I.O.U.S.A. (40 page)

Peter Peterson:
In a curious way, having 100 percent infl ation indexing protects the elderly on their Social Security benefi ts, but very, very few other people have infl ation protection on their pension plans. So we have the anomalous situation where those in the private sector don ’ t get the advantage of infl ation indexing and the government retirees do, so that ’ s one of the differences.

Q:
What about someone who is in a minimum wage job or
someone who has lived very far down on the income ladder?

Is it diffi cult for people like that when prices start to run away
from them?

Peter Peterson:
Things become very diffi cult for them for other reasons besides infl ation. What accompanies infl ation often is a rapid rise in interest rates and a slowdown in the economy and a recession. When we have a recession, the people that tend to be hurt the most are those at the bottom end or the poor end of the scale, so it affects them doubly. Not only do their costs go way up for food and essentials, but they are less likely to keep their jobs.

Q:
What factors led to infl ation?

Peter Peterson:
In 1971, I joined the White House staff as an economic adviser to President Nixon and I became secretary of commerce. Infl ation became an issue. Recall that the energy problem got much worse with the embargo in 1973. Recall that food costs were going up. Recall that wages, particularly in manufacturing, were going up, and recall that during the ‘ 70s the money supply created by the Federal Reserve had gone up very dramatically, so we were confronted with a signifi cant infl ation problem. Now the president chose to do something that shocked a number of us on his staff. You may recall that they put in wage and price controls. That ’ s how concerned they were about c10.indd 143

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infl ation. The Republican Party was not only supposed to believe in fi scal conservatism, but in allowing the market to make these adjustments. Wage and price controls were normally something that one thought of in socialist or state - controlled economies, and a number of us were utterly shocked by the decision to set up wage and price controls, but it was some indication of how concerned the president was about infl ation.

Q:
When runaway infl ation occurs, what does it feel like for the
country as a whole?

Peter Peterson:
Runaway infl ation tends to hurt fat cats like myself considerably less, because we have a lot of reserves. But if you ’ re a poor or a middle - class family, and you spend a lot of what you make on necessities, on food, on clothing, on rent and mortgages and so forth, all of those things go up very substantially in an infl ation period and interest costs go very high. As a result of that, infl ation is often accompanied by recession, so that the less fortunate in our country end up not only having to pay much more for necessities, but lose their jobs because the economy is slowing down.

Q:
It sounds like you know a little bit about growing up in a
family that didn ’ t have a lot of money. Can you tell me what it
was like growing up in Nebraska?

Peter Peterson:
Yes. I ’ m the very fortunate recipient of the American Dream. My parents were Greek immigrants who came to this country at age 17. They came without a penny and without a word of English. My father took a job that no one else wanted, washing dishes in a caboose with no air - conditioning in the middle of the Nebraska plains, and he saved his money and saved it and worked and worked. His restaurant was open 24

hours a day, seven days a week, for 25 years. When it came time to close the restaurant he didn ’ t even have a key to lock the door because the place had never closed before, but during that period unemployment was 25 percent of the work force. We were in a true, true depression and all of us learned to live on a very, very, very low budget.

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Peter G. Peterson
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Q:
It sounds to me that, as you talk about fi nding a solution to
this big problem that we have, you are thinking about people
that are in that position. Are you not?

Peter Peterson:
Yes. Call me a moderate. Call me whatever you will. I think that, whatever we do with our entitlement programs, we have to do everything we can to preserve the safety net for the people that really need them. We ’ ve gotten into some very bad habits in this country called entitlements for all, whether we need the benefi ts or don ’ t need the benefi ts. I have arguments with my Democratic friends in which I suggest that perhaps some of us who are well off should be willing to give up a lot of our benefi ts, and they say, “ Oh, no. You can ’ t do that because programs for the poor are poor programs and they don ’ t survive. ” And my question to them is, “ If you have to bribe the rich to pay the poor, and if everybody is entitled to be on the wagon, who ’ s going to pull it? ”

Now I would say something else about all this. It ’ s easy to get very gloomy about these things, but I remind you that this marvelous country has always been among the most resilient of countries.

Look at what the Greatest Generation did. They confronted problems at least as serious as these: the most costly war in the history of this country, in every sense of that word,
costly.
They not only paid down that debt with years of surpluses, but they launched an infrastructure highway program, they launched the GI bill, which was such a wonderful program for the veterans coming back. They did all of those things, but they learned that fairly shared sacrifi ce is sometimes essential. And that ’ s essentially what we need now, too.

Q:
Would you characterize yourself as a big, easy target for critics
from the left?

Peter Peterson:
I don ’ t have any trouble understanding why fat cats are an easy target. Looked at from the standpoint of the lower and middle classes, we ’ ve had a situation where their incomes have been fl at, and perhaps even down a bit, when you consider the costs of energy and health care costs and so forth. So I can understand why they look at the big fortunes of people like myself c10.indd 145

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and say it ’ s unfair. I would be the last to deny — and this doesn ’ t make me terribly popular with some people in my party — that people in our categories are going to have to pay more taxes. But the point I keep making is that isn ’ t going to be nearly enough to solve the problems of this country. We all have to participate in this, except perhaps the truly needy of this country.

At bottom, I would like to suggest that this is really a moral issue.

I remind you of what a German theologian named Bonhoeffer said: The ultimate test of a moral society is the kind of world that we are leaving to our children. Think of the taxes that are implied, which would have to be infl icted on our own kids and grandkids.

Think of the debts that we are piling on them and the costs to them of paying back those debts. The idea that we ’ re slipping this check to those kids for our free lunch is essentially a very immoral proposition, in my view.

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