Deficit Reduction: The Great Distraction

Tuesday, May 15, 2012 by Common Dreams

by Dean Baker

 

 

This is the week of the third annual Deficit Fest, the event sponsored by Wall Street billionaire Peter G. Peterson. At this event, many of the people most responsible for the current downturn come together to tell us why we should be worried about the deficit at a time when 45 million people are unemployed, underemployed or have given up looking for work altogether and millions face the prospect of losing their homes.

Past deficit fests included exchanges where Peter Peterson and former Treasury Secretary and Citigroup honcho Robert Rubin mused about their comparative net worth. We also got to witness President Clinton bemoan the fact that the Democratic and Republican leadership in Congress teamed up to prevent him from cutting Social Security. Had Clinton gotten his way, millions of seniors would be getting by on Social Security checks that are more than 10 percent smaller than what they now receive.

Peterson is also known for his sponsorship of the "Economic Sleepwalk" tour, which was officially billed as the "Fiscal Wakeup" tour. This involved sending a group of policy wonks around the country to complain about the budget deficit at a time when the housing bubble was growing to ever more dangerous levels. While some of us were doing our best to warn of the imminent disaster, Peterson was using his money and political connections to dominate media space at a time when the country's debt-to-GDP ratio was actually falling.

But why harp on the past? We should be focused on the future.

And one of the items that this group would like to see in our future is a deficit deal like the one proposed by Erskine Bowles and former Senator Alan Simpson, the co-chairs of President Obama's deficit commission. (The Bowles-Simpson plan is inaccurately referred to on the commission's website as a report of the commission, ironically on a page titled "Moment of Truth." In fact, it is only the report of the co-chairs since it did not receive the 14 votes needed to be approved as an official report of the commission.)

This plan includes a wide range of budget cuts, including cuts to Social Security and Medicare. It would reduce the annual Social Security cost-of-living adjustment by 0.3 percent, which would lower lifetime benefits by an average of more than 3 percent. It would also raise the retirement age for Social Security. To balance these cuts to programs that benefit tens of millions of ordinary workers, Bowles and Simpson would cut the corporate tax rate from 35 to 28 percent and would lower the tax rate paid by the very wealthy from 40 percent to 28 percent. While these reductions in tax rates are supposed to be offset by the elimination of loopholes that benefit the wealthy, people have good cause for skepticism.

If these policies seem out of step with the interests of ordinary workers, it should not be surprising given their parentage. Erskine Bowles in particular could be the poster boy for everything that is wrong in national politics today. Bowles rose to become chief of staff in the Clinton White House in the 90s. He then twice competed unsuccessfully for Senate seats in North Carolina. As a consolation prize he became the President of the University of North Carolina.

Since it is hard to make ends meet on a university president's salary these days, Mr. Bowles also did a little bowling for dollars. He moonlighted as a director on corporate boards, serving stints at Morgan Stanley, the huge Wall Street investment bank, General Motors (until it went bankrupt), and most recently Facebook.

Being a director on a corporate board typically involves attending 4-8 meetings a year. For this, directors receive several hundred thousands of dollars in compensation. For example, in 2008 Erskine Bowles received $335,000 in compensation for his work on Morgan Stanley's board.

This year is noteworthy because Morgan Stanley's dealings in mortgage-backed securities brought it to the edge of bankruptcy in the fall of 2008. It was only saved from disaster by the generous intervention of Ben Bernanke. He allowed the bank to change its status in the middle of the post-Lehman crisis, and become a bank holding company. This gave it the protection of the Fed and the FDIC.

Given this near brush with death, shareholders might ask what Mr. Bowles did for the $335,000 that we paid him. "We" is appropriate in this sentence, since much of the public has a stake in Morgan Stanley either through an index fund in a 401(k) that likely holds some of the company's stock or the defined benefit pensions that most state and local governments still have for their workers.

In fact, we should be asking this question of directors more generally. When shareholders voted "no" last month on the pay package of Citigroup's CEO, Vikram Pandit, they were saying that the company's well-paid board was not doing its job. These directors were getting paid $250,000 each year for just a few days' work. Their job is precisely to prevent such outlandish pay packaged for top management.

The failure of these highly paid directors is a major national problem. Their compensation looks more like payoffs than paychecks. After their palms get greased, they look the other way when the CEOs walk away with tens or even hundreds of millions of dollars of the shareholders' money. And the outsized pay of the CEOs corrupts pay scales throughout the economy. Even heads of charities can now command pay packages in excess of $1 million a year.

Anyhow, when we hear Erskine Bowles and his friends rant about the deficit this week, we should remember that once again they are distracting the public from the country's real problems. And this crew is at the center of those problems; it is not the solution.

Don’t Blame America’s Debt Crisis on Social Security and Medicare...

