Bernanke & The Burden Of American’s Aged

Ben Bernanke’s testimony before the Committee on the Budget of the U.S. House of Representatives was mostly predictable. He talked about the steady improvement in the American economy and predicted that GDP would be up by about 3% this year and next.

He said he expected that unemployment would stay high and that housing would remained troubled.

In addition, he said that at the rate at which Americans are aging, balancing the budget and lowering the national debt would be a Herculean feat.Bernanke said:

Among the primary forces putting upward pressure on the deficit is the aging of the U.S. population, as the number of persons expected to be working and paying taxes into various programs is rising more slowly than the number of persons projected to receive benefits. Notably, this year about 5 individuals are between the ages of 20 and 64 for each person aged 65 or older. By the time most of the baby boomers have retired in 2030, this ratio is projected to have declined to around 3. In addition, government expenditures on health care for both retirees and non-retirees have continued to rise rapidly as increases in the costs of care have exceeded increases in incomes. To avoid sharp, disruptive shifts in spending programs and tax policies in the future, and to retain the confidence of the public and the markets, we should be planning now how we will meet these looming budgetary challenges.

What he is saying is that an economy that will only grow slowly cannot support the likely costs of Medicare, Medicaid, and Social Security. The most complex corollary to the problem is that unemployment could remain high for four or five years, further undermining the tax base.

The only reasonable solution to the future financial catastrophe is to gamble that another huge stimulus package, similar to the $787 billion one passed last year, will jumpstart the economy with enough capital that it will encourage businesses to add to large numbers of people to their payrolls. Given that  more than 8 million jobs were lost in 2007, 2008, and 2009, the rolls of the unemployed would have to drop by 400,00o a month for over a year in 2011 and 2012.

The $787 billion stimulus package did not do much to improve unemployment. And Congress is unlikely to gamble on another one during an election year where austerity is a major campaign issue.

The politics of Washington will prevent the solution to Bernanke’s concern.

Douglas A. McIntyre