Fiscal Summit Counter-Narrative: Part One

By Joe Firestone

Well, it’s Springtime in DC. Time for the Peter G. Peterson Foundation’s annual event. The Fiscal Summit, to be held on May 15, better named the Fiscal Cesspool of distortions, half-truths and lies, is a propaganda extravaganza designed to maintain and strengthen the Washington and national elite consensuses on the existence of a debt crisis, the long-term ravages of entitlement spending on America’s fiscal well-being, and the need for long-term deficit reductions plans to combat this truly phantom menace. The purpose of maintaining that consensus is to keep an impenetrable screen of fantasy intact in order to justify policies of economic austerity. that have been impoverishing people and transferring financial and real wealth to the globalizing elite comprised of the 1% or far less of the population, depending on which nation one is talking about.

The 2010 Fiscal Summit

The first “Fiscal Summit” was held in Washington, DC on April 28, 2010. It was lavishly funded by the Peter G. Peterson Foundation, and included many “big names” associated with “fiscal sustainability” and “fiscal responsibility,” including Bill Clinton, who appeared along with personalities from Peterson’s stable of deficit hawks such as David Walker, Alice Rivlin. Robert Rubin, Alan Simpson, Erskine Bowles, and Paul Ryan. Its purpose was to spread the deficit hawk message of Peter G. Peterson, including various myths of the world-wide austerity movement:

• The Government is running out of money
• The Government can only raise money by taxing or borrowing
• We can’t keep adding debt to the national credit card
• We need to cut Federal Government spending and make do with no more money
• If the Government borrows more money, the bond markets will raise our interest rates
• If we continue to issue more debt, then our main creditors may refuse to buy it, an event that would lead us to insolvency and severe austerity
• Our grandchildren must have the heavy burden of repaying our national debt
• There is a deficit/debt reduction problem for the Federal Government that is not self-imposed
• The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too
• The only way to tackle our deficit is to cut excessive spending wherever we find it
• We should also find a bipartisan solution to strengthen Social Security for future generations
• We face a crushing burden of Federal debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead
• The next generation will inherit a stagnant economy and a diminished country
• The United States is in danger of becoming the next Greece or Ireland
• Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus
• Federal Government austerity will create jobs.

The 2011 Fiscal Summit

This “summit” also featured Bill Clinton, Alan Simpson, and Paul Ryan. But, in addition, such notables as Mark Warner, Dick Durbin, Saxby Chambliss, David Brooks, Mike Crapo, Kent Conrad, Gene Sperling, and Mitch Daniels. The format was a bit different from 2010, in that there were interviews or moderation from “village” media personalities such as Gwen Ifill, Maria Bartiromo, Judy Woodruff, Ezra Klein, and David Wessel. In addition, there was a concluding session on fiscal “solutions” prepared by 6 organizations granted Foundation support. Their representatives and the organizations were: Alan Viard of the American Enterprise Institute (AEI); Joe Minarik of the Bipartisan Policy Center(BPC); Michael Ettlinger of the Center for American Progress (CAP); John Irons of the Economic Policy Institute (EPI); Stuart Butler of The Heritage Foundation; and Zachary Kolodin of the Roosevelt Institute Campus Network.

The 6 organizations are claimed by the Peterson Foundation to represent the spectrum pf opinion on fiscal sustainability, fiscal responsibility, and fiscal policy. Yet, none of the solutions offered by any of them questions the myths listed above, except the very last one which is embraced by 2 of the 6 organizations, and opposed by EPI and the Roosevelt Institute.

So, the bottom line of the 2011 Fiscal Summit is that it varied very little in its narrative from the 2010 Summit. But what it did do was to to involve “very serious” media news personalities much more and make an effort to present itself as open-minded by considering the “solutions” of organizations “across the political spectrum,” taking care to ensure that all organizations supported the Peterson basic premise that the United States has a serious long-term deficit/debt reduction problem.

