[Joint House and Senate Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 113-259
THE ECONOMIC REPORT OF THE PRESIDENT 2014
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HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
MARCH 13, 2014
__________
Printed for the use of the Joint Economic Committee
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Kevin Brady, Texas, Chairman Amy Klobuchar, Minnesota, Vice
John Campbell, California Chair
Sean P. Duffy, Wisconsin Robert P. Casey, Jr., Pennsylvania
Justin Amash, Michigan Bernard Sanders, Vermont
Erik Paulsen, Minnesota Christopher Murphy, Connecticut
Richard L. Hanna, New York Martin Heinrich, New Mexico
Carolyn B. Maloney, New York Mark L. Pryor, Arkansas
Loretta Sanchez, California Dan Coats, Indiana
Elijah E. Cummings, Maryland Mike Lee, Utah
John Delaney, Maryland Roger F. Wicker, Mississippi
Pat Toomey, Pennsylvania
Robert P. O'Quinn, Executive Director
Niles Godes, Democratic Staff Director
C O N T E N T S
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Opening Statements of Members
Hon. Kevin Brady, Chairman, a U.S. Representative from Texas..... 1
Hon. Amy Klobuchar, Vice Chair, a U.S. Senator from Minnesota.... 3
Witness
Hon. Jason Furman, Chairman, Council of Economic Advisers........ 5
Submissions for the Record
Prepared statement of Hon. Kevin Brady........................... 20
Prepared statement of Hon. Jason Furman.......................... 21
THE ECONOMIC REPORT OF THE PRESIDENT 2014
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THURSDAY, MARCH 13, 2014
House of Representatives,
Joint Economic Committee,
Washington, DC.
The committee met, pursuant to call, at 2:27 p.m., in Room
1100, Longworth House Office Building, the Honorable Kevin
Brady, Chairman, presiding.
Representatives present: Brady of Texas, Paulsen, Carolyn
B. Maloney, Cummings, and Delaney.
Senators present: Klobuchar.
OPENING STATEMENT OF HON. KEVIN BRADY, CHAIRMAN, A U.S.
REPRESENTATIVE FROM TEXAS
Chairman Brady. Good afternoon, everyone.
Today we will hear testimony from Dr. Jason Furman, the
chairman of the Council of Economic Advisers. The Economic
Report of the President was released on Monday.
I thank Dr. Furman for testifying so promptly after the
Report's release.
Families on Main Streets across America are suffering from
a disappointing economic recovery that still feels like a
recession to them. Due to the alarming growth gap that
describes the gap between the Obama recovery and other average
recoveries of the past 50 years, America is missing 5.6 million
private sector jobs and $1.3 trillion in real GDP from the
economy. Using the latest economic buzzword from the
President's report, job years, we are also missing over 18
million private sector job years.
Wall Street is roaring, thanks to White House policies, but
middle class families are being left behind. The S&P 500 total
return index adjusted for inflation is up 98 percent since the
recession ended, but real disposable income per person has
risen a mere 3.6 percent. To put it another way, under
President Obama's economic leadership, for every new dollar of
disposable income a person receives, Wall Street has gained $27
in value.
No wonder income inequality is a concern. Clearly,
President Obama inherited an economic mess. The question before
this committee is whether staying the course will close the
alarming growth gap and provide real opportunity to middle
class families and Main Street businesses left behind in this
recovery. In both the President's budget presented to Congress
last week and the Economic Report of the President, it is clear
the White House is stubbornly adhering to the current slow
growth policies that much of America has lost confidence in.
For example, using a Keynesian analysis that focuses solely
on aggregate demand, the Report asserts the American Recovery
and Reinvestment Act added about two percent to real GDP
between the fourth quarter of 2009 and the second quarter 2011.
Many economists disagree. For example, John Taylor found the
stimulus had little positive effect. The report praises
infrastructure investment, which has bipartisan support, yet
ignores the President's decision to block a major privately
funded infrastructure project, the Keystone XL pipeline.
The Report lauds the administration's success in promoting
alternative energy, but ignores the shocking waste of precious
taxpayer dollars to failed companies like Solyndra and others.
Ironically, the Report claims credit for increasing oil and
natural gas production, while ignoring the fact that this
occurred on private and State lands, while the White House has
further restricted access to public lands.
Moreover, the Report fails to acknowledge the harmful
effects from the White House's regulatory onslaught against
American businesses, and does the same for President Obama's
insistence at the end of last year on higher taxes on small
businesses and successful Americans as a condition of renewing
middle class tax relief. Not surprisingly, policy uncertainty
remains unprecedentedly high four and a half years into this
disappointing recovery.
The Report makes a great effort to blame congressional
Republicans for the fights over increasing the debt ceiling and
the temporary government shutdown, which created more policy
uncertainty, but ignores the even larger uncertainty the White
House has created with its call for higher taxes, less
American-made energy, burdensome regulation, and the
President's Affordable Care Act.
The Report observes that business fixed investment has been
unusually weak, which this committee has been highlighting for
some time. Indeed, real fixed business investment finally
reached its fourth quarter of 2007 level in the most recent
report on GDP.
The Report asserts, ``The pace of growth of business fixed
investment is puzzling because interest rates are low and
internal funds available for investment are high.'' The reason
for this weakness is staring the CEA in the face. Economic
growth is a function of both supply and demand, yet the Report
focuses on aggregate demand. Businesses don't make investment
decisions based solely on their assessment of future demand.
They also consider cost. Supply-side factors such as taxes and
regulation are at least as important as demand-side factors.
The administration has increased both the expected after-
tax costs of new business fixed investment and heightened
uncertainty. It was entirely predictable that sluggish business
fixed investment would produce a weak recovery. Is no one at
the White House listening to local businesses? They have been
telling you this for years, and continue today.
I will conclude with this. While the Report identifies
issues worth a thoughtful, bipartisan discussion, too much
energy is again wasted attempting to shift the blame for this
anemic recovery to anyone or anything other than the leadership
of this White House and this President. The report impugns a
variety of headwinds from droughts to the euro crisis. However,
other Presidents, Presidents Kennedy, Reagan, and Clinton for
starters, overcame the headwinds of their time and achieved
superior economic results for American families and businesses.
President Obama has the opportunity to do the same. I urge
him to work with Congress to grow the economy in ways that have
been shown to work. And with that, Chairman Furman, I look
forward to your testimony. Thank you again for being here.
And I would yield for an opening statement to the vice
chair, Senator Klobuchar.
[The prepared statement of Chairman Brady appears in the
Submissions for the Record on page 20.]
OPENING STATEMENT OF HON. AMY KLOBUCHAR, VICE CHAIR, A U.S.
SENATOR FROM MINNESOTA
Vice Chair Klobuchar. Thank you very much, Mr. Chairman.
Thank you for holding this hearing.
