Fiscal Madness

by digby

I can't believe what I saw yesterday: CNN showed the Shock Doctrine documentary I.O.U.S.A. It is an amazing piece of propaganda, which, if it isn't designed to destroy any chance of enacting a necessary stimulus, will persuade more than a few Americans that the biggest problem we face at this moment is long term debt caused by entitlements --- and nothing short of massive spending cuts can save us. Here's the press release:

Wake up, America! We're on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions.

Throughout history, the American government has found it nearly impossible to spend only what has been raised through taxes. Wielding candid interviews with both average American taxpayers and government officials, Sundance veteran Patrick Creadon (Wordplay) helps demystify the nation's financial practices and policies. The film follows former U.S. Comptroller General David Walker as he crisscrosses the country explaining America's unsustainable fiscal policies to its citizens.

With surgical precision, Creadon interweaves archival footage and economic data to paint a vivid and alarming profile of America's current economic situation. The ultimate power of I.O.U.S.A. is that the film moves beyond doomsday rhetoric to proffer potential financial scenarios and propose solutions about how we can recreate a fiscally sound nation for future generations.

Creadon uses candid interviews and his featured subjects include Warren Buffett, Alan Greenspan, Paul O'Neill, Robert Rubin, and Paul Volcker, along with the Peter G. Peterson Foundation's own David Walker and Bob Bixby of the Concord Coalition, a Foundation grantee.

Pointedly topical and consummately nonpartisan, I.O.U.S.A. drives home the message that the only time for America's financial future is now.

I suspect that people who read this blog know why that's deeply dishonest and why the timing for this crusade couldn't be worse. It's obvious to those who are following this story that what's required to avert a far worse recession and quite possibly a depression, is for the government to do the opposite of what these deficit obsessives say must be done. But I don't think everyone in the country has that understanding.

I say this is a shock doctrine documentary because it is nearly impossible for me to believe that it is a coincidence that the deficit hawks have put together this slick "non-partisan" documentary and well financed campaign to cut spending at the moment of what many people believe is America's greatest economic peril since the 1930s. They are, quite obviously, attempting to use the crisis to dismantle the social safety net and avoid doing the real work of reforming the financial system. Shock Doctrine 101.

And when I say slick and non-partisan, it really is. The show also featured a panel with none other than the smarmy village saint Bill Bradley and the Clinton era deficit maven Alice Rivlin. Of course, it also included hedge fund king and deficit fetishist Pete Peterson and his little dog ex-CBO GAO chief David Walker. (Walker seems to be halfway aware that he might not be on the right track, but he's committed to this project.) It couldn't be more in keeping with the post-partisan, non-ideological zeitgeist. Except it's ideological to the core.

One would think this message is so dissonant that no one could possibly find it persuasive. After all, they are worrying about some potential future catastrophic event while we are in middle of a current calamity. But it's actually very clever ---you can see by the press release that it sounds like they are talking about the current problem, even though their prescription is exactly the opposite of what is required . Indeed the diabolical effect of this project and its timing is that it's designed to make people believe that government spending is the cause of the current economic crisis.

And it's smart. What they are prescribing makes more intuitive sense to many people than what is actually necessary to solve the problem. We are all coming to terms with the fact that we are going to have to stop spending beyond our means and pay down our debt in order to get our financial houses in order. Why shouldn't the government have to do the same thing, especially if it's facing an imminent "balloon payment" with all those retirees and sick people getting ready to explode the debt? We all know that the government has been spending like drunken sailors and it stands to reason that's why we find ourselves in this crisis, right?

The sainted Bill Breadley said it right out on the program:

People understand that if they run up debts in their own lives, it's no different than when the government runs up debts the same way.

Americans have been mentally trained over the past few decades to believe drivel like that--- the free market is always the preferred method to solve economic problems, that the government should be run like a business (or your household budget) and, most importantly, that government is the cause of problems, not the solution. This deficit obsession plays into all those beliefs and makes it very difficult to explain in the middle of the crisis that the government isn't a business or a household and needs to go further into debt in periods when everyone else is trying to escape it. And, needless to say, it also sounds like the tax 'n spend libruls are at it again.