Monday, May 30, 2011 by ThisCantBeHappening
...Especially on Memorial Day
by Dave Lindorff

Amid all the nonsense and gobbledegook that has been written about banking industry and about the economic slump during the last four years of the global financial crisis, New York Times reporter Gretchen Morgenson has stood out both for the clarity of her analysis, and for her willingness to go after the guilty parties in the political and especially the banking system, naming names and calling it as she sees it.

So it was kind of disappointing--even shocking--to read her latest article reporting on a new “study” by Peterson Institute for International Economics Senior Fellow Joseph Gagnon, warning about the nation’s growing debt crisis.

The Peterson Institute, founded by Wall Street tycoon Peter Peterson, has long been gunning for the Social Security and Medicare systems, which he, and the rest of the Wall Street gang, see as unfairly competing with Wall Street for the assets of the public, and as destructive of the “free market.”

Peterson’s basic schtick is that the two critical support systems for the elderly and infirm are going to bankrupt the country as they pay out benefits that exceed what retirees paid into the system, and that the solution is to cut back on those benefits, increase the taxes collected, or better, to privatize both systems.

Given Peterson’s and his institute’s long-standing agenda to gut Social Security and Medicare, it’s not surprising that Gagnon, as a fellow there, would say the solution to the nation’s growing debt is to either raise taxes or cut those two hugely successful, critically important and broadly popular social programs.

Morgenson is too smart not to know better, and yet not once in her article did she look outside of Gagnon’s narrow definition of the problem at the real cause of the national debt: the country’s outlandish military budget and a decade of unfunded wars, which have been piling up debt at a rate of some $150 billion a year (and that’s just the principal!). Repeal the Bush Tax cuts for the wealthy and prosecute corporate tax dodgers (about 80% of all US Corporations), and we could be looking at a budget surplus, all things considered.

After all, the country has been piling up this debt for several decades, and especially over the last decade, but during all this time, Social Security and Medicare have been paying out their benefits from current dedicated payroll taxes and by drawing on the trust funds that had built up because of the years that more was being collected than paid out in benefits.

Get the point? Nobody, including Gagnon, Morgenson or the Social Security and Medicare-hating members of Congress like Rep. Paul Ryan (R-WI), will acknowledge the fact that not one dime of the huge US deficit has been caused by a benefit check paid by Social Security or Medicare.

It’s the wars, stupid! (and the tax cuts and the tax evasion)

If the US would just cut its military spending down to size, instead of spending as much as the rest of the world combined on war or preparing for war--say by 75%--it would free up more than $450 billion a year that could go towards funding things like improved education, research into alternative energy, improving health care access, and paying down the deficit, too. Toss in cuts in the outsized $40+ billion annual secret intelligence budget, in the nation’s obsolete and dangerous nuclear weapons program and other ancillary military-related expenditures, and we’re talking about saving half a trillion dollars a year!

Morgenson should be ashamed at carrying water for the likes of Peterson and Gagnon.

This being Memorial Day weekend, she could at least make an attempt to restore her once sterling but now sullied reputation as an uncompromising financial journalist by taking on the Pentagon.

The Attack on Social Security

The Power of Incompetence
By DEAN BAKER

The folks insisting on cuts to Social Security and Medicare have revved themselves up and are now in high gear. They see their final victory on the horizon with the possibility of a bipartisan deal involving substantial cuts to both programs. They argue that the large deficits facing the country make it imperative that we address the long-term budget problem, meaning the cost of these programs, immediately.

Before anyone prepares to surrender, it is worth remembering once again how we got into the current situation. Before the downturn the budget deficits were relatively modest. Even with the cost of fighting two wars, the Bush tax cuts and a poorly designed Medicare drug benefit the deficit was just over 1.0 percent of GDP in 2007, the last year before the downturn. This was arguably bigger than desired, but a deficit of this size certainly posed no imminent danger to the economy.

Then the economy ran off the track. The reason was the collapse of an $8 trillion housing bubble. This bubble was easy to see for people who knew basic economics and third-grade arithmetic. It was also easy to see that the bakercollapse of this bubble would derail the economy and lead to a serious downturn. That is why some of us were warning about the bubble as early as 2002.

But where were the current group of anti-deficit crusaders back in 2002-2006, when it might still have been possible to do something to stem the growth of the housing bubble before it reached such dangerous levels? Well, they were crusading against the budget deficit of course.

Peter Peterson, the Wall Street investment banker who is the patron saint and financier of much of the deficit crusade was paying for the "Fiscal Wake-Up Tour," which was supposed to alert people to the dangers of the country's budget deficit. This traveling road show of policy wonks and economists had nothing to say about the growing housing bubble that was about to explode and sink the economy.

