Summary: Deficit Hawks want to slash both Medicare and Social Security, and they seem to be in control of the President’s National Commission on Fiscal Responsibility and Reform. Hovering in the wings, aging mogul Pete Peterson is eager to help them do the job.
The Peter G. Peterson Foundation is spending lavishly to exploit anxiety about the economy –to a point that Americans now name “the deficit” as the No. 1 threat to America’s future. He uses that fear to justify cutting "entitlement programs."
Meanwhile, Peterson is posing as a liberal as he attempts to make common cause with health care reformers. In the process, he is blurring the very important distinction between what the health care legislation would do to reform Medicare, and his own proposals. Reformers would expand effective care while reducing waste; Peterson would shift costs to Medicare beneficiaries while restricting the number of Americans eligible for the Medicare program.
The irony is that cutting domestic spending is exactly what we shouldn’t do in the midst of this economic crisis. As George Soros explains, when you’re skidding you have to turn into the skid.
For decades, 83-year-old Wall Street billionaire Pete Peterson has been funding a campaign designed to convince the American public that Federal debt represents an unparalleled threat to this nation’s future. Unless we stem the flow of red ink, he says, our children face a world of “diminished dreams.” Recently, the former Wall Street banker has stepped up his efforts, arguing that the budget deficit poses a greater menace than unemployment, the wars in the Middle East, or the rising cost of healthcare. This country’s biggest problem, Peterson warns, is extravagant spending on “entitlement programs” for seniors . The word “entitlement” says it all: Peterson views Medicare and Social Security as programs that Americans feel “entitled to” but don’t really deserve. As he puts it, today’s retirement system resembles nothing more than a “well-padded hammock for middle- and upper-class retirees.”
Earlier this year, the Peter G. Peterson foundation hosted “Fiscal Summit 2010,” and there, Peterson explained that, unless we make some “hard choices,” the budget deficit will result in an economic apocalypse that destroys this country’s standard of living: “Everything you love will not be there,” the aging mogul told his audience, his voice quavering with concern. “Everything you deeply love will not be there – there won’t be any bucks for the children . . . How that’s for an answer?” he demanded, managing to be at once querulous and belligerent.
Meanwhile, the former hedge fund manager has been using his billions to exert as much influence as possible on President Obama’s new National Commission on Fiscal Responsibility and Reform— , a.k.a. the Deficit Commission. In February, when the president signed an executive order creating the Commission, he announced that it would be charged with rolling back a deficit that threatens to "hobble our economy. . . cloud our future,” and if left unchecked, “will saddle every child in America with an intolerable burden . . .. .
Everything’s on the table,” the president added—including raising taxes and cutting Medicare and Social Security — “that’s how this thing is going to work.”
In that moment, the president seemed to be adopting the rhetoric of the “deficit hawks.” This is troubling. Without question, the deficit does matter. But hawks suggest that it should be our only and top priority, even in the midst of a recession. And they would find the money by weakening our two most successful domestic programs: Social Security and Medicare. Surely this is not the best way to strengthen the economy.
As for the need to cut “entitlement programs,” anyone who talks about “Social Security and Medicare” shortfalls in the same breath is lying to you. Social Security is not under any immediate financial stress. The program’s trustees project that it will be able to continue to pay out promised benefits in full until 2037. More importantly, over the next 75-years the gap between promised benefits and committed taxes equals just 0.7% of GDP. That’s a manageable shortfall that can be addressed through minor tweaks. Social Security will remain on solid financial footing for more than 75 years if Congress simply “raises payroll taxes for higher-income workers by a modest amount,” says Century Foundation program director Greg Anrig. He explains that one way to do this would be “to raise the cap on annual wages subject to the Social Security payroll tax, which is currently $106,800. If legislators decided to lift the cap, Anrig obsesrves “those workers paying more would receive higher benefits as a result.”
