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Deficit Hawks Reboot

February 17, 2013   ·   4 Comments

Source: NYTX

By Marie Burns:

The Very Serious People have just launched a very serious reboot. How do I know? Tom Friedman has altered the central premise of that “Grand Bargain” column he recycles in the New York Times with some regularity. For several years, Friedman's Grand Bargain column was all about reducing the deficit. Here's classic Friedman in November 2011, where Friedman urged President Obama to “declar[e] today that he made a mistake in spurning his own deficit reduction commission, chaired by Erskine Bowles and Alan Simpson, and … adopt Simpson-Bowles … as his long-term fiscal plan to be phased in after a near-term stimulus. If he did that, he would win politically and create a national consensus....” Friedman claimed that if Obama had any leadership skills, “he’d be proposing a deficit-cutting plan that matches the scale of our problem.”

The word “deficit” does not even appear in Friedman's new and revised “Grand Bargain” column. (Friedman does mention the federal debt today: “There are a lot of good bipartisan packages out there to choose from; we just need one that puts us on a trajectory to shrink our ratio of debt to gross domestic product [GDP] over time.” As Dean Baker points out in this excellent piece, Japan has “a debt to GDP ratio of more than 200 percent (three times the size of our ratio),” the ill effects of which are that Japan has to pay 1.0 percent interest on its long-term debt. Big whup.) Do read Baker, who writes that “Just about everything in [Friedman's] piece is 180 degrees wrong: the Friedman standard,” then corrects much of Friedman's “mass marketing misinformation on economics.”

Why the reboot? Headlines like this from the Associated Press: “US federal budget deficit on track to drop below $1 trillion this year.” And columns like this one, by Paul Krugman, written in late January, titled “Deficit Hawks Down”:

The truth is that the budget deficits of the past four years were mainly a temporary consequence of the financial crisis, which sent the economy into a tailspin – and which, therefore, led both to low tax receipts and to a rise in unemployment benefits and other government expenses. It should have been obvious that the deficit would come down as the economy recovered. But this point was hard to get across until deficit reduction started appearing in the data. Now it has – and reasonable forecasts, like those of Jan Hatzius of Goldman Sachs, suggest that the federal deficit will be below 3 percent of G.D.P., a not very scary number, by 2015.

You might think such news would put deficit hawks (or “deficit scolds,” as Krugman calls them) out of business. But as we discover in reading Friedman's column, zombies never die, they just shade their stories. Why? Because the deficit hawkery of Simpson-Bowles-Friedman was never about deficit reduction. Rather, they borrowed the huge deficit as a convenient excuse to do what conservatives have wanted to do since the Great Depression – undermine or eliminate the New Deal's “socialist” safety net.

Ergo, Friedman has frantically rewritten his rationale for a Grand Bargain with a host of half-baked excuses which a real economist like Dean Baker can so easily refute. And sure enough, at the center of the Friedman Grand Bargain is this:

a long-term fiscal restructuring, written into law, that slows the growth of both Social Security and Medicare entitlements, along with individual and corporate tax reform.... Our choice today is not 'austerity' versus 'no austerity.' That is a straw man argument offered by both extremes.... We can’t protect both generations in full anymore, but we must not sacrifice one for the other – favoring nursing homes over nursery schools – and that’s what we’re on track to do.

Here Friedman borrows a favorite right-wing ploy: try to pit the young against the old. When class, gender and/or racial resentment are not enough, throw in generational resentment. After claiming that he is appalled by extremist arguments, Friedman inserts one of his own: that the U.S. cannot afford to protect both the young and the old, so we must make a choice: nursing homes or nursery schools. Friedman's “straw man” is an elderly woman in a nursing home. And to Friedman, the answer to the false choice he has presented is obvious – let the old lady go; unlike the nursery school toddler, she has no potential to “create growth.” (Actually, the U.S. healthcare industry – the one that would nurse the old woman – is a growth industry, but never mind that.)

Friedman is fundamentally wrong.

