Time for a bracing dose of economic populism.

…no one in a capitalist country should begrudge the earned wealth of the rich. But there must be some sense that the prospect of greater prosperity extends beyond the privileged. The policies of Fed chief Ben Bernanke and Treasury Secretary Tim Geithner have done little for the small businesses on Main Street while enriching the owners and managers of financial companies by showering them with cheap money and implicit government guarantees for their survival. Top pay for CEOs of financial companies, including those bailed out by the taxpayers, has soared. The rise in stock prices has benefited the wealthiest 1% of the population, which owns some 40% of equities and 60% of financial securities.
[. . .]
…To succeed, the GOP needs a viable alternative to middle and working class voters who are losing faith in Obama-style crony capitalism but who do not want to replace it with policies focused on enhancing the bottom-lines of the top 1% of the population.

Joel Kotkin

Kotkin calls for a more populist GOP economic strategy.

Defense of crony capitalism has to be distinguished from defense of free markets.

That should be do-able.

But will they?

25 thoughts on “Time for a bracing dose of economic populism.”

  1. It depends on what “economic populism” means. If it means advocacy of equal opportunity and against govt favors for some, then good. However, if it means hostility to the financial industry then that would be bad. Kotkin doesn’t discuss this point beyond pointing out that the govt has favored big players in finance. But most financial businesses aren’t being subsidized, and indeed are small businesses. And most of what such businesses do is beneficial for everyone.

  2. Crony capitalism is the problem. Government is a tool, mostly inert. It is used to pillage us. The pillagers usually reside in private businesses. They are the cause of the problem.

  3. I don’t know if I would call the Immelt-era GE, or Goldman Sachs, “private businesses.” They are examples of the modern fascist regime we have in power now. By fascist, I mean more the Mussolini corporate state that “made the trains run on time,” not the Nazis. Not many people realize how popular fascism was in this country pre-WWII. Look up the original words to “You’re the Top” by Cole Porter, for example. Mussolini was actually in a movie with Lionel Barrymore playing a small part.

    What we see Obama doing is fascism without the bad name. The debt limit strategy is right out of the fascist playbook. It is probably illegal for Obama to withhold Social Security, checks, for example, but that hasn’t stopped him talking about it.

  4. The pillagers are always with us, like bacteria. They cause harm only when the govt is big. When govt is small there’s less profit in rent-seeking behavior and erstwhile crony-capitalists are forced to do productive work. Adam Smith was right.

    Populism directed at finance is as dangerous as populism directed at drug companies. Finance is a vital American service industry that employs millions of people and makes all kinds of goods and services cheaper by creatively distributing risk.

    Goldman Sachs and the other big financial firms are corrupt in some ways but they also do a great deal of good by providing market liquidity, underwriting expertise and investment capital. We should be extremely cautious about political moves to cripple them. I don’t see why it isn’t possible to get rid of the corruption without damaging the financial markets. The first step is to change bad govt policies such as our current zero-rate interest regime that gives free money to big financial institutions at the expense of savers and taxpayers. We should also reform the Fed to reduce the employment revolving door between it and the banks. And we should probably audit the Fed as Ron Paul want to do. But the central problem here is the enormity of the money flow out of Fed into the private markets, which is a direct function of the size of the govt. Cutting back govt spending is the best solution.

    Conservatives and libertarians make a mistake when they demonize financiers such as George Soros. Soros deserves criticism for some of his political activities but not for his career as a speculator. For that he deserves praise. Far from being the man who “attacked” the financial system, as the yahoos put it, he should be seen as someone who helped to keep govts and central banks honest by helping to force currency valuation adjustments that exposed the real costs of bad policies.

  5. Agreed, Michael. The unholy alliance of the business community with government power is what are seeing now. “Fascist” is strictly correct.

  6. Lex, I think there’s a connection here to Walter Russell Mead’s recent insights about the importance of small business formation to the future of the American dream. Most folks perceive the Democrats to be the party of big government, and the Republicans to be the party of big business — with justification. Perhaps our Tea Party friends can break through by championing both small business (the ethic of hard work) and small government (the ethic of true public service). And, while we’re at it, is it too much to hope for a smaller military that is focused on defense of America and protection of our most vital national interests instead of foreign adventurism? I’m with Jonathan: Adam Smith was right… “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”

  7. Peter: The GOP would like to be the party of Big Business. But they have been outbid by the Democrats. The Tea Party is too big and diffuse to generalize about accurately, but I will speculate that this linkage is becoming better known.

