Wall Street Welfare
Tough Talk and Government Assistance for the Rich
"As Mr. Obama prepares to lay the groundwork for the second phase of government assistance," The Wall Street Journal (WSJ) reported last week, "his tough stance on pay may help build support from a Congress weary of bailouts." [1]
"Tough stance on pay" referred here to President Obama's order limiting executive compensation to $500,000 at companies receiving "extraordinary [taxpayer] assistance" from the federal government. It also encompassed Obama's description of certain corporate executive bonus payments as "shameful" in light of the economic difficulties faced by millions of Americans,
By "government assistance," the WSJ did not mean public help for the rising number of Americans pushed into destitution by the current epic recession. They referred instead to the Obama administration's plan to deepen the federal government's massive bailout of the leading financial institutions that have done so much to push the
According to The New York Times, Obama's corporate-Democratic Treasury Secretary Timothy Geithner' bailout plan reflected a triumph for unfettered capitalist prerogatives inside the new White House. Times reporters Stephen Labaton and Edmund Andrews note that Geithner "prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including [top political and media expert] David Axelrod." Geithner fought successfully "against more severe limits on executive pay for companies receiving government aid." He overcame "those who wanted to dictate how banks would spend their money. And he prevailed over top administration aides who wanted to replace bank executive and wipe out shareholders at institutions receiving aid." According to administration and congressional officials, Geithner told Obama that "that plan would not work" if it was burdened with "too much government involvement in the affairs of the companies" - companies whose behavior deeply interferes with ordinary Americans' capacity to keep their heads above water. The new Treasury chief, whose nomination was heartily applauded by Wall Street, "also expressed concern that too many government controls would discourage private investors from participating." This grave concern over the negative impact of government - the people in a functioning democracy - won out over more image-sensitive Obama aides who worry that "rising joblessness, populist outrage over Wall Street bonuses and expensive perks, and the poor management of last year's bailouts could feed a potent political reaction" if the new White House failed to "demand sacrifices from the companies that receive federal money."
"For all its boldness," Labaton and Andrews, note, the Obama bailout "largely repeat[s] the Bush administration's approach of deferring to many of the same companies and executives who had peddled risky loans and investments at the heart of the crisis and failed to foresee many of the problems plaguing the markets." [2]
Consistent with David Axelrod's public relations concerns and with Obama's bluster on executive pay and bonuses, however, the Times reported that Geithner would "blame corporate executives for much of the economic crisis" [3] - this even as he announced a plan that failed to punish those executives to any significant degree. Geithner naturally gave no blame to the economic policies implemented under his mentor and former Goldman Sachs CEO Robert Rubin when Rubin (a top Obama advisor during the presidential campaign) served as Bill Clinton's Treasury Secretary and Lawrence Summers (Obama's current top economic advisor) was the number two official in Treasury. The (excess) capital-fueled asset inflation that recently burst with such disastrous consequences at home and abroad was richly encouraged by the deregulatory activities of the militantly corporate-neoliberal Democratic Clinton-Rubin administration [4] - a critical detail the new president leaves out when he (routinely) blames the current crisis on "the failed economic policies of the last eight years."
New York Times columnist and Nobel Prize-winning economist Paul Krugman recently put the curious juxtaposition of (a) Obama's "tough" talk on executive pay alongside (b) his Wall Street-welfarist bailout plan in instructive context with the following rhetorical vignette: "Question: what happens if you lose vast amounts of other people's money? Answer: you get a big gift from the federal government - but the president says some very harsh things about you before forking over the cash." [5]
As Obama's image-handler Axelrod certainly knows, the "second phase of government assistance" (to leading investment and banking houses and insurance corporations) would certainly be rejected by most Americans in a straight-up policy referendum. Consistent with what Noam Chomsky calls "the normal [authoritarian] workings of state capitalism" [6], it will be implemented nonetheless. The nation's top banking institutions (who have tens of millions of dollars to Obama's presidential campaign) are "too big" and (more to the point) too powerful "to fail."
