Two years into the Obama presidency and the economic data is still looking grim. Don't be fooled by the gyrations of the stock market, where optimism is mostly a reflection of the ability of financial corporations -- thanks to massive government largesse -- to survive the mess they created. The basics are dismal: unemployment is unacceptably high, the December consumer confidence index is down, and housing prices have fallen for four months in a row. The number of Americans living in poverty has never been higher, and a majority in a Washington Post poll said they were worried about making their next mortgage or rent payment.
In a parallel universe lives Peter Orszag, President Barack Obama's former budget director and key adviser, who even faster than his mentor, Robert Rubin, has passed through that revolving platinum door linking the White House with Wall Street. The goal is to use your government position to advance the interests of your future employer, and Orszag and Rubin's actions in the government and then at Citigroup provide stunning examples of the synergy between big government and high finance.
As Bill Clinton's treasury secretary, Rubin presided over the dismantling of Glass-Steagall, the New Deal legislation that would have prohibited the creation of the too-big-to-fail Citigroup. He was rewarded with a $15-million-a-year job at Citigroup, where he became a leader in the bank's aggressive move into high-risk ventures. An SEC report in September claimed that Rubin as Citigroup chairman was aware that the bank failed to disclose $40 billion it held in subprime mortgages before the collapse.
During those years at Citigroup, Rubin financed the Brookings Institution's Hamilton Project, an economic policy program, and named Orszag, a Clinton economic adviser, as its director. The Hamilton Project continued to celebrate Rubin's deregulation philosophy up to the point of utter embarrassment. Clearly, Orszag is not easily embarrassed, for upon taking his new job recently he boasted "I am pleased to be joining Citi, with its unmatched global platform and dedication to providing clients with service and advice."
The most damning comment on this corrupt syndrome was offered by former Citigroup co-chief executive John Reed, who had worked with Rubin to get Glass-Steagall reversed and now is a sharp critic of the result. "We continue to listen to the same people whose errors in judgment were central to the problem," Reed told Bloomberg News. "I'm astounded because we basically dropped the world's biggest economy because of an error in bank management." Reed estimated that the financial deregulation proposals contained in the Dodd-Frank bill and other reforms of the Obama administration represent only 25 percent of the change needed.
The failure to provide serious regulation of the financial industry to avoid future downturns is documented in devastating detail in that Dec. 28 Bloomberg report, written by Christine Harper:
"The U.S. government, promising to make the system safer, buckled under many of the financial industry's protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives."
The reason for that failure is obvious from the president's choice of advisers featuring Rubin acolytes from the Clinton years. Harper writes: "While Obama vowed to change the system, he filled his economic team with people who helped create it," referring to, among others, Timothy F. Geithner, who had gone from the Clinton Treasury Department to head the New York Fed, where he presided over the salvaging of Citigroup and AIG. As Obama's treasury secretary he was quick to appoint a Goldman Sachs lobbyist as his chief of staff. Geithner's subservience to Wall Street was reinforced by White House top economic adviser Lawrence Summers, Rubin's deputy and then replacement in the Clinton administration who pushed through the repeal of Glass Steagall and fought against the regulation of derivatives.
And with the decisive assistance from both a Republican and Democratic president, all has worked out just as planned for the banks. Harper reports: "The last two years have been the best ever for combined investment-banking and trading revenue at Bank of America Corp., JPMorgan Chase & Co., Citigroup, Goldman Sachs Group Inc., and Morgan Stanley, according to data compiled by Bloomberg."
It's all wonderfully bipartisan. Recently it was announced that Carlos Gutierrez, commerce secretary under George W. Bush, had been named to a high position at Citigroup. For President Obama, there's no cause for worry about the loss of indispensable talent from his administration. Orszag's replacement as head of the Office of Management and Budget, Jacob J. Lew, was both a member of Rubin's Hamilton Project and a former Citigroup executive -- thus insuring that government of the banks, by the banks, for the banks shall not perish from the earth.
You're probably reading this on junk. And I'm not talking about newsprint - industry woes aside, that's high-quality stuff. But if you're on a computer or an iPad, and you're not plugged into an Internet jack in the wall? Junk, then.
But it's not your MacBook or your tablet that's so crummy. It's the spectrum it's using.
