On a recent Meet the Press face-off between Democrats and Republicans, a politician claimed we urgently need to cut government spending. He embraced a plan to slash vital government programs and gut retirement security, while actuallycutting taxes for the rich. The only tax hikes in his plan were targeted toward the already-devastated middle class.
Then it was time for the Republican to speak.
Who'd have thought it? Progressive stalwarts like Minority Leader Nancy Pelosi and Sen. Dick Durbin are pushing the same radical austerity plan as Jamie Dimon, CEO of troubled megabank JPMorgan Chase, and Robert Rubin, the Clinton Treasury Secretary who represents everything that's broken about the Wall Street/Washington axis.
Pelosi's long been considered the House's liberal lion, and she's dedicated her career to public service. Rubin, on the other hand, used his time in office to deregulate Wall Street and loosen merger rules to allow the formation of Citigroup. Then he made a massive fortune working in Wall Street's deregulated environment as a senior executive for ... Citigroup.
Pelosi and Durbin, along with Rubin and Dimon, are pushing a misguided austerity plan that's being planned as a "December surprise" for the American people. Anybody who cares about our economic security - or the future of the Democratic Party, for that matter - should be trying to stop them.
The Odd Couple
They just named a street after Nancy Pelosi in San Francisco, while there's a strong argument for putting Rubin's name on a subpoena. But the Liberal Democrat and the Wall Street Democrat are singing from the same hymnal now, and the song we're hearing is called “Simpson/Bowles.” That name is Washington-speak for cutting Social Security and Medicare, imposing across-the-board cuts like the ones that are decimating Europe, and cutting taxes for ultra-wealthy people like Robert Rubin.
In a time of rampant unemployment and under-employment, rising poverty, wage stagnation, and the collapse of middle-class assets from lost real estate and retirement plan value, a motley mixture of Democrats has decided that it's more important to push a debt reduction plan for the Federal government instead. The Federal deficit has doubled from 37 percent in 2007 as the result of a financial crisis brought on by the actions of Wall Street executives like Robert Rubin.
Rubin, Nancy Pelosi, and a host of other Democrats have apparently gotten together and decided who should pick up most of the tab for that Wall Street spree: You.
Austerity, American Style
Minority Leader Pelosi probably doesn't see it that way, but when she pushes the plan crafted by the leaders of a failed Presidential Deficit Commission that's exactly what she's doing. Once you cut through the double-talk and salesmanship in the Simpson/Bowles plan, its proposals are clear: It cuts Social Security and Medicare and imposes across-the-board spending reductions on most functions of government (which would increase unemployment).
Simpson/Bowles also reduces or eliminates some of the tax deductions that help the beleaguered middle class (like mortgage interest and employer health deductions) - and, to top it all off, lowers the tax rate even more for ultra-wealthy Americans like Robert Rubin!
Here's what Sen. Dick Durbin said in a joint Meet the Press appearance with Rep. Paul Ryan, whose radical right-wing plan to dismantle much of the Federal government has become the official Republican position: I can tell you that Paul and I agree on the basic premise. We are facing serious deficit and debt challenge in this country.” This, despite the fact that neither the American people (especially those that are un- or underemployed) or international financial markets agree with that statement.
Durbin then attempted to draw some distinctions between his position and the Republicans'. But as the Democrats should have learned from their disastrous 2010 results, it's hard to paint a difference between yourselves and your opponents once you've embraced the same false premise. In this case the false premise is austerity.
“We need to get back to the Bowles-Simpson principles,” said Dick Durbin.
Leader Pelosi's position on Simpson/Bowles has, in the political parlance of the day, "evolved." When its two authors first released it, she described it as “simply unacceptable.” Then it was reported that she was willing to support even greater cuts as part of President Obama's failed "grand bargain" with House Speaker John Boehner. Finally, this year she said of another proposal, “If it were Simpson/Bowles I would have voted for it.”
Pelosi remarked: “I felt fully ready to vote for that myself, thought it was not even a controversial thing ...” (Emphasis ours.) Soon she was telling Charlie Rose that, aside from its Social Security cuts, Simpson/Bowles was “a good framework in terms of revenue and in terms of cuts, in terms of defense spending and the rest. It was very bold.”
Those cuts include spending caps on Medicare without any meaningful cost controls, which would decimate the program. Other spending cuts would gut much-needed government services, causing unemployment to soar.
Overall, spending cuts outweigh tax increases in the plan by at least two to one, and those increases target the middle class while providing even more giveaways to the wealthy.
An Uncertain Defender
That's bad enough. But isn't Leader Pelosi also reassuring us that she'll oppose needless cuts to Social Security? Sadly, not really. Not anymore. For some time now she's been hedging her words on the topic, gives us statements like this one from her press secretary: “Any plans regarding Social Security must extend its solvency, protect benefits, and be dealt with on a separate table so that any savings go into the Social Security Trust Fund.”
The truth is, Social Security is forbidden by law from contributing to the deficit. A destructive dynamic is created when Social Security funding talks are linked in any way to deficit proposals like Simpson/Bowles. As for the rest of the statement from the Minority Leader's office, “extending solvency” and “protecting benefits” are Washington code words for “cutting benefits.”
What's missing from Leader Pelosi's statement? Revenue increases. The simple, clean, and fair solutions to Social Security's modest long-term problem involve lifting the payroll tax cap, and perhaps using a financial transactions tax on banks to make up the difference.
But that wouldn't be convenient ... for Robert Rubin.
Here's a quick refresher course on Robert Rubin's career trajectory: He first made his mark at Goldman Sachs and later became Secretary of the Treasury, where he fought against regulating credit default swaps and the other financial products that brought on the financial crisis of 2008. Rubin then earned an enormous amount of money at Citigroup, the monster which he used his government power to help create, where eventually became CEO.
