Stephen Foley: Fed chief Bernanke spells out home truths on financing the future
Saturday 05 February 2011
US Outlook Will someone please listen to Ben Bernanke? The Federal Reserve chairman becomes more shrill in his warnings about the US government debt crisis every time he speaks publicly.
At the National Press Club this week, instead of patiently explaining the problem in economese, his previous style, he dropped the sort of alarmist language that politicians might hear. The US risks getting into a "vicious circle" of widening deficits and soaring interest payments on existing debt, he said. "There is only so far that we can kick the can down the road."
It might seem odd that the Fed chair has got so agitated when deficit reduction already tops the political agenda. The Tea Party has rolled into Congress, Republicans are trying to pull together $100bn in cuts from federal programmes this year, and the White House is pushing a freeze on domestic spending until 2016. But listen to Mr Bernanke. These exhausting fights over whether to snip an extra billion dollars or two from the foreign aid budget could not be more irrelevant to the issues that keep the Fed chairman awake nights. Discretionary spending – the stuff that Congress has to approve every year – accounts for barely 12 per cent of the federal budget.
The long-term fiscal challenges facing the US are the product of powerful underlying trends, Mr Bernanke warned, not short-term or temporary factors. The two most important driving forces for the federal budget are the ageing of the US population and rapidly rising health-care costs. It is after 2020 that these two come together, when the baby-boomers will have largely left the workforce, be living off social security and receiving government-sponsored healthcare. These locked-in entitlement programmes are the ones that have to be cut.
Mr Bernanke could not have been more explicit. The debt projected for the next decade – when the federal government will go from owing 90 per cent of the country's annual GDP in 2020 to 150 per cent in 2030 – is impossible. Other nations will not fund it.
The retirement age has to go up, and there has to be a massive effort to reduce government healthcare costs. This doesn't have to mean death panels for the elderly. Sustained pressure on costs, including on drug-maker margins and on ambulance-chasing lawyers, will mean big savings for government – and they will relieve pressure on consumers and businesses, too.
A small number of big initiatives to cut benefits in the 2020s would be far more effective (and less dangerous to the economic recovery) than a large number of small initiatives to cut discretionary spending now. Bold reform of future retirement and healthcare entitlements could boost the confidence of financial markets and foreign investors dramatically and hold down long-term interest rates, stimulating the economy now. Listen to Mr Bernanke. Take care of the long term and the short term will take care of itself.
Real news with just a little application
Rupert Murdoch is responsible for more of what he likes to call "shoe-leather reporting" – real news-gathering by reporters on the beat – than almost any other person in the private sector. From Sky News and Fox News, to The Sun and The Times in London and The New York Post and The Wall Street Journal here, he already has the world covered. So why on earth has he created The Daily?
Aside from the innovation that The Daily is the first news-gathering organisation to make its wares available only on tablet computers (for now, only on the Apple iPad), it fails to stand out from any of the other news sources providing their content free. That is sad, but it is not what I find most objectionable about the philosophy behind The Daily. It is the redundancy.
How many reporters does the world need producing beautifully crafted words on the latest US snowstorm (on the cover of The Daily's second issue)? Especially since there is a blizzard of snow photos and video on Facebook and YouTube. Straightforward business logic will catch up with the news industry in due course: we don't need to produce more and more of a commodity that is crashing in price. News brands need to retrench to whatever it is they do uniquely well, whether it is serving a group of loyal followers of a particular political bent, or doggedly pursuing exclusive stories.
None of this is to say that there shouldn't be innovation on the format in which news content is delivered. The creation of the tablet computer has opened up a fantastic new medium for delivering high-quality journalism, and for combining online and offline material in ways that are impossible on the traditional internet.
There is a great irony in Mr Murdoch's News Corporation creating yet another news-gathering centre in The Daily when, internally, it has been trying to grapple with the issue of redundancy. The mogul has indeed tried to grapple with the question: how many reporters do I really need reporting from the icy frontline of the US storm, or any other big story, for that matter.
The company has an in-house wire service called NewsCore, which packages material from across all its news brands, whether in New York or far-flung outposts in Australia, for shared use. The frustration for those who produce NewsCore is that it has faced resistance from the individual news titles, who prefer to operate in their silos.
A little NewsCore content has appeared in The Daily, but not much – yet. A really bold move would have been to break down the barriers between News Corp's titles and serve up an iPad app using the best of the company's content, focusing less on gathering more news and more on delivering it in fun, interactive, iPad-friendly ways.
The NewsCore app: that's what Mr Murdoch should have launched this week.
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