economic growth

Show Peter Peterson We Reject His Elite Austerity Consensus

Roger Hickey — Sun, 13 May 2012 23:25:20 -0400

On Tuesday, May 15, one of America's wealthiest men, Peter G. Peterson, will use his foundation's money to lecture the rest of us about why the federal deficit is the most serious problem facing our country.

Since poll after poll demonstrates that strong majorities of Americans care far more about high unemployment and slow growth, Peterson's major strategy is to put on a show aimed at demonstrating that all the "serious people" – the elite of both political parties – have already agreed that the deficit is such a threat to America that we must slash public spending and "reform" entitlements. (That's a fancy way of saying cut benefits, raise the retirement age for Gen Xers and Millenials, and dismantle Medicare for these future seniors, as Cong. Paul Ryan and just about all Republicans have proposed.)

I'll be outside Peterson's Fiscal Summit, with Senator Bernie Sanders, and lots of friends who don't agree with Peterson's elite consensus – including leaders of the Campaign for America's Future, Health Care for America Now, CREDO, Social Security Works, the National Gay and Lesbian Task Force, National Committee to Protect Social Security and Medicare, and NOW - and lots of other folks concerned about our country. If you don't believe Peterson speaks for the American majority, come on out. We start at 1 p.m.

To repeat, Pete Peterson knows most Americans want action to create jobs, not spending cuts, so in search of an inside-the-Beltway consensus, he tries to find a few important Democrats who will come and pretend that the kind of budget austerity that has wreaked European economies – and is being rejected by voters around the world – should still be the priority for the U.S. economy.

Unfortunately, one of the key Democrats Peterson has lined up is Obama Treasury Secretary Tim Geithner – and there is no telling what Geithner is likely to say. What every Obama Administration spokesperson should be saying is, "We need to invest more in jobs creation – and aid to states to prevent layoffs of teachers and cops and firefighters. And if we can get more Americans back to work, the deficit will come down because we'll all be paying taxes."

But Geithner might just easily say something that undercuts that clear, winning Democratic message. He could do what many budget hawks have been urging and call a post-election "grand bargain" that would prioritize deficit reduction by embracing the proposals of former Sen. Alan Simpson and investment banker Erskine Bowles, whose ideas were rejected by the members of the commission that bore their names.

Simpson and Bowles proposed raising the retirement age for young people now in the workforce - and weakening the cost-of-living index for everyone. That means a big Social Security and Medicare benefit cut for people who will have few other retirement and health security plans for their senior years. If Tim Geithner embraces these kinds of big cuts to these crucial programs, the political impact will be to undermine Democratic chances to take back the House and keep the Senate in 2012.

Rep. Chris Van Hollen, who is also speaking at the Summit, should certainly care about Democrats like Geithner rejecting this kind of "bipartisan" consensus as a guide to what they should do in the lame duck session after the election. If he wants to be helping Nancy Pelosi to lead a strong Democratic majority after the election, he should be urging his fellow House candidates to reject this kind of deal – and to campaign like the successful Democratic special election candidate in New York, Kathy Hochul, who won by promising, "We will not cut Social Security and Medicare in order to pay for tax cuts for millionaires."

Speaking of tax cuts for millionaires and corporations, Simpson and Bowles are praised by Peterson and others for daring to increase taxes to reduce deficits, breaking with the quasi-religious conservative oppositions to raising any taxes at all. Actually, they propose the same counterintuitive approach as the Ryan budget plan: lowering tax rates, particularly those on the top. What my CAF partner, Robert Borosage, said at the time applies equally to the Ryan plan: "They promise the lower rates will be accompanied by cleansing the tax code of various tax deductions and expenditures that mostly benefit the rich ... Only we've played this game before. In the 1980s, bipartisan reforms lowered tax rates across the board, particularly those on the top, and cleansed a tax code riddled with corporate and fat cat deductions. And then Lucy pulled the football. They eliminated the deductions but not the corporate lobbyists." The rates stayed low but the deductions came back.

Democrats should join the voters and call for raising taxes on the rich and the big corporations - not cutting them in the name of deficit reduction.

