Former Federal Reserve Chairman Alan Greenspan, in an interview on The FOX Business Network’s Cavuto: Coast to Coast, told host Neil Cavuto that stagnant long-term economic growth is proving to be a threat of epic proportions, and something that, if not properly addressed by immediate and comprehensive changes, may well result in enormous damage to the Western world.
Greenspan said, in part:
“What the Fed does at this particular stage is less important than what the markets are doing. And what the markets are beginning to show us is acceleration in money supply for the first time in a very long time… We have a global problem of a shortage in productivity growth and it’s not only the United States but it’s pretty much around the world and it’s being caused by the fact that the populations everywhere in the Western world, for example, are aging and we are not committing enough of our resources to fund that.”
“Our problem is not recession which is a short-term economic problem. I think you have a very profound long-term problem of economic growth at the time when the Western world, there is a very large migration from being a worker into being a recipient of social benefits as it is called. And this is legally mandated in all of our countries. The size has got nothing to do with the rate of growth in economic activity, but if we stay down at the two percent economic growth in the United States and elsewhere, we’re not going to be able to fund what we are already legally obligated to spend.”
What Greenspan is basically saying is that the abysmally…and now chronically…low levels of productivity have surpassed the point of representing “merely” recessionary conditions; now, with those conditions having persisted for so long, two very significant and dire consequences are unfolding right before us: For one thing, more people who should be workers are instead ending up on the public dole, because there is not enough growth in productivity to facilitate real opportunities and living wages. Additionally, but not entirely separately, the overall lack of growth is making it difficult for governments to cover so-called entitlement programs, particularly for the elderly who, once they reach a certain age, really have no option but to be participants in such programs. In other words, “everlasting” low growth rates are both involuntarily converting workers to welfare recipients, and making it difficult to cover the obligations most societies have imposed upon themselves to care for their elderly citizens.
What exists now is, essentially, an economic irony: The more governments put into entitlement programs in a low-growth environment, the less money there is available for the capital investment that will ultimately put productivity back on track and result in the conditions necessary to adequately sustain said entitlement programs over the long term. Greenspan says the only solution is to make the drastic, uncomfortable, but highly necessary decision to cut back on entitlement programs all the way around - only by doing that will there be the money available for the capital investment that serves to properly fuel a nation’s economic engine, including its entitlement programs.
By Robert G. Yetman, Jr. Editor At Large