The fragile and faltering state of American democracy.
The Friday and Thursday editions of The Washington Post are seen in Washington, Friday, August 3, 2007. (AP Photo/Haraz N. Ghanbari)
When the news broke that The Washington Post had been sold to Amazon CEO Jeff Bezos, Linda and I were lost in melancholy for awhile. It felt like a death in the family, the fond uncle we hadn’t seen in years. Or maybe we were simply mourning our own lost youth and those golden memories of fast times at the Post.
It was exhilarating to be part of the Post crowd in those scrappy days of the late 1960s and ’70s. I was on the national staff and Linda contributed articles, reviews and essays on food, family life, gardening and design. We felt in the midst of national tumult and tragedy, the dreadful war in Vietnam, racial upheavals and triumphs. In DC, these felt like local stories, and the Post was always in the middle of events.
On rare occasions, some of us were invited to attend a sit-down dinner party with the power elite at the Georgetown mansion of Katharine Graham, the Post’s patrician publisher. I remember one of these where reporters and wives (not many female reporters in those days) were huddled in one drawing room while the “war criminals” (her friends Kissinger and McNamara) were in another. Mrs. Graham tried without much success to get the two sides to mingle. She thought we should talk.
It was thirty years ago when I left the Post. Yet the news of its fate still feels personal to us. The newsroom was intense in those days, because executive editor Ben Bradlee inspired an edgy, competitive attitude among the reporters. Get it first, get it right. Go for impact. Tell the story with style and drama. And keep your elbows up, lest “bigfoot” reporters try to horn in on your story. The place often resembled a locker room at halftime, loose and profane, very masculine.
A French sociologist hung out with us in the newsroom for several months in order to compare The Washington Post with Le Monde. His study concluded that Bradlee had created an “entrepreneurial” spirit among reporters and editors (though Bradlee would never have said anything that stuffy). Bradlee was a Boston Brahmin who majored in classics at Harvard, but he talked like a street-smart sailor. I remember columnist Mark Shields once teased him for being one of those high-born characters with a three-syllable middle name—Benjamin Crowninshield Bradlee. Bradlee smiled and may have responded with an obscene hand gesture.
This is part of where the Post’s greatness came from. The paper in those days was utterly outmatched by The New York Times and its thorough, sober coverage. But we played off the Times’s stuffiness. We had fun puncturing conventional wisdom and telling the informal truth about the powerful (sometimes including the publisher’s best friends). We were encouraged to take chances. If you fell on your butt, nobody helped you up.
Into this volatile stew in the early ’70s came two very young reporters from the metro staff, which only covered local news. They picked up on a third-rate police story and stayed with it until they eventually brought down the president. What is the chance of that ever happening again? It is still breathtaking to recall that Woodward and Bernstein were only in their late 20s at the time. Imagine the risks. Older heads from the national staff urged Bradlee to put more experienced reporters on the case before these two kids got the Post into deep trouble. He listened and worried, but he stuck with them. Their lack of cynicism is what got the story.
Katharine Graham, the gutsy publisher, was the other part of the greatness. She was stuck with the epic risk—a live possibility that her family’s newspaper could be destroyed if Woodward and Bernstein were wrong. Given her status among Washington’s governing elite, her fortitude was especially impressive. Graham and Bradlee, working together, were like an electrical charge—a self-sustaining mix of audacity and courage.
Notwithstanding her boarding-school good manners, Mrs. Graham had a bluntness that, if anything, was more sharp-pointed than Bradlee’s. I experienced this several times in the newsroom when she stopped by my desk to express her strong feelings about something I had written. On one occasion, I had disparaged some of her best friends as the “junior varsity” of the Best and Brightest who got us into the Vietnam War. She didn’t like this at all, but conceded that my view was probably shared by many readers. On another occasion, her tone was considerably harsher. I had written about the Post’s labor troubles and expressed some sympathy for the union printers being displaced by new technology. As she talked to me, almost nose to nose, other reporters backed away as if the publisher had dropped a grenade at my feet.
The point, however, is that nothing happened afterward. My career did not go up in flames. She expressed herself and walked away and that was it. She became my model of the ideal publisher—candid in her strong views but not vindictive. After all, it was her newspaper.
Don Graham, her son, inherited very different challenges—technological changes that basically destroyed the business model for profitable newspapers. Until digital came along, he focused on building a broader base of localized support for the Post and largely succeeded when other newspapers were withering. He wanted a newspaper that would feel close to an extraordinary diversity of people, rich and poor, white and black and Asian and Latino, city and suburbs and small towns. For many years, he succeeded while other big-city newspapers were shrinking, though he probably didn’t get the credit he deserved. The digital revolution changed all that.
In the end, Don Graham’s singular act of courage in selling the paper was in recognizing that the Post probably has a more promising future with Jeff Bezos as the innovative owner instead of the Graham family. We do not yet know if Bezos will be up to maintaining the same public values. This requires more than money.
The more Linda and I talked over our warm memories, we came out at the same place: feeling good about the past. Feeling very lucky to have been there. For fifteen years or so we got to experience what was maybe the very best time and place ever to be a reporter and writer at the most dynamic newspaper in the country. Because we know something about how and why that came about, we do not expect the same combination of people and events to come again anytime soon, or maybe ever again. The past was rare, but it is also past. We feel grateful we were there.
