Press Briefing by Secretary of Treasury Bob Rubin, National Economic Advisor Laura Tyson, and Chairman of Economic Advisors Joseph Stiglitz

The Briefing Room

2:03 P.M. EDT

MR. TOIV: Good afternoon. Today, following up on the President's comments on the extraordinary state of the economy, we have further explanation from Treasury Secretary Bob Rubin, National Economic Advisor Laura Tyson, and Joe Stiglitz, Chairman of the Council of Economic Advisors.

DR. TYSON: I'm going to serve as the moderator with my two colleagues. I want to begin by just making a few observations about where we are today and where we were in 1992.

In 1992, the economy was suffering from an unemployment rate that was over 7 percent. As of the last reading the unemployment rate in the U.S. economy was 5.3 percent, and it's been below 6 percent for 22 consecutive months. In 1992, the economy was coming out of a four-year period with the worst job growth record at any time since the Great Depression. In the last three and a half years we have seen faster job growth than any Republican administration since the 1920s, and we have the 10 million jobs created by the economy.

In 1992, only 6 percent of the new jobs were in high-wage industries and occupations. Today, according to the work of the Council of Economic Advisors and the Bureau of Labor Statistics and others, more than -- at least more than half of the new jobs have been in high-wage industries and perhaps as many as two-thirds of them, or about 70 percent, have been in high-wage industries and occupational categories.

The deficit -- the deficit in 1992, $290 billion, and today it's down by 60 percent, to an estimated $117 billion.

I could go on, but I wanted to use that as basically an introduction to really lead into our discussion of economic strategy. I would say we came to Washington trying to put in place an economic strategy which would provide a sound foundation for economic growth and a sound foundation for investing in our future, increasing productivity and achieving rising living standards for all Americans. And the numbers that we are getting on the economy show that that strategy is working.

Let me turn the floor over to Joe Stiglitz who can talk more about some of the underlying numbers and some of the technical features of the numbers.

DR. STIGLITZ: Well, America's been winning a lot of gold medals in Atlanta, and we think the economy has won a gold medal today. The economy's economic growth was 4.2 percent in the second quarter. What was particularly impressive, this was combined with a very low level of inflation. The broad-based GDP measure of inflation was up only 2.1 percent. The news -- or the report indicates the economy's growth in the second quarter has been as it has been over the past three years, is a very broad-based economic expansion. And this really confirms in some sense what has been happening to the economy over the past three years.

Just to give you a few other pieces of numbers, over the past three and half years, the private sector GDP has increased at the rate of 3.2 percent, which is particularly impressive in light of the fact that during this period we have been in the process of a fiscal contraction of reducing, downsizing the federal government. So this kind of economic growth in light of a downsizing of the federal government is a particularly impressive success.

Consumer confidence, as we reported earlier in the week, is at a six-year high. As Laura pointed out, there have been 10 million new jobs created. Exports are up basically about a third. And investment, which is particularly important for providing the basis of long-term economic growth, investment in equipment has been rising at a double-digit rate for the past three years.

We believe that these economic successes are largely a result of the kind of broad-based, comprehensive economic strategy that we put into place three years ago -- deficit reduction -- but also a whole set of microeconomic policies, like telecommunications reform. And that this is the kind of result that we had hoped for and expected from putting into place a sound economic policy.

Let me turn it over now to Secretary Rubin.

SECRETARY RUBIN: Thank you, Joe.

I think probably the thing that I could most constructively add is that as I think back over the three and a half years, we said from the beginning that we had a -- the President had a consistent economic strategy. And I think for a long time it's been hard to get people to relate to that. But I think there's no question that's the case. I think now, as we've had three and a half years of very good economic performance, as discussed by Laura and Joe, I think finally it is -- the perception has grown that this has happened, a, that we've had the economic conditions, and, b, that it is no accident, that's it's happened because of a strategy, it's been consistent, and we've followed through over this whole course of the three and a half years, and it's been disciplined.

And it basically started with the deficit reduction program of 1993. And there's no question in my mind, having lived on Wall Street for 26 years, that it's that deficit reduction program that was predominantly responsible for driving interest rates down. It was low interest rates that drove and sustained the recovery.

I think the key going forward in order to continue to have this kind of healthy economic growth is to make the right policy choices. And the threshold policy question that we're going to face as we go forward is, what do we do about remaining on the path of fiscal discipline and going to a balanced budget. The President has proposed tax cuts. But they're targeted to middle class, middle-income people. They're targeted to specific types of behavior that are good for economy -- education, child care and savings. And they are fully paid for on a bona-fide basis with no gimmicks.

