THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY THE VICE PRESIDENT, CHAIRMAN OF THE COUNCIL OF ECONOMIC ADVISORS LAURA D'ANDREA TYSON, LABOR SECRETARY ROBERT REICH, AND COMMERCE SECRETARY RON BROWN
Room 450 Old Executive Office Building
10:27 A.M. EDT
THE VICE PRESIDENT: I'm going to make a brief opening statement, and then I'm going to turn it over to my colleagues here.
What we are releasing today is a brand new study of the job creation features of the President's economic plan, state by state. The focus of the President's plan is to ignite an economic recovery and create more than 8 million additional jobs here in the United States of America. And we're going to show you, among other things, what that means in all of the 50 states.
I've got a couple of charts here that I'll just briefly refer to. The first is the average job growth that we are seeing already because of the exertion of economic leadership by President Clinton. The second one shows the three forecasts that have come out about the number of jobs that are being created. And the average is over 8 million jobs.
Sometimes people say, well, the plan hasn't passed yet. How can we be seeing the creation of jobs as a result of the President's leadership? Well, don't take my word for it. Listen to the words of Alan Greenspan, the Chairman of the Federal Reserve Board, not a noted Democrat, appointed by a previous Republican President, who has testified before the Congress and has said in innumerable public speeches that the principal reason for the new jobs that are being created by lower, long-term interest rates during the first six months of this year is the economic plan proposed by President Bill Clinton.
The dynamic is not that complicated. The people that make their living trying to predict our economic future have, for years, discounted our economic future because they know we cannot continue to borrow a billion dollars every 24 hours. They know that during the last 12 years we quadrupled the national debt, drove up the financing costs of the national debt, and that put a tremendous cloud over America's economic future. And they have responded by setting the long-term real interest rates in the United States at a level much higher than in any other industrial nation in the world.
As soon as President Clinton proposed this bold new economic plan, those same financial experts had to adjust their expectations and take into account the bold new leadership now in the White House. And as a result, long-term interest rates started declining dramatically. This has made it possible for millions of Americans to refinance their home mortgages, to get lower interest charges on new car loans. It has made it possible for many small business people to borrow money to expand. And almost a million new jobs have been created just in the first six months because of the enhanced strength in the economy.
But every time there's some question about whether or not the proposal is actually going to be enacted, long-term interest rates start to edge back up again. That happened a couple of days ago. Not much, but it's an indication of how our nation's economic fortunes are tied to the question of whether or not this plan is going to pass.
It will pass because the basic choice is between the kind of positive change this plan brings and a return to gridlock proposed by the Republicans who oppose the plan in the House and in the Senate. They have proposed an alternative which has been the subject of a good deal of humor among the economic analysts who have looked at it because they identify -- in one of the years, for example, Senator Dole outlines a $66 billion reduction in the deficit that's labeled unspecified. He says we'll figure that out when we get to it. It's typical of the other side's unwillingness to show the courage necessary to make the tough choices.
President Clinton has made the tough choices, and has put together the largest deficit reduction plan in American history -- $500 billion over a five-year period. That's why we're seeing this resurgence in the economy begin and that's why it will accelerate with passage of the plan.
It also includes investments in job-creating activities to stimulate even more jobs. And this, incidentally, is put together on very conservative assumptions. We believe that the restored growth and confidence that will accompany passage of the plan will enable us to exceed even these figures.
It is also a fair plan. For every $10 in deficit reduction, $5 of it comes from steep spending cuts; $4 of the remaining $5 comes from those making more than $200,000 per year. There is an energy tax. It amounts to about a dollar a week for a middle income family, a little less than a dollar a week. And what does our nation get in return for that dollar a week? It gets lower home mortgage rates, lower long-term interest rates, eight million jobs, a stronger economic recovery, a chance to reclaim our economic future.
That's why Americans are encouraging the Congress to pass this plan. Our nation wants change. We want economic growth. And we want the additional jobs that will come in every one of our 50 states as a result of this economic plan passing.
Now, I'm going to ask my colleagues to speak and then we will all be available to respond to any questions that you might have. I want to call, first, on the Chairman of the President's Council of Economic Advisers, Dr. Laura Tyson.
DR. TYSON: Thank you very much, Mr. Vice President. It's a pleasure to be here and talk about both our new study, which shows essentially where the growth of the economy that we anticipate over the next several years will show up in jobs state by state, and it also has a breakdown of the investments that we hope will pass through the process and really lead into the job creation capabilities of the economy.
