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Fiscal Futility

Austerity is a false cure for a prolonged recession. The Peterson Foundation is using a genuine crisis as an excuse to bash social insurance, at a time when we should be expanding social insurance. It's appalling that so many people are gulled by this propaganda.
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On Tuesday, the Peter G. Peterson Foundation will hold its third annual fiscal summit. We need this event like we need a mass outbreak of sado-masochism.

If you wonder why all right-thinking people seem to have concluded that austerity is the royal road to economic recovery from a severe financial collapse made on Wall Street, look no further than the Peterson Foundation. Pete Peterson, a Republican with prodigious Democratic and media connections, who made his fortune in private equity, has committed a cool billion dollars to the task of persuading less affluent Americans to tighten their belts. He is the cynical center's answer to the Koch Brothers.

The Bowles-Simpson commission on deficit reduction, the idea of automatic triggers to cut deficits in a recession, the goal of a grand bargain to raise taxes and slash Social Security, the covey of bipartisan deficit hawks, the blurring of the issue of long term solvency for Medicare and Social Security with the issue of a recovery strategy, are all part of the Peterson Foundation's grand design. The Washington Post's Lori Montgomery faithfully echoes Peterson's line, as do one tedious column after another by the likes of Tom Friedman on the center-left and David Brooks on the center-right.

The Peterson Foundation has relentlessly promoted the idea that the main economic challenge today is to set a target ten years down the road for a reduced ratio of public debt to GDP, on the premise that this will somehow restore economic growth. President Obama has dutifully obliged, targeting ten year cuts of $4.4 trillion in his FY 2013 budget. The House Republicans, using far more inventive accounting, target $5.3 trillion. The two budgets are far apart in how they treat taxes and social spending. Obama would raise taxes and defend social outlay, while the Republicans would cut both. Yet, at a time when Democrats and Republicans agree on nothing else, they bizarrely agree on belt-tightening in a recession.

However, the fact remains that the very idea what we can specify budget cuts in a deflationary recession, and imagine that they will lead is to a predictable debt ratio, is economic fantasy. Why? Because the budget cuts themselves will reduce the economy's overall purchasing power, leading to slower growth and reduced revenues -- and larger deficits. (That's the real analogy with Greece.) The reduced debt ratio thus is a mirage.

Yet the Peterson Foundation has succeeded brilliantly in creating the sense that every right-thinking person agrees that the top priority is to reduce the debt ratio, and we're just arguing about the details.

At Tuesday's summit, Bill Clinton will offer his version of a deficit reduction plan. Tim Geithner will offer his. Likewise Rep. Paul Ryan, and Democratic Congressmen Chris van Hollen and even Xavier Becerra of the House progressive caucus, and, inevitably, Alan Simpson of the late Bowles-Simpson Commission. Clinton, who will be interviewed by Tom Brokaw, has partnered with the Peterson Foundation on other initiatives. Another speaker is economist Carmen Reinhart, an expert on debt crises, who works at yet another institute named for Peterson. Also speaking will be Foundation's president and CEO, Michael Peterson, son of the benefactor. (The entire board of directors is Pete Peterson, his wife, and son.)

What you don't get to say at a Peterson Foundation summit is that the whole premise is insane; that we need to target growth and jobs first, with larger deficits as necessary, and that deficit reduction will eventually follow as the economy recovers. The press coverage of these events invariably reinforces the Peterson script that everyone's for deficit reduction first, even people like Paul Ryan and Chris van Hollen, who agree on nothing else.

Democrats, it seems to me, should boycott these events, instead of giving aid and comfort to one of the era's great propaganda machines and allowing themselves to be window-dressing for a conservative agenda that is anti-jobs, anti-recovery, anti-social insurance, and just plain wrong-headed economics.

In the past four years, according to its tax filings, the Peterson Foundation given seven-figure grants to Columbia Teachers College to create a curriculum on fiscal responsibility. A group called America's Promise Alliance got a million dollars to educate young people on the fiscal crisis. The National Academy for Public Administration received $783,000 for "development of fiscal learning tool, Budgetball, to bring fiscal awareness to college students and others." The Public Agenda Foundation of New York got half a million dollars to promote "college student fiscal awareness" -- and dozens more.

Peterson allies created a "Fiscal Wake-Up Tour;" then the foundation underwrote a pseudo-documentary called I.O.U.S.A. that covers the tour, and then paid PBS to air the same film about itself. The movie also showed in some 400 theaters, and was broadcast as part of a CNN special on the fiscal crisis that Peterson's people co-produced. The Peterson family has underwritten Fiscal Times, a web newspaper devoted to budgetary austerity, whose offerings The Washington Post carries as if it were legitimate news coverage.

All of this is devoted to a single goal -- a national consensus on austerity and pressure on politicians of all stripes to embrace it.

America today is contending with not one but two brands of know-nothing conservatism. We have the populist right in the form of the Tea Parties, and we have the Wall Street right parading as sensible centrists who want the economy to deflate its way to recovery. The former, at least, denies science, promotes gun-toting, savages gays, and craves theocracy. It wears its extremism on its sleeve. The Peterson right, if anything, is far more insidious because it masquerades as a disinterested, statesmen-like solution to partisan deadlock and economic crisis.

Austerity is a false cure for a prolonged recession. The Peterson Foundation is peddling fiscal snake oil. It is using a genuine crisis as an excuse to bash social insurance, at a time when we should be expanding social insurance. It's appalling that so many people are gulled by this propaganda.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.

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