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What Planet Are Deficit Hawks Living on?
To read the papers and watch TV news during the past week, you would think that the most dire problem afflicting Americans was the federal deficit in 2020 or 2030.
But for most people, the crisis right now is lost income, lost jobs, lost homes.
And the recommendations of the two co-chairs of the fiscal commission would make the prolonged stagnation worse, by commencing belt-tightening less than a year from now, at the beginning is fiscal year 2012 (October 2011) when most economic forecasts say unemployment will still be around ten percent.
The economy is on the brink of a period of prolonged deflation. With the Obama stimulus of February 2009 already starting to peter out, state budgets in free fall, home foreclosures proceeding at the rate of several hundred thousand a month, and job creation too low to cut the unemployment rate, the outlook is for endless slump -- unless we get more public investment, not less.
The Fed's policy of resorting to the printing press and buying up Treasury bonds to keep interest rates low is having only limited effect. Housing prices, after rebounding very slightly, are falling again.
Yet even the mainstream liberal press buys this nonsense. The New York Times, which had been somewhat skeptical, ran an editorial on November 10 mostly buying the deficit hawk story. The report of the commission chairs, according to the Times:
frankly acknowledges what most politicians are too cowardly to admit -- that deficit reduction will require shared sacrifice.
It lays out sensible principles, prominent among them that deficit reduction should start gradually, beginning in 2012, to avoid disrupting the fragile economic recovery. It also affirms the need to protect the most vulnerable Americans and to invest in education, infrastructure and research and development.
Then it does what any successful deficit reduction plan must do: It puts everything on the table, including tax reform to raise revenue and cuts in spending on health care and defense. It even dares to mention the need to find significant savings in Social Security, Medicare and other mandatory programs.
This is mostly nonsense. The sacrifices in the proposed list of measures are not shared. More than two-thirds of the proposed savings are on the spending side. Repealing the Bush tax cuts, costing $4 trillion over a decade, are not on the list at all. And there is no mention of taxing financial speculation, hedge funds, or anything else that would hit the very well to do. Politicians who resist this economic perversity are not cowards. They are heroes.
While the panel may affirm rhetorically the need for social investment, it is domestic spending that takes the biggest hit. Social Security, which is in surplus for the next 27 years, is on the chopping block and does not belong here at all. America needs more retirement security, not less.
Sunday's Times compounded the sin, in front page piece of the News in Review section by economics writer David Leonhardt, inviting the reader to fix the deficit projected in the year 2030!
Why 2030? "That's the year when boomers start to weigh heavily on the budget, and it's the latest year for which experts have estimated budget costs," according to Leonhardt.
Huh? The oldest boomers turn 65 next year -- not in two decades. And the projected budget deficit in 2030 will be far more influenced by whether the economy recovers any time soon than by what cuts are imagined for 20 years in the future.
What's insidious about articles like this is that they take the premise of the deficit hawks for granted -- that the projected deficit rather than the prolonged slump is the top economic challenge.
Instead of that exercise, how about one where readers explore choices on how to get a recovery going. How to resolve the foreclosure mess? What kind of social investment to put into 21st century infrastructure? How to create jobs and get wages growing again?
If you want to get Social Security well into the black for the indefinite future, the easiest way is to restore wage growth -- since Social Security is financed by taxes on wages (which are capped so that the wealthy pay a pittance.)
What pushed Social Security (very slightly) into the red is the fact that all the income gains have gone to the top. The chairmen's draft report, with its rhetoric of equal sacrifice, gets 92% of proposed Social Security savings from cutting benefits, and just 8 percent from increasing the income ceiling on payroll taxes. Some sharing.
These people do live on another planet -- Planet Wall Street. Erskine Bowles, the Democratic co-chair, has spent most of his life as an investment banker. He began at Morgan Stanley, and now serves on its board, where he collects a fee of $335,000 a year for attending a few annual meetings. That's more than 99 percent of Americans earn for working full time.
No wonder the man is so glib about tightening other people's belts. And that's the Democratic chair.
I recently debated David Walker on CNN.
Walker, who headed Pete Peterson's billion dollar foundation that was created to promote austerity, and is now a Peterson grantee, is very coy about professing concern for the poor. His strategy is to combine devastating cuts in social outlays generally with token increases for the poorest. As I told Walker, just because a policy inflicts pain and is politically unpopular, it isn't necessarily good policy.
In the segment before mine, commentators agreed with each other that the deficit was large because politicians didn't have the courage to set aside partisan differences. But the deficit is large because of the recession itself, the Bush tax cuts, and the costs of two wars. The entire Bowles-Simpson exercise would cut less money from the projected ten-year deficit than the cost of the Bush tax cuts.
The whole austerity crusade is the work of Wall Street and of politicians who want a high-minded excuse to bash government, or who mistakenly think that the Democrats got their clocks cleaned because voters fretted about deficits. The American Prospect recently published a definitive article by two eminent political scientists, Chris Howard and Richard Valelly, titled "Deficit-Attention Disorder," demonstrating that voters are not mainly upset about deficits, but about the continuing economic calamity. The voters are way ahead of the kind of elites that populate this commission.
If the deficit-hawks get their way, that economic calamity will only deepen, and produce a deeper political setback for the Obama administration.
President Obama, who bequeathed this commission, has been encouraging its members to "set aside their partisan differences" and agree on a plan -- as if reducing the deficit had anything to do with the real challenge, namely getting a recovery going.
The best hope, in truth, is that divisions will cripple the commission, that other leaders will start turning to the real issues of economic recovery, and that President Obama will stop listening to the austerity mongers. For more detailed rebuttal to the deficit hawks, see the new website, ourfiscalsecurity.org.