The truth is that $450 million is just a drop -- an acidy, splashy drop -- in the bucket. The recovery of the American economy can survive the legal formalism, or greed, of AIG. The political system, in contrast, seems to be momentarily paralyzed by it. And that's ok. AIG, a company that most Americans still don't understand, has become a symbol of what caused the current crisis and now a focal point of populist anger about its resolution.
The emotional core of American populism is political resentment. During the major populist frissons of American history - Jacksonian-era democracy, the Grange movement against railroad monopolies, the urban social reform movements, the type of resentment has swayed between two poles; at times, large segments of society arrayed themselves the moneyed interests who had access to capital and political power. At other times, they seemed to resent the fact that these interests used their privileged means and positions to manipulate government to their advantage. (There is a third variant -- conservative pseudo-populism, which takes aim at the country's cultural elite - but which is not important for the sake of this discussion.)
Today's Financial Collapse Populism is fairly easy to define: Americans, believing as always in their ability to get ahead by virtue of their talent and effort, are angry that the culprits of the economic downturn refuse to accept responsibility for their actions and more importantly, refuse to share the pain, both financially and symbolically. What worries the Obama administration is that the public will blame the government for failing to ameliorate this political inequality; indeed, how naked were the emperors this weekend as they admitted that there's really nothing they can do to prevent AIG from fulfilling its legal obligations to the derivative traders?
Modern populists--think David Sirota, Robert Reich, John Edwards - even Pat Buchanan and Ron Paul--disagree about the wisdom of wealth distribution, but they agree that the fundamental moral disparity at the heart of the American political system is that wealthy interests have unequal access to power and use that access to gain at the expense of everything else.
Barack Obama heads a government that Americans find to be totally inadequate to the challenge of shaming and spreading out the pain. First, he's working on the shame: though he promised today to use every "legal avenue" available to prevent AIG from fulfilling its bonus contracts, and though the Treasury might indeed find some legal loophole, the power of Obama's words - the choice of his attention - will probably force AIG to reconsider its position. The sunburst effect of presidential shame works when it is judiciously applied.
Then comes government reform. Obama will never be confused for a populist, but he certainly came to understand the appeal of that emotion during his campaign. Like other presidential candidates, he noticed that Americans simply didn't believe that government could tackle systematic sources of stress, like health care; restoring faith in American government became a core part of his platform.
Fortunately for him, the Bush administration had done everything in its power to discredit government over the past eight years, so the bar is set low. Most obviously, Bush failed to govern competently; less obviously, he communicated a disdain for government intervention in the economic sphere but applied this principle schizophrenically -- dramatically expanding (with no appreciable results) government's role in education, signing into law a huge new Medicare entitlement, and more. Aside from a prosaic attempt to have it both ways on campaign finance legislation and his hand being forced by the collapse of Enron, Bush had no taste for systematic reform.
If Obama succeeds in restoring Americans' faith in government, will it be because he was able to pass his health care form or change the way Americans get their energy? Or is it more important that Americans come to believe that government can get the small things right, like making sure that derivative traders don' get rewarded for jeopardizing the economy. The tough part, ironically, is that the smaller stuff requires more government intervention than even Obama is willing to countenance.
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