5 Progressive Bright Spots in a Bleak Economic Landscape

For millions of Americans, the financial crisis is a disaster. Jobs are disappearing. Pensions are evaporating. Social services are being slashed. And personal bankruptcy is hitting more and more of us.

It’s now perfectly clear that this mess was caused by the free financial markets run wild on Wall Street. You get a fantasy finance casino when you let money flow to the very top of the income ladder, and when you deregulate large financial institutions.

Nevertheless, this disaster has a few bright spots that we should build upon. Here’s my list.

1. Free-market ideology has been dealt a serious blow: For the past 30 years, free market apostles have been signing praises to the market gods. If only we got the government out of the way, we all would prosper. Well, they got the government out of the way, and the financial free markets crashed. Some talk-show hosts and reporters on CNBC are still in denial, but they can’t put two sentences together without contradicting themselves. However, the victory over market fundamentalism may only be temporary. As financial amnesia sets in, the nation may return to bashing government interference in markets and overpaid autoworkers.

2. For the first time in a half-century, it is possible to rationally discuss wage caps on financial elites: Until the crash, financial executives and traders were our new royalty. While making billions, they were the toast of our nation, the ones who brought new wealth to our nation. Now it turns out that most of that wealth was phony. They were running a fantasy finance casino that added nothing to the real economy. In fact, it nearly destroyed it. To save the system we had to pour billions of taxpayer money into Wall Street firms.

   Make no mistake about it: Were it not for the TARP funds and loan guarantees, almost all of the large firms on Wall Street and major banks would have gone under, taking the rest of us with them. However, this also created the perfect situation for putting caps on outrageous Wall Street compensation packages. My favorite, described in Looting of America, is the President’s Wage Cap: no firm receiving TARP funds or loan guarantees can provide compensation packages greater than the income of the president of the U.S.

3. The money is (was?) there to solve our most pressing problems: When the financial sector crashed and proved too big to fail, Wall Street raided the Treasury vault. Between TARP, loan guarantees and the stimulus package, trillions have been poured into Wall Street and the economy to prevent another global Great Depression. Imagine if that money was poured into renewable energy, education and universal health care? In fact, TARP alone could have funded free higher education at all public universities and colleges for the next 14 years (estimated to cost about $50 billion per year)! Or imagine $700 billion of TARP money going into renewable energy.

4. We might finally tackle the "too big to fail problem." For the first time since the Cold War began, there’s a serious discussion under way about nationalization of key financial institutions. It is generally recognized that financial institutions that are too big to fail are a real threat to the economy. Clearly there is no consensus about what to do about them: Break them up? Nationalize them? Run them like public utilities? But the debate has begun, and thoughtful people know we can’t run away from the problem and let the markets run wild again.

5. There may be a renewed national interest in progressive income taxes: The crisis has made more and more Americans aware of, and suspicious of, great disparities in wealth. The bonuses awarded on Wall Street are no longer hidden from view. We now know that executives have no idea what it is like to be an average American. (We should enshrine the candid statement by General Motors Vice President Bob Lutz: “I’ve never quite been in this situation before of getting a massive pay cut, no bonus, no longer allowed to stay in decent hotels, no corporate airplane. I have to stand in line at the Northwest counter. I’ve never quite experienced this before. I’ll let you know a year from now what it’s like.” This sense of entitlement is under assault, and it provides an opening for steeply progressive taxes on the super-rich.