Alan Greenspan touched the third rail of politics Wednesday — he told the truth.
The Chairman of the Federal Reserve had been asked to speak to the House Budget Committee on Social Security and Medicare. And with his characteristic precision, Greenspan told legislators that they lacked “the resources to do it all.” Minutes after the hearing ended, a bi-partisan coalition took to the airwaves to mock and belittle the Fed Chairman, while assuring the American people that, yes, their government can and will “do it all.”
Most depressingly, there was not a single well-publicized characterization of Greenspan’s testimony that approached anything resembling honesty. (A transcript is available here) For all the bad acting it inspired, what Greenspan actually said was that “the enormous uncertainty” over the massive outlays Social Security and Medicare will soon require was a problem worthy of more than idle discussion.
“I believe that a thorough review of our spending commitments — and at least some adjustment in those commitments — is necessary for prudent policy,” Greenspan said. This might seem a bit glib considering the topic, but Greenspan is well known as a forward thinker. He’s not the kind of man to sit around and wait for the storm to gather and then play crisis control. That’s a job for our elected representatives.
THE SITUATION IS DIRE, however. According to a study by the Cato Institute, Social Security is not only the largest U.S. government program, accounting for 23 percent of total federal spending, it is “the largest government program in the world.” And within 15 years, Social Security will begin to spend more on benefits than it takes in. In his testimony Greenspan recommended taking steps to solve this problem.
The facts are on his side: From 1935 until 1950, Social Security absorbed only 2 percent of a worker’s net income (one percent from the employee, one percent from the employer). Today it is 15.3 percent (7.65 percent employee, 7.65 percent employer). Greenspan pointed out that we now have three workers supporting each retiree on Social Security. By 2025 that will be reduced to just over two workers for each retiree. We face an unprecedented deficit and the looming retirement of 77 million health-nut baby boomers.
Greenspan said what needed to be said. Either the retirement age has to go up or Congress will have to find a way to lower yearly increases in benefits. But the Fed Chairman was hardly callous in his recommendations. “I also believe that we have an obligation to those in and near retirement to honor what has been promised to them,” he explained. Changes should be implemented “soon enough so that future retirees have time to adjust their plans for retirement spending and to make sure that their personal resources, along with what they expect to receive from the government, will be sufficient to meet their retirement needs.”
IT WAS HARDLY let-them-eat-cake material, but Greenspan’s testimony was greeted as “outrageous, insipid, preposterous” by Sen. Arlen Specter, who declared the Greenspan plan “the worst idea I ever heard of.” Rep. Pat Toomey, Specter’s conservative challenger in the upcoming Pennsylvania Republican primary, admitted there was an entitlement problem, but still protested: “This is exactly the road I don’t want to go down and won’t support.”
Sen. John Kerry called for a tax increase to stave off Social Security cuts. Terry McAuliffe, determined not to be out-lied or out-spun, made up his own version of the testimony: “President Bush paints a rosy picture of the economy, but Alan Greenspan’s warning today couldn’t have been clearer — President Bush’s economic policies have been a disaster,” he said. So bad, in fact, that “the Federal Reserve Chairman has recommended severe cuts to Social Security or raising taxes.” Predictably, William Novelli, head of the AARP terrorist group, said trimming benefits “would be unfair to boomers and younger workers, pulling the rug out from under their retirement security.”
Perhaps most laughable of all the attacks came from Sen. John “two Americas” Edwards who was “outraged” that the financial guru would suggest “that we should extend George Bush’s tax cuts on unearned wealth while cutting Social Security benefits that working people earn.” Just raise taxes and — poof! — the problem goes away.
A few hours later Edwards released his inspiring but vague plan to “raise 10 million people out of poverty” to some fanfare. “When did it become acceptable to dismiss our challenges as just the way things are?” Edwards asked supporters. “When did it become acceptable to ignore our toughest problems because they would take decades and decades to solve? When did ‘it’s just too hard to do’ become an excuse?”
When, indeed, John? I think it was right about the time Alan Greenspan finished up his testimony and handed the Congressional asylum back to the inmates.