FDR Memorial, Washington DC

Bribes work. AT&T gave money to GLAAD, and now the gay rights organization is supporting the AT&T-T-Mobile merger. La Raza is mouthing the talking points of the Mortgage Bankers Association on down payments. The NAACP is fighting on debit card rules. The Center for Budget and Policy Priorities and the Economic Policy Institute supported the extension of the Bush tax cuts back in December.

While it seems counter-intuitive that a left-leaning organization would support illiberal extensions of corporate power, in fact, that is the role of the DC pet liberal. This dynamic of rent-a-reputation is greased with corporate cash and/or political access. As the entitlement fight comes to a head, it’s worth looking under the hood of the DC think tank scene to see how the Obama administration and the GOP are working to lock down their cuts to social programs.

And so it is that the arch-enemy of Social Security, Pete Peterson, rented out the good name of Franklin Delano Roosevelt, the reputation of the Center for American Progress, and EPI. All three groups submitted budget proposals to close the deficit and had their teams share the stage with Republican con artist du jour Paul Ryan. The goal of Peterson’s conference was to legitimize the fiscal crisis narrative, and to make sure that “all sides” were represented.

Now this tidy fact is not obvious if you check the Peterson Foundation publicity for its “Fiscal Summit:”

On Wednesday, May 25, 2011, senior Administration officials, policy experts and Democratic and Republican elected leaders will come together in Washington to discuss solutions to the nation’s fiscal challenges at the 2011 Fiscal Summit: Solutions for America’s Future, convened by the Peter G. Peterson Foundation…..The American Enterprise Institute, Bipartisan Policy Center, Center for American Progress, Economic Policy Institute, Heritage Foundation and Roosevelt Institute Campus Network will present and discuss their own proposed packages of solutions for achieving long-term fiscal sustainability at the Summit. These leading policy organizations, representing diverse perspectives, received grants from the Peter G. Peterson Foundation to develop comprehensive plans to address the nation’s projected long-term debt and deficits.

Why, after spending considerable resources, such as a website called New Deal 2.0, with virtually daily posts by Roosevelt fellows debunking deficit terrorism, and more formal work, such as a well-researched and argued paper by Tom Ferguson and Rob Johnson debunking deficit cutting in general and assaults on entitlements in particular, has the Roosevelt Institute cast its lot with a sworn enemy? Make no mistake, not only did the Institute undermine its raison d’etre by attaching its name to the Peterson anti-entitlements campaign, but as we’ll discuss later, the end product, as would be expected, bolstered particular initiatives that are contrary to FDR’s legacy, the Institute’s more general “progressive” objectives, and sound economics.

As the sorry history of drug funded research shows and this example confirms, sponsored research has this funny way of delivering findings flattering to its funders. At best, whoever championed this unholy alliance at Roosevelt is guilty of a spectacular lapse of judgment. At worst, this is naked careerism, selling out one’s sponsor to curry favor with more powerful backers. One way to assure one’s influence and job security in the foundation realm is access to big donors. Who better to cultivate than one of the freest spenders in the economics policy space?

The Roosevelt Institute is far from the only example of left-wing institutions having their missions undermined and eventually controlled by conservative patrons. We’ve complained before about the cluelessness of left-leaning organizations in the US. One of the big reasons that what is now the center of the political spectrum here is extreme right pretty much everywhere else is that there has been an orchestrated, forty-year campaign to make American values consistent with the needs and interests of large corporations.

Doubt me? Dial the clock back to the Eisenhower era. The highest marginal income tax rate was 91%. Ike, a Republican, was firmly of the view that New Deal programs were a permanent feature of the political landscape. From a 1954 letter to his brother Ed:

Now it is true that I believe this country is following a dangerous trend when it permits too great a degree of centralization of governmental function….But to attain any success it is quite clear that the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything–even to a possible and drastic change in the Constitution. This is what I mean by my constant insistence upon “moderation” in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.

Because the notion of having government policies promote the welfare of the middle class was so widely shared, it seemed inconceivable that these values could ever come under assault. Yet anyone who saw that the Commie-bashing of the 1950s was followed by the radicalism of the later 1960s would conclude that the American psyche was capable of large shifts, and there was no reason to leave this process to chance.

We’ll skip over how the process of moving America to the right was launched; we cover that ground in short form in ECONNED; readers can also check Bill Black’s discussion of its founding document, a memo by top corporate lawyer and later Supreme Court Justice Lewis Powell staking out its objectives and many of its key tactics.

