<p>I think what he is trying to say is when people contribute monthly from their paycheck to Medicare and Social Security they feel that is their money in the future when they retired, so they feel they don't need to save more for their future. What they don't realize is Social Security and Medicare is like a Ponzi Scheme (using new money to pay for old one). You are actually paying for for parents generation social security and medicare. And as Baby Boomer generation is getting older, life expectancy is getting longer, and younger generation are decreasing in numbers, The amount of money the younger generation has to contributed is Many times more to pay for there parents' generation. They don't have any saving left for their own capital investment. The rate of household Saving has been on the declined for the last 20 yrs. Saving helps banking balance sheet; it helps capital investment; it helps more money flow into equity; it helps spur invention and business startups and productivity and GDP. Crowding these money out will lead to Decrease in productivity and GDP.</p>

<p>So that is the short explanation to what Greenspan is saying. It is more complicated than that from macroeconomics standpoint (including fiscal and monetary policy, America corporate tax rate pushing jobs internationally, Strength of dollar and Union labor ). All of these will decrease output productivity per man hour. But it is too complicated to be discussed here.</p>

<p>TQ
Economics For Fun</p>

CC BY-SA 3.0
2015-03-15T14:22:47.617Z
Is he literally comparing it to a Ponzi Scheme? That seems odd.
FooBar
CC BY-SA 3.0
2015-03-15T13:42:36.687Z
2015-03-15T13:42:36.687Z
user4191
<blockquote>
  <p>"Well, the basic issue is the entitlements and the reason it's a
  problem is that people put money in their own funds and their
  employers' funds plus interest and that is what they perceive they et
  back , and therefore they are entitled to it because it is their
  money."</p>
</blockquote>

<p>He's saying people think that they receive the income that they are putting into the program.  For example, a common perception that people have about social security is that it is simply a forced savings program: I put in \$50, that \$50 is put into a vault somewhere, then pulled out later, and given back to me for my retirement.</p>

<p>That's not how it works. I put in \$50, and we spend it immediately on someone's current retirement, or a number of other pre-approved (and sometimes seemingly unrelated) programs. We then hope that some new young person puts in another \$50 in time for my retirement.</p>

<p>This is particularly a problem as that the number of retirees is going to grow while the number of young people putting money into social security is going to shrink. In fact, this is a problem if productivity declines in any way, and the amount going in is limited or restricted, or fails to grow.</p>

<p>Questions 1/3: He is not saying that entitlements cause lower productivity in this statement-> he is saying entitlements will have problems -because- of lower productivity (probably from lower population, as has been popular to discuss for quite some time).</p>

<p>Question 2: Capital stock is the collection of tools available for production.  (Hammers, technical know-how, computers, assembly lines.)</p>

CC BY-SA 3.0
2015-03-20T05:37:44.467Z
2015-03-20T05:43:34.877Z
2015-03-20T05:43:34.877Z
RegressForward
<p>In a recent Bloomberg interview, Alan Greenspan suggested that entitlements leads to lower productivity, can you please explain it?</p>

<p>What does 'capital stocks' mean? </p>

<p>Does he means that because we are spending a lot on health we don't have money to invest in other things? </p>

<p>Thank you</p>

<blockquote>
  <p>ALAN GREENSPAN:  Well, it's unfortunately very simple but not a good story.  It's turning out that we're using more and more people at the
  margin to produce less and less.  Productivity, which is output for
  man hours as we conventionally measure it, is running at a very low
  rate of increase.  And that's the critical variable in the economy
  over both the short-term and the long-term. </p>
  
  <p>So what we are confronted with right now is a very serious problem
  caused by the fact that capital investment is falling far short of the
  requirements necessary to keep the capital stock growing, and
  therefore productivity.  It is not working. </p>
  
  <p>LIU:  So how do we reverse that?  What exactly is behind that,
  Chairman? </p>
  
  <p>GREENSPAN:  Well, I've on many occasions indicated that the best way
  to standard this is to track it backwards.  There's a very tight
  relationship between the stock of nonresidential, private stock and
  output per hour.  They move together parallel all the time for very
  good reasons.  But that capital stock requires capital investment. 
  And capital investment, in turn, is being crowded out by a very
  substantial increase in government expenditures.  Basically,
  entitlements -- because both parties, both the Republicans and the
  Democrats, don't want to talk about it largely because it is
  considered the third rail of American politics.  You touch it and you
  lose. </p>
  
  <p>LIU:  Well, so that makes perfect sense.  So it might come down to
  cutting some costs, right, to cost controls, Chairman.  Top of your
  list, I know you've mentioned entitlement spending.  You know, you've
  got Medicare, Social Security.  The No. 1 thing that you think that we
  need to cut our costs on is what?</p>
  
  <p>GREENSPAN:  Well, the basic issue is the entitlements and the reason
  it's a problem is that people put money in their own funds and their
  employers' funds plus interest and that is what they perceive they et
  back , and therefore they are entitled to it because it is their
  money. </p>
  
  <p>The only problem is that's not what we are doing.  We're not creating
  enough funding for the Social Security trust funds, and the same thing
  goes for Medicare Part A.  And we're not funding this.  So long as we
  are not funding this, we are dollar for dollar crowding out capital
  investment.</p>
</blockquote>

<macroeconomics><productivity>
Why does entitlements leads to lower US productivity?
kambi
# Why does entitlements leads to lower US productivity?

