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It seems President Obama is once again capitulating to moneyed interests, (it's a good thing they agreed to lower the estate tax rate, rich people were refusing to die!) but is this so surprising?

Obama is not as dishonest or cowardly as many have accused him of being. He simply has a Hope that has no basis in reality...

Obama hopes that both FIRE (Finance, Insurance, Real Estate) or euphemistically "Wall Street" can maintain it's current power, influence and share of the economy AND the middle class or euphemistically "Main Street" can also recover and prosper. That the pie can grow enough for Wall Street to take it's cut and Main Street can still be feed. This is unfortunately a false hope.

It is not a coincidence that the rise of Wall Street has paralleled completely and perfectly the decline of Main Street. Contrary to popular belief, real wages have not increase since the 1970s and while the rich have indeed gotten richer the poor have gotten relatively poorer and objectively stagnated. This is a direct result of the Neoliberal policies initiated in the late 70s and 80s most notably by Margaret Thatcher and Ronald Reagan.

The "boom" as realized by the middle class in the 80s and 90s was mostly credit expansion; easy mortgage loans, refinancing and credit cards - not gains by wages despite productivity increases. Instead of getting wealthier the middle class stagnated and lived better off of borrowed money. This gave the illusion of progress coupled with genuine technology gains which improved the quality of life.

But the central problem with Neoliberal policy is occurring again, it doesn't work. Freeing finance capital and liberalizing trade doesn't build economies it wrecks them. While Wall Street runs wild speculating REAL industry is crippled by the rents Wall Street extracts. To keep the game going more capital must be injected into the casino, so after deregulation comes privatization (Social Security here Wall Street comes).

Beyond the expansionary aspects, is the instability. This instability creates massive wealth inequality as speculators on Wall Street take on excessive risk and profit handsomely from doing so, but then the system collapses from the bubble destroying much of the wealth created and recently leading to a bailout or leveraging the public's (middle class') credit, as Bernanke and Bush/Obama have done and are doing.

But what is Obama hoping to do by "stabilizing" the financial system? He's hoping that by recreating the same economic system that just blew up there will be a return to prosperity...but there was no actual prosperity under that system for the middle class.

The greatest period of prosperity in world and U.S history was 1950-1973 the so called "Golden Age of Capitalism" which included the Bretton Woods system (that Nixon killed) and income taxes with the top bracket hovering around 90%. High taxes don't hurt growth and the growth of this period has not been seen since.

Instead of falsely hoping that the same actions will produce different results, Obama needs to make changes, changes many people thought he promised to make.

Originally posted to FIREeconomy on Tue Dec 07, 2010 at 09:01 AM PST.

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