At the risk of oversimplifying such a complex, multifaceted campaign, several elements appear to be critical to its success. First was the sheer amount of resources devoted to it: an imperial armada of think tanks, advertising dollars, political donations, polling and focus group road testing. Second and related was the creation of viable, lucrative career paths for those who signed up for the cause. Third was the utter denial, followed by deer-in-the-headlights paralysis, within the left as to the effectiveness and relentlessness of this effort. Too many assumed that ordinary people would never sign up for policies that were detrimental to their well being. They failed to understand that people vote based on identity much more than interests, and a concerted effort at rebranding could make conservative economic policies sound attractive by linking them to success. Only losers could possibly be in support of redistribution and social safety nets (and they have been increasingly portrayed as parasites). Fairness went out the window; plutocracy was in.

The success of this effort has been so complete that its organizers are now engaged in what in military terms would be depicted as a mopping-up operation, that of cleaning out the last pockets of isolated resistance. One of the key steps is the conversion of what were once left-leaning organizations and think tanks into message-carriers for the right. Mind you, while the end result is very much like that of parasitic fungus turning ants into zombies and killing them so they can become a food source (eeew), the process requires a tad more finesse.

Just as the Democrats pretend to offer an alternative to Mussolini-style corpocracy when they are loyal servants of big businesses donors, so to does the image of diversity of opinion in the foundation/think tank world serve as useful cover for control that the right wing has achieved over messaging on economic issues.

We’ve discussed some examples of conservative parasites gaining control of once-liberal hosts in earlier posts. In the UK, the formerly solidly leftie think tank Demos has now been successfully colonized by the right via its increased, and now near total dependence on conservative funders. Yet it continues to play on its historical brand, using its “Open Left” logo on papers that promote bald faced bank friendly twattle, thus misleading the public into thinking that there is right-left consensus on what to do about banks, which they urge should be somewhere between nothing and helping them even more.

In the US, the brass-knuckle leader of the effort to convert the tattered remnants of the left to the conservative cause is the long standing entitlement foe, billionaire Blackstone Group co-founder Pete Peterson. His Peterson Foundation provides funding for a large array of organizations, including initiatives at his think tank, the Peterson Institute. We’ve discussed various Peterson efforts on this blog: the Peterson Foundation’s “America Speaks” program, which used a series of faux town hall meetings with openly manipulative facilitators to try to deliver focus group type results depicting broad-based willingness to cut entitlements to reduce the budget deficit. That plan backfired, not only failing to deliver the desired Potemkin consensus, but also generating bad press for its ham-handedness.

Another scheme was Peterson’s use of the highly-respected Columbia Teachers College to develop a program to carry a deficit scare message to high school students in the form of “fiscal responsibility” education. As Dean Baker wrote:

No one has done more than the billionaire private-equity investor Peter G. Peterson to stir America’s anxiety over deficits, debt, and what Peterson (among others) considers out-of-control entitlement-program spending. Those same concerns now lie at the heart of a “fiscal responsibility” curriculum being developed for America’s high schools. The curriculum bears the stamp of Columbia University’s prestigious Teachers College, but reflects the focus suggested by the Peter G. Peterson Foundation, which provided $2.4 million in funding for the project.

Teachers College gave Remapping Debate access to a set of 24 lessons set to be test-taught in four states this spring prior to a wider roll-out in 2011-12. Heavily weighted toward the themes and arguments of Peterson and other deficit hawks, the trial lessons could be seen as part of an effort by one of the country’s wealthiest men, now 82, to spread his gospel to coming generations…

Note this unholy alliance began when the Teachers College approached the Peterson Foundation for a mere $50,000 grant to devise a course to teach high school students about personal finance. Peterson dangled much more money before the college and imposed its own agenda.

It isn’t clear how much the Roosevelt Institute got beyond thirty pieces of silver for selling out its brand, but the Peterson campaign got plenty of value for its money. The Roosevelt contribution came form a network of college students it had established in 2004 to promote “progressive activism”. Yet their paper was presented as a “Millenials” “citizen-produced deficit reduction plan” product, it was allegedly stood for the views of an entire generation. On par with the “America Speaks” approach of any outreach hopefully being mistaken as representative or thorough, the report’s authors “engaged” 1000 people “in person” and 2000 online. With no methodological rigor (neutral questions and consistent survey methods, for starters) this is a garbage in, garbage out process. But it’s pretty clear from the apocalyptic tone that this was a “sentence first, verdict afterwards” process:

Young people across the country recognize that those in power have made choices over the last 15 years that led us down the path to fiscal turmoil….Any solution to our fiscal trouble must not only resolve the gap between spending and revenue but also address the underlying causes.

