The Cost Of Populism

TW: I am not posting much on AIG, as there is so much out there on the topic I have little to add. Net net, the entire affair is not helping anyone achieve solutions, it is mere venting. I strongly doubt (and certainly hope not) a 90% tax on any bonuses will be enacted. The House of Representatives is designed to be more populist (re-elections for everyone every two years), they had their spasm last week. The Senate is designed (staggered elections for the 6 yr terms) for a more calm assessment of matters, I assume they will slow things down.

That said this spasm of populism is counter-productive. Populism and elitism are frequently at odds, the sometimes ignorant, overly emotional populism clashing with the self-aggrandizing, arrogance of the elites makes for fun times. Their respective positives- common sense/egalitarianism versus professionalism/broad-mindedness- get lost amidst mutual recriminations.

We remain long on frustration and short on solutions. Some on the left are pounding on Obama for not being more punitive (see Frank Rich and M. Dowd at NYT this morning). The Republicans keep angling for electoral gain by pushing Hooverite fiscal policies while flailing in all directions on the issue of "Wall Street/AIG/bonuses". The climate is quickly degenerating into the dysfunctional. I ask the lefties, are pitchforks really the answer. I ask the righties, Hoover failed once do we really want to give him another go? And if you were to cut off Obama's knees then what?

My biggest concern remains my skepticism that our leaders (and leaders worldwide) will be able to balance the often conflicting pulls of the populace and the elites, while fashioning actually useful policy. Last week was not encouraging. As Reich points out misguided populism may merely opens the door for elites to perpetuate policies likely to create more populist backlash, a vicious circle indeed.

From Robert Reich:
"When the public isn't looking, Congress reverts to its old ways. The Obama-supported plan to allow distressed homeowners to renegotiate their mortgages under the protection of bankruptcy has run into a Wall Street wall. Although Citigroup temporarily broke ranks a few months ago when it was receiving one of the most generous bailouts, the rest of Wall Street has remained adamantly opposed, and apparently Democratic leaders have decided not to push back.

Meanwhile, Obama's plan to limit itemized deductions for the richest 1.2 percent of taxpayers (including the top 1.9 percent of small business owners) to 28 percent, starting in 2011, is also in trouble on the Hill. Wealthy contributors and friends of congressional leaders involved in setting tax policy have balked. So Congress is telling the White House to look elsewhere for the $320 billion it needs over ten years to finance half of the tab for health care reform.

Congressional leaders have also informed the White House that they don't have the votes to pass Obama's proposal for treating the earnings of hedge-fund and private-equity managers as income rather than capital gains.

Angry populism thrives on stories about the rich and privileged who use their influence to get cushy deals for themselves at the expense of the rest of us. AIG's bonuses provide a perfect example. It's too bad the same populist outrage doesn't extend to issues involving far more money, affecting many more people, and entailing far more insidious abuses of power.

Congress's potemkin populism over AIG's bonuses disguises business as usual when it comes to the really big stuff..."
http://robertreich.blogspot.com/2009/03/congresss-fair-weather-populism.html