Firing Back on the “Fiscal Responsibility" Lobby

Yes, it's true. The conservatives—that's right, the very same folks who just dragged us along on an eight-year drunken binge during which they borrowed-and-spent us into the deepest financial catastrophe in nearly a century—are now standing there, faces full of moral rectitude, fingers pointing and shaking in our faces, righteously lecturing the rest of us on the topic of "fiscal responsibility."

I didn't think it was possible. I mean, they were mean enough drunk—but hung over, in the clear light of morning, it turns out they're even worse.

I know. The choice is hard. Laugh? Cry? Scream? All three at once? It would almost be funny, if it weren't such clear evidence of a complete break with objective reality—and their ideas of what that "fiscal responsibility" means weren't so dangerous to the future of the country.

The next episode in this surreal moral drama is set to take place next Monday, when President Obama will convene a “fiscal responsibility summit” at the White House to discuss the right's bright new idea for getting us out of this hole: let's just dismantle Social Security and Medicare.

As usual, this proposal is encrusted with a thick layer of diversions, misconceptions, factual errors and out-and-out lies. Here are some of the most pungent ones, along with the facts you need to fire back.

1. Conservatives are "fiscally responsible." Progressives just want to spend, spend, spend.

The comeback to the first assertion is easy: Just point and laugh. Any party that thought giving cost-plus, no-bid contracts to Halliburton was fiscally responsible (and let's not even get started on handing Hank Paulson $700 billion, no questions asked) deserves to be made fun of for using words that are simply beyond its limited comprehension.

And a quick look back at actual history makes them into even bigger fools. For decades now, liberal presidents have been far and away more restrained in their spending, and more likely to turn in balanced budgets. Part of this is that they've got a good grasp of Keynes, and know that the best way out of bad financial times is to make some up-front investments in the American people—investments which have almost always, in the end, returned far more than we put in.

Conservatives believe wholeheartedly in investment and wealth-building when individuals, families, and corporations do it. But their faith in the power of money well-spent—and the value of accumulated capital— completely vanishes when it comes to government spending. They think it's morally wrong for government to ever invest or hold capital—despite the long trail of successes that have enriched us all and transformed the face of the nation.

Under the conservative definition of "fiscal responsibility, " we'd have never set up the GI Bill and the FHA, which between them launched the post-war middle class (and made possible the consumer culture that generated so much private profit for so many). We wouldn't have 150 years of investment in public education, which for most of the 20th century gave American business access to the smartest workers in the world; or the interstate highway system, which broadened trade and tourism; or research investment via NASA and DARPA, the defense research agency that gave us the microchip and the Internet and made a whole new world of commerce possible. There wouldn't be the consumer protection infrastructure that allowed us to accept new products with easy confidence; or building and food inspectors who guarantee that you're not taking your life in your hands when you flip on a light or sit down to dinner.

What we're proposing now is not "spending." It's the next round of investment that will create the next great chapter in the American future. And the most fiscally irresponsible thing we can do right now is lose our nerve, and fail to prepare for what's ahead.

2. It's not gonna work. Everybody knows the Democrats spent us into this mess in the first place.

The only remaining "everybodys" who "know" this are the ones who are simply impervious to facts [2].

Ronald Reagan came into office with a national debt of less than $1 trillion. Mostly by cutting taxes on the rich, he grew that debt to $2.6 trillion. George H.W. Bush broke his "no new taxes" pledge, but it wasn't enough to keep the debt from ballooning another 50 percent, to $4.2 trillion.

Bill Clinton''s aggressive budget balancing slowed the growth rate a bit: eight years later, he left office with a debt of $5.7 trillion—and a tight budget in place that, if followed, would have paid whole thing off by 2006. Unfortunately, George W. Bush had no intention of following through with Clinton's plan: on his watch, the debt nearly doubled, from $5.7 to $10.6 trillion. So, nearly 80 percent of the current debt—about which conservatives now complain—was acquired on the watch of the three most recent conservative Presidents.

3. $10.6 trillion? But I got this e-mail that says we're looking at a national debt of $56 trillion...

Wow. That's a big, scary number, all right. It's also a perfect example of one of the classic ways people lie with statistics.

