By
Warren Mosler
(Reprinted from Moslereconomics.com with the Express Permission of the Author)

Unsustainable Budget Threatens Nation

March 24 (Politico) — Repeated battles over the 2011 budget are taking attention from a more dire problem—the long-run budget deficit.

Divided government is no excuse for inaction. The bipartisan National Commission on Fiscal Responsibility and Reform, under co-chairmen Erskine Bowles and Alan Simpson, issued a report on the problem in December supported by 11 Democrats and Republicans — a clear majority of the panel’s 18 members.

As former chairmen and chairwomen of the Council of Economic Advisers, who have served in Republican and Democratic administrations, we urge that the Bowles-Simpson report, “The Moment of Truth,” be the starting point of an active legislative process that involves intense negotiations between both parties.

There are many issues on which we don’t agree. Yet we find ourselves in remarkable unanimity about the long-run federal budget deficit: It is a severe threat that calls for serious and prompt attention.

This is just plain wrong, of course, but look at the list of supporters, below, disgracing themselves.

While the actual deficit is likely to shrink over the next few years as the economy continues to recover, the aging of the baby-boom generation and rapidly rising health care costs are likely to create a large and growing gap between spending and revenues. These deficits will take a toll on private investment and economic growth. At some point, bond markets are likely to turn on the United States — leading to a crisis that could dwarf 2008.

There is absolutely no applicable theory or evidence to support any of this. Any presumed supporting evidence or theory always applies to a gold standard or other fixed rate regime, but is always entirely inapplicable to our current non convertible currency/floating exchange rate regime.

“The Moment of Truth” documents that “the problem is real, and the solution will be painful.” It is tempting to act as if the long-run budget imbalance could be fixed by just cutting wasteful government spending or raising taxes on the wealthy. But the facts belie such easy answers.

The commission has proposed a mix of spending cuts and revenue increases. But even this requires cuts in useful programs and entitlements, as well as tax increases for all but the most vulnerable.

All this can do is lower aggregate demand, which means reduced real output and higher unemployment in general. How do any of these economics professionals think that producing less, including less real investment, addresses our very real needs?

The commission’s specific proposals cover a wide range. It recommends cutting discretionary spending substantially, relative to current projections. Everything is on the table, including security spending, which has grown rapidly in the past decade.

So do they think that current Social Security payments result in a too high standard of living for our seniors? I don’t see any of them flying on private jets to sporting events on their Social Security? In fact, current levels of Social Security payments are just barely enough to keep them from needing to eat out of garbage cans. And there certainly is no shortage of the real goods and services they consume, particularly with unemployment so high and the output gap in general so wide?

It also urges significant tax reform. The key principle is to limit tax expenditures—tax breaks designed to encourage certain activities—and so broaden the tax base. It advocates using some of the resulting revenues for deficit reduction and some for lowering marginal tax rates, which can help encourage greater investment and economic growth.

The commission’s recommendations for slowing the growth of government health care expenditures — the central cause of our long-run deficits — are incomplete. It proposes setting spending targets and calls for a process to suggest further reforms if the targets aren’t met. But it also lays out a number of concrete steps, like increasing the scope of the new Independent Payment Advisory Board and limiting the tax deductibility of health insurance.

How about taking a look at the real goods and services we devote to actual health care, and making decisions accordingly? Seems that used to be what economists did, before they got lost in finance to the point of absurdity?

To be sure, we don’t all support every proposal here. Each one of us could probably come up with a deficit reduction plan we like better. Some of us already have. Many of us might prefer one of the comprehensive alternative proposals offered in recent months.

Yet we all strongly support prompt consideration of the commission’s proposals. The unsustainable long-run budget outlook is a growing threat to our well-being. Further stalemate and inaction would be irresponsible.

Do any of them see the current budget leading to an irreversible excess of aggregate demand? If they do they never mention it. In fact, I’ve yet to see a long term inflation forecast from anyone that shows an excess of aggregate demand looming.

We know the measures to deal with the long-run deficit are politically difficult. The only way to accomplish them is for members of both parties to accept the political risks together. That is what the Republicans and Democrats on the commission who voted for the bipartisan proposal did.

Because they are afraid we could become the next Greece they are trying to turn us into the next Jonestown.
Feel free to repost and distribute, thanks.

We urge Congress and the president to do the same.

I urge them to recognize taxes function to regulate aggregate demand, and not to raise revenue per se.

Martin N. Baily

Martin S. Feldstein

R. Glenn Hubbard

Edward P. Lazear

N. Gregory Mankiw

Christina D. Romer

Harvey S. Rosen

Charles L. Schultze

Laura D. Tyson

Murray L. Weidenbaum

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Yesterday, R. J. Eskow remarked:

We expected to see an all-out assault on Social Security and progressive taxation in November, and we expected it to come under the banner of “deficit reduction.” That was always the plan: Wait until after the election, when a lame-duck Congress could pass the preferred policies with the least political blowback. Then release a flurry of like-minded proposals and supportive editorials to create the illusion of consensus, capped by a coordinated media blitz to pressure the President and Congress into accepting them.

But even we, battle-hardened as we like to think we are, didn’t expect the assault to be so coordinated, so widespread, or so aggressive. The number of like-minded reports released this month is greater than we expected, the ad buys are larger, and the range of ideas is narrower. And more journalists are carrying water for this campaign than we expected. All of this is being done to serve an anti-government, anti-Social Security, anti-tax agenda whose ideas are both unpopular and impractical. Nevertheless, the media’s greeted then with a tidal wave of nearly-unanimous praise (some of of which can even be found on the editorial page.)

It’s hard to fault Eskow’s take on this, or his points developed later in his piece that the media has an extreme rightward bias on long-term deficit reduction, which it falsely calls “moderate,” in the face of the heavy majority of Americans, who according to polls are uncomfortable with the recommendations being offered by the deficit hawks. But, Eskow’s hasn’t commented at all on co-ordination on the progressive side. While that hasn’t been as visible in the past two weeks as we’ve seen on the fiscal conservative side, it has for some months now been focused on fighting the idea that Social Security should be cut, and advocating for raising the payroll tax cap on the amount of one’s compensation that is subject to FICA contributions.

From the beginning of this fight with the deficit hawks, I’ve warned that this co-ordination around Social Security is a big mistake. It looks like the obvious thing to do because no one wants to see their Social Security cut, and if the fight is focused around that no one has to be educated on arcane details of budgeting to get people organized to oppose “the Catfood Commission.” In spite of this however, we can now see that a strategy of coordinating around Social Security is a losing one. Maybe not for Social Security, which is a battle progressives could well still win, but, instead, for the more important War over whether we will have an activist Federal Government in the 21st Century that will support and fulfill public purposes, rather than a Government that won’t do much more than fight unnecessary wars and provide bailouts for banks and the plutocracy when their gambling at the casino gets out of hand.

