Pinch-Hitting for Peterson. Part 1: How Progressives Helped Put Social Security on the Chopping Block

By L. Randall Wray

It’s official. Obama has decided to become a one term president. He caved in to the Republicans, agreeing to gut Social Security in order to get them to agree to raise the debt limit. This was never a real trade-off, as it made sense only within the Washington beltway. Obama has adopted the Jimmy Carter approach: promising pain and more pain, presenting a dreary (and false) message of no hope, just mindless human sacrifice to please the gods on Wall Street.

In the days of Carter, it was all about stagflation, running out of oil, and national malaise; today it is all about jobless “recovery” as far as the eye can see and unfunded infinite horizon entitlements for the undeserving. I do not know which is worse, but I am positive that voters will reject Obama’s perverted vision of our future, just as they rebelled against Carter’s. American voters are an optimistic lot and they know our best days are ahead of us. We do not face the futures envisioned then by Carter or today by Obama. Voters do have the audacity of hope, even though Obama does not and probably never did. I do not know who will be the next president, but Obama’s actions indicate he has decided he does not want the job. Voters are looking for the next Reagan who shares their optimism.

It was clear all along that this was the real agenda of the fake debate. It never had anything to do with debts and deficits and tens of trillions of dollars of unfunded “entitlements”. The goal all along has been to find a Democratic president willing to kill Social Security. Washington finally has one. Al Gore probably would have done it—but his “lockbox” proposal was too silly to sell with a straight face, so he never got the chance. Obama became the willing sacrificial lamb.

Wall Street wants blood for its vampire squids, and Obama is willing to deliver it by the truckload. To be clear, he is no martyr. Martyrs have to be unwilling, at least up to a point. It appears that President Obama wanted this outcome from day one.

But that is not the story I want to pursue here. What is interesting is how Social Security’s enemies enlisted progressives to fight their battle for them, lining them up to pinch-hit for Pete Peterson.

In the old days, the enemies were simply too obvious to be successful—using Cold War rhetoric and labeling the program a communist plot, they never gained traction.

As they became more sophisticated, they moved on to railing against future costs of taking care of babyboomers. They enlisted Alan Greenspan, who chaired a commission that unnecessarily jacked up payroll taxes to run surpluses to be “saved” for future use—something that was impossible for a sovereign government to do since Trust Fund assets were simply government IOUs (something later admitted by Greenspan). But the high taxes helped to build hostility to the program.

Then the enemies created the Concorde Coalition—that included some Democrat wolves in sheep clothing—to fan across the country beating the drums and scaring college students about rotten “money’s worth” calculations that showed they’d be much better off “investing” in stocks rather than paying high FICA taxes. The dot-com crash did not help that cause—which was always a hard sell because the Concorde Coalition’s members were so darned intellectually dishonest—people like Bob Rubin, Paul Tsongas, Charles Robb, Sam Nunn, Warren Rudman, and Bob Kerry. I debated them on college campuses and I can definitely attest to the greasy propaganda that they thought would capture the imagination of students. It did not. Bad haircuts, bad breath, leisure suits, and stupid arguments were all they had to offer. It was a big zip. Nada. Zero.

So, finally, hedge fund billionaire Pete Peterson helped push the notion of trillions of dollars of unfunded entitlements that would bankrupt our nation. Unfortunately, he was getting nowhere, even with the help of Reaganites like Pete du Pont, and Larry Kotlikoff.

Until Obama got elected, that is.

A peculiar alignment of the stars pushed the Peterson agenda forward. First of course there was the financial collapse, which brought on the worst recession since the Great Depression (a downturn that is not over and that still might morph into the first depression of this century). That crashed tax revenue and generated a huge budget deficit—fueling the fires of deficit hysterians.

Second, Obama’s campaign platform had featured deficit reduction as a major goal. Those of us with some audacity had hoped he was not serious about this. He was. And he brought into his administration a number of Clinton people, all of whom had sworn allegiance to Wall Street and the Clinton spin that deregulation of finance plus budget surpluses had created Goldilocks. In return for tens or hundreds of millions of dollars of rewards, they had agreed to act as Wall Street’s fifth column. For all practical purposes, Peterson was selected to head Obama’s deficit-cutting team.

Which leads to point 3: many Democrats had learned the wrong lesson from the Clinton boom. They convinced themselves (against all reason) that the Clinton budget surplus caused the boom. In reality, it killed the Goldilocks economy and brought on the Bush recession. But, no matter. Wall Street was very generous with its billions, and it had decided that the Obama wave was something it wanted to surf right into Washington. Whatever finance wanted, finance got. What finance wanted was tens of trillions of dollars of bailouts, Obamacare (more financialization of health insurance), and elimination of Social Security (financiers hate the competition).

Point 4. Finally, Beltway progressives decided to join the deficit hysteria bandwagon. The endgame was a foregone conclusion. With no opposition from the left, the Austerians would get whatever they wanted. And what they wanted was to eliminate Social Security, Medicare, and Medicaid.

But why would Washington’s progressive think tanks decide to join forces with hedge fund manager Pete Peterson to undermine the Rooseveltian New Deal? Here the plot thickens.

