September 28, 2003

Editor's Note: The New York Times' Paul Krugman calls it the "Great Unraveling" - the free-spending, tax-cutting, social program-slashing, war-waging neocon revolution that is leading this country into oblivion. To call what the Bush Administration has done to the American economy "conservative" is the great misnomer of this generation. The shear folly of giving the rich tax cuts while simultaneously fighting wars on two fronts is not just irresponsible, it's positively criminal.

The $87 billion "down payment" the administration is asking for re-building Iraq, for instance, is twice what we're spending on Homeland Security.

Last week, PBS' Bill Moyers talked with a real conservative who says the President's policies are not misguided, they are immoral. GNNers may not like his politics or his pedigree, but when the chairman of the Federal Reserve Bank of New York is worried about the future we are leaving his grandchildren, you sit up and take notice:

BILL MOYERS: Those of you who are faithful to NOW will recognize the deficit clock, just a few blocks from our office here in New York silently measuring how fast the United States government is spending money it doesn't have. Standing there you get the impression you're looking at the digital Doomsday deficit clock and you have the urge to talk to Peter Peterson.

So here he is. Mr. Peterson is chairman of the Federal Reserve Bank of New York as well as of his own investment firm, the Blackstone Group. He's a lifelong Republican who served as Secretary of Commerce in Richard Nixon's cabinet. Mr. Peterson is chairman of the Federal Reserve Bank of New York as well as of his own investment firm, the Blackstone Group. He's a lifelong Republican who served as Secretary of Commerce in Richard Nixon's cabinet.

A dozen years ago when the deficit clock was also going haywire he helped to found the non-partisan Concord Coalition whose members set out to alert their fellow citizens to a crisis in the making. Now he's back, déjà vu all over again. Welcome to NOW.

PETER PETERSON: Thank you, Bill.

BILL MOYERS: What do you see when you look at that clock?

PETER PETERSON: Well, I see both a fiscal economic crisis in the making. I also see a moral crisis. And maybe that doesn't come very convincingly from an investment banker. But let me explain that to you. The fiscal crisis is both domestic and foreign. We are now facing a situation during a decade when we should have been saving for the Boomer revolution that's coming and the retirement costs. Instead of saving during that decade we're squandering it. The Concord Coalition, Goldman Sachs, the Committee for Economic Development predict that over the next ten years we're going to be adding $5 trillion of deficits. So we have a domestic fiscal crisis. Much less understood, Bill, is the foreign deficit, what we call the Current Account Deficit, that's caused by the biggest trade deficit we've ever had. Plus--

BILL MOYERS: We're buying a lot more overseas than they're buying from us.

PETER PETERSON: Precisely. And we have a lousy savings rate, the lowest in the world. And we are now going to be importing-- something like $500 billion to $600 billion in foreign capital. We've become hooked, we've become addicted to foreign capital.

BILL MOYERS: You mean they are paying for our deficit?

PETER PETERSON: They're paying for our deficits, our various deficits.

BILL MOYERS: Somebody watching says, "But why don't we want them to pay our debt? The foreigners, why don't we want them?"

PETER PETERSON: Well-- because at some point we're going to have to pay it back. And in the meantime they end up owning a great deal of America. And the interest costs get to be very terrific.

One of the crisis scenarios, of course, is we have this mammoth debt. The foreigners lose confidence in us. The dollar fall, the-- stock markets fall, the bond markets fall, the interest rates go way up. Then the debt burden goes up astronomically.

And the foreign deficit-- Bill, is at five percent of the GDP heading towards six. And the previous record during the Reagan Years was only 3 1/2. So we have this fiscally speaking, we have this dual crisis in the making. Now--

BILL MOYERS: The deficit and the foreign deficit.

PETER PETERSON: And the foreign deficit. Now the moral crisis. There's a German philosopher named Bonhoeffer who said the ultimate test of a moral society is the kind of world it leaves to its children.

When we sit around here and talk about all these tax cuts and we say it's our money, your money and mine, I think we ought to be honest with the American people. In the first place, it's also our debt and it's our children's debt.

But secondly, a tax cut isn't really a tax cut long-term unless you reduce spending. Because then it becomes a tax increase on your children. So we're inflicting this awful bill not simply on ourselves but most importantly on our kids. And it is that phenomenon that is very troublesome when we have to consider that ten years from now 77 million Boomers are retiring.

All of those liabilities are not funded. The Trust Fund is one of the ultimate fiscal oxymorons of our time. There's nothing in it that's not funded and you shouldn't trust it. And whether you had it or didn't have it, you'd still have to go out and do the same thing. Increase payroll taxes to pay for Social Security and Medicare.

