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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.

Greg Mankiw
February 9, 2004

Greg Mankiw
I'm delighted to be here today to announce the release of the latest Economic Report of the President. You can obtain a copy by clicking here. Let's take your questions.

Karen, from Germantown, MD writes:
The Bush Administration began it's polciy on tax cuts back in 2000 and said then that the tax cuts would provide a needed short term boost to the economy. The Bush Administration continued to use tax cuts for 4 years and our economy is still waiting for a boost, particuarly the job market. Why has our economy been so unstable for Bush's entire term?

Greg Mankiw
The President inherited a series of contractionary shocks to the economy: the end of a high-tech bubble in the stock market, corporate governance scandals, the uncertainties associated with the war on terror, and slow growth among our major trading partners, notably Japan and much of Europe.

These shocks led to a recession, which surely would have been deeper if the President had not responded with his pro-growth fiscal policy. The tax cuts maintained consumer spending and helps stimulate investment spending in a difficult time. The unemployment rate reached a peak of 6.3 percent this summer and, shortly after the President signed his Jobs and Growth tax relief package, started declining.

The unemployment rate is now 5.6 percent and heading downward. The administration and most private forecasters expect strong growth in incomes and employment in 2004.

Michelle, from San Diego writes:
How does outsourcing affect the US economy?

Greg Mankiw
Outsourcing is the latest manifestation of the forces of free trade and increasing international specialization in production. We are all used to goods being produced abroad and transported here on ships or planes. We are less used to services being produced abroad and being transported here over telephone lines or the Internet. But the basic economic forces are the same.

An open world trading system is generally a positive contribution to economic prosperity. It increases living standards both at home and abroad. That is the reason the President has actively pursued trade agreements to open up markets abroad.

At the same time that we pursue a more open trading system around the world, we have to acknowledge that any economic change, including those that come from trade, can cause painful dislocations for some workers and their families. The goal of policy should be not to stop change but to ease the transition of workers into new, growing industries. The President’s initiative to support education at community colleges is one example.

Rodney, from Detroit writes:
Dr. Mankiw, Living in Detroit, I am tied very closely to the automotive industry. In a previous transcript you covered the topic of free trade and the flow of US jobs to low cost countries.


1.) Is the President and his Administration aware of how rapidly and agressively the auto industry and other manufacturing based industries are moving operations to low cost countries (China, India, Malaysia, Indonesia)? (Go to Home Depot or Target and try to find something made in North America, let alone the US.)

2.) How does the President's Six Point Plan for the US Economy address the continued outflow of US jobs to countries such as China?

3.) How does the current weak US dollar help export opportunites when countries such as China peg their currency to the US dollar?

Thank you.

Greg Mankiw

Your questions are answered in great detail in the Economic Report of the President (click here). Chapter two in particular addresses the challenges faced by manufacturing industries.

The recent recession experienced particular weakness in business investment . Much of the President's tax relief has been aimed at reducing the cost of capital in order to stimulate investment growth. We are starting to see the results.

The chapter in the economic report also discusses specifically how the President's Six Point Plan will aid manufacturing industries. I encourage you to read it.

Justin, from Indiana, PA writes:
Dr. Mankiw I am an economics student at Indiana University of Pennsylvania. Your name is very familiar to me as we use your text for macroeconomics.

From everything that I have learned so far, I know that two ways to stimulate economic growth are to cut taxes or to increase government spending.

Each of these practices I know comes with risks if recovery is too slow.

My question is this; how economically dangerous is it to give a tax cut in the middle of a major military operation? I'm sure you know that President Bush will be the first person to do so since the Civil War. I am deeply concerned, not for myself, but for the financial stability of my children (20 years from now).

I suppose my real question is the following: In your highly educated, and off the record opinion, would I be better off moving to Canada?

I thank you very much for your time. I also thank you for making your text books so informative without being convoluted. Even I understood then, and for that feat alone, you should win a prize.

Greg Mankiw
Let me begin by stating, on the record, that I hope you stay here in the U.S. (although Canada is a great friend). Our nation remains and will remain one of the most prosperous countries in the world.

