Describing the March downturn in the U.S. economy as “a soft patch,” the director of President Bush's National Economic Council blamed it on higher oil prices and said unless those prices increase even more, the economy should return to “a sustainable rate of growth” near 3.5 percent.
“No economy is free of headwinds,” Al Hubbard, a business school classmate of the president, told members of the Society of Business Editors and Writers at their annual conference in Seattle. He also serves as assistant to the president for economic policy.
Admitting that high oil prices “undermine people's confidence in the economy every time they fill up their tanks,” he said the “problem has been decades in the making — the country hasn't had an energy policy in 20 years,” and that there's “no magic wand” to quickly cure the problem.
Rather, Hubbard said, “It's time for Congress to end their delays” and “enact the president's comprehensive energy policy now.”
If oil prices retreat, or even remain stable at present levels, he said, “There's no reason to believe the economy won't continue on a sustainable path; all the fundamentals suggest it will continue to grow for the foreseeable future.”
This outlook, he said, was also based on a belief that wage growth and stronger productivity will help support the economy.
Long-term, sustained growth should be positive for the stock market, too, Hubbard said, and that should make the general public more inclined to support the president's proposals to move to a partially-privatized Social Security system based on the market.
“Franklin D. Roosevelt did a great thing when he created Social Security, which has provided a safety net for millions,” he said, “But it's easy to fund a pension program when most people won't live to collect it — the average lifespan at that time was 61.”
Now that people are living much longer, Hubbard said, and as the number of retirees zooms, “there are fewer workers paying into the system to support those retirees.”
Currently, he said, “There's no money in the Social Security bank,” the system is “badly under-funded,” and surpluses have been pre-empted every year by Congress and spent on other programs.
“The Social Security trust fund is full of IOUs, and nothing else,” which will force the government to have to borrow more money or raise taxes if the money is to be repaid.
President Bush, Hubbard said, “is committed to fixing the problem.”
While the president opposes any increases in Social Security taxes — “We've been down that road too many times before” — he “strongly believes personal accounts are the best way” for young workers to strengthen their retirement prospects.
They wouldn't be able to touch the savings in those accounts until they retired, Hubbard said, “but then neither could the government.”
Rather than worrying about risks related to stock market-based accounts, he said, “The real risk is in doing nothing. The longer we wait, the more costly it's going to be.”
Over three decades, he said, stock market returns “have been very strong, and there's no reason to believe our economy won't continue to be strong.”
Hubbard chided Congress for its inaction on Social Security reform. “All Congress wants to do is spend, spend, spend.”
In a question-and-answer session, Hubbard acknowledged that skyrocketing expenses for Medicare and Medicaid represent major problems in terms of unfunded liability.
“But knowing this president as I do, he doesn't allow big problems not to be addressed, and I'm confident he will address these problems.”
Asked about recent polls indicating diminishing public support for privatization of Social Security, Hubbard responded, “There are polls that will tell you anything you want to hear. When people understand the president's approach, they love it.” But, he said, “the opposition has been incredibly effective” in marshaling support against the Bush proposals.
Commenting on the national budget, Hubbard said Bush “is committed to creating a more fiscally-responsible budget, but he's in a tug-of-war with Congress to get passed what he wants. Getting Congress to be fiscally responsible is very difficult — whether Republican or Democrat, they love spending money.”