Greenspan, Private Investment, and Zero Sums

[National Dialogue Moderator <moderator>]

	    Greenspan, Private Investment, and Zero Sums

A couple of participants have raised questions about statements by
Fed Chairman Alan Greenspan suggesting that private investment of
social security would result in little more than an asset switch--more
equities and fewer bonds for the trust funds, and vice-versa for
the public--with no net gains.  One participant asked if there were
any way around this zero-sum conclusion.  The answer is yes, most
definitely.  Greenspan's remarks pertain directly to reforms that
would change the investment policy for trust fund "reserves," such
as those endorsed by proponents of centralized investment.  The
effect is zero sum because there is no new saving or capital
investment.  (Greenspan ignores second-order effects on fiscal
decisions in the rest of the budget.) Virtually all proposals for
personal accounts involve paying off some or all of social security's
unfunded liability and limiting or capping the growth of new unfunded
liabilities at the same time workers begin investing a share of
their taxes in private markets--thus the increase in national
saving.  Greenspan favors personal retirement accounts and has
spoken favorably about the Chilean system.


Carolyn Weaver