Greenspan Teaches Math Too

Mr Greenspan explains the math of Social Security reform.

Mr. Greenspan delivered another lesson in the laws of arithmetic when he focused on Social Security's pay-as-you-go financing system. Pay-as-you-go worked "exceptionally well" as long as "you increased the population, relative to the number of people who were retired. But when you get the population growth slowing down, and especially the extraordinary improvement in life expectancy after age 65," Mr Greenspan matter-of-factly stated, "the arithmetic no longer works for pay-as-you-go; and what you need is a system which creates the savings that are invested in real assets to produce the real consumption in retirement." That is why he endorses personal retirement accounts, which over the long term "create the possibility of building real savings in a manner better than the pay-as-you-go system does." While the pay-as-you-go system does not have "a mechanism which creates a buildup of savings to create the real resources," he argued that personal retirement accounts "at least have the capability of doing that."