And welcome, Dr. Furman. We are happy to have you here.
I apologize in advance, we just had a vote called on the
CIA counsel, so I am going to go back, and hopefully I can get
back here to this lovely room.
While we are still not where we would like to be, as you
know, Dr. Furman, we have made real progress recovering from
the recession. The economy has added jobs for 48 consecutive
months, and has now regained 8.7 million of the 8.8 million
private sector jobs lost during the recession. I bet you want
that extra point.
The national unemployment rate of 6.7 percent has dropped
1.2 percentage points since the end of 2012, and has dropped
more than three percentage points since the downturn. In my
State, the unemployment rate is much better than the national
average. It is at 4.7 percent. And we are having our own
challenges when it comes to finding workers and worker training
and other things. But they are good challenges to have.
In 2009, there were nearly seven unemployed workers for
every job opening. There are now 2.6 unemployed workers for
each opening, almost back to the pre-recession ratio of two
unemployed workers for every opening. GDP has grown for 11
straight quarters, and the CEA projects stronger growth in
2014. There are a number of bright spots in our economy that
have contributed to the growth.
Manufacturing is one exciting example. After being hit
incredibly hard during the recession, U.S. manufacturing
employment has increased by 612,000 jobs since February 2010.
Manufacturing employs more than 12 million people, is
responsible for nearly 70 percent of private sector R & D, and
generates 90 percent of all patents. Increased energy
production has also spurred economic growth. Greater production
of natural gas, much of it is in my neighboring State of North
Dakota, has kept prices low, which has strengthened
manufacturing and created good-paying jobs.
As the report highlights, imports of crude oil and refined
petroleum products have fallen from more than 12 million
barrels per day in 2005 to about 6.2 million per day in 2013.
Starting in October of last year, domestic production of crude
oil has exceeded imports for the first time since 1995.
Another bright spot in our economy is exporting. One of the
administration's goals I know is to double exports. And we are
more than halfway toward achieving that goal. We need to
continue to open new markets and ensure that American
businesses can compete in the global marketplace. We have taken
steps to put our country on a sound fiscal path. The deficit
has been cut by more than half since the end of 2009. We passed
the bipartisan Murray-Ryan budget agreement, which led to the
passage of the omnibus spending bill. We raised the debt limit.
And finally, we passed the farm bill, which saved $23 billion
over the last bill, and is vital to many States in this
country.
I want to briefly highlight a few topics in the CEA report,
including income inequality, technology and innovation, and the
reviewing of efficiency of Federal regulations, something I
used to do a lot of work in this area, I care a lot about it,
and I always think we can make improvements. I was pleased to
see the emphasis on reducing poverty and expanding economic
opportunity, as this committee discussed at a hearing I chaired
in January with former Labor Secretary Reich. Income inequality
in the United States has grown for more than three decades.
Secretary Reich testified that the richest 400 people in this
country have more wealth than half of the American population
combined. And a staggering 42 percent of kids born into poverty
in the U.S. won't get out. I am pleased that you are looking at
this. I know we will have questions for you about it.
Technological advances have empowered much of our economic
growth since World War II. Improved broadband access and
adoption rates will strengthen U.S. competitiveness, as the
report points out. A patent system is important. I know the
House has done some good work on the patent reform issue. And
as a member of the Judiciary Committee, I am a sponsor of
Senator Leahy and Lee's bill, the Patent Transparency and
Improvements Act. We will be having hearings in April. I think
that is very important as we look at technology issues going
forward.
Finally, we need to ensure that rules and regulations
deliver the outcomes we want. Right now, cost-benefit analysis
of proposed regulations are done before the regulations are
implemented and are rarely revisited. I introduced a bipartisan
bill with Senator Susan Collins of Maine that requires the
Congressional Budget Office to look back at rules and
regulations to make sure they are meeting their goals by having
an analysis done of their cost-benefit effectiveness five years
after the bill takes effect. I think it is rather absurd that
we only look at them before, and we don't look at them after
and figure out what changes have to be made or which ones need
to be eliminated.
An immediate challenge, of course, is unemployment
insurance. I know we are working very hard on a bipartisan
agreement in the Senate. And I add the other immediate
challenge is getting the immigration bill done. Very important
to our economy. We had Grover Norquist testify here about how
the Senate bill reduces the debt by $160 billion in 10 years,
$700 billion in 20 years, and also of course will allow many
entrepreneurs and engineers and doctors to come into this
country.
I would end by telling you I think it is incredibly silly,
as much as I love hockey in Minnesota, that we have unlimited
visas for hockey players, which we want to continue, half our
team is Canadian, but we make it almost impossible to get a
doctor into the Mayo Clinic.
With that, thank you very much, Dr. Furman, and hopefully I
will return to have some questions.
Thank you.
Chairman Brady. Thank you, vice chair.
Jason Furman is the chairman of the Council of Economic
Advisers. Previously, he served as the principal deputy
director at the National Economic Council and senior vice
president of the World Bank. He has also been a senior fellow
in economic studies and director of the Hamilton Project at the
Brookings Institute.
Dr. Furman earned his Ph.D. in economics, and a master's in
government from Harvard University, an MS in economics from the
London School of Economics. Please welcome the distinguished
chairman of the Council of Economic Advisers.
Thank you for being here, Doctor.
STATEMENT OF HON. JASON FURMAN, CHAIRMAN, COUNCIL OF ECONOMIC
ADVISERS
Dr. Furman. Chairman Brady, thank you very much for having
me.
I would thank Vice Chair Klobuchar in person if she hadn't
gone to her vote, and members of the committee.
The 2014 Economic Report of the President discusses the
progress that has been made from recovering from the worst
recession in our lifetimes, and President Obama's agenda to
build on this progress by creating jobs and expanding economic
opportunity. And I am grateful for the close reading that you
have already done of that document.
Last Friday, we learned that businesses added 162,000 jobs
in February, so that over the last 48 consecutive months of job
growth, private employment has risen by 8.7 million jobs. The
unemployment rate ticked up one tenth of a percentage point in
February, but it has still fallen by half a percentage point
since October, with the entirety of that decline attributable
to gains in employment. Nevertheless, essentially all of the
remaining elevation in the unemployment rate is due to long
term unemployment, which represents one of our most pressing
economic challenges, and is one of the reasons that the
President is focused on extending unemployment insurance.
The economic recovery is well underway, but it remains
incomplete, and much more work is left to be done, in large
part because of the depth of the hole, out of which we are
still digging. As discussed in this year's Economic Report of
the President, recoveries from financial crises are challenging
because heavy household debt burdens and tight credit
conditions can linger for years, constraining spending and
investment. However, among the 12 countries that experienced a
systemic financial crisis in 2007 and 2008, the United States
is one of just two in which output per working age person has
returned to pre-crisis levels. The fact that the United States
has been one of the best performing economies in the wake of
the crisis supports the view that the full set of policy
responses in the United States has made a major difference in
averting a substantially worse outcome.
