In September the
Committee for a Responsible Federal Budget (CRFB), a
bipartisan deficit-hawk group based at the New America Foundation, held
a high-profile symposium urging the Congressional “
supercommittee” to
“go big” and approve a $4 trillion deficit reduction plan over the next
decade, which is well beyond its $1.2 trillion mandate. The hearing
began with an alarming video of top policy-makers describing the
national debt as “the most serious threat that this country has ever
had” (Alan Simpson) and “a threat to the whole idea of self-government”
(Mitch Daniels). If the debt continues to rise, predicted former New
Mexico Senator Pete Domenici, there would be “strikes, riots, who knows
what?” A looming fiscal crisis was portrayed as being just around the
corner.
The
various strands of the austerity class form a reinforcing web that is
difficult to break. Its think tanks and wonks produce a relentless
stream of disturbing statistics warning of skyrocketing debt and looming
bankruptcy, which in turn is trumpeted by politicians and the press and
internalized by the public. Even President Obama’s new jobs plan—a long
overdue break with austerity-class orthodoxy—has been pitched in the
context of deficit reduction. The
event spotlighted a central paradox in American politics over the past
two years: how, in the midst of a massive unemployment crisis—when it’s
painfully obvious that not enough jobs are being created and the public
overwhelmingly wants policy-makers to focus on creating them—did the
deficit emerge as the most pressing issue in the country? And why, when
the global evidence clearly indicates that austerity measures will raise
unemployment and hinder, not accelerate, growth, do advocates of
austerity retain such distinction today?
An explanation can be found in the prominence of an influential and
aggressive austerity class—an allegedly centrist coalition of
politicians, wonks and pundits who are considered indisputably wise
custodians of US economic policy. These “very serious people,” as
New York Times
columnist Paul Krugman wryly dubs them, have achieved what University
of California, Berkeley, economist Brad DeLong calls “intellectual
hegemony over the course of the debate in Washington, from 2009 until
today.”
Its members include Wall Street titans like Pete Peterson and Robert
Rubin; deficit-hawk groups like the CRFB, the Concord Coalition, the
Hamilton Project, the Committee for Economic Development, Third Way and
the Bipartisan Policy Center; budget wonks like Peter Orszag, Alice
Rivlin, David Walker and Douglas Holtz-Eakin; red state Democrats in
Congress like Mark Warner and Kent Conrad, the bipartisan “Gang of Six”
and what’s left of the Blue Dog Coalition; influential pundits like Tom
Friedman and David Brooks of the
New York Times, Niall Ferguson and the
Washington Post
editorial page; and a parade of blue ribbon commissions, most notably
Bowles-Simpson, whose members formed the all-star team of the austerity
class.
The austerity class testifies frequently before Congress, is quoted
constantly in the media by sympathetic journalists and influences
policy-makers and elites at the highest levels of power.
They
manufacture a center-right consensus by determining the parameters of
acceptable debate and policy priorities, deciding who is and is not
considered a respectable voice on fiscal matters. The “balanced”
solutions they advocate are often wildly out of step with public opinion
and reputable economic policy, yet their influence endures, thanks to
an abundance of money, the ear of the media, the anti-Keynesian bias of
supply-side economics and a political system consistently skewed to
favor Wall Street over Main Street.
Taken together, the various strands of the austerity class form a
reinforcing web that is difficult to break. Its think tanks and wonks
produce a relentless stream of disturbing statistics warning of
skyrocketing debt and looming bankruptcy, which in turn is trumpeted by
politicians and the press and internalized by the public. Thus forms
what
Washington Post blogger Greg Sargent calls a Beltway
Deficit Feedback Loop, wherein the hypothetical possibility of a US debt
crisis somewhere in the future takes precedence over the very real jobs
crisis now.
Even President Obama’s new jobs plan—a long overdue break with
austerity-class orthodoxy—has been pitched in the context of deficit
reduction. Every debate over measures to improve the economy begins with
the question “How much will it cost, and can we afford it?” rather than
“How many jobs will it create, and how will it help the country?” Far
from possessing the solution to our economic crisis, the austerity class
represents a major impediment to finding one.
* * *
Groups like the CRFB and the Concord Coalition, founded by former
Congress members in the 1980s and ’90s, have long presented themselves
as nonpartisan, penny-pinching critics of wasteful government spending,
when really they are anti-government, pro-corporate ideologues whose
boards are filled with K Street lobbyists and financial executives. The
goal of much of the austerity class is to see government funds
redirected to the private sector. (Their ideology, which accepts the
accumulation of private debt but opposes government debt, explains why
the austerity class ignored the massive housing and credit bubble, which
more than any single factor contributed to an explosion of debt
worldwide.)
