The fragile and faltering state of American democracy.
Aging white guys at some important newspapers have hit upon a bizarre interpretation of the election returns: nothing much changed. Peter Baker of The New York Times: “When all the shouting is done, the American people have more or less ratified the status quo.” Say what? Baker seems like a smart enough reporter but this analysis is so stupid, he must be in post-partum shock.
George Will, always cynical and condescending, has ratified Peter Baker. In a Washington Post column headlined “The Status Quo Prevails,” Will observed: “A nation vocally disgusted with the status quo has reinforced it by ratifying existing control of the executive branch and both halves of the legislative branch.”
Lest anyone miss the point, the editors of the Post instructed their readers: “A status quo election result should spur both parties to compromise.” Compromise—that’s the ticket. By which they mean our re-elected president should punish the very people who re-elected him. The Post’s editorial bizarrely explained its reasoning. The 2012 presidential election was nearly a tie! “Just about half of voters—50.4 percent —supported President Obama. Just about half didn’t.”
Well, no, not exactly. Obama won in a landslide in the only contest that counts—the competition for the 270 electors needed to win the presidency. Obama has won 303 electoral votes so far and will get beyond 330 if his lead in Florida is sustained by the final count. The Electoral College is of course heavily biased to favor smaller states with far less population, so the president actually triumphed despite the odds against him.
Why are white guys so reluctant to give him credit? Because the 2012 election was a profound watershed in the life of the nation. Whatever else President Obama accomplishes or fails to accomplish in his second term, his re-election is in some ways even more significant than his initial triumph in 2008. He will be forever remembered as the president who opened America to a different future—more promising and fulfilling, more just and democratic than anything achieved in the American past.
It may be easier to see this if you ask: Who lost? Forget Romney and the Republicans. The real loser was the bitter legacy of “white supremacy.” That poisonous prejudice has endured in political reality and the national culture for two centuries. It still does, though it is now cultivated most zealously only by white Southerners who took over the party of Abraham Lincoln (who surely weeps for his Grand Old Party).
In 2012, white supremacy not only lost the election. It was a crucial factor in explaining how Obama won. Good for Obama and really good for the American people. Whose “status quo” are these pundits clinging to forlornly? Maybe their own. They have typically belittled the struggles by excluded minorities as “identity politics.” Well, yes, these people intend to be identified as citizens, fully endowed with the rights any other American enjoy. This election confirmed their goal.
The re-election of a black president is the most precious fact of 2012, perhaps even more significant than his original election in 2008. If Obama had lost, a wise history professor pointed out to me, it would have taken many years, probably many decades, before either major party would ever again dare to nominate a person of color for president. Black Americans understood this, probably better than most of us white folks. So did Latinos, Asians and a whole bunch of other “minority” voters. African-Americans might have had quarrels or disappointments with Obama, but they understood their historic stakes in winning a second term for him.
Obama has instead cleared a path for a very different American future. Generations from now, people of all sorts will be able to look back and say this is where it began, a new drama of self-realization now available to many once-excluded Americans and the new politics that they can generate.
Think about how children will interpret this event. For many millions, their dreams and personal ambitions are enlarged by this election. If Obama had lost, wise guys would have dismissed his presidency as a fluke, even a disaster. The kids know better, don’t they?
There are many other losers to acknowledge. Male supremacy is one of them. We cannot yet say the patriarchy is defeated, but its ancient dominance is disintegrating, both at home and in the workplace and in politics. Did the media bean-counters who think nothing important has changed notice the changing complexion and gender of elected representatives and senators? Or the fact that clear-thinking voters are now able to disregard the hoary taboos against gay men and lesbian women? The question is not about whom they can marry. It is whether they will become our trustworthy governors.
We should also celebrate another deep shift underway in politics—the arrival of the new Americans—that is actually a very old story in American history. This chapter involves some of the same injustices and abuses that earlier generations of immigrants encountered. They have always had to dig in and fend for themselves, do the gritty hard work to insure their children’s brighter future (one more thing about Americans Mitt Romney did not understand).
It always takes a generation or longer for the new Americans to gain the self-confidence and courage to step up and demand their rightful political power as citizens. But, look around, they are doing so right now. Reactionary Republicans saw their privileged “status quo” changing big-time in the 2012 election returns.Two or three generations ago, it was the Irish or Russian Jews or Italians and Polish struggling for their rightful place. In the election of 1928, they voted for Al Smith, the first Irish Catholic nominated for president. He lost that election but his politics defined the future of the Democratic party.
A friend of mine joked that Mexican immigrants are becoming the new Irish of our times and the Chinese immigrants the new Jews. Of course, every story is different, yet in some ways we are all alike.
The other big losers of course are the money guys—the billionaires who thought they could buy our election. No doubt they will try again, but now we know we can defeat them with old-fashioned door-to-door people-first politics. Organized money loses to organized people—that is the formula for our future politics. One hopes Supreme Court justices are reading the election returns. Those justices who regularly vote with the billionaires may ask themselves whether their ‘status quo” is in trouble too.
For more on the demographic shift and Obama's re-election, read the lead editorial in the latest issue of The Nation.