This year's report provides an in-depth look at one major
aspect of the policy response of the crisis, the Recovery Act,
and more than a dozen subsequent pieces of fiscal legislation,
including bipartisan measures like the payroll tax cut, small
business tax cuts, incentives for business investment, and
extended unemployment insurance. Our analysis finds that the
effects of these steps were substantial.
Specifically, the Recovery Act alone raised the level of
GDP by between 2 and 2.5 percent from late 2009 through mid-
2011. Combining the effects of the Recovery Act and the
additional fiscal measures that followed, the cumulative boost
to GDP from 2009 through 2012 was the equivalent of 9.5 percent
of fourth quarter 2008 GDP. Looking ahead, this year's report
also identifies several key reasons why the administration,
like other forecasters, expects growth to strengthen in the
coming years.
One key reason that growth is expected to pick up is that
households have made substantial progress in deleveraging,
putting them in a better position to increase spending going
forward. Specifically, the average required minimum payment on
household debt has fallen from a high of 13 percent of
disposable income in the fourth quarter of 2007 to 10 percent
in the third quarter of 2013, the lowest since we began
collecting this data in 1980.
It is important to note that these figures represent
aggregates, and that many middle income households have seen
less benefit from the recent stock market gains, and are still
grappling with the implications of home prices that despite
recent progress remain well below their previous highs. I would
add that other reasons to expect stronger growth in 2014
include diminished fiscal drag, recovering asset values,
strengthening among some of our key international trading
partners, and demographic forces that are expected to maintain
upward pressure on housing starts.
Although all of these positive factors need to be weighed
against the uncertain risks that can adversely affect the
economy, looking over a longer time horizon, the report
identifies a number of emerging trends that can support a
stronger economy on a sustained basis in the future, including
improvements in the production and use of energy, a slowdown in
the rise of health costs, and technological advances.
The Administration is not sitting back and waiting for
these trends to unfold, and the President has set out an
ambitious agenda to capitalize on these opportunities. He would
agree with you, Chairman Brady, that we need to worry both
about the demand side, especially in the short run, of
returning the economy to its potential, as well as the supply
side, to expand the economy's potential and increase our growth
over the medium and long term. And finally, taking steps to
ensure that all Americans share in those benefits.
This is just a brief overview of the economic outlook, and
I am happy to talk more about that, the President's priorities,
as well as the other topics that we covered in our report,
including the slowdown in health costs, the role of technology
in the economy, the lessons we have learned 50 years after the
beginning of the war on poverty, and a discussion of the
importance of Federal program evaluation.
I look forward to your questions.
[The prepared statement of Hon. Jason Furman appears in the
Submissions for the Record on page 21.]
Chairman Brady. Great. Thank you, Chairman.
It is no secret, I think these are the wrong economic
policies. I would like to see a change in course. But the
purpose of this hearing is to talk about the Report, and we
hope to shed some light onto some of the challenges we face.
So, my question really is not a ``gotcha'' question, it
really deals with labor force participation. You know, it has
been troubling in the recovery that that data continues to stay
extremely low. It really masks the accuracy of the unemployment
rate. Some have tried to say the decline since 2007, or at
least the lack of an increase, has come from demographic
change.
Chairman, I had our staff really go through and look sort
of in each of the key age groups looking at the demographic
shifts. We used 12-month moving average unadjusted data, took
out seasonality, looked at the narrow age groups so we can try
to figure out exactly what is going on. Using that metric, you
know, the decline in the labor force participation, while most
assume it is just seniors growing old and retiring, the numbers
seem to show the only increases are in the upper age groups,
and some of the more serious declines are in that 16- to 59-
year-old range. We have been looking at those factors as well
to try to determine what is driving that.
What would you attribute that to? What are some of the
factors you think are impacting that? And what would you do--
you know, what are some of the perhaps solutions for that
challenge?
Dr. Furman. Right. Well, Mr. Chairman, I appreciate the
question, and I appreciate your interest in this topic. I think
understanding the dynamics of labor force participation really
is one of the most important issues in understanding the
performance of the labor market today.
In our analysis of this question, I would divide the change
in the labor force participation rate into four general areas.
The first is the demographic trend. And our analysis, like
a range of other analysts, would suggest that about half of the
decline in the labor force participation rate is due to
demography. And I think that is important, because sometimes if
you are looking, for example, at changes in the employment
population ratio over time, those can give you a misleading
picture of the economy because they don't adjust for those
demographic----
Chairman Brady. I would agree with that.
Dr. Furman [continuing]. Changes.
The second set of factors are longer run trends that are
not just the aging of the population, but represent other
factors. And I think you are picking up some of those in the
chart you have here. For younger Americans, some people are,
for example, staying in school longer, and that lowers their
participation rate. There are older Americans now who are in
the types of jobs that they are able to work in until older
ages. So there has been a trend of people working longer at an
older age. I think those trends that aren't related to aging
roughly net out to zero in terms of the overall explanation,
but they are very important for particular groups.
Next, the third one, is the normal movements of the
business cycle. And any time unemployment is elevated, some
people are going to, for example, you know, take a little bit
longer before they decide to return to the labor force and look
for a job, or maybe even get discouraged and not want to look
for a job. As the unemployment rate comes down, a lot of those
people return to the labor force. And we have been seeing that,
and we expect to continue seeing that.
Finally, some of that reduction in participation is
probably related to the increase in long term unemployment, and
represents that people have been out of work for years. It has
been a tough economy for years, it was a really deep crisis
that we went through. And that can have, you know, some longer
term effects on the economy.
In terms of the policy implications, I will just be very
brief. On demographics, you know, some of that is just
inevitable. But through steps like immigration reform we can go
against the headwind there and make progress on participation.
In terms of the cyclical component, anything that
strengthens aggregate demand brings the unemployment rate down
more quickly, will help with that.
And then finally that last component I talked about, which
is probably related to long term unemployment, steps to help
connect the long term unemployed with jobs will bring some of
those people back into the labor force too.
Chairman Brady. Two thoughts based on your views. I
understand a cyclical business climate. But over the past four
and a half years this participation rate, even as unemployment
has come down from 10 percent, significantly, that hasn't
budged. In a normal business cycle you would think it would
begin to trend upward to some degree. And certainly among those
age groups in their prime working years. How would you explain
that?
Dr. Furman. I think in aggregate, and then I will get to
the age groups, you are seeing two trends going in opposite
directions. One is that as you recover it brings people back
into the labor force. But then you still have people aging and
leaving the labor force.
And in aggregate, those two effects have been roughly
offsetting each other. And that is why you haven't seen the
participation rate recovering. If you look at the Congressional
Budget Office, for example, projects that the economy will
recover, but that that recovery will not be enough to offset
the demographic impact, and that over the medium and long run
you will continue to see the participation rate fall for that
reason.
