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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. Greg Mankiw, President's Economic Adviser
October 31, 2003

Dr. Gregory Mankiw
Hello, it's nice to be back here on the White House web chat. I'd like to begin by wishing you all a happy Halloween. I look forward to taking your questions.

Dan, from Block Island writes:
Does it ever crack you up to see such politics in economics? For example, Gene Sperling looks at today's economic numbers and immediately casts them in a negative light, despite the fact they are overwhelmingly positive. Do you just laugh sometimes at the sheer politics being played by someone (Sperling) who can't stand the good news?

Dr. Gregory Mankiw
Dan, you are right that yesterday's news was unequivocally good. The growth rate of 7.2 percent was the highest quarterly growth rate in nearly 20 years. This compares to an historical average growth rate of about 3.3 percent. Of course, one should not expect such a spectacular growth rate to continue, but we expect above-average growth going forward.

What is still missing from this recovery is robust job creation, but we expect that to arrive in the coming months. The President believes that job creation is the first economic priority.

You are right that economics often gets mixed up with politics, but politics is above my pay grade. I just stick to the facts.

Barry, from Braintree writes:
Actually I'm a former student of yours, Dr. Mankiw. I very much enjoyed your classes. The tax cuts are certainly one of the primary components for the rebounding economy. Given that, why not one more round of tax cuts?

Dr. Gregory Mankiw
Hi Barry, nice to hear from a former student.

You are right that the tax cuts are one reason the economy is rebounding now. Of course, it is impossible to tie any specific economic statistic to a specific public policy with great certainty. But there are many pieces of evidence pointing to the tax cuts as a source of yesterday's good news. The tax cut put money in peoples' pockets, and consumer spending grew at a 6.6 percent annual rate (in real terms). The tax cut lowered the cost of capital for businesses, and business fixed investment grew at a rate of 11.1 percent.

It is the President's decision whether new tax cuts are needed or not. I should note that there are already ambitious tax cuts on the agenda. In particular, the President has called to make all the tax cuts permanent--this is one of the six points he outlined in his economic plan.

Chris, from San Diego writes:
I've seen the President and Scott McClellan refer to job creation as a lagging indicator (or some such wording) of a recovering economy. Please explain why job creation would still lag behind an economy that, according to your recent report, grew over 7 in the past quarter.

Dr. Gregory Mankiw
History suggests that the labor market lags real economic activity, as measured by real GDP, by about three to six months. This means that yesterday's good news should translate into job growth going forward.

One reason that the correlation between growth and job creation is not perfect is that productivity fluctuates. Productivity growth has been very strong in this business cycle. Overall, this is good news because productivity growth is the source of rising real wages and real incomes. But it means that we need even more robust growth to create jobs. Fortunately, most private forecasters are expecting robust GDP growth to continue and to lead to robust job growth over the next year.

James, from East Asia writes:
Is the current jobless recovery in America caused solely by the exchange rates of the East Asican nations?


Dr. Gregory Mankiw
The main reasons for the recent recession and slow recovery have been the end of the high-tech bubble of the 1990's, the terrorist attacks, corporate governance scandals, and slow growth abroad which has depressed our exports.

If you want to read more about the linkages between trade with China and the U.S. economy, please take a look at the testimony I gave yesterday to the House Committee on Ways and Means on the CEA part of the White House website.

Brock, from Niagara Falls writes:
Greg, Without getting into politics too much, because I know you can't. There have been calls by some to rollback the tax cuts. If that occurred, what would happen to the economy?

Brock p.s. what did you think of that guy that deliberately jumped from Niagara Falls?

Dr. Gregory Mankiw
The tax cuts have had an important role in promoting the economy's recovery. According to CEA analysis, if the President had left the tax code unchanged since coming into office, there would have been 1.5 million fewer people working today. Reversing the tax cuts now would act as contractionary force on the economy and put the recovery in jeopardy. This would be the economic equivalent of jumping off of Niagara Falls.

Joe, from Albany, NY writes:
If the economy continues to grow at an accelerated rate of over 7, how will this effect inflation? If it will effect inflation, what will the government do to keep it under control?

Dr. Gregory Mankiw
Because of the recent recession, the economy has substantial unused capacity. This means that we can grow above our long-run potential for a while before inflation becomes a risk. No one expects 7 percent growth to continue, but we do expect robust growth. There is no evidence that inflation is a near-term concern, thanks in part to prudent monetary policy on the part of the Federal Reserve.

Chris, from Hartford writes:
Does this good economic news mean many companies have shed their inventories?

Dr. Gregory Mankiw
Although economic growth was very robust in the last quarter, inventory investment was negative. As an accounting matter, this subtracted from third quarter GDP. Looking ahead, this is probably a good sign. Inventories are very lean, which suggests that firms will need to pick up production to replenish inventories. Higher production should lead to more hiring.

Dr. Gregory Mankiw
I'd like to thank you all for your questions. The news yesterday was good, but there is still much to be done. The President has focused on six points to sustain economic growth: - making health care costs affordable - reducing frivolous lawsuits - ensuring a reliable energy supply - reducing regulations - opening markets to trade - making the tax cuts permanent The economy is on the right track, and we appreciate your support. I look forward to doing this again. Enjoy your candy.

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