Mar 1 1997

A Crusader in Clover

Pete Peterson, Enemy of Social Security, Counts Journalists as Friends

Where does the man find the time to earn all that money? You can’t turn on the tube but there’s Peter G. Peterson, telling some awestruck talking head that Social Security and Medicare are gobbling up our kiddies’ porridge. Or he’s writing it on your favorite op-ed page, or in magazines, or relaying the message through a thousand media converts. Or he’s presiding over the Council on Foreign Relations or the Concord Coalition, or gracing the society page in a dinner jacket, at all the really important social functions, sometimes as host. Or you can find him more informally at Sunday brunch in the Hamptons, with such useful tablemates as Diane Sawyer, Mort Zuckerman, Leslie Stahl, Peter Jennings, Barbara Walters and so on.

Vanity Fair (8/93) called on the great crusader at his spectacular beachside retreat in 1993 for an admiring profile. It said the interview was interrupted by telephone calls arranging the appointment of Leslie Gelb (ex-New York Times) as president of the Council on Foreign Relations, and of James Hoge (ex-New York Daily News) as editor of the organization’s journal. Peterson made another call inviting former Sen. Warren Rudman (R.-N.H.) to join the board of the Robert Wood Johnson Foundation, a health-policy appendage of the great health supply company Johnson & Johnson (of which Peterson’s third wife is a director).

Peterson told Vanity Fair he was writing about health policy at that very moment, for his second book, Facing Up: How to Rescue the American Economy From Crushing Debt and Restore the American Dream. That would be the chapter that said: “The issue isn’t whether these new [universal health] benefits would be nice to have. They would. The issue is whether we can afford it. We can’t.”

That’s our boy. His remark lends piquancy to his wife’s explanation that her husband needed his $2.5 million, $1,500-an-hour helicopter to safeguard his health.

The question is not whether this kind of healthcare is nice. It is. The question is whether he can afford it. He can.

While he is reticent about his income, Vanity Fair put his take-home in 1992 at $7 million, not an excessive sum for an investment banker of his rank. His partner Stephen Schwartzman, who is regarded in the financial press as the sparkplug of their firm, the Blackstone Group, said that year that investors in its venture fund should expect returns of 25 to 30 percent during the 1990s—again, not unreasonable, since the Dow Jones average rose more than 26 percent last year.

Such rates of return are, again, piquant, because Peterson has described the indexation of Social Security, which lately has raised benefits by roughly 3 percent a year, as “one of the greatest fiscal tragedies of American history.” Piquant? Wait. Peterson was at President Nixon’s side as his economic adviser and secretary of commerce when that “tragedy” was enacted in 1972. (Conservatives thought making the cost-of-living adjustment automatic would deter Congress from voting more generous benefits.)

Peterson denounces the “mad, drunken bash” of the Reagan years. That would be the time when the top income-tax rate was cut from 70 percent to 28 percent, military spending went sky-high, and trillions were made (and lost) on savings and loans and takeovers financed by junk bonds. He was himself, of course, making out like a bandit, hustling for his share of the action, and contributing his bit to Republican campaign funds. He also led a chorus of corporate executives who keened about the exploding federal deficit. His contribution was a key series of articles in the New York Review of Books in 1982 (12/2/82, 12/16/82) that prepared the intellectual climate for the 1983 Social Security “rescue,” which raised payroll taxes and lowered benefits.

The series purported to prove with mathematical certainty that the entitlements of the elderly were snatching food from babies and driving the nation toward bankruptcy. George Will called it “the most important journalism of 1982.” (Washington Post, 12/19/82). Its charts persuaded such liberals as Tom Wicker and Anthony Lewis. Leslie Stahl of ABC said Peterson “really began to educate me.” (She has since repaid the favor with appearances by her mentor on 60 Minutes.)

All the journalists he met seemed impressed by his expertise, and by his generosity in offering to surrender his own entitlements. It does not seem to have occurred to any of his interviewers that a rise of 1 percentage point in his income tax rate would cost him perhaps twice as much as his Social Security and Medicare benefits combined. Nor have any observed how policies he has supported have transferred the tax burden from the wealthy to the wage earner. Indeed, in Facing Up, Peterson remarks with pleased surprise that nobody had clamored for a cut in the Social Security payroll tax to match cuts in benefits.

If opinion-makers consider Peterson an expert on finance, experts on finance tend to consider him more of an opinion-maker. Ken Auletta’s book Greed and Glory, about the near collapse of Lehman Brothers in the 1980s, describes Peterson as, in the eyes of his partners, an arrogant bungler dying to make killings in leveraged buyouts, an obsessed reactionary, a name-dropping snob and, all told, so much a pill that his partners paid him $18 million to get rid of him.

Now to return to the question with which we began: How does Peterson find the time to make all that money? It would seem to be the new-fashioned way of tapping the gusher of wealth flowing from the economy. Peterson took his severance pay to Schwartzman and formed the Blackstone Group, which played the arbitrage game, bought up failing companies, shopped the savings-and-loan auctions, and made money.

A towboat operated by one of their subsidiaries and piloted by a man who had flunked his licensing exam seven out of eight times hit a railroad bridge and caused 47 deaths. Another Blackstone company drilled a hole in the Chicago River and caused that city’s costliest disaster since the Great Fire. A major partner resigned last October under the cloud of an ugly scandal alleging fraud.

These things happen. Peterson is a busy man. Journalists may be forgiven for not connecting him with these misfortunes, or even knowing about them. What is not forgivable is their swallowing his ideological book, line and sinker.