William Greider | The Nation

President Obama speaks with reporters at the White House. (AP Photo/Pablo Martinez Monsivais)

President Obama has riled loyal Democrats by tossing Social Security onto the table in his poker game with Republicans. Not to worry. I think I know how this story ends. A year from now, when the 2014 congressional campaigns are hot underway, Republicans will be running against Obama-the-slasher and promising to protect Social Security from the bloodthirsty Democrats.

By then, having lost on his too-cute strategy, the president will be reduced to lamely reassuring old folks. Really, he didn’t actually intend to cut their benefits, really he didn’t. It was just a ploy to get tightwad conservatives to give in a little on tax increases. Republicans can pull out the videotapes in which Obama and team explain their high-minded purpose—sacrificing the Democratic party’s sacred honor in order to get Republicans to play nice.

Forget about that. House Speaker John Boehner promptly brushed off Obama’s gambit. If the president wants to whack Social Security, Boehner suggested he can do it, but don’t expect the GOP to collaborate in such a plot. “If the president believes these modest entitlement savings are needed to shore up these programs, there is no reason they should be held hostage for more tax hikes,” Boehner said.

The president set this trap himself; now Boehner will spring it on him. Does Obama not remember how Democrats lost control of the House back in 2010? The party got very little credit for enacting health care reform because the Republicans had already demonized the accomplishment as a threat to the much-beloved program of Medicare. The rightwingers promised to save Medicare from bloodthirsty Democrats by repealing Obama’s new reform program. This was all a ridiculous lie, of course, but the White House declined to call out the liars. Instead, Obama responded with flowers. This time, he is taking Republicans out to diinner.

So here is what I expect to happen. The elaborate and confusing charade of deficit politics will continue through this year and next—both parties solemnly seeking to shrink the swollen federal deficits—and distracting Washington from the real economic threat of stagnation or worse. At the end of the day, Social Security will not be cut. Nor will much else be accomplished, for good or for ill. Yes, the two parties may eventually approve some grandiose budget resolutions—official promises to cut spending drastically. But that process is usually a charade in itself with a long-established history of fiction and fantasy.

These budget promises do not become real until Congress authorizes projects and appropriates the money. The appropriators have the real power and they can change the numbers and designs and whatever else they wish. Depending on how senators and representatives feel at the time, they can embrace the promises and cut specific spending or totally ignore whatever the budget resolution had promised the public.

This is why I expect Social Security to survive the onslaught. When it gets to the money roll calls this year and next, individual members of Congress will have to swallow some big lies in order to vote for cutting Social Security benefits. First, of course, the cost-of-living gimmicks Obama has proposed will not shave a penny off the federal deficits or debt. That is because the Social Security benefits are not paid by the federal budget. They are drawn from the Social Security Trust Fund—the money paid in by working people every payday. People know this is their money, not some government handout.

So who gets tell the folks that their FiCA deductions were a joke—only an accounting fiction? The financial problems facing Social Security are easily fixed (as Obama himself has said) and are actually 30 years away. When the Congressional Budget Office is required to “score” Obama’s so-called cost-of-living reform, it will be compelled to announce that whacking the old folks contributes not a penny to reducing the federal government’s deficits.

In fact, there is an even bigger lie concealed by the fiscal scolds and ignored by witless media, too. Again and again, self-righteous critics have portrayed Social Security as the profligate monster borrowing from the Treasury and sucking the life out of federal government.

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Guess what? It's the other way around. The federal government borrows from Social Security. The Treasury has been borrowing from the Social Security Trust Fund for 30 years, and the debt to Social Security beneficiaries now totals nearly $3 trillion. The day is approaching when that money will be needed for its original purpose: paying Social Security benefits to the working people who contributed to the fund.

That is the real crisis that makes the financial barons and their media collaborators so anxious to cut Social Security benefits. They would like to get out of repaying the debt—that is, giving the money back to the people who earned it. The only way to do this is cut the benefits—over and over again. Count on it. If the president and Congress succeed in this malicious scheme, they will come back again and again to cut more and more. If the politicians join this sordid conspiracy, voters should come after them with pitchforks and torches.