I also brought, because I wanted to draw a link between the two documents, what was really our original logic of the budget plan -- which is now making its way -- finally to a vote. And that's the Vision of Change Document for America. I want to emphasize the underlying logic of the approach to the economy which we are taking in this budget. The underlying logic is motivated by the desire to help the economy to create more jobs and also to help the economy create better jobs. And the key to the logic, the key both to job creation capability and better job creation capability, is investment. The reason deficit reduction is the path we must move down as a nation is because it is a means to greater investment and that is fundamental to greater productivity, growth, more jobs and better jobs for American workers.
Now, it's interesting to note that we've been in a recovery for more than two years. If you ask most Americans, is the economy in recovery, they still say no. Many of them still talk about an economic recession. No wonder they do. If you look at what's happened to family incomes, if you look at what has happened to real wages or real compensation over the past 12 to 15 years, the answer is nothing's happened. They've stagnated. Family incomes have stagnated, real wages have stagnated, real compensation has stagnated. We had only one million private sector jobs created during the four years of the Bush administration and the real wages and incomes associated with those one million jobs were not rising.
So we have both a job creation problem and a quality of jobs problem. Now, already during this administration we are doing better on the jobs creation front. We have created in the first five months of the administration -- the economy has created 70 percent of the private sector jobs created during four years of the Bush administration. Seventy percent of the four-year record in private sector job creation has been achieved by the economy in the first five months of the Clinton administration.
The major explanation of that is, as the Vice President said, the credibility of the plan that we have put forward to the nation which has secured an unexpected and much to be welcomed dramatic decline in long-term interest rates, which is a boost and the single most important boost to the economy that we can experience and welcome.
There is widespread agreement among economists, there is widespread agreement in the financial markets. And, indeed, as the Vice President mentioned a minute ago, even Alan Greenspan has confirmed that a major reason why long-term interest rates have come down so dramatically, so quickly has been expectation of a credible -- that is, no gimmicks -- well-specified deficit reduction effort of approximately $500 billion.
It is the expectation that such a plan will pass and set the nation on the right course that has led the financial markets to respond with a vote of confidence. And that vote of confidence is going to give us the means to continue to recover because essentially while models differ, it is the case that a hundred-basis-point reduction in long-term rates results in anywhere from $50 billion to $100 billion of additional private sector spending. Why? Because the intrasensitive components of spending respond to lower long-term rates. And, therefore, a stimulus to the economy will come through additional spending sparked by lower long-term interest rates, which in turn, has resulted from expectation of our deficit reduction plan.
Now, let me just say something a little bit about the overall logic. I've mentioned it's not just more jobs, but better jobs. The logic from the very beginning, which is laid out both in the front of our new document which is the state-by-state analysis, and in our original document, A Vision of Change for America, the logic is the link between deficit reduction and investment. Essentially, we have the key to restoring growth in family incomes, restoring growth in real wages, restoring the American Dream for the average American family is more investment. We need both more private investment and more public investment.
On the private side, what can we do to stimulate investment. It was our view that the fundamental impediment or deterrent to private sector investment were high long-term interest rates was the drain on the nation's savings of the government deficit. If we get the deficit down gradually and in a credible fashion, there will be more funds available to the private sector at more attractive interest rates, more attractive cost of capital. That will encourage more private sector investment.
It is true for the United States as for all nations, and true at this moment in history, at other points in economic history, that over time the key to rising living standards is productivity growth; the key to productivity growth is investment. It's very simple. It's one of the few things that economists really agree upon -- investment to productivity, productivity to real income growth. So the stimulus to private investment which comes about from reducing the government strain on savings and lower interest rates is the key to a renewal of the American Dream.
The second point on investment is public investment. As both of these documents also make clear, the budget plan we have proposed is not just about reducing the deficit -- although that is critically important; it is essential -- but it is also about shifting the spending priorities of the government. Because there are certain forms of government spending which we can legitimately call investment spending -- investment in training and education, investment in civilian technologies, investment in infrastructure, investment in children, which becomes investment in the ability to acquire skills and become productive workers as children grow up.
So we have both a public investment component, which is a shift in priorities, and a major stimulus to private investment. We believe that, together, both the deficit reduction effort and its effects on the private capital markets and private incentives to invest, and our shift in priorities will basically allow the nation to reverse a course of declining real incomes and stagnant wages to a new course of rising real incomes and rising wages.
Now, that's what we expect if the plan succeeds. If the plan fails, that is, if the plan is not passed -- by failure I mean not passed -- we believe that -- we are very concerned that the economy will seriously falter. The main source of growth to the economy right now is the sharply lower interest rates. And since there is widespread agreement that our plan can be credited with these interest rates, there really isn't any other serious alternative to an interest rate investment-led recovery. The rest of the world is growing slowly. We have a massive deficit, we can't spend our way out of this. We have to have an interest-led, investment-led recovery. There is also no alternative plan out there. There is simply no alternative plan.