Then we have the Washington Post, which is continuously setting new records for imbalance on this issue, for example by running six different columns by deficit hawks on the same day. As the bubble grew to ever more dangerous levels the Post had no room for those warning of the risks it posed. In fact, its main source for information on the housing market was David Lereah, the chief economist of the National Association of Realtors and the author of the book, Why the Housing Boom Will Not Bust and How You Can Profit From It.

The same story can be told about National Public Radio, the major news networks and all the politicians now leading the charge to cut Social Security and Medicare. When the country actually did face a real economic disaster, these people were nowhere in sight. They were diverting attention to other issues and dismissing those of us who tried to warn of the real danger.

Now that we are experiencing an economic disaster – 25 million people unemployed or underemployed, millions of people facing the loss of their homes, more than ten million underwater in their mortgages -- as a direct result of their incompetence, these same people are telling us again about the urgent need to cut Social Security and Medicare. The deficit hawks somehow think that their case is more compelling because of the damage done by their incompetence.

It should not work this way. In most lines of work incompetence is not a credential, it should not be one in designing economic policy either. Anyone who cares to tell us about the urgent need to deal with the deficit should first be expected to tell us how they managed to overlook the growth of an $8 trillion housing bubble. They should also be expected to tell us why they have a better understanding of the economy now than they did before the collapse of the housing bubble.

Social Security and Medicare provide essential supports to tens of millions of retirees and disabled workers. The projections are clear. The financing of Social Security poses no major problem – it is projected to be fully solvent for almost 30 years with no changes whatsoever. Medicare poses a problem only because the private health care system is broken.

Honest people talk about the need to fix the health care system. Less-honest people scream about the need to reform "entitlements." And, they think that the public somehow should listen to them because of their record of incompetence.

Supposedly responsible news organizations, like the Washington Post and National Public Radio, have gotten in the habit of telling their audiences that we have to cut Social Security and Medicare. The need for cuts in these programs is often put forward as an unquestioned fact, not just in editorials and opinion pieces, but in supposedly objective news stories. It serves the corporate interests of this country by hurting the people.

Who Can Fight Off the Social Security Pillagers?

Friday, January 21, 2011 by FireDogLake.com
by Dean Baker

That is the question that supporters of Social Security should be asking as we brace for President Obama’s State of the Union address next week. Specifically, the question is whether Senator Majority Leader Harry Reid will keep up his spirited defense of Social Security or whether he will buckle to the pressure from the financial industry and the Washington insiders.

For those who missed it, Senator Reid distinguished himself by saying the obvious on one of the Sunday talk shows two weeks ago. He said that Social Security is not contributing to the deficit and that the shortfall it faces is still distant and relatively minor. He said he was tired of people picking on this program, which is vital to the financial security of tens of millions of retirees and disabled workers and their families.

Truth is rare in Washington, so Senator Reid’s comments really stood out. If the Senator is prepared to hold his ground, he can save the program.

There is no doubt that the forces arrayed against Social Security are enormously powerful. The wealthy hate the idea of government money going to anyone but them, and since the vast majority of Social Security benefits are going to low and middle-income families, the program is an outrage to their sensibilities.

The financial industry also knows a cash cow when they see one. It would take more than $10 trillion in private accounts to generate the same amount of money as Social Security pays out each year in benefits. If the financial industry collected just 1.0 percent of this sum in fees each year, it would mean another $100 billion a year into the coffers of the Merrill Lynch set.

And, for anti-government conservatives, Social Security is the worst nightmare imaginable: a government program that really works. Its administrative costs are less than one-tenth as high as they are for financial industry. There is minimal fraud and the program does exactly what it was supposed to do: provide a core retirement income and protect workers and their families against disability and early death.

For these reasons, it is inevitable that powerful forces would be looking to ax Social Security. Much of the media, led by the Washington Post (a.k.a. Fox on 15th Street), have abandoned rules of objectivity in their quest to paint Social Security as a basket case.

The most common tactic is to lump Social Security in with Medicare and Medicaid as “entitlements” that will break the budget. Of course, every budget expert knows that the vast majority of the projected increase in spending comes from Medicare and Medicaid due to exploding health care costs, not the modest impact that aging has on projected Social Security benefits.

Peter Peterson, everyone’s favorite Wall Street billionaire, has committed much of his fortune to gutting the program. He is buying everything in sight to advance this goal. This includes setting up a new foundation, paying for scary anti-Social Security documentaries, setting up a fake news service (the “Fiscal Times“), sponsoring rigged public forums (America Speaks), and even playing silly games on the mall.

Can Senator Reid stand up to this massive push?

Well, Mr. Reid has two things on his side: public opinion and the truth. As far as public opinion, there is no doubt that Social Security is a hugely popular program. Everyone loves the security that it provides them, their parents, or their grandparents, and their children. Its sky-high approval rating is across the board with all demographic groups and spans the political spectrum from progressive Democrats to Tea Party Republicans.

