[Economic Report of the President (1998)] [Administration of William J. Clinton] [Online through the Government Printing Office, www.gpo.gov] [DOCID: f:app_a2._] Economic Report of the President - - - - - - - - - - - - H. Doc. 105-176 [From the online service of the the U.S. Government Printing Office] [wais.access.gpo.gov] CONTENTS (Text) ------------ Chapter 1. Promoting Prosperity in a High-Employment Economy ...........19 The Administration's Economic Strategy ..............................21 A Credible Plan for Deficit Reduction .............................22 Investing in People and Technology ................................22 Opening Markets at Home and Abroad ................................23 A Record of Accomplishment ..........................................25 Benefits of a High-Employment Economy .............................25 Deficit Reduction: Completing the Task ............................26 Policies to Raise Growth, Reduce Inequality, and Increase Opportunity ............................................28 Strengthening Cities and Communities ..............................34 Strengthening the Performance of Domestic Markets .................35 Opening Foreign Markets ...........................................36 Promoting an Economically Sound Environmental Agenda ..............36 Facing the Challenges Ahead .........................................37 Conclusion ..........................................................42 Chapter 2. Macroeconomic Policy and Performance ........................43 Overview of 1997: A Burst of Growth .................................44 Aggregate Spending in 1997 ........................................45 Monetary Policy and Financial Markets .............................52 Inflation and the Labor Market ....................................54 Productivity ......................................................57 Explaining Recent Inflation Performance .............................57 Recent Inflation Performance and the NAIRU ........................57 Alternative Measures of Utilization and Capacity ..................60 A New Era for the Economy? ........................................62 The Economic Condition of Households ................................63 The Confident Consumer ............................................64 The Condition of Household Balance Sheets .........................66 The Personal Saving Rate ..........................................70 The Long-Term Uptrend in the Bankruptcy Rate ......................74 Long-Term Growth: Budget Deficits and National Saving ...............75 Saving in a Closed Economy ........................................77 Saving in an Open Economy .........................................77 Implications ......................................................78 Forecast and Outlook ................................................78 The Administration Forecast .......................................78 Components of Long-Term Growth ....................................80 Productivity ......................................................81 Inflation Considerations ..........................................84 The Demand for Housing ............................................84 The Near-Term Outlook .............................................85 Chapter 3. The Economic Well-Being of Children .........................89 Trends in the Economic Well-Being of Children .......................90 The Link Between Income and Children's Well-Being .................90 Measuring Trends in Child Poverty Rates ...........................91 Explaining Recent Changes in Child Poverty ........................94 Policy Initiatives to Support Family Incomes ......................98 Other Measures of Children's Material Well-Being ...................100 Availability of Food .............................................100 Adequacy of Housing ..............................................101 New Housing Policy Initiatives ...................................102 Health Status and Health Insurance .................................102 Health Outcomes ..................................................102 Health Insurance .................................................104 Recent Initiatives to Expand Children's Access to Health Insurance ...........................................108 Child Care and Education ...........................................109 Child Care .......................................................109 Early Childhood Education ........................................110 Elementary and Secondary Education ...............................111 Conclusion .........................................................117 Chapter 4. Economic Inequality Among Racial and Ethnic Groups .........119 Population Composition .............................................122 Economic Status ....................................................124 Family Income ....................................................124 Household Wealth .................................................129 The Role of Family Structure in Income and Poverty ...............131 Education ..........................................................133 Differences and Trends in Educational Attainment .................134 Explaining Educational Attainment Gaps ...........................136 Affirmative Action in Higher Education Admissions ................138 Labor Markets ......................................................140 Trends in Labor Market Outcomes ..................................141 Explaining Earnings Gaps .........................................146 Discrimination .....................................................152 Chapter 5. Improving Economic Efficiency: Environmental