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TEXT OF A LETTER FROM THE PRESIDENT TO THE SPEAKER OF THE HOUSE OF REPRESENTATIVES AND THE PRESIDENT OF THE SENATE
FOR IMMEDIATE RELEASE
February 20, 2020
ON-THE-RECORD PRESS CALL
BY CEA ACTING CHAIRMAN TOMAS PHILIPSON
ON THE 2020 ECONOMIC REPORT OF THE PRESIDENT
10:05 A.M. EST
MS. SLOBODIEN: Good morning and thank you for joining us on this call today to unveil the 2020 Economic Report of the President.
Before I turn things over to CEA’s Acting Chairman Tomas Philipson, I want to remind everyone that today’s call is on the record. Chairman Philipson will make opening remarks about this year’s report, and with any remaining time, we will take questions.
Joining Tom for the question-and-answer portion of today’s call is Tyler Goodspeed, a member of the Council of Economic Advisers, and chief economists Don Kinkel and Josh Rauh.
I will now turn things over to CEA’s Acting Chairman Tom Philipson to provide an overview of the 2020 Economic Report of the President.
ACTING CHAIRMAN PHILIPSON: Thanks, everyone, for joining us. Today, the Council of Economic Advisers released its Annual Economic Report of the President, which is required by statute to be submitted to Congress every year to provide an update on the state of the economy.
I wanted to take this call to basically reiterate some major themes. Two of them are as follows: The first theme is that the current economy is not a continuation of the expansion after the Great Recession. The second theme of the report that goes through a lot of chapters is that the growth that we’ve seen in the Trump economy has been very inclusive in terms of lowering both income and wealth inequality.
As the President wrote in a letter introducing the report, and I quote: “These results did not come about by accident. Instead, they were supported by our foundational pillars for economic growth that put Americans first, including tax cuts, deregulation, energy independence, and trade negotiations.”
The report also identifies several Trump administration responses to challenges to continued growth, including keeping U.S. markets competitive and our trading relationships fair.
Also, for the first time in an Economic Report of the President, we’re discussing the economic factors driving the opioid addiction issue.
Thirdly, we have several chapters discussing the overregulation of certain markets, in particular housing and healthcare.
The report concludes by setting forth the administration’s long-run policy-inclusive projections. Historically, the administration’s projections are always higher than other agencies because they assume that all policy proposals of the administration are implemented.
In contrast, CBO projections assume no such proposals are implemented while Blue Chip and Wall Street forecasts assume something in between, taking a stance on the likelihood of policy proposals being implemented.
So let me get to -- the first theme of the report is that the current economy breaks or reverses trends of the past part of the expansion. Typically, economies grow faster following a recession after which growth levels off, particularly recession induced by financial markets, as was the case with the Great Recession.
The current expansion differs from that in that growth accelerated later in the expansion despite that monetary policy was much more constrained in the later part of the expansion relative to the zero rates of the early part of the expansion.
This is perhaps why 2016 projections of the economy were much more pessimistic to compare to what actually happened. It is very important, we believe, to stress that we were told by the agencies’ economists around the country what a continuation of an expansion would look like in 2016. There were several reports outlining what the forecast would be of the economy in 2016, going forward.
And, consequently, the Trump economy has basically shattered those projections on pretty much all dimensions in terms of new jobs, GDP, wages, unemployment, et cetera.
So to put it simply, those who say this is currently a continuation of the past expansion are contradicting what they themselves said in 2016.
The report goes through these differences, but the Congressional Budget Office’s final pre-election forecast from August 2016 illustrate how today’s economic turnaround was unexpected before President Trump’s election.
The total -- for example, the total nonfarm employment is three-and-a-half times higher than projected: 7 million jobs versus 2 million jobs.