What most people never grasped about George McGovern’s run for president forty years ago is that it was the last genuinely open and honest presidential campaign. His landslide defeat in 1972 taught a generation of aspiring young Democrats not to try that again—and they didn’t. McGovern’s quality of earnest candor was deeper than style or politics. This is who he was as a person, not a saint or righteous innocent but constitutionally inclined to say what he thought, believing most people would listen with an open mind or at least they would learn from a truthful discussion of the nation’s condition.
Of course, he was mistaken. Yet I saw him up close when again and again he spoke freely about his views in ways that injured him, set him up for ridicule or contempt. Even the reporters covering his doomed campaign would roll their eyes in disbelief. Me too. Reporters were the cynics and Senator McGovern was the starry-eyed idealist. That was more or less the way we told the story. Looking back after all these years, I feel we missed the essence of George McGovern’s goodness. He was not naïve or ignorant of the hostile context. Given the desperate state of the union, putting hard truths on the table was perhaps the only strategy that might prevail. Anyway, it would be good for the country.
I experienced this as a young reporter for The Washington Post covering the McGovern campaign non-stop. The editors knew I was something of a bleeding heart. But they figured McGovern was a sure loser (they were right) and so it would do no harm if I wrote a lot of sensitive mush (they were right about that too). So I spent the campaign season as one of the “boys on the bus”—two weeks on the road with the candidate, then one week or so back home in DC. We had a lot of fun. Dr. Hunter S. Thompson was the tour director.
I was given only one instruction by my editor—do not fall for the reporter’s standard illusion that what was happening day by day on the campaign trail would somehow decide the election results. It didn’t then and it doesn’t now. Knowing this liberated me to skip the thumb-sucking stories on how the horse race was going. Other reporters, watching the big crowds of ecstatic McGovern supporters turn out, would succumb and report that the candidate was finally enjoying a “turnaround.” He might not be a loser after all! My accomplishment was I never fell for that.
But I did sort of fall in love. The candidate was intriguing on a personal level—sweet and brainy and deeply thoughtful, a true and generous teacher. He had a sophisticated world view born of the World War II experience and an open-armed confidence about America and its possibilities that I think of as Midwestern (since I’m Midwestern myself). McGovern’s conviction was liberal optimism and creative thinking could change things for the better. World peace was the core of his optimism. How far-fetched it seems now.
The senator’s character was reflected in his campaign apparatus and the people around him. A little wobbly on organizational skills but a great spirit of mutual good feeling. A favorite pleasure of mine when I was back in DC was dropping by the McGovern national headquarters housed in an old rowhouse on K Street. I literally would go door to door and chat up whoever I came across among the people managing his campaign—writing speeches, raising money, plotting schedules. There were no security guards at the building nor even a formal receptionist (though they did have a daycare center for their kids).
I remember dropping in on the campaign treasurer, who proudly took me up stairs to show me the money room. There were long folding tables covered with stacks of envelopes and high-spirited women ripping them open and counting thousands of dollar bills. I felt welcome to sit down and start opening envelopes myself. On another occasion, I was ushered into an office where staffers were listening to a possible campaign song. “George McGovern Will Lead Our Crusade.” It went on for many verses while the composer did a little tap dance. Campaign staffers listened earnestly but decided the song might to be too radical for the candidate. How could you not like these people?
Across town was the future of politics—the Nixon headquarters. There were armed guards, locked doors with buzzers, special IDs for important people and, who knows, probably hidden cameras. Everyone called it CREEP—The Committee to Re-elect the President. McGovern called it the most corrupt administration in history and was criticized for exaggeration. CREEP was secretly shaking down corporations for hundreds of millions and threatening retaliation to any company that refused. The extortion was so raw some CEOs complained publically. Forty years later, the corporate money is all perfectly legal now and extortion has morphed into the wholesale bribery that engulfs both parties (though some donors still prefer anonymity).
The senator’s death brings back a small personal regret. Reporters loved to interview McGovern, knowing if they pushed the right button they might get an alarmingly candid response. A month or so before the 1972 election, the Nixon White House cooked up what became known as the “October Surprise”—the sudden announcement of peace in Vietnam. About that time, a small group of reporters were invited to interview McGovern and I asked the candidate a loaded question: What did he think would happen after “peace” was declared?
McGovern did not blink. In his patient manner, he taught a little history of Indochina and concluded that this “peace” was not the end of the story. In a couple of years, once American troops were withdrawn, North Vietnam’s army would sweep south, swiftly conquer the old US ally and unify the two Vietnams. The United States would make a lot of noise but decline to re-enter the war. That, of course, is precisely what happened three years later. McGovern’s prediction was ignored amid the celebration of Nixon’s false peace. I still feel a small regret that I had set up the senator, not because it made any difference but because I was taking advantage of his best quality.
The hardest question to ask about George McGovern’s legacy is whether he made any difference at all. In some aspects, we can say yes. But for the central thrust of what he believed and tirelessly advocated, we have to say, honestly, no. Like McGovern, I imagined with millions of others that Americans would learn from the tragedy of Vietnam and never let it happen again.