First, Friedman's false choice is immoral. The top story in today's Washington Post, by Michael Fletcher, tells you why:

For the first time since the New Deal, a majority of Americans are headed toward a retirement in which they will be financially worse off than their parents, jeopardizing a long era of improved living standards for the nation’s elderly, according to a growing consensus of new research. The Great Recession and the weak recovery darkened the retirement picture for significant numbers of Americans. And the full extent of the damage is only now being grasped by experts and policymakers.

There's more, and Friedman could learn this by reading the New York Times: as part of a Times series on American economic inequality, Economics Nobel laureate Joe Stiglitz writes, “After 1980, the poor grew poorer, the middle stagnated, and the top did better and better.” Stiglitz attributes most of this economic inequality to unequal educational opportunities, and to be fair, Friedman does favor early childhood education” – which I guess is those “nursery schools.” But he ledes with – and most of his column centers on – measures to coddle big business, which he claims is catatonic on account of “uncertainty” about government tax policy (another of the straw men Baker blows away).

Also in today's New York Times, historian Stephanie Coontz reminds us that the economic burden falls harder on women than on men: “Women are still paid less than men at every educational level and in every job category. They are less likely than men to hold jobs that offer flexibility or family-friendly benefits. When they become mothers, they face more scrutiny and prejudice on the job than fathers do.” So when I describe the old lady in the nursing home, I didn't choose a woman just because women still live slightly longer than men; I chose a woman because women still have lower incomes than men and are therefore more likely to need government assistance to survive.

(Friedman probably should not read today's New York Times op-ed by David Goldhill, a media executive, who argues against all kinds of government-supported health insurance except catastrophic insurance.)

In short, the people Friedman would deprive of Social Security and Medicare cannot afford to take care of themselves. Most have tried to plan for their retirements, or would have if they could have. But economic inequality, fostered by bad government policy, combined with hard times, also fostered by bad government policy, has left millions of older Americans unable to pay for all of their needs. Friedman indicates he would sorta take care of some of them – “the most vulnerable in this generation” – but everybody else is on his own.

But forget the immorality of Friedman's Grand Bargain. Pretend Friedman is right, and most old folks can take care of themselves. What exactly is the advantage to that? What difference does it make if people pay directly for their care or if they do so indirectly, through the government? They still need to eat, to have a roof over their heads, to go to the doctor, to buy pills. Transferring costs from the government to individuals has no benefit whatsoever. In fact, there are quite a few disadvantages. The government is much better at negotiating healthcare costs, for instance, than is an individual. If you don't believe me, take a shot at that Tea Party plan of offering your doctor a chicken for a check-up.

Private pension plans are vulnerable to bad management, to being robbed by the corporations that run them, and to the vicissitudes of the economy, even when they're honorably-managed. Even quasi-public pension plans can fail to deliver promised benefits. Other private investments have similar problems. All of those boomers who counted on their homes as nest eggs got a huge shock in 2008 when housing values plummeted and, even then, there were – and still are – too few buyers to purchase the homes even at vastly reduced prices. Friedman talks about uncertainty, but the only uncertainty he is concerned about is the fake uncertainty of business executives. The uncertainty of individual private investments would overwhelm and traumatize millions of Americans if these private funds were their only source of income in their retirement years. The whole purpose of Social Security and Medicare is to provide a safety net against exactly the eventualities that retiring boomers are up against today.

As Dean Baker writes,

Suppose Friedman gets his wish for a grand bargain and everyone working today knew that they would be seeing sharply lower Social Security and Medicare benefits in the future. All of those consumers who Friedman thinks are paralyzed by uncertainty will suddenly realize that they can be certain that they will need more money to support themselves in retirement because the Thomas Friedmans of the world have taken away their Social Security and Medicare. Insofar as possible, these people would drastically increase their savings. That means cutting back their consumption. Now that should lead to a rip-roaring recovery.

Friedman's Grand Bargain is not just cruel and morally indefensible; it is economically stupid. It would constrict the economy, not grow it.

