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Word-play over economy is whipping US into hysteria

As the US banking system teetered on the brink in late 2008, many American progressives predicted casino capitalism's demise. Thirty months on, Wall Street has largely dodged regulatory reform and Republicans have succeeded in supplanting big banks with big government as the true villains of the Great Recession.

Now the Grand Old Party seems bent on giving Wall Street a further boost by attacking workers' collective bargaining rights.

But is the time really right for Republicans to take on labour? Or will a showdown provoke a backlash that could boost Democrats' 2012 comeback prospects?

How badly Republicans have out-boxed Democrats since Barack Obama moved into 1600 Pennsylvania Avenue was underscored by the massive electoral pummeling they gave Obama's party in November.

However, Republicans' biggest win has been in seizing the narrative of how and why America got into its current economic ditch.

Remember those dubious credit default swaps? Shady sub-prime loans? Murky bundled securitised mortgages? Well, forget about them.

According to Republicans, the real reason Wall Street imploded two-and-a-half years ago (thereby pitching tens of millions around the world into joblessness) is that America's government is just too damn big.

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Energetically aided by Rupert Murdoch's Fox News network, Republicans have whipped Americans into hysteria over the annual federal budget deficit, creating an existential threat on a par with that infamous bygone bogyman - communism.

Democrats agree the country's staggering $1.5tn annual deficit is toxic. But they claim the draconian cuts proposed by Republicans - particularly in areas such as health, education, and nutritional services - will compound the misery of those hit hardest by the recession.

With budget-obsessed Tea Partiers nipping at their heels, Republicans appear in no mood for compromise.

They have signaled that, if the Democrat-controlled Senate and President Obama don't agree to $61bn in cuts by early March, they might force a government shutdown.

Capitol Hill's budget battle may be the Republican's big show, but the dramatic events that have unfolded in Madison, Wisconsin, highlight the fact that the party's national strategy is multi-faceted.

Images of the huge protests sparked by Wisconsin's Republican governor, Scott Walker's effort to scrap collective bargaining rights for most of the state's public employees have gone around the world. Walker insists that, like the big boys in Washington, he's only trying to close his state's budget gap. But the labour movement, Democrats, and many pundits, see Walker's move as blatant union-busting.

America's labour movement is a skeleton of its former self. Only 7% of private sector workers are now unionised.

However, 36% of public sector workers are - and some 42% of those working for state and local governments.

In other words, the public sector is now the last bastion of America's unions. Smash them and the whole labour movement may be toast.

And, since unions are traditionally huge financial backers of the Democrats, tactics like those being deployed by Governor Walker can't help but improve Republicans' electoral prospects.

Hence, it's no surprise that other Republican-controlled state legislatures are trying to pass similar union-curbing bills.

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