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Seven Years Ago, Wall Street Was the Villian, Now It Gets To Call the Shots

The recent passage by Congress of new legislation favorable to loosening controls on risky Wall Street trading is just the most recent example of the consolidation of plutocratic power in Washington. The new rules, written largely by Citibank lobbyists and embraced by the Obama administration, allow large banks to continue using depositors’ money for high-risk investments, the very pattern that helped create the 2008 financial crisis.

This move was supported largely by the establishment in each party. Opposition came from two very different groups: the Tea Party Republicans, who largely represent the views of Main Street businesses, and a residue of old-line progressive social democrats, led by Massachusetts Senator Elizabeth Warren.

Support for big finance is no surprise from Republicans, who are used to worshipping at the altar of Wall Street. But the suborning of “progressivism” to Wall Street has been a permanent feature of this administration. From the onset of his presidential run, Barack Obama had strong ties to Wall Street grandees. New York Times Wall Street maven Andrew Ross Sorkin noted in 2008 how Obama had “nailed down the hedge fund vote”.

The ultra-rich so backed the president that, at his first inaugural, noted one sympathetic chronicler, the biggest problem for donors was finding parking space for their private jets. Since then, despite occasional flights of populist rhetoric, the president has kept close ties with top financial firms, including the well-connected Jamie Dimon, chairman of JP Morgan, often called Obama’s “favourite banker”. He appears to have been instrumental in getting Democrats to support the recent loosening of financial controls on big banks.

These Wall Street connections have continued to play dividends for the president, in terms of contributions. The financiers benefited from Obama’s choice of financial managers, such as former treasury secretary Tim Geithner, widely known as a reliable ally of the financial sector. (He liked to explain his support by equating its importance to that of the technology and manufacturing industries.) To no sensible person’s surprise, Geithner, when he left the Treasury last winter, found his reward by joining a large private equity firm. (By way of completing the circle, Geithner’s successor, Jacob Lew, used to work for Citibank.)

The Justice Department has also been cosy with the plutocracy. Attorney general Eric Holder allowed Wall Street a kind of “get out of jail free card” by failing to launch tough prosecutions of the grandees. In contrast to the situation under previous administrations, both Republican and Democratic, the financial plutocrats have not been forced to pay for their numerous depredations. Instead, most prosecutions have been aimed at low-level traders, Ponzi schemers or inside traders.

So if you still think 2008 and the financial crisis changed everything, still think of it as a progressive triumph, think again. Instead of the brave new world of reformed finance, what’s been created in the US is something close to a perfect world, policy-wise, for the plutocrats. The biggest rewards have come from an economic policy, backed by the Federal Reserve and the administration, that has maintained ultra-low interest rates. This has forced investors into the market, at the expense of middle-class savers, particularly the elderly. The steady supply of bond purchases has essentially given free money to those least in need and most likely to do damage to everyone else.

The results make a mockery of the Democrats’ attempts to stoke populist sentiments. In this recovery, the top 1% gained 11% in their incomes while the other 99% experienced, at best, stagnant incomes. As one writer at the Huffington Post put it: “The rising tide has lifted fewer boats during the Obama years – and the ones it’s lifted have been mostly yachts.” If this had occurred during a Republican administration, many progressives would have been horrified. But Democrats, led by New York senator Charles Schumer, Wall Street’s consigliere on the Hill, have been as complicit as Republicans in coddling Wall Street. Democrats, for example, despite their rhetoric about inequality and fairness, have refused to challenge the outrageous discount on taxes for capital gains as opposed to income. A successful professional making $300,000 a year is often taxed at rates twice as high as the rate paid by hedge fund investors, venture capitalists, tech entrepreneurs and Wall Street stock jobbers.

At the same time, the Obama years have been something of a disaster for Main Street, where most Americans work. A 2014 Brookings report revealed that small business “dynamism”, measured by the growth of new firms compared with the closing of older ones, has declined significantly over the past decade, with more firms closing than starting for the first time in a quarter of a century.