I've been to Peter Peterson's fiscal summits in the past – and I can imagine what the reaction of his public relations team will be to our gathering outside:

1) They will allege that we oppose all deficit reduction plans – especially those that tackle the "entitlements crisis." Our answer is clear: We do oppose cutting Social Security benefits because that system is not in crisis and can be solved by raising the cap on the Social Security taxes rich people pay. We do oppose cutting Medicare and Medicaid, because a civilized society should cover the costs of health care for seniors and the poor. However, our approach to deficit reduction involves a.) steps to spur growth and jobs; b.) real tax increases for the rich and the corporations; and c.) support for stronger health care reform aimed at getting the America's overall health care costs in line with other advanced countries. If we did that, our long term deficit problem would disappear. And I will bet that nobody speaking at Peterson's "Summit" will argue that crucial and clear approach to deficit reduction – because it means tax justice and taking on the drug and health care monopolies.

2) They will patronize us, pretending that Pete Peterson himself agrees there are times when job growth and economic stimulus must come before deficit reduction. But this is meaningless lip service. How many of Peterson's hand-picked Summit speakers will call for vigorous political action to pass a new round of stimulus and job creation measures? No, the real purpose of this Summit is to convince the media that – after a long period of slow growth, growing inequality, and polarized politics – leaders of both parties will come together after the election around a plan that kills the economic recovery through drastic spending cuts and undermines the Social Security, Medicare and Medicaid programs that actually help most Americans survive in bad times. This meeting will not issue a rallying cry for bold growth policies to put America to work. And we should try to make sure that Democrats do not buy into what the organizers are selling – because the voters certainly won't.

One more thing Peterson has been selling: House Budget Committee Chairman Paul Ryan. Even many deficit hawks have attacked Ryan's budget plan – supported by almost all Congressional Republicans – because its tax cuts and unspecified and unlikely loophole closings would make the deficit much worse. Democrats claim they will run against the Ryan budget as the epitome of everything wrong with the Republican party, as it is. Yet at the last Peterson Summit, a year ago, former president Bill Clinton came to the defense of Paul Ryan and his plans for Medicare.

At this Summit, Rep. Chris Van Hollen, a progressive Democratic leader (and ranking Member of the Budget Committee), is scheduled to engage in a "dialog" with Ryan. Van Hollen has so far done a good job at exposing the way the Republican budget slashes spending for the poor and middle class. Those of us outside the Summit will be hoping he stands up to Ryan by opposing job-killing austerity – and cuts to Social Security, Medicare and Medicaid. We'll see.

Note: It is wonderfully fitting that the Peterson Fiscal Summit will take place at the Andrew Mellon Auditorium, named after one of the wealthiest Americans of the 1920s and '30s, who, as Secretary of the Treasury, advised President Hoover to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system." He advocated spending cuts to keep the federal budget balanced, and opposed fiscal stimulus measures. The result was the downward spiral known as the Great Depression.

No Super Committee Deal. Good. Now Focus on Jobs—Best Way to Lower Deficit

Roger Hickey — Mon, 21 Nov 2011 22:50:51 -0500

The reason members of the Super Committee didn’t reach an agreement is that Republican members insisted on damaging cuts to Social Security, Medicare, and Medicare – AND they wouldn’t budge from their refusal to roll back tax cuts for the richest 1% of Americans.

If the so-called “Super Committee” had made a bipartisan deal based on the announced negotiating positions of the Republicans and Democrats on that panel, the result would have been higher unemployment, serious damage to the social safety net -- and worsening deficits.

Super Committee Democrats, concerned about being seen as blocking a deal, clearly offered Social Security and Medicare benefit cuts in return for a pitifully small increase in taxes and large and damaging spending cuts in the middle of a struggling economy.

The deal on the table – whose failure is much lamented by beltway pundits – would have seriously harmed the economy, without significantly reducing deficits. In fact, it might have made it worse.
Luckily, the progressive base – and the Democratic Caucus in the House and Senate – convinced those negotiators that a bad deal is worse than no deal.

