THERE HE GOES again. As Republicans renew talk of personal control over Social Security assets, Federal Reserve Chairman Alan Greenspan plays a background dirge, warning the system is headed for a fall.
"As a nation, we owe it to our retirees to promise only the benefits that can be delivered," Greenspan said last week at the Fed's annual retreat in Jackson Hole, Wyo. "If we have promised more than our economy has the ability to deliver to retirees ... , as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels."
Baby boomers, get ready to be recalibrated.
It might be Greenspan's favorite nonmonetary topic. An aging Roaring '20s child who will not witness events he prophesies, he has frequently suggested that Social Security commitments to baby boomers could handicap the future economy.
"This dramatic demographic change is certain to place enormous demands on our nation's resources - demands we will almost surely be unable to meet unless action is taken," he told Congress in February. "For a variety of reasons, that action is better taken as soon as possible."
We should listen, of course. Numerous actuaries and economists have noted that, by around 2030, at current trends, too many retirees will be taking money out of Social Security and not enough working taxpayers putting it in.
Blame it on the generation born from 1946 to 1964, whose large size could compel younger compatriots to work double time to pay for its idle dotage.
Republicans, who have a plan to "save" Social Security, are presumably invoking Greenspan this week at their New York convention. President Bush has raised the subject in recent days, reportedly laying ground for reviving the idea of partially privatizing Social Security when he accepts the Republican nomination tomorrow.
But we should listen to Greenspan not only for what he is saying about Social Security but for what he's not saying.
He is not, first of all, endorsing anything like the Bush privatization plan.
Republicans would let younger workers divert some Social Security contributions into private accounts that could be invested in stocks or bonds. The pools would be similar to individual retirement accounts, but under most alternatives they would be financed with contributions that now go into the common Social Security fund.
Greenspan has carefully avoided backing this scheme, which could starve traditional Social Security of resources and expose what is essentially a safety-net welfare program to the depredations of Wall Street. He did so again last week - not opposing the plan, but not recommending it, either.
Second, Greenspan has not ruled out raising taxes to save Social Security, an option many Republicans oppose. True, he's not thrilled about the idea. But his comments last week seemed less anti-tax than previous statements, and they almost amounted to a concession that some sort of tax increase will be necessary.
He criticized the idea of "financing expected future shortfalls in entitlement trust funds solely through increased payroll taxes."
Well, nobody who has thought seriously about Social Security has suggested using payroll taxes or taxes generally as the sole mechanism for balancing shortfalls. Many proposals, such as one by liberals Peter Diamond of MIT and Peter Orszag of the Brookings Institution, would pare benefits and increase taxes.
Any workable plan would almost certainly have to do both.
The Diamond/Orszag scheme would gradually reduce annual benefits to compensate for longer life spans and force all state and local government employees into Social Security as well as boost payroll taxes and perhaps estate taxes.
A proposal by former Social Security Commissioner Robert Ball would tax inheritances of $3.5 million or more, lower the cost-of-living adjustment and boost payroll taxes on higher-paid employees.
Even a bill from Rep. Nick Smith, a Michigan Republican, would require new revenue - a $900 million "loan" from the Treasury's general fund - in addition to allowing personal retirement accounts and slowing benefit increases for wealthy retirees.
The GOP has countenanced tax increases to help Social Security before. In 1983, President Ronald Reagan signed a bill that saved Social Security by paring benefits and raising taxes. The reform was spearheaded by a bipartisan commission that was headed by Alan Greenspan.