For Immediate Release
August 9, 2005
Press Briefing by Director, National Economic Council, Al Hubbard, and Chairman, Council of Economic Advisors, Ben Bernanke
2:20 P.M. CDT
DIRECTOR HUBBARD: Hi, everybody. I'm Al Hubbard. I'm the Director of the National Economic Council and Economic Advisor to the President. Delighted to be here; wanted to report on what we did this morning.
We talked about where the economy has been and basically where it's going, and I'm happy to report that there's some very good news -- there was some very good news to report. First, Ben Bernanke, the Chairman of the Council of Economic Advisors, basically reported on the state of the economy. The report was quite positive. He especially focused on how the economy is affecting the average American family. Then Josh Bolten talked about the budget situation, and again reminded the President of the good news of a couple of weeks ago, when -- with the Midsession Review, Josh was able to forecast a $94 billion reduction in the forecasted deficit for this year, almost a 25 percent reduction in the deficit.
Then Rob Portman talked about trade. Obviously, we're all delighted by the CAFTA vote and the importance of that to the Central American countries, the Dominican Republic, as well as the U.S. -- and then talked about the importance of the Doha Round and how important it is to continue to reduce trade barriers to American exports.
Then Secretary Johanns, the Secretary of Agriculture, talked about the importance of reducing trade barriers for American agriculture; talked about how well the farm economy is doing and how much better it will be doing as we are able to convince our trade partners to reduce their trade tariffs and trade barriers, to open up their markets to agricultural products -- because we have the most competitive farm economy in the world.
As you know, the President, when he was elected back in 2001, inherited a very difficult economy. He inherited a recession. The stock market dropped dramatically. There were corporate scandals, and then the unfortunate 9/11 event, which led to the war on terrorism. He responded very quickly with respect to the economy and focused on helping -- to giving individuals more responsibility and more opportunity to control their own future. And he knew that was the way to ensure economic growth.
As you'll recall, he passed the '01 tax cut, and then the '03 tax cuts, which left people with more of their own money, their own hard-earned money, knowing that the American people knew better than government how to invest that money, how to spend that money, how to start new businesses, and to support the entrepreneurial spirit, which the President very much believes in and believes is so important to the American economy.
He also supported the No Child Left Behind bill, which was so important to providing every American the opportunity for an excellent education, because it's education which leads to higher learning and a stronger economy. And the President very much believes every American should have an opportunity to have an outstanding education.
He then supported the Sarbanes-Oxley bill to make sure that investors could trust the financial reports of the companies they own, as well as the companies they were thinking about acquiring and -- or buying stock in. And finally, he supported the Medicare and health care reform bills to provide drug benefits to retired Americans, as well as to initiate health care reform, which would give people more control of their health care dollars.
The result has been really a spectacular economic growth, which Ben Bernanke is going to give you more details about in a couple of minutes. But we also -- this President is not someone to rest on his laurels. He is committed to a very strong second term agenda. And we talked about many of these agenda items this morning. I think you know most of the agenda items. First, again, it's a focus on giving individuals more control of their lives and more control of their own resources.
Right at the top of the list is Social Security and pension reform so people can count on their retirement. Secondly is tax reform, so people can once again fill out their own tax returns and know that every taxpayer is being treated fairly. Third, he's going to continue to focus on education and job training to make sure Americans are trained for the jobs of the 21st century.
As he mentioned in this morning's press conference, he's very concerned about health care costs, will continue to support a number of initiatives which he has proposed to deal with health care costs, and making health care more affordable and more available to every American.
He's going to continue to focus on reducing trade barriers, as I mentioned earlier, and we talked about that a lot this morning, because this President knows -- he believes in free, he believes in fair trade, and when there's free and fair trade, he knows the American worker can out-compete any worker in the world. He's committed to making his tax cuts permanent, as he mentioned this morning. And finally, he's totally committed to continuing to reduce the budget deficit.
So let me turn things over to Ben Bernanke, where he can give you more details on where the economy is today and where he sees the economy going.
CHAIRMAN BERNANKE: Thanks, Al. I'm Ben Bernanke, the Chairman of the Council of Economic Advisors. We had a very interesting discussion this morning, as Al said. It covered a wide range of issues; went on into lunch. It fell to me as the CEA Chairman to report to the President on the state of the economy, and I was pleased to be able to report to him that the U.S. economy is in a strong and sustained expansion at this point.
I stressed for him four key indicators, which, like many other economists, I think are really central to looking at the state of the economy. First is economic growth. Economic growth delivers stronger output, stronger incomes. In the last couple of years, we've seen 4.1 percent real growth per year; 3.6 percent in the last year. This is a very strong rate of output expansion.
Second, jobs. So far this year, we've had 191,000 jobs per month added to U.S. payrolls, almost 4 million jobs since the trough for the job market in May of 2003, so the labor market is improving and getting stronger.
