Wall Street Banker Peter Peterson and the Deficit Ostriches

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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May 23rd, 2011 8:01 PM

Wall Street Banker Peter Peterson and the Deficit Ostriches

Last spring, Wall Street investment banker Peter Peterson hosted a lavish, daylong conference devoted to the budget deficit. One of the highlights was an appearance by President Clinton. Clinton boasted of how he had wanted to cut Social Security back in the mid-90s but Congressional leaders from both parties wouldn't let him.

The cut he had wanted would have reduced the annual cost of living adjustment by 1 percentage point annually. This would have left seniors in their 70s, 80s and 90s with Social Security benefits today that are about 15 percent lower than their current level. How great would that have been?

Peterson is back with Round II this week, another lavish affair devoted to the deficit. President Clinton will again be playing a starring role, although it is not clear whether he will still be boasting about his wish to cut Social Security benefits.

What is clear is that Peterson is using his vast fortune to push an agenda that has little to do with deficit reduction, and everything to do with cutting Social Security, Medicare, and other programs that are vital to ordinary working people.

This fact is apparent from the list of attendees. This is supposed to be a group seriously committed to deficit reduction, yet one of the highlights will be a talk by Rep. Paul Ryan, the Republican chairman of the Budget Committee.

Mr. Ryan is best known for a budget proposal that calls for $3 trillion in individual and corporate tax cuts over the next decade. These cuts are supposed to be offset by the elimination of tax deductions, except Ryan does not identify a single tax deduction that he wants to eliminate.

All he identified is $3 trillion in tax cuts, most of them going to the wealthy, that he wants to eliminate. In Peterson's world, giving up $3 trillion in revenue is deficit reduction.

The remarkable part of this story is that there are people who are talking about the budget deficit in a serious way. They are proposing solutions that enjoy the support of the American people and they are right in front of Peterson's nose, but he is doing his best to ignore them.

While Ryan will be touting his plan for adding another $3 trillion to the debt with more tax cuts for the wealthy, and increasing the cost of Medicare to the American people by $34 trillion, at least one of the groups at the conference will be presenting a budget plan that is much more in accordance with the views of the American people.

The Economic Policy Institute (EPI) will be presenting a plan at the conference that Peterson's group has scored as achieving sustainable budget targets in ways that are broadly consistently with polling data. (Two other groups presenting at the conference, the Center for American Progress and the Roosevelt Institute Campus Network are likely to present plans sharing many of the same themes, but their proposals are not yet public.)

There are several important principles guiding the EPI plan. First, it focuses on jobs and growth as the immediate problem facing the economy. It is ridiculous to be spending so much time yelling about the deficit at time when 25 million people are unemployed, underemployed or out of the work force altogether.

It is especially absurd when everyone knows that the economic crisis caused by the collapse of the housing bubble is the main reason that we have large deficits today. The main reason the budget went from deficit to surplus in the '90s was the unexpected drop to 4 percent unemployment at the end of the decade, not deficit reduction measures by President Clinton and/or the Republican Congress.

Once the economy is back near full employment, the EPI plan gets most of its revenue from increasing taxes on the wealthy, the big winners in the economy over the last three decades. It also includes a tax on Wall Street financial speculation, taxing the folks whose recklessness brought on this economic disaster.

The cuts focus on the military budget. It protects Social Security and Medicare, which are vital programs to the country's workers and their families, and actually increases spending on infrastructure, education and other areas that will foster long-term growth.

What is striking is that this program is broadly consistent with extensive public opinion polling on the budget. People don't want to see Social Security and Medicare cut. They think the rich need to pay more, and they see the military as the major area of spending most amenable to cuts. The Progressive Caucus, the largest caucus in Congress, put out a budget proposal along these lines last month.

Even Peterson's own America Speaks project came to similar conclusions. This project subjected groups of people at 19 sites across the country to six hours of Peterson-designed deficit rants. In spite of badly biased presentations, the story was the same. Don't cut Social Security and Medicare. Tax Wall Street and the rich and cut military spending.

The basic problem is that the country is entirely prepared to deal with the deficit in a reasonable and responsible way. However, the people's vision does not include Peterson's goals of gutting Social Security and Medicare. Rather than being "deficit hawks," in denying the obvious path forward on the economy and deficit, Peterson's gang can best be described as "deficit ostriches."