On your economic question: the President's job is to set priorities - and restoring job growth was priority number one. However, he is committed both to getting America back to work and to reducing the budget deficit over time. The tax cuts were aimed to stimulate aggregate demand in the short run and promote sustained growth in aggregate supply in the long run. As the economy recovers, more tax revenue will flow in. Together with spending restraint, this will lead to reduced budget deficit.

Michelle, from Houston, Texas writes:
I am concerned about the federal debt and that it may cause us to pay higher taxes in the future. How can you lower the debt now without raising taxes?

Greg Mankiw
The President has said many times that he is also interested in reducing the budget deficit and as a result the issuance of government debt. The fundamental question is how that goal is to be achieved. Some believe that raising taxes is the answer. The president believes that higher taxes would reduce the incentive to work, save and invest, which in turn would impede economic growth.

The alternative to higher taxes is spending restraint. The budget the President released last week puts high priority to defending the homeland and providing sufficient funds for national defense. Non-defense, non-homeland security discretionary spending grows at a rate of less than one percent. Through this spending restraint, he will reduce the budget deficit in half over the next five years.

Gautam, from Bothell, WA writes:
Hello Mr. Mankiw, You have been criticized for your position taken during the Bush Administration that the deficit is not linked to interest rates. I would like to receive clarification from you with two questions posed by Professor Jeffrey Frankel at Harvard. While budget deficits are not the only factor that determine interest rates, doesn't a budget deficit cause interest rates to be higher than they otherwise would be? And regardless whether that increase is small, doesn't the deficit crowd out investment? Thank you for your response.

Greg Mankiw
Say hi to Jeff for me.

There is a wide range of views among professional economists about how much deficits affect interest rates. My own view is that deficits do, other things equal, tend to put upward pressure on interest rates, which in turn puts downward pressure on investment spending. That is one of the reasons why reducing the budget deficit is a priority for this Administration.

Manfred, from Evanston writes:
Sir: I'd like to first thank you for taking the time to answer our questions. Since the 2001 EGTRRA, unemployment has not dropped below its pre-refund levels. What features of the Jobs and Growth Act guarantee better success? And has the Bush Administration considered any alternatives for economic stimulus?

Greg Mankiw
It is of course impossible to know for sure what the economy would have looked like without the President's pro-growth fiscal policy. But I believe that the economy would be far weaker today if the President had left the tax codes the same as it was when he took office.

Since the Jobs and Growth tax relief package was passed and signed in law in May, the economy has shown robust growth. Real GDP in the last half of 2003 showed its best six-month performance in about 20 years. Forecasts for real GDP growth in 2004 are about four percent, compared to an historical average since 1960 of 3.3 percent.

The United States is growing faster than most developed economies around the world. This is in part due to our vibrant free market economy and to the expansionary monetary and fiscal policies we have pursued.

Hernst, from Silver Spring, MD 20904 writes:
Do the Democrats have any plans for this economy besides raising taxes?

Why does not the Bush administration champion more the fact that they took us out of a recession created by the previous administration, despite the impact of Sept 11?

Greg Mankiw
Yes, you are right that the fundamental question facing the electorate is whether higher taxes are good for the economy. The President has made very clear his position. He would like to make his tax cuts permanent and has called on Congress to do so.

You are also right that the President inherited an economy that was entering a recession. In addition, the terrorist acts of 9/11 had economic as well as broader geopolitical implications. In the face of these circumstances, the President has set priorities. His first economic priority is to get America back to work and we are making progress in that direction. The next priority is to reduce the budget deficit over time and the President's budget submitted last week demonstrates how that will be accomplished.

Fortunately, the U.S. economy has bright prospects based upon the creativity of the American people and their spirit of entrepreneurship.

Valerie, from Bell Canyon, California writes:
Greg First of all, love your book. Secondly, what late 70's video game did you prefer: Asteroids or Space Invaders? Perhaps Galaga?

Greg Mankiw
My wife and I were big fans of Defender.

Greg Mankiw
Thank you once again for your questions. I encourage you all to pick up a copy of the Economic Report of the President where you will see a wide range of economic issues discussed.

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