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Patricia Johnson: Greenspan Speaks For 'Himself'

Alan Greenspan Speaks For 'Himself'


By Patricia L Johnson

When Federal Reserve Board Chairman Alan Greenspan appeared before the House Committee on the Budget, it was to warn Congress that the government of the U.S. is overextended and must close the "fiscal gap" (1) The “fiscal gap” Greenspan is referencing is the $375 billion unified budget deficit for the fiscal year ended September 30, 2003. Following Greenspan’s speech the media was out in full force with headlines reading ”To Trim Deficit, Greenspan Urges Social Security and Medicare Cuts” (2)

(1) http://www.federalreserve.gov/boarddocs/testimony/2004/20040225/default.htm
(2) http://www.nytimes.com/2004/02/26/business/26FED.html


Just a year ago, on February 27, 2003, Chairman Greenspan appeared before the Senate Special Committee on Aging, and stated “As you know, the aging of the population in the United States will have significant effects on our fiscal situation. In particular, it makes our social security and Medicare programs unsustainable in the long run, short of a major increase in immigration rates, a dramatic acceleration in productivity growth well beyond historical experience, a significant increase in the age of eligibility for benefits, or the use of general revenues to fund benefit.” (3)

(3) http://www.federalreserve.gov/boarddocs/testimony/2003/20030227/default.htm

Where were the headlines a year ago?

A New York Times headline stating that Greenspan urges Social Security and Medicare cuts has to be frightening to the millions of Social Security recipients that attempt to live from month to month on benefits received from the Social Security Administration. It has already been reported that some low-income Medicare recipients are forced to make daily choices on whether to go without basic necessities in order to pay for the rising cost of their prescription drugs. Governors are even breaking the law in order to provide their residents with low-cost drugs from Canada.

A little over three months ago, the White House released the Fact Sheet, titled “A Great Day for American Seniors”, which states, “for the first time in Medicare’s history, a prescription drug benefit will be offered to all 40 million seniors and disabled Americans” (4) . I wonder how many Seniors still think it's a great day?

(4) http://www.whitehouse.gov/news/releases/2003/11/20031125-6.html

To fully understand the problem we have to go back to Chairman Greenspan’s actual speech. Greenspan stated “According to the latest projections from the Administration and the Congressional Budget Office (CBO), if current policies remain in place, the budget will stay in deficit for some time”.

Revenues, Outlays, Surpluses, Deficits and Debt Held by the Public 2000-2003
(Billions of dollars)
Surplus or Deficit (-)

 

Year

Revenues

Outlays

On-Budget

Social

Security

Postal

Service

Total

Debt Held by

the Public

2000

2025.2

1,788.8

86.6

151.8

-2.0

236.4

3,409.8

2001

1991.2

1,863.8

-33.3

163.0

-2.3

127.4

3,319.6

2002

1,853.2

2,011.0

-317.5

159.0

.0.7

-157.8

3,540.4

2003

1,782.3

2,157.6

-536.1

155.6

5.2

-375.3

3,913.6

http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0#table5

If you review the chart you will note that in FY 2000 revenues were 2,025.2 while in 2003 they were 1,782.3 or a reduction in revenue of 242.9 billion dollars. While the revenues decreased substantially, the outlays increased dramatically, from 1,788.8 in FY 2000 to 2,157.6 in FY 2003, or an increase of 368.8 billion dollars.
Attempting to meet obligations with less income, and increased commitments is a challenge that must be met by this administration, but should it be met at the expense of the 40 million individuals in this country receiving Social Security and Medicare? President Bush is requesting Congress to make his tax cuts to the wealthy permanent, yet it is obvious that tax cuts are a major factor contributing to the 375.3 billion dollar deficit. This can be determined by the following statement from Greenspan’s speech “The deficits also reflect a significant step-up in spending on defense and higher outlays for homeland security and many other nondefense discretionary programs. Tax reductions--some of which were intended specifically to provide stimulus to the economy--also contributed to the deterioration of the fiscal balance.”

The basis for Greenspan’s concern, and subsequent suggestion, that Congress review Social Security and Medicare, is the December CBO projection that outlays for these two programs, will increase to 12 percent of GDP by 2030, compared to the current rate of 4.3% for Social Security and 2.5% for Medicare.

Greenspan clearly indicates that his concern is not with Social Security “The concern is not so much about Social Security, where benefits are tied in a mechanical fashion to retirees' wage histories and we have some useful tools for forecasting future outlays. The outlook for Medicare, however, is much more difficult to assess.”

Future medical costs are certainly extremely difficult to assess, so perhaps we should forget about what might happen in 2030 and start dealing with the present. The present makes one thing crystal clear – the interest on the public debt for FY 2003 is one billion dollars over and above what we paid in health benefits for all Medicaid beneficiaries for the entire fiscal year. It's difficult to comprehend, but it's a fact.

Total Outlays
(In billions of dollars)

Major Category

Actual FY 2002

Actual FY 2003

% Change

Actual

% Change

Adjusted (a)

Defense—

Military

332

389

17.1

16.0

Social Security Benefits

448

467

4.1

4.1

Medicare

256

277

8.2

6.9

Medicaid

148

161

8.9

8.9

Unemployment

Insurance

55

58

6.0

6.0

Other Programs and Activities

593

644

8.5

9.1

Subtotal

1,832

1,994

8.9

8.7

Net Interest on Public Debt

179

162

-9.6

-9.6

Total

2,011

2,157

7.2

7.1

(a) Excludes the effects of payments that were shifted because of legislative action or changes in the accounting of certain health payments of the Department of Defense.

http://www.cbo.gov/showdoc.cfm?index=4718&sequence=0

Since it appears that Greenspan wasn’t speaking as Chairman of the Federal Reserve Board “I want to emphasize that I speak for myself and not necessarily for the Federal Reserve” perhaps we should just ignore his suggestions and use common sense. Common sense tells us all budget items need to be reviewed with a fine tooth comb and cuts in Social Security and Medicare should be made only as a last resort.

**********

Patricia Johnson is a freelance writer residing in the Midwest.


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