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Bowles-Simpson Cat Food Commission Established

President Obama enacted via executive order the “National Commission on Fiscal Responsibility and Reform” today, naming former Clinton Chief of Staff Erskine Bowles and former Senator Alan Simpson (R-WY) as the co-chairs.

President Obama said, “For far too long, Washington has avoided the tough choices necessary to solve our fiscal problems – and they won’t be solved overnight. But under the leadership of Erksine and Alan, I’m confident that the Commission I’m establishing today will build a bipartisan consensus to put America on the path toward fiscal reform and responsibility. I know they’ll take up their work with the sense of integrity and strength of commitment that America’s people deserve and America’s future demands.”

I don’t think anyone is clear about this Commission’s mandate. Everyone is basically working under a handshake agreement. Without the force of statutory law, there’s no guarantee that the Commission recommendations will get a vote in either chamber. The recommendations will strive for deficits down to 3% of GDP by 2015 and “meaningful” improvement of the long-term fiscal future, but there’s no real definition of meaningful. The Commission will include 12 members of Congress chosen by the Democratic and Republican leaders, but there’s no telling whether Republicans will even participate. At most, the balance on the commission will be 10-8 Democrats, but 14 votes will be required to report out the recommendations. The deadline for the recommendations is December 1.

With all of those veto points, you can look at this Commission as a way to silence critics of the President’s spending policies rather than something with teeth. However, the choice of Alan Simpson should worry people.

It is not good news that President Obama picked former Senator Alan Simpson as one of the co-chairs of his deficit commission. Simpson is not just your run of the mill Republican. He is an extreme foe of Social Security.

One anecdote from his days as a senator should give a flavor of his hatred for the program. Back then, the preferred method for cutting Social Security among the Washington elite was to claim that the consumer price index (CPI) overstated the true rate of inflation. This matters for Social Security because the annual cost of living adjustment (COLA) is based on the CPI. If the CPI was overstating the true rate of inflation, the DC elite argued that we were overcompensating Social Security beneficiaries.

There were two basic problems with the story. The first is that there was not much evidence for the claim and much of the evidence that did exist was 30 years old at that point. Usually economists like to base important policy decisions on more substantive and recent evidence.

The other problem was a logical one. If the CPI really overstated inflation then people were getting wealthier much quicker than anyone could imagine […]

Simpson wasn’t content to argue that the CPI overstated inflation by 1 percentage point. He told listeners that many economists tell him that the overstatement is at least 1.5 percentage points and that some tell him that the overstatement could even be as much as 2 percentage points. He then told listeners that soon our grandchildren will be living in chicken coops.

Of course the logic runs the other way. If Mr. Simpson’s economists were correct and the CPI overstates the annual inflation rate by 2 percentage points then we are getting richer at a fantastic pace. (4 percent nominal wage growth would translate into 3 percent real wage growth in the story above.) This would mean that our grandchildren will be hugely wealthier than we are and that the current generation of Social Security beneficiaries grew up in extreme poverty. Why would anyone want to cut benefits for people who grew up in poverty to make our rich grandchildren even richer.

But, Senator Simpson didn’t care about logic, his agenda was cutting Social Security. And that is who President Obama picked to co-chair his deficit commission.

As New Deal Democrat painstakingly documents, there’s reason to be concerned about Obama’s commitment to Social Security. The President has claimed to be “agnostic” about solutions to the program, even though he has said that the long-term funding problems are minor and remote. I agree with New Deal Democrat that no real Democrat is “agnostic” about Social Security, a compact we keep with our seniors that has proven to be one of the most successful social insurance programs in American history.

And, as the AFL-CIO’s Rich Trumka said in a statement, job creation IS deficit reduction, though I wouldn’t expect any job creation recommendations from this commission:

The most important issue facing working families today is a jobs crisis of historic proportions and a demand deficit. Long-term budget deficits are a problem that needs to be solved, but we do not have a short-term budget deficit problem.

According to data from the Congressional Budget Office, most of the deficit over the next ten years results from Bush’s tax cuts for the rich, the wars in Afghanistan and Iraq, spiraling health care costs and the worst recession since the Great Depression. The main driver of the recent increases in deficit projections is worsening economic conditions — in short, the present deficit “crisis” is largely a symptom of the jobs crisis.

The best way to fix the deficit is to create 10 million jobs now — the number of jobs needed to close our jobs deficit. This will require large amounts of public investment in the short term, which should be paid for in future years by taxing Wall Street. In addition to creating jobs for Main Street this tax will also curb short-term speculation and other Wall Street abuses that caused this recession.

Progressives will have to remain vigilant on this.

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David Dayen

David Dayen