Greenspan Warns of Aging Work Force

Alan Greenspan last week warned America that there are a load of baby-boomers about to hit retirement age, that they are going to suck all the benefits they can out of Social Security and Medicare, and that America can't afford it. Massive changes in taxation or benefits are needed to prevent a debt explosion, and Nero-like, the US government fiddles while the demographics light a fire that will burn for decades. Too wild a thought? The system can be saved, but it needs to be done right now.

Mr. Greenspan was merely echoing the thoughts of former Commerce Secretary Pete Peterson, whose new book Running on Empty explains in layman's terms just what is going on. In short, the US entitlement system is funded out of payroll taxes. As more workers retire, the bill goes up, and because the boomers make up such a large portion of the population there aren't as many workers still on the job to support them.

Mr. Peterson does note that if the US were to freeze Social Security benefits at current levels and stop indexing them for wage increases, the problem largely vanishes. But there is a danger that such action is politically impossible. The Democrats love of handing out benefits from the government and the Republican tax-cut approach do the exact same thing -- undermine fiscal responsibility. There are tax-and-spend Democrats, borrow-and-spend Republicans, but there are no politicians who will raise taxes and cut benefits no matter how much it is necessary. It provides no campaign contributions and secures no votes.

However, what has happened in the last quarter of a century has not been a supply-side success, nor a demand management showcase. All that has happened is America has lived off its credit, pledging the tax revenues to be paid by its children, grandchildren, great-grandchildren and beyond to its creditors. The vice president even believes that "Reagan proved deficits don't matter." The man is misinformed.

The great economists of the day may hector all they want. Computer models can prove it time and again. Yet, America is not in the mood for sacrifice. There may be a war against terror (or Fascislam to be more accurate), but one would never know it from the people. Raise taxes to pay for a war? Reduce gas consumption during war-time? Do without? Rome did not fall to the barbarians until it went broke.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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