I'm sure it hasn't escaped anyone's notice that the deficit scolds are coming out of the woodwork now that the Republicans brought us to the brink, slashing taxes for the wealthy, larding their own contributors with earmarks, solidifying the notion that military industrial complex spending is a sacred, untouchable icon, and fetishing and deregulating the market until they finally brought the whole system to its knees. They certainly didn't say much about the debt while it was adding up these last eight years.

They did the same thing during the 80s, which is why Cheney uttered "Reagan proved deficits don't matter. (What was left out was "for Republicans." Democrats are endlessly and relentlessly harassed about deficits --- as they clean up the big mess the deficit spending Republicans leave behind.)

They've reanimated the yellow peril, which is only fitting. Last time, we were told that Japan was taking over the country by buying up all of our real estate. This time it's the Chinese buying up all our bonds. (In 92, Perot put a little zesty mexican salsa in the recipe.) It's always something. The foreigners are going to kill us in our beds unless we cut social security and medicare. And if we even think of enacting any new "entitlements" (a conservative buzzword designed to make you think people are getting something they don't really deserve) it's pretty clear that the Asian hordes are going to destroy our way of life (if the muslims don't get to us first.)

One of the fundamental characteristics of shock doctrine economics is extreme complexity for which a simple, intuitive solution is proposed. It's hard to argue with and it's hard to resist. Here are famous people who really seem to understand what's going on and the solutions they propose just seem like common sense. Even Joe the plumber can see how right their view is. Unfortunately, they're completely wrong --- at least if you care about the country as a whole and the suffering of the millions of people who will have to endure their "solutions."

It's highly unlikely that they will fully have their way on this. We are in deep shit and there are a lot of very smart people who know the deficit is the least of our problems at the moment and that "entitlement reform" is one sure way to deepen the panic and make personal spending contract further than it needs to. (There's a lot of wealth among seniors and near seniors. I can't imagine that chit-chat about how social security is going broke is particularly good news to people who've just lost a good portion of their portfolios in the real estate plunge and the stock market crash.)

But these people are going to cause trouble, which comes as no surprise to me. I've been writing about this for years. It's one of the reasons why I believe in liberal rhetoric (and, yes, the dreaded "ideology.") If you don't bother to educate people counter to the myths and propaganda they hear from the right, they have nothing to hold onto except faith in the Democrats in the face of arguments that have been built layer by layer over many years. (And having faith in Democrats really take courage.) The fact that they refuse to do this doesn't automatically spell failure for democratic policies, but it makes it many times harder to succeed.

They don't even seem to intend to do tank the stimulus, just restrict it. What they are doing is setting the stage for entitlement cuts and a swift, premature pullback on government spending --- thus extending the crisis. And if the Democrats are cowed by these people (they always are --- they hate being called spendthrifts) there will be enough egomaniacs in the congress to hamstring the administration and force them to adopt these "common sense" methods of running the economy --- which is precisely how we got into this problem in the first place.

*In case you would like a more erudite argument against deficit hawkishness at a time like this, here's James Galbraith on the subject. (I wonder if he's still so sanguine about the Peterson Foundation now.)

Update: Here's a post I wrote some time back about the long term crusade to destroy social security. This part is relevant:

[Ronald Reagan said back in the 1960s]:

But we're against those entrusted with this program when they practice deception regarding its fiscal shortcomings, when they charge that any criticism of the program means that we want to end payments to those people who depend on them for a livelihood. They've called it "insurance" to us in a hundred million pieces of literature. But then they appeared before the Supreme Court and they testified it was a welfare program. They only use the term "insurance" to sell it to the people. And they said Social Security dues are a tax for the general use of the government, and the government has used that tax. There is no fund, because Robert Byers, the actuarial head, appeared before a congressional committee and admitted that Social Security as of this moment is 298 billion dollars in the hole. But he said there should be no cause for worry because as long as they have the power to tax, they could always take away from the people whatever they needed to bail them out of trouble. And they're doing just that.