and Health Issues ......................................155 Cost-Effective Environmental Protection ............................156 Tradable Emissions Permits .......................................157 Air Quality Standards ............................................162 Climate Change ...................................................165 Non-Point Source Water Pollution .................................176 Improving Health Care and Health Insurance Markets .................180 Improving Access and Portability .................................180 Consumer Protection and Quality in the Health Care Industry ......184 Food and Drug Administration Reform ..............................187 Reducing Teenage Smoking .........................................191 Chapter 6. Recent Initiatives in Antitrust Enforcement ................195 Origins and Principles of Antitrust ................................196 Mergers ............................................................197 Market Definition ................................................200 Competitive Effects ..............................................202 Entry ............................................................204 Efficiencies .....................................................205 Electronic Commerce ................................................206 High-Technology Industries, Innovation, and Intellectual Property ..209 Innovation and Intellectual Property .............................209 Network Externalities ............................................210 Fast-Paced Technological Change ..................................211 The Global Marketplace and International Antitrust Efforts .........213 Chapter 7. The Benefits of Market Opening .............................215 Trends in U.S. International Trade .................................216 The Sectoral Composition of U.S. Trade ...........................217 The Geographic Composition of U.S. Trade .........................218 U.S. Trade by Domestic Region ....................................219 Initiatives in Market Opening ......................................220 Trade-Negotiating Authority ......................................221 Multilateral Initiatives .........................................222 Regional Initiatives .............................................228 Bilateral Initiatives ............................................233 The Effects of Market Opening ......................................236 The Benefits of Trade Liberalization .............................236 Measuring the Gains from Trade ...................................237 Trade and the American Worker ......................................238 Trade and Average Wages ..........................................239 Trade and Relative Wages .........................................241 Trade and Aggregate Employment ...................................244 Trade and Job Displacement .......................................244 The U.S. Trade Balance .............................................246 Foreign Direct Investment ..........................................249 Current Trends in FDI ............................................253 The Benefits of FDI ..............................................255 Current U.S. Initiatives in Investment Policy ......................258 Conclusion .........................................................260 Appendixes A. Report to the President on the Activities of the Council of Economic Advisers During 1997 .................................261 B. Statistical Tables Relating to Income, Employment, and Production .......................................................273 List of Tables 2-1. Components of GDP and Growth in GDP, 1997 .........................45 2-2. Household Debt Service Burden .....................................70 2-3. Household Credit Card Balances as a Percent of Income .............73 2-4. Expected Effects on Changes in the CPI and Real GDP of CPI Methodological Changes ...................................80 2-5. Accounting for Growth in Real GDP, 1960-2005 ......................82 2-6. Contribution of Selected Determinants of Demand and Supply for New Homes ............................................85 2-7. Administration Forecast ...........................................86 3-1. Children with Family Incomes Below Different Income Cutoffs, 1996 ............................................93 3-2. Changes in Child Poverty Rate and Selected Macroeconomic Indicators ........................................95 3-3. Accounting for Changes in Child Poverty ...........................97 3-4. Children in Households Reporting That There Was Sometimes or Often Not Enough to Eat During the Last 3 Months ............100 3-5. Housing Problems Among Households with Children ..................101 3-6. Children with Health Insurance, by Age of Child and Type of Coverage ...............................................105 3-7. Average Number of Physician Contacts in Last Year for Children Under 15, by Family Income ............................107 3-8. Uninsured Children by Family Income, 1996 ........................108 4-1. Racial and Ethnic Composition of the U.S. Population .............123 4-2. Ratios of Black and Hispanic to White Median Weekly Earnings, 1997 .................................................146 7-1. Tariff Rates of Asia-Pacific Economic Cooperation Members ........232 7-2. Industry Compensation Premiums, 1984 .............................243 7-3. Inward and Outward Foreign Direct Investment, by Industry, Selected Years .......................................255 7-4. Countries with Which the United States Has Bilateral Investment Treaties ............................................259 