Alan Greenspan Speaks For 'Himself'
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)
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)
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?
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
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.
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.