The Two Big Dough Parties
This is the third of four foundational posts at VoteNo2BigDough. If this is the first time you landed here at VoteNo2BigDough we suggest you take a look at posts #1 (Why VoteNo2BigDough?) and #2 (The VoteNo2BigDough Movement) before reading this one further. This post summarizes the arcs of the Republican and Democratic parties from the presidential transition between the Herbert Hoover and Franklin Roosevelt administrations to the election of Barrack Obama seventy-six years later. I had not intended the interval between posts would be this long. However geopolitical sea changes set in motion by the conflict in Ukraine have been too compelling a distraction to ignore.
In Thinking in Time: The Uses of History for Decision-Makers authors Richard Neustadt and Ernest May begin by quoting a friend who was the CEO of a large company: “Whenever one of my people comes to me with an issue I say to them, ‘Don’t tell me what the problem is; tell me what the story is.’” This is good advice to follow in a situation in which we seek to understand why it is the median measures of prosperity and well being in a society have been in decline for at least four decades while the two parties that dominate the government of its alleged democracy, far from arresting the decline, appear to consistently exacerbate it. A pertinent place to pick up this historical narrative would be a previous time in which the society faced such a challenge, especially one in which the challenge was met and the decline turned around. Such was the case about 1930, and that’s where we’ll begin but with a few words about went before to set the scene. I trust readers can forgive some gross over-simplifications in the interest of brevity.
Founded in the 1850s on the remains of the recently collapsed Whig Party and on into the 20th century, the establishment Republicans were and continue to be the political arm of the larger productive businesses. They were also supported by many middle sized business owners and managers, professionals such as lawyers, accountants and especially medical doctors, and those African Americans who lived in areas where they could safely vote. Finally it included the banking and financial sector, which by the turn into the 20th century was calling most of the tunes according to which most of the rest of the players in t he economy had to march. Its dominance of the political scene early in its life is indicated by the fact that during the eighteen term stretch of presidencies that began with the inauguration of the party’s first president and ended with the Hoover administration, thirteen of them were served by Republicans.
Since its founding by plantation slave owners the Democratic In addition to their class, the Party had also been the party of the white small farmers and tradesmen in the south, and across the Appalachians and beyond, as new states were admitted to the union. After the Civil War and Reconstruction, the surviving slave owners and their descendants became the Bourbon Democrats who, after the threat posed by the Populist Party’s brief appearance in the early 1890s of a racially united working class, doubled down on the Jim Crow regime that kept working whites voting ”right” by continually reminding them that at least they weren’t blacks. Wage labor in large factories began growing by leaps and bounds after the Civil War and as the workers began protesting the barely subsistence level pay and often appalling hours and conditions, one would have thought they were potential Democrats but the Party couldn’t be bothered. The tradesmen of their party’s establishment were their own bosses and looked down upon wage laborers. Of course the Republicans weren’t bothered either because the factory owners and their bankers were the party’s establishment.
Democrat Franklin Roosevelt was elected President in 1932.in a landslide. The economic downturn that had begun early in his predecessor’s first year in office had gained momentum throughout the rest of his term. During the final days of the nearly four months between the new president’s election and his inauguration on March 4, 1933, the American banking system began sliding toward the edge of a cliff that threatened to take down the world’s financial system. Within hours of taking the oath the new president issued an executive order closing banks throughout the country until further notice. They began reopening, but for only a few selected types of transactions, a few days later. Other types were phased back in over the next several weeks and by that time it was no longer legal for individuals and businesses to hold except for commercial purposes – dental services, jewelry making and as inputs for manufacturing processes. Also the dollar peg to gold had been revalued downward from $20.67 to $35.00 per Troy ounce. The sense of impending doom, together with the fact the Democrats had veto-proof majorities in both houses of Congress, gave the new president the political space to push through a raft of bills that ameliorated the effects of the depression and addressed many of its root causes. Perhaps the most consequential was the stand up of the Federal Deposit Insurance Corporation (FDIC) that rendered retail bank runs a thing of the past ever since. To wide spread relief, a huge step had been taken to restore confidence, although not without deeply mixed feelings in the financial establishment about how it had been accomplished. The project as a whole was called the New Deal, and it set in motion the most fundamental changes in the relationships between the state and federal governments since the Civil War, in general tilting the power relationship toward Washington.