So why would Friedman keep pushing a Grand Bargain that is immoral, economically unsound and no longer plausibly “justified” – at least over the next ten years – by a growing deficit? It is partly because he belongs to what Ari Berman of The Nation calls the “austerity class” which “rules Washington.” This is a clubby group which has “form[ed] a reinforcing web that is difficult to break.” Friedman's views are colored by his friends. He pals around with billionaires. Friedman is cozy with billionaires not just because they curry his favor in exchange for his ability to prominently place favorable airings of the billionaires' wish-lists. Friedman is cozy with billionaires because he too is wealthy. Like the multimillionaires and billionaires in Friedman's circle, Friedman himself does not have to worry, as most Americans do, about whether or not he will be able to make ends meet after he retires. Nonetheless, as social policy, "I got mine" leaves a lot to be desired. I leave it to you to figure out why Arthur Sulzberger, the wealthy New York Times publisher, keeps Tom Friedman on the payroll, churning out inaccurate talking points for the rich.

Marie Burns blogs at RealityChex.com

Pictured above: a view of Tom Friedman's house.

Update: I see where Max Rivlin-Nadler of Gawker has commented on the news that

Facebook ... won't be paying any federal or state taxes on ... the $1.1 billion in profits it made the year it went public — instead, it will actually be receiving a federal tax refund of about $429 million.... Not only that, but Facebook is actually carrying 'forward another $2.17 billion in additional tax-option tax breaks for use in future years.' Basically, they would like to do this every year. One of our most successful new companies is not paying a dime in taxes. Yes, let's please cut Medicare. That's the thing that's broken.

C'mon, Max. You forgot Social Security. It's bankrupt! mmb

By marieburns

Readers Comments (4)

1. d12345 says:

   Great work, Marie. It is amazing that this drivel sees the light of day, week after week.

   Could I request that you consider turning some of your great critical abilities on Paul Krugman.

   Krugman is valuable for exposing the dishonesty of the austerity crew. But he has become such a complete Obama loyalist that he ignores anything and everything that is might reflect badly on Obama. Not a word on the continuing bank bailouts, the shameful behavior of the DOJ, nothing on the military expansion, nothing on surveillance, intellectual freedom, etc etc.

   We could use your laser focus on his limitations also.

   Keep up the great work.
   RS

   8:11 pm on February 17, 2013

    Reply
2. James Singer says:

   Good take down of a pompous ass, Marie.

   Ed Note: Portion of comment removed as abusive.

   10:52 pm on February 17, 2013

    Reply
3. Dashboard Developer says:

   Good post Marie, good arguments overall. But in your quote from Friedman, he says that “While we can’t protect both generations in full anymore, we must not sacrifice one for the other…” Yet your interpret his quote as implying that he wants the older generation to make a sacrifice for the very young. Also, the rational arguments you make against his ideas lose credibility when you accuse him of simply being too wealthy to have a reasonable perspective. By the same logic, we could reduce a middle-class person’s logical arguments for preserving entitlements to his selfish need for relying on those entitlements in his retirement.

   10:02 am on February 19, 2013

    Reply
   • marieburns says:

     @Dashboard Developer. Perhaps I wasn’t very clear, but I did put in boldface type the key Friedman recommendation: a law “that slows the growth of both Social Security and Medicare entitlements…” That is, he says outright that “he wants the older generation to make a sacrifice for the very young.” He is not ambiguous here.

     I don’t mean to accuse Friedman of being “too wealthy to have a reasonable perspective.” There are plenty of rich liberals who gladly pay taxes knowing that someone else will benefit from them and who are horrified by Friedman’s view that we “can’t protect both generations.” There are ultra-wealthy members of Congress — Jay Rockefeller, John Kerry, etc., — who champion programs that help the poor & middle class. But Friedman surrounds himself not just with wealthy people who can’t identify with anyone who may have to rely on government support for their old age; he hangs out with people like him who find it undesirable and/or immoral to provide a “hammock” for ordinary Americans. He surrounds himself with ideologues who are essentially opposed to the social safety net. These people reinforce each other’s prejudices against public programs at the forums & conferences & cocktail parties they attend. Then Friedman writes down those prejudices and Arthur Sulzberger prints them. It is true that Friedman’s wealth feeds into the stereotype of the callous rich guy; but in fact so does Friedman himself.

     And, yes, I do think that middle-class people overwhelmingly favor Social Security & Medicare because they expect to receive benefits from these programs. I don’t see anything wrong with that. That’s part of the social compact.

     Marie

     3:08 pm on February 19, 2013

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