Small banks, long a critical source of funding for small businesses, have also been pummelled by the very regulatory regime that also allows mega-banks to enjoy both “too big to fail” protections as well as their sacred right to indulge their most cherished risk-oriented strategies. In 1995, the assets of the six largest bank holding companies accounted for 15% of gross domestic product; by 2011, aided by the massive bailout of “ big banks”, this percentage had soared to 64%.

These trends do much to explain what happened in the recent midterm elections, which saw a massive shift of middle- and working-class voters, especially whites, to the Republicans. Increasingly, Americans suspect that the economic system is rigged against them. By a margin of two to one, according to a 2013 Bloomberg poll, adults feel the American Dream is increasingly out of reach. This pessimism is particularly intense among white working-class voters and large sections of the middle class .

The other major cause for the Democratic demise in November was the low turnout among minority voters. They certainly have ample reason to be indifferent. Both African American and Latino incomes have declined during the current administration, in large part because neither group tends to benefit much from the appreciation of stocks and high-end real estate.

In caving in to Wall Street and its economic priorities, members of both parties have demonstrated where their primary loyalties lie. Amid the obscene levels of compensation going to the financial grandees, it seems the ideal time for politicians, right or left, to challenge Wall Street’s control of Washington. High finance has so devastatingly rocked the world of the middle and working classes. Voters, it might be thought, now need leaders who will take these grandees down a notch or two.

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About the Author:  Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This piece first appeared at The Guardian and is republished here with permission.

The Unholy Trinity of Public Sector Unions, Environmentalists, and Wall Street

Taken at surface value, there ought to be minimal identity of interests between these three special interests. But if you follow the money and power instead of the rhetoric and stereotypes, you will find this unhealthy alliance is alive and thriving. For example, unions use “greenmail,” the threat of a lawsuit on environmentalist grounds, to block developments until the businesses involved concede to union demands. Once they back down, the environmental problem magically disappears.

California’s much vaunted high-speed rail and delta tunnel proposals are also examples of the unhealthy rapprochement between unions (public and private) and environmentalists. Because the construction unions, God bless ’em, want thousands of good new construction jobs, and the only big projects that are environmentally correct are these monstrosities. The unions have a choice – fight the environmentalists in order to lobby for public works that actually yield economic benefits to society, or enjoy their considerable support for a couple of misguided mega-projects.

Beyond obvious examples, how unions, environmentalists, and America’s overbuilt financial sector collude – often unwittingly, does not lend itself to emotionally resonant, simple narrative. It can’t be expressed in a few declarative sentences. But because this web of collusion is stunting the economic growth of America and systematically destroying its middle class, it is a story that must be told. Here are some points that all exemplify the chain of cause and effect, linking the interests of public sector unions, environmentalists, and Wall Street.

  • Public sector unions demand, and get, over-market compensation and benefit packages. This causes budget deficits which, in turn (1) enables environmentalists to more easily fight and defeat infrastructure investments, and (2) creates hundreds of billions in business for Wall Street bond underwriters who finance budget deficits.
  • Politicians controlled by public sector unions declare new infrastructure – freeways, utility upgrades, improved water infrastructure, upgraded grid, investment in airports and seaports, etc., to be environmentally unsound. The real reason, however, is they want the tax revenue to go to increasing pay and benefits for public employees.
  • Wall Street investment firms work with pension funds to convince public sector unions that it is financially feasible and reasonable to enhance pension benefits – or not reduce them, as is more recently the case. As hundreds of billions each year of taxpayers money pours into these funds, investment firms make huge profits. If they don’t earn enough, they raise taxes.
  • Environmentalists come up with a “market-based” way to curb dangerous greenhouse gasses, an “emissions auction” plan, which in turn (1) enables Wall Street trading firms to collect a fee on literally every BTU of fossil fuel consumed in America, and (2) empowers public sector agencies to redefine their jobs (mass transit workers, firefighters, code inspectors, teachers – even police since crime increases during hot weather) as coping with, educating about, or mitigating the effects of global warming, allowing these government agencies to collect the proceeds of the emissions auctions.
  • Without an endlessly appreciating asset bubble, every public employee pension fund in the United States would go broke. To pump up this asset bubble, environmentalist restrictions artificially accelerate price appreciation for land, housing, gasoline, electricity, and other basic needs. And of course, financial institutions reap spectacular profits during periods of rapid asset appreciation.