I think it would be a terrible, terrible economic misfortune if we were to take another path and have very large tax cuts that were not fully paid for on a fully bona-fide basis that would be scored by the Congressional Budget Office and the OMB. So doing would explode the deficit, undermine the economy, and put us back where we were before President Clinton took office and redressed the economic mess that he did inherit, and redress the situation that resulted in the federal debt quadrupling over the four years from 1980 to 1992.

And, with that, we would be delighted to respond to questions.

Q: Are you saying that basically if the kind of tax plan that's under consideration by Dole would be a dangerous move at this point?

SECRETARY RUBIN: Well, he hasn't consulted with us on what he has under consideration, but I'll stick with what I did say -- I really believe -- I think there's no question, at least in my view, that if we have a very large tax cut and it is not fully paid for in a real and bona-fide fashion, that what you're doing -- and if it ever came into force, then you would undermine the progress we've made on deficit reduction and undermine the economy -- that is correct.

I also don't think it is healthy to make a proposal of this sort. You have had in this country a coalescence around the notion of fiscal discipline after a long period of time when we did not have fiscal discipline in this country. And I think it is not productive to have proposals that have put forth in the public domain that involve undermining that fiscal discipline.

Q: Well, how is his proposal any different than when Clinton in '92 proposed a middle class tax cut at a time when the economy was terrible?

SECRETARY RUBIN: Well, I don't know what is proposal is, but the President has always talked, at the same time he talked about a middle class tax cut he talked about bringing down the deficit. My recollection is that he at that time talked about bringing down the deficit by 50 percent, a promise that he made and a promise that he has more than kept.

Q: On this going into -- toward November, what are your prospects, what are the prospects for this economic growth continuing?

DR. TYSON: One of the characteristics of the period of economic expansion that we're enjoying is its balanced nature. And when you look at the expansion you really don't see the kind of danger signs that you would normally see if there were imbalances in the economy. Just for example, in today's report, inventory accumulation -- inventories are relatively low. That suggests that going forward, for example, firms will be keeping on production schedules rather than cutting production because they have excessive inventories.

Oftentimes, the harbinger of future difficulty is high-levels of inventories not present. Another harbinger of economic difficulties might be a change in the inflation situation. But the inflation numbers have come in very modest and there really is no sign of a change in underlying inflationary pressure. That's another very good sign that the expansion will continue.

I will just end by saying that most private forecasters that I have spoken to anticipate that the expansion will continue, so I think the economy will remain strong going through the rest of this year and into the future.

Joe, do you want to add to that?

Q: Could I just ask, this 4.2 -- I mean, what are the prospects for something as rapid as that?

DR. STIGLITZ: Obviously, there is always quarter-to-quarter variations. And this is a very strong number. I think the way to think about it is the fact that inventories are lean, inventories to sales ratios are low -- suggest that -- is just one indicator -- suggests that the economy will continue from a very level. I think one ought to focus both on the level and the rate of change. The fact is the economy has moved to a very high level. Whether it will continue to grow at quite the same rate from that level will depend on these quarter-to-quarter variations. But we very strongly believe that we will be working off -- we will be working to have growth off of this very high level that we've been able to obtain.

Q: Mr. Secretary, you just said that it would be a dreadful thing if Dole's figures weren't fully scored bona-fide by the OMB --

SECRETARY RUBIN: No, I said I thought that he should -- I didn't say anything about Dole. I said anybody in the public domain who advances an economic program it seems to me ought to have a program that continues this path of fiscal discipline. And if they're going to have tax cuts, they should be fully paid in a bona-fide fashion that will appropriately scored.

Q: And you mentioned --

SECRETARY RUBIN: And CBO.

Q: And CBO, otherwise --

SECRETARY RUBIN: I actually said -- no, no, no, no -- I actually said CBO and then I just added OMB.

Q: The Dole campaign reacted to the growth numbers this morning by putting out a statement that referred to a recent New York Times poll that found a lot of people worried about their jobs and about the future. And Dole says if things are so good, how come people are so worried. How would you answer that?

DR. STIGLITZ: One way of looking at that is what are the statistics. Consumer confidence are at a six-year high. The fact is there is a lot of confidence. We have a dynamic economy, and a dynamic economy means that jobs are being created. And some jobs are being destroyed. One of the things that has happened in our economy is that we've managed to create -- when we say 10 million jobs, that's 10 million net new jobs. So, yes, a lot of firms have downsized, they've restructured. The economy's managed to create enough new jobs for those people who have been downsized to take into account the expansion of the labor force that have occurred and to reduce the unemployment rate from over seven percent that it was in 1992 down to the level of 5.3 percent that it is -- was last month. And it will vary from month to month, but it really is around a two percent reduction in unemployment rate.

