[Economic Report of the President (2010)]
[Administration of Barack H. Obama]
[Online through the Government Printing Office, www.gpo.gov]

111th Congress, 2nd Session..................................................H. Doc. 111-81
 
ECONOMIC

REPORT

of the

PRESIDENT


TRANSMITTED TO THE CONGRESS
FEBRUARY 2010


together with
THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS




UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON : 2010
-------------------------------------------------------------------

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ISBN 978-0-16-084824-7





CONTENTS
Page
ECONOMIC REPORT OF THE PRESIDENT .................................  1
ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS* ............... 11
CHAPTER 1. TO RESCUE, REBALANCE, AND REBUILD ..................... 25
CHAPTER 2. RESCUING THE ECONOMY FROM THE GREAT RECESSION.......... 39
CHAPTER 3 CRISIS AND RECOVERY IN THE WORLD ECONOMY................ 81
CHAPTER 4. SAVING AND INVESTMENT ................................ 113
CHAPTER 5. ADDRESSING THE LONG-RUN FISCAL CHALLENGE.............. 137
CHAPTER 6. BUILDING A SAFER FINANCIAL SYSTEM .................... 159
CHAPTER 7. REFORMING HEALTH CARE ................................ 181
CHAPTER 8. STRENGTHENING THE AMERICAN LABOR FORCE ............... 213
CHAPTER 9. TRANSFORMING THE ENERGY SECTOR AND
ADDRESSING CLIMATE CHANGE ............................ 235
CHAPTER 10. FOSTERING PRODUCTIVITY GROWTH THROUGH
INNOVATION AND TRADE ................................ 259

REFERENCES ...................................................... 285

APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE COUNCIL OF ECONOMIC ADVISERS DURING 2009 ..... 305
APPENDIX B. STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION .......................... 319


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

*For a detailed table of contents of the Council's Report, see page 15.




ECONOMIC REPORT
of the
PRESIDENT





ECONOMIC REPORT OF THE PRESIDENT



To the Congress of the United States:

As we begin a new year, the American people are still experiencing
the effects of a recession as deep and painful as any we have known
in generations. Traveling across this country, I have met countless
men and women who have lost jobs these past two years. I have met
small business owners struggling to pay for health care for their
workers; seniors unable to afford prescriptions; parents worried
about paying the bills and saving for their children's future and
their own retirement. And the effects of this recession come in the
aftermath of a decade of declining economic security for the middle
class and those who aspire to it.

At the same time, over the past two years, we have also seen reason
for hope: the resilience of the American people who have held fast--even
in the face of hardship--to an unrelenting faith in the promise of
our country.

It is that determination that has helped the American people overcome
difficult periods in our Nation's history. And it is this perseverance
that remains our great strength today. After all, our workers are
as productive as ever. American businesses are still leaders in
innovation. Our potential is still unrivaled. Our task as a Nation--and
our mission as an Administration--is to harness that innovative
spirit, that productive energy, and that potential in order to
create jobs, raise incomes, and foster economic growth that is
sustained and broadly shared. It's not enough to move the economy
from recession to recovery. We must rebuild the economy on a new
and stronger foundation.

I can report that over the past year, this work has begun. In the
coming year, this work continues. But to understand where we must
go in the next year and beyond, it is important to remember where
we began one year ago.

Last January, years of irresponsible risk-taking and debt-fueled
speculation--unchecked by sound oversight--led to the near-collapse
of our financial system. We were losing an average of 700,000 jobs
each month. Over the course of one year, $13 trillion of Americans'
household wealth had evaporated as stocks, pensions, and home values
plummeted. Our gross domestic product was falling at the fastest
rate in a quarter century. The flow of credit, vital to the
functioning of businesses large and small, had ground to a halt.
The fear among economists, from across the political spectrum, was
that we could sink into a second Great Depression.

Immediately, we took a series of difficult steps to prevent that
catastrophe for American families and businesses. We acted to get
lending flowing again so ordinary Americans could get financing to
buy homes and cars, to go to college, and to start businesses of
their own; and so businesses, large and small, could access loans to
make payroll, buy equipment, hire workers, and expand. We enacted
measures to stem the tide of foreclosures in our housing market,
helping responsible homeowners stay in their homes and helping to
stop the broader decline in home values.

To achieve this, and to prevent an economic collapse, we were forced
to use authority enacted under the previous Administration to extend
assistance to some of the very banks and financial institutions whose
actions had helped precipitate the turmoil. We also took steps to
prevent the collapse of the American auto industry, which faced a
crisis partly of its own making, to prevent another round of
widespread job losses in an already fragile time. These decisions
were not popular, but they were necessary. Indeed, the decision to
stabilize the financial system helped to avert a larger catastrophe,
and thanks to the efficient management of the rescue--with added
transparency and accountability--we have recovered most of the
money provided to banks.

