[Congressional Record Volume 148, Number 28 (Wednesday, March 13, 2002)]
[Senate]
[Pages S1851-S1852]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           THANK GOODNESS FOR ALAN GREENSPAN AND THE TAX CUTS

  Mr. DOMENICI. Madam President, in my view, the recession that started 
last March is over and the economy is in recovery.
  The unemployment rate has dropped 2 straight months and is now at 5.5 
percent. Clearly, it was thought that the last unemployment report 
would show that unemployment went up. That is what all the experts 
thought, even if we were beginning a recovery. So for it to belie that 
and come down is a very powerful indicator that, indeed, the recovery 
has started.
  New orders and production are expanding the manufacturing sector. 
Excluding automobiles, retail sales have increased for 5 straight 
months. Good news.
  We ought to be thankful that the recession was not deeper or longer 
than it was. It now appears that the peak in the unemployment rate was 
5.8 percent in December. The peak was 5.8 percent, and that was a lot 
higher than anyone would like. No one likes to watch the unemployment 
rate go up. But we ought to recognize that 5.8 percent is the lowest 
peak for any recession since 1945. Indeed, we have grown accustomed to 
having extremely high unemployment; and it is good that it did not go 
as high as it has in the past, as we went through this set of impacts 
that I believe are behind us.
  Why was the recession so shallow? Why didn't it linger on, as many 
thought it would? In my view, a number of factors played a role.
  First, there was a very high rate of productivity growth. Usually 
during a recession, productivity growth is about zero.
  During this recession, productivity growth was 2.7 percent, which is 
faster than we usually get during economic expansion. And, indeed, the 
last quarter of reporting would say that the productivity growth was 5 
percent. It is so high and so robust that it permits a Senator such as 
this one to even question whether that could be right. But it seems to 
be the right number based on the same information that we have been 
gathering before, that we have been using before, and that is rather 
incredible from the standpoint of the positive.
  In a typical recession, real compensation tends to stagnate along 
with productivity. Businesses do not increase compensation when workers 
are not getting more productive. But in this high productivity 
recession, real compensation, believe it or not, has been relatively 
strong, not adversely affected by the recession. In other words, if you 
did not lose your job, you were much better off during this recession 
than during previous ones. In turn, increases in compensation helped 
support the consumer demand which, in a very real sense, fueled the 
fires in opposition to the recession and the factors that were feeding 
it.
  The second factor that made it milder than expected was monetary 
policy. The Fed started cutting interest rates 2 months before the 
recession began and reduced rates to 1.75, the lowest since 1961. In 
total, the Fed reduced rates 11 times last year.
  By contrast, during the last recession, the Federal Reserve reacted 
more slowly and much less forcefully. Short-term rates were still 6 
percent when the recession ended the last time we had a recession.
  The third factor was fiscal policy. The tax cut enacted last year 
could not have come at a better time. No one knows exactly how much it 
contributed to what I have just described, but obviously it had some 
positive impact. It was there at the right time, under the right 
circumstances, and it is one of the few times in modern history that a 
Congress has enacted a piece of legislation on time, in a timely 
manner, rather than too late and too little.

  There are those who would argue that the last tax incentive to help 
with the recession bill was too late. I believe that is the case. 
Nonetheless, those changes are all good changes that will perhaps help 
the economy stay in this upward moving direction in which we find 
ourselves.
  By using tax rebates as downpayments on marginal tax rate cuts, we 
put money in the pockets of people and convinced them that there were 
more tax cuts to come. I believe just doing the rate cuts alone would 
not have helped the economy as much as they did in that format with 
those understandings possible by our people.
  The fourth factor is financial flexibility. Unlike the situation 10 
years ago or the situation in Japan today, our banking system is very 
sound, and so are our credit markets. Firms have a wide variety of 
options when they want to raise funds, and households have been able to 
refinance their homes at lower interest rates. That has put many 
billions of dollars in the pockets of our people, when the refinancing 
occurred. Some of that money

[[Page S1852]]

went into purchases and acquisitions that our people made by using some 
or all of the refinance bonus they received because their equity was 
long.
  Lower energy prices contributed to this occurring. Now we are 
noticing that they are beginning to go up again, rather dramatically--
in fact, too much. We must send a signal to those who would arbitrarily 
do that--and they are--that we are busy producing an energy bill in 
both the House and Senate that will have an impact on that kind of 
capriciousness they exercise against our people through the economy 
they adversely affect.
  Does this mean we have nothing to worry about regarding the economy? 
I don't think so. Another strike by terrorists could again do a great 
deal of harm both to investors and to consumers and, in particular, to 
confidence. Probably it would be even a little more lasting than the 
last one because the strike on September 11 was obviously a total 
surprise. Another strike of that magnitude or bigger would prove we are 
vulnerable even when we are more vigilant.
  We also have to be concerned about the flow of oil from the Middle 
East. There are those who would like to see a much wider area of 
conflagration in that region, if for no other reason than to hurt the 
United States. We have to apply our best efforts to ensure that this 
does not happen. But apart from these potential negative shocks, the 
economy seems to be recovering and looks poised to enter a period of 
quite respectable economic growth--not a boom, but that is all right.
  Now it is our job to make sure we continue to focus on policies that 
will maximize the long-term growth potential of our economy, including 
strong national defense, homeland security, energy independence, as 
much as we can do, and free trade. We also need to start paying 
attention to simplifying and streamlining our Tax Code. It will not 
wait forever.
  Together these policies will put us in the best position to face the 
challenges ahead and improve the living standards of the American 
people.

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