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Welcome to "Ask the White House" -- an online interactive forum where you can submit questions to Administration officials and friends of the White House. Visit the "Ask the White House" archives to read other discussions with White House officials.

Dr. Edward Lazear
Chairman of the Council of Economic Advisers

January 30, 2007

Dr. Edward Lazear
It is a pleasure to be here today to share my thoughts with you on the nature of the current economy. I appreciate all of the interest shown by the many questions submitted. There are so many questions that I will only be able to answer a small sample of them, but I will try to select questions that are representative of the issues raised by a number of you.

Ted, from Sparks, NV writes:
How can our economy be deemed "strong" when we have the greatest budget deficit in history, billions of dollars in tax revenue is being spent on the war in Iraq, and more jobs are being outsourced or lost at record breaking pace? How can our economy, with a huge trade deficit, compete with China, a country with a truly strong and growing economy?

Dr. Edward Lazear
The American economy is very strong right now. The unemployment rate is down to 4.5 percent, which is not only low by historic standards, but a rate that many economists consider to be full employment. Real wages grew last year at a pace that exceeded that of the late 90s, and inflation is in the mid 2 percent range. Last year saw exports grow at 13 percent while imports only grew at 5 percent, and our trade deficit came down as a result. Ted, you ask about the budget deficit. We certainly are concerned about the budget deficit, which is why the President in his State of the Union address last week called for elimination of the deficit within five years. He made an earlier appeal for halving the deficit, and we got there 3 years ahead of schedule because the economy was growing at a rapid pace which brought in significant tax revenues. In fact our budget deficit is not high by historic standards relative to GDP, and our public debt compared to GDP is projected to shrink because the economy is growing more rapidly than our debts.

Dee, from Oregon writes:
A strong economy needs to be able to keep up with the population growth. With the flood of illegal immigration how is this helping our ecomony if they are illegally yet collecting benefits, such as health care, food stamps, and assistance for low income housing? Depending on the State we allow this abuse to exist and how would you go about addressing this growing problem?

Dr. Edward Lazear
Illegal immigration is indeed a problem. The President has outlined a comprehensive program to address this problem, and I believe that it can succeed. Fundamentally, illegal immigration occurs primarily because there is very strong demand for the services of illegal immigrants and so the incentives are great for them to come into the United States. This is more a function of the employment market than it is of welfare, since most illegal immigrants are reluctant to attempt to get benefits and to come out of the shadows. Also, as I mentioned earlier the U.S. unemployment rate is quite low at 4.5 percent, lower than the averages for each of the past four decades.

The President’s view is that in order to reduce illegal immigration, three things need to happen. First, we must enforce our borders. Second, employers must be able to identify legal from illegal workers so that they can choose the former over the latter. Third, in order to meet the demand from American employers without having to go to illegals, a temporary worker program should be instituted. Legal temporary workers are superior substitutes for illegals, and the availability of those workers will make it much more difficult for illegals to find jobs and, as a result, cut the incentives for them to come into the United States.

Erik, from Iowa writes:
President Bush's tax cuts have undoubtedly helped businesses in the United States; however, how does the administration expect them to work to help all Americans if outsourcing continues?

Dr. Edward Lazear
The evidence seems quite strong now that the President’s tax cuts have helped grow the American economy. This has shown up in a number of statistics, some of which are clearly related to business. Business investment in equipment, new buildings, and other assets has increased significantly since the tax relief was passed into law. That said, we would not be happy were the growth from tax cuts not affecting employment and wages. But we believe that they are. Employment growth has been very strong since the dividend and capital gains tax cuts of 2003, and wages have been growing more precipitously in the last year than in the previous two. The employment market is very tight. Unemployment is low, and international trade has helped contribute to the demand for American products and American workers.

Robert, from Louisiana writes:
Minimum Wage has been discussed for some time now. When is to be raised and is there a scheduled increase over the coming years?

Dr. Edward Lazear
As I write, minimum wage legislation is making its way through the Senate. The Senate version of the bill couples increases in the minimum wage with tax relief for small businesses. Virtually all economists believe that raising the minimum wage has some adverse consequences for employment, and we believe that the tax relief for small businesses will offset some of those adverse employment consequences. It is for that reason that the President has said he will support a minimum wage increase as long as it does not cost the economy jobs or economic growth. We are hoping that the Senate and the House can work out the differences between their bills and come up with legislation that will be consistent with the President’s view, will raise minimum wages in a fashion that will not have adverse consequences for the economy, and will happen in the very near future. You can view the Administration’s official position on the legislation on-line here: /omb/legislative/sap/110-1/hr2sap-s.pdf .