Democrats should have been guided by the message of the September 6th press conference at which Super Committee appointee Rep. Chris Van Hollen, standing with former Speaker Nancy Pelosi, declared “Job growth will contribute to deficit reduction,” according to the Washington Post coverage:

Van Hollen, who made the remarks at a news conference with House Minority Leader Nancy Pelosi (D-Calif.), Minority Whip Steny Hoyer (D-Md.) and other members of the Democratic leadership, argued that the most recent Congressional Budget Office report states that for every 1/10 of one percentage point increase in the U.S. gross domestic product, the deficit is reduced by $310 billion.

“Now, they project over the next 10 years that average GDP, average growth of the economy will be about 2.9 percent,” he said. “What those numbers tell you is that if you got that growth rate up by half of one percent, you would actually reduce the deficit by $1.5 trillion, which is the target laid out in the legislation before us.”

Clearly, this is what all progressives believe: the weak economy should not be allowed to fall backward into another recession – which could happen if we cut spending too fast or too deeply. And action to get the economy growing robustly would be the most effective thing we could do to bring down the Federal deficit.

Progressives will therefore push for public investment to create jobs and create consumer demand, which is the missing factor preventing American business from investing in expanded production and growing employment. All of the elements of President Obama’s American Jobs Act should now be taken up by everyone in Congress who professes to be concerned about the deficit. As progressives, we will work with our allies and partners in the American Dream movement to push for extended unemployment benefits and other stimulus spending programs that both Democrats and Republicans have supported in the past.

In this post-Super Committee period, you can be sure that the Campaign for America’s Future will be fighting for policies that will spur growth and create enough jobs to bring down our chronically high unemployment. We will fight to get Congress to let the Bush tax cuts for the 1% expire. We will fight for reductions in the military budget. And we will remind all Americans that job creation (and long term health reform to control health costs) are the most effective things we can do to reduce the deficit.

A Letter From 64 Senators ... In an Alternate Universe

Richard Eskow — Thu, 24 Mar 2011 19:18:48 -0400

Scientists say there are trillions of parallel universes. Statistically, that means that must be one where some poor version of humanity lives in an inverted, mind-bending alternate reality where everything is backwards and nothing makes sense.

But why did it have to be us?

Consider the latest evidence: 64 Senators are ignoring the one problem that polls consistently show is the public's highest priority. Instead they've written a letter to the President asking him to make a different issue his highest priority - and to address it by doing something the public doesn't want. In return they're promising that they'll do something the public doesn't want, too.

Welcome to reality.

You can see the original letter here. Then you can keep reading to see what that letter would say in a rational universe.

In our world - the one where most people live - 25 million Americans are unemployed or under-employed. A recent Celinda Lake poll shows that concern over jobs outweighs deficit concerns by 2 to 1, and that 77% of the public opposes cutting Social Security. Nevertheless, in what's an especially surreal move even for them, a majority of Senators just sent a letter demanding that the President make the deficit his highest priority, not jobs - using as his framework a a proposal that cuts Social Security.

Others have pointed out the timorousness of what they've done, most notably E. J. Dionne and Ezra Klein. After all, these Senators could've written a law and passed it. Instead they just wrote a letter.

So rather than repeat what's been said so well by others, which would be a depressing experience for both of us, I thought I'd offer an uplifting glimpse of a more rational universe, a universe where people are both fair-minded and sensible ... a universe where the letter from those Senators would read like this:

Dear President Obama:

As the Administration continues to work with Congressional leadership regarding the current prolonged, recession-like situation for many millions of people, we write to inform you that we believe comprehensive unemployment reduction measures are imperative and to ask you to support a broad approach to solving the problem.

As you know, a bipartisan group of Senators has been working to craft a comprehensive unemployment reduction package based upon the recommendations of the Jobs Commission[1]. While we may not agree with every aspect of the Commission's recommendations, we believe that its work represents an important foundation to achieving meaningful progress on our tragic economic situation. The Commission's work also underscored the scope and breadth of our nation's long-term employment and economic growth challenges.

Beyond FY2011 decisions, we urge you to engage in a broader discussion about a comprehensive unemployment reduction package. Specifically, we hope that the discussion will include stimulus spending, entitlement increases and tax increases for the wealthiest among us.

