Bernanke on Deficits: In Long Run, We’re All on Social Security, Medicare
This morning Jon Hilsenrath prominent the Fed Chairman Ben Bernanke was likely to highlight the substance of deficit reduction in a run of speeches. The following is an excerpt on the issue from the chairman’s remarks in Dallas today:
- Associated Press
- Federal Reserve Chairman Ben Bernanke
The economist John Maynard Keynes said that in the long run, we are all dead. If he were around today he might say that, in the long run, we are all on Social Security and Medicare. That brings me to two interrelated economic challenges our nation faces: meeting the economic needs of an aging population and regaining monetary sustainability. The U.S. population will change significantly in coming decades with the combined effect of the decline in fertility rates following the baby boom and increasing longevity. As our population ages, the ratio of working-age Americans to older Americans will fall, which could hold back the longrun prospects for living standards in our country. The aging of the population also will have a major impact on the federal budget, most dramatically on the Social Security and Medicare programs, particularly if the cost of health care continues to rise at its historical rate. Thus, we must commence now to prepare for this coming demographic transition.
The economist Herb Stein once famously said, ?If something cannot go on forever, it will stop.? That adage certainly applies to our nation?s monetary situation. Inevitably, addressing the monetary challenges posed by an aging population will require a willingness to make hard choices. The arithmetic is, unfortunately, quite apparent. To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some amalgamation of the above. These choices are hard, and it always seems simpler to place them off–until the day they cannot be place off any more. But unless we as a nation demonstrate a strong commitment to monetary responsibility, in the longer run we will have neither financial stability nor healthy economic progression.
Today the economy continues to operate well below its potential, which implies that a astute near-term reduction in our monetary deficit is probably neither practical nor advisable. But, nothing prevents us from commencement now to develop a credible plot for meeting our long-run monetary challenges. To be sure, a credible plot that demonstrated a commitment to achieving long-run monetary sustainability could lead to lower interest rates and more rapid progression in the near term.
Our economic challenges, both near term and longer term, are daunting to be sure. Nonetheless, I wait optimistic that they can be met. History has demonstrated time and again the inherent resilience and recuperative powers of the American economy. Our country?s competitive, market-based system, its flexible capital and labor markets, its tradition of entrepreneurship, and its knack for innovation have ensured that the nation?s economy has surmounted hard challenges in the past. I do not doubt that we can do so once again.