Will Obama default on government’s debt to Social Security?


The question that has dominated the headlines recently asks if the Republicans are crazy enough to engineer a debt default, or will they retreat at the brink. But this is the wrong question. What really should be asked is how have the super-rich been able to frame the agenda of the Obama administration and control Congress?

The US national debt has escalated because of two things: wars of choice in the Middle East and Asia, and tax cuts for the super-rich. Under Bush, the budget went from fiscal surplus to a debt of $3 trillion. But the debate in Washington has centered on cutting spending, including Social Security and Medicare entitlements. There is an impasse at present because the Republican party as a whole has been captured by the wealthy extreme right who have pressured legislators to sign no-tax increase pledges.

Paul Krugman blames political commentators for not reining in the Republicans. “A number of commentators seem shocked at how unreasonable Republicans are being. ‘Has the G.O.P. gone insane?’ they ask. Why, yes, it has. But this isn’t something that just happened, it’s the culmination of a process that has been going on for decades. Anyone surprised by the extremism and irresponsibility now on display either hasn’t been paying attention, or has been deliberately turning a blind eye. … Here’s the point: those within the G.O.P. who had misgivings about the embrace of tax-cut fanaticism might have made a stronger stand if there had been any indication that such fanaticism came with a price, if outsiders had been willing to condemn those who took irresponsible positions.”

Apart from his over-estimation of the political influence of commentators, Krugman has avoided an important fact — there has been a struggle for control of the party by right-wing ideologues who have made it their mission to eliminate moderates. Moreover, they actively enforce their ideology by Mafia-style policing of candidates in the primaries.

The Washington Post reports that “… today’s GOP adheres to a ‘no new taxes’ orthodoxy that has proved far more powerful than the desire to balance the budget. … This orthodoxy is now woven so deeply into the party’s identity that all but 13 of 288 GOP lawmakers in Congress have signed a formal pledge not to raise taxes. The strategist who invented the pledge, Grover G. Norquist, compares it to a brand, like Coca-Cola, built on ‘quality control’ so that Republican voters know they will get ‘the same thing every time.’ … The work of reducing the national debt must be done entirely by shrinking government, he said. Any compromise that includes taxes would hinder that goal and taint the Republican brand…. How is the pledge enforced? Typically, Republican candidates sign the pledge to avoid attack in the primary. Once in office, violators might find that Norquist has contacted Republican voters in their state or district to inform them that their senator or representative is having “impure thoughts,” as he put it. …”

Norquist’s elitist anti-tax ideology found a fertile base in the new super-rich: the elevation  of rentiers to the ruling elite who cohere together around a rejection of collective responsibility and the social functions of the state. Capital gains taxes are seen as  a burden on the accumulation of unearned wealth, but they are also opposed by a constituency of company executives and managers whose compensation is based on stock options and who are aggressively anti-taxation and anti-regulation. One measure of the growth of this constituency is the number of billionaires in the US, which has grown from 13 in 1985 to more than 1,000 today. According to CNBC “This unprecedented wealth has been sparked by advances in technology that have allowed leaps in productivity and in turn created money. An explosion in global trade allowed that money to be invested all over the world. The result is that extraordinary sums have rained down on hedge fund managers, private equity partners, real estate tycoons and entrepreneurs.”

The sociologists Judie Svihula and Carroll L. Estes describe how an ideological social movement seeking to privatize Social Security has been built by a broad network of well-funded think tanks, private foundations, and conservative politicians. “A confluence of corporate, political and religious interests asserting the morality of self-responsibility and the answer of the market” have institutionalized this movement and gained it societal consensus. Starting in the conservative politics of the Reagan era, the growing number of think tanks funded by billions of dollars of private wealth, reached its apex with “the 2008 founding by Peter G. Peterson of a billion-dollar foundation to promote the ideas of fiscal responsibility and capitalism that is touting the unsustainability of three entitlements, Social Security, Medicare, and Medicaid.” [“Social Security Privatization: The Institutionalization of an Ideological Movement”, Svihula and Estes, pp217-231, Social Insurance and Social Justice, Springer 2009]

Robert S. McIntyre, writing in The American Prospect, describes Peterson like this: “Peter G. Peterson, as he cheerfully admits, is not a member of the middle class. He’s a rich Republican Wall Street investment banker. But in his crusade against deficits and entitlements, he adroitly poses as a champion of the middle class. Given his circumstances, it’s not entirely surprising that Peterson is an outspoken opponent of the federal government’s two most progressive programs: the graduated income tax and Social Security. What is odd is that his pose as a friend of the common American succeeds; that he publishes in liberal journals like the Atlantic and the New York Review; and that he enjoys a largely uncritical press. [B]ecause Peterson cloaks his goals in the rhetoric of progressivity, the press has fawned over him. The misleading notions that entitlements are running up the deficit, stealing from future generations, and maintaining the elderly in affluence while young people suffer, have become received wisdom for many. Peterson’s bottom line is that the middle class gets too much from government and pays too little for it, while corporations and the rich deserve a break. Curiously, that’s not how he sells his program.” [The American Prospect. June 23, 1994, qtd in SourceWatch.]

This careful cloak of liberalism meant that when Obama initiated The National Commission on Fiscal Reponsibility and Budget Reform in 2010, it was “rife with those who were involved with the Peterson Foundation-funded America Speaks town halls. This includes the likes of Paul Ryan, Judd Gregg, and Kent Conrad, all of whom, not surprisingly, also partook in the Peter G. Foundation-lead April 2010 ‘Fiscal Summit,’ also known as America’s Crisis and A Way Forward.”