The austerity class’s reach has expanded in the Obama era, boosted by
leaders of both parties and an influx of new funding. After
consistently approving massive deficit spending under the Bush
administration, Republicans suddenly found true religion under Obama
(ironically, at a time when precisely the opposite of austerity was most
needed). And within the Democratic Party, what Nobel laureate economist
Joe Stiglitz calls “deficit fetishism” is viewed as the gold standard
for responsible economics. Democrats revered Bill Clinton’s balancing of
the budget as good policy and good politics, not to mention a shrewd
way to tap Wall Street’s endless fundraising stream.
Obama and his main economic advisers (Tim Geithner, Orszag, Larry
Summers) were devotees of former Clinton Treasury Secretary and Goldman
Sachs/Citigroup alum Rubin, who co-founded the pro–Wall Street Hamilton
Project think tank at the Brookings Institution in 2006. The
Hamiltonians had warned of “the adverse consequences of sustained large
budget deficits” during the Bush administration and advocated “painful
adjustments,” namely cuts to social insurance programs like Social
Security and Medicare in exchange for more liberal policies like tax
increases and healthcare reform. Obama entered office with the Hamilton
plan in his back pocket.
At the beginning of Obama’s presidency, Richard Nixon’s famous line
“We are all Keynesians now” seemed more relevant than ever. But though
Obama initially advanced a Keynesian-lite stimulus plan, which
economists on the left and right agreed was imperative, the deficit was
never far from the president’s mind.
In February 2009, just weeks after the stimulus passed, Obama pivoted
to the deficit, holding a Fiscal Responsibility Summit at the White
House and assuring Blue Dog Democrats he supported a special
deficit-reduction commission. “We feel like we’ve found a partner in the
White House,” said Blue Dog co-chair Charlie Melancon. The austerity
class swiftly co-opted the new administration. The CRFB, the Peter G.
Peterson Foundation and Pew Charitable Trusts launched a special
commission in 2009 calling for mandatory spending caps and debt limits
to put the United States in an “automatic, fiscal straitjacket.”
Its
recommendations formed the basis for last year’s Bowles-Simpson
commission.
The austerity class’s deep pockets can be traced back to Peterson, a
GOP billionaire who served as Nixon’s commerce secretary and founded the
private equity Blackstone Group. Since 2008 his foundation has doled
out $383 million of his promised $1 billion pledge to a seemingly
endless number of think tanks, media organizations, advocacy groups and
educational institutions to advance his debt obsession [see William
Greider, “
The Man Who Wants to Loot Social Security,”
March 2, 2009]. This includes six- and seven-figure donations to groups
like the CRFB, the Concord Coalition, the Committee for Economic
Development and the Peterson Institute for International Economics. It’s
largely because of Peterson that programs like Social Security and
Medicare, favored by nearly 90 percent of the public, are savaged as
bloated “entitlements” and are consistently on the chopping block.
Among the Petersonites, there was stiff opposition to a larger
stimulus or additional recovery measures. “If we think about massive
deficit spending as medicine for a sick economy, we also need to
recognize that too much medicine can ultimately kill the patient,” said
Maya MacGuineas, president of the CRFB (which received $656,000 from
Peterson’s foundation last year), in January 2009. MacGuineas, a former
stock analyst at Paine Webber and self-described “bond vigilante,” did
stints at the Brookings Institution, the Concord Coalition and the 2000
McCain campaign before moving to the CRFB in 2003. She’s now one of the
central organizers behind the austerity class.
Her minimalist take on the recession, though completely at odds with
the views of top economists, quickly became conventional wisdom in elite
Washington policy circles. “Concerns about the deficit limited the size
of the stimulus act in 2009 and are a main reason that Congress has
refused to take additional measures to cut our painfully high rate of
unemployment,” wrote Christina Romer, former chair of Obama’s Council of
Economic Advisers.
In his State of the Union address in 2010, the president announced a
three-year freeze on nondefense discretionary spending (a position he’d
criticized in all three presidential debates with John McCain as an
“example of unfair burden sharing” and “using a hatchet when you need a
scalpel”), along with the creation of Bowles-Simpson. “Families across
the country are tightening their belts and making tough decisions,”
Obama said. “The federal government should do the same.”