Under the Trump administration, for the first time on record, there are more job openings than unemployed people. The unemployment rate is, again, better than people predicted the continuation of the expansion would look like. It is 1.4 percentage points below the 2016 projections, reaching a 50-year low of 3.5 percent across all the -- virtually, all demographic groups are experiencing a historically low unemployment rate.
The labor force participation rate is 1.5 percent above what people thought the continuation of the expansion would look like, despite the aging of the labor force, which reduces labor force participation of people retired.
Real GDP has accumulated 1.4 percent higher than what people thought the continuation would look like. And real wages are about $2,300 for the average household higher.
The current economy is not just beating projections of what the continuation expansion was told -- we were told would be. It’s also outperforming the past part of the expansion. So the report also outlines, basically, how the data prior to ’16 and post ’16 looks like.
The Trump economy is bringing people off the sidelines more than over the previous part of the expansion. The prime-age labor force is growing under President Trump by 2.2 million, reversing losses under the previous administration of 1.5 million in the labor -- in the prime-age labor force participation.
Since President Trump’s election, the economy added half a million manufacturing jobs, which is a big trend right from before. Nearly twice the amount added over that same amount of time before the 2016 election.
Additionally, over the Trump administration, manufacturing industrial production grew at an annual rate 11 times higher than the rate over the end of the Obama administration.
Of central importance to economists is labor productivity in the non-farm business sector. And it’s after President Trump took office. This is key for long-term GDP growth because productivity growth -- how much each worker produces, essentially -- together with unemployment growth determine the total amount produced in the economy, or GDP growth.
This growth in productivity was predicted by CEA in 2017 through more capital being available per worker, being enabled through tax reform, and less red tape burdening employers and employees through deregulation.
Last year, we saw a doubling of the rate of the productivity at 1.8 percent growth in productivity compared to President Obama’s second term.
Lastly, that the data on homeownership rate in the United States fell throughout most of the recovery but has rebounded under President Trump -- an increase to 64.8 percent.
So that covers the first part of -- the first theme of the report of basically the facts supporting the claim that this is not a continuation of the expansion after the Great Recession.
The second theme of the report stresses the new economy generated -- has generated an inclusive -- so-called inclusive growth that benefitted the less well off the most. One of the most important reversals, pre- and post-election, is that the previous part of the expansion saw inequality rising in the U.S., but the Trump economy has delivered so-called inclusive growth, with the working class seeing the largest income and wealth growth compared to the upper classes.
Nominal wage growth for all private-sector workers has been, or at least, 3 percent for a year and a half now. But this doesn’t tell the whole story. Income growth has been inclusive in the sense that wage growth for many historically disadvantaged groups is now higher than wage growth for more historically advantaged groups, reversing the trends observed under the previous part of the expansion.
This private-sector, blue-collar boom under the Trump economy has generated wealth gains for the least well off. Net worth held by the bottom 50 percent of households have increased by 47 percent, more than three times the rate of increase for the top 1 percent of households.
Instead of fostering dependency on government programs, these gains among the poor have generated self-sufficiency the way envisioned by President Johnson in declaring a War on Poverty.
To put these gains in perspective, the wealth gains for the bottom half of households under the Trump economy exceeds a year of combined federal spending on the largest anti-poverty programing, including Medicaid, food stamps, and TANF -- where Medicaid (inaudible) pretty much every other means-tested program.
In addition to Opportunity Zones created by the 2017 tax reform, it provides an alternative approach to standard anti-poverty programs, which we discuss in the report. As opposed to taxing the population to create programs that incentivize participants to not be successful to remain in the program, this new approach reduces taxes to stimulate investment and demand for workers. Pretty much the best anti-poverty program known to man.
A booming job market and more money in Americans' pockets continue pulling people out of poverty and off means-tested programs.
Over the first two years of the Trump administration, the number of people living in poverty decreased by about 2.5 million, including nearly 1 million children of single mothers.
The poverty rates for African Americans and Hispanics are at record lows.