What all the long-term deficit reduction plans are calling for is limited increases in Government expenditures that won’t outrun CBO’s very conservative GDP growth projections, regardless of this country’s need for Government spending to meet its problems and its public purposes. The plans elevate spending controls above all of the real needs of people, and some call for spending disciplinary structures that will insulate the Executive and the Congress from responding to pressure from the public to spend Federal Money to meet national problems.

In other words, apart from any austerity problems, and the constraints on economic growth that are implied by the plans, most also propose legislative constraints that will build in further anti-democratic mechanisms into our system, exactly at the time when we already have a problem with rising elitism, and a growing feeling that the powers that be are out of touch and unresponsive to the people.

The deficit reduction plans are not only economic suicide, since by constraining Government spending they are also constraining additions of financial assets to the private sector, and restricting Government’s capability to respond to business cycles and structural problems, but they are also political suicide for our democracy, because they will suppress, rather than enhance democracy even further and will eventually lead to explosions of popular discontent which have no other effective outlets.

Some progressives, including Eskow, are opposed to plans released by the Peterson-Pew Commission on Budget Reform, the Co-Chairs of the Catfood Commission, and the Rivlin-Domenici Report released by The Bipartisan Policy Center, and would certainly label them coordination around the wrong thing; but they’ve been expressing support for Jan Schakowsky’s plan and urging support of it. If they’re successful this will be just another illustration of coordination around the wrong thing.

Let’s look at Schakowsky’s plan. What does it specify? First, a $200 Billion investment in job creation measures over two years. Is that good, will it help some people? Yes. Will that solve the unemployment problem increasing aggregate demand by enough to get the enormous quantities of private sector cash sitting idle off the sidelines? Probably not, it amounts to an average of only $8 Billion per month of stimulus over 2 years, or about one-quarter of the current first stimulus. Meanwhile, the foreclosure crisis continues, home values keep dropping, and State Governments keep cutting expenditures and jobs.

So, it’s inadequate, and the question arises, why talk about in a deficit reduction plan? Why not just put forward some proposals that can give us full employment. There are some real proposals out there. In fact, it’s likely that Alice Rivlin’s Payroll Tax Holiday proposal is likely to be a better proposal for lowering unemployment than Schakowsky’s $200 Billion stimulus.

Second, what about her recommendations for Social Security. They’re fine. They lay to rest any solvency propaganda. Personally, I would have preferred lifting the salary cap on workers entirely. But that’s a nit, relatively speaking. Certainly Schakowsky’s Social Security proposal is an improvement.

Third, what about her $441 Billion worth of deficit cuts in 2015. Well, I’m all for her cuts. Every last one of them. It’s a good list. Good job Jan!

Fourth. now that I’ve said I like every part of her plan, what about the plan taken as a whole? Well, I’m afraid I think it’s fundamentally flawed! Not that all her cuts, Social Security reforms, and $200B investment shouldn’t be enacted. They should. Let’s do it immediately! The problem with her plan, however, is that it stops where it does, and accepts the very idea of necessary deficit reduction.

How do we know today that we will need to reduce the deficit by $441 Billion in 2015? Whether that”s a good idea or not depends on the state of the economy and even more on the level of unemployment. If unemployment is still where it is today, then that $441 Billion in deficit reduction should not only be spent on more productive initiatives than the ones Jan Schakowsky wants to cut, but we’ll probably need an additional $600 Billion of deficit spending to bring the economy back to full employment.

So what kind of “progressive” commits to deficit reduction of $441 Billion without knowing what the unemployment rate will be in 2015, or without stating that such a reduction in deficit spending is entirely contingent on economic conditions in 2015? How can a President or a Congress with any brains at all commit to such a plan 5 years on?

Five years ago, the Great Crash of 2008 hadn’t occurred. What, if the President had committed in 2005 to Mr. Obama’s cutting the deficit by $441 Billion this year, and the President and Congress had gone through with it? We’d be having 13 percent unemployment right now; that’s what.

So, grow up Barack Obama, Pete Peterson, Alive Rivlin, Pete Domemici, Jan Schakwosky. R. J. Eskow, other progressives, and especially Erskine Bowles, and that nonpareil diplomat Alan Simpson! The Federal Government shouldn’t be asked, much less forced, to commit to particular levels of deficit reduction when it doesn’t know what kind of economic conditions will exist in the future, and what need will exist for Government spending to add to private financial assets? It is folly and fiscal irresponsibility even to want the Government to make such commitments.

The very idea of long-term deficit reductions is foolish, because it is not budgetary policy that determines whether we will have deficits; it is the economy that determines whether we will have them. Deficits, debts, and debt-to-GDP ratios are primarily endogenous effects of the performance of the economic system. They are not variables that we can control directly by mandates such as “Thou Shalt Spend Only to X USD This Year” without courting economic disaster.

In co-ordinating their opposition to the deficit hawks and the Catfood Commission, around the defense of Social Security, the progressive organizations and web sites have taken what they thought was the easy way out, and they’re now faced with a situation where progressives like Jan Schakowsky are making the mistake of supporting long-term deficit reductions that will constrain the ability of the United States to adapt to changing economic conditions.

Progressives will pay a price for that short-sightedness. If not on Social Security than in the areas of Federal “discretionary” programs that we strongly support it. At that point they will regret the wonky cleverness that led them to favor coordinating resistance around Social Security, rather than educating the public about the dangers of hamstringing the Federal Government’s ability to enable the United States to adapt to unexpected economic events. Unfortunately, the rest of us will also both regret their wonky cleverness, and pay a much more concrete price for their failure to face up to the real problem of the deficit hawks in our reduced living standards and those of our children and Grandchildren.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

I blogged on the opening slide of the Catfood Commission Co-Chairs’ Proposal just a couple of days ago, so when I checked out BillyBlog, as I do almost everyday, last night, I was particularly pleased that a part of his great post was devoted to the same slide I commented on. I’d like to dialogue with Bill’s treatment now, both for fun and also to introduce my readers to not just the substance, but the flavor of Bill’s views on austerianism, the increasingly serious threat to the well-being of both working Americans and the world’s working people.

In my estimation, Bill is one of the world’s leading economists practicing right now. And with Warren Mosler and L. Randall Wray he forms what I think of as the big three of the Modern Monetary Theory (MMT) movement in economics. In these times when so-called “progressives” talk about the “Catfood Commission” in grave tones, as if it is trying to deal with a serious and intractable problem employing great intellectual and moral courage, when what it is really doing is addressing a manufactured issue, employing old economic theories that were discredited in the 1930s, with monumental stupidity to boot, it’s very important to have a real humanist like Bill on the side of working people everywhere.

I have been reading the Co-Chairs Draft Proposal from the US National Commission on Fiscal Responsibility and Reform, which was released on Wednesday (November 11, 2010). If I was religious I would be saying Please god, help us all. As I am not, I will say it anyway!

