Pity the Billionaire: The Hard-Times Swindle and the Unlikely Comeback of the Right

by Thomas Frank

  You could not have contrived a scenario better calculated to destroy public faith in American institutions. What is the point of hard work, of scrapping for a few dollars more at some lousy hourly wage, when dishonest financial legerdemain is so profitable? Why play by the rules when they obviously don’t apply to everyone? When louts and bullies and corruptionists take home society’s greatest rewards?

  The bailouts combined with the recession created a perfect situation for populism in the Jacksonian tradition, for old-fashioned calamity howlers, for Jeremiahs raging against the corrupt and the powerful.

  This was the task of the moment, and one political faction, as we have seen, took to it immediately and with relish. They tossed inconvenient leaders overboard. They declared war on the ruling class. They assembled with megaphones in the park and gave voice to the people’s outrage.

  But the other faction—the actual political descendants of Jackson and Bryan and Roosevelt—took years to rise to the occasion. They didn’t seem to understand that circumstances called for a profound change. They couldn’t embrace the requirements of the moment even though they were the ones pledged to the traditional hard-times measures (regulation, reform, social insurance) and even though responding to hard times was once their party’s very raison d’être.

  Flowchart

  They were offered the chance, of course. In 2008 Barack Obama seemed to be a figure of destiny like Roosevelt himself. He took the oath of office under similarly disastrous circumstances and was for a while buoyed up by exactly the sort of popular adulation that followed FDR.

  Seven months later, it was clear that Obama had lost the populist momentum. It was frustrating when he turned over economic policy to Larry Summers and Tim Geithner, two well-known friends of Wall Street, and it was maddening when he insisted on following the bailout course of the Bush administration, even after the AIG debacle. But the moment I truly understood that the Dems had blown it came during the debate over health-care reform.

  In years past, universal health care had been a cause that allowed liberals to connect to their working-class base regardless of everything else they did wrong. And since entrusting our health care to the private sector had allowed both unconscionable profits for the insurers and lousy service for sick people, the debate has traditionally taken a populist tone. The push for national health insurance was a fight, as President Harry Truman had put it, of the “everyday man” against “special privilege,” meaning mainly the doctors’ professional association, the AMA, with its predictable cries of “socialized medicine.”

  President Obama’s strategy in 2009 was the reverse of Truman’s. He would get the traditional opponents of health-care reform on board—the AMA, Big Pharma, insurance lobbyists—and do the deal as an act of cold consensus. All the experts would be heeded. All the corporate and professional “stakeholders” would be taken care of. No one would need to get their suit ruffled.

  Then came the confrontations of “Town Hall Summer,” when Democratic legislators talking up health-care reform faced hometown crowds of extraordinary hostility—average people yelling from the floor at the emissaries of the “grand bargain.” It is true that the town hall meetings were deliberately packed by people who aimed to disrupt, but the populist spectacle they engineered was no less powerful for its agitprop origins. The Democrats appeared to be shaking hands with the Interests, while the ones screaming about “socialism” and theft through taxation this time around were Harry Truman’s “everyday men.”

  Particularly memorable was one town hall meeting in Bremerton, Washington, when a Tea Partier named Keli Carender held up a twenty-dollar bill and challenged her Democratic congressman to come and snatch it out of her hand as “a down payment” on the health-care plan, which was surely going to soak taxpayers. (As with many of the town hall confrontations, it was not clear which plan Carender objected to.) And then she just stood there, staring at the congressman with those wild eyes, her arm in the air, immortalized in newspaper photographs like some kind of libertarian Norma Rae.

  Another vivid episode was a town hall meeting I listened to on the radio in which an audience of angry Marylanders took turns abusing their U.S. senator. He had prepared a talk describing the minute details of the various health-care proposals then under consideration, but the audience didn’t seem to care about that. They wanted to talk about big, philosophical things: freedom, tyranny, the Constitution, and the general incompetence of government.