If you look at some particular age groups, I think it is
partly that--I think there is another important factor, which
is related, as I said, to just how deep the recession was, is
long term unemployment, which remains very elevated, and the
flip side of it, which is its impact on participation.
Chairman Brady. And we need to wrap up time.
Briefly, how do you view immigration reform as improving
the labor participation rate?
Dr. Furman. Well, first of all, by bringing more workers
into the country it expands the labor force, and second of all,
the age ratio of the people that come into the country are more
working age people relative to older retired people. So it
doesn't just improve the quantity of labor, it improves the
ratios as well. And that is why the Congressional Budget Office
and other analysts have said that it would raise the labor
force participation rate.
Chairman Brady. Okay. It seems counterintuitive. Thank you,
chairman.
Are you ready? Sorry about that.
Vice Chair Klobuchar. No, I am all ready.
Chairman Brady. I recognize Vice Chair Klobuchar.
Vice Chair Klobuchar. I almost feel as fit as Dr. Furman
looks running back from there. But here I am.
Now, we continue to see positive signs in the economy, we
both spoke about that. How would you characterize the current
state of the economy? And what makes you more optimistic about
the prospects of the future?
Dr. Furman. I think you see an economy that continued to
gather strength over the course of 2013. It started off the
year having to overcome the expiration of the payroll tax cut,
then the sequester going into effect, and then the government
shutdown. And despite all of that, you saw considerably
stronger growth in the second half of the year than in the
first half of the year.
In terms of 2014, you know, you certainly see volatility
from quarter to quarter. Cold weather is adversely impacting
the economy in the first quarter, but most analysts would
expect a bounce back from that over the course of the rest of
the year. And some of the forces I talked about in my
testimony, including reduced fiscal drag, improved household
deleveraging, and continued potential in the housing sector,
all have the potential to strengthen the economy further this
year.
Vice Chair Klobuchar. The report focuses some on income
inequality, and I talked about in my opening how we have seen
this increase in income inequality over the last few decades.
And how do you think we go about reversing the trend?
Dr. Furman. Right. First of all, I think it is important to
start with that fact. And there is a wide range of data sources
and methods, but all of them show the same conclusion, which is
that income inequality has risen.
The biggest consequence of that is, that you don't have
sufficient opportunities for advancement if you are born into
the wrong family. And for many middle class families, they
haven't seen their incomes rise. So to some degree we want to
address those problems in terms of opportunities for
advancement, by, for example, expanding preschool education.
In terms of rising incomes, anything from raising the
minimum wage, that directly helps incomes, to anything that
helps enhance our economic growth, whether it is business tax
reform or investment in infrastructure, will expand the pie and
give us more resources to address the reasons we are ultimately
concerned about inequality.
Vice Chair Klobuchar. I chaired a hearing last year on long
term unemployment. And while we are continuing to see
improvement in the overall employment numbers, as you know, the
long term unemployed, I think there are nearly four million
Americans who have been out of work for over six months.
Why do you think this rate is still so high, and in fact
the recovery for the long term unemployed has been slower than
it has been in other downturns.
Dr. Furman. I think it is a measure of the severity of the
downturn. The long term unemployment rate rose, you know, to
above four percent at the depths of this recession, well above
the level it has ever gotten to before. And some of those
people can lose skills in terms of looking for jobs. And a lot
of employers may discriminate against them in the hiring
process.
So it is a tough problem to reverse. We are making progress
on it. It has come down from over four percent to 2.5 percent,
but it is still more than twice as high as the long term
unemployment rate has been historically.
Vice Chair Klobuchar. Is that one of the reasons you favor
continuing the unemployment compensation?
Dr. Furman. Yes. Absolutely, Senator.
Vice Chair Klobuchar. Okay.
Productivity growth generally translates into higher wages
for workers, but in the last 40 years the relationship between
these productivity increases and wage growth has stagnated.
As your report shows, by the end of September 2013, real
output per hour was 107 percent higher than in 1972, but
average hourly earnings had grown by only 31 percent. Do you
think there are policies that can boost both productivity
growth and wages?
Dr. Furman. Yeah. I think technology expands the pie. I
think it has the potential to expand it for everyone if it is
done the right way. And just to give one example of an
initiative the President has undertaken is something called
ConnectED.
And that is about putting faster broadband in schools and
libraries, as well as giving teachers the training to use it
and students the equipment they need to use it. And that is a
good way in which you could use technology to bring people up
and make sure that they share in that growth.
Vice Chair Klobuchar. Last question, just immigration
reform, it is stalled out right now. And I want to know how you
see the economic impact of immigration reform.
Dr. Furman. I think immigration reform is the closest thing
to a win-win-win that we have identified in economics. You can
expand economic growth, and it doesn't just increase the level
of output because you have more workers producing it, it
actually expands the productive capacity of the economy.
It increases what economists call total factor productivity
growth, because immigrants are very innovative, very
entrepreneurial. Taking 12 million people and letting them move
out of the shadows gives them the certainty they need to make
investments, whether in education or business that would also
contribute to our growth. So it helps our economic growth.
It reduces our budget deficit. It does that, as you said in
your opening, over the next decade, and it does it even more
over the second decade. So it is an important part of
addressing our medium and long run fiscal challenges.
And finally, it can be done in a way that makes America
safer and more secure by investing in protection of our
borders.
Vice Chair Klobuchar. And just one last question about
energy production. I talked in my opening about what we have
seen there, and I think the decrease from dependency on foreign
oil from more than 60 percent to less than 50 percent or
somewhere in that neighborhood. Could you talk about how the
expansion of energy production here at home has helped our
economy, particularly manufacturing?
Dr. Furman. Yeah. If you look in 2008, I think we were
producing five million barrels of oil a day. Now it is about
8.5 million barrels of oil per day. The difference between
those is the equivalent of Iraq. It is basically like you
discovered another Iraqi set of oil wells here in the United
States and were able to use those.
And that is good for our economy, good for our national
security. And it has been combined at the same time with a
reduction in use of oil through having the most fuel efficient
vehicle fleet in our country's history on the roads today. So
the combination of those two is what has reduced our imports so
dramatically as you described in your opening.
Vice Chair Klobuchar. And how do you see natural gas
fitting in?
Dr. Furman. In a complementary way with two other
advantages. The projections are that that natural gas boom will
last for decades. Oil may not be as sustained as natural gas.
And second of all, that natural gas has facilitated a shift to
using that for power generation. That also helps address our
climate problems.
Vice Chair Klobuchar. Thank you very much.
Chairman Brady. Thank you.
Mr. Paulsen.
Representative Paulsen. Thank you, Mr. Chairman.
