Wayne O’Leary

Attack of the Deficit Hawks

Some familiar birds of prey have suddenly taken up residence in Washington, D.C., fresh off their migratory flight southward from the canyons of Wall Street. These carnivorous feathered friends have already laid their eggs (in more ways than one) near the studios of the cable-news networks and the editorial offices of the mainstream press. Now, they’re hovering around the White House and the halls of Congress, anxious to see if their previous brood of hatchlings, conceived in the nests of the right-wing think tanks, have survived the recessionary winter and begun to propagate further.

There are some big birds among this flock. Two of the biggest are the co-chairs of President Obama’s 18-member “bipartisan” National Commission on Fiscal Responsibility and Reform: Erskine Bowles, a centrist (what else?) Democrat from North Carolina and chief of staff in the Clinton administration; and Alan Simpson, a conservative Republican and former senator from Wyoming.

Bowles, a budget-balancer who argues the federal deficit is on an “unsustainable path,” wants to cut it by $240 billion a year over the next five years, mostly by slashing government spending, including outlays for entitlements like Social Security. Simpson, whose hatchet is wielded with unabashed delight, wants to focus his attentions on Medicare and Medicaid. In passing, both mention raising revenues, but they clearly give it a far lower priority than budget reduction; their presumed recommendations (a report is due in December) shape up as a call for a fiscal night of the long knives.

Bowles and Simpson come to their charge (a balanced budget by 2015) as more or less sworn antagonists of the existing entitlement system. Bowles headed up the Clinton administration’s shortsighted effort to forge a partial privatization of Social Security in the late 1990s by triangulating with a cooperative Newt Gingrich; the move was thankfully derailed by the Lewinsky scandal. Simpson, for his part, is famous for his “anti-geezer” rants and zany witticisms about the wastefulness of the retirement safety net that benefits supposedly greedy seniors. Both of these birds, more carrion crow than hawk, can be expected to scratch around furiously for savings in the social-insurance programs, rather than flapping their wings about the bloated Pentagon budget ($700 billion for fiscal 2010), which is regarded as virtually sacrosanct. They’ll have plenty of help; only 4 of the fiscal panel’s 18 members are identifiably liberal.

Perhaps the biggest deficit hawk of them all is one Peter C. (“Pete”) Peterson, co-founder of the bipartisan (that word again) civic group the Concord Coalition, established in 1992 to advocate for federal deficit reduction or, as its web site puts it, “generationally responsible fiscal policy.” Republican Peterson is a former investment banker (Lehman Brothers), private-equity manager (the Blackstone Group), secretary of Commerce (the Nixon administration), and certified Forbes-400 billionaire. More to the point, he is said to be a privileged “F.O.B.” (friend of Barack), who has the president’s ear on things budgetary and sees his chance, after 20 years of crying wolf, to see his green-eyeshade notions enacted into law. This is the second time around for Peterson, who in 1994 was appointed to Bill Clinton’s bipartisan Commission on Entitlement and Tax Reform.

Social Security and Medicare are always going broke, it seems, but they never quite get there. Every half-generation or so, another group of fiscal alarmists predicts the imminent demise of the federal entitlements (read: undeserved handouts) and waits, hopefully, for it to happen. Since the social-insurance system is run by government and did not spring magically from the workings of the pristine marketplace, it must, ipso facto, be uneconomic, enervating, wasteful, and bound to fail.

The truth is the entitlements will not become insolvent unless we permit it to happen. There are any number of fixes for short-term imbalance: reforming the FICA tax, for example, to have it apply to all annual income, with no arbitrary cutoff at $107,000, as at present. The universal solution of conservatives, privatization, is an absolute nonstarter; if implemented a decade ago, as proposed, millions of seniors would now be destitute.

President Obama appears to understand this — he backed a modest additional FICA tax on high incomes in 2008 — and despite his own budget whisperers, he seems cognizant of the role of public investment. At June’s G20 conference in Toronto, he resisted the siren call of the international fiscal hawks, not specifically on entitlement spending (a peculiarly American issue), but on government stimulus spending in general.

Obama, a stalwart progressive champion for once, took on most other Western leaders in defense of stimulative Keynesianism aimed at dragging Europe and North America out of the Great Recession. In proposing to postpone any across-the-board austerity measures until world economies are on their feet, the president ran headlong into expressions of resurgent conservative dogma: cut taxes and budgets to the bone, or we will all become Greece, our public sectors wildly out of control and our balance sheets permanently in the red.

The corporate mass media immediately endorsed this panic-based conventional wisdom and cast Obama as an unrealistic outlier, but the fact is his sensible prescription (needed stimulus now, necessary retrenchment later) was rejected by a G20 in which the major players (Britain’s Cameron, Germany’s Merkel, France’s Sarkozy, Canada’s Harper, Italy’s Berlusconi) are all doctrinaire conservatives. These global Hooverites, consumed by the latest austerity craze, are willing to ignore recession and joblessness, and callously curtail government’s pump-priming function. Franklin D. Roosevelt, for one, knew better; his Keynesian budgets relied on deficit financing throughout the Depression and World War II with generally positive results, but the lesson has evidently been forgotten in a return to 1929 thinking by the European Union.

For a sense of where all this is heading, one need go no further than the recent chaos in the staid British Parliament. When Conservative Prime Minister David Cameron’s new austerity budget was introduced, calling for drastic reductions in public services, a cut in corporate taxes, and a corresponding rise in value-added (sales) taxes paid by average Britons, the joint, so to speak, erupted, with opposition Labourites inflamed, reenergized, and looking for Tory scalps. Unless America’s Democrats meekly surrender, this emerging, left-right confrontation on worldwide economic policy will be coming to legislative bodies and election venues near you. Stay tuned.

Wayne O’Leary is a writer in Orono, Maine.

From The Progressive Populist, September 15, 2010