Federal Reserve Bank Chairman Alan Greenspan spoke yesterday in his semi-annual report to the Senate Banking Committee. Mr. Geenspan's wise comments, of course, perfectly summarize major negatives about the President's Social Security "reform" ideas.
By the way...I watched part of Mr. Greenspan's testimony. He admitted that Medicare is in far more financial trouble than Social Security, and should be the higher presidential priority.
Highlights and a summary from American Progress.....
Yesterday, Federal Reserve Chairman Alan Greenspan appeared before the Senate Banking Committee and – buried beneath an avalanche of cryptic econo-speak – was forced to concede some fundamental truths about President Bush's Social Security privatization scheme. The mainstream media keyed in on Greenspan's tepid support for private accounts if they can be implemented in a fiscally responsible way. (They can't.) But there was a lot more there. The Progress Report wades through the transcript so you don't have to:
PRIVATIZATION WON'T INCREASE NATIONAL SAVINGS: During his testimony, Greenspan said, "the problem essentially is that we have an unprecedented potential increase in the number of people leaving the workforce and going into retirement over the next 25 years" and argued that the key to fulfilling our commitments to future retirees is to increase national savings. Sen. Jack Reed (D-RI) asked Greenspan, "Would you also agree…that the private accounts will basically leave national savings unchanged since the government is borrowing money to give to individual citizens to invest in the market?" Greenspan replied, "Yes, I do."
PRIVATIZATION WON'T MAKE SOCIAL SECURITY MORE FINANCIALLY SECURE: Greenspan expressed concern about Social Security's long-term financial stability. Sen. Chuck Shumer (D-NY) asked if "setting up a private account under current conditions, not starting from scratch...does anything to alleviate the problem." Greenspan replied that setting up private accounts "surely doesn't alleviate the current problem."
EXPANDING 401(K) ACCOUNTS ARE A BETTER IDEA: Greenspan also conceded that expanding 401(k) accounts would do more to increase national savings than carving out private accounts from Social Security. Sen. Shumer said expanding "401(k)... will more [sic] to increase net savings than simply shifting some money from the present system to a so-called private account." Greenspan said, "I'm not disagreeing with you."
BUSH'S RECKLESS FISCAL POLICY WEAKENED SOCIAL SECURITY: Because of the Bush administration's reckless fiscal policies – especially tax cuts for the wealthy – the federal government will rack up another record deficit, expected to exceed $400 billion. Those irresponsible policies make it harder to improve Social Security. Sen. Schumer asked Greenspan if "we'd have a(n) easier time fixing Social Security if our debt went down." Greenspan said, "I think that's fair to say."
TRANSITION COSTS ARE A HUGE CONCERN: Greenspan said yesterday that, in the context of changing Social Security, "I would be very careful about very large increases in debt." Greenspan said, "small increases are not something that would concern me…I would say over a trillion is large." The administration's Social Security privatization scheme is expected to add $2 trillion over the first 10 years.