The truth is also on Reid’s side. One only has to read the Social Security Trustees Report to see that the program will be fully funded for the next 27 years even with no changes at all. After that date, it would still be able to pay almost 80 percent of scheduled benefits indefinitely, even if nothing were ever done. Furthermore, it is not difficult to find progressive ways to make up the remaining shortfall. Just raising the payroll tax cap to where the Greenspan commission set it in 1983 makes up more than one-fourth of the projected shortfall.

The fixes proposed by the Social Security cutters would involve real pain, some of it longer term and some of it very immediate. Most notable is their proposal to reduce the annual cost of living by 0.3 percentage points. After ten years, this would reduce retirees’ benefits by close to 3 percent, after twenty years the reduction would be 6 percent. This would be a big hit to many seniors who are surviving on less than $20,000 a year.

The longer-term plans call for making the program more “progressive.” This generally means cuts for people who earned $50,000 or $60,000 a year in their working lifetime. That’s better than the typical worker, but it doesn’t fit most people’s conception of rich.

What is so frustrating in this story is that we are not a poor country and are not getting poorer. There is plenty of money out there, if our politicians ever had the courage to confront the rich and powerful. We could easily raise more than $150 billion a year from taxing Wall Street with a financial speculation tax.

We could save as much on prescription drugs if we started having them sold in a competitive market and adopted a more efficient mechanism for financing drug research. And, we could have the Federal Reserve Board hold the bonds it is now buying so that taxpayers are not burdened with hundreds of billions a year in additional interest payments to the wealthy in future decades.

These are items that we would be discussing if the political system were not so dominated by moneyed interests. So, in this context does Senator Reid have a chance?

Actually he has a very good chance. There is an important precedent for Senator Reid’s defense of Social Security. In 1997, President Clinton had reached a deal with Trent Lott, then the majority leader in the Senate, to reduce the annual cost of living adjustment for Social Security. Their deal would have lowered the adjustment by about 1 percentage point annually. After 10 years this would mean that benefits would be almost 10 percent lower and after 20 years they would be close to 20 percent lower.

This plan might have gone through, except for the opposition of Richard Gephardt. At the time, Gephardt was the leader of the Democrats in the House. Even though the Democrats were a minority, everyone knew that if Gephardt spoke out forcefully against this deal, it would create too much political heat to carry it through.

This saved the day. As President Clinton said at one of the Peter Peterson deficit fests last spring: “I wanted to cut Social Security, but they wouldn’t let me.”

Let’s hope that Harry Reid and the American people also don’t let President Obama cut Social Security.

What Planet Are Deficit Hawks Living on?

Monday, November 15, 2010 by Huffington Post
by Robert Kuttner

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.

Billionaire Launches Campaign to Slash Social Security

by Jane Slaughter - Wednesday, November 10, 2010

Why does a billionaire want to take away your Social Security benefits?

Peter Peterson is 84 years old. He's old enough to relax and enjoy the fruits of the years he was well paid for managing other rich people's money. Why is he spending his fortune to convince politicians they should ruin the average guy's retirement?

Today Peterson announced the next facet in his long campaign to hack Social Security, including a joke Presidential candidate named Hugh Jidette ("huge debt") and a website called Owe No. His aim is to convince Congress to raise the retirement age, cut Social Security's cost-of-living increases-and raise the payroll taxes we pay for Social Security and Medicare.

It wouldn't matter what one cranky octogenarian billionaire had to say if he weren't putting $6 million into ads, funding "expert" commissions, and spreading lies designed to panic the populace.

Maybe Peterson figures offense is better than defense-he's got a lot to defend. He made his fortune as a hedge fund manager-that is, moving money around-so he ought to be living in fear. Someone might get the idea he and his buddies would be good folks to tax. It's like Willie Sutton, the famous bank robber, once said. Asked why he robbed banks, Sutton replied, "Because that's where the money is."

Peterson and pals are the ones George Bush gifted with big tax breaks that are set to expire December 31. Although he says his top priority is reducing the deficit, Peterson doesn't want to cut that deficit by putting his own taxes back where they were in the 1990s.

It's hard to get your head around how rich Peterson is, and how many rich people there are in this country. But here's how to put their money in perspective, in relation to Social Security. If Congress decides to extend those tax cuts, for households making $250,000 or more (the top 2 percent of earners), the money the Treasury will lose would be enough to put Social Security in the black for 75 years--and raise benefits by 2 percent.

First They Took Your House

Meanwhile, we have a big chunk of near-retirees today who have barely seen their wages rise at all during their working lifetimes, the last 30 years. They couldn't save a huge amount; what they saved they had in home equity. And that was wiped away by the financial shenanigans of Peter Peterson and his ilk. There are millions of potential retirees who will have next to nothing except Social Security if they're ever able to retire. It wasn't enough for Wall Street to rob us of our houses' worth and what we had in 401(k)s. Now they want to take Social Security too.