This line proved to be one of the most repeated talking points of the
austerity class. “That’s a very intuitive argument, but it’s totally
backward,” says Jared Bernstein, former chief economist to Vice
President Biden. “When families are tightening their belt in a
recession, the government has to loosen its belt.” The constant drumbeat
against “excessive” government spending from the austerity class and
opportunistic Republicans caused the administration to “pivot too soon,”
says Bernstein.
“Having gotten a stimulus that he knew was too small, Obama should
have said, This is a good first step, but we’re likely going to need
more,” says Dean Baker, co-director of the Center for Economic and
Policy Research. “And gone on the offensive. Instead he turned to
balancing the budget. That set the stage for the Tea Party and the
Peterson crowd, because ‘deficits’ were all anyone heard.” Indeed,
conservatives were emboldened by Obama’s speech. “If the arguments in
the coming years are between spending freezes and spending cuts, then
we’ve already won,” wrote Jim Geraghty of
National Review in January 2010.
By June 2010, austerity had gripped the globe, as the G-20 nations
agreed to cut their deficits in half by 2013 and pursue “growth
friendly” fiscal consolidation. In the midst of the recession, the
notion of “expansionary austerity” became a kind of magical elixir for
the deficit hawks, much as the Laffer Curve did for Reaganomics. Harvard
economist Alberto Alesina pioneered the theory, arguing in 2009 that
“spending cuts adopted to reduce deficits have been associated with
economic expansions rather than recessions.” The CRFB, David Brooks, the
American Enterprise Institute and the House Republican leadership
quickly amplified his view. “Alesina has provided the theoretical
ammunition fiscal conservatives want,” wrote
Bloomberg Businessweek. It seemingly made no difference that his findings had been thoroughly debunked by the likes of
The Economist,
the IMF and the Center for Budget and Policy Priorities (CBPP), which
found that in only nine of the 107 cases surveyed by Alesina had
austerity measures led to increased growth. Yet to this day, leaders
like Texas Representative Jeb Hensarling (co-chair of the
supercommittee) insist that “deficit reduction will be a jobs plan.”
The austerity-class chorus grew louder following the release of the
Bowles-Simpson report shortly after the 2010 midterm elections and
framed the debate for 2011. (It was led by a conservative Democrat and a
conservative Republican, evidently the definition of “balance” in
Washington. Few in the media noted that Peterson-backed groups had
staffed the commission and organized town hall events on its behalf,
ostensibly underwriting what was purported to be an independent
government entity.)
“Bowles-Simpson was not a deficit-reduction package,” says Stiglitz,
“but a downsizing-government package.” Instead of rolling back the Bush
administration policies that had turned Clinton’s surplus into a
deficit—such as the Bush tax cuts, Medicare Part D plan and costly wars
in Afghanistan and Iraq—the commission took aim at the social safety net
and promoted pet conservative causes, like cutting the federal
workforce by 10 percent, cutting funds for the Corporation for Public
Broadcasting and capping medical malpractice lawsuits. It called for
“serious belt tightening” beginning in 2012, when few economists
believed the economy would have recovered from the recession.
In his budget for 2012, Obama proposed cutting discretionary spending
to its lowest share of GDP since the Eisenhower administration. The
debate in Washington was thus the administration’s “cut and invest”
strategy versus the GOP’s “cut and grow” plan, noted
Post
blogger Sargent. Both proved illusory, as the country saw neither
investments nor growth, only more cuts. The deal to avert a government
shutdown included billions in cuts. By the time of the summer debt
ceiling showdown, the parties were trying to out-cut each other, with
the president increasingly espousing conservative talking points (such
as the discredited ideas that government budgets are like family
budgets, that spending cuts will create jobs and that slashing the
deficit will return “confidence” to the market). Even Nancy Pelosi, the
country’s highest-ranking progressive Democrat, declared in July, “It is
clear we must enter an era of austerity.”
The triumph of the austerity class set the stage for Obama’s “grand
bargain” offer to House Speaker John Boehner, which included $3 trillion
in spending cuts in exchange for $800 billion in new revenue (roughly
the equivalent of letting the Bush tax cuts for the rich expire).
Times
columnist Brooks called it “an astonishing concession” by the White
House and “the deal of the century” for the GOP. Yet Boehner balked when
Obama asked for $400 billion in additional revenue to help balance the
lopsided plan. The parties agreed instead to $917 billion in cuts over
the next decade, with the supercommittee tasked with finding $1.2
trillion in additional savings. The austerity debate is guaranteed to
last until Christmas, at the very least.