List of Charts 1-1. Investment and Government Spending in Overall GDP Growth .........20 1-2. Real Household Income Growth by Quintile, 1993-96 ................27 1-3. Federal Budget Deficit as a Percent of GDP .......................27 1-4. Net Interest as a Share of Federal Outlay ........................29 1-5. Returns to Education .............................................30 2-1. Inflation and Trend Unit Labor Costs .............................56 2-2. Computer Prices and Total Inflation ..............................58 2-3. Wage Growth and the Unemployment Rate ............................60 2-4. Consumer Sentiment ...............................................65 2-5. Ratio of Household Net Worth to Disposable Personal Income .......66 2-6. Household Debt by Type ...........................................67 2-7. Household Debt Delinquency Rates .................................68 2-8. Household Debt Service Payments ..................................69 2-9. Alternative Measures of Productivity .............................83 2-10. Productivity Growth and the End-of-Expansion Effect ..............83 3-1. Poverty Rates of Children ........................................92 3-2. Children Living with Their Mother Only, by Marital Status of Mother ...............................................94 3-3. Monthly AFDC and Food Stamp Benefits for a Family of Four ........96 3-4. Infant Mortality Rates and Incidence of Low Birthweight .........103 3-5. Child and Youth Mortality Rates .................................104 3-6. Children Without Physician Visit Within Past Year ...............107 3-7. NAEP Long-Term Trend Assessment: Science and Mathematics Scores .112 3-8. NAEP Long-Term Trend Assessment: Reading Scores .................113 4-1. Median Family Income ............................................125 4-2. Distribution of White Persons by Household Income ...............126 4-3. Distribution of Black Persons by Household Income ...............126 4-4. Gini Index for Family Income ....................................127 4-5. Poverty Rates for Persons .......................................128 4-6. Family Structure ................................................132 4-7. High School Completion Rates for 25- to 29-Year-Olds ............135 4-8. Women Aged 25-29 with 4-Year College Degree or Higher ...........137 4-9. Men Aged 25-29 with 4-Year College Degree or Higher .............137 4-10. Unemployment Rates ..............................................142 4-11. Ratios of Median Weekly Earnings of Male Full-Time Workers ......145 4-12. Ratios of Median Weekly Earnings of Female Full-Time Workers ...145 5-1. Sulfur Dioxide Emissions Permit Prices ..........................161 5-2. Volume of Sulfur Dioxide Emissions Permit Trades ................162 5-3. Sources of Nitrogen Oxides Emissions in 1995 ....................164 5-4. U.S. Greenhouse Gas Emissions, Actual and Projected .............167 5-5. Cumulative World Emissions of Carbon Dioxide, 1950-95 ...........171 5-6. Projected World Carbon Dioxide Emissions Without Kyoto Agreement 171 5-7. Energy Prices and Private Energy Research .......................174 5-8. Clinical Trial and Drug Application Approval Times for New Drugs 189 6-1. Mergers Filed with the Antitrust Agencies .......................197 7-1. Exports and Imports as a Percent of GDP .........................216 7-2. U.S. Exports and Imports by Category in 1986 and 1996 ...........218 7-3. U.S. Goods Exports and Imports by World Region in 1986 and 1996 .219 7-4. Exports of Goods by U.S. Region .................................220 7-5. U.S.-Initiated WTO Dispute Settlement Cases by Target Country ...224 7-6. Real Wages and Labor Compensation, and Productivity .............240 7-7. Saving, Investment, and the Current Account Balance .............247 7-8. Real Value of the Dollar and the Trade Deficit ..................248 7-9. Growth in Real Imports and GDP ..................................249 7-10. Foreign Direct Investment Flows .................................250 List of Boxes 1-1. Poverty Alleviation, the Earned Income Tax Credit, and the Minimum Wage ...............................................33 2-1. Accounting for the Deficit Surprise During Fiscal 1997 ...........48 2-2. Turmoil in Asian Economies .......................................50 2-3. Circuit Breakers .................................................55 2-4. Recent Revisions to Capacity and Utilization .....................62 2-5. The National Bankruptcy Review Commission ........................76 2-6. Methodological Changes in the Consumer Price Index ...............79 3-1. How Does Our Poverty Measure Affect Our Conception of Poverty? ...91 4-1. Racial and Ethnic Identity and Classification ...................120 4-2. The President's Initiative on Race ..............................123 5-1. The Clean Water Initiative ......................................176 5-2. Quality Data Collection for Medicare Managed Care ...............186 5-3. History of Food and Drug Administration Regulation of Drugs .....189 5-4. The Prescription Drug Users Fee Act of 1992 .....................190 6-1. Consolidation in the Defense Industry ...........................198 7-1. The WTO Dispute Settlement Process and U.S. Trade Policy ........223 7-2. Regional Trade Agreements: Building Blocks or Stumbling Blocks for the Multilateral Process? ..........................229 7-3. APEC Tariff Reductions and Other Initiatives ....................232 7-4. Industry-Related Differences in Wages ...........................242 7-5. Fears and Facts about Foreign Direct Investment .................251 7-6. Bilateral Investment Treaties ...................................259