Thomas Frank's earlier book What's the Matter with Kansas? asked how the progressive politics of the American "heartland" turned right in the late 20th century. It was a study of false consciousness, except that there is no such thing as false consciousness. Point out to a conservative that his hatred of liberalism is based on wrong information and he will find another reason to hate liberals. It is possible to love one's prejudices more than one's interest. Or maybe it is truer to say that prejudice is a main ingredient of interest.

Pity the Billionaire tells of the rebirth of right-wing populism after its submergence in 1996. The Tea Party movement in America today is driven by a vision of utopian capitalism, Frank observes, "at the precise moment when free-market theory has proven itself to be a philosophy of ruination and fraud". The bailouts that Bush began, Obama continued as if no change of plan were necessary with a change of administration and mandate; but "the bailouts were one of those moments that crushes the faith of a nation". The new populism that Frank describes is a feverish reassertion of faith.

There were available remedies for the collapse besides charging the losses to taxpayers. One solution would have been to put the zombie banks into receivership. Another was to bring the financial industry under regulation again (as suggested by Paul Volcker, Obama's leading economic adviser until he became president). The explanation for such steps could have been simple; but instead, Obama in 2009 spoke vaguely of "fundamental change" even as he became the guardian of the financial status quo. Either of those moves alone would have been risky. Their combination was toxic. By using big government to protect the firms that were deemed too big to fail, Obama supplied new grounds for every suspicion that government could not be relied on to help ordinary people.

The promise that feeds right-wing populism says that the path to success is a fair fight to get your winnings. Everyone who deserves to be called an American wants to play the game, and whatever interferes with the game takes away from the enterprise of the common man. As a type, the common man includes everyone from the small businessman with a gimmick for miniaturised insect repellent to the billionaire who invests his AIG bonus in retina scanners for Afghanistan. The billionaire is just a common man whose ideas have paid off; and the government that would temper his success undermines the American Dream.

Behind these premises lurks one other. A set of people exist who may be called the unlucky, but there is no need to think about them, and anyone who thinks much about them has a mischievous design on your personal liberty. The American way of life can get on with a great many of the unlucky; there is no upper limit on their numbers. The people left over when we have freed up the natural energies of the market are people the dream did not include and we don't know why; but it is overbearing and schoolmasterly to ask us to think about them.

Ronald Reagan, when confronted with unemployment, said that he saw ads for jobs in the newspapers. This is the wild rationalism of the American Dream. Bill Clinton pandered to it. Most people who voted for Obama expected a more resourceful approach, but he has turned out to be more easily intimidated than Clinton. He has yet to give a single speech to match the dozens Roosevelt delivered to explain the causes of a financial collapse. Americans mostly don't know what a complex derivative is, or a credit default swap, or any of the other devices by which the banks and money firms gambled away pension funds and town and state budgets by slicing and dicing tens of millions of shit cakes and selling them as chocolate cake certified triple-A.

The reason Obama does not explain things  and Frank captures this vividly  is the cult of expertise. He assumes everything has already been explained and the answers are known to the people at the heart of business, insurance, banking, and the flourishing industries, people he has come to know personally. As he said once when a reporter brought up the names of Jamie Dimon (CEO of JPMorgan Chase) and Lloyd Blankfein (CEO of Goldman Sachs): "I know both those guys, they are very savvy businessmen." An artless moment, but not without a message. The cult of expertise is a form of elite pride, and the populace have sniffed it out in the president. The cult offends the pride of the little man who tries to get ahead without cronies.

The attacks started in his second month in office, when Obama's approval rating was still close to 70%. But though he created nothing like FDR's Reconstruction Finance Corporation or Civilian Conservation Corps, he was denounced as if he had imprisoned several millions of shopkeepers and submitted his second Five Year Plan. His response was to retreat further. He gave the largest conceivable hostage to the austerity programmers when he said, after the 2010 midterm defeat, that a government ran just like a household and its priority before everything else was to pay its debts. "He's said it, folks!" cried the right-wing talker Rush Limbaugh. "A government is just like a household. All we have to do is hold his feet to the fire."

