At a symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo. today, Fed chairman Alan Greenspan said the challenges of an aging population demand policy changes, including cutting retirement benefits.

He urged lawmakers to get an early start on containing U.S. budget deficits that are expected to balloon as baby boomers enter retirement,

Greenspan predicted that the aging of the population in the United States “will significantly affect our fiscal situation”.

Greenspan said the U.S. government has promised more to future generations of retirees than it can possibly deliver. He reported that most observers expect Social Security, under existing law, to be in chronic deficit over the long haul; and, he warned of substantial shortfalls in the Medicare program.

As a result, Greenspan said, the government must get ready to lower old-age benefits to levels that it is capable of financing.

“Early initiatives to address the economic effects of baby-boom retirements could smooth the transition to a new balance between workers and retirees,” he said.

Greenspan said that rising pressures on retirement incomes and a growing scarcity of experienced labour could eventually reverse the trend to early retirements. “Policies promoting longer working life could ameliorate some of the potential demographic stresses,” he said.

And, he noted that immigration could help alleviate the expected labour shortage. “But to fully offset the effects of the decline in fertility, immigration would have to be much larger than almost all current projections assume,” he said.

“It is thus heightened growth of output per worker that offers the greatest potential for boosting U.S. gross domestic product to a level that would enable future retirees to maintain their expected standard of living without unduly burdening future workers,” Greenspan offered.

To that end, he called for better primary and secondary school education, more domestic investment, and higher private domestic saving rates.