By taking steps to prevent the financial crisis of 2008 from turning into a broader financial meltdown, President Obama prevented another Great Depression. For that, we should be thankful. Yet ironically, a larger-scale economic crisis might have summoned the political will to reverse the long-term trend of increasing concentration of wealth and power, as it did in 1933. Now, with the immediate crisis contained, political support for major reform has slackened. Consequently, we find ourselves almost as far from meeting the progressive ideals of equal opportunity and robust democracy as we were before the crisis began.
If anything, the Great Recession has accelerated the trend toward greater concentration. Under its pressure, more firms have discovered how easily they can increase profits by shrinking their payrolls and laying off their workers, and how cheaply jobs can be done using computers and advanced software or using the Internet to outsource jobs to foreign workers who have become nearly as productive as Americans, but charge far less. This means many more Americans are facing the Hobson’s choice of joblessness or lower wages. At the other end of the income ladder, top corporate and Wall Street executives and traders with reputed “talent” and connections–those charged with discovering more ways to increase profits–are commanding ever higher salaries and bonuses.
Meanwhile, the political power that comes with wealth has shown no sign of abating. The Great Recession notwithstanding, Wall Street’s generous campaign donations, its ubiquitous lobbyists, and its numerous revolving doors into the Treasury and other economic posts have all but assured the Street that financial “reform” will not drastically cut into its profits or the take-home pay of its denizens. Big Pharma and Big Insurance, likewise, are running victory laps around the deal they struck on health care, which virtually guarantees them big payouts in future years. And although marginal tax rates on the very wealthy are slated to rise, they will barely nick incomes that are rising even faster.
Obama might have had more success if he had framed the challenge in broader terms. In 1965, Lyndon Johnson saw and described the economic and political challenge the nation then faced in structural and historic language: to use the power of the federal government to reduce poverty among the elderly and the chronically poor, to widen the circle of prosperity, and thereby to complete the agenda begun by Franklin Roosevelt and taken up by John Kennedy.
But Obama defined the economic crisis he inherited not in structural or large historic terms but, rather, as a cyclical downturn–albeit an especially deep one–after which, he assured Americans, the economy would return to normal. He thereby missed an opportunity to expose the longer-term structural trend toward increased concentration of wealth and power, and its dangers. As late as 1980, the top 1 percent of income earners in America took home less than 9 percent of total income. But income and wealth have been concentrating since then in fewer hands; by 2007, the top 1 percent took home over 23 percent of total income. The President could have explained to the public that such a degree of concentration is not only unfair but economically unstable; it makes it impossible for the middle class to have the purchasing power it needs to keep the economy moving forward without going deep into debt. Instead, the President left the public with a diffuse set of ongoing economic problems that appear unrelated and inexplicable–rather like Bill Clinton left the public in 1993 when he declared the recession over, although median wages would continue to stagnate for another 15 years and inequality continue to widen.
In 2010, the American public will continue to experience housing foreclosures, job losses, lower earnings, less economic security, widening inequality, soaring pay on Wall Street and in executive suites. But without the articulation of a larger narrative that ties these phenomena together and explains what needs to be done, the nation will be unable to mobilize politically to demand and support large-scale change. The public will also be more susceptible to dangerous right-wing arguments that its problems were founded in “big government” and excessive taxes, and to simplistic arguments on the left that its problems all stem from greedy corporations and global trade and investment.
Legislation to improve the nation’s health care system illustrates the paradox. Initially, the public was strongly supportive. But Obama failed to link the reform of health care to the unfolding economic problems faced by most Americans and to a broader agenda for economic reform. The public was understandably focused on the losses of jobs and wages; as a result, it was not sufficiently invested in the legislative fight. The only way for the White House and Democratic leaders to get a health bill enacted was to broker deals with Big Pharma and private health insurers. These industries demanded in return that any so-called reform improve their profitability. The resulting legislation, although a step in the right direction, would not adequately control future costs and would require that Americans pay far more for their health insurance than otherwise. And as I write, even the fate of this marginal reform package is up in the air.
Much the same occurred with efforts to reform the financial system. The White House could have described its purpose as overhauling economic institutions that bestow outsized rewards on a relative few, while imposing extraordinary costs on homeowners, small businesses, small investors, and much of the rest of the middle class. Instead, Obama defined the goal more narrowly–as reducing risks to the financial system created by particular practices on Wall Street. The solution thereby shrank to a set of technical fixes for how the Street should conduct its business. Once the financial crisis seemed to have passed, the public lost interest, with the result that the Street’s lobbyists played a major role in fashioning the resulting legislation.
At the same time, political reform foundered. Although the President had castigated lobbyists during his presidential campaign, his own decision to forego public financing made it difficult for him to focus the public’s attention on the connections between concentrated wealth and concentrated political power. Once in office, he did seek to reduce the influence of lobbyists in the executive branch, but he showed no particular interest in reforming the political process as a whole. Yet without political reform, a reversal of the underlying trends toward more concentrated wealth and power is impossible.
The day of economic reckoning will probably occur in 2011 or 2012, once the government stimulus ends and the Federal Reserve reverses its policy of easy money. With a growing share of income continuing to flow to a few at the top, Americans will no longer have the purchasing power to continue buying the goods and services the economy is capable of producing. Those at the top won’t do so because they don’t spend nearly as large a fraction of their incomes as the rest of us; foreign buyers won’t, because net exports will remain a small fraction of the economy, especially given China’s industrial and social policies. And without enough consumers, companies will have no reason to invest substantial sums in new products and services.
The likely result will be continued high unemployment and declining real wages for most Americans or, worse, a “double dip” into another recession. A “double dip” might itself create political demands for large-scale reform, but an economy that’s merely bad is more likely to unleash a political backlash–as, over time, more Americans grow skeptical that established institutions will respond to their needs, and convinced that the game is rigged against them. Stirrings of such backlash can already be found in the increasing shrillness of American politics, the coarsening of public debate, and the public’s deepening cynicism about every large institution–big business, Wall Street, and government. And it can be seen in the public’s increasing isolationism on foreign policy, weakening support for international trade, growing aversion to immigrants, and escalating hostility toward elites of all kinds–whether business leaders or politicians, the denizens of Wall Street or lobbyists, ivory-towered intellectuals, or people with great wealth.
The progressive goals of expanding economic opportunity and strengthening democracy are intimately connected. But today’s liberalism lacks two important ingredients. First, it fails to explain to average Americans–simply and clearly–how the underlying trends of the American economy and politics are working against them and what they must do to reverse these trends. Second, it clings to particular candidates rather than to its powerful ideals and thereby becomes periodically seduced by personalities that seem temperamentally inclined toward liberalism but lack strong liberal conviction. Barack Obama is an able man, and the nation is better for having his services. But Obama, like Clinton, neither addresses publicly the deeper structural challenges facing the American economy and American politics, nor acts upon them. Like Clinton, Obama has failed to address the widening imbalances of wealth and power. American progressives–caught up in short-term politics, distracted from these larger trends, fascinated by these large personalities–have failed to push him to do so and thereby to prod the great pendulum of American politics back toward first principles.
It will not be easy to devise and sell policies–more progressive taxes, stronger unions, universal access to high-quality education through college, adequate public funding of elections, for example–that respond directly to the increasing concentration of income, wealth, and power in America. But without a fight, progressive ideals will never be met. No president and no administration can do it on its own. Obama is already being labeled a “socialist” for his efforts to expand access to health care. The fight will take a generation, and it will require a progressive movement willing to push its elected leaders, to educate the public, and to organize and mobilize Americans to achieve the nation’s most basic ideals.