Listen, Liberal: Or, What Ever Happened to the Party of the People?

by Frank, Thomas

  Let us continue down the list of Democratic achievements of the 1990s. Telecom deregulation turned out to encourage monopoly building, not innovation; its main effects were the extinction of locally controlled radio stations and the bidding up of telecom shares in the great stock market bubble that burst during Clinton’s last year in office. Electricity deregulation, as it was implemented by the states, allowed Enron to engineer the California power shortage. The rage for stock options fed the epidemic of corporate fraud that came to light soon after Clinton left office, while the capital-gains tax cut was rocket fuel for inequality—“one of the most regressive tax cuts in America’s history,” according to Stiglitz’s recollections of his service in the Clinton administration.

  Bailouts were another market-pleasing specialty of the era, with the Clinton team riding to the rescue after each of the era’s great financial failures. Treasury Secretary Robert Rubin organized an executive-branch rescue of the Mexican government in 1995, after that country’s leaders had spent the previous few years issuing highly questionable bonds that happened to be very popular with American financiers. The Mexican operation probably served as a back-door bailout for Rubin’s old colleagues on Wall Street, but more important, it was what the admiring financial journalist Daniel Gross called “a turning point for Clinton” in his relationship with investment bankers: it “allowed Clinton to ingratiate himself with big investors at the institutional level.”33

  The final great accomplishment of Bill Clinton’s presidency was another act of sweeping bank deregulation, the 1999 repeal of the Glass-Steagall Act, which had separated commercial from investment banking since 1933. Treasury Secretary Rubin had long argued that the old law had to go so that Wall Street could achieve “revenue diversification” and stay competitive with foreign banking establishments.34 Banking lobbyists agreed with him, as did lobbyists for the insurance industry and—well, lobbyists for just about everyone with money.

  In fact, among members of the professional class, the cancellation of Glass-Steagall was another no-brainer, what with globalization and the New Economy and all. The term of art this time around was “Depression-era” (as in “Depression-era barriers” or “Depression-era rules” or “Depression-era walls”), which cast the old law’s repeal in the familiar terms of political rejuvenation, with the Democratic party symbolically casting off the conditions of its New Deal heyday.

  As with NAFTA, every expert who mattered was on the same page. A retrospective on the banking law published by the Minneapolis Fed in 2000 casually referred to it as “the now infamous Glass-Steagall Act of 1933.” “Almost everybody agreed that Glass-Steagall was an anachronism in a global economy,” proclaimed a 1995 New York Times news story on the effort to repeal the law. “Enacted in 1933 to prevent a recurrence of financial skulduggery that many believed touched off the Great Depression, the act is widely viewed today as a drag on the economy.”35

  Not only did everybody agree on what was widely viewed, but repealing it was a bridge to the future itself. Quoth the new Treasury secretary, Larry Summers, on the occasion of the final termination of Glass-Steagall in 1999, “At the end of the 20th century, we will at last be replacing an archaic set of restrictions with a legislative foundation for a 21st-century financial system.”36

  Some foundation. Nine years later, after the greatest wave of insider looting ever seen, the deregulated 21st-century financial system had to be rescued almost in its entirety. To say this was a system built on sand would be charitable. Its foundations actually lay upon a speculative bubble, pumped up by the prospect of a bigger sucker who everyone believed could be found a little ways down the line.

