Ben Bernanke has overseen the greatest expansion of the Federal Reserve’s balance sheet in its history, pouring trillions of dollars into Wall Street firms at roughly zero interest rates.
His generosity, however, has a limit.
In testimony before the Senate Banking Committee today, where he’s seeking re-appointment as the Fed’s chairman, Bernanke called for cutbacks in Medicare and Social Security even as unemployment rises and the middle class is endangered.
Citing legendary bank robber Willie Sutton, Bernanke said of the retirement and health care funds that are the legacy of the New Deal: “That’s where the money is.”
Sen. Bob Bennett (R-Utah) sympathized with Bernanke, saying that, because of entitlement spending, “you’re going to be looking at a situation where the Congress will be unable to provide any kind of fiscal discipline because of the mandatory spending. That puts an enormous burden on your plate.”
“Well, Senator, I was about to address entitlements,” Bernanke replied. “I think you can’t tackle the problem in the medium term without doing something about getting entitlements under control and reducing the costs, particularly of health care.”
Bernanke reminded Congress that it has the power to repeal Social Security and Medicare.
“It’s only mandatory until Congress says it’s not mandatory. And we have no option but to address those costs at some point or else we will have an unsustainable situation,” said Bernanke.
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But there are several other obvious options that could make the situation sustainable — including a transaction tax on Wall Street speculation or a slight tax hike on the wealthiest Americans.
Bernanke talks as if increasing taxes on the wealthy simply isn’t an option.
Sen. Jack Reed (D-R.I.) followed Bennett and pointed out that “there’s only really two ways you can deflect this deficit, and that’s either by cutting expenditures or raising income taxes or other forms of taxes.”
Reed asked him if he could think of other ways, but Bernanke returned to entitlement money as the way to balance the budget.
“Willie Sutton robbed banks because that’s where the money is, as he put it,” Bernanke said. “The money in this case is in entitlements.”
There’s also money at the very top of the income ladder. Reed asked if Congress would be wise to tax some of it. Full of suggestions when it came to cutting entitlements, Bernanke was suddenly overtaken by a bout of policy modesty.
“Would you take taxes off the table?” Reed asked.
“Those decisions are up to Congress,” Bernanke said.
“Well, your predecessor signaled very strongly that the tax cuts in 2000 were appropriate,” Reed reminded him.
“I have not done that. I’ve done my best to leave that authority where it belongs, with the Congress,” Bernanke said, just moments after telling Congress to cut entitlement spending.
Sen. Bernie Sanders, an independent from Vermont who has placed a hold on Bernanke's nomination, was apoplectic when HuffPost told him Bernanke was pushing for cuts in entitlement spending. "Bernanke wants to cut entitlement spending? Well, that confirms everything I'm saying," Sanders fumed.
"The CEOs and top people on Wall Street make huge bonuses, and what? We're going to cut back on Social Security and Medicare? That's what we're going to do?"
Bernanke worked to assure the committee he had nothing against old people. "I'm not in any way advocating unfair treatment of the elderly, who have worked all their lives and certainly deserve our support and help, but if there are ways to restructure or strengthen these programs that reduce costs, I think that's extraordinarily important for us to try to achieve," he said.
Bernanke allies in the Senate are working to see he gets his way. Senate Budget Committee Chairman Kent Conrad (D-N.D.) has been pushing hard for the creation of an independent commission that could cut entitlement spending. He has met recently, he said Thursday, with Senate Majority Leader Harry Reid (D-Nev.) and Treasury Secretary Tim Geithner, reiterating his threat to block Senate legislation if the commission isn't created.
"We're on a course that's just unsustainable," Conrad said, but put emphasis on Medicare rather than Social Security.
While the debate about entitlement spending is often masked with high-minded talk about fiscally-responsible policy solutions, it is little more than a struggle between competing classes for scarce resources.
Sanders said he sees it for what it is. "That's the solution? To cut back on the middle class and the elderly? That only adds fuel to the fire," he said. "Look, let's be clear. The middle class in America today is collapsing. Within the confines of the Beltway, we don't talk about that too much. But that is the reality. It's not just unemployment or underemployment. People are working longer hours for lower wages. People are unable to send their kids to college. People are losing their homes. People's jobs are going to China. That is the reality."
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