Billionaire Peterson Sounds Alarm on Deficit

Published Nov 26, 2012. By Nancy Cook.


The so-called fiscal cliff is like showtime for Pete Peterson.

The 86-year-old deficit hawk and long-time New Yorkfinancier has been harping on the perils of the country’s deficit for years. Now, he hopes that politicians and the public will finally pay attention and agree with him, given the fiscal cliff’s more than $500 billion in automatic spending cuts and tax hikes slated to effect in January 2013.

“It’s a pivotal moment, there is no question, not only in our economic history but in our political history,” Peterson recently said. “There are many more voices now being raised. There is awareness of the problem at levels that are much higher than there have been.”

Much of the awareness surrounding the deficit has stemmed from Peterson’s own efforts and from his financial largesse. Following the sale of his company, Peterson committed $1 billion to deficit reduction and has played both the inside and outside advocacy game.

He opened a foundation bearing his name in 2008 that has funded, among a litany of items, a curriculum for public school classrooms about the debt; a documentary called I.O.U.S.A. about, you guessed it, the country’s fiscal challenges; and a “fiscal wake-up tour” to encourage normal Americans to pressure lawmakers to find solutions to the deficit.

Inside Washington, particularly over the last two years, Peterson has waged a far savvier strategy by giving more than $9 million to think tanks and not-for-profits at both ends of the political spectrum. He funded two staffers for the failed congressional super committee, and the foundation’s annual springtime fiscal summit is now a must-attend event. In May 2012, it featured big names such as former President Clinton; Treasury Secretary Timothy Geithner; Reps. Paul Ryan, R-Wis., and Chris Van Hollen, D-Md.; and House Speaker John Boehner, R-Ohio.

Singlehandedly, Peterson has also created a loose network of deficit-hawk organizations that seem independent but that all spout the Peterson-sanctioned messages of the need for “grand bargain” in the vein of the Simpson-Bowles plan.

“I think they do promote the notion that anything serious means that benefits have to be cut,” says Lawrence Mishel, president of the Economic Policy Institute, a progressive think tank that has received funding from Peterson’s foundation. “I don’t know why they’re not laughed at when they say there’s going to be a crisis at any minute.”

All of this makes Peterson — indirectly, at least — a major player in the end-of-the-year fiscal negotiations, on par with the labor unions, pro-business groups, and the hordes of K Street tax and corporate lobbyists.

“He has empowered those working on the issue because he has funded them,” says Michael Ettlinger, vice president for economic policy at the Center for American Progress, which received more than half a million dollars from the Peterson Foundation in 2011. “That has an effect because those voices get amplified, and it affects the atmospherics.”

Calls for a deficit-reduction deal may seem new to voters just tuning into the fiscal cliff saga, but Peterson has been sounding alarm bells for years — ever since the 1980s, when he a wrote of a series of treatises for The New York Review of Books about the perils of Social Security.

Peterson grew up in Nebraska in a working-class family, the son of immigrant parents who owned a Greek diner that he says they operated nonstop for 25 years. They gave him the best education they could afford, and he applied those lessons to making piles of money for an advertising firm, an audio-visual manufacturing company, and Lehman Brothers. His real financial resources come from founding and selling the Blackstone Group, a New York-based financial firm.

With the sale of the company, Peterson thought about his next step and hoped to tackle something in the realm of public service. It was an area that always interested him, as Commerce secretary under President Richard Nixon. Plus, he added: “The idea of playing 18 holes of golf every day didn’t strike me as something I wanted to do.”

He thought back to his articles on Social Security, along with his interest in tax expenditures, defense spending, tax policy, and entitlement programs. Even in the 1980s, he says that he viewed the deficit as a black mark on individuals’ economic futures. “I saw a critical relationship between the American Dream and the country’s projected debt. Debt is about the past, not the future, and interest payments crowd out the investments the economy desperately needs in a competitive, global world,” he said.

So, Peterson decided to commit a chunk of his Blackstone fortune to deficit reduction: a move that has helped to fund many of the brand-name debt groups in town, including the Committee for a Responsible Federal Budget; the Concord Coalition; Comeback America Initiative; Fix the Debt; and, of course, the Peter G. Peterson Foundation.


Liberals continue to be skeptical of Peterson, since he originally advocated for just overhauling the entitlement programs. Many progressives see his fight as one waged to primarily shrink the size of Medicare, Medicaid, and the social safety net, rather than to sincerely deal with the tax code or deficit. Peterson disagrees with this characterization, saying that one area he’s most interested in is preserving programs like Social Security for the needy.

“He has misrepresented the nature of the crisis, implying that we have a deficit crisis because we have out-of-control spending. The reality is very simple. We have a deficit crisis because the economy collapsed,” says Dean Baker, an economist and founder of the Center for Economic and Policy Research.

One of Peterson's most interesting traits is that he changed his approach in the past few years to better suit this particular political climate. Rather than simply calling for changes to the entitlement programs, his “go big” approach now includes proposed tweaks in tax policy and calls for revenue alongside cuts to spending and changes to Medicare. He sat out endorsing a candidate during the presidential race because he wants to attract bipartisan support for his plans, but he’s always identified as a moderate Republican.

Though his groups advocate for politicians to take brave actions to tackle the deficit, his foundation has funded the creation of policy proposals from liberal groups that care far more about job creation and the safety net than immediate debt-reduction measures.

Peterson has also learned to take a less visible role publicly, opting instead to fund outside organizations to advocate on behalf of his plans and casting himself as patron and curator of diverse ideas and high-level people. This has made a difference in advancing his agenda, according to people close to him. “Pete is a great guy, but he is a lightning rod because he is a billionaire. He worked for Nixon; he made his money on Wall Street. And for a long time, he was solely focused on Medicare and Social Security,” says Dave Walker, former CEO of the Peterson Foundation and the founder of the Comeback America Initiative.

Peterson’s reach in D.C. was on full display at a recent fiscal conference, sponsored by his foundation roughly one week after the election. Just as President Obama and congressional leaders met at the White House to discuss the fiscal cliff, Peterson convened his own deficit-reduction crowd. On the seventh floor of the Newseum, dressed in a dark suit, pink tie, and pink pocket square, Peterson welcomed a long list of lawmakers, current and former administration officials, and think-tank wonks who spoke about the need to tackle the fiscal cliff and a 2013 budget deal.

“We would not be here if it wasn’t for the Peterson Foundation and Pete Peterson. They laid the groundwork, and we stand here on their shoulders,” said Erskine Bowles, the former chief-of-staff for President Clinton and one of the architects of the Simpson-Bowles deficit-reduction plan.

Peterson has certainly created an ongoing drumbeat for a grand budget deal. The big question is whether any deal will include elements of the Simpson-Bowles plan or others that Peterson prefers. It’s also unclear whether his ideas have gained enough traction to penetrate the consciousness of the tiny group of staffers and elected officials who ultimately will determine the contours of the negotiation.

Deal or no deal, “Pete will soldier on,” says William Novelli, former CEO of AARP and a member of the Peterson Foundation advisory board.

He has created an apparatus of deficit hawks that will long outlast the demands of the fiscal cliff; it’s so robust now that it’s like the budget community’s version of the military-industrial complex. His son, Michael, also seems prepared to carry out Peterson’s legacy as the CEO of the foundation.

This means that Peterson is here to stay as D.C.’s richest deficit hawk. Not a resident of the city, per se, but someone who influences its conversation — and the fiscal cliff should have little bearing on that role, regardless of whether we jump off the cliff or avert it.