[Economic Report of the President (2009)]
[Administration of Barack H. Obama]
[Online through the Government Printing Office, www.gpo.gov]



 
Economic Report of the President





Transmitted to the Congress
January 2009




together with
THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS


UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON : 2009


--------------------------------------------------------------------

For sale by the Superintendent of Documents, U.S. Government Printing
Office
Internet: bookstore.gpo.gov Phone: (202) 512-1800  Fax: (202) 512-2104
Mail Stop: IDCC, Washington, DC 20402-0001
ISBN-13: 978-0-16-082221-6







C O N T E N T S


Page

ECONOMIC REPORT OF THE PRESIDENT ................................... 1

ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* ................. 9

CHAPTER 1. THE YEAR IN REVIEW AND THE YEARS AHEAD ................. 31

CHAPTER 2. HOUSING AND FINANCIAL MARkETS........................... 61

CHAPTER 3. ENERGY AND THE ENVIRONMENT ............................. 97

CHAPTER 4.  THE BENEFITS OF OPEN TRADE AND
INVESTMENT POLICIES  ............................................. 127

CHAPTER 5.  TAX POLICY ........................................... 151

CHAPTER 6. THE LONG-RUN CHALLENGES OF ENTITLEMENT SPENDING ....... 175

CHAPTER 7. BALANCING PRIVATE AND PUBLIC ROLES IN
HEALTH CARE ...................................................... 197

CHAPTER 8.  EDUCATION AND LABOR .................................. 217

CHAPTER 9.  ECONOMIC REGULATION .................................. 239

APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE COUNCIL OF ECONOMIC ADVISERS DURING 2008 .................. 261

APPENDIX B. STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION........................................ 275

-------------------------
* For a detailed table of contents of the Council's Report, see page 11










ECONOMIC REPORT
OF THE PRESIDENT







ECONOMIC REPORT OF THE PRESIDENT



To the Congress of the United States:


