WASHINGTON -- Federal Reserve Board chairman Alan Greenspan urged Congress yesterday to move soon toward reducing future Social Security and Medicare benefits, warning that growing federal budget deficits threaten to cause economic ''stagnation" in coming decades.
National policymakers are ''overdue" in addressing the government's very serious looming fiscal problems, he said, testifying before the House Budget Committee. Greenspan appeared on Capitol Hill a day after the Senate's top Republican suggested that President Bush's push to remake Social Security might have to wait until next year, and as national polls indicate slipping support for the idea.
The Fed chairman, speaking for himself rather than the central bank, again endorsed diverting some Social Security payroll taxes into individually controlled investment accounts. He again recommended that policymakers do so gradually and cautiously, to avoid disrupting financial markets.
But in some of his most forceful language on the subject, Greenspan argued that lawmakers should consider introducing private accounts because the current Social Security system is outdated. He repeated that he believes the nation has promised retirees more benefits than it has the resources to deliver. And he was explicit about the potentially negative economic consequences of trying to meet those obligations.
''Something's got to give," he said. ''We have to find a better model."
Greenspan called on lawmakers to act ''sooner rather than later," warning that failing to act would eventually mean bigger federal budget deficits, which over time would drive interest rates higher, pushing up the cost of servicing the government's debt, possibly forcing it to borrow more, and so on, he said.
That would also slow the country's overall rate of economic growth, leading to ''a state of stagnation."