Federal Reserve chair Ben Bernanke took another swing at Social Security and Medicare today, saying yet again that they'll need to be cut to protect our nation's financial health. Based on his record, any roadmap Bernanke lays out for the future is worth following ... as long as you hold it up to a mirror first so that it's reversed.
For those of you who prefer equations to words, let me put it this way: BB on SS = BS.
Bernanke's comments about Social Security yesterday weren't just wrong. They were spectacularly wrong. They were as wrong as his comments on housing in 2005, when he denied there was a housing bubble and said that a rapid decline in housing prices was "a pretty unlikely possibility."
They were as wrong as his comments in 2007, when he said "there's a reasonable possibility that we'll see some strengthening in the economy sometime during the middle of the new year" and added that "there's not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy."
They were as wrong as his comments in April of this year, when he said that "my best guess is that economic growth, supported by the Federal Reserve's stimulative monetary policy, will be sufficient to slowly reduce the unemployment rate over the coming year" (a year that's now half over). He added: "If economic conditions improve, as I expect, we should see increased optimism among consumers and greater willingness on the part of banks to lend, which in turn should aid the recovery."
Let's hear a big shout from all those small business owners who are having an easier time getting bank loans. And if there any consumers in the house feeling more optimistic, wave your hands in the air like you just don't care.
Didn't think so ...
You'd think a record like that would inject even the most self-confident prognosticator with a little humility. Yet an unfazed Bernanke insists on issuing pronouncements about matters that are well outside his purview as Fed chair.
Bernanke's been on an anti-Social Security tear for some time. He took a run at it, and Medicare, in Congressional testimony last December. The seemingly mild-mannered economist even went so far as to remind Congress that it had the freedom to abolish Medicare and Social Security if it so wished: ""(Social Security is) only mandatory until Congress says it's not mandatory," he helpfully observed.
Why go after Social Security? Bernanke quoted bank robber Willie Sutton last December for his answer: ""That's where the money is."
Now Bernanke's no Willie Sutton. He's a decent enough guy, by all reports. They even say he drives a Ford Focus, for crying out loud. That's hardly a bankrobber's getaway car. So why is he gunning for Social Security? Ideology, for one thing, along with a massive dose of Washington tribalthink. Yesterday in Providence he once again sounded his klaxon, an alarm that remained deafeningly silent in the runup to the economic collapse, on the issue of entitlements. His stated concern was for future economic problems caused by government debt -- although he could neither describe how a crisis might be triggered or draw "a clear bright line" beyond which real troubles might begin.
Never mind. We need to cut entitlements anyway, says Bernanke, and the public will have to "accept some sacrifices." (Man, am I getting tired of comfortably well-off people asking others for "sacrifice." To paraphrase the old religious saying: I met a man who thought he was austere because he drove a Ford Focus, until I met a man with no feet ...)
Said Bernanke: "Expectations of large and increasing deficits in the future could inhibit current household and business spending -- for example, by reducing confidence in the longer-term prospects for the economy or by increasing uncertainty about future tax burdens and government spending -- and thus restrain the recovery.'
You know what's inhibiting spending and restraining the recovery (besides the fact that folks don't have jobs, and the Fed's ignoring its mandate to maintain employment levels)? People keep hearing that their Social Security and Medicare benefits are going to be cut! It's hard to go out and stimulate the economy with part of your paycheck (if you're lucky enough to have one) when times are hard and all you hear is that they'll be taking another piece of your retirement security away.
Having sunk the economic ship, Bernanke and his fellow-thinkers now want to set it afloat again ... by puncturing the liferafts.
One part of Bernanke's assessment isn't completely off-base, at least at first. He cites two long-term trends, an aging population and health care costs, as major contributors to the deficit. There's no question that health care costs are eating the economy alive, and the added government cost of Medicare as more people age will place more and more of that cost burden in the government's hands. So did Bernanke propose a single-payer health care system with the power to reduce the overall cost burden? Or did he explore other ways to restructure the health economy so that it more closely resembles lower-cost European systems?
No. Aside from mass euthanasia for Baby Boomers -- an inhumane approach, no matter how sick you are of hearing "Hotel California" -- that leaves either massive tax increases or gutting Medicare as the only other options. Guess which way Bernanke's leaning? While he's been uncharacteristically Sphinxlike on the specifics, he thought extending tax cuts would be a good way to maintain a "stimulus." He didn't exclude tax cuts for the wealthy from that statement, a telling omission that flies in the face of most analyses.
So tax increases, while they receive lip service, aren't really called for in the Bernanke approach.
