IOUSA: Failed Scare Flick of the Decade

Every few years there is a book or movie that stands out for its incredibly bad timing. As the Internet bubble exploded in 2000, the book Dow 36,000 quickly went from a work of inspired genius to intense derision. More recently, the 2005 book, Why the Real Estate Boom Will not Bust and How You Can Profit From It, has become one of the great jokes of the housing crash. As the country and the world attempts to recover from the wreckage caused by these bubbles, the new documentary, IOUSA, seems destined to join these two earlier classics of bad timing.

The basic story of IOUSA is that the United States suffers from a massive deficit problem. The film constantly comes back to the deficit using a variety of measures that are intended to scare viewers into action. After seeing the film we are all supposed to run to our phones and computers and demand that our representatives in Congress shut down Social Security and Medicare and double our taxes.

Hopefully, the film will not have this effect, because there is nothing that the economy needs more right now than very large deficits. The collapse of the housing bubble has destroyed more than $5 trillion in wealth. The fallout from this collapse has led to an even larger decline in stock market wealth. This massive loss in wealth in turn is leading to a plunge in consumption that is driving the economy into the most serious downturn since the Great Depression.

Economists from across the political spectrum agree that the only way to counteract this loss of consumption demand is through large increases in government spending. If IOUSA viewers manage to persuade their representatives in Congress to balance the budget then they will be guaranteeing the country another Great Depression.

Ironically, the heroes of IOUSA include many of the leading villains of the current economic crisis. The story prominently features Peter Peterson, whose foundation is helping to circulate the film. Mr. Peterson made a fortune running a Wall Street private equity fund, much of which he was able to shelter from normal taxation through the "fund managers' tax break."

Mr. Peterson is fond of telling audiences that he doesn't need his Social Security. Of course, no one would need their Social Security if they received tens of millions of dollars in tax breaks like Mr. Peterson.

The extensive media coverage that Mr. Peterson has received for his anti-Social Security and Medicare diatribes also helped to distract attention from those trying to call warn of the dangers looming from the housing bubble. While Peterson and his followers could count on extensive coverage from National Public Radio, the Washington Post, and other highly respected media outlets, those warning of the imminent crisis were almost completely ignored.

The film also interviews Robert Rubin. As Treasury secretary Robert Rubin promoted an over-valued dollar. The over-valued dollar made our goods uncompetitive internationally by raising the price of U.S. exports to foreigners and lowering the price of foreign made goods to people living in the United States. As a result, our trade deficit exploded, peaking at almost 6 percent of GDP ($800 billion) in 2006.

Rubin also pushed the one-sided financial deregulation that fueled the irresponsible lending practices of the housing bubble years. These were practices that he personally profited from as a top executive at Citigroup.

Finally, the film gives a starring role to former Federal Reserve Board Chairman Alan Greenspan. Greenspan will go down in infamy as the man who looked the other way as the housing bubble soared to ever more dangerous levels. He also claimed to be oblivious to the explosion of subprime and other high-risk loans during his tenure as Fed chair. More than any other individual, Alan Greenspan bears responsibility for the economic catastrophe facing the country. Audiences may find his lectures on the need to increase saving less than compelling at this point.

There is a grain of truth to the IOUSA scare story. The country has a badly broken health care system. If we don't fix the health care system then it will cause serious damage to the economy and lead to large budget problems in future decades since the government picks up roughly half of the tab for health care through programs like Medicare and Medicaid. Unfortunately, the film never clearly mentions the need for health care reform, focusing only on the budget and not the underlying problem with the private health care system.

The moral of the IOUSA story - the need to reduce the budget deficit - is so radically out of sync with the economic imperatives facing the country that it is likely to quickly fall from sight, perhaps to be resurrected in film festivals showing red scare films from the fifties. This would be a positive development for the country, since it would be an enormous tragedy if this film helped to dissuade the public from supporting the sort of stimulus package needed to prevent a long and extremely painful recession.

The director of the film, Patrick Creadon, is highly talented and clearly well meaning. Obviously he just fell in with a bad crowd when he decided to make IUOSA. Maybe for his next two films he should interview the authors of Dow 36,000 and Why the Real Estate Boom Will not Bust and How You Can Profit From It. This could be marketed as the "people who really got it wrong" series.

Comments

[brutusthebuckeye]

Are you serious Dean? This movie came out at the best timing. The worst timing would have been at the beginning of the Fed and Government induced bubbles when no one wants to listen because everything is so great. The American people need to listen to watch this film and wake up before it is too late. If you want to listen to people like Dean, go ahead... he was one of the same people who encouraged the policies that got us in this mess. Get past the blame game of what party caused the problem because both parties are to blame as little to nothing changes no matter who is in power. Study the great depression without the Federal Reserve goggles and you will see that the actions of the Central Bank and the Government caused the Great Depression and not free markets and we are heading down the same road again except this time we don't have the manufacturing base to build things back up.

