April 05, 2020


A recent speech by the chairman of the Board of Governors of the Federal Reserve, Ben Bernanke, deserved more attention than it received not because what he said was so startling, but because his modest suggestions on Social Security were achievable even within a highly partisan Congress. Moderates looking for a way to confront the long-term problem of the retirement benefit should be especially interested.

Mr. Bernanke last week observed to The Washington Economic Club that the first members of the Baby Boom generation would reach the minimum age for receiving Social Security benefits in 2008. By 2030, older Americans will constitute about 19 percent of the population, a greater percentage than make up the population of Florida today. Paying the retirement and health benefits of this population, then and in future, will certainly be a shared endeavor – some of the payments will come from money contributed by the retirees themselves during their working years, some will come from current workers.

These will be paid in several ways. “As the population ages,” Mr. Bernanke said, “the nation will have to choose among higher taxes, less non-entitlement spending, a reduction in outlays to entitlement programs, a sharply higher budget deficit, or some combination thereof.” These intergenerational tradeoffs, however, can be mitigated in two related ways – increasing savings and reducing the deficit.

A nation with many more retirees lowers per capita gross domestic product, creating an economic burden. But if an increased national savings rate, he said, “were used to increase the nation’s capital stock – the quality of plant and equipment available for use by workers – then future workers would be more productive, ameliorating the anticipated effects on per capita output and consumption.”

Lowering the deficit might also help, Mr. Bernanke said, because “to the extent that reduced government borrowing allows more private saving to be used for capital formation or to acquire foreign assets, future U.S. output and income will be enhanced and the future burdens associated with demographic change will be smaller.”

Mr. Bernanke doesn’t put figures to most of this; he doesn’t say how much the burden would be lowered by improved savings and reduced deficits. But the encouraging part of his commentary is that Congress already has a clear majority that knows it can neither pass the president’s plan for privatizing Social Security nor do nothing, as Democrats stall. Yet it could rally around improving the nation’s economic health in the name of strengthening Social Security.

The chairman’s comments don’t provide the thrill of an ideological reform of the nation’s retirement system, but they could extend the healthy life of the program.

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