The Folks Who Missed the Bubble Want Your Social Security
Truthout, February 16, 2010
See article on original website
If you fail disastrously at most jobs, you get sent packing. But there are different rules for Washington policy wonks. The same crew who could not see the $8 trillion housing bubble that wrecked the economy are convening in Washington this week to hatch new schemes to take away people’s Social Security and Medicare in the name of “fiscal responsibility.”
You might think there would be a little bit of humility here. After all, it was the job of these policy wonks to prevent the sort of economic collapse that the country is now experiencing. The basic story really was very simple. Nationwide house prices diverged from a 100-year trend; eventually rising by more than 70 percent above their trend levels.
There was no remotely plausible explanation for this run-up based on the fundamentals of either the supply or demand side of the housing market. Furthermore, there was no remotely corresponding increase in prices in the rental market, which continued to track its long-term trend. This situation should have screamed “bubble,” but the highly educated Washington policy wonks either couldn’t see the bubble or thought the bubble was cute.
Of course an $8 trillion housing bubble is not cute. When a bubble this size collapses, it gives us the sort of economic nightmare that we are now seeing. But no one lost his or her job for failing to prevent this debacle. Instead the policy wonks tell us not to play the “blame game” as they run around saying: “Who could have known?”
This isn’t just a question of holding to account those responsible for the Great Recession; the point is to stop them before they do even more harm to tens of millions of ordinary workers and their families. This crew is now devising schemes to cut Social Security and Medicare, arguing that the country cannot afford these core elements of the social safety net.
Of course the budget deficit has exploded in the last two years, but this is a direct result of the economic collapse, not profligate spending as our policy wonks claim. Furthermore, this deficit is directly supporting the economy – it is creating jobs. The people who complain about current budget deficits want to throw people out of work and make it so that parents can’t support their children. Those who care about the economy and care about our children should be pushing for larger deficits right now, not smaller ones.
Over the longer term it will be necessary to take steps to bring the budget in line. First and foremost, this will require fixing out health care system. The huge deficits highlighted by the deficit hawks are almost entirely attributable to projections of exploding private sector health care costs. If our per person health care costs were comparable to those in Germany, Canada or any other wealthy country with a longer life expectancy than the United States, then we would be looking at enormous budget surpluses in the long-term future.
But, the deficit hawks aren’t interested in going after the pharmaceutical industry, the insurance industry, the highly paid medical specialists and others responsible for out-of-control health care costs. They want to take away the Social Security benefits that workers have already paid for and cut their Medicare. Apparently, it was not enough to take away people’s jobs and the equity they accumulated in their homes.
Fortunately, we can turn this budget debate around. The best way to reduce the deficit in the near-term would be a modest tax on Wall Street financial speculation. Versions of this tax have been put forward by Representative Peter DeFazio in the House and Tom Harkin in the Senate. Such a tax could easily raise more than $100 billion a year, while leaving the vast majority of ordinary investors largely unaffected. It is a great way of making the Wall Street crew that caused the damage pay for the mess they have created.
A financial speculation tax probably will not be on the agenda at the deficit conclaves taking place around Washington this week, but that can be changed. The public can insist that instead of talking about cutting Social Security and Medicare, we start talking about seriously taxing Wall Street.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The End of Loser Liberalism: Making Markets Progressive. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.