    A smaller military is going to happen because the budget ax is going to fall. This will likely lead to more danger and more threats down the road, but that is still what is going to happen.

  8. I think it is instructive to notice the dog that didn’t bark in the night. Brown Brothers Harriman did not get heavily into CDOs and did not require any sort of bailout.

    Why ?

    I rely on Nicole Gelinas’ book for a source but BBH was the only large investment bank that remained a partnership. Goldman Sachs led the field in going public and, once there, the traders were gambling with outer people’s money. When I bought my first home in 1969, the S&L that made the loan kept and serviced it. It was unthinkable to expect to buy a home with less than 20% down.

    When I was still a student, an enormous home was under construction down the hill from my wife’s parents’ home in Bel Air. We walked down and went through it. I understood that it was going to cost the unbelievable sum of $500,000. Of course there was no financing. No bank would loan on such an expensive project. That was about 1961. The home had a six car garage and servants quarters above. There was an enormous master suite and two guest bedrooms.

    Some years later, it was torn down and six homes built on the site. That was about 1975. Each of those home cost over $1 million.

  9. Obama is going to take the USA into default.

    This is him and his doctrinal leftist insider brain trust/cargo cult is trying to recreate the 1995 government shut down magic Bill Clinton did with Speaker Gingrich to get reelected.

    Republicans cannot stop Pres. Obama from doing it if he really want to do so.

    The upshot is that there is no down side for Republicans sticking to their guns on taxes, because if they give in on taxes, Obama will demand more and still default.

    Sen Mitch McConnell is too damned stupid to realize this.

  10. Since I agreed with the post and thew comments, let me add something by responding to Michael Kennedy’s first post. What we are seeing today is better termed “state capitalism.” Keeping in mind that this type of system is based on “ownership or control,” it is primarily the regulatory environment business face that make the term state capitalism most appropriate. Especially when that regulatory environment favors large entrenched businesses by making the barriers to entry effectively impassable.

  11. Trent, I agree. The whole point of this is to cause a train wreck and blame the GOP. It is costless to stick to principles since the other side is committed to the train wreck anyway, and they are going to assign the blame exactly the same no matter what the GOP does.

  12. I know every one here is going to freak, but this populism MUST be coupled with some sort of tax-swap/deal that fixes entitlements.

    We are witnessing the Rs taking a bath on this debt limit vote because the Rs can’t even cut a GOOD deal (not that Obama is offering one). The tea party faction believes it is a majority, when in fact it is NOT! (yet)

    There is a great quote in today’s WSJ.

    “The tea party/talk-radio expectations for what Republicans can accomplish over the debt-limit showdown have always been unrealistic. As former Senator Phil Gramm once told us, never take a hostage you’re not prepared to shoot. Republicans aren’t prepared to stop a debt-limit increase because the political costs are unbearable. Republicans might have played this game better, but the truth is that Mr. Obama has more cards to play.

    The entitlement state can’t be reformed by one house of Congress in one year against a determined President and Senate held by the other party. It requires more than one election. The Obama Democrats have staged a spending blowout to 24% of GDP and rising, and now they want to find a way to finance it to make it permanent. Those are the real stakes of 2012.”

    The fact that McConnell is being criticized by the right for offering parties an out is INSANE!

    The point is this: We don’t have the political power to enforce a “tea party agenda,” and we aren’t going to attain that power with out cutting deals that prove we can ‘govern.’

    That’s why we pick Bushes and McCains over Palins and Cains. We have a five pound test fishing line, and we are trying to land a whale. Now that you are all properly ‘oriented’ (a la Boyd), devise a strategy to win the small and large battles.

  13. The GOP should get the best deal it can if there is any kind of good deal on offer.

    But Obama does not want a deal.

    He wants a disaster he can blame on the GOP.

    We wants a super-sized version of 1995.

