In the Arena

17 Days Till Iowa: Let’s Talk Obama

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After a youth spent immersed in the romance of The People, with the populist movement of the 1890s and the united front of the 1930s among my favorite periods in American history, I’ve come to have grave doubts about populism over the past 30 years. No, it’s actually been longer than that: If you read classic works of American history, like C. Van Woodward’s Tom Watson: Agrarian Rebel and Marshall Frady’s Wallace, a distinct pattern emerges. Left-wing populism quickly is corrupted by hatred–of blacks, jews, bankers, whomever. It devolves into anger and anarchy…and into right-wing populism, which has been the most destructive force in American public life since Lee Atwater ran George H.W. Bush’s presidential campaign in 1988.

And yet, my reaction to Barack Obama’s Osawatomie speech was mostly positive. 

It was positive because there are new facts on the ground. Over the past decade, it has become clear that financial speculation has had a crippling effect on the long-term prospects for the American economy. The conservative knee-jerk jeering about “class warfare” seems a silly diversion from the real problem–which is not income inequality, but a structural distortion in American capitalism that has made investment in productive job-creating enterprises more difficult.

And so I think that Bill Galston has a point when he argues that Barack Obama’s strategy should be to emphasize the overall expansion of the economy and not income inequality, although I do believe that a progressive system of taxes and benefits should be part of any economic revival program (in order words, means-testing entitlements could modify the need for higher taxes for the wealthy).

The problem is, the most important long-term way to ensure economic growth would be to seriously restructure the financial industry, to remove the current incentive structure that sends our smartest young people into Wall Street casino-gaming and away from innovation and job-creation. This means, as Jon Hunstman and others have argued, breaking up the big banks. I would also tax the more exotic financial derivatives, as a way of discouraging this sort of non-productive investment.

But it also means that Obama is going to have to be very careful when it comes to acting against job creation, even when there are legitimate countervailing interests involved. It was, for example, entirely counterproductive for Obama’s National Labor Relations Board to insert itself athwart Boeing’s plans to build a new, presumably non-union, factory in South Carolina (a dispute now resolved). And it’s wrong for Obama to dither about the Keystone pipeline, in order to do more environmental studies.

I believe that climate change is real, and a long-term problem to be addressed in every way, ranging from a carbon tax to incentives for non-polluting energy sources. I also believe that the labor movement, at its best, helped create the broad American middle class, which is the most important factor when it comes to sustaining a real democracy.

But we’re in an incredibly difficult economic moment and, right now, the creation of new jobs has to be our highest priority. It is possible that we’re heading into an even more severe recession, if Europe collapses. But it’s also possible, as labor costs increase in China, that we’re heading toward a renaissance of American manufacturing, if barriers to productive investment are lowered. The surest path to political prosperity for the President right now is to emphasize as much private sector job creation as he can–since Republicans are effectively blocking public sector job creation–even if it impinges (slightly) on Democratic constituencies like labor unions and environmentalists. (And he should keep in mind that the surest path toward long-term prosperity is a fundamental structural reform of the financial sector.)