Moreover, Social Security pay-outs are hardly extravagant: “Compared to 30 OECD nations, the U.S. ranks 25th in the share of an average worker’s earnings that is replaced upon retirement by a country’s public pension program,” Anrig notes.“Social Security’s annual benefit of about $13,860 a year for an average retired worker is only slightly above the poverty level of $10,830.” ( Apparently Pete Peterson isn’t familiar with the comparative numbers. In the past, he has argued that “other countries are unencumbered by the illusion that their people have some sort of inalienable right to live the last third of their adult lives in subsidized leisure.” )
Here is the truth: a high-school senior can count on Social Security being there when she needs it. Medicare, on the other hand, is heading for a wall. In recent years, Medicare spending has been spiraling by 6 percent to 8 percent a year. Let me be clear: healthcare inflation is not unique to Medicare. Since 2000 private insurers’ payouts to doctors, hospitals and patients have been rising even faster. We cannot continue to let health care spending grow faster than GDP. If we don’t break the curve of health care inflation, before long the Medicare fund that reimburses hospitals will be paying out more than it takes in. But the problem is not insurmountable. We need to trim the growth of Medicare spending by only about 3 percent to 4 percent.. As I explained in my last post, “The Patient Protection and Affordable Care Act” that President Obama signed this spring would do just that.
Over the next 10 years, the Affordable Care Act (ACA) aims to reduce projected Medicare spending by some $500 billion. Here it is critical to understand the difference between the legislation’s goals and Peterson’s crusade: the reform legislation would not cut current benefits. Rather, it reins in future Medicare spending by reducing errors and squeezing waste out of the system while simultaneously improving the quality of care. Under reform, Medicare pays primary doctors more, rewards providers for better outcomes, and expands benefits by eliminating co-pays for preventive care and filling the “donut hole” that left many Medicare beneficiaries paying the full cost of their medications.
The deficit hawks have a starkly different agenda. Peterson and his supporters would shrink Medicare by raising premiums for Part B and Part D, lifting the age when seniors become eligible for the program and “making better decisions about end of life care.” (See the Peterson Foundation’s “Citizen’s Guide” to “The State of the Union’s Finances “) Reforming Medicare in order to strengthen it and make sure that it is sustainable over the long term is one thing; raiding it, to pay down the deficit, is something else again.
Is Pete Peterson Winning? A Shift in the Polls
Until very recently, the notion that we should limit Medicare and Social Security benefits in order to reduce the deficit was seen as a third-rail argument. These are, by far, the two most popular domestic programs this country has ever seen. Virtually any politician who suggested restricting benefits was asking to be turned out of office. But now, the recession has frightened many Americans, and Peterson and other deficit hawks have learned how to play on public anxiety about the nation’s future while wrapping themselves in the flag of children and grandchildren.
Certainly, there is reason for the public to be anxious. Unemployment remains well over 10 percent. Virtually everyone knows someone who has lost a job, and many Americans are “working scared” without hope of a raise. The economy should have created some 3 million jobs for new entrants into the labor force over the past two years; instead it has lost roughly 8.5 million. Few Americans are feeling the effects of a modest economic recovery. In this climate, perhaps it should come as no surprise that Peterson seems to be winning in the court of public opinion.
Polls show that the majority of Americans now list “the deficit” as their No. 1 fear. A shift in public sentiment became apparent in early May, when a NBC/Wall Street Journal polled revealed that 20 percent of respondents rated “the deficit and government spending” as the top priority that the federal government should address– up from just 13 percent at the beginning of the year. Only job creation and economic growth topped the deficit on this list of the public’s concerns.
By the end of May, the widespread change of heart was even more apparent: A USA/Gallup poll showed “federal government debt” tying terrorism as the No. 1 threat to our future well-being, trumping unemployment, the rising cost of health care and the presence of American troops in Afghanistan and Iraq. (Thanks to Naked Capitalism for the table below.
The President’s Commission
This spike in mainstream interest in the deficit may be explained, in part, by the fanfare surrounding President Obama’s February announcement that he was establishing a National Commission on Fiscal Responsibility and Reform. The President made it clear that the mission was urgent: the group of 18 has until Dec. 1 to come up with recommendations designed to balance the budget, excluding interest payments on the debt, by 2015.
It would seem that Peterson’s day has come. And if ripeness is all, he is more than ready. Pete Peterson has waited a long time for just such an opportunity.
