March 17, 2005

March 17, 2005 | Commentary on

Green Light from Greenspan

Welcome aboard, Alan Greenspan.

In congressional testimony just a year ago, the Federal Reserve chairman urged Congress to make the president's 2001 tax cuts permanent and asked lawmakers to slash government spending as much as possible. He also said they should cut back the increases in Social Security benefits they're promising to future retirees.

Back then, I wrote: "Cutting benefits isn't the way to save Social Security. We can put the program on solid ground by simply setting up a Personal Retirement Account for anyone who wants one." One year later, Greenspan also has concluded that PRAs are the way to go.

"If you're going to move to private accounts, which I approve of, I think you have to do it in a cautious, gradual way," he told the Senate banking committee last month. On March 15, he went even further. Personal accounts are "a good thing to do over the longer run," he told lawmakers, "because the pay-as-you-go system in my judgment is going to be very difficult to manage. We are going to need an alternative."

These are welcome words from the man known as "the Maestro." After all, Greenspan's been the leader of the Fed since 1988, served during four presidential administrations and presided over phenomenal economic growth. He clearly knows what it takes to maintain a healthy economy. And now he's backing the idea that we can preserve Social Security through the creation of PRAs.

Predictably, Greenspan's comments angered many liberals.

"I'm not a big Greenspan fan," Senate Minority Leader Harry Reid announced on CNN's Inside Politics. "I think he's one of the biggest political hacks we have in Washington." Reid noted that he's long opposed Greenspan and even voted against the Fed chairman in 1996 and 2000.

Well, Alan Greenspan's successful body of work is a matter of public record. Meanwhile, Reid's comments simply highlight the biggest problem liberals have today: PRAs represent a plan that can protect and preserve Social Security. But there are no similar plans from the left.

As Sen. Joseph Lieberman of Connecticut pointed out recently, "It's not enough to oppose the president's privatization plan. We've got to come up with an alternative to protect Social Security."

It wasn't always this way.

In 1998, the late Daniel Patrick Moynihan outlined a plan to allow workers to divert 2 percentage points of their Social Security payroll taxes into personal accounts. That would have created PRAs, which The Heritage Foundation has supported for years, and it's similar to what Greenspan now says he supports.

On CNN, Moynihan -- then a Democratic senator from New York -- said that if his plan was enacted, "suddenly people, working guys and women, when they reach age 65 and 70, they can start thinking what they are going to give to their grandchildren." Indeed, research shows that if we allow people to invest in a conservative mix of stocks and bonds, everyone -- even those with extremely low incomes -- could save enough to build a nest egg for retirement.

Of course, PRAs would have long-term consequences. Moynihan jokingly pointed out that, "In 50 years time this might be a country where there are no Democrats left. Everybody would be a Republican talking to their broker all day." Maybe that's what frightens Harry Reid so much.

What Moynihan meant, of course, is that allowing PRAs will move us toward a true ownership society, one where every American believes he or she has a stake in the country. That's a goal almost everyone would support. Alan Greenspan clearly does.

It's time for liberals to outline their own proposal. After all, they can always resurrect Sen. Moynihan's seven-year-old plan if they don't have any new ideas. And if all they're going to do is oppose the creation of PRAs, it'll soon be clear exactly who the "biggest political hacks" in Washington are.

Ed Feulner is president of the Heritage Foundation.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
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