Ben Bernanke reports on what he said to Bush. He apparently failed to stress two important things:
- Bush administration fiscal policy is way out of balance in the long run, and this is a very serious problem: if the government doesn't balance its budget (in the sense of keeping real debt growing no faster than real GDP), then the market will balance the budget for it in ways that nobody will like.
- Bush administration international economic policy is way out of balance as well: the administration should be doing much more than it is doing--i.e., nothing--to try to minimize the size of the financial crisis should foreigners suddenly decide to dump their dollar assets on a large scale.
These are two things that George W. Bush and his inner circle need to hear as often as possible. And I'm scared that nobody is telling them.
Here's his statement to the press:
Press Briefing by Director, National Economic Council, AL Hubbard, and Chairman, Council of Economic Advisors, Ben Bernanke: 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.