[Congressional Record Volume 140, Number 72 (Friday, June 10, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 10, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                       PRODUCTIVITY LEADS GROWTH

  Mr. DOMENICI. Mr. President, last Friday, with the release of May's 
employment statistics, this administration attempted, as I viewed it, 
to take complete credit for the current economic recovery. The 
President's economic policy adviser, Robert Rubin, and the economic 
council head, Laura Tyson, linked the good employment news with the 
administration's budget plan that passed last August. But nothing could 
be further from the truth.
  As we have learned from recent excerpts from the book named ``The 
Agenda,'' by Bob Woodward, the administration's strategy for selling 
their budget, a budget described by the President himself as ``a 
turkey,'' has been to just shout, ``it's the best,'' over and over 
again. I cannot let the political-economic spin masters get away with 
this. Saying it, does not make it so. So let me begin with a little 
history of facts and observations by those who know more than most of 
us about the American economy and the budget.
  First, the economy of the United States is so gigantic, so enormous, 
so big that it does not respond quickly to decisions made here on the 
Hill. And it did not, last fall, despite claims that the budget plan 
passed just last August, created all these wonderful economic results.
  Second, low inflation, low interest rates, and high productivity--
very significantly higher productivity growth than in past recoveries--
took root under the past administrations, and were pushed in a positive 
manner by a responsible Federal Reserve Board. These are factors that 
have shifted the economy into a quickening pace. Let me repeat them: 
Low inflation, low interest rates, and high productivity growth which 
took root over the last 12 years, and a responsible Federal Reserve 
Board are the true contributors to this economic recovery. They are 
part of it. They made it happen.
  Third, the factors motivating business today began in the 1980's, 
when the Government revamped policy to foster a low-cost, low-overhead, 
low-inflation business environment where Government gets out of the 
way.
  It is most interesting to note, for those who frequent Europe these 
days, the papers are full of new politicians asking why is the European 
economy stagnant? Why is it not producing any new jobs--literally? Why 
is unemployment so high? The average is 10 percent around Europe, 
including the better economies like the German economy. And the 
conclusion they are all coming up with is it is the enormous regulatory 
burdens on business and the enormously high costs imposed upon labor--
that is, businesses have to pay an inordinate amount as fringe benefits 
and indirect costs of labor, and they are all busy trying to change 
this situation so they can compete again.
  So the low-overhead, low-inflation business environment started 
shortly after Ronald Reagan took office, and the days of enormously 
high inflation which preceded his coming to office are gone now, and 
that is probably the most significant positive effect on the American 
economy, on the confidence of business, and on jobs in the United 
States.
  So while this administration attempts to lay claim to the successes 
created by low inflation and high productivity growth, the facts show 
that they are really reaping the benefits of seeds sown in prior years.
  Moreover, while administration officials embrace current growth, they 
advance policies that would interject Government further into the 
business sector.
  Incidentally, I might add, some of the health care bills that are 
winding around the Halls of the Congress and committees would have a 
tax on American business as high as 10 percent of payroll. I submit, it 
is precisely that kind of cost that is causing the European economies 
to stagnate, to create no jobs, and to have their people throwing 
governments out of office on the basis that inflation is coming back, 
there are no new jobs and what is happening to our future.
  In fact, if we are not careful, we may unwittingly and unknowingly be 
promoting what is currently being called Eurosclerosis--European 
sclerosis--and they put it into one word and call it Eurosclerosis. It 
is kind of loosely defined as the rigid, overburdened business 
environment that has been debilitating Europe for a number of years now 
and is reaching its peak in the situation I just described a few 
moments ago.
  Just this week, an OECD study recommended cutting costs and 
increasing European labor market flexibility. Europe's finance 
ministers gathered and agreed to use deregulation instead of public 
spending to counter their employment crisis. We should take heed.
  Part two of what I want to discuss for a moment is what are the keys 
to this expansion and what are the keys to continuing it so that 
Americans will, once again, have real confidence that there will be 
jobs in the United States and that their future and their children's 
future are not as bleak as many millions think today.
  What is clear is that the keys to this recovery are, No. 1, low 
interest rates--the result of the Federal Reserve policy and low 
inflation--and, No. 2, high productivity. I will discuss why this is 
true.
  I addressed the importance of the Federal Reserve's action 3 weeks 
ago on this floor, and I complimented them on their efforts to create a 
neutral monetary policy for this country, neither stimulative nor 
restraining, because it will keep this recovery growing and going much 
longer than previous ones.
  Between the mid-1990's and the end of 1992, the Federal Reserve 
reduced interest rates from 8.3 percent to 3 percent, a 64 percent 
decline, the biggest prolonged percentage drop in recent U.S. history. 
And all of that reduction occurred prior to the end of 1992, not in 
1993, and not immediately after the President's so-called deficit 
reduction budget package which essentially, as you look at it in terms 
of this year and next year, is nothing more than a tax package in terms 
of deficit reduction. Interest rates were reduced way before the 
package. They were reduced continuously and consistently for 2\1/2\ 
years by the Federal Reserve Board.
  These lower interest rates set up conditions for the sustained 
recovery we are experiencing. But a second shoe needed to drop. The 
economic environment needed to change to make the best use of these 
lower interest rates. That second shoe generating today's recovery, I 
believe, was the resurgence of U.S. productivity; that is, our ability 
to produce more efficiently and competitively.
  Our productivity successes have been impressive. During 1992, Mr. 
President, nonfarm productivity--the best measure of economywide worker 
efficiency--rose 3.6 percent, the biggest 1-year increase since early 
in the 1970's. The President's budget package was not even in existence 
when this phenomenon was occurring. That increase, that dramatic 
increase, occurred in 1992. Moreover, during this recovery, 
productivity gains have accounted for 90 percent of the gross domestic 
product, far outstripping average contributions of the past.