  A little earlier in 1999, Summers had made the cover of Time magazine, along with Greenspan and Rubin, as a part of what the magazine called the “Committee to Save the World,” a swashbuckling team of professional-class superheroes who intervened all around the globe when economies were in danger of blowing up. The story is one of the all-time great examples of just how bad journalism can get when a scribe is encouraged to express his love for the powerful and his deep respect for ideas that every member of his socioeconomic cohort agrees upon. Time described Summers as a “rocket scientist”; the sagacious Greenspan was said to understand that “markets are an expression of the deepest truths about human nature”; and Rubin was a wizard who had “remade the Treasury into an organization that is ‘more like an investment bank.’” Together they were “a kind of free-market Politburo on economic matters,” Time reported—the only people who mattered in President Clinton’s inner circle.37

  Today we also know what kind of person didn’t matter. Brooksley Born, who was the chair of Clinton’s Commodities Futures Trading Commission, had seen many ominous signs of impending disaster in certain reaches of the derivatives industry; in 1998 she dared to propose that this rapidly growing market be brought under some kind of regulatory scrutiny. Born’s suggestion turned out to be the opposite of a no-brainer: the three members of the Committee to Save the World came together not only to crush her proposal but to do the reverse—to ensure the elimination of the weak regulation that did exist. The ultimate result of their efforts, the Commodity Futures Modernization Act, signed into law by Clinton a month before he returned to private life, was a deregulatory debacle to which we can chalk up both the activities of Enron as well as the credit-default swaps that brought the entire world economy to the brink of collapse in 2008.38

  Things ended badly for Brooksley Born, but Robert Rubin left the Treasury Department in glory just a few days after the measure repealing Glass-Steagall had passed the Senate. Four months later, he took up work at Citigroup, which by coincidence was the largest beneficiary of the repeal (it allowed the giant bank to merge with a giant insurance company). Rubin had come from Wall Street, delivered enormous bailouts and long-sought deregulation to his old colleagues, and then returned to the top ranks of an industry enjoying its most prosperous years in history. The goo-goos complained about the appearance of a conflict of interest; nobody listened to them.* The spot where policy making and self-interest intersected, it seemed in those happy times, was a place of wisdom and prosperity.

  It’s striking that so many of the great economic initiatives of the Clinton presidency led eventually to catastrophe. But what really makes this story poisonous is that liberals by and large convinced themselves for many years that nothing had gone wrong at all. Everything Clinton’s team had done was an act of professional-class consensus. Because most of the fuses lit by Clinton and Co. didn’t actually detonate until after he had left office—and by then some science-denying Republican was in the Oval Office—they found it easy to absolve the Democrat from blame. When a Rhodes scholar was the one deregulating and cutting taxes, why, those were good times; when some idiot from Texas tried his hand at it, the world crashed and burned. Just another demonstration of the importance of a good education, I guess.

  So the world missed out on the lessons of deregulation and tax cuts until it was too late. But another teaching of the Clinton years came through loud and clear. This one instructed us on social class: which cohort had a future and which one did not; which was the right one to be in, which was the wrong one. “What were we saying to the country, to our young people, when we lowered capital gains taxes and raised taxes on those who earned their living by working?,” asked Joseph Stiglitz: “That it is far better to make your living by speculation than by any other means.”39

  5

  It Takes a Democrat

  Let me suggest a different framework for understanding the Clinton years, something even grander than The Clinton Wars, or Nasdaq!, or even Bill’s Postpartisan Journey to Self-Discovery. Here is what I propose: How the Market Order Got Cemented into Place.

  It wasn’t Ronald Reagan alone who did it. What distinguishes the political order we live under now is consensus on certain economic questions, and what made that consensus happen was the capitulation of the Democrats. Republicans could denounce big gove
rnment all they wanted, but it took a Democrat to declare that “the era of big government is over” and to make it stick. This was Bill Clinton’s historic achievement. Under his direction, as I wrote back then, the opposition “ceased to oppose.”1

  THE SECRET HISTORY

  For those who are interested in the economic well-being of average Americans and in the political system’s failure to protect them, one of the most telling episodes of the Clinton years is something that went largely unreported at the time: the series of secret negotiations with House Speaker Newt Gingrich that Clinton held in 1997. Liberals saw the Republican Gingrich back then as Clinton’s unappeasable nemesis—as a berserk hater—but in fact the two men came from similar class and generational backgrounds and saw eye to eye on a number of things: NAFTA, deficit reduction, welfare reform, and the great overarching sophistries about “change” and the “New Economy.”