The New Deal programs immediately began turning around the failing economy, which surged through the end of Roosevelt’s first term. After the Democrats’ landslide success in the 1936 elections, the administration returned to orthodox fiscal policies. Not long after, the economy went into a sharp recession, enabling its critics to claim the turnaround was the playing out of an economy’s normal cyclical behavior and not a result of the New Deal policies. This remained the conventional wisdom until the turn into the 21st century and the rise of Modern Monetary Theory, a reality-based body of thinking that shows budget surpluses are deflationary in a governing entity that issues its own fiat currency. From the Roosevelt Administration going forward into the late 20th century the economy was managed, in in gradually diminishing degrees, in accordance with New Deal policies. After 1937 there wasn’t another serious recession until 1974. Recognizing that the Great Depression had been preceded and caused by an episode of frenzied speculation that was incited by an unconstrained financial sector, the Roosevelt Administration passed laws that severely reined it in. Not surprisingly Wall Street vehemently but unsuccessfully opposed the impositions, to which President Roosevelt responded, “I welcome their hatred.”
The FDR era also saw major changes within the Democratic Party. First off it enthusiastically embraced the wage-earning segment of the working class. Federal legislation was passed that gave labor unions protections that trumped the repressive laws that existed in many states. This led to the wage-earning class and their labor unions to become the most important element of the Party’s grass roots base, and they remained thus on into the early 21th century. The era also saw the beginning of the switch of African Americans’ dominant political loyalty from Republican to Democratic, a process that was completed by the Civil Rights laws passed by the Lyndon Johnson administration. This reconfigured grassroots base enabled the Democratic Party to control the House of Representatives, and to a lesser extent the Senate, through most of the rest of the 20th century.
Beginning in the 1940s the New Deal began to be gradually undone. One historian dates the beginning of the ebb down to the hour of 10:00 pm July 20, 1944. The Democratic Party National Convention had just renominated President Roosevelt for a 4th term by acclamation and was about to do the same for Vice President Henry Wallace. But a group of Bourbon Democrats and big city machine bosses convinced the acting chair to gavel the session closed. Overnight politicking pulled enough delegates away from their support of the VP to prevent his renomination the next day. Harry Truman, the compromise candidate who was nominated, was a machine politician from a border state whose support of the New Deal had been more a matter of political expediency than enthusiasm.
For centuries there has been a loosely coordinated transnational movement among the wealthy and privileged to maintain and enhance the tilt of the social, economic and political playing fields in their favor. In 1947 the coordination tightened up a bit with the founding of the Mt. Perelin Society during a meeting in the shadow of the namesake peak near Montreaux, Switzerland. It was organized by three economists, the Austrians Ludwig von Mises and Frederick Hayek, and the American Henry Simons, the department chair at the University of Chicago. The last was terminally ill and soon his role was taken by his protégé and successor Milton Friedman. Much of the work of the society remains unknown but one of the founders’ objectives was to propagate their sect of neoclassical economics as widely as possible throughout the industrialized world. They succeeded in this by inviting wealthy prospective donors to their meetings and connecting them with “right-thinking” departments and individual economists (double entendre intended). By century’s end the neoclassicals dominated over 80% of the Economics Departments in American universities. Heterodox thinkers found their job prospects were limited 2nd and 3rd rate institutions and their work was not published in the more highly respected journals.
The first major retreat from the New Deal agenda was the passage of the Taft-Hartley Act in 1947. President Truman vetoed it but was overridden with the help of Bourbon and big city machine Democrats. This was the first and biggest of the roadblocks that diminished organized labor’s ability to adequately represent working people over the succeeding decades. However Taft-Hartley did not initiate a wholesale, rapid dismantling of what had been put in place over the previous fifteen years. Some New Deal programs, such as Social Security and the Rural Electrification Administration, had already become political third rails. The powers that be were also obsessed with avoiding a repeat of the severe recession that followed the First World War, when millions of soldiers were discharged back into civilian life just as billions of dollars worth of military procurement contracts were being canceled. It turned out they were unnecessarily worried. There was implicit demand in the billions dollars of maturing war bonds, programs such as the GI Bill that would have been unthinkable before the New Deal, and the needs for recovery and rebuilding abroad in those countries whose industries had been damaged and destroyed. Thus was ignited a period of economic growth that continued with only minor blips for nearly thirty years.
