As unemployment continues to rise, deficit hawks are upping their efforts to use the economic crisis as a pretext for gutting basic social programs such as Social Security and Medicare. The idea keeps surfacing for a bipartisan deficit-reduction commission, supposedly insulated from politics, which would agree to mandatory caps on spending and perhaps increased taxes as well. Social programs would take the biggest hit. Congress would then take an up or down vote on the whole package.
The latest ploy to promote such a commission is to use the upcoming vote on increasing the national debt, scheduled for late November. Democratic deficit hawks such as Sen. Kent Conrad of North Dakota are working with Republicans such as Judd Gregg of New Hampshire, to condition an increase in the debt on creation of a panel. They have some allies in the White House such as Office of Management and Budget Director Peter Orszag, who has intermittently signaled support for such a plan. The Senate Budget Committee will be holding hearings on this idea in mid-November, according to The New York Times.
The whole approach is bad economics and bad politics on several grounds. First, there is no evidence for the premise that financial markets are anxious about the rising debt. As Dean Baker observes, they keep buying the Treasury's long-term bonds at a low 3.5 percent interest rate. If there were worry that the increased debt would spike inflation, investors would be demanding higher interest rates.
Secondly, it is not "entitlements" that have caused the big increase in the deficit and the debt. The cause is plummeting tax collections as a consequence of the recession. Social Security will be surplus for another generation, and both the House and Senate versions of the health reform bill do not add to the deficit, but help cut costs.
Third, obsessing about debts and deficits when the economy is still losing jobs has it exactly backwards. We probably need bigger deficits for a year or two, to propel a strong recovery. Higher growth will then bring the debt back down to tolerable scale. In World War II, deficits averaged about 25 percent a year (compared to under 10% this year.) But all of that war spending rebuilt the economy and powered three decades of economic boom and the big wartime debt was soon paid off.
Finally, the idea that such a commission could be "above politics" is a deception. The politics--very conservative politics--would be baked into the cake. Republicans on it would resist higher taxes except perhaps for regressive ones such a national sales tax or value added tax. The skids would be greased for deep cuts in Social Security, Medicare, and Medicaid--even before health reform took effect. This would gut all the promises candidate Barack Obama made for a more just America.
Instead of being Mr. Consensus, and trying to please both sides, President Obama needs to weigh in strongly against the idea of a commission before it gains further traction. The House Democratic leadership, mercifully, thinks the commission is exactly the wrong medicine, and has told the White House so.
I spoke with House Speaker Nancy Pelosi on Friday. She favors a plan to increase spending as necessary in the short run to fight the recession, and then significant deficit-reduction once recovery comes--but not via a commission. "Let's have a public conversation in the people's House and in the Senate. This is a very important debate, and is shouldn't be done behind closed doors," she told me, adding: "My responsibility is to protect Social Security and Medicare. If some of the people at the table are opposed to protecting Social Security and Medicare, I'd have big problems. Congress passed these programs in the 1930s, and the 1960s. Why should we give someone else the power to decide their future?"
The press for a debt-reduction commission, promoted by scare-mongers such as the Peter G. Peterson Foundation, is really an attack on social insurance masquerading as principled concern for the public fisc. It wasn't entitlements that caused the crash--it was financial high rollers who pushed for deregulation and then exploited it, such as Peterson and his friends.
If you can believe it, the latest gimmick of the Peterson Foundation is an invitation to compose haiku on the alleged fiscal crisis. I kid you not. Here's what the foundation recently sent its supporters:
As one of our most active supporters, you've proven your commitment to the Peter G. Peterson Foundation's work time and time again. We're grateful for all you've done -- and we're excited to offer you a sneak peek of our newest initiative, Fiscal Haiku.
The site doesn't officially launch for a few more days, but we're inviting you to take a look before the rest of the country. Below is a copy of the message we'll be sending out for Fiscal Haiku's formal debut -- please visit www.fiscalhaiku.com and start submitting your odes to the economy!
The Peter G. Peterson Foundation
Okay, Pete. Here is my own entry:
Spreading fiscal fear,
as principle. Shame!