By approaching these negotiations comprehensively, with a strong signal of support from you, we believe that we can achieve consensus on these important economic issues. This would send a powerful message to Americans that Washington can work together to tackle this critical issue.

Thank you for your attention to this matter.

Imagine. Somewhere, in some other universe, this letter was actually written and sent to the President of the United States. Then these Senators concluded their productive work day, went home, and tenderly clasped their husbands, wives, and children in the loving embrace of their six tentacles.

For your consideration, we offer this glimpse of a different universe ... a happier universe ... a more rational universe. But we have to stop now. We Americans are a busy people, with jobs to find and underwater mortgages to pay. Our little diversion is over.

We now return you to the Twilight Zone.

________________

[1] There was no Jobs Commission. This is an alternate reality, remember?

Eight Keys To Addressing The Deficit

Richard Trumka — Wed, 30 Jun 2010 14:57:56 -0400

Mr. Chairman and Members of the Commission, I know my time is short, so I will limit my testimony to eight key points:

First, stabilizing the national debt is a means to an end, not an end in itself.

This is an excerpt of testimony delivered before the White House National Commission on Fiscal Responsibility and Reform on June 30, 2010.

The goal of our national economic policy should be sustainable, broadly shared prosperity. To achieve that goal, there is no question that we need to stabilize the national debt as a share of our economy over the long term. But stabilizing the debt is simply a means to achieve our goal of sustainable, broadly shared prosperity, and we should reject approaches to debt stabilization that take us away from that goal.

Which approaches would help us achieve sustainable, broadly shared prosperity? I can think of a few: providing the economic stimulus necessary to erase our 10.4 million jobs deficit and avoid a double-dip recession; investing in the 21st century infrastructure necessary to support stronger economic growth in the long term; further reducing excess health care cost growth; asking Wall Street and the small minority of Americans who benefited most from the economic policies of the past 30 years to pay their fair share for rebuilding the economy; and avoiding austerity measures that increase economic inequality, which played a key role in precipitating the current economic crisis.

Second, let’s be honest about what the problem is.

We need to be clear that President Obama is not to blame for getting us into this mess. Two weeks before he took office, the Congressional Budget Office (CBO) projected a budget deficit of $1.4 trillion for 2009—and annual deficits averaging well over $1 trillion for the coming decade.

We should be honest about what’s causing deficits over the next ten years. According to the Center on Budget and Policy Priorities, “The tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years.” And “without the economic downturn and the fiscal policies of the previous administration, the budget would be roughly in balance over the next decade.”

Although more than half of the 2009 deficit is due to the recession, Council of Economic Advisers Chair Christina Romer points out that “in the absence of [Bush administration policies that we failed to pay for], we could have had an economic downturn as severe as the current one and responded to it as aggressively as we have, all while keeping the budget roughly balanced over the next ten years [2010-2019].”

We should also be honest about what’s causing projected deficits over the long term. We do not face a crisis of entitlement spending generally, caused by the retirement of the Baby Boomers. In the long term, we face a crisis of public and private health care costs growing faster than GDP, especially after 2035. Social Security has its own source of dedicated funding and is not responsible for our unsustainable long-term debt, and spending on other entitlements is projected to fall as a share of the economy over the long term.

Third, premature withdrawal of economic stimulus threatens to throw the global economy into a double-dip recession, or worse.

Already we can see how exaggerated fears and misinformation about deficits are leading to premature withdrawal of the economic stimulus that so far has prevented another Great Depression.

The Recovery Act was necessary because of a massive shortfall of aggregate demand, which resulted from high levels of unemployment and the loss of $12 trillion in wealth from the collapse of the real estate and stock market bubbles.

The Recovery Act did exactly what it was supposed to do. It increased the number of people employed by up to 2.8 million in the first quarter of 2010, increased the number of full-time jobs by up to 4.1 million, and increased real GDP by up to 4.2%. But it wasn’t big enough to restore all the jobs that were lost or to make up for the massive shortfall of aggregate demand.

Without a significant reduction in the trade deficit, only economic stimulus in the form of deficit spending can make up for the remaining shortfall of aggregate demand until private sector demand regains its footing.

