Constructive Populism

I don’t expect to get a holiday card from Tim Geithner this winter. Nor do I expect one from Larry Summers. Or even Michael Barr, despite everything I’ve written in favor of consumer protection. (I probably will get one from Barack Obama, since I donated money to his campaign.) But they might want to consider putting me on their lists.

“Populist” has mainly been used as a smear over the past year and a half, to connote irresponsible pandering to . . . well, to the people, actually. Simon and I have been written off by many people as populists, as if that alone were enough to settle the argument. But if and when financial reform does finally get passed by both houses of Congress, the administration will owe a major debt to the recent resurgence of anti-Wall Street sentiment, which can only be called populist.

Politico ran a story on Monday about how, contrary to everyone’s expectations (including mine), the financial reform bill is getting stronger as the days pass, not weaker. Goldman Sachs has a public approval rating of 4 percent. There is even chatter among a few Republican Senators that they should let the bill pass now, because as time passes it will get worse (from their perspective). The original Republican strategy—denounce the bill as a sell-out to Wall Street—has completely failed.

Yes, the Brown-Kaufman amendment failed—although thirty-three votes were a couple dozen more than I would have bet on just a few weeks before. The New York Times earlier reported that the big banks’ lobbyists were so focused on defeating Blanche Lincoln’s proposal to split off derivatives dealers (into independent subsidiaries of bank holding companies, it must be pointed out) that they had given up on virtually every other issue. Now the bill even regulates debit card fees.

This situation is not entirely welcome to the administration, which is in the somewhat uncomfortable position of having to fight off some of the more liberal amendments, such as Brown-Kaufman or “audit the Fed” (which they succeeded in watering down somewhat). But on balance, they’d much rather be in that position than where they were with health care, begging moderate Democrats to stay on board in the face of increasingly negative poll numbers.

The background to this political story is the return of what can only be called populist, anti-Wall Street sentiment. It was fueled a little by the SEC’s lawsuit against Goldman, a little by media stories such as the This American Life episode on Magnetar, and probably a lot by the increasingly stark contrast between a dismal job outlook and the return to profits and bonuses on Wall Street. I think our book helped a little, too, although we were admittedly more a beneficiary than a cause of this trend; there were a lot of people in Washington who read it, and maybe it made a few of them a little bit more nervous about being seen as part of the “Wall Street takeover.”

At the end of the day, I think populism can be a constructive political force. We will still end up with a relatively moderate piece of legislation (and maybe some people are hoping that the anti-Wall Street wave will subside before conference committee); but without it, we might have ended up with nothing.

Originally published at The Baseline Scenario and reproduced here with the author’s permission.