I will provide more detailed analysis of the material they are starting to pump out in due course. But in the accompanying presentation, the opening slide caught my eye immediately. It said:

- We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today

- America cannot be great if we go broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing debt burden off our back.

- Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America:to give our children and grandchildren a better life.

- American families have spent the past 2 years making tough choices in their own lives. They expect us to do the same. The American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.

I recommend they redraft that slide prior to deleting the remaining 47 slides that follow. Perhaps something along these lines:

• We have a responsibility to come together on a plan that will make America better off tomorrow than it is today given how bad the state of the real economy is now and how weak the government fiscal response has been.

• America cannot be great if the private sector goes broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing private debt burden off our back. Given the government has no solvency risk (and cannot go broke) and that fiscal policy has the unique capacity to support spending and employment while the private sector restructures its balance sheet, it is our responsibility to recommend a further (jobs rich) fiscal stimulus.

• Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America: to give our children and grandchildren a better life. And if we succumb to the maniacal protests of the deficit terrorists and cut back net public spending now and drive millions more workers out of jobs then we will be guilty of crimes against our children and grandchildren.

• American families have spent the past 2 years facing tough choices in their own lives because the market system failed due to lax government regulation and dishonest and irresponsible entrepreneurial behaviour. Their situation has worsened because the government did not have the courage to provide enough fiscal support to ensure there was enough spending to support their their jobs. They have been lied to by the press, the conservatives and we have gone along with these lies – the buck stops with the President on this who had shamefully lied to the American people when he told them that the government had run out of money. The American people are now counting on us to stop lying and to face up to the basic macroeconomic rule that spending equals income. The American people know that they have to live within their means but they know the government has no such financial constraint and should be spending so that they can be employed and save and that will make America strong for the long haul.

I think that might be better although PowerPoint would probably split the message onto two slides. But it is better to tell the truth on two slides than to lie on one.

It certainly is. Not that the Co-Chairs have any particular concern for brevity in presentation, since as Bill says, all the rest of their presentation may just as well have been deleted since it was full of falsehoods. In this short statement Bill hits at the following deadly innocent frauds. First, that the Government is fiscally constrained in the sense that it can run out of money and that there therefore exists a solvency risk. That is a falsehood. In the mouths of some who know better, it is a lie, and a very damaging one because it provides an excuse for not increasing private sector income through Government spending.

Second, that it’s the Government going broke. It’s not. It’s the private sector gone broke after the great recession, and the Government’s proper role in such circumstances is to ADD financial assets to the private sector by deficit spending which directly ADDS to private savings.

Third, that we must have austerity or else create a burden for our grandchildren. Actually, it’s the opposite. To make things better for our grandchildren we must create real and equitably distributed private sector wealth now, and the role of increased Government spending to create jobs in doing that is critical. The future is about what we build now. And if we fail to build now, if we fail to repair the damage done by the market fundamentalists who created our economic mess, we will then be betraying our children and grandchildren.

Bill’s commentary also moved a bit beyond the opening slide:

On Slide 6 the heading is “Cut Spending We Simply Can’t Afford, Wherever We Find It”. Who is We? Answer: the private sector should never spend more than they can afford. That means they should only run sustainable debt burdens and probably not be in debt overall as a sector. But the US government can always afford to buy whatever there is for sale in US dollars on any given day.

But the US private sector has enormous debt today, and when the private sector is saving to pay down debt as it is doing, rather desperately, right now, and the external sector is running a trade deficit, then it is true by accounting identity that the Government will run a deficit whatever we do. As Bill has said many, many times. The only choice here is whether there will be good deficits that result in jobs and real wealth and eventually recovery, or whether there will be bad deficits that result solely from economic losses and a spiraling down of tax revenue, which is the path which the austerians want us to travel.

A sovereign government like that in the US is never revenue constrained because it is the monopoly issuer of the currency. It is nonsensical to talk about the US government as if it is a budget-constrained household.

It is. And that is what you see all the illustrious Senators and Congresspersons, the President, a good many of the economists, corporate CEOs, the mainstream media “serious” people. and loudmouth cable pundits doing. These people think the US government is like their own household that must “fund” expenditures. They think the Government must either tax or borrow money to “fund” it’s spending, so that it is limited by what it can tax and what it can borrow.

You see people saying that everyday. Obama says it. Pelosi says it. Chris Matthews, Lawrence O’Brien, and Ed Schultz all say it. The serious pundits at CNN like David Gergen intone this bit of wisdom in a solemn voice as if it were an obvious article of self-evident truth. But, in fact, it’s another deadly innocent fraud. The Government is not a household in the economy that uses somebody else’s currency. It is the issuer of its own currency. It is not just a player in the economic game. It is the scorekeeper. It never can run out of points.

Bill continues:

That doesn’t mean (all you goldies out there) that the US government should spend without discretion or control. It should only spend to ensure its socio-economic program to advance public purpose is being progressed and only in net amounts that ensure that nominal spending growth doesn’t outstrip the real capacity of the economy to absorb it with output increases. If the two aims are mutually inconsistent (that is, the implied size of government to deliver this program and the current size of the private sector overall add up to more than the real economy can support) then the government can either reduce its program ambitions (a political issue) or reduce the size of the private sector (via taxation increases etc). But none of these choices and decisions are financial in nature. They are mostly of a political nature.

Even though the Government can never run out of points, can’t become insolvent, and so has no financial budgetary constraint that is not political, it does have the very important real world constraint that if it spends beyond the productive capacity of the economy it can cause inflation. When inflation happens we can and will respond to it. But right now there’s no inflation. In fact, we’re in danger of deflation and are operating at roughly on 70% of capacity.

So, first things first. Forget about running out of money. That can’t happen. We have several real problems. The first is huge unemployment. The second is the need to reconstruct our economy to create a new energy foundation for it. The third is an education problem. The fourth is a health care problem. The fifth is an infrastructure problem. The sixth is a climate control problem. The seventh is an environmental problem.

These are real problems related to the economy. Let’s grow up and have the real courage necessary to take care of them.

And let’s dismiss the Catfood Commission and its fantasy nightmare problems of running out of money, getting too much debt, having bad debt-to-GDP ratios and so on. Those are just bad dreams from which we better awake quickly before our futures and democracy are gone.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

This is the first of a number of posts on the Catfood Commission’s latest travesty: the Co-Chair’s Proposal. The proposal begins with statements about “Our Guiding Principles and Values.” I’ll analyze the first page in this statement of principles in this post. Read the rest of this entry →

By

Marshall Auerback

Hint: it’s not Republicans.

