Greenspan warns of a crisis for the ages

JACKSON, Wyo. — Federal Reserve Chairman Alan Greenspan said Friday the country will face “abrupt and painful” choices unless Congress acts quickly to trim Social Security and Medicare benefits for the baby boom generation. He said the government has promised more than it can deliver.

Returning to a politically explosive issue just before the Republican National Convention, Greenspan said the country must face up to “some tough policy choices.”

Government resources even under the most optimistic economic assumptions on growth and productivity will be inadequate to provide baby boomers with the level of benefits their parents got, he said.

Speaking at a two-day conference sponsored by the Kansas City Federal Reserve on challenges posed by an aging population, Greenspan said policy-makers must address the looming crisis in Social Security and Medicare before the first wave of 77 million U.S. baby boomers begin retiring later this decade.

“We owe it to our retirees to promise only the benefits that can be delivered,” he said. “If we have promised more than our economy has the ability to deliver … as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels.”

And he warned, “If we delay, the adjustments could be abrupt and painful.”

The 78-year-old Greenspan, recently confirmed for a fifth term as Fed chairman, suggested one possible fix would be to increase the retirement age for receiving full benefits. It is already scheduled to rise from 65 to 67. Greenspan has suggested that the retirement age be continually adjusted to reflect ever-rising life expectancies. He has also proposed trimming the annual cost-of-living adjustment retirees receive because the current Consumer Price Index overstates inflation.

Greenspan has long been concerned about the benefits programs for the elderly. Back in 1983, he chaired a commission that rescued Social Security during an earlier funding crisis. And starting last February, he has delivered a series of warnings about the looming crisis in Social Security and Medicare, which along with soaring budget deficits are likely to be the biggest economic challenges in the next four years.