  The object of Clinton’s outreach to Gingrich in 1997 was Social Security privatization, a hunk of legislative dynamite that would have blown apart the welfare state once and for all. According to Steven Gillon, the historian who uncovered this episode in his 2008 book, The Pact, privatization in some form had become attractive to politicians in both parties at that time; the word he uses to describe this growing attitude is “consensus,” as in: the “growing consensus on both sides of the aisle in favor of having Social Security tap into the stock market to increase the rate of return on retirement funds.”2

  Gillon doesn’t spend much time describing the lobbying campaign mounted by the mutual fund industry in the late 1990s to encourage Social Security privatization—a memorable effort driven by the brutally simple fact that requiring every American to have a brokerage account would have meant billions in administrative fees for mutual fund companies. But the historian does provide a fine account of the sensibility in the air in professional-class circles in the late Nineties. Describing the members of an Advisory Council on Social Security in 1996, Gillon writes that

  All agreed that the program needed to be reformed. All accepted that some portion of Social Security revenue should be placed in investments other than low-paying U.S. Treasury bonds. They agreed that benefits must be trimmed, that the retirement age should be pushed back, and that state and local government workers should be required to participate.3

  “All agreed”; “all accepted.” It’s difficult for outsiders to understand the kind of hypnotic appeal such invocations of consensus hold for Washington and the prosperous, well-educated fellows who inhabit it. Every one of them knows that the real problem with government is what they call entitlement spending, meaning Social Security and Medicare; that the obvious solution is some sort of privatization; and also that every other responsible, professional-class person either agrees on this matter or else is a charlatan or demagogue of some species or other.

  I have heard some expression of this consensus since the day I met my first congressional staffer back in the Eighties. I’ve heard it from certain kinds of Democrats as well as Republicans; from losers as well as winners. As with free trade and welfare reform, there is no amount of reporting or argument that will budge this idée fixe; people of a certain educational background simply know it to be true. Which brings us to the second thing everyone agrees upon: that ideology merely gets in the way—that if educated people from both parties could just get together and put partisanship aside, some great understanding on this matter of entitlements could quickly be reached. This is the Holy Grail, the high-minded act of privatization that would terminate the New Deal’s most popular achievement and bring to a close the era of activist government. This is the true Grand Bargain our leaders have chased from the Nineties up to the age of Obama.

  In 1997 the deal evaded Bill Clinton’s grasp, but only barely. According to Gillon, Clinton and Gingrich had come to an agreement on how private accounts would be incorporated into the Social Security system; in exchange, the Republicans would stop pushing to blow the federal surplus on a tax cut. Like the New Democrats in our story, Gingrich claimed this was the right thing to do because of change: “We were trying to think through the necessary reforms to modernize America to move into the twenty-first century,” he told the historian.4

  The two leaders knew this would mean building “a new center/right political coalition” to get the deed done, because many Democrats could be counted on to oppose the deal. Indeed, as Gillon notes, on numerous issues “the president was closer to Gingrich than he was to the leadership of his own party,” a description that could have been accurately applied to each of Clinton’s great accomplishments—NAFTA, welfare reform, and bank deregulation, all of them made into law by cooperation between the Democratic president and the Republicans in Congress.

  The schedule on which the two men agreed went as follows: Clinton would start hinting at the privatization proposal in January 1998. Various groups would then spend the year conducting a Social Security “dialogue” whose conclusions can be easily guessed.* Incredibly, the two leaders would somehow contrive to “keep the issue off the table in the 1998 congressional elections,” and then get it enacted during the lame-duck session in December 1998, when nobody could hold either of them responsible.5

  Clinton actually went through with the first step in the plan, demanding in his 1998 State of the Union address that Congress use the federal surplus to “save Social Security first,” a vague but noble-sounding demand that appears to have been his way of opening the privatization discussion.* As it happened, Social Security was already safe—safe from Clinton, that is—thanks to a certain Oval Office dalliance. The week before his speech, the media frenzy over Monica Lewinsky had begun, and it was all polarization and impeachment after that.

