(2016-10-30) Stoller How Democrats Killed Their Populist Soul

Matt Stoller: How Democrats Killed Their Populist Soul. It was January 1975, and the Watergate Babies had arrived in Washington looking for blood. The Watergate Babies—as the recently elected Democratic congressmen were known—were young, idealistic liberals who had been swept into office on a promise to clean up government, end the war in Vietnam, and rid the nation’s capital of the kind of corruption and dirty politics the Richard Nixon White House had wrought.

But the Watergate Babies didn’t just campaign against Nixon; they took on the Democratic establishment, too

the new members were antiwar, not necessarily anti-bank. “Our generation did not know the Depression,” then-Representative Paul Tsongas said. “The populism of the 1930s doesn’t really apply to the 1970s,” argued Pete Stark, a California member who launched his political career by affixing a giant peace sign onto the roof of the bank he owned.

One of their first targets was an old man from Texarkana: a former cotton tenant farmer named Wright Patman who had served in Congress since 1929. He was also the chairman of the U.S. House Committee on Banking and Currency.

it was actually Patman’s Banking Committee colleagues who orchestrated his ouster. For more than a decade, Patman had represented a Democratic political tradition stretching back to Thomas Jefferson, an alliance of the agrarian South and the West against Northeastern capital. For decades, Patman had sought to hold financial power in check

a revolution had occurred. But the contours of that revolution would not be clear for decades. In 1974, young liberals did not perceive financial power as a threat, having grown up in a world where banks and big business were largely kept under control

Over the next 40 years, this Democratic generation fundamentally altered American politics

The result today is a paradox. At the same time that the nation has achieved perhaps the most tolerant culture in U.S. history, the destruction of the anti-monopoly and anti-bank tradition in the Democratic Party has also cleared the way for the greatest concentration of economic power (oligarchy) in a century.

Patman was the workers’ and farmers’ legislative hero; Louis Brandeis, their judicial champion.

Brandeis’s basic contention, built up over a lifetime of lawyering from the Gilded Age onward, was that big business and democracy were rivals.

New Dealers understood this not as regulation, but decentralization, a shrinking of the financial sector to prevent conflicts of interest.

In 1947, Patman even commissioned experts to publish a book titled Fascism in Action, noting that fascism as a political system was the combination of extreme nationalism and monopoly power, a “dictatorship of big business.”

The essence of populist politics is that political and economic freedom are deeply intertwined—that real democracy requires not just an opportunity to vote but an opportunity to compete in an open marketplace.

The story of why the Watergate Babies spurned populism is its own intellectual journey.

In their youth, they saw, up close, not the perils of robber barons, but the failure of the New Deal state, most profoundly through the war in Vietnam.

Robert F. Kennedy sought to win the primary with a “black-blue” coalition of black “have-nots” and working-class whites.

But Kennedy’s strategy to merge these ideas disappeared when he was assassinated. When RFK died, Democrats nominated New Deal populist and Vietnam War supporter Humphrey, which split the party between the new-left youth activists and the labor-influenced party regulars—leading to the turbulent 1968 national convention

Whether it was overregulated or mismanaged by Wall Street, Penn Central had collapsed—so what was the difference anyway?

As 1960s activists became 1970s politicians, they had to develop a political-economic framework to deal with inflation and corporate failures. And this is where the young Democrats’ intellectual journey took a turn. While an older, increasingly feeble generation was arguing that the problem lay in monopoly and banking power, several leading thinkers on both the right and the left provided a new explanation.

On the right, a finance-friendly school of libertarian intellectuals known as the Chicago School targeted Brandeisian competition policy

Michael Jensen, a Milton Friedman-influenced financial economist, argued that “our form of political democracy” threatened the large corporation. Government rules, labor power, and antitrust policies were scaring businessmen into not investing. This type of thinking became known as the “capital shortage” argument

Another Chicago School libertarian, George Stigler, argued a theory of regulatory capture.

Essentially, Jensen and Stigler offered a restoration of the pre-FDR view of property rights.

And the most important architect of this intellectual counterrevolution, the one who engaged in a direct assault on traditional anti-monopoly policy, was the libertarian legal scholar Robert Bork.

Monopolies, Bork believed, were generally good, as long as they delivered low prices.

On the Democratic Party’s left, a series of thinkers agreed with key elements of the arguments made by Jensen, Stigler, and Bork. The prominent left-wing economist John Kenneth Galbraith argued that big business—or “the planning system” as he called it—could in fact be a form of virtuous socialism.

Rather than distribute power, they actively sought to concentrate it.