That was so wrong. We are replaying the tragedy instead, repeating the same brutal mistakes and, worse yet, pretending that the bloodshed is noble business. Since 1972, I count four American wars fought on foreign soil and many more smaller skirmishes, all in the name of national security. Each time, the American dead are honored in sentimental public celebrations. The speeches express gratitude to their families and admiration for acts of bravery. No one of any prominence in politics dares to ask whether they died in vain or if the killing of many thousands in target countries has any moral justification. Think of the questions George McGovern asked. To what end? How are we any safer as a nation? Is it possible we are inventing even more risks?
Instead, we hear more talk of war, more planning for war. We set tripwires for potential wars in scores of other countries. If they do something bad, we will go after them. The president can now make war in remote places by personally punching a few buttons, selecting individual victims from lists of potential enemies. A man of peace who frequently makes war.
George McGovern would tell the truth nobody wants to mention. Instead of finding peace, our society is drenched in the culture of war, taught to children in video games and glamorized in fiction and film. On some twisted level, we have been taught to love war and so we shall have more of it. Do not mourn for the senator. Mourn for ourselves.
George McGovern for The Nation:
Questions for Mr. Bush | April 4, 2002
The Reason Why | April 3, 2003
Patriotism Is Nonpartisan | March 24, 2005 Gene McCarthy | December 15, 2005
The Legacy of Four Women with Rep. Jim McGovern | December 21, 2005
An Impartial Interrogation of George W. Bush | January 17, 2007
The Nation Profile:
McGovern: The Man, the Press, the Machine, the Odds by Arthur I. Blaustein and Peter T. Sussman | October 16, 1972
To the relief of many, Ralph Nader did not run again for president in 2012. He decided instead to do what he does best. He wrote another book. It is called The Seventeen Solutions: Bold Ideas for Our American Future, published this month by HarperCollins. Nader has been doing this regularly for nearly fifty years and his latest has the same intensity and well-informed outrage of his youth. Nader’s unique character and critical intelligence became a popular model for civic idealism. His activist techniques have been copied by striving citizens around the world.
I go back a long way with Ralph. As a young reporter at The Washington Post decades ago, I wrote a lot about Nader’s earliest ventures as the self-invented reformer. I once referred to him in print as the “lone ranger,” and he never quite forgave me. The label was a cheap shot, he complained, because it promoted his celebrity, which undermined his true purpose—showing average citizens how they too could take responsibility for country and community, fulfilling the Jeffersonian ideal of self-government.
Still, reporters and editors loved the story of a single-minded crusader who goes up against power. Nader spread his influence across numerous fields by creating a galaxy of small organizations that were not much more than letterheads. But Ralph staffed them with adventurous young people like himself—willing to challenge authority by producing shocking, fact-filled investigations. Nader turned these young recruits loose on government agencies, powerful corporations and huge public scandals like the toxic substances in air and water. Politicians responded to the bad press. The texture of American politics was altered in a thousand ways, most dramatically by forcing greater transparency on once-secret affairs of government.
His new book reads to me like an enjoyable collection of golden oldies—updating issues he has championed for decades, renewing complaints that will be vaguely familiar to any old heads who have long been around legislative politics and corrupted government. Fundamental Tax Reform. Give Science and Technology Back to the People. Get Corporations Off Welfare. Create National Charters for Large Corporations. Crack Down on Corporate Crime. Reduce Our Bloated Military Budget. Invent New Rules for Reform. And so on for eight more chapters.
It seemed like a nostalgia trip. Yet after all these years I found myself impressed all over again. One has to feel awe for Nader’s intellectual energy, for his tenacity and stubborn optimism. Yet Ralph himself did not sound nostalgic. He sounded indignant as always. He is not obsessed with frustrations or disappointments from the past. He is making fresh arguments set in the present.
For many of his propositions, the book failed to convince me, and not because I necessarily disagree with his goals. Ralph doesn’t really try to explain why good ideas never got off the ground or why his Jeffersonian conception of small-d democracy ultimately failed to hold on to its power. As I recall, Nader never did have much to say about ideology or have a well-grounded theory of political power and how it works. His engine has always run on his idealism, but his faith in the potential of ordinary citizens seems to have been shaken.
In a closing chapter, “Enlist the Enlightened Super-Rich,” Nader seems to suggest that billionaires with good intentions can save us. He wishes for a “plutocratic cultural revolution,” in which rich guys like Warren Buffett or Bill Gates will disperse their fortunes for the public good, sort of like latter-day Carnegies and Rockefellers. This is a sorry footnote to Nader’s career as a reformer, a sign that he may have given up on Jefferson.
I wanted more reflection and analysis. Ralph wanted to expose the bad guys again. “We all keep trying,” he told me in a personal note. Yes, exactly. It dawned on me that Nader has written a book everyone under 30 (or even under 40) should read. They weren’t present the first time around, when Ralph was creating a movement. These are new ideas for many of them, who will be shocked by the hard facts Nader is reporting (or re-reporting). Many younger people do not know the story of that energetic reform era, nor how it was suffocated by the corporate-financed counter-reformation. It will be very good for the country if Nader’s revelations shock a new generation. This book is a subversive primer that should be read in every high school civics class.
