If you missed it yesterday, Fed Chairman Alan Greenspan told Congress that Social Security is structurally unsound and they're going to have to do something about it.

With the economy now growing strongly, he said, the deficit "will tend to narrow somewhat" in the short term, but that won't be enough to cover the long-term federal retirement expenses of the 77 million baby boomers. The first-born members of that generation will become eligible for Social Security benefits in 2008, and for Medicare in 2011, he said. Over time, as the population ages, there will be fewer workers paying into the funds for every retiree drawing money out.

"This dramatic demographic change is certain to place enormous demands on our nation's resources -- demands we almost surely will be unable to meet unless action is taken," Greenspan said, speaking for himself and not the Fed.

Greenspan, who chaired a commission that studied Social Security during the Reagan administration, said he would not change current retirees' benefits, but reminded members of Congress of two specific ways they could curtail the program's future growth.

He again recommended gradually raising the eligibility age for both Medicare and Social Security, to keep pace with the population's rising longevity. And he noted that they could link cost-of-living increases in Social Security benefits to a measure of inflation other than the consumer price index, a widely followed measure that many economists believe overstates the rise in overall prices. A measure that showed less inflation would cause benefits to rise more slowly.

Let's be clear here, the main problem with Social Security solvency is a demographic one -- fewer workers paying benefits to a greater number of retirees. Your options are to raise the retirement age, cut benefits or dramatically increase taxes (on the people who are still working, not retirees). When Social Security was first created and the retirement age set at 65, the average American's life expectancy was much lower than it is today. Many Americans didn't reach that age, which helped with the program's solvency.

Certain "pundits" (Paul Krugman) have suggested that minor changes in taxation, etc. can ensure Social Security's solvency well into this century. If you're looking strictly at the problem from an accounting standpoint, that's probably true. Unfortunately, in the real world it's woefully inaccurate.

The Social Security (mis)"trust fund" today contains tons of IOUs from the past when more was collected by the government than needed to be disbursed. As the baby boomers retire, those IOUs will need to be redeemed -- either through blowing an even bigger hole in the deficit, borrowing (that won't last long) or raising taxes.

The current system doesn't work when the ratio of workers to retirees is low.

That's what Greenspan was talking about.

But at least one individual doesn't get it.

House Democratic leader Nancy Pelosi, of California, said in a written statement that Greenspan's comments "dramatize the destructive effects of Republicans' reckless economic policies: record budget deficits, higher interest rates, lower economic growth and substantial risk to the Social Security benefits that retirees depend on."

Idiot. None of that matters in the long run, the economy can't support the influx of baby boomers into the Social Security program.