Dr. Furman, last year's Economic Report of the President
had an entire chapter that was devoted to international trade
and competitiveness. That chapter highlighted the President's
National Export Initiative, which Senator Klobuchar mentioned.
That is a five-year goal, of course, of doubling exports by the
end 2014 in order to support two million jobs.
Now this year's report actually relegated international
trade to a small subsection within chapter two. It didn't
mention the National Export Initiative at all, actually. I am
curious, why was the National Export Initiative left out of
this year's report?
Dr. Furman. Not by design. It is very important, and we
certainly talk throughout the report about the importance of
exports and trade agreements. But I guess we didn't use that
term.
Representative Paulsen. Okay. Do you feel like we are on
track right now? I know that total yearly exports at the end of
2013 were at $2.27 trillion, which is short of the $3.14
trillion needed by the end of 2014 to meet the export goal.
But does the administration think we are on track to the
goal of doubling exports?
Dr. Furman. I think there has been a substantial increase
in exports since we set the goal. We have done everything we
can to, through policy, facilitate that increase in exports.
There also was a very large contraction in the global economy
following the President's setting that goal. And that has gone
in the other direction.
So 2012, for example, you saw very little increase in our
exports. And that had everything to do with the global economy,
not what was going on here.
Representative Paulsen. I think you know there is strong
bipartisan support for these trade initiatives that are on the
horizon. And to be honest, I don't think the administration or
the President wants to claim enough credit for moving these
forward, or claim bipartisan credit where it is due.
What is the Administration doing right now to help garner
support for moving forward on TTIP, on TPP, and Trade Promotion
Authority to make sure that these agreements actually come to
fruition?
Dr. Furman. Congressman, I absolutely agree with you on the
importance of those, and can I tell you that the Council of
Economic Advisers, and me personally, plan to do continued--
increase the amount of work we are doing on those trade
agreements, and documenting the important role that they play
in our economy. So I will make sure we call to your attention
as we do that in the future. If terms of this report, we didn't
have a chapter on it in part because we looked at previous
years and said we covered a lot of this topic, let's try to
vary it and make sure we are covering the full waterfront
rather than just repeating the same topics from year to year.
But you have recently seen the Vice President write an op-
ed on this topic. You have seen USTR, Ambassador Froman, give a
major speech on this topic. And most importantly is the actual
work we are doing to try to bring TTP to a successful
conclusion.
Because we think it will be easier to explain the benefits
when you can show people just how much we are able to open
foreign markets to American goods, both in terms of the variety
of barriers that our companies face around the world. And we
are working to get something that we can, you know, that we can
show to people.
Representative Paulsen. I know the benefits are there.
Let me ask you this, though, because I know you do believe
that the trade agreements are in our best interest. USTR has
done a really good job of being up on the Hill and spending
time with Members.
So I guess my question is, do you believe Trade Promotion
Authority, from the White House's perspective, or the
Administration's perspective, is equally important? And do they
plan to actually weigh in a little bit more heavily and get
engaged, as USTR has?
Dr. Furman. Absolutely, Congressman. And the President in
his State of the Union address talked about the importance of
having the authority to have, you know, votes on those trade
agreements. But, you know, what we are doing is negotiating and
trying to get the best possible agreement so we can show all of
you why that authority is so important to us.
Representative Paulsen. Okay.
I know we are going to need that help and assistance,
because in the Senate, leadership threw some cold water on
moving forward on trade promotion authority before year end.
But I would agree it is in our interest to have these export
markets open and available, with the U.S. back on the playing
field and leading these trade agreements. Thank you.
I yield back, Mr. Chairman.
Chairman Brady. Thank you.
Mr. Delaney.
Representative Delaney. Thank you, Mr. Chairman.
Thank you, Dr. Furman. I am always incredibly impressed
with your analytics and insights. It is nice to have you here
today.
So I wanted to talk a little bit about the future in terms
of how we think about some of the challenges we see in today's
jobs market, and how that is likely to play out in the future.
Because I think the data you present is very clear that by any
measure our country's ability to respond to this deep
recession, that probably as a practical matter really would
have started much sooner but for some of the things that were
going on in the credit markets.
But our country's ability to respond to that, I think in
part due to the President's policies, clearly has outpaced any
other Nation's. And so as you highlighted in your testimony, we
have a very significant problem around people who are long term
unemployed. And we see a lot of disruption in the employment
markets based on technology and globalization, which seem to me
are creating a much more specialized economy in our country.
And the degree that our economy becomes specialized is
growing over time. And a specialized economy benefits people
with really great educations and access to capital and things
like that. And it is generally negative for people who don't
have those benefits. It takes time for those benefits to spread
out to the larger percentage of the workforce. And I think some
of the President's policies, which I agree with in terms of
greater investments in infrastructure, in basic medical
research, obviously reforming immigration, reforms in
investments in education, are clearly important in terms of
making our country more competitive and making sure we have a
workforce that is equipped to hopefully get those jobs.
But I tend to think that we discuss those policies as it
relates to the 6.7 percent of the population that is
unemployed. What really worries me is what will happen to the
other 93.3 percent of the population across the next 20 years.
Because what concerns me greatly is that this trend in our
country towards a more specialized economy, which is based on
the fact that technological innovation is accelerating and the
world is becoming more connected and more global, that that
will disrupt a huge number of jobs.
I don't know what the percentages are. You hear different
estimates. You hear some as low as 20 or 30 to as high as 50
percent of the jobs that exist in this country will somehow be
disrupted and affected in the next 20 years.
How big of a concern is that? And should we be talking
about these policies really in that context? Because it is one
thing to talk about how we have to help the 6.7 percent of the
country that is unemployed, which is a tragedy, and we should
be doing everything possible. But I worry that even as we have
continued economic growth, the sheer number of human beings who
are going to be affected by these trends is massive.
And there could be other shoes to drop in the employment
market even as our economy does well. So I would be interested
in your thoughts on that.
Dr. Furman. I think that is one of the profound somewhere
between a challenge and open question facing our economy today.
And, you know, we have seen it for a while that tasks that are
repetitive, that don't require certain types of complex pattern
recognition, you know, that machines can do them rather than
people, and that to some degree has led to a polarization of
the workforce.
That there are certain very manual jobs that actually can't
be easily replaced by a machine, and you still have those, and
certain higher level jobs that also can't be, and a bunch in
the middle have been hollowed out. And the answer to that is
not less technological change, even if we knew how to bring
about less technological change. A lot of that has to be on the
human side and what you are doing in terms of equipping people
with the types of skills so that their skills are complementing
those machines and technological innovations.
In which case their productivity rises and their wages go
up with those technological changes rather than, you know,
those machines and innovation substitute for them, in which
case their wages go down.
Representative Delaney. And not to interrupt you, but just
to put what you are talking about in perspective, what
percentage of the population of the working Americans--not a
precise number, but an estimate----
Dr. Furman. Right.
