CHAPTER 17
A VISIONARY PRESIDENT MEETS REALPOLITIK

The basic facts of President Obama’s first year in office are well known. Given what he inherited — a devastated economy, record national and foreign debts, a mounting budget deficit, two expensive and unwinnable wars of occupation, Wall Street’s corrupting hold on Washington politics, and a take-no-prisoners far-right opposition in Congress — he merits high marks.

His continuation of the Bush administration’s bank bail-out prevented total financial collapse, and his stimulus package slowed the loss of jobs. He has attempted to moderate Wall Street bonuses, speculation, and credit card rip-offs. He has greatly improved America’s international image. He has recognized that global climate change is real and put it on the agenda for action. He has strengthened the ability of Americans to challenge discriminatory pay and increased health insurance for children of working-class families. He has put on hold new trade agreements that sell out public interests to corporate interests. He is winding down the war in Iraq. He pushed through much-needed health care reform legislation in the face of ruthless, unified opposition from those who believe they will gain political points if they cause his administration to fail.

Compared with where we might now be on any of these issues under a McCain-Palin administration, President Obama deserves our admiration and gratitude as a nation. Yet, compared with many of the hopes raised by his campaign and the urgent need for deep economic transformation, his administration and the Democratic Party majority in Congress have fallen far short.

LIMITS TO TRANSFORMATIONAL LEADERSHIP

Although our hopes for, and expectations of, President Obama on the New Economy front were consistent with his campaign rhetoric, they were unrealistic from the beginning.

• We underestimated Wall Street’s political power.

• We overlooked Barack Obama’s personal predisposition to avoid political confrontation in favor of bringing people together in search of common ground.

• We failed to appreciate the significance of the absence of an articulated and widely supported New Economy economic model that could provide an alternative framework to that offered by market fundamentalists and Keynesians.

Wall Street’s Political Power

For more than forty years, Wall Street corporations have been aggressively tightening their hold on Washington politics to push their program of deregulation and privatization. They control the money and the media in a money-driven political system. Wall Street banks and investment houses, Goldman Sachs first among them, were candidate Obama’s biggest campaign contributors. During the campaign Robert Rubin, once cochair of Goldman Sachs and more recently chair of Citigroup, was one of his most influential advisers.

Obama brought in former treasury secretary Larry Summers to be his top White House economic adviser and chose Timothy Geithner, former head of the New York Federal Reserve and close associate of the heads of Wall Street’s biggest banks,¹ to be his treasury secretary. Rubin, Summers, and Geithner bear significant individual and collective responsibility for the policies that led to the meltdown, as does Ben Bernanke, whom Obama kept on as Federal Reserve chair.

Among other qualities, Barack Obama is a political pragmatist. He did what he needed to do to win the election and trusted in his own ability to bring competing factions together to advance a shared vision of American possibility after taking office. Once elected, he staffed key positions with competent people who knew the system and were skilled in its ways.

Leadership to curb establishment power and excess rarely comes from within the establishment. Even when an armed revolution inserts new leaders into the institutions that the revolution sought to dismantle, the new leaders generally replicate the patterns of domination and abuse of those they displaced. They quickly learn that their ability to shape events depends on maintaining the power of the institutions they sought to transform and now head.

Recall that before Al Gore became vice president in the Clinton administration in 1992, he wrote Earth in the Balance,which presented a passionate plea to make environmental sustainability the organizing principle of public policy. Many of us hoped that he would use the powers of the vice presidency to make this a priority of U.S. domestic and foreign policy. Instead, he shamelessly campaigned for the North American Free Trade Agreement, which weakened environmental protections. As the chief U.S. negotiator at the Kyoto climate change summit in 1997, he demanded loopholes that contributed to gutting the final document. After leaving office in 2000 to return to private life, he rediscovered his environmental passion and became one of the world’s most influential voices calling for action on global climate change.