Obama's game here is not much different from that of Teddy Roosevelt at the turn of the century or of John Fitzgerald Kennedy (JFK) during his brief dust up with U.S. Steel in 1962. [7] Falsely claiming (like JFK) to stand above "ideology," the new president finds it useful to cloak his deep allegiance and captivity to the barons of capital by pounding his chest with some vaguely people-leasing rhetoric. It's all consistent with the formerly left Christopher Hitchens' onetime description of "the essence of American politics" as the "manipulation of populism by elitism." [8]
Government Assistance for the Poor Lags as Joblessness Rises
So what about the rising number of poor and even destitute Americans who are too small and powerless to matter? What level of government assistance is the self-described "world's greatest democracy" providing to the increasingly desperate mass at the widening bottom of its socioeconomic pyramid, the steepest in the "advanced" capitalist world? Surely that form of public assistance is rising in accord with the terrible expansion of human desolation and misery?
A recent New York Times report is less than encouraging. According to veteran Times reporter, author, and welfare policy expert Jason Deparle:
"Despite soaring unemployment and the worst economic crisis in decades, 18 states cut their welfare rolls last year, and nationally the number of people receiving cash assistance remained at or near the lowest in more than 40 years."
"...
"Of the 12 states where joblessness grew most rapidly, eight reduced or kept constant the number of people receiving Temporary Assistance for Needy Children (TANF) the main cash welfare programs for families with families with children." [9]
The public family assistance safety net is not stretching adequately to meet the needs of the growing number of poor and deeply poor Americans. The reason is the vicious welfare "reform" (elimination), which ended poor families' 60-year entitlement to cash aid, exchanging it for work requirements and time limits and giving states the power to discourage people from entering the welfare rolls. The "reform" program was passed by a Republican congress and signed by the regressive corporate Democrat Bill Clinton (whose presidency Obama has described as "recognizably progressive") over considerable protest in 1996. "While it was widely praised in the boom years that followed," DeParle notes, "skeptics warned it would fail the needy when times turned tough." [10]
The warning is being born out in spades as one of the bipartisan welfare "reform's" key structural aspects - "fixed federal financing" regardless of caseload size - discourages states from assisting the rising number of poor families. Obama, it should be noted, has repeatedly praised the great welfare "reform," arguing that "we should acknowledge that conservatives and Bill Clinton were right about welfare" [11] and voted for "welfare-to-work" measures during his time in the Illinois Legislative Assembly.
"No One is Even Taking About the Poor"
During the presidential campaign, moreover, Obama joined John McCain in pushing poverty and inequality to the margins of political discourse. Days before the election, New York Times columnist Bob Herbert noted the shocking absence of the rising number of truly disadvantaged Americans from the electoral extravaganza. "The focus in the presidential campaign," Herbert noted, "has been almost entirely on the struggles faced by the middle class - on families worried about their jobs, their mortgages, their retirement accounts and how to pay for college for their kids....no one is even talking about the poor"...
"...But if we are indeed caught up in the most severe economic crisis since the Great Depression," Herbert added, "the ones who will fare the worst are those who are already poor or near poor. They are millions of them, and yet they remain essentially invisible. A step down for them is a step into destitution." [12]
In a perceptive Election Day column, Herbert situated rising
Consistent with Herbert's populist concerns, diminished in Herbert's post-Inauguration commentary [14], Obama has put Vice President Joe Biden in charge of a "Middle Class Task Force" charged to recommend proposals to ensure that "the middle class is no longer being left behind." [15] The notion of setting up a Poverty Task Force or a related Inequality Commission is unimaginable under the reign of the supposedly "non-ideological" world view that prevails in the Obama-Summers-Geithner administration.
The left commentator Nicholas Kozloff argues that Obama's inauguration was "a missed opportunity" to have "used his bully pulpit" to mobilize the "grassroots" in opposition to poverty and inequality. Obama president could have used his remarkable popularity and resources to "revolutionize progressive politics" by kicking off "a poverty tour" that would have involved "high profile rallies in public parks or stadiums" and "mass marches through poor neighborhoods where people faced housing foreclosures." Instead the new president gave a "cliché-ridden, mundane and thoroughly unmemorable speech" and then got down to the business of bailing out his Wall Street sponsors and crafting a weak and conservative stimulus package. [16]
Dead Center
There's not much help coming to the poor or "the middle class" - a group that seems (in the new administration's world view) to cover everyone making less than $250,000 a year -from the "giant" (corporate media deceptively claims) stimulus package. The U.S. Senate stimulus plan that the militantly centrist and corporate-friendly Obama hailed as an example of "Democrats and Republicans [coming] together [to] respond appropriately to the urgency this moment demands" was a monument to business friendly equivocation. As Krugman notes in a column titled "the
"Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted," Krugman notes, "it wouldn't have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years."
