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The most generous bank bailout in history has amplified Wall Street’s considerable political influence, and the economic implications of this democratic calamity go well beyond bloated bonuses. Over the past year, the financial propaganda machine has set its sights on Social Security, launching a massive assault on one of the nation’s most important economic programs. But rather than push back against the flawed economic assumptions of the nation’s financial elite, President Barack Obama appears to be advancing their arguments, and is now poised to repeat George W. Bush’s politically perilous efforts to gut Social Security.
A decade of wars, tax cuts for the wealthy, and the fallout from Wall Street’s housing bubble have almost tripled U.S. public debt since 2001, from $5 trillion to $14 trillion. Big, scary numbers like this, along with carefully timed downgrade warnings from Wall Street’s obedient rating agencies and continuing worries about the financial collapse of Greece, Portugal and other nations have changed the political climate in Washington, breathing new life into decades-old schemes to slash Social Security and Medicare entitlements.
Defending Social Security does indeed sound like yesterday’s issue — a fight the people won when they defeated Bush’s attempt to privatize the system in 2005. Our Social Security program is currently solvent through 2037, while millions of Americans are unemployed, millions more are losing their homes, and still millions more are struggling to meet soaring health insurance costs after watching their retirement accounts dwindle in the financial collapse. Would the entitlement wolves — primarily Wall Street executives who stand to reap billions from Social Security privatization — really have the gall to go after Social Security now? In a word, yes.
Global deficit jitters and U.S. political uncertainties associated with Scott Brown’s surprise Senate victory in Massachusetts have helped fuel the fire at propaganda campaigns like the Wall Street tycoon-funded IOUSA and Fiscal Times. The White House is now either on the budgetary defensive, or exploiting the moment to exact unpopular entitlement cuts it was already preparing to make. Regardless, this week’s New York Times’ front page confirms that “reforming” Social Security could very well be a top priority for Obama in 2010. According to anonymous White House officials and budget analysts, because the Medicare cut under the health care reform bill “effectively takes those fast-growing entitlement programs off the table for deficit reduction … [Social Security] now stands as the likeliest source of the sort of large savings needed to bring projected annual deficits to sustainable levels.”
In other words, because rapidly rising Medicare costs were not effectively contained by health care reform — it would have hurt the health care industry — slowly rising Social Security costs will instead have to get the axe. Instead of weaning corporations—banks, insurance companies, war contractors—off the federal teat, the administration is seriously considering punishing seniors.
The Debt Commission
In January, pressure from a broad spectrum of activist groups killed an amendment by senators Kent Conrad, D-North Dakota, and Judd Gregg, D-New Hampshire, to create a special bipartisan commission that would submit a broad deficit-reducing plan to Congress for an up or down vote by year-end. The commission’s bipartisan makeup, its procedural restrictions in Congress, and the timing of its recommendations – arriving just after the midterm elections – were all designed to insulate the decision-makers from popular pressures that might take entitlement “reform” off the table. Moreover, because the 18-member commission (10 Democrats, eight Republicans) would require 14 votes for in order to report its recommendations, giving both parties veto power, cuts to Social Security and Medicare were widely assumed to be a necessary component of any consensus. In order for the commission to accomplish anything, Democrats would have to concede such cuts to Republicans in return for tax increases.
After the defeat of the Conrad-Gregg commission, groups defending Social Security had little time to rejoice before Obama resuscitated the plan, creating the National Commission on Fiscal Responsibility and Reform by executive order. While the Commission’s proposals will not be limited to an up or down vote in Congress, it’s otherwise exactly as Conrad-Gregg envisioned, and Pelosi and Reid have promised to put them to a vote before the end of the current session of Congress.
Obama’s deficit commission is actually much older than Conrad-Gregg. Its history as a vehicle for reforming Social Security goes back to 1981, when it was given life under President Ronald Reagan as the Greenspan Commission (guess who chaired it). The commission’s first act was to raise Social Security payroll taxes across the board and lower benefits via changes to cost of living adjustments. Bill Clinton revived the commission many times during the ’90s, each time with a slightly new name and slightly new members, always stacked to recommend partial privatization, which critics on the left mocked as “a solution in search of a problem.” But Clinton thought it politically risky to proceed with its recommendations on his own, and in a little-known chapter to that story, his chief of staff, Erskine Bowles, helped negotiate a secret pact with Newt Gingrich in late 1997 to unite behind the commission’s proposals to raise the Social Security retirement age and begin privatization.