Social Security remains one of the greatest achievements of the Democratic Party since its creation 75 years ago. Although Republicans have historically fulminated against the program (Ronald Reagan once likened it as something akin to “socialism”), they have actually made little headway in touching this sacred “third rail” in American politics. President Bush pushed for partial privatization of the program in 2005, but the proposal gained no policy traction (even within his own party) because Social Security continues to be hugely popular with American voters. It’s a universal program that benefits all Americans, not a government handout to a few privileged corporations.

Which is why it’s odd that Democrats seem almost embarrassed to continue to champion the legacy of FDR. The party frets about long-term deficits and the corresponding need to “save” Social Security from imminent bankruptcy and, in doing so, opens the gate to radical cuts in entitlements that will do nothing but further destroy incomes and perpetuate our current economic malaise. It is true that some Republicans have signed on to the idea of privatization, notably a proposal championed by Rep. Paul D. Ryan (Wis.), the senior Republican on the House Budget Committee. But only a handful of GOP lawmakers have actively embraced the measure and, in the aftermath of the worst shock to the financial system since the Great Depression, many Republican lawmakers would just as soon see the idea forgotten.

So why don’t the Democrats leave well enough alone? Why bother even setting up “bipartisan commissions” to discuss the issue of Social Security? At the risk of sounding like one of those ungrateful members of the “Professional Left”, whom Robert Gibbs recently decried, I note that it was President Obama who most recently re-opened this issue by setting up a commission on reducing long term budget deficits and dealing with the long term issue of entitlements, including Social Security. In the Commission’s remit, nothing is off the table, including Social Security and Medicare. (Of course, given that one of the members is a director of Honeywell, it’s hard to envisage any suggestions of defense cuts). I also note that according to the Washington Post, “Democrats said Simpson and Bowles are uniquely equipped to blaze a path out of the fiscal wilderness — and to forge bipartisan consensus on a plan likely to require painful tax increases as well as program cuts.” No mention of Republicans getting on board. This is self-immolation, plain and simple. And Obama wonders why voters remain unhappy?

Now that the President has opened this Pandora’s Box, it is hard for him credibly to make the case, as he attempted to do in last Saturday’s weekly radio address, that “some Republican leaders in Congress want to privatize Social Security.” In fact, it is an idea enthusiastically embraced by a number of Wall Street Democrats who are funded with huge campaign contributions from Wall Street itself. (Candidate Obama received more money from Wall Street in 2008 than Hillary Clinton.) These contributors would be the Rubinites who for decades have played a huge role in allowing for greater financial leverage ratios, riskier banking practices, greater opacity, less oversight and regulation, consolidation of power in ‘too big to fail’ financial institutions that operated across the financial services spectrum (combining commercial banking, investment banking and insurance) and greater risk. Privatization of Social Security represents the last of the low hanging fruits for Wall Street. Who better to provide this to our captains of the financial services industry than their major political benefactors in the Democratic Party?

The issue of privatization is germane when one considers the members of the Commission approved by the President. There are questions of possible conflicts of interest. As James Galbraith has noted, the Commission has accepted support from Peter G. Peterson, a man who has been one of the leading campaigners to cut Social Security and Medicare. It is co-chaired by Erskine Bowles, a current Director at North Carolina Life Insurance Co (annuity products are a competitor to Social Security and would almost certainly be beneficiaries of the partial privatization). Mr. Bowles’ wife, Crandall Close Bowles, is on the Board of JP Morgan, and she is also on the “Business Council,” a 27 member group whose members include Dick Fuld, Jeff Immelt, Jamie Dimon and a plethora of other Wall Streeters.

At the very least, these kinds of ties raise questions in regard to proposals for dealing with Social Security. Many members of the Commission stand to become clear direct and indirect beneficiaries of the privatization that the President is now warning against. It’s disappointing that these ties have not been fully explored by the press, and it is extraordinary that the President would exhibit such political tone deafness in making these kinds of appointments. It tends to undercut the message of his last radio address.

I’ll leave aside the nonsensical arguments in regard to Social Security’s “solvency,” because Professor Stephanie Kelton has dealt with them conclusively here. The only point I would add is in regard to the alleged issue of deficit spending today burdening our grandchildren. In reality, we will be leaving our grandchildren with government bonds that are net financial assets and wealth for them. As Randy Wray and Yeva Nersisyan have recently argued, even if government decides to raise taxes in, say, 2050 to retire the bonds (for whatever reason), the extra taxes are matched by payments made directly to bondholders in 2050. We can question the wisdom of whether it is right to make this political argument in favor of bond holders over tax payers. But it is a decision to be made at that time (not before) by future generations as to whether they should raise taxes by an amount equal to those interest payments, or by a greater amount to equal retirement of debt.

In the meantime, President Obama’s approval ratings continue to plummet. His scaremongering has little credibility, given the disparity between his rhetoric and his actual policies. At the risk of further upsetting Robert Gibbs, we’ll try to explain why Obama isn’t finding stronger support from his base despite having passed, for instance, a health care bill, a fiscal stimulus bill and a financial regulation bill. For a start, follow the money: with the President and leading Democrats having taken the most campaign dollars from corporate interests those bills purport to challenge, and having gutted the most progressive elements in the bills themselves (see Matt Taibbi’s latest as a perfect illustration of the phenomenon), it is clear that those signature pieces of legislation do not fundamentally challenge the structure of power at a time when that’s what Americans most want. The only “change” most Americans might experience is a reduction in their Social Security benefits from a President currently presiding over one of the most regressive wealth transfers in history. They’ll be receiving nothing but pocket change if a serious attack on entitlements is legitimized by this commission. A scaremongering radio address doesn’t do a whole lot to change that or to alter the country’s current economic trajectory. To paraphrase one of his leading political opponents, Mr. Obama would do well stop practicing the cynical “politics as usual” that his Presidency was supposed to “refudiate”.

Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

(Cross-posted from New Deal 2.0).

Alan Simpson and Erskine Bowles, the Co-Chairs of “the National Commission on Fiscal Responsibility and Reform,” would have us believe that a deficit and debt crisis threatening the fiscal future of the United States is upon us, that "This debt is like a cancer,” and that unless we begin to make across the board cuts in expenditures, and also raise taxes in a way that distributes the pain across all segments of the population, there is no way we will return to fiscal sustainability. This view is false and also alarmist for many reasons. One is that Bowles’s view that: "We could have decades of double-digit growth and not grow our way out of this enormous debt problem”, is ridiculous, even if one thinks there is “a debt problem.” I’ve shown elsewhere, that all the US needs to do to “grow our way out of the problem” is to return to the historical average decade-long growth rate we experienced between 1940 and 2000 to begin producing surpluses by 2017 and bring the public debt-to-GDP ratio down to 37% by 2020.

