Looming Federal Deficits: Don’t Blame the Elderly

[22 January 2007 - The Century Foundation] When Federal Reserve Board Chairman Ben Bernanke warned of looming future budget deficits in his widely quoted statement of January 18, he said nothing incorrect. Nevertheless, his statement is fundamentally misleading, a fact attested to by the failure of every commentary I have read to understand the true significance of the fiscal threat. Mr. Bernanke, following common practice, lumped together three entitlement programs -- Social Security, Medicare, and Medicaid -- and, again following common practice, projects frightening growth in total federal spending on them. His summary: "because of demographic changes and rising medical costs, federal expenditures for entitlement programs are projected to rise sharply over the next few decades." What Mr. Bernanke failed to make clear is that the aging of the U.S. population is not the fundamental root of the problem. It is the second cause, rising medical costs, that threatens to break the budget. What is more important, the growth in federal deficits is only a sideshow in our ongoing medical cost crisis. The whole economy -- employers, families, local governments, and the federal government too -- all are staggering under the burden of rising health care costs. To identify this as a crisis of fiscal deficits is like calling global warming a problem of erosion of public beaches. More