Third, inflation. The Federal Reserve moved today. Inflation is well contained, under control. The core inflation rate over the last year is about 2 percent, and I see inflation remaining well contained going forward.
And, fourth, the statistic which economists really think is very important and perhaps doesn't get enough attention in the media is productivity growth. Productivity growth ultimately determines how much an economy can produce, what the living standards will be, and what wages and profits will be. The U.S. economy in recent years has been remarkable in terms of productivity. We got new numbers this morning. Looking back over the last four years, the U.S. economy has averaged 3.6 percent productivity growth per year in the non-farm business sector; 5.6 percent in productivity growth in the manufacturing sector. These are remarkable numbers, much higher than long-term averages, and they bode very well for the sustainability of the economy.
We talked also about issues and problems. There certainly are risks to the economy; two I would mention. One is high energy prices. Energy prices remain very high. There's a very tight supply-demand balance for oil in the world economy, drives -- has driven crude oil prices up above $60. Those high oil prices are a burden on U.S. families, on firms, the production costs. But the good news is that at least so far the U.S. economy has not been slowed by the high energy prices. It has been a resilient economy, it's responded well. And growth has -- and job creation has proceeded apace.
The other concern which Al alluded to already is the rising cost of health care and health insurance. This is a major problem. As we discussed in our white paper that we circulated, the rising cost of health insurance is one of the reasons why rising total compensation for production workers has not translated into as great an increase in their take-home real wages. We think this is a major issue. The President has made a number of proposals to try and address health care costs, including his health savings accounts, which allow people to purchase -- purchase -- pay for medical care on a pre-tax basis.
Various programs for trying to subsidize people's purchases of insurance: health information technology, which will make doctors better able to communicate with each other and keep abreast of latest developments; changes in medical malpractice; and association health plans that allow small businesses to pool together to buy insurance on a pooled and more efficient basis.
So those are just some of the measures that we've talked about in the past. This is an area we're going to continue to look at in the future. These are two issues that remain very important. But to come back to what I said earlier, and to reiterate what Al said, coming from where we were in 2001 and 2002, following 9/11, following the corporate scandals, this economy has turned around, and it's currently on a very strong and sustainable growth path.
I think Al and I would be happy to take any questions you might have. Thank you.
Q The emphasis on health care seems like it's a new policy area for the President. What's new that's driving it, in terms of the trends that you're seeing in the economy? Why is this surfacing now? I see the chart in the white paper that shows the gap, but can you give us any sort of concrete examples, other than the statistics?
CHAIRMAN BERNANKE: Well, I mean, I'm an economist, I talk in statistics. The facts are that the costs of health insurance are rising. That means total -- that means lower take-home pay for workers; it means more contributions by workers to health insurance costs; it means higher out-of-pocket costs. This is an important factor that's a drag on the improvement of living standards for American families. So it's an important issue.
As I said, the President has already raised a number of -- both passed some policies and made other proposals to address this issue. But I was simply flagging it as something we see as an important problem, one we have to keep looking at, trying to pass the proposals that have already been made, and talking about other possibilities down the road that we might want to propose.
Q What are the other possibilities --
CHAIRMAN BERNANKE: Well, we gave a long list of things that we've proposed and talked about. We don't have, at the moment, specific additional things to present.
DIRECTOR HUBBARD: The President will be the one to present any new proposals.
Q Even as you listed all these positive economic indicators, polls show a majority of Americans still aren't feeling so great about the economy and don't give the administration a lot of credit for it. Why do you think there's a disconnect between the public perception about the economy and your perception, or your statistics?
DIRECTOR HUBBARD: Well, again, what's most important is how the economy is doing. And we've created almost 4 million jobs since May of '03, the unemployment rate is down at 5 percent, which is lower than it was on average in the '70s, the '80s or the '90s. Productivity growth is already leading to higher incomes, and we expect the economy to continue on a very sustainable growth pattern.
Now, in terms of how people are feeling about the economy, our statistics show that people, in terms of their personal finances, feel very good about the economy. At the same time, there is unease about the economy, in general. And I think that has to do with a couple of things. Number one is, obviously, high gasoline prices. None of us are comfortable paying $2-and-a-half per gallon when we go to the -- go to fill up our cars with gas. And then, secondly, you know, we are a nation at war. We're -- and whenever -- obviously, that causes a lot of unease, it causes angst. The recent bombings in London causes concern, and I think that permeates the way the American people feel about how things are going.
But what this President is concerned about is, one, winning the war on terrorism, because that's the best thing he can do for this economy, and continuing to promote strong economic policies that lead to people making their own decisions about how they spend their money, encouraging entrepreneurial activity, keeping taxes and regulations low, which will lead to -- which will continue this very sustainable growth pattern in the economy.