We can’t leave the 1940s without mentioning the sea changes that took place in American foreign policy after the war. There had been tension between internationalist and isolationist tendencies in American since the founding, and the latter had resurged as events of the 1920s and ‘30s revealed the Treaty of Versailles to be A Peace to End All Peace, to channel the title of historian David Fromkins’s book. Relations between the USA and the USSR began to falter even before the war was fully over when Soviet forces attacked Japanese positions in Manchuria and northern Korea in force a few months after VE Day; this in spite of the fact the action had been agreed upon at during the summit meeting of Churchill, Stalin and Roosevelt Yalta in January, 1945. But the president died three months later and new people were in charge. After the July summit in Potsdam relations between the Atlantic countries and the USSR became increasingly frosty. Prior to the war Senator Arthur Vandenberg of Michigan was a leader of the isolationists a leader of the isolationists but in January 1945 he had publicly announced a change of heart. After the Republicans gained control of Congress in the 1946 elections he became chair of the Senate Foreign Relations committee and cooperated with the Truman administration in establishing policies focused on opposition to communism and the USSR. Recent revisionist historians argue if Roosevelt had lived just a few months beyond VJ Day, let alone a full fourth term, the post war era would have unfolded very differently. But history is what it is and one of the most consequential consequences was that the swords of industry stood up to win the war, far from being turned into plowshares, lived on to be the military industrial complex President Eisenhower warned against as he left office in 1961.
Harry Truman was never very popular as president; after the Democratic Party’s three way split in the run-up to the 1948 elections few thought he had any chance of winning. However he pulled it out with hard campaigning the last few weeks. Plus Teddy Roosevelt’s pithy and popular daughter was quoted saying Republican Thomas Dewey looked too much like the groom on a wedding cake. By the end of his full term, however, he saw the handwriting of the stalemated Korean War on the wall and he chose not to run again. Both parties sought to attract the popular former general to their tickets, and the Republicans won. Most white Americans who were sentient during the 1950s remember the decade as the peak of widespread well-being. There were dark sides, however, such as bitter labor disputes and the increasingly persistent demands on the part of blacks and other minorities for full civil rights, and the increasingly brutal push back on the parts of the authorities not only in the South but in major cities of the North as well. There was darkness in the international arena as well, beginning with the CIA organized coup in Iran in 1953 at the behest of the Anglo-Iranian Oil Company. This was the first of many applications to the wider world of a pattern that the USA had established decades earlier in the Latin America. Instead of being driven by the purview of the Monroe Doctrine, it was now done in the name of anti-communism.
Meanwhile in these same post World War II years sea changes were taking place in the two parties. In the 1948 elections both houses of Congress flipped back to Democratic Party majorities. The arch-conservative Senator Robert Taft of Ohio lost the Republican nominations for president in both 1948 and 1952, and with General Eisenhower’s win in the latter the moderate wing of the party was in the drivers seat for most of the next three decades. Eisenhower soundly defeated the leftist Illinois governor Adlai Stevenson in both 1952 and 1956. Ike’s administration left the social and financial support programs of the New Deal largely alone, but they fought hard and with considerable success to restore the dominance of the Federal Reserve to the banking sector. This, as well as some concurrent innovations within the sector itself, were early steps leading toward the pervasive financialization of today’s neoliberal political-economic environment. As Eisenhower’s second term was coming to an end the Democratic Party’s contest for the nomination narrowed down to two senators both more centrist than Stevenson. The telegenic John Kennedy of Massachusetts won over Senate majority leader Lyndon Johnson of Texas, who became the vice presidential nominee, and three years later president when Kennedy was assassinated. Like Truman before him Johnson was elected to a term in his own right by the end of which he too got the blame for a war going nowhere, and again like his Democratic predecessor he chose not to run again.
In response to the passage of the Civil Rights Act of 1964, which was pushed through Congress and signed by President Lyndon Johnson, a Texas Democrat, southern whites began to reconsider their party loyalties. The trend accelerated in the late 1970s when a group of evangelical Christian leaders, most of whom were southerners, stood up a political movement that was embraced by conservative Republicans. In the mid-1960s the latter had begun to reassert their influence within the party in the wake of the dominance of the moderates during and after the Eisenhower years. When the conservative Ronald Reagan gained the party’s presidential nomination in 1980 and won the election, the conservative wing was once again in the party’s drivers seat and the alliance with the evangelical right was cemented.
