Daily Archives: December 23, 2011

This year inequality became the issue driving democratic politics. 2012 will be the year when voters in America have to decide what to do about it.

The economic battle will be about whether to increase taxation on top earners. The cultural battle will be about what government should do to protect the American Dream for a disillusioned middle class. The ideological battle will be about the role of government as guarantor of equal opportunity.

The election of 2012 will be about class – and devilishly complex for both parties. Republicans have to oppose higher taxation on the rich without appearing captives of a business elite; Democrats have to support higher taxation without appearing to threaten the middle class. The rhetoric will alternate between rousing appeals to the base and moderate appeals to the middle, but there is no doubt that this will be the most ideologically polarised election in a generation.

The victor in November 2012 will inherit both an economic mess and a crisis of faith in the fairness of society. The new president will discover that societies where millions feel the deck is stacked against them are tough to govern.
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The idea that still-poor Asia will help rescue the still-rich euro area is an awkward one. Asia remembers well that when in trouble in the late 1990s, it was ruthlessly advised to turn to the International Monetary Fund.

Yet now that European countries have pledged to contribute to the IMF so it can intervene in Europe – and made clear their desire for matching contributions from the rest of the world – it may happen. Asia has two reasons to offer such support: to protect itself from Europe, and to protect itself from the US.

In the short term, Asia would suffer from a worsening eurozone crisis because Europe is a large export market; and European banks are big players in Singapore and Hong Kong, as well as major providers of trade finance. In the medium term, financial turmoil in Europe would also deprive China and the rest of Asia from an important hedge against a depreciation of the US dollar. It would also complicate the transition to a multi-currency system.

But Asia does not trust Europe enough to invest much directly. The IMF, although still viewed with suspicion, is at least equipped with a governance system in which Asia has a voice. It may take a European crisis to reconcile Asia with the IMF. And ironically, we may well soon be hearing Asians lecturing Europe on the need to turn to the Fund.  Read more