* * *
The unholy alliance between the austerity class and supply-side
conservatives, who talk a good game about deficits but in fact care
principally about cutting taxes and government spending, has shifted the
debate over the economy and the deficit far to the right since Obama
took office. By promoting an age of austerity, the deficit hawks have
enhanced the power of “starve the beast” conservatives like Grover
Norquist, whose goal for years has been to shred the New Deal. The
austerity class’s infatuation with Representative Paul Ryan is a prime
example of this addled love affair.
In 2008, when Ryan introduced his radical budget road map—which
called for turning Medicare into a voucher system, privatizing Social
Security and redistributing income upward by drastically cutting taxes
for the wealthiest Americans and largest corporations—MacGuineas praised
his “tremendous courage and leadership.” When Ryan reintroduced his
plan in 2010, the CRFB lauded his “thoughtfulness and courage.” The CRFB
failed to mention that Ryan’s plan would
increase the deficit,
from a debt-to-GDP ratio of 60 percent in 2010 to 175 percent by 2050.
“Paul Ryan added a huge amount to the deficit,” says John Irons, policy
director at the Economic Policy Institute (EPI). “To call that even
remotely fiscally responsible was not a correct analysis. It’s almost as
if they said, We don’t care what your plan does—as long as you talk
tough on deficits we’re going to support you.”
Indeed, in January the CRFB, the Concord Coalition and the Comeback
America Initiative (all funded by the Peterson Foundation) gave Ryan a
cherished fiscal responsibility award, despite his deficit-exploding
budget, hostility to tax increases and votes in favor of the Bush
administration’s deficit spending. Bob Bixby, executive director of the
Concord Coalition, introduced Ryan by quoting
Time magazine:
“The irony of Ryan’s rise is that he has vaulted to popularity by
embracing historically unpopular ideas.” Said Bixby, “And I thought to
myself, now
there is a deficit hawk…. If we limit ourselves to popular ideas, we’re never going to solve the problem.”
MacGuineas said the award honored Ryan for being the first politician
to put forth a budget plan in 2011, which she called “the most fiscally
responsible of any of the plans.”
Technically, that’s true. Ryan’s
budget, a modified version of his road map, achieves a modest $155
billion in savings over ten years by proposing what the CBPP calls “the
most severe and wrenching budget cuts in US history—two-thirds of which
would come from programs for people of low or moderate incomes” (i.e.,
Medicaid, Pell grants, food stamps and low-income housing).
The award to Ryan illustrates just how dangerously obtuse the
austerity class’s definition of fiscal responsibility is. The deficit
hawks succeed by making the debate over the deficit a pure accounting
game, with no acknowledgment of the adverse impact a plan like Ryan’s
would have on the broader economy and on so many Americans if it became
law. “If [you’re] willing to slash spending so that long-run deficits
are brought under control, then it’s fiscally responsible,” Jim Horney,
vice president for federal fiscal policy at CBPP, says of the Ryan plan.
“But if by fiscally responsible you mean putting the budget on a
sustainable path but making sure that government is able to meet the
needs of the people of the United States, then I think it’s a terribly
irresponsible plan.”
The deficit hawks once again sided with Ryan and his GOP colleagues
during the debt ceiling standoff. “Failing to use this debt ceiling
‘hammer’ to force serious fiscal reforms would be a dangerous lost
opportunity,” the CRFB wrote in July. That demand became the official
position of Congressional Republicans, turning what should have been a
routine debt ceiling increase into a months-long hostage situation,
which spooked financial markets, damaged a weak economy and further
polarized the political system. “One of the biggest strategic mistakes
these deficit groups made is to allow themselves to be captured by the
right wing of the Republican Party and to allow themselves to validate
those claims,” says Stan Collender, a longtime budget expert at Qorvis
Communications. “They just fed into the frenzy.”
When Standard & Poor’s downgraded the US credit rating in August,
MacGuineas called it a “heck of a wake-up call” and once again urged
Congress to enact “at least a $4 trillion deficit reduction
plan—probably more” without acknowledging her group’s role in
perpetuating the manufactured crisis or the utter unfeasibility of
achieving the sort of grand bargain that Republicans had just rejected.
As economists increasingly called for more, not less, stimulus to boost
the sluggish economy, the CRFB refused to budge from its hard line. Just
a month later, the group backed the House Republican leadership by
demanding that emergency disaster relief spending in the wake of
Hurricane Irene be offset by spending cuts, which almost forced yet
another government shutdown.