Q When you talk about the threat of health care costs long-term, and talk about Bush's solutions, as far as expanding medical savings accounts, cracking down on medical liability lawsuits and then allowing these small businesses to pool together to buy health coverage -- do you think that those three are enough to slow the annual growth in health care costs, both for premiums, for the sector itself, below double digits, which it's been at for years now?
DIRECTOR HUBBARD: Obviously, as with oil prices, which took us a long time to get into this situation, it's going to take us a while to get out. That's the same situation with health care. The important thing is to put the ingredients in place, which will lead to a more competitive, dynamic marketplace where the individual consumer is more involved in making decisions. And that's what health savings accounts do so beautifully.
And the great news is -- and by the way, we're studying this -- health savings accounts are -- the number of participants in the health savings accounts is growing very, very rapidly. In fact, I spoke to one leader of an insurance company, and he said 75 percent of his individual policies are now health savings accounts. And again, that's going to lead to people taking more responsibility and spending their -- and spending their own dollars to purchase health care, which will lead to a more competitive marketplace and will use the marketplace to control costs.
But, again, there are a number of things that we're doing. There's the association health plans, which will allow small employers to combine together to use their buying power to purchase health insurance. There's IT. The health care industry is very antiquated when it comes to technology, and the President, working with Secretary Leavitt and Mark McClellan, are working feverishly to promote a very sophisticated IT system for the health care system. The President has proposed tax credits for lower-income people to help them buy insurance.
So there are a number of proposals out there -- obviously, the malpractice reform. And, again, there are a number of proposals out there that when combined together and given time will lead to controlling the escalation in health care costs. At the same time, we should all recognize the outstanding health care system we have, which is the best in the world.
Q Can you please, on two questions, one, elaborate a little on the growth of health savings accounts in a macro sense? You mentioned just one company. And, also, just to be clear, I understand that you don't want to scoop the President on any new proposals, but were new ideas discussed today, beyond what we already know?
DIRECTOR HUBBARD: First off, with respect to health savings accounts, again, we -- I just gave you an example of a conversation I had with one leader. But our people are talking to insurance -- a number of large insurance companies to find out how health savings accounts are going. And I'm happy to report that the reports we're getting back are that they're growing very, very rapidly and that more and more -- not only individuals, but employers are offering health savings accounts as an alternative. So we see this product growing very rapidly.
Q Can I stop you there? Ben said you guys deal with numbers. Can you give us some numbers on -- I mean, beyond just generalities?
DIRECTOR HUBBARD: To be perfectly honest, I do not have the numbers here with me. But the reports are quite positive, and I encourage you to talk to people in the health insurance industry about it.
Q New proposals?
DIRECTOR HUBBARD: Oh, ideas? Obviously, we don't talk about new proposals until the President is ready to present new proposals.
Q I understand that, but my question is were they discussed at all? Were there any new ideas on the table today? That's all.
DIRECTOR HUBBARD: Well, again, we don't talk about new ideas until we're ready to talk about new ideas, and that's up to the President to present.
Q That sounds like a "no."
Q When do you expect the Tax Reform Commission to report, sometime in September?
DIRECTOR HUBBARD: The Tax Reform Commission is scheduled to report on September 30th to the Secretary of the Treasury.
Q Do you expect that the administration then will pursue their recommendations with Congress yet this fall, or is that something that waits a year or two?
DIRECTOR HUBBARD: Well, we go through the normal process. The report is made to the Secretary of the Treasury, at which time he will study their report, and then he will make recommendations to the White House. And then it will go through the normal White House process, which is the National Economic Council, of which I am the Director. And we will work through that process this fall. So, in terms of the timetable, that depends on so many different things that I really can't talk about a specific timetable.
But I can tell you this: It's something the President is totally committed to. He thinks the current tax system is very unfair, that it's -- it's very unfair to make the people -- make the American people participate in a system that no one can understand, and it's so complicated no one can fill out his or her own tax return. And it's got to be simplified, it's got to be made more transparent. And it's got to be made where the average person can fill out his own -- his or her own tax return.
Q Given the hard time moving some of these Social Security proposals, might these recommendations have a difficult time in Congress, as well?
DIRECTOR HUBBARD: I'm sorry, I didn't hear you.
Q In light of the difficulty the administration has had moving its Social Security reforms, might tax reform have trouble, as well, down the line?
DIRECTOR HUBBARD: Well, let me just say that the President, as he mentioned this morning, is totally committed to Social Security reform. What's more important than even the President being committed is the American people are committed to Social Security reform. Three out of four Americans know it's a big problem, they want it fixed now. And we need the Democrats to finally -- the Democrat leaderships to be responsible and come forward and start a dialogue about how to fix this big problem facing this country. Every year we're delayed costs the American people $600 billion, and it's irresponsible for the Democrat leaderships to refuse to come forward and talk about Social Security.