Representative Delaney [continuing]. Do you think will face
kind of headwinds as it relates to the viability of the job
they have today, whether it is them or someone else having it,
across the next 20 years?
Dr. Furman. I have seen some of the estimates you referred
to.
Representative Delaney. Yes.
Dr. Furman. I don't have a particular number I associate
with it. And I do think the main way it manifests itself is not
in somebody losing their job because their job was replaced,
but their wage going down. And we have seen some of that in the
last decade.
And there is certainly potential for more of that if we
don't harness technological change and use it, you know, to
benefit and bring people up.
Representative Delaney. Right. And, you know, because I
just think so many of the policies that the President talks
about, that I hear you talk about often, so many of us talk
about, really are incredibly relevant for this challenge, and
are almost unfairly framed in the limited context of trying to
help the 6.7 percent that are unemployed. They will clearly
help those people.
But I think the magnitude of this challenge for the
American workforce is staggering, and we should be talking
about some of these policies as it relates to people who
already have jobs as well.
So thank you.
Chairman Brady. Thank you.
Mr. Cummings.
Representative Cummings. Thank you very much, Mr. Chairman.
It is good to see you again, Mr. Furman. One of the things
that concerns me is income insecurity for people going into
retirement. We have got 401(k)s today that aren't worth very
much, I mean if you look at the stats. You see what is
happening in the pensions. They are going down. You got a lot
of people who are unemployed now. So that may affect them in
some way. They don't have any savings because they are trying
to help their kids, or trying to help a relative that doesn't
have money. And so I was glad to see the President back off of
that chained CPI.
But, are we looking down the road? Because it seems like
there are going to be a lot of people who are going to fall off
a cliff with all the cutbacks. And I am just curious, what do
you see there; and what are we doing to kind of help people
have a soft landing when they get there?
Dr. Furman. So I very much agree, Congressman, with your
diagnosis of the problem. And in terms of the solution, partly
it is to make sure more Americans have opportunities to save
for retirement.
The President took a step administratively in directing his
Treasury to establish accounts called myRAs that would be a
starter savings account that would be very safe, it would have
very low fees. For people that don't have accounts at work, a
way for them to be introduced to savings.
Legislatively, he has a proposal that was originally
developed by the Brookings Institution and the Heritage
Institute to have automatic workplace pensions, so everyone
would have a pension at their workplace. There would be
essentially no net cost for businesses to do that because they
would be reimbursed for that cost, and it would give families
the opportunity to save.
Beyond that, though, I think we need to be continuing to
look at this issue.
Representative Cummings. On another subject, some have
suggested that States should not participate in the Medicaid
expansion that is part of the Affordable Care Act because the
expansion will eventually result in some unfunded liability for
the States when the Federal share of the costs of the expanded
program is reduced.
Can you explain why this is not true? And can you explain
the benefits to a State of participating in the expanded
Medicaid program?
Dr. Furman. Sure.
So for the next three years, Congressman, as you know,
States have to pay nothing for their expansion populations in
Medicaid. That would eventually rise to 10 percent. A 10
percent State match is considerably smaller than the match for
most Federal-State programs, including what Medicaid has been
for decades now.
And, there is also a set of benefits, above and beyond your
population being covered in terms of helping your overall
health system reducing some uncompensated care costs for your
State. And the Counsel of Economic Advisers did an analysis in
2009 that found in the case of many States, those other
benefits would well more than outweigh just even the purely
fiscal costs to their State, not even counting the benefits of
the extra people that were covered.
Representative Cummings. So you got people who are sick,
and there is money available, they cannot take advantage of it
because they can't--some governors won't allow that to happen,
the Medicaid piece. And so there are jobs associated with that
too. Is that what you are saying?
Dr. Furman. Yes.
Representative Cummings. Lots of jobs. To me I find it
simply incredible. In our State, we have something called
Health Care for the Homeless. And before they would depend on
charitable donations completely.
I am talking about Maryland. So then once this happened,
and they started enrolling people in Medicaid, then they had a
way of helping these people, and they can do even more.
Throughout the country, I understand that there are some
hospitals that are literally having to shut down some units,
particularly charity-type care, uncompensated care units
because they don't have enough money to keep them going.
Although the money is sitting right there in the Affordable
Care Act, and so when you get past that three years what
happens? You said three years is 100 percent?
Dr. Furman. Yeah.
When you get past that, as I said, States will--it phases
in, but will ultimately have to pay 10 percent of the costs.
But in exchange for that, you get not just a substantial
increase in coverage, but you get lower costs imposed on your
health system by the uninsured people that you are covering,
and you know, potentially get additional fiscal benefits from
that, as well as the benefits for the millions of people that
would be covered.
Representative Cummings. Thank you, Mr. Chairman.
Chairman Brady. Thank you.
Former Chair Maloney.
Representative Maloney. Thank you, Mr. Chairman. And it is
a pleasure to welcome Chairman Furman.
Dr. Furman, in your report you are showing us that we have
had 48 consecutive months of job growth. And private employment
has risen by 8.7 million. And I couldn't help but see your
chart that when Obama was sworn-in in 2009, our economy was
losing roughly 700,000, 800,000 jobs a month. So it has been a
difficult time, but it is good to see that we are now growing
jobs, not shedding jobs. So I congratulate you for that. But
there is still much more that needs to be done.
In the February payroll survey, you note there is roughly
162,000 total nonfarm jobs were added. Yet if you look at the
household survey during that period, although they are not
completely the same, but 111,000 multiple job holders
increased. It increased by 111,000. Does that mean that 111,000
of the 175,000 are people that are now taking on two, three
jobs?
Dr. Furman. That would literally be what it means. That
household survey that you just referred to is very volatile
from month to month. So I wouldn't personally place a lot of
weight on one month's data in it. But that is what it would
literally mean.
Representative Maloney. So that 111,000 of the 162,000 are
people taking on two or three jobs. That certainly shows the
need for raising the minimum wage, for goodness sakes, that you
have to take two or three jobs to make ends meet. And one of
the things in the surveys that were somewhat troubling to me is
that a quarter to a third of them, the job gains that we were
getting were in the two lowest paying areas, retail and leisure
and hospitality.
So my question is does that disturb you that the job gains
are in the lowest paying categories? What kind of policies
could address this?
Dr. Furman. Right. Well, I think we would like both more
better paying jobs--but we also are going to have a range of
jobs in our economy, and we would like to see the wages for all
of those rising.
So something like the minimum wage, which you just cited,
is a good way to take a lot of people who are going to work in
those sectors, and that is a great job for a lot of people, but
there is no reason they should be in that job making $14,000 a
year if they could be in those jobs making $20,000 a year or
more. And that is why we would like to raise the minimum wage.
