Dear Bob,

I'm really amazed at how dead economic liberalism is. You've got all the conditions for a really first-class populist revolt. First, you've got widening income inequality. Then you've got the campaign finance system, which transparently provides political access in exchange for huge political contributions. Then you've got an administration made up of former oil executives, with a former aluminum executive thrown in for good measure. And finally, thanks to Ken Lay, the Arthur Andersen folks, and all the rest, you've got a first-class corporate scandal -- a case of big business malfeasance so egregious it makes the pores on your face pant open. And to top it all off, the biggest scumbag in this scandal is not just anyone. He happens to be one of the biggest donors to the president of the United States.

This is incredible! This is the perfect storm. It would take a party of total idiots not to lead a wildly successful anti-corporate popular upsurge in this climate.

Welcome to the Democratic Party. Despite all these events, the Democratic Party, which is supposed to be the party of the average person against the corporate fatcats, hasn't been able to do anything. Democratic fortunes have not risen a bit since Enron broke. Republican fortunes have not dropped an iota. In poll after poll, the two parties are still basically tied, as they were at the last election, and after the one before that and the one before that.

What's more, President Bush's popularity is still phenomenally high. No Enron effect. Not even much of the normal back-to-earth drift one typically sees after a rally-round-the-flag surge in presidential popularity. Moreover, Enron and the other scandals are playing a very limited role in the congressional elections. The big issues that Democrats are raising remain health care, education, and social security.

In short, Enron has been a big financial scandal, but as a political event it's been a complete dud. It has done almost nothing to change the landscape of American politics.

So it could well be that the Democratic Party is a party of complete nincompoops, unable to take advantage of issues that are just lying there on the table.

Or it could be that the Democrats would like to go down that road but they can't because they know the public wouldn't buy it. It could be that economic populism, even in these amazing circumstances, is the road to political failure. The public just doesn't buy attacks on overweening corporate power. They reject any hint of dramatic government intervention into the economy. They agree that Ken Lay and company are dirtballs, but on the whole, they rather admire American business.

My friends on the left and I have this argument: The lefties say that the reason the corporate scandals -- and income inequality, and so on -- have never become big issues is that the Democrats have never really made them such. If only a real liberal would emerge, then the public would respond.

I say that the Democrats may be stupid, but they are not that stupid. They'd love to run against corporate elites. Al Gore did run a presidential campaign on the slogan, "The People versus the Powerful." It flopped. The historical evidence is clear. The Democrats know that American voters reject economic populism and the liberal fiscal policies it implies. Enron doesn't provide a context for a new political platform.

The fundamental fact is that the New Deal era is over. Once upon a time the Democrats were the party of the poor and the Republicans were the party of the rich. But those days are gone forever. Income is now a terrible predictor of how a person votes. Al Gore carried many of the most affluent parts of the country: Westchester County, Connecticut; the Main Line outside of Philadelphia; Montgomery County, Maryland; the North Shore outside of Chicago; the entire West Coast. Al Gore even won among people who consider themselves upper class. Gore won among people with graduate and professional degrees.

Meanwhile, the Republicans are just as likely to be the party of the average person. George W. Bush won easily among white males with no more than high school degrees. These are the people whose incomes have been stagnating. These are the people for whom Gore's "People versus the Powerful" message was tailored. They are not buying it.

When they look at Ken Lay, they are appalled. But there is no sign from any of the polling data to suggest that most Americans have taken the Enron scandals and generalized them into a broad critique of American capitalism or of the American corporate class.

The interesting fact is that economics is playing a diminishing role in shaping American politics. After the last election, the Pew Foundation sponsored a huge survey to probe the differences between red and blue America. They found that economic views were moving toward the center. Liberals were less likely to want to see an expansion of government. Conservatives were less hostile to government. On economic issue after economic issue, there was convergence.

When I do interviews around the country, even in places where people have seen factories disappear, to be replaced by lower-salary service or warehouse jobs, I'm struck by how little class resentment there is. First, people see no alternative to capitalism. Their distrust of government and university elites is far higher than their distrust of business elites. As for anything that resembles socialism -- forget about it. Second, everyone has absorbed the psychology of the market. People figure that if they are not satisfied with their job and they want to get ahead, they just have to go back to school and get some marketable skills. The University of Phoenix, which is the most important educational institution in the country, provides this service to hundreds of thousands over the Internet.

