It’s hard for a broken political system to fix a broken financial system. That’s one lesson of the failure of the House of Representatives — and of its members’ constituents — on Monday to put aside partisan bickering and muster the seriousness necessary to contain the economic damage that is spreading so fast as to threaten calamity.
The 228 no votes on the bipartisan rescue plan — cast mainly by the most conservative Republicans, the most liberal Democrats, and the members most vulnerable to voters’ misguided wrath — not only destroyed nearly $500 billion in shareholder equity between Monday morning and Wednesday night. It was also symptomatic of our society’s increasing polarization into warring conservative and liberal camps pervaded by ignorance of economic realities, misinformed ideological certitudes, and unwillingness to trust even the consensus judgment of Democratic and Republican leaders and their expert advisers.
The damage done both to the economy and to international confidence in our capacity for self-government will be lasting even if Congress passes something like the administration’s $700 billion rescue plan by the time this is published, and even if that spurs a stock market rally.
Some banks that could have been saved if the rescue plan had passed on Monday may well go under. And the foreign lenders who hold about half of America’s nearly $6 trillion in public debt will be looking harder for other places to park their money.
The deepest cause of this failure is that many, many voters are at once stunningly uninformed about public affairs and deluded by populist simplicities ranging from Republican Rep. Thaddeus McCotter’s perception of "Bolshevik" tendencies in the Bush administration’s rescue plan to many Democrats’ reluctance to save the financial system if doing so might possibly enrich some undeserving Wall Street fat cats.
These characteristics of the electorate explain why — for the first time in recent memory — a leadership consensus including all of the top Democrats and Republicans in Congress as well as Treasury Secretary Henry Paulson Jr. and Fed Chairman Ben Bernanke could not sell to rank-and-file House members or their constituents a plan that the leaders agreed was critical to the national interest.
That’s not the way representative government is supposed to work. Not, at least, in the view of Edmund Burke, who said in his 1774 speech to the electors of Bristol: "Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion."
I don’t understand the financial system and its ills well enough to assess with any confidence the merits of the myriad attacks on the rescue plan worked out by Paulson, Bernanke, and congressional leaders. Nor do most voters, or most members of Congress, or their lawyer-heavy staffs, few of whom have expertise in the workings of that system. Given this, there was no good alternative to deferring to the consensus of Republican and Democratic leaders and their advisers that rapid adoption of the revised Paulson plan was our best hope of putting out the fire before our house burns down.
Deference to this leadership consensus would have been called for even if members and voters had a reasonable understanding of the economic realities and of such exotic financial instruments as credit default swaps. Deference was all the more necessary given the mountain of evidence that most voters are "spectacularly uninformed," as author Rick Shenkman has written, even about matters far more fundamental to self-governance.
Shenkman, in Just How Stupid Are We? Facing the Truth About the American Voter, and the authors of several other recent books cite polls, social-science studies, and other evidence showing that, for example, only two in five Americans can identify the three branches of the federal government; fewer than half know who Karl Marx was, or which war the Battle of Bunker Hill was part of; and only four in 10 people between the ages of 18 and 24 can find Iraq on a map.
"I am convinced… that, over the past several decades, we have become less knowledgeable, more apathetic, more reliant on others to think for us, more susceptible to simple answers, and more easily exploited," William Pannapacker, an associate professor of English at Hope College, concluded in a Chronicle of Higher Education review of seven books on voter ignorance.
Small wonder that so many voters are fixated on the mistaken notion that the main beneficiaries of the bipartisan rescue plan would be Wall Street elites. In fact, the main beneficiaries would be the millions of ordinary Americans who will lose their jobs as we plunge into a deep recession — or worse. Most of the fat cats who gambled recklessly with other people’s money have either been ruined (see Bear Stearns and Lehman Brothers) or long ago salted away many more millions than they have much chance of making from the rescue plan. A minuscule percentage of the $700 billion sought by Paulson will go to compensate executives of financial institutions.
Congressional leaders understood this. But many of their members did not, or at least pretended not to understand to avoid casting unpopular votes. The "no" group was dominated by conservative ideologues from monolithically Republican districts and liberal ideologues from monolithically Democratic districts, including most members of the Congressional Black and Hispanic caucuses.
"The center had collapsed in favor of a coalition of far-right and far-left zealots," as Dana Milbank observed in The Washington Post. "What was once a lunatic fringe was now a majority: 40 percent of House Democrats, going by [Monday’s] vote, and fully two-thirds of Republicans."
This "failure of followership," as Tom Mann of the Brookings Institution called it, reflects the misinformed populism that runs especially strong among the most-liberal and most-conservative voters. Thanks to gerrymandering and other factors, most House districts have become lopsidedly Democratic or lopsidedly Republican and elect representatives whose views are well to the left or right of center. That’s why the House has been so much less receptive to the rescue plan than the Senate, whose members are elected statewide.
This is not to excuse the failures of the political leaders who backed the rescue plan. John McCain made cartoonish attacks on "evil and greed in Washington"; prematurely congratulated himself for getting House Republicans to support the rescue plan; and fanned the partisan flames after its defeat by saying, "Senator Obama and his allies in Congress infused unnecessary partisanship into the process" — while inconsistently adding, "Now is not the time to fix the blame." Obama keeps trying to blame Republicans for causing "this mess" by passing a 1999 banking deregulation law that was supported by most Senate Democrats, was signed (and is still defended) by President Clinton, and appears to have played no role in causing the problems.
President Bush, meanwhile, is a spent force, his credibility long since squandered by (among other things) his relentless partisanship. Paulson was commendably bipartisan but inept at selling the rescue plan to the electorate. House Speaker Nancy Pelosi launched a rhetorical attack blaming Republicans for the market meltdown at the very moment when she needed their votes. And Republican leaders lamely attributed some of their members’ no votes to petulance over Pelosi’s barbs.
Pelosi’s partisan rant — "for eight years, this government has followed a right-wing ideology of anything goes, no supervision, no discipline, no regulation" — was especially misleading in blaming Republicans alone for a financial crisis that Democrats did much to bring about.
Among other things, leading Democrats have in recent years opposed — while the Bush Treasury Department, the Fed, McCain and other Republicans supported — tighter restraints on Fannie Mae and Freddie Mac. Meanwhile, the two mortgage giants were catering to (disproportionately) Democratic demands for "affordable housing" while lavishing many millions on campaign contributions, a gigantic lobbying apparatus, and excessive executive compensation. The proposed restraints in a 2005 Senate bill that Democrats deep-sixed, for example, would have prevented Fannie and Freddie from recklessly pouring so many hundreds of billions of (implicitly) government-guaranteed dollars into risky investments, including subprime mortgages for borrowers without the means to carry them.
Democracies tend to get the governments they deserve. But this nation’s basically centrist majority — or at least plurality — deserves better than a gerrymandered "people’s House" dominated by both liberal and conservative ideologues and a presidential campaign polluted by dishonest pandering to populist passions.
Our best hope in the short run is that the Barack Obama of the inspiring, inclusive 2004 convention speech and the John McCain who has so often stood against his party’s ideologues will listen to the better angels of their natures. Our best hope in the long run is that centrist voters will rebel against the partisan excesses that have helped bring us to the brink of economic disaster, will choose leaders worthy of trust, and will trust them.
This article appeared in the Saturday, October 4, 2008 edition of National Journal.