Stop Coddling Wall Street!

Obama's call for a new tax on big banks amounts to a fraction of Goldman's bonuses. Joel Kotkin on how the Democrats have failed to exploit populist outrage.

By all historical logic and tradition, Wall Street’s outrageous bonuses—almost $20 billion to Goldman Sachs alone—should be setting a populist wildfire across the precincts of the Democratic Party. Yet right now, the Democrats in both the White House and Congress seem content to confront such outrageous fortune with little more than hearings and mild legislative remedies—like a proposed new bank tax, which, over the next decade, seeks to collect $90 to $100 billion. This amounts, on an annual basis, to about half of this year’s bonus for Goldman’s gold diggers alone. It’s speaking loudly and carrying a stick made of paper mache.

Jackson, Roosevelt, and Truman would have understood the opportunity for the Democratic Party presented by this egregious, undeserved windfall.

But this should come as no surprise, really. Postmodern Democrats are generally more concerned about the fate of the polar bears than real people on Main Street.

One reason may be that Democrats increasingly collect the bulk of contributions from the very financial sector that they have bailed out and coddled since taking office. However, more substantially, the Democrats—including many “progressives”—seem more comfortable with big business and high finance than their erstwhile working- and middle-class constituencies. For this, we need the Democratic Party?

Somewhere outside Nashville, the shade of Andrew Jackson, the founder of the modern Democratic Party, is stirring uncomfortably. So, too, are the remains of Harry Truman and Franklin Roosevelt, Jackson’s heirs to the leadership of the Party of the People.

Faced with highway robbers like those at Goldman Sachs, Jackson would have threatened to seize their assets and, if they protested, hang them from the highest tree. Franklin Roosevelt would have made political mince meat out of these outrageous “economic royalists.” Harry Truman would have uttered an earthy expletive and sought to cut them down to size. Truman hated phonies and elitists; today’s Democrats Party is lousy with them.

Now we see the very abandonment of the idea of the Democratic Party opposing concentrations of power. Historically, Democrats took on the largest and most powerful institutions of society. Jackson made his critical battle against the government-run Bank of the United States, which he considered a means “ to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful.”

In his time, Franklin Roosevelt battled big business, which largely hated him, by seeking to create a more equal distribution of wealth. He tried to save homeowners and farmers from the banks; speculators wiped out in 1929 did not enjoy banner years for a long time to come. Truman fought not for big banks and major companies, but for programs that spread capital to the middle class, whether for college loans or mortgages.

Now we have the postmodern Democratic Party of Barack Obama. The new party has little use for populism of any kind—it prefers to legislate from on high, whether on financial reform, climate change or land-use policy, from what it considers its superior knowledge. If your factory or business is shut down as a result, it’s you who better learn to evolve.

We will see this same mind-set in action with the administration’s proposal for a cap-and-trade program. It may end up doing little for the environment, but a lot of traders, well-connected corporate CEOs, and academic consultants will be made even richer. Draconian “green” policies that boost subsidies and energy prices may not be what Americans want—climate change ranks near the bottom of popular concerns—but such an approach fits neatly the agendas of Harvard faculty, Wall Street, and the mainstream media. That is, those who matter.

Postmodern Democrats are generally more concerned about the fate of the polar bears than real people on Main Street. The rotten economy remains detestable but the stimulus program is working fine for their key constituencies. Stocks are up, many hedge funds are doing well, university research coffers are bulging. Meanwhile, taxpayers are employing ever-more unionized public employees, whose often-insane pensions are consuming many local government budgets.

Many Americans who work for themselves are enraged, but they lack a credible channel for expressing it. The Republicans are largely discredited by their disgraceful performance over the last decade, up to and including the initial Bush-Paulson bailout. The Republicans presided as easily as the Democrats over the disastrous financialization of the economy; by the mid-2000s, finance accounted for some 41 percent of all American profits—three times the percentage in the 1970s.

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But for now, populists are in retreat in Washington. Last week, Byron Dorgan of North Dakota announced his retirement from the Senate. Dorgan, friends tell me, was disgusted with Obama’s focus on health care and climate change at a time when the economy was unraveling and Americans were losing their jobs. He also knew that the president’s mounting unpopularity in Middle America posed a profound threat to his own reelection prospects.

Dorgan will be missed. His voice would have been set against the coddling of Wall Street. He supported reinstating the 1933 Glass-Steagall Act, which put a barrier between banks and investment houses. He also opposed “too big to fail” policies and was ready to attack the administration’s “cap-and-trade” scheme, which he considered a large giveaway to Wall Street traders.

Dorgan’s departure leaves only a handful of genuine populists in Congress, including Jon Tester from Montana, James Webb of Virginia, as well as our resident socialist, Vermont's Bernie Sanders. They may well be at last willing to take on the battles that Jackson, Roosevelt, and Truman would have fought against “interests.”

Right now for every populist, there are several gentry Democrats—epitomized by the likes of New York Senator Charles Schumer and his sidekick, Kirsten Gillibrand—who will do Wall Street’s bidding on the Hill. Erstwhile populists may find some allies among independent-minded Republicans but, for the most part, the GOP is too blinded by ideology or too well bought to curb the big investment houses.

So in the end, another crop of 35-year-old Wharton and Harvard MBAs gets to spend their multimillion-dollar windfalls. Maybe if you live in New York, perhaps a few shekels might fall your way. After all, these people have kids to nanny, dogs to walk, apartments to decorate, and toenails to be painted.

These bonuses simply remind us of our outrage. Jackson, Roosevelt, and Truman would have understood the opportunity for the Democratic Party presented by this egregious, undeserved windfall. Truman in particular would have detested the academically oriented “progressives” who explain away excess and look for new ways to harry independent smaller businesses. As he once quipped, “There should be a real liberal party in this country, and I don't mean a crackpot professional one."

Yet that’s exactly the kind of Democratic Party we have now: one that shames the legacy of Truman, Roosevelt, and Jackson and looks the other way while the Treasury is raided and the economy works mainly for the benefit of the least deserving.

Joel Kotkin is Distinguished Presidential Fellow in Urban Futures at Chapman University in Orange, California, and an adjunct fellow with the Legatum Institute in London. He is the author of The Next Hundred Million: America in 2050, out from Penguin in early February.