Peter G. Peterson

For over ten years, Peter G. Peterson, a Wall Street investment banker and former U.S. secretary of commerce, has warned that a rising national debt will destroy the U.S. economy unless drastic action is taken. Peterson has presented his case in articles in the New York Review of Books, Current, and New York Times Magazine, and in such books as 1988's On Borrowed Time: How the Growth in Entitlement Spending Threatens America's Future and 1993's Facing Up: How To Rescue the Economy from Crushing Debt and Restore the American Dream. In On Borrowed Time, coauthored with Neil Howe, Peterson asserts that the rise of entitlements for the elderly is in part responsible for current fiscal problems and offers advice on how to change the nation's course. George Harmon of the New York Times Book Review called the authors' suggestions "detailed and practical," maintaining: "Economics books often are turgid or strident; this is neither."

Facing Up: How To Rescue the Economy from Crushing Debt and Restore the American Dream continues Peterson's suggestions for restoring the U.S. economy. Peterson argues that the problems in the American economy are due to sluggish productivity growth since 1973 and a slow increase in public and private capital. To improve American productivity, he asserts, more capital is necessary. Peterson cites declining savings among individuals for some of the capital strictures, and argues that deficit spending by the federal government requires that billions of dollars that might otherwise be used to fire industry instead be spent to finance the debt. According to Peterson, to make capital available for renewed economic growth, the federal budget deficit must be conquered. To do this, he proposes a twenty-four point plan to redistribute income to the poor while balancing the federal budget by the year 2000. Peterson's proposals include cutting Social Security and Medicare benefits to the wealthy elderly, raising taxes on the wealthiest of the middle class, and increasing taxes on such items as gasoline, tobacco, cigarettes, and alcohol.

Facing Up elicited much debate among financial analysts. "If the argument of Facing Up sounds familiar, that's because it is," remarked David E. Rosenbaum in the New York Times Book Review. "But don't fall asleep yet," he added. "This book is worth reading, studying even, because in remarkably clear prose Mr. Peterson takes the decidedly unfamiliar step of describing just how painful rescue would be. It is the political equivalent of saying the emperor has no clothes." Henry Owen in his review for Foreign Affairs described Facing Up as "detailed and comprehensive probing," adding, "Peterson's book describes our problems perceptively: our high budget deficits, our low savings rate, and their consequences. He offers drastic and useful remedies and describes the coalition that he hopes will create political support for them. . . . Peterson's program is a giant first step toward strengthening the world economy." According to Charles W. Kadlec, writing for the Wall Street Journal, Facing Up "is an important book because it begins to make comprehensible and understandable the dimensions and implications of the federal budget deficit over the next ten years."

Michael J. Mandel, economics editor of Business Week, described Peterson's language in treating the deficit as "fiery" and the work itself as "closer to a moral tract than an economic treatise. In the course of exhorting Americans to sacrifice, it glides over several key economic problems, including the possibility that big budget cuts could slow the economy and actually reduce investment in the short run," he continued. Other commentators debated the foundation of several of Peterson's arguments and the efficacy of his proposals. "Peterson's strategy to accelerate productivity growth by increasing investment is not directed to the right disease," asserted Jay R. Mandle in Commonweal. Stated Ken Miller in Nation: "Peterson's plan is based on an incorrect analysis of the problem. There is no reason to believe that America is in any sense capital-constrained." Writing in the National Review, William A. Niskanen found fault with Peterson's proposed "sin taxes": "Mr. Peterson is correct in arguing for a reorientation of federal fiscal policy to promote private savings and investment relative to consumption. He does not make an adequate case, however, for promoting specific types of investment or for penalizing specific types of consumption."

Several critics remarked on what they perceived as serious omissions on Peterson's part. "What is missing from the Peterson Plan are policies that would expand the tax base through increased private sector jobs, incomes, and profits," Kadlec pointed out. Added Miller in Nation: "Nowhere do we find any concern that the top 5 percent of households earn more than the bottom 50 percent . . . to say nothing of a complete absence of discussion on the sensitive topic of household net worth inequalities." Critics also warned of possible unforeseen negative consequences to Peterson's plan. "Peterson offers a program that is unacceptable because the risks associated with it far outweigh its likelihood of success," maintained Mandle in Commonweal. "Unleashing a massive deficit-cutting program could further overwhelm the poor, trigger a recession or worse, and still not solve the productivity problem." Miller asserted, "Elimination of the deficit, however it is financed, would probably exacerbate our social problems, and Peterson's proposal falls short of creating the groundwork for a just society. This book's clarity, readability and passionate recognition of the need for change are all laudable. But if Peterson offers a `solution' as politically impractical as a broad tax on the middle class, why not conjure up more fundamental change?"

The influence and significance of Facing Up was signaled by the amount and intensity of the criticism it generated. As Owen asserted in Foreign Affairs: "If there is any new book that every American should be urged to read, this is it." Kadlec concluded in the Wall Street Journal: "In spite of . . . [its] flaws, Facing Up is a useful starting point in a national discussion over restoring balance to the federal government's fiscal affairs."