Bernanke: "We Must Cut the Fed's Budget"

Okay, that is not what Benjamin Bernanke said, but that is what his logic implies. How do I get there?

Well, in a speech today, Mr. Bernanke complained about the huge projected rise in entitlement spending. He pointed out that Social Security and Medicare spending together are projected to rise from 7 percent of GDP today to 15 percent of GDP by 2050. Therefore he called for the revamping of both programs.

Of course, Mr. Bernanke knows that three quarters of this projected increase in spending is due to the projected rise in Medicare costs. The projected increase in Social Security spending is relatively modest over the next 45 years and in fact no larger than it was over the last 45 years. In addition, he also knows that workers have already largely paid for this projected increase in spending, paying a designated Social Security tax that exceeds current needs. The Congressional Budget Office projects that future tax revenue, plus the accumulated surplus over the last quarter century, will be sufficient to pay all scheduled Social Security benefits through the year 2046, with no changes whatsoever.

So, Mr. Bernanke was not being honest when he claims there is a problem with Social Security. There is a problem with projected Medicare spending. Because of the projected problem with Medicare spending, there is also a problem with any category of spending which includes Medicare.

Let's use Mr. Bernanke's logic to talk about the problem with Fedtitlements. This is the category of spending which includes "entitlement" spending plus the Federal Reserve Board's budget. Spending on fedtitlements is projected to grow by more than 8 percentage points of GDP by 2050. Clearly, it is imperative that we take immediate action to cut the Fed's budget. It certainly would be appropriate if the Fed chair continues to use his platform to advance his political agenda.

--Dean Baker

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