CEOs’ self-serving deficit manifesto

By Felix Salmon
October 25, 2012
WSJ has what it calls "CEOs Deficit Manifesto " -- a copy of the letter, signed by 80-something US CEOs, urging action on the debt and deficit.

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The WSJ has what it calls “CEOs Deficit Manifesto ” — a copy of the letter, signed by 80-something US CEOs, urging action on the debt and deficit. It’s not a particularly impressive document. It starts like this:

Policy makers should acknowledge that our growing debt is a serious threat to the economic well-being and security of the United States.

It is urgent and essential that we put in place a plan to fix America’s debt.

MW-AR995_debt_f_20120607165649_ME.jpgThis is ridiculous. There are lots of serious threats out there to the economic well-being and security of the United States, and the national debt is simply not one of them. Nor is it growing. The chart on the right, from Rex Nutting, shows what’s actually going on: total US debt to GDP was rising alarmingly until the crisis, but it has been falling impressively since then. In fact, this is the first time in over half a century that US debt to GDP has been going down rather than up.

So when the CEOs talk about “our growing debt”, what they mean is just the debt owed by the Federal government. And when the Federal government borrows money, that doesn’t even come close to making up for the fact that the CEOs themselves are not borrowing money.

Money is cheaper now than it has been in living memory: the markets are telling corporate America that they are more than willing to fund investments at unbelievably low rates. And yet the CEOs are saying no. That’s a serious threat to the economic well-being of the United States: it’s companies are refusing to invest for the future, even when the markets are begging them to.

Instead, the CEOs come out and start criticizing the Federal government for stepping in and filling the gap. If it wasn’t for the Federal deficit, the debt-to-GDP chart would be declining even more precipitously, and the economy would be a disaster. Deleveraging is a painful process, and the Federal government is — rightly — easing that pain right now. And this is the gratitude it gets in return!

The national-security angle is just silly: there’s no evidence at all that the United States is any more vulnerable at times of high debt than it is at times of low debt. And even if it might be essential that we put in place a plan to fix America’s debt, it certainly isn’t urgent: the bond market is telling us that very clearly indeed. When the 10-year bond yields well under 2%, the market is telling America to borrow more, not less. And central banks around the world have made it very clear that these low rates are going to be around for a good while yet.

The CEOs do concede as much, a little grudgingly, when they say that “this plan should be enacted now, but implemented gradually to protect the fragile economic recovery” — a statement which does rather undercut the “urgent” bit at the beginning. And to their credit, they do say that any successful fiscal plan “must be bipartisan”: I take that to mean that Republican pledges not to raise taxes are idiotic, not least because there’s no way that any such plan will ever get Democratic buy-in.

But when they try to get to the specifics of tax reform, they start falling into blather, asking that it be “pro-growth” (an utterly meaningless phrase), and asking too that it include lower rates and higher revenues.

Maybe they should have just asked for a pony for everybody instead: that would be easier. You can’t have lower rates and higher revenues — not without eviscerating pretty much all of the tax deductions which much of the middle class has learned to rely upon. Mortgage-interest tax relief, the charitable deduction, even the deduction for state and local taxes: pretty much all of them would have to go. That wouldn’t just get blocked by Democrats: it would get blocked by Republicans, too. And because most of these tax expenditures go to the middle class, broadly defined, the one group which would see most of the benefits while bearing very little of the costs would be the top 1%: the very CEOs who signed this letter.

In other words, the letter basically just says “please cut our taxes, raise taxes on everybody else, and cut the benefits they get from Medicare, Medicaid, and Social Security, which are programs we individually don’t rely upon”. It’s gross self-interest masquerading as public statesmanship.

It’s also the latest example of the absolutely enormous influence of Pete Peterson on the public debate. Peterson’s extremely well-funded and highly-focused concentration on fiscal issues has turned worrying about the national debt into a bipartisan pastime, to the point at which debate moderators can simply assume that the national debt in general, and entitlements in particular, are an enormous and urgent problem, and then ask the candidates how they’re going to fix this huge problem which we can all agree exists. The public just nods along.

But the fact is that nothing is remotely so obvious. The really huge and important and urgent issue facing the US right now is the problem of unemployment, and specifically of long-term unemployment. A plan to stabilize the debt would be a welcome thing; we could get a lot of the way there by capping deductions, a la Romney, and then putting in a few Pigovian taxes on things we don’t want, like carbon emissions or high-frequency trading. And if you want to strengthen Social Security, Medicare, and Medicaid, then one way of doing that is to go the European route and pay for them with a VAT. But nobody is suggesting that as an option.

In any case, both the global economy and the US economy are very fragile right now, and every central banker in the world is begging for help from fiscal policymakers. Which is to say, higher deficits, not lower ones. The problem is that Pete Peterson seems to be much more effective at corralling CEOs than Ben Bernanke is. More’s the pity.


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