Populism: The Democrats’ Great Divide

Robert Borosage

One day after President Barack Obama called for moving forward on trade authority in his State of the Union address, Senate Majority Leader Harry Reid (D-Nev.) declared, “I am against fast track,” and said he had no intention of bringing it to a vote in the Senate.

Reid’s announcement came after 550 organizations, representing virtually the entire organized base of the Democratic Party outside of Wall Street, called on Congress to oppose fast track. Though obscured by the Democrats’ remarkable unity in drawing contrasts with the Tea Party-dominated Republicans in Congress, the debate between an emerging populist wing of the Democratic Party and its still-dominant Wall Street wing is boiling.

For a constantly disputatious “big tent” party, Democrats are remarkably unified behind the jobs and inequality agenda the president ticked off in his State of the Union address — raising the minimum wage, immigration reform, paycheck fairness for women, paid family leave, investment in infrastructure, education and research and development, and an “all of the above” energy strategy. Republicans block action on all these relatively modest reforms, providing ammunition for Democrats in the November midterm elections.

But beneath this surface calm, there is a growing divide within the Democratic Party over what might be considered the tectonic plates of our political economy, a debate that has only begun to surface. Here are some of the core divisions:

Passive or Active Voice Populism

Since Occupy Wall Street, inequality has been Topic A, hardly surprising in an economy where the top 1 percent is capturing 95 percent of the income growth coming out of the Great Recession. The president weighed in, calling inequality the “defining challenge of our time.”

But dramatic differences arise, not about the reality of this inequality but the reason for it. For the president and the establishment wing of the Democratic Party, inequality is something that happened to us, driven by anonymous, impersonal forces — “globalization and technology.” Now that we are awakened to its force, the argument goes, we can deal with it together.

This passive voice is a far remove from the active voice used by the emerging new populists. Here’s Senator Elizabeth Warren (D-Mass.), quickly emerging as a leading force in the new populism, electrifying the Democratic Convention as a first-time Senate candidate:

“People feel like the system is rigged against them. And here’s the painful part: They’re right. The system is rigged. Look around. Oil companies guzzle down billions in subsidies. Billionaires pay lower tax rates than their secretaries. Wall Street CEOs — the same ones who wrecked our economy and destroyed millions of jobs — still strut around Congress, no shame, demanding favors, and acting like we should thank them. Anyone here have a problem with that? Well I do.”

It wasn’t remorseless globalization or technology that caused inequality, these populists insist. The wealthy rigged the rules to benefit themselves. And now they use their wealth and power to preserve their privilege. The contrast is telling. An active-voice analysis points directly to culprits that must be challenged — and policies that must be changed.

Capillaries or Arteries

The difference in analysis leads to a difference in remedy. The president’s agenda is modest and sensible. It focuses on lifting the floor under the working poor. Over the long term, he would invest more in education and training, and provide some help to manufacturing. Though Obama did not highlight this in his State of the Union, he’s called for trimming the grotesqueries a bit — with a minimum tax on millionaires and multinationals, a rollback of subsidies to big oil.

This in itself is enough to raise hackles on Wall Street, illustrated by billionaire Tom Perkins comparing animosity to the 1 percent to the hatred that led to the mass murder of the Jews in Nazi Germany.

But what is most striking about the president’s agenda is how carefully he skates around addressing the fundamental structural policies that drive inequality. Obama focuses more on capillaries than arteries.

The reality is that after the administration and Federal Reserve acted to save an economy in freefall, the old economy is coming back. Inequality will continue to get worse, the new populists argue, unless fundamental structural changes are made. These define the debates that will emerge over the next months:

Trade and tax policy. The new populists are calling for an end to the old multinational-defined trade policies that racked up record trade deficits and disemboweled U.S. manufacturing. They demand a move to balanced trade that takes on the mercantilist nations like China. The new populists also challenge the policies that give corporations incentives to ship jobs and report profits abroad. Led by Senator Sandy Levin (D-Mich.), they’ve exposed the tax dodges and tricks that global corporations use to avoid paying taxes.

Next up will be a debate about deferral — the tax dodge that lets global corporations avoid paying U.S. taxes on profits they report abroad. It is also likely to be sparked when corporations push for repatriation of those profits at a discounted rate.

Public squalor and private wealth. After the president moved prematurely to deficit reduction in 2009, the debate over another major recovery effort was lost. But the United States is still mired in mass unemployment. We have a growing public investment deficit in everything from basic infrastructure to affordable college. Polls show that Americans don’t believe that corporations and the wealthy are paying their fair share of taxes. Though Americans are extremely skeptical of government spending, majorities support greater investment in education and training, in infrastructure and research and development.

