Will Pete Peterson's Half a Billion Bucks Buy a New Recession?

The sequester cuts added to spending cuts and tax increases already scheduled will slow growth and cost jobs, according to the Congressional Budget Office and most economic analysis. Government austerity has already contributed to the worst recovery in post-World War II history. In Europe, austerity has driven the economies back into recession, with the countries enforcing the harshest cuts suffering the most.

Why would the U.S. repeat this folly, despite warnings from the International Monetary Fund and Federal Reserve officials? Every calamity has many authors - Obama's premature turn to deficit reduction in 2009, the Tea Party zealots, a hapless and clueless Republican congressional leadership and more.

Pete Peterson's Mighty Wurlitzer

One major contribution comes from the money and monomania of Pete Peterson, a Wall Street billionaire who has committed about half a billion bucks rousing hysteria about deficits and debt. On Thursday, The Nation magazine and the Center for Media and Democracy are releasing an expose of Peterson and his latest front, the Fix the Debt coalition, with a new resource detailing the background at the center's SourceWatch.org.

Ironically, Peterson never raised a murmur about the housing bubble or the Wall Street wilding or the global trade imbalances that eventually blew up the economy, led to the Great Recession.

Peterson, Nixon's former Secretary of Commerce, says that he "has been wailing about this (debt and deficits) since 1980."

Peterson made his billions on Wall Street, taking the private equity firm Blackstone Group public, after benefiting from the obscene "carried interest tax deduction" that allows hedge fund billionaires to pay lower tax rates than their chauffeurs. (His former partner, Stephen Schwartzman, famously labeled the effort to end this obscenity as a war, the equivalent of "when Hitler invaded Poland.")

Peterson has three relentless harangues. First that the pillars of family security - Medicare, Medicaid and Social Security - pose a "catastrophic threat" to the country must be cut deeply. Peterson scorns Social Security and Medicare as providing "a publicly subsidized vacation" for "the last third or more of one's adult life."

Second, Peterson wants to move from income and corporate taxes to far more regressive consumption taxes. If he could, he'd eliminate corporate and income taxes and replace them with sales and gas and sin taxes, with adjustments to "protect the poor." At a time of extreme Gilded Age inequality, this is a recipe for hiking taxes on the middle class while lowering them on the rich.

Finally, Peterson has been warning that deficits and debt would cause a "Pearl Harbor moment" for years. Ironically, he never raised a murmur about the housing bubble or the Wall Street wilding or the global trade imbalances that eventually blew up the economy, led to the Great Recession. (He got his money out early.) Nor did the fact that the collapse came when the deficit was less than 2 percent of gross domestic product and the debt to GDP ratio was falling cause any change in his views. Instead, he has sought to use the crisis to force through his utterly unpopular views.

Peterson has thus far committed about $500 million of his fortune to the campaign on deficits, paying for a mighty Wurlitzer of propaganda.

He has funded ersatz national "town meetings," sprinkled think tanks right, center and left with grants, sponsored national conferences and events. He's seeded what the National Journal calls "a loose network of deficit hawk organizations that seem independent but that all spout the Peterson-sanction messages" on deficits - including the Concord Coalition, the Committee for a Responsible Federal Budget, America Speaks, and Comeback America.

He launched his own news service - The Fiscal Times - feeding articles to increasingly cash-strapped newspapers. He purchased both ad campaigns and the tendentious "I.O.U.S.A" documentary that received national screening. He sponsored bipartisan commissions to develop debt reduction plans, including partnering with and helping to staff and promote the President's "bipartisan commission," known for the co-chairs, Alan Simpson and Erskine Bowles.

The Drumbeat $500 Million Can Buy

Bowles and Simpson serve as co-chairs and co-founders of Peterson's latest front, the Fix the Debt Coalition, which rounded up 127 CEOs and a $60 million budget, retaining at least four major public relation firms, to drive the campaign for a "grand bargain."

Despite the consultants, "Fix" has exhibited a hilariously tin ear. They trotted out Goldman Sachs CEO Lloyd Blankfein to lecture Americans on "lowering their expectations" and accepting less in Social Security and Medicare. Who better to argue for "shared sacrifice" than the head of a Wall Street firm that helped blow up the economy and got bailed out by taxpayers while its leaders pocketed the millions they made along the way?

Blankfein was followed by David Cote, the CEO of Honeywell, calling on Americans to be responsible about funding our public pension plan. Who more qualified, as the Institute for Policy Studies pointed out in a scathing report, than a CEO with $78 million dollar personal retirement plan tucked away, while his company's employee pension plan is underfunded by $2.8 billion?

But the egregious gaffes aren't as telling as the incessant drumbeat that $500 million can buy. So last week, Fix the Debt helped trot out the tireless minstrels of austerity, Alan Simpson and Erskine Bowles, to issue dire warnings once more of the damnation to come from deficits, while peddling a new "bipartisan" plan on deficit reduction.

This plan called for even more deficit reduction over 10 years than the last plan the co-chairs promoted. (There was never a Simpson-Bowles commission plan, since the co-chairs' draft was rejected by the commission.) Instead of a one-to-one ratio of new revenue to spending cuts, the co-chairs now call for three times as much in spending cuts than in increased revenue.

But they stayed true to the Peterson principles. They would raise the eligibility age for Medicare and the retirement age for Social Security, reducing that "paid vacation." They'd cut Medicare and Social Security benefits. Tax reform would close loopholes - no doubt hitting employer-based health care plans - but use the money largely to lower top tax rates for individuals and corporations. And they call for deeper ceilings for cuts in domestic and military spending, ducking the question of what programs would take the hit.

Get The Focus Right

Following this advice would surely weaken the already faltering recovery and cost jobs. It could easily drive the economy back into recession. Simpson and Bowles and the Peterson claque ignore the fact that the deficit is already falling faster than any time since the demobilization after World War II. They admit that soaring health care costs are what drive the scary long-term debt projections. But they fail to note that the rise of these costs has already slowed. The Congressional Budget Office has already reduced the projected costs of Medicare over the next decade by more than the cuts demanded in the original Simpson-Bowles report.

What we need is a focus on putting people back to work, and a strategy to make this economy work for working people. And continued efforts to fix our health care system - starting with using Medicare's purchasing power to lower prescription drug prices, or by setting up a public option in Obamacare to compete with private insurers and limit their rip-offs.

Instead, Pete Peterson's $500 million has helped to focus America on how to "fix the debt" rather than how to fix the economy and put people to work. And he's redoubling his efforts to make America's most vulnerable - its seniors, its disabled, and its retired veterans - pick up the tab for cleaning up Wall Street's mess. And if he gets his way and forces a "grand bargain" and even harsher austerity, his $500 million just may end up purchasing a new recession.