Alan Greenspan: Social Security solvency may require benefit cuts
Former Federal Reserve Chairman Alan Greenspan said on Friday that the potential for a slowdown in the U.S. economy could stem from an overloading of entitlement programs that aren’t being funded, and that the goal should be to resolve the basic Social Security system.
The Atlanta Federal Reserve said earlier this week that it estimates real GDP growth – a key figure for measuring the pace of economic activity – for the first quarter of 2019 is just 0.4 percent (seasonally adjusted annual rate). The data comes from its GDPNow forecasting model, which it says provides a “nowcast” of the official estimate before its release by estimating GDP growth using an approach similar to that of the U.S. Bureau of Economic Analysis.
“We’re creating an odd imbalance in the system,” Greenspan said during an interview on “Mornings with Maria.” The best way to solve this problem is to fund our benefits, get a balanced budget, and the system will work.”
The former Fed chair, who served in the position from 1987 to 2006, added that “the actuaries of the Social Insurance system say that in order to be actuarially solvent through the life of the programs, we would have to cut benefits by 25 percent right now and extending into the future.”
He called the issue a “fascinating problem” and noted that officials should “come to grips” with it because “the end of the road is very serious trouble,” while adding that defined benefits have been a big problem.
“Sweden had very much the same problems we did,” Greenspan said. “What they did first to resolve them is go from a defined benefit program, which is what we have now, to a defined contribution. What we have is 401(k). 401(k)s cannot go broke – you can only spend what you get.”
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Additionally, Greenspan said it’s too difficult to tell whether a recession could occur next year because the economy is moving at such a slow rate.
“I can basically argue that productivity growth has slowed down dramatically because, in effect, as I’ve said many times, that social benefits crowd out gross domestic saving and capital investment, which is at the root of what productivity growth is. So we’ve got to solve that problem,” he said.