Henry Paulson and conflict within the American economic elite

Henry Paulson shouldn't have any trouble being confirmed as the new Secretary of the Treasury. Frequent critics of the Bush administration were falling all over themselves welcoming his nomation. Democratic Senator Chuck Schumer called him "the best pick that America could have hoped for" and The New York Times sounds like it has a major crush on Paulson, claiming he "will bring much-needed clout, pragmatism and credibility to the job" and holding out hope that he'll support "rigorous economics and sound fiscal practices" in the administration.

So mainstream Democrats can hardly contain themselves in praising a man who is worth $700 million and heads Goldman Sachs, one of the most powerful forces in international financial capitalism. If we needed any more proof, this shows conclusively that the Democrats are a lost cause until something big changes in how much popular pressure the left can bring to bear on them.

Okay, I've made my polemical point. But the choice of Paulson and the Democratic response also points to some interesting things going on within the American elite. In the broad scheme of things, there are four basic economic orientations: radical, social democrat, neoliberal, and fascist. The American elite and most government policy can be placed within the neoliberal category, yet there remain disagreements even among neoliberals. Some prefer expanding markets slowly and working to coopt opposition in order to maintain economic stability, others prefer a naked grab for power, pursuing a rapid increase in inequality and deregulation. There are also differences based on industry: financial capital and multinational corporations have different interests than those producing primarily for the domestic market or companies like military contractors, which thrive on international instability.

Paulson hails from that faction of the elite that prioritizes economic stability and is based in financial capital, which is the same faction that controlled the Clinton administration's economic policy. Clinton's Treasury Secretaries, Robert Rubin (also an ex-chief of Goldman Sachs) and Larry Summers (former chief economist at the World Bank), enthusiastically pursued balanced budgets, slow-moving domestic market reforms, free trade, and free movement for financial capital. The Bush administration, on the other hand, has pursued a program of rapid market reforms to the domestic economy, most obviously huge tax cuts for the richest Americans and a failed bid to privatize Social Security. It has invested little effort in the multilateral negotiations favored by the Clinton administration to help American corporations penetrate foreign markets, preferring instead unilateral trade agreements and war and occupation as market-opening mechanisms. It has given much less attention to the interests of financial capital and instead prioritized the interests of energy and military companies. And it has created an enormous budget deficit as it quickly expands military spending and cuts taxes.

All of these policies rub the more cautious wing of the neoliberal elite the wrong way. They worry that the Bush administration's aggressive approach could give rise to either economic crisis or popular opposition that would undo the gains that have been made. This is why Paulson, a solid member of their faction, is such a welcome pick.

The question is how Paulson will affect policy. He could just be window dressing meant to calm financial markets and mollify other governments, or he could significantly change the direction of policy. Two especially important areas to keep an eye on are China and energy. The cautious neoliberal faction tends to support an "engagement" policy with China, meant to profit American companies while binding China in US-dominated international economic institutions. The Bush administration has rhetorically endorsed such an approach, but led by Cheney and Rumsfeld has worked quietly to contain China with military alliances and economic pressure. In this regard the Bush administration has proved similar to the Clinton administration, which quietly laid the groundwork for China's military encirclement while speaking loudly of trade and cooperation. But the forces within the Bush administration calling for overt confrontation with China have always been stronger than under Clinton and constantly threaten to push the administration into open cold war. Will Paulson, who has worked extensively with China and explicitly endorses the engagement position, prevent a move to more robust containment?

The second issue is energy and global warming. Parts of the American economic elite are increasingly worried about the damage that global warming promises and about the uncertainty of not having a national policy on global warming. A different faction, based in fossil fuel producers and the car companies, is resolutely opposed to greater regulation. Paulson, who is also chairman of the board of the Nature Conservancy, is clearly a member of the former. The Bush administration has clearly been pursuing the demands of the latter. It will be interesting to see how this conflict plays out.

If Paulson can affect policy, should he be considered an improvement? Obviously some regulation on carbon emissions is preferable to none, balanced budgets are better than rapid redistribution from the poor to the rich, and engaging China isn't as bad as containing it. Yet all of these policies, tho less bad than the far-right alternative, are themselves fundamentally flawed. Moreover, we could argue that Clinton's approach to freeing up international trade and investment was more effective than the Bush administration's, which shows that the cautious faction isn't always to be preferred.

Regardless, the choice between two different factions of neoliberal elites is not something we should spend too much time agonizing over. Moving public debate toward social democratic (liberal) and ultimately radical policies is what we should be concentrating on, and that will only happen thru the hard work of organizing.

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