What does Jeff Bezos have to do with neoliberal education reforms and charter schools?
Lawrence Summers waits to be introduced before delivering a speech at the Brookings Institution in Washington, March 13, 2009. (Reuters/Molly Riley)
This is the second post in William Greider’s series about Larry Summers. His first post is “Stop Larry Summers Before He Messes Up Again.”
Among his other outstanding attributes, Lawrence Summers is perhaps most distinguished by his mendacity. I have encountered this up close over the years in interviews. He bristles and turns nasty when his assertions are challenged. I am not naïve about untruth in politics—I know it well—but Summers takes it to extremes. Three years ago, he made an appearance on the PBS NewHour that blew out my tolerance. I posted an exasperated blog titled “Professor Pants-on-Fire.”
“How can I say this nicely?” I wrote. “Larry Summers is a clumsy public liar. His noxious, condescending manner helps explain why he failed as president of Harvard. But it is the crude mendacity that ought to bother people now. The man is President Obama’s top economic adviser.”
I ticked off some of the self-serving lies he told to cover up his own role in destabilizing the financial system when he was Treasury secretary in the Clinton administration—when he personally blocked tougher regulation on the financial time bombs known as derivatives, when he collaborated with Republicans and the Federal Reserve in dismantling Glass-Steagall and other New Deal protections. Larry and Bill, Robert Rubin and Alan Greenspan paved the road to financial collapse. Afterwards, nobody went to jail.
These scandalous matters are relevant once again because the White House propagandists are pushing hard to make Larry Summers the next Federal Reserve chairman. If Obama makes that choice, Wall Street wins again. Summers is their candidate and at home in their money culture. As Fed chair, he would become their main watchdog .
If so, this will be a sick joke on us hopeful voters who re-elected the president last fall. Summers worked on Wall Street after he got bounced as Harvard president and before he joined the Obama administration in 2009. During the year before, he earned $5.2 million at a leading hedge fund, D.E. Shaw.
Then he made another $2.8 million for speeches, more than forty of them, mostly delivered to audiences at mega-banks and leading financial firms. These included JP Morgan Chase, Citigroup, Merrill Lynch and others. Goldman Sachs paid him $135,000 for one speech. When Summers learned Merrill Lynch was receiving federal bailout money, he gracefully contributed his $45,000 speaking fee to charity. The point is, this watchdog will know some of the swindlers personally.
These sticking points about his nomination for the Fed chair may be obvious to Nation readers, but none of his liabilities or gross errors or giant fibs were mentioned by Washington Post blogger Ezra Klein when announced on Tuesday that Summers is now the leading candidate for the Fed appointment. That news quickly swept the web as though it were a done deal. Let’s hope that is wrong. Klein is a conscientious policy wonk and often insightful about economic policy but on political questions he can sound like an establishment camp follower.
Klein took the feed from his White House sources and obediently recited the supposed virtues they see in Summers compared point by point with the rival contender, Fed vice chair Janet Yellen. “Rightly or wrongly,” Klein wrote, “there’s a sense that Summers has the market’s trust in a way Yellen doesn’t.” That put-down is a nasty bit of knife work sure to please Klein’s sources, but is truly slanderous if you know Yellen’s biography and intellectual stature. If the White House blather and media ignorance prevail, it will be sad for the country and shameful for Obama.
Does the Clinton-Rubin establishment believe, like Larry Summers, that boys really are smarter than girls? Reporters like Klein should ask, because that’s the way it looks. Women at large should mobilize an aggressive pushback—no more second chances for Larry Summers. The Obama administration should impose a glass ceiling on the old boys who got it wrong.
For more reasons why Larry Summers should not be the next chairman of the Federal Reserve, read William Greider’s “Stop Larry Summers Before He Messes Up Again.”
Larry Summers watches as President Barack Obama and Vice President Joe Biden speak in the East Room of the White House on January 30, 2009. (REUTERS/Jason Reed)
Washington insiders are spreading an alarming news alert. Barack Obama, I am told, is on the brink of making a terrible mistake by appointing Lawrence Summers as the new chairman of the Federal Reserve. That sounds improbable, since Summers is a toxic retread from the old boys’ network and a nettlesome egotist who offended just about everyone during his previous tours in government. More to the point, Summers was a central player in the grave governing errors that led to the financial collapse and a ruined economy.
Surely not, I thought, when I heard the gossip. But my source heard it from the White House. Obama’s senior economic advisers—still dominated by Clintonistas and aging acolytes of Robert Rubin—are pushing the president to choose Summers as the successor to Ben Bernanke, whose term ends in January. And they are urging Obama to make the announcement right now, before the opposition can get organized.
To thwart this ploy, Democratic senators and rank-and-file constituents need to sound the alarm promptly and promise, loud and clear, to vote against Summers if Obama once again accepts the choice of the Clinton-Rubin crowd. The former Harvard president was himself a Wall Street player between his government positions. He was a soft-on-banks adviser to Obama during the president’s first term. Choosing Summers now would be another great gift to the mega-banks. But it would be a very tough vote for Democrats who claim the mantle of reform.
