Greenspan on Social Security

Greenspan testified before the House Budget Committee today. Much of his talk was devoted to discussing the long-run fiscal implications of the retirement of the baby boomers.

His recommendation for solving the long-term forecast shortfall in the Social Security trust fund is simple: cut benefits.

I believe that a thorough review of our spending commitments–and at least some adjustment in those commitments–is necessary for prudent policy… I certainly agree that the same scrutiny needs to be applied to taxes. However, tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks is very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from the outlay side.

He’s wrong. Several studies have demonstrated that relatively small changes in the revenue side of the Social Security program would be sufficient to close most of the long-term SS gap. (See for example policy briefs at Brookings and the EPI.) Once again, Greenspan is single-mindedly pushing his agenda of smaller government, regardless of the underlying economic analysis.