But instead, we are heading in the opposite direction. We are prematurely withdrawing economic stimulus, allowing the Recovery Act to phase out and standing by passively as state and local governments plan budget cuts that will cost us 900,000 jobs.

Last month’s jobs report sends a strong signal that private sector job growth remains exceedingly weak and may fall further as the stimulus provided by the Recovery Act tapers off this year.

By withdrawing economic stimulus, we run the risk not only of prolonging the jobs crisis for several more years, but also of bringing about a “double-dip” recession—or even what Nobel Laureate Paul Krugman calls “a third Depression.”

This is a monumental blunder of global economic policy that bears an uncomfortable similarity to mistakes made by the U.S. in 1937, when premature fiscal contraction deepened and prolonged the Great Depression, and by Japan in the 1990s, when premature fiscal contraction led to a lost decade of economic stagnation.

There is no good economic policy reason that requires fiscal contraction at this time—neither concerns about inflation (which is practically non-existent), nor about long-term interest rates (which are extremely low by historical standards), nor about the crowding out of private investment (because so much labor and capital is unemployed), nor about the long-term debt (on which short-term stimulus has a small impact).

In other words, we can do something about the jobs crisis if we choose to. But we do have to choose—between providing more stimulus, on the one hand; or causing more joblessness, more wage cuts, more poverty, more inequality, more foreclosures, more waste of human potential, and more suffering, on the other.

Fourth, stronger economic growth, job growth, and wage growth are needed to stabilize the debt.

Just as the economic crisis itself bears much of the blame for projected deficits over the next ten years, a double-dip recession—or several more years of meager job growth—would have a similarly harmful impact on future deficits.

According to Paul Krugman, “Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea. Not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts.”

To a great extent, the size of the deficit depends on employment and growth. When employment and growth are weak, tax revenues are low and social assistance expenditures are high. When employment and growth are strong, the reverse is true.

Moreover, as Christina Romer has pointed out, failure to bring down unemployment quickly enough in the short term can result in permanently higher rates of unemployment, which would reduce federal tax revenues and increase federal expenditures. In other words, failure to provide additional stimulus in the short term threatens our fiscal sustainability in the medium and long term.

These are some of the reasons why President Obama said last weekend that “our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today.”

And these are some of the reasons why White House economic adviser Larry Summers said recently that “spurring growth, if we can achieve it, is by far the best way to improve our fiscal position” because "it is not possible to imagine sound budgets in the absence of economic growth and solid economic performance”; and therefore “it would be penny-wise and pound-foolish not to take advantage of our capacity to encourage near-term job creation.”

Strong economic growth is equally important in the long term. Long-term deficit projections are based on assumptions about U.S. economic growth. If we achieve higher than expected growth, then projected deficits will not loom quite so large and stabilizing the debt will be a less daunting challenge.

In short, we must have a job-centered approach to stabilizing the national debt, which would bring us closer to our goal of sustainable, broadly shared prosperity.

Fifth, Wall Street should pay to build a 21st century infrastructure that will lead to long-term economic growth.

To achieve higher levels of economic growth, we have no choice but to abandon the failed economic policies of the past.

For decades the U.S. has pursued an economic growth strategy based on low wages and debt-fueled consumption that was financed by asset bubbles (first stocks, then real estate). We no longer have the option of perpetuating this obsolete strategy, whose failures have been exposed by the economic crisis.

We must identify new sources of economic growth for the future. One thing economists can agree on is that a modern, well-developed infrastructure is key to productivity growth in the private sector, to U.S. competitiveness in the global economy, and therefore to long-term economic growth.

Yet today we face a $2.2 trillion deficit in 20th century infrastructure that is crumbling and in disrepair, and a broad array of 21st century infrastructure—especially in transportation, communications, and clean energy—that is waiting to be built. Failure to invest in rebuilding our infrastructure for the 21st century will result in lower rates of economic growth—and therefore lower tax revenues.

