Wednesday, March 02, 2011

Fed Testimony: Surpluses Forever!

by Calculated Risk on 3/02/2011 10:06:00 AM

Fed Chairman Ben Bernanke is testifying before the House Committee on Financial Services today. The prepared testimony will be the same as yesterday (before the Senate).

Here is the CSpan feed.

Here is the CNBC feed.

It is probably a good time to revisit then Fed Chairman Alan Greenspan's testimony to the same committee 10 years ago today. Here is his testimony on March 2, 2001:

Both the Bush Administration and the Congressional Budget Office project growing on-budget surpluses under current policy over the next decade.
...
The most recent projections from OMB and CBO indicate that, if current policies remain in place, the total unified surplus will reach about $800 billion in fiscal year 2010, including an on-budget surplus of almost $500 billion. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs.

These most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach and, indeed, would occur well before the end of the decade under baseline assumptions.
How did that work out?

As an aside, the policy of returning the surpluses to the people was supported by both Rep. Ron Paul (current Chairman House Committee on Financial Services) and Rep. Paul Ryan (current Chairman House Subcommittee for Domestic Monetary Policy and Technology).

In Greenspan's defense, he did suggest any tax cut to reduce the surpluses should have a trigger to reduce the tax cut if deficits reappeared:
Conceivably, [a surplus reduction tax plan] could include provisions that, in some way, would limit surplus-reducing actions if specified targets for the budget surplus or federal debt levels were not satisfied. Only if the probability were very low that prospective tax cuts or new outlay initiatives would send the on-budget accounts into deficit, would unconditional initiatives appear prudent.
...
With today's euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake.
Of course that never happened.