The Fiscal Sustainability Teach-In Counter-Conference of 2010

On the same day as the Fiscal Summit, the Fiscal Sustainability Teach-In Counter-Conference was held at The George Washington University Marvin Center amphitheatre, to provide a counter-narrative to the myths we knew would be coming out of the 2010 Fiscal Summit. The Conference was held with the sponsorship and support of GWU’s Department of Management. It was first proposed in a post I blogged on April 7th at a number of sites including Correntewire and FireDogLake. A group of bloggers responded and collectively, using primarily the Correntewire.com and fiscalsustainability.org sites, we built a small team including Lambert Strether, selise, BDBlue, hipparchia, and DCBlogger that, with the support of our fine speakers, Professors Bill Mitchell, Stephanie Kelton, Pavlina Tcherneva, and L. Randall Wray, and international financial consultants Warren Mosler and Marshall Auerback, and fund raising through Howie Klein, the whole Blue America team, and many small contributors, successfully organized the Teach-In in a little more than three weeks time, so that we could hold it on the same day as the well-planned and funded Peterson Foundation-supported Fiscal Summit, which delivered the deficit hawk narrative on fiscal sustainability and fiscal responsibility. The purpose of our Conference was to provide an explicit counter-narrative to the Fiscal Summit, National Commission On Fiscal Responsibility and Reform (the “Catfood Commission,” Co-Chaired by Bowles and Simpson), “story” of long-term deficit problems that the United States must act to counter.

Audios and presentations of the Teach-In were posted quickly and were made available by selise within a few days of the Conference at her web site. The video and transcript work took longer to complete, but thanks to a smaller team, wishing to remain anonymous, who developed the initial version of the transcript, and selise, who pulled the materials together, and never gave up on the video work, these are available on a Creative Commons, non-commercial, share-alike basis here, here, here, here, here, here, and here.

These videos and transcripts and the earlier Teach-In materials provide one of the most comprehensive counter-narratives to the austerity views of the Peterson Foundation, the President’s Catfood Commission, the views of deficit hawks, in general, and even the views of deficit doves such as Christine Romer, Paul Krugman, and Robert Reich. This counter-narrative applies to the 2010, 2011, and I expect will also apply to the 2012 Fiscal Summit on May 15th. That Summit may back off short-term austerity a bit, compared to the two earlier Summits, due to the record of failure of austerity policy in the Eurozone, which is now too visible to completely ignore. But we can still probably count on the participants to reflect similar narratives as in earlier years since many of them are returnees and most of the others are even closer to Peterson’s austerity views than were the participants in the 2011 Fiscal Summit.

An Overview of the Teach-In and Its Counter-narrative

The counter-narrative shows that the economic policies of austerity favored by the hawks, and now widely implemented in the Eurozone and elsewhere, are an unmitigated disaster, providing for a race to the bottom among nations. And even the counter-cyclical stimulus/austerity policies favored by the doves, which only periodically result in avoidable recessions are both damaging to people, and the economy in general. Only the Modern Monetary Theory (MMT) -based policies of the deficit owls can be counted on to guide the macro-economic policies of the Federal Government, and other nations with fiat money systems who are sovereign in their own currency.

The first four of the five programs of the Teach-In were devoted to criticism of the conventional wisdom that asserted these various assumptions. The first session on Fiscal Sustainability provided an overview of the basic perspective of Modern Monetary Theory (MMT) and analyzed what “fiscal sustainability” meant from the MMT point of view, rather than from the point of view of the neo-liberal paradigm used by the deficit hawks.

The main presenter during the first session was Professor Bill Mitchell of the University of Newcastle. Bill did a great job of both presenting the overview and also zeroing in on “fiscal sustainability,” while critiquing the neo-liberal view of it which underlies the foundation of the Catfood Commission, the Fiscal Summit, and the Administration’s openness to implementing at least some aspects of the deficit hawk austerity ideology, including entitlement cuts. Bill’s discussion was supplemented by a very free wheeling panel/audience discussion during which a lot of pretty fundamental questions were asked of the panelists.

The second session focused in on the core claim of the deficit hawks: namely that the Federal Government can run out of money, become insolvent, and therefore has budgetary constraints. The main presenter was Professor Stephanie Kelton of the University of Missouri at Kansas City. Stephanie provided a presentation of great clarity and simplicity on how our fiat currency system actually works. It was perfect for dispelling the fairy tales the deficit hawks tell about Government budgetary constraints. After she was done another very vigorous discussion took place in which the panel and much of the participants exchanged views.

The third session featured Warren Mosler, an international financial consultant, hedge fund manager, accomplished economic theorist, and then candidate for the US Senate from CT, one of the mainstays of the MMT approach. Warren dove deeply into the nature of fiat currencies, and where they get their value. He also discussed inflation issues while zeroing in on the reasons why the US can never be forced to default on its entitlement obligations, and also why the debts we leave today can have no material effect on our children and grandchildren tomorrow, so long as we manage the economy well and retain our fiat currency system. Warren and the other panelists received a very good going over in the Q and A session after the presentation.

There were two afternoon sessions. The first was on Inflation and hyperinflation. That topic was selected to meet one of the major objections to the MMT point of view, specifically that deficit spending in fiat currency systems can easily lead to inflation and hyper-inflation as illustrated by cases like Weimar Germany and Zimbabwe.