The Neiman Watchdog, published by the Neiman Foundation for Journalism at Harvard, reports on Peterson’s efforts: “A Peterson-funded foundation is supplying staff to the group of 18 that meets behind closed doors” debating the budget. The day after the first meeting of the commission, the Watchdog notes, the co-chairs and two other members of the commission attended the Peterson Foundation’s “Fiscal Summit 2010.”
Although the panel is bi-partisan, it is stacked with fiscal conservatives who sympathize with Peterson’s agenda. Even before the group held its first meeting, Bloomberg reports, co-chair Erskine Bowles went on record before the North Carolina Bankers' Association saying that if the Commission doesn't "mess with Medicare, Medicaid and Social Security … America is going to be a second-rate power." After being appointed the commission’s co-chair, former Wyoming Republican Senator Alan Simpson told PBS’ Newshour, “This country is going to go the bow-wow’s unless we deal with entitlements, Social Security and Medicare.” Lacking a knack for analysis, Simpson often resorts to colorful language.
The day after the Commission’s first meeting in late April, Peterson’s swanky “Fiscal Summit” reinforced the theme: “The symposium's core conviction is that ‘everybody’ (as moderator Leslie Stahl put it) recognizes what needs to be done to cut the long-term deficit,” observed the Huffington Post’s Dan Froomkin. “But the only concrete areas of agreement seem to be that cuts in Social Security and Medicare must be a part of deficit reduction, while cuts in military spending are (as moderator Gwen Ifil put it) ‘never an option.’It's a fundamentally banker-friendly agenda.
And the campaign has just begun. Peterson’s foundation is funding America Speaks, a series of high-profile town halls that will be held across the country later this month to launch “a national discussion to find common ground on tough choices about our federal budget .”
There’s that phrase again– “tough choices,” a reminder that the commission is targeting Medicare and Social Security—our two most successful domestic programs.
Domestic Spending on Social Programs Did Not Create the Deficit
Over at Hullabaloo, Digby has commented on the cunning of deficit hawks who have set out to make people believe that government spending on social programs is the cause of the current economic crisis. “They are, quite obviously, attempting to use the crisis to dismantle the social safety net and avoid doing the real work of reforming the financial system.”
In truth, spending on Medicare and Social Security did not cause the real estate bubble, the sub-prime meltdown, the credit crunch, the wars in Iraq and Afghanistan, slow economic growth, or soaring unemployment. As veteran investigative reporter Jim Ridgeway notes: “The national treasury has been driven into deep deficits by a financial crisis caused by Wall Street greed, compounded by two wars, tax cuts for the rich, and the high prices charged by health care profiteers.
And where [should] we turn to make up for this loss?” he asks. According to some, we should take the money from “the poor and the old, who cling greedily to their ‘entitlements.’”
Economist James Galbraith points out that the deficit hawks did little to sound the alarm when the debt was building: “. . . did David Walker, Eugene Steuerle – or Peter G. Peterson himself — devote even five percent of the vast resources that they have lavished in recent years on the supposed ‘entitlement crisis’ to warning about the impending mess on Wall Street?
“Did they write anything about it? Did they speak out against the Bush administration's abandonment of supervisory responsibility in the financial system? Did they protest the massive abuse of unsophisticated home buyers by the loan originators in the subprime sector? Did they comment on ‘liars' loans,’ ‘neutron loans’ and ‘toxic waste’? Were they heard about the risks involved in securitizing subprime loans? Did they foresee that credit default swaps could collapse like a house of cards? Did they caution that the stock market might crash, ruining the private retirements of millions of Americans?
“If they did, I must have missed it.
“Peter G. Peterson is one of the leading figures on Wall Street. Isn't it reasonable to ask, that if he and his team wish to be taken seriously on matters of public finance, that they should have shown some leadership, some wisdom, some insight and some foresight on the disaster brewing in their own backyard?
“As the disaster on Wall Street developed, George Soros was heard from. Warren Buffett was heard from. Was Peter G. Peterson heard from? Was David Walker heard from? Was Eugene Steuerle heard from? I think they were not.”