Things were also changing among the Democrats. In the late 1970s Jimmy Carter, the only person from the deep south ever elected president, did his part in dismantling the New Deal by loosening competitive regulations on industries such as interstate trucking and air travel. The party was also falling behind its opponents in the ability to raise money, due in no small part to the effects of Taft-Hartley and subsequent acts impeding the unions ability to organize and allocate funds for political purposes. After the Republican blowout victory in the 1984 elections some senior Democratic members of Congress and elected state officers organized the Democratic Leadership Council to push the party toward becoming more business-friendly in order to attract donations from that sector that were at the time were going almost exclusively to GOP candidates. Bill Clinton, the governor of Arkansas, was not nationally prominent enough to be included among the DLC founders but he soon joined the movement and became an enthusiastic supporter.
The New Deal restraints on the financial sector were also eased in steps. Several big ones occurred during the Reagan administration, one of them enabling the savings and loan associations to operate more freely. Too freely, it turned out. Within a decade over a thousand convictions of S&L executives for various kinds of fraud, etc. Also during the 1980s the major investment banks on Wall Street, which had been partnerships, began to convert their organizations to publicly traded corporations. Few observers, if any, foresaw the widespread consequences this would have. It was also during the Reagan years that the transition of the American political-economic framework accelerated its transition form the New Deal era social democracy to full bore neoliberalism.
The general expectation leading up to the 1992 presidential campaign season was that the incumbent President George H. W. Bush would easily win the election. Hence several high-profile Democrats chose not to pursue the nomination and it went to the relatively unknown governor of Arkansas, Bill Clinton. Bush likely would have won were it not for the entry into the race of H. Ross Perot, a media-savvy billionaire entrepreneur who called attention to the “giant sucking sound” of manufacturing jobs going to Mexico. Subsequent analyses of the electoral results showed Perot diverted far more votes from Bush than from Clinton, enough in several swing states to have likely changed the outcome of the electoral college vote.
The migrating jobs weren’t really being sucked by Mexico; it was more a matter of them being pushed south of the border by Wall Street. As the New Deal restraints on the financial sector were being loosened it began promoting the notion a CEO’s overriding responsibility is to maximize the returns for investors. They had also jumped on the work of economist Michael Jensen, who had published a paper a few years earlier asserting corporate executives should be compensated based on advances, or lack thereof, in the stock price and furthermore, said compensation should be in the form of stock options. At the time of the campaign the North American Free Trade Agreement was being negotiated and Perot was arguing its terms would make the job export trend unstoppable to the detriment of national security and American workers’ prosperity.
The several years straddling the transition from the presidency of George H. W. Bush to that of Bill Clinton were momentous in international relations. President Gorbachev of the USSR was pursuing the policies of glasnost and perestroika, that is both becoming more involved with the rest of the world and loosening internal restraints on freedom of expression et al. In 1990 East and West Germany were formally reunited. In that same summer Iraq invaded Kuwait, claiming the emirate had been stealing its oil by using directional drilling technology under the border. Six months later a US led a coalition that took it back and destroyed much of Saddam Hussein’s military in Operation Desert Storm, demonstrating overwhelming power projection on land, sea and in the air. In the latter part of 1991 the Soviet Union began dissolving, culminating its complete disintegration a few days before the end of the year. Where there had been one USSR for nearly 70 years, there were now fifteen sovereign nations, the foremost of which was Russia. By end of 1993 the nuclear weapons deployed in all former USSR republics except Belarus and Ukraine had been repatriated to Russia. Neither the USA nor Russia wanted the other two to have them. The former acquiesced the next year but Ukraine had more than 1,400 on their soil and was most reluctant to give them up. It took threats of sanction and international isolation. Finally they, too, signed an agreement and a joint team of people from Americans and Russians dismantled the warheads and shipped the plutonium and other such materials back to their home countries.