For more on the connection between politics and activism, read Frances Fox Piven and Lorraine C. Minnite on why “movements need politicians.”
Hearts and minds leapt upward on Wall Street when the Federal Reserve announced its new effort to revive the sodden economy. Print more money, buy more financial assets—billions and billions of mortgage-backed securities or Treasury bonds. The Dow jumped 206 points on the news. Major media described the event as bold and significant. Maybe, maybe not.
A sweet day for the financial traders does not necessarily translate into good news for Joe Sixpack. Indeed, the story of this troubled era is that what wins for the suits may very well produce opposite result for ordinary folks. What the news stories generally overlooked is that the central bank has already tried this remedy a couple of times and it failed to jump-start action in the real economy, where most Americans toil.
The Fed’s “new” commitment is to buy another $40 billlion in financial assets every month until the economy really does look reinvigorated. In two previous efforts, the central bank tripled the size of its own holdings and accumulated as much as $2.7 trillion in similar buying sprees. The stock market perked up, but not the national economy. In fact, the economic engine has slowed to a crawl during the last year despite the Fed’s earnest efforts.
As I read the Fed’s latest pronouncements, I am impressed by the words, not the numbers. Chairman Ben Bernanke is expressing sincere alarm at the “weak job market” and urging every other governing institution, from the White House to Congress, to take it more seriously. The Fed will stay on the case, he promised, even if its monetary interventions are “no panacea.” When the conservative Federal Reserve chairman worries aloud about stubbornly high unemployment and identifies joblessness as the gravest threat facing the economy, we can be sure this crisis is real.
Alas, most political leaders are not listening. The grumpy Republicans attack Bernanke for meddling in their affairs. Mitt Romney proposes to do nothing to make things better. Let nature takes its course until the bloodletting is exhausted and Barack Obama is out of the White House. The president did propose a jobs bill last year, but too little, too late. Everyone knew the Republicans would block passage, and they did.
Bernanke and colleagues know this is rubbish (so do most Americans). Some central bankers can glimpse the outlines of larger crisis looming over us—a global meltdown of historic proportions if nothing is done to prevent it. If the Fed’s latest efforts fail, as I fear they will, the central bankers will try something else. Bernanke promises they will.
Israel’s prime minister is provoking another political dust storm over Iran’s nuclear ambitions, but US news stories once again fail to mention awkward facts that are the true linchpin for this threatening crisis. Israel itself already has the Bomb. It developed its own nuclear weapons several decades ago, but has never officially admitted as much. And unlike other nuclear powers, Israel has never signed anti-proliferation treaties, nor has it submitted its nuclear arsenal to regular inspections by international authorities.
Everyone knows this, at least the government officials on all sides do. Yet there seems to be a media taboo against sharing the information with the American public. Americans have a huge and dangerous stake in the matter. If things go wrong and Israel launches a pre-emptive unilateral strike against Iran, it would probably provoke retaliatory war-making by Iran. Like it or not, the United States could be pulled into yet another war in the Middle East to defend our ally. Shouldn’t people hear the whole story before the shooting starts?
Don’t take my word on this. Check out newspaper accounts in which Israeli officials complain that the United States has not been tough enough with Iran. Prime Minister Benjamin Netanyahu blisters President Obama for failing to draw a bright “red line” against Iran’s efforts to develop a Bomb of its own. Netanyahu even accuses of Washington of “moral” failure for not standing up to the mullahs. His patrons in the Republican Party are grateful for the political intrusion.
But why does the press routinely ignore Israel’s nukes and its obvious military superiority? Perhaps because that would complicate and weaken Israel’s moral claims of self-defense. Furthermore, it could help explain why Iran might be eager to join the exclusive club of nuclear nations. Iran might say—if it ever told the truth about its motivations—that it is the nation in need of self-protection.
Without a nuke of its own, Iran and other neighboring Muslim nations will always see themselves as vulnerable to bullying and the threat of unilateral attack from Israel (as Israel is now again threatening). The claims and counterclaims on both sides are subject to dispute, but honest debate is unlikely to occur unless everyone acknowledges the same set of facts.
The media taboo was broken this week by columnist Bill Keller of the New York Times, formerly the Times executive editor. His op-ed asked polite questions and sought reasoned answers. Instead of demonizing the Iranian ayatollahs as crazed and suicidal, Keller concluded that it seems very unlikely a nuclear-armed Iran would use its nukes to destroy Israel. He did not say so explicitly, but he seemed to think Iran wants the Bomb to neutralize Israel’s superiority. It is a plausible conclusion.
“The regime in Iran is brutal, mendacious and meddlesome, and given to spraying gobbets of Hitleresque bile at the Jewish state,” Keller wrote. “But Israel is a nuclear power, backed by a bigger nuclear power [the United States]. Before an Iranian mushroom cloud had bloomed to its full height over Tel Aviv, a flock of reciprocal nukes would be on the way to incinerate Iran. Iran may encourage fanatic chumps to carry out suicide missions, but there is not the slightest reason to believe the mullahs themselves are suicidal.”
Keller has proposed an excellent subject for public debate. In this conflict, on which side does insanity reside?
