[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