Upon assuming office in 1993 President Clinton established the National Economic Council and appointed Robert Rubin, the co-chairman of Goldman Sachs, its first director. Rubin schooled the new president in the national and world economies as viewed from Wall Street and Clinton, taking the tutelage to heart, began pushing the Street’s desired legislation. Enacting NAFTA was near the top of the list and it went into effect in 1994. Other bullet points were nails to be driven into the New Deal spirit’s coffin lid. The most significant of these was the nullification of the Glass-Steagall Act which had become law in 1933 and had separated investment and commercial banking. This greatly enhanced the power of the financial sector over the rest of the economy, and laid the foundation for banks becoming too big to fail (TBTF). As the Clinton administration was proceeding donations to Democratic Party organizations and federal office candidates steadily increased. By the time it left office in January, 2001, the Party was as dependent on donations from finance and business as was the Republican Party.
The Clinton administration was also active on the international front. Early in its first term President Yeltsin of Russian and his advisors sought cooperation from other countries with transforming its economy to the Western model, and the United States was only too eager to help. All productive entities of any size in the former USSR had been state-owned – that is by the all the people. Instead of developing a plan for a smooth transition to some other ownership model that included the immediate stake holders and minimized disturbances to business as usual, the American financial and industrial advisors recommended a shock transition in which the business entities would be immediately sold to investors. This turned into a loot-fest in which financiers and entrepreneurs from other countries partnered with managers of the former Soviet factories to corruptly buy the factories, frequently for pennies on the dollar, and soon thereafter reselling them to make a quick killing. In many cases whatever was of value was sent abroad and the factories were shut down. This led to years of great privation for the Russian people as many lost their incomes and supplies of essentials became scarce. The human toll was vividly exemplified in such indicators as death rates, birth rates, and alcohol abuse.
Without a comparable countervailing power, America ramped up its already dominant influence in the rest of the world to ensure what happens is to our advantage. Although the regime in Iraq had been knocked down in 1991, it had not been knocked out. Saddam Hussein was first and foremost a survivor. As he tried numerous ways to get back up the United States imposed vicious sanctions that ultimately were blamed for the loss of hundreds of thousands of Iraqi lives, a disproportionate number of whom were children. In 1993 the USA intervened in a civil conflict in Somalia, with decidedly mixed results. As the former Yugoslavia splintered leaving behind about half a dozen warring entities the USA, acting under the NATO umbrella, took sides in the ensuing violence and bombed Serbian positions in Kosovo. Russia protested the attacks on their co-religionists, and sent a small contingent of troops who joined NATO forces keeping the peace. In 1999 the first three former USSR satellite countries in eastern Europe were admitted to NATO, trashing an informal agreement between the USSR and the USA shortly before the former disintegrated.
One of the priorities of the long-running rightest movement introduced above was to place conservative judges throughout the federal court system. Long strides were made in this direction during the Reagan years at the SCOTUS level when four such justices were nominated and confirmed; another one was placed there by his successor President George H. W. Bush. By vetting the candidates not only for their leanings in favor of the Republicans’ positions on economic issues, but also on the social ones dear to the hearts of the evangelicals, the alliance of the party with that segment of its base became complete. The two justices appointed during the Clinton years were vetted primarily to assure their social policy positions were in opposition to those of the evangelicals but little attention, at least in the public sphere, was paid to those of the affecting the material well-being of all the people. Their subsequent actions on the court showed there was a lot less light showing through between their views on these issues between them and their Republican-nominated colleagues’ trickle-down beliefs than was the case on the contentious social issues.
The new Supreme Court made its influence felt at the outset of the new millennium. In December 2000 it let stand, by a 5 to 4 majority, a lower federal court decision that overruled the Florida State Supreme Court’s order calling for a statewide recount of the tally in the previous month’s presidential election. Thus George W. Bush won the White House in the most intensely disputed such election since 1876. Election law had been in the states’ purviews since 1787. It had been the banner of “States Rights” that had been raised whenever federal action threatened the South’s Jim Crow regime; and it was only a rare alignment of political planets that enabled the 1964 Civil Rights bill to clear the Bourbon Democrats’ hurdle. “States Rights” was and still is the rallying cry that led to the stillbirth or repeal of many a piece of working class empowerment legislation – think Taft-Hartley. With regard to the Bush vs Gore decision, Chief Justice Rehnquist gave the game away when he wrote in his opinion that the decision should not be considered a precedent.
