Today’s political climate is heavily influenced by the long economic boom of 1982-2000 that culminated in the asset price explosion of the past few years. Business transactions, the capital and labor markets and political attitudes have all been heavily influenced by the boom, and will be very different once it is realized that the long decades of easy money expansion are finally over.

I am not here assuming a huge 1930s-type slump. While I think it more likely than not that we are in for the worst downturn since the 1930s, far worse than the recession of 1990-92, and worse than the cluster of recessions in the 1970s, it is not necessary for this to happen for markets and attitudes to change markedly. The psychological and political changes brought about by recession, however, may themselves exacerbate it.

Assume initially, a normal “vanilla” recession: two quarters of negative growth in gross domestic product, but no more, with a normal stock market downturn. But assume also that the downturn extends beyond the ghetto of the tech sector to include, say, a further 20 percent to 25 percent drop in the Dow stocks, which are still only 10 percent below their impossibly elevated all-time high.

Then examine what the economy and the political economy might look like in, say, July 2003, two years from now, after the midterm elections, but before the next presidential election campaign has really got going.

Political and social attitudes change between an economic upswing and a downswing because the circumstances producing those attitudes change. In the 1920s businessmen were generally idolized, regarded as the producers of abundance; 10 years later, as hardship had succeeded abundance, the popular view was reversed. Likewise, during the 1950s and 1960s, increases in living standards obtained by powerful trade unions were regarded as a harmless democratization of U.S. wealth; 10 years later, after the layoffs of 1973-75, the country was ready to elect Ronald Reagan on an anti-union platform.

The reaction to economic downturn also depends on what came before it.

Here, the omens are not good. The 1990s, with their ever-escalating stock options and tales of youthful billionaires, were much more like the economically divided 1920s than they were like the “blue-collar nirvana” of the 1950s and 1960s.

Statistically, this can be shown by examining the “GINI coefficient,” a measure of inequality available for U.S. families from 1947 for which a coefficient of zero represents perfect equality and 1 a situation where one person owns everything.

During the early post-war period, the coefficient declined, from 0.376 in 1947 to a bottom of 0.348 in 1968, the year of maximum equality in the U.S. economy. Since that date, it has steadily increased, through Republican and Democratic administrations, passing its 1947 level in 1982 and rising in 1999 to 0.428, the 1968-1999 upswing being nearly three times the size of the 1947-68 downswing.

While figures for 1929 are not available, and anecdotally, inequality was considerably higher in 1929 than in 1947, it seems likely that 1929’s GINI, if it were calculated, would not be much if at all higher than 1999’s.

In short, therefore, the political changes of a 2001-2003 recession are more likely to resemble those of the 1930s, in the direction of greater government control, than those of the 1970s, in the direction of greater economic freedom, because, for the American people, 1999 was more like 1929 than it was like 1969.

In terms of government control, therefore, 2003’s attitudes are likely to be considerably to the left of 2001’s. In this scenario, the Democrats are likely to keep the Senate and gain the House in 2002, albeit not by a landslide unless the recession is steep.

The Democratic argument that the recession is President George W. Bush’s fault, or that the previous over-expansion was the fault of the Gingrich Congress and free-market greed, is likely to resonate more with the public than Republican attempts to blame the slump on the excesses of the 1990s and thereby on Bill Clinton. Expect therefore for there to be clamor by 2003 for higher taxes and more social programs.

In international trade, protectionist instincts were strong at the beginning of the 1930s, causing passage of the Smoot-Hawley Tariff; only later in the 1930s did the public begin to realize how damaging that tariff had been. In the 1970s, voters had recent experience of the prosperity brought by international rebuilding and liberation of trade, so protectionist instincts were muted. In the 1990s, the benefits of free trade have been by no means so apparent; expect therefore a dramatic resurgence in protectionism.

