Yes, the U.S. economy may finally be recovering. American willpower to confront real problems? Not so much.
To his credit, Ben Bernanke isn’t here to make us feel better. The Federal Reserve chief devoted the last third of his prepared testimony before the Senate Budget Committee Friday to a familiar complaint: that Congress isn’t taking seriously the chronic – yet potentially acute – problem of U.S. overspending.
Bernanke has made this point more than a few times before, and he stressed Friday that he isn’t calling for anyone to act rashly in a way that might derail U.S. growth, such as it is.
But someone, he emphasizes, has to do something before it’s too late.
It is widely understood that the federal government is on an unsustainable fiscal path. Yet, as a nation, we have done little to address this critical threat to our economy. Doing nothing will not be an option indefinitely; the longer we wait to act, the greater the risks and the more wrenching the inevitable changes to the budget will be.
As he has before, Bernanke called for the powers that be to debate and then adopt a plan for reducing spending over the next five to 10 years. The idea is to keep the foreigners who fund our outsize appetite for stuff on board.
In the absence of a plan limiting the U.S. fiscal appetite, Bernanke said, we will grow so fat that we will inevitably face a debt crisis. He points to a recent Congressional Budget Office study on debt levels:
But if government debt and deficits were actually to grow at the pace envisioned in this scenario, the economic and financial effects would be severe. Diminishing confidence on the part of investors that deficits will be brought under control would likely lead to sharply rising interest rates on government debt and, potentially, to broader financial turmoil. Moreover, high rates of government borrowing would both drain funds away from private capital formation and increase our foreign indebtedness, with adverse long-run effects on U.S. output, incomes, and standards of living.
Even Congress can understand that sort of talk, presumably. We shall see if that understanding translates into action.