Some had actually joined up during the “W” years—using the rising budget deficits under Bush (actually due to the recession he inherited from Clinton) as an argument that he was mismanaging the budget with taxcuts for the rich. If only Bush would balance the budget, Goldilocks would rise from the dead. It was an embarrassing display of stupid politics, as progressives sold their souls to Peterson to beat down Bush as a big deficit spender.

Some Beltway progressives—including organized labor—had actually signed up even earlier, during the Gore campaign, manufacturing a fake financial crisis for Social Security in order to offer lock boxes as a better alternative than Bush’s plan to privatize the program. Joining the bandwagon by arguing that Social Security was unsustainable, they offered critical assistance to Peterson. And, of course, they lost the election. (Oh, I know, they continue to claim “but Gore really won”. Come on, if a candidate cannot beat a “W” by double digits, he does not deserve office.)

Still others signed on to the Peterson agenda after the financial crisis hit, in order to argue against payroll tax relief on the bizarre argument that Social Security already faces an uncertain financial future, hence, if we give payroll tax relief to workers now we won’t be able to afford the program in 2050. (We have dealt with that issue here at NEP and also over at New Deal 2.0.) They desperately wanted to hang the fortunes of Social Security on a supposed American love affair with payroll tax hikes.

Again, too stupid for school. No one likes the payroll tax. It is regressive. It taxes work. It makes American workers uncompetitive. And by tying Social Security benefits to payroll tax revenue, it ensures program accounting insolvency—as the Peterson crowd argues. Indeed, it is only because of the payroll tax that we can calculate bad “money’s worth” and project the exact date at which Social Security becomes insolvent. Eliminate the tax and it becomes impossible to calculate solvency or insolvency. But our progressives instead chose certain death for the program on the argument that the albatross of payroll taxes makes the program too popular to kill. (Hint: they were wrong. Evidence? Obama.)

And, finally, there was the debt limit. In the past, we got political posturing, but the limits were routinely raised. This time around, it was clear that Republicans had much more incentive to draw blood—they would require the Democrats give up some popular program before the limit would be raised, and this would cost them in the next election. Yet, success was far from certain as the Dems could have just called the bluff. But the stars were aligned, because by this time there were no longer any dissenting voices within the beltway on the need to cut deficits.

Progressives had a choice—they could take the high road, which meant isolation from the beltway and its funding spigots; or they could join the deficit cutting party and drink the Kool-Aid. That is, they could swing the progressive bat or pinch-hit for Peterson. They chose to pinch-hit.

So how did the remaining progressives get co-opted? Peterson had the brilliant idea of hiring Beltway progressive organizations to join his team. Why not pay progressives to come up with deficit and debt cutting plans? If you can’t defeat them, pay them off. It is like choosing from among the prisoners which ones get to do the whipping and hanging of the recalcitrants.

So progressives lined up at the Peterson Pig Trough. I’ll have more to say about Peterson’s funding of Beltway progressives in Part 2.

With no Beltway progressives left to fight Peterson’s deficit hysteria, Republicans knew they had a winning hand—so they demanded the so-called third rail: Social Security. Democrats in Congress had nowhere to turn for support. Progressives had abandoned the debate, and Obama had been hand-selected by Wall Street to offer up Social Security. Just as only a Republican President could go to China, only a Democrat could finally kill the last remaining remnants of the New Deal. President Clinton had destroyed all the financial regulations, eliminated welfare, and undercut consumer protection. Now it is up to Obama to eliminate Social Security and Medicare.

Obamacare will hand over the nation’s healthcare system to Wall Street, with elimination of Medicare removing the last remaining obstacle to complete financialization of medical care. Similarly, getting rid of Social Security will put Wall Street in complete control of our nation’s retirement system. Wall Street hates competition.

And so does Peterson. It is unfortunate that Beltway progressives voluntarily muzzled themselves, to eliminate any alternative to Peterson’s propaganda.

In Part 2, I will look at a specific case of self-muzzling by the premiere Beltway progressive research institute. Stay tuned.

11 responses to “Pinch-Hitting for Peterson. Part 1: How Progressives Helped Put Social Security on the Chopping Block

  1. Boy this makes me so angry. I am so sick of Republicans and Democrats, both of whom apparently know nothing about the economy, screwing the middle class while the Petersons of the world get away with their traitorous agenda. Yes, I said it and I mean it. As far as I'm concerned these people are traitors.

  2. Amen brother. Policymakers are only as good as the advisors they have around them. Obama will never come up with solutions with the misinformed groupthink of his administration. Operationally his advisors are failures. These are structural failures because they lack understanding of monetary operations and how to properly structure a private banking system. Look at their recommendations and look at where we are. As brother Cullen says, this would be laughable if it wasn't so painfully. We we are saddled on the back of sheep heading for a cliff. Brace for impact.

