Clinton Shorts Krugman

By Steve Weissman, Reader Supported News

10 May 13

aving declared Paul Krugman and his mentor John Maynard Keynes intellectual victors in the war over austerity a few weeks back, I cannot avoid mixed feelings about all the people who now seem to agree, especially former president Bill Clinton. His acceptance of the obvious looks like a major step forward, though he has previously backed Krugman's thinking. But, no surprise to those who remember Slick Willie, the multi-millionaire ex-president is now hedging his bet.

Clinton spoke out this week at the Peter G. Peterson Foundation's 2013 Fiscal Summit, the annual orgy of establishment ideology on deficits and debt. "I think Paul Krugman's right in the short run," said Clinton, sending a shiver down the back of all the assembled austerians. "And," he added, "Pete Peterson and Simpson-Bowles and all those guys, everybody's right in the long run."

In his blog, Krugman called Clinton's skillful balancing "half-right," which is far too generous. Peterson, the octogenarian billionaire whom the Big Dog celebrated as right in the long run, remains one of unoccupied Wall Street's most prominent elders. He was chairman and CEO of Lehman Brothers long before the crash, co-founder of Blackstone, the private equity giant, and for many years chairman of the power-packed Council on Foreign Relations. He knows all the big movers and shakers and gets them to turn out whenever he convenes one of his well-publicized summits to set the national agenda.

A Rockefeller Republican who publicly criticizes his party's lurch toward the religious right, he has favored a carbon tax, cuts in defense spending, and an end to nuclear proliferation. He has also joined Bill Gates and Warren Buffett in pledging to donate half his wealth to charity. His wife Joan Cooley Ganz, a creator of Sesame Street, burnishes his image. "My husband is a born moderate," she insists, "and actually a liberal on social issues" – more Big Bird than the Grinch Who Stole Christmas.

Yet, since the early days of the Reagan administration, Peterson has led a crusade to slash America's social safety net. He has funded, headed, and inspired almost every national group pushing "fiscal constraint," from the Concord Coalition to today's Campaign to Fix the Debt. And he was an official partner, promoter, and funder of President Obama's 2010 National Commission on Fiscal Responsibility and Reform, headed by retired Republican senator Alan Simpson and Clinton's White House chief of staff, the Wall Street banker Erskine Bowles. More than anyone else, Peterson manufactured "the debt crisis," aided by his "amen chorus" in the media, eager to report that the end is nigh.

"Social Security's troubles are fundamental," he proclaimed in the December 2, 1982 issue of the New York Review of Books. "Its financial problems are not minor and temporary, as most politicians, at least in election years, feel compelled to insist. Unless the system is reorganized, these problems will become overwhelming. To put the matter bluntly, Social Security is heading for a crash." The following year, President Reagan and House Speaker Tip O'Neill reached a compromise to fix funding shortfalls, and similar reforms will no doubt happen again. But Peterson demands a more radical change – less Social Security, less Medicare, less Medicaid.

In brief, Peterson is what an earlier generation called a corporate liberal, an establishment species that sits astride conventional left-right divisions. Like many of his CEO colleagues in Fix the Debt, Peterson appeared magnanimous during the fiscal cliff fight when he said he was willing to pay marginally higher income tax rates on his personal income, not that the math gave him much choice. "Any package will have to include tax increases," he told the New York Times.

He also stood tall when, in 2010, he broke with fellow fund managers and came out against the 15% rate on their professional income, which is preferentially taxed as " carried interest." Peterson had previously backed the largesse, on which he had built his earlier fortune.

He did, however, defend the 15% capital gains rate he paid when he sold his Blackstone shares, which earned him some $1.85 billion. He poured much of his net into his tax-exempt Peter G. Peterson Foundation to wage his class warfare in the name of sweet charity. And, despite his announced opposition to George W. Bush's failed attempt to privatize Social Security, many of Peterson's critics believe he favors some form of privatization as a gift to his colleagues on Wall Street.

The final piece in Peterson's playbook is less well-known. Peterson backs the Simpson-Bowles recommendation for "a territorial tax system," which would exempt US corporations from paying any tax at all on their overseas income. Corporate lobbyists began pushing for this "reform" long before Peterson convinced them to make debts and deficits their rallying cry. In the current system, they owe Uncle Sam the difference between the taxes they pay overseas and what they would pay under US tax rates, but they pay only if and when they bring the money home. US corporations now hold trillions of dollars overseas, which the proposed reform would let them bring back tax free. According to the left-leaning Institute for Policy Studies, this would give an immediate windfall of $134 billion to the 63 publicly-held companies in Peterson's Fix the Debt.

The CEOs claim they would invest the money to create jobs in America. But American multi-nationals already sit on huge piles of cash in the US and most are not using them to create jobs. Their argument previously fell flat when in 2004 they convinced Congress to pass the so-called American Jobs Creation Act, which allowed the multi-nationals to bring their overseas money back at a bargain basement tax rate of 5.25%. "Instead of creating jobs, the biggest beneficiaries downsized," IPS reports. "Pfizer, for example, cut more than 10,000 US jobs in the six years after it repatriated $40 billion." The same would almost certainly happen again under a full-blown territorial tax system, which would give the US multinationals a yearly cash flow in the billions of dollars with which to strengthen their hold on the corporate state.

Would this be the long-run on which Bill Clinton thinks Peterson & Co. right?

A veteran of the Berkeley Free Speech Movement and the New Left monthly Ramparts, Steve Weissman lived for many years in London, working as a magazine writer and television producer. He now lives and works in France, where he is researching a new book, "Big Money: How Global Banks, Corporations, and Speculators Rule and How To Break Their Hold."

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