Recently appointed treasury secretary Henry Paulson's first session as President George W Bush's chief economic advisor was held 18 August at Camp David, MD. In Paulson's view, "getting out of Washington DC provided a productive session.
"We dug deeper into some of the longer-term issues, some of the complex issues we're dealing with...all of this was against the backdrop of an economy that's been performing well for some time now," Paulson said.
Director Rob Portman, Office of Management and Budget, and chairman Edward Lazear, Council of Economic Advisers, were also present for discussions. Paulson said during a press conference call following the meeting that the advisory team discussed long-term challenges with President Bush.
Paulson also praised President Bush for being actively engaged in discussions.
Advisors Address the Polls, Economy
According to polls, many voters in the United States don't yet feel the benefit of a booming economy, but are indeed "much better off than they would be if the economy were growing slower or weren't growing," said Paulson.
Paulson said some of those feeling the pain can blame rising energy and health care costs, but added that job creation and tax relief were prime factors to celebrate.
"I would be optimistic that if we can keep the job creation, keep making new jobs and productivity levels high, that you're going to see wage growth follow this. And we've seen some encouraging signs if you look over the last couple quarters," Paulson said.
The greatest rewards are going to those in the United States who have the skills to adapt to the opportunities in the economy, he said, due to a global economy and technology.
Lazear said that recent polls are not reflecting consumer behavior and that indeed what consumers "do" rather than "say" is more reflective of how pleased they are with President George W Bush's leadership and economic growth strategy.
"We see consumption being high. In fact, the saving rate is negative right now," Lazear said. "We see people entering the labor market at very high levels. Labor force participation was up last month [July 2006] primarily because jobs are available and because wages are growing; business investment is strong; investment in non-commercial real estate is strong."
According to Portman, who said he reads the polls religiously, quoted an ABC News/Washington Post poll to which he said, "I think it was reported this week, it shows that about 60 percent of people think that their situation is good or very good."
The ABC/Washington Post poll Portman was referring to, taken 3-6 August 2006, showed (about 60 percent) or 58 percent to be exact "disapproved" of how President George W Bush was handling the economy. Forty-percent approved and 2 percent were unsure of how President Bush was handling the economy. Consumers also felt worse about the economy on 13 August than they had one week earlier, pushing down their economic comfort index 2 points in negative territory to -15 points.
Gallup, Newsweek, and Ipsos polls in August put unfavorable ratings (of between 67 and 71 percent) for President Bush and the economy. Even the Fox News network poll, considered to be a pro-President Bush broadcast channel, found that 56 percent of its viewers hold unfavorable views of the president and his policies in August 2006.
Portman said the lack of confidence in the economy is a disconnect, because President Bush's staff has not communicated the strength of the economy to the people very well.
"They feel as though what they -- over 60 percent of people feel that the economy is doing well for them individually, but they are concerned about the macro-economy," Portman said.
"In fact, we have a strong and growing economy. We still have the strongest economy, by the way, among the G7 countries, our primary trading partners. And we had 4 percent growth in the first half. And we look to continue growth, continue relatively high productivity, which, as secretary Paulson said, will lead to higher wage growth," Portman said.
Pro-growth policies under President Bush is key to the long-term success of the United States' economy, which increases federal revenue while pointing to decreased budget deficit issues. "And in fact, they believe it [the deficit] will be even lower than we're projecting now, partly driven, again, by the increased revenues from a better economy," Portman said.
Parts of the reason consumers say they feel more negative about President Bush's policies is the ongoing war in Iraq. While the economic advisors said they do not specifically discuss issues related to terrorism or Iraq, Paulson said it is difficult to know what affects the consumers' views.
Lazear chimed in saying that when consumers are specifically asked questions about the economy without involving highly emotional political issues -- consumers have a much stronger response in support of President Bush.
"So, if you look at polls, for example, after al Zarqawi was caught, the general view of the economy at that time jumped 13 percentage points. And of course that had almost no effect on the economy to speak of, and yet people's opinion of it went way up. So, if we look at numbers that are related, say to the economy specifically, look at the Conference Board's numbers, you tend to see higher ratings there," Lazear said.
In the post-9/11 economy, the Conference Board's monthly number has averaged 94 points, with a trend towards slightly higher numbers (above the 1985-base of 100 points) during the past four consecutive months. In July the reading was 106 points. However, pre-9/11 economy, the average monthly consumer confidence rate was 131 points by Conference Board's standards and peaked at 145 points in the months of January and May year 2000. The lowest rating was 61 points in March 2003 at the time the United States invaded Iraq.
Advisors to Work on Entitlement Problem
Paulson added that the benefits of President Bush's tax cuts have only improved economic conditions especially when factoring-in extra government spending on terrorism, the war in Iraq, and for rebuilding the Gulf Coast after hurricane Katrina.
"So, our focus was largely on where the real problem lies, and that's with the entitlement and entitlement spending, and what that's going to do to the economy and what it's going to do to the deficit," Paulson said.
During discussions with President Bush the advisors exchanged ideas on approach to entitlement reform, Paulson said, "because when you talk about entitlement reform here, we're spending a lot of time talking about not just Social Security reform, but Medicare, Medicaid, in order of magnitude, differing in terms of the complexity. And really, a lot of the discussion really concerns what's the role of tax reform in all of this."
The advisors agreed that entitlement and the deficit would be fixed, but charged Congress with failing to support quick action. The advisors suggested that the long-term growth model is based upon keeping the tax relief in place.
"In fact, in 2012," Portman said, "as you know, both CBO [the Congressional Budget Office] and OMB [Office of Management and Budget] show significant reductions in the deficit to the point that it's down to roughly $50 billion each.
"If you were not to continue the tax relief, you do have rising revenue as a percentage of the economy," Portman said. "The 18.2 percent [federal tax rate] is exceeded, and somewhat substantially, over some of those out years, so it's just something to look at. The numbers are very similar."
The result is a growing economy, with some reasonable constraint in spending, Portman said. "That has resulted in better deficit projections, going again to the point that in the next five years we see a trend of a declining deficit, even from the levels today, which are consistent with the historical deficit numbers, in terms of a percentage of GDP."
"I would just add one thing to that," said Lazear, "and that is that the president is very much aware that the American people are calling for simplification of the tax code and for a tax code that is both fair and pro-growth. And that was definitely on the table and a subject of discussion. So, that was something that he's been thinking about for a number of years now, and it's alive and well, and, I would say, an active part of the discussion."
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