Dan Froomkin’s explanation of the debt ceiling debacle is one of the best I have read. He makes the simple, obvious, point: The obsessive focus on the deficit helps Congress and the White House avoid a discussion on raising taxes—because wealthy donors of both parties do not want that discussion. You can read his excellent and illuminating article in the Huffington Post here.
There’s strong agreement among progressive economists that this deal is going to harm an already weakened economy, and could push us into a double dip recession. But even worse, it created a super committee of twelve members of Congress who will focus on cutting Social Security and Medicare in their quest to reduce the deficit. In the following excerpt, Froomkin identifies who benefited from this deal, and why. He asks the most important question: Cui bono? Hint: It’s not us.
It’s not hard to see whose financial interests are served by a consistent pressure to reduce the deficit and shrink government’s reach: the wealthy, and especially Wall Street — or, as Rob Johnson, a senior fellow at the liberal Roosevelt Institute put it, “people who don’t want to pay taxes in the future.”
For wealthy people who own a lot of bonds and other long-term financial assets, deficit spending means a threat of higher interest rates and inflation.
From the Wall Street perspective, “inflation is a huge risk,” said Troy Davig, U.S. economist at Barclays Capital, the British investment bank. That’s because inflation erodes the value of bonds. “It’s implicitly defaulting on the debt,” he said.
Banks and major corporations have another incentive to oppose government borrowing: They would rather be the lenders themselves, so they can charge interest and assess fees.
Another assumption among progressives is that the financial sector has its eye on the money flowing through the big entitlement programs.
“If you can use deficit hysteria to privatize Social Security and Medicare, there is a lot of money to be made,” said Robert Kuttner, the co-editor of the American Prospect. Having Wall Street manage retirement accounts could “generate a ton of fee income and prop up the stock market.”
Palley said even a reduction in benefits or coverage could be lucrative for Wall Street. “The less effective Social Security is as a savings vehicle, the hope is the more private savings will be directed toward finance,” he said.
Photo credit: SEIU International