Let’s consider whether this scaremongering is well founded. This is one small piece of a much larger argument in the Ferguson/Johnson article:

Now just ask the obvious question that a citizen or politician who had any choice would before embarking on the austerity route to budgetary consolidation: What are the chances that the policy will work? That is, actually reduce the deficit while also stimulating growth?

The striking fact that emerges from their [Alberto Alesina’s and Silvia Ardagna’s] tables is the meager number of successes. They indentify 107 separate cases of major fiscal contraction in the OECD between 1970 and 2007. Only 26 of these 107 qualify by even their Rube Goldberg definition as leading to “growth.” Now also set aside all qualms about definitions and whether countries were booming or in recession when they started cu#ing the budget. Just focus on the overarching pa#ern: Only nine of those “growth” cases actually achieved major reductions in debt to GDP ratios. That shouts out a demoralizing result: that 92% of the time countries tried fiscal contraction, it did not lead to growth with big reductions in debt to GDP ratios. We are not surprised that even a recent IMF study has now repudiated Alesina and Ardagna’s core argument. As Ireland is now discovering, the royal road to reducing debt to GDP ratios runs elsewhere. Arguments that current levels of debt to GDP profoundly threaten future U.S. economic growth are mere assertions crying out for empirical evidence. They should carry no weight in national policy debates.

This article also has a long section discussing the considerable shortcomings of the CBO projections on which the student paper relies, in particular its failure to calculate net rather than gross debt. The famed Carmen Reinhart/Kenneth Rogoff warnings about Bad Things Happening when government debt exceeds 90% of GDP is based on net debt levels; making that adjustment alone takes even the dire version of the long-term forecasts out of the danger zone. Other dubious assumptions are its oddly low productivity growth projections.

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. Had they merely bothered to read the Roosevelt paper by Ferguson and Johnson, or consult pretty much any account of why government debt levels have risen they would know that:

The “explosion” story can be immediately dismissed. The simple fact is that the deficit did not swell tidally until the financial crisis hit. While George W. Bush’s tax cuts destroyed the Clinton budget surpluses, tax revenues poked along at a rate that kept the deficit from blowing out until the economic equivalent of Hurricane Katrina hit. It was the one-two punch of the bank bailouts and the Great Recession that led to today’s giant gap between general revenues and expenditures.

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. Moreover, the paper touts a faddish, noxious idea for further financializing the economy from the faux liberal group, the Center for American Progress:

Folks, what will the net effect of this 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. And who will invest in projects with such uncertain returns? Investors will demand super high expected returns, which means even less goes into the provision of the actual services. And you’ll also need an a new cohort of assessors to determine if and how much the projects should pay out, leading to higher annual charges. The “lower costs” is the Big Lie cubed.

There’s also more sneaky pro banking industry policies included in the very skeletal discussion of corporate tax reform. 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.

The paper also appears to cherry-pick the recommendations made in another Roosevelt Institute paper, one by Joe Stiglitz. He advocates looking at the asset as well as the liability side of the government balance sheet, and in particular, investing in infrastructure, since it can generate very high returns. But this sort of idea is underplayed in the Peterson paper, and ideas like a bonus tax to correct incentives are completely absent.

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.” Trial lawyers are big Democrat donors; they are a perennial target of the right, and the inclusion of this idea is a sign of conservative influence on the document.

The president of the Roosevelt Institute just announced that he is stepping down. I can only hope the board looks seriously into what led to this embarrassing dance with the devil and takes measures to assure this type of compromise of the Institute’s fundamental purpose can never happen again. It would also serve them well to conduct a broad-based search to find a leader who is truly dedicated to carrying on the proud legacy of FDR. There are so many fauxgressives in the marketplace that this will take more effort and scrutiny than they might imagine.

Yves Smith blogs at NakedCapitalism

Photo of Roosevelt Memorial by dctourism


Yves Smith

Yves Smith

A recovering investment banker, now management consultant with nearly thirty years of experience in and around the financial services industry. Blogs at Naked Capitalism, with a book ECONNED: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism coming out in March.