Over the past half century plus, innovations in five technologies became intertwined in ways that had, and continue to have, profound political and cultural effects: electronic computer design; integrated, solid state electronic circuits; the internet; mobile telephones; and fiber-optic data transmission. The centerpiece of this convergence is the internet, a technology that offers previously unimaginable connectivity of people throughout the world and almost instantaneous access, wherever you are, to information of all sorts.
The internet has been brutally disruptive to main stream media (MSM), hitting it from two directions. First, readership and viewership percentages of legacy MSM declined simply because of the proliferation of accessible alternative sources. The other attack was on advertising revenues. The initial ventures into advertising on the internet were not very successful. That changed came in 1995 with the launch of Craigs List, which ravaged daily newspapers’ most profitable revenue source, classified ads. A half dozen years later the founders of a financially wobbly 1998 startup named Google realized the queries they captured from the users of their cutting-edge search engine contained “behavioral surplus” information that could be used to target advertisements to individual consumers. Revenues, and most importantly profits, took off. Soon after recently launched social media companies like Facebook adopted the practice and thus was born the age of surveillance capitalism. The financial pressures these developments put on traditional print and electronic media forced them to cut back on what they could invest in reporting, especially in domestic investigative journalism and correspondents on the ground abroad.
Then came 9/11. The neoconservative movement that had emerged in the mid-20th century had, by 2001, come to dominate Republican Party foreign policy thinking. They had been the most hawkish players in the Cold War and with America’s “victory” in that confrontation had refocused their raison d'être to be the extension of the American empire’s reach to the rest of the world. At the top of their “To Do” list was the Middle East. The apparent leader of the 9/11 attacks was the wealthy Saudi scion Osama bin Laden who was holed up in Afghanistan, but uncharacteristically for the perpetrator of a successful terrorist operation he denied it. America attacked the country anyway in order to capture him. However because the neocons had another priority, the mission wasn’t staffed sufficiently to get the job done and bin Laden eluded the Americans by minutes to escape across the border into Pakistan and disappear in a tribal area over which the government had little de facto control.
The 9/11 event also led to major changes internally. These were enabled mainly by the Patriot Act which, among other things, enacted the most significant governmental reorganization since the National Security Act of of 1947 that consolidated the individual armed services departments within a newly created Department of Defense. Similarly, the Patriot Act authorized creation of the Homeland Security Department that subsumed agencies and other elements such as Customs, Border Control, the Coast Guard and the Secret Service. It also initiated a ramped up surveillance regime that was scheduled to expire March 15 of the following year, unless extended by act of Congress. It was so extended in 2002 and has since been re-extended as needed to keep it in force to the present day..
The other priority that trumped the effort to catch bin Laden was Iraq and its dictator Saddam Hussein, who the neocons saw as the key to controlling the Middle East. The neocons initially put out the meme that Saddam was involved in the 9/11 events but that line wasn’t selling well because of a lack of evidence. (Twenty years ago the MSM had yet to become little more than propaganda assets of the establishment it is today in 2022.) So they turned to WMD – weapons of mass destruction. A number of such programs had been discovered in the wake of Operation Desert Storm in 1991. These were shut down and a thorough international WMD monitoring regime was imposed on the country. The Bush administration produced evidence they claimed proved WMD programs were still active but Americans on the inspection teams were adamant this was impossible. It took an appearance by Secretary of State Colin Powell to enable the plan to move forward under UN auspices.
The “shock and awe” phase of Operation Iraqi Freedom was a roaring success, and the Bush administration celebrated with the “Mission Accomplished” political theater event aboard the USS Abraham Lincoln in the Persian Gulf. President Bush’s political guru Karl Rove would soon say:
“We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.”
It wasn’t much later the neocons, in their arrogance and group-think bubble, convinced the powers-that-be to completely disband the Iraqi army virtually overnight. Hundreds of thousands of soldiers were cast adrift, many thousands taking their AK-47s etc. with them, and Iraq descended into chaos, anarchy and insurrection. We had indeed created our own reality and the viral “Mission Accomplished” photos and videos became objects of mockery.
