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.