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Published on Tuesday, August 5, 2008 by The Providence Journal

Money Over Morals: Obama's the Candidate of the Hedge-Fund Partners

by John R. MacArthur

Among the several unpleasant outgrowths of the Obama-Clinton death duel, perhaps the most disturbing was the widespread perception that the junior senator from New York was more attuned to the cares and hardships of the working class than her chic counterpart from Illinois.

I still don't understand how anyone could have overlooked the damage done to blue-collar America by the former first couple's stalwart commitment to "free trade" -- in the form of NAFTA and permanent "normal" trade relations (PNTR) with cheap-labor China -- but evidently many did, particularly in states like Ohio, West Virginia and Pennsylvania. Every time Hillary told the story of her grandfather toiling in a lace factory in Scranton I wished some comedian would say: "My grandfather sweated and suffered so much in that lace mill that Bill and I vowed that no one in Pennsylvania would ever again have to work in a factory. With NAFTA and PNTR our dream has been realized!"

But Hillary couldn't have gotten away with such hypocritical nonsense without Barack Obama providing her a pass on class, the great unmentionable in a country that pretends that everyone is born equal and anyone can become president. For all his supposed concern about regular folks, Obama's sympathy for the beleaguered people who still do manual labor remains suspect, while his willingness to appease the wealthy elites who preach the benefits of "free markets," low taxes and job-destroying trade bills appears entirely sincere.

Granted, Obama has made a few gestures toward reducing the vast gap between the lower-middle class and the richest 1 percent of Americans, who now possess about 22 percent of the nation's wealth (the top 10 percent control 48.5 percent). In August 2007, for example, he co-sponsored, with Democratic Senators Sherrod Brown, of Ohio, and Dick Durbin, of Illinois, the Patriot Employers Act, which would give a 1 percent tax credit to employers who, among other things, hired more American workers and paid their employees at least $7.80 an hour. Around the same time, pressed by his populist rival John Edwards, Obama also said he would support legislation to treat the income of hedge-fund managers as regular personal income, instead of the current practice of taxing it at the capital-gains rate of 15 percent. Meanwhile, the presumptive Democratic nominee has proposed restoring the top income-tax rate to the Clinton era's 39.6 percent from its current 35 percent.

But these measures are just a few raindrops on a scorched earth of class bias fomented by every president since Ronald Reagan. Obama's campaign autobiography, The Audacity of Hope, is stunningly frank about his affinity with wealthy donors during his Senate campaign in 2004: "Increasingly I found myself spending time with people of means -- law firm partners and investment bankers, hedge fund managers and venture capitalists. As a rule, they were smart, interesting people, knowledgeable about public policy, liberal in their politics, expecting nothing more than a hearing of their opinions in exchange for their checks."

If you think that this passage is merely foolish, you're missing the point. The Audacity of Hope is carefully calculated to present Obama as a non-threat to the big-money interests that pay for campaigns. Even so, Obama tries to have it both ways: "On core issues," he writes, "I was candid; I had no problem telling well-heeled supporters that the tax cuts they'd received from George Bush should be reversed."

But it's easy to be candid when you're talking about proportionately so little money: a 4.6 percentage-point increase in an investment banker's income tax to a hardly confiscatory 39.6 percent (the top marginal rate remained over 90 percent until 1964) won't make much of a dent. As Obama notes, "My own worldview and theirs corresponded in many ways -- I had gone to the same schools, after all, had read the same books, and worried about my kids in many of the same ways." Thus, "I know as a consequence of my fund-raising I became more like the wealthy donors I met, in the very particular sense that I spent more and more of my time above the fray, outside the world of immediate hunger, disappointment, fear, irrationality, and frequent hardship of the other 99 percent of the population."

Flying "above the fray" (as a new senator Obama rode 23 times in corporate planes before halting the practice) is precisely what has let Obama raise so much money from the likes of Goldman Sachs, JPMorgan Chase and Citigroup.

With friends like Robert Rubin (now of Citigroup, late ruler of the Clinton administration's Treasury Department), Obama can afford to condescend to the laid-off Maytag workers of Galesburg, Ill., their jobs moved to dollar-an-hour Mexico. Sad though it may be, he writes, it's "hard to deny Rubin's basic insight: We can try to slow globalization but we can't stop it." Such clichéd thinking is one reason that the Employer Patriot Act is languishing in the Senate Finance Committee; it's why Obama proposes only tinkering with NAFTA, and why he barely addresses China, whose vast pool of low-cost labor is the far greater problem for American workers.

Meanwhile, Obama has stopped talking about making hedge-fund managers pay income tax on their partnership income at the same time as he proposes to increase the capital-gains rate to 25 percent. This is tactically clever, since it sends a friendly signal to the hedge-funders, while suggesting to progressives that he's no pushover for Wall Street. At 25 percent, those "smart" and "interesting" financial touts would still be paying far less tax on their hedge-fund income than if they had to pay the top income-tax rate. So far, Obama has outraised John McCain among employees of hedge funds $822,000 to $348,000 -- this although John McCain wants to leave the capital-gains rate at 15 percent and opposes treating hedge-fund partner income as personal income. But there's a money logic to this seeming incongruity: Hedge-funders specialize in predicting winning investments, and the accommodating Obama looks like a better bet than the more honestly pro-plutocrat McCain.

Obama spends so much time courting the rich that I'm not surprised that James Webb has removed himself from consideration for vice president. Webb is the most articulate Senate critic of America's class divide. "The most important -- and unfortunately the least debated -- issue in politics today is our drift toward a class-based system, the likes of which we have not seen since the 19th Century," he wrote two years ago. Webb understands that class stratification is aggravated not only by tax and trade policy but also by public schools that serve increasingly as holding pens for students who can't afford better private or parochial education. Attendance at an elite private school or university, as Obama well knows (and his Ph.D. mother appreciated), is one of the greatest aids to upward mobility in America today, as well as the best guarantee, along with a low inheritance tax, that people of means will maintain their children in the economic status they've become accustomed to.

Webb's bald rhetoric about "robber barons" and "class struggle" might have proven inconvenient for the boy wonder from Chicago when he was at a fundraiser on Park Avenue. But if Obama's candidacy fails, it might be Webb, and not Hillary, who picks up the pieces in 2012. Obama was right when he said that small-town, low-paid Americans are "bitter" about the broken promises of politicians. With "Democrats" like him and the Clintons leading the country, these left-out citizens might finally turn really angry.

John R. MacArthur, a monthly contributor, is publisher of Harper's Magazine and author of the forthcoming book, You Can't Be President: The Outrageous Barriers to Democracy in America.
© 2008 , Published by The Providence Journal Co.

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