Like I said, I don't understand it. Is there no shuffleboard court where this man could spend his golden years?

A friend wrote to me today. He's working his butt off to keep Congress from raising the retirement age and cut back Medicare. He said:

My mother was an LPN in a nursing home. The last few years that she worked, her back and legs ached so much that she literally had to crawl up the stairs to her bedroom at night. If someone told her that she would have to work three more years before retirement because hedge fund managers don't want to pay the same percentage of their income towards Social Security as she did, she would tell you what to do.

A slew of organizations is organizing a Call-In Day to Congress November 30. That's the day before President Obama's deficit commission is set to release its recommendations for raising the retirement age. They're saying "Owe No You Don't"-the goal is to create a groundswell of outrage that will make the recommendations dead on arrival.

Now They're Coming After Your Social Security

Wall Street's TARP Gang Rides Again
By DEAN BAKER

Just over two years ago, the Wall Streeters were running around Congress and the media saying that if they didn't immediately get $700 billion the world would end. Since they own large chunks of both, they quickly got their money.

Even more important than the hundreds of billions of loans issued through the TARP was the trillions of dollars of loans and guarantees from the Fed and the FDIC. This money came with virtually no strings attached. It kept Goldman Sachs, Citigroup, Morgan Stanley, and Bank of America and many others from collapsing. As a result, folks like Goldman CEO Lloyd Blankfein are again pocketing tens of millions a year in wages and bonuses, instead of walking the unemployment lines. Instead, 15 million ordinary workers are being told to just get used to being unemployed; it's the "new normal."

But wait, it gets worse. The thing about Wall Streeters is that no matter how much money you give them, they always want more. Now they are using their political power and control over the media to attack Social Security.

This effort is being led by billionaire investment banker Peter Peterson. Mr. Peterson has personally profited to the tune of tens of millions of dollars from the "fund managers' tax subsidy," an obscure provision of the tax code that allows billionaires to pay a lower tax rate than schoolteachers and firefighters. However, Peterson believes in giving back. He has committed $1 billion to an effort that is intended to take away the Social Security benefits that people have worked and paid for.

As part of this effort, Peterson set up a whole new foundation, the Peter G. Peterson Foundation. He and/or his foundation created a "news service," The Fiscal Times, which is intended to promote the view that we have no choice but to cut Social Security. The Fiscal Times has entered into agreements with the Washington Post and other credible newspapers to provide material.

Peterson is also funding the creation of a high school curriculum that is intended to tell our children that in the future the country will be too poor to finance Social Security. He funded a silly exercise called "America Speaks," which was supposed to convince an assembly of selected participants that we must cut Social Security after a day-long immersion in Peterson-style propaganda. (The people didn't buy it.) And now his crew is spending $20 million on an ad campaign to convince people the world will end if we don't cut Social Security.

Attacks on Social Security have been fended off in the past, and it is possible that this one will be too. It is an incredibly popular and successful program. It does exactly what it was supposed to do. It provides a modest income to the retired and disabled, and their families, to ensure that people who have spent their lives working will not fall into poverty. It is also extremely efficient, with administrative costs that are less than 1/20th as large as the costs of private insurers.

It also has very little fraud. We know this because earlier this year the Washington Post made a big point of hyping mistaken payments to federal employees than involved less than 0.01 percent of Social Security spending. If substantial fraud did exist, the Washington Post wouldn't have to hype small change to try to discredit the program.

The really incredible part of this story is that we should be talking about increasing Social Security benefits. Benefits are quite low by international standards. The portion of wage income replaced by Social Security is considerably lower than the retirement benefit provided by the systems in Australia, Canada, Germany and most other wealthy countries.

As a result, many of the retirees who are dependent almost entirely on Social Security have incomes that are only slightly above the poverty line. A modest increase in benefits could make a big difference in these people's standard of living.

In addition, the near retirees, the people directly in the gun sights of the Wall Street TARPers, have just seen most of their wealth destroyed by the collapse of the housing bubble. The Wall Streeters now want to kick them yet again, by taking away Social Security benefits that they have already paid for.

If Congress and the media worked for the public, we would be debating Wall Street speculation taxes right now. Insofar as we need to do something about the deficit in the longer term, taxing Wall Street speculation is a far more economically desirable route than taking away the Social Security benefits that ordinary workers have already paid for. We could easily raise more than $1.5 trillion over the next decade with a broadly based financial speculation tax than would have almost no impact on anyone except the Wall Street crew.

Even the IMF is now pushing higher taxes on the Wall Street types, recognizing the enormous waste and rents in the financial sector. But the media and Congress do not respond to economic reality, they respond to money. And Peter Peterson and the Wall Street crew are not paying for an honest discussion of the country's fiscal and economic problems. They are financing a rigged debate that is intended to result in even more money flowing to Wall Street and less to those who work for a living.

