When the war comes,
the Federal Reserve chairman will have to be general. That person
will likely be Bush nominee Ben Bernanke. The question is, for
which side will he fight?
Outgoing Fed Chairman
Alan Greenspan tried to represent both sides. He supported the
Bush tax cuts. This gave comfort to today's taxpayers, who chose
not to charge themselves for the wars in Afghanistan and Iraq,
the new Medicare drug benefit and the quarter-billion-dollar bridge
Last spring, Greenspan
did service for the other side. "I fear that we may have
already committed more physical resources to the baby boom generation
in its retirement years than our economy has the capacity to deliver,"
he said. One solution would be to ramp-up means-testing for Medicare,
the health insurance plan for the elderly. Greenspan would reconfigure
the program "to be relatively generous to the poor and stingy
to the rich."
The political reality
is that the baby boom generation expects to see the nice government
handouts its retired parents enjoyed, and then some. Younger workers
expect to be taxed at today's lower rates. One group will be very
disappointed -- or perhaps both groups -- because there is no
way the Candyland economics of today can go on.
alarming future is nicely mapped out in a book, "The Coming
Generational Storm," by Boston University economist Laurence
Kotlikoff and Scott Burns, a personal-finance columnist at The
Dallas Morning News.
Kotlikoff and Burns
clearly sympathize with younger Americans and Americans not yet
born, who will be paying both our bills and their own. "Does
it feel better," the authors write, "if those unknown
victims of our rapacity are someone else's children and the children
of those children and the children of those children of those
Sounds like war to
me. Kotlikoff and Burns try to be meticulously nonpartisan, but
I won't. Though the irresponsible policymaking spanned decades,
today's mad deficits rush us closer to disaster. Democrats are
not shy about pushing for retiree benefits, but at least they
consider raising taxes to pay for them. Not the current crowd,
whose spend-and-borrow strategy is the 1919 Versailles Treaty
of this-century America: an unstable setup that guarantees future
The scam is that
the tax cuts are not really wiping the nation's slate clean of
tax obligations. When spending exceeds tax revenues, the difference
must be borrowed. That debt does not disappear. It gets paid for,
with interest, by someone's taxes. So the Bush cuts simply move
the taxes from one generation of shoulders to another.
Ben Bernanke would
certainly come to the Fed job with good credentials. Head of the
president's Council of Economic Advisers, he formerly chaired
the Princeton economics department. Bernanke seems OK, but other
candidates were more upfront about deficits.
One was Martin Feldstein,
Reagan's top economic adviser. Feldstein drew flak for criticizing
the Reagan deficits. The Bush White House wouldn't want to hear
that kind of thing. Anyway, there's no need to worry about making
ends meet when you can use the next generation's credit card.
contender for the Fed job was Larry Lindsey. He was fired as a
Bush adviser in 2002, after predicting that the war in Iraq would
cost up to $200 billion, a figure already passed. Lindsey did
not understand: One simply does not talk price in the Bush administration.
Given the president's
tendency to give top jobs to those closest, we can give thanks
that he did not nominate his banker brother. Neil Bush played
a major role in the Silverado Savings & Loan fiasco of the
1980s, which cost taxpayers $1 billion.
Or perhaps the president
was doing the big-brotherly thing in protecting Neil from a job
sure to be filled with strife. The person who heads the Fed in
the next decade will be trying to steer the nation through the
perfect economic storm. Good luck to the new chairman, and to
all the generations.