Their Brand Is Crisis: For Austerity Hawks, Good News Must Still Be Bad News

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[They actually teach you this in business school. When you want to change an organization you are taught to ask yourself, "What is your burning platform?" I.e., what are you going to tell people is so desperately wrong that they have no choice but to change. *RON*]

by Reed Richardson, The Nation, 22 September 2014

There’s a key scene early on in Rachel Boynton’s fantastic documentary about the 2002 Bolivian presidential election that sets up the movie’s premise (and title). In it, Tad Devine, a smooth-talking advertising guru with the Democratic political consulting firm Greenberg Carville Shrum, lays out the overarching theme his group has developed for “Goni,” the wealthy, globalization-loving mining magnate who has hired them to save his struggling campaign. In the face of the country’s ongoing economic upheaval, Devine urges Goni to embrace the uncertainty and use it as a weapon against his rivals. (Go to 10:30 mark.)

“I think the most important thing we can do is to be dedicated to this message and to figure out how we can get all this paid media, TV advertising to fit the frame.…And the frame for us is crisis. That’s our brand.”

In the end, this carefully crafted trusted-leader shtick worked. Barely. Goni won by a whisker over the democratic socialist candidate Evo Morales. But, as the documentary makes clear, this victory left Bolivia no better, if not worse off. (Goni resigned and fled the country barely a year later, after several violent crackdowns on anti-government protestors eventually stoked widespread outrage. Morales went on to win the presidency in 2006.) This “brand of crisis,” it turns out, was little more than a clever campaign ploy manufactured by the powerful to push unpopular economic policies that benefit the rich at the expense of the poor.

If this framing sounds familiar, it should, because it sounds a lot like the lopsided debate in this country about how to fix the federal debt. Indeed, pretty much since the day President Obama took office, the “very serious” establishment in Washington has been up in arms about the federal debt “crisis.” (A conveniently timed epiphany, to be sure, since a vast majority of our current debt was caused by Obama’s predecessor.) Mesmerized by the cranky “bipartisan” stylings of Alan Simpson and Erskine Bowles—who never met a social insurance program they didn’t want to cut—and propelled along by “nonpartisan” advocacy groups like Fix the Debt—which boasts of its ties to CEOs and gets its funding from the debt fear-mongering billionaire Pete Peterson—the centrism-loving Beltway media has fully absorbed the notion that our debt problem must be in “crisis” and that entitlement cuts must be the solution.

During the depths of the Great Recession, theirs was an easy argument to make. Thanks to the financial crisis, the budget deficit was exploding with and an actuarial surge of aging, retiring Baby Boomers loomed. Even President Obama bought into the rhetoric (if not all the policy prescriptions) of the debt Cassandras. He was the one who appointed Simpson and Bowles as co-chairs of the fundamentally flawed National Commission on Fiscal Responsibility and Reform, lending legitimacy to the dreadfully misguided idea that we could nurture a struggling economic recovery while starving it at the same time.

Buying into this brand of crisis was a big strategic mistake, however, because it led to his strategic bumbling of the 2011 debt ceiling fight. For his troubles, Obama got a Budget Control Act that unnecessarily prolonged the misery of poor and middle-class Americans and yet it won him little acclaim among the debt hawks in Washington and the media elite. All pain, no gain, in other words. This shouldn’t have come as a great shock, though, since this Beltway species is always on the lookout for a chimerical “grand bargain,” one where the rich (maybe) take a haircut on their last few dollars earned and the rest of us take a bath on things like healthcare and retirement savings. Until that kind of deal, there’s only one kind of news about the debt: bad.

Obama, at least, seems to have learned this lesson, albeit belatedly. When he finally said last year “there is no debt crisis,” it felt like a direct rebuke of the Washington establishment. They deserve to be called out, because theirs is the rigid, unthinking perspective. Over the past 18 months, numerous economic indicators have delivered surprisingly good news. But good luck hearing about it from the debt hawks in Washington.

Last fall, for example, during the government shutdown Niall Ferguson took to the friendly confines of the Wall Street Journal editorial page to instead agitate for the real problem with our federal government: debt. And while he begrudgingly acknowledged our rapidly shrinking deficit, he dismissed it with a quick “True…” formulation that is a favorite way to prevent inconvenient facts from tripping up one’s argument. Instead, he boldly claimed: “Only a fantasist can seriously believe ‘this is not a crisis.’” But in a telltale sign of letting his beliefs get the better of his arguments, Ferguson mistakenly said net interest payments on the federal debt were roughly 8 percent of GDP annually. It’s an egregious error, one that you would’ve thought he would’ve caught since elsewhere in his column Ferguson noted that the 2013 annual budget deficit was only 4 percent of GDP.

Brad DeLong did catch it, however. But unlike Ferguson, DeLong noted that the real fantasy is to believe in this crisis rhetoric. Instead, he calmly made the case that, thanks to low inflation and interest rates, the nation’s debt-to-GDP ratio is quite stable right now. What’s more the debt is actually a profit center rather than a drag on our economy, helping it recover from a still-lingering actual fiscal crisis.

Make no mistake, the economy is healing slowly, and, with it, our budgetary red ink. Take, for example, the rapidly shrinking deficit. The budget sequestration, for all its many ills, has significantly reeled back the deficit in the past few years. So much so, that our spending-to-revenue gap is now a third of what it was when Obama took office. Last month, the Congressional Budget Office (CBO) estimated that the annual budget shortfall will be $400 billion smaller through the next decade than its previous estimate just four months earlier.

But in the world of folks like Alan Simpson, these positive developments don’t matter, even when they put the lie to their own overblown hysteria. Consider Simpson’s utter incoherence when Salon confronted him earlier this year with his 2011 prediction that an economic debt crisis would happen “within two years.”