Spectrum, in the words of FCC Chairman Julius Genachowski, is the economy's "invisible infrastructure." It's the interstate system for information that travels wirelessly. It's how you get radio in your car, service on your cellphone and satellite to your television. It's also how you get WiFi.
But not all spectrum is created equal. "Beachfront spectrum" is like a well-paved road. Lots of information can travel long distances on it without losing much data. But not all spectrum is so valuable.
In 1985, there was a slice of spectrum that was too crummy for anyone to want. It was so weak that the radiation that microwaves emit could mess with it. So the government released it to the public. As long as whatever you were doing didn't interfere with what anyone else was doing, you could build on that spectrum. That's how we got garage-door openers and cordless phones. Because the information didn't have to travel far, the junk spectrum was good enough. Later on, that same section of junk spectrum became the home for WiFi - a crucial, multibillion-dollar industry. A platform for massive technological innovation. A huge increase in quality of life.
There's a lesson in that: Spectrum is really, really important. And not always in ways that we can predict in advance. Making sure that spectrum is used well is no less important than making sure our highways are used well: If the Beltway were reserved for horses, Washington would not be a very good place to do business.
But our spectrum is not being used well. It's the classic innovator's quandary: We made good decisions many years ago, but those good decisions created powerful incumbents, and in order to make good decisions now, we must somehow unseat the incumbents.
Today, much of the best spectrum is allocated to broadcast television. Decades ago, when 90 percent of Americans received their programming this way, that made sense. Today, when fewer than 10 percent of Americans do, it doesn't.
Meanwhile, mobile broadband is quite clearly the platform of the future - or at least the near future. But we don't have nearly enough spectrum allocated for its use. Unless that changes, the technology will be unable to progress, as more advanced uses will require more bandwidth, or it will have to be rationed, perhaps through extremely high prices that make sure most people can't use it.
The FCC could just yank the spectrum from the channels and hand it to the mobile industry. But it won't. It fears lawsuits and angry calls from lawmakers. And temperamentally, Genachowski himself is a consensus-builder rather than a steamroller.
Instead, the hope is that current owners of spectrum will give it up voluntarily. In exchange, they'd get big sacks of money. If a slice of spectrum is worth billions of dollars to Verizon but only a couple of million to a few aging TV stations - TV stations that have other ways to reach most of those customers - then there should be enough money in this transaction to leave everyone happy.
At least, that's some people's hope. Some advocates want that spectrum - or at least a substantial portion of it - left unlicensed. Rather than using telecom corporations such as Verizon to buy off the current owners of the spectrum, they'd like to see the federal government take some of that spectrum back and preserve it as a public resource for the sort of innovation we can't yet imagine and that the big corporations aren't likely to pioneer - the same as happened with WiFi. But as of yet, that's not the FCC's vision for this. Officials are more worried about the mobile broadband market. They argue (accurately) that they've already made more beachfront spectrum available for unlicensed uses. And although they don't say this clearly, auctioning spectrum to large corporations gives them the money to pay off the current owners. But even so, they can't do that.
"Imagine someone was given property on Fifth Avenue 50 years ago, but they don't use it and can't sell it," says Tim Wu, a law professor at Harvard and author of "The Master Switch." That's the situation that's arisen in the spectrum universe. It's not legal for the FCC to run auctions and hand over some of the proceeds to the old owners. That means the people sitting on the spectrum have little incentive to give it up. For that to change, the FCC needs Congress to pass a law empowering it to compensate current holders of spectrum with proceeds from the sale.
One way - the slightly demagogic way - to underscore the urgency here is to invoke China: Do you think it's letting its information infrastructure stagnate because it's a bureaucratic hassle to get the permits shifted? I rather doubt it.
Of course, we don't want the Chinese system. Democracy is worth some red tape. But if we're going to keep a good political system from becoming an economic handicap, there are going to be a lot of decisions like this one that need to be made. Decisions where we know what we need to do to move the economy forward, but where it's easier to do nothing because there are powerful interests attached to old habits. The problem with having a really good 20th century, as America did, is that you've built up a lot of infrastructure and made a lot of decisions that benefit the industries and innovators of the 20th century. But now we're in the 21st century, and junk won't cut it anymore.
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