Populist attacks gain political traction

WASHINGTON (Fortune) -- In making the case that the conservatives running Washington are philosophically bankrupt, liberal think-tanker Robert Kuttner yesterday offered up the example of the 38-year-old hedge fund manager who earned $1.4 billon in one year. In Kuttner's mind, when government lets the market roam free, obscene wealth - or worse, systemic corruption - are both inevitable.

"Let me retract the word 'earn'," he quickly added in a reference to the hedge fund salary. Kuttner squared off yesterday with Weekly Standard editor Bill Kristol to debate the loaded subject title: "Can conservatives be trusted to govern?" And while Kuttner pointed across a bleak landscape littered with alleged conservative failures - from the Iraq war to Katrina incompetence - he repeatedly returned to America's rich-poor gap, pointing to the "failure of financial elites who ought to know better."

It's a sound that corporate chieftains ignore at their own peril. Granted, Kuttner hails from the left of the political spectrum, a corner where centrist Clinton Treasury Secretary Robert Rubin is reviled as much as Ronald Reagan. At the name of Citigroup's (Charts, Fortune 500) Rubin yesterday, this ballroom audience - brought together by the liberal Campaign for America's Future - erupted into boo's.

But the Kuttner brand of populism has gained traction on Capitol Hill (where Virginia Senator Jim Webb denounced today's "robber baron" era during the Democrats' rebuttal to Bush's State of the Union speech) and on the presidential campaign trail (where John Edwards sits atop Iowa polls on the strength of his "haves-versus-have-nots" campaign).

Keep in mind, too: Liberal-left groups are now well-financed and top the lists of big-dollar campaign donors. But the populist winds are blowing across the aisle as well. At last night's Republican presidential debate, former Arkansas Governor Mike Huckabee - a well-respected long-shot - took aim at "the CEO who takes a $100 million bonus to take these jobs somewhere else." A new Gallup poll found that nearly half of Americans want to tax the rich more heavily in order to redistribute wealth, a higher percentage than in Depression-era 1939 (when Fortune magazine commissioned a poll on the same question).

The deep unpopularity of the Bush White House has given new life to a populist sentiment that seemed moribund during the high-flying dot-com economy of the Clinton '90s. "For the first time in a long time, we have a tail wind behind us," said Kuttner.

In this atmosphere, there's not much room for distinguishing between a jailed Enron executive and the Wall Street trader raking in hundreds of millions. Either way, the 911 call goes out for government to step in and right perceived wrongs. "Principled attacks on regulation" lead to crimes like Enron, Kuttner insists. In other words, he argues, free-market conservatism leads to "systematic corruption."

In the early 90s, free-market-embracing conservatives held center stage. I remember it well, because that was when I started writing a book, Gang of Five, that chronicled the rise to power of baby-boomer conservatives such as Kristol. When I first met Kristol, he was running the audaciously named "Project for a New American Century" and loudly contributing to the infamous downfall of Hillary Clinton's healthcare plan. Life couldn't get much better.

Now, with the Iraq war that Kristol and other neoconservatives advocated in danger of failing, thinkers on the right are on the defense. On domestic economics, they can point to a strengthening economy, but the income gap still nags. At yesterday's debate, Kristol tried to muscle past the Bush's problems by taking the long view of the modern conservative movement he helped found: Did anyone really want to return to the pre-Reagan '70s of stagflation and bloated bureaucracy? Free market ideas, adopted in developing countries like China and India, are lifting millions out of poverty. "The left can't roll much of that back," he insisted.

Tellingly, though, even conservative thinkers such as Kristol are revisiting their reliance on free-market solutions, with an implicit acknowledgment that too many Americans are being left out of this era of corporate wealth. They call themselves "Sam's Club Republicans," a phrase coined by Minnesota Governor Tim Pawlenty - profiled in the current Weekly Standard - to capture a growing view among some conservatives that government needs to lead the way towards filling gaps for low-wage workers on health insurance, prescription costs and tax burdens. In a less politically-charged Washington, that way of thinking might meet populist-minded liberalism somewhere in the middle.

But for right now, Kuttner is the one gloating, while Kristol is left stammering that the Bush White House "has not been the most competent administration."