Jan 5, 2011

December 23, 2010: The Gathering Storm, Go It Alone, Relative Assurance

There were two problems concerning the 2008 election cycle. The first is that unlike 1932 the impending economic collapse was, through swift action, averted. Hardship, when it came, was much more divisive, falling upon the working poor and only part of the middle class. The upper classes suffered only momentary reversals soon ameliorated by the application of the salve of Federal largesse. So too with the upper middle class, which was barely inconvenienced. But the middle class and lower middle class continued to suffer the pummeling, as had the working poor, of the last four decades. The result was that unlike 1932, the new Administration came to power with not nearly the congressional majorities and, in the Senate, a majority hanging on the uncertain votes of Ben Nelson, Joe Lieberman and Blanche Lincoln. The second was that the political process produced in both candidates for the presidency men who, for vastly different reasons, did not possess the political capital with which to deal with these problems.

Inauguration day proved to be a bright and sunny gala event, but there were ominous signs about for anyone with eyes to see. At the congressional lunch that afternoon, Senators Kennedy and Byrd were taken from the gathering, both suffering from failing health, and about the new president stood not the reincarnation of the New Dealers but the very architects of this miserable crisis.

In 1999 after 13 presidential vetoes, the Clinton Administration, at the urging of Treasury Secretary Larry Summers and his underling Tim Geithner, signed off on a Republican backed repeal of the Glass-Steagall Act. Passed during the Depression the Glass-Steagall Act prohibited Banks and lending institutions from investing in the stock market. The purpose of the act was to prevent a crash on Wall Street from threatening the financial institutions of this country. For sixty years the United States had experienced the usual ups and downs of the business cycle, had its stock market bubbles, its boom times and its financial hardships. But for sixty years we had no financial crisis; economic downturns and recessions to be sure, but we had no financial crises portending another Great Depression.

All that began to change as the “Boomers” came to adulthood and began the long and determined process of getting their hands about the throat of the economic goose that lays the golden egg; that is the systematic dismantling of the New Deal. Among the first casualties, during the Nixon years, was the removal of the requirement that one must hold stock for a given period of time—45 days as I remember it—under severe penalty. This provision worked to take the ‘volatility’ out of the market and reduce speculation and, by extension, speculative bubbles. By the time the Clintons came to power the old New Deal safeguards had been largely dismantled in favor of the Republican Market fetish with only Glass-Steagall remaining as the main bulwark of protections. Having learned nothing from the Savings and Loan Crises and scandal in the wake of the Reagan years, the new ‘centrist’ Democrats completed the coup de grace by finally ridding Wall Street of the last impediment to grand larceny. And so with the banks and the insurance and the financial houses merging, with the mixing of stocks with savings, banking and real estate, and the movement of investment capital into the ever more esoteric instruments of derivatives, credit-default swaps, and hedge funds, the economic order became ever more exploitive; and, with an ever greater portion of the wealth landing in ever fewer hands, unstable. And so, by the time the Clintonites had handed power over to ‘Ol Two-Cows’, the conditions were ripe for the fleecing of the economy on a truly grand scale; and the creation, by way of the so-called “day traders” of economic instability the likes we haven’t seen since Herbert Hoover.

It took nearly 8 years for the ‘casino days’ to give way to another great economic calamity, but the Federal Reserve had learned enough from past experience, and the Republican minority had enough dog in the fight to move with some alacrity to meet the emerging crisis, at least while it was on their watch. Not so after power was handed back to the custodians of sound public policy. As inauguration day approached Republican support for sound economic policy--even the bail-out of their Wall Street benefactors—evaporated in the name of the true god of Republicanism: unlimited political expediency. It became clear, as he assumed the reins of power, that Obama would have to go it alone.
One forgets that on that cold March morning in 1933 when FDR stood on the capitol steps and declared that “we have nothing to fear, but fear itself” that not only had the crisis developed from a Wall Street collapse into a full-fledged world-wide Depression, and that after over three long years of suffering and an unemployment rate estimated at 25%, the voters had returned an electoral majority of three quarters of the House and two-thirds of the Senate. We also forget that FDR had been a national public figure for over a decade. History records in 1920 the sweeping victory of the son of Blooming Grove as Harding and Coolidge went about the business of repudiating Wilson’s “New Freedom” by putting the scions of Wall Street back in the saddle. What we don’t remember is that the Democratic candidate for Vice President was none other than Franklin Delano Roosevelt. Subsequent to the electoral defeat the nation watched his life threatening battle with polio and his long recuperation, his rise to the governorship of New York, and his emergence as the leading contender for the 1932 presidential nomination. When he stood on the capital steps, the country had a general understanding of the man in which they had placed so much hope.