A second reason is that there is no “debt problem,” if someone means by that, that our debts can grow so large that there is a solvency risk for the US Government. As I and others, have written before, there is no solvency risk, and so there is no “debt problem.” A third reason why the views of Simpson, Bowles, and other deficit terrorists on the “Catfood Commission,” are false and alarmist is that their conclusion that we are in a crisis, is based on assumptions, that will only be true if we choose to make them so. There are two kinds of assumptions, that, if true, would account for large deficits, and, also, the “debt problem” that is scaring our co-Chairmen out of their wits sufficiently that they want to take a hatchet to Social Security and other entitlement programs, such as Medicare and Medicaid. The first kind of assumption relates to revenue projections. The second kind relates to interest costs.

Revenue assumptions first. Revenue projections are a function of assumptions about future US GDP growth and also the percentage of projected GDP that will be tax revenues. The “Catfood Commission” seems to be relying on CBO’s assumptions used in its recent projections of the Federal Government’s fiscal state from 2010 – 2020. The Commission is then extending projections based on these assumptions out further to 2025, and probably even further to 2050. I’ve pointed out numerous times in previous posts that such long-range projections are just a fairy tale. However, it’s still worthwhile to show how the ending of this fairy tale is dependent on assumptions that have no basis in evidence or valid economic modeling.

CBO’s annual GDP change ratios (not adjusted for inflation) between 2010 and 2020 ranged from a low of 1.027 to a high of 1.060 and averaged 1.044 over the period. These are considerably below historical averages over the decades since 1940 which are about 1.07 – 1.08. So, the CBO economic growth projections are very conservative, taken in historical perspective. Also, tax revenues taken as a proportion of GDP, from 2011 to 2020, vary from a low of 0.164 to a high of 0.196, and are either virtually the same, or increase by a small amount throughout the decade, with an average increase from 2010 to 2020 of 0.003. That is, the CBO projections of tax revenue as a percent of GDP constantly increase from 2011 to 2020.

Now, even though the “Catfood Commission’s” own projections haven’t been released yet, it’s pretty clear, given their limited budget, and their reliance on the Peter G. Peterson Foundation for staff funding that they’ll have to rely on extensions of CBO projections already calculated by staff from other Peterson organizations, such as AmericaSpeaks. However, we already know something about the projections AmericaSpeaks has made because they used these in their recent “Our Budget, Our Economy” national event.

AmericaSpeaks, claiming its projections are an extension of CBOs and are based on them, projects a deficit of $2.46 Trillion in 2025, and says that is 9% of GDP. This means that their GDP projection is roughly $27.33 Trillion, compared to CBO’s 2020 projection of $22.544 Trillion. In turn, interpolation of the intervening year GDP projections between 2020 and 2025, yields estimates of $23.423 T, $24.337 T, $25.286 T, $26.297 T, and $27.331 T. This projects an average annual GDP growth ratio of 1.039 from 2020 – 2025, which is a bit more conservative than the 1.044 that CBO projected from 2010 to 2020. This small difference translates to an expectation of about $125 Billion more in revenue in 2025, improving the deficit picture a bit relative to the $2.46 Trillion projection.

Why does AmericaSpeaks project an average annual growth rate slightly less than CBO’s own very conservative average? I don’t know. But I do know that they claim their projections are based on CBO’s, so they ought be explaining any deviation from the CBO pattern. They don’t explain this one, of course.

When we look at tax revenues as a percentage of GDP, we find that there, also, the AmericaSpeaks projections deviate from CBOs in a direction that makes the projected deficit and national debt worse in 2025. Specifically, the CBO ratio of tax revenue to GDP in 2020 is 0.196, if we were to continue the trend of increase in this ratio to 2025, we’d get something like 0.198, 0.200, 0.202, 0,204, and 0.206 in 2025, an average increase 0.002 per year. Using the AmericaSpeaks GDP projection at $27.33 T, the 0.206 ratio translates to revenue of $5.63 T in 2025, a difference from the AmericaSpeaks projection of $870 Billion in revenue in 2025. When we interpolate the revenue ratios that AmericaSpeaks must have developed for the years 2021 – 2025 in order to get their very low estimate of $4.76 T in tax revenue in 2025, the picture looks something like this: 0.191, 0.187, 0.183, 0.178, and 0.175 for 2025. This means that their estimates of the tax revenue as a proportion of GDP declines over the 5 year period and the decline is an average of 0.004 per year, a much larger average decline than the CBO average increase of 0.003 during 2010 – 2020, and a much larger decline than my assumption that the average increase in the tax revenue proportion would be 0.002

What accounts for this change in both the magnitude and direction in the proportion of tax revenue collected? AmericaSpeaks doesn’t say, but it is clear that this difference in assumptions needs to be explained because 1) it departs from CBO’s projections, and 2) this departure results in an $870 Billion increase in the deficit projected for 2025 than would otherwise have been the case if they had followed the CBO pattern. Also, the higher deficits resulting from both deviations from the CBO pattern I’ve covered, total nearly $ 1 T in projected revenue in 2025, meaning that if AmericaSpeaks had followed the CBO pattern strictly, it would have projected a deficit of roughly $1.465 T, rather than $2.46 Trillion, which, of course, would make those 2025 projections look a lot better than they do now. Also, even though I haven’t troubled to compute the annual deviation of the AmericaSpeaks projection from a CBO-based projection during 2021 – 2024, it’s also pretty clear that the sum of these deviations would total about $2 T, added to the $1 T for 2025, that’s a total of $ 3 T. The Peterson Foundation allied organizations including AmericaSpeaks have been using a national debt to GDP ratio of 114% in 2025 to underline the seriousness of the US’s debt problems. However, taking the $27.33 T estimate for GDP and multiplying by 1.14 gives us a projected national debt figure of $31.15 T, and subtracting $3 T from that gives us a new debt-to-GDP ratio projection of 103%, somewhat less scary than the earlier figure, I think.

So, in short, this analysis suggests that a sizable part of the big “debt problem” the ”Catfood Commission” and its allies see for 2025, is due to assumptions that, without explanation, depart from the pattern of CBOs projections. Whether these are due to errors, or to a deliberate bias toward pessimism even greater than CBO’s, I cannot say. But when the leaders of a National Commission are so committed to the idea that there is a “deficit problem,” one has to assume that any analysis produced by allies of that Commission is likely to make assumptions that produce the kind of results that those leaders want to hear. That, in fact, is what has happened here.

Now, let’s move on to the question of interest costs. CBO estimated that interest costs from 2011 – 2020 would total $5.64 T, extending its projection to 2025 using an annual rate of increase of 1.1, roughly the rate used by CBO in 2019 and 2020, we get AmericaSpeaks projection that interest costs will be $1.49 T in 2025. We also get total interest costs from 2011 to 2025 of $11.8 T. Without these costs, and assuming we take into account the roughly $3 T difference resulting from using CBOs assumptions rather than AmericaSpeaks‘s, the projected national debt in 2025 would be projected at: $16.35 T in 2025, not $31.15 T, or even $28.15 T. And even assuming the very pessimistic GDP figure of $27.33 T, we come out with a public debt to GDP ratio of about 60% in 2025, not very different from what we have now. Also, the projected deficit of $1.465 T in 2025 is completely wiped away and turns into a small surplus if we have no interest costs at all. So, where’s the “deficit problem”?

