The United States should act now to deal with the budget effects of the aging of the population or prepare to have a weaker, less stable economy.
Federal Reserve Board Chairman Ben Bernanke delivered that message Monday during the annual meeting of the Rhode Island Public Expenditure Council in Providence, R.I.
In the short run, U.S. governments at all levels are grappling with the near-term effects of a weak economy, and also “with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population,” Bernanke said, according to a written version of his speech provided by the Federal Reserve Board.
“History makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability,” Bernanke said.
Premature fiscal tightening could hurt the economy, but letting deficits increase could household and business spending, by reducing confidence in the economy, putting limits on necessary government spending, and forcing the country to rely on non-U.S. lenders, Bernanke said.
Meanwhile, “two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health care costs,” Bernanke said.
Social Security will face severe pressure, and Medicare and other federal health pressure will face even more, Bernanke said.
“The same underlying trends affecting federal finances will