[joebhed]

"" there is nothing that the economy needs more right now than very large deficits.""

With all due respect, Dean Baker couldn't be more wrong in this observation, while his overall take on the movie is spot on.

As one of the leading progressive economics writers of the day, it is high time that Dean and others turned their attention to the Chicago Plan and to Milton Friedman's minor postulation on monetary policy.

What we need is NOT deficits.
What we need is debt-free money and 100 percent reserve banking.
A la the Chicago Plan.
A la Mr. Friedman's writings on the money-quantity question.

We need bold leadership to solve the CAUSE of today's financial/economic imbroglio, and that is debt-money.
We need a new basis for a sound monetary system.
Google Treasury versus Federal Reserve System.

It's time for the Dean Bakers, the Naomi Kleins, the Bob Kuttners and the William Greiders of the center-left to come out and put forward the only solution to our financial crisis, WHICH HAS NOT HAPPENED YET, and begin to lay the groundwork for a treasury money issue system.

FDRs top economics advisors proposed such a plan.
At that time, Glass-Steagall and FDIC were "interim" measures, so that the Chicago school economists" proposal could be refined.
It's time to get back to where the people matter MORE THAN the banks.
Monetary reform.
And we will NOT need many years of huge deficits.

[leevntheus]

For F'n crying out loud to Jesus. Thank you for saving me all that typin'. While the mere name "Friedman" makes most college educated folks shiver...the grist of what he said and you highlight here is true. The Federal Reserve System and Debt/Asset Financing is a scam. OUR government...which by the way even though Hannity and Rush lead you to believe otherwise is US...should be the issuers of currency. Thomas Jefferson and others warned against the Fed system long before we were poisoned by TV and Video Games.

Thank You for your intelligent post.

[Novista]

I.O.U.S.A. is officially on the short list for an Oscar nomination in the Best Documentary Feature category. The film, directed by Sundance veteran Patrick Creadon (Wordplay), is among the 15 documentary features that will now advance in the voting process designating the final five nominees for next year's Academy Awards.

[redraspberry]

I have my gold stashed. These guys have an incredible track record. They may have the timing off but the end results are there to see. Fundamentals do not change with political winds.

[realityisbetter]

I'll pull out this article in a year or two when our dollar isn't worth the paper it's printed on. After this period of deleveraging, inflation will go sky high. Then we'll see if this goes on Baker's own list of "classics with bad timing."

We're in this mess because of too much borrowing and spending. People have borrowed too much because wages haven't gained on inflation in 40 years, mostly because trickle down economics starting in the 80's didn't trickle down.

We've become a comsumer society generating 70% of our GDP through consumption fueled by easy credit. We don't make anything anymore. The housing and credit bubble occured because we've printed and borrowed too much money already.

The solution of borrowing and spending more to create more credit and borrowing is like feeding alcohol to a drunk. The massive inflation on the horizon will only hurt the people who already can't keep up with inflation and are losing their jobs. Look at Zimbabwe and Argentina. Currencies do collapse and the dollar is not immune. Japan bailed out their banks and still haven't recovered in 2 decades.

After they give our future economic output for the next several generations to the bankers and corporations that caused this whole mess and exported our manufacturing base, we'll be broke and stuck with an even bigger debt to pay. When FDR did his thing, he started without an already existing huge national debt. It still took WWII to fix the economy.

[toomuchtolose]

It has always scared me when people start movements to get rid of social security. Sometimes there would be references to coverage for "wives and children," who was never intended to be part of the social security benefits. I always thought that was a reference to widows and orphans, and felt strongly that widows and orphans should be covered. It was only about 2 years ago that I understood what the "wives and children" reference really meant. It's not about widows and orphans. An affluent married man who could afford to have his wife stay at home to take care of the children, reaches retirement age and starts to receive his social security benefits. He gets the full amount for himself and his wife gets an additional one-half for herself. The wife who stayed home and never worked gets a social security check too. Why is that? It's OK with me if the husband paid extra for her, but that's not how it works. She gets the additional one-half just because she's his wife. That needs to be corrected.

[plwood01]

What about the single mothers who are divorced from a wife beating slug who runs off with the secretary or a younger woman who he then has kids by and supports while he ignores the first ones he has and refuses to pay adequate or no support! Or those men who do not work long enough to earn social security benefits in the first place and the wife who held the family together before getting the divorce, they cannot I suspect, get the same extra benefit? Everything in this country is built on underhanded dealings and fleecing the people that the worse in our society, rich folks, get rich on! I vote for a complete overhaul of everything, now that Bush is out. Because we have so much to do we might as well start going over everything and what works keep it, what does not, get rid of it! Obama is proably the only person to get this done right now, to wait for a minute after the inauguration would be to "continuing to fatten frogs for snakes!"

[aweissnet]

I believe if you were married for at least 10 years to said a**hole, that you are entitled to social security benefits (in their name) at some point. Of course, by the time you are retired, they may change that law. They change laws on a moment's notice, and usually it is not to your benefit.

