The President Needs to Hear Millions of Second Opinions on His Economic Plans
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The president is getting what he asked for, but perhaps not what he had in mind. During the campaign, Barack Obama beckoned Americans to put aside their cynicism about politics and re-engage as active citizens. They are now doing so with red-hot anger. They are outraged by events and forcing their way into congressional affairs and behind closed doors where policy wonks discuss issues with cerebral civility. The president is now trapped between these two realms -- the governing elites who decide things and the people who are governed. Which side is he on? If he does not choose wisely, the anger could devour his presidency.
The immediate impetus is the latest outrage from the financial sector. AIG, the failed insurance giant on government life support, proceeded to hand out $165 million in employee bonuses. Because Washington has pumped $170 billion into this zombie corporation, people quickly grasped that AIG was redistributing their tax money. On March 13, the White House sent out Larry Summers, the president's economic adviser, to explain things. Government has no choice, Summers said, because this is a government of laws and we must honor contracts. On Monday, the president scrapped that line, hoping to dodge the outrage.
Something fundamental has been altered in American politics. Encouraged by Obama's message of hope, agitated by darkening economic prospects, many people have thrown off sullen passivity and are trying to reclaim their role as citizens. This disturbs the routines of Washington but has great potential for restoring a functioning democracy. Timely intervention by the people could save the country from some truly bad ideas now circulating in Washington and on Wall Street. Ideas that could lead to the creation of a corporate state, legitimized by government and financed by everyone else. Once people understand the concept, expect a lot more outrage.
Public anger is likely to be a recurring episode, because the president has budgeted another $750 billion to rescue the financial system from its troubles. If Congress gives him the money, people will be watching where it goes. Obama is vulnerable to the blowback. In his address to Congress last month, he promised, "This is not about helping banks, it's about helping people." The first half of his statement is demonstrably not true, as people see for themselves and as bankers parade their arrogant excess. The second half is merely wishful.
"Populist anger" is a condescending label pundits use to suggest an irrational, unruly temperament. But what's really going on is deeper and potentially more forceful. It will not be contained with good rhetoric or symbolic gestures.
Populism was the highly creative, self-made movement formed by desperate farmers in the late 19th century. It is disparaged in elite circles, but it generated vital ideas that ultimately reshaped government and democracy. We are not there yet, not even close. But the impulse for small-d democracy could be very healthy -- if the political system learns to listen and respond.
At the center of this story is Obama, who inherited the Democratic Party's awkward straddle between monied interests and working people. I voted for him joyfully and sympathize. His message to the nation last week reflected his dilemma. "I don't want to quell anger. People are right to be angry. I'm angry," he told reporters on Wednesday. Then he pivoted: "What I want us to do is channel our anger in a constructive way."
What's changed the president's situation? During the past nine months, gigantic financial bailouts amid collapsing economic life made visible the crippling divide between governing elites and citizens at large. People everywhere learned a blunt lesson about power, who has it and who doesn't. They watched Washington rush to rescue the very financial interests that caused the catastrophe. They learned that government has plenty of money to spend when the right people want it. "Where's my bailout," became the rueful punch line at lunch counters and construction sites nationwide. Then to deepen the insult, people watched as establishment forces re-launched their campaign for "entitlement reform" -- a euphemism for whacking Social Security benefits, Medicare and Medicaid.
Of course, popular alienation has been around a long time. But the stakes for the country are now far more grave. My new book -- "Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country" -- asserts that we're at the end of the long and mostly triumphant era that started with victory in World War II. We are going to change as a country, for better or worse, like it or not.
If people and the president do not stand up for just solutions, politics as usual will prevail. Congressional leaders are once again rushing to enact hasty "reforms" that might get the financial monkey off their back, but will permanently damage our democracy. Elite opinion wants to empower the Federal Reserve to act as the "super-cop" protecting the financial system against systemic risk in the future. This idea is another instance of rewarding failure. The Fed was blind to the systemic risk accumulating during the past two decades and it failed utterly to head off the excesses -- the explosion of debt and Wall Street's fraudulent valuations. The central bank, in fact, with its erratic monetary policy, was a central source of what destabilized the economy.
Why would politicians make this cloistered and unaccountable institution more powerful, when the Fed has been derelict in its historical obligation to protect the "safety and soundness" of the system? Reforms ought to head the opposite way -- forcing the Fed into daylight and the same regular order required of government agencies.
A few weeks ago, a freshman congressman, Rep. Alan Grayson (D-Fla.), became an Internet celebrity with the video of him grilling the Federal Reserve vice chairman at a House hearing. The Fed is in the process of handing out almost $3 trillion. Can you tell us which firms and banks are getting money? Grayson asked. Donald Kohn said that would be inappropriate. It might discourage some banks from taking the public's money. More outrage ensued and last week, after a good pounding from citizens, the Fed folded and named some names.
A new regulatory regime that puts the secretive central bank in charge of everything would sanctify the policy of "too big to fail" that Fed officials have long followed but never honestly acknowledged. It would also revive the Wall Street club, albeit smaller than before, with which the Fed has been so cozy. If the largest bank holding companies are given privileged proximity to the source of government protection, then everyone in finance and commerce will want to become a bank holding company, too. We are already seeing this happening as former investment houses like Goldman Sachs and non-bank financial firms decide to join the system. Why not General Electric and Microsoft? Where does this end? What does it mean for smaller enterprises that lack the scale and influence?
Whatever the intentions, this "reform" would effectively legitimize the existence of a corporate state. This concentrated power would be neither socialism nor capitalism, but a grotesque hybrid that combines the worst qualities of both systems. Government and politics would become even more responsive to big money, but also able to tamper intimately with private enterprise, picking winners and losers based on political loyalties, not on performance. Capitalism with its inherent tendency toward monopoly would have the means to monopolize democracy.
Barack Obama can resist all this, if he chooses, but he seems conflicted. Obama's approach so far is devoted to restoring Wall Street's famous names, and his economic advisers tell him this is the "responsible" imperative, no matter that it might offend the unwashed public. Obama evidently agrees. He does not seem to grasp that the tone-deaf technocrats are leading him into a dead-end.
The president needs to hear a second opinion -- millions of them.
People are angry, but they want this president to succeed. Mobilized citizens can help him to prevail. If he goes with the other side, they will bring him down.
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