Presidents may be as different as Bush and Obama in their experience, ability, values, and political alliances, but the system has its own logic that creates enormous barriers to change from within, even by those at the pinnacles of power. That is why the leadership to transform our economic system must come from millions of committed people organizing as citizens to create a compelling people-power counterforce to Wall Street’s money.

A Nonconfrontational Leadership Style

Black men do not get ahead in a white world by being confrontational. They get ahead by gaining the trust and confidence of whites through building a reputation for being wise, competent, nonconfrontational bridge builders. Being biracial, growing up in multiple cultures, organizing competing factions in Chicago ghettos, excelling at Harvard Law School, and serving as president of the prestigious Harvard Law Review, Barack Obama mastered the arts of bridge building and nonconfrontational leadership.

No-Drama Obama keeps his cool almost to a fault, takes a problem-solving approach to each issue, assumes the good faith of the participants, and looks for win-win solutions. This style has been a key to his extraordinary accomplishments and served him well during the election.

Unfortunately, U.S. presidents face a divisive Washington political system that puts winning ahead of problem solving. It is owned by Wall Street interests that see no need to compromise and will by any means resist political initiatives that do not give them new rights or provide them with new subsidies.

Attempting to engage in good-faith problem solving or negotiation when the necessary actions require stripping Wall Street of its political power, public subsidies, and its ability to create phantom-wealth fortunes is a futile exercise.

The times require the kind of hard-knuckle, head-knocking realpolitik that is neither Obama’s style nor his forte. He got his baptism by fire in this regard to achieve an extraordinary victory on health care. Perhaps it will prove to be a positive start.

President Obama is a fast learner and the most able and sympathetic president we are likely to get in a long time. For him or any other president to stand up and confront the beast, however, we the people must create the necessary political imperative and cover.

The Lack of an Articulated New Economy Model

Two established schools of economic thought frame the public debate regarding appropriate responses to the economic crash: market fundamentalism and Keynesianism.

Market fundamentalism is also known as the Chicago School because of the influence of a group of economists led by Milton Friedman at the University of Chicago. More ideology than science, market fundamentalism calls for privatizing public assets and services, leaving resource-allocation decisions exclusively to market forces, and limiting govern-ment’s role to enforcing contracts and protecting property rights. This school has prevailed for more than thirty years and provided the intellectual justification for the deregulation that enabled the reckless and unaccountable concentration of economic power and crashed the economy.

Keynesian economics is the only school of thought that offers a recognized counter to the Chicago School in policy circles. According to Keynesianism, optimal economic function depends on government intervention. It asserts that the aggregate demand created by households, businesses, and government is the most important driving force in the market and that only government can manage that demand to create and maintain price stability.

When the financial markets crashed, some market fundamentalists called for subjecting failing banks to market discipline by letting them fail. Keynesian pragmatists, however, recognized that given their size and interlinking derivatives contracts, this would crash the whole economy and thereby extract an intolerable price from the innocent as well as the guilty.

President Obama staffed his key economic positions with Wall Street insiders who have market fundamentalist sentiments, but they lean toward Keynesianism in that they recognize the need for government intervention to stimulate demand and keep money flowing in times of economic downturn. So they picked up seamlessly on the bank bailout from where the Bush administration left off. Unlike the Bush administration, however, Obama’s economic team quickly added economic stimulus money to keep people working, to provide unemployment payments for the majority of those who weren’t, and to create new green jobs — far better choices than allowing the money system to collapse entirely and a big improvement on the Bush administration’s bank-bailout-only response.

Keynesians, however, still share the market fundamentalist obsession with GDP growth as the defining economic objective and true measure of economic performance, take institutions as a given rather than a policy choice, and make no distinction between phantom wealth and real wealth. In short, their guiding intellectual frame includes none of these essential elements of the New Economy. The options on the screen of the economists who defined the options available to President Obama were limited to those that fit the frame of one of the two prevailing schools of economics.