You realize, Bill, at the present time, the Social Security Administration believes that my children and grandchildren will have to pay between 25 and 35 percent of payroll to fund these programs. So when we say you and I, fat cats that we are, are getting tax cuts, I prefer to think of it as a tax increase on my own kids and grandkids. And I find that a fundamentally unacceptable immoral proposition.

BILL MOYERS: The national debt could increase by the Year 2000-- 2013 to $14 trillion. That's a tripling of the debt today. What does that mean in practical terms?

PETER PETERSON: That number is roughly correct for the so-called official debt. But we have not told the American people is there's $25 trillion of unfunded liabilities for Social Security and Medicare. $25 trillion--

BILL MOYERS: That we don't know about.

PETER PETERSON: And it's off the books. We don't even talk about it. So that's a gross understatement of the amount of liabilities that we now have.

BILL MOYERS: You know, these are breathtaking numbers Pete Peterson. Help us to translate them into their impact on my team here in the studio, on the people watching, on our individual lives.

PETER PETERSON: I want to present a picture to you. There's 77 million Boomers we're talking about. A doubling of the elderly. Half of the people getting Social Security make less than $20,000 and they depend enormously on Social Security as part of that. It's over half of it. Unfortunately, our country has staggering amounts of elderly that have no savings at all, about 20 percent.

Imagine politically 77 million Boomers. They don't have savings. They depend on Social Security and somebody's saying to them, "Sorry, folks, we're out of money. You're not going to get your benefits."

And they've been told-- they've been misled by politicians all their lives that this Trust Fund is going to take care of them. My father went to his deathbed thinking that there was real money there. And he said, "My son, I don't know what you're talking about because it's like a savings account."

And I kept saying, "Dad, there's nothing in there. It's just liabilities." So I think that political-- implications would be devastating. But more than that, the social implications. It's the richest nation in the world. And you're going to sit there and tell me we're going to throw tens of millions of Americans into a destitute situation without advanced notice? I don't think so.

BILL MOYERS: And what about tax increases? I mean don't we have to cancel President Bush's tax cuts to the wealthy?

PETER PETERSON: I think we ought to look at an entire package, Bill, that includes spending and...

BILL MOYERS: Oh, I agree with that. I agree--

PETER PETERSON: You see in private--

BILL MOYERS: I thought George W. Bush I felt the first President Bush did a brave thing when he unzipped his lips and called for taxes.

PETER PETERSON: Yeah, but at that time, they put in spending caps. You see, the dirty, little secret is neither party is not talking. They're all talking about tax cuts. What they're not talking about is they have permitted a major increase in spending during this period of time.

BILL MOYERS: And these tax cuts are not pulling the economy out of this recession.

PETER PETERSON: Well, you see I don't wanna sound as though I didn't think under certain circumstances a tax could be a good idea. But why don't we do the following:

#1) Don't make it long-term. We should not add to the long-term problem. It's already serious.

#2) Give the money to the people who are going to spend it.

BILL MOYERS: Middle class, working class.

PETER PETERSON: And now look at what's happened here. They're now advocating, not only these tax cuts, a lot of which does not go to the people who spend it, but they're greatly adding to the long-term problem, and they further insist, they further insist that they be made permanent, you see.

BILL MOYERS: So that if you make tax cuts permanent when this big baby-boomer crisis hits--

PETER PETERSON: You're making it much worse.

BILL MOYERS: You'll not be able to pay for it.

PETER PETERSON: You're making-- you-- it was already unsustainable. You're making it worse.

Now, the other thing that bothers me about the tax cut business is the following: We are told we have a war in Iraq. We're told that the transcendent threat to America, and I agree with this, is the terrorism threats at home, the possibility that people could bring in to our ports, you know, or our tunnels or wherever weapons of mass destruction.

Every time we state a priority, it seems to me the tax cuts win out. For example, Warren Rudman chaired a great taskforce at the Council on Foreign Relation. It showed we're $100 billion short at least on what we're doing to prepare the first responders. We've done--

BILL MOYERS: Here in this country. Homeland Security.

PETER PETERSON: And we've done very little on ports. And-- they're highly, highly vulnerable. Well, if that is a national threat, and I believe it is a serious national threat and we are at war, why then shouldn't we be willing to sacrifice to meet those threats?

The President does not ask and me to sacrifice.

BILL MOYERS: No. Hardly. The main sacrifice is accepting another tax cut at the-- at the moment. Did you need the big tax cut President Bush gave you?

PETER PETERSON: I think this is-- I'm really almost embarrassed by the idea. I've got nine grandchildren and five children. That some guy-- I'll include you in the category.

BILL MOYERS: I've got...

PETER PETERSON: You and I are going to be getting tax cuts, so that my six year old, nine year old, five year old, etcetera, grandchild can pay bigger taxes in the future. I just find it unthinkable a proposition.

Is morality about it after all, if it doesn't include fairness to the future and fairness to our own children and grandchildren. And I think we're being unfair.