Representative Maloney. Now, also of concern to me is the
work week. Now, the work week is behind where it was when the
recession began, and we are now on the average of 34.4 hours in
a week. And when you look at a 34.4-hour week as opposed to a
40-hour week, in a sense you are looking at the same thing as
cutting jobs.
So what in the world can be done about that? That is not a
good trend that the work week is getting less and less and
less. And is that a consistent trend? How long has it been that
we--actually, it is behind when the recession began. So that
has been since 2008 that we were getting a shrinking work week.
Could you comment and elaborate on that?
Dr. Furman. Yeah, you see a very similar pattern in the
work week that you see in the unemployment rate, which is--
well, the inverse, a really large decline in the work week in
the wake of the recession, and then it coming back up, but not
having fully recovered.
So anything that helps our economy fully recover, whether
it is the President's growth, opportunity, and security
initiative that is in his budget, extending unemployment
insurance, or measures like that would help bring the
unemployment rate down and the work week up.
Representative Maloney. Well, I can't help but reminisce
that the first time I met you, and I was thinking about it, you
were testifying before the Financial Services Committee on
Social Security, and your testimony was opposed to
privatization, that this was not an investment scheme, this was
a safety net.
In this hearing, I will never forget it, Ranking Member
Klobuchar, it went on for about eight hours, maybe nine hours.
It started in the morning and went into the night. It was just
ferocious, ferocious hearing. And we won, basically, the
Democrats won in that we preserved Social Security as a safety
net. It was not privatized. At that time of that hearing, our
economy was roaring. Many people were arguing we should
privatize it, this will be good for the elderly and for those
that need the social safety net.
I would just like to, as an economist, what would have
happened if we had privatized Social Security and then had that
huge economic downturn in 2008? What would have been the impact
on the economy and on individuals?
Dr. Furman. One of two things would have happened. Either
there would have been a large reduction in benefits for
households or there would have been a large outcry, and
Congress would have reversed it, in which case there would be a
large cost shifted to taxpayers.
Representative Maloney. My time has expired. Thank you for
your testimony.
Chairman Brady. Thank you.
Thank you, former chairman. I can't tell you how much I
disagree with that whole description of that process. And there
are serious disagreements about what the best way forward is to
get this economy back to where both parties want it.
Nonetheless, I am really pleased, Chairman, that you were
here today and were willing to meet with us very promptly.
Usually not in our normal meeting location or time necessarily,
which reflects some of the attendance today.
But again, thank you for being here. This is an important
discussion for the economy. Look forward to working with you
further.
With that, the meeting is adjourned.
[Whereupon, at 3:24 p.m., the committee was adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared Statement of Hon. Kevin Brady, Chair, Joint Economic Committee
Today we will hear testimony from Dr. Jason Furman, the Chairman of
the Council of Economic Advisers, on the Economic Report of the
President that was released on Monday. I thank Dr. Furman for
testifying so promptly after the Report's release.
Families on Main Streets across America are suffering from a
disappointing economic recovery that still feels like a recession to
them. Due to the alarming ``Growth Gap'' that describes the gap between
the Obama recovery and other average recoveries of the past 50 years,
America is missing 5.6 million private sector jobs and $1.3 trillion in
real GDP from the economy.
Using the latest economic buzzword from the President's report,
``job years,'' we are also missing over 18 million private sector job
years.
Wall Street is roaring, thanks to White House policies, but middle
class families are being left behind. The S&P 500 total return index
adjusted for inflation is up 98% since the recession ended but real
disposable income per person has risen a mere 3.6%. To put it another
way, under President Obama's economic leadership, for every new dollar
of disposable income a person receives, Wall Street has gained $27
dollars in value.
No wonder income inequality is a concern.
Clearly President Obama inherited an economic mess. The question
before this Committee is whether ``staying the course'' will close the
alarming growth gap and provide real opportunity for middle class
families and Main Street businesses left behind in this recovery.
In both the President's budget presented to Congress last week and
the Economic Report of the President, it's clear the White House is
stubbornly adhering to the current ``slow growth'' policies that much
of America has lost confidence in.
For example, using a Keynesian analysis that focuses solely on
aggregate demand, the Report asserts that the American Recovery and
Reinvestment Act added about two percent to real GDP between the fourth
quarter of 2009 and the second quarter of 2011. Many economists
disagree. For example, John Taylor found that the stimulus had little
positive effect.
The Report praises infrastructure investment--which has bipartisan
support--yet ignores the President's decision to block a major,
privately funded infrastructure project--the Keystone XL pipeline.
The Report lauds the Administration's success in promoting
alternative energy but ignores the shocking waste of precious taxpayer
money to failed companies like Solyndra and others.
Ironically the Report claims credit for increasing oil and natural
gas production while ignoring the fact that this occurred on private
and state lands while the White House has further restricted access to
public lands.
Moreover, the Report fails to acknowledge the harmful effects from
the White House's regulatory onslaught against American business--and
does the same for President Obama's insistence at the end of 2012 on
higher taxes on small businesses and successful Americans as a
condition of renewing middle-class tax relief.
Not surprisingly, policy uncertainty remains unprecedentedly high
four and a half years into this disappointing recovery.
The Report makes a great effort to blame congressional Republicans
for the fights over increasing the debt ceiling and the temporary
government shutdown which created more policy uncertainty, but ignores
the even larger uncertainty the White House has created with the call
for higher taxes, less American-made energy, burdensome regulation, and
the President's Affordable Care Act.
The Report observes that business fixed investment has been
unusually weak--which this committee has been highlighting for some
time. Indeed, real fixed business investment finally reached its fourth
quarter 2007 level in the most recent report on GDP.
The Report asserts, ``The pace of growth of business fixed
investment is puzzling because interest rates are low and internal
funds available for investment are high.''
The reason for this weakness is staring the CEA (Council of
Economic Advisers) in the face. Economic growth is a function of both
supply and demand, yet the Report focuses on aggregate demand.
Businesses don't make investment decisions based solely on their
assessment of future demand. They also consider cost. Supply-side
factors such as taxes and regulations are at least as important as
demand-side factors.
This Administration has increased both the expected after-tax cost
of new business fixed investment and heightened uncertainty. It was
entirely predictable that sluggish business fixed investment would
produce a weak recovery. Is no one at the White House listening to
local businesses? They've been telling you this for years--and continue
today.
I'll conclude with this. While the Report identifies issues worth a
thoughtful, bipartisan discussion, too much energy is again wasted
attempting to shift the blame for this anemic recovery to anyone or
anything other than the leadership of this White House and this
President.
The Report impugns a variety of headwinds from droughts to the
Euro-crisis. However, other Presidents--Kennedy, Reagan, and Clinton
for starters--overcame the headwinds of their time and achieved
superior economic results for American families and businesses.
President Obama has an opportunity to do the same. I urge him to
work with Congress to grow the economy in ways that have been shown to
work.