“I am about as frustrated with the CRFB as you can get,” says
Collender, who has consulted for the group in the past. “They’ve become
zealots and fanatics, as opposed to realists and pragmatists. It’s one
thing to be a counterbalance to those who always want to spend more and
tax less. It’s another thing to be pushing deficit reduction no matter
what the economic situation is and whether it makes sense or not.”
* * *
It was only after Boehner rejected Obama’s grand bargain and the
economy slowed to a halt that the president finally bowed to reality and
introduced a new jobs plan. It may well be too little, too late, but
Obama’s energetic campaign in support of the legislation has begun to
redirect the debate over the economy away from austerity and back toward
jobs.
Much of the mainstream media, however, remain enthusiastic cheerleaders for austerity. A recent story in the
Washington Post,
Experts Dubious of Obama Deficit Plan, featured criticism from
MacGuineas, Bixby, an unnamed GOP aide and a corporate tax lobbyist as
its lone sources. “That’s fair and balanced budget reporting at the
Washington Post,” joked Dean Baker.
Austerity-class pundits have also advanced the myth that both parties
are equally responsible for, and equally unwilling to fix, the deficit
problem. Columnists like Brooks and Friedman at the
Times and Fred Hiatt at the
Post
have gone to extraordinary lengths to make this argument, seemingly
forgetting that not so long ago Obama offered Boehner exactly the kind
of grand bargain they’re now advocating. “I keep thinking he’s a few
weeks away from proposing serious tax reform and entitlement reform,”
Brooks wrote of Obama. “But each time he gets close, he rips the
football away.”
One wonders why it’s so difficult for the Brookses of the world to
acknowledge reality. “There is no equivalency,” says the CBPP’s Horney.
“It is absolutely the Republicans’ refusal to consider meaningful
changes in revenues that is blocking real deficit reduction at this
point.” A clear illustration: Obama proposed a plan that was weighted
three-to-one on a ratio of spending cuts to tax increases, but at a
recent GOP presidential debate, all the candidates said they would
oppose a plan that was even ten-to-one.
Indeed, the austerity class has done such a good job of sidelining dissident voices—with the exception of the
Times’s
Krugman and a few other high-profile Keynesian economists—that the
Washington debate seems permanently skewed to the right. “On one side
you have deficit obsession to the point where Republicans use this as an
excuse to threaten to shut the government down over a couple billion
dollars,” says Bernstein. “On the other side you pretty much have people
talking balance. You have no one on the other extreme saying, Our main
worry about the deficit, with unemployment at 9 percent, should be: Is
it large enough to provide the boost that the private sector is not
capable of providing right now?”
It’s doubtful that Obama’s belated pivot back to jobs will break the
power of the austerity class. The administration’s schizophrenic
approach to the economic crisis has left voters perplexed about where it
stands on the biggest issue of the day. “When you ask people, ‘What is
Obama’s economic policy?’ they have no idea,” says Democratic pollster
Stan Greenberg. “They think maybe it’s healthcare reform.” Obama’s
latest position—more spending to boost the economy, followed by deficit
reduction once the economy recovers—may be too nuanced for the public to
grasp (some in the austerity class, in an attempt to retain credibility
at a time of economic peril, now echo Obama’s view). “The Republicans’
message, ‘Government spending is a problem,’ is much easier to
penetrate,” says the EPI’s Irons. “The administration is missing a
simple point, which is that you need jobs to reduce the deficit.” That’s
why the EPI advocates a moratorium on austerity measures until the
unemployment rate is back down to 6 percent.
“Right now, front-loaded deficit reduction would be a disaster,” says
Stiglitz. “But a commitment to future deficit reduction, if it’s out of
tune with the economic recovery, as Bowles-Simpson was, would also be a
disaster. Even if it happens in the future, it could have an adverse
effect today. People will say, If I’m going to be poorer in the future,
I’m going to have to put more money away today.” Trading unemployment
insurance now for Social Security cuts later, for example, is not
exactly going to reassure an anxious public. “I’ll feel progress when
this notion that short-term spending has to be offset by cuts to Social
Security and Medicare gets the boot,” says University of Texas economist
James Galbraith.
The austerity class has done such a good job of demonizing deficits
that it’s difficult to make the case for their necessity, even in the
short term. “The damn thing has such a bad rap, it’s almost unimaginable
for a policy-maker to argue that we need a bigger deficit,” says
Bernstein. “But there are times when that argument is absolutely
correct.” Now is one of those times.
