The New Bailout

[xoxoxoBruce]

Interesting article on the Fiscal Responsibility summit.

1. Conservatives are "fiscally responsible." Progressives just want to spend, spend, spend.
~snip~
Under the conservative definition of "fiscal responsibility, " we'd have never set up the GI Bill and the FHA, which between them launched the post-war middle class (and made possible the consumer culture that generated so much private profit for so many). We wouldn't have 150 years of investment in public education, which for most of the 20th century gave American business access to the smartest workers in the world; or the interstate highway system, which broadened trade and tourism; or research investment via NASA and DARPA, the defense research agency that gave us the microchip and the Internet and made a whole new world of commerce possible. There wouldn't be the consumer protection infrastructure that allowed us to accept new products with easy confidence; or building and food inspectors who guarantee that you're not taking your life in your hands when you flip on a light or sit down to dinner.

2. It's not gonna work. Everybody knows the Democrats spent us into this mess in the first place.

The only remaining "everybodys" who "know" this are the ones who are simply impervious to facts.

Ronald Reagan came into office with a national debt of less than $1 trillion. Mostly by cutting taxes on the rich, he grew that debt to $2.6 trillion. George H.W. Bush broke his "no new taxes" pledge, but it wasn't enough to keep the debt from ballooning another 50 percent, to $4.2 trillion.

Bill Clinton''s aggressive budget balancing slowed the growth rate a bit: eight years later, he left office with a debt of $5.7 trillion—and a tight budget in place that, if followed, would have paid whole thing off by 2006. Unfortunately, George W. Bush had no intention of following through with Clinton's plan: on his watch, the debt nearly doubled, from $5.7 to $10.6 trillion. So, nearly 80 percent of the current debt—about which conservatives now complain—was acquired on the watch of the three most recent conservative Presidents.

3. $10.6 trillion? But I got this e-mail that says we're looking at a national debt of $56 trillion...

Wow. That's a big, scary number, all right. It's also a perfect example of one of the classic ways people lie with statistics.

This particular mathematical confection was whipped up by Wall Street billionaire and former Nixon Commerce Secretary Pete Peterson, whose Peterson Foundation is the driving force behind the effort to defund Social Security. According to this group, “As of September 30, 2008, the federal government was in a $56 trillion-plus fiscal hole based on the official financial consolidated statements of the U.S. government. This amount is equal to $483,000 per household and $184,000 per American.”

This "fact" is only true if you're willing to do a reckless amount of time traveling. The $56 trillion number is what you get if you project the entire U.S. debt a full 75 years into the future, which is how far out you have to go before you can get into numbers that big. In other words: we're not in that hole now—but we might be in 2084, if we keep going the way we're going now.

4. Whatever. It's still irresponsible to take on that much debt.
Even John McCain's economic adviser thinks this one's wrong. Here's what Mark Zandi said about the U.S. national debt on the February 1 edition of Meet The Press:

"It's 40 percent of GDP now. If the projections are right, we get to 60, maybe 70 percent of GDP, which is high, but it's manageable in our historic—in our history we've been higher, as you pointed out. And moreover, it's very consistent with other countries and their debt loads. And more—just as important, investors understand this. They know this and they're still buying our debt and interest rates are still very, very low. So we need to take this opportunity and be very aggressive and use the resources that we have at our disposal."

5. But Social Security is headed for disaster. It's out of control!
~snip~

The Congressional Budget Office projects that the Social Security trust fund will continue to run a surplus until 2019. (More conservative fund trustees put the date at 2017.) The fund’s total assets should hold out until 2046. And that's assuming that nothing changes at all.

6. Ending Social Security would be well worth it, because putting those deductions back in people's pockets would provide a big enough stimulus to get us out of this mess.

As Digby put it: "Boomers are still sitting on a vast pile of wealth that's badly needed to be put to work investing in this country. But it's shrinking dramatically and it's making people very nervous."

As [Dean] Baker writes, "if one of the purposes of the stimulus is to restore some confidence in the future, then talk of fiddling with social security and medicare is extremely counterproductive. If they want to see the baby boomers put their remaining money in the mattress or bury in the back yard instead of prudently investing it, they'd better stop talking about "entitlement reform." This is a politically savvy generation and they know what that means.

If they perceive that social security is now on the menu, after losing vast amounts in real estate and stocks, you can bet those who still have a nestegg are going to start hoarding their savings and refusing to put it back into the economy. They'd be stupid not to."

7. OK, forget I even mentioned Social Security. Besides, the real problem is Medicare.

Finally, we come down to the truth. There's no question that exponentially rising health care costs—both Medicare and private insurance—are unaffordable in the long term; and that getting ourselves back on track financially means getting serious about addressing that.

8. Next, you're going to tell me that some kind of government-sponsored health care is the answer.

Yes, we are. The Congressional Budget Office notes that health care costs were only 7 percent of the GDP in 1970—and are over double that, at 14.8 percent, now.

Much of that increase came about because in 1970, most health care providers ran on a not-for-profit basis. Hospitals were run by governments, universities, or religious-based groups; in some states, private for-profit care was actually illegal. Even insurance companies, like Blue Cross, were non-profit corporations. AdminIstrators and doctors were still paid handsomely; but there were no shareholders in the picture trying to pull profits out of other people's misfortune

9. But this Peterson guy's a billionaire Wall Streeter. Obviously, he knows something about finance...

Let's punt this one to William Greider:
Peterson, who made his fortune on Wall Street, never raised a word about the dangers of hyper leveraged finance houses gambling other people's money. He never expressed qualms about the leveraged buyout artists who were using debt finance to rip apart companies. He didn't fund an all out effort to stop Bush from raiding the Social Security surplus to pay for tax cuts for the rich.

But now he wants folks headed into retirement who have already prepaid a surplus of $2.5 trillion to cover their Social Security retirements to take a cut and to work a few years longer to cover the money squandered on bailing out banks, wars of choice abroad, and tax cuts for the few.

Basically, we're only having this conversation in the first place because a conservative ideologue was willing to pony up $1 billion of his own money to fund a "foundation" devoted to killing Social Security. Given that most politicians—both Democrat and Republican—are extremely unwilling to touch the notorious "third rail of politics," it's pretty clear that next Monday's "fiscal responsibility summit" wouldn't even be happening if Peterson wasn't bankrolling the Beltway buzz on this terrible idea.

10. OK—if killing Social Security isn't the answer, just how do you propose to get us out of this?

The idea of a White House summit on fiscal responsibility is a good one—but only if it focuses on real solutions to our real problems.

Cutting health care costs by getting all Americans into a rationally-managed system that puts delivering excellent care above delivering shareholder profits has to be a central part of any long-term economic health strategy. We're also about 15 years overdue for a complete overhaul of our military budget, too much of which is still focused on fighting the Soviet Union instead of responding to the actual challenges we're currently facing. Finally, it's time to ask the wealthy—who've profited more than anyone from the past 15 years, and yet haven't paid anywhere near their fair share—to step in a pay up for the system that enabled them to build that pile in the first place.