Third, they are satisfied with their own lives. Around 90 percent of Americans tell pollsters they are satisfied with their jobs. Fourth, they overestimate their own income. Most people think they are above average. And finally, when they do see class barriers in society, they tend to resent social inequality more than economic inequality.

If there is resentment, it is directed toward coastal university, PBS/NPR tote-bag types. Business leaders, on the other hand, hunt, love college football and NASCAR, and go to church, just like regular folks. Why should working-class Americans resent people who share their values when there are all these other privileged people around who do not? The best predictor of voting patterns in America today is not income, it's church attendance. If you go to church regularly the odds are good that you vote Republican. If you never go, the odds are good that you vote Democratic.

So while many of my friends are greatly exercised about Enron and see it as a symptom of overweening corporate power, I can't really blame the Democratic Party for not hopping on the bandwagon and riding economic populism. It's the road to permanent minority-party status.

Best,
David

Dear David,

Well, you're certainly right that corporate America is a mess; and we surely agree that Democrats are failing to make the most of a political moment in which corporate capitalism is again disgracing itself. But I disagree with your contention that there is not potentially a majority politics here. It's clear that, once again, it is up to liberals to save capitalism from its own most self-cannibalizing tendencies, as liberals last did in the 1930s. It's evident that Republicans and conservatives clearly won't.

Your thesis seems to be either that Democrats are nincompoops to fail to exploit this moment, or, more likely, that the moment is unexploitable because Americans are basically happy with their lives and confident about the economy. Besides, you say, populism no longer is associated with the Democrats; Gore carried the upscale suburbs.

My own take is that Democrats are seriously compromised because many of them are in bed with the same corrupt corporate interests who are now putting capitalism itself at risk. Joe Lieberman, until he was reborn as the scourge of Enron, was among those leading the charge to hobble the SEC. The Democratic Leadership Conference is one-part principled centrism and one-part corporate money-raising machine. Terry McAuliffe is not a grand strategist with a consistent ideology or message. He's a money guy. So liberal Democrats, who want to rescue our democracy and our economy from corrupt corporate domination are constrained in ways that their Republican opposite numbers are not.

The Republican party and its corporate allies have a consistent ideology and a consistent message. Markets work, government doesn't. Yes there are splits between libertarians and "national greatness" conservatives, and between nativists and internationalists, and between gay conservatives and fundamentalists, but these are minor compared to the corporate neutering of many Democrats.

But the weakness of the Democratic Party in the face of the greatest threat to capitalism since 1929 is by no means proof that the threat isn't real. Look at the stock market. Even though the real economy is in some kind of recovery, investors don't trust corporate balance sheets. This is potentially far more serious than it seems because U.S. capital markets need to import trillions of dollars from foreigners to cover our domestic capital shortfall that is the flipside of our trade deficit. The dollar has begun to fall, and this could feed on itself.

There is a bizarre disconnect between different wings of the American elite. People like Paul Volcker and Warren Buffett are seriously worried, and begging Congress for real reform. But the Bush administration is too busy toadying to its corporate cronies and its giddy libertarian ideologues who think that markets regulate themseves. There is a fairness argument for taming this beast -- the thugs in the suites at Enron should not make off with billions while ordinary employees lose their pensons -- but there is also an argument about the risks to the system. Volcker gets it even if you and Karl Rove don't. And Kevin Phillips, writing in the new issue of The American Prospect, thinks that corporate excess could be to the Republicans in this decade what cultural radicalism was to Democrats in the aftermath of the 1960s.

Volcker, of course, is the absolute antithesis of a populist. There have been times in American history when the populist backlash against the excesses of American capitalism came together with a prudential backlash. The New Deal and Great Society were such eras. At other times, patrician stewards took the play away from populists, as in the progressive era when safe conservatives such as Senator Carter Glass took away the "money issue" and stabilized a rocky financial system with the Federal Reserve, if only for a generation.

Polls are beside the point; leadership occurs not when a politician follows the polls but when he acts to move public opinion in his direction, as Reagan and Roosevelt, not to mention Lincoln did. The trouble with politics today is that it's far too poll-driven.

