Alan Greenspan Says Look to Sweden to Solve U.S. Entitlement Problem

(Bloomberg) -- The U.S. could follow Sweden's example to solve its problems with the welfare state, former Federal Reserve Chairman Alan Greenspan said.

Greenspan, who argues in his latest book that the growth of spending on social benefits corresponds to less innovation and entrepreneurship, said the real problem with entitlements was the refusal to fund them -- not the guarantees of help from the government per se. Sweden has no problems supporting itself even though it has one of the most generous welfare states in the world.

The Nordic nation “is a perfect example of a country that had the problem we had in the U.S. today, and they solved it,” Greenspan said via video link with an event in London. “It's not the deficits, it's the issue of not funding increased expenditures.”

His praise was surprising in its apparent departure from U.S. Republicans' dedication to low taxes and reduced entitlements. Sweden has a relatively high tax rate as well as more state benefits.

The Scandinavian nation has a reputation for providing expensive cradle-to-grave social welfare, but in the 1990s the country moved over from a defined benefit to a defined contribution system.

While the U.S. and many other industrialized countries are struggling with large unfunded pension programs, Sweden's is constructed to be a self-correcting, pay-as-you-go-system designed to remain in balance permanently.

Greenspan was promoting his latest book, “Capitalism in America: A History” with co-writer and Economist newspaper journalist Adrian Wooldridge.

Bank of England Governor Mark Carney asked questions of the authors, but refused to answer any himself, saying he's in a purdah period for upcoming events. He'll face journalists on Wednesday morning after the U.K. central bank publishes its Financial Stability Review.

Greenspan's book asks whether the U.S. is becoming complacent after decades of dominating global capitalism and argues that creative destruction really means reducing unit output costs.

When asked about the role of artificial intelligence in changing creative culture, he joked, “If you get robots to pay their taxes, that would solve the problem.”

--With assistance from Rafaela Lindeberg.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net;Linly Lin in London at llin153@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Lucy Meakin, Andrew Atkinson

©2018 Bloomberg L.P.