The Romney-Ryan ticket puts a weird twist on Republican politics, because they are essentially repudiating Ronald Reagan’s historic legacy and the fiscal alchemy with which he taught conservatives how to win presidential elections. Before the Gipper came along and erased the GOP’s sour expression, it was known as the party of pinch-penny scolds, always complaining about Democratic excesses, automatically skeptical of anything government might attempt to do for people. In traditional circles, this was called the “old-time religion.” Among younger conservative reformers, the doctrine was denounced as “root canal economics.” Since voters do not usually reward politicians for inflicting more pain on them, the GOP endured as a grumpy minority.
Ronald Reagan’s political genius was finding away around the trap. Put on a happy face and stop punishing voters for ambitious desires. Democrats won elections by making big promises and even keeping them. But why should liberals have all the fun? The Gipper did not entirely abandon the old sermons on debt and deficit spending, but in practice declined to take the red ink seriously (it could always be blamed on liberal big spenders, though the actual history shows Democrats have a consistently better record for fiscal prudence). The Gipper’s sunny optimism was bolstered by the wacky theory called “supply-side economics” that claimed big federal tax cuts would be fully replenished by rising tax revenue flowing from economic growth. The wishful theory has never been confirmed in fact. That hasn’t stopped pious Republicans from asserting its truth.
The Gipper’s presidency in fact unhinged fiscal order. Though he promised balanced budgets, Reagan governed aggressively in the opposite direction. His presidency (1980–88) launched the era of permanently swelling federal debt. The debt surpassed $1 trillion for the first time during the Gripper’s first term. It surpassed $9 trillion twenty-eight years later when George W. Bush’s term expired. Obama’s first term added trillions more, mainly driven by collapsing incomes and revenue in the depressed economy. Obama was in fact too timid in his pump-priming, though the Republicans accuse him of the opposite.
If Romney-Ryan are taken at at their word, they intend to restore the old “root canal economics” that the Gipper’s supply-side policy discarded. Of course, they intend to direct the flow of pain downward on the income ladder—the truly vicious hits reserved for the impoverished citizens who have no political clout. The wealthier citizens are to be rewarded again for being wealthy. But since the “root canal economics” was always a political loser, maybe Romney-Ryan won’t follow through with the tough talk. Or perhaps this is merely cynical rhetoric meant to manipulate voters, but not to be taken seriously as government policy.
The 2012 election also poses a hard test for the Democratic party. Responding to the irresponsible fiscal policies that began with Reagan, Democrats have attempted to steal the high ground of respectability and embrace pious sentiments of fiscal prudence. In these terms, the two parties have done a kind of ideological crossover during the last generation—a game of musical chairs in which the same defenseless people are the ones who get hurt most. Maybe this election should be about returning to older principles that seemed out of fashion.
Rome is burning while Congress fiddles. The president is out on the road trying to secure a second term, while the economy once again teeters on the brink of bad possibilities. The governors of the Federal Reserve Board seem to understand this better than most of Washington’s power hitters. But what can the Fed do? The central bank has already dispensed trillions to the financial system and pulled interest rates down to rock-bottom levels. Yet the economy doesn’t respond. Banks won’t lend, businesses won’t hire. Anxious consumers stopped buying, the order books are bare.
Miles Kimball, an imaginative economics professor at the University of Michigan, has stepped forward to propose an ingenious solution for the Fed’s dilemma. The government should create a “federal credit card” and send one to every adult in the nation, enabling each person to borrow $2,000 at a very low interest rate and not pay back any of the money until after the economy has fully recovered. The provocative kicker in Kimball’s proposal is that the Federal Reserve would itself provide the financing, not Congress or the president through the federal budget. And he argues that the central bank can do this with its unique power to create money.
A federal line of credit, Kimball suggests, could become a new, fast-acting channel for economic stimulus—more potent than the usual methods like tax rebates, and far less costly. That’s because consumers would not get any benefit from this government assistance unless they use the card—that is, borrow and spend—and do so before the government’s offer expires. After all, this is exactly what the economy needs. Why give the money in tax breaks for banks or businesses, which may not use it for the intended purpose? Why not deliver the aid to consumers, who will?
Kimball argues that this novel approach could deliver a strong, quick jolt to the stagnant economy, $400 billion or more. Yet it would add very little to the federal budget deficit, because the Federal Reserve operates under its own, independent balance sheet. Further, it’s not free money but a temporary loan, like the trillions in short-term loans the Federal Reserve gave the banking system at the height of the crisis. The low-priced credit would immediately help pressed families scrambling to pay the rent, young people without jobs and especially the desperately poor, who are “unbanked” and victimized by predatory lenders charging usurious interest rates for “payday” loans. “A big advantage of national lines of credit,” Kimball explained, “is that, once triggered, the details of spending are worked out through the household decision-making process, which is relatively nimble compared to corporate and government decision-making processes.”
The banking industry would go nuts, of course. Its lobbyists would rail against unfair competition (just as many citizens complained about the unfairness of the bank bailouts). But the homely truth about capitalism is that it cannot function without a constant cycle of new borrowing and debt. Despite popular moralistic aphorisms (“neither a borrower nor a lender be”), the capitalist process requires that someone is always lending and someone else is always borrowing. If risk-averse creditors refuse to lend and struggling consumers or businesses are prevented from borrowing, only the federal government has the power to intervene and get the money moving again. If the government does not step up, stagnation endures.