There are plenty of populist grievances, such as the failure of Americans to have health security, but neither party is currently their champion, so ordinary people are disconnected from politics. Nor is either party currently willing to step up and rescue capitalism from its own excesses. But I hope you are ultmately wrong about the Democrats, for it is clear that the right is not about to clean up the abuses of capitalism; once again, only the liberals can, one hopes before the rot deepens.

Bob

Dear Bob,

Actually, I don't think corporate America is a mess. I think there are several companies that behaved scandalously, and that there should be tighter regulation to help investors get honest information so they can invest well. But to say this is the biggest threat to capitalism since 1929 is a gross exaggeration.

In the first place, even today, the stock markets work pretty well. If you invest in good companies and are patient, I guarantee you will do better than if you invest in bad companies, no matter what games people play with numbers. Over the medium run, substance matters. You argue that the flat stock market is a sign of how bad things are, but I really wouldn't stick to that argument because when the market rises again you'll be left without a case.

Second, one of the amazing features of the Enron scandal is that the country's leading energy market maker basically disappeared and nobody actually lost power. Capitalism has an amazing ability to adapt. That's another sign the system is healthy.

The true measure of this scandal was summarized by the sainted Teddy Roosevelt, who in his 1909 message to Congress said, "Every new social relation begets a new type of wrongdoing -- of sin, to use an old-fashioned word -- and many years always elapse before society is able to turn this sin into crime which can be effectively punished at law." What we have in the information age are new social relations begetting new sins, and so we need a few new laws. This is not a crisis of capitalism.

I'm interested by your discussion of the disconnect between different wings of the American elite, because this is the stuff of history. It's true, as you say, that an opposition is emerging between the prestige plutocrats and the southwestern corporatists. We see it not only in the response to Enron, by the way, but in the fight over the estate tax. There it is Bill Gates and Ted Turner and Warren Buffett defending the estate tax, and the southern and western small business people opposing it.

A fight between the billionaires and the millionaires is really something to relish. That, alas, is where the action is in politics today.

Best,
David

Ah, David--

This is the kind of free-market generalization that is the road to real trouble: "markets work," "stick to it for the long term," "substance matters," etc. All true by definition, and therefore not a falsifiable hypothesis. You know, when the market was absurdly overvalued, the bulls kept saying, "no problem -- the money has to go somewhere." But in fact, the U.S. has to import trillions from Europe for its capital needs, and if the U.S. ceases looking like the ultimate safe haven then the money doesn't have to keep coming here.

The dollar is falling because there is less trust in the U.S. by global capital markets than there was only a few years ago. Some of this reflects the market having been so badly overvalued in the late 1990s. Some of it reflects 9/11. And some of it reflects the fact that investors are just skeptical of company claims about earnings. And, to coin a phrase, this is a lot "Bigger than Enron." It's a way of life. And at some point, it scares off even the small fry, and the whole system suffers. In my view, we are dangerously near that point.

So it isn't just a joust between millionaires and billionaires, chuckle, chuckle; this is serious stuff.

As for the fact that nobody lost power in the Enron mess, that reality is thanks to -- who else? -- the government. You don't think that Ken Lay and his ilk give a rip about whether anybody lost power. And taxpayers and rate payers had to pay through the nose. If some remnant of government regulation of electricity had not been in place, Enron and the others would have done even more damage.

So, yes, capitalism has an amazing ability to adapt, but sometimes that adaptation comes in the wake of a lot of unnecessary pain wrought by smarmy people. And often what you are crediting (too generously) as the adaptability of "capitalism" is in truth the fruit of the mixed economy -- democratically accountable regulators, changes in public policy -- forcing capitalism to be housebroken in spite of itself. I often think that if the private sector were ever held to the same standards on transparency and conflicts of interest that we demand of governments, the actual practices of few corporations could withstand the light of day.

I liked your T.R. quote. It was T.R., of course, that Bolshevik, who gave us the estate tax, not to mention antitrust and a lot of other regulatory intrusions that were ultimately pro-capitalist, even though the robber barons hated it. Where is the next T.R. in the Republican Party?

Bob

Bob,

I've lost track of what the hell we're arguing about, so let me step back. Capitalism is a system of creative destruction that unleashes tremendous creativity but requires regulation to minimize the pain caused by the smarmy people and its inevitable dislocations. All this is obvious. We both agree. Everybody in America agrees except a few socialists and libertarians.