Likewise with Eisenhower who, as wartime commander, had given the nation long exposure to his leadership and its capabilities, emerging as a national figure in whom one could place great trust. The same could have been said about Lyndon Johnson who had served a long time in the congress and had emerged as a national political figure as Senate Majority Leader. Nixon, although less trustworthy, had established formidable foreign policy credentials and, given the realities of the Cold War, went a long way toward establishing political confidence. Likewise Gerry Ford who had been on the national political stage for over a decade as House Minority Leader before becoming, as a product of the Watergate Scandal, the consensus candidate to replace Nixon.

The great undoing began in 1968. The “Boomers” coming of age coincided with that tragic year of violence and assassination. Beginning with the disillusion brought by the Tet Offensive in Vietnam, the deaths of Martin Luther King and Robert Kennedy, the protests and riots, the remnants of the disillusioned and the ‘New Left’ converged upon the Democratic National Convention creating a backlash so violent that the party determined to reform itself root and branch. Creating the McGovern Committee, George McGovern would transform the party rules governing the Presidential nominating process and in so doing vaulting himself, by 1972, to the party’s nomination. The process, when completed, would transform the Democratic Party opening it to women and minorities, and vastly increasing the number of primaries, taking the party’s nomination from the hands of a few political ‘king-makers’ like Chicago’s Richard J. Daley and placing it in the hands of ‘the people’. There were other, unintended, consequences. First by making the nomination a long primary battle. in which voter turn out is consistently low compared to the general election. the reforms greatly increased the power of single-issue groups. Secondly, by eliminating the ‘winner-take-all” nature of the primary results in each state in favor of proportional allocation of convention delegates, the reforms greatly increased the length of the campaign. Lastly the reforms, until the moneyed interests created new levers of control, created the opportunity for absolute unknowns to seize the nomination.

As early as 1972 the consequences of the party’s reforms became evident. Nominating a relative unknown Senator from South Dakota the party presented a convention that gave voice to every single issue group within the Democratic coalition. The result as McGovern himself was to ruefully observe years later, was that “I opened the doors and three million people ran out”. There were other consequences. Not only did the middle class forsake a party that was increasingly organizing itself around single-issue social issues instead of broad-based bread and butter issues, but placing the nomination in honorable but uncertain hands did nothing to instill confidence. The result was another convention circus and a Nixon Landslide.

The Democrats were handed the election, in spite of their reforms, by the criminal ineptitude that characterized the dark side of the Nixon personality. What emerged was a newly elected president who found himself, on inauguration day, at polar opposites of where FDR had stood a generation before: as an absolute unknown using the speech to begin the process of defining himself before the American people.

Who is this man? That is the lingering question every voter faces when making the lonely decision in the voting booth. It’s always a ‘pig-in-a-poke’ but only relatively so. There are times when the process gives us some assurances. But, increasingly, in recent years not. With Reagan we could be assured that we would be heading in the wrong direction. With Bush less so. But with the emergence of Clinton and Obama we have men achieve the presidency with no record of fighting and, on occasion, winning on behalf of the coalition that is the party. The result is that we invest our hopes and aspirations into a nearly absolute unknown. The new President emerges with support a mile long but an inch deep.

Let me put it another way. Of the great mischief that the “Boomers” have visited upon the republic nothing, except perhaps their fooling with the tax code, nearly compares with the rage for term limits. The great winners of term limits are the lobbyists, special interests, and the executive. Previously a newly elected member of the house or senate would go about spending his first years doing constituent services, voting to support broad-based economic and social programs, and bringing home the ‘bacon’ to his or her district. Over time, although a constituent would find fault with a vote here or there, the citizens would learn to trust his judgment. This would give a member of the legislature, and should that person become governor, the trust needed to have the political capital necessary to govern. So too in national politics. By watching Hubert Humphrey, Richard Nixon, Robert Kennedy, and Ronald Reagan emerge to national prominence the public could register approval or disapproval with relative assurance. The supporters of these men when, as when Reagan moved to raise taxes, could blame it on subalterns and demand “let Reagan be Reagan” knowing his heart if not his head. Not so with Carter, the Bushes, Clinton and now Obama.

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