Why the Wall Street-Washington door revolves
As President Barack Obama’s new lieutenants settle into their offices in the White House, talk has turned again to the revolving door between Washington and Wall Street: William Daley, the president’s chief of staff, arrives from JPMorgan Chase, where he earned millions; Gene Sperling, the new top economic adviser, collected $887,727 from Goldman Sachs for advice on a charity project on a recent hiatus from government.
There’s nothing new about this tradition – indeed there was a time not so long ago when it seemed as if actually running Goldman Sachs was a prerequisite for serving as Secretary of the Treasury. But the triple whammy of the financial crisis, the trillion-dollar government bailout and the return of lavish bonuses to many on Wall Street while unemployment in the United States is stuck above 9 percent has cast the intimacy between political and business elites in a new, often more jaundiced light.
To many U.S. business people, and to centrists in both parties, the concern that Mr. Obama’s White House is too close to business sounds absurd. Far from being a dangerous example of an overly intimate relationship between business and politics, Mr. Obama’s recent appointments, particularly of Mr. Daley, are seen as a welcome sign that the White House will work harder to bring business onto its side.
“We have a private, market economy. We don’t believe in the government being the source of economic growth. The whole thing depends on business,” said Laura Tyson, a business school professor at the University of California, Berkeley, and head of the Council of Economic Advisers under president Bill Clinton. “Starting from the view that business is a vested interest is not a healthy place to begin. Here’s the irony – you sit in a boardroom and you talk about making a company profitable, and then in the press there is a criticism that ‘these guys are simply maximizing profits,’ ” said Ms. Tyson, who is on the board of Morgan Stanley. “There’s this ideological inconsistency. We want business to succeed, but we also don’t want business to succeed. The point is that we don’t have an alternative economic system.”
Mark Gallogly, co-founder of the private equity firm Centerbridge, one of the President’s early supporters on Wall Street and a member of his economic recovery advisory board, said the fiercely competitive global economy made it more important than ever for government policy to be focused on making the United States an attractive place to do business.
“The goal is to provide incentives to create jobs here and not someplace else,” Mr. Gallogly said. “There are a lot of other markets where companies can invest.” All of which sounds obvious and unobjectionable, especially in a country where “socialist” is a term of derision, not a mainstream political party. So why are Mr. Daley’s and Mr. Sperling’s Wall Street paychecks a point of contention rather than a source of pride?
Raghuram Rajan, a professor at the Booth School of Business at the University of Chicago and a former chief economist at the International Monetary Fund, said one reason for popular suspicion of the ties between policy makers and financiers was the 2008 bank rescue.
With hindsight, he believes Washington should have demanded a higher price for saving Wall Street: “They should have put far more restrictions on the banks. They should not have let them pay dividends, for example.” Close ties between Washington policy makers and Wall Street banks are relevant to those decisions, Mr. Rajan argued, because of the human instinct to worry most about those we know the best.
“We have had growing inequality for 25 years,” Ms. Tyson said. “It is not just that the top has gone up; everyone else has gone down. And we are going to see even more inequality coming out of the crisis.” Mr. Gallogly, who welcomes what he sees as a more explicitly business-friendly tone from the White House, argues that “this president gets the equation that if business is successful, America will be successful.” The problem for Mr. Obama, and a source of the suspicion of policy makers with business ties, is that for many Americans, that equation has broken down.
“Is the anger simply because the elite has been found to be incompetent?” Mr. Rajan asked. “Part of the job of the elite was to keep everybody happy. By all means accumulate your stuff, but keep me growing at 3 per cent.” That may be the heart of the tension between America’s elites and everyone else. After all, rule by a moneyed, mutually connected establishment is nothing new. But to stay in charge, those insiders need a way to deliver to the whole country, not just the narrow sliver smart and lucky enough to shuffle between the C-suite and the Oval Office.