Washington Post columnist Steven Pearlstein agrees that this is the ideal time to “invest heavily in public infrastructure that has been badly neglected over the past 30 years. I'm referring not only to roads and bridges but also to airports and air traffic control systems, urban transit, high-speed rail, schools and university facilities, national laboratories, national parks, ‘smart’ electric grids, broadband networks, green generating plants, and health information networks. Properly chosen, these projects can have huge long-run economic payoffs while tangibly improving the lives of all Americans. They're the kind of government spending today's voters can get excited about while also leaving a valuable legacy for future generations -- along with the debt that was used to finance them. And if they wind up creating some jobs at a time when millions of people are unemployed, so much the better…It's time to settle up and get on with the more exciting challenge of shaping our long-term economic future.”

Of course, rebuilding our infrastructure for the 21st century will require higher levels of public investment. The example of the postwar boom—when an economic strategy of broadly shared prosperity with strong unions and shrinking inequality paid off enormous dividends—shows us the way forward. High levels of public investment fueled robust GDP and job growth in the postwar period that reduced the debt-to-GDP ratio from over 100% after the war to less than 30% in the 1970s.

After the jobs crisis is behind us and economic stimulus is no longer needed, higher levels of public investment in infrastructure will need to be paid for. This will require new sources of federal tax revenue. Federal revenues are now at their lowest share of GDP (14.4%) since 1950, and effective tax rates applicable to high-income taxpayers (earning over $250,000 in 2009 dollars) reached their lowest level in at least half a century in 2008.

The question we now have to answer is who should pay for the urgent task of rebuilding our economy for the 21st century—the small minority of Americans who benefited from the economic policies of the past 30 years, or the vast majority of Americans who have seen little reward for their hard work.

We believe it is only fitting to ask Wall Street to pay to rebuild the economy it helped destroy. One way to do that would be through a Financial Speculation Tax (FST)—a tiny 0.05% tax on transactions of stocks, options, futures, credit default swaps, and other derivative instruments. The $100 to $300 billion in additional tax revenue per year that this tax would generate could be used to fund higher levels of public investment, and the tax itself would curb unproductive speculation that is harmful to the economy.

It would also be fitting to ask the wealthiest Americans who benefited most from the failed economic policies of the past 30 years to pay their fair share for rebuilding the 21st century economy and stabilizing the national debt. For example, a surtax of 1%-5.4% on earnings over $350,000 would raise close to $600 billion over 10 years. Other proposals to make the tax code more progressive enjoy broad public support.

Sixth, efforts to stabilize the national debt should not increase income inequality.

The alarming growth of economic inequality was a contributing factor to the economic crisis. Faced with stagnating wages, many workers responded by incurring more and more personal debt, often based on their home equity. At the same time, the shift of income to top earners contributed to excessive speculation and asset bubbles.

While a jobs-centered approach to debt stabilization would help reverse income inequality and bring us closer to sustainable, broadly shared prosperity, several approaches now under discussion in the debate over deficit reduction would take us in the opposite direction.

These approaches include prolonged unemployment, which would permanently cripple the earnings potential of millions of workers, exert downward pressure on workers’ wages, and condemn millions of children to poverty unnecessarily; cuts to Social Security benefits; and cuts to Medicare benefits.

Seventh, we must reduce health care costs even further—without cutting benefits or compromising the quality of care.

Before health reform was enacted, it was widely recognized that long-term deficits were driven by health care cost growth in excess of GDP growth. The economist Henry J. Aaron wrote, “over the next four decades, growth of health care expenditures accounts for more than all” of the increase in [CBO’s] projected long-term deficits.”

According to Christina Romer, “Some of this is the result of the aging of the population. But the far greater source is the fact that health care costs, both public and private, are rising much faster than GDP.”

Health reform is expected to reduce excess health care cost growth, but not eliminate it entirely. Additional reforms will be necessary.

Reducing excess cost growth can and should be accomplished without cutting benefits. Approaches that should be considered include (1) Medicare drug price negotiation; (2) easing restrictions on imports of prescription drugs; (3) expanding proven Medicare payment and delivery reforms; and (4) offering the choice of a public health insurance plan option that would offer premiums 10% below private insurance and would reportedly reduce the federal deficit by $110 billion over 10 years.

