During nearly two hours of questioning, Mr. Bernanke parried efforts by members of both parties to score political points, seeming to disappoint both sides. After saying “the budget deficit should narrow over the next few years,” he refused to make policy recommendations on how to do so, though he did caution against reacting hastily.
“This very moment is not the time to radically reduce our spending or raise our taxes, because the economy is still in a recovery mode and needs that support,” Mr. Bernanke told Representative Bob Etheridge, Democrat of North Carolina.
To Representative Jim Jordan of Ohio, one of several Republicans who accused the Obama administration of being profligate, Mr. Bernanke said that “increased taxes, cuts in spending that are too large would be a negative, would be a drag on recovery.”
To Representative Gerald E. Connolly, a Virginia Democrat who tried to get Mr. Bernanke to criticize the huge 2001 tax cuts signed into law by President George W. Bush, Mr. Bernanke said, “It probably did strengthen the economy, but it also raised the deficit.”
While defending the extraordinary responses to the recession as necessary, Mr. Bernanke has also emphasized the risks associated with the aging of the population. This year, he said, there are about five Americans 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, he warned, there will be only three.
“In addition, government expenditures on health care for both retirees and nonretirees have continued to rise rapidly as increases in the costs of care have exceeded increases in incomes,” Mr. Bernanke said. “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.”
Mr. Bernanke did not disclose his views on either the timing or the composition of the steps to meet those challenges — in a question-and-answer session with the broadcast journalist, Sam Donaldson, on Monday night, Mr. Bernanke said he, like Congress, was awaiting the conclusions of a bipartisan fiscal commission appointed by President Obama.
Who's on that bipartisan panel? Reuters has the complete rundown here. The Commission Cochairs are former Clinton White House Chief of Staff Erskine Bowles on the Democratic side and former Senator Alan Simpson on the Republican side.
Senator Simpson is a straight-talker, who doesn't pussyfoot around, as you can read in this Reuters story written before the Commission's first meeting:
"We're not going to say we're going to grow our way out of this," said former Republican Senator Alan Simpson. "Hell, we could have double (-digit) growth for 30 years and never grow our way out of this."
The deficit was $1.4 trillion in 2009, nearly 10 percent of the overall economy, and it is expected to be that much again this year. Longer term, the retiring baby boom generation will strain the Social Security retirement and Medicare health program for the elderly, putting even more pressure on government spending.
Erskine Bowles, former White House chief of staff under President Bill Clinton, said spending on those politically popular entitlement programs also has to be considered.
"If we're going to be serious about balancing the federal budget and righting this fiscal ship, then we have got to have everything on the table, and that includes the entitlement programs," Bowles said. "We'll never get to balance unless they're on the table.
Both liberals and conservatives have expressed concern about the commission. It is due to make its recommendations in December, well after the November mid-term congressional elections where record deficits and the $12 trillion national debt are likely to be major issues.
Liberals are worried the panel will recommend deep cuts to Social Security and Medicare as well as other social programs. Conservatives believe the panel is a way to set the stage for raising taxes.
"I'm not a stalking horse for taxes," Simpson said. "I had a terrific record on that. I'm a stalking horse for my grandchildren."
Bowles said the panel should look at the tax system, which critics say is so riddled with breaks and loopholes that it is becoming dysfunctional, and that a European-style value-added tax should also be on the table.
Most of the other commission members are current Senators and Representatives, with an equal number appointed by the each of the Democratic Majority and Republican Minority Congressional leaders. There are also a couple of Republican business people and a union leader on the panel.
Finally, one of my favorite people, former CBO Director Alice Rivlin, is also on the commission, so hope springs eternal in me that they'll come up with some good ideas .
Their report is due--not surprisingly--in December, right after the midterm elections.