The pact collapsed when the Monica Lewinsky scandal broke just days before Clinton was set to announce it. George W. Bush quickly reconstituted the commission in 2001 and adopted its core proposal – Social Security privatization – as the centerpiece to his second-term agenda in 2005. The developing quagmire in Iraq and Bush’s consequent unpopularity gave Democrats, with public outcry behind them, the confidence to unite against it, even though Democratic leaders had supported similar measures in the ’90s, and the plan was soon declared dead.
Obama Stacks the Deck
The seasoned networks of money and influence behind the commission’s apparent immortality, including “Washington’s leading think tanks, the prestige media, tax-exempt foundations, skillful propagandists posing as economic experts and a self-righteous billionaire spending his fortune to save the nation from the elderly,” have been outlined by noted economic journalist William Greider, among others. What’s received comparatively little attention so far, however, is the composition of Obama’s picks for the commission, what interests they represent, and what that reveals about the White House’s own strategy.
While some optimists have predicted that the 14-vote requirement guarantees gridlock, Obama may have already given Republicans the votes needed to put Social Security under the knife.
Starting at the top, the commission’s two co-chairs are both veteran Social Security hawks. The Democrat is Erskine Bowles. Described by Business Week in 1998 as “Corporate America’s Friend in the White House,” Bowles is president of the University of North Carolina and a venture capitalist with close ties to Wall Street. He sits on the board of Morgan Stanley and General Motors, both of which have received multi-billion dollar government bailouts since the start of the financial crisis. The finance, insurance and real estate (FIRE) sector was by far the largest donor to Bowles in his unsuccessful Senate campaigns in 2002 and 2004, donating over $3 million. His wife, Crandall Bowles, is on the board of JPMorgan Chase, making the couple two of the biggest beneficiaries of the government’s financial welfare over the past two years. Crandall Bowles also gave over $14,000 to Obama’s 2008 presidential campaign. Both are members of the Business Council, a prestigious association of major CEOs.
Bowles’ Republican co-chair, Alan Simpson, is a former Republican senator who pushed (unsuccessfully) for a back-door benefit cut to Social Security benefits in the ’90s by tampering with its cost-of-living adjustment and attacked AARP for its defense of Medicare. Simpson’s former Senate aide, Chuck Blahous, is a prolific crusader against Social Security and was executive director of Bush’s commission in 2001. In a warning sign for Social Security advocates, Blahous and Robert Reischauer, another policy insider who penned a memo in 2009 with fellow Brookings Institution elites calling for Obama to take “action to stem the growth of Social Security and Medicare,” were recently nominated by Obama to be Social Security Trustees. (The Blahous pick he apparently owed to Senator Mitch McConnell.)
Reischauer has close ties to economic wrecking ball Robert Rubin, the Goldman Sachs chairman who became Clinton Treasury Secretary and pushed through radical deregulatory banking laws, then went to Citigroup to score $120 million for driving his company into the ground. Rubin and Reischauer knew each other at both the Harvard Corporation and the Clinton White House, where Reischauer was director of CBO. Reischauer is on the advisory board of Rubin’s Hamilton Project, and the two most recent CBO directors have come straight from Hamilton.
One of Reischauer’s co-signers of the Brookings memo, Alice Rivlin, is another fox Obama has put in charge of the Social Security henhouse. Former Vice Chair of the Federal Reserve under Greenspan at the peak of the tech bubble, and also a Hamilton Project board member, Rivlin will likely make another great Wall Street ally on the commission. In 2004 Rivlin co-authored (with Obama’s current Office of Management and Budget Director Peter Orszag, among others) a 138-page Brookings report titled “Restoring Fiscal Sanity” advocating $47 billion in entitlement cuts, including an “increase in the retirement age under Social Security” and “more accurate inﬂation adjustments to Social Security beneﬁts.”