Food security has risen at the same time, as nearly 7 million fewer people are participating in the food stamp program, SNAP, than at the time of the 2016 election.
Similarly, enrollment in means-tested welfare programs is down across the board due to income gains rather than eligibility restriction.
Lastly, the report also discusses direct effects of the President's pro-growth policies in various chapters.
One discusses removing harmful regulations and supporting innovation. And that's been a central component of the pro-growth policies behind these impressive economic gains.
The Trump administration's deregulatory agenda has two components. One is slowing the growth of new regulations, and second, cutting harmful regulations. Once fully in effect, the administration's approach to federal regulation will have raised real incomes by an estimated $3,100 per household per year, according to the analysis in our report.
The report shows that excessive regulation is a hidden tax that hurts the poor, and deregulation that is undergoing is therefore progressive.
For prescription drugs and Internet access, savings as a share of household income are eight times higher for the bottom fifth of the households than for the top fifth, the report documents.
Rather than overregulating the energy sector to attempt to guide it in the direction desired by government officials, the Trump administration supports the great force of private-sector innovation and investment in the energy sectors, which has led to tangible benefits for all Americans.
Gains in shale drilling productivity have led to lower prices for natural gas, gasoline, electricity, and oil, saving the -- we document -- saving the average American family of four about $2,500 a year.
After most instances of deregulation, shale-driven savings represent a much larger percentage of income for the poorest fifth of households than for the richest fifth. Again, being progressive in nature.
Embracing energy innovation instead of overregulating America's abundant human and energy resources has environmental benefits as well. The shale-driven decline in emissions allowed the United States to realize a larger decline in carbon dioxide emissions than the European Union, adjusted for the size of the economy. The shale revolution has cut U.S. greenhouse gas emissions by more than double the Obama EPA's projections for the now-rescinded Clean Power Plan.
To summarize, the 2020 Economic Report of the President shows the success of the administration's economic policy agenda and demonstrates that its foundational policy pillars are enabling the U.S. economy to overcome structural trends that are perversely suppressing growth.
There are still barriers that prevent lower-income workers from realizing the full benefits of the strong labor market, which is why the report also focuses on the opioid crisis, housing affordability, and anti-poverty measures like Opportunity Zones.
As President Trump concludes in his introduction to the report, I quote: "Though the American economy is stronger than ever, my administration’s work is not yet done. With a continued focus on policies that increase economic growth, promote opportunity, and uplift our workers, there is no limit on how great America can be."
With that, I'll be happy to take some questions.
MS. SLOBODIEN: Operator, we're now ready to open the line for questions.
Q Good morning. Thanks for doing the call. Two questions. First, earlier in your remarks, you said that the economic performance over the past three years -- you described it as a separate and distinct phenomenon apart from the recovery that began under President Obama. But if you look at graphs of economic growth, job growth, it's really a straight line. What would you say is the delineating event that would make that straight line break into two separate categories to which you can attribute different causes?
And the second, on job growth: How do you account for the fact that the last three years of the Obama administration saw more jobs created than the first three of President's Trump's administration? How do you say that the job growth is better, when it wasn’t?
ACTING CHAIRMAN PHILIPSON: Okay. So let me address those questions in turn. The first thing you need to understand is that particularly after a financially induced recession, it’s much easier to grow the economy than if you'd been growing it for several years.
The second point, the most extreme version of that is that suppose everyone has a job; then it's, by definition, impossible to additional job growth. That’s the extreme version. But that’s essentially what is going on.
But if you look at -- my point that I wanted to make is that we had people saying what the continuation of Obama policies would yield in terms of economic performance. We have that data. They told us what it would look like in 2016. And if you look at what actually happened, compared to that later part of the expansion -- which most economists would predict would be more slower growth because it was later in the expansion -- what happened was that we accelerated relative to the previous year. And that is the --
Q But respectfully --
ACTING CHAIRMAN PHILIPSON: Excuse me?