There are many reasons to oppose Summers as Fed chair, but the strongest objection is that Obama would be rewarding the same guys who got things disastrously wrong for the country—the Clinton-Rubin policy makers who danced to Wall Street’s tune of financial deregulation and collaborated with the Greenspan Fed and Wall Street to gut prudential regulation like the Glass-Steagall Act. Those actions set the stage for the crisis that devastated middle-class home owners and working people generally.
Summers was an over-confident cheerleader posing as superior intellect. People called him “the smartest man in the room,” and Summers definitely believed it. As Treasury secretary during Bill Clinton’s second term, Summers personally did the knife work that cut up Brooksley Born, the brave regulator earnestly trying to impose meaningful limits on the explosive derivatives market. He still owes Born—and the country—an apology.
Summers got bounced as president of Harvard for his derogatory remarks about women as scientists. He dissed black professors as inadequate scholars. Personality defects aside, the Democratic party has a huge stake in this decision—whether the money-friendly “New Democrats” who have controlled the party since Bill Clinton will continue to dominate the party’s agenda and smother any attempts to embrace true reform.
When Summers came back to Washington in 2009 as Obama’s chief economic adviser, he pushed aside rival views and once again underestimated the nature of the crisis or how to deal with it. When other Democrats called for much stronger stimulus measures, Summers was a voice for doing less, and he accepted disappointing results as the best that government could do. Obama, alas, adhered to that advice.
Summers has been trying to rewrite his reputation as he campaigns openly this year for the Federal Reserve appointment. The Washington Post offered him a prime pulpit for a series of op-ed columns in which he makes himself sound like a bleeding-heart liberal. Don’t be misled. If opponents dig into his old speeches and over-confident pronouncements, they will find rich material to make the case for rejecting him. The question is not about left or right policy decisions. The question is incompetence.
The best reason to turn Summers out to pasture is that Obama has a far better choice available—a more experienced central banker and moderately liberal economist named Janet Yellen. She is vice chair of the Federal Reserve Board in Washington and has been a close ally of Bernanke and a strong voice for focusing on jobs and other threatening weaknesses in the broad economy. She served for some years as president of the San Francisco Federal Reserve Bank and before that a term as governor before Obama appointed her as vice chair.
It doesn’t hurt that Yellen would be the first woman ever to serve as Federal Reserve chair. It’s about time. Next year is the 100th anniversary of the central bank. The stolid masculinity of this cloistered institution has failed the country spectacularly and needs to be pried open for public policy debates. The most chilling failure was that its conservative leaders—Alan Greenspan and Ben Bernanke—did not see the crisis that was coming (evidently neither did Yellen).
That institution’s reputation has been gravely diminished by the bank bailouts and other adverse events. The public was shocked and remains deeply skeptical. People don’t trust the Federal Reserve, and for good reason. What people could see with their own eyes was that the Fed expended trillions to rescue the mega-banks from the troubled waters while people were left to drown. The illegitimate banker-government relationship has exposed an urgent need for fundamental reforms.
Obama might ask himself which candidate would be most likely to restore public trust in the Fed and see the need for substantial reforms. The smart guy from the old boys’ club or an experienced woman who is ready to make history?
President Barack Obama points to Senator Chris Dodd and Representative Barney Frank after signing the Dodd-Frank Wall Street Reform and Consumer Protection Act in a ceremony in the Ronald Reagan Building in Washington, July 21, 2010.(AP Photo/Pablo Martinez Monsivais)
When Barack Obama boasted that his administration had put an end to “too big to fail” banks, it was probably the biggest fib of his presidency. The legislation known as Dodd-Frank did no such thing but its passage effectively closed the subject.
Many Democrats in Congress knew better but did not wish to complicate politics for their president while he campaigned for re-election. The law was riddled with rubbery claims and loose language but wishful thinking assumed the federal regulators would give it backbone. That frail hope vanished rapidly. Squads of bank lobbyists swamped enforcement agencies. Republicans worked relentlessly to protect the bankers from the public’s demand for reform. Obama kept repeating his facile claim of victory when he surely knew it wasn’t true.
This was a depressing spectacle of failed politics. But it is not the end of the story. A new reform movement is struggling to find shape and voice in Congress. It will not wait for Barack Obama to take the lead, since his solicitude for big-name Wall Street banking continues undiminished. And some old bulls in Democratic caucuses remember they had voted for the Clinton-era deregulation that led to the financial instability and collapse. Wall Street money remains mother’s milk for both political parties.
Nevertheless, at the risk of sounding too wishful myself, I see the outlines of a vigorous new reform caucus developing. Do not expect instant success but new faces have nothing to hide or explain away. The country is still paying dearly for what the bankers did to the economy. Even worse, the nation is still at risk of another breakdown because the basic problem of recklessness has not been fixed.
Senator Elizabeth Warren, the fresh face from Massachusetts, has joined Republican Senator John McCain of Arizona, Democratic Senator Maria Cantwell of Washington and independent Senator Angus King of Maine as co-sponsors of a bill to restore the Glass-Steagall Act—the New Deal reform that separated investment banking from commercial banks. The Federal Reserve under Alan Greenspan led the charge on gutting Glass-Steagall. Bill Clinton collaborated with right-wing Republicans in repealing the law.
