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ON MONDAY, just as the Obama administration was announcing it wants to hike taxes on the wealthy to pay for its jobs bill, the Financial Times published an op-ed by Blackstone Group co-founder Steven Schwarzman that was somewhat misleadingly titled. The headline the FT ran with was: "An Olive Branch to Obama: I will share the pain". This makes the piece sound like another entry in the list of recent announcements by billionaires that they are willing to pay higher taxes to shore up the finances of the US and other governments. But nowhere in the piece does Mr Schwarzman explicitly volunteer, as a spectacularly rich guy, to pay higher taxes. Rather, Mr Schwarzman's accent falls on the other syllable: when he says "share the pain", what he means is that he wants to make sure that if taxes are raised on the super-rich, they're raised on the middle class as well.
There are many possible ways to restart the economy and achieve fiscal balance, but any solution, no matter how sensible, including what the president proposed on Thursday, will be mostly dead on arrival unless we can move forward together to avert another recession. Just raising taxes on the wealthiest two per cent, for example, will not reduce a $1,300bn annual deficit enough to restore fiscal balance. For any future budget adjustments to be effective, we cannot exempt any group or special interest, except for the poor and disadvantaged.
“Shared sacrifice” sounds like cheap political rhetoric. But if we are to reform taxes and cut spending sufficiently to make a difference, virtually everyone will be affected. Broad-based tax reform will put everything on the table, from the rates we pay at every bracket to serious thinking about a flat tax regime with few or no deductions. Entitlement reform of Medicare, Medicaid and Social Security will affect the benefits we receive and the amounts we all have to contribute. There will probably not be a single American untouched by the spending cuts needed in the rest of the federal budget.
I believe that most Americans will be willing to sacrifice for economic stability and a bright future for our children, if the deal falls equitably on all shoulders. I know I'd prefer the short-term pain while working together towards a shared solution to the long-term pain of another recession, social unrest, or worse.
Mr Schwarzman is saying he's willing to pay higher taxes as long as the middle class does too, and as long as entitlement programmes that benefit the bottom two-thirds of the income scale, like Social Security, Medicare and Medicaid, are cut. Amazingly, he includes in his call for "shared sacrifice" a plug for a flat tax, a measure long beloved by billionaires that would eliminate the progressivity of the tax code. Mr Schwarzman is right that tax hikes on the "wealthiest two per cent" won't be enough by themselves to fix America's fiscal problems—though the same point could be made about any individual deficit-reduction measure. And pretty much everyone recognises that Medicare and Medicaid spending ultimately has to be reined in. But the repeated focus on ensuring that a deal "falls equitably on all shoulders" is curious for a guy who elsewhere attacks a concern with social justice as "class warfare". And the thrust of the piece isn't so much that he's willing to "share the pain" of the middle class, but that the middle class should "share the pain" of Steven Schwarzman.
Mr Schwarzman is not generally known for his interest in economic equality, or public policy in general. The general public knows him best as the guy who hired Rod Stewart to play at his $3m birthday party in 2007, turning himself into the symbol of the financial industry's culture of private excess and public irresponsibility (and tired baby-boomer musical taste) at the very moment that it was driving the American economy towards a brick wall. At the Blackstone Group, it was always Mr Schwarzman's co-founder, the deficit cassandra Pete Peterson (of the eponymous institute), who was known as the public-policy figure. Mr Schwarzman's op-ed is clearly intended to repair his reputation. But he doesn't seem to have the hang of it yet. Instead of extending an "olive branch" to the administration, he recycles the silly, pointlessly antagonistic claim that its rhetoric is responsible for the weak economy.* The piece's one revealing moment of modesty comes when Mr Schwarzman is describing his qualifications: "My firm has invested in, and advised on, hundreds of businesses in the past 25 years and we've seen companies successfully overcome such challenges." Saying he's "seen" companies overcome their challenges, rather than claiming to have personally turned them around (as Mitt Romney no doubt would), is a more accurate representation of Blackstone's role in the deals that made it a major player, as David Carey and John Morris write in the excellent "King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone".**
But the main point here is the strange way the piece tries to turn the rhetoric of "shared sacrifice" into a call for working-class people to bear some of the privations of economic readjustment along with their spectacularly wealthy fellow citizens. Mr Schwarzman's final paragraph is true enough, if you take it at face value. But it all hinges on your interpretation of the word "equitably". Would Mr Schwarzman agree that it would be "equitable" to tax income from capital gains at the same rate as wages? As for shoulder-related concerns, how does Mr Schwarzman feel about the old saying about the strongest shoulders carrying the heaviest loads?
* "The administration sought to attribute blame for the financial and economic crisis and alienated large segments of the business and banking community... Predictably, business reacted with fear and limited economic expansion, hiring and new lending." Seriously? What precipitated the financial crisis, if not the practices of the financial industry? Gnomes? On what do executives base investment and hiring decisions? Expectations of future profitability, or whether the president has been sufficiently complimentary to them recently?
** On another Blackstone-related tangent, I had a discussion with a friend last month who argued that the French economic and political system entrenches a concentration of power amongst a small ENA-educated elite that's much more damaging and unfair than anything that exists in the United States. I don't know that this is true. Pete Peterson was secretary of commerce under Nixon, and then headed Lehman Brothers for a decade before he and Mr Schwarzman left to found Blackstone. Their first major hire was Roger Altman, whom Mr Peterson had worked with at Lehman Brothers and who would go on to serve as under-secretary of the Treasury for his former classmate at Georgetown, Bill Clinton. Their second big hire was David Stockman, Ronald Reagan's former budget director. And so on. You can't get too far into this kind of stuff without starting to sound like a conspiracy freak (there are Council on Foreign Relations and Bilderberg Group angles here too—yikes), and that's not the point. It's just that powerful institutions in the United States, as everywhere else, channel the people who run them into other powerful institutions, creating an elite with a great deal of social capital, political capital, and plain old capital which allows them to exert a lot of influence on society. Maybe this elite is more meritocratic in America, less determined by where you were born or went to school and more by how well you did in your 20s and 30s. Maybe it's less concentrated, relative to the size of the country or economy, than in other places. Or maybe not. I don't know. I'd need some more persuasive data one way or the other.
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