Well, of course, this analysis has shown that it is partly in shading the CBO assumptions so that they are even more conservative than CBO’s, without even telling people that’s what you’re doing. And it has also shown that the heavy majority of the problem is in the interest costs the US would pay on its debt instruments. So how do we get rid of this ‘deficit problem.” Well, first, we need to quit making assumptions that shade the CBO’s assumptions in an even more pessimistic direction simply because we want to believe that there really is a deficit problem. And second, the Federal Government must stop issuing debt instruments when it spends money. If it does the latter, Federal interest costs will approach zero percent of GDP in a very short time, and we can avoid spending that $11.8 T over the next 15 years.

Alan Simpson, Erskine Bowles, Alice Rivlin, and our other deficit terrorist friends are fond of talking about how we all have to make sacrifices to solve our “deficit problem,” and that entitlements, among other expenditures, will have to be cut in order to solve our problem. But, even if we believe (which I don’t), along with them, that there is, or may one day be, a deficit problem that we need to bring under control, there is no need to solve that fantasy problem either by raising taxes, or by cutting entitlement programs like Social Security, Medicare, and Medicaid. If you insist on believing in either the fantasy of solvency risk, or the fantasy of the bond markets imposing high interest rates on the United States, then the solution to both of these fantasies is the same. It is to stop issuing debt instruments, and, consequently, paying foreign nations and rich investors needing a safe harbor for their funds, interest that we need not pay on debt that a country, sovereign in its own currency, like the United States need not incur.

If you believe that cuts must be made to bring the deficit problem under control, then see clearly the real choice here. Would you rather cut Social Security and other entitlements, as well as other valuable Federal programs, and also raise taxes; or would you rather take care of the whole “crisis” by ceasing to issue debt and stopping interest payments to the wealthy, the Chinese and other foreign creditors who are parking their USD in Treasury Securities rather than spending them on American products? Whose side are you on — the side of the American people who need their social safety net programs to remain in place for themselves, their children, and their grandchildren, or the side of the wealthy, and the foreign nations who want us to continue to pay them interest?

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

The progressive counter-attack against the President’s emerging “austerity” political strategy and program is beginning to emerge. In the last few days, we’ve seen posts by Nancy Altman and Eric Kingson of Social Security Works, Jane Hamsher, Robert Kuttner, and Dean Baker writing against the thrust by the Administration, the National Commission on Fiscal Responsibility and Reform, the Peter G. Peterson Foundation and its network of related organizations, and the deficit hawks in the Congress, seemingly aimed at Social Security. These posts make or imply a number of points sometimes in the form of questions. They are:

– The commission is unaccountable.

– It meets in secret.

– Its members will keep their recommendations secret until after the election, and then will present them to a lame duck Congress that is itself unaccountable.

– That Congress will avoid open hearings, and debates, and also floor amendments in the House and Senate on the recommendations.

– The Commission lacks diversity in both opinion and also in racial and gender makeup.

– The Commission members appear to have already made up their minds that America’s fiscal problems are mainly due to over-spending rather than under-taxing, and, even though they insist, that everything is”on the table” seem to have decided that military spending can’t be cut.

– The co-chairs, Erskine Bowles and Alan Simpson, based on public remarks they’ve made appear to have a clear agenda oriented toward cutting Social Security and Medicare.

– Since the Commission appears to have already made up its mond about its findings, it’s whole process is just a way of avoiding accountability in the upcoming elections. It’s all just an end-run around the democratic process

– The Commission is working very closely with Peter G. Peterson, a multi-billionaire who has been persistently seeking the end of Social Security as it currently exists for decades. Peterson is leading a public effort calling for Americans to get ready for “tough choices” on entitlements and has held a “Fiscal Summit”, funded press outlets, made deals with the Washington Pot and CNN, funded America Speaks, an organization whose purpose it is to educate Americans in the Peterson deficit hawk point of view through a series of town halls held across the nation, and, evidently, a Peterson-funded non-profit organization is funding Commission Staff.

There is no particular reason at this time to focus on Social Security, which is now in surplus to the tune of trillions of dollars, and is many, many years away from financial difficulty even from the point of view of the most avid deficit hawk.

– Americans, when polled, have shown that they prefer tax increases to cutting Social Security benefits.

– To protect our grandchildren, the Commission shouldn’t be focused on cutting benefits and spending, but should be investing in providing jobs for parents and good educations for those grandchildren.

– Peterson has set up a network to control the media environment and is “buying off” the Press. He has been setting it up for years and is playing a similar role in this area to the one The Kaiser Foundation played in the health care reform fight.

– The Current budget deficit will be used to justify Social Security cuts.

– Peterson is setting the agenda for the Commission which will take Defense cuts and Medicare expansion off the table as means to cut Government spending. Instead that agenda will formulate questions with only one answer, cut Social Security.

– “It’s going to be important to tell the tale of Peterson’s inexorable march and diffuse the notion that the Commission is simply responding to temporal economic factors. This is class war, pure and simple. The rich against the poor. Hedge fund billionaires and defense contractors against senior citizens struggling to get by.”

– As a cure for the financial crisis, austerity will be worse than the disease.

– Obama is using his fiscal commission to seek “a bipartisan consensus on both spending cuts and higher taxes.”

– The nations of the European Union are being used as an object lesson to justify the thrust for austerity.

– “The budget deficit here and overseas does need to return to a more moderate level — after we get an economic recovery.”

– “In this context, it is insane to think that we can recover from a financial panic and an economic recession by inducing a worse recession in the name of fiscal soundness. For now, while the real economy heals, there is no substitute for aggressive central bank intervention to restore markets in sovereign debt. The right grand bargain is tough financial reform and limits on Wall Street–so that this crisis is never repeated. The wrong grand bargain is austerity for everyone else.”

– To meet the present crisis, “. . . the new consensus in economic policy thinking is that we have to cut Social Security to establish our credibility with bond markets.”

– But the crisis we’re in now is due to the same people who were completely incapable of seeing the $8 trillion dollar housing bubble and the crash of 2008 coming, who persuaded us that we had to bail out the banks to save the financial system, and that we had to tolerate the outrageous bonuses that have accompanied the Banks getting back on their feet.

– These are the same folks who now tell us that we have to have austerity, and specifically that they want us to cut Social Security to please the bond markets, which really means, that they just want us to cut Social Security.