In addition, even as we worked to address the crises in our banking
sector, in our housing market, and in our auto industry, we also
began attacking our economic crisis on a broader front. Less than
one month after taking office, we enacted the most sweeping economic
recovery package in history: the American Recovery and Reinvestment
Act of 2009. The Recovery Act not only provided tax cuts to small
businesses and 95 percent of working families and provided emergency
relief to those out of work or without health insurance; it also
began to lay a new foundation for long-term growth. With investments
in health care, education, infrastructure, and clean energy, the
Recovery Act has saved or created roughly two million jobs so far,
and it has begun the hard work of transforming our economy to thrive
in the modern, global era.

Because of these and other steps, we can safely say that we've avoided
the depression many feared. Our economy is growing again, and the
growth over the last three months was the strongest in six years. But
while economic growth is important, it means nothing to somebody who
has lost a job and can't find another. For Americans looking for
work, a good job is the only good news that matters. And that's why
our work is far from complete.

It is true that the steps we have taken have slowed the flood of job
losses from 691,000 per month in the first quarter of 2009 to 69,000
in the last quarter. But stemming the tide of job loss isn't enough.
More than 7 million jobs have been lost since the recession began
two years ago. This represents not only a terrible human tragedy,
but also a very deep hole from which we'll have to climb out. Until
jobs are being created to replace those we've lost--until America is
back at work--my Administration will not rest and this recovery will
not be finished.

That's why I am continuing to call on the Congress to pass a jobs bill.
I've proposed a package that includes tax relief for small businesses
to spur hiring, that accelerates construction on roads, bridges, and
waterways, and that creates incentives for homeowners to invest in
energy efficiency, because this will create jobs, save families money,
and reduce pollution that harms our environment.

It is also essential that as we promote private sector hiring, we
continue to take steps to prevent layoffs of critical public servants
like teachers, firefighters, and police officers, whose jobs are
threatened by State and local budget shortfalls. To do otherwise
would not only worsen unemployment and hamper our recovery; it would
also undermine our communities. And we cannot forget the millions
of people who have lost their jobs. The Recovery Act provided support
for these families hardest-hit by this recession, and that support
must continue.

At the same time, long before this crisis hit, middle-class families
were under growing strain. For decades, Washington failed to address
fundamental weaknesses in the economy: rising health care costs,
growing dependence on foreign oil, an education system unable to
prepare all of our children for the jobs of the future. In recent
years, spending bills and tax cuts for the very wealthiest were
approved without paying for any of it, leaving behind a mountain of
debt. And while Wall Street gambled without regard for the consequences,
Washington looked the other way.

As a result, the economy may have been working for some at the very
top, but it was not working for all American families. Year after
year, folks were forced to work longer hours, spend more time away
from their loved ones, all while their incomes flat-lined and their
sense of economic security evaporated. Growth in our country was
neither sustained nor broadly shared. Instead of a prosperity powered
by smart ideas and sound investments, growth was fueled in large
part by a rapid rise in consumer borrowing and consumer spending.

Beneath the statistics are the stories of hardship I've heard all
across America--hardships that began long before this recession hit
two years ago. For too many, there has long been a sense that the
American dream--a chance to make your own way, to work hard and
support your family, save for college and retirement, own a home--was
slipping away. And this sense of anxiety has been combined with a
deep frustration that Washington either didn't notice, or didn't
care enough to act.

These weaknesses have not only made our economy more susceptible to
the kind of crisis we have been through. They have also meant that
even in good times the economy did not produce nearly enough gains
for middle-class families. Typical American families saw their
standards of living stagnate, rather than rise as they had for
generations. That is why, in the aftermath of this crisis, and after
years of inaction, what is clear is that we cannot go back to business
as usual.

That is why, as we strive to meet the crisis of the moment, we are
continuing to lay a new foundation for prosperity: a foundation on
which the middle class can prosper and grow, where if you are willing
to work hard, you can find a good job, afford a home, send your
children to world-class schools, afford high-quality healthcare, and
enjoy retirement security in your later years. This is the heart of
the American Dream, and it is at the core of our efforts to not only
rebuild this economy--but to rebuild it stronger than before. And this
work has already begun.

Already, we have made historic strides to reform and improve our
education system. We have launched a Race to the Top in which schools
are competing to create the most innovative programs, especially in
math and science. We have already made college more affordable, even
as we seek to increase student aid by ending a wasteful subsidy that
serves only to line the pockets of lenders with tens of billions of
taxpayer dollars. And I've proposed a new American Graduation Initiative
and set this goal: by 2020, America will once again have the highest
proportion of college graduates in the world. For we know that in
this new century, growth will be powered not by what consumers can borrow
and spend, but what talented, skilled workers can create and export.

Already, we have made historic strides to improve our health care
system, essential to our economic prosperity. The burdens this system
places on workers, businesses, and governments is simply
unsustainable. And beyond the economic cost--which is vast--there is
also a terrible human toll. That's why we've extended health insurance
to millions more children; invested in health information technology
through the Recovery Act to improve care and reduce costly errors;
and provided the largest boost to medical research in our history.
And I continue to fight to pass real, meaningful health insurance
reforms that will get costs under control for families, businesses,
and governments, protect people from the worst practices of
insurance companies, and make coverage more affordable and secure
for people with insurance, as well as those without it.

