Commentary Magazine


Wall Street Populism

Can Democrats be the party of both economic populism and Wall Street? Can they recreate the kind of big tent that allowed Lyndon Johnson to trounce Barry Goldwater in 1964? The answer appears, at the moment, to be yes. The Democrats, more and more, are being funded by those in the financial sector who have benefited the most from globalization, without losing the support of blue-collar workers fearful of globalization’s effects. If the Democrats can hold this broad coalition together, they may be in a position to win a 1964-like victory in 2008.

Democrats on Capitol Hill are calling for higher taxes on the wealthy and tougher tax treatment for private equity firms, like the Blackstone Group, which have become the symbol of growing economic inequality. But this hasn’t hurt the party at all when it comes to fundraising. Perhaps because social issues, not social class, have come increasingly to define what it means to be a Democrat or Republican.

This shift from economic to cultural issues over the last 40 years has scrambled the political landscape. In the 1980′s, 70 percent of the upper quintile of American income earners voted for the GOP. But in the 2006 Congressional elections, the Democrats ran nearly even with Republicans among voters who earned more than $100,000 per year. And among the very wealthy, notes the Financial Times, the “balance of power” has shifted in favor of the Democrats. Young hedge fund tyros and other well-to-do professionals have given the Democrats a substantial fund-raising lead over the Republicans. Barack Obama, who has become increasingly critical of free trade and demands higher taxes on the wealthy, has widespread support in the world of finance, including the hedge fund managers George Soros, Eric Mindich, Paul Tudor Jones, and Daniel Loeb. In the second quarter of 2007, Democratic presidential candidates raised $80 million to their GOP counterparts’ $50 million. Obama alone raised almost $33 million, nearly twice the amount raised by Rudy Giuliani, the leading Republican.

Can a party with such close ties to Wall Street effectively court blue-collar workers? It can, if those workers are fearful of free trade. The unprecedented growth of international trade in recent years has been a boon for the overall economy. But it has also constrained wage growth and induced considerable working-class anxiety. In Ohio’s 2006 mid-term Senate election, Sherrod Brown, running largely on the trade issue, unseated Senator Mike DeWine. Democrats see that race as a potential model for 2008.

The other large arrows in the Democrat’s populist quiver are the public’s hostility to both the energy and pharmaceutical industries, as well as growing worries about the cost of health care. And while there may be tension between those in the risk-loving financial sector and increasingly risk-averse workers, in the short run it can be eased with the promise of higher taxes on the wealthy, to fund (among other things) more health care coverage for the middle class.

Taken together with trade fears, these arrows form a formidable arsenal, one that might well allow Democrats to create a version of their 1964 coalition, in which big business and New Deal liberals marched side-by-side. There are sizable fault lines inherent in such a coalition: just imagine the potential conflicts between green CEO’s driving hybrid limos and workers displaced by environmental over-regulation. But it’s unlikely that a conventional Republican campaign can exploit those weaknesses. As it now stands, on these issues the GOP is marching toward a precipice. (Perhaps it can take solace in the fact that the grand coalition of ’64 quickly fell apart.)