E.J. Dionne comes out today and says yes, populism works!

The sound you are hearing in response to the AIG payoffs — excuse me, bonuses — is the rancorous noise of their arrogance crashing to earth.

Yet there is much hand-wringing that this populist fury is terribly perilous, that the highfliers who could not control their avaricious urges have skills essential to repairing the damage they caused in the first place.

Beware populism, we are told. Honor those AIG contracts. Forget about any moral reckoning and just fix the economy.

This view is wrong on almost every level, especially about populism.

Huey Long, 1935

Huey Long, 1935

Dionne is referring in part to some of his own Post colleagues, liberals who regard the populist outrage against AIG with disdain. And he’s right that their argument – that Congress and the Obama administration should swallow their outrage, forget the bonuses and move on because “the law’s the law” – does indeed seem not only politically unwise, but far from the realist, pragmatic course they think it is. Politics isn’t just about making bureaucratic gears mesh, delivering services, and the like. Political leadership is about justice, equity, morality.

In America, capitalism has been effectively divorced from either concept for the past generation because, well, it was a huge cash cow and thus ideologically unassailable. But as Dionne points out, that masked a lot of problems, both practical ones and political ones. Today’s outrage isn’t just about some bonuses (a pittance in the overall scheme of what’s going on) but an expression of anger and frustration at the ridiculousnessness of this business as usual approach. And hence, entirely legitimate as a political and policy issue. The idea that the law is the law and the bonuses are untouchable is absurd. The “law” under fire in this case isn’t the provisions of contracts (which are, of course, almost always conditional and negotiable one way or another). It’s the ridiculous system of compensation that has enriched the financial sector beyond anyone’s wildest imagination and put us all in the ditch.

Populism can be ridiculous, an appeal to emotion to move votes (Joe the Plumber, or the technocratic Al Gore’s 2000 stump appeal, “the people vs. the powerful”). Now, though, it can be an effective fuel for reform. However, it doesn’t look like the Obama administration, which clearly regards the issue as a headache and distraction, intends to exploit it as such, which seems a misreading of the public mood.

During his failed – but seminal – 1976 run for president, Ronald Reagan popularized the idea of the “welfare queen”: a Chicago inner-city resident living it up by defrauding the government’s poverty programs. “She has fifteen names, thirty addresses, twelve Social Security cards and is collecting veteran’s benefits on four non-existing deceased husbands,” he declared in one speech. “And she is collecting Social Security on her cards. She’s got Medicaid, getting food stamps, and she is collecting welfare under each of her names.”

Reagan’s welfare queen was an ugly and not-very-coded racist symbol, and as presented, a gross exaggeration of the actual problem (the budgetary impact of welfare fraud was quite small). But it still resonated among a public that had grown skeptical the federal government’s long reach. There was a lot of social dysfunction in America’s cities, and the nation was effectively subsidizing it. Eventually, under Bill Clinton, welfare was overhauled: time limits and work requirements were imposed. The welfare rolls shrank and the issue faded (even if poverty did not).

But it’s still hard to underestimate the damage that Reagan’s potent political symbolism did to the Democratic Party, which only now, more than 30 years later, seems to have recovered from it. Reagan and the then-resurgent Republican Party used welfare as a cudgel to destroy the Democratic governing majority, which then depended on an uneasy alignment between African Americans and culturally conservative middle- and lower class white voters. Suddenly, the interests of these two groups were placed at loggerheads. “Reagan Democrats” in the beleaguered industrial Midwest abandoned the party of their parents. And the South, once a Democratic redoubt, went almost completely Republican in a generation.

AIG’s credit default-swap writers and executives are today’s version of Reagan’s welfare queen: a symbol of an era’s bad bets. And, unlike welfare, which was a small program that became a proxy for a lot of brewing social resentments, AIG’s transgressions are having significant impacts on the budget and economy. Aid to Families with Dependent Children, the principal federal welfare program, cost about $25 billion per year, and whatever its flaws, addressed an endemic problem. The taxpayers are already on the hook for $170 billion for AIG, whose excesses arguably didn’t have to happen. Moreover, people scamming the welfare system were often caught and prosecuted. AIG executives’ scam is written into their contracts.

I’m not a big fan of populism, whether it’s the cultural variety favored by Republicans or the economic outrage Democrats prefer. But the AIG bonuses, and the unapologetic attitude of the company’s executives, are indisputable outrages. No one who has a hand in plunging the world economy into a horrendous tailspin should then be handsomely rewarded by the U.S. government for his trouble. Obama’s technocratic approach to governing is refreshing after the policy-poor Bush years. But his and his aides’ apparent, un-Reagan-like diffidence toward AIG is baffling. This is one of those times when we need a president to be a politician first, one who’s willing to inconvenience the technocrats for the greater principles at stake.

Obama may be fumbling, but it’s the GOP that will suffer long-term damage here. Republicans may protest they have no interest in helping AIG or bailing out the banks. Just as welfare divided the Democrats, corporate welfare for failed banks and their insurers threatens to sunder the already-fragmenting Republican coalition. It’s a basic rule of small-d democratic politics: Whether you’re an insurance executive or a welfare recipient, if people who are struggling economically believe you are absconding with their hard-earned tax dollars, watch out.

The political genius of Reagan-era Republicanism was to align the interests of the business class with those of the working class, leaving the Democrats to tend to the needs of the poor and economically marginal, whose very lack of success was a political negative. The GOP’s basic principles – that government is the problem, never the solution, that regulatory oversight kills growth, that the rich, as the engine of that growth, should be endlessly rewarded – today read like a list of bullet points for “how to destroy prosperity.” And the ranks of the economically marginal – of people who now have little reason to believe they will get rich and every reason to hope for government aid – are growing.

Follow

Get every new post delivered to your Inbox.