Already, we have begun to build a new clean energy economy. The
Recovery Act included the largest investment in clean energy in
history, investments that are today creating jobs across America
in the industries that will power our future: developing wind energy,
solar technology, and clean energy vehicles. But this work has only
just begun. Other countries around the world understand that the
nation that leads the clean energy economy will be the nation that
leads the global economy. I want America to be that nation. That is
why we are working toward legislation that will create new incentives
to finally make renewable energy the profitable kind of energy in
America. It's not only essential for our planet and our security,
it's essential for our economy.

But this is not all we must do. For growth to be truly sustainable--for
our prosperity to be truly shared and our living standards to
actually rise--we need to move beyond an economy that is fueled by
budget deficits and consumer demand. In other words, in order to
create jobs and raise incomes for the middle class over the long run,
we need to export more and borrow less from around the world, and we
need to save more money and take on less debt here at home. As we
rebuild, we must also rebalance. In order to achieve this, we'll need
to grow this economy by growing our capacity to innovate in burgeoning
industries, while putting a stop to irresponsible budget policies
and financial dealings that have led us into such a deep fiscal and
economic hole.

That begins with policies that will promote innovation throughout our
economy. To spur the discoveries that will power new jobs, new
businesses--and perhaps new industries--I have challenged both the
public sector and the private sector to devote more resources to
research and development. And to achieve this, my budget puts us on
a path to double investment in key research agencies and makes the
research and experimentation tax credit permanent. We are also
pursuing policies that will help us export more of our goods around
the world, especially by small businesses and farmers. And by
harnessing the growth potential of international trade--while
ensuring that other countries play by the rules and that all Americans
share in the benefits--we will support millions of good, high-paying jobs.

But hand in hand with increasing our reliance on the Nation's
ingenuity is decreasing our reliance on the Nation's credit card,
as well as reining in the excess and abuse in our financial sector
that led large firms to take on extraordinary risks and extraordinary
liabilities.

When my Administration took office, the surpluses our Nation had
enjoyed at the start of the last decade had disappeared as a result
of the failure to pay for two large tax cuts, two wars, and a new
entitlement program. And decades of neglect of rising health care
costs had put our budget on an unsustainable path.

In the long term, we cannot have sustainable and durable economic
growth without getting our fiscal house in order. That is why even
as we increased our short-term deficit to rescue the economy, we have
refused to go along with business as usual, taking responsibility for
every dollar we spend. Last year, we combed the budget, cutting waste
and excess wherever we could, a process that will continue in the
coming years. We are pursuing health insurance reforms that are
essential to reining in deficits. I've called for a fee to be paid
by the largest financial firms so that the American people are fully
repaid for bailing out the financial sector. And I've proposed a
freeze on nonsecurity discretionary spending for three years, a
bipartisan commission to address the long-term structural imbalance
between expenditures and revenues, and the enactment of ``pay-go''
rules so that Congress has to account for every dollar it spends.

In addition, I've proposed a set of common sense reforms to prevent
future financial crises. For while the financial system is far
stronger today than it was one year ago, it is still operating under
the same rules that led to its near-collapse. These are rules that
allowed firms to act contrary to the interests of customers; to hide
their exposure to debt through complex financial dealings that few
understood; to benefit from taxpayer-insured deposits while making
speculative investments to increase their own profits; and to take
on risks so vast that they posed a threat to the entire economy and
the jobs of tens of millions of Americans.

That is why we are seeking reforms to empower consumers with the
benefit of a new consumer watchdog charged with making sure that
financial information is clear and transparent; to close loopholes
that allowed big financial firms to trade risky financial products
like credit defaults swaps and other derivatives without any oversight;
to identify system-wide risks that could cause a financial meltdown;
to strengthen capital and liquidity requirements to make the system
more stable; and to ensure that the failure of any large firm does
not take the economy down with it. Never again will the American
taxpayer be held hostage by a bank that is ``too big to fail.''

Through these reforms, we seek not to undermine our markets but to
make them stronger: to promote a vibrant, fair, and transparent
financial system that is far more resistant to the reckless,
irresponsible activities that might lead to another meltdown. And
these kinds of reforms are in the shared interest of firms on Wall
Street and families on Main Street.

These have been a very tough two years. American families and
businesses have paid a heavy price for failures of responsibility
from Wall Street to Washington. Our task now is to move beyond these
failures, to take responsibility for our future once more. That is
how we will create new jobs in new industries, harnessing the
incredible generative and creative capacity of our people. That is
how we'll achieve greater economic security and opportunity for
middle-class families in this country. That is how in this new
century we will rebuild our economy stronger than ever before.






THE WHITE HOUSE
FEBRUARY 2010




THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS







LETTER OF TRANSMITTAL


Council of Economic Advisers
Washington, D.C., February 11, 2010

Mr. President:
The Council of Economic Advisers herewith submits its 2010 Annual
Report in accordance of the Employment Act of 1946 as amended by the
Full Employment and Balanced Growth Act of 1978.


Sincerely,




Christina D. Romer
Chair




Austan Goolsbee
Member



Cecilia Elena Rouse
Member