(Asked by: username_0 on 2015-03-15)

In a recent Bloomberg interview, Alan Greenspan suggested that entitlements leads to lower productivity, can you please explain it?

What does 'capital stocks' mean?

Does he means that because we are spending a lot on health we don't have money to invest in other things?

Thank you

> ALAN GREENSPAN: Well, it's unfortunately very simple but not a good story. It's turning out that we're using more and more people at the
> margin to produce less and less. Productivity, which is output for
> man hours as we conventionally measure it, is running at a very low
> rate of increase. And that's the critical variable in the economy
> over both the short-term and the long-term.
>
> So what we are confronted with right now is a very serious problem
> caused by the fact that capital investment is falling far short of the
> requirements necessary to keep the capital stock growing, and
> therefore productivity. It is not working.
>
> LIU: So how do we reverse that? What exactly is behind that,
> Chairman?
>
> GREENSPAN: Well, I've on many occasions indicated that the best way
> to standard this is to track it backwards. There's a very tight
> relationship between the stock of nonresidential, private stock and
> output per hour. They move together parallel all the time for very
> good reasons. But that capital stock requires capital investment.
> And capital investment, in turn, is being crowded out by a very
> substantial increase in government expenditures. Basically,
> entitlements -- because both parties, both the Republicans and the
> Democrats, don't want to talk about it largely because it is
> considered the third rail of American politics. You touch it and you
> lose.
>
> LIU: Well, so that makes perfect sense. So it might come down to
> cutting some costs, right, to cost controls, Chairman. Top of your
> list, I know you've mentioned entitlement spending. You know, you've
> got Medicare, Social Security. The No. 1 thing that you think that we
> need to cut our costs on is what?
>
> GREENSPAN: Well, the basic issue is the entitlements and the reason
> it's a problem is that people put money in their own funds and their
> employers' funds plus interest and that is what they perceive they et
> back , and therefore they are entitled to it because it is their
> money.
>
> The only problem is that's not what we are doing. We're not creating
> enough funding for the Social Security trust funds, and the same thing
> goes for Medicare Part A. And we're not funding this. So long as we
> are not funding this, we are dollar for dollar crowding out capital
> investment.

**Tags:** macroeconomics, productivity

---

## 2 answers

### Answer by username_3 on 2015-03-20. Score: 4 | Accepted answer

> "Well, the basic issue is the entitlements and the reason it's a
> problem is that people put money in their own funds and their
> employers' funds plus interest and that is what they perceive they et
> back , and therefore they are entitled to it because it is their
> money."

He's saying people think that they receive the income that they are putting into the program. For example, a common perception that people have about social security is that it is simply a forced savings program: I put in \$50, that \$50 is put into a vault somewhere, then pulled out later, and given back to me for my retirement.

That's not how it works. I put in \$50, and we spend it immediately on someone's current retirement, or a number of other pre-approved (and sometimes seemingly unrelated) programs. We then hope that some new young person puts in another \$50 in time for my retirement.

This is particularly a problem as that the number of retirees is going to grow while the number of young people putting money into social security is going to shrink. In fact, this is a problem if productivity declines in any way, and the amount going in is limited or restricted, or fails to grow.

Questions 1/3: He is not saying that entitlements cause lower productivity in this statement-> he is saying entitlements will have problems -because- of lower productivity (probably from lower population, as has been popular to discuss for quite some time).

Question 2: Capital stock is the collection of tools available for production. (Hammers, technical know-how, computers, assembly lines.)


---

### Answer by username_1 on 2015-03-15. Score: 0

I think what he is trying to say is when people contribute monthly from their paycheck to Medicare and Social Security they feel that is their money in the future when they retired, so they feel they don't need to save more for their future. What they don't realize is Social Security and Medicare is like a Ponzi Scheme (using new money to pay for old one). You are actually paying for for parents generation social security and medicare. And as Baby Boomer generation is getting older, life expectancy is getting longer, and younger generation are decreasing in numbers, The amount of money the younger generation has to contributed is Many times more to pay for there parents' generation. They don't have any saving left for their own capital investment. The rate of household Saving has been on the declined for the last 20 yrs. Saving helps banking balance sheet; it helps capital investment; it helps more money flow into equity; it helps spur invention and business startups and productivity and GDP. Crowding these money out will lead to Decrease in productivity and GDP.

So that is the short explanation to what Greenspan is saying. It is more complicated than that from macroeconomics standpoint (including fiscal and monetary policy, America corporate tax rate pushing jobs internationally, Strength of dollar and Union labor ). All of these will decrease output productivity per man hour. But it is too complicated to be discussed here.

TQ
Economics For Fun

> **Comments:**
> **username_2**: Is he literally comparing it to a Ponzi Scheme? That seems odd.  

---