Many of the people who ran Enron are scumbags. They screwed their own employees and investors. The crimes they committed, and similar crimes committed by auditors, along with the cozy and contradictory arrangements that many accounting, investment and consulting firms had, have weakened investor confidence in the market. Something must be done to restore average investors' sense that the information they get is straight. Again, we don't disagree.

We don't even disagree about what should be done, at least not passionately. To me, frankly, that's a technical question, and whatever Arthur Levitt or some body of experts comes up with is fine by me. I don't regard this as an ideological matter, turning on fundamental matters of principle.

What we're really arguing about -- isn't it? -- is how we should feel about Enron, et al. Many of my liberal friends love the Enron scandal, because they want all of America to hate the corporate elite. Their reaction, reminds me a bit of the way many conservatives reacted to the Lewinsky scandal. Finally! A discreet instance that vindicates our pre-existing worldview! Now all America will hate our enemy!

What we're arguing about is how much and how broadly people should be outraged.

But where's the outrage? My conservative friends felt outrage about Clinton. They thought his sins were symptomatic of the entire 1960's self-indulgent culture. They argued that the entire structure of law was being undermined by lies and evasions. My liberal friends feel outrage over Enron. They, and you, I think, see it as symptomatic of a system in which corporations possess overweening power, in which the health of the nation is in peril.

Yet the public remains unmoved. It seems to me the public has entered a period of crisis cynicism. So many false crises have been foisted upon them, so many ruinations of the Republic, that they remain resolutely unmoved by conservative cries over Clintonism or liberal cries over Enron.

Is this wisdom? Maybe. Commentators tend to hype and over-react for obvious self-interested reasons. In the war for attention the angry Cassandra at least gets heard. Intellectuals like the frisson of cultural and economic crisis.

On the other hand, maybe the public has entered a period of such passivity that even real crises do not stir it. This is disengagement to the max. Even the war on terror seems to pass over people now as just another bit of the background noise. When I interview people around the country I'm struck by how removed they are even from the war on terror, and the likely war with Iraq that looms in our future.

Forgive me for trying to turn the discussion back to subjects of political psychology, but after you claimed to know why the dollar is falling I got intimidated. I've never met anyone who could understand such things. You must make billions trading currencies.

I recently wrote an editorial for my magazine on the perils of K Street Conservatism, that is to say, on the undue influence of business on American conservatism. That influence, by the way, is not to pump the party full of free-market or pro-capitalist ideas. It is to drain all ideas from politics. To make everything deals and short-term fixes. Corporations want safety, they want moderation, they want compromises.

You and I are the ones who are out of touch. We want brave ideas (albeit of different sorts). We see dangers. We want change. The public, by and large, refuses to share our respective outrages, refuses to see a future that is dramatically different from the present.

They certainly are conservative these days -- in the original sense of the word.

David

David,

Well, I haven't lost track of what we're arguing about. We're arguing about whether capitalism is on the edge of another periodic precipice. You conservatives disparage the role of government on many grounds, one of which is that markets are marvelously self-regulating. But history tells us that they're not.

It's too easy to say that Enron is an isolated case. It isn't. Since your last posting, WorldCom admitted to overstating its profits by several billion, and the market tanked again.

The fact that the public is not in a state of outrage (yet) is neither here nor there. Wait until all of this has more spillover effects, on incomes and jobs. Or start preventive medicine now.

These details of how capitalism is governed is anything but the purely technical question you suggest. It is profoundly political. That's why Wall Street firms spend such effort lobbying both parties; the fact that they clipped Levitt's wings is testament to their power. Contrary to what you wrote, I'm sure we passionately disagree on what is to be done. We have to re-regulate all of this -- the self-dealing, the conflicts of interest -- so that it doesn't bring the whole system down. Want to support that, or don't you have time for the oh-so-tedious details?

I've been saying for months that the dollar was likely to fall. But as a career choice, I've decided to be a journalist, not a currency trader. George Soros can have the billion.

We agree that the public is in a state of high cynicism. Bill Clinton can share the blame for that, for disgracing himself with Monica. Ronald Reagan and both Bushes can share the blame, for relentlessly disparaging what can be done by Americans in common through their government. Depending on how cynical you feel and how cynically you write on any given day, you may share the blame, too. A lot of people in our trade surely do.

Cultural frissons, indeed. Count me out of that club. I actually care about this stuff.

Bob