In September the Committee for a Responsible Federal Budget (CRFB), a bipartisan deficit-hawk group based at the New America Foundation, held a high-profile symposium urging the Congressional "supercommittee" to "go big" and approve a $4 trillion deficit reduction plan over the next decade, which is well beyond its $1.2 trillion mandate. The hearing began with an alarming video of top policy-makers describing the national debt as "the most serious threat that this country has ever had" (Alan Simpson) and "a threat to the whole idea of self-government" (Mitch Daniels). If the debt continues to rise, predicted former New Mexico Senator Pete Domenici, there would be "strikes, riots, who knows what?" A looming fiscal crisis was portrayed as being just around the corner.
The event spotlighted a central paradox in American politics over the past two years: how, in the midst of a massive unemployment crisis — when it's painfully obvious that not enough jobs are being created and the public overwhelmingly wants policy-makers to focus on creating them — did the deficit emerge as the most pressing issue in the country? And why, when the global evidence clearly indicates that austerity measures will raise unemployment and hinder, not accelerate, growth, do advocates of austerity retain such distinction today?
An explanation can be found in the prominence of an influential and aggressive austerity class — an allegedly centrist coalition of politicians, wonks and pundits who are considered indisputably wise custodians of US economic policy. These "very serious people," as New York Times columnist Paul Krugman wryly dubs them, have achieved what University of California, Berkeley, economist Brad DeLong calls "intellectual hegemony over the course of the debate in Washington, from 2009 until today."
Its members include Wall Street titans like Pete Peterson and Robert Rubin; deficit-hawk groups like the CRFB, the Concord Coalition, the Hamilton Project, the Committee for Economic Development, Third Way and the Bipartisan Policy Center; budget wonks like Peter Orszag, Alice Rivlin, David Walker and Douglas Holtz-Eakin; red state Democrats in Congress like Mark Warner and Kent Conrad, the bipartisan "Gang of Six" and what's left of the Blue Dog Coalition; influential pundits like Tom Friedman and David Brooks of the New York Times, Niall Ferguson and the Washington Post editorial page; and a parade of blue ribbon commissions, most notably Bowles-Simpson, whose members formed the all-star team of the austerity class.
The austerity class testifies frequently before Congress, is quoted constantly in the media by sympathetic journalists and influences policy-makers and elites at the highest levels of power. They manufacture a center-right consensus by determining the parameters of acceptable debate and policy priorities, deciding who is and is not considered a respectable voice on fiscal matters. The "balanced" solutions they advocate are often wildly out of step with public opinion and reputable economic policy, yet their influence endures, thanks to an abundance of money, the ear of the media, the anti-Keynesian bias of supply-side economics and a political system consistently skewed to favor Wall Street over Main Street.
Taken together, the various strands of the austerity class form a reinforcing web that is difficult to break. Its think tanks and wonks produce a relentless stream of disturbing statistics warning of skyrocketing debt and looming bankruptcy, which in turn is trumpeted by politicians and the press and internalized by the public. Thus forms what Washington Post blogger Greg Sargent calls a Beltway Deficit Feedback Loop, wherein the hypothetical possibility of a US debt crisis somewhere in the future takes precedence over the very real jobs crisis now.
Even President Obama's new jobs plan — a long overdue break with austerity-class orthodoxy — has been pitched in the context of deficit reduction. Every debate over measures to improve the economy begins with the question "How much will it cost, and can we afford it?" rather than "How many jobs will it create, and how will it help the country?" Far from possessing the solution to our economic crisis, the austerity class represents a major impediment to finding one.
Groups like the CRFB and the Concord Coalition, founded by former Congress members in the 1980s and '90s, have long presented themselves as nonpartisan, penny-pinching critics of wasteful government spending, when really they are anti-government, pro-corporate ideologues whose boards are filled with K Street lobbyists and financial executives. The goal of much of the austerity class is to see government funds redirected to the private sector. (Their ideology, which accepts the accumulation of private debt but opposes government debt, explains why the austerity class ignored the massive housing and credit bubble, which more than any single factor contributed to an explosion of debt worldwide.)
The austerity class's reach has expanded in the Obama era, boosted by leaders of both parties and an influx of new funding. After consistently approving massive deficit spending under the Bush administration, Republicans suddenly found true religion under Obama (ironically, at a time when precisely the opposite of austerity was most needed). And within the Democratic Party, what Nobel laureate economist Joe Stiglitz calls "deficit fetishism" is viewed as the gold standard for responsible economics. Democrats revered Bill Clinton's balancing of the budget as good policy and good politics, not to mention a shrewd way to tap Wall Street's endless fundraising stream.
