[Congressional Record Volume 144, Number 15 (Wednesday, February 25, 1998)]
[Extensions of Remarks]
[Pages E220-E221]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                              THE ECONOMY

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                      Wednesday, February 25, 1998

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, February 25, 1998 into the Congressional Record.

                          State of the Economy

       Last year the nation's economy gave its best performance in 
     a generation. The economy grew strongly and created jobs 
     while inflation declined. The gross domestic product

[[Page E221]]

     grew 3.8%. Employment rose by 3.2 million. The unemployment 
     rate dropped below 5% for the first time in 24 years and 
     inflation averaged only 1.7%, its lowest rate in decades.
       This remarkable economic performance occurred while the 
     federal budget deficit, which reached $290 billion in 1992, 
     declined to only $22 billion in 1997. The deficit is expected 
     to approach zero this fiscal year. By most measures the 
     economy is exceptionally healthy. In the past, such strong 
     growth, coming at a time when the nation's unemployment rate 
     was falling below 5%, would have caused inflation to worsen, 
     but in 1997 the opposite occurred.
       The prospects for continued growth with low unemployment 
     and low inflation remain very good for this year. Economists 
     find the U.S. economy free of many of the symptoms that often 
     presage an economic downturn, such as an increase in 
     inflation or a large accumulation of inventories or evidence 
     of financial imbalance.


                          Reasons for success

       There are many reasons for the strong economy. Deficit 
     reduction has reduced government spending relative to overall 
     growth, and strong U.S. exports have also provided a boost. 
     Most of the credit for the economy's performance has to go to 
     American workers and companies. They have met challenges of a 
     competitive global economy and rapidly changing technology.
       The role of the government has not been to stimulate the 
     economy, but rather to try to provide individuals and 
     businesses with the tools they need to flourish through their 
     own efforts. Sound economic policies have promoted private 
     investment, and the government has tried to encourage the 
     formation of skills through training and education and to 
     empower marginalized members of our society to join the work 
     force.


                           Future challenges

       Of course challenges remain, particularly in the areas of 
     productivity, savings, trade, and income inequality.


                              Productivity

       Productivity, the measure of economic output per worker, is 
     the key to rising living standards. Productivity growth, 
     which has averaged a bit more than 1% in the 1990s, is less 
     than half of the pace of the '50s and '60s. The situation, 
     however, may be improving. The most recent data show 
     productivity growing about 2% for the past two years, twice 
     the rate of the past two decades; manufacturing productivity 
     is even higher. If sustained, that will allow the economy to 
     grow even faster without inflation, with benefits for wages, 
     profits, and unemployment.


                                Savings

       Private savings, which are important to investment that 
     increases productivity, are at historic lows. Americans are 
     currently savings about half of what they need to sustain 
     their current living standards and that could soon become 
     everybody's problem.


                                 Trade

       The U.S. trade deficit for goods and services reached $114 
     billion in 1997, the worst showing in nine years. Most 
     attribute the widening deficit to a strong dollar and a 
     healthy U.S. economy, which absorbs more imports. Experts 
     predict that the economic crisis in Asia will increase our 
     trade deficit this year.
     Income inequality
       Between 1974 and 1994 families in the upper 5% of income 
     distribution enjoyed an average annual gain in income of 1.2% 
     while all others saw their incomes stagnate or shrink. It 
     appears that the lion's share of gains from productivity is 
     going to those with more education and skills. We must 
     continue to push for high and rising living standards for all 
     our people and ensure that the benefits of a higher standard 
     of living are widely shared.


                            Economic outlook

       Most of the experts think that the American economy will 
     continue to expand through 1998 although the pace of growth 
     will be slower than in 1997 due to the Asian financial 
     turmoil and the prospect of tighter labor markets. If the 
     current expansion continues through this year, it will have 
     lasted more than 7 years, the longest period of non-stop 
     economic growth since the 1960s. That record will be 
     surpassed if the current expansion extends into January 2000.
       Economists point to a number of factors that could derail 
     the good times. Some worry about higher inflation as job 
     markets continue to tighten. Others fret about the threat of 
     sharply declining prices, particularly if Asian countries try 
     to grow out of their financial difficulties by flooding our 
     markets with cheap imports rather than boosting internal 
     consumption. The danger is that declining prices might 
     trigger lower incomes, leaving many Americans without enough 
     money to pay off their debts. Still other economists play out 
     different scenarios: a consumer debt crisis; a sharp decline 
     in stock prices or a punishing trade deficit; higher 
     unemployment; and shrinking corporate profits, with the 
     attendant cost-cutting and layoffs.
       Economists are fond of pointing out that every expansion 
     contains the seeds of its own demise: Investors get too 
     enthusiastic and pay too much for stocks or real estate. 
     Businesses flush with profits and new orders invest too much 
     in new plants or build up too much inventory. Banks take on 
     riskier loans. Over-confident consumers take on too much 
     debt. Prices and interest rates rise, shortages develop. And 
     there is always the possibility of some large unforeseen 
     event, such as the oil shocks of the 1970s, that causes a big 
     change in the price or supply of key commodities. In short, 
     things happen during expansions that make them end, but of 
     course, nobody can predict when.


                           Unfinished agenda

       Americans can take pride in our economic record of the last 
     decade. We have the strongest, most successful economy in the 
     world, and have become the model for other countries. 
     Nonetheless, I worry about our country's unfinished, and 
     largely undiscussed, agenda. First, I am most concerned about 
     the widening gap between rich and poor. We must do more to 
     increase the skills of our workers and create more good-
     paying jobs. Second, I worry about the long-term prospects 
     for a balanced budget, particularly in the absence of serious 
     reform to Medicare, Social Security, and other entitlement 
     programs. Without such reform, the deficit will likely 
     explode again when the baby boomers start to retire. Third, I 
     think that we are not investing enough in our nation's 
     children and their future. We need to make sure that every 
     child has a minimum good start, health care, nutrition and 
     educational opportunities.

     

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