Peterson Appears To Make Common Cause with HC Reformers
In May, when I read that Peterson would be speaking at a health reform conference sponsored by the Institute for Healthcare Improvement, The Dartmouth Institute for Health Policy and Clinical Practice, the Harvard School of Public Health, and the Engelberg Center for Health Care Reform at Brookings— and that the Peter G. Peterson Foundation would be helping to fund the event– I was startled, but I shouldn’t have been surprised.
Peterson, who supported John McCain during the 2008 election, has a talent for infiltrating liberal groups, and saying what they want to hear —as needed. When Barack Obama was elected, he understood that it was time to change horses. "Obama's victory didn't change our mission in any way," Michael, one of Peterson' s four sons and the Peterson Foundation's vice-chariman told Elevator, a self-described high-end financial and luxury publication.."It simply changed who we're going to have to work with in the coming four years. During the course of the foundation's existence, there will be many," he added, implying that while U.S. presidents come and go, the Peterson dynasty will live on.
Those who do not know Peterson from his days on Wall Street can easily mistake him for a benevolent billionaire philanthropist—a wizened Warren Buffet, if you will.
These days, even as he campaigns against “entitlement programs,” Peterson is impersonating a health care reformer. In the “Citizen’s Guide” to “the State of the Union’s Finances,” that Peterson’s Foundation published in April, Peterson pays lip service to the language of reform, talking about moving away from fee-for-service payments, unnecessary treatments, the Dartmouth research, comparative effectiveness research and electronic medical records.
Reading this section of the pamphlet one might begin to think that Peterson has been converted to a new way of thinking about Medicare. One would be wrong.
Peterson has always been clever about posing as a liberal, when necessary. As Robert S. McIntyre, director of Citizens for Tax Justice, noted in “The False Messiah” a profile of Peterson published by the American Prospect in 1994: “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” even though, “Peterson is at the epicenter of a growing network dedicated to demonizing entitlements. . . Along with tax cuts for the rich, he explicitly endorses tax increases for the poor and the middle class as well as sharp reductions in what average families receive from the government. . . 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. [But], that's not how he sells his program.” Instead, McIntyre explains, he uses “seductive rhetoric” that will appeal to a liberal press. (Note to readers: After 16 years, McIntyre’s piece holds up; it’s well worth reading).
In truth, Peterson’s agenda has never changed. This becomes clear in his Citizen’s Guide: In chapter 2 he praises the health care reforms proposed in the recent legislation, saying that they will significantly reduce unfunded Medicare promises over the next 75 years . But, Peterson declares, this is not enough. These savings “will be needed to pay for the new health insurance subsidies” for those who cannot afford insurance. Consequently “much work remains to stabilize health care costs as a percentage of the federal budget and the overall economy and keep total federal spending for health care from growing faster than our willingness to pay.”
How will we do that? In Chapter 3, titled “Solutions,” Peterson shows his hand, proposing the more Draconian solutions that have been part of his agenda for years. First, he suggests raising premiums for Medicare Part B and D.
Here, he ignores the fact that Medicare is already become close to unaffordable for many seniors: Between 2000 and 2007, Medicare beneficiaries faced average annual increases in the Part B premium of nearly 11 percent. Meanwhile, monthly Social Security benefits, which averaged around $900 per month grew by only about 3 percent a year. To put these numbers in context, keep in mind that most Medicare beneficiaries have limited incomes. In 2003, 60 percent of seniors on Medicare depended on Social Security for 75%, or more, of their total income.
Secondly, Peterson calls for gradually raising the eligibility age for Medicare
Americans in their sixties are in dire need of healthcare, especially now that so many in that age group are unemployed. For many, checking off the months until they turn 65 means waiting too long. Forcing them to wait until they are 66 or 67 is simply a way of blindly shrinking the program, without rhyme or reason. By contrast, reform legislation calls for knowing cuts, targeted to reduce errors or eliminate fraud, waste and overtreatment.
