Bernanke Says Social Security Reform Must Include Private Accounts and Ensure Solvency

Lots of interesting comments here.  First, Bernanke, speaking on behalf of the White House, has effectively ended any chance that the House plan will be enacted.  He also appeared to oppose White House National Economic Council Director Allan Hubbard who supports the House plan as a first step in the reform process.  Second, Bernanke says that the clawback of 3% may need to be reduced. 

According to Bernanke the White House will insist on a reform proposal that contains both solvency provisions and the creation of personal accounts.  While this brings some rationality to the debate over and above what we’ve heard from DeMint and his ilk, and the intent appears to be to find a way to get reform moving again, this looks like it will stall things even further, particularly given the reactions from others in the GOP to Bernanke’s remarks.  If so, then Bernanke's remarks give the White House the political cover to say they advocated both solvency and private accounts but congress could not deliver due to obstructionist Democrats:

Aide Says Bush Wants Solvent Social Security, By Jonathan Weisman, Washington Post: The White House's top economic adviser said yesterday that President Bush will insist that any Social Security legislation include a fix to the program's long-term financing problems, undercutting House leaders' efforts to craft a compromise that ignores the solvency question. … Asked if a solvency fix was inviolable, Bernanke said yes.  The comments are significant because House Republican leaders have sided with conservatives who say Congress should settle for a modest plan to establish small private investment accounts financed from Social Security's temporary cash surplus. … But Bernanke did not give them the green light.  "The president is committed to two elements," Bernanke said. "One is restoring the solvency of the Social Security system, and the second is creating personal retirement accounts for individuals. The legislative process is a long and complicated one, and we will be working with Congress to see what comes out, but we would want to see both of those elements in a final program."

Conservative economists were disappointed by the statement -- and somewhat skeptical.  "I don't think the White House is drawing any lines in the sand, these comments notwithstanding," said Rep. Paul Ryan (R-Wis.), a Ways and Means Committee member and proponent of the accounts proposal.  "If that's their position, they will be stubborn and this whole thing will go down," Lawrence A. Hunter, chief economist at the conservative Free Enterprise Fund, said of Bernanke's statements. "Solvency is dead on arrival." … White House National Economic Council Director Allan Hubbard appeared to accept that strategy last week on CNBC when he called the approach "a very important first step." … But Bernanke said firmly that he would recommend the president stick to his "basic principles" and oppose a plan that does not address the system's core problems.

Bernanke ... did suggest the White House is open to one change in the Bush proposal. Under the president's personal accounts plan, a retiree's defined Social Security benefits would be reduced by one dollar for every dollar contributed to an account, plus an interest rate of 3 percent above inflation. ... Even some allies of Bush have suggested that is too high a hurdle.  Bernanke appeared to agree. "With real interest rates quite low, the offset rate may unduly penalize personal accounts," he said. "And we may need to think about whether the offset rate should be adjusted somehow to market levels."

Comments

[pgl]

So Ben's position tracks Bush's original position - the proposal will have both privatization and big benefit cuts. Both are non-starters for the Democrats but Ben says both must be in any plan that will have the support of the White House. My way or the highway - as usual. Hope Ben enjoyed the Kool-Aid.

[Lee A. Arnold]

May be tactically the White House's best move: (1) It stalls forward motion on a package that would leave the Republican Party open to more charges that they are running up the deficit. (2) It leaves all talking points on the table, so the President may soldier-on, in a dim echo, true to his word, and thus show spine to inspire the conservative block to come out and vote for congressional runners next year.

That one may be unwise, since about the only way the Dems could win control of the House would be by reminding people exactly what the President's Party will try to do, again. The Republicans have committed a huge error, by making a simple argument against themselves.

I am not sure how to square this, except to consider that the Administration's ideological blinders are unique. Or that they think that redistricting guarantees results such that 70% opposition on Social Security still can't hurt them. Or they suppose that next year solvency will look much much better, and the President will say with Emily Litella, "Never mind!"

[Movie Guy]

If they give Bernanke the Fed Chair, I'm moving to the islands.

I can hear his future Congressional testimony already...

Too much Puppy Chow.

[Bruce Webb]

"Or they suppose that next year solvency will look much much better, and the President will say with Emily Litella, "Never mind!"

Lee, as you know, in my view such an outcome is almost inevitable. There is no way to pass and implement a privatization plan before economic numbers come in that show it was never necessary in the first place. But I don't think they simply get away with "Never mind!"

They are too heavily invested in this ideologically. This is a seventy year dream of a key part of the Republican Party, to simply walk away saying either "We were just flat out wrong" or "Well sure we were lying, but we thought 'ownership society' was worth some lying" is literally unthinkable for some of these folks. Unfortunately for them ultimately people are going to watch your Flash or the Rock the Video Flash and realize that they were well and truly Played, and I predict some backlash on the Playahs.

The theme for 2006 is shaping up: "Iraq, Plamegate, Social Security, the Republicans are simply lying to you - Again"

[anne]

Nicely done, Lee and Bruce.