Keep in mind that she supported this plan before most of Bush’s military expenditures, before the Great Recession, and before the financial bailouts. If that’s not enough, Rivlin, who gave roughly $10,000 to Obama’s 2008 campaign, was also on the board of Public Agenda with Peter G Peterson, the private equity kingpin who has devoted literally billions to destroying Social Security during his lifetime. Public Agenda has organized research and events to refine elite strategies for pushing deficit reduction, including entitlement reform. From a recent Public Agenda forum titled Trillions of Reasons to Get Serious About Our Fiscal Future:
“Panelists agreed that the key word when talking about reducing the deficit should be ‘sacrifice’ and not just for the wealthy, a message to which most Americans might respond negatively.”
That’s three out of three votes for “sacrifice,” and we haven’t even gotten to Obama’s other Republican pick, David Cote, who is CEO of Honeywell, a major defense contractor with millions in profits at stake in maintaining our out-of-control military budget. Cote is also a former executive at GE, another big military contractor, and director of JPMorgan Chase. Obama has named Cote, who supported the stimulus bill, as one of his favorite CEOs. He is additionally a senior adviser to KKR, the infamous leveraged buyout firm, and a member of the Business Roundtable, a powerful association of CEOs that has spent millions fighting Social Security.
Obama’s fifth pick is Ann Fudge, a major campaign bundler who already spends a bit of time around tables with the American banking elite. Fudge was chairman of the board of advertising firm Young & Rubicam Brands, which includes former Bear Stearns CEO Alan Schwartz, until 2006. She’s now on the boards of Brookings and Rockefeller Foundation, both teeming with top Wall Street elites (including Prince, Parsons, Gupta, Hutchins, Johnson, Rubenstein and Wolstencroft, to name a few), as well as GE and Novartis Pharmaceuticals. With her extensive marketing experience, perhaps she’ll be the one who figures out how to sell the commission’s “sacrifices” to the public.
Bruce Reed, whom Bowles and Simpson recently named as the commission’s executive director, can help Fudge brainstorm slogans. Reed is CEO of the corporatist Democratic Leadership Council (previously chaired by Joe Lieberman for six years, and now by Hamilton Project advisory board member and Blue Dog Harold Ford, Jr), is very tight with Rahm Emmanuel (they wrote a book together), and coined the phrase “end welfare as we know it.” Any other social program Reed would like to end as we know it?
A foregone conclusion?
Andy Stern, president of SEIU, is Obama’s only pick out of six who is sure to oppose Social Security cuts. Everyone else is likely open to slashing.
For the commission to reach an agreement, its Democrats will have to win the support of at least two Republicans, which will be nearly impossible unless spending cuts are among its proposals. That Obama’s picks are so amenable to, if not gunning for, some form of benefits cuts suggests the White House is indeed seeking such a “grand bargain” from the commission, not a stalemate. The odds are slim, especially given the commission’s history, that five of the 10 Democrats would defy the White House to kill such a bargain.
As the New York Times confirms, in establishing the group Obama has once again adopted a course favorable to his economic advisers and their Wall Street friends over the objections of his political team. How much of the usual looting this will involve remains to be seen. They seem to be proceeding carefully. Earlier, following Obama’s recent spending freeze announcement, an anonymous official told the Times that spending cuts would start with earmarks in order to earn goodwill with the public, and then move on to more “popular entitlement programs.”
“By helping to create a new atmosphere of fiscal discipline, it can actually also feed into debates over other components of the budget,” the official said, briefing reporters on the condition of anonymity.
Which administration official might this be? Sadly, it could be just about anyone, as Obama’s economics team is dominated by Wall Street-friendly advisers, most of whom are close friends and proteges of Robert Rubin, and have been calling (pdf) for Social Security reductions for years. The March 23 Gray Lady front-pager mentions two of them, Orszag and Jason Furman, along with associate budget director Jeffrey Liebman, as likely masterminds. Both Orszag and Furman followed Rubin into Obama’s inner circle from the Hamilton Project. Liebman too has a history of Social Security mischief – he was on the commission under Clinton.
If President Obama wants to get heavy handed about the deficit, he could start by putting an end to the disastrous and unpopular schemes that created it – the Bush tax cuts, the wars in Iraq and Afghanistan and the trillions of dollars funneled to Wall Street. Unfortunately, it looks like Obama has taken the bankers’ bait: the only people disciplined by his fiscal retreat will be millions of senior citizens with the gall to believe that society should guarantee them a decent standard of living.
This post originally appeared on AlterNet.org.