Yves Smith is unhappy. Specifically, she is unhappy that the Roosevelt Institute Campus Network has participated in the Peterson Foundation “Fiscal Summit,” an event at which they presented an extensive budget plan that was enabled by a grant from the Peterson Foundation. These proposals, submitted by the big policy think tanks (EPI, Center for American Progress, Heritage, AEI, and Bipartisan Policy Center), were then the subject of debate. Here is the Campus Network’s summary and full budget.
(Full disclosure, I have been a fellow with the Roosevelt Institute since January 2010, and have worked with the Campus Network, a separate group inside the organization, though not on this budget.)
Smith is so unhappy that she wrote a 3,000 word post about it. But for covering 3,000 words, there is little of actual substance in the budget that she seems to disagree with. It takes 1,790 words to get to the first actual substantive disagreement. That’s 1,790 words in which she describes the Powell memo, mentions the British think tank Demos and Peterson’s high-school curriculum program, plugs her book, describes AT&T’s support for GLAAD, and quotes at length from a letter Dwight Eisenhower wrote his brother in 1954, among many other historical detours. All of which I think has little to do with the actual proposal in question.
Critique in Theory
The first two-third is so convoluted I’m going to go ahead and clearly restate the thesis. The argument of her post is that corporate sponsorship corrupts, and that by participating in this Fiscal Summit the Campus Network is corrupted too. This is the language of a “bribe” that Smith uses, the examples of policy conclusions of activists groups being dictated by sponsors and her more general history of the right-wing. I’ve seen this more subtly dealt with in an issue of Adbusters, but it is what it is.
It’s important to realize that this is an entirely consequentialist argument. What the Campus Network did is wrong because it will produce bad results. Peterson will never, through subtle-and-not-so-subtle influences, let a progressive budget through in his summit.
And it’s important to realize what this critique is not. There’s an argument to be made that even if the Campus Network could make a strong, progressive budget for the summit it is a moral wrong to participate in this summit. This is usually predicated on the idea to never mention a long-term deficit problem and implicitly on the idea that the budget right now, with all its waste in health care and military spending, is at a progressive optimum. I think this argument is insane because we are not at a progressive optimum, but either way it is not the argument Smith puts forth, and not what I will respond to.
As with any consequentialist argument, the proof must be in the pudding. If this is corrupting in theory the corruption should show through in the budget it produced. So what do we see with the Campus budget? The elephant in the room is Social Security. Here is the Campus Network:
In order to ensure the long-term solvency of Social Security, we propose increasing the taxable maximum to 90 percent of total payroll, drastically decreasing the long-term shortfall. And for individuals making more than 90 percent of payroll, we propose a 4 percent tax on their wages above 90 percent. We expand the program by allowing children of the disabled or deceased who are pursuing higher education to continue drawing benefits up to age 22, as long as they remain in school.
So expand Social Security by raising the payroll tax and increasing a wage tax on the top earners. I’d argue strong progressive, no compromise. Could you argue differently on the merits? And what about the rest? From the document:
Institute a public option, controlling non-Medicare costs to 3 percent of GDP…Require Medicare to directly negotiate prices with drug manufactures…Permanently repeal the monopoly exemption for insurance companies…Reduce national defense expenditures and more effectively ensure global stability…Phase out the Mortgage Interest Deduction….[Implement] an upstream tax on carbon of $24.33 beginning in 2013, increasing yearly by 5.6 percent….Institute a Financial Transaction Tax.
This is a progressive fantasyland of strong proposals designed to deal with the challenges of the 21st century in a center-left direction. What am I missing? Between the public option, financial transaction tax, and carbon tax I’m hard pressed to see where the centrist compromising started.
Critique in Practice
Here’s where the last third of Smith’s critique can help us out, because there she finally goes through the document finding problems. What does she find? I’ll list her complaints, as there are only about six and they are all weak. One:
Gee, if these students had done their homework, they’d understand the blowout in debt levels was due to the global financial crisis, so if they want to “address underlying causes” they should first and foremost urge ruthless action to curb risk-taking at the TBTF banks.
Sigh. The second page, the second page! (the first is only a cover!!), of the budget has the following:
The budget addresses the root causes, not just the symptoms, of the federal debt by ending Too Big to Fail and addressing rising health care costs… When Millennials survey our country’s economic and political landscape in 2011, they can see that the root causes of the financial crash have not been addressed. They recognize that the housing bubble that wiped out the savings of millions of hard-working Americans was made much worse by irresponsible practices in the financial sector, especially from banks that are “too big to fail.” Any sustainable solution to America’s fiscal challenges must include decisive action to bring about a stable, efficient financial system. The Budget for the Millennial America moves aggressively to reduce the systemic risk in the financial sector by proposing a “Too Big to Fail” Tax on systemically risky institutions.
