DJ Greenspan/Aging-2:No Comment On Near-Term US Econ Outlook
By Joseph Rebello
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Federal Reserve Chairman Alan Greenspan urged Congress Thursday to figure out quickly how it will pay for the retirement of the baby-boom generation, warning that delays in reforming the Social Security and Medicare systems would make the economy vulnerable to "abrupt and painful" shocks.
Testifying to the Senate Special Committee on Aging, Greenspan said the growth of the country's retirement-age population is rapidly outstripping the growth of the working-age population. That makes "our Social Security and Medicare programs unsustainable in the long run" unless Congress moves to increase immigration, cut retirement benefits, or find ways to make workers extraordinarily productive, he said.
"The aging of the population means that the government will inevitably need to make a number of changes to its retirement programs...," Greenspan said in prepared remarks. "Early initiatives to address the economic effects of baby-boom retirements could smooth the transition to a new balance between workers and retirees. If we delay, the adjustments could be abrupt and painful," he said.
He didn't comment on the near-term U.S. economic outlook.
(MORE) Dow Jones Newswires
02-27-03 1006ET
DJ Greenspan/Aging -3: Suggests Increasing Retirement Age
Greenspan has lately expressed rising worry about the prospect of rising budget deficits, saying the economy can't afford long-term deficits given the huge retirement-benefit costs it will face by the middle of the next decade. He has expressed little enthusiasm for President George W. Bush's proposal to cut taxes by $695 billion over the next decade, saying the government should avoid initiatives that will widen the deficits.
As early as 2017, he said, the Social Security system is expected to pay out more in benefits to retirees than the Social Security contributions it collects from workers. The outlook for Medicare is more uncertain because of the combination of an aging population, technological advances that have increased longevity and "virtually unconstrained demand" for medical services.
By 2030, he said, one of out every five Americans will be 65 years or more - up from just 13% today. The U.S. government's predicament is less daunting than those of other leading industrial countries such as Japan, where populations are aging even faster than in the U.S. But it must be resolved while the economy is still relatively flexible.
"The U.S. economy is uniquely well suited to make those adjustments," Greenspan said. "Our open labor markets can adapt to the differing needs and abilities of our older population. Our capital markets can allow for the creation and rapid adoption of new labor-saving technologies, and our open society has been receptive to immigrants. All these factors put us in a good position to adjust to the inexorabilities of an aging population."
Greenspan said Congress has several options.
It can raise the retirement age gradually, linking Social Security and Medicare eligibility to increases in longevity. "Americans are not only living longer, but they are generally living healthier," Greenspan said. "Rates of disability for the elderly have been declining, reflecting both improvements in health and changes in technology that accommodate the physical impairments associated with aging."
It can increase immigration to speed up the growth of the working-age population, he said. "As the influx of foreign workers in response the tight labor markets of the 1990s showed, immigration does respond to labor shortages," he said. An increase in immigration offers "some offset to an aging population," he said.
Or it can find ways to increase the already impressive efficiency of American workers, helping to boost economic growth in the process. "A significant rise in the growth of labor productivity will be necessary if the standard of living of retirees is to be maintained and that of workers is to continue advancing," he said.
Greenspan said the aging of populations in industrial countries may cause investment to swing to developing countries, which still have rapidly growing working-age populations.
"Jobs requiring unskilled labor are likely to continue moving to developing countries, and this transfer may increase foreign direct investment by U.S. firms," he said. "Most other developed countries are unlikely to offer higher rates of return because they are already aging faster than the United States."
But the swing is "far from guaranteed," Greenspan said. "Historically, returns to investment in many developing countries have been held down by several inhibiting factors: low levels of education, poor infrastructure, and perhaps most important of all, capricious legal protections," he said.
-By Joseph Rebello, Dow Jones Newswires; 202-862-9279; joseph.rebello@dowjones.com
(END) Dow Jones Newswires
02-27-03 1048ET |
