From relief to suspicion and back: Eyeing up Team Obama

Economy, Politics, US Economy, US Politics

Again with the caveat that I haven’t really caught up yet with the transition news of the last week, the confirmations from before surely mean that there’s one man who must not be happy. On the day after Obama’s victory, Dissent‘s Mark Engler celebrated:

Obama rose to the top of a Democratic pool that, as a whole, positioned itself notably to the left of what we had come to expect in the Clinton-Gore years, when top officials scrambled to prove their pro-corporate bona fides and to declare their allegiance to the Democratic Leadership Council. Today’s contenders, while far from perfect from a progressive perspective, campaigned as opponents of an unjust war and of faulty trade agreements such as NAFTA, as advocates of pro-worker labor law reform and of serious national health care.

But he already warned:

To be sure, the .. more contemporary fight to thwart the rightward-pushing forces within the Democratic Party .. is not over. The likes of Robert Rubin and Larry Summers hover over Obama’s victory.

Larry Summers at the World Economic Forum Annual Meeting in Davos, 2007

Larry Summers at the World Economic Forum in Davos, 2007

I bet he didn’t realise just how much they’d “hover”. With the appointments of Geithner, Summers and Orszag, I’m guessing Engler must have gotten a lot more worried still. As Ezra Klein noted:

For critics of so-called Rubinomics, [..] watching Rubin’s proteges step into every major economic staffing position in the new administration has been concerning. Watching them do so as Goldman-Sachs, which Rubin once led, and Citigroup, which Rubin recently advised, get buffeted by the subprime collapse is almost perverse.

To be fair, however, the opposition within the Democratic Party between the neoliberal, Rubinite cheerleaders of deregulation and the progressive sceptics of free market solutions no longer has the bitter edge it had in the 90s. And the main reason for that is that experience has taught Summers et al. to be more sceptical themselves.

Consider what The American Prospect’s Robert Kuttner, himself a progressive critic of Rubinomics, wrote about Geithner last September:

Their experiences in the financial crisis have led Geithner and Bair, both non-radical officials with impeccable establishment credentials, to embrace increasingly far-reaching remedies. [..]

As president of the most important of the regional Fed banks since November 2003, Geithner has not only had a front-row seat at the most serious financial collapse since the 1930s, he is the key public official who has prevented it from becoming another Great Depression. [..]

Speaking to the Economic Club of New York last June, Geithner called for a far-tougher regulatory policy to alter “the level and concentration of risk-taking across the financial system.” He got quite specific, saying regulators “need to make it much more difficult for institutions with little capital and little supervision to underwrite mortgages.” The speech is a blueprint for fundamental overhaul. He has delivered the same message in congressional testimony.

In a brief preview, last October, of how the policy debate in the Democratic Party might play out over the next years, Johnathan Cohn emphasised the same thing:

[D]escriptions like these tend to overlook the surprising consensus that’s emerging on the Democratic side of the aisle. After all, among those who have been rejecting Robert Rubin-style economics lately have been the very people who implemented it back in the 1990s.

Rubin himself has said that government needs to do more to shore up incomes and economic security for the poor and middle-class, by strengthening labor unions and investing in stronger (read: European-style) social welfare programs. And just a few weeks ago one of Rubin’s best-known and most respected allies, former Treasury Secretary Lawrence Summers, took to the op-ed pages to make the case for more government spending on infrastructure and health care reform.

That’s not to say no divide exists. [..] But at least for now, I think the divide within the Democratic Party may be smaller than most people realize [..].

This development, moreover, is still playing out now. As the economic crisis unfolds and reveals the swamp of bad debts and irresponsible risks which the deregulated financial sector has steered the national economy into, previously cautious economists are eyeing ever bolder solutions. FDR started out a cautious centrist too, Michael Walzer reminded us in Dissent the day after the elections:

[Obama] will be, I think (and hope), a more radical president than he wants to be. He has run, smartly, from the center; he has spoken well against the bitter partisanship of Washington politics these last eight years; he aspires to unite a racially divided nation. But the deepening recession will push him (as it pushed Roosevelt, another centrist) to adopt policies that will be fiercely opposed on the right.

(He has a snappy sounding recipe for regulation too, by the way, a soundbite worth quoting: “Last year, .. 60 percent of all credit in the United States was created by financial institutions other than banks, many of them almost entirely unregulated and unexamined. If an institution quacks like a bank, incurs risk like a bank, and gets bailed out like a bank, then it needs to be regulated like a bank.”)

All of this cautious optimism about how, maybe, the Rubinites Obama appointed simply aren’t very Rubinite anymore, at least not in the 1990s sense, can’t cloak the dominant position they do seem to have acquired, though. Because there were alternatives.

Kuttner, for example, devoted the second half of his article to another “potential appointee” at the Treasury, Sheila Bair, who is still very much a moderate, bipartisan figure but was preferred by some liberals. He wrote:

A Republican Bush appointee to the FDIC, she nonetheless has emerged as the toughest of the several banking regulators in the current financial crisis. [..] She has been a strong ally of Democrats Barney Frank and Chris Dodd as they push for better banking regulation. Her passion has been promoting the idea that refinancing [sub-prime loans at affordable rates] is preferable to foreclosure [on the borrower]. [..]

If anything, she would likely be an even tougher regulator than Geithner. [..] With Bair, Barack Obama would get a fully credentialed and expert Republican–but one who is more progressive on financial regulatory issues than most Democrats. That might appeal nicely to Obama’s wish to be simultaneously bipartisan and progressive.

Alas, it was not to be. On the other hand, it could have been worse as well: John McCain might have appointed former Sen. Phil Gramm, which would have “almost guarantee[d] another Great Depression.” And Obama too must have faced, if Kuttner’s predictions were right, “immense political pressures not to appoint tough regulators or enact tough regulation”, in which case you would have “end[ed] up with a weaker leader than Geithner or Bair.”

You didn’t. Strike one. It’s just that to get to strike two, you can’t rely on President Obama. A month on, the conclusion that Mark Engler reached still holds, basically, trite as it may sound:

[P]rogressives face the challenge of asserting that Obama’s victory should mean not only a rejection of the brash, imperial globalism of the Bush years, but also of the softer model of corporate rule that grew under Clinton.

This fight has just begun. And it will be a difficult task to convert a movement to elect Obama into a drive to build grassroots power and to hold him accountable. But, for now, as we celebrate the end of the Bush era, there can be no doubt that we are in a better position to act than just a day ago. And it’s not often when we can say that with confidence and genuine joy.


P.S. — I overlooked a good run-down of these questions some ten days ago by Robert Kuttner in the HuPo: Team of Rubins. He efficiently summarises what needs to be done, in terms of economic policy, and reviews the questions surrounding Obama’s appointments in that light. Go read it…

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