Thomas Frank writes English and not the chat of the pundits and mainstream columnists. He has learned things from Twain and Mencken, but the cartooning in this book is if anything restrained. Possibly he hopes to persuade the unconverted  yet a book adequate to that purpose would have to start with the ABCs of society and economics; it would be longer than this one and not as episodic. He gives too much time to another right-wing talker, Glenn Beck, who lags a distant third behind Limbaugh and Sean Hannity in radio-listener ratings. On the other hand, he has read all 1,200 pages of Ayn Rand's Atlas Shrugged, the allegory of purified capitalism that is easily the most influential book in American politics. Frank makes out a plausible case for the charm of the book as an inverted proletarian novel, with techniques that Rand picked up from her reading of Stalinist fiction.

As for the part Obama has played in his own reversal of fortune, Frank adds to a story that is now unhappily familiar. From his careful early career, this president had almost no experience of the friction of sustained disagreement. For him, policies are what filter down from people with names like Hank Paulson (because he managed the first bailout and ruled at Goldman Sachs) or Steven Chu (because he won a Nobel prize) or Lawrence Summers (because he served at the Treasury and was president of Harvard and knew everyone at Goldman Sachs). The assumption that there is no real disagreement among the clever people at the top fits nicely with Obama's scorn for the plodding work of explanation as a thing beneath the inspirational aura that was to be his gift to the presidency.

Accordingly his response to the crisis he inherited was passive and complacent. All eyes were supposed to be turned to health care  a separate issue which then became the bridge over which his opposition walked in the name of fighting "big government". In the years 2009-11, Obama's populism was gradually exposed as a mask without a face. His friends are on Wall Street, in Hollywood, on the Nobel committee, the people who come to his $35,000-a-plate fundraisers. Nobody will vote for him now as a man of the people. He will win, if he wins, as the acceptable sane man in a room of mad men.

The Tea Party make up less than half the Republican party, but they move in lockstep and deploy scorched-earth tactics of shunning and slander that cow the rest of their party. They have a reliable core around 20% and a maximum around 30% of the American voting public. Yet the Republicans who are controlled by the Tea Party themselves control Congress for the coming year. They will say no to everything Obama proposes: that is their election strategy. Obama in turn has said that he will govern without Congress, whatever that may mean. The country is thus in suspense, from causes of which Pity the Billionaire gives a highly convincing account.

Meanwhile, no culprits have been found among the "savvy guys" in the money firms. The president and his docile attorney general have enforced no accountability for the economic disaster. "All of which happened," as Frank aptly sums up, "courtesy of our government, the officials of which have conducted themselves ever since as though nothing really untoward happened at all. The bailout money will be recouped, they tell us. The experts understand these things. You could not have contrived a scenario better calculated to destroy public faith in American institutions."

 David Bromwich's Hazlitt: The Mind of a Critic is published by Yale.

In October 2010, American liberals held their largest demonstration in Washington DC since the great crash of 2008. They did not raise their angry voices to denounce fantastic corporate greed and fraud. They were not furious that speculators had destroyed the hopes of millions of Americans. Instead, they staged the world's first protest against anger  a rage against rage.

Its organisers, comedians Jon Stewart and Stephen Colbert, exhorted their followers at the "Rally to Restore Sanity" to wear "I'm With Reasonable" T-shirts  ironically, of course  and set aside political differences in the interests of getting on with their neighbours. Despite the subsequent Occupy Wall Street movement, the pattern Stewart and Colbert set has held. Genteel liberals have allowed American conservatives to all but monopolise political fury since the banks went down. Considering what conservatives allowed financial markets to do, the fact that the right could be furious with anyone but itself is an astonishing story and one that Thomas Frank was born to cover.

Frank's speciality is how conservatives have appropriated the language and passions of the left. In The Conquest of Cool (1997), he looked at how the counterculture became capitalist culture. One Market Under God (2000) was a more muscular demolition of the corporate populism that enabled billionaire CEOs to pose as the common people's firmest and truest friends. What's the Matter With America? (2004) took Frank back to his native Kansas, as he tried to explain why a state that was once a hotbed of leftish populism was now so Republican George W Bush did not need to waste time campaigning there. And yet, despite everything he knew, the Tea Party's success in returning the Republicans to power in the 2010 congressional elections and making them viable contenders for the presidency in 2012 floored even him.

