Wealth Versus Society
by Bruce Fisher
Trying to find the words for "us"
The most telling chart in a new study of Wall Street’s role in the recent economic crash is the one that shows the trend-line for bonuses. Bonuses are those enormous end-of-year payouts to star bankers that make the rest of us wonder if there’s any connection between work and reward. It’s like profit-sharing in a normal business, except that on Wall Street, as far back as the Reagan days when novelist Tom Wolfe’s Bonfire of the Vanities lampooned it all, it’s normal for a banker to get a million-dollar bonus even when the bank he works for loses money.
The Fiscal Policy Institute’s new study reports that every year since 1998, even in years when Wall Street firms’ profits were down, billions were paid in bonuses. During the crash in 2007 and 2008, when the big banks lost so much money that we taxpayers had to bail them out, bonus payouts were more than $50 billion. In 2009, when Wall Street made more than three times as much in profits as in any previous year on record, bonuses, never small, were back up into the pre-crash stratosphere. Taxpayers are still waiting for several hundred billion dollars of our federal bailout money to be repaid, but the real-life Tom Wolfe characters wait for nothing.
Meanwhile, millions of other Americans, including millions of other New Yorkers, are still recovering from the crash that the speculators and their Washington colleagues engineered. State government is struggling to cope with a $9 billion budget gap—a gap between tax revenues and the costs the state incurs to provide public services like schools, healthcare for poor people, the SUNY system, parks, cops, and environmental protection. Given that it was Wall Street’s toxic speculation that ran the economy into the ground, costing 100,000 New Yorkers their homes and as many as 800,000 New Yorkers their jobs, and given that basic services are now going to have to be cut because there isn’t enough revenue to fund them, the Fiscal Policy Institute asks, shouldn’t we be asking Wall Street to help fix Albany’s fiscal mess?
The think-tankers are asking for policies that appear doomed in this political year. The Fiscal Policy Institute wants a temporary tax on windfall profits, like the one that Richard Nixon agreed to when the oil companies octupled gas prices and made zillions after the 1973 Arab-Israeli war. The Fiscal Policy Institute also wants a “bonus recapture” tax, and some suspension of the tax rules that let Wall Street firms carry their 2007 and 2008 losses forward to this year in order to reduce their taxable income. Corporate tax reform and loophole-closing, says the Fiscal Policy Institute, could yield significant revenue that could help the state provide some local property tax relief, too.
The Fiscal Policy Institute’s logic is sound. It’s economically sensible to maintain public services for the millions of New Yorkers whose consumption will drive a whole lot more economic activity than will the relative handful of zillionaire bankers who will consume some luxury goods, but will retain most of their winnings so they can gamble some more. And because those winnings turn into political contributions that become ads that convince suburbanites that their interests are the same as those gamblers’, the Fiscal Policy Institute’s sensible program will probably never happen.
The death of balance
The reason we’re not going to have a sensible conversation about balancing the interests of the financial elite and everybody else, according to historian Tony Judt, is that our culture has changed fundamentally since the Ronald Reagan years. In his new book, which will sadly be his last (he is dying of Lou Gehrig’s disease), Judt warns that the Western democracies are screwed if we don’t recover some of our pre-Ronald Reagan ways.
“Ill fares the land…where wealth accumulates, and men decay,” is what British playwright Oliver Goldsmith wrote in 1770. Ill Fares the Land is the title of Judt’s demanding but short book, which is a call for social democracy.
Judt could have quoted Adam Smith, the 18th-century Scotsman who is remembered as the apostle of the free market but forgotten as the thinker who also warned against over-concentrating wealth. Judt knows that that sentiment, and the notion of social democracy itself, is pretty far from our current American political conversation. In the 30 years since Ronald Reagan’s once fringe anti-government movement became empowered mainstream politics, we barely have buses, subways, public schools, and even a public military as consensus items any more. The campaign for privatization has been so successfully waged, and the campaign for public space, public amenities, and indeed for shared public property so ineptly advocated, that Americans have become wary.
Yet the telling moment of the enduring acceptability of the modern welfare state came when the Tea Party rants against President Obama’s proposed healthcare reform ran up against the universal acceptance of Medicare, the Great Society program that ensures healthcare for the American elderly. The Obama team’s spines stiffened, and reform eventually passed, when they realized that the anti-government rhetoric of the free-market fundamentalists was politically hollow.
Judt’s wise, sober, and entertaining advocacy is for a more competent Left that seizes that kind of moment, and that can actually communicate with middle-class and working-class Americans and Europeans. He cites the evidence of many studies of well-being and contentment, which time after time find that communities where there is a small gap between the richest and the rest are better off as measured in infant mortality, educational attainment, material security, and rates of mental illness, criminality, and family stability. But these facts don’t speak for themselves as well as they need to.
Instead, at least until the crash, the new Reaganite language of “the private sector,” “efficiency,” “free enterprise,” and “growth” overcame the language of community. This same language still rules in Britain and Ireland, where the so-called “economic miracle” consisted of an “unregulated, low-tax regime” whose shortfalls in public income were compensated by subsidies from the much-maligned European Union. “When Wall Street’s party crashed, the Irish bubble burst along with it. It will not soon reflate,” writes Judt.
Events not rhetoric
Nor soon will the Left regain its footing. Once-confident social democrats are different from liberals, who seem perpetually on the defensive. Liberals grudgingly accept the notion of progressive income taxes that take a higher share of higher incomes than of lower incomes; social democrats regard such a tax system not grudgingly but with enthusiasm, because the money it collects is used to fund public goods—healthcare systems, transit systems, universities, armies—that keep social balance. Social democrats accept that unemployment happens in complex economies less because of the personal failings of individuals than because of business cycles, and that unemployment should be a temporary condition, but not a condition that is punishable by humiliation. Liberals, like welfare reformer Bill Clinton, were too ready to blame victims as a way of placating the Right.
Judt warns that the Obama administration’s bows to Keynesian economics are just gestures, and that the fawning faith in “the market” burns as strong as ever amongst his advisors. It’s worse in the former Communist countries: “a generation has been raised to believe in the free market and the minimal state,” says Judt, and that bodes ill for their fragile countries, led as they are by klepto-capitalists, and facing terrorism, economic insecurity, and climate change that only well established, well accepted governments can combat.
I spent the weekend reading various Judt essays and excerpts between sessions of studying the Fiscal Policy Institute report and cruising around the prosperous-looking suburbs of Western New York. In the majority-Caucasian neighborhoods where dependency on Medicare is high and yet where Republican rhetoric about the free market sells best, government is in disguise. It looks unnecessary, even where Food Stamp recipients surreptitiously live in greater numbers than ever before. The illusion of the self-directing individual is high in places like Clarence, where the Erie County Sheriff and the New York State Police supply public safety services, and where the roads are mainly county roads, and where the notion of personal prosperity as the apogee of human achievement seems to rule most firmly.
Yet it is for the folks who live in that mental geography, too, that Judt writes, and for whom the Fiscal Policy Institute writes, too. The interests of white suburbanites are not best served by a tax system that leaves Wall Street gamblers’ bonuses intact. The public good is best served by a muscular social democratic policy structure, and by a courageous politics that faces down the Tea Party, even if that politics has not yet regained its hold on a compelling vocabulary. As climate change will make clear, especially to suburban whites who have imagined themselves spatially secured from threats from poor people, only collective public action, by government, will suffice. Events may force the fulfillment of Tony Judt’s goals sooner than the better argumentation he wants ever could.
Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.