  The day of the speech itself, Hillary Clinton went on TV and accused a “vast right-wing conspiracy” of coming together in an effort to bring her husband down. This was true enough as regards the sex scandal, but the conspiracy that really mattered was the one between her husband and his putative right-wing rival, Newt Gingrich.

  Here’s why the D.C. pundits came to love Bill Clinton: He almost did it. He almost achieved that great coalescence of the professional and business classes.

  This was a Democrat, remember. And him being a Democrat was important. For the party that invented Social Security and defended it with a kind of gleeful zeal over the years—for this party even to contemplate turning the thing over to Wall Street was a concession of enormous significance.

  CAPTIVE NATION

  A few years ago, I read an article claiming that the United States is the first society ever to record more rapes of men than of women, a distinction attributable to the vast numbers of men we have seen fit to imprison.6

  Another disturbing fact: According to the legal scholar Michelle Alexander, author of The New Jim Crow, there are now more black adults in some kind of “correctional control”—meaning under the restraint of some arm of the criminal justice system—than there were slaves in 1850. Naomi Murakawa, author of The First Civil Right, adds that fully “one in three black men” passes his life “under probation, parole, or prison on any given day.”7 Not only does the United States have the largest population of people incarcerated of any country, but we are the only nation that routinely hands out life sentences to children.

  Anyone inquiring how an obscenity like this came to pass—how it is that the home of the free outstripped what we used to call “captive nations” as well as countries philosophically dedicated to wholesale imprisonment like apartheid South Africa—anyone looking into these things soon realizes that this cannot be laid simply and neatly at the doorstep of the Republican Party and Those Awful Wingers. It is true that the Republican Richard Nixon started the war on drugs, and that the Republican Ronald Reagan escalated it. But the Democrat Bill Clinton—the buddy of Bono and Nelson Mandela, the man repeatedly nominated for the Nobel Peace Prize—easily bested both of these Republicans as well as all other presidents in his zeal to incarcerate.8 Alexander writes as foll
ows of Clinton’s 1994 crime law:

  Far from resisting the emergence of the new caste system, Clinton escalated the drug war beyond what conservatives had imagined possible a decade earlier. As the Justice Policy Institute has observed, “the Clinton Administration’s ‘tough on crime’ policies resulted in the largest increases in federal and state prison inmates of any president in American history.”9

  If anything, Alexander is soft-pedaling her indictment. The Big Clampdown was a massive exercise in prison-building and mandatory sentencing. Clinton himself went before the eyes of the nation to promote this great new tactic called “Three Strikes,” where triple offenders of certain kinds got to spend the rest of their lives in prison. His 1994 crime bill coerced state governments to enact what were called “Truth in Sentencing” provisions—which meant, essentially, a crackdown on parole. In 1995, as I mentioned above, Clinton signed his name to the bill stopping the U.S. Sentencing Commission from abolishing the notoriously racist 100-to-1 difference in penalties for crack and powdered cocaine.

  Not everything lousy that happened in the country in the 1990s was Bill Clinton’s fault. But with criminal punishment as well as with Social Security and free trade, the say-so of the left party in the system completely changed the balance of the situation. It was as though every kind of cruelty was suddenly permitted. The nation descended into a punitive frenzy, with state legislatures inventing ways to lock up their citizens with a kind of demonic glee. The state of Virginia, under the leadership of Republican governor George Allen, abolished parole altogether in 1995. “Zero tolerance” entered the lexicon and universal surveillance became part of the urban environment. In 1994 and ’95, numerous states passed their own three-strikes laws, with “Truth in Sentencing” provisions trotting along behind, as encouraged by Bill Clinton’s law.