  What I am saying is that the most significant component of the 
increase in growth in the United States and the increase in pay and the 
increase in material produced and sold and services delivered, the 
biggest increase occurred because our productivity increased. In fact, 
90 percent of the increase was attributable to productivity increases. 
In past recoveries and positive business cycles, only 50 to 55 percent 
of the growth was attributable to productivity increases.
  Increases in productivity are the result of long-term sustained 
policies or activities, and essentially they imply lower costs of 
production. For example, manufacturing production costs have declined 
9.3 percent in real terms since the expansion began in 1991. You 
produce the same or more but it costs less because productivity is up.
  The best news of all, business cost efficiencies are translating into 
higher incomes. After declining during the recession, real incomes 
climbed $632 per person during 1992, the largest 1-year increase in 8 
years. More income coupled with lower interest rates already in place 
led to increased purchases and production. Starting in mid-1992, auto 
and home purchases took off and businesses invested in new capital 
equipment at a torrid pace. Now jobs are picking up to meet that 
increased production demand.
  Third, let me discuss for a few moments how productivity has led to 
this growth. I have only one chart today, and it is a rather simple 
one. This chart shows the chain of events very clearly. First came the 
productivity gains. Then came the income gains, the second line--after 
dipping, they are starting up. And now the creation of new jobs is 
starting to be moved upward, albeit rather slowly.
  This chart also shows clearly that the gains are not the result of 
last August's budget plan. They instead reflect the inertia of 
successes with inflation, interest rates, productivity, and income.
  Now, let me spend just a few moments discussing effect of low 
inflation on productivity, lifestyles, and job growth. In testimony 
before the Banking Committee 2 weeks ago, Chairman Alan Greenspan made 
a very important point pertinent to this. Referring to the reasons for 
evolving a balanced economy, he stated:

       There is a quite robust relationship between the rate of 
     inflation and the rate of growth of productivity. We are 
     increasingly persuaded that it is the low rate of inflation 
     which is inducing a higher rate of growth in productivity.

  If that is true, and I believe it is, again you do not have these two 
qualities occurring because a bill or budget is passed. Rather, because 
of an American policy sustained over a period of time in this country, 
led by a low-inflation policy that started when Ronald Reagan took 
office in 1980. And believe you me, to get that inflation down we 
suffered a giant recession, and he sat in office for almost 2 years 
with a dreadful recession to get the inflation out of the economy--
inflation that was generated over the previous 4 years.
  There is no mystery about all this. We learned the lesson in the late 
1970's when inflation reached double-digit levels. Negotiating 
favorable price increases to beat the next round of inflation became an 
all-encompassing focus of businesses. The low inflation environment 
established over the last 10 years has spurred business to return to 
cutting costs, raising productivity, and increasing the quality of 
their products. With this focus on cost and efficiency, instead of 
price increases, America began to regain its competitive position as 
the world's largest exporter.
  It is significant that we have succeeded while the European countries 
have not. During the 1980's, our private sector created 16\1/2\ million 
new jobs. Between 1980 and 1988, the European Community produced no--
none, zero--net new jobs in their private sector. All new jobs were in 
their public sector.
  Also, a leader in productivity research, the McKinsey Group, finds 
that the European nations lag behind the United States in their 
entrepreneurial efforts across the board. In their recent international 
productivity report, they concluded that the difference in productivity 
among the major trading partners are ``ultimately caused by differences 
in economic policy and regulation.''
  So to repeat, the important lessons are clear: First, despite claims 
to the contrary by this administration, the budget plan passed last 
August did not create this recovery. The momentum was created well 
before this administration came to office, and clearly is made up of 
the subjects I have discussed here today. Low inflation, low interest 
rates, and high productivity growth fostered over a number of years 
under Republican administrations are the factors that shifted the 
economy into a quickening pace. And it is now paying off in more jobs, 
higher paying jobs, and sustained gross domestic product growth.
  Taking credit for the current recovery without an acknowledgment of 
how past policies got us to this place may well be leading this 
administration to make wrong economic policies today.
  That is really why I made this speech today. I will say more about 
it. We should not associate the wrong policies for the current success 
in the American economy, or we are apt, unwittingly, to impose on it a 
policy that will restrain its growth because we will be acting under 
the false premise as to why we got to where we are.
  I yield the floor. I thank the Chair.

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