EDITORIAL
Greenspan's warning: What to make of it

We should be grateful to Federal Reserve Chairman Alan Greenspan for being crystal clear on one point — the ballooning federal deficit is a clear and present danger to the American economy.

On this, Greenspan is in stark disagreement with the Bush administration. As Vice President Dick Cheney famously said, Ronald Reagan long ago "proved that deficits don't matter."

Of course they matter, which is why Greenspan so boldly grabbed hold, in his latest testimony before Congress this week, of the "third rail of politics," Social Security, as well as Medicare. Greenspan's warning is indicative of the awful choices facing the nation in the wake of President Bush's tax cuts.

In the abstract, we can understand Greenspan's preference for narrowing the deficit by cutting spending rather than raising taxes. Raising taxes slows economic growth and thus the growth in tax revenues.

We also understand the demographic problems Social Security and Medicare present as baby boomers begin reaching retirement age.

Greenspan correctly raised a red flag about Social Security, warning that federal deficits, already dangerously large, will begin to explode after the first wave of baby boomers becomes eligible for Social Security benefits toward the end of this decade, and for Medicare after that.

In the Clinton years, the assumption was that part of the surplus would be used to shore up entitlements for retirees. Now the tax cuts have removed that comfortable option, which was much to be preferred to whatever is second-best.

So Greenspan is correct that these two programs will clearly need tweaking, probably involving later retirement for individuals, to prevent a fiscal train wreck in the next few years.

Given our increased longevity, that's reasonable. Greenspan was correct to warn that changes will have to be made and that, going forward, expectations will have to change about how much the federal government can do to take care of everyone's long-term financial and medical needs.

But reform of retirement programs should be undertaken in the spirit of making them better and more viable, rather than as a way of compensating for a lack of budgetary discipline.

Cutting Social Security and Medicare benefits to correct a deficit problem largely caused by enormous tax cuts presents a serious ethical problem.

Having just enacted these tax cuts mainly benefitting the rich — which Greenspan advocates making permanent, so as not to impede growth — he now suggests instead cutting the entitlement programs.

Rich people are entitled to Social Security and Medicare, but they can survive easily without it. Not the working poor or the middle class, who already face grim circumstances in their "golden years."

By making Bush's tax cuts permanent and trimming Social Security and Medicare, Greenspan condones a massive transfer of wealth from the poor and middle classes to the rich.

Together with the repeal of the estate tax and other measures, we're witnessing the creation of an American dynasty of unimagined wealth — and an increasingly resentful underclass — in a place formerly called the land of opportunity.