Friday, January 19, 2007

The Fed and Your Wallet

This is Ben Bernanke, Chairman of the Federal Reserve bank. He is about to explain to Congress why they have to cut the programs that created and still support the existence of the American middle-class.

Cynics would say that this is the Fed chief's job. He chairs our "independent" central bank, meaning that the bank is not under the direct control of one of the three branches of government, even the one, the legislature, that represents the people. The bank is therefore free to reflect the world view of the people who staff it, known as "bankers" and the economists that are acceptable to them. The Fed chair is also free to testify about this or that danger in a way that sets the economic agenda for politicians and the press - two groups notoriously not independent in their economic thinking. The Fed is free to serve its most immediate and powerful constituency, the financial community.

The photo comes from the New York Times's coverage of Bernanke's Congressional testimony, entitled "Fed Chief Warns that entitlement growth could harm economy." There are two things to say about this.

First, Bernanke makes the mistake most of the press likes to make too. He lumps all entitlements together, so that Social Security is a huge problem along with health benefits. In fact, Social Security is not a problem. As the economist Dean Baker has pointed out weekly during most of the Bush administration, Social Security has no deficit at all, and can pay all scheduled benefits with no change in contributions through at least 2041. Health care costs are, on the other hand, a big problem, running long-term costs around eight times higher than social security. Reigning in health care costs is not a question of reigning in "government spending," but of reigning in the cost of health care. It's a government problem only because the government has to deal with the same thing we all do: American health care costs more than twice as much as the next more expensive system in the world, and delivers about the 30th best care.

Second, why are the programs that benefit the economic majority always the official problem? Why isn't Bernanke upset about corporate tax cuts, profit offshoring, the fact that we are spending $8.4 billion a month making Iraq worse, or the grotestquely inefficient, growing concentration of wealth that does not flow back to cover government costs?

Bernanke made useful if familiar points about sloppy spending and its price - e.g. the national debt will be 100% of GDP by 2030 and interest charges alone will triple to 4.6% of GDP. But until he can take on inefficient wealth as well as necessary health and retirement programs, he should be ignored.

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