The naughts decade had hardly begun when in March 2000 the dot com bubble peaked and turned the corner into steep decline. However it had virtually no effect on the housing price advance that had been underway since the early 1990s. By the middle of the decade Fed chair Ben Bernanke confidently remarked he and his fellow neoclassical economists had solved the problem of the business cycle and the country had entered an era of “great moderation” that would continue as far as the eyes of the prognosticators could see. A few heterodox economists disagreed but no one paid much attention to them as housing prices continued on their relentless upward path. As the decade proceeded the quagmires the military adventures in Iraq and Afghanistan had turned into were eating away at the approval ratings of President George W. Bush, and Team Red lost control of both houses of Congress in the 2006 elections in spite of the fact the housing boom was as strong as ever. However there were a few voices crying in the economic wilderness warning about the acceleration of private debt, especially that in the subprime category.
With the mid-term victory behind them the Democrats looked forward optimistically to 2008. Right out of the blocks, in February 2007, the young Senator Barrack Obama of Illinois announced his candidacy for president. However he was given little chance against the clear favorite, his colleague Hillary Clinton of New York. Obama proved to be much the more gifted retail politician of the two and, being fourteen years younger than his opponent, appealed especially to younger voters. Also his campaign made far more effective use of the internet, the emerging social media platforms, and smart phones, the first of which had been introduced by Apple Inc. a month before he threw his hat in the ring. By June 2008 Obama had locked up the delegates needed for the nomination and went on the defeat Republican Senator John McCain in November. Many Americans patted themselves on their backs for having elected a person of color to the presidency, and indeed it was another big step on the journey to put the tragic history of racial oppression and conflict behind us. However some skilled observers pointed out that during the campaign the new president had broken new ground in ambiguous political messaging.
In spite of the optimism of the Democrats and much of the general public, the economy was sending disturbing signals to the contrary. In June of 2007 two Bear Stearns hedge funds exposed to subprime collateralized debt obligations collapsed. The firm continued to limp along precariously until more risky bets went bad, forcing the firm into bankruptcy and dissolution in March 2008. Six months later in September Lehman Brothers went belly up with much more ominous implications; it’s failure threatened to take down the entire world financial system. Something had to be done immediately but, occurring as it did in the midst of an election campaign during the waning days of a lame duck administration, it was a delicate time for the two candidates who were sitting senators, not to mention the country as a whole. The something that was done was the passage of the Troubled Asset Relief Program (TARP) that was in effect a massive bailout of the banks and other financial institutions from the consequences of their excessively risky behavior over the previous decade.
As usually happens with emergency, “must pass” legislative measures, many senators and representatives demand that riders be attached to the bill in return for their “Yea” votes. Many of the small ones are political favors, and some can have wide impact but are controversial. Beginning in the mid-1990s, Republican Congressman Jim Ramstad of Minnesota and his state’s leftist Democratic Senator Paul Wellstone cosponsored a bill requiring all health insurance programs to include coverage for mental health issues. A recovering alcoholic, Ramstad made sure the bill’s language included substance abuse recovery. In every Congress the two would introduce the bill in their respective their houses, and every year it would never get past the authorizing committee. After Senator Wellstone’s tragic death in a plane crash while on the campaign trail in northern Minnesota in 2002, Ramstad continued carrying the bill’s torch alone. In 2007 he announced his forthcoming retirement and when the TARP bill came before the House a year later for what would be one of his last votes in the chamber he demanded the entire Wellston-Ramstad mental health bill be attached in return for his “yea”. It was. This was how good things can sometimes be accomplished even in a messy legislative process.
On Tuesday November 4 2008 Barrack Obama was elected president, defeating Senator John McCain with 53% of the popular vote and a 365 to 173 edge in the electoral college. On his coattails came a veto-proof majority in the Senate and a comfortable 78 more representatives in the House than the republicans. The hopes were high among his millions of supporters these victories were signaling a sea change toward the left not unlike 1933. By election day the depths of malfeasance that had propelled the inflation the real estate bubble that had burst as Lehman Brothers went down in flames were starting to come to light, and it was increasingly apparent it pervaded every corner of the financial, insurance and real estate (FIRE) sector ecosystem. Cleaning that up, and taking action to mitigate the damage done to the millions of home owners as the bubble popped would be a good place for the new administration to begin. Would they be up to the task?