  If you don’t remember the particulars of that summer, you might assume that the Democrats waded into the fight, the way Harry Truman used to do. You might think they relished the chance to talk about big, philosophical things, that they took the opportunity to tell how the existing system pocketed your twenty bucks, how government agencies had failed because they were designed to fail, or how social insurance strengthened freedom rather than violated it.

  But that’s not what happened at all. In most of the town hall meetings I reviewed, the Democrat on the hot seat seemed incapable of really engaging in a dispute about freedom and the nature of government, or even of challenging the market orthodoxy that issued, in gathering after gathering, from the mouths of protesters around the nation.

  It was as though the old-school liberal catechism had become forbidden language, placed on some index of prohibited thoughts. Instead, most of the Democrats I listened to brought the conversation relentlessly back to the baffling details of the various health-care proposals.

  This failure led, in turn, to a second disaster. In full retreat before the right-wing onslaught, the Democrats threw themselves into the arms of their corporate allies. They jettisoned the simpler, more popular, but more government-centric idea under consideration and settled on the “individual mandate,” which required that everyone in the land sign up with a private insurance company. This solution would be more intrusive than the other one, more complicated, more regulatory. But since it would not create a social insurance program, it was also more “centrist.” Naturally, it delighted the private insurance companies.

  That’s how a populist outburst from the Right caused the inarticulate Democrats to abandon the most populist elements of their own plan and choose instead what we might call the elitist option, a crony-capitalist solution in which public choices would be diminished but corporate profits guaranteed. What had been for decades a campaign to bring security to the average citizen thus became little more than an inside deal between members of the “ruling class,” as the resurgent Right would soon be calling it.

  The preoccupation with technical detail that I noticed during the health-care debate wasn’t merely the failing of the unfortunate members of Congress who put on those town hall gatherings; it was the failing of the entire Democratic Party. From its silver-tongued leader on down, Democrats simply could not tell us why our system had run aground and why we had a stake in doing things differently. They could not summon an ideology of their own.

  This ideological void was apparent even when the Obama administration considered the greatest liberal triumphs of the past. Take Christina Romer’s 2009 speech, “Lessons from the Great Depression,” a typical administration document that I have cited several times in these pages. In it Romer, who then chaired the Council of Economic Advisers, rummaged through the thirties seeking guidance for present-day officials, but whether she was talking about monetary expansion or the need for stimulus, each of her suggestions was presented simply as a policy choice, as a thing that intelligent people would naturally decide to do in order to solve a given problem. That monetary expansion and stimulus programs were possible in the thirties only because of an ideological change in the way average Americans thought about government and the economy went unmentioned; we were supposed to know which road to choose from our study of the academic literature. Expertise would guide us. The ideology, presumably, would take care of itself.1

  And so Democratic leaders tried to assuage public anger over the bailouts while barely mentioning Wall Stree
t’s power over Washington—that subject they left to the resurgent Right. They gave us a stimulus package, but not a robust defense of deficit spending. They beefed up certain regulatory agencies, but they didn’t dare tell the world how money had managed to wreck those agencies in the first place. And when a clearly unsafe BP oil well poured millions of gallons of poison into the Gulf of Mexico, President Obama told a reporter that before he could figure out “whose ass to kick” he had to convene a panel of experts.2

  It is easy to understand how Democrats evolved into this tongue-tied, expert-worshipping species. Their traditional Democratic solutions may well have solved our problems, as Christina Romer maintained, but the ideology behind those solutions—as well as the solutions themselves, in many cases—are totally unacceptable to the people who increasingly fund Democratic campaigns. Instead, the Democrats tried to have it both ways: to deliver the occasional liberal measure here and there while studiously avoiding traditional liberal rhetoric. President Obama tries to stay on the good side of companies like Goldman Sachs and BP even as he desperately drives his hook-and-ladder around a world they have set on fire.