Yet even with those severe limits, corporate Republicans and Democrats in the Senate felt compelled to slash $40 billion in desperately needed assistance to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. Also cut were $40 billion more including badly needed funds for school funding, assistance (health care aid especially) to the unemployed, and Food Stamps. Still, the Senate bill included a lucrative tax credit for affluent homebuyers, reflecting what Krugman calls "the centrists' insistence on comforting the comfortable while afflicting the afflicted will" - an insistence that will "lead to substantially lower employment and substantially more suffering."[17]
More reason for faux-populist Obama administration chest-pounding on executive pay and perks.
Blacklisting Progressives
The stimulus and bailout plans might look a little better if Krugman, Dean Baker, and other reasonably progressive economists were in the Obama administration instead of commenting on it from afar. As the veteran left-liberal Washington- and Obama-watcher David Sirota notes, however, Obama and his centrist handlers have "blacklisted progressives" from key policy roles in his administration. "Amid a stable of eminently qualified and well-respected progressives like James Galbraith, Joseph Stiglitz, Dean Baker, Robert Reich, Paul Krugman and Larry Mishel," Sirota observes on Open Left, "Obama has chosen [corporate neoliberal] Rubin sycophants like Larry Summers and Tim Geithner to run the economy - the same Larry Summers who pushed the repeal of the Glass-Steagal Act [a New Deal measure that mandated the separation of investment and commercial banking], the same Geithner who masterminded the kleptocratic bank bailout, the same duo whose claim to fame is their personal connections to Rubin, a disgraced Citigroup executive at the center of the current meltdown. And the list of Rubin sycophants keeps getting longer, from Peter Orszag to Jason Furman."
Sirota notes that venture capitalist Leo Hindery - a top economic advisor to presidential candidates John Edwards and (later) Obama - was banned from serious consideration for a top economic post in the new administration because he is "one of the few business leaders to use his wealth to challenge deregulation, corporate trade deals, and anti-worker policies." Hindery "dared to clash with the same Wall Street Democrats whose corporate-backed policies destroyed the economy." He committed the unpardonable sin of standing "in opposition to Obama's top [corporate-neoliberal] economic advisors, many of whom were associated with The Hamilton Project, an economic think-tank that was the inheritor of former Treasury Secretary [and former Goldman Sachs CEO Robert] Rubin's generally pro-trade positions." [18]
It isn't just "hard left" anti-capitalists like me who are considered too radical for the new team's concept of "Change We Can Believe In." Even capitalists who prefer a slightly more equitable and high-road model of development are considered too far left [19] for the country. Never mind that majority of
Plus ca change, plus c'est la meme chose? No! Aux barricades [21], fellow citizens and workers. Let Axelrod's fears be realized.
NOTES
1. Jonathan Weisman and Joan S. Lublin, “Obama Lays Out Limits on Executive Pay,” Wall Street Journal, February 5, 2009, A1.
2. Stephen Labaton and Edmund L. Andrews, “Geithner Said to Have Prevailed on the Bailout,” New York Times, February 10, 2000, A1, A16
3. Labaton and Andrews, “Geithner Said to Have Prevailed.”
4. Robert Pollin 2003. Contours of Decent:
5. Paul Krugman, “Bailouts for Bunglers,” New York Times, February 2, 2009.
6. Noam Chomsky, “Elections 2008 and Obama’s ‘Vision,’” Z Magazine (February 2009), p. 23.
7.Richard Hofstader, The American Political Tradition and the Men Who Made It (New York: Alfred Knopf, 1948), pp. 286-297; Bruce Miroff, Pragmatic Illusions: the Presidential Politics of John Fitzgerald Kennedy (New York: Longman, 1976), pp. 176-198.
8. Christopher Hitchens , No One Left to Lie To: The Values of the Worst Family (
9. Jason DeParle, “American Welfare System Failing to Grow As Economy Lags,”
10. DeParle, “American Welfare System.” Obama’s description of the
11. Obama, Audacity of Hope, p. 256.
12. Bob Herbert, “Crisis on Many Fronts,” New York Times, October 25, 2008.
13. Bob Herbert, “Beyond Election Day,” New York Times, November 4, 2008.
14. See Bob Herbert, “The Chess Master,” New York Times February 9, 2009, where the columnist's previous progressive-populist anti-poberty concerns seem buried as he praises the new president for deftly playing the great bipartisan political game in Washington.