Q But respectfully, sir, whatever economists predicted, that doesn’t change the fact that job growth over the last three years of the Obama administration was better than the first three years of the Trump administration. And yet, the President and, I believe, you are claiming that that's not true.
ACTING CHAIRMAN PHILIPSON: So, first of all, you can’t cherry pick years of Obama and then compare it to Trump. He was responsible for the slowest recovery on record since the Great Depression. And so you can't just say that the last three years is what represents these policies.
The second point is that it's much harder to grow jobs when everyone has a job. And that’s taking into account why economists in 2016 predicted what they did in terms of job growth going forward, which was three times -- three and a half times lower than what actually occurred. I mentioned 7 million versus 2 million.
Q Hi, thank you for doing the call. What do you project GDP growth to be this year, if policy just stays the same? Is it 2.4 percent?
ACTING CHAIRMAN PHILIPSON: Yeah, that’s in the report. I believe it's -- it's published in the report. So all of those numbers in there are what we have, what we believe is the policy add of inclusive policy.
Q Thank you.
Q Hi, guys. Thanks for doing the call. I am wondering -- there is no mention that I can see in the report of the budget deficit. And I’m curious, A, to what degree you think increased deficits have contributed to, or detracted from, growth in the last year; and, B, whether you see deficits as a threat to growth moving forward.
ACTING CHAIRMAN PHILIPSON: So we're doing analysis on the impact on revenues. But if you look at CBO's numbers, their impact of revising up for GDP growth in the Trump economy is essentially saying that the tax cuts had very limited effects on revenues, just using their numbers. But again, we're looking over that -- the question on that.
On the slowing down on the deficit, with the low rates, we haven’t really seen any slowing down in terms of high rates being induced by the deficits. So we haven’t really discussed it in the report.
Q Thank you.
Q Thank you for doing this call. I’m actually going to pick up on that. I wanted to ask you about debts and deficits as well. The Washington Post has a story out today that Mick Mulvaney spoke in private to a group overseas in which he said the following, and I’ll quote. This is from a tape recording: “My party is very interested in deficits when there’s a Democrat in the White House. The worst thing in the whole world is deficits when Barack Obama was the President. Then Donald Trump became President, and we’re a lot less interested as a party.”
Mulvaney went on to describe the trillion-dollar deficit in 2019 as, quote, “extraordinarily disturbing.” And he said the Republican Party is, quote, “evolving” since President Trump took the Oval Office.
So to pick up on what -- the New York Times question, there really isn’t any references here about debts and deficits. I guess, my question is, you know, Mick Mulvaney suggests, essentially, that Republicans are -- have become hypocritical on debts and deficits. How important is it to this administration?
ACTING CHAIRMAN PHILIPSON: So, first of all, the administration does not determine fiscal policy. That’s voted on by Congress. So, just to make that clear.
The second issue is I think there’s a narrative out there on two dimensions on what the tax cut implied. One was that it was only helping rich people, and the second was that it drove a hole in the debt.
This report lays out exactly the opposite type of evidence: that we have the poor actually doing better than the rich in this economy, through the tax cuts stimulating labor demand, essentially. And, second, the CBO numbers, as I indicated, has shown that there’s been very limited revenue effects if you take into account the growth of the economy and how that affects other sources of revenue than the corporate tax cuts from the tax reform due to the Trump economy.
So I think that’s -- I’m not going to comment on what Mick said, but I think that’s the CEA stance on that kind of common argument about the tax reform.
Q Isn't tax reform just one part of debts and deficits? I mean, when you look at the whole picture, your administration is endorsing, through the budget, a trillion-dollar deficit.
ACTING CHAIRMAN PHILIPSON: No, it’s clearly (inaudible) in revenue. Both enter in to generate a difference, which is called a deficit. But clearly, everyone in the administration believes that we needed to support our military, build up our military from how drained is has become. And that’s reflected in the new spending, particularly the new military spending that took place.
