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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.

Today's Commentary: 02.24.04
The Brazil Nut Theory

I wish, in all honesty I could have said that this was a transcript from the footage that had fallen to the floor of the taped "Meet the Press" interview with the President on February 8th. You know the interview, the one heavily skewered by late night comedians and Democrats, one and all. The taped conversation where Mr. Bush tried to explain his positions with decidely mixed results.

Had this missing footage been shown, the President would have been seen explaining his solution to the recent economic woes as based on a little known theory outside of the world of physics called the "Brazil Nut Theory".

With that wry smile on his face, the lost tape begins with the answer to a question asked by the show's host Tim Russert about jobs in America.

"Tim, have you ever heard of the Brazil Nut Theory? Didja ever open a jar of mixed nuts and found all of the big nuts, the almonds, and the walnuts, and especially those huge Brazil nuts all at the top. There is a reason for that and some folks some years back found out why when they were transporting chemicals by truck. Seems all that motion, the swaying and the jostling, separated the chemicals that were mixed up at the plant and by the time the product got to its destination, it was wholly different. All of the big particles in the mix had risen to the top pushing all those Spanish peanuts sized granules to the bottom. I'm not a big fan of those peanuts either, Tim.

"This is why making my tax cuts permanent would create jobs. What I did back in 2001 was begin a program of finding out who the Brazil Nuts in this whole mix were. The only way to do that was to jostle the economy up and let the big nuts rise to the top. The way the theory works, Tim is simple. As the container of nuts begin the journey, they are all packed evenly. Much like the tax system before I took office. The people at the top of the system, because of their size, were taking up more space and therefore were taxed more severely because of it. When the tax cuts took place, we in effect took that jar of nuts and shook it up real good.

"This allowed the bigger nuts to rise and the lower nuts in the mix settled into the empty spaces left below. They actually pushed us, er, I mean, the bigger nuts to the top. What those scientist found out was that the more desirable nuts will always rise to the top."

Mr. Russert looked perplexed. Not wanting to sound as if he were leaning toward advocating the liberal point of view when it came to the President's mixed messages about job creation but he couldn't help but ask: "Your tax cuts, if made permanent, would allow businesses to accelerate the way they write off investments while at the same time excluding foreign and export income earned outside of the country by those companies while continuing to cut taxes on dividends, capital gains, and personal savings. Your plan also calls for lowering marginal rates further in the belief that this will raise after tax income and as a result, increase spending. Isn't that a shift to a wage based tax system that would clearly delineate wealth? America has been under the belief that tax should always be proportionate to income."

"No Tim. It is to allow the Brazil Nuts of this world to rise to the top of the jar. It is that natural order of things. It is, without a doubt what folks desire because people like natural order. This economy needs those nuts at the top. Those nuts have allowed the other nuts to occupy the sectors that they need to occupy. The Brazil nutters will create the additional jobs, so to speak because they have risen to the top. By giving them the lion's share of the tax cuts, they will do the whole of society better by creating jobs for the smaller nuts at the bottom."

Playing along with the analogy, Mr. Russert asked, "Mr. President, your office takes little note of the fact that the population, more specifically the working age population, has increased making the space at the bottom of your jar more valuable. But at the same time, it never shows up in any unemployment report because these people never had a job to begin with. There are the peanuts that didn't make it into the jar Mr. President. Which leads me to ask why, when the economic statistics continue to show weakness and your office continues to paint a rosy picture of a future that seems no longer so certain, do you believe that those peanuts left out of the jar and the ones crammed in the bottom not finding jobs, are actually going to do better under your plan if it is made permanent?"