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March 6, 2004
David Warsh, Proprietor


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Don’t Just Do Something

Situations don’t come much trickier than the one facing the U.S. Congress. The president’s plan to “personalize” the safety net that is the Social Security system is in deep trouble. But that doesn’t mean Democratic legislators are off the hook. As the Washington Post editorial page observed March 6, they have basic two options.

The Democrats can seek to resist altogether the plan for individual accounts, much as Republicans simply killed the Clinton health plan a dozen years ago, in which case nothing will be done to redress the retirement system’s mild imbalance for at least four years.

Or they can join the Republicans and pile costly new private accounts on top of the existing program, much as they did with the Medicare pharmaceutical benefit, in which case the funding shortfall in the coming decades will have been made much worse.

So it is especially unfortunate that Federal Reserve Chairman Alan Greenspan traveled up to Capitol Hill to call for big “structural changes” in both the nation’s health care and retirement systems, conflating the relatively easily-addressed problems of the Social Security system with the much more daunting problems of the retirement health care system known as Medicare.

It was just four years ago that Greenspan told the same House Budget Committee that budget surpluses had grown so large so quickly that what worried him were the consequences of paying down the national debt within the decade. Better to cut taxes than use that extra money to increase spending, he said then, in the name of long-term fiscal stability.

In 2001, Greenspan barely mentioned the procedural restraints that had been established by the Budget Enforcement Act of 1990 and which, in combination with rapid economic growth, had created the surpluses. The Bush administration quietly allowed the framework to expire the following year.

Last week, Greenspan began his testimony with an urgent plea that those rules be re-established. In unusually gloomy tones, he predicted “stagnation,” unless today’s budget deficits were redressed, by the kind of program cuts he favored rather than tax increases. “I fear we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver,” he said.

He’s right, of course. But busting the Social Security system in order to address Medicare will only make matters worse, by eroding trust. The right thing to have done today would have been to fix Social Security the way that Greenspan himself demonstrated in 1983 when he and Rep. Barber Conable (R-NY) led a commission that proposed a series of modest tax increases and benefit cuts that restored the system to actuarial balance.

But whatever authority Greenspan once possessed as a non-partisan referee has been dissipated. Senate minority leader Harry Reid (D-Nev) may have gone a little far last week when he called Greenspan a “partisan hack,” but in truth it is difficult to understand the chairman’s political posturing except in terms of his youthful enthusiasm for the philosophical novels of Ayn Rand. The two sides now are so completely polarized by the president’s initiative that there is little room for compromise.

At issue is the fundamental question of whether the mixed economy of the twentieth century, formed in the crucible of the Great Depression and World War II and built during the Cold War, is to be preserved; or whether in the initial years of the twenty-first century it will be dismantled, in the name of the “Ownership Society” as envisaged by George W. Bush and former House Speaker Newt Gingrich.

“Ultimately, I think politicians need to be worried about not being part of the solution,” Bush told reporters last week. He is right about that. In each case, however, their political futures depend on how “the solution” turns out to be perceived. The president has proposed taking a seriously wrong turn. The best tactic for the Democrats may be the sly old saw, “Don’t Just Do Something, Sit There.”

There will still be time enough to act in the spring of 2009.

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