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The Democratic Party Must Part Ways with Wall Street

By       Message Dean Baker       (Page 1 of 2 pages)     Permalink    (# of views)   8 comments

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Doug Schoen, a former consultant to Bill Clinton, argued the case that the Democrats should keep their ties to Wall Street in a NYT column this morning. While he does advance his argument with some red-baiting and bad logic, he uses tradition as a starting point.

"Many of the most prominent voices in the Democratic Party, led by Bernie Sanders, are advocating wealth redistribution through higher taxes and Medicare for all, and demonizing banks and Wall Street.

"Memories in politics are short, but those policies are vastly different from the program of the party's traditional center-left coalition. Under Bill Clinton, that coalition balanced the budget, acknowledged the limits of government and protected the essential programs that make up the social safety net.

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"President Clinton did this, in part, by moving the party away from a reflexive anti-Wall Street posture. It's not popular to say so today, but there are still compelling reasons Democrats should strengthen ties to Wall Street."

Of course memories are not actually short, contrary to what Schoen claims. Many supporters of harsher policies directed against the financial sector remember the stock bubble whose crash led to what was at the time, the longest period without job growth since the Great Depression. They also remember a financial sector that continued to run wild as the housing bubble inflated. And they remember the Great Recession that followed the collapse of that bubble. And, they remember the government's bailout policies that ensured that the financial industry types would end up on their feet and not in jail.

But Schoen does go beyond appealing to tradition.

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"America is a center-right, pro-capitalist nation. ... Even in May 2016, when Senator Sanders made redistribution a central part of his platform, Gallup found that only about 35 percent of Americans had a positive image of socialism, compared with 60 percent with a positive view of capitalism."

It's good that Schoen found an occasion to denounce "socialism" and tout capitalism. It also has nothing to do with the issue at hand. Very few of the people criticizing Wall Street consider themselves socialists. In fact, many view the waste and corruption of Wall Street as being an obstacle to a more efficient productive capitalist economy. Given the enormous damage caused by the collapse of the last two Wall Street driven bubbles, there is a pretty good case here.

Then we get some great unsupported assertions, which is something I guess you get to do if you were a buddy of Bill Clinton:

"Fourth, demonizing Wall Street does nothing to bridge the widening gaps in our country. Wall Street has its flaws and abuses, which were addressed in part by the Dodd-Frank financial reform law. And yes, the American people are certainly hostile to and suspicious of Wall Street. But using this suspicion and hostility as the organizing principle for a major political party will consign Democrats to permanent minority status."

Hmmm, "cracking down on Wall Street does nothing to bridge the widening gaps in our country," really? There are a lot of really rich people on Wall Street. If we applied a modest financial transactions tax and put many of them out of business, this wouldn't reduce inequality in the United States?

If we limited the tax deduction for corporate interest payments and other loopholes that have allowed private equity people to become incredibly rich, wouldn't this help to bridge the gaps in the country? How about if we made low cost retirement accounts universally available, as is being done in California, Illinois, and Oregon, so that people didn't have to pay thousands of dollars a year from their 401(k)s to finance types for doing nothing. Wouldn't that help to close the gap?

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And suppose that instead of bailing out the financial industry we had prosecuted them for the crimes they committed during the buildup of the bubble and have continued to do since then. Wouldn't putting people with hundreds of millions or billions of dollars behind bars help to reduce the gap?

It seems like just about everything that progressive Democrats have proposed relative to the financial sector would help to reduce the income and wealth gap. Basically Schoen is spewing nonsense here.

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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 

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