In chapter 3, Peterson also declares that we should create a “Federal budget for health care” (this sounds very much like a global cap on(healthcare spending) “create smarter healthcare consumers” (code for making sure that Medicare patients have more “skin in the game” in the form of higher co-pays and deductibles) and “make better decisions about end-of-life care.” (It’s not at all clear who would be making the smarter decisions. Since Peterson makes no mention of palliative care specialists laying out options so that the patient can make informed choices, I fear that these final decisions would be made by someone else. But who?
Under “Solutions” Peterson also takes a whack at Social Security, suggesting that we “gradually raise the retirement age” and “reduce cost-of-living adjustments” (COLA) –making it even harder for seniors to afford Medicare. Just when does he think seniors are “entitled” to retire? In 1996 Peterson wrote: “In order to provide the same average number of years of retirement benefits in 2030 that were contemplated when Social Security was set up, in the 1930s, the retirement age would have to be raised from sixty-five to seventy-four by 2030.” Bad news for the baby-bust generation. (Peterson believes that we are on the threshold of a “new paradigm for aging” in which the average life expectancy could reach 100 or more. Apparently he hasn’t taken a close look at public health statistics.
It's worth noting that Peterson wouldn't reduce the deficit on the backs of the poor. When posing as a liberal, he presents himself as a champion of low-income Americans. He reserves his scorn for a group he refers to as "the middle-class" (those seniors whom he envisoins relaxing on those "well-padded hammocks" and the "long gray wave of baby-boomers" who are going to turn this into "a nation of Florida's". How does he define the "middle class"? In a 1996 article published in The Atlantic Monthly, he suggested that entitements should be reduced for households earning over $40,000–i.e. any family earning more than 5 percent above U.S. median income that year.
Medicare Reformers vs. Deficit Fetishists— Different Goals
Health Care reformers have one goal for Medicare: to make it a sustainable, high quality affordable program that does not add to the deficit.
By contrast, Peterson would slash Medicare spending by shifting costs to beneficiaries, while raising the age when seniors become eligible for the program. He would then use the savings, not to improve healthcare, but to cut federal debt.
But is reducing the budget deficit really Peterson’ primary goal? He was, after all, call for cuts to “entitlements” in the late 1990s, when this nation was running a surplus. Arguably, Peterson’s real aim is to weaken, and ultimately dismantle the social safety net that the Roosevelt administration put in place some seventy years ago. He is using our current economic problems simply as an excuse for a stepped up campaign, his critics say.
That his fear-mongering is succeeding can be seen, not only in the polls, but in Congress, where legislators are having a hard time putting together enough votes to extend much-needed unemployment benefits. Suspicion of anyone who receives benefits from the government has reached a point that, two days ago, Orrin Hatch proposed running drug tests on all Americans eligible for unemployment benefits. (This fits with the conservative fantasy that being unemployed is, for many, a “paid vacation.” Anyone who thinks that has never endured the anxiety of being laid off. .)
Meanwhile, in this recession, cutting domestic spending is exactly the wrong strategy argue observers such as George Soros., Paul Krugman and Joseph Stiglitz. In a speech in Vienna last week, Soros explained that the action of righting an economy when it faces serious financial stresses is a lot like straightening out a car that has gone into a skid: you need to turn the wheels into the skid, which looks like taking it further off the track where you want it to go, until it regains traction and you can then steer it back to its proper path. In this case, we need an expansion of public debt to offset the needed contraction in private sector debt. Otherwise, as this blogger explains, “a resumption of the crisis is in the cards.”
Again, I am not suggesting that deficit isn't important. But first, the government must create jobs. Then, it should address theFederal debt. But even then, raiding benefits that seniors want and need is not the answer. Structural changes need to be made and regulations must be put in place to rein in the true excesses in our economy.
In part two of this post, I’ll talk about how Peterson distorts the numbers to exaggerate the danger that Medicare will bankrupt the country. He uses Congressional Budget numbers, yet his charts look very different from CBO’s. And while Peterson pretends that he can project what Medicare will cost in 40 year, in 60 years in 70 years, CBO is very clear that any long-term projections will inevitably be wrong. There are just too many variables to allow for accurate guesstimates over long periods of time. Finally, I'll discuss the evidence –past and present–that the reforms outlined in the Affordable Care Act could cut Medicare inflation by 4 percent, or more, while improving care.