Many observers have marveled at the fact that no senior Citigroup executive has been brought up on criminal charges, especially after it paid $285 million in SEC fines to settle charges of defrauding investors in mortgage-backed securities (which Rubin also fought to deregulate).
Rubin told the Financial Crisis Inquiry Commission that no one could have foreseen the disastrous results of his bank's behavior and that of other Wall Street firms. But a former Citi risk manager provided the Commission with copies of the memo he sent to Rubin and the others, which was entitled “URGENT-READ IMMEDIATELY-FINANCIAL ISSUES.”
In a sane society, Rubin would at the very least have been ostracized for his amoral and destructive actions. But instead he's writing editorials for organizations like the Council on Foreign Relations, which has published his latest opinion piece. Unsurprisingly, Rubin defends the Pelosi position on Simpson/Bowles and austerity economics. And he makes a prediction.
Normally we would discount any prediction made by Rubin, given his poor track record in economic forecasting. But he's still a Democratic insider, so we believe him when he entitles his piece “A Budget Grand Bargain Will Follow the Election.”
Rubin chides Washington for its “continued failure to get our fiscal house in order,” which he says “poses five basic risks.” (The guy who says he couldn't predict his own bank's ruin is now an expert on financial risk? Ironies abound.)
Rubin argues that “government borrowing risks crowding out private investment,” although nothing of the kind has happened yet. The he says that “our unsustainable fiscal outlook undermines business confidence by creating uncertainty about future policy, economic conditions and our ability to govern, which in turn dampens investment and hiring.” He couldn't be more wrong.
You know what undermines business confidence? Cuts to spending that leave teachers, cops, and other government workers unemployed. Financially-strapped elders and disabled people with no money to spend.
In other words, austerity economics.
If you want to see what real loss of business confidence looks like, check out austerity-battered Spain. Its conservative government has imposed drastic spending cuts, and as a result retail sales fell nearly ten percent in a single year.
Nothing undermines the confidence of a business person more than people not buying your products.
Rubin throws in some wonkish but equally nonsensical talk about inflation (check out our Krugman interview on The Breakdown for real insight into that issue). He leavens the fiscal conservatism, as such Democrats often do, with talk about offsetting cuts with unspecified investments - investments that are usually based on the faulty premise that workers today don't have the right job skills, and which in any case are never spelled out (probably because nobody intends to push for them).
Rubin's position is close to that of fellow Wall Street executive Jamie Dimon, who pushed hard for Simpson/Bowles and austerity before an enthusiastic crowd - right before he was forced to admit that mismanagement (and possible criminal behavior) had caused multi-billion dollar losses at his own bank.
According to Washington insiders, Rubin's telling the truth when he says that many of his fellow Dems are hoping to roll out their austerity surprise after the election - hopefully just in time for Christmas.
To be fair, Rubin also proposes increasing the top tax rate and he his general statements about public investment are unassailable. But his premise, like Pelosi's and Durbin's, is fundamentally flawed. And his prediction about a post-election surprise makes the blood run cold, since he's in a position to know. When Rubin says that "the critical decision-making period will be Congress's lame-duck session after the election, and the first two or three months of the new Congress," he's pinpointing the same time period that Pelosi and other Washington insiders are discussing: immediately after the election.
That's exactly when both parties hoped to cut Social Security and roll out other Simpson/Bowles-like austerity policies after the 2010 election.
Planning for Failure
Don't Democrats remember what happened last time around? They bought into the deficit-reduction frame and proposed some reasonable modifications to Medicare provider reimbursements, which promptly led Republicans to successfully run to their left on entitlements with a phony "Seniors' Bill of Rights." Reminder to Dems: You lost the House that year.
They're laying the groundwork for exactly the same kind of disaster this year.
If Democrats think that this kind of doublespeak will help them win elections - and what other motive could they have? - they're sadly mistaken. As in 2010, they seem to think they're protecting themselves from political fallout if they execute these cuts in a lame-duck session. But, as the “Seniors' Bill of Rights” gambit should have taught them, lame ducks are easy prey for even the most Elmer Fudd-ish of hunters.
If these Dems they think that imposing austerity cuts right after this year's election means that people will have forgotten by 2014, they're even more misguided. Old age is in every American's future, and they'll think about those cuts every time they try to set aside a little money for retirement - which means every paycheck.
And if this another case of the “n-dimensional chess” Democratic strategists boast about, by offering compromises they don't expect Republicans to accept, then their thinking's even weaker. If the idea is to make Dems look “moderate” by adopting politically unpopular positions and squandering their own widely-supported platform, that's an even bigger invitation to replay the political disaster of 2010.
What's more, the long-term implications of this gambit are toxic. Nobody in Washington is telling people the truth: Focusing on deficits during a recession-cum-depression is wrongheaded, foolish, and destructive. If they keep on doing this they will kill the Roosevelt Democratic vision which made this country strong.
And that will kill their party.
For those few voters who will have forgotten by 2014, there will be billions of dollars in GOP SuperPAC money waiting to remind them. Anybody who wants to preserve our fiscal future - and anybody who's a partisan Democrat - should be telling Nancy Pelosi, Dick Durbin, and the other misguided Democrats to stop backing Simpson/Bowles or any other austerity plan. The Democrats' brand as the middle-class party is already tattered, and that could destroy it completely.
“Take back your party,” Pelosi recently advised traditional Republicans. “This is not the Grand Old Party that we know.”
Take back your party: That's sound advice - for everyone in Washington.