It is reasonable at this point to wonder – what about business? What is their role in this? That is simple – big business benefits, by being able to afford to comply with excessive regulations and by being able to afford a unionized workforce. In general, smaller companies, innovators, emerging competitors, are crushed by the power of unions and environmentalists, just like the middle class.

There are consequences of an unexamined, unchallenged yet powerful de-facto alliance between public sector unions, environmentalists, and the financial sector that ought to animate anyone claiming to care about America’s working middle class – whether they adhere to the ideology of the Occupy movement, or the Tea Party movement. Because the consequences are a higher cost of living with minimal economic growth and new opportunities. The consequences are an increasingly monopolized, anti-competitive private sector, a perennially swollen financial sector, and an increasingly authoritarian, self-interested government. Public sector unions and Wall Street use the environmental movement for cover. This factor should temper any assessment of environmentally inspired policies.

Unions in the private sector, were they to adhere to their ideals and even their most cherished pragmatic goals, would use their considerable influence to rein in the unchecked power of environmentalists. Only then will their desire for more and better jobs, building tangible assets that are actually beneficial to society, be best realized. Public sector unions, on the other hand, whose entire reason for existence is inherently in conflict with society at large, should be illegal.

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Ed Ring is the executive director of the California Policy Center.

 

RELATED POSTS

Public Pension Solvency Requires Asset Bubbles, April 29, 2014

Construction Unions Should Fight for Infrastructure that Helps the Economy, April 1, 2014

Forming a Bipartisan Consensus for Public Sector Union Reform, January 28, 2014

Avoiding the Oversimplifications of ‘Right Wing’ vs. ‘Left Wing’, December 16, 2013

How Unions and Bankers Work Together to Protect Unsustainable Pensions, November 26, 2013

Bipartisan Solutions for California, October 27, 2013

The Prosperity Agenda, April 2, 2013

The Ideology of Public Sector Unions vs. Private Sector Unions, February 20, 2012

America’s Atlas Generation – The Forgotten 33%, January 9, 2012

Why Government Unions are Collection Agents for Wall Street, August 12, 2011

The Differences Between Public and Private Sector Unions, May 13, 2011

 

The Tragic Consequences of Social Justice Education

The president of the National Education Association continues to promote ideas that are anti-American and are turning our kids into progressive, anti-wealth, equality-obsessed robots.

Last week, the drone-like National Education Association President Dennis Van Roekel gave a talk at the annual gathering of the Nebraska State Education Association. He unleashed the same tired old class warfare hogwash that teacher union leaders have been yammering about for years. The latest version of this old whine stresses closing corporate tax loopholes. As I wrote last week, the NEA claims the U.S. can recoup $1.5 trillion in taxes if those greedy corporate types would just pay their “fair share.” Van Roekel conveniently omits the fact that NEA took in $400,000,000 in 2010-2011, mostly in dues forcibly taken from its members, and didn’t pay one red cent in taxes.

Van Roekel then reprised another union mantra – claiming that NEA must pursue “social justice.” He said,

You can’t have an organization with our core values and not care about social justice.

You can’t have a democracy and not care about social justice, whether it’s discrimination based on race or religion or sexual orientation, discrimination is discrimination and it’s wrong. And we as an organization have to stand up and say that.

