Mr. Bernanke’s message

October 8, 2011

ACCORDING TO the conventional wisdom, the congressional supercommittee is destined to fail at its assigned task of producing at least $1.2 trillion in savings over the next decade. That wisdom may end up being accurate, but it is too early and too dangerous to meekly accept inevitable defeat. Instead, as Federal Reserve Board Chairman Ben S. Bernanke emphasized in testimony before the Joint Economic Committee last week, the task of putting the country on a stable fiscal path is too urgent to ignore and the potentially destabilizing consequences of another political failure too great to risk.

Mr. Bernanke was careful not to be inappropriately prescriptive in his advice to lawmakers, especially on the fraught question of the proper blend of spending cuts and revenue increases. But his testimony elaborated, once again, some important truths that they would be wise to heed.

First, he noted, there is no conflict between achieving fiscal stability over the longer term and not impeding an already fragile recovery in the short run. The two goals, Mr. Bernanke said, “are certainly not incompatible, as putting in place a credible plan for reducing future deficits over the longer term does not preclude attending to the implications of fiscal choices for the recovery in the near term.” Translation: Abrupt fiscal retrenchment now, whether in the form of spending cuts or tax increases, could be counterproductive to an economy that, in Mr. Bernanke’s assessment, is in danger of another recession.

Second, the country faces “difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed.” The supercommittee’s assigned deficit-reduction goal would represent a “substantial step,” Mr. Bernanke noted, but “more will be needed to achieve fiscal sustainability.” This unavoidable fact argues in favor of the supercommittee’s “going big” — striving to exceed the mandate of $1.2 trillion to $1.5 trillion, not merely struggling to meet it. Indeed, even assuming the additional $1.5 trillion in debt reduction, debt is set to rise into the low-80s as a percentage of gross domestic product under reasonable scenarios, Merely stabilizing the debt at its current high level would require another $2 trillion on top of the existing target.

Third, the unhappy legacy of the debt ceiling debate is a real concern about Washington’s capacity to respond properly to these fiscal challenges. Mr. Bernanke noted that “the brinksmanship of the summer . . . and, moreover, the possibility that this might be recurring periodically . . . was a negative for the financial markets.” A failure of the supercommittee could be even more market-rattling. As Michael Cembalest, chief investment officer for J.P. Morgan Asset Management, writes in a new paper, the performance of the supercommittee “will be an important marker on the timeline of the United States and its ability to sustain its economic primacy of the last 100 years.”

Mr. Bernanke’s sober message came while a more pugnacious one was being delivered by President Obama in other settings, pressing lawmakers to pass his jobs bill. The two are not inconsistent, and Mr. Obama’s focus on job creation is understandable, with an election just over a year away and unemployment remaining stubbornly prevalent. But we continue to regret that he does not bring the same urgency to the longer-term challenge. Without serious action on the debt, America’s future is imperiled.

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