now at an end, as the western economic model is humbled. Robert Peston announces the end of the Thatcherite age. On these pages yesterday Steve Bell consigned the lady herself to the dustbin of history.
Of course, these verdicts might turn out to be overblown. Some are counselling that the great turmoil of 2008 will turn out to be less tempestuous than advertised. For one thing, the Brownian notion of part-nationalising the banks could work, turning what would have been a major depression into a mere, if harsh, recession. In that case, the political impact would surely be muted. The ground was laid for Franklin Roosevelt's New Deal not simply by the Wall Street Crash of 1929, but the lines of the destitute queueing for a bowl of soup. In this view, a convulsion to the financial system will not, by itself, be enough to usher in a new political era; not unless the tremors shake the real-world economy and society along with it.
Still, let's accept that the events of the past few week are indeed epochal. Most are quite clear on what has ended: the era of let-it-rip, unfettered market capitalism has surely drawn to a close. As Andrew Simms, policy director of the New Economics Foundation, puts it: "This is to finance-driven capitalism what 1989 was to Soviet communism." In both cases, too much unaccountable power had concentrated in too few hands, with too little transparency, as those in charge lived in a financial fantasy land, playing with numbers wholly detached from productive economic activity.
If that's now all over, what's coming next? The first shift might be a radically different approach to public spending. Now that they have seen their governments spend eye-popping sums of money to get out of a crisis, won't voters demand similar largesse to solve other pressing problems? For decades, politicians have told constituents that there simply isn't the cash to pay for, say, the £3bn that would be needed to halve child poverty by 2010, or the annual £8bn it would take to get 20% of our energy from renewable sources. Now, though, those look like paltry sums next to the £37bn the government plans to inject into Britain's ailing banks. Saving post office branches in deprived areas at a cost of £150m? Small change! In this way, the rhetoric of public discussion on spending could change drastically, with voters' patience for arguments of prudence evaporated. "If you could find the money to clear up the mess left by a few greedy fat cats," voters will say, "then you can find the money to fund this bus service/save this village school/renationalise the railways."
Or it could go the other way. The politicians may find that, though the public mood becomes more conducive to active, high-spending government, they simply lack the means to pay for any of it. They will have already borrowed to the hilt for the banks bail-out and will have nothing left, resources further depleted by the coming recession. In this atmosphere of fiscal tightness, ministers could skirt round vexed ideological terrain and simply plead poverty. There would be no need for an embarrassing U-turn on, say, the principle of ID cards: Jacqui Smith could say she still thinks they are a good idea but, at an estimated £6bn or more, we simply cannot afford them. Ditto Trident renewal: Brown could insist he maintains his faith in nukes but say that at, £20bn, revamped weaponry is a luxury Britain cannot afford.
Elsewhere, the public failure of unregulated free markets has been so visible it could lead to a demand that financial institutions now operate by criteria other than the narrow, selfish measure of their own bottom line, taking into account the wider needs of society as a whole. If that sounds like woolly, hopelessly utopian thinking, consider this. RBS is set to be majority-owned by you and me, the taxpayer. HBOS is not far off. Now what will those banks do when faced with people falling behind on their mortgage payments? In the past they would have ordered repossession, which made sense in terms of pure profit and loss. But now there will be other factors to consider, because these banks will no longer work solely for dividend-hungry shareholders but for the taxpayer. Every family that has endured a repossession costs the public purse, through rehousing, most obviously, but in myriad and less visible ways - right down to the burden that falls on the NHS as it repairs the mental and emotional damage inflicted by forced eviction.
Now since RBS's imminent owners - us - have to pay those bills as well, we will surely demand that the bank slow down rather than move in for the kill, perhaps through restructuring the debt of that struggling homeowner or at least running a "full-impact assessment" of repossession. The government already promises to impose demands on the banks they part-own, including gentler treatment of small businesses. But once taxpayers realise their new-found power, there is no reason to assume it will be confined to just those areas. We could insist the banks we partly own behave in an entirely new way.
No less clear a lesson of 2008 is that we have to live much more closely within our means. That must apply to individuals, reining in the credit- card habits of the past decade, and to governments who have perpetuated what Zakaria calls "a great fraud", spending ever more without raising taxes. The result in the US is a national debt of $10.2 trillion.
That act of denial has to end now. It will mean either cutting back on spending or increasing taxes, or both. But that needn't be as gloomy as it sounds. Revenues could rise by taxing those things we want to see the back of anyway: starting with a windfall tax on the energy companies, penalising them for their reliance on fossil fuels. As for spending, we could shed the waste - ID cards and Trident renewal - and spend what we have on a massive effort to green our society, from home to factory. That would obey classic New Deal logic, providing jobs, helping those in fuel poverty, tackling climate change and keeping the economy ticking over - all at the same time.
Simms at the NEF thinks we may end up going further, moving to shorter working weeks as people accept that they will earn less and consume less - but will have more time for family, friends and life. That seems like a radical fantasy now, but who knows? For when old dogmas die, there is room for all kinds of new thinking. The financial tsunami has given us this if nothing else - a chance to start again.
freedland@guardian.co.uk
