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Greenspan embraced ownership society Original Source Link: (May no longer be active)
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'Ownership' Key Soc. Sec. Goal -Greenspan
Reuters
Feb. 17, 2005 - U.S. Federal Reserve Chairman Alan Greenspan embraced President Bush's vision of an "ownership society" on Thursday, saying private Social Security accounts could foster feelings of wealth among poor Americans.
In a second straight day of congressional testimony, the influential Fed chief argued a personal accounts-based system would be less likely to face the type of fiscal crunch retiring baby boomers pose to the current pay-as-you-go program.
While he did not specifically endorse Bush's plan and admitted private accounts, in and of themselves, would not improve Social Security's shaky finances, he said such accounts could importantly create "a sense of ownership."
"These accounts, properly constructed and managed, will create ... a sense of increased wealth on the part of middle and lower-income classes of this society, who have had to struggle with very little capital," Greenspan told the House of Representatives Financial Services Committee.
"While they do have a claim against the Social Security system ... as best I can judge, they don't feel it is personal wealth the way they would with personal accounts," he said as he took questions from the panel.
Greenspan went before the committee to discuss the Fed's semiannual economic report, but Bush's politically contentious proposal to create private accounts quickly became the hearing's focus.
CRISIS? WHAT CRISIS?
The president wants to let workers divert a portion of their Social Security payroll taxes into individual accounts as part of a larger overhaul intended to deal with a looming funding shortfall for the 70-year old system.
Democrats are united against Bush's plan, which they say would endanger workers' retirement security and entail trillions of dollars in government borrowing since there would be less tax revenue to cover benefit payments.
While embracing the concept of private accounts, Greenspan urged a go-slow approach because of uncertainty over how financial markets might greet such large-scale borrowing.
Without changes, the Social Security trust fund will be exhausted in 2042. Experts say benefits need to be cut, taxes raised or a combination of both to ensure solvency.
While Bush has called the looming funding problem a crisis, Greenspan said he would not go that far. "I would not use the word crisis," he said.
"Crisis to me usually refers to something which is going to happen tomorrow or is on the edge of going into a very serious change. That is not going to happen."
Greenspan did, however, say the existing system, in which incoming taxes pay current benefits, was not viable over the long-haul and urged action before the first wave of retiring baby boomers begins to draw benefits in 2008.
"If we look forward into the post-2008 era, we have to make some very major changes to constrain uncontrollable increases in the unified budget deficit," he said. "The first priority is to assure that deficits are under control."
GOT A DIME?
Greenspan said the United States needed to boost national savings so the country would be wealthy enough to support the living standards of both workers and retirees.
In that respect, he said personal accounts could help pre-fund a system that, over an infinite horizon, is forecast to be short more than $10 trillion.
"Whatever type of structure we have for retirement, it has to be fully funded," he said. "One of the reasons that I think we have to move toward a private individual account system is they, by their nature, tend to be significantly fully funded."
"Individuals know what they need for the future and they tend to put monies away adequately," Greenspan added.
But Greenspan said the issue of private accounts went "beyond the economics" of simply fixing a creaky system to the larger issue of preserving a stable democracy.
"It's crucial to our stability that people all have a stake in this system," he said. "I don't perceive that Social Security is conceived that way and I think it is very important to people to have a sense of ownership."
Democrats, still smarting from Greenspan's backing of tax cuts during Bush's first term, disagreed.
"I do have to express skepticism that telling workers losing their jobs ... 'Do not despair. Private accounts are coming' will be less a morale booster than I think you implied," said Rep. Barney Frank, a Massachusetts Democrat.
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