So it's taken a while to restore confidence after a very bad period. But I think given the kinds of underlying policies, and this goes back to what the Secretary said -- it's very important to have -- to establish confidence in the economy that you have stable policies, confident policies that people are going to have confidence in, including policies that are based on credible numbers, credible deficit reduction and so forth.

Q: So your message would be, yes, you stand a good --not a good chance, but you stand a chance of losing your job, but there's another one you can get somewhere.

DR. TYSON: Can I say that I think it's important here to make a -- we're saying that the economy is on a sound path of expansion. And we did have a particularly strong quarter -- 4.2 percent is a particularly strong quarter for the U.S. economy. We are enjoying an unemployment rate which is at a six-year low. And we are enjoying many indicators, not just the conference board, consumer confidence index, but also the University of Michigan Consumer Sentiment Index, and the recent Gallup Poll, a number of things show that consumers and families are feeling better about their economic prospects.

But we would never say that the job is done. We would say that we have -- there is a big improvement between 1992 and 1996, between then and now. And the big improvement shows the wisdom of the course that the President charted. And the job is not done, but clearly this is not a time to go to some radical change in the underlying philosophy of managing the economy. The underlying philosophy is about deficit reduction and balancing the budget. It's about targeted tax cuts. It's about opening foreign markets. And it is about dealing with anxieties that Americans have in terms of doing things on the minimum wage, in terms of doing things on pension portability or health care portability, all of which the President led on and all of which we hope will be signed and sent to us so that the President can sign them by the end of this week.

So clearly we are cognizant of more needing to be done. The President has led on that the entire time.

Q: You also talked about wage growth. This was always a big thing that you've talked about over the past two or three years. How's that doing in the latest figures? And is there any reason for the economic anxiety that Robert Reich has been talking about? Should we discount that?

DR. TYSON: Well, as I just said, we are certainly -- have always been concerned and cognizant of issues of anxiety due to job loss and that's one of the reasons why you want to get the economy growing, growing on a sound path so that it can generate jobs so that people can feel that they have what we call employability security. Employability security means that there are jobs out there, they are increasing in quality and moreover as an American you have an opportunity to get training and education that you need to get the jobs that are available.

So employability security has always been part of what we have been concerned about and pension and health care portability both of which are very much with us today because of the movement on bills on the Hill that the President led on that helps Americans as they take opportunities of a dynamic economy.

Q: What about wages?

DR. TYSON: On wages, okay. It's good that you reminded me. I think that what we are seeing, the best way I would put this is that for many Americans, for at least a 20-year period the numbers showed take-home real pay, take-home pay in inflation adjusted terms declining. And what we have seen is evidence that the economy has begun to turn the corner on that. You can see it in terms of the quality of job statistics that the CEA put together that between 1994 and 1996 more than about 70 percent of the jobs created in the economy paid above the median wage of 1994.

So that's pulling up wages in the economy. You can see it in the wage component of the employment cost index that came out this week. You can see it in the average hourly earnings numbers. We do have now a couple of years where take-home pay by a variety of measures is growing faster than the rate of consumer prices. So that's a real increase in earnings.

It is also, I want to emphasize, of a size that is consistent -- for which there is room because of productivity increase, so that people who worry about cost pressures from the labor market should also take account of the fact that the productivity increases that our economy create room for increases in real take-home pay. And the economy seems to have turned a corner.

Now, to turn a corner doesn't mean the job is done. It just means that the recent numbers over the past couple of years and increasing number of series show we're making progress on that front.

DR. STIGLITZ: Let me add one piece to that, which is that when the economy is in an upswing and more people are being hired into the labor market, typically the people who are most adversely affected in an economic downturn and who are laid off are people at the bottom -- are disproportionately at the bottom end of the income distribution. As the economy expands, they get hired back.

That has an effect on the statistics that we typically use like the real wage, the median individual. What you would like to know to answer the kinds of questions that you're asking is what would happen to a typical individual, what's happening to a typical individual, not what's happening to these average statistics.

Unfortunately, the data that looks at what happens to a typical individual have not been extended beyond 1992. On the basis of historical experience, the typical individual in an economic expansion does better than these median indicators would indicate.

Q: One other question. One standard criticism of the Dole campaign right now is that the economy was beginning to grow and rather rapidly at the very end of the Bush administration. In fact, figures -- I've seen figures up to like five percent and what they would say is that the Clinton administration put the brakes on that big time. What do you say to that?

