Joe Klein on the Pain Caucus

Why is it that we're so focused on deficit reduction at a time when more urgent problems loom?

here is, for example, Glenn Hubbard, who was featured on the New York Times op-ed page recently in defense of the deficit commission, describing the problem this way: "We have designed entitlements for a welfare state we cannot afford." This is the same Glenn Hubbard who served as George W. Bush's chief economic adviser when Dick Cheney was saying that "Reagan proved deficits don't matter." One imagines that if Hubbard was so concerned about deficits, he might have resigned in protest from an Administration dedicated to creating them. But, no, he's here to speak truth to the powerless — to the middle-class folks whose major asset, their home, was trashed by financial speculators, thereby wrecking their retirement plans and creating the consumer implosion we're now suffering. Hubbard is telling them they now have to take yet another hit, on their old-age pensions and health insurance, for the greater good.

The obsession with long-term deficits is not limited to conservatives. Exuberantly wealthy center-left types who staged a leveraged buyout of the Democratic Party's economic policies in the 1980s — people like the deficit commission's Democratic co-chair, Erskine Bowles — have been reliable foghorns for long-term middle-class sacrifice. They tended to be big supporters of the irresponsible federal lenders Fannie Mae and Freddie Mac, and most egregiously, they shepherded the deregulation of the financial sector through Congress in the late 1990s. But unlike the Republicans, they trend toward fiscal responsibility. Pete Peterson, a nominal Republican who is a leader of this group, is in favor of higher taxes for the wealthy, means testing for Social Security and Medicare, serious cuts in the defense budget — and even a provision that would tax the profits of private-equity moguls as regular income instead of capital gains, a proposal that his former partner at the Blackstone Group, Stephen Schwarzman, compared to Hitler's invasion of Poland in 1939.

The really noteworthy thing about Hubbard, it seems to me, is this. His administration was involved in deficit-increasing tax cuts. Fine. Maybe conservative care about the deficit, but care about low taxes more. His administration was also involved in deficit-financed wars. Fine. And deficit-financed increases in domestic security spending. Fine. And in deficit-financed increases in the "baseline" defense budget. Fine. Maybe conservatives care about the deficit, but care about hawkish security policies more. Fine. But his administration was also involved in a deficit-financed increase in Medicare benefits! So the concern is . . . what . . . ? But somehow now mired in a severe recession with huge quantities of idle resources and idle workers now we're supposed to worry about the deficit.