    “The Obama Democrats have staged a spending blowout to 24% of GDP and rising, and now they want to find a way to finance it to make it permanent.”

    So, how do you prevent that when you don’t have enough good cards? You don’t. You can’t.

    So you make them do it by themselves, and then they own it.

    “It requires more than one election.”

    Exactly. Obama is committed to making sure the next election is a win for his side by causing a disaster and assigning blame for it.

    What positions should the GOP take facing that reality?

    Cut a bad deal, and get clobbered?

    Or stick to your principles, and get clobbered?

    I don’t see any don’t-get-clobbered scenario.

    They are determined to re-run 1995.

  14. -The US govt is already defaulting via inflation.

    -Obama wants a deal where he gets tax and spending increases but he knows the Republicans aren’t likely to agree to them. It does indeed appear that he is trying to rerun 1995. For their part the Republicans know that Obama cannot be trusted to keep any deal, so they are probably even more resistant to a deal with him than they might be otherwise. So there may be no deal, and that would be fine. There doesn’t seem to be much downside for the country in lack of agreement here. The Republicans should probably also vote against a debt-limit increase. The govt won’t stop functioning. What might happen then is that Obama will become open to a better deal from the Republican standpoint. It’s a long shot but there probably isn’t much downside for Republicans in continuing to say no, since they are probably going to get blamed for whatever happens anyway. Republican legislators may as well stick to their guns. It will be better for the country that way, and if they waiver many of them stand to be punished by conservative primary voters next year.

    -The economic path of least resistance for the govt is more inflation. Look out. It is probably going to get ugly.

  15. McConnell has come up with a complicated plan to try to assign blame to Obama but it is just too complicated to explain and it is being criticized by both sides. I think in the end the Republicans’ best option will be to agree to an increase that will last until September 2012. Obama will oppose that and that will be the best they can do to show his intransigence and the role that plays.

  16. Micheal,

    There is nothing the Republicans can do to stop a default if Obama wants one.



  17. “The fact that McConnell is being criticized by the right for offering parties an out is INSANE!”

    You said it. I don’t have standing to say this because a surgeon diagnosed that I have a large foreign object in my eye.

  18. It’s your karma. You have embraced greed as a way of life and it’s going to kill your national experiment.

    As I have pointed out before greed is, in nature, a windfall response. Basing your entire economy on greed is really really stupid. It cannot help but fail. It’s only useful to secure benefits when there is a massive surplus. Not at all useful for normal conditions, which prevail most of the time.

    The other condition which affects your karma is your aggressive approach to so much of the world. Do you really think the wholesale killing of innocent people will have no consequences?

    You richly deserve to fail.

  19. Pengweenie,

    Basing your entire economy on greed is really really stupid.

    What should we base it on then, the maniacal pursuit of political power such that we can bend others to our will with the violent power of the state? Who assumes the greater karmic burden, the business person who makes money by performing task that his customers will voluntarily pay for or the political activist who hijacks the violence based power of the state to threaten others to behave as the activist thinks best?

    Decrying “greed” is the first cry of the tyrant and the mass murderer. Throughout history, the murderers have killed in the name of preventing or punishing “greed.” There is a direct correlation between the moral scorn an ideology directs towards the economically productive and the eventual murderousness of that ideology. The louder they condemn “greed” the more they kill by poverty and violence.

    Do you really think the wholesale killing of innocent people will have no consequences?

    Well, it got rid of that pesky Nazi problem we had a few years back. Are you saying we should have just shrugged our shoulders and let Hitler, Stalin, Mao and a host of others do as the pleased wherever they pleased? Given the hundreds of millions they murdered in the domains they did control, why do think it would have been better to allow them greater scope of action?

    Let us not forget that individuals such as yourself stopped our “wholesale killing” in Cambodia back in 1975 and crowed about your obvious moral superiority while doing so. In the next five year at least two million Cambodians, out of a starting population of 7 million were killed by their own government. There entire educated population was exterminated and then the nation plunged into a decade of warfare following the life saving Vietnamese invasion. Today the country remains utterly devastated sown with more mines (all from communist superpowers) per unit area than any other country on earth.