15 Jonathan Weisman, “Biden is Asked to Help Middle Class,” Wall Street Journal, December 22, 2008, read at http://online.wsj.com/article/SB122987787442224517.html
16. Nicholas Kozloff, “The Stimulus Imbroglio: What Obama Might Have Learned From Chavez and Populist-Style Mobilization,” ZNet (February 11, 2009).
17. Paul Krugman, “The Destructive Center,” New York Times, February 9, 2009.
18. David Sirota, “Blacklisting Progressives: The Untold Story Beneath the Daschle Headlines,” Open Left (February 4, 2009), read at
www.commondreams.org/view/2009/02/04-1
19. Consistent with the wider and powerful judgment of corporate media and big money-campaign financiers. See Paul Street, “A Very Narrow Spectrum: Even John Edwards is Too Far Left for the U.S. Plutocracy,” ZNet Sustainer Commentary (August 29, 2007), read at http://www.zmag.org/sustainers/content/2007-08/29street.cfm; Paul Street, “A Message From the Corporate Plutocracy” (February 5, 2008), posted at http://liblit.wordpress.com/2008/02/05/a-message-from-the-american-corporate-plutocracy-by-paul-street/
20. Kate Adams and Charles Derber, The New Feminized Majority (Boulder, CO: Paradigm, 2008), pp. 67-75; Noam Chomsky, Failed States: The Abuse of Power and the Assault on Democracy (New York: Metropolitan, 2006), pp. 205-250; Chicago Council on Foreign Relations , Global Views (Chicago, 2004); Paul Street, “Americans’ Progressive Opinions v. “the Shadow Cast on Society by Big Business,” ZNet Sustainer Commentary (May 15, 2008), read at http://www.zcommunications.org/zspace/commentaries/3491
21. “The more things change, the more they stay the same?...To the barricades….”
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Krugman column and my response
By Street, Paul at Feb 13, 2009 10:49 AM
By any normal political standards, this week’s Congressional agreement on an economic stimulus package was a great victory for President Obama. He got more or less what he asked for: almost $800 billion to rescue the economy, with most of the money allocated to spending rather than tax cuts. Break out the Champagne!
Or maybe not. These aren’t normal times, so normal political standards don’t apply: Mr. Obama’s victory feels more than a bit like defeat. The stimulus bill looks helpful but inadequate, especially when combined with a disappointing plan for rescuing the banks. And the politics of the stimulus fight have made nonsense of Mr. Obama’s postpartisan dreams.
Let’s start with the politics.
One might have expected Republicans to act at least slightly chastened in these early days of the Obama administration, given both their drubbing in the last two elections and the economic debacle of the past eight years.
But it’s now clear that the party’s commitment to deep voodoo — enforced, in part, by pressure groups that stand ready to run primary challengers against heretics — is as strong as ever. In both the House and the Senate, the vast majority of Republicans rallied behind the idea that the appropriate response to the abject failure of the Bush administration’s tax cuts is more Bush-style tax cuts.
And the rhetorical response of conservatives to the stimulus plan — which will, it’s worth bearing in mind, cost substantially less than either the Bush administration’s $2 trillion in tax cuts or the $1 trillion and counting spent in Iraq — has bordered on the deranged.
It’s “generational theft,” said Senator John McCain, just a few days after voting for tax cuts that would, over the next decade, have cost about four times as much.
It’s “destroying my daughters’ future. It is like sitting there watching my house ransacked by a gang of thugs,” said Arnold Kling of the Cato Institute.
And the ugliness of the political debate matters because it raises doubts about the Obama administration’s ability to come back for more if, as seems likely, the stimulus bill proves inadequate.
For while Mr. Obama got more or less what he asked for, he almost certainly didn’t ask for enough. We’re probably facing the worst slump since the Great Depression. The Congressional Budget Office, not usually given to hyperbole, predicts that over the next three years there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn’t nearly enough to bridge that chasm.