How much will elected progressives budge on Obama's scheme? Read John Nichols's analysis.

Ethicist Thomas Pogge talks on global poverty. (Flickr/Pontificia Universidad)

For three decades, the Institute for International Economics in Washington has been enormously influential as an intellectual home base for globalization. The think tank is nonpartisan, but closely aligned with business and finance multinationals that provide generous funding. A few years ago, its name was changed to the Peterson Institute, honoring its founding chairman and leading benefactor, billionaire Pete Peterson, who is better known for his long-running crusade against Social Security and Medicare.

Whenever you read about the thousands of jobs promised by a new trade agreement, supporting evidence was very likely generated by economists at the Peterson Institute. The fact that these “studies” regularly turned out to be wildly exaggerated or flat wrong has not deterred experts from churning out more dubious assertions.

The debate over NAFTA in 1992 was perhaps the most notorious example. Ross Perot, the independent presidential candidate, was ridiculed and effectively discredited for calling “free trade” globalization a “giant sucking sound” that would wipe out millions of American jobs. Perot, it turns out, was right. So were American working people who complained bitterly that so-called “free trade” was hollowing out the middle class and driving down industrial wages.

The Peterson Institute, so far as I know, never confessed error—but its new leadership is implicitly acknowledging the damage and inviting critics it has long ignored into the high-brow policy discussions. It was something of a shock to attend an all-day conference at the Institute, on January 7, where twenty academic economists and policy thinkers delivered papers. The subject was “ethics and globalization.” Ethics? What’s ethics got to do with it? Quite a lot, the Institute belatedly asserted.

Indeed, some of the speakers offered policy reforms that could have been drawn from The Nation magazine. Other speakers described the global system in deep trouble and warned of popular rebellion here and abroad if things are not changed. Having lost confidence in the trading system’s promises, many are turning to national governments to save them from global capitalism.

Howard Rosen, a visiting fellow at Peterson and ex-staff director of Congress’s Joint Economic Commmittee, enumerated the negative consequences of the last generation and concluded: “To my mind, this amounts to international trickle-down economics.”

Rosen recommended a list of reforms that includes a global minimum wage, industrial wage increases linked to productivity gains, unemployment insurance, adoption of international labor standards that encourage unionization and commitments by the World Bank and other international financial institutions to require nations to accept these reforms as a condition for getting loans.

Thomas Pogge, professor of law and international affairs at Yale, added to the indictment. “Who are the beneficiaries of the last 25 years?” he asked. “Not the global poor but the global rich.” The system has generated “a tremendous concentration of wealth,” he said, created by the rich nations in league with global organizations like the World Trade Organization.

As Pogge explained, tax abuse and intra-company pricing—which allows multinationals to book income in countries with the lowest tax rates—ensure that both rich and poor countries will be robbed of wealth and resources. The subsidies paid to commodity producers like advanced agriculture in the United States ensure that they will wipe out the small-scale farmers in developing poor nations. The stringent patent rights that trade rules grant to drugs and other products create the monopolies that crush infant competitors elsewhere in the world.

Economist David Branchflower of Dartmouth spoke ominously about the “scarred workers,” both young and old, who will never recover from the lack of jobs. The working class in Europe is “smoldering,” with potential rebellion, he warned, and he said something similar may occur in the United States.

Kimberly Ann Elliot of the Center for Global Development argued for suspending all tariffs on garments imported from very poor nations as the best way to improve the horrendous working conditions at the bottom. In Pakistan, a garment factory fire in September killed 289 workers, the worst industrial fire in the history of capitalism. Walmart purchased the factory’s output and sold it to Americans, but claimed not to know it was imposing life-threatening risks on the workers.

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Elliot sees little hope that multinational companies like Walmart will change these deadly practices on their own. “I don’t think the multinationals really are taking responsibility,” she said. “They are trying to protect their reputation—but fundamentally they aren’t changing their buying behavior.”