His theory was called “countervailing power.” Big business was balanced by those subject to it: big government and big labor. (balance of power, BigWorld)

For younger Democrats, the key vector for these ideas was an economist named Lester Thurow, who organized the ideas of Galbraith, Stigler, Friedman, Bork, and Jensen into one progressive-sounding package. In an influential book, The Zero-Sum Society, Thurow proposed that all government and business activities were simply zero-sum contests over resources and incomes, ignoring the arguments of New Dealers that concentration was a political problem and led to tyranny

President Jimmy Carter deregulated the trucking, banking, and airline industries, with help from economist Alfred Kahn.

In 1982, journalist Randall Rothenberg noted the emergence of this new statist viewpoint of economic power within the Democratic Party with an Esquire cover story, “The Neoliberal Club.” In that article, which later became a book, Rothenberg profiled up-and-coming Thurow disciples like Gary Hart, Bill Bradley, Bill Clinton, Bruce Babbitt, Richard Gephardt, Michael Dukakis, Al Gore, Paul Tsongas, and Tim Wirth, as well as thinkers like Robert Reich and writers like Michael Kinsley.

Previously, voters had expected politicians to do something about everything from the price of milk to mortgage rates. Now, neoliberals expressed public power through financial markets.

they also still believed in the public good. They sought an “industrial policy”—a never-quite-defined planning mechanism—to direct resources in the economy through a cooperative three-way dialogue among labor, business, and government.

This mix of central planning and private monopoly may sound odd, but it is the intellectual underpinning of both the Affordable Care Act and the Dodd-Frank Wall Street Reform Act. Although the details of both policies are influenced by a certain amount of happenstance and political give-and-take, both policies deliver social benefits through heavily concentrated private actors, which could be seen as a private form of central planning.

When Ronald Reagan came into office, one of his most extreme acts was to eliminate the New Deal anti-monopoly framework. He continued Carter’s deregulation of finance, but Reagan also stopped a major antitrust case against IBM and adopted Bork’s view of antitrust as policy. The result was a massive merger boom and massive concentration in the private sector.

Bill Clinton stripped antitrust out of the Democratic platform; it was the first time a reference to monopoly power was not in the platform since 1880. Globalization, deregulation, and balanced budgets would animate Clinton’s political economy, with high-tech and finance leading the way. And it seemed to work

From telecommunications to media to oil to banking to trade, Clinton administration officials—believing that technology and market forces alone would disrupt monopolies—ended up massively concentrating power in the corporate sector. They did this through active policy, repealing Glass-Steagall, expanding trade through NAFTA, and welcoming China’s entrance into the global-trading order via the World Trade Organization.

And in response to the end of the Cold War, the administration restructured the defense industry, shrinking the number of prime defense contractors from 107 to five. The new defense-industrial base, now concentrated in the hands of a few executives, stopped subsidizing key industries. The electronics industry was soon offshored.

Despite this prosperity, in 2000, the American people didn’t reward the Democrats with majorities in Congress or an Oval Office victory. In particular, the rural parts of the country in the South, which had been a traditional area of Democratic strength up until the 1970s, were strongly opposed to this new Democratic Party. And white working-class people, whom Dutton had dismissed, did not perceive the benefits of the “greatest economy ever.” They also began to die. Starting in 1998 and continuing to this day, the mortality rate among white Americans, specifically those without a high school-degree, has been on the rise—leaving them scared and alienated.

Deflation, rather than inflation, and a capital glut, rather than a capital shortage, started to concern policymakers.

The gains of the 1990s, it turns out, were not structural, but illusory.

Dealing with a financial collapse in the early years of his administration, Obama’s political-economic framework supported concentrated yet regulated financial power.

But what intellectuals like Thurow, Galbraith, Greenspan, Bork, and so forth didn’t foresee was political disillusionment on a vast scale. In 2014, for example, voting rates in some states dropped to levels unseen since the 1820s. (political dis-engagement)

Despite their best efforts, U.S. institutions seem as out-of-control and ungovernable as they did when the 1975 class came into office.

For most Americans, the institutions that touch their lives are unreachable.

Americans have forgotten about the centuries-old anti-monopoly tradition that was designed to promote self-governing communities and political independence.

Americans, sullen and unmoored from community structures, are turning to rage, apathy, protest, and tribalism, like white supremacy. (white supremacist)

Restoring political stability means structuring society’s public and corporate institutions so they can be governed by human beings and communities.

Restoring America’s anti-monopoly traditions does not mean rejecting what the Watergate Babies accomplished. It means merging their understanding of a multicultural democratic society with Brandeis’s vision of an “industrial democracy.” The United States must place democracy at the heart of its commercial sphere once again. That means competition policy, in force, all the time, at every level.