“Banking should be boring,” Senator Warren said. “Savings accounts, checking accounts—the things that you and I rely on everyday—should be safe from the sort of high-risk activities that broke our economy…. The FDIC insures our traditional banks to keep your money safe…. But the government should not be insuring hedge funds, swaps dealing and other risky investment banking.” The McCain-Warren-Cantwell-King legislation proposes a five-year transition period for banks to downsize and undo their maze of risky connections to shadow banking. These adjustments, Warren explained, move the system “toward ending ‘too big to fail’ once and for all, and minimizing the risk of future bailouts.”
Senator Sherrod Brown, Ohio Democrat, has teamed with Senator David Vitter, Louisiana Republican, to push a remedy that could act faster—imposing higher capital requirements for risk-exposed mega-banks. These parallel measures would naturally provoke intense attacks by the banks, but the political assumptions may be shifting for reform-minded advocates.
Why are the big banks still getting away with highway robbery while the country remains mired in a stagnant economy? Democrats could run on that issue in 2014 and aim the same question at the two-faced Republican party. The GOP stands with the bankers and against consumers and gets away with it. For that matter, so do a lot of Democrats. This is good fight to have. It it will clarify the true intentions of both parties.
Elizabeth Warren is tackling Wall Street, and she’s starting with student debt.
Abortion-rights activists march towards the Supreme Court in Washington, Friday, January 22, 2010. (AP Photo/Pablo Martinez Monsivais)
Republicans have once again rolled their old war horse out of the barn for another run at the Constitution. This time the anti-abortion crowd has decided the viability of a fetus outside the womb should be twenty weeks, defying scientific evidence and the Supreme Court‘s settled judgment in repeated cases. Never mind, once again House Republicans oblige by passing the measure, this time accompanied by sly little sex jokes about masturbating male fetuses.
And then what? And then nothing. Talk about masturbation—this is an empty ritual the old bulls of the GOP have been performing for forty years, ever since Roe v. Wade. Sometimes they have even gotten a law enacted. But the story ends the same way—rejection by the Supreme Court, conservative though it is. This time there won’t be any new law, since Senate Democrats won’t allow it. Yet the juggernaut cranks up for another run.
Marjorie Dannenfelser, president of an anti-abortion political action group, called the House vote “historic.” Activists boast that they are winning big at the state level. Fourteen states so far this year have enacted a storm of newly restrictive laws at the state level, suggesting that the anti-abortion cause is cresting anew.
Actually, no. If you look at those fourteen states—from Alabama to Utah—they are pretty much the same states that have been doing this for decades, mostly under-populated and rural. I did a little “back of the envelope” calculation and determined that the fourteen states represent 15 percent of the US population, 47 million out of 308 million.
Many of the states are also from the Deep South. That region has lots of experience defying Supreme Court decisions—the experience of losing in the long run.
Why does Aiyana Jones’s death matter? Read Mychal Denzel Smith’s argument here.
Relatives show pictures of garment workers who are missing, during a protest to demand punishment for those responsible for the collapse of the Rana Plaza building, in Savar, outside Dhaka April 29, 2013. Reuters/Andrew Biraj
They are still digging up victims from the collapsed garment factory in Bangladesh—381 corpses and counting—while international media report the sickening details of crushed skulls and severed limbs and describe with sympathy the wildly distraught mourners searching the rubble for dead daughters. The Daka authorities arrested the greedy factory owner to save him from the mob. Sohel Rama, owner of the collapsed factory, blamed the pressures of global competition. He had no choice, he explained. Keep the sewing machines humming or else lose the contract.
If a country can’t keep wages and costs down, its production will be moved to the next poor nation willing to sacrifice its citizens in the name of economic advancement. This is what organized labor calls the “race to the bottom,” and unions have campaigned futilely for decades to stop it. Only there is no bottom, really, in the global food chain because the world has a vast backlog of very poor nations desperate for jobs and anxious to please the multinational companies that buy the cheap goods and rebrand them as J.C. Penney or Benetton or best-buy stuff at Walmart.
This is a very old story by now—these recurring tragedies of massive death for commerce. Bangladesh is getting good coverage because its carnage is likely setting new records. The grisly details will continue elsewhere for sure. Stories of thirty or fifty or 150 dead in industrial fires and other calamities are so routine, they begin to sound familiar and tiresome. We will see many more so long as fledgling enterprises in Asia and elsewhere are unwilling (or unable) to spend the modest sums required for routine safety measures.
For shame, Bangladesh. How can you people be so indifferent to human life? In America, we think life is precious. Don’t we? At least, we think American life is precious. Those strange foreigners should learn to look out for their own the way we supposedly do.
Enough of our sickening hypocrisy. Let’s drop the tear-jerk stories in American newspapers. Let us admit the cold truth about ourselves. The guilt for these distant deaths belongs to us—the self-righteous American government and morally obtuse American citizens. Not only because our people buy the stuff these young girls make in dangerous places where many of them will perish. But because the US government in Washington has the power to stop this inhumanity.
The president and Congress will not stop it, of course. That would require an admission of responsibility for what goes on in producing nations that feed our consumer culture. More importantly, it would violate our precious idea of freedom—wondrously expressed by the free market that insures prosperity and delivers the goods with good prices.