  The nation, meanwhile, was begging for a round of national soul-searching. It wanted to know: How did the Crash of 2008 happen? How did government miss the warning signs? What are our responsibilities to our neighbors in hard times? In response, Democrats offered technical explanations. They simply could not talk about the disasters in a way that was resonant or compelling. Only the idealists of the Right did that. What the Democrats held out to an outraged nation was a fastidiously detailed flowchart for how things might be reorganized.

  Good Bailouts and Bad

  The bailouts, the stimulus, the health-care debate: with each of these issues, the path of expertise led the Obama administration toward compromise with the power of wealth. And by the thinking of Washington, that is entirely as it should have been.

  But in every case, the administration compromised with the wrong party. Consider the Wall Street bailouts, the draft of political poison which Obama sipped even before his presidency began and from which he has never really recovered. Although it was not widely acknowledged at the time, bailouts on the scale of 2008 had happened before, and they had been politically deadly before as well. But there had also been bailouts that succeeded, bailouts that were even popular.

  The difference, in a phrase, is Wall Street. What makes bailouts toxic is cronyism, the coming together of government and private wealth, the spectacle of Washington doing special favors for its pals in the investment banks. What makes bailouts healthful is government acting as an alternative to Wall Street; government helping others recover from Wall Street’s mismanagement of the economy.

  It is a lesson that goes back to the earliest bailouts of them all, the ones orchestrated by the Reconstruction Finance Corporation (RFC) under Presidents Hoover and Roosevelt. Under Herbert Hoover, the bailout agency’s doings were enormously unpopular, thanks to episodes that should sound very familiar to us today. In 1932, the RFC went to the rescue of railroads that were essentially fronts for Wall Street interests. (Like AIG!) Then it poured money into a big Chicago bank run by the man who had been not only the RFC’s chairman a few weeks before, but also Calvin Coolidge’s vice president. (Cronyism!) And it did these things while denying funds to cities that had run out of money to pay schoolteachers. (Where’s my bailout?)3

  Although it was almost never mentioned in our present-day debates over the legacy of Franklin Roosevelt, those bad bailouts were one of the targets of Roosevelt’s famous “forgotten man” speech of 1932, in which he charged that “the infantry of our economic army” had been overlooked while Hoover dispensed billions to the “big banks, the railroads, and the corporations of the nation.”4

  Did FDR’s criticism of the bailouts mean there would be no more of them? Not exactly. As president, Roosevelt actually expanded the RFC and changed its direction. The man he installed as its chairman, a Texas banker named Jesse Jones, was no Tim Geithner. He was, instead, a classic populist type who regarded high finance with extreme suspicion. Jones spread the wealth around rather than dole it out to Wall Street. His RFC bailed out small-town banks, sank millions into agriculture, public works, education, insurance, and every imaginable type of small-scale financial enterprise.5 And his RFC was far tougher on bailout recipients than we were this time around. It fired top management at bailed-out banks when Jones disapproved of them. It helped organize new banks when Jones thought they were necessary. It put compensation caps on bailed-out CEOs that were far stricter than anything contemplated by Team Obama. It took far-reaching steps to ensure that the railroads it rescued didn’t turn the bailout money over to Wall Street banks. Jones even once told railroad executives that they had no business living in New York City.

  The most critical thing was this: Under Jesse Jones’s direction, the RFC was very clearly not an instrument of Wall Street. Instead, it was a sort of competitor, helping to organize the business structure of the nation independently of Wall Street’s dictation.6 While Jones’s RFC did these things, the Democrats of the day regulated investment banking with the Securities and Exchange Commission, broke up the big banks with the Glass-Steagall Act, and reorganized the Federal Reserve in a way that diminished the power of the New York banks. And they repeatedly told the nation why they were doing these things.

  Maybe the Roosevelt/Jesse Jones approach wouldn’t have helped this time around. After all, the antibailout leaders of the last few years object when a helping hand is extended to the little guy just as much as they do when it’s Wall Street that’s soaking up the tax dollars. But at least such a technique would have made it impossible for the resurgent Right to present themselves as the only principled opponents of Wall Street or as the only ones who are wise to the banks’ corrupt grip on Washington.

