How Pete Peterson is driving the fiscal consensus

April 20, 2012
Trudy Lieberman has a good post at CJR on the "surprisingly broad consensus" around the need to reduce the fiscal deficit in general, and to take aim at Social Security in particular.

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Trudy Lieberman has a good post at CJR on the “surprisingly broad consensus” around the need to reduce the fiscal deficit in general, and to take aim at Social Security in particular. “Social Security,” she writes, “is the one issue on which the electorate is not divided” — but that hasn’t stopped a bipartisan group of Washington grandees from preaching doom whenever it is brought up.

More generally, the idea of “fiscal responsibility” seems to have become as American as motherhood and apple pie — both parties preach it, and say the other guys are the profligate ones. The group of people saying “hey, we print our own money, interest rates are at zero, inflation is not an issue, the corporate sector isn’t borrowing, there are a thousand more important things to worry about right now, why on earth is everybody worried about the deficit all of a sudden” is in a decided minority.

The obsession about fiscal prudence is a new phenomenon, and can be dated, pretty much, to 2008, when Blackstone went public and Pete Peterson took his billion dollars in proceeds and decided to use it to found the Peter G Peterson Foundation. Wherever fiscal prudence is preached, Peterson’s money can nearly always be found.

On May 15, for instance, the PGPF is hosting the third annual Fiscal Summit, featuring fawning softball questions for Bill Clinton, John Boehner, Tim Geithner, Paul Ryan, Alan Simpson, and others. I myself was asked to moderate a discussion in New York a couple of weeks earlier, launching “A Curriculum for Teaching about the Federal Budget, National Debt, and Budget Deficit” called Understanding Fiscal Responsibility. Peterson’s going to be there, and the likes of Peter Orszag and Kirsten Gillibrand have been invited.

I’m decidedly dubious about the wisdom of teaching sovereign fiscal responsibility to high schoolers. For one thing, it’s inevitable that many teachers will resort to the personal-finance metaphor, and thereby teach something which is downright wrong. And if you look at the way these curricula are constructed, there’s an incredibly strong bias in favor of spending cuts and against tax hikes.

Take, for instance, the National Budget Simulation, a key part of many fiscal-responsibility lesson plans. Here’s how it works:

The new President of the United States has been elected on the promise of fiscal responsibility. He has promised the voters he will not raise taxes, and he will not reduce Social Security or Medicare…

Suddenly, the United States is subject to military attack — a turn of events not anticipated in the current budget. At the same time, a lingering recession reduces the government’s tax revenues and forces the government to increase its spending on unemployment benefits, welfare, housing assistance, food stamps, and other need-based programs. Because of the increased spending and reduced revenues, the nation falls into a projected deficit…

The President is committed to keeping his campaign promises, in order to maintain support for his reelection. He must protect the programs he promised to protect, and he cannot raise taxes, so he must cut spending on other programs… The President turns to you, his trusted economic advisor, for help.

One of the most annoying parts of the fiscal debate, at least for me, is the way in which it has become synonymous with spending cuts rather than tax hikes. Say “fiscal balance” and people start thinking in terms of means-testing Social Security, rather than, say, implementing a carbon tax or a financial-transactions tax. And so we get the likes of Paul Ryan being taken very seriously — Mitt Romney is positively gushing about him, these days — even as the idea of paying for expenditures by raising taxes becomes increasingly un-American.

Reasonable people can differ on the question of how important it is to balance the budget, but I think it’s fair to say that there are lot of screamingly important issues, from endemic long-term unemployment to global nuclear proliferation, which aren’t getting a fraction of the attention that fiscal policy is getting. Which only goes to show, I think, just how powerful Pete Peterson’s targeted millions can be.


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