THE BLOG
03/23/2010 05:12 am ET | Updated May 25, 2011

Gray Matters : Beware of Pete Peterson

Pete Peterson is still at it, and he's still wrong. He's the billionaire financier who, along with his Wall Street buddies, watched the economy burn, let dozens of old companies go bankrupt, a couple of hundred community banks close and millions of people get thrown out of work.

Yet here he is again, as I remember him more than a decade ago, crusading with his billions to cut the Social Security benefits, disability and survivor insurance payments for millions of Americans because he believes that the $120 or so a month that they get will break the United States.

But this time, alas, his hopes to slash and burn the social insurance contracts with America, are getting some sympathy in the Congress and even the White House, more on which in a moment.

I do not exaggerate; I am merely carrying to its logical conclusion his efforts, now before the Congress, to sharply change, replace and certainly cut the nation's twin Social Insurance entitlement programs for older and disabled Americans. Peterson, a former cabinet officer in the Nixon administration, supported George W. Bush's 2005 failed effort to turn Social Security into millions of Wall Street accounts.

He profited from Bush's tax cuts for high-end earners and he remained silent in the face of billions in off-the-budget war spending. Yet, as Ronald Reagan once did, Peterson and his right-wing allies are deliberately using the growth of federal deficits they helped create to argue for reining in spending on Medicare and Social Security, neither of which he will ever need.

Peterson gets a good and respectful press as a fiscal conservative. So it would be instructive to look back on his crusade, for according to historian and Guggenheim Fellow Theodore Roszak, in his 1998 book, "America the Wise," Peterson is one of the first to call attention to "The Gray Peril."

Instead of celebrating the great strides in achieving longevity, says Roszak, Peterson invoked fear that the fast growing population of layabout older Americans and aging boomers will overwhelm America's economy and its social, medical and cultural structures.

Roszak recalls that in 1996, Peterson, who made billions as CEO of now-defunct Lehman Brothers then as co-founder of the private investment firm, the Blackstone Group, wrote in the Atlantic that senior entitlements are unsustainable, undeserved, unprincipled, and unfair. Said Peterson, "we now face public budgets strained to the breaking point by demographic aging which will crowd out all forms of capital accumulation, private and public, material and human." He saw (the horror of it all) "a nation of Floridas" as part of "a gray wave of senior citizens that fills the state's streets, beaches, parks, hotels, shopping malls, hospitals, Social Security offices and senior centers."

Peterson's money created the Peterson Foundation, run by former Comptroller David Walker, the Concord Coalition, headed by Peterson, and most recently The Fiscal Times, for which he hired out-of-work journalists--all of which has been aimed to reduce the budget deficit by slashing entitlements, especially the largest and most lucrative for Wall Street--Social Security, which provides benefits of more than $620 billion a year and has nearly $3 trillion in reserves, much of which is in special, interest-bearing Treasury bonds.

It's more than strange that the press should take his age-mongering seriously, for despite the economy's meltdown, Social Security was able to give its beneficiaries raises of nearly six percent last year and, according to its (mostly Republican) trustees, is safe and solvent for at least another 30 years, which is more than many banks, blue chip companies and the late Lehman Brothers could say. Social Security, celebrating 70 years of helping millions avoid poverty, may become the last defined benefit program standing, as private companies end their traditional pension systems for those iffy, market-oriented defined contribution 401(k)s that Peterson and friends favor. Defined contribution plans are not good for retirement, say the experts, but they're a good way for business to shift responsibilities to employees.

But even the fiscal uber-conservative Alan Greenspan, has said Social Security's projected shortfall in 2037 is "not a big problem," and could be solved without slashing benefits. His 1983-4 commission, appointed by Reagan, which so many seem to have forgotten, fixed Social Security for 75 years with various actions, including raising payroll taxes, in order to provide benefits for the 76 million aging boomers, who Peterson says will overwhelm the system. The boomers are aging, but Social Security and the nation have not been shaken.

It is true that Social Security has run into temporary trouble because high unemployment has diminished its current receipts in payroll taxes, but it ruled out a cost-of-living raise for the next year or two to save billions and the system has ridden out other recessions without missing a benefit payment and is expected to do so again. In 2009 Social Security took in $180 billion more than it paid out and the Congressional Budget Office said full benefits can be paid through 2043.

Another point seemingly ignored by these deficit crazies is that Social Security, while paying out retirement, disability and survivor insurance benefits does not cost the federal budget a single penny, aside from its administrative costs. I repeat, Social Security is not a drag on the budget; indeed it earns $700 million a year in interest.

Specifically, because of the extra work and thousands of new personnel required by new programs and the recession, Social Security has asked for $11.6 billion in 2010 for its more than 71,000 employees and 1,400 offices throughout the country. That's less than one percent of the total benefits it pays and it is the only budget expenditure for Social Security.

So why this "entitlement hysteria," as the New Republic's Jonathan Chait called it a year ago? Social Security is no longer the problem it has been, said Chait, "but among Washington's establishment types who remember those days, the issue retains its totemic significance. Entitlement hysteria becomes less a response to a crisis than an expression of statesmanship."

Thus Peterson, with the help of the hack media, has persuaded members of Congress, like Sens. Kent Conrad, D., ND, and Judd Gregg, R, N.H., to propose a deficit reduction commission to focus on controlling entitlements-Social Security and Medicare-and to come up with cost savings solutions that Congress must either approve or disapprove without amendment.
And while that is not expected to pass, President Obama, who has pledged not to weaken Social Security or Medicare, is about to cave in to Peterson's allies and sign off on a similar type commission to cut the deficit in general but entitlements in particular.

AARP, which strongly opposes such a commission, along with virtually every aging organization, labor unions, advocacy groups and most Democrats, has noted in a paper on "Entitlement Growth and the Economy," that entitlement spending has actually been stable as a percentage of the Gross Domestic Product for the past two decades and by 2016 "it will still consume about the same share of the economy as it did when Reagan was elected."

The great exception is the alarming growth of health care spending, including Medicare and Medicaid. And that's one reason why Peterson and company should be supporting rather than opposing Democratic efforts to pass proposed health reforms, including the $500 billion in Medicare savings over ten years, much of it in subsidy payments for private insurance companies, which Peterson's fellow Republicans and Wall Streeters are trying to torpedo. If Peterson and others were truly worried about the deficits, they would be in the front ranks of those fighting for universal health care and an end to the trillions that are being spent on war.

Why does Peterson concentrate his efforts on Social Security? He gave his motive away in 1996 when he complained that the growth of Social Security among other entitlements "will crowd out all forms of capital accumulation." Give Peterson his due; he's smart enough to know that Social Security is not in serious difficulty, that it's not a big drag on the federal budget and that it's not "Ponzi scheme," as some ignorant right-wingers charge.

But Social Security's nearly $800 billion a year in income and its growing trust fund are tempting for a shrewd financier and the Wall Street crowd; they demonstrated that in 2005. What a prize it would be for the wonderful world of finance if, as Peterson now proposes, at least part of Social Security's revenues and its trust fund could be available for investment or government programs to his liking..

Fellow Wall Streeter and present Federal Reserve Chairman Ben Bernanke, a co-conspirator in the financial disaster, testified last month before the Senate Finance Committee and called for cutbacks in Social Security and Medicare to lower the deficit; he aimed not at higher taxes, but the entitlements to balance the budget, which would make more capital available for investment. He explained, "Willie Sutton robbed banks because that's where the money is. The money in this case is in entitlements." Pete Peterson must have applauded. Will Obama become an accomplice?

Friedman also writes for www.timegoesby.net and may be reached at saulfriedman@comcast.net

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