“Oh, sure. You know, I’ve made a lot of wrong predictions in my life – I don’t suppose you have. I said I don’t know when the tipping point will come. But it will come. And somebody said: Well, what is the tipping point?

“And the tipping point is very clear. Forget the deficit — that’s going down. We should all be pleased with that. None of us are; I’m not going to lose any sleep about the deficit going down. But when the deficit is going down and the debt is continuing to go up automatically, where we borrow money every day … And that’s going up. It’s now 17.3 trillion …”

It’s hard to even count the number of logical contradictions in these two paragraphs. Facts that don’t fit his crisis narrative simply don’t compute to Simpson. Good news, the kind that might necessitate a careful, nuanced rethinking of debt policy alternatives, just doesn’t register, though it should. But don’t just take my word for it. If you’re looking for a genuine nonpartisan expert to rebut to Simpsons’s scare tactics, check out what William Gale of theTax Policy Center had to say earlier this month:

“Long-term fiscal policy is not a crisis. It is not even the most important issue facing the economy this moment—strengthening the recovery is—and the fiscal situation should not stand in the way of changes along those lines.”

Of course, it’s no secret which brand—Simpson's hyperventilation or Gale's sobriety—attracts more attention from op-ed pages and cable talk shows. Prominent National Journal columnist Ron Fournier has certainly cast his lot with the former. In fact, Fournier has become such a Chicken Little on the issue that he has bizarrely equated debt crisis denial with climate change denial, ignoring the many economists who publicly disagree with him in the process.

So, when the latest CBO report came out this summer, he naturally penned a column with the not-so-subtle headline: “Fiscal Doom: What You Weren't Told About the Latest Budget News.”Blasting the “sugar high of good news,” he made a point of also dishing out the “scary news”—that this year’s CBO projection estimated our debt would roughly equal the size of our GDP in 25 years. Why is this scary? Fournier doesn’t really say; he just leaves it to the reader to guess.

One explanation involves the now infamous Reinhart-Rogoff paper that purported to show that a country whose debt surpasses 90 percent of GDP experiences sharply lower growth rates. But that paper’s errors have now been thoroughly documented.

Maybe it’s just the big number that scares Fournier. Fortunately, Nobel Prize-winning economist Paul Krugman—not someone whose intellectual rigor reminds me of a climate change denier—addressed this point in a column over a year ago. (Its not-so-subtle headline: “This is Not a Crisis.”) As Krugman pointed out, Britain has average a debt-to-GDP ratio of more than 100 percent for most of its modern history. “The point is not that we should completely ignore issues of fiscal responsibility,” Krugman explained. “It is that we are nowhere near fiscal crisis…So budget deficits, entitlement reform, and all that simply don’t deserve to be policy priorities, let alone dominate the national discussion the way they did for the past few years.”

Eh, never mind all those wonky details. Or the fact that the CBO’s projections change all the time (and, as we’ve seen, lately they’ve been changing for the better). To Fournier, this debt crisis fixation remains his lodestar. It has already pre-determined our future, as well as our policy response. “Higher taxes, fewer entitlements,” Fournier wrote. “It's going to happen sooner or later, painfully or more painfully, and nobody in charge in Washington seems to care.”

This obsession with “pain” is a common tic among the debt crisis brethren. The zeal with which they describe the necessity for rolling back Medicare benefits and pushing back the Social Security retirement age often feels almost sadistic. It's also increasingly misplaced, because with Medicare too—one of the biggest boogeymen of the debt hawks—the news just keeps getting better. In fact, the latest Trustee report estimated that the Medicare hospital fund is now solvent through 2030, a date four years later than last year’s estimate. What’s more, this is a 13-year improvement over the projection in 2009, before the passage of the Affordable Care Act.

What’s fueling this? Even more good news. Medicare spending keeps slowing down. As a result, The New York Times recently noted that the 10-year budget projections for Medicare costs have been reduced downward for six consecutive years. (To see this trend in action, check out the Times’ interactive graphic here.) In fact, the CBO’s 2006 Medicare cost estimate for 2016, which was projected to be roughly $15,300 per person annually, is now expected to be $4,000 less based on this year’s projections. As the Times points out, if that savings is extrapolated out to 2020, it totals $700 billion, which would do more to cut the debt than several other ambitious policy proposals (that have little chance of passing Congress).

You’ll hear no cheers from Washington Post columnist Robert Samuelson about this, though. Last week, he warned everyone to “curb your enthusiasm” on the Medicare cost reductions. Ostensibly a liberal, Samuelson has an uncanny knack for siding against left-wing policy prescriptions, especially when it comes to entitlements. He looks hard to find the grey lining and, true to form, he sandwiched the recent good news on Medicare between two slices of doubt in an almost comical manner:

“Let’s not get carried away.

“True, the savings are significant. Still, they don’t alter the nation’s central budget problem…”

This literal framing of the debt crisis message around evidence to the contrary speaks volumes. Perhaps that’s why Samuelson goes on to suggest a number of different theories of why these encouraging healthcare spending numbers may not last. Surely something else—something bad—is going on here is the unmistakable subtext.

But as the CBO has already pointed out, this trend began before the Great Recession and has continued well into the recovery. And while it’s too soon to definitively attribute much of the Medicare savings to the effects of Obamacare, it’s notable that the law includes several incentives and programs to bend the cost curve further downward.

All good reasons, in other words, to think these positive trends are more permanent and could even accelerate future deficit reduction. Which is even more of rationale to avoid adopting radical policies that unnecessarily damage our fragile economy and sacrifice our nation’s social safety net just to satisfy an austerity campaign driven by the media and political elite. Much like Bolivia found out the hard way, that brand of crisis only sells more misery.

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