So we face a choice between reducing health care cost growth in ways that cut benefits for working people and compromise the quality of their care; or in ways that challenge the pharmaceutical companies, the insurance companies, and other powerful economic interests. Only the latter approach is consistent with sustainable, broadly shared prosperity.

Eighth, Social Security benefits are not the problem and must not be cut.

Social Security has its own dedicated source of funding and is not responsible for our long-term debt problem. The Social Security trust fund is projected to grow from $2.5 trillion in 2009 to $3.8 trillion in 2020, and its surpluses are invested in government bonds that have to be repaid just like any other government bonds. Social Security has no borrowing authority and cannot pay benefits if its trust funds are empty.

Creating the false impression that Social Security is a principal contributor to the growth of budget deficits, or lumping Social Security together with Medicare as part of a general “entitlements crisis”—is a sleight-of-hand designed to build public support for the unpopular Wall Street agenda of cutting Social Security benefits and/or privatizing the program. We cannot allow deficit reduction to be used as an excuse for either.

It is especially inappropriate to cut benefits for near retirees who have suffered the most from the recent loss of their retirement savings in the collapse of the stock market and real estate bubbles.

In fact, Social Security should be strengthened to compensate for the decline of traditional pensions and for the stock market losses of retirement savings plans. Social Security benefits are about one third lower than the average of 30 OECD countries.

We need to remember that Social Security functions as a powerful counter-cyclical stabilizer during recessions. Every month, millions of Social Security checks are quickly cashed to pay for goods and services, flowing through communities and fueling the economy.

The modest 75-year shortfall in Social Security’s finances can be easily addressed and does not require benefit cuts (such as reducing adjustments for inflation or reducing starting benefits) or raising the retirement age. One proposal to bolster Social Security’s finances that would be consistent with sustainable, broadly shared prosperity is raising the cap on taxable wages to 90% of earnings, or lifting the cap altogether.

♦ ♦ ♦

In the short term, we have a jobs crisis—not a debt crisis. The best way to improve our fiscal situation is through stronger job growth. However, given the massive shortfall of aggregate demand, additional deficit spending is necessary in the short term to bring down unemployment and avert a double dip recession, which would only make deficits worse.

After the jobs crisis is behind us, we will need more tax revenues to pay for the higher levels of public investment in 21st century infrastructure that are necessary to create good jobs, ensure long-term economic growth, and improve our global competitiveness. Additional health reforms will also be necessary to further reduce excess health care cost growth.

Stabilizing the national debt over the long term can be a means of achieving sustainable, broadly shared prosperity. But exaggerated fears of deficits and the debt should not be used as a pretext to increase inequality and thereby repeat the mistakes of the past that brought us to the precipice of global depression.

Third Way ConservaDems Get it Wrong: Progressives Are The Champions Of Growth and Wealth

Roger Hickey — Sun, 09 May 2010 16:58:01 -0400

Anne Kim and Jonathan Cowan of Third Way took to the Politico Arena op ed page (and url) on Thursday with the hoary slander that progressives care only about "expanding the entitlement state" and have no interest in economic growth or expanding wealth. Apparently blind to the worst economic downturn since the Great Depression, they then replay New Democrat staples from the 1990s as if they were somehow new or relevant. They get it wrong.

As Barack Obama took charge of an economy in free fall, progressives urged the new administration to undertake the largest investment-led stimulus in our history. Third Way Democrats worked to make it smaller and weaker. Despite that, the recovery act did stop the fall and begin to pull the country out of recession. With unemployment still nearly at 10%, progressives continue to push for more job creation and aid to the states to forestall brutal cuts in teachers and police and other vital services.

Looking towards the new economy that we must build out of the ruins of the old, the president has it right. We can’t go back to the old bubble-bust economy built on debt and speculation. We need to build on a new foundation. That includes public investment in areas vital to our future: education and training, a 21st century infrastructure, research and development, new energy. It includes a new global strategy and industrial policy to insure that we make things in America once more. And it should include an extension of our basic social contract, insuring retirement security, affordable health care and education, a living wage and safe working conditions, first rate public education to all Americans. On that foundation, we can build an economy – as we did after World War II – that works for working people, and revives America’s broad middle class.

