Greenspan: Aging to strain U.S.
Fed chief says quick fix for social safety net programs vital to avoid more painful steps later.
August 27, 2004: 11:11 AM EDT
JACKSON HOLE, Wyo. (Reuters) - Rising pressure on U.S. finances from an aging population makes it vital to fix the social safety net soon with steps such as raising the age for full retirement benefits, Federal Reserve Chairman Alan Greenspan said Friday.
If we have promised more than our economy has the ability to deliver to retirees without unduly diminishing real income gains of workers, as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels," Greenspan said in prepared remarks at an annual symposium.
"If we delay, the adjustments could be abrupt and painful."
Wading back into a politically sensitive issue that he's addressed before -- only this time on the eve of the Republican National Convention in New York -- Greenspan said raising payroll taxes to fund shortfalls in Social Security and Medicare might only worsen the situation by imposing an extra burden on workers.
He said altering policy to encourage a longer working life for Americans would help.
Earlier this year, Greenspan urged Congress to cut the growth of Social Security and Medicare, warning that without immediate measures, the U.S. will face unsustainable deficits, rising long-term interest rates and slower growth in living standards.
In Friday's speech, the Fed chief made no mention of current economic conditions or interest-rate policy in his address to the group of central bankers, academics and economists gathered in at a mountain retreat in Wyoming.
This year's topic for the annual Jackson Hole symposium is the impact of demographics -- specifically aging populations -- on the global economy.
Greenspan said the United States, which has been relatively open to immigration, is in a better position than some other countries, particularly if American policy-makers and politicians face the need to reform entitlement programs.
"Though the challenges of prospective increasingly stark choices for the United States seem great, the necessary adjustments will likely be smaller than those required in most other developed nations," Greenspan said.
He said falling birth rates mean population growth in Europe and Japan has "fallen far short of the replacement rate" -- the birth rate needed to keep the population constant in the absence of immigration or changes in lifespans.
A potential doubling of the over-65 U.S. population by 2035 will put substantial pressure on U.S. budget deficits and it is important to consider how to deal with the issue to protect the overall economy.
"Financing expected future shortfalls in entitlement trust funds solely through increased payroll taxes would likely exacerbate the problem of reductions in labor supply by diminishing returns to work," Greenspan warned. He said it would be preferable for Americans to work longer.
"Changes to the age for receiving full retirement benefits or initiatives to slow the growth of Medicare spending could affect retirement decisions, the size of the labor force and saving behavior," Greenspan said, leaving no doubt that was his preferred option.
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