Market populism. It's brought us soaring wealth inequality and two economic bubbles. Now it's keeping us from having an intellectually honest conversation about saving our banking system.
Populism and market populism sound similar but are dangerously different, as explained by Thomas Frank in his 2000 book, "One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy."
Populism, according to Frank, is the will of the people battling against the rich and the powerful.
A funny -- or not so funny -- thing happens when "market" is put in front of populism, though. Suddenly, the will of the people and the will of the markets become one.
Frank argues that this simple little insertion of an adjective has fueled a cultural revolution that explains, more than anything else, how America transformed from the middle-class, wealth-sharing society of the New Deal through the 1970s to the unequal wealth distributions of today.
In 1997, the richest 1 percent of Americans held 40.1 percent of the wealth, compared to 35.7 percent in 1989 and 20.5 percent in 1979.
According to Nobel laureate economist Paul Krugman, only that top 1 percent has done better since the 1970s than it did in the economic boom of the post-World War II generation. This despite the fact that the average output of an American worker, adjusted for inflation, has risen almost 50 percent since 1973.
The success of the top 1 percent is puzzling because America supposedly prides itself first and foremost on being a democracy, not a capitalist society. The overwhelming majority are producing more, yet not doing better. Their improvements in production are landing with a small percentage of the population. Why can't this majority elect politicians that will implement policies that lead to a more equal distribution of the wealth -- that give them some payback on their increasing production?
Frank --remember, writing in 2000 -- says that the corporate cause has, since the 1980s, determined methods to make sure elections are not a referendum on America's distribution of wealth.
The corporate cause has done this by perverting populism. In the 1980s, Frank writes, the right won elections by "provoking, organizing and riding a massive populist backlash against the social and cultural changes of the 1960s."
By the 1990s, that backlash had run its course. It was time for market populism. The genius of market populism is that it changed the way America views the super-rich and markets.
The super-rich were reviled in the wake of the Great Depression, then taxed and union-clubbed into submission in the post-World War II economic boom. Even with their growing share of the pie in the 1980s, the image of super-rich still brings to mind folks like the slimy, greedy Gordon Gekko of the movie "Wall Street."
Beginning in the 1990s, the CEO image received a makeover. With the will of the market now intertwined with the will of the people, CEOs were now people just like us. CEOs were no longer people we despised, like Gekko; they were either hip and trendy, like Richard Branson, or sweater-wearing and a bit nerdy, like Bill Gates.
Except CEOs were not like us. According to Frank, their compensation went from 85 times more than the average blue-collar employee in 1990 to 475 times the average blue-collar worker in 1999.
Market populism also told us the stock market is the friend of the little guy. People no longer needed the vote, they had a dollar. Adam Smith's invisible hand of the markets would see to it that their desires were fulfilled. Frank writes of E*Trade commercials showing black passengers on the back of a bus with the quote: "1964: They Said Equality Was Only For Some of Us."
The stock market and the equalizing tool of the Internet also gave the little guy the chance to beat the pants off the smarty-pants, buttoned-up Wall Street investor. And when corporations did something like downsize or union bust, they weren't crunching the middle class, they were pumping up their 401(k) plans.
Like the commoner CEO, this sounded good -- definitely good enough to rule out any populist revolt -- but was rubbish. Market populism suggests that when women and blacks were fighting for suffrage, all somebody would have had to do to stop the movement is tell them that a dollar is as good as a vote.
And markets are not the friend of little people. Frank writes that 86 percent of the market's gains in the final four years of the 1990s bull market went to the richest 10 percent of Americans. The majority of the population did not own stock and missed the boom completely.
So why is this important today? The election of Barack Obama can be seen as a referendum on the wealth distribution of America. Was the election not a death blow for market populism?
Market populism has remarkable staying power. It came of age during the presidency of Bill Clinton, leader of a Democratic Party that was once known for reining in markets.
Market populism also survived dot-com bubble at the turn of the century. Many of the puffers of that bubble, like Jon Stewart foe Jim Cramer (or James Cramer in Frank's book), somehow kept enough credibility through the dot-com crash to use market populism to inflate the real estate bubble.
Even the popping of the real estate bubble has not swiped market populism from the scene. Take the Treasury's new plan to buy up to $1 trillion in toxic assets that are weighing down bank balance sheets.
Paired with that announcement in news outlets across the land was a bump in the stock market. The market populist implication is clear: The market likes the plan, so it must be a good plan.
And the plan promises to be a good one for the financial industry, because the federal government will do so much to help the private investor. That's why the stock market went up. Not because the plan is necessarily good, but because the plan is good for the financial industry.
Architects of the plan, like Treasury Secretary Tim Geithner and Lawrence Summers, head of the National Economic Council, were part of the good old deregulating, market populist team of Clinton. Summers was Treasury Secretary under Clinton, while Geithner served under Summers.
Krugman has been critical of the Treasury's plan, writing in The New York Times that Obama's team still believes "in the magic of the financial marketplace and in the prowess of the wizards who perform that magic."
Can such an economic team give proper consideration to an alternative approach to the problem, like temporarily nationalizing the banks? Simon Johnson, former chief economist of the International Monetary Fund, has worked on banking crises around the world. He said recently on National Public Radio that the IMF and the United States continually pushed countries to solve banking crises by temporarily nationalizing banks.
Johnson said that cleaning up a banking system is not that difficult, but in such cleanups powerful people lose their bonuses, banks and access. In the AIG mess, we've already seen what Geithner and Summers think of powerful people losing bonuses.
Nationalizing hasn't gotten much traction in a United States still clinging to the culture of market populism. Jonathan Alter, writing of possible toxic asset plans in Newsweek, says that nationalization is a solution of last resort, but also that nationalization is such a polarizing word that it should be banned from the debate. In other words, economically it may be a winner, but culturally it's a nonstarter.
Market populism has been a loser for this country so far, providing a cultural climate that spurs wealth inequality, bubbles and a financial system on the brink of collapse. It's time for America to destroy market populism before market populism destroys America.
Clarion sports editor Jeff Helminiak can be reached at firstname.lastname@example.org.
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