The Best Policy

Two Crises Wasted

Washington’s perverse refusal to grapple with the energy crisis or to genuinely reform Wall Street.

Senate Majority Leader Harry Reid (D-NV), Senate Banking Committee Chairman Christopher Dodd (D-CT) and House Financial Services Committee Chairman Barney Frank (D-MA). Click image to expand.
Democratic Sens. Harry Reid, Christopher Dodd, and Barney Frank

The past news week was dominated by the Shirley Sherrod saga, a miserable episode that involved political operatives masquerading as journalists distorting fact in order to promote pre-existing bias, followed by a rush to judgment on the part of those too weak or fearful to exercise independent thought. A casualty of the Sherrod story’s domination of the news is that it obscured the whimpering end of two of the largest crises of the past several years: the signing of the Dodd-Frank financial services reform bill and the plugging of the BP well.

As we all now know, a crisis is a terrible thing to waste, and here we have wasted two of them. The momentum for change will now fade into the haze of a long, hot summer. Many Americans hoped that the BP leak would finally focus us on generating an energy/climate policy that would deal simultaneously with global warming and our dependence on fossil fuels. That hope has now totally disappeared. Senate Majority Leader Harry Reid announced the end of meaningful reform in the energy arena, and the politics after the midterm elections will make that issue even less palatable.

Behind the Dodd-Frank celebrations and Rose Garden linguistic bouquets, nothing really changed about the financial sector: The same regulators are in charge, the same CEOs are still running bigger, more concentrated financial institutions, and, oh, by the way, the pay czar announced last week that TARP beneficiary institutions overpaid their executives by $ 1.7 billion—yet nothing will or can be done about it. The TARP IG reported last week that the Treasury-department mortgage reformation program has been a disaster: Fewer than 400,000 mortgages have been altered. And while Goldman was paying a fine of two weeks’ profits to give the SEC cover, there was no structural reform in the securities industry. A decade has gone by with no net private-sector job growth, initial unemployment claims last week jumped to 464,000, the average duration of unemployment is the longest in modern history, and the deficit for fiscal year 2010 is projected to exceed 2009’s 1.41 trillion dollars.

So all in all, a pretty dismal week. The White House needs to do something to transform this dreadful political moment. How about a simple, three-part proposal? First, adopt a carbon tax (supported by virtually all in the environmental community and some conservatives as well; see Pete Peterson in the Wall Street Journal) . Second, offset the revenues from the carbon tax with a reduction or even elimination of the payroll tax for all new hires. Third, increase the retirement age for Social Security one year for every two calendar years over the next six years (a net increase in three years on the retirement front), and start to put in place some obligation for the wealthiest to pay more for Medicare. These are simple but necessary bargains.

The crises we had hoped might stimulate real reform are quickly fading as instruments of change. The broken status quo remains, and the arc of our economy is dipping, not rising. Something has to be done. President Franklin Roosevelt began his presidency with a clarion call “to act and act now”—to experiment and keep pushing until something worked. President Obama should heed that wisdom.

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