Alan Greenspan sounds the alarm in a recent interview with CNBC regarding the future of economic growth in America. According to the former Fed Chairman, entitlement programs may hamper future economic growth.
Entitlement programs have the potential to negatively affect the gains made by the economy, according to Alan Greenspan. Entitlement programs include social security, Medicare and other social programs.
He goes on to explain that as entitlement programs increase, they can pose a significant drain to economic resources, handicapping future economic progress. His suggestion is that there must be “major changes” made to entitlements.
According to Mr. Greenspan, there are encouraging signs in the market. Forecast of the GDP has the economy growing at 2.3 percent. In addition, 190,000 jobs were added in March while unemployment has hit a 50 year low.
However, Mr. Greenspan suggests that much of this economic progress has to do with the “stock market aura” and are therefore temporary. When the S&P 500 advances 10%, it usually correlates to a GDP growth of at least 1%; The S&P has risen almost 16% which is a trajectory that surpasses all past historical trends making it the best performing growth record in the index's history.
His alarms are not far-reaching, latest estimates on entitlement programs such associal security have the fund losing all its cash reserves by 2034.
The program was created at a time when the system relied on 42 workers for each recipient. Now, the program relies on just 3 workers to fund 1 recipient.
According to projections, in another 10 years, the ratio will go down to 2 workers to 1 recipient, painting a ruinous picture of things to come. Furthermore, other entitlement programs such as Medicare follow the same trajectory, creating a scenario where costs will escalate indefinitely crippling economic progress.