Chairman Furman, I look forward to your testimony.
__________
Prepared Statement of Jason Furman, Chairman, Council of Economic
Advisers
Chairman Brady, Vice Chair Klobuchar, and Members of the
Committee--thank you for the chance to appear here today. The 2014
Economic Report of the President discusses the progress that has been
made in recovering from the worst recession of our lifetimes, and
President Obama's agenda to build on this progress by creating jobs and
expanding economic opportunity.
Last Friday, we learned that businesses added 162,000 jobs in
February, so that over the last 48 consecutive months of job growth,
private employment has risen by 8.7 million (Figure 1). The
unemployment rate ticked up one-tenth of a percentage point in
February, but it has still fallen half a percentage point on balance
since October, with the entirety of that decline attributable to gains
in employment. Nevertheless, essentially all the remaining elevation in
the unemployment rate is due to long-term unemployment, which
represents one of our most pressing economic challenges (Figure 2). In
January, the President hosted a summit at the White House and announced
some important new steps to help the long-term unemployed, and we still
hope Congress will join us in this continued effort by reinstating
extended unemployment insurance for the more than 2 million job-seekers
that have lost a vital lifeline since the end of last year.
The economic recovery is well underway, but it remains incomplete,
and much more work is left to be done, in large part because of the
depth of the hole out of which we are still digging. As discussed in
this year's Economic Report of the President, recoveries from financial
crises are challenging because heavy household debt burdens and tight
credit conditions can linger for years, constraining spending and
investment. However, among the 12 countries that experienced a systemic
financial crisis in 2007 and 2008, the United States is one of just two
in which output per working-age person has returned to pre-crisis
levels (Figure 3). The fact that the United States has been one of the
best performing economies in the wake of the crisis supports the view
that the full set of policy responses in the United States made a major
difference in averting a substantially worse outcome--although, as I
said, more work remains to be done.
This year's Report provides an in-depth look at one major aspect of
the policy response to the crisis: the Recovery Act and more than a
dozen subsequent pieces of fiscal legislation, including the payroll
tax cut, small business tax cuts, incentives for business investment,
and extended unemployment insurance. Our analysis finds that the
effects of these steps were substantial. Specifically, the Recovery Act
alone raised the level of GDP by between 2 and 2.5 percent from late
2009 through mid-2011. Combining the effects of the Recovery Act and
the additional fiscal measures that followed, the cumulative boost to
GDP from 2009 through 2012 is equivalent to 9.5 percent of fourth
quarter 2008 GDP (Figure 4). The Report also demonstrates that the
Recovery Act's support for household incomes prevented millions from
slipping into poverty over the last few years, a continuation of a
longer-running trend in which essentially all of the progress we have
made in the War on Poverty has come as a consequence of policies like
tax credits, Social Security, unemployment insurance, and nutrition
assistance.
Looking ahead, this year's Report also identifies several key
reasons that the Administration, like other forecasters, expects growth
to strengthen in the coming years. One key reason that growth is
expected to pick up is that households have made substantial progress
in deleveraging, putting them in a better position to increase spending
going forward. Specifically, household debt has fallen from a peak of
about 1.4 times annual disposable income in the fourth quarter of 2007
to 1.1 times annual disposable income in the fourth quarter of 2013.
Similarly, the average required minimum payment on household debt has
fallen from a high of 13 percent of disposable income in the fourth
quarter of 2007 to 10 percent in the third quarter of 2013, the lowest
since the data begin in 1980 (Figure 5).
It is important to note that while these figures paint a picture of
improvement in the aggregate, many middle-income households have seen
little benefit from recent stock market gains and are still grappling
with the implications of home prices that, despite recent progress,
remain well below their previous highs. I'll return to say a bit more
about steps the Administration is taking to expand economic opportunity
for these households in a moment.
Staying on the near-term outlook, I would add that other reasons to
expect stronger growth in 2014 include diminished fiscal drag, a
recovery in asset values, strengthening among some of our key
international trading partners, and demographic forces that are
expected to maintain upward pressure on housing starts--although all of
these factors need to be balanced against the uncertain risks that can
always adversely affect the economy.
Looking over a longer time horizon, the Report identifies a number
of emerging trends that can support a stronger economy on a sustained
basis into the future, including improvements in the production and use
of energy, the slowdown in the rise of health care costs, and
technological advances.
The Administration is not sitting back waiting for these trends to
unfold, and the President has set out an ambitious agenda to capitalize
on these opportunities and make further progress. Specifically, the
President's agenda is designed to address three key imperatives: first,
it continues to restore the economy to full potential; second, it
expands the economy's potential over the long run; and third, it helps
ensure that all Americans have the opportunity to realize their full
individual potential.
To return the economy to its full potential more quickly, the
President's budget includes an Opportunity, Growth, and Security
initiative, which will finance additional discretionary investments in
areas such as education, research, infrastructure, and national
security. The initiative is evenly split between defense and non-
defense and is fully paid for with mandatory spending reforms and tax
loophole closers. The President has also called for steps to couple
business tax reform with a major effort to upgrade our Nation's
infrastructure.
These steps will not just help speed the economy's return to full
potential in the near term, but will expand that potential over the
long run by making critical investments in infrastructure and the
skills of American workers, and by reducing distortions in the business
tax code. Another key step to grow the economy's long-run potential is
immigration reform, which would help attract a new wave of inventors
and entrepreneurs to American soil. The President is also looking for
ways to support the historic gains in the domestic energy sector that
we have seen in recent years. Finally, innovation is key to long-run
growth and should be supported with everything from tax incentives for
R&D to investments in basic research to policies like patent reform and
freeing up spectrum for mobile broadband.
The final areas of policy would help ensure that every American has
the opportunity to realize their full individual potential. Since the
late 1970s, income inequality has risen dramatically, and at the same
time, intergenerational mobility has remained relatively low. The
President has said that restoring a greater measure of economic
opportunity in the face of these long-standing trends is ``the defining
challenge of our time.''
The President's opportunity agenda includes an increase in the
minimum wage and an expansion of the Earned Income Tax Credit, which
would lift millions out of poverty. The Opportunity, Growth, and
Security initiative would help provide funding for every American child
to attend high-quality pre-school, because investments in early
childhood development are among the best investments we as a society
can make. Implementation of the Affordable Care Act is another critical
step in this direction, as it is helping to provide financial security
for more American families and to slow the growth in health care costs
that cut into workers' take-home pay.
This is just a brief overview of the economic outlook and some of
the President's priorities as described in our new Report. The Report
also contains analysis and discussion of the Recovery Act and
subsequent jobs legislation, the causes and consequences of the
slowdown in health costs, the role of technology in the economy, the
lessons we have learned 50 years after the beginning of the War on
Poverty, and a discussion of the importance of Federal program
evaluation. I would be happy to take your questions on these or any
other economic topics.
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