While he had no solutions for health care costs, at least his assessment of the problem was fair. But Bernanke's assessment of Social Security was completely off the mark. When it comes to retirement benefits, he doesn't have a clue "where the money is." Yesterday, for example, he raised the alarm about the ratio of younger adults to retirees: "This year, there are about five individuals between the ages of 20 and 64 for each person aged 65 and older. By 2030, when most of the baby boomers will have retired, this ratio is projected to decline to around 3, and it may subsequently fall yet further as life expectancies continue to increase."
That's wrong. Really, really wrong. There's a lot that could be said about the life expectancy issue and worker/retiree ratios, but for now let's consider this: This wave of coming retirees was equally large when it was contributing to Social Security. That's one of the reasons why the expected shortfall doesn't occur until 2037, and why the program would still be able to contribute 75% of benefits after that (and 100% with a minor fix like lifting the payroll cap).
We'll say it again: Social Security isn't broken. Say it often enough and you might even stimulate a little more consumer spending.
Bernanke's honest, whatever his other flaws. He added: "Overall, the projected fiscal pressures associated with Social Security are considerably smaller than the pressures associated with federal health programs, but they still present a significant challenge to policymakers."
True. Then why fixate on Social Security? First, because the Washington elite finds it easy to stomach the kind of "sacrifice" that benefit cuts would require ... of others, especially those who aren't big campaign donors. Second, because there's no political will to raise taxes. Third, because nobody wants to address the real issue: health care costs.
Lastly, and most importantly, because there's a politician/economist orthodoxy on this topic that's truly strange to observe up close. There's a shared a set of folkways and beliefs around the subject of Social Security that DC outsiders can't understand or penetrate. And there's a ritualized aspect to this austerity talk, one that's worthy of ethnological study. It's as if the sacrifice of the elders was an initiation rite for Washington policymakers.
The Beltway Bubble: You can check out any time you like, but you can never leave ...
Some headlines today emphasized the fact that Bernanke wants to make these cuts slowly, rather than immediately. Bernanke said the following: "The sooner a plan is established, the longer affected individuals will have to prepare for the necessary changes. Indeed, in the past, long lead times have helped make necessary adjustments less painful and thus politically feasible."
We are not without sympathy, Mr. Bond. We will give you time to put your affairs in order ...
Bernanke's comments crystallize a strain of thinking that unfortunately dominates Beltway thinking right now: We can't make drastic cuts immediately but we can schedule future cuts now to demonstrate our "seriousness." This line of thinking says that cuts must be focused on the only area that can be addressed politically: partially repealing the New Deal by reducing Social Security benefits. Presumably it's hoped that this will create the political will, not for tax increases, but for subsequently cutting Medicare and other New Deal programs.
That sort of thinking begins by assuming that current political realities, established by the Right and compliant Democrats, are fixed and unchanging. But the political equation may be shifting: So far, more than 112 members of the House of Representatives have signed a pledge to block any cuts to Social Security.
Does the deficit need to be addressed? Yes -- at the right time, after the economy has returned to health. Is the groupthink Bernanke represents the right way to do it? Absolutely not. Health care costs need to be cut. And if you really want to know "where the money is," it's in the pockets of hedge fund managers and other ultra-rich Americans who, according to Beltway lore, will forever remain immune from significant tax hikes. And it's in the pockets of bankers who are enriching themselves by playing games with low-interest money from the Fed -- Ben Bernanke's Fed -- rather than lending it to get the economy moving again.
Sure, Social Security is where some money is. But that's money that working Americans paid into a trust fund through their payroll taxes, in the expectation that it would be there when they retire. Raiding it would be the act of a bank robber, not a policymaker.
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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Strengthen Social Security campaign. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
What a hide, What a hide!!
Please open your discount window to me like you do your Wall Street Friends.
Please lend me $500,000,000.00 at .000000001% interest.
Thank you
I wish I could accurately source this quote, but I can't. However, it's a dandy, isn't it? "American Lion," by Jon Meacham, is full of Jackson's continuous battles with the Central Bank, which ultimately resulted in an assassination attempt. Boy, was he pi$$ed after that.
The VA has reasonable prices for their drugs because they bid.
Why the government is playing us as fools is beyond my comprehension.
As far as I can tell, Medicare isn't paying too much for medical costs other than drugs. High bills are sent from the medical field, but Medicare cuts the charges back to being reasonable.