In the main, these are good talking points against the deficit terrorist effort. But, I can just see now how the proponents of these cuts will reply to them. They will say, well that’s all well and good, however, everything we’ve done is all justified because there really is a very serious crisis on our hands, and that is the crisis of fiscal unsustainability, of rapidly increasing deficits, national debts, and debt-to-GDP ratios, which will eventually make it impossible for the United States to borrow money at reasonable rates to fund our deficits. As our interest bills go higher and higher over time, a greater and greater proportion of the Federal Budget will go to financing the debt, and the United States will begin to face solvency problems, because it won’t be able to borrow and then we’ll have a ruinous tax burden for everyone and austerity anyway. On the other hand, if we impose a measure of austerity now and show that we are credit worthy there will be no borrowing problem, and the austerity will be less extreme.

In short, they will reply, we have a real problem, and it is that we are proceeding on an irresponsible path, that will lead eventually to insolvency, because Governments, like families, can’t run deficits forever, can they?

And then they’ll go on to argue that even Bob Kuttner agrees that “The budget deficit here and overseas does need to return to a more moderate level — after we get an economic recovery,” and even Keynesian economists like Paul Krugman believe that deficits can’t be run forever, and that we need less Government spending in the long run, and even Dean Baker is on record as saying that deficits can be a real problem under certain economic conditions. So, we are talking about a real problem and the way in which we differ from you progressives who are arguing against our position is not that you don’t think that deficits are a problem, but that you don’t think they are one right now. So, how about compromising on setting in place a framework for reduction in Government spending when the time is right, years down the road. That way you’ll be showing that you’re fiscally responsible, and we’ll get something important which is a set of controls on spending that can become operational when a measure like the debt-to-GDP ratio reaches a certain level that you and we can agree upon. And also, we can make small changes in Social Security that are not overly painful, but that build in a more responsible fiscal framework for the future.

To avoid an outcome and counter messaging like this, that is very likely to emerge from the political conflict over austerity, and to lead some bi-partisan compromise that includes cuts in Social Security, none of the messages we’ve seen from the posts by Altman and Kingson, Hamsher, Kuttner, and Baker are really sufficient. Messaging that can fight the kind of downward spiral of compromise that the deficit hawks are trying to set up has to go more directly at their assumptions. It has to argue along these lines.

1) There is no deficit problem for the National Commission on Fiscal Responsibility and Reform and the US Government to respond to in the first place. We are looking at a fantasy problem whose purpose is to distract us from the real issue of the impact of specific Government spending efforts relative to the Public Purpose.

2) There is no emerging solvency problem either for any of our entitlement programs, or for any other US Government programs. The President, and the other deficit terrorists are wrong when they say: “we are running out of money.” That is another fantasy that cannot apply to a Government sovereign in its own currency and owing no debts to anyone in any currency other than its own.

3) There is no need for an austerity program, and there will be no solvency risk for any of our Grandchildren, or any debt burden that they will have the least difficulty in managing, even if the Government continues to run deficits indefinitely.

And 4) the whole deficit terrorist position of the President, The Commission, and the Peterson Foundation and related interest groups is based on an erroneous and misleading analysis of our economic situation. Being charitable, this may be because their understanding of the monetary system, and of economics in a fiat monetary system is equivalent to their understanding of the economics that apply to people and other entities that are users of currency rather than issuers of currency. That is, they are confusing the players using dollars with the scorekeeper of dollars, who has an unlimited amount of points.

Uncharitably, however, many of the deficit hawks may understand very well that there is no solvency risk for the Governments sovereign in their own currency, but they may prefer to maintain the illusion that there is, because they think that then they can profit more from international markets, and prevent the people of various nations from realizing that interest rates on Government debt instruments can be entirely controlled by the Governments themselves, and imposed on the international markets, just as the Japanese Government has imposed near zero interest rates for short-term debt since the 1990s.

Messages 1) to 4) need to be sent by mainstream progressive organizations, because they are the only ones that can prepare the way for the total victory we need over the deficit terrorists. The people of the United States need an expansion of entitlements and the safety net. Not a contraction. The economy needs this too as a stabilizer of aggregate demand and as a hedge against excessive recession. As a nation we cannot afford to have the Administration and the Petersons of the world gain one inch of territory on the issues of cutting Social Security and Medicare. To prevent that, we need to discredit "their problem" as a the fantasy it is, and persuade people that the problem is the recession and lack of full employment, not imaginary fears about insolvency, deficits, or inflation appearing in the midst of a near depression.

Even more we have to persuade people that numbers like the deficit, the national debt, and the debt-to-GDP ratio are not measures of government profligacy, but measures of the extent to which the non-Government economic elites have created a failing economy that must be supported by the automatic stabilizers we have in place to protect against the consequences of their failures. The values of these measures will become less frightening when we treat the real problem, the ruined economy. And, until then, their relatively high level presents us with no solvency risk, and no threat to the well-being of our grandchildren or the future of the United States. Finally, we must message about the unimportance and irrelevance of the deficit so that it won’t continually be used by our leadership as an excuse for not solving American problems. If we fail to do that, we will be in a continuing fight over Government spending based on the very fact of it, every time we want to pass some progressive legislation, ignoring, in the process, the only relevant question about it, namely whether implementing a particular policy and the spending that goes along with it will benefit us or not.

(Cross-posted at All Life Is Problem Solving and Correntewire.com)

Nancy Altman and Eric Kingson Co-Directors of Social Security Works have written an article called “Has Obama created a Social Security ‘death panel’? In the article they raise questions about the composition, process, and intentions of the President’s National Commission on Fiscal Responsibility and Reform and say:

”We write to raise questions and encourage press inquiry now, before the commission reports, at which point its recommendations could be on track and moving fast.”

And the questions they raise include:

”Q. Have the members of the Commission made up their minds, at least with respect to the broad outlines, making the whole exercise simply an effort by elected officials to escape political accountability?
Q. Why is the Commission apparently working so closely with billionaire Peter G. Peterson, who served in the Nixon administration and who has a clear ideological agenda?”

And:

”Q. Why the urgent focus on Social Security? In the past, Social Security has always been considered under the normal legislative process, with the opportunity for full amendments. According to the program’s actuaries, it is able to pay all benefits in full and on time for over a quarter of a century. Even its most diehard critics, who try mightily to convince the rest of us that the program is in crisis, can’t mount an argument that there is a problem for another five years or so. So what is the rush? What is the need for such an unaccountable, fast-tracked process when one has never been needed before? Why, in spite of the evidence that Social Security is working as intended and that there is growing need for the kind of broad and reliable protection provided under the program, is it being singled out by Bowles and Simpson and seemingly by the White House for a major trimming?”

”Q. The American public has stated in a number of polls that they prefer to increase the program’s revenue, even if it means them paying more, rather than reducing the benefits that are so vital to almost all its beneficiaries. . . . So why does the commission seem so determined to ignore the views of the American people, and insist that there must be benefit cuts?”