Throughout the 1930s, and indeed until 1960 or so, the popular villain for the 1929-32 crash was Wall Street, and legislation during the decade reflected this (as did the miserable job prospects for investment bankers). The 1970s downturn, on the other hand, did not seem to be Wall Street’s fault, and stock market legislation was relaxed during the decade. Expect the 2000s to be a re-run of the 1930s in this respect; by 2003, class-action suits against the major investment banks, in some respects well merited, should be in full swing; there will be legislation for sharp restriction of executive stock options, and re-control of Wall Street is likely to be high on the agenda of the Democratic House and Senate.

One particular problem produced by the recession will be a renewal of distrust in the stock market as a means of saving for old age. The best time to “reform” Social Security by privatizing it was probably the last six months; with the recession the appeal of privatization will vanish, the demand for financial security will increase, the budget will run back into deficit, and the cost of Social Security reform will explode. The opportunity has thus been missed, and the demographic time bomb of baby-boomer retirement will tick ever louder.

Nativism was not a big problem in either the 1930s (when immigration was at an all-time low, indeed in some years negative, after the restrictive 1924 Immigration Act) or in the 1970s, when it was only beginning to increase after the relaxation of 1965. This time around, consider for comparison the strong nativist (and indeed racist, with the Jim Crow laws) reactions to economic hard times during the 1890s, a period like today of high immigration.

The current welcome to immigration in both political parties is thus by 2003 likely to be met by strong public hostility. At the top end of the economic scale, the flood of highly skilled workers on H-1 visas will be seen as unnecessary competition for skilled U.S. personnel. Restriction here is likely to be highly beneficial to the world as a whole, since the current laxity is draining off a huge proportion of the talent pool in places like India and the Philippines.

At the bottom end, reaction is likely to be stronger — expect demands for various forms of Jim Crow legislation against illegal immigrants, and for a sharp tightening of restrictions against immigration as a whole, legal and illegal. Both Republican and Democratic parties will find themselves, in their current posture, positioned on the wrong side of this very dangerous issue.

Economically, the recession and its associated psychological changes are also likely to have a very substantial effect on the pattern of economic life. The rapid immigration of the last few years is likely to provide a substantial pool of low cost labor, while the wealth created in that period will by no means all disappear, as wealthy stock option grantees decide to retire rather than continue working for the relative pittance that their services will command during a recession.

Hence, even after a modest recession, social patterns of the 1930s are likely to re-emerge. There will be a substantial moneyed, leisure class of early retirees (particularly the 50 year old baby boomers), and a large pool of cheap labor willing (having few other alternatives) to provide personal services to that group.

Quite unlike the 1960s pattern of housewives liberated by labor-saving devices, or the 1980s pattern of two-career couples demanding minimal household services to cope with time pressures, the pattern of the 2000s will be that of a leisured class, without time pressures but willing to employ a substantial domestic staff as well as the latest gadgetry, to perfect their leisured lifestyle. For a few, but only for a few, the 2000s will become the Great Neck, N.Y., of Scott Fitzgerald’s Gatsby; there will, however, be a substantial number of ill-paid unfortunates tending to the whims of those people.

While many of the new moneyed will doubtless salve their ex-hippie consciences by donating heavily to liberal causes (generally those that have little positive effect on their poorer brethren), this restratification of society will inevitably breed a revival of class hatred, and a consequent resurgence in the politics of envy and of redistributionist taxation. Estate tax abolition, too, is unlikely to happen as scheduled in 2010.

In general, the Democrats, being more protectionist and more redistributionist than the Republicans, are likely to gain from this political realignment. Only the nativist issue is likely to play to the GOP’s strengths, and here Bush, who favors immigration, is poorly positioned. Expect, therefore, 2004 as well as 2002 to be a good Democratic year.

One serious problem with the pattern of political life outlined above is that it will make it very difficult indeed to get out of the recession once in it. Protectionism, redistributionist taxation, high social spending and punitive anti-Wall Street legislation are all economically suicidal in a recession; only nativism might have some positive economic effect, and then only within the United States. Either some “engine” of the world economy other than the United States will have to be discovered, or the American people will have to rise above the generally unpleasant psychological changes produced by the downturn. Neither, unfortunately, seems very likely, but one must hope.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.