Economic War on the "Lesser People"

Pete Peterson Pushes Ahead

By JOHN HALLE

Were the objective of Pete Peterson's $1 billion campaign to gut Social Security any less odious, it would easy to admire it as a marvel of public opinion engineering, a true masterpiece in the manufacture of consent.

A bird's eye view of Peterson's infernal propaganda machine shows two complementary marketing strategies-one directed at political elites, the other at the "lesser people" as Obama deficit commission co-chair former Senator Alan Simpson recently described them

The former was most prominently on display in an April deficit summit which brought together a bipartisan assortment of power brokers, extending up to and including former President Clinton. Perhaps most predictive of what appears to be in the cards, members of the commission were in attendance and joined in the amen chorus as chunks from the hide of hard won New Deal entitlement programs were sliced off and made offerings to the Gods of fiscal austerity.

Indeed, one of these, the Democratic co-chair Erskine Bowles had already sang from the Peterson hymnbook a month previously: "We're going to mess with Medicare, Medicaid and Social Security" the former Clinton chief-of-staff trumpeted, "because if you take those off the table, you can't get there."

On a parallel track is the hard sell directed at the rest of the population-those of us who will be victims of the cuts. Here Peterson is careful to cover his plutocratic tracks by outsourcing these functions to America Speaks, a paradigmatic astroturf operation serving to martial "authentic" popular support for pulling the plug on Grandma's paltry monthly check.

The shell game will be on lurid display at next Saturday's Town Hall fora to take place in nineteen cities across the country. Public participation in these events is enthusiastically welcomed, provided that speakers focus on the central issue: how best to address our "looming" budget crisis?

And so, in classic "are you still beating your wife" fashion, the question is framed such that any answer serves to reinforce Peterson's phony crisis, for which a combination of tax increases and cuts in entitlements are the only solutions on the table.

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One oddity of this affair involves the inclusion on the America Speaks advisory board of a Harvard Professor of Government named Archon Fung who has the reputation as left/liberal, attested to by his having coauthored books with figures such as Joel Rogers, Medea Benjamin, and Amory Lovins, among others.

I myself once had a short email exchange with Prof. Fung one which was facilitated by Noam Chomsky who referred me to the then junior professor on the basis of his interest in popular movements. Fung responded favorably to an article which i sent him remarking that "Progressive(s) have always succeeded by mobilizing people, but the ground has shifted so much in favor of money and thin message as the currency of politics that I do fear for the progress of the left."

Perhaps the lesson here is that one can never be too cynical when it comes to Ivy League technocrats. Far from becoming the next Francis Fox Piven, as Chomsky may have hoped, Fung's name is now associated with one of the more egregious displays of money functioning "as the currency of politics."

Or perhaps Peterson has usurped the more benign function for which America Speaks had been intended. If so, Fung should do the right thing and resign his position from the America Speaks board under protest and encourage other members to do likewise.

Fung's coauthors and colleagues should be requesting that he do just that.

Given our failure to organize the public expressions of popular outrage which would force Peterson into full retreat, it would seem to be the least we can do.

Now Wall St. is After Your Social Security

Wall Street Took Your House and Your Retirement, Now They're After Your Social Security

By Ellen Hodgson Brown, TruthOut.org
March 6, 2010

In addition to mandatory private health insurance premiums, we may soon be hit with a "mandatory savings" tax and other belt-tightening measures urged by the president's new budget task force. These radical austerity measures are not only unnecessary, but will actually make matters worse. The push for "fiscal responsibility" is based on bad economics.

When billionaires pledge a billion dollars to educate people to the evils of something, it is always good to peer closely at what they are up to. Hedge fund magnate Peter G. Peterson was formerly chairman of the Council on Foreign Relations and head of the New York Federal Reserve. He is now senior chairman of Blackstone Group, which is in charge of dispersing government funds in the controversial AIG bailout, widely criticized as a government giveaway to banks. Peterson is also founder of the Peter Peterson Foundation, which has adopted the cause of imposing "fiscal responsibility" on Congress. He hired David M. Walker, former head of the Government Accounting Office, to spearhead a massive campaign to reduce the runaway federal debt, which the Peterson/Walker team blames on reckless government and consumer spending. The Foundation funded the movie "I.O.USA." to amass popular support for their cause, which largely revolves around dismantling Social Security and Medicare benefits as a way to cut costs and return to "fiscal responsibility."

The Peterson-Pew Commission on Budget Reform has pushed heavily for action to stem the federal debt.

