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Sanctimonious Deficit Hawks Target Social Safety Net

First Posted: 06/29/10 06:12 AM ET Updated: 05/25/11 05:20 PM ET

Ellis Island Family

They come off as so reasonable, so high-minded, so balanced in their thinking.

They are the pillars of the Washington establishment, and they were everywhere you looked at Wednesday's gala "Fiscal Summit" organized by corporate-takeover mogul Peter G. Peterson's eponymous foundation. (C-SPAN has it all on video.)

Listen to them and they will tell you how troubled -- how very, profoundly troubled -- they are by the nation's rising debt and dangerous fiscal path. They will tell you very self-righteously how you should be troubled, too. And they will tell you that, fortunately, they know -- in fact, "everybody knows" -- what is best for all of us.

And yet, the illusion of beneficence shatters the minute they get into the details. Because beneath their moving platitudes, the only concrete deficit-reducing proposal that they all agree on involves cutting Social Security payouts, in part by raising the retirement age.

There is no consensus on which taxes, if any, should be raised. There is no consensus on how to reduce health costs. There is certainly no consensus on the need to slash our bloated defense budget.

No, their only fully developed policy proposal -- one to which they adhere to with nearly religious devotion --is that America's most successful social program needs to be scaled back so that it provides fewer people less money over a shorter period of time. This despite admonitions from progressive economists that they are exaggerating the positive effects of Social Security cuts on deficit reduction, while being cavalier about the effect on people.

As insurgent panelist Larry Mishel, the president of the Economic Policy Institute, said about the Social Security shortfall on Wednesday: "It happens to be that we can actually pay every benefit promised for the next 30 years or so. It's the least of our problems. But people cavalierly, like frankly [CBS News correspondent and moderator of the previous panel] Lesley Stahl did earlier, say 'Let's raise the retirement age.' But ... [while] life expectancy grew a lot over the last few decades... it only really grew for the people in the upper half of the income distribution. People in the bottom half of the income distribution are not living longer. So we have a fundamental problem of inequality that we have to deal with."

Peterson, however, just can't help himself when it comes to Social Security; for instance, he asks guest after guest to explain to the audience how the Social Security Trust Fund, which holds more than $2.5 trillion in government debt, is actually a fiction.

That $2.5 trillion Trust Fund is the repository of payroll taxes paid by generations of working Americans, and the government bonds it holds are backed by the full faith and credit of the United States of America. But to Peterson, that doesn't count, because the actual money that was paid in has been spent on other things and the government, to pay it back, would have to find the money somewhere else -- maybe in taxes, maybe by borrowing more money.

So while he won't say it in so many words, Peterson is essentially advocating for the U.S. to default on its debts -- not to the Chinese, of course, (that would "reduce investor confidence"), but to the American working people.

And although he won't say it in so many words, Peterson's message to the retirees, widows and orphans who depend on Social Security is: Sorry! We already spent all your money feeding the military industrial complex and paying for tax cuts for the rich and so on. We don't owe you a thing.

Doesn't sound so high-minded now, does it?

And consider the track record of these pillars of the Washington establishment. Many of these men, far from deserving trust and respect, should actually be disqualified from setting public policy.

For some, it's a matter of how they made their money. Peterson, for instance, made billions founding the Blackstone Group, which raked in huge fees for corporate takeovers that didn't actually end up serving anyone else's interests as much as its own.

For some, like former Federal Reserve chairman (and honored Peterson guest) Alan Greenspan, it's a matter of poor decision-making in the past. Greenspan's overconfidence in the market's ability to regulate itself was a major factor in the recent financial crisis.

And for some, like Robert Rubin, it's both. As Treasury Secretary under Clinton, Rubin was a leading architect of financial deregulation -- and then went on to nearly drive an increasingly risk-taking Citigroup into bankruptcy, even while enriching himself to the tune of $126 million.

What animates their animus against Social Security? There is apparently something about this triumph of the New Deal, the ultimate reflection of our society's concern for its elderly, that seems to offend them on a political or personal level.

And why such passion about the deficit? After all, there is a reasonable argument to be made that deficit spending is not such a bad thing.

I gather it has something to do with fears of rising interest rates and inflation -- things that may legitimately terrify bankers, but don't seem enough in and of themselves to justify such fervor among the rest of us.

And the real shame of it is that all this focus on deficits -- even if it's ostensibly on long-term structural issues -- is a big distraction from the real crisis upon us, which is unemployment and slow growth. The federal government has a critical role to play in creating more jobs, but scary talk of the deficit tends to make people afraid to spend money.

There is undeniably a need to take intelligent steps to restore some balance to the federal budget down the line, but now is absolutely not the time.

Meanwhile, Peterson's "Deficit Fest" was timed to come on the heels of the first meeting of President Obama's deficit commission. And what's becoming quite clear about that commission -- many if not most of whose members were attended the Peterson event -- is that there are more than enough votes to block any genuinely daring proposal, such as slashing military spending or enacting a carbon tax.

The way the commission was set up, any recommendations have to be supported by at least 14 of the 18 members.

So the only real question is whether there are five votes to protect the social programs that the deficit hawks find so dangerous.

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