The Guardian Unlimited, December 1, 2008
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Every few years there is a book or movie that stands out for its incredibly bad timing. As the Internet bubble exploded in 2000, the book “Dow 36,000” quickly went from a work of inspired genius to intense derision. More recently, the 2005 book, "Why the Real Estate Boom Will Not Bust and How You Can Profit From It," has become one of the great jokes of the housing crash. As the country and the world attempt to recovery from the wreckage caused by these bubbles, the new documentary, IOUSA, seems destined to join these two earlier classics of bad timing.
The basic story of IOUSA is that the United States suffers from a massive deficit problem. The film constantly comes back to the deficit using a variety of measures that are intended to scare viewers into action. After seeing the film we are all supposed to run to our phones and computers and demand that our representatives in Congress shut down Social Security and Medicare and double our taxes.
Hopefully, the film will not have this effect, because there is nothing that the economy needs more right now than very large deficits. The collapse of the housing bubble has destroyed more than $5 trillion in wealth. The fallout from this collapse has led to an even larger decline in stock market wealth. This massive loss in wealth in turn is leading to a plunge in consumption that is driving the economy into the most serious downturn since the Great Depression.
Economists from across the political spectrum agree that the only way to counteract this loss of consumption demand is through large increases in government spending. If IOUSA viewers manage to persuade their representatives in Congress to balance the budget, then they will be guaranteeing the country another Great Depression.
Ironically, the heroes of IOUSA include many of the leading villains of the current economic crisis. The story prominently features Peter Peterson, whose foundation is helping to circulate the film. Mr. Peterson made a fortune running a Wall Street private equity fund, much of which he was able to shelter from normal taxation through the “fund managers’ tax break.”
Mr. Peterson is fond of telling audiences that he doesn’t need his Social Security. Of course, no one would need their Social Security if they received tens of millions of dollars in tax breaks like Mr. Peterson.
The extensive media coverage that Mr. Peterson has received for his anti-Social Security and Medicare diatribes also helped to distract attention from those trying to call warn of the dangers looming from the housing bubble. While Peterson and his followers could count on extensive coverage from National Public Radio, the Washington Post, and other highly respected media outlets, those warning of the imminent crisis were almost completely ignored.
The film also interviews Robert Rubin. As Treasury Secretary, Robert Rubin promoted an over-valued dollar. The over-valued dollar made our goods uncompetitive internationally by raising the price of U.S. exports to foreigners and lowering the price of foreign-made goods to people living in the United States. As a result, our trade deficit exploded, peaking at almost 6 percent of GDP ($800 billion) in 2006.
Rubin also pushed the one-sided financial deregulation that fueled the irresponsible lending practices of the housing bubble years. These were practices that he personally profited from as a top executive at Citigroup.
Finally, the film gives a starring role to former Federal Reserve Board Chairman Alan Greenspan. Greenspan will go down in infamy as the man who looked the other way as the housing bubble soared to ever more dangerous levels. He also claimed to be oblivious to the explosion of subprime and other high-risk loans during his tenure as Fed chair. More than any other individual, Alan Greenspan bears responsibility for the economic catastrophe facing the country. Audiences may find his lectures on the need to increase saving less than compelling at this point.
There is a grain of truth to the IOUSA scare story. The country has a badly broken health care system. If we don’t fix the health care system then it will cause serious damage to the economy and lead to large budget problems in future decades since the government picks up roughly half of the tab for health care through programs like Medicare and Medicaid. Unfortunately, the film never clearly mentions the need for health care reform, focusing only on the budget and not the underlying problem with the private health care system.
The moral of the IOUSA story – the need to reduce the budget deficit – is so radically out of sync with the economic imperatives facing the country that it is likely to quickly fall from sight, perhaps to be resurrected in film festivals showing red scare films from the fifties. This would be a positive development for the country, since it would be an enormous tragedy if this film helped to dissuade the public from supporting the sort of stimulus package needed to prevent a long and extremely painful recession.
The director of the film, Patrick Creadon, is highly talented and clearly well meaning. Obviously he just fell in with a bad crowd when he decided to make IUOSA. Maybe for his next two films he should interview the authors of “Dow 36,000” and “Why the Real Estate Boom Will Not Bust and How You Can Profit From It.” This could be marketed as the “people who really got it wrong” series.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.