In his speech today, Greenspan made his strongest statements to date concerning the Bush economic plan. He seems to be saying that we may be at the least on the cusp of a major economic flatline, stopping just short of a market-panicking statement of a potential crash.
The rampant debt and rising interest rates are distressing, in particular, as is the ever-expanding government. While Greenspan supports Bush’s Social Security changes, they will require a larger bureaucracy to convert the program and millions (trillions?) to make the changes. This doesn’t sound like the smaller government that Greenspan is advocating.
While the market didn’t respond radically today, will his remarks spark a retreat from the stock market that has already been sluggish for the last five years? Or will they be ignored?
Well, who knows? History teaches that the stock market can’t be predicted. Which is hardly surprising, since it’s actions result from a human behavior rather than logic. Traders can, for months or even years, ignore warnings from Greenspan and other economists and continue to prop up companies that clearly have no hope of ever turning a profit. Then, one day, the a negative report from a comparably minor company suddenly sends the whole thing into a tailspin.
Greenspan is basically saying that the problem is too much spending, especially on entitlements. And he’s right. Although he doesn’t rule out the need for modest tax increases, they need to be accompanied by greater spending cuts.
The root problem is that as the years go on, an ever-greater percentage of the population will leave the ranks of the productive and enter the ranks of the dependent. They will draw an increasingly large share of the nation’s wealth in retirement and medical benefits, and add nothing back. Without this problem, you might be able to afford to grow your way out of defecits over time, but unfortunately a number of problems are looming that make that problematic. Not just wildly out of control spending on Medicaid, Medicare, and Social Security, but the increase in energy costs and (potentially) the cost of environmental fixes like Kyoto or the equivalent (or the cost of paying for the environmental damage if nothing at all is done).
Rapid advances in health care treatment make this far worse, by increasing life expectancy and also by increasing the cost of being older by requiring more care (for example, now we are supposed to pick up the cost of Viagra for the elderly - a problem that didn’t exist a decade ago). As we develop more exotic life-extension techniques, this will become worse.
Here are some thoughts for how to fix this:
Change the retirement age to a floating retirement age based on longevity. (i.e. retirement is longevity - X years). The problem with that is that no one knows when they’ll be retiring, which complicates their retirement plans. So maybe you want to revisit the formula only on 5 or 10 year cycles, to add some stability to the system. In any event, the retirement age has to go up. Back when it was set to 65, the average life expectancy was, as I recall, 72. Now it’s 78, and going up. Instead of paying for 7 years of retirement, the government will be paying for 13. Eventually it’ll be 20, or more.
Means-test Social Security. One of the more ironic facts about the retirement problem is that the boomers are our wealthiest generation, and they’ll be retiring with scads of wealth. So we’ll be giving them universal benefits on the backs of an ever-shrinking work force that doesn’t have it anywhere near as good as they do. This is regressive big government - the kind that both the left and right should oppose.
Scrap Medicare, and roll it into Medicaid. If you’re wealthy and old, pay for your own damned health care. If you’re poor, the government will help pay, whether you are retired or not. The notion that everyone should get free health care after they hit an arbitrary age is ridiculous and unsustainable. Medicare has to be means-tested, but if you’re going to means-test it, just use Medicaid and eliminate a bureaucracy.
There you go. Those are the three of the four behemoths of government spending (the military being the 4th), and all three are in serious need of reform. Until they are reformed, you can play penny-ante games with cuts in other programs and benefits, but you won’t really change anything.
Sam Stone: *Change the retirement age to a floating retirement age based on longevity. *
As a Canadian, you may not be aware of this, but the Social Security Administration is already implementing increases in the retirement age for future (i.e., longer-lived) generations of retirees. The standard retirement age when my parents retired was 65; when I retire, it’ll be 67.
Chefguy: *While Greenspan supports Bush’s Social Security changes, they will require a larger bureaucracy to convert the program and millions (trillions?) to make the changes. *
“Trillions” is the correct order of magnitude, or at least much closer to it than “millions”. Even the most modest estimates of the costs of transitioning SS to a privatized system as proposed by the Administration are well up in the hundreds of billions.
I know it’s only a small part of your post, but I’d suggest that this decision about who does or doesn’t get their medical attention paid for via taxation requires a great deal of inefficient, tax-gobbling bureaucracy to make in millions of cases every year. A starting assumption that everyone gets medical attention regardless of their wealth (although they can still choose to go private having made their tax contribution) is at least more efficient in this regard, perhaps.
I don’t think he is saying that we spend too much on entitlements rather that we have decided to provide more services than we are willing to pay for. A politician that comes out for cutting benefits is not going to get support from half the population while a politician that comes out for rasing taxes will not get the support from the other half. Politicians being smarter than logs realize that you say that you won’t cut programs and you won’t raise taxes. Unfortunately this outcome is not possible so we start running huge defecits. We are in a hole and we are merrily digging away.
Entitlements are part of the problem but they also can be part of the solution. Countries with socialized medicine consistantly are rated higher in health care quality than the U.S. while spending much less. Certianly rising health care costs and an aging population are problems but they are problems that are exacerbated by fiscal irresponsibility.
8% of the federal budget is spent on interest payments on our debt. That number will just continue to rise as we go deeper and deeper into debt. My generation is going to be reamed by this debt all 7.7 trillion of it. If we shut down the government for 3 years and funneled all tax revenues into paying off the debt we would still owe over a trillion dollars. Thanks a bunch.