The federal government could stop these industrial scandals rather quickly by legislating rules of trade that prohibit any imported goods that are produced in barbarous conditions. This is not rocket science, as policy-makers like to say, nor without ample precedent. The so-called “free trade” system is actually a dense weave of import-export regulations that authorize government to inspect and reject goods at the border—drugs and food, for instance—if they do not comply with our standards for health and safety. A US trade restriction would require US importing companies to certify that the goods were produced in safe, sound factories. Nothing fancy, but basic terms that any modern society would insist upon for its own people. If a factory is falsely certified, the goods would be blocked from entry and a stiff penalty would fall upon the Walmarts of American commerce, not the bucket-shop operators in very poor countries.
This would reverse the incentives and begin to build a floor of decency under what the trading system allows. President Obama and US multinationals are preparing a new free-trade agreement with Asian nations, but you can be sure there is nothing in it to protect the defenseless workers in Bangladesh and other poor countries. Indeed, US trade agreements, starting with NAFTA, have concentrated on insuring the rights of capital, not labor. We do not know what Obama will propose because his negotiations are being conducted in private consultation with the multinational companies—no labor representatives have yet been allowed to see draft agreements.
The usual cheerleaders for globalization will instantly denounce this idea as a dangerous intrusion—protectionism!—that threatens free-flowing commerce. “Two cheers for sweatshops,” as The New York Times’s Nicholas Kristof and Sheryl WuDunn once declared. Yes, they would acknowledge, trade does involve some unfortunate negative qualities, but as poor nations prosper they will learn, in time, to insist on higher standards. This is the path to modern life, so best not interfere.
Actually, unregulated globalization—shorn of human sympathy and oblivious to persistent cruelties—is the road backwards. The creative tumult of our era, with its fantastic inventions and globalizing production, has reverted to ancient injustices—forms of exploitation that originated three centuries ago with the English industrial revolution. When new machines like textile looms displaced human labor, the seasoned workers were dismissed, their skills no longer valued. They were replaced in the factory by children and women—cheaper laborers without power or influence who toiled in “the dark satanic mills” first described by the English poet William Blake.
In our time, industrial capitalism has profitably employed the same exploitative routine, but with an essential difference. Thanks to global supply chains, contemporary sweatshops with dismal wages and sordid working conditions are located on the other side of the world. The people are exploited in various ways, but their cruel conditions cannot easily be seen by the American consumers who benefit from afar.
Thus, it is very difficult for exploited workers to organize meaningful protests and build the popular support needed for a reform movement. Even to attempt protests threatens workers with retaliation by the multinational companies. They can readily pack up and leave, move the factories to the next low-wage country where people and governments are desperate for jobs and income, however pitiful.
This cycle of exploitation is destined to continue until the world runs out of poor countries to exploit. Or until citizens in rich countries like the United States get over the ignorant indifference and face up to their guilty complicity with evil practices done in their name.
The interactive La Ruta dramatizes an experience that many immigrants know too well—and senators could learn from. Read Aura Bogado’s review.
President Obama discusses the federal budget at the White House. (AP Photo/Manuel Balce Ceneta)
At the start of his second term, events pushed President Obama to choose between the living and the dead. He chose dead millionaires over elderly people living on Social Security. The wealthy were given a most generous reduction in the estate taxes to be collected when they die. Social Security beneficiaries were told to live with smaller benefit checks. Instead of comforting the afflicted and afflicting the comfortable, Obama went the other way.
I asked Robert McIntyre, the celebrated reformer at Citizens for Tax Justice, what he makes of this odd presidential twist. “The Obama administration has mixed feelings about old people,” McIntyre dryly observed. “Old people on Social Security deserve smaller benefits. Old people who own estates worth tens of millions deserve smaller tax bills for their children.”
How could this have happened with a Democratic president in the White House? In early January, under pressure to make a “fiscal cliff” deal with Republicans, the president signed a new estate tax law that delivered a gorgeous windfall for those with accumulated wealth—or, rather, for their children or others who inherit the family fortunes. All rich people are now entitled to an estate-tax exemption of $5 million. That is seven times larger than the exemption that existed in the last years of the Clinton administration ($670,000) and more than double George W. Bush’s ($2 million).
Furthermore, because this new estate-tax exemption is indexed to protect against inflation, the exemption will keep growing bigger year after year. For 2012, the exemption rose by $120,000 and another $130,000 for 2013. That’s an annual inflation-driven increase of about 2.5 percent, though Social Security recipients received an increase of only 1.7 percent at the same time.
The new cost-of-living index Obama has proposed for Social Security would work in the opposite direction. It is designed to reduce Social Security benefits in future years, less than what people would get from the present calculation. The White House describes its so-called “chained CPI” as a technical fix that is good government policy.
Yet, taken together, these changes are a revenue loser for the government. The generous reductions in the estate tax will cost around $400 billion in lost revenue by not reverting to terms before the Bush II presidency worked to undermine it. The “chained CPI” fix for Social Security and other programs, including the estate tax exemption, is expected to save only about half as much as the estate tax loses—and those savings come not from the rich, but the broad ranks of working people.
Meanwhile, fewer than 4,000 very rich people will be left to pay the estate tax. This is not total victory for Republicans—they wanted to abolish the estate tax altogether—but it seems close enough. If you want to understand how the federal government drives the nation’s increasing inequality, look no further than the federal tax code.
