In N.Y. Address, Treasury Secretary Targets Entitlement Programs

President Bush's new Treasury secretary told a group of business students at Columbia University that the government needs to reform entitlement programs like Medicare and Social Security because they will weaken the economy in coming years if action is not taken soon.

Henry Paulson, the former chairman and CEO of Goldman Sachs, used the speech, his first since being sworn in last month, to praise Mr. Bush's monetary policies. He said the policies have helped to restore confidence in all sectors of the economy.

"The economic strength here in our country would have been difficult to foresee even a few years ago, when the U.S. economy was reeling from the impact of the 9/11 terrorist attacks, the bursting of the stock market bubble, and the recession,"Mr. Paulson told a Columbia University Business School crowd at the school's Low Memorial Library.

"This is worth remembering because when things look the bleakest, they almost never are as bad as they seem," he said.

Mr. Paulson devoted the bulk of his remarks to describing what he views as America's long-term economic challenges. He said they include reforming entitlement programs such as Medicare and Social Security, the costs of which are projected to increase drastically over the next half-century, to almost 17% of gross domestic product in 2060 from 8% today.

"If left unchecked, these programs would significantly impair our economic flexibility and erode our competitiveness," Mr. Paulson said. He said that while the federal deficit has decreased greatly, curbing entitlement spending is key in further diminishing the deficit.

Mr. Paulson also said he hopes to work with Congress and Mr. Bush to increase America's energy security by decreasing dependence on foreign sources. He expressed concern that America consumes more oil than it produces, and contended that the solution lies in doing "more on the supply side" and "more to conserve energy."

"We also need to do much more in terms of investing in new technologies and further developing alternative sources of energy, including nuclear power and ethanol," he said.

The chairman of McGill University's North American Studies Program, economist Thomas Velk, said he agreed with the secretary's remarks but said Mr. Paulson should have mentioned inflation. He said inflation is "a serious threat on the horizon."

Mr. Paulson said he is prepared to handle the nation's challenges. "I have always tried to live by the philosophy that when there is a big problem that needs fixing, you should run toward it, rather than away from it.That is one of the reasons I decided to come to Washington."

While in New York, Mr. Paulson also visited the New York Stock Exchange and the Nasdaq market. He met with business leaders at both stops to discuss current economic conditions.

Mr. Paulson said he chose to give his first public address in New York because it is "unquestionably the world's financial capital" and because "the solutions to our nation's challenges are not always found in Washington."