The most lasting fallout of the global financial crisis is unlikely to be economic. This is the nature of true financial disaster: in the long run it brings down ideas, recasts societies and redistributes power in a way that resonates far beyond its lifespan. One day, the markets will stabilise and even recover, but the political terrain will likely be altered irrevocably.
Some ideological consequences are relatively obvious. Many commentators have already written obituaries for the creed of zealous deregulation that has prevailed throughout the Western world and especially in America. Indeed, that the Australian Government faces pressure to guarantee bank deposits establishes emphatically that people still want their governments to protect them, and are simply not soothed by promises of "market correction".
In short, regulation and state intervention are likely to become more fashionable than at any time since the end of the Cold War. In political science terms, it seems we're about to veer left. Witness a Republican president's $US700 billion example.
But few are yet asking what this might mean for social politics. Perhaps this is because it seems a separate matter to questions of economic policy. Yet it is foolish to assume that each can be quarantined from the other.
Economics is important precisely because it has the power to topple social dominoes. And it is in the realm of social politics that some of the most frightening possibilities of the financial crisis suggest themselves.
Consider the Great Depression, to which some are ominously likening this crisis. Latin America, which was hit particularly savagely because of its significant trade links with the US, retreated into a shrill form of nationalism. The result was the rise of fascism across the continent.
The Netherlands witnessed a series of riots, increased xenophobia, and the emergence of the National Socialist Party. And most infamously of course, there was Germany. With the national economy overwhelmingly financed by American loans, the collapse of the New York sharemarket had a devastating impact. A desperate working-class sought solace in communism, while an emasculated middle class leapt sharply to ultra-nationalism. The familiar consequence was the ascension of the Nazis, whose support base suddenly broadened.
This is what happens in times of great insecurity. As the foundations of our lives erode, we search for an anchor, and social politics very often provides it. When all else fails, we may still rally around old certainties: nation, culture, religion, race. We crave strong authority figures that can imbue us with certainty and articulate for us a sense of self. That often involves fabricating a scapegoat who becomes a mortal enemy.
In Germany, of course, Jews principally fulfilled that function, becoming the victims of an entire mythology that blamed them for the economic difficulties of "real" Germans. Such virulent prejudice soothes the insecure.
The bad news for us is that malignant social politics have been slowly returning for a while in Russia, Austria, Switzerland, Belgium, Italy, Britain, Denmark and Norway. And it is an affliction that spreads well beyond Europe in the form of radicalism in the Muslim world and Hindu and Buddhist nationalisms in Asia.
Ours is an age of hostile identity politics. These are not all directly referable to economic crises (even if they clearly have a relationship with the anxieties of globalisation), but they suggest something deeply troubling: that the world is rich in the kinds of xenophobic resources so easily amplified by economic turmoil.
Should the financial crisis become a global recession, there is no telling precisely what forms of extreme social politics might be unleashed. An explosion of anti-Americanism across Asia and Europe? Possibly. But what about America itself? Here, the seeds of xenophobic resentment are being sown.
Writing in The National Review, Michelle Malkin blames the crisis on illegal immigrants and Hispanics who were "greedy" enough to seek subprime loans. Blogging for the same publication, Mark Krikorian wonders if Washington Mutual's demise was caused by its propensity for employing Latinos and gays. On Fox News, Neil Cavuto blames congressmen who were "pushing for more minority lending" without disclosing that "loaning to minorities and risky folks is a disaster".
The audacity is extraordinary. Suddenly, this crisis is something poor blacks and Hispanics have inflicted on rich white people. That is beginning to sound, well, Germanic.
A reaction is inevitable: one that sees in the crisis the exploitation of poor black people who will lose their homes, by white fat cats who skip away from the rubble with millions. The potential cycle of conflictual identity politics is terrifying. And that is to say nothing of developments we cannot predict.
We can hope none of this comes to pass. Obviously much is contingent on precisely how deep this financial hole is, and how much suffering awaits. But however many reasons we have to hope this crisis will not match the depths of the Depression, after contemplating the possible social consequences, we may add several more.
Waleed Aly is a lecturer in politics at Monash University.
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