1776 Part 2
The American Revolution Redux
1776 Golden Oldies: "I regret that I have but one life to give for my country!", "I must study politics and war that my sons may have liberty to study mathematics and philosophy.", "Let justice be done though the heavens should fall.", "We must all hang together, or assuredly we shall all hang separately.", "Is life so dear or peace so sweet as to be purchased at the price of chains and slavery? Forbid it, Almighty God. I know not what course others may take, but as for me, give me liberty or give me death!"
That road Ben is taking us down. Do you suppose the bricks are made of gold? Probably not because all the munchkins are starting to feel the need to own those bricks.
“By 2030, when most of the baby boomers will have retired, this ratio is projected to decline to around 3, and it may subsequently fall yet further as life expectancies continue to increase. Overall, the projected fiscal pressures associated with Social Security are considerably smaller than the pressures associated with federal health programs, but they still present a significant challenge to policymakers.”
Bernanke fails to point out that Social Security has been collecting far more in taxes than it pays out ever since 1983 precisely to deal with that challenge. Those extra taxes were invested in a very safe asset class, namely U.S. T-bonds. The problem is not on the Social Security side, it is that we blew that money on tax cuts for the wealthy, two unfunded wars, and a major increase in Medicare Benefits (Part D) that was not funded, and was designed in such a way that the biggest beneficiary of it was the drug companies, not the seniors.
http://www.dailymarkets.com/stock/2010/10/05/ben-bernanke-on-fiscal-policy/
The Medicare drug plan has actually raised the costs for drugs for the elderly.
It's obvious that the picture is very different if you're above the economy looking down on it than it is if you're below it looking up. Bernanke simply can’t understand that discretionary income has disappeared from the ordinary American’s budget and that increasing Federal deficits have nothing to do with the decline of household and business spending; present or future.
I know it’s asking a lot of the Chairman of the Federal Reserve to understand this; but there isn’t enough freely moving money in our economy to sustain it much less grow it! You can’t lay off millions of workers and burden the rest of the population with overwhelming debt and expect the economy to grow. It just isn’t going to happen that way! Putting more money in bank vaults isn’t going to help either. The money has to somehow go into circulation. That’s why government programs are necessary if our economy is to recover. Oh and here’s another thing. We have to increase taxes in the top tax bracket to keep that money in circulation.
“Pinky…Are you thinking what I’m thinking?”
If so, why wasn't he quoted in the article as saying so? Just read entire article, none of Bernanke's quotes even imply that.
Prove that he said we have to cut SS. Give an actual quote or stop writing these articles.
Not quotes to a panel from last December, recent ones, as in "another swing".
This article is pure scare tactics, the Progressive equivalent of "death panels".
And don't conflate SS with Medicare. SS goes to people, Medicare goes to the medical industry.
Medicare Part D is a disaster, should be eliminated, as should Medicare before touching SS.
(Does HuffPost have the guts to post this? Doubt it.)
Mr Eskow says "Third, because nobody wants to address the real issue: health care costs. ", neglecting what Bernanke said:
"As the health-care needs of the aging population increase, federal health-care programs are on track to be by far the biggest single source of fiscal imbalances over the longer term. Indeed, the Congressional Budget Office (CBO) projects that the ratio of federal spending for health-care programs (principally Medicare and Medicaid ) to national income will double over the next 25 years, and continue to rise significantly further after that."
The Eskow quotes: ""The sooner a plan is established..." without quoting the preceeding sentence:
"What we do know, however, is that the threat to our economy is real and growing, which should be sufficient reason for fiscal policymakers to put in place a credible plan for bringing deficits down to sustainable levels over the medium term."
The "Catfood commission" and "Death panels" chants have the same goals; scare people.
What it all hides: the US medical industry is the biggest creator of deficits, and biggest threat to SS. Medicare Part D and legalizing TV drug ads are up there with a war for oil and tax cuts for rich as Bush deficit-creation disasters.
Our biggest problem is that people believe our medical industry works, and that their so-called preventative medicine (drugs and scans) actually save money. That naive belief is bankrupting us.
the baggers of course will substitute OBAMA FOR BERNANKE -in that statement
- Bernanke raided your tax dollars to the tune of trillion and simply handed it over to his rich Wall St. buddies who promptly paid themselves massive bonuses.
- Bernanke has given investments banks cart blanche to lending from the Fed at unheard of rates (essentially 0%).
Yet, when it comes to the common working American? Bernanke says sacrifces must be made. Bernanke says the common working American needs to suck it up and stop complaining.
How much more evidence do people need to know who runs the country? How much more evidence do people need that Bernanke has engaged in the biggest heist in human history? When will Americans wake up and do something about it?