By Michael Hoexter, a policy analyst and marketing consultant on green issues, climate change, clean and renewable energy, and energy efficiency. Originally published at New Economic Perspectives.
Stated as above, the deficit hysteria-driven austerity campaign would have never gotten off the ground; no one outside the financial industry or its paid minions would choose to design society to facilitate the financial sector’s enrichment at the expense of the rest of the economy. However, the engineers of this campaign, including Peterson and Rubin, have couched the deficit hysteria campaign as if Social Security and other social spending are simply financial transactions between members of the private sector, generalizing as it were from their experience on Wall Street. In transactions between members of the private sector, credits and liabilities are assumed to balance. Debts must be paid in full or the debtor is assigned a social or financial penalty and/or stigma. This simple morality is supposed to apply to private sector to private sector business transactions (though often for Wall Street and the well-connected this morality is rarely compulsory) and is in most day-to-day interactions a workable rule of thumb for anonymous or largely anonymous business dealings between people.
However, even this morality, which is spoken about by some as if it is universal and unimpeachable, has limits to its scope in private-sector to private-sector transactions, if viewed over the entire ebb and flow of the business cycle. As Steve Keen has argued, there exists in monetary economies the need for periodic debt jubilees, as described in the Judeo-Christian Bible, as wealth becomes increasingly concentrated in fewer and fewer hands. Currently we are seeing now increasing numbers of people sink deeper into debt without hope for re-emergence, as our particular economic and financial trading regime “winds down”. As Michael Hudson has written “debts that can’t be repaid, won’t be repaid”. The ideal vision of a society composed of mostly solvent individuals or a society in which most people can choose to remain solvent, assumed by the simple morality applied by deficit hysterics, cannot be extended to our current reality in many instances. A broad social “reset” is required, as income and wealth become concentrated among the few, while the many become ever more cash-constrained. .
The deficit hysterics then extend this truncated transactional morality that ignores the unequal distribution of solvency and of political access to transactions between monetarily sovereign governments and the private sector, i.e. individuals, families and businesses. Government’s unique role as issuer of the currency and stabilizer of an inherently unstable economy with a tendency towards widening inequality is, ignorantly or calculatingly, misunderstood.
So, while Peterson and Rubin have couched their campaign in the moral vestments of “fiscal responsibility”, they gloss over the macroeconomic financial reality of government and the requirement for deficit spending to maintain growth of the national and world economies. The moral fervor that they apply is inapplicable to government programs: while it may seem real to them or the gullible politicians they influence, the moral outrage they hope to play on is based on false and inhumane premises.
The falseness of deficit hysteric morality is a clue to the predatory intentions of its promoters: ultimately people like Peterson and Rubin are attempting to expand/protect the scope of the inefficient, rent-extracting business of private financial intermediation by gutting or weakening the stable government programs that “compete” with them. They are preying on gullible politicians and laypeople who do not understand government finance and/or the business model of the private financial sector, from which they have made and make their private millions. That they have already made “enough” money for themselves apparently hasn’t stopped them from advocating and self-justifying their own path to wealth. Many have already commented on the moral repugnance of the deficit hysteric position and I have previously pointed out its misleading use of moral terms to confuse and seduce its followers and the public.
However the moral turpitude of Wall Street deficit hysterics only sinks to lower levels.
Deficit Hysteria as a Diversion from Wall Street Culpability and Fallibility
The timing of the deficit hysteria campaign is not well explained by the pecuniary benefits that Wall Street hopes to gain from a privatized Social Security or other financial “private-public partnerships” that will arise from austerity. The potential for these benefits have been there for decades, while the deficit hysteric campaign swelled from a preoccupation of a few Washington insiders to the hegemonic position in the Washington elite within a matter of a year (2009-2010). Peterson and Rubin had already been campaigning for more than 15 years to gut the welfare state in the guise of “entitlement reform” and “fiscal responsibility”.
Rather than the prospective gains that Wall Street hopes to harvest from a Grand Bargain, we need to look to those factors that were present in the period 2007-2010 to understand the campaign’s timing and intensification. The proximal causes or precipitating events for the deficit hysteria campaign can be summarized as follows :
1) The Global Financial Crisis of 2007-2008 and immediately following, for Wall Street and some investors, the receding into the past in early 2009 of the “sky is falling” period of late 2008.
2) Growth of a quasi-libertarian anti “bailout” discourse on Wall Street, just as Wall Street had been conveniently bailed out after the “sky is falling” period had ended.
3) The rise in government budget deficits and government spending as the economy tanked, tax receipts plummeted, automatic stabilizers like unemployment insurance kicked in, a stimulus package was implemented, and, in the US, a new Democratic Administration took office.
