Thursday, February 17, 2005

Greenspan Backs SS Private Accounts

The Washington Times reports on Alan Greenspan's congressional testimony yesterday. It is a humorous read. First you get Greenspan's testimony in support, but mixed with his usual caviat that we should proceed slowly. Then you get the Democrats' attempts to interpret this caustion as opposition to the plan.
"If you're going to move to private accounts, which I approve of, I think you have to do it in a cautious, gradual way," Mr. Greenspan told members of the Senate Banking, Housing and Urban Affairs Committee, most of whom questioned him repeatedly on Social Security.
"I've always supported moves to full funding in the context of a private account," Mr. Greenspan said. "We've got a problem in that the existing pay-as-you-go system is not working, and we've got to change it." (...)

"It seems to me that what you're saying here is that moving to the system that's outlined, that the president may propose, is risky," said Sen. Charles E. Schumer, New York Democrat.(...)

Ranking panel Democrat Sen. Paul S. Sarbanes of Maryland said the chief "admitted there are very big problems" associated with borrowing trillions of dollars to finance private accounts.
Mr. Greenspan said by themselves, private accounts will not solve the long-term financial problems of Social Security, because they will not add to or subtract from national savings. And he said he is not sure how the markets will react to the new debt that will be needed to finance the accounts. Spending up to $1 trillion on the accounts is acceptable, but spending $2 trillion is too much, the chairman said.
Sen. Jon Corzine, New Jersey Democrat, said Mr. Greenspan's comments, "on balance, set this thing back," referring to Mr. Bush's efforts.
But Mr. Greenspan said even with the risk involved, creating private accounts will be a better move in the long run than the status quo.
He said the existing Social Security system, which relies on current workers to fund the benefits of current retirees, worked fine when the ratio of workers to retirees was high and life expectancy was lower. But now, life expectancy is increasing and the ratio of 3.3 workers per retiree will continue falling as baby boomers start to retire " changes he said the present system is "ill-suited" to handle. He estimated the unfunded liability of the system, projected out to infinity, at more than $10 trillion.
He said personal accounts have a good chance of providing young workers with the retirement amount they would have received if the system were financially sound.
"Personal accounts have far greater probability ... of being fully funded. And the simple form of pay-as-you-go by construction saves nothing," he said.

When Clinton was president and announced that Social Security was in crisis and had to be fixed before it was insolvent, the Democrats all agreed. Now nearly all of them claim there is no "problem" much less a "crisis". It is in the nature of the system that the longer we wait to do something, the greater the cost will be. If it was a crisis six or seven years ago, and nothing has been done since to fix it, it is guaranteed that it is a larger crisis today.


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