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The following exchange occurrred during yesterday's hearings of the House Financial Services committee:

MADAME CHAIR: The gentleman from Georgia, Mr. Price, is recognized for five minutes.

CONGRESSMAN PRICE: Thank you, Madame Chair. I appreciate that. It’s an honor to be a part of this committee and it is indeed a privilege to personally witness your wisdom and I commend you for your dexterity and your persistence in your answers to many of the questions that have come to you today. I have a comment and then a couple of questions. I’m so pleased to hear you in your written testimony and in your spoken testimony identify 2008 as the pivotal date as it relates to the Social Security issue because–for two reasons. One, as you appropriately identify, that’s when the baby boomers begin to retire. The second reason that I believe needs to be pointed out is that on that wonderful graph of the incoming money as it relates to FICA and when we begin to dip, that’s the top of the crest and then we begin to go down where there’s more money going out than coming in. So, I commend you for that. And I don’t care whether you call it a crisis or a near crisis or a looming crisis as President Clinton called it in 1998. A rose is a rose is a rose. I think the important issue is that you said clearly, “There’s a call for action before the leading edge of the baby boomer retirement becomes evident in 2008.” And that is within three years.

My question relates to our savings rate as a nation and my understanding that the household savings rate is low as it relates to our history as a nation and also as it relates to other industrialized nations. And so I would ask you what your thoughts are on anything that we might do in terms of policy that would positively and significantly affect our savings rate as a nation.

CHAIRMAN ALAN GREENSPAN: It’s one of the most difficult problems government has had, Congressman, trying to address this particular question. And the reason is that it’s not just a question as we tend to do, to create vehicles to save, such as 401(k)s or IRAs or the like, because what we really have to do is get people to consume less of their income, because that’s what savings is. If you don’t consume less of your income and you’re building up a 401(k), it’s essentially saying that you just drew the funds from other forms of savings and you did not increase your aggregate amount of savings. So, the issue really gets down to the question of how do you increase income relative to consumption? And that is not very easy for government to address or say.

What we can do is find measures which will augment the growth rate of the economy, create incentives for growth and the like. But unless you impose something such as a consumption tax, which economists have argued for, which I suspect has very little support in the Congress, it’s difficult to see how you come to grips directly with that issue. I might add that the consumption tax issue arose essentially because there does not seem to be any other way to directly get at this issue. My suspicion is that the 1% savings rate, which is what it’s been for the last year, is probably going to be the low point and we will start to rise from there. But that’s been my expectation for a number of years and I can’t honestly wish to guarantee it because it’s a very tricky issue to forecast. The bottom line, Congressman, is I can’t really suggest anything which is significant, practical and useable to address this subject. I just hope it cures itself, sooner than later.

CONGRESSMAN PRICE: I appreciate your response and I’m so please to hear you talk about the consumption tax because, as you identified, you’ve got to have increased income in order–relative to consumption. If the money never gets to your back pocket it isn’t income. So, if I heard you correctly, I understood you to say that if we were able to move to a consumption tax, to enact a national retail sales tax, that that would, in fact, have a by-product of increasing national savings as you increase the amount of money in individuals’ pockets.

CHAIRMAN GREENSPAN: I would certainly think so, because what you’re doing is taxing consumption not income. And as a consequence or as people like to say, if you tax it you’ll get less of it and that’s probably right.

CONGRESSMAN PRICE: Thank you, Mr. Chairman. I yield back.

I heard there was another segment where Mr. Greenspan acknowledged the benefits of an NRST in addressing social security's demographic problems, but I don't have that part of the transcript.

At the President's economic summit in December, one of the economists said that they (meaning the economists participating) unanimously agreed that our low savings rate contributed to a number of other problems in our economy.