The subject of social justice – its history and damage that it has caused – could fill volumes. But here is an abridged version:

Social justice (SJ) is based on the concepts of human rights and egalitarianism, and involves fostering economic equality through progressive taxation along with income and property redistribution. Around since the late 19th Century, this philosophy made its foray into education in the early part of the 20th Century when John Dewey, a progressive, and his socialist partner, George Counts, challenged teachers to replace the development of each student’s individual talents with a focus on social justice. The bedrocks of American culture and our economy — capitalism, individualism and competition — were frowned upon, to be replaced with distributive egalitarianism, collectivism and statism. Also paramount to the SJ movement was the socialization of children. Historically, schools had partnered with parents in reinforcing the values of the family. But over time, progressive educators came to assume a disproportionate role.

The progressive philosophy soon became part of the national zeitgeist with even President of the United States, Woodrow Wilson, getting into the act. He said in a speech in 1914, “I have often said that the use of a university is to make young gentlemen as unlike their fathers as possible.” (Bold added.)

The effect of the SJ movement on education cannot be exaggerated. The changes were not dramatic at first, but over the years, SJ picked up steam. By the 1960s, SJ had become mainstream, especially in our nation’s colleges. University professors who spouted this poison did much damage, as many college students of that period became the tenured radicals who still infest our schools of higher education — most notably in the social science and education departments. And therefore today, our future teachers sit at the feet of ed school professors who teach them more about how to indoctrinate students than to prepare them for the more traditional “participation in public life as well as success in private life.”

As a result, in our elementary schools, instead of learning basic skills and the real history of the country, students are all too often taught nonsense like anti-racist math and that America is evil and can be saved only by a litany of progressive “isms”– environmentalism, feminism, socialism, etc. Several months ago, I reviewed Kyle Olson’s excellent book, Indoctrination: How ‘Useful Idiots’ Are Using Our Schools to Subvert American Exceptionalism, which documents how public schools today are being used to turn children away from the ideals that have made this country extraordinary.

By the time American students finish their K-12 indoctrination, they are primed for the big finale – the university. The seeds that were planted in the elementary schools come to a hideous bloom in college. Last month, the non-partisan California Association of Scholars came out with a scathing report, A Crisis of Competence: The Corrupting Effect of Political Activism in the University of California. In his review of it, Peter Berkowitz wrote,

The analysis begins from a nonpolitical fact: Numerous studies of both the UC system and of higher education nationwide demonstrate that students who graduate from college are increasingly ignorant of history and literature. They are unfamiliar with the principles of American constitutional government. And they are bereft of the skills necessary to comprehend serious books and effectively marshal evidence and argument in written work.

Excluding from the curriculum those ideas that depart from the progressive agenda implicitly teaches students that conservative ideas are contemptible and unworthy of discussion. This exclusion, the California report points out, also harms progressives for the reason John Stuart Mill elaborated in his famous 1859 essay, “On Liberty”: “He who knows only his own side of the case, knows little of that.”

Unfortunately, while many Americans do not ascribe to SJ tenets, too many of us are ignorant of its agenda or have become apathetic to its dangers. In 2009, admitted terrorist Bill “Mad Bomber” Ayers co-edited Handbook of Social Justice in Education, a 792 page “Hate America First” manifesto which brazenly instructs teachers how to spread the collectivist dream to America’s children. As many of us emit a collective yawn, the poisoning of young minds continues unimpeded.

Is it any wonder that the “Occupy” movement is saturated with young people who, beyond a few clichés, cannot articulate what exactly it is that they are demonstrating against? They just know that some people have more money than other people and that’s just not fair. The regnant attitude is, “If you’re rich and I’m not, you owe me.” If Dennis Van Roekel and his ideological comrades have their way, the dumbing down and radicalizing of American youth will ultimately destroy the very foundation of this society. But hey – everyone will be equal, all right – equally miserable.

About the author: Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers with reliable and balanced information about professional affiliations and positions on educational issues.