A federal credit card sounds far too radical for the conservative central bank. But it actually offers a viable solution to the Fed’s stymied monetary policy. Professor Kimball has already introduced it to Federal Reserve governors themselves, at a private conference for “academic consultants” who advise the central bank. None of the governors commented one way or the other afterward, and it is highly unlikely Kimball’s idea will be tried. It would probably require Congressional blessing, and Congress is hobbled by do-nothing paralysis. Nevertheless, policy advocates and citizens should push Fed governors and politicians to explore the concept seriously.
Kimball’s account of his proposal, “Getting the Biggest Bang for the Buck in Fiscal Policy,” can be found at his blog, supplysideliberal.com. As the title suggests, Kimball describes himself as a conservative economist with an intriguing mix of liberal impulses. As a conservative, he argues that the tax system can distort and damage economic output. As a liberal, on the other hand, he is open to income redistribution in some circumstances. “Whenever it can be done without shrinking the overall size of the pie, a dollar in the hands of the poor is socially more valuable than a dollar in the hands of the rich,” Kimball writes.
Either way, Kimball’s proposition deserves prompt debate, because it shows how the Federal Reserve’s management of the economy can be fundamentally reformed in progressive ways. Clearly, monetary policy is not working now—at least not enough to restore prosperity. Kimball argues that government should put aside the fiction of an “independent central bank” and instead learn to coordinate the Fed’s monetary policy with fiscal policy, controlled by Congress and the White House. The policy tools should be blended, he said, to create “a flavor somewhere between traditional monetary policy and traditional fiscal policy.” That would avoid the destructive “game of chicken” in which the two realms pull the economy in opposite directions, as they are doing now.
Kimball’s more provocative suggestion is that the Federal Reserve’s money-creation powers can be harnessed to major public objectives that are traditionally managed on the fiscal side through taxation and spending. That approach would make the national credit card a lot cheaper. “One of the great virtues of monetary policy is that monetary stimulus does not ultimately add much to the national debt,” Kimball explained. His recommendations would essentially revive the controversial economic policy employed by Abraham Lincoln, who printed “greenback” dollars to finance the Civil War and build the nation’s industrial base.
Traditionalists will react to Kimball’s plan with horror. But he insists the Federal Reserve already has the power under existing law to use its discount lending to support consumer credit or loosen the restraints on borrowers or underwrite public investment in infrastructure. This is all very controversial, of course, but the economic crisis invites fresh thinking—and the Federal Reserve has an obligation to consider radical remedies.
Let’s straighten out what actually happened at the Supreme Court. By refusing to reject President Obama’s healthcare reforms, the Supremes opened a clear pathway that leads in time to what right-wingers like to call “socialized medicine.” This is not what Chief Justice John Roberts had in mind. Nor what the president himself had proposed. But that is the true subtext for what the court decided, the real reason why right-wing frothers threw everything in their fevered imaginations at the liberal object for their scorn.
A line was crossed in the artful reasoning concocted by the Chief Justice. Or rather the door was opened for continuing invention and evolution toward what eventually will be recognized as nationalized healthcare, American style. Like it or not, Roberts explained, Obama’s scheme is not unconstitutional and the Court has no right to stand in the way.
The Chief Justice’s logic effectively confirms the open-ended process of discovery Obama has launched. The president’s strategy disappointed those of us who had wanted a more aggressive and coherent solution. His cautious approach means many more years of pushing and pulling between private interests and public needs. But the private sector—from doctors to drug companies and hospitals—is already trying to adjust, anxious to shape big changes in store for them.
This much has been settled. The federal government does indeed have expansive powers to reorganize the healthcare sector in whatever ways that will work for people and the broad public interest. In a backhanded way, the Court’s determination essentially secures the right to healthcare for everyone and on terms that everyone can afford. That is what Franklin Roosevelt envisioned back in 1944 in his “Second Bill of Rights” speech. Reformers who disparaged Obama’s hesitant approach should now celebrate his victory and make the most of it.
The shift in political boundaries is a huge accomplishment though, given the current ideological hysteria, neither Obama nor Roberts have much to gain by claiming full credit. The right will no doubt froth on. But the right lost the argument big-time. It created legal-eagle word games and pretended to be spouting constitutional principle. But the real motives are deeply cynical. The Republican party is playing crash-and-burn politics over this and other issues, insisting that all people want is “smaller government.” What people really want is a governing system that works for them. Those of us who argued with Obama’s caution now have a vast field of play in which to make their case, state by state, for stronger, more comprehensive solutions. Can Vermont or Oregon create an equivalent of single-payer healthcare? Will backward state governments punish their poor citizens by refusing to take the federal money for Medicaid? These are animating political issues that will test the half-baked claims of small-government conservatives.
My take on things probably sounds wildly over-optimistic. I do not suggest that reformulating healthcare in incremental ways will be free or easy, much less quick. These are knotty economic matters in which government decisions are tested in real time and mistakes will be immediately clear and costly. Nevertheless, I think the Roberts-Obama concordant has great promise and reshapes the future.
