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The Political Third Rail: Social Security is now on the Table Alan Greenspan, for all of his wit and charm, has never lost sight of the golden ring. He still reaches for a better Social Security. He wants a program that isn't funded using the faulty numbers given in the Consumer Price Index. He would like to use a newer chain weighted one. And he'd like to push the benefit eligibility back to the ripe old age of 67. This isn't new news. Greenspan has been on this one for two decades. What it is however is something that brings the deficit into a harsher light and the problematic future of an important promise made by our government. Social Security is and always will be a hot button topic, or as many like to call it, the political third rail. For you folks that have never seen a subway up close, the power that drives those trains down the track comes from a center rail, juiced with enough electricity to, well, you can imagine. Social Security has been referred to as this rail in terms of "touch it and you die" issue, a real political disaster for any party. But why now and why Mr. Greenspan? Mr. Greenspan has never made it a secret that his ideas for the agency, whose solvency is scheduled to end sometime in 2042, should be adopted. He took his opportunity to throw the topic out to the candidates via his testimony in front of the House Budget Committee on Wednesday. Offering the subject up for some decisive debate, Social Security reform has been elusive for our elected officials. The CPI that is currently used to calculate the payments necessary to keep the fund solvent includes food and energy. This according to the chairman increases the volatility of the index. By removing these two groups, a newer core index would be used to calculate government obligations to the fund giving the government smaller future obligations. To give you some idea of what this would mean, the current CPI grew at a one percent last year, giving it a one percent bias. If the food and energy were removed, the new index called the price index for personal consumption spending or PCE, would use a number that was more stable. In fact, this index would show price stability relative to 1960 prices or half od the current number. With all the major candidates forced to comment, the issue has been thrown into the ring. Mr. Greenspan pointed out that in slightly over twenty years, the ratio of workers to retirees will tighten from a barely passable three to one to 2.25 actively employed to one retiree. That makes the deficit even more troublesome in the chairman's eyes. Those deficits will grow in importance as those debts are carried forward right at the time the baby boomers retire. He predicts that those deficits are going to force financial markets to push interest rates higher. Higher interest rates are not what this newly reflated market needs. When rates do rise, the growth that should have been fueled by a low interest rate environment, will be slow dramatically. While Greenspan favors some sort of privatization for younger workers and securing the promises that were made to soon-to-be and current retirees, the issue of reforming Social Security had yet to be raised on the campaign trail. This is a decisive issue and everyone knows it. It is one that will cleanly separate younger voters from older ones and for good reasons. Younger voters believe the program is antiquated and they should have more control over the funds that they are contributing. Older voters, after a life time of contributions, wants to be paid what has been promised. Social Security may be political suicide but because of the chairman's remarks, it may prove the make or break issue in this year's election. With so many subjects for a candidate to wrap themselves around, Social Security is without a doubt, the largest and most complicated. Mr. Greenspan has forced their hand, almost encouraging an open debate on the topic. Just like that, the next several months just got interesting.
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