PHILADELPHIA -- Alan Greenspan, who chaired the Federal Reserve from 1987 to 2006 with an abiding faith in private-sector bankers that cracked a bit in the ensuing financial collapse, is peddling another book -- "Capitalism in America," with Economist writer Adrian Wooldridge.
On Thursday, Greenspan, 93, stopped by the University of Pennsylvania, joined briefly onstage by wife Andrea Mitchell of NBC News, a Penn trustee, to plug his book and take a few questions at the invitation of Wharton Economic Budget Policy Model chief Kent Smetters. Some highlights, edited for clarity:
What makes America special? Immigration and the freedoms in our Constitution, both of which feed capitalism, Greenspan says.
"Go back 400 years in our economic history. Always, growth came with immigrants."
And the Constitution, as updated, guarantees "individual rights, and as a consequence property rights, which give you all sorts of incentives" to learn, work, save, invest and succeed.
We can still learn from other nations: Greenspan sees Sweden as a model -- not so much for generous social benefits but because it killed the most expensive one, a guaranteed pension whose cost was a drag on investment and jobs.
Greenspan has long argued that the United States cannot afford Social Security, Medicare and Medicaid on today's terms. That's because there are not enough workers, and taxpayers are getting squeezed to finance retirees and patients. "Every dollar of entitlement increase reduces gross domestic savings in the U.S. by $1," a claim that he says he once doubted but that he has validated from economic data.
Sweden solved the problem of benefit costs growing faster than national production by trimming its guaranteed retirement grants and moving toward a savings plan whose value varies with market prices, much like private-sector 401(k) plans in the U.S. (Similarly, Pennsylvania and Philadelphia have recently limited their pension guarantees and added savings plans for new hires.)
It's not enough to fix Social Security and medical costs. As more citizens stop having babies and the president tells immigrants that America is full, the population is aging fast (the average Pennsylvanian is over 40) and there are fewer workers paying into medical and retirement plans compared with the numbers retiring.
That's a drag on investment and growth. Greenspan worries that it's a self-reinforcing process: "When (annual GDP growth slows) from 3.5 percent to 2 percent, you get populism in the White House" and Europe, in movements like the U.K. attempt to leave the European Union.