Hearing of the Special Committee on Aging on Exploring the Economics of Retirement

Hearing of the Special Committee on Aging on Exploring the Economics of Retirement

OPENING STATEMENT OF SENATOR RON WYDEN

Senator Wyden. Thank you, Mr. Chairman. I commend you, Mr. Chairman, and Senator Kohl, and I will be brief.

Chairman Greenspan, I don't see how you can explore the economics of retirement, the topic of today's hearing, without
digging into the question of the weakening dollar. The weakening dollar is particularly hard on older people. Suffice
it to say right now, we are talking about how we persuade people to save more in America, and I think it is pretty stunning when you lock at Newsweek Magazine this week, they say in an article that Americans should consider savings accounts
and certificates of deposit in foreign currencies. They make this argument on the basis of the weakening dollar. So I intend
to explore with you this morning this question of the weakening dollar and how far we are really going to let this slip. That
will be the first area that I look at.

The second that leaves me puzzled is why you give short-shrift to the issue of health care. Health care in your
statement today gets one sentence and a footnote. As far as I can tell, you essentially say nobody really understands the
ramifications of health care technology, so we really cannot get into this now. I would respectfully disagree. Senator Hatch
and I have authored a bipartisan law that is now being implemented that is going to look at some of the tradeoffs
necessary to address this health care issue, and I want to explore that with you this morning, because like my view with
respect to the weakening dollar, I just don't think this country can duck this issue of health care any longer, and that
is the point of the bipartisan law that I have authored with Senator Hatch.

So, as always, we welcome you and look forward to discussing these important issues, and especially to my friend
from Oregon, Senator Smith, I thank him for scheduling this.

The Chairman. Thank you, Senator Wyden.

BREAK IN TRANSCRIPT

Senator Wyden. Thank you, Mr. Chairman.

Dr. Greenspan, you heard my comments about this weakening dollar, and it seems to me it pounds the seniors and the near
seniors with a double whammy. First, they have always looked for safety. They have always looked for instruments that are
safe, and now they are being advised to start looking at CDs and savings accounts, foreign CDs and savings accounts.

Second, we are having this big debate, as we should, about generating more savings for the future, and it seems to me the
weakening dollar debate doesn't make people feel very confident about saving for retirement when they hear constantly about the uncertainly triggered by our dollar policies. So my question to you is have we reached the point out now with respect to the
dollar where seniors should go out and follow the recommendation by a very authoritative person in Newsweek, go
out and buy foreign CDs? Have we reached this point?

Mr. Greenspan. Senator, such recommendations presume that you can forecast the exchange rate of the dollar over an
intermediate period. We at the Federal Reserve have expended an extraordinarily large amount of resources to try to forecast
the value of the dollar in foreign exchange markets, and we have determined it is an exceptionally difficult thing to do,
and as I like to put, it, we have been no more successful than the odds you get in tossing a coin.

So it is rank speculation for a senior or anybody else to buy foreign CDs. You can certainly say that the dollar declined
since the end of 2002 and had one bought CDs back then and sold them today, you would make a profit, but we are looking forward and looking forward in my judgment does not tell us terribly much about where we are going.

But you do raise, I think, a very important question, which is the tie-in here of our current account deficit and the issue
of savings. One of the reasons not the sole reason, but one of the reasons, why we have a very large trade deficit and
essentially a very large current account deficit, is that we don't save enough in the United States and are required to
borrow funds from abroad, borrow savings from abroad, to finance the capital investment we need to create the
productivity gains that we see. By focusing on increasing national savings as part of the problem for retirement, we do
go a long way in creating balance in our international accounts, and it would be a significant factor in the reduction
in our current account balance.

But I leave aside the issue of trying to forecast and trying to anticipate how exchange rates will go, because it is
remarkable how many people are unequivocal in their forecasts, and when we look at the actual performance of those forecasts over time, they are no better than chance.

Senator Wyden. I just have seen that you have said that dealing with this weakening dollar is somehow going to be
orderly, and I will tell you I see bedlam out there, and I think it is going to be very hard to get people to save and to
cultivate the kind of savings ethic that you and I want to see and that there is bipartisan support for until we get our arms
around a sensible dollar policy.

I want to ask about the health care issue also, because people have differences of opinion. I understand that, but I
just for the life of me don't get the logic in your approach to health care. You have told us that health care is more serious
and you have told us that it is going to hit more immediately, but then you say, ``Gosh, let us do Social Security first.''
Well, Senator Hatch and I have authored a law that is now being implemented as we speak to essentially walk the country through the choices with respect to health care. It is going to be on line. It is going to be available in senior centers and the
libraries and the like so that people can see where the health care dollar goes and what the alternatives would be.

Wouldn't it be more sensible, given the fact that that is going to hit in 2010 rather than 2040, for us to move with a
sense of urgency on the health care issue? I mean, we have got a law that allows us to walk the country through the choices
and the tradeoffs. It is now being carried out. Wouldn't it be smarter to do that first?

Mr. Greenspan. Well, Senator, first, I was somewhat taken back when you at the very beginning had indicated that I had
said so little about Medicare in my prepared remarks, and of course you are right. I didn't mean to do that. I think it is a
very serious issue; however, let me follow on to what you have said. I think what we have a problem in Medicare or medical
systems generally in that we don't know as much about what is going on as we need to know to resolve and reform a lot of the
difficulties with respect to respect to systems.

Because of the private physician-patient relationship, there has been very little in the way of collection of data about various different clinical practice. We do know that the samples that have been taken would indicate that we have very
considerable differences in clinical practice across the country with very significant differences in outcomes as well.

What we need to do sequentially to address the medical problem generally, which is Medicare and Medicaid as well as
other aspects of medical professional issues, is to know what is going on. Here, I think if we can get a major advance, as
now seems to be underway, in a bipartisan manner to improve the information technology associated with the medical systems and get bodies of individual biographies encrypted as we can now do such that we know what is medical best practice that is an important first step. I think that if we were to jump in and reform the system overall before we know what the actual
structure of the medical practice is, I think we risk having to backtrack, and what I am concerned about is we will put
solutions, in quotes, in place which are inappropriate.

I think I agree with you. I think the medical issue is urgent and that we should be moving very quickly, as I believe
we will be and are, to get information technology very broadly applied in medical practice, and when we do that, I do think we
will move fairly quickly to understand what medical best practice is so that when we construct the proper Medicare
system, we are dealing with the facts at the time. I am worried about putting in wrong practices which have to be reversed and
technologies which have become obsolete.

Senator Wyden. I would only say, Dr. Greenspan, and my time is up, that I continue to disagree. The point about medical
technology is indisputable, but the Journal Health Affairs, for example, says that we might perhaps save $98 billion to go
forward with the information that would come about as a result of our knowing more about various parts of practice in the
health care system. It is a $1.8 trillion system, and so the debate about issues of like end of life care, what to do about
administrative costs in health care, which many say are something like a third of the $1.8 trillion, that can't afford to wait.

So I respect your view with respect to the issue and importance of health care technology, but I think we are dead
wrong, dead wrong, to say we are going to start now on a problem that we have got to deal with 20, 30, years from now
when on New Year's Day 2008, something like 70 million baby boomers start retiring, and those health care costs are going
to ramp in very fast. They are going to hit this country very hard. I have enormous respect for you, but I do not think that
the sense of urgency about health care is being conveyed, and I hope that we can talk further about that.

Mr. Greenspan. Well, Senator, let me just say that I think there is much less a difference between your views and mine
than I think you have expressed. I don't really, in all honesty, disagree with anything you have just said. It doesn't
contradict anything I believe I have said. If you can find a way to move forward on this thing in a productive manner, I
think it would be terrific for this country.

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