Converting Social Security into a private sector program is not a magic bullet that will solve all of the system's problems, Federal Reserve Chairman Alan Greenspan said Thursday in calling for fast implementation of reforms to stretch the solvency of the program.
"There are benefits in going to privatization," Greenspan told a Senate Budget Committee Social Security task force. However, he added, "It does not create miracles."
As he has said in the past, Greenspan told the task force Social Security reforms should be passed soon.
"We owe it to those who will retire after the turn of the century to be given sufficient advance notice to make what alterations in retirement planning may be required," Greenspan said.
He added that Congress should pass reform legislation, even if the reforms do not take effect for another 10 years.
While Greenspan went into some detail on privatization, he made a pitch for increasing the retirement age and for making the Consumer Price Index more accurate. He said as fewer people perform physically demanding work, increasing the retirement age becomes less of a burden. He said while the Bureau of Labor Statistics has taken some steps to increase the accuracy of the CPI, "We still have a long way to go."
Greenspan said that whatever system of privatization is adopted, it must not discourage private savings.
"Perhaps the strongest argument for privatization is that replacing the current underfunded system with a fully funded one could boost domestic saving," he said.
If savings do not increase, shifting Social Security funds to private securities merely would reduce non-Social Security retirement income, he said.
Greenspan also argued that if the system becomes private, people who already have enrolled in the system would have to receive a nonmarketable certificate that confirms the government's obligation to pay benefits. He warned that making that commitment explicit could have an impact on interest rates.
Greenspan said it is unclear how the financial markets would respond to the changes and said that rather than one "big bang" shift, a gradual transition also is possible. The two systems could operate together, he said, adding that he assumes Congress would provide some assistance to those who, through "investment imprudence or unforeseen events," would have a retirement income below a certain level.
"Needless to say such a new entitlement would have to be rigorously delimited because political pressures to increase it could be overwhelming," he contended.
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