  We’ll never know. Obama chose the path of Herbert Hoover instead. Yes, the TARP aided regional banks here and there, but its obvious, overriding purpose was to get Wall Street off the hook for its disastrous mistakes, to stand the banks back up and get those bonuses flowing as in the old days.

  Upon taking office, Obama did not break with Hank Paulson’s campaign to restore Wall Street’s preeminence or lay plans to reduce investment banking’s power over American life. Instead, he took pains to let the world know that he embraced the Paulson strategy, appointing Paulson’s ally Geithner to be his treasury secretary, retaining bailout mastermind Ben Bernanke at the Federal Reserve, and choosing as his chief White House economist Larry Summers—the man who had been treasury secretary when traditional banking rules were triumphantly overturned during the Clinton years. To this day, and despite the cries of “socialism” that dog them, Obama’s crew has almost never voted the shares in the banks that the nation owns and has never replaced the management at a single one of those bungling institutions.* And each time political adversity came in the following years, the Obama team compromised in the direction of Wall Street, as though that was who needed to be mollified.

  By Washington standards, the Obama administration played it exactly right. Voting for the TARP and then continuing the bailout policies of the Bush administration were acts of political maturity, showing the world that the Democrats could be trusted to rise above partisanship, to make the hard decisions, to swallow the bitter pills, to do what responsible adults knew they had to do, and so on down the list of Power Town clichés. In any case, the thinking goes, all political battles are battles over the “center.” Since the Democrats are a party of the “left,” their critics can only be placated by moves to the “right.” That’s why, in order to appease those who fear Obama’s radicalism, the president had to make concessions to business (meaning Wall Street) and bring in nonthreatening personalities to develop his economic program.

  The economic folly of this strategy should be plain by now. That it might also lead to electoral disaster probably never even occurred to the president’s hard-nosed political advisers. After all, catering to
Wall Street had brought only victories to Bill Clinton. Coming around to the way of the market had been regarded as high-minded stuff in the nineties, a statesmanlike acknowledgment of the obvious validity of conservative economic ideas. And Democrats in Washington look to the Clinton years as a kind of golden age.

  But the advent of hard times made all that reasoning as obsolete as the floppy disk. Although Democrats apparently didn’t know it, the Great Recession had repolarized the compass points. Nothing worked the way it used to in the nineties. It was no longer about “left” versus “right”; it was about special interests versus common interests. This was the time for a second FDR, not Clinton II.

  The Right understood this instantly, as its many movements and ideas and manifestoes attested. The country demanded philosophical guidance, and the Right provided it. Conservatives claimed to speak for a recession-battered people, and as I have endeavored to show, they adopted the tones and markings of traditional hard-times insurgencies. Indeed, by April of 2011 it was possible for National Review to depict the author of “Down with Big Business,” Representative Paul Ryan, as FDR, using the same image that Time used for Obama in 2008.

  But it took the Washington Democrats years to grasp that things had changed. After the “shellacking” of 2010, for example, President Obama’s response was to replace the former investment banker and Clinton retread Rahm Emanuel with … Bill Daley, another Clinton retread and former investment banker. Whom did the president think he was accommodating when he made this move? Your guess is as good as mine.

  The low point came during the debt-ceiling debate in the summer of 2011, when the brand-new Republican House of Representatives threatened to force a default on the national debt by the U.S. government unless it received what it wanted. The Republicans followed their playbook—moving ever farther to the right, creating the catastrophe they had pretended to foresee in the preceding years—and Obama followed his. Having nobly divested himself of bargaining chips some months before, Obama now declared that he would answer Republican demands by seeking some high-minded “grand bargain.” He allowed that cuts to Social Security and Medicare, two of the proudest achievements of the Democratic Party, might well be necessary, and gave his assent as Republicans steered the economic policy of a stricken nation toward austerity.