Two things of lasting impact occurred with the Supreme Court’s green light. Conservative illusions of ideological supremacy popped like a soap bubble. The major media have been under this spell for years—taking cues from Fox News or nasty talkers like Limbaugh—but the Supreme Court decision is a major, major embarrassment for pundits and reporters. How could they be so wrong with their confident predictions of doom for Obama?
It will take a while for the right-wingers to grasp this same point—maybe a couple of election cycles—but the GOP has committed itself to the loser position. If Obama should fail to win re-election, the Republican dilemma will swiftly become obvious. What does the GOP intend to do with government? Less and less? If you listen to its leaders and presidential nominee, that is their program. Romney sounds like he is full of Mitt.
The larger reason why healthcare reform will remain a driving force in politics is the necessities of our new economic condition as a nation. The free-spending days of easy credit and lopsided inequalities are squeezing folks from every side. Libertarians have no answer except to say, Get over it. Politicians, however, will be driven to find answers, even half-baked answers, or else cash out their careers. It is not that “big government” has found the answers for the national scandal of healthcare. It is that “small government” doesn’t even want to look.
Americans are clucking righteously over the financial mess in Europe, acting alarmed but privately finding pleasure in the other guy’s misfortunes. Poor, poor, pitiful Europeans. Why can’t they be more like us? American punditry assures us the end is nigh for the euro, with the slow-motion breakup of the European Union bound to follow. Now American politicians have someone to blame if the US economy goes off the rails. U-S-A, U-S-A, U-S-A.
My advice to Americans: hold the Schadenfreude. Yes, an epic drama is unfolding in Europe’s financial crisis—fraught with great risk and painful choices—but it is not the story we are being told by triumphalist American media and policy elites. Instead of sneering comparisons, people should see the similarities between our situation and theirs. Europe is not busted.
Europeans may in fact be on the brink of achieving great change—a deep turn in history that is politically explosive but profoundly progressive. They may not get there, not yet. But don’t count them out.
Events are compelling the nations of Europe to consider whether they must at last decide to become the “United States of Europe.” That is the subtext for current events. It was the old dream born after the bloody turmoil of World War II. It has been patiently nurtured step by step by two generations of postwar Europeans. Led by Germany and France in grand détente, the high-minded vision was that bitter rivals could eventually evolve into the USE—a viable economic rival to the USA.
There are lots of reasons to be skeptical. Completing the unification would require existing nations to give up a crucial measure of their sovereign power to decide taxation and spending. The peoples of Europe would have to accept a new identity for themselves, superseding ancient ethnic rivalries. The political systems of nation-states would have to organize a new unified structure of centralized governance, more or less like the United States of America. Irony of ironies, the once-defeated and disgraced nation—Germany—is now the economic powerhouse shaping the future, pushing for a centralized government and politics, to the queasy discomfort of its neighbors. Can they trust the Germans? Do they have a choice?
Despite the obvious difficulties, I see two main reasons why Europeans will push forward toward fulfilling the original expectation. First, the present system doesn’t work. The euro provides a unified currency that can be destabilized so long as individual governments are free to set conflicting fiscal policies—borrowing and spending their way into deep holes. Politicians are blameworthy, but the true culprits in this arrangement are the globalized banks that game the system country by country, piling up impossible debt burdens for nations, then demanding bank bailouts when those nations go broke. That is not really so different from the debt crisis that the deregulated banking system created for the United States.
Second, the imperative for unification is deeply grounded in European history and social reality. Across many centuries, these countries have fought repetitive wars with one another, striving for imperial power or religious supremacy or control of economic resources. After Hitler’s slaughtering reign, the Germans and the French and others came together and agreed: Never again. They must now create a different future. The alternative would be too disastrous to bear. The process is messy and studded with perilous moments, but the series of new agreements accepting shared responsibility for member nations’ debts are de facto steps toward writing a new constitution for the USE.
The greater political challenge is convincing the peoples of Europe, who are rightly skeptical about giving up national sovereignty. They suspect that it will simply create a remote new power center that favors austerity over the general public welfare. Still, the step-by-step deal-making is teaching a powerful lesson to European politicians who take care of the bankers and ignore the popular pain. They can look forward to losing their jobs at the next election. American politicians, as it happens, need to learn the same lesson.
Some ill-informed commentators are disparaging Europe’s dilemma by mistakenly contrasting it with the formative experience in early American history. After the revolution, Alexander Hamilton took charge at the Treasury Department and paid off the debts accumulated by the original thirteen states. He created a central bank to issue US currency. The founding fathers drafted a constitution that gave lasting definition to the national-local divisions of power. This is bogus history. Do not believe it.
The truth is, the United States has struggled bitterly with very similar questions of political power for generations. Some remain bitterly unresolved. From the start, the United States was pinned down and retarded in its development by the issue known as “states’ rights.” It was really about human rights—the system of slavery the founders had consecrated in the original Constitution. After repeated rounds of so-called compromises, the dispute was finally resolved by a bloody civil war. Yet retrograde battles over states’ rights are again in vogue.