SECRETARY RUBIN: Let me take a shot at that, if I may. I think it's kind of silly, frankly, with all due respect to the people who make the argument. My recollection is that when we took office unemployment was 7.3 percent; it's 5.3 percent today. Roughly 2.4 million jobs were created during the Bush four years -- about 50 percent of the private sector. Something like 10 million have been created during this administration, with roughly 90 percent of the private sector.

In addition to that, if you think back to the four years of that administration -- I remember them very well, because I was in the private sector at the time, very much involved with markets -- there was a sense of disquiet, there was a relatively low level of confidence. I think most businesspeople -- I know most businesspeople felt that we were not dealing with our problems. And while we had ups and downs during that period -- and as you correctly say, some quarters of the last year were somewhat better -- I think there was a very low level of -- not I think, there was a very low level of confidence that were addressing our problems or that we would have long-term economic growth.

That turned the corner after the election. And if you look at the consumer confidence numbers, after the election what you'll find is that last two -- I think this is right, you can check me on it -- but the last part of that last quarter, consumer confidence started to go back up. And I really think it was because people were relieved that there was a change. And then President Clinton came along and he had a real program, and over time -- and it wasn't that much time -- the markets became convinced that we were serious about the deficit. And that's when you started to see confidence building, interest rates go down and the economy move -- and on a sustained basis, not just in a sort of an up and down kind of a basis.

Q: Most forecasts now, though, say that the economy's going to slow down by, I think, about a third from where it was, that 4 percent rate, in the rest of this year. So what's going to get worse? Where do we those things start to not be so good?

SECRETARY RUBIN: I think Laura or Joe could deal with the forecast more professionally than I can, but you're basically seeing us continue on a sustained rate of growth, with fluctuations from quarter to quarter, very substantially above the average growth of the four years of the prior administration.

Q: Mr. Secretary, we have the job creation figures for the last three and a half years, but what would your expectation be going for should the President be reelected?

SECRETARY RUBIN: I think that if we can stay on the policy path that we're on, if we can continue with a path of fiscal responsibility, we can invest in the areas of education and others that we need to. We can, as Laura said, open markets.

I think we have the opportunity in this country to have good economic conditions for a long, long time. The thing that troubles me is the notion of going back to very large deficits with the effects that they would have in terms of undermining economic growth and really putting us back in the condition that we were in when the debt went up so rapidly and led, as inevitably it had to, to the relatively stagnant economic conditions of the Bush administration.

I think with the right policy decisions, I think we can have very good economic conditions for a long time. With the wrong ones, I think we could have a lot of trouble.

Q: Would you -- if Dole does come out with a tax cut that he says is going to be paid for partially by the growth that tax cuts themselves would stimulate, are you willing to accept any kind of growth effects from a tax --

SECRETARY RUBIN: I'll give you my view and let us each express our views. I think that if he is saying that tax cuts per se are going to stimulate economic growth, I think the answer to that -- and thereby replete the federal -- contribute to the --

Q: To some extent.

SECRETARY RUBIN: Yes, to some extent contribute to the -- I think that that is an unproven notion, and in fact I think that the evidence all cuts in the opposite way. That was, after all, the concept in the very early '80s, that if you had these very large tax cuts, they would pay for themselves. And what we had was a quadrupling of the federal deficit -- or the federal debt, rather. So I would say that that is a notion that runs contrary to existing evidence. And I think that there is very little evidence that a tax cut that is not fully paid for will do anything other than explode the deficit and undermine our economy.

Q: So a dollar for dollar --

SECRETARY RUBIN: Dollar for dollar paid?

Q: Dollar for dollar offset.

SECRETARY RUBIN: Yes, I think that if he pays for it in a bonafide way with no gimmicks, then you can look at the things that have to be cut, and you can say, okay, we get the benefit of a tax cut, but we have it offset by the cuts in various kinds of programs, and what is the balance. Do the cuts versus the tax cuts leave us with a net plus or minus? And since they would have to make in order to do a very large tax cut enormous cuts in programs like education, the environment and all sorts of other things that I think make an enormous contribution to our economy, I think the balance would probably be very negative. But then you would have a debate that you could have about whether the tax cuts have a benefit that is exceeded by or less than the program cuts. That is correct.

Q: Not necessarily against dynamic scoring then?

DR. STIGLITZ: What I was going to say is that I think that an important part of this is the credibility of markets. One, there are a couple of things that are different between 1980, '81, and where we are today that make one particularly concerned today. The first is that we've been through the experience of 1981. And markets are much more sensitive to budget gimmickry.