A young man, 21 years of age, working at an average salary -- his Social Security contribution would, in the open market, buy him an insurance policy that would guarantee 220 dollars a month at age 65. The government promises 127. He could live it up until he's 31 and then take out a policy that would pay more than Social Security. Now are we so lacking in business sense that we can't put this program on a sound basis, so that people who do require those payments will find they can get them when they're due -- that the cupboard isn't bare?

That was forty years ago. Later, in the 1980's, Ronald Reagan's indiscreet budget director David Stockman admitted that the purpose of ginning up the social security crisis was "to permit the politicians to make it look like they are doing something for the beneficiary population when they are doing something to it, which they normally would not have the courage to undertake." And then with masterful chutzpah, considering his famous "Choice" speech from 1964 excerpted above, Ronnie then went on to use the so-called "looming" SS crisis to great effect --- he flogged the GOP contention that the program was insolvent (as they'd been doing for fifty years) and also raised the payroll taxes which they immediately raided to cover their budget deficit. And now, lo and behold, we are "in crisis" again. Imagine that. Brilliant.

I guess if you repeat a lie long enough, it might actually come true some day. But let's just say that those who say that social security is going broke and that "entitlements" must be reformed haven't been right for decades and they aren't likely to be right this time.

We have a real crisis on our hands, but this crap is a very clever sleight of hand --- the problem, as we all know, is free market ideology run amok. If they can misdirect the public to "reforming government" instead, they might be able to take the heat off enough to get back in the saddle before anyone notices.

Update II: It's on the menu:

I asked the president-elect, "At the end of the day, are you really talking about over the course of your campaign some kind of grand bargain? That you have tax reform, healthcare reform, entitlement reform including Social Security and Medicare, where everybody in the country is going to have to sacrifice something, accept change for the greater good?"

"Yes," Obama said.

"And when will that get done?" I asked.

"Well, right now, I’m focused on a pretty heavy lift, which is making sure we get that reinvestment and recovery package in place. But what you described is exactly what we’re going to have to do. What we have to do is to take a look at our structural deficit, how are we paying for government? What are we getting for it? And how do we make the system more efficient?"

"And eventually sacrifice from everyone?" I asked.

"Everybody’s going to have give. Everybody’s going to have to have some skin the game," Obama said.

"Structural deficit" is the exact wording used in I.O.U.S.A.

FDR went with "we have nothing to fear but fear itself," but Obama is adopting "everybody's going to have to have to sacrifice." It's an unusual way to get people through a period of extreme economic insecurity, but maybe it will be character building. It's certainly better than insisting that the fundamentals are strong.

Update II: From the AP today:

Out of power, Republicans appear to be retreating to familiar old ground. They're becoming deficit hawks again.

GOP lawmakers didn't seem to mind enjoying the fruits of government largesse for the past eight years while one of their own was in the White House. Now they're struggling to regain footing at a time of economic rout, a record $1.2 trillion budget deficit and an incoming Democratic president claiming a mandate for change.

It might not be the best time for running against more government spending. But that hasn't stopped Republicans from casting themselves as protectors of the public purse, striving for relevancy as Congress tackles President-elect Barack Obama's stimulus legislation.

"Congress cannot keep writing checks and simply pass IOUs to our children and grandchildren," says Sen. John Cornyn, R-Texas. Asks House Minority Leader John Boehner, R-Ohio: "How much debt are we going to pile on future generations?"


Republicans "seem to be on a funny tightrope on which they're trying to enunciate a Republican position," said Fred Greenstein, a presidential scholar at Princeton University. "They're saying, `Yes it is a crisis', and `yes, a lot has to be done. But it shouldn't be too much. And it shouldn't be imprudent.' They seem to be stuck with platitudes and truisms."

That's why the "elder statesmen" like Peterson and the members of the Concord Coalition are trotted out after the Republicans have disgraced themselves and spent the country into oblivion. They represent "bipartisan" consensus that pressures the Dems to abandon any economic policies that stand to hurt the wealthy when the Republicans are weak. That's their job.

If you doubt what they are up to, ask yourself why they didn't say a word over the past eight years about the shennanigans on wall street or the deficit as it was being run up by the Republicans. I think their lack of credibility is pretty obvious.