Officially, the administration insists that the plan is adequate to the economy’s need. But few economists agree. And it’s widely believed that political considerations led to a plan that was weaker and contains more tax cuts than it should have — that Mr. Obama compromised in advance in the hope of gaining broad bipartisan support. We’ve just seen how well that worked.
Now, the chances that the fiscal stimulus will prove adequate would be higher if it were accompanied by an effective financial rescue, one that would unfreeze the credit markets and get money moving again. But the long-awaited announcement of the Obama administration’s plans on that front, which also came this week, landed with a dull thud.
The plan sketched out by Tim Geithner, the Treasury secretary, wasn’t bad, exactly. What it was, instead, was vague. It left everyone trying to figure out where the administration was really going. Will those public-private partnerships end up being a covert way to bail out bankers at taxpayers’ expense? Or will the required “stress test” act as a back-door route to temporary bank nationalization (the solution favored by a growing number of economists, myself included)? Nobody knows.
Over all, the effect was to kick the can down the road. And that’s not good enough. So far the Obama administration’s response to the economic crisis is all too reminiscent of Japan in the 1990s: a fiscal expansion large enough to avert the worst, but not enough to kick-start recovery; support for the banking system, but a reluctance to force banks to face up to their losses. It’s early days yet, but we’re falling behind the curve.
And I don’t know about you, but I’ve got a sick feeling in the pit of my stomach — a feeling that America just isn’t rising to the greatest economic challenge in 70 years. The best may not lack all conviction, but they seem alarmingly willing to settle for half-measures. And the worst are, as ever, full of passionate intensity, oblivious to the grotesque failure of their doctrine in practice.
There’s still time to turn this around. But Mr. Obama has to be stronger looking forward. Otherwise, the verdict on this crisis might be that no, we can’t.
Street Response: Ok, fine Mr. Krugman, well-argued, but why don't you ever say anything about the need for -- and potential effectiveness of --- citizen action from the bottom up to force policy in a progressive direction (a rank and file yes we can to counter Obama's expectation-managerial "no actually we can't," falsely sold as "realism" and "pragmatic" rejection of "ideology")? Nice to have a leading economist and columnist saying things to the progressive side of the existing corporate-Democratic administration but note how Krugman rarely if ever comes down from his elite perch to talk about the need for grassroots activism. How does Krugman think the New Deal he often invokes and upholds came into being? Also where do ecological concerns come into play in his call for increased growth? Maybe its less about restoring growth/output than redistribuitng wealth, income, and power and redefining economic performance in ways that put environmental issues front and center.....Maybe the current econmic crisis is an opportunity for a thorough re-evaluation of what a viable and decent economy is - beyond the authoritarian, hiearchical, and eco-cidal imperatives of a rotten profit system that no longer offers anything but misery and death for billions at home and abroad.
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"An Eye Toward Tempering Expectations"
By Street, Paul at Feb 12, 2009 14:03 PM
From The New York Times today:
Front page new story: "To win Republican votes, the final stimulus package is considerably leaner than what many economists say is now needed to jolt the economy given its grave condition...."
Front page news analysis: "Yet since Election Night, when he warned of 'setbacks' and 'false starts,' [Obama] has assiduously managed the politics of the moment with an eye toward tempering [popular] expectations.... [yes, "expectation management" to scale down mass sentiment for actual substance in the campaign promise of progressive change has been the new administration's top PR task from day one -- P.S.]
Nice Letter to the Editor from a Luke Johnnson (p. 26): "Change would mean nationalizing the banks, firing most of their executives, and guaranteeing most of the bad mortgages that caused this mess to the benefit of homeowners, not just the securities behind them. Othewise, this is just more of the same.
N. Kristoff column (p. 27) notes that many experts "believe that some variation of nationalization is the only way to revive the banks without squandering vast amounts of taxpayer dollars." Apparently Obama went on ABC and said that nationalization made sense for Sweden in the past but cannot work in U.S. because of our "culture." Let's push BO to drop that nonsense and move to nationalization as the crisis deepens... He demonstrates similar "ideological blockage" (his explanation for Republican opposition to his stimulus plan) when it comes to single-payer health insurance by the way --- P.S.]
See liberal Krugman's blog on why Obama is wrong on nationalization: http://krugman.blogs.nytimes.com/2009/02/11/obama-on-nationalization/
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