From “Why Greenspan’s glum about Social Security”
In two days of grilling about Social Security, Federal Reserve Chairman Alan Greenspan put an important date on our calendars: 2008.So here’s another argument for personal accounts: they’ll boost domestic savings and help to temper the rise in interest rates when the crunch comes.
That's when he believes problems may begin with Social Security.
[snip]
The answer is one word: cash. Greenspan is not following government accounting. He worries that market expectations of excessive new government borrowing will have an impact on interest rates and the economy. He wants to increase the pool of domestic savings so we can sustain investment and reduce our dependence on foreign lenders. Unless we do, he expects higher interest rates.
1 comment:
It obviously preferable that the excess funds that we collect as part of social security not be spent by the government. The problem is there is no good mechanism to save it via government, with what would essentially amount to either corporate welfare or state ownership of industry. That is why personal accounts would be preferable. But I would also prefer to pay for the benefits of current retirees by means other than the payroll tax. The FICA payroll taxes makes American employers and employees less competitive against foreign competition. Along with other payroll taxes, it raises labor costs significantly and increases the structural biases that favor imports and reduce exports. In my view it would be preferable to shift to a consumption tax that would tax the value of goods, including imports and excluding exports, to pay for current retiree benefits.
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