4) After the election of a superficially left-of-center (in reality right-of-center) African American President, the old reactionary anti-Keynesian, racist, and crypto-racist Right rolled out an anti-Democrat and anti-Obama campaign of slander and exaggeration.
5) Pete Peterson’s sale of the Blackstone Group and increase in his already considerable wealth, after which he promised to spend a good portion of it on his decades long anti-welfare state campaign
6) With the Citizen’s United decision and a Supreme Court favorable to corporate and plutocratic power, a political atmosphere and legal environment of growing permissiveness for elites to manipulate elections and policy debates.
7) President Obama’s shift or reversion to an anti-Keynesian, anti-stimulative economic policy soon after the implementation of the 2009 stimulus package.
Of these seven precipitating events, President Obama has played a pivotal role in providing intellectual and political support for the deficit hysteric campaign by applying his assumed but unjustified reputation as a liberal, as well as the powers of the office of the US President, to an intent focus on federal deficits. President Obama had a critical role in the transition from a reluctant “Keynesian” stimulative approach to the economy of early 2009 to fiscal austerity thereafter. Obama should be held accountable, at least in his reputation and legacy, for his abandonment of an expansionary fiscal policy targeting unemployment and boosting the real economy for policies tailor-made by and for Wall Street deficit hysterics over the last three years. What would have been a line-up mostly of Wall Street and the far Right was made to seem a leadership “consensus” position via Obama’s measuring his economic performance by reference to reducing budget deficits and sponsorship, among other things, of a conclave of deficit hysterics in the form of his budget deficit commission.
While Obama’s role has been critically important, the primary constituency for his turn towards austerity was Wall Street and not the American people at large. Wall Street’s sudden concern about governments’ “fiscal responsibility” in 2009 and beyond can be best understood as a combination scapegoating of government for Wall Street’s failings and misdeeds and an attempt to create a “balance of terror” at a very vulnerable time for Wall Street and its business model.
Wall Street had just crashed the world economy in a decade-long orgy of financial irresponsibility, systematic fraud, and predatory financial practices. Wall Street had helped inflate a huge asset bubble and sold fraudulent financial instruments based on the notion, among others, that asset prices would continue their upward assent indefinitely. Wall Street had used (private) debt, a.k.a. leverage, to take maximum advantage of the bubble that formed. As the bubble burst, prominent Wall Street firms had become insolvent and more would have gone bankrupt if the financial system had not been bailed out by the Bush and Obama Administrations.
Via the false deficit hysteric narrative of government’s fallibility, liability, and potential insolvency, Wall Streeters and those who identify with them attempt to distance themselves from the bubble-prone, leverage-dependent nature of their business and exonerate the Wall Street perpetrators of financial mayhem and distract from the systematic fraud at the heart of the Global Financial Crisis of 2007-2008. While there were and are calls for holding Wall Street accountable and restructuring the private securities business along the lines of the Glass Steagall Act of 1933, the deficit hysteria campaign has been counter-propaganda aimed at the would-be prosecutor and regulator of Wall Street, the US federal government. The moral and political outrage that should have been directed largely at Wall Street and its enablers in government, was instead diverted or countered by the falsely-premised, “fiscal responsibility” discourse.
The deficit hysteria campaign then becomes compellingly attractive for Wall Street’s representatives when it is employed as a ruse to escape their own culpability and to deny the fallibility of the financial markets upon which they base their living. Some of them have then poured their money into what is meant to seem a high moral calling but is in fact an elaborate and destructive excuse for their own largely vaporous and toxic contribution to the economy, and, in many instances, to society as a whole.
Deficit Hysterics’ Total Moral Bankruptcy: Misdirecting the Frustrations of Youth onto the Welfare State and the Elderly
But there is still one rung of moral turpitude below the irresponsibility and opportunism of the deficit hysteria campaign as an evasion of responsibility for the global financial meltdown. We have seen more recently Pete Peterson’s group “Fix the Debt” and now the Wall Street tycoon Stanley Druckenmiller call for a form of intergenerational warfare in favor of cutting Social Security. Starting from the premise that there is a fixed amount of money which is then divided between generations, payments to the the old and aging are targeted as the main fiscal and social problem by the likes of Fix the Debt and its front youth group “The Can Kicks Back”. As with many of the supposedly “popular” initiatives of Fix the Debt and Peterson front groups, the amount of spontaneous interest by the “people” or “youth” is often outweighed by reports of an orchestrated campaign by paid staff.
In a now fairly well publicized and widely condemned speech to Bowdoin undergraduates, Wall Street tycoon and Bowdoin graduate Stanley Druckenmiller, a long-time deficit hysteric and someone who profited handsomely from the subprime meltdown (as a contrarian), decried Social Security as “generational theft”. Druckenmiller, treated by some in the media as a daring truth teller because he included himself as one of the Baby Boomers who was stealing (via Social Security) from youth, omitted to mention to his audience that the dire outlook for the young has much to do with how he specifically made his billions. Yves Smith has documented Druckenmiller’s financial career and how he is implicated in severity of the Global Financial Crisis which influences the employment outlook and earning potential of a majority of young people, far more than any payments made by government to the elderly.