The president is evidently having second thoughts of his own, at least about the rotten estate-tax deal he accepted. His new budget message promises to reopen that bad bargain and reinstate the estate tax exemption of $3.5 million that existed during his first year in office. Good luck with that one, Mr. President. It is hard to take his gesture seriously since the president proposes to restore the estate tax in 2018—two years after he has left office.
A more ambitious political leader would articulate and demand what he wants and what his party will insist on, regardless of whether it seems immediately achievable. Democrats are instead undercut by Obama’s sense of caution. Robert Greenstein of the Center on Budget and Policy Priorities, though supportive of Obama on the “chained CPI” issue, has wistfully cited an alternative remedy proposed by the late Robert Ball in his last years. Ball was a wise and trusted Social Security commissioner whom liberals relied on. He wrote that government could insure the permanent solvency of Social Security by raising the cap on the payroll tax deductions and by dedicating the revenue from the estate tax to keeping the Social Security trust fund in good health.
That connection between dead millionaires and retired working people could solve a lot of problems. It probably sounds too radical for Obama Democrats.
The president’s recurring problem is his softball style of governing. He begins negotiations by giving up his leverage—offering to retreat from the party’s crown jewels like Social Security or the strong estate tax Democrats traditionally defended. Then he asks Republicans to be reasonable and reciprocate. They respond by kicking him in the shins. Republicans play hardball, and with considerable success. Obama Democrats are playing badminton.
At his luxury library-museum complex, George W. Bush’s legacy lives on—without Dick Cheney and Karl Rove. Read John Nichols’s take.
President Obama speaks with reporters at the White House. (AP Photo/Pablo Martinez Monsivais)
President Obama has riled loyal Democrats by tossing Social Security onto the table in his poker game with Republicans. Not to worry. I think I know how this story ends. A year from now, when the 2014 congressional campaigns are hot underway, Republicans will be running against Obama-the-slasher and promising to protect Social Security from the bloodthirsty Democrats.
By then, having lost on his too-cute strategy, the president will be reduced to lamely reassuring old folks. Really, he didn’t actually intend to cut their benefits, really he didn’t. It was just a ploy to get tightwad conservatives to give in a little on tax increases. Republicans can pull out the videotapes in which Obama and team explain their high-minded purpose—sacrificing the Democratic party’s sacred honor in order to get Republicans to play nice.
Forget about that. House Speaker John Boehner promptly brushed off Obama’s gambit. If the president wants to whack Social Security, Boehner suggested he can do it, but don’t expect the GOP to collaborate in such a plot. “If the president believes these modest entitlement savings are needed to shore up these programs, there is no reason they should be held hostage for more tax hikes,” Boehner said.
The president set this trap himself; now Boehner will spring it on him. Does Obama not remember how Democrats lost control of the House back in 2010? The party got very little credit for enacting health care reform because the Republicans had already demonized the accomplishment as a threat to the much-beloved program of Medicare. The rightwingers promised to save Medicare from bloodthirsty Democrats by repealing Obama’s new reform program. This was all a ridiculous lie, of course, but the White House declined to call out the liars. Instead, Obama responded with flowers. This time, he is taking Republicans out to diinner.
So here is what I expect to happen. The elaborate and confusing charade of deficit politics will continue through this year and next—both parties solemnly seeking to shrink the swollen federal deficits—and distracting Washington from the real economic threat of stagnation or worse. At the end of the day, Social Security will not be cut. Nor will much else be accomplished, for good or for ill. Yes, the two parties may eventually approve some grandiose budget resolutions—official promises to cut spending drastically. But that process is usually a charade in itself with a long-established history of fiction and fantasy.
These budget promises do not become real until Congress authorizes projects and appropriates the money. The appropriators have the real power and they can change the numbers and designs and whatever else they wish. Depending on how senators and representatives feel at the time, they can embrace the promises and cut specific spending or totally ignore whatever the budget resolution had promised the public.
This is why I expect Social Security to survive the onslaught. When it gets to the money roll calls this year and next, individual members of Congress will have to swallow some big lies in order to vote for cutting Social Security benefits. First, of course, the cost-of-living gimmicks Obama has proposed will not shave a penny off the federal deficits or debt. That is because the Social Security benefits are not paid by the federal budget. They are drawn from the Social Security Trust Fund—the money paid in by working people every payday. People know this is their money, not some government handout.
So who gets tell the folks that their FiCA deductions were a joke—only an accounting fiction? The financial problems facing Social Security are easily fixed (as Obama himself has said) and are actually 30 years away. When the Congressional Budget Office is required to “score” Obama’s so-called cost-of-living reform, it will be compelled to announce that whacking the old folks contributes not a penny to reducing the federal government’s deficits.
In fact, there is an even bigger lie concealed by the fiscal scolds and ignored by witless media, too. Again and again, self-righteous critics have portrayed Social Security as the profligate monster borrowing from the Treasury and sucking the life out of federal government.
Guess what? It's the other way around. The federal government borrows from Social Security. The Treasury has been borrowing from the Social Security Trust Fund for 30 years, and the debt to Social Security beneficiaries now totals nearly $3 trillion. The day is approaching when that money will be needed for its original purpose: paying Social Security benefits to the working people who contributed to the fund.