If they -- it's not only our judgment, which is important, it's really the markets' judgment. If the market thinks this is not a credible package, interest rates would rise, and we would know what interest rates would do to the deficit. It would make -- it would increase our expenditures and it would make it even more difficult to get the budget in balance. An increase in the interest rates in turn would slow down investment, would hurt investment. And that would have an deleterious effect on economic growth.

Secondly, we know how bad the experience was in 1981, and that was beginning an economy that had a lot of slack. We don't have a lot of slack today. I mean, the economy has been running -- one of the achievements is that we are running the economy really at -- in a very strong way. So you don't have the kind of expansion possibilities that you had when the economy was -- the huge kind of slack that we had back in 1981.

So in terms of what would be the feedback be, would you -- what would things look like, it was a disaster then, it would be even worse today.

Finally, I want to reiterate the point that if there are proposals to finance it, that you really have to look at the policies. One of the things that we did and that made the deficit reduction so difficult is, we didn't say we were going to have across the board cut. A lot of thought went into what things to cut out to get the budget in balance and it was very concerned to maintain the investments. And those are things that yield growth dividends. It's not only education, it's R&D. There are a whole set of things that promote long-term economic growth.

And some of these effects would occur in the short-run. Some of the effects would occur in 10, 15 years. You know when you cut back something like Head Start, the kids don't enter the labor force for 15 years but eventually you start having significant effects. So, its effects not only in the short-run but its effects in the long-run economic growth. So the feedback, if that's the case, could actually be negative rather than positive.

SECRETARY RUBIN: Could I just add, I apologize for a long answer to a short question, but it's one more piece of this. If you're talking about behavioral impacts and that is -- the basis of dynamic scoring, my own view and I've seen stuff that Joe has done on this and it's very good, the effects at best are minimal either on work or output in that sense or on savings rates.

I think for budgetary purposes the correct assumption is to score behavioral effects at zero. And that is a prudent way to run a fiscal system and that's a prudent way to run a budgetary system and that's what this administration has done and that's what the CBO has done. That's what we should continue doing.

Q: This is for everyone to answer. If you look at what has happened to the economy in the last three years and in relationship to inflation, could one make a case that the conventional estimates of how fast the economy could grow without higher inflation are too low?

DR. STIGLITZ: What we've shown is that the conventional estimates of the level of unemployment that the economy could operate without there being inflationary pressures were too high. That people had been using numbers around six percent. We've now had an extended period of unemployment in the mid-fives and as today's numbers indicate and the numbers over the last 22 months indicate, there is not evidence of inflationary pressures.

So, the capacity of the economy to operate without inflationary pressures has really demonstrated that it is stronger than it used to be.

Q: Well, how about the growth rate itself. Because we've had growth rates this first half of this year it's basically three percent and the average of the last three years is closer to three percent than it is to two percent, right?

DR. STIGLITZ: I think that overall if you put into place a broad-based, good sound economic policies, the capacity of the economy to grow is enhanced. That's one of the reasons for putting into place all of the economic policies that we have been talking about. The reason that deficit reduction works is that -- you know, deficit reduction is not an end in itself -- the reason that it works is that it lowers interest rates, makes room for more investment, more investment allows for increases in productivity. The increase in capital, you know, of equipment in our economy in the last three years has been 37 percent in real terms. This is a fantastic increase in the amount of equipment that each worker has to work with.

So, expanding exports allows the economy to redeploy resources into sectors that we have a comparative advantage, that are high-wage sectors. So, there have been a number of policies, the Telecommunications Act is another example. And when I said earlier that the comprehensive economic strategy is affecting all these areas -- investments in machines, investments in people, improvements in efficiency through telecommunications reform and through export promotion -- all these things add up together to a set of policies that are growth-enhancing.

Q: The administration has been considering a proposal for a capital gains exclusion for home buyers. Do you think that would be a valuable addition to the President's economic program, and are there any other tax-related components that the President could add to his economic construction ?

SECRETARY RUBIN: Well, he has a, I think, very powerful and very sensible set of proposals right now -- the ones I described before. They target the middle income and they're fully paid for. There is no other proposal that is currently in process to be done or announced. That isn't to say there won't be other proposals, but I say this -- if there are any other proposals, they'll be middle class targeted, they will be fully paid for, and they will be consistent with the broad-based economic strategy that we've had now for three and a half years.

Q: So adding something for home buyers is off the table?

SECRETARY RUBIN: I didn't say it was on the table, off the table, in between the table or anything else. I'm just saying that there is nothing presently before us that there is any current attention to put forth. But we're always looking at ideas. This is a very vibrant group of people. (Laughter.)

DR. TYSON: And a very vibrant economy.

THE PRESS: Thank you.

END 2:35 P.M. EDT