Bills for a budget task force were sponsored in both houses of Congress. The Senate bill was narrowly defeated, and the House bill was tabled; but that was not the end of it. In Obama's State of the Union speech on January 27, he said he would be creating a presidential budget task force by executive order to address the federal government's deficit and debt crisis, and that the task force would be modeled on the bills Congress had failed to pass. If Congress would not impose "fiscal responsibility" on the nation, the president would. "It keeps me awake at night, looking at all that red ink," he said. The executive order was signed on February 17.

What the president seems to have missed is that all of our money except coins now comes into the world as "red ink," or debt. It is all created on the books of private banks and lent into the economy. If there is no debt, there is no money; and private debt has collapsed. This year to date, US lending has been contracting at the fastest rate in recorded history. A credit freeze has struck globally; and when credit shrinks, the money supply shrinks with it. That means there is insufficient money to buy goods, so workers get laid off and factories get shut down, perpetuating a vicious spiral of economic collapse and depression. To reverse that cycle, credit needs to be restored; and when the banks can't do it, the government needs to step in and start "monetizing" debt itself, or turning debt into dollars.

Although lending remains far below earlier levels, banks say they are making as many loans as they are allowed to make under existing banking rules. The real bottleneck is with the "shadow lenders" - those investors who, until late 2007, bought massive amounts of bank loans bundled up as "securities," taking those loans off the banks' books, making room for yet more loans to be originated out of the banks' capital and deposit bases. Because of the surging defaults on subprime mortgages, investors have now shied away from buying the loans, forcing banks and Wall Street firms to hold them on their books and take the losses. In the boom years, the shadow lending market was estimated at $10 trillion. That market has now collapsed, leaving a massive crater in the money supply. That hole needs to be filled and only the government is in a position to do it. Paying down the federal debt when money is already scarce just makes matters worse. When the deficit has been reduced historically, the money supply has been reduced along with it, throwing the economy into recession.

Another Look at the Budget Reform Agenda

That raises the question: are the advocates of "fiscal responsibility" merely misguided? Or are they up to something more devious? The president's executive order is vague about the sorts of budget decisions being entertained, but we can get a sense of what is on the table by looking at the earlier agenda of Peterson's Commission on Budget Reform. The Peterson/Walker plan would have slashed social security entitlements at a time when Wall Street has destroyed the home equity and private retirement accounts of potential retirees. 

Worse, it would have increased the Social Security tax, disguised as a "mandatory savings tax." This added tax would be automatically withdrawn from your paycheck and deposited to a "Guaranteed Retirement Account" managed by the Social Security Administration. Since the savings would be "mandatory," you could not withdraw your money without stiff penalties; and rather than enjoying an earlier retirement paid out of your increased savings, a later retirement date was being called for. In the meantime, your "mandatory savings" would just be fattening the investment pool of the Wall Street bankers managing the funds.

And that may be what really underlies the big push to educate the public to the dangers of the federal debt. Political analyst Jim Capo discusses a slide show presentation given by Walker after the "I.O.USA." premier, in which a mandatory savings plan was proposed that would be modeled on the Federal Thrift Savings Plan (FSP). Capo comments:

"The FSP, available for federal employees like congressional staff workers, has over $200 billion of assets (on paper anyway). About half these assets are in special non-negotiable US Treasury notes issued especially for the FSP scheme. The other half are invested in stocks, bonds and other securities.... The nearly $100 billion in [this] half of the plan is managed by Blackrock Financial. And, yes, shock, Blackrock Financial is a creation of Mr. Peterson's Blackstone Group. In fact, the FSP and Blackstone were birthed almost as a matched set. It's tough to fail when you form an investment management company at the same time you can gain the contract that directs a percentage of the Federal government payroll into your hands."

What "Fiscal Responsibility" Really Means

All of this puts "fiscal responsibility" in a different light. Rather than saving the future for our grandchildren, as the president himself seems to think it means, it appears to be a code word for delivering public monies into private hands and raising taxes on the already-squeezed middle class. In the parlance of the International Monetary Fund (IMF), these are called "austerity measures," and they are the sorts of things that people are taking to the streets in Greece, Iceland and Latvia to protest. Americans are not taking to the streets only because nobody has told us that is what is being planned.

We have been deluded into thinking that "fiscal responsibility" (read "austerity") is something for our benefit, something we actually need in order to save the country from bankruptcy. In the massive campaign to educate us to the perils of the federal debt, we have been repeatedly warned that the debt is disastrously large; that when foreign lenders decide to pull the plug on it, the US will have to declare bankruptcy; and that all this is the fault of the citizenry for borrowing and spending too much. We are admonished to tighten our belts and save more; and since we can't seem to impose that discipline on ourselves, the government will have to do it for us with a "mandatory savings" plan. The American people, who are already suffering massive unemployment and cutbacks in government services, will have to sacrifice more and pay the piper more, just as in those debt-strapped countries forced into austerity measures by the IMF.