The budget crisis is the results of a financial crash and long-term health care costs. That’s it. The idea that we should address the boom-and-bust cycle of financial crises and the devastating effects it has on our budget and our country is front and center. I don’t think anyone else includes that element – that financial stability is a precondition to a functioning government – in their budget. You’d think that conceptually it would get some credit, but Smith goes right to the policy and thinks that their tax won’t work. Two:
Yes, the plan has a “Too Big to Fail” tax (described only at the wishful thinking level), but as we’ve discussed, following the Bank of England’s director of stability Andrew Haldane, taxes will never work to curb bankster adventurism; a high enough levy would wipe out the industry, so prohibition, meaning tough regulations, is the only viable remedy.
I’m not sure what the complaint is here. The document implies that Dodd-Frank hasn’t solved financial crises, which I imagine Smith would agree with, and that there is still more work to be done. If there’s a smarter approach then let’s discuss it. I imagine they’d be open to it. But in practice, this isn’t a CFTC white paper, it’s a budget paper, so only the parts dealing with taxes are discussed. Three:
Folks, what will the net effect of [social impact bonds] be? To introduce a ton more intermediaries and complexity into the provision of public services, which will give all the participants the opportunity to rip out more fees.
The public-versus-private funding of public goods is a complicated debate. There are some areas where I’m for having market mechanisms provide the goods and some where I am strongly in favor of public provisioning. The budget does propose a public option for health care, so it’s not anywhere near advocating “let’s sell off everything” as a conceptual tool. The important thing is that social impact bonds are being discussed in the context of expanding investment in people. Four:
It urges lowering tax rates and eliminating “tax expenditures”. While the corporate tax code could use a scrub, some of its complexity is due to the difference in various types of companies (the most obvious being the depreciation tax shield). The “lower tax rate” idea is usually bundled with a proposal to end the US policy of taxing corporations on their worldwide income. If this plan also envisages going to territorial taxation, that’s another boondoggle to big international companies, since it will be even easier for them to dodge paying taxes in the US.
I’ve read this a bunch of times and I’m not sure how to respond. Corporate tax code could use a scrub. Check. It’s true that “if this plan also envisages going to territorial taxation” it would be a bad idea, in the same sense that “if this plan also envisages pouring poison in the town reservoir, throwing eggs at elderly people and implementing the full Ryan plan” it would also be a bad idea. I have no idea how to respond to hypotheticals in this case, but the point is noted. Five:
It also stunningly enshrines the canard that tort reform will have a meaningful impact on health care costs and therefore (you have to love the Orwellian language) proposes to reform “the way Americans seek redress for medical malpractice.”
That’s a fine critique. “Stunningly enshrines” is a bit strong, as the centerpiece of the portion that deals with health care is bolstering Medicare with aggressive price bargaining on drugs and a public option. She is right, however, that that is in there, and that reflects how young people see that debate. Lastly, six:
But this sort of idea is underplayed in the Peterson paper, and ideas like a bonus tax to correct incentives are completely absent.
I’m not sure what a bonus tax is referring to here. But a bonus tax might be a good idea and a better approach than the paper’s strong proposals to make the tax code more progressive. But that’s an intellectual debate that’s tough to have with this level of volume. And that’s it for the critique of the document as actually standing. I’ll let you decide whether or not these two last points clear a consequentialist hurdle of corruption via the forum yourself.
Why This Exercise Matters
And I’d argue this is all besides the point. In my book, arguing that element A is bad and element B would be better is not the point of these budget exercises.
There are two reasons why the exercise of creating a budget is important. The first is to get the idea that there is a progressive budget to be had in the public debate, one that strengthens the social safety net and that makes investments for the long-term. The second is that it is important that young people get a say in this budget.
The Gang of Six (now Five) are all older men. The Ryan budget is cynically designed to throw people under 55 under the bus. Young people of a diverse background are not getting a seat at the table. Young people should have a venue in which to say they don’t want to inherit the wreckage of a strip-mined country, but instead want a place where there is a vibrant workforce and protection from the brute bad luck of poor health, unemployment, and poverty in old age.
I don’t buy Smith’s case that this budget is not progressive or liberal. If only because Smith’s critique, where it is an actual critique of substance, is about specific items, rather than the vision. And arguing that this one tree reeks of Centrist-Rubinism (or whatever) misses the entire forest of a generation that is getting their country sold out from under them, and them trying to make a stand saying that they want something different. That’s what this is about.
And if Pete Peterson wants to give the Campus Network money to talk about optimal financial transaction taxes, the best way to raise the Social Security payroll cap and create a health care public option, that’s a pretty sweet gig.