Economic Inequality: Still A Political Hot Potato

Economic Inequality:   Still A Political Hot Potato

A Fair Economy Position Paper
October 30, 2008

When the news first spread that Congress was seriously considering giving a $700 billion bailout to Wall Street, the congressional switchboards and web server were flooded with so many messages from irate constituents that they became overwhelmed and completely jammed.   A spontaneous firestorm of populist rage swept the country, uniting people economically across racial and cultural divisions for the first time in decades.   Demonstrations took place in protest of the planned bailout, with demands for greater accountability and more aid to hapless homeowners saddled with mortgage foreclosures.

Virtually overnight, Americans woke up to the rude facts of unequal income distribution as they learned precisely how much financial executives are paid.   They discovered that CEO salaries aren't arrived at as a result of supply and demand in a free market, but because boards of directors simply set the compensation at astronomical levels, as if they were lavish gifts.   What they learned offended their innate sense of fairness, a much-vaunted American quality, often paid lip service to by the very politicians who were about to pass the bailout.   A crisis atmosphere took over Washington.

Popular Outrage and The Great Bailout Swindle of 2008

All of a sudden, economic inequality became a hot topic.   But what did the major party presidential candidates have to say about this issue?

Both Senators McCain and Obama used the opportunity to inveigh against Wall Street greed and excess.   In doing so, they were trying to ride the wave of popular outrage.   But maybe they were also trying to contain it so that it would not get out of control.   In any case, when the dust settled and the bailout was passed, both Sens. McCain and Obama signed onto a form of bailout that didn't address economic inequality.   In fact, the version of the bill that passed insulated those who caused the problem from having to pay for it.  

It needn't have been so.   Both candidates could have put their money where their mouths were and not bought into the Bush administration's pressure for a quick fix.   Sen. Obama in particular could have reiterated what he said earlier in the campaign, when he criticized "rising corporate profits but flat-lining or even declining wages and incomes for the average family."   Obama was not the only Democratic candidate to point out inequality (Sen. John Edwards had made it a central concern), but he ventured into uncharted populist territory when he argued that some government intervention was needed to alter this trend: "It's going to be important for us to pay attention to not only growing the pie...but how it is sliced. I do not believe that those two things - fair distribution and robust economic growth ¬- are mutually exclusive."

That is a remarkable statement.

The notion that government should promote both economic growth and a fairer distribution of income at the same time represents a significant challenge to corporate culture in America.   The bailout debate would have been a most opportune time to advance this argument robustly.   However, when it came down to voting for the bill, both Sens. Obama and McCain skirted the issue.   For the most part, they ignored popular discontent, lest they be seen as supporting the notion of class warfare, a touchy subject for politicians dependent upon corporate campaign donations for much of their financial backing.   Ralph Nader, by contrast, has not shied away from proposing penalties for those who profited from the mess they made, going so far as to support jail terms for CEOs to prevent future transgressions.   (Nader would be the first to point out that if welfare cheats were expected to do time, then why not CEOs.)

At the very least, the Great Bailout Swindle of 2008 represents a frank admission of failure from all who worship at the altar of laissez-faire capitalism.     People have seen that the notion of a free market, long sanctified by Milton Friedman, Ayn Rand, and Ronald Reagan devotees as the most perfect system possible, doesn't even exist.

The bailout also provides us with a textbook example of what investigative journalist Naomi Klein has called "disaster capitalism," in which unpopular programs that mainly benefit the wealthy are hurried to fruition in response to a presumed crisis.   One need only recall the way Congress was pressured into granting President Bush power to wage the Iraq war, with virtually no debate, to be wary of such an approach.   In contrast, Ralph Nader has questioned why it was necessary to act so swiftly on the bailout, pointing out that systemic problems that are years in the making deserve more thoughtful analysis and longer-term solutions.

The result of the bailout, including the more recent partial nationalization of major banks, is this: wealth has, once again, been transferred up the asset ladder to those at the top.   Ironically, the bailout is similar to what conservatives often criticize so-called "tax-and-spend" liberals for:   throwing money at a problem.   While conservatives do not see anything wrong with transferring money to the wealthy, often justifying their efforts by invoking the trickle-down theory of economic growth, when legislation is attempted on behalf of the general population, they worry about creating dependency and avoiding personal responsibility.   But the bailout certainly does just that.   It socializes ("spreads around") the losses while it privatizes the gains - gains based on reckless behavior akin to casino gambling.

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