The Congressional Progressive Caucus Budget for All lays out the new agenda: the new populists will increasingly return to being “tax and spend” Democrats. They are arguing for greater investments in areas vital to our future and want to pay for it with progressive tax reforms.

Too big to be. Despite financial reform, the big banks have emerged from the crisis bigger and more concentrated than ever. They have been exposed as running serial criminal schemes — conspiring to fix currency and interest rates, laundering money for drug kingpins, avoiding sanctions for Iran, defrauding homeowners, bilking soldiers in the field and more.

They’ve settled these charges with record fines, paid for with other people’s money. Not one major banker has been prosecuted personally or even held civilly liable. Now they are reopening the casino, and once more capturing an increasing portion of corporate profits.

The new populists, led by Senators Sherrod Brown (D-Ohio) and Jeff Merkeley (D-Ore.), are calling for structural change. Break up the big banks. Re-impose Glass-Steagall to ensure banks can’t gamble with government-guaranteed deposits. Raise equity requirements so financial institutions have their own skin in the game. Warren, meanwhile, has argued that college students should have access to the same low-interest rates that the Federal Reserve offers the banks.

Shared Security. Obama famously put cuts in Social Security — the so-called chained CPI that lowered inflation adjustments — into his budget, paying tribute to the establishment consensus that long-term fiscal stability requires a rollback of Social Security, Medicare and Medicaid. Congressional Democrats, however, rallied against that.

The reality is the boomers are retiring into trouble. As companies shed pension plans, more and more workers will have to rely on Social Security for the bulk of their retirement income. Senators Tom Harkin (D-Iowa), Warren and other new populists, backed by a broad coalition of citizen groups, are now pushing to expand Social Security, not cut it. They want to lift the cap that allows billionaires like Bill Gates or JPMorgan Chase’s Jamie Dimon to contribute at a lower rate than kindergarten teachers to Social Security, and use that money to expand the benefit.

This is part of a fundamental argument about shared security — with the new populists pushing to extend rather than limit what President Franklin D. Roosevelt called our “freedom from want.” The question of long-term fiscal balance, they point out, is largely a matter of fixing our broken healthcare system, requiring that we take on the insurance and drug companies that have rigged it so we pay about twice per capita what other industrial countries spend.

The Corruption of Money Politics. Obama began as a champion on limiting money in politics, and curbing the revolving door between Washington and corporate lobbies. With no progress to show for this, he has turned to virtual radio silence on it. But led by Senator Bernie Sanders (I-Vt.) and Representative Alan Grayson (D-Fla.), the new populists are exposing the corruptions within our system and linking it to the ways the rules are rigged. They are talking about driving efforts to clean out our system.

Whose Side Are You On?

Conservatives in both parties argue that this is just a return to big government. The Wall Street wing of the Democratic Party cautions that populism is a “dead end for Democrats.”

But the new populists argue that the central question isn’t whether the government is big or small. Rather, the crucial question is whose side is it on? Agribusiness and Big Oil and Big Pharma like government spending when it goes to them. Global corporations created the complex tax codes that enable them to carve out the dodges. Regulatory thickets and privatization rip-offs are the product of special interests and backroom deals.

The real limit for the new populists isn’t popular appeal — it is financial viability. It is hard to finance campaigns while rousing voters to take on the entrenched interests that dominate our politics.

Warren and Grayson have demonstrated that distinctive leaders can build a broad base of small donors, largely through the Web, and attract large contributions from affluent progressives. Organizations like MoveOn, Credo, Democracy for America and the Progressive Change Campaign Committee are building networks that can offer populist candidates a base of early support and volunteers. Even in its weakened state, the labor movement remains the leading source of both money and volunteers for more populist candidates.

There is no question, however, that the new populism requires a distinctive courage in our money-dominated politics — where an outraged billionaire can drop unlimited funds into a negative ad campaign in the run-up to a low turnout primary.

This populist debate has only just begun. And as long as this economy is not working for working people, it won’t go away. Many political analysts look at the early support lining up behind Hillary Clinton’s putative 2016 presidential candidacy, and suggest the argument is over.

But two years is a long time in politics. It remains to be seen how much Democratic candidates — including Clinton — will find it necessary to embrace the new populism rather than confront it.

Originally published at Reuters: The Great Debate.

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