Q Did the housing bubble come up at your meeting? And how concerned are you about it?
DIRECTOR HUBBARD: Let me let Ben answer that question.
CHAIRMAN BERNANKE: We talked some about housing. There's a lot of good news on housing. The rate of homeownership is at a record level, affordability still pretty good. The issue of the housing bubble is one that people have -- whether there is a housing bubble is one that people have raised. Housing prices certainly have come up quite a bit. But I think it's important to point out that house prices are being supported in very large part by very strong fundamentals.
And particularly, we have a strong economy, we have lots of jobs, employment, high incomes, very low mortgage rates, growing population, and shortages of land and housing in many areas. And those supply-and-demand factors are a big reason for why housing prices have risen as much as they have.
I think over a period of time, the housing prices are likely to stabilize. I don't expect them to keep rising at this rate indefinitely; I don't think anybody really does. But, again, I do think that the bulk of the increases are associated with strong economic fundamentals.
Q Let me ask about the highway bill the President is signing tomorrow. This came in $30 billion more than what he recommended. He said he was going to veto it. It's got thousands of earmarks in it. There are people who are calling this a prime example of congressional pork. Why is he happy about signing it?
DIRECTOR HUBBARD: Listen, this President is the one that's keeping spending under control. You know, non-defense, non-security discretionary spending is being held below zero this year. With respect to the highway bill, there were a number of members of Congress who wanted a $400 billion highway bill. Because of this President, it is a $286 billion highway bill.
Again, he is committed to keeping spending under control. The highway bill is important for the American economy. We need to continuously upgrade our infrastructure, to upgrade our highways, et cetera. But he wants to do it in a economically prudent manner, and that's why he has kept spending to $286 billion.
Q He doesn't think it's still way too expensive?
DIRECTOR HUBBARD: The President is very happy with this bill.
Next question. Yes, sir.
Q At the end of the month there will be two vacancies on the Federal Reserve Board. How soon does the administration plan on filling those spots?
DIRECTOR HUBBARD: I didn't hear the question.
Q At the end of the month, there will be two vacancies on the Fed Board of Governors. How soon does the administration plan on filling those spots?
DIRECTOR HUBBARD: Again, as you all know, we don't talk about personnel matters until we're ready to announce them.
Q What are the health care increases, according to your estimates?
DIRECTOR HUBBARD: Health care cost increases?
Q Yes, that you're using, that you're basing all these --
CHAIRMAN BERNANKE: There's been something in the order of 30 -- in the 30-percentile -- 30 percent-plus in the last four or five years. I mean, there's been substantial increase in terms of overall costs, in terms of insurance costs -- I haven't got the precise number with me. But it's certainly a major drag on the economy, on family budgets. And again, we need -- we have a bunch of ideas out there to address insurance costs and health care costs. We know that out-of-pocket costs have also gone up quite a bit. The average family spends something like $600 out-of-pocket, over and above insurance costs now. So these are issues that we're going to have to address, because they are significant.
Q Do you think that the health care costs are a bigger threat to the economy long-term than the problems with Social Security?
CHAIRMAN BERNANKE: Well, we have a general issue, in terms of the long-term viability of our fiscal balance, which is dealing with the aging of the population and the increased costs of medical care. Both Social Security and Medicare/Medicaid are going to be major challenges for us to deal with long-term. I don't think we can really achieve fiscal solvency and fiscal stability without dealing with both of these programs, as our population ages. So I think they're both very important.
You point out medical care is important for fiscal policy, for budget balance in the long run. It's also important for individual families and for their budgets. So it's an issue that we really have to tackle. And again, I think we will -- we have a number of ideas out there, and we'll be -- continue to talk about those issues.
Q Would it be wise to tackle the health care system in a broad way, a restructuring, much like we did with Social Security and maybe do that first? You know, sort of, the democratic argument goes back -- in the last election, I mean, John Kerry and other Democrats had seized on it, the biggest problem is our health care costs, but the premiums of businesses -- or the cost for businesses -- premiums for employers. Is there any wisdom to tackling that before, say, Social Security, give that it would take sort of the same amount of political muscle, and I think, political will on the part of Congress and Bush?
DIRECTOR HUBBARD: Well, the President has made it very clear that he was elected to deal with the big problems facing America. Social Security is one of those big problems. And he's committed to reforming Social Security on a permanent basis, where younger Americans will know for certain that Social Security is going to be there when they retire. That's not to say that he's not also committed to any necessary reforms in Medicare and Medicaid. And as Ben has pointed out, that's going to be necessary, as well. If you look at any long-term forecast, Medicare and Medicaid are growing too fast, and we're going to have to confront those big challenges, as well.
Thank you very much.
END 2:45 P.M. CDT