    When your selfish moral vanity results in far, far more deaths and destruction than any American soldier ever wrought, why is your karma so much lighter? Does inaction really produce less karmic backlash than sincere action? If you use a lessor act of violence to prevent a greater act of violence, how do the karmic scales adjust?

    You are the world’s worst Buddhist. You don’t drive by here and sneer at us out of concern for our spiritual well being but rather out of a vainglorious desire to exult you own imagined moral superiority over us. Had you actually read the sutras, you would have known that the Buddha, and all who followed him, warned that vainglory i.e. moral vanity and the desire for status and moral dominance, were the greatest dangers to an individual’s spiritual well being.

    You quite obviously don’t care about anyone’s spiritual well-being, even your own. You just embrace religion as a prompt to your own ego. You are exactly the kind of person who does great evil when given great power.

    You should find some other forum to plumb your ego in. Your comments here are childish and tedious. . Simply making the tyrants cry of “greed” isn’t an actual constructive argument. Anyone can do that. Quite,frankly, you just don’t have the education or intellectual curiosity to keep up with the Chicagoboyz

  20. As I have pointed out before greed is, in nature, a windfall response. Basing your entire economy on greed is really really stupid. It cannot help but fail.

    It may well fail. What we are seeing now are the effects of your ideology in power. Business is evil and the desire to make money when “you have enough money” is to be condemned. The socialists have not given us much of an alternative since even Sweden is now turning to free market capitalism.

    I keep going back to Heinlein.

    “Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded—here and there, now and then—are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

    This is known as ‘bad luck’.”

    I think that says most of it, if not all.

  21. There is a lot of thoughts that came to me with this thoughtful post. First, the loss of the Republican in the NY special election had some saying that very thing. There were lot of other factors at play but still….

    Second as Michael has stated greed has always been around – in fact fear and greed are the only things propelling the stock market. But when the whole economy is based on greed – the housing bubble is a perfect example….

    But I believe – until the last 40 years – greed never entered he body politic the way it has – thanks for the most part to a party that has advocating “getting yours” and “punishing the rich”. Never mind the fact that the top 5% of income earners pay such a huge disproportionate amount of the income tax – like 40%-50%? Tax them more and they start to shelter their money overseas – and forget about job creation.

    The very terminology of “Entitlement” programs is a misnomer – how is one “entitled” to them? The ignorant among some of the recipients will say “I paid my taxes”.

    And it is also true that Big Business has benefited immensely not only by Obama but George Bush.

    The fact that GE has paid no taxes – and currently is in bed with the Obama administration (getting untold millions in grants to develop windmills and other things) – and then, insult to injury – they repay the Obama administration by agreeing to buy 12,000 Chevy Volts – a car that has to be subsidized by the taxpayer to the tune of $7500 – and still people aren’t buying it – well, that is what some call crony capitalism.

    And don’t get me started on GM –

    Of course when I had to close my small business the government couldn’t have cared less.

    Nor would I want them too.

    A government that is so large and pervasive as to rescue us all from our own follies is a government that is smothering personal freedom with a cost so huge as to stifle true innovation – the freedom to make mistakes and make it big.

    I’d like to know where the $2 trillion spent in the last 2 years went – what do we have to show for it other than an apology to our grandchildren who will have a reduced quality of life trying to pay this off?

  22. “Defense of crony capitalism has to be distinguished from defense of free markets.

    That should be do-able.

    But will they?”

    Amen, Lex.

    Unfortunately, probably not. The GOP has moved very far away from Reagan-Kemp to a half-cocked mixture of promoting rentier economics and Arthur Burns style green eyeshade austerity.

    It’s remarkably stupid strategy on all levels except political self-interest in terms of campaign donations from very wealthy hedge fund guys who give generously to key GOP politicians but are otherwise Democrats and lovers of technocratic statism.

    Even with massive fiscal cuts we cannot get out of this jam without robust and sustained economic growth of around 6 % for *years*. Bottom up growth with formation of new companies, new industries and an increase in real wages for the bottom 99 % of Americans.

    Right now the Democrats and Republicans have anti-growth policies – tax and regulatory structures need radical revision so that entreprenurship is more rewarding an option for investors than derivatives or investing in foreign bond markets

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