ECONOMIC VIEWPOINT By Robert Kuttner
How the Democrats Lost Their Fastball
They can hardly take on Bush when they, too, pander to corporate interests and act like Republicans on taxes, the budget, and deregulation
President Bush seems impregnable to partisan criticism. Polls show the opposition Democrats with latent voter support on economic issues--everything from unemployment to Enron to health insurance. But the Democrats seem utterly unable to exploit these voter sentiments. Supposedly, it's Bush's wartime popularity that gives him cover on other issues. But the real explanation is deeper.
The Democrats have essentially been neutered as an opposition party because their basic views on fiscal and regulatory issues have so converged with Republican views. And while no corporate leader was closer to the Bush operation than Enron Corp.'s former CEO, Kenneth L. Lay, the Democrats have been unable to exploit the Enron scandal because too many fingers were in the same corporate cookie jars and too many Democrats were complicit in the corrupted regulatory climate. Consider:
-- Deregulation. Ever since economic adviser Charles L. Schultze sold Democrat Jimmy Carter on deregulation in 1977, resurrection of the invisible hand has been a bipartisan project. In principle, regulatory reform made sense. But typically, the actual deregulation has been less a gift to consumers than to well-placed corporations. Airline deregulation has brought monopoly hubs, deteriorating service, and--paradoxically--uncertainty for airlines that compensate by gouging travelers wherever possible.
Electricity deregulation has produced higher retail prices and opportunistic profiteering by players with market power--like Enron. Cable deregulation has yielded pure monopoly and higher prices for consumers. Deregulation of broadcasting is producing a few mega-conglomerates and a dwindling public domain. Looser regulatory constraints on drug companies have brought safety lapses and astronomical prices. Lax standards for hospitals and nursing homes have caused dangerously low staffing levels.
In no area was the move to deregulation more bipartisan than in financial services. Deregulation of the savings and loan industry allowed once-nonprofit institutions to speculate with federally insured deposits. In Congress, Democrats like Rhode Island Representative Fernand J. St. Germain led the charge (and was richly rewarded by the thrift industry.)
Congress' new indulgence of conflicts of interest, culminating in repeal of the Glass-Steagall Act, was likewise bipartisan. Securities & Exchange Commission Chairman Arthur Levitt Jr., an old-fashioned Democrat, sought to reassert authority over such abuses as derivatives, disclosure of true costs of stock options for executives, and the faltering independence of auditors. His congressional adversaries were often Democrats, most prominently Senator Joseph I. Lieberman of Connecticut. Newt Gingrich's Contract with America included legislation, passed with bipartisan backing over President Clinton's veto, making it easier for stock touts to lie without fear of investor litigation.
-- Money and Politics. Seemingly, the Shays-Meehan bill shows that Democrats are serious about campaign finance reform and Republicans aren't. The measure was a largely Democratic creation, which passed with 41 Republicans defying their own leadership. But the bill was watered down to include a loophole allowing unlimited corporate donations to state parties, the doubling of limits on hard money, and free rein for ostensibly "independent" issue campaigns.
Whenever Democratic reformers try to point to the countless GOP entanglements with Enron (Attorney General John Ashcroft, Marc Racicot, chairman of the Republican National Committee, and Vice-President Dick Cheney), Republicans need only cite Terry McAuliffe, chairman of the Democratic National Committee, who personally pocketed $18 million from a $100,000 investment in Global Crossing Ltd.
-- Taxes and Budget. If George W. Bush should be vulnerable anywhere, it's on his tax and budget program: big cuts for the upper brackets, yielding deficits that jeopardize popular social outlays. You might think the opposition party would be demanding repeal of last year's tax break (most of which takes effect after 2004), and its replacement with expanded social benefits. But, no. The New Democrat wing of the party--in this case, former Treasury Secretary Robert E. Rubin--sold the people's party on the idea that budget discipline was the road to political and fiscal heaven, while other leading Democrats were complicit in the Bush tax cut. Fiscal discipline plus a tax cut, of course, mean dwindling social outlays. So rather than offering a robust alternative, the opposition party is quibbling about relative crumbs and bleating about the effrontery of the President's running a small budget deficit (during a war and a recession!).
Ah, the Democrats, an opposition party Republicans could love. Once they offered the country an alternative philosophy on how to reconcile a dynamic economy with prudence and equity, and they rallied voters on these issues. With leadership, they could again.
Robert Kuttner is co-editor of The American Prospect and author of Everything for Sale