The American economy has consistently proven its strength and
resilience in the face of shocks such as natural disasters, high
energy prices, and the terrorist attacks of September 11. The economy
experienced 6 years of uninterrupted expansion, which included a
record stretch of 52 consecutive months of job creation. The past
year saw this growth cease as several forces that developed over
many years in the credit and housing markets converged. The
combination of these factors, coupled with a sustained period of
rising energy prices, was sufficient to threaten the entire financial
system and generated a shock so large that its effects have been
felt throughout the global economy.
Under ordinary circumstances, it would be preferable to allow the
free market to take its course and correct over time. But the
Government has a responsibility to safeguard the broader health and
stability of our economy. Under the extraordinary circumstances
created by the financial crisis, the potential damage to American
households and businesses was so severe that a systemic, aggressive,
and unprecedented Government response was the only responsible policy
option.
The actions taken by my Administration in response to the financial
crisis have laid the groundwork for a return to economic growth and
job creation, and they are beginning to show some early results. A
measure of stability has returned to the financial system. There
will, of course, continue to be challenges. Temporary Government
programs must remain temporary and be unwound in an orderly manner
as soon as conditions warrant. Financial regulations must be
modernized to reflect the realities of the 21st century, and these
efforts should ensure that the objective of protecting consumers
and investors does not come at the expense of the flexibility
required for innovations to come to the market. We must also continue
to trust Americans with the responsibility of homeownership and empower
them to weather turbulent times in the market by helping creditworthy
homeowners avoid foreclosure.
As the country navigates through this trying period, we must never
lose sight of the enormous benefits delivered by the free enterprise
system. Americans have good reasons to be confident about the long-term
health of our economy. Despite the current difficulties, there are a
number of positive economic factors. Inflationary pressures have
moderated as record high prices for oil and gasoline have retreated.
Productivity growth, which helps to increase our standard of living
and improve our international competitiveness, remains solid. The
American economy continues to be the largest and most dynamic in
the world, and its solid foundation of flexible labor markets, low
tax rates, and open trade and investment policies all contribute to
its ability to recover fairly quickly from shocks. Over the past 8
years, my Administration has worked to strengthen this foundation
by adopting pro-growth, market-oriented policies, and our policies
will position the economy for a strong rebound and continued long-run
growth.
Sound economic policy begins with keeping taxes low. The tax relief
enacted by my Administration was the largest in a generation. Tax
rates have been lowered for every American who pays income taxes.
More than 13 million Americans had their Federal income tax liability
completely eliminated, and individuals and businesses have kept
$1.7 trillion of their own hard-earned money. Raising taxes at any
time reduces our international competitiveness and further distorts
the decisions of individuals and businesses; doing so in the current
environment would have serious consequences for the economy. This
tax relief has been a key factor in promoting the economic growth
and job creation of recent years, and it should be made permanent.
Unless the Congress acts, most of the tax relief that we have
delivered over the past 8 years will be taken away, and 116 million
American taxpayers will see their taxes rise.
The Government also has a responsibility to spend the taxpayers'
money wisely. Over the course of my Administration, the rate of
growth in nonsecurity discretionary spending has steadily decreased
from more than 16 percent in 2001 to below the rate of inflation
today. While the financial crisis has required significant taxpayer
investments that will increase the budget deficit, we expect that
most or all of those investments will be paid back to taxpayers
over time. The greatest challenge to the fiscal health of the
country remains the unsustainable growth in entitlement programs
such as Social Security, Medicare, and Medicaid. I have laid out
responsible, innovative solutions to address these challenges,
which will otherwise only grow more difficult to solve over time.
The Congress has an obligation to confront these issues.
Government does have a role to play in health care, but a robust
private market is critical to ensuring that health care is
affordable and accessible for all Americans. My Administration
has sought to balance public and private roles in health care
with market-oriented policies that increase the efficiency of
health care delivery, encourage competition, and leave decisions
in the hands of individuals and their doctors. For example,
enactment of the Medicare prescription drug benefit program has
provided more than 40 million Americans with better access to
prescription drug coverage, expanded competition in Medicare,
trusted consumers to make their own health care decisions, and
the costs have been much lower than originally estimated. The
introduction of Health Savings Accounts has also provided consumers
with greater access to affordable health care plans. There is much
more that can be done to improve health care, such as adopting
medical liability reform, eliminating the bias in the tax code
against those who do not receive health insurance through their
employers, and increasing the power of small employers, civic
groups, and community organizations to negotiate lower-priced
health premiums. These policies would help reduce frivolous
lawsuits that increase patients’ costs, promote the use of
health savings accounts, and encourage competition among health
plans across State lines.
To be competitive in the global marketplace, the United States
must remain open to international trade and investment and reject
the false promise offered by protectionist policies. American
workers and businesses can compete with anyone in the world, as
evidenced by the remarkable performance of American exports in
recent years. When I took office, the United States had free trade
agreements (FTAs) in force with only three countries. Today, we have
FTAs in force with 16 countries. I thank the Congress for its
approval of these agreements and strongly encourage prompt approval
of the agreements with Colombia, Panama, and South korea that will
benefit our country. These agreements will provide greater access
for our exports, support good jobs for American workers, and
promote America’s strategic interests. We also have an
unprecedented opportunity to reduce barriers to global trade and
investment through a successful conclusion to the World Trade
Organization Doha Round negotiations. In addition, the Congress
should reauthorize and reform trade adjustment assistance so that
we can help those workers whose jobs are displaced to learn new
skills and find new jobs.
The rapid increase in energy prices in the past year exposed just
how dependent our economy is on oil. We must continue taking steps
to increase our energy security. The Energy Policy Act of 2005 and
the Energy Independence and Security Act of 2007 were major steps
toward this goal, but in the short term, our country will continue
to rely on fossil fuels for most of its energy supply. I am
pleased that the Congress recognized this reality and agreed to
remove restrictions that will allow responsible oil and gas
exploration on the Outer Continental Shelf and expanded access to
oil shale to help meet America’s energy needs. In the long
run, our energy security will require advances in clean and
renewable energy technologies. My Administration has worked to
reduce gasoline consumption and promote alternative fuels to
transform the way Americans power their cars and trucks. We have
also worked to develop cleaner energy sources to power Americans'
homes and places of work, such as clean coal, nuclear, solar, and
wind power. At home, we are on the path to slow, stop, and
eventually reverse the growth of greenhouse gas emissions, but
substantial reductions in global greenhouse gas emissions are
only possible with the concerted action of all countries. The
Major Economies Process launched by my Administration in 2007 has
brought all major economies together to discuss a common approach
to a global climate agreement that includes the meaningful
participation of all major economies.
The creativity, ingenuity, and resourcefulness of the American
people is our country's greatest strength, and a vibrant education
system is key to maintaining our Nation’s competitive edge
and extending economic opportunity to every citizen. Workers who
invest in their education and training enjoy higher incomes and
greater job security. The No Child Left Behind Act has succeeded
in bringing greater accountability to schools, and the results are
clear; as one example, African American and Hispanic students are
posting all-time high scores in a number of categories. The
Congress should reauthorize this vital law, and our Nation must
continue to demand results and accountability from our educational
system. To be competitive in the global economy, American workers
also need to continually update their skills. To that end, my
Administration has invested nearly $1 billion in new job training
initiatives to ensure our workforce has the skills required of 21st
century jobs. We have also nearly doubled support for Pell Grants to
help millions of low-income Americans afford college tuition. The
technological innovation that drives our global economic leadership
depends on continued scientific discoveries and advancements, and
I am pleased that the Congress authorized the doubling of basic
research in key physical science and engineering agencies as I
proposed in my American Competitiveness Initiative (ACI). I urge the
Congress to appropriate these ACI funds promptly to help sustain our
economy's long-term competitive position.
Many of these issues are discussed in the 2009 Annual Report of the
Council of Economic Advisers. The Council has prepared this Report
to help policymakers understand the economic conditions and issues
that underlie my Administration’s policy decisions. Free
market policies have lifted millions of people out of poverty and
given them the opportunity to build a more hopeful life. By
continuing to trust the decisions of individuals and markets and
pursuing pro-growth policies, Americans can be confident that the
economy will emerge stronger than ever from its current challenges,
with greater opportunity for prosperity and economic growth.








THE WHITE HOUSE
JANUARY 2009








THE ANNUAL REPORT
OF THE
COUNCIL OF ECONOMIC ADVISERS







LETTER OF TRANSMITTAL

Council of Economic Advisers
Washington, D.C., January 16, 2009

Mr. President:
The Council of Economic Advisers herewith submits its 2009 Annual
Report in accordance with the provisions of the Employment Act of
1946 as amended by the Full Employment and Balanced Growth Act of 1978.

Sincerely,



Edward P. Lazear
Chairman



Donald B. Marron
Member