That is the real crisis that makes the financial barons and their media collaborators so anxious to cut Social Security benefits. They would like to get out of repaying the debt—that is, giving the money back to the people who earned it. The only way to do this is cut the benefits—over and over again. Count on it. If the president and Congress succeed in this malicious scheme, they will come back again and again to cut more and more. If the politicians join this sordid conspiracy, voters should come after them with pitchforks and torches.
How much will elected progressives budge on Obama's scheme? Read John Nichols's analysis.
The Obama administration collected some crowd-pleasing headlines with its announcement that the Justice Department is suing Standard & Poor’s, the rating agency that notoriously fueled the financial crisis and crash by duping investors into buying billions in rotten securities. The government is said to be seeking a cash penalty of more than $1 billion.
That sounds good, but President Obama and his administration are stalked by a question of scandal that will not go away: Why isn’t anyone going to jail? The lawsuit’s accusation against S&P sounds like a crime. The firm, it charges, “knowingly and with intent to defraud, devised, participated in, and executed a scheme to defraud investors.” Yet federal investigators seem unable to identify any Wall Street executives to prosecute as criminals.
Why not? The popular explanation, widely shared among citizens, is that leaders of the largest banks and financial firms are given a pass because they are “too big to jail.” The public’s cynicism sounds right. It has become a momentous black mark on the Obama presidency, like a blood stain that cannot be washed away. Does the government operate two systems of justice—one for mom-and-pop criminals and another for influential titans who run the “too big to fail” banks?
These are hard cases to make, as Justice lawyers argue. But when the feds go after the mafia, they usually start at the bottom of the criminal syndicate, put the squeeze on the little thugs and turn them to testify against the big guys who called the shots. That is what financial crimes may require, too.
I have a hunch this scandal is not going away and it will gnaw at Obama during his second term. The outrage will expand as more bits of evidence keep surfacing in various lawsuits. It reminds me a little of the Watergate scandal in the 1970s that unfolded gradually, drip by drip, long after Richard Nixon had won his reelection landslide. As evidence accumulated of criminality in the White House, Nixon was stalked by a single question: What did the president know and when did he know it?
Obama is haunted by a roughly similar question: Who decided that Wall Street mega-banks and their executives must not be prosecuted as criminals for fear this might bring down the entire economy?
Potential examples of the contradiction keep piling up. The Justice Department settles lawsuits with handsome fines, but no indictments. After years of suspicion, HSBC, Europe’s largest bank, was finally nabbed for aiding drug peddlers. Its US affiliate laundered at least $880 million in dollars for Mexican and Colombian drug cartels (often driving the cash over the US border in their own armored cars). HSBC paid a fine and was given what the Justice lawyers call a “deferred prosecution.”
UBS, the Swiss banking giant, was nailed for having manipulated the London-set bank loan rate that determines what borrowers in the US and around the world must pay in interest rates. UBS settled in cash. American protesters in San Franciso are demanding a federal investigation of whether leading US banks also had a hand in setting fraudulent interest rates.
After years of ignoring accusations, some Obama officials—Attorney General Holder and Lanny Breuer, chief of the criminal division—have essentially admitted that their decisions on prosecution were directly influenced by the question of whether indictments would rattle the entire global system and maybe trigger another crash. On PBS Frontline, Breuer acknowledged that he consulted federal regulators on whether to go ahead with criminal cases. Breuer said, “If I bring a case against Institution A, and as a result of bringing that case, there’s some huge economic effect—if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are effected badly—it’s a factor we need to know and understand.”
This is essentially the Obama adminstration’s “get out of jail free” card. If a mega-bank breaks the law, its leaders merely apologize and put up some money to compensate for their crime, lest the economy and other bankers suffer collateral consequences. Imagine if the government enforced its drug laws on that principle. That would empty the prisons overnight.
Non-enforcement scandals will keep piling up because—no secret really—the financial system is riddled with fraud and related crimes. As the heat rose on Justice, Breuer resigned or rather “retired” with appropriate applause from colleagues. Treasury Secretary Tim Geithner, who doubtlessly influenced forgiveness for banks and bankers, has already left office and returned to New York. Was Federal Reserve Chairman Ben Bernanke consulted by the prosecutors? Was the White House? Who said what to whom? And what did the president know?
There are many explosive questions to ask, and dismayed members of Congress are beginning to seek answers. Senators Sherrod Brown (D-OH) and Charles Grassley (R-IA) announced they will join in a thorough search, calling upon the attorney general and other high level officials to explain their decisions or rather their failure to seek justice. As more facts surface, the scandal may become politically unavoidable.
That is what happened in Watergate. Most politicians were initially reluctant to dig deeper, but eventually they realized something deeper than political scandal was involved. It was really the question of whether Americans can believe in equal justice. Indeed, that is the question now.
The Department of Justice has some dirty hands of its own. Read Greg Mitchell’s report.
Ethicist Thomas Pogge talks on global poverty. (Flickr/Pontificia Universidad)
For three decades, the Institute for International Economics in Washington has been enormously influential as an intellectual home base for globalization. The think tank is nonpartisan, but closely aligned with business and finance multinationals that provide generous funding. A few years ago, its name was changed to the Peterson Institute, honoring its founding chairman and leading benefactor, billionaire Pete Peterson, who is better known for his long-running crusade against Social Security and Medicare.
