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Quotational Therapy: Part 106 -- The Fed Chair Wants Social Security Reform.

Bernanke, On Entitlement Reform-


Ben Bernanke explains the urgent necessity of entitlement reform in this country:

...the coming demographic transition will have a major impact on the federal budget, beginning not so very far in the future and continuing for many decades. Although demographic change will affect many aspects of the government’s budget, the most dramatic effects will be seen in the Social Security and Medicare programs...

The fiscal consequences of these trends are large and unavoidable. As the population ages, the nation will have to choose among higher taxes, less non-entitlement spending, a reduction in outlays for entitlement programs, a sharply higher budget deficit, or some combination thereof.

Bernanke also noted that a failure to reform entitlements could very well lead to a diminishing standard of living for Americans in the future. The consequences of a lack of reform = serious harm to the economy. Fortunately, there are answers. We have the answers. The answer begins with Social Security reform.

Read Bernanke's entire October 4, 2006 speech here.

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Posted by Will Franklin · 16 October 2006 12:20 PM


I knew I was going to like this guy.

Posted by: Ken McCracken at October 16, 2006 12:56 PM

Thanks, Will, for your attention to Bernanke's warnings. Here are a few more tidbits on the size of the problem, all of which can be verified by reading the Trustees' report at www.ssa.gov (and following the links to the Office of the Actuary.)

The current Soc Sec shortfall is measured at $13.4 Trillion in present value.
That's up from $10.5 T, projected in the 2003 Trustees' report. Most (though not all) of the increase is attributable solely to the passage of three years.
Those who refer to Soc Sec as a "phony crisis" are neglecting a few key facts. First, the currently projected shortfall over the next 75 years is actually bigger than the one that the Greenspan Commission confronted in a crisis atmosphere in 1981-83. One often hears about how that was a "real" crisis then, whereas the current one isn't nearly as serious. But that's wrong; the current projected deficit over the next 75 years, even relative to our larger economy, is actually bigger than the one they addressed then. In fact, if we still used the same methodology they used (the Trustees' methodology was changed in 1988) it would be seen as nearly twice as big.
The chances of the problem going away, or even being postponed to a significant degree, are negligible at best. The Trustees project that program costs will exceed program revenues by 2017. Even if all the economic and demographic factors break in the same direction, that date barely moves. There's only a 10% chance it is delayed until 2020, and a 2.5% chance of preserving positive cash flows beyond 2022 under current law.
Finally, the Trustees have been warning about this problem for years and, as data comes in, it only confirms their predictions. The current projection of a cash crunch in 2017 happens to match the figure given in the 1991 Trustees' report -- 15 years ago! So then we had 26 years of lead time to make equitable and sound reforms, and now we have 11, and the choices are far worse. All that obstruction and delay have done for us is to constrain our options and to worsen the shortfall.

Posted by: Feverishb at October 17, 2006 06:30 AM

You're doing great stuff, Will.

Bernanke is absolutely right about reduced standards of living in the future if we fail to act on entitlement reform. When will we ever learn?

Posted by: James Hamilton at October 17, 2006 08:57 AM