So we believe the alternative failure to passage here is gridlock, loss of confidence at home and abroad and continued stagnation. Then, therefore, the choice seems clear. Passage of the plan means restoring the American Dream for the average American family. Failure to pass the plan means gridlock, loss of confidence and stagnation. It seems that the choice should be clear.
VICE PRESIDENT GORE: Secretary Bob Reich, Secretary of Labor.
SECRETARY REICH: In anticipation of the President's economic plan being passed, the economy since January 1st has already created, in the private sector, that is in the first five months, 740,000 jobs. This is 70 percent, approximately, of the 1.2 million jobs created during the entire four years of the Bush administration. But we're not out of the woods. This is not yet a recovery characterized by buoyant job creation. Many of the jobs are parttime jobs. Many of the job have not yet come back. We are seeing in this country now a tremendous need for the kind of economic plan and the assurance that the economic plan indeed is going to be passed.
Deficit reduction, I want to emphasize, is not an end in itself. It's a means toward giving the private sector the resources it needs to invest in everyone. Invest in jobs, invest in productivity. The President's economic plan is not just about deficit reduction. It's also about public sector investment -- education and training; research and development; the research and development tax credit -- enormously important -- a small business tax credit with regard to long-term investments; capital gains tax reductions for long-term investments in small business. All of this is designed and calculated to generate higher levels of investment.
Given the legacy that we have been handed. The legacy of a debt of over $4 trillion. Remember in 1981 it was under $1 trillion. We have got to do two things at the same time. That is we've got to get that debt down and we also have to stimulate private and public sector investment. By getting the debt down, we are stimulating private sector investment. But also by getting public sector investment in education and training and research and development and stimulating private investment in research and development, we are supplementing those private sector investments.
This plan is necessary in terms of job creation. It also complements what we are doing in terms of opening up foreign markets. We're making major efforts and we're making major headway in getting the Uruguay Round back on track and opening up Japan. This, again, is entirely consistent with our efforts to control the budget deficit and invest in the future of America.
The North American Free Trade Act opening Mexico creating free trade, again, entirely consistent. Private sector investment here, public sector investment here in education and training and the basic building blocks of the future coupled with an opening of foreign markets, that is the recipe for more and better jobs. That is what the Clinton administration is all about.
VICE PRESIDENT GORE: Okay, we'll just go to questions at this point.
Q Secretary Reich, I'm going through this book and I notice that you're estimating for South Carolina, for instance, 131,000 jobs created, or a state like New York 173,000. Is it possible that this job creation would be outstripped by the job losses related to defense?
SECRETARY REICH: Let me just say Alicia Munnell from the Treasury Department will talk about the methodology used.
MS. MUNNELL: The Treasury Department prepared the numbers and I would like to just tell you where these numbers came from and what they mean.
VICE PRESIDENT GORE: Well, first of all, let me just say the short answer to your question is that's a net number. It's a net number for South Carolina and taking into account the other factors.
MS. MUNNELL: Yes. Let's talk first about the employment and the gains over the next four years. The 8 million figure is a figure that was used during the campaign. It's a figure that comes out of all the private forecasters. It's a figure that if you do a back of the envelope calculation, assuming some labor force growth and some decrease in the unemployment rate that we have in our forecast, that also gets you 8 million jobs. That's a solid figure that you get no matter how you do it.
In terms of distributing that figure among the states, we did one calculation there's a lot of ways to do it. Let me tell you how we did it. We took labor force growth trends over the period between 1980 and 1990, assumed that they would deviate from the average for the nation by half that amount over the next four years and made our estimates for divvying up the 8 million on that basis. That's a very conservative estimate particularly for the states that have had a hard time for the 1980s.
We're going to be working with Larry Katz and Secretary Reich at Labor to get more refined estimates on those numbers. The point was merely to show that there's going to be job growth and that all states are going to enjoy job growth.
In terms of the investment numbers, since I have the floor I might as well just go through on that. The investment numbers come from two sources. The items that are in the reconciliation process, we simply took the average of the House and Senate numbers. For the items that are not in the reconciliation process, these are your discretionary programs such as Head Start we went back to Visions of Change, we took two-thirds of that number. That doesn't say we want two-thirds, but we were trying to be conservative. So we got our total for the reconciliation items from the House and Senate bills; the other items from Vision of Change. We then distributed those among the states based on a host of variables. For instance, highway funds we did by federal highway miles; Head Start money we did by population under age five. We have more detail if you want it, but basically, it was just a systematic way of allocating these numbers among the states.
Q I guess the question here is why is a state like North Carolina going to have well over 200,000 new jobs created when a state like Michigan has only like 28,000?
