Greenspan on Social Security
I'm not a big fan of Alan Greenspan (mainly because of his proclivity of seeing inflation everywhere) but I still consider him to be a knowledgeable source. You should really read what he's saying.
Greenspan cast doubt on the ability of the United States to meet commitments to retirees and said a fix for the government retirement program would almost certainly entail benefit cuts.
"Because benefit cuts will almost surely be at least part of the resolution, it is incumbent on government to convey to future retirees that the real resources currently promised to be available on retirement will not be fully forthcoming," he said.
posted by Geoffrey Armone @ 4:14 PM
2 comments
2 Comments:
Geoffrey Armone -- I do not know you, but I can tell by your prose you are a man of deep erudition and wit. You're powers would be formidible for evil or good, so be careful with the tequilla, handguns, and economic analysis.
The meat of the article I thought was: In the end, though, Greenspan said increased national savings -- which create a pool of money for new investments -- was the only way to meet the costs of an aging population.
"The one that I think has to be at the top of the list in any solution -- whether its more or less Social Security, more or less 401Ks or other means of financing -- is 'does it increase national savings?' Because that is really the only thing we can do which can counter the demographics over which we have no control," he said. Interesting he took a pass on the private accounts thing, but he's standing pat on the tax cuts. It's also clear he doesn't give a flying boo foo about SS. What he's really asking is "how do we grow the economy to handle whatever cockeyed scheme the loonies in Congress cook up?"
What to do about SS? Looks's like you've outlined what has to happen in a rational solution.
And, link to rantzilla on the front page there would be a nice touch.
Basically, in 20XX, pick your date, the national income will be NI. Let's define S as the required paymet to Retirees (including Medi-care/caid), E as all other government expenditures, TR is the income tax rate and SR is the social security tax rate.
The Deficit, D, is
D=(S+E)-NI*(TR+SR). The deficit is, of course, financed in the markets. Greenspan's job is to look after the economy and to that end, he IS concerned about Social Security. What he talks about are distortions when S gets so big that it starts affecting NI. Afterall, NI growth is a function of interest rates and investment. Investment is very sensitive to marginal NI, that part of NI left after expenses.
NI=func(TR,SR,D)
What Greenspan can't say is that we're putting more and more money into a segment of our economy that doesn't produce NI. Social Security is a sink. I know that is not politically correct, but it is the truth. Moreover, since there are extra-market mechanisms which control the growth of payments to Retirees, we could very well reach a crisis where NI growth, in real dollars, is negative but S growth is positive. Even uglier, that segment of the economy receiving S will keep getting larger (and intractable over compromise).
And all this for a system which transfers income to the wealthiest demographic. It's lunacy.
So Greenspan does care about "Social Security" the idea but not the system. He merely wants to place part of Social Security, the system, in the private sector so that the natural feedback will make it self regulating.
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