Bernanke: Paying for Medicare, Social Security weighs on economy

By Neil Irwin
Washington Post Staff Writer
Wednesday, April 7, 2010; 4:24 PM

The United States needs to take new steps to improve the financial condition of Medicare and Social Security, Federal Reserve Chairman Ben S. Bernanke said Wednesday, describing the challenges of paying for those programs as one of the greatest long-term challenges for the economy.

Bernanke, in an unusual discussion of an area outside his immediate responsibility, seemed to be using his bully pulpit to try to focus attention on what he views as the top long-run challenge for U.S. economic policy.

"To avoid large and ultimately 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 combination of the above," Bernanke said in a speech to the Dallas Regional Chamber.

"These choices are difficult, and it always seems easier to put them off -- until the day they cannot be put off any more. But unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth."

Bernanke did make clear that he does not view immediate steps to reduce the budget deficit as desirable, given the continued high joblessness.

"Today, the economy continues to operate well below its potential, which implies that a sharp near-term reduction in our fiscal deficit is probably neither practical nor advisable," he said. But he called for developing a "credible plan" to reduce long-run deficits, and even said that such a plan could help boost the economy in the near term by lowering long-term interest rates.

Bernanke has articulated similar ideas about long-term fiscal imbalances in congressional testimony, but usually only when he is asked about them by lawmakers. In one of his first major speeches since being confirmed for a second four-year term, Bernanke appeared to be trying to be trying to cast attention on an area over which he has no direct control: The Fed is responsible for managing the nation's money supply and supervising banks, but Congress and the president have sole power over the nation's tax and spending decisions.

He approached the subject with a bit of wryness.

"The economist John Maynard Keynes said that in the long run, we are all dead," Bernanke said. "If he were around today he might say that, in the long run, we are all on Social Security and Medicare."

http://www.washingtonpost.com/wp-dyn/co ... id=topnews