Greenspan: Why Building Capital Stock Matters

Federal Reserve Board chairman Alan Greenspan on Mar. 2 told a Congress already wrestling with the weighty issues of Social Security reform and federal tax reform something the lawmakers probably didn't want to hear: Greenspan said that solving forecasted Social Security shortfalls -- a reform that Congress is increasingly unlikely to achieve this year -- will do little to meet the "imperative" need to boost national saving.

"Raising national saving is an essential step to build a capital stock that by, say, 2030 will be sufficiently large to produce goods and services to meet the needs of retirees without unduly curbing the standard of living of our working-age population," the Fed head told the House Budget Committee.

"It falls to the Congress to determine how best to address the competing claims on our limited national resources," he reminded the legislators. "In doing so, you will need to consider not only the distributional effects of policy changes, but also the broader economic effects on labor supply, retirement behavior and private saving. In the end, the consequences for the U.S. economy of doing nothing could be severe."

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