Wayne O'Leary

Under Wall Street's Thumb

One of the flaws in the hope-and-change crusade kicked off by Barack Obama’s 2008 presidential campaign and pursued in fits and starts since then is that it carries the seeds of political disillusionment within it.

The movement is hobbled, perhaps fatally, by the parameters established for it from the beginning. At some point early on in the process, the fundamental decision was made that, whatever the programmatic and policy specifics, the new administration would accept as a given the preeminent role of big business in the American system. Therefore, any change hoped for must first serve the needs of corporate capitalism. Economic solutions inimical to Wall Street’s interests were, for all practical purposes, off the table.

This is why, for instance, when queried in May about the debilitating rise in gasoline prices, the president initially responded that there was nothing he could do about it. He’s since gambled on opening the Strategic Petroleum Reserve, a risky proposition.

Left unpursued was the most obvious course of action, jawboning the passive Commodity Futures Trading Commission into a regulatory crackdown on the chief causal factor, Wall Street speculation in oil prices; that, however, would have aggressively interfered with the market and threatened corporate prerogatives.

Ditto for any serious effort to curtail the foreign outsourcing of jobs and reconstitute domestic manufacturing; it would intrude in the operation of the unfettered free market. And likewise for proposals to take the tax-hike route in reducing the federal deficit. This latter option includes the so-called People’s Budget of the Congressional Progressive Caucus (CPC), which foregoes spending cuts to things like entitlements in favor of raising federal revenues by $7 trillion over 10 years, mostly by lifting the payroll-tax cap, letting all the Bush tax cuts expire, and imposing new, higher rates on the super rich and on investment income.

(The Ryan budget of the House GOP, conversely, gets virtually all its savings from the spending side, while the Obama alternative calls for a ratio of roughly three to one in favor of budget reductions over tax increases.)

Naturally, the CPC plan has been widely considered dead on arrival inside the Beltway. A glance at some of its provisions suggests why the White House won’t even discuss the approach, much less sign on to it.

One red flag is the proposal that capital gains and dividends be taxed as ordinary earned income, repealing the favored 15% rate investors pay at present, which is half the current rate for most wages and salaries. Another is a suggested graduated estate tax of 45-65 percent for bequests over $3.5 million to replace the 35% levy (the lowest in decades) enacted last December.

These proffered adjustments are verboten, of course, because they strike directly at the privileged elite Republicans like to call “job creators.”

If these individuals were taxed as in most Western democracies (top rates of 50%), the companies they own or represent would, it’s implied, be loath to create jobs; they’re not creating jobs now, but no one in Washington seems to have noticed. Perhaps equally important, they could turn off the campaign-fund spigot for whichever political party trifles with them.

The most important reason of all why the People’s Budget is considered DOA by the ruling establishment, however, is its insistence on genuine corporate tax reform in place of a pro-forma corporate tax cut. Such envisioned reform would eliminate the existing tax deferral on the earnings of foreign subsidiaries of US multinationals, taxing them as earned, not when repatriated. Parent corporations could no longer avoid US taxes by splitting foreign and domestic expense activities. This makes perfect sense, discouraging outsourcing, but again, it flies in the face of vested corporate interests, and so it’s a nonstarter.

There are numerous other manifestations of the present choke hold corporations have on the operations of government, a phenomenon that goes back several decades. One that came to light recently was the behavior of the Federal Communications Commission in the just-completed Comcast-NBC merger.

As reported by The Nation’s John Nichols, this regulatory agency has been captured by the very industry it is purportedly regulating, witness the Obama-appointed commissioner who voted to approve the questionable merger, then resigned to join the merged conglomerate as a paid lobbyist.

Unfortunately, the installation of corporate-friendly bureaucrats (Timothy Geithner, et al.) in economic-policy positions has become a hallmark of the Obama administration, which, in fairness, is simply following the pattern established by its predecessors of both parties. A case in point was the reappointment in 2010 of Ben Bernanke, a Republican Bush appointee, as chairman of the Federal Reserve Board. Bernanke’s tenure has been marked by a slavish dedication to low, almost nonexistent, interest rates — the operable theory being that corporate America needs reduced borrowing costs to expand and grow the economy.

This is of a piece with the low federal tax rates supposedly required for the same purpose.

As with low taxes, low interest has stimulated nothing on the jobs front. Meanwhile, millions of Americans, retired seniors and others living on fixed incomes, are having their modest nest eggs decimated by unconscionably low savings interest based on the Fed’s ridiculous prime rate.

The justification for forcing down interest rates is that inflation remains so low as to be of no concern, yet the official 3.2% inflation rate, based on an “improved” (downwardly revised) Consumer Price Index, has been shown by Shadowstats.com, a San Francisco web source, to actually be 10.7%.

That doesn’t fit the pro-corporate bias of the Fed, however, so it’s ignored — except by populist contrarians like retiring board member Thomas Hoenig, who detects a class-oriented policy at work.

The larger question is why the hope-and-change meister in the White House stubbornly persists in his distressing and counterintuitive embrace of Wall Street. It’s tempting to point to his career path as a talented outsider admitted to the inner sanctums of the establishment and now reluctant to disappoint its expectations. If he rebelled and lashed out, an angry black man, he would be ... Jesse Jackson, with all that implies.

But sooner or later, if he is to save his imperiled presidency, Obama will have to step up in some fashion and take on the economy’s power center once and for all.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, September 15, 2011