Next weekend will feature another milestone in the drive to cut Social Security and Medicare. The organization America Speaks will be hosting a series of 20 meetings in cities across the country. They will ask the people at these meetings, a cross section of the nation, to come up with proposals for dealing with the country’s projected long-term budget deficit.
The way the problem is outlined for these meetings virtually guarantees that most of the participants will opt for big cuts to Social Security and Medicare. The results of this song-and-dance exercise will then be presented to President Obama’s fiscal responsibility commission on June 30, which will use it as further ammunition for plans by its co-chairs to gut these programs.
The rigged-deck approach should come as no surprise. America Speaks is largely funded by Peter G. Peterson, the investment banker billionaire, who has been on a decades-long crusade to gut these programs. In recent years, Peterson has redoubled his efforts, committing more than a billion dollars to a wide variety of groups in addition to America Speaks. To advance his agenda, Peterson has even set up a fake news service, the “Fiscal Times.” To fill the staff, Peterson’s son hired a number of reputable reporters, who were displaced by the collapse of the newspaper industry.
The “Federal Budget 101,” the guidebook for the discussion, follows a predictably shoddy path. The book discusses the budget in almost complete isolation from any larger discussion of the economy. There is virtually no discussion of the ways in which the budget fosters growth, for example by funding education, research and infrastructure, nor the way in which the pattern of growth affects the budget.
For example, the booklet never discusses the extent to which the economic mismanagement that allowed the unchecked growth of an $8 trillion housing bubble contributed to the debt that is its central concern. The downturn caused by the resulting economic collapse will eventually add more than $3 trillion to the country’s debt, according to the Congressional Budget Office’s projections.
The booklet also neglects to point out the extent to which the long-term budget disaster story is driven by our broken health care system. If per person health care costs in the United States were the same as in any other wealthy country, we would be looking at enormous budget surpluses in the long-term, not deficits.
Incredibly, the booklet does not even point out the fact that income is projected to grow over time. The average hourly wage is projected to buy 20 percent more in 2025 (the year for which participants are supposed to design a budget) than it does today. This knowledge might affect how people view things like tax increases. For example, if we know that people will be on average 20 percent richer, we might be less concerned if their tax rate were to rise by one to two percentage points.
The booklet also never mentions the plunge in wealth that older workers have suffered as a result of the collapse of the housing bubble and plunge in the stock market. This has left the bulk of near retirees (those in their late 40s and 50s) facing retirement with almost nothing other than their Social Security and Medicare.
The booklet even gets its basic economics wrong, warning participants at the very beginning that rising deficits can lead to a weaker dollar. In the real econ 101, students learn just the opposite – that budget deficits can jack up interest rates, leading to a stronger dollar. This is how a budget deficit can be tied to a trade deficit – by raising the value of the dollar. A higher dollar makes US exports more expensive to foreigners and imports cheaper for people living in the United States.
People who want to see our trade deficit fall want a lower dollar. Getting the value of the dollar down (not up) is an argument that more serious people would give for a smaller budget deficit. Peterson should have been able to get a better product for his millions.
Finally, it is striking that not a single person connected with this project was among those who warned of the housing bubble before its collapse wrecked the economy. Ostensibly, America Speaks tried to include a diverse range of economists and policy analysts. Yet, in the category of people who recognized the biggest economic disaster of the last 80 years, America Speaks came up completely empty.
To put this in perspective, suppose Peterson had funded this exercise back in 2004, when the housing bubble was already huge, but still at a point where it could have been deflated without devastating the economy. This group would have given us a great discussion of the 2020 deficit, but said nothing about the tsunami that was about to wreck the economy (and send the deficit skyrocketing).
Unfortunately, there is no reason to assume that the America Speaks’ crew’s understanding of the economy is any better today than it was in 2004. We need more serious analysis than this propaganda exercise as a basis for deciding the fate of essential programs like Social Security and Medicare.