MS. MUNNELL: I'm glad you brought up Michigan because - -and Ohio -- because those are the states where I think our estimates are very conservative. And the reason they're conservative is we based them on trends during the 1980-1990 period, which, as you know, was a terrible period for those states. We didn't assume just a continuation of those trends, we assumed some improvement. But it's very likely in those states that have been beaten down that they will really rebound much more than our numbers indicated. As I said, these are not final estimates. All they were trying to show was that every state is going to show job growth.
THE VICE PRESIDENT: Let me add one thing to that. When the President put out his plan earlier in the year, he made a special point of this principle of using very conservative assumptions. And he said, wouldn't it be nice if we began to get surprises on the positive side rather than constantly getting surprised on the negative side with bigger deficits and more unemployment and so forth. And we believe very strongly that it's a good idea to use the conservative assumptions, use what you can carefully document, but then pass the plan and get the extra benefits. And in those two particular cases, we believe that it's virtually certain that the growth will, in fact, be significantly higher.
Q I guess this is a question for Dr. Tyson. Assuming the plan passes, you will have a certain amount of fiscal drag, so to speak, in effect, because of the tax increases and the spending cuts. Do you believe that the decline in long-term rates to date will be sufficient to offset those contractionary effects, or will further declines be necessary to offset the contractionary effects that will be coming in the next several years through both the tax revenue measures and the spending cuts.
DR. TYSON: I think right now our forecast -- we had -- we, as you know, had an administration forecast, official forecast which came out along with the budget. We are in the process of revising that when the package -- when we have information about what is finally passed.
Most of the models that -- the private sector models where -- which predict the eight million jobs, and our model, which predicts the eight million jobs, really don't assume as much longterm interest rate reduction as, in fact, we have already experienced. So it is my prediction that given that we've had even greater declines in long-term rates than expected, that when we go back and do our midsession revision, and as we see their revisions of the blue chippers, et cetera, that has been some reduction in anticipated growth rates for 1994 in the -- for example, in the blue chip forecast. But it's still in the vicinity of three.
I think what's happening is that the world economy has done worse than we had anticipated, and also both our forecasts and most private sector forecasts assume that we would also have some additional stimulus up front -- the stimulus package was defeated. But notice, if you take out the spending part, and even with slower growth, the greater than anticipated reductions in long-term rates are consistent with growth rates -- or appear to be consistent with growth rates still in the range of about three.
We right now anticipate, and most private sector forecasters anticipate, the second half of this year will be faster than the first half of this year. Again, that is primarily because of the lagged effects of long-term interest rate decline playing through the interest sensitive parts of the economy.
So that would be my answer to your question.
THE VICE PRESIDENT: Has anybody here refinanced their home mortgage in the last five months? Thank you. No, no, no. There are quite a few hands back there. I won't ask you how much you saved.
Q Since you say these job figures are deliberately on the conservative side, does this mean it's fair for us to use this as a yardstick of how well the administration has done in its economic program?
THE VICE PRESIDENT: Sure, you can do that.
Q election time rolls around?
THE VICE PRESIDENT: Absolutely. We promised eight million new --
Q what we should use on a state-by-state basis to see how your program --
THE VICE PRESIDENT: We've set the eight million job figure as a benchmark -- absolutely -- and we will be judged by that.
Q Will these eight million jobs be sufficient to reduce unemployment rates?
THE VICE PRESIDENT: Yes.
Q By how much?
THE VICE PRESIDENT: Well, the economic experts whispering behind me assure me that that is the case.
MS. MUNNELL: As Laura is indicated, the administration forecast gets us down by the end of our forecast period between five and six percent -- five and a half and six percent. Do you remember the precise number? But we definitely have a sharp reduction in unemployment built into our forecasts, as do most private forecasters.
SECRETARY BROWN: If I can just say something about business confidence, I spent a lot of time talking with and listening to leaders of business and industry, but also to small- and mediumsize business men and women all around America.
I believe failure to adopt this plan will, in fact, have a devastating impact on business confident and that it is very possible that if that is the case we will suffer a reversal in some of the gains that are being made in the economy, particularly on the interest rate side.
We have put together a plan that we think inspires business confidence. The financial markets have responded in a way that indicates that they agree with that, just as the Federal Reserve has. We want to encourage research and development, we want to encourage plant and equipment. Those are the kinds of investments that, in fact, increase and expand employment opportunities in America.
We are absolutely committed as an administration to assuring long-term sustained economic growth and the creation of high-wage, high-quality jobs. We believe that the passage of this plan is absolutely imperative to achieving that goal. And as the Vice President said, there are no credible alternatives. There just are none. And that's why we're working very hard with the Congress, with the conferees, but also communicating with the American people about how important it is to get our economy going again.
The bottom line, as Secretary Reich has indicated, is jobs. There was a lot of talk in the campaign about family values. Probably the most important family value is a job and the ability to feel economically secure. And this administration is absolutely committed to creating the kind of economic growth that can create an environment