Obama and his main economic advisers (Tim Geithner, Orszag, Larry Summers) were devotees of former Clinton Treasury Secretary and Goldman Sachs/Citigroup alum Rubin, who co-founded the pro–Wall Street Hamilton Project think tank at the Brookings Institution in 2006. The Hamiltonians had warned of "the adverse consequences of sustained large budget deficits" during the Bush administration and advocated "painful adjustments," namely cuts to social insurance programs like Social Security and Medicare in exchange for more liberal policies like tax increases and healthcare reform. Obama entered office with the Hamilton plan in his back pocket.
At the beginning of Obama's presidency, Richard Nixon's famous line "We are all Keynesians now" seemed more relevant than ever. But though Obama initially advanced a Keynesian-lite stimulus plan, which economists on the left and right agreed was imperative, the deficit was never far from the president's mind.
In February 2009, just weeks after the stimulus passed, Obama pivoted to the deficit, holding a Fiscal Responsibility Summit at the White House and assuring Blue Dog Democrats he supported a special deficit-reduction commission. "We feel like we've found a partner in the White House," said Blue Dog co-chair Charlie Melancon. The austerity class swiftly co-opted the new administration. The CRFB, the Peter G. Peterson Foundation and Pew Charitable Trusts launched a special commission in 2009 calling for mandatory spending caps and debt limits to put the United States in an "automatic, fiscal straitjacket." Its recommendations formed the basis for last year's Bowles-Simpson commission.
The austerity class's deep pockets can be traced back to Peterson, a GOP billionaire who served as Nixon's commerce secretary and founded the private equity Blackstone Group. Since 2008 his foundation has doled out $383 million of his promised $1 billion pledge to a seemingly endless number of think tanks, media organizations, advocacy groups and educational institutions to advance his debt obsession [see William Greider, "The Man Who Wants to Loot Social Security," March 2, 2009]. This includes six- and seven-figure donations to groups like the CRFB, the Concord Coalition, the Committee for Economic Development and the Peterson Institute for International Economics. It's largely because of Peterson that programs like Social Security and Medicare, favored by nearly 90 percent of the public, are savaged as bloated "entitlements" and are consistently on the chopping block.
Among the Petersonites, there was stiff opposition to a larger stimulus or additional recovery measures. "If we think about massive deficit spending as medicine for a sick economy, we also need to recognize that too much medicine can ultimately kill the patient," said Maya MacGuineas, president of the CRFB (which received $656,000 from Peterson's foundation last year), in January 2009. MacGuineas, a former stock analyst at Paine Webber and self-described "bond vigilante," did stints at the Brookings Institution, the Concord Coalition and the 2000 McCain campaign before moving to the CRFB in 2003. She's now one of the central organizers behind the austerity class.
Her minimalist take on the recession, though completely at odds with the views of top economists, quickly became conventional wisdom in elite Washington policy circles. "Concerns about the deficit limited the size of the stimulus act in 2009 and are a main reason that Congress has refused to take additional measures to cut our painfully high rate of unemployment," wrote Christina Romer, former chair of Obama's Council of Economic Advisers.
In his State of the Union address in 2010, the president announced a three-year freeze on nondefense discretionary spending (a position he'd criticized in all three presidential debates with John McCain as an "example of unfair burden sharing" and "using a hatchet when you need a scalpel"), along with the creation of Bowles-Simpson. "Families across the country are tightening their belts and making tough decisions," Obama said. "The federal government should do the same."
This line proved to be one of the most repeated talking points of the austerity class. "That's a very intuitive argument, but it's totally backward," says Jared Bernstein, former chief economist to Vice President Biden. "When families are tightening their belt in a recession, the government has to loosen its belt." The constant drumbeat against "excessive" government spending from the austerity class and opportunistic Republicans caused the administration to "pivot too soon," says Bernstein.
Tags: alive rivlin, ari berman, austerity class, bipartisan policy center, brad delong, committee for a responsible federal budget, committee for economic development, concord coalition, david brooks, david walker, douglas holtz-eakin, greg sargent, hamilton project, kent conrad, mark warner, new america foundation, niall ferguson, paul krugman, pete domenici, pete peterson, peter orszag, robert rubin, third way, tom friedman