This particular mathematical confection was whipped up by Wall Street billionaire and former Nixon Commerce Secretary Pete Peterson, whose Peterson Foundation is the driving force behind the effort to defund Social Security. According to this group, “As of September 30, 2008, the federal government was in a $56 trillion-plus fiscal hole based on the official financial consolidated statements of the U.S. government. This amount is equal to $483,000 per household and $184,000 per American.”

This "fact" is only true if you're willing to do a reckless amount of time traveling. The $56 trillion number is what you get if you project the entire U.S. debt a full 75 years into the future, which is how far out you have to go before you can get into numbers that big. In other words: we're not in that hole now—but we might be in 2084, if we keep going the way we're going now.

Of course, it should be obvious that we're not going to keep going that way—and that's the other fatal flaw. Peterson's calculations assume that there will be exactly no changes in Social Security and Medicare policy or inputs in the next 75 years—something that has almost a zero chance of actually happening [3]. Also, there's the usual problem with any kind of long-range projection: even a small error in the calculations at the start will compound over time, creating enormous errors at the end of the range. If he's off by even one percent (which is highly likely), the projection's worthless, even 20 years down the road.

Peterson and his posse are laying bets that Americans are too mathematically and logically challenged to notice the flaws in his reasoning—even though the holes are big enough to drive an entire generation of retired Boomers through.

4. Whatever. It's still irresponsible to take on that much debt.

Even John McCain's economic adviser thinks this one's wrong. Here's what Mark Zandi said about the U.S. national debt on the February 1 edition of Meet The Press [4]:

It's 40 percent of GDP now. If the projections are right, we get to 60, maybe 70 percent of GDP, which is high, but it's manageable in our historic—in our history we've been higher, as you pointed out. And moreover, it's very consistent with other countries and their debt loads. And more—just as important, investors understand this. They know this and they're still buying our debt and interest rates are still very, very low. So we need to take this opportunity and be very aggressive and use the resources that we have at our disposal.

To repeat: Debt is never a good thing; but history is on our side here. We've carried a lot more debt than this in the past; and so have other fiscally responsible countries. And the world's investors are still flocking to buy U.S. bonds—even though with inflation, they're getting slightly negative interest rates, which means they're effectively paying us to use their money. If they have that much faith in our economy, we're probably not wrong to have a little faith in ourselves. By world standards, we're still looking like a very good bet.

5. But Social Security is headed for disaster. It's out of control!

It's a testament to the short attention spans of the media that the cons try to launch this talking point every six months or so—and every damned time, the punditocracy goes running flat-out after the bait, fur flying, like an eager but not particularly bright Irish Setter. And then people like us need to collar them, make them sit, scratch their ears, and calmly explain all over again (as if it were brand-new information) that Social Security is in perfectly fine shape, and the conservatives are making much ado about nothing—again.

The Congressional Budget Office projects [5] that the Social Security trust fund will continue to run a surplus until 2019. (More conservative fund trustees put the date at 2017.) The fund’s total assets should hold out until 2046. And that's assuming that nothing changes at all.

If it turns out we do need to make adjustments, there are two very simple ones that will more than make up the difference. One is that we could raise the cap. Right now, people only pay Social Security taxes on the first $102,000 they earn; everything over that goes into their pockets tax-free. Increasing that amount would cover even a fairly large shortfall. And in the unlikely event that fails, we can talk about raising the retirement age to 70—a sensible step, given how much longer we live now.

6. Ending Social Security would be well worth it, because putting those deductions back in people's pockets would provide a big enough stimulus to get us out of this mess.

Anyone who spouts this is apparently not counting on the 70 million Boomers whose wallets would snap shut permanently if you withdrew their retirement benefits just a few years before they're going to need them. As Digby put it:
[6]

Boomers are still sitting on a vast pile of wealth that's badly needed to be put to work investing in this country. But it's shrinking dramatically and it's making people very nervous. As [Dean] Baker writes [7], if one of the purposes of the stimulus is to restore some confidence in the future, then talk of fiddling with social security and medicare is extremely counterproductive. If they want to see the baby boomers put their remaining money in the mattress or bury in the back yard instead of prudently investing it, they'd better stop talking about "entitlement reform." This is a politically savvy generation and they know what that means.

If they perceive that social security is now on the menu, after losing vast amounts in real estate and stocks, you can bet those who still have a nestegg are going to start hoarding their savings and refusing to put it back into the economy. They'd be stupid not to.