Whenever you read about the thousands of jobs promised by a new trade agreement, supporting evidence was very likely generated by economists at the Peterson Institute. The fact that these “studies” regularly turned out to be wildly exaggerated or flat wrong has not deterred experts from churning out more dubious assertions.
The debate over NAFTA in 1992 was perhaps the most notorious example. Ross Perot, the independent presidential candidate, was ridiculed and effectively discredited for calling “free trade” globalization a “giant sucking sound” that would wipe out millions of American jobs. Perot, it turns out, was right. So were American working people who complained bitterly that so-called “free trade” was hollowing out the middle class and driving down industrial wages.
The Peterson Institute, so far as I know, never confessed error—but its new leadership is implicitly acknowledging the damage and inviting critics it has long ignored into the high-brow policy discussions. It was something of a shock to attend an all-day conference at the Institute, on January 7, where twenty academic economists and policy thinkers delivered papers. The subject was “ethics and globalization.” Ethics? What’s ethics got to do with it? Quite a lot, the Institute belatedly asserted.
Indeed, some of the speakers offered policy reforms that could have been drawn from The Nation magazine. Other speakers described the global system in deep trouble and warned of popular rebellion here and abroad if things are not changed. Having lost confidence in the trading system’s promises, many are turning to national governments to save them from global capitalism.
Howard Rosen, a visiting fellow at Peterson and ex-staff director of Congress’s Joint Economic Commmittee, enumerated the negative consequences of the last generation and concluded: “To my mind, this amounts to international trickle-down economics.”
Rosen recommended a list of reforms that includes a global minimum wage, industrial wage increases linked to productivity gains, unemployment insurance, adoption of international labor standards that encourage unionization and commitments by the World Bank and other international financial institutions to require nations to accept these reforms as a condition for getting loans.
Thomas Pogge, professor of law and international affairs at Yale, added to the indictment. “Who are the beneficiaries of the last 25 years?” he asked. “Not the global poor but the global rich.” The system has generated “a tremendous concentration of wealth,” he said, created by the rich nations in league with global organizations like the World Trade Organization.
As Pogge explained, tax abuse and intra-company pricing—which allows multinationals to book income in countries with the lowest tax rates—ensure that both rich and poor countries will be robbed of wealth and resources. The subsidies paid to commodity producers like advanced agriculture in the United States ensure that they will wipe out the small-scale farmers in developing poor nations. The stringent patent rights that trade rules grant to drugs and other products create the monopolies that crush infant competitors elsewhere in the world.
Economist David Branchflower of Dartmouth spoke ominously about the “scarred workers,” both young and old, who will never recover from the lack of jobs. The working class in Europe is “smoldering,” with potential rebellion, he warned, and he said something similar may occur in the United States.
Kimberly Ann Elliot of the Center for Global Development argued for suspending all tariffs on garments imported from very poor nations as the best way to improve the horrendous working conditions at the bottom. In Pakistan, a garment factory fire in September killed 289 workers, the worst industrial fire in the history of capitalism. Walmart purchased the factory’s output and sold it to Americans, but claimed not to know it was imposing life-threatening risks on the workers.
Elliot sees little hope that multinational companies like Walmart will change these deadly practices on their own. “I don’t think the multinationals really are taking responsibility,” she said. “They are trying to protect their reputation—but fundamentally they aren’t changing their buying behavior.”
For many years, these accusations have been made against the global system—but they are still largely ignored by the multinational establishment and by the politicians who have approved the numerous trade agreements. From NAFTA to the WTO, these agreements are thick with protections for capital investors who build production in foreign countries, while the rules meant to protect workers and citizens from abusive corporations are either meaningless or nonexistent.
The Peterson Institute’s conference may signal a promising change in direction, though skeptics are entitled to doubt it. At least the debate is beginning to acknowledge inhumanities that the global establishment long ignored or explained away. Better late than never, one hopes. An old political friend told me after the conference, “This is a significant signal that will make a difference.” The message he got was that global industries must accept the obligation to pay attention to equity. By giving a platform to reform voices like Rosen and Pogge alongside the standard defenders of globalization, the Peterson Institute was inviting realism into the debate.
Peterson Institute’s new president—former Fed economist Adam Posen—may be responsible for this. He chose “ethics” as the focus for the first Institute conference since he became president. “It is a substantive intent on my part to broaden the perspectives and add to our already existing focus on distributional issues,” Posen said. “I took a strong hand in setting up the conference agenda and speakers.”
Posen knows the political foundations of globalization are in trouble. “One of the alarming effects of the global financial crisis has been the widespread erosion of confidence in capitalism itself,” Posen wrote recently. Government can change policy, he said, but only business can restore the faith by changing its own behavior.
Posten’s course correction at least offers an opening for critics. They should seize the opportunity and renew the worldwide campaign for reform principles they have been articulating for many years. People will be able to see soon enough whether the establishment’s change is real or simply an adjustment in public relations. Meanwhile, the global establishment is wobbly and vulnerable. Business is unlikely to get well politically unless it really does change.
For more on the global neoliberal consensus, read Amy Wilentz’s dispatch from Haiti in the most recent issue of The Nation.