Kim and Cowan recycle the conservative canard that progressive support for the Obama health care plan is motivated by a desire to turn the US into (gasp!) Denmark, where (they think) everyone lives on "entitlements." Apparently these Third Way Democrats reject the argument advanced by their Democratic president that health care reform, in addition to being a matter of economic justice, is also the first step toward getting control of health care costs -- which every economist agrees is the real driver of long term public deficits. (Denmark, with a more comprehensive public healthcare system spends only 9.8 percent of it's GDP on health care. The US spends 16 percent. Far from luxuriating on entitlements, the Danes have the most extensive worker training program in Europe, successfully sustaining a high wage economy that enjoys a trading surplus with its neighbors. Denmark has also outpaced the US in exports. They have a 2.2 percent trade surplus compared to the 5.2 percent US chronic trade deficit.

There is one thought in the Kim-Cowan op ed that every progressive completely agrees with: they say we can deal with growing deficits "only if we generate the kind of supercharged economic growth we had in the 1950s and mid-¹60s." Exactly.

But how do these Third Way Democrats propose to achieve that kind of growth? Their program is austerity for the paycheck class (cutting spending on vital domestic investments) and tax cuts for business and the wealthy.

Right now, conservative Democrats, especially in the Senate, are resisting efforts to invest in more job growth – and efforts to help the states who are cutting back spending and firing public workers, making the economy worse.

Progressive Democrats are pushing for more spending on jobs. But Third Way austerity advocates in the Congress (and in the President’s deficit commission) want to slash spending (and cut Social Security and Medicare). All this threatens to choke off a still-fragile economic recovery. Their tax cuts for the wealthy reflect a trickle down economics that led us into our present straits, and ignore the reality of a tax code in which Warren Buffett, one of America’s wealthiest men, admits he pays a lower tax rate than his secretary. Kim-Cowan might want to check the tax rates of the 50-60s (which included a 90% upper tax bracket) before touting that as their model.

You would think Third Way Democrats, who post "growth and wealth creation" on their op ed banner would spend a little time explaining the economic crisis that has just seen massive and dangerous economic contraction -- and destroyed several generations of wealth. Instead they blame progressives who pushed for "entitlements."

For three decades, government economic policy has been dominated by a conservative ideology that is not so much pro-business as obsequious to a set of business interests that ultimately had little to do with the long-term health of the national economy. It was an ideology that said we could send much of our manufacturing base overseas; see millions of living-wage jobs disappear and not be replaced with other secure, living-wage jobs; and still somehow prosper on a economy largely based on finance, information and services. It was an ideology that has given us an historic concentration of wealth at the very top — 65 percent of the income growth since 2000 has gone to the wealthiest 1 percent of the population, while median household incomes have dropped 4 percent when adjusted for inflation.

As it turns out, there is nothing pro-growth about tax cuts that further enrich the wealthy but starve our schools and allow our infrastructure to crumble. There’s nothing pro-business about having regulatory agencies turn a blind eye to Wall Street greed, in the mistaken belief that addicted gamblers will police themselves amid the glittering lights of the Wall Street casino. There is certainly nothing pro-wealth in the decades-long effort by conservatives to weaken unions and otherwise disempower workers; the “experiments to eliminate teacher tenure” that Kim and Cowan apparently applaud are but one example of the effort to treat workers as disposable and suppress their wages.

And it is more than a little bizarre to recycle the New Dem 1990 agenda for the economy coming out of the mess. “Experiments to eliminate teacher tenure” is but idle chatter at a time when literally tens of thousands of teachers, tenured or not, are facing layoffs in the brutal budgets of states and localities. Kim-Cowan support affordable college—but fail to note that despite passing the greatest increase in student aid since the GI Bill, soaring tuitions are pricing college out of the reach of more and more students.

The old nostrums of the right have been tried and failed. The New Dem/Third Way conservative light program offers no remedy. This country must, as the president has stated, build on a new foundation. The Kim-Cowan call to go back to the 1990s won’t get us there.

This post is part of our ongoing "Virtual Summit on Fiscal and Economic Responsibility for People Who Did Not Wreck The Economy."