For many years, these accusations have been made against the global system—but they are still largely ignored by the multinational establishment and by the politicians who have approved the numerous trade agreements. From NAFTA to the WTO, these agreements are thick with protections for capital investors who build production in foreign countries, while the rules meant to protect workers and citizens from abusive corporations are either meaningless or nonexistent.

The Peterson Institute’s conference may signal a promising change in direction, though skeptics are entitled to doubt it. At least the debate is beginning to acknowledge inhumanities that the global establishment long ignored or explained away. Better late than never, one hopes. An old political friend told me after the conference, “This is a significant signal that will make a difference.” The message he got was that global industries must accept the obligation to pay attention to equity. By giving a platform to reform voices like Rosen and Pogge alongside the standard defenders of globalization, the Peterson Institute was inviting realism into the debate.

Peterson Institute’s new president—former Fed economist Adam Posen—may be responsible for this. He chose “ethics” as the focus for the first Institute conference since he became president. “It is a substantive intent on my part to broaden the perspectives and add to our already existing focus on distributional issues,” Posen said. “I took a strong hand in setting up the conference agenda and speakers.”

Posen knows the political foundations of globalization are in trouble. “One of the alarming effects of the global financial crisis has been the widespread erosion of confidence in capitalism itself,” Posen wrote recently. Government can change policy, he said, but only business can restore the faith by changing its own behavior.

Posten’s course correction at least offers an opening for critics. They should seize the opportunity and renew the worldwide campaign for reform principles they have been articulating for many years. People will be able to see soon enough whether the establishment’s change is real or simply an adjustment in public relations. Meanwhile, the global establishment is wobbly and vulnerable. Business is unlikely to get well politically unless it really does change.

For more on the global neoliberal consensus, read Amy Wilentz’s dispatch from Haiti in the most recent issue of The Nation.

The American International Group (AIG) building in New York's financial district. (Reuters Photo.)

Wall Street’s ingratitude is not exactly a secret. After Washington came to the rescue four years ago with the $800 billion bank bailout and ignored flagrant criminal behavior in high places, the nation’s biggest banks returned the favor with malice—an army of lobbyists to gut reform legislation, a tidal wave of political cash to defeat the Democratic president and elect banker-friendly Republicans. Leading executives like Jamie Dimon of JP Morgan Chase expressed their disdain for the meddlesome government.

The shareholders of AIG, the giant insurance company the Federal Reserve bailed out with $180 billion, have now topped that impudence. Believe it or not, these investors are suing the federal government for rescuing their company from collapse. This sets a world record for breath-taking arrogance.

The injured AIG shareholders claim the Fed violated their “property rights” by taking over their failing company, keeping it on life support with generous lending and restoring its solvency. Now those same shareholders want compensation from the government—insisting the central bank charged exorbitant interest rates on its loans and sold off valuable subsidiaries to revive the corporation.

This is like a homeowner who sues the fire department for putting out the flames when his house is burning down. The astounding details were described by The New York Times. The imaginative skills of Wall Street lawyers seem to have no bounds, and the Justice Department must now expend a fortune in lawyers to defend the government against such an improbable claim.

The legal principle invoked by the AIG investors is eminent domain, and they are urging AIG’s current management to join in the lawsuit (even though the company is running full-page newspaper ads thanking the American people for the assistance). The Fifth Amendment to the Constitution guarantees that property owners will be justly compensated if the government takes their land for public purposes—building a highway or other projects.

In this case, the protesting shareholders say their company was taken from them by the Federal Reserve Bank of New York for the public purpose of halting the larger financial crisis of 2008. Jack Gutt, spokesman for New York Fed, dismissed the claim and noted that “AIG’s board of directors had an alternative choice to borrowing from the Federal Reserve and that choice was bankruptcy.”

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Yes, of course. But the AIG investors do seem to have a smaller point. They argue that the Fed’s real purpose in intervening was not to help AIG but to save the largest New York financial firms like Goldman Sachs from huge losses. Those banks were holding AIG credit instruments that were likely to become worthless, but the banks were repaid at full value thanks to the Fed lending. The incestuous arrangement provoked a bad odor at the time. If AIG had gone into bankruptcy court, those banks would have taken a big hit, too. AIG, after all, is not a bank but a business corporation. The Fed bent its own standards in order to help out some old friends.