Fortunately for us, however, there is a major difference between our debt and the debts of Greece, Latvia and Iceland. Our debt is owed in our own currency - US dollars. Our government has the power to fix its solvency problems itself, by simply issuing the money it needs to pay off or refinance its debt. That time-tested solution goes back to the colonial scrip of the American colonists and the "Greenbacks" issued by Abraham Lincoln to avoid paying 24-36 percent interest rates.

Economic Fear Mongering

What invariably kills any discussion of this sensible solution is another myth long perpetrated by the financial elite - that allowing the government to increase the money supply would lead to hyperinflation. Rather than exercising its sovereign right to create the liquidity the nation needs, the government is told that it must borrow from private lenders. And where does their money come from? Ultimately from banks, which create it on their books just as the government would have done. The difference is that when bankers create it, it comes with a hefty fee attached in the form of interest.

Meanwhile, the Federal Reserve has been trying to increase the money supply; and rather than producing hyperinflation, we continue to suffer from deflation. Frantically pushing money at the banks has not gotten money into the real economy. Rather than lending it to businesses and individuals, the larger banks have been speculating with it or buying up smaller banks, land, farms and productive capacity, while the credit freeze continues on Main Street. Only the government can reverse this vicious syndrome, by spending money directly on projects that will create jobs, provide services and stimulate productivity. Increasing the money supply is not inflationary if the money is used to increase goods and services. Inflation results when "demand" (money) exceeds "supply" (goods and services). When supply and demand increase together, prices remain stable.

The notion that the federal debt is too large to be repaid and that we are imposing that monster burden on our grandchildren is another red herring. The federal debt has not been paid off since the days of Andrew Jackson and it does not need to be paid off. It is just rolled over from year to year, providing the "full faith and credit" that alone backs the money supply of the nation. The only real danger posed by a growing federal debt is an exponentially growing interest burden; but so far, that danger has not materialized either. Interest on the federal debt has actually gone down since 2006 - from $406 billion to $383 billion - because interest rates have been lowered by the Fed to very low levels.

They can't be lowered much further, however, so the interest burden will increase if the federal debt continues to grow. But there is a solution to that too. The government can just mandate that the Federal Reserve buy the government's debt and that the Fed not sell the bonds to private lenders. The Federal Reserve states on its web site that it rebates its profits to the government after deducting its costs, making the money nearly interest-free.

All the fear mongering about the economy collapsing when the Chinese and other investors stop buying our debt is yet another red herring. The Fed can buy the debt itself - as it has been stealthily doing. That is actually a better alternative than selling the debt to foreigners, since it means we really will owe the debt only to ourselves, as Roosevelt was assured by his advisers when he agreed to the deficit approach in the 1930s; and this debt-turned-into-dollars will be nearly interest-free.

Better yet would be to either nationalize or abolish the Fed and fund the government directly with Greenbacks as President Lincoln did. What the Fed does the Treasury Department can do, for the cost of administration. There would be no shareholders or bondholders to siphon earnings, which could be recycled into public accounts to fund national, state and local budgets at zero or near-zero interest rates. Eliminating debt service payments would allow state and federal income taxes to be slashed; and the public managers of this money, rather than hiding behind a veil of secrecy, would be opening their books for all to see.

A final red herring is the threatened bankruptcy of Social Security. Social Security cannot actually go bankrupt, because it is a pay-as-you-go system. Today's social security taxes pay today's recipients; and if necessary, the tax can be raised. As Washington economist Dean Baker wrote when President Bush unleashed the campaign to privatize Social Security in 2005:

"The most recent projections show that the program, with no changes whatsoever, can pay all benefits through the year 2042. Even after 2042, Social Security would always be able to pay a higher benefit (adjusted for inflation) than what current retirees receive, although the payment would only be about 73 percent of scheduled benefits."

Today, incomes over $97,000 escape the tax, disproportionately imposing it on lower income brackets. Projections over the next 75 years show that just removing that cap could eliminate the forecasted deficit. When the Democratic presidential candidates were debating in the fall of 2007, Barack Obama and Joe Biden were the only candidates willing to seriously consider this reasonable alternative. President Obama just needs to follow through with the solutions he espoused when campaigning.

The Mass Education Campaign We Really Need

What is really going on behind the scenes may have been revealed by Prof. Carroll Quigley, Bill Clinton's mentor at Georgetown University. An insider groomed by the international bankers, Dr. Quigley wrote in Tragedy and Hope in 1966:

"[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences."

If that is indeed the plan, it is virtually complete. Unless we wake up to what is going on and take action, the "powers of financial capitalism" will have their way. Rather than taking to the streets, we need to take to the courts, bring voter initiatives and wake up our legislators to the urgent need to take the power to create money back from the private banking elite that has hijacked it from the American people. And that includes waking up the president, who has been losing sleep over the wrong threat.