  3. It seems to me you have too little confidence in your own predictionsRichard Koo does an excellent job of explaining how the Japanese experience is an excellent predictor of the US and Euro situation offset by 15 years. current recession is pretty much entirely driven by excess saving in the private sector (households and small businesses) and nowhere near enough (private sector) borrowing to absorb those savings. What this inevitably must mean is a decline in the national income if the no entity steps forward to absorb the savings. In fact Koo contends the Fed Flow of Funds data shows that the government is borrowing what the private sector is saving but the FED data is inaccurate and the low growth we have seen in the recently is a result of this underestimate of the actual saving (may be as high as 13% of income) Anyhoo what that all appears to portend is that any austerity on the part of the federal govt will bring on a swift economic downturn. There won't be the long lag factors of the past (as in the Clinton years). The current dog and pony show inWashington is an experiment to see which way the wind blows. But the time for ideologically driven policy is over – reality is going to dictate policy to Washington

  4. Bush gave us Medicare part D – which was more corporatist rip-off – no negotiation with big pharma, just pay whatever they want.I would note that the most hawkish candidate in the GOP race, Ron Paul says Medicare and Social Security should be the LAST things we should cut – start with the military and all the ineffective bureaucracy (Why do we have an SEC if it won't go after anyone? – oh yea, we need a farm team place with revolving door for Goldman Sachs).This does not mean I don't think entitlements are or will be a problem, but only that any proposed solution at this point will rip off the elderly, the poor, the middle class, and the rest to send taxpayer money to fat-cats.But why do you think Obama won't win a second term? If it was Ron Paul v. Obama, between the war-mongers led by the military-industrial complex, the health insurance, big pharma and the rest of the medical-industrial complex, and the "progressives", Obama will get all those votes no matter how many times he stabs you in the back. More likely you won't support Ron Paul or someone like him in the primaries, so it will be a republican that is an Obama clone (in deed if not in word) that will be your alternative.The perpetual wars which we are increasing is a much larger "unfunded liability". So where are the progressives on that. Why doesn't anyone talk about the economic effects of having an empire. Or for that matter the environmental effects – the tanks don't have catalytic converters, get less than 1MPG, and with all the round the world flying (they don't take ships) what is the CARBON FOOTPRINT? Where is Al Gore and the rest of you on this Inconvenient truth?

  5. nice analysis, and i'm truly looking forward to the next installment.this otoh:"But our progressives instead chose certain death for the program on the argument that the albatross of payroll taxes makes the program too popular to kill. (Hint: they were wrong. Evidence? Obama.)"on even-numbered days, this argument sounds reasonable, but today's an odd-numbered day and so i'm not buying it.the much more plausible explanation, imnsho, is that the rich operate on the principle of "what's mine is mine, and what's yours is mine." after plundering, weakening, or decimating the less well-known and well-loved things like medicaid, wic, tanf, snap, rcra, cercla, glass-steagall, you-name-it, the only big thing left was fica. attacking THAT was going to require an especially charismatic figurehead – which they found in obama.

  6. What a train wreck.

  7. @ Jim: "the government is borrowing what the private sector is saving"brilliant way to muddle the causality, Einstein; thanks a million!that clarified everything! for gold bugs, Libertarians, Austerians & operations people alikeproblem clarified & solved; we can all go back to ignoring it, thanks to you

  8. An interesting story, but Occam is rolling over in his grave. You are attributing to these people far more intelligence than they have. I had the same problem with Naomi Klein's Shock Doctrine: It's all quite believable that these people would try to take advantage of a disaster; they are after all predators by nature. But to also attribute to them that they are smart enough to plan out and make happen a specific disaster to gain some specific desired end goes beyond believabilty for me. The vampire does not plan his next victim; it is merely the next person to come along._______In a similar vein from naked capitalism (More Proof That Obama is Herbert Hoover –"Apparently it is now OK for Pravda [NY Times] to make that shocking revelation [that automatic stabilizers have been holding the economy together] because the budget debate is so far advanced that the executioner has already started the downward swing of his axe; the only question is whether he will get a clean kill of the average citizen’s economic wellbeing or whether it will be a protracted, messy death. … [The elites] will in the end reap the whirlwind they are creating, but not before it mows a path of destruction through our social order."_______Or as I commented to Krugman (over Obama's idea to raise the Medicare eligibily age): "We're going to start needing a body count to measure this man's politics."And note that the revelation that Obama had offered this came out because even GOP staffers were shocked by it.

  9. Even though I've come to think differently about deficits and debt since taking up MMT as a hobby, I'd still have bitched about Bush's deficits for their purposes: Stupid wars.It's the State's fiat capacity to run deficits for good or evil, as citizens allow or ignore, that still has me perplexed about MMT – the whole matter that budgeting must be done – to prevent inflation as productive capacities approach full use – and to make choices other than stupid wars. Not everyone wants deficits for good purposes – ask Dick Cheney….

  10. kudos to tz re comments on the empire and mil spendingcan anyone claim to be a "progressive" without taking a stand on either of them ?

  11. Those who care for the people will never triumph by means of central government. Whether the power is abused in Washington or NY is hardly important. However, without central control, nobody can go around dictating to everyone efficiently; decentralization and local control will always make room for local 'bad behavior.' So, do you want everyone oppressed the same way everywhere, either by you or by people who betrayed you, or do you want people oppressed in diverse ways in different locations? Your choice.