America has a debt problem. I'm not talking about Government debt, which can be handled by simply raising revenues, nor am I talking about Business Debt which is another issue altogether. What I mean is consumer debt, the private debt of individuals which includes everything from student loans to mortgage loans and credit card debt.
Total Consumer debt in the US stands at $11.63 Trillion Dollars according to the Wall Street Journal.
This massive amount of debt acts like a storm cloud over the economy, stifling demand which is still in shortage in this so-called recovery. During the Great Recession, as Behemoth Financial institutions were on the verge of tanking the global economy, President Bush began, and President Obama finished, the TARP bailouts that saved the failing investment banks and thus the entire economy, pulling it back from the brink of ruin. Yet, somehow no one ever thought to bailout the American people. What about the underwater mortgages? What about losses due to short-sales on homes? What about the countless working families going through bankruptcy proceedings or foreclosures? What about the newly minted homeless?
When you add up all of the commitments made in bailout program, including TARP and the numerous, nearly free loans to the failing financial Investment Banks, plus the GM bailout, plus the various other commitments made by the FED, the Treasury and other related programs meant to stabilize the market; Government commitments total $12.5 Trillion Dollars and expenditures of $2.5 Trillion Dollars. These totals are staggering, beyond comprehension. Yet, even with the commitment by the US Government of these vast sums in the name of Big Business, the mortgage refinancing program was modest by contrast, saving most of its commitments for second and third homes, the very people that needed the assistance least.
The commitment of such enormous sums of money to Business, when compared to the paltry amount set aside for homeowners is a classic example of Supply-Side economics. Throughout the Obama administrations tenure, individual citizens and laborers have taken a back-seat to the interests of Corporate America. Clearly, our economy has suffered because of it and with it, the confidence of Americans in the institutions established on their behalf.
By committing to the cause of Big Business during the recession, even nominating many of the CEO's and Corporate board-members from the Financial Sector to important posts within the administration, the Obama administration was committing to Reagan style "voodoo" economics. If Supply-Siders were correct in ignoring the needs of Demand, than we should have recovered from the recession by now and be back to full employment with quickly rising wages. But that never happened, and it didn't happen because the beliefs that Supply-Siders hold are patently false.
Instead of Bailing out the failing financial institutions, what if the Obama administration had instead forced the break-up of the "too-big-to-fail" institutions and sold off the new smaller firms? Taxpayers would have still been on the hook for billions of dollars but the threat of the "too-big-to-fail" institution would have been dismantled just like the banks themselves. As Martin O'Malley once said, "If a bank is too big to fail, too big to jail, than it's probably too damn big."
So what if the Obama administration had overseen the break-up of some of the worlds largest financial institutions instead of throwing unlimited amounts of cash at these businesses? Well, for one, we could have used the $12 Trillion dollars we committed to the banks to instead bailout the American taxpayer.
Had Democrats bailed out all American consumer debt, the impact on demand would have been and still would be to this day enormous. By effectively putting an additional $12 trillion dollars of currency back into the hands of those in the working and middle-classes, with no strings attached, the increase in demand this would have had on the economy would have been the equivalent of instituting the largest economic stimulus in the history of the world.
Let there be no mistake, this would have affected every corner of every market in the US. The macroeconomic effect would have been unprecedented, like a straight shot of adrenaline directly injected into the economy. Instead, the Obama administration and the Democratic establishment handed over the cash to the banks, likely to appease their most generous donors, some of whom were the very financial titans that brought the economy to the precipice and were now begging to be saved.
The fact that not a single voice among Democrats called for this kind of debt relief, during a period of time that presented a unique opportunity, is frankly stunning. Democrats missed not just an opportunity to restructure and re-regulate the economy, (which only a facade of which was attempted) but they missed an important opportunity to take a stand against Supply-Side economics and the wealthy few who benefit from NeoLiberal reforms such as regressive tax policies, globalization and a financial sector that dominates not only our economy, but our politics.
But Democrats missed another, quite possibly more important opportunity, one that will have implications on our national elections for years to come, the opportunity to show that the Democratic Party is not just a Republican-lite alternative, but a separate party with separate beliefs that offers a different economic vision for the future of the nation. A vision where the concerns of the average American can be voiced and heard, and not just heard but heeded.
As our economy slowly recovers from the Great Recession, it becomes more apparent by the day that little has changed since 2008. Private and Public debt still looms large in the public eye. The financial sector is still the largest growing sector of the economy, it still gets to literally write its own laws that the new Republican majority passes with occasional help from Democrats.
The structural issues evident in the economy have not been solved, nor has it even been well patched. These holes are showing through the facade of a "booming" economy. Holes such as depressed demand, few well paying jobs, soaring public and private debt, strapped state budgets, cuts to services that help the poor (which have a boosting effect on demand when distributed liberally) such as SNAP, HUD, Temporary Assistance, medicare and medicaid; all the while the stock market surges.
Until consumer debt is reformed, until at least some debt is written-off or restructured, demand will not return to pre-recession levels, let alone to the levels seen in the pre-Reagan era when the supply-side, NeoLiberal reform focus began. And only now after one of the worst election cycles in its history, are Democrats beginning to change their rhetoric to reflect a rightfully angry electorate. Only now are Democrats talking about "Middle-class Economics."
If Democrats are serious about changing to a more populist stance, they will have to start by earning back the trust of the voters, voters who expected more from a solidly Democratic controlled congress and presidency than a half-assed healthcare law that does little to tackle the actual problem of healthcare costs and a regulatory bill that, though 2,300 pages long, doesn't even do what Glass-Steagle was able to do by separating FDIC insured boring banking and risky investment banking which wasn't insured.
Democrats will now have to propose a detailed vision that offers a viable alternative to the social Darwinism that Republicans currently offer. One potential candidate offering such a vision is Maryland's recently retired Governor Martin O'Malley. O'Malley is planning on running for president as an economic populist to the left of Hillary, offering common sense ideas that include bringing back Glass-Steagle and using a stock-transfer tax to help tame Wall Street.
This isn't quite the alternative vision that I'm talking about but it is a start. More importantly, it takes a movement behind a leader to effect lasting change, especially when that change seriously challenges the status-quo.
It will take a movement of energized activists, angry protesters and everyday citizens with a grudge to challenge a system so deeply entrenched by capital and the capitalists who control the means of its production. And that will be the true challenge of our time. Until then, our debt will continue to stifle the demand necessary to ever produce a truly permanent recovery, one stemming from abuses rendered by Wall Street but paid for by tax-payers.