GREENSPAN URGES PROMPT ACTION ON SOCIAL SECURITY
Current system will not work in the future, Federal Reserve Chairman tells Congress
By Congressman Roger F. Wicker
March 7, 2005
Federal Reserve Board Chairman Alan Greenspan urged Congress last week to begin work soon on reforming the Social Security System. In remarks before the House Budget Committee, he said, "we may have already committed more resources to the baby-boom generation in its retirement years than our economy can deliver."
As a member of the Budget Committee, I had the opportunity to question Chairman Greenspan about the wisdom of a solution that would include personal savings accounts. He told our panel that changes should be made "sooner rather than later" and advised against solving the problem by increasing taxes because of the significant risks it would pose to economic growth.
Mr. Greenspan speaks with great authority, having headed a commission that provided recommendations to strengthen the program in the early 1980s. Appointed and reappointed chairman of the Federal Reserve by Republican and Democrat presidents alike, he has monitored closely the growth and economic health of Social Security.
CHAIRMAN RENEWS CONCERNS
The Chairman's views about the need for corrective action are not new. He came to Capitol Hill more than a year ago and sounded the same caution, noting that the impending retirement of the baby-boom generation would be too much for the system to bear.
Simply preventing the predicted exhaustion of the Social Security Trust Fund in 2042 will not solve the bigger problem. He described such action as "patching a system that is fundamentally inappropriate for the future of the country." Raising national savings must also be part of the solution if the country is to meet the needs of retirees without lowering the standard of living for the working-age population, he said.
SYSTEM FACING PROBLEMS
The Chairman reiterated that the country's changing demographics will not support the current pay-as-you-go Social Security system. "It just will not work," he flatly stated. Several factors are working against the present formula, including a slowing population growth and improvements in life expectancy. The system will soon have fewer than two workers paying the benefits of one retiree.
Mr. Greenspan suggested that a system with a "significant personal accounts component" would be a credible way to ensure that the program adds to overall saving and boosts the nation's capital stock. He said personal accounts also offer the advantage of building individual wealth and provide the prospect of passing along that wealth to a retiree's heirs - a feature not available under the present system.
Without endorsing a specific plan for personal accounts, he said there were a number of ways to ensure a level of benefits and preserve the compact government has had with its Social Security retirees - present and future. In other words, a solution that involves personal savings accounts would still provide the current guaranteed level of benefits with an opportunity for far greater returns.
HARD CHOICES AHEAD
Mr. Greenspan concluded that solutions will become more difficult the longer we delay. "The one certainty is that the resolution of the nation's unprecedented demographic challenge will require hard choices and that the future performance of the economy will depend on those choices." He went on to say that "if you wait until the problem is right on us...the solutions are going to be very painful."
He cautioned that doing nothing could have severe consequences on the U.S. economy but that sound, timely action could benefit our people for many decades into the future.