Rupert Cornwell: These days, it's economists who fly in corporate jets

There was a time, and not so long ago, that the three-hour train trip to New York made Washingtonians feel like peasants bringing eggs to sell at the town market. We might stick around a while, visiting a hot Broadway show, marvelling at the skyscrapers, and at the energy, wealth and power that coursed through the streets. But when the day was done, the peasants would take the same train back, secretly rather relieved to head back to their quiet but comfy little homes. No longer.

Thanks to the financial crisis, and the arrival in the White House of a president who wants to reshape American capitalism, the US is witnessing a quite astonishing shift in power: from Republicans to Democrats, from markets to government, and in geographic terms, from New York to a newly energised Washington.

Nothing illustrated that shift quite like Barack Obama's first budget last week. The headlines were about the deficit, a mind-boggling $1,750bn (£1,200bn), or 12 per cent of GDP. But the real story lay in policies, not numbers: initiatives on healthcare, energy and education that added up to the biggest dose of state activism since Roosevelt's New Deal in the 1930s.

Normally, the publication by the White House of the annual federal budget was a one-day wonder. Everyone thought of it as a work of quasi-fiction that would be unrecognisable once Congress had finished with it. The masters of the universe in their Manhattan skyscrapers would continue unperturbed, bundling dodgy mortgages, concocting credit default swaps and the like, generating vast piles of notional wealth. And if politicians got in the way, Wall Street could always mobilise an army of lobbyists to bend legislation to its will.

That age is over, crushed beneath the gravest economic crisis in three-quarters of a century. The financial masters of the universe are summoned before congressional committees and scolded like errant schoolboys, and the musings of a single Democrat Senator about bank nationalisation send the Dow skidding hundreds of points.

Take Citigroup, once arguably the most powerful financial institution on earth, now reduced to grovelling mendicant. Friday's deal, giving the government a 40 per cent stake in the bank, merely ratified the obvious: that it has to all intents and purposes been nationalised. Meanwhile, the chief executive, Vikram Pandit, is hauled into the local office of a New York congresswoman to be given an earful about his now-abandoned plan to buy a $42m corporate jet.

The Wall Street Journal even reported that a group of the bank's executives at a recent retreat wondered if some fresh-baked pastries might be construed a waste of taxpayers' money. In barely two years, Citigroup shares have tumbled from $55 to less than the $2.50 fee for a withdrawal from a cash machine. How far the masters of the universe have fallen.

In contemporary financial iconology, the new stars are the "propeller-heads", as Obama refers to his closest policy advisers – men such as Larry Summers, the terrifyingly intelligent chair of the President's council of economic advisers, and the equally brainy budget director, Peter Orszag, just turned 40. These days, nobody wants to be a hot-shot investment banker. Excitement and the hope of personal fulfilment are now to be found, not in New York, but in Washington DC, as a fresh generation of New Dealers flock to the capital to serve under Obama's banner.

Except, of course, if you're a Republican. Budget week has coincided with the annual Conservative Political Action Conference, at which aspiring leaders have been re-embracing the fiscal conservatism they so utterly abandoned while in power. That hypocrisy only added to the wretchedness of the spectacle. Watching delegates arrive, forlorn and bedraggled, was to be reminded of Napoleon's once Grande Armée during its wintry retreat from Moscow. The title of one panel discussion was typical: "Bailing Out Big Business: Are We All Socialists Now?"

The answer, by US standards, is a resounding "Yes". De facto nationalisations in the banking sector may only be temporary. But the Obama budget is a blueprint for a government involvement in the economy that is very much intended to be permanent. Explicitly, it seeks to reverse, if not erase, 30 years of Reaganism. Taxes on the rich will be raised, not lowered. Vast sums will be poured into green energy, education, and, above all, healthcare. For the first time, you have the sense that the goal of health insurance for all might just come to pass.

Of course, the whole enterprise may end in tears. For all his steely will and large reservoir of support, for all the public yearning for leadership, the President may have bitten off more than even he can chew. In recent years, Congress has struggled to pass even routine budgets. How it will cope with this second US revolution is anyone's guess. Ascendant Democrats too have their factions, their jealousies and their vanities. Most fundamental of all, étatisme is not in the American political gene pool.

For the moment, these are heady days in Washington. The Citigroup crowd takes Amtrak from New York. But the new ruling caste in Washington heads north like an emperor inspecting an outpost. And in government-owned corporate jets too – not mere trains, with which the erstwhile titans must now make do.