Under a New Economy frame, the goal vis-à-vis Wall Street would have been to transform the money system from a phantom-wealth system to a living real-wealth system (see chapter 13). They would have taken over failing banks, negotiated financial settlements with creditors at steeply discounted prices, shut down operations engaged in derivative scams and speculation, and restructured depository banking operations to spin off individual units as independent, locally owned community banks, mostly organized as nonprofits or cooperatives.

Obviously, restructuring the banking system takes more time than simply pouring in cheap money at the top in the hope that credit will start flowing again — which it didn’t. Instead, the taxpayer money was diverted to bonuses, dividends, takeovers, and the purchase of Treasury bonds the government had sold to fund the bailout. This money would have had far more positive effect if Wall Street had been forced to absorb its losses and the government had instead flowed the money into the economy at the bottom, where it could have kept people working and in their homes. How different things might now be!

With a New Economy frame, the federal government would also have placed the Federal Reserve under government supervision and used its facilities to support a restructuring of the financial system and provide interest-free financing for a greatly expanded Main Street stimulus program.

Such a dramatic departure from business as usual, however, would have required a team of strong leaders working from a shared framework understood and embraced by a major segment of the public. Tragically, the education and experience of our leaders — including President Obama — and the general public have been limited to economic models that are either actively destructive or seriously limited.

Most of the New Economy ideas have been around for a long time. However, no established school of economic thought has emerged to pull them together into a coherent holistic framework taught and promoted as a basis for legislative and administrative action by government. Ecological economics is making an essential contribution to creating economic models that incorporate a strong ecological perspective, but it has done little to develop an institutional analysis or to translate its models into frameworks for institutional restructuring.

There is a field of institutional economics, but its members mostly work within what is essentially a market fundamentalist frame with a focus on transaction costs. Political economists, who generally bring a larger perspective, tend to be sidelined because of political economy’s historical association with Marxism. Moreover, their primary interest tends to be in studying economic ideologies as phenomena to be explained rather than as sources of practical policy guidance.

Again, it remains to the institutions of global civil society to articulate and popularize a sound and compelling New Economy policy framework that includes a strong institutional component. The New Economics Foundation in London has been engaging New Economy policy issues for many years. As discussed elsewhere, a number of new groups have formed since September 2008 to carry forward this work, including the New Economy Working Group, the New Economy Network, the New Economics Institute, and the American Sustainable Business Council. Among the existing schools of economics, ecological economics is probably best positioned to take the leadership on the academic side. I hope that it may yet rise to this challenge.

THE UNDERLYING GRASSROOTS CONSENSUS

Political divisions among grassroots organizations tend to obscure an almost universal sense of having been betrayed by distant institutions that act contrary to society’s interests. The Wall Street bailout is a particular focus of outrage. Taking money from struggling taxpayers in order to give it to Wall Street bankers so they could pay themselves bonuses for crashing the economy spurred outrage across the political spectrum. The Supreme Court decision in Citizens United v. the Federal Election Commission, which gave corporations carte blanche to buy elections, added to the nonpartisan outrage. Follow-up polls reported that the Supreme Court’s decision was opposed by 80 percent of Americans, including 76, 81, and 85 percent of Republicans, Independents, and Democrats, respectively — a truly extraordinary consensus in this time of political division.²

The Wall Street–Washington Axis

The primary division among the outraged would appear to be between conservatives, who focus their anger on government, and liberals, who focus it on Wall Street. The debate about whether to blame government or Wall Street obscures the real issue, which is the undemocratic, elitist alliance between big business and big government so dramatically exposed by post-crash events.

Whether the blame lies more with Wall Street or with Washington is largely beside the point. The problem can be resolved only by citizen action at both ends of the axis to break up Wall Street financial institutions, get big money out of politics, democratize the economy, and hold Washington politicians accountable to the popular will.