Likewise for the money issues. States and regions and popular opinion persistently resisted the consolidation of banking and finance decisions at the national level. Andrew Jackson shut down Hamilton’s central bank. Popular distrust of bankers prevented a new one until the Federal Reserve was created in 1913. Yet banking and finance are back on top, despite generations of reform.
If Americans understood the real subtext of Europe’s crisis, they might be more sympathetic. If Americans were taught their own real history, there would be less gloating.
If the Justice Department wants to get serious about investigating financial fraud by Wall Street big boys, it ought to drop by the White House and interview Jeffrey Immelt, CEO of General Electric. Immelt is chair of President Obama’s jobs and competitive council, where he strategizes about how to revive American manufacturing. In some other places, only thirty miles from the White House, Immelt is known as the subprime foreclosure king.
General Electric preyed upon low-income minorities—people of color and immigrants—with notorious subprime mortgages designed to fail. And fail they did. GE Capital’s mortgage subsidiary originated some $700 million in housing loans to families in Prince William and Manasses—high-cost, predatory loans of which $218 million wound up in foreclosure. GE, well known for its inventiveness, pioneered online loan origination in which borrowers did not have to prove they had any income. Naturally, they were charged sky-high interest rates and sold weird mortgages with variable rates that went up but never went down.
Nearly 50 percent of Prince William homeowners are still “underwater” on their mortgages, still struggling to hold on their houses. The county has particular meaning for this year’s presidential election because Prince William is the first county in Virginia to have a “minority majority”—voters who are non-white. They are especially meaningful for Obama because he needs to win big again in Prince William to have any hope of carrying Virginia as he did 2008.
Mortgage-making was a messy but lucrative business for GE. It became the tenth-largest subprime lender in the nation. Its failure rate was the highest among the big-name banks working the northern Virginia territory. But GE made sure it got out before the borrowers failed. WMC Mortgage, the GE subsidiary that originated the dubious loans, immediately sold them to other companies or packaged them as mortgage-backed securities and sold them to Fannie Mae and Freddie Mac, the federally guaranteed housing finance companies now in conservatorship. Some minor portion of the $150 billion in losses Fannie and Freddie have dumped on the taxpayers can be credited to Jeffrey Immelt’s brilliant banking. When the mortgage scam became a national scandal, GE sold the company that had done its dirty work.
The federal government has not shown much interest. The Federal Housing Finance Agency that now oversees Fannie and Freddie did belatedly sue GE last fall for misrepresenting the quality of the mortgage securities it sold the government. This spring, with White House trumpets and flourishes, the Justice Department announced a major investigative task force to hunt down the swindlers (the second time such a task force was announced).
When government fails to do its duty, citizens have to step up and defend themselves, any which way they can. This month and next, we are seeing an impressive swarm of home-grown protests and nonviolent clashes around the country, citizens confronting bankers and demanding justice. The story makes the local news but has usually been ignored so far by national media.
In Prince William County, citizens are pursuing justice in a more methodical manner. Churches of nearly every persuasion, white and black, Latino and Asian, have organized a new interfaith force for community action they call VOICE—Virginians Organized for Interfaith Community Engagement. Instead of calling on government, which leaders assumed would be unresponsive, VOICE decided to go after the financial big boys up close and personal. After considerable canvassing research and helpful advice from housing advocates, the preachers and priests put Jeffrey Immelt at the top of their list.
First, they wanted a meeting with him. GE blew them off. When they asked its mortgage subsidiary to take responsibility for the damage it had done, its chief executive explained it could not help because it no longer owned the loans and GE can’t help because it no longer owned the company. “Again, we are sorry WMC is not in a position to work with your members,” James Zollo told one of the ministers.
So the people marched downtown to GE’s office on Pennsylvania Avenue with a new demand—Obama should fire Immelt as head of the White House council. Immelt is “unfit to advise the president as long as he does not take real responsibility for his lending that devastated communities and families,” VOICE leaders declared. They identified GE as the “worst lender” in the county. Now they demand that GE help finance the restoration.
Two other predator banks—JP MorganChase and Bank of America—have already agreed to begin negotiations with VOICE which leaves GE all alone. VOICE wants the three banks to finance a major reinvestment fund—$300 to $500 million—that will help finance debt reduction for still imperiled homeowners, build affordable housing and provide zero-interest second mortgages pioneered by affiliated interfaith organizations in other cities (the network known as IAF for Industrial Areas Foundation). Other IAF organizations in major cities have years of experience providing low-cost housing and home ownership to people of modest means through complex financial arrangements they call Nehemiah homes. They are the opposite of the quick-buck fraud bankers spread around the country, boosting profits and ending in ruin.
None of these proposals is assured of a positive outcome, but neither do the pastors and priests intend to settle easily. The political momentum is changing as citizens push back in varied ways. The big banks are beginning to understand that. After a little more heat, GE’s Jeffrey Immelt agreed to meet with VOICE leaders on May 14. Meanwhile, the next time Immelt goes to the White House to talk about manufacturing, the president will pull him aside and ask, “Jeffrey, tell me about the mortgage mess you created in Prince William County.”