Yesterday Princeton’s Alan Blinder, former Vice Chair of the Federal Reserve, wrote that cutting Social Security benefits is the only practical way to keep the United States from becoming — well, Greece:
From a long-run perspective, the bond market vigilantes have it right. Greece, Europe, the U.S. and other countries must take serious steps to get their budget deficits under better control. And the long-run budget problems of many nations are too large to be solved exclusively on either the tax side or the expenditure side.
The U.S. is a case in point. Under continuation of current policies, our budget deficit and national debt would soar to impossible heights. (Ask the oracle: the Congressional Budget Office.) The amount of deficit reduction needed to stop this incipient explosion is so large that no serious person should believe we can do it without both spending cuts and higher taxes.
But not yet, please. And therein lies the difficult-but-essential subtlety.
St. Augustine urged the Lord to make him chaste, but not yet. Now budget and finance ministers around the world, including our own Peter Orszag and Tim Geithner, must make an analogous plea to the bond market vigilantes—and back up their words with deeds. The problem is that the vigilantes are an impatient lot and Greece has set their clocks ticking faster.
What needs to be done varies enormously by country. Here in the U.S. Social Security reform, once considered the third rail of American politics, is now the low-hanging fruit of deficit reduction. Fixing Social Security’s finances is easy, technically. And the timing is perfect because promising deficit reduction now but delivering it later is exactly the right thing to do. After all, no one wants to raise payroll taxes now or reduce retirement benefits without giving people many years of advance notice.
The march is on by the Pete Peterson brigade. From now until the December when the Catfood Commission issues its report, the expert’s answer to every problem is going to be “cut Social Security.”
Dean Baker doesn’t call out Blinder by name in his Politico piece today, but it’s clear who he is responding to:
It says a great deal about the Washington establishment that the new consensus in economic policy thinking is that we have to cut Social Security to establish our credibility with bond markets.
Let’s review the playing field for a moment. We have 15 million people unemployed, another 9 million under-employed and millions more who have given up looking for week altogether. We have somewhere between 3-4 million people who face the loss of their homes and tens of millions who have lost much or all of their equity.
All this happened because our leading economists and economic policy makers could not see an $8 TRILLION housing bubble. They also couldn’t see the fraud and corruption by the Wall Street boys who got rich from the bubble.
These same experts then told us that if the taxpayers didn’t hand the banks trillions in bailout dollars the world would end. Thanks to taxpayer generosity the banks are now back on their feet and the bonuses are higher than ever.
Against this backdrop the economic “experts” tell us that we have to cut Social Security to please the bond markets.
Dean concludes by offering up a helpful translation: “Just in case there is anyone in America who did not know, in Washington, when someone claims that we have to do something to please the bond markets, this is just their way of saying that they support a particular policy.”
Well if there’s one thing the Masters of the Universe are good at, it’s coralling the “experts.”