The sense that Wall Street and Washington are running out of control in pursuit of agendas contrary to the interests of ordinary people is the basis for a powerful political realignment supportive of a New Economy agenda of institutional transformation to root both economic and political power in people and community.

The more important division appears to be more psychological than ideological, as reflected by the more visible distinctions between the Tea Party and the Coffee Party. Both have launched political movements in response to the outrage generated by the Wall Street–Washington axis. Their look and emotional tone, however, could scarcely be more different.

The nearly all-white Tea Party appeals to the negative emotions of fear and anger and mobilizes primarily around outraged opposition to Washington. Many of the placards and slogans favored by its members in demonstrations are blatantly racist.

Yet despite the strong streak of antigovernment libertarianism, the Tea Party is no friend of Wall Street. One of its major complaints against Washington is that it bailed out Wall Street banks rather than letting them fail. The sidebar on the About Us page of its Web site featured several decidedly anti–Wall Street jokes, including³

• What is the only difference between Wall Street and the Monopoly game? Wall Street controls all the “Get Out of Jail Free” cards.

• The U.S. has made a new weapon that destroys people but keeps the buildings standing. It’s called the stock market.

• CEO – Chief Embezzlement Officer

• CFO – Corporate Fraud Officer

The Tea Party has no more love for Wall Street than it has for Washington.

By contrast, the multiracial and multicultural Coffee Party appeals to the positive emotions of love and hope and mobilizes around calls to engage in positive problem solving. According to its Web site, it “demand[s] a government that responds to the needs of the majority of its citizens as expressed by our votes and by our voices, NOT corpo-rate interests as expressed by misleading advertisements and campaign contributions” (emphasis in the original). ⁴

A Focal Point for Mobilization

These two parties define the most salient political division of our time: one appealing to anger and confrontation; the other, to love and problem solving. Both start from a nearly identical concern that a Wall Street–Washington axis has stolen our money and country and denied us our rights. Each has its distinctive strengths and limitations; they differ mainly in how they seek resolution.

Unless accompanied by positive problem solving, rage is blind, easily manipulated by hate mongers, and rarely contributes to positive solutions.

On the other hand, love and problem solving alone are unlikely to be effective when there is no potential resolution that can simultaneously fulfill Wall Street’s unquenchable thirst for unearned profits and obscene bonuses, achieve a just distribution of material wealth, and bring humans into balance with the biosphere. Such a resolution will require determined resistance combined with hardball negotiation while those who share a commitment to good-faith problem solving engage in a search for real solutions — rather as President Obama finally grabbed the political ball and ran health care reform through Congress.

Three objects of public outrage cut across the political spectrum and provide potential for building a broadly based political alliance devoted to confronting and stripping the Wall Street–Washington axis of its power:

1. The no-strings Washington bailout of too-big-to-fail Wall Street banks

2. The Citizens UnitedSupreme Court decision that freed corporations from crucial restraints on their ability to buy elections

3. The corrupting influence that corporate money, perks, and the revolving door between Congress and lobbying firms exert on legislation and attempts at regulation

Until there is a serious shift in public policy toward the New Economy framework, the gap between the economic fortunes of Wall Street and those of Main Street will endure. This will assure that the window of opportunity for broadly based political organizing remains open indefinitely. The initiative, however, lies with us, not with President Obama.

His options are limited by the realities of Wall Street’s hold on the Washington political establishment, his personal style, the lack of established support for a recognized New Economy economic model, and the perennial contradiction facing those who seek to transform the institutions that are the source of their authority. He can provide leadership toward a New Economy agenda only when we the people create the political imperative for him to do so.

This may not be so difficult as it first appears. Despite our political divisions, we have a nearly universal national consensus on a major issue: the illegitimate alliance of government and corporate power that mocks the democracy we thought we had and strips all but the richest among us of a political voice. The Wall Street–Washington axis presents a powerful unifying focus for mobilizing to create a new political context.