The American Prospect’s Mark Schmitt writes, “[I]n the complicated relationship here between a private foundation, built on the wealth of a single individual, and a public, government effort[,] [t]he two are co-piloting what looks from the outside like a joint project, with the privately funded project convening meetings that involve the same people and producing vast amounts of research and advocacy that reinforce the fiscal-crisis message and inform the commission. The Peterson Foundation was the primary advocate for the establishment of the public commission, was aggressive about its structure and composition, and now is running parallel to it and nudging it in what it sees as the right direction.” [The American Prospect. April 29, 2010, qtd in SourceWatch.]

Sourcewatch concludes: “On Dec. 1, 2010, in the aftermath of six lengthy meetings of the 18-person Commission, a controversial report titled “The Moment of Truth” was released to the general publicwith many of the suggested austerity measures strongly resembling those suggested in the Peterson-lead America Speaks town hall meetings, the Peterson-funded National Commission on Fiscal Responsibility and Reform, as well as those positions that Peterson has pushed for throughout his life. These include raising the retirement age for Social Security to 69 by the year 2075, decreasing the cost of living benefits for Social Security recipients, imposing new limits on Medicare health insurance programs, and ending several middle-class tax breaks, the elimination of funding for the Corporation for Public Broadcasting, the capping of jury awards in malpractice cases, and a major reduction in corporate income taxes.”

These positions underlie the compromise proposals on the budget being considered now by Obama and Boehner. “Talks focused on sharp cuts in agency spending and politically painful changes to cherished health and retirement programs aimed at saving roughly $3 trillion over the next decade. … the White House acknowledged that the emerging agreement is “to the right of the Gang of Six” — a bipartisan Senate debt-reduction framework unveiled this week — and far removed from what Democrats have said would be acceptable.” reported the Washington Post.

But until 2010 and the rise of the bogus Tea Party movement, whenever voters have known details of anti-tax schemes, they have defeated them in polls. It’s not an accident that Tea Party candidates were vague about what they actually intended to do. In 2008-9, anti-tax initiatives in a number of states like Massachusetts, North Dakota, and Oregon were defeated. “In Washington State and Maine, voters rejected so-called TABOR (‘Taxpayer Bill of Rights’) initiatives that would have created rigid tax raising formulas that would have crippled those states’ capacity to provide services like education, health care, emergency services, and public safety. … Across the country, over thirty state legislatures raised taxes to deal with deficits this year and a number have specifically targeted tax increases on the wealthy – a bugaboo of the rightwing. And at the ballot, the anti-tax right has just lost and lost.”

Social Security is not in deficit and does not contribute to the national debt. What has happened is this: by an accounting trick, the surpluses gained from Social Security and Medicare FICA withholdings have been appropriated by the Treasury and spent. Michael Brenner, Professor of International Affairs at the University of Pittsburgh, explains: “The way the dodge has worked is that money taken from the Social Security and Medicare Trust Funds is replaced by Treasury IOUs. Since we have a consolidated budget, the numbers we see about deficits are misstated since they do not register those borrowings and IOUs as expenditures. They implicitly suppose that we’ll never have to make good on them. The budget in fact is not truly consolidated since those Trust Funds have a separate legal and financial standing from tax revenues and expenditures. The hope of our politicos is that we never will have to honor the IOUs if we can keep claims for Social Security and Medicare at an artificially low level and thereby access only the funds remaining after we SUBTRACT the IOUs. That’s the story behind the scare campaign that the Trust Funds are insolvent.”

Through his multiple think tanks and tame intellectuals like David Brooks of the New York Times, Peterson institutionalized his  entitlement-cutting agenda in Washington to such an extent that he has been able to frame the policy of the Obama administration. Peterson’s propaganda efforts on Social Security have met with little success with the general public, but resonated with the Republican conservative base and helped to push it rightwards.

In the New Yorker, George Packer sums up Obama’s position like this: “President Obama, responsibly acceding to the reality of divided government, is now the leading champion of fiscal austerity, and his proposals contain very little in the way of job creation. More important, he no longer uses his office’s most powerful tool, rhetorical suasion, to keep the country focussed on the continued need for government activism. His opponents’ approach to job creation is that of a cargo cult—just keep repeating “tax cuts”—even though the economic evidence of the past three decades refutes such magical thinking. What does either side have to offer the tens of millions of Americans who have settled into a semi-permanent state of economic depression? Virtually nothing.”

It’s not that Obama is enamoured of intelligent white men. He is a prisoner of their ideology because he has been trained in this ideology and has no alternative to it. Moreover, conservative Democrats like Jim Clyburn are very much in favor of benefit reductions – as long as they’re not called cuts – by pegging federal Cost of Living Adjustments to a new, stingier measure of inflation. Clyburn is a senior member of the Democratic leadership and was closely connected with the Deficit Commission. In an interview in 2010 he said “you cannot possibly not modify a program that at the time of its enactment, we had 17 people working for every one person that was a retiree. Today, you have about three people working for every one person that is a retiree. Now that is unsustainable.” He is uncritically repeating Peterson’s argument and bogus statistics about the unsustainablity of Social Security.

The last word belongs to the academic editors of Social Insurance and Social Justice: “The market paradigm has dominated the corridors of power, the airwaves, and cyberspace for so long that the alternative paradigm of collective good, the commons, and shared risk and responsibility has been seriously repressed. The national debate is now expanding to encompass conversations concerning the rationale and need for a safety net in the nation. As the failures of the market and the greed that has consumed the promise of our way of life are revealed, the case for social insurance becomes more apparent in the urgency of this political and economic moment.” [Epilogue, pp 437-8, Rogne Leah, Estes, Grossman, Hollister and Solway (eds), Social Insurance and Social Justice, Springer, NY, 2009.]

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Filed under health care, Obama, political analysis, populism, Tea Party movement, US policy

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