[Imago]

So let me get this straight...

If a woman (or man, for that matter) makes the choice to stay at home and invest in her family and in her community with volunteer efforts, that lifetime's worth of work has no value?

So if her husband drops dead, she's out of luck? That the only people this country will help support are those who were actually making a wage, and the better the wage, the better the back end?

We define the commerce of our communities and country way too narrowly. Think about all of the people that you know who have chosen a path that is in support of others -- through nonprofit work, volunteer work, etc. And think about how much your community is impacted by them.

Do they not deserve a dime when they get older while the people who went for the salary do?

[toomuchtolose]

Social security benefits are based on the amount of money you have paid into the system over your working years. Let's say there is a single woman who has never worked in her life. Maybe she never left home for some reason, but she helped around the house. Maybe she volunteered here or there over the years. But she never held a paying job and never paid into the social secuity system. Guess what. Her earnings account comes up empty. It's not a matter of whether she's a nice person. It's not a matter of whether she helped other people.
She hasn't paid into the system. She has no earnings. She doesn't qualify. Social Security was not set up to handle her. If she isn't entiled to benefits, why should the wife of an affluent businessman be entitled to benefits, just because she is his wife, and for no other reason.
So, Imago, are you the spouse of a retired businessman or businesswoman? Does this hit home for you?
And, if the spouse drops dead, then that makes the surviving spouse a widow/widower and that person IS entitled to benefits, as are the orphans, which is as it should be. But for every person you described doing volunteer work, there are probably a lot more affluent wives who indulge themselves, go to the gym, go shopping, meet their friends for lunch, etc. And do they deserve social security benefits too?

[BluGuitar]

I only saw the 30 minute version. The message I got was very simple - we as a country are in
serious debt. Unless you believe we don't have to pay it back (even the stolen soc sec money)
this is not good. I can't believe this message is getting blasted. The entire financial collapse we
are in is a function of extremely irresponsible debt...leverage on top of leverage. Now we are in trouble here and while some short term increase in Gov't debt may be the only remedy there is more trouble brewing down the road. Probably a bigger version of what is now happening. Our children and their children will
have to deal with this - somehow.

I just don't get the problem with putting this on the table for all to see. So Dean I think your perspective
is slightly insane!

[BrentGreenCO]

Social Security serves a role similar to defined benefits retirement programs; yet participation in these programs by employers has been shrinking since the 1980s, from over 70% of all employers to less than 35% today.

Just imagine the situation today's retirees would be confronting had all their retirement benefits been tied to today's market conditions. Fund managers would be doing fine (as are Wall Street"s hedge fund managers); many retirees would be eating dog food. Or, we taxpayers would be looking at another massive bailout.

Although Social Security is not a program offering sufficient individual benefits to support a middle-class lifestyle in retirement, around 40% of all beneficiaries rely entirely on Social Security for their post-retirement income. Even though social insurance cannot make up for inadequate savings or resources, it can and does serve as the foundation of a balanced retirement plan for many Americans.

The movie sponsors also ignore sociological factors that will mitigate debt. For example, 70% of the Boomer generation intends to keep being productive after the traditional time of retirement. Even if half of this percentage continues working into their late sixties and early seventies, this will go a long way in addressing unfunded liabilities when Boomers continue earning income and paying taxes.

Sharing Mr. Baker's disgust over I.O.U.S.A., for generational reasons, I launched a challenge website entitled "U.S.A.G.E." -- "U.S. Aging Means Enlightenment." http://boomers.typepad.com/usage.

[rabiddog6708]

Keep telling that deficits don't matter as your wiping your behind with the dollar bill....when the dollar is as worthless as toilet paper. Keep printing the money and spending like there's no tomorrow and you'll find great bargains in the USA's Going Out Of Buiness Sale.

[RJII]

is there much left to sell?

[motoGpifupleez]

Chalmers Johnson, the author of Blowback, The Sorrows of Empire, and Nemesishas a very blunt critique of the hugh deficits the US is running up: deficits don't matter if you have no intention of ever paying the money back. How is this option possible, you ask? Quite simple in Mr. Johnsons work. Given our worldwide military presence with ove 700 bases coupled with our staggering stockpile of nuclear weaponry, what creditor nation in their right mind is going to call in that debt? There's something to be said for being the bully on the block, eh?

[Elliott32]

I don't trust the so-called experts anymore. These "experts" caused this crisis. Now they are rich, while everyone is poorer. Hmmmmmmmmm.....................

[richardvjohnson]

We could run huge deficits for many years and not have a national debt as big as Japan or Italy as a ratio of debt to GDP. Big investments in infrastructure and new technology just might turn around our trade deficit, which is long-term a bigger problem than budget deficits. And deficits for investment rather than consumption and needless wars would be a whole new thing, not tried since the Eisenhower-era creation of the interstate highway system.
The fact that the dollar has gone UP during the recent turmoil says a lot about how global investors really feel.