When deficit hawks make this sort of objection it’s usually in the context of their retreating from some of their other claims and granting that there are really no solvency problems, but then claiming that we need to run the Government as if we will run out of money and do have solvency problems, because if we use Government’s power to create fiat currency freely, the resulting hyper-inflation will render the currency worthless, and it will be as if we have run out of money.

Marshall Auerback, an International Financial Consultant and Economist, provided the primary presentation on inflation and hyperinflation. His presentation was highlighted by the MMT view of the causes of demand pull inflation and an analysis showing that the necessary and sufficient conditions for Weimar, Zimbabwe, and other highly visible contemporary cases were not fulfilled in the United States. Teach-In participants had many questions on the inflation cases and there was also a very vigorous debate on the meaning of the term “inflation,” among the panelists and participants.

The final Teach-In session shifted from critique and answers to objections to a treatment of Policy Proposals for Fiscal Sustainability made from the MMT point of view. The primary presentation was given by L. Randall Wray, Professor at the University of Missouri at Kansas City and Pavlina Tcherneva, Professor at Franklin Marshall College. They covered both the connection between fiscal responsibility and creating full employment, and also the various benefits associated with full employment. Price stability and job guarantee programs were also discussed, and the case of Argentina, which successfully implemented a job guarantee program was analyzed.

The discussion following the formal presentation focused mostly on the idea of the Job Guarantee (JG) and the shift from an unemployment to an employment buffer stock to stabilize the economy. The questions were very searching, and the panelists’ answers were in-depth as well.

So, the Teach-In Program was designed to do three things. The first three sessions were focused on countering the various assumptions associated with the neo-liberal model of fiscal sustainability, and to suggest the outlines of the alternative MMT view. The fourth session made the counter-narrative stronger by refuting the main objection to the MMT paradigm focusing on the dangers of inflation and hyper-inflation, and the fifth session, developed the MMT alternative view of fiscal sustainability focused on full employment and price stability, fiscal impact generally, and on job guarantee programs as a key policy initiative in a responsible fiscal sustainability effort.

The Importance of the Fiscal Sustainability Teach-In Counter-Conference

The Teach-In Counter-Conference was held to oppose the deficit hawk/Administration/Congressional Hooverite efforts to organize Federal Economic policy around the idea that certain numerical rules must be followed with respect to debt, deficits, and public debt-to-GDP ratio numbers. It showed that this idea of fiscal responsibility with its consequence that fiscal policy should follow a long-term deficit reduction plan, is based on myth, and, like the false case about WMD made in the run-up to the Iraq War, the wave of propaganda advocating deep cuts in federal spending, focuses on a non-existent problem, and recommends solutions that will cost this nation many trillions of dollars, as well as further inequality and concentration of wealth.

Since the first Fiscal Summit and our Teach-In, the austerians, often led by Peter G. Peterson, his foundation, and his collaborator, David Walker have continued their efforts to spread their ideology through more fiscal summits, other events, grants to third parties and think tanks, and collaborative deals with media organizations such as The Washington Post and CNN; and, at various times, seemed to have created a “Washington Consensus” about the meaning of fiscal responsibility and fiscal sustainability, and what to do about them, which may be slipping a bit right now, due to events in other nations, and to the slow-down in the recovery here.

Nevertheless, in spite of events, the efforts of the austerian deficit hawks seems to be focused on getting a variant of the Bowles-Simpson plan through Congress. Their latest attempt to do this will be in the coming months when pressure will build to come to some sort of “bipartisan agreement” to head off the automatic sequestration of funds, that was part of the debt ceiling agreement cut last year, if Congress failed to come up with a plan for specific cuts in spending and revenue increases.

Negotiation of that “bipartisan agreement” will probably use Bowles-Simpson as a framework, even though that framework was never adopted by the “Catfood Commission,” and even though it has received great resistance in Congress since it was published. In any event, the main thrust of the austerians: that fiscal policy should focus on a long-term deficit reduction plan cutting back the social safety net is still very much alive politically in Washington, DC and another attempt to implement it is likely in the lame duck session, barring an implosion in Europe before then. So, the importance of continuing to counter austerian propaganda like The Fiscal Summit of 2012 remains.

In the remainder of this series of posts, I’ll review each of the presentations and discussions given at the Teach-In. All the presentations, audios, transcripts, and videos of both the presentations and discussions are available for readers at selise’s web site. The transcripts are also available in an earlier version. In upcoming posts, I’ll be providing a review and commentary of the five Teach-In sessions including the extensive Q & accompanying each one.