Online Extra: "The Least Risk Is Investing Yourself"

Social Security point man Allan Hubbard assesses the campaign

As the head of the National Economic Council, White House official Allan B. Hubbard has drawn a tough assignment -- muscling private Social Security accounts and other elements of the President's ownership agenda past Congress. Recently Hubbard sat down with Businessweek Washington Bureau Chief Lee Walczak and BusinessWeek White House Correspondent Richard S. Dunham to take stock of the campaign. Edited excerpts of their conversation follow. Note: This is an extended, online-only version of the interview that appears in the May 16, 2005, issue of BusinessWeek.

Q: When you go on the road, what's the reaction to the President's Social Security plan?


After every single meeting, people came up to me and said, "I don't know how anybody could be against the President's program." It was remarkable.

Q: So the White House is moving public opinion toward private accounts?


This I can promise you: Two out of three people who understand the President's proposal wind up supporting it.

Q: Why the resistance to investing in stocks?


People have the impression that the stock market goes up and down, and obviously they are concerned that these are going to be risky investments. When you explain, though, that there are only going to be six [investment] options, and all of them are going to be broad-based mutual funds, they become very comfortable. [And one is a] life-cycle fund that automatically reinvests your money, depending on how close you are to retirement.

Q: Some see parallels between the trouble Bill Clinton had pushing health-care reform and the bind the President finds himself in as he labors to sell private accounts.


It's a challenge, I won't deny that. That's why the President is spending so much time on the road.

Q: Many Hill Republicans say that you're running out of time to revamp Social Security this year. Are you worried about that?


The President feels very good abut the progress we have made. His goal was to first establish that there is a major problem facing America, and he has done that. Now we've got to start talking about how we solve that problem. Personal retirement accounts are an integral part of any comprehensive solution but are not the solution [to the solvency issue].

So we have to start talking about the solution, and that is beginning with conversations on the Hill about various options. It's simple arithmetic: The numbers don't work, and the sooner we deal with this, the easier it's going to be.

Q: There is a big group of voters who fear additional financial risk and like the idea of government safety nets. How do you win over these safety-net people?


If we are given the opportunity to communicate the program to the folks you're talking about, I am convinced that at least two-thirds will be supportive. If they're over, 55, they are not affected. No. 2, the accounts are voluntary. While the other side is accusing the President of forcing everybody to put money into high-risk stocks, that's just not a fact.

Q: But what specifically do you tell the risk-averse people who worry about your ownership prescriptions?


There's risk in staying with what has been traditionally defined as a safety-net program. The least risk is investing yourself, and you can [always] decide to invest in risk-free investments, such as Treasuries. A perfect example is the Health Savings Account, which gives people more control of their health-care dollar and is a pool of savings to deal with future health challenges. It's affordable, which is important. When you change jobs, you can go for several months without coverage, or run into problems with a preexisting condition. This is a device for greater financial security.

Q: Many liberals and AARP, the lobby for seniors, would be happy to take you up on your offer for more Social Security investment options -- as an addition to traditional Social Security. What about that?


The AARP is not going to be with us, despite what they say. They don't want a solution.

Q: Research shows that a huge number of contributors to 401(k) plans make poor investment decisions and reduce their available earnings. How do you respond to critics who say that the juicy returns you promise for Social Security accounts will likewise prove elusive?


I don't agree with those critics. My economist friends say that our plan understates what the return will be. The President is a big believer in giving people options -- not just on Social Security, but on schools, health care, home ownership. It's part of freedom.

Q: What if the Hill debate shifts to Social Security solvency, rather than private accounts?


People are talking too much about benefit cuts. Benefit cuts are not necessary. Growth in benefits must be restrained.

Q: So Social Security reform lives, in your mind?


What was the general thinking on the President's tax cut at this point in 2003?

Q: Dead, dead, dead.


Right. And this is not like the tax cut, which you didn't have to do. The country would have kept going. This has to be done. There's no choice.

Before it's here, it's on the Bloomberg Terminal.