I am (among other things) an economics major at Lawrence University in Appleton, Wisconsin. I have something of an understanding of economic theory, but I do not portend to have the experience or prestige of Lawrence Summers or Tim Geithner. Believe it or not, common sense comes into economic theory - for all of those ivory-tower economic geniuses, prudence and a look back in time can (and should) inform fiduciary and regulatory policy for the Obama Administration.
I am a firm Keynesian in my economic thinking, so the remainder of my post may be foreshadowed by this statement.
For all of President Clinton's protestations to the contrary, the partial repeal of the Glass-Steagall Act by the Gramm-Leach-Bliley Act of 1999 had a profound contributory effect on the current crisis in the world financial markets. President Clinton's downfalls were not in his affair with Monica Lewinsky or his weakness for McDonalds, but in his support for radical changes in our trade policies (through NAFTA) and in his passive support for market deregulation.
Many of us liberals voted for Barack Obama over Hillary Clinton because we feared that a 2nd Clinton Presidency would bring DLC thinking back to the fore. Not many of us thought that Barack Obama would surround himself with DLC heavyweights and Reaganite-economists. The appointment of Rahm Emanuel as Chief of Staff (a prominent DLC Democrat) was not completely unexpected considering his close professional relationship with the President-Elect.
What was unexpected is the revival of many Clinton-era free market obsessionists - namely Lawrence Summers and Jason Furman. Summers, Furman, and other Clintonian economic experts hold many troubling beliefs regarding the free market:
- Companies wielding monopolistic power in their respective industries is NOT a bad thing for the economy or society. In other words, these economic minds did not have any problems with banks becoming sufficiently large that they could not fail and needed to be bailed out. See Washington Mutual, AIG, Goldman-Sachs, and Citigroup.
- Passive approval of deregulation of the free market. Economic minds much more powerful and less biased than Summers, Furman, et al. created some very effective regulatory schemes under FDR. The New Deal schemes allowed the free market to flourish by reducing the inevitable draw to corruption that the free market creates.
- Unabashed support for the rapid lowering of economic trade barriers. This rapid and unregulated lowering of trade barriers allowed companies entering the international market to become larger than they ever could while confined within the United States, allowing these entities to exert more market power than is healthy. No effective regulatory framework existed (or exists) at the international level to control the activities of these multi-national corporations.
- Disdain for labor unions. This is one of the reasons why organized labor could not successfully lobby the Clinton White House to repeal the disasterous Taft-Hartley Act and increase the power of labor unions versus capital. Raw economic theory establishes that labor unions can create inefficiencies in a free market - but this myopic view ignores all of the positive effects that labor unions have on society writ large.
- Their inability to realize the greater consequences on society (and on the distribution of wealth) of their economic policy positions. Clintonian economists don't seem to mind that the distribution of wealth measurement suffers greatly when their preferred economic policies are put into effect.
Clintonian economists are not to be trusted in shaping economic policy, which is why the appointment of so many Clinton-era DLC Democratic economists is troubling after I believed in a campaign of genuine and positive change. Our country should not revert to the economic policies of Clinton, but rather to the economic policies of FDR. The national and world economies have undergone many changes since the Great Depression - but the core lessons of economy, corruption, and greed have not changed much since 1933. Let's hope that Lawrence Summers and the little-known Tim Geithner understand these lessons of history.
I strenuously opposed the $700 billion dollar bailout because it rewards the corrupt and unethical behavior of large financials and allows them to maintain a degree of market share they do not deserve. Allowing these large financials to fail would be painful in the short term, but would be much better for the long-term prospects of the free market and democracy than allowing these corrupt and cumbersome institutions to maintain their operations. In order for the President Elect to make a believer out of me, he must enact strong and meaningful market regulations (including reinstatement of the repealed portions of the Glass-Steagall Act) and seek drastic increases in corporate, upper-tier income, capital gains, and estate taxes to repay the national debt, eliminate our trade deficit, and fund the universal health insurance and environmental initiatives he has promised.