Q Hi, thanks for doing the call. I wanted to see if you could explain a little more about how you arrived at the impact of 0.2 percent, I think, from the coronavirus on growth in the first quarter. And if you have a projection for the year. Thank you.
ACTING CHAIRMAN PHILIPSON: So, the report was finalized before the coronavirus became an issue. We have not come out with a full analysis yet. We’re -- basically, the administration is taking a bit of a wait and see in terms of the economic analysis.
Obviously, the President’s main concern is the safety of the American people, and we are putting very strong measures in to prevent an outbreak here in the U.S.
Q Thanks. But, I guess, you know, Larry Kudlow has said he sees it at around 0.2 percent for the first quarter. Do you back that, sort of, perception?
ACTING CHAIRMAN PHILIPSON: That’s consistent with what we have in terms of if you look at GDP impact from SARS, what it had on the Chinese economy and what today that would translate into. Again, we’re undergoing a lot more detailed analysis of the supply chain from China -- how it’s been hit by the restrictive measures taking place there.
Q Hello, everybody. Thanks so much for doing the call. So I’m just curious, you know, from talking to (inaudible) conservatives bases, like (inaudible), or CATO, or AEI. There used to be somewhat of a consensus that any, you know, major economic policy, whether it’s tax cuts or trade deals -- any sort of economic policy takes about five to seven years to take impact. How do you respond to that in regards to taking credit for growth in the past three years?
ACTING CHAIRMAN PHILIPSON: Yeah, so there’s different parts of our economic agenda. You know, there’s four pillars usually we assign. One is tax cuts; one is deregulations; third is energy -- promoting energy innovation and independence; and the fourth one, renegotiation of fair trade agreements.
So if you look at the first two, certainly they have kicked in already. So the tax cuts generated a very predictable sort of capital (inaudible) to increase investment, which we believe is partly responsible for the doubling in productivity growth we saw in the last year compared to the Obama administration. Obviously, productivity growth is very important for GDP growth. It’s basically: GDP is employment growth times productivity -- or plus productivity growth.
So we believe both deregulation and tax cuts have enhanced productivity significantly already. But if you look at the deregulation chapter of the report, we also project out for the next three or five years what the impact of those measures will be.
Q So you disagree with those who say that the impact of policies takes five to seven years and it would only happen in 2020 (inaudible) Trump policy? So you disagree with those who say that?
ACTING CHAIRMAN PHILIPSON: Yeah, it depends on the policy. Clearly, we saw investment effects from the tax reform immediately following the tax reform. It depends on the policy.
Q Thank you. I have actually two questions. The first is, you haven’t mentioned anything about the 20 percent increase to, I believe, record levels of farm bankruptcy.
And could you also expand on your statement that the poor has been making the greatest gain? Because if you start at $10 an hour, and states have raised the minimum wage to $12 an hour, that’s a whopping 20 percent increase but still not a livable wage. And those state increases were voted on during the end of the Obama administration, after the Republicans kept knocking down any down federal increase in the minimum wage. So could you respond to those?
ACTING CHAIRMAN PHILIPSON: Yeah, we clearly document the low-wage gains in the report. If all of you want, sort of, the bottom line of a lot of what we do, the 435-page report might be a lot to digest. But our CEA -- White House CEA Twitter account has a lot of the bottom lines, kind of, for people who are more interested in a summary.
So there’s no question that the lower end has grown faster (inaudible). We also have analysis showing that this has very little to do with the government policies of raising minimum wages. Those policies affect a very, very small share of the labor force who are experiencing these gains.
Q And the 20 percent in farm bankruptcy?
ACTING CHAIRMAN PHILIPSON: We haven’t discussed that in the report. And we obviously are aware of the trend, but we didn’t go in to discuss it on the report.
OPERATOR: And we have no further questions.
MS. SLOBODIEN: Thank you, Operator.