The misdirection and moral perversions of Peterson’s and Druckenmiller’s generational warfare campaigns is, in addition, a dangerous travesty of the very real accusations that the current generations of younger people might have against older generations be they of Gen X, the Baby Boom or before. The young should be angry that older generations have, for one, supported or acquiesced to the neoliberal ideology that has given morally and intellectually bankrupt rich people like Druckenmiller an honored and largely uncontested platform from which to speak to them. The neoliberal ideology of which deficit hysteria is the latest outcropping, has ideologically elevated and promoted the socially destructive activities of the financial sector, i.e. people like Druckenmiller, Rubin, and Peterson. In equal measure, policymakers inspired by neoliberalism have helped hollow out the economy of well-paying jobs and downgraded productive work, dispersing that productive work throughout the world to lower wage countries. Furthermore that ideology, despite heaping lavish praise on innovation and entrepreneurship, has gutted governments’ critical supports for small businesses and funding for innovation more generally.
Finally, and most importantly, the young might very reasonably be angry and alarmed that their older and “betters” have not acted in any appreciable way to stem the rise in carbon emissions from human society and brake or reverse the effects of anthropogenic global warming. This is not exactly a theft but more an inherited catastrophe, for which the youth will bear many more of the consequences than the old. Having known, since about 1995, that climate change was imminent, the Baby Boom and older generations have frittered much of the window of opportunity to stop irreversible damage to the climate. Though I have devoted myself over the past 8 years to action on this issue, I count myself culpable in not doing more than I have or sooner.
If they were so inclined and well organized, the youth of today should be looking to shove aside anybody of an older or younger generation who does not stand for a proactive jobs and climate change policy. I have argued that both of these policy goals require the power of monetarily sovereign governments to re-value economic sectors and lines of work via fiscal policy and ignore deficit hysteric fantasies that governments spend out of a fixed pot of money, that can run out. Similarly public pension systems like Social Security are a useful tool in peaceably enabling increased youth employment, as continuing or increasing payments to their elders will help accelerate retirements and leave the field to those who are committed to building a sustainable future.
Ultimately, it would be better if we could solve social problems and face challenges like climate change with the aid of the wisdom of each living generation and not see the challenge as primarily one of conflict between generations. We would hope that parents and grandparents would be concerned enough about the future to work for a livable future for their children and grandchildren. However, as long as the theme of “generational theft” is on the table, the misappropriation of the concept of generational conflict by deficit hysterics must be called out.
Loathsome and Dishonorable
I am not one who enjoys describing others as “loathsome” (this is a first in my writing career) or dwelling on the faults of others. There are many impersonal systems at work that make our lives less than they might be as well as our way of life less sustainable than it might be. To point out the failings of individuals is not my strong suit.
On the other hand, our current plutocratic order gives inordinate space and accords respect to people simply by virtue of their wealth. Plutocrats can dominate the public sphere and increasingly standards of personal morality and honor have become corrupted by the aging, now thirty five year old neoliberal, plutocratic order. It becomes important to point out when privileged individuals abuse their privilege, exploit their position, and, additionally, become a bad example of what human behavior might be. If they are aggressively trying to destroy something that is actually good in the world, all the more reason to point out their failings. We currently have no organized counter-narrative, counter-movement to the grotesque gyrations of ignorant or malicious plutocrats on the public stage.
Peterson, Rubin and Druckenmiller might have made their millions and/or billions and then retired to a career of charitable giving, even of a political nature. Instead of utilizing charity as a “second career” and new beginning for themselves, they have chosen a path of donations and political agitation that is aimed at depriving millions of people of small but necessary consolations that they receive from government, while attempting to create room to expand the business in which they, the few, made their fortunes. They have attempted to veil this campaign in a perverted morality, which corrupts our understanding of transactional justice and the reality of our economy. Their current campaign is based on an utterly false conception of how money and the economy works. Their campaign functions as an excuse for their industry’s culpability in the collapse and ongoing decay of the economy. They have tried to turn the young against the old, and blamed the latter and the sick for the loathsome plutocrats’ own failings, or the failings of the institutions though which these plutocrats have grown wealthy.
These acts would probably provoke loathing in many and it is each of our choices to decide to loathe these individuals or simply ask that they be stripped of the respectability and social status that they currently enjoy. They have chosen a dishonorable course and they should be dishonored by those (audiences, universities, the media) who have or could accord them honor. We do not need to loathe them, even though they might provoke it via their perversity, but we need to be sure to neutralize their effect on our polity and public discourse.