It seems unlikely that a federal court will uphold the AIG investors’ argument, but a Washington judge has agreed to hear the case after a New York judge tossed it out. If the AIG shareholders win, it could put a severe crimp in the Federal Reserve’s capacity to do emergency lending in a larger crisis. A lot of Fed critics might cheer this, especially those who want to abolish the central bank altogether. That’s crazy itself. The Federal Reserve System is in need deep reform, but that task cannot be left to the reactionary right. After all, they want to put the bankers in charge with no meddling from government.

This week, Greg Kaufmann proposes that the Obama administration extend the access granted to big finance to a new crowd: struggling Americans.

Forget what you read in the newspapers about the “fiscal cliff.” The real showdown in Washington is not between Democrats and Republicans. It is the bizarre collision between self-righteous politicians of both parties promising to shrink government spending and raise taxes, while the supposedly independent and nonpartisan Federal Reserve pleads with them to stop before they totally wreck the economy. What threatens to take the country over the cliff is the political momentum of the establishment’s wrong-headed propaganda.

The mild-mannered Fed chairman Ben Bernanke is standing in the way, but nobody important seems to take him seriously. Though not given to inflammatory rhetoric, Bernanke is virtually standing in the middle of Pennsylvania Avenue, waving his arms and screaming at the lawmakers. Turn back! You are heading in the wrong direction. Don’t you understand? The real economic problem is not too much government debt. It is too few jobs!

This message was again delivered by the Federal Open Market Committee at its meeting this week when it formally declared job creation as its central objective. The Fed hopes to stimulate employment by keeping interest rates near zero and pumping many more billions into the economy—at least until the unemployment rate falls to 6.5 percent. Fed officials, however, do not expect that to occur before the end of 2015.

Three more dreary years ahead, further weakening economic fiber and national spirit. The Fed chairman described the persistence of mass joblessness as “a waste of human and economic potential.” At his press conference, Bernanke allowed: “If we could wave a magic wand and get unemployment down to 5 percent tomorrow, obviously we would do that.” If Congress and the president allow the huge downshift in government scheduled for January 1, Bernanke warned: “We would try to do what we could…but I just want to again be clear that we cannot offset the full impact of the fiscal cliff. It’s just too big.”

In these circumstances, the Federal Reserve is a weak reed to lean on. It is essentially attempting to stimulate lending and spending in the private economy by altering the “expectations” of investors and business managements. By assuring those decision makers they can count on very low rates and easy money conditions for at least another two or three years, the Fed hopes this will create a bigger appetite for risk-taking. Maybe so, but skeptics are plentiful. The Fed’s extreme policy of easy money has been in place for nearly four years and it hasn’t worked yet.

After the crash of 1929, the ineffectiveness of monetary policy was disparagingly described as “pushing on a string.” Bernanke’s Fed is at risk of acquiring the same reputation.

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Banks and business corporations are sitting on trillions in surplus cash and bank reserves, making handsome profits while the real economy languishes. Yet the Bernanke Fed has so far declined to take bolder actions. Financial manipulations are the orthodox response of central bankers, but real investment remains limp or nonexistent. If political leaders dared to engage genuine debate on the economy, they would embracing bigger spending plans themselves and lean hard on the Fed to take more concrete measures like direct lending to the real economy or regulatory pressures to force open the bank credit channels.

For now, the country is preoccupied with a phony crisis that might please some bookkeepers but will do nothing to jump-start a stronger recovery. The Obama administration has tried to have it both ways—devoting lots of political energy to the debt and deficit problem, not so much to the larger ailment of economic weakness. I think we are witnessing the hangover from thirty years of conservative idolatry—the political worship of so-called free markets and deregulation. Democrats are infected too—either afraid to propose aggressive measures or ignorant of what is possible in crisis. The bean counters are still in the saddle. They may be dislodged only if the country is driven into another bloody recession.

Where is big government when we need it?

For the latest on the fiscal cliff debate, check out Washington correspondent George Zornick's blog.