"If you had brought the world's teenaged anarchists together in some great international congress and asked them to design an ideal crisis," he says, "they could not have discredited market-based civilisation more completely than did the crash of 2008." As evidence, he offers the reader pre-crash editions of Trader Monthly  the US Eequivalent of the FT's grotesque celebration of conspicuous consumption, the How to Spend Itcorrect magazine. It instructed Wall Street bankers and dealers to impress their friends with $20,000 bottles of Johnnie Walker, private jets and, my favourite, a $300,000 turntable that acted as a "huge middle finger to everyone who enters your home". After asking why speculators would want to greet their guests in such a manner, Frank draws the obvious conclusion. "If ever a financial order deserved a 30s-style repudiation, this one did. Its gods were false. Its taste was bad. Its heroes were oafs and brutes and thieves and bullies. And all of them failed, even on their own stunted terms."

But when they failed, and wiped around $16tn dollars off American household wealth,when they rubbed the taxpayers' noses in the dirt by appropriating their money to refresh their bonuses, the last thing ordinary Americans did was imitate their ancestors from the 30s. Afghan and Iraq war veterans did not march on Washington DC. Farmers did not block highways. The majority of the electorate did not demand that their politicians bring the arrogant boss class to heel. Contrary to the expectations of respected Washington commentators, the most potent force in the land became a radical movement for business deregulation.

With as much patience as he can muster, Frank writes: "Before this recession, people who had been cheated by bankers almost never took that occasion to demand that bankers be freed from 'red tape' and the scrutiny of the law. Before 2009, the man in the bread line did not ordinarily weep for the man lounging in his yacht."

There are two reasons, apart from his dazzling style, why Frank is one of the best leftwing writers America has produced. He comes from the midwest and there is a solidity behind his work that one associates with the sturdiness of the American heartlands. He regarded the culture wars as distractions from old-style, populist economic arguments against the power and pelf of the plutocracy. (And who can now deny that events have proved him right?) Second, although he wears his learning lightly, Frank always puts in the legwork. He has trudged round the Tea Party rallies and reports that what liberals like to think about the Republican right misses the point.

It is not a racist movement, reacting against the election of America's first black president. Leftish journalists may seize on the odd Ku Klux Klannish comment from "birthers", but the language of the Tea Party as a whole is politically correct. Indeed, it refuted the racism charge when it briefly decided that its favourite for the Republic presidential nomination was one Herman Cain, a grasping and, allegedly, groping executive from the pizza trade, who was far "blacker" than Obama. Nor do the obsessions with abortion and gay marriage of the old Christian conservatives move it.

The new Republicans are utopians, who reacted to a crisis of capitalism by arguing that the fault the calamity revealed was not that America was too capitalist but that it was not capitalist enough. The propaganda of Rand Paul, for instance, imagines a monster from Washington scooping up Wall Street. Far from the financial system corrupting a succession of Democrat and Republican administrations and ruining the state, the state was engaged in a brutal takeover of free institutions. Fox News claims that liberals secretly engineer recessions so they can extend socialism. Newt Gingrich compares Obama's Washington to Nazi Germany and the Soviet Union.

Their arguments make no sense. They deplore the bailout of the banks and then bewail any measures to prevent the banks being bailed out again as a tyrannical imposition on the sacred market. Frank's essential argument is, however, that the right did not have to make sense because it provided the only vehicle for popular anger. The vacuity of Jon Stewart, Stephen Colbert and the "reasonable" liberal demonstrators was not a one-off. Obama came to power in circumstances as grim as those that greeted Roosevelt in 1932. But he was more MOR than FDR. He allowed publicly subsidised speculators to keep on receiving other people's money. He did not challenge Wall Street's power over Washington but brought Larry Summers and other discredited Wall Street Democrats of the Clinton era back into the White House. Obama never understood or wanted to understand that you can only win political arguments by taking them to your opponents and building a consensus for change. Democrats did not tell the angry public why their system had run aground and offer an alternative. They allowed the right a free run.

Before I read this book, I assumed that the extremism of the Tea Party would guarantee Obama a second term, however dismal his performance in office had been. Now I am not so sure. A Republican victory would at least teach the leaders of Britain and Europe's centre-left parties that they cannot support systems, whether in the City or the eurozone, that crush their supporters' livelihoods. Cheering though that would be, a rightwing White House would also hand what is left of America's public space to incontinent and unthinking demagogues who are so lost in dreams of capitalist utopianism that not even the sound of the greatest crash since 1929 can wake them.