Voroshilina, from Belarus, Minsk writes:
In what way is the US going to increase the rate of its GDP's growth?

Dr. Edward Lazear
The United States has had strong GDP growth over the past few years. In fact, over the past year, the United States has been the most rapidly growing of the developed nations that are part of the G-7. But continued growth is always an important issue. Economic growth results from one of two factors. Either more labor is put into the economy, or the productivity of a given amount of labor increases. In coming years, the rate of increase in the U.S. labor force will decline as the demographics of an aging population start to bind. This means that it is all the more important to make sure that productivity continues to grow.

Productivity grows when businesses have incentives to invest in physical capital, when individuals have incentive to invest in human capital in the form of education and skills on the job, and when technology advances. These three components are, in turn, assisted by low tax rates, a flexible economy with well developed capital markets, and openness to international trade. The President is committed to making sure that the three basic ingredients remain present so that our economy can continue to lead the world not only in level, but lead the developed countries in economic growth. You can read more on-line about productivity growth in this speech I gave last year: /cea/lazear20060912.html

brad, from south euclid ohio writes:
What can I and my family do to help the economy?

Dr. Edward Lazear
Brad. It is you and Americans like you who are the source of the strength of the American economy. The role of government is to conduct the peoples’ work with the minimum amount of interference in the kinds of economic activities that help the U.S. economy remain strong. Because of American ingenuity, entrepreneurship and hard work (we are among the hardest working people in the world), the U.S. economy is strong and will continue to remain so. Your role is to continue to do what you and other Americans have done best—namely invest in your own skills and devote yourself to being creative and energetic forces in the private sector. It is you, and not us in Washington, who are primarily responsible for the strength of this economy.

Jane, from Iowa writes:
Can you please explain what exactly will be exempt from taxes in the new plan? Where is the tax cut?

Dr. Edward Lazear
By “the New Plan” I assume you mean the President’s new health plan. The President’s plan would substitute a standard deduction for health insurance (what some call a “flat exclusion”) for the current system of tax breaks that benefit primarily individuals who receive healthcare through their employers and especially those who have the most generous healthcare plans. Every American who has a qualifying plan and who pays either payroll or income tax would receive a standard deduction of $15,000/$7,500 (family/single) and would enjoy a tax benefit under the new plan. The Treasury estimates that 80 percent of premiums in the employer-based market are below this level. The main benefit of the plan is a rationalization of the healthcare tax structure. The plan would accomplish three things. First, it would provide incentives for the working uninsured to go out and get insurance, because it could pay for this insurance and still leave money on the table for many of these individuals. Second, it would rationalize the health insurance structure by removing the bias toward employer-based insurance with very generous benefits while encouraging insurance coverage. For example, individuals who now have a $13,000 plan but chose to switch to a $10,000 plan that qualified would be able to pocket that difference under most circumstances. Third, because of the rationalization of the healthcare structure, we believe that there would be downward pressure on healthcare costs, and this would help reduce the escalation in health costs that have been problematic not only for individuals but for the economy and for the Federal budget as well. You can review more details on-line here: /stateoftheunion/2007/initiatives/healthcare.html

Cliff, from Brimfield, Ohio writes:
Chairman Lazear: Would you say that the housing industry is a weak spot in the economy at the moment? And several states just raised the min. wage and the fed's are working on it. What effect do you think these two will have on the economy if any? Thank You

Dr. Edward Lazear
There is little doubt that the housing industry was the weak spot during 2006. Housing starts declined at quite a high rate, and the decline in housing starts and investments in housing in general was a drag on the economy. That said, because other sectors were so strong, and because the weakness in the housing industry does not appear to have spread substantially other sectors, the economy still experienced a good year with solid economic growth, low unemployment, rising wages, and growing exports. The economy remains robust and can tolerate the daily shocks that every mature economy receives. It is important, of course, to make sure that we do not cripple the economy by impeding it with high taxes, restrictive practices or other interventions that will prevent Americans from engaging in the creative activities that help our economy grow. You can go on-line here to review the Administration’s economic forecast for the next few years: /cea/cea_forecast20061121.html

Dr. Edward Lazear
Let me thank you all for your contributions to “Ask the White House.” I apologize to those of you whose questions I was unable to answer. Tomorrow the President will deliver a speech on the state of the economy and a in a few weeks we will release the annual Economic Report of the President. In the meantime, you can get more information on-line at CEA’s website here: /cea

Thank you again for your interest in what we are doing, and I look forward to talking with you in the future.

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