Bad economies get that way because people no longer trust the future, and refuse to take on the risks associated with spending, lending, or investing. Social Security was created in the first place because FDR understood that a guaranteed old-age income is a major risk-reducer—not just for elders, but also for their working adult children. And it still is. Affirming the strength of Social Security not only raises the confidence of the Boomers, as Dean and Digby have pointed out, but also of their Xer and Millennial children, who are going to have to add "looking after Mom and Dad" to their list of big-ticket financial obligations if that promise is broken.

Breaking a 70-year-old generational promise for the sake of a little temporary financial stimulus is the very definition of penny-wise and pound-foolish.

7. OK, forget I even mentioned Social Security. Besides, the real problem is Medicare.

Finally, we come down to the truth. There's no question that exponentially rising health care costs—both Medicare and private insurance—are unaffordable in the long term; and that getting ourselves back on track financially means getting serious about addressing that.

On close examination, even Peterson's figures eventually reveal this truth. (About 85% of his projected 2084 debt comes from expected Medicare.) Unfortunately, though, most of his materials lump Social Security and Medicare together, creating a fantasy figure that blows the real problem so far out of proportion that you can't even begin to have a rational conversation about it—which was, of course, the whole point of ginning those numbers up in the first place.

8. Next, you're going to tell me that some kind of government-sponsored health care is the answer.

Yes, we are. The Congressional Budget Office notes [8] that health care costs were only 7 percent of the GDP in 1970—and are over double that, at 14.8 percent, now.

Much of that increase came about because in 1970, most health care providers ran on a not-for-profit basis. Hospitals were run by governments, universities, or religious-based groups; in some states, private for-profit care was actually illegal. Even insurance companies, like Blue Cross, were non-profit corporations. AdminIstrators and doctors were still paid handsomely; but there were no shareholders in the picture trying to pull profits out of other people's misfortune.

The first step to restoring affordability is to kick the profiteers out of the system. (According to the most conservative estimates, this one step would drop the national health care bill by at least $200 billion a year.) The second is to put it in the hands of administrators whose first concern is providing high-quality care instead of big bottom lines; and who are accountable to the voters if they fail to perform. Our experience with Medicare and the VA—which, between them, currently provide care to over 70 million Americans, or about 22% of the country—proves that we are perfectly capable of providing first-class, affordable care through the government.

If Costa Rica and Canada can manage this, why can't we?

9. But this Peterson guy's a billionaire Wall Streeter. Obviously, he knows something about finance...

Let's punt this one to William Greider:

Peterson, who made his fortune on Wall Street, never raised a word about the dangers of hyper leveraged finance houses gambling other people's money. He never expressed qualms about the leveraged buyout artists who were using debt finance to rip apart companies. He didn't fund an all out effort to stop Bush from raiding the Social Security surplus to pay for tax cuts for the rich.

But now he wants folks headed into retirement who have already prepaid a surplus of $2.5 trillion to cover their Social Security retirements to take a cut and to work a few years longer to cover the money squandered on bailing out banks, wars of choice abroad, and tax cuts for the few.

Basically, we're only having this conversation in the first place because a conservative ideologue was willing to pony up $1 billion of his own money to fund a "foundation" devoted to killing Social Security. Given that most politicians—both Democrat and Republican—are extremely unwilling to touch the notorious "third rail of politics," it's pretty clear that next Monday's "fiscal responsibility summit" wouldn't even be happening if Peterson wasn't bankrolling the Beltway buzz on this terrible idea.

10. OK—if killing Social Security isn't the answer, just how do you propose to get us out of this?

The idea of a White House summit on fiscal responsibility is a good one—but only if it focuses on real solutions to our real problems.

Cutting health care costs by getting all Americans into a rationally-managed system that puts delivering excellent care above delivering shareholder profits has to be a central part of any long-term economic health strategy. We're also about 15 years overdue for a complete overhaul of our military budget, too much of which is still focused on fighting the Soviet Union instead of responding to the actual challenges we're currently facing. Finally, it's time to ask the wealthy—who've profited more than anyone from the past 15 years, and yet haven't paid anywhere near their fair share—to step in a pay up for the system that enabled them to build that pile in the first place.

There's plenty we can be doing to actually reduce the national debt, and really stimulate the economy for both the short run and the long haul, without ending Social Security and sending hundreds of millions of Americans into sudden panic over their retirement. True "fiscal responsibility" can never be achieved by breaking promises.