”Q. The members of the commission wrap themselves in the mantle of their children and grandchildren. . . . but what about everyone else’s grandchildren? Especially those lacking privileged backgrounds; those more likely to need strong retirement, disability and survivorship protections as they grow and raise their own families and hopefully eventually reach retirement age? If these commissioners’ focus is on all grandchildren, shouldn’t they be more focused on investments today to ensure that their parents have good-paying jobs and that they can receive a first rate education? Why do they seem so intent on cutting the benefits of that future generation?

”Q. And finally, and perhaps most importantly, are there efforts to buy off the press? Just in time for this commission, Mr. Peterson, not content to buy access, has now used his fortune to establish his own news service, so the story gets reported his way. . . . “

In addition to these very important questions, Altman and Kingson, include another paragraph labeled “Q” that mentions Peter G. Peterson’s long term fight against Social Security, his funding of Commission Staff, America Speaks and other current activities indicating his close relationship to the Commission. But they never actually put a question about these activities.

All the questions raised by Altman and Kingson are very good ones, and are certainly questions the Press should look into (especially, since, as they also point out there are indications that the Commission is preparing an austerity agenda in secret that it will hide until after the Congressional elections, and then will try to ram through the lame duck Congress before it adjourns). But, curiously, the most important questions of all for the Press to investigate were left out of their article.

Those questions are:

1) Is there really a deficit problem for the National Commission on Fiscal Responsibility and Reform and the US Government to respond to in the first place?

2) Is there an emerging solvency problem either for any of our entitlement programs, or for any other US Government programs? Or, in other words, are we, as the President, and the other deficit terrorists say: “running out of money”?

3) Will there be a need for an austerity program, or any solvency risk for any of our Grandchildren, if the Government continues to run deficits indefinitely?

And 4) Is the whole deficit terrorist position of the President, The Commission, and the Peterson Foundation and related interest groups based on an erroneous and misleading analysis of our economic situation?

Altman and Kingson are not the only ones who won’t ask these last very central questions. Jane Hamsher in a blog post calling attention to the Altman/Kingson article says:

It’s going to be important to tell the tale of Peterson’s inexorable march and diffuse the notion that the Commission is simply responding to temporal economic factors. This is class war, pure and simple. The rich against the poor. Hedge fund billionaires and defense contractors against senior citizens struggling to get by. Altman and Kingson have done us all a tremendous favor by opening up the discourse and asking important questions that need to be answered before the Commission makes its report on December. That’s just in time to jam it through a lame duck Congress before the Christmas break, something both John Conyers and John Boehner have warned about — a repeat of what Bowles planned to do in the 90s.

Just so. That is what they’re fixing to do, or at least try, and it is a class war, or at least one of an emerging plutocracy against the rest of us. And because it is, it is very important to recognize and defeat one of the primary ideological tools that the elites use against the rest of us. That tool is the belief that fiscal responsibility and fiscal sustainability require balancing the budget, reducing the national debt, or failing these things, maintaining a certain arbitrary, pre-specified, public debt-to-GDP ratio. That is what Peterson and his allies are preaching, and that’s what underlies their arguments about why SS and Medicare must be cut.

One can argue effectively against Peterson, by raising the questions of Altman and Kingson, or as Jane does, by attacking the process involved in the Commission’s deliberations and Peterson’s involvement in and influence over the process and by making the point that the whole thing is very undemocratic. One can also point out that even from the point of view of the concerns of the deficit terrorists, there is no real problem with SS. One can also point out that far from cutting Medicare, it would be better for the American economy if Medicare coverage were expanded. All these things are true, and arguments like these and others may defeat Peterson and his allies this time and save SS and Medicare.

However, if we want to win the "class war" we need to do more than just save SS and Medicare. We need to raise the additional questions that Altman, Kingson, and Jane Hamsher haven’t raised about the legitimacy of the deficit terrorists’ whole conceptual framework. We need to undermine and defeat the neo-liberal notion that deficits, the national debt, and debt-to-GDP ratios somehow measure fiscal responsibility or sustainability, and also that they are important as causes of our poor economic condition. These ideas are false. They are pure myth. They are based on a confusion between the Federal Government and other entities including States in our Federal system, Eurozone nations, and households that aren’t sovereign in their own currencies. They are a distraction from the broader question of what the Government should be doing to enable and facilitate achieving public purposes, and they are also a distraction from evaluating all legislation from the viewpoint of its impact on achieving these purposes.

There’s a growing literature questioning the legitimacy of the foundations of the Peterson/Administration position. In a comment on Jane’s post, selise refers us to Randy Wray’s very good recent piece on deficits. Captjjyossarian adds two other references. Other important statements are here, here, and here.

These advance the contrasting point of view on fiscal sustainability. The point of view that was expressed in the Fiscal Sustainability Teach-In Counter-Conference, that is expressed in the audios and presentations offered here, and that will be expressed in the videos and transcripts from the Teach-In which will be released soon. That point of view is important because it strips away all the fiscally-based excuses of the Administration and the elite for not meeting existing American problems with legislative programs that will be effective, but will cost money. It relates not only to the non-existent solvency problems of Medicare and SS, it also relates to the programs we need, but will not legislate, relating to full employment, adopting enhanced Medicare for All, fixing our broken educational system and our infrastructure, protecting our environment, acting against global warming, and developing alternative energy foundations for our economy.

I ask that Altman and Kingson, Jane Hamsher, and others who want to oppose the deficit hysteria, consider and eventually use the alternative point of view I’ve referenced in pursuing their critique of “the cat food commission,” the Administration, and their allies. Asking the more fundamental questions about whether we really have deficit, or solvency problems won’t detract from the power of other current critiques, but it will broaden the scope of the issues and make clear that “the cat food commission” is not just about what might happen to SS and Medicare. It’s also about lost decades, ruined futures, and an America in continuing decline.

And beyond America, since much of the world follows our examples, both good and bad, it’s also about lost decades, ruined futures and regress for people all over the world who follow the deficit terrorist example the United States may set. It’s about the Eurozone splitting apart because the people of its member nations lose patience with an austerity imposed on them by an elite who doesn’t think that austerity applies to them. It’s about an Australia whose Labor Government betray its roots and insists on austerity, whatever the impact it may have on employment. It’s about a United Kingdom that in the name of austerity will cut back on the welfare state and expose its middle class and working class citizens to wholly unnecessary hardships. In short, “the Cat Food Commission” is about much more than simply a threat to SS and Medicare. It’s about the continued triumph of an economic ideology that threatens both real democracy and the betterment of the human condition all over the world.

To save Social Security and Medicare permanently, and to create an open future for all of us in the bargain, we need to defeat that ideology and its view of the world, and to come to understand that there are no fiscally responsible excuses for the Governments of nations to avoid taking the measures needed to solve the problems of the nations over which they preside.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability