WASHINGTON — Federal Reserve Chairman Alan Greenspan embraced President Bush's vision of an "ownership society" Thursday, saying private Social Security accounts could foster feelings of wealth among poor Americans.
In a second straight day of congressional testimony, the influential Fed chief argued that a personal accounts-based system would be less likely to face the type of fiscal crunch that retiring baby boomers pose to the pay-as-you-go program.
While he did not specifically endorse Bush's plan and admitted that private accounts, in and of themselves, would not improve Social Security's shaky finances, he said such accounts could create "a sense of ownership."
"These accounts, properly constructed and managed, will create ... a sense of increased wealth on the part of middle- and lower-income classes of this society, who have had to struggle with very little capital," Greenspan told the House Financial Services Committee.
"While they do have a claim against the Social Security system ... as best I can judge, they don't feel it is personal wealth the way they would with personal accounts," he said.
Greenspan went before the committee to discuss the Fed's semiannual economic report, but Bush's politically contentious proposal to create private accounts quickly became the hearing's focus.
The president wants to let workers divert a portion of their Social Security payroll taxes into individual accounts as part of a larger overhaul intended to deal with an eventual funding shortfall for the 70-year-old system.
Democrats are united against Bush's plan, which they say would endanger workers' retirement security and entail trillions of dollars in government borrowing since there would be less tax revenue to cover benefit payments.
While embracing the concept of private accounts, Greenspan urged a go-slow approach because of uncertainty over how financial markets might greet large-scale borrowing.
While Bush has called the looming funding problem a crisis, Greenspan said he would not go that far. "I would not use the word crisis," he said.
"Crisis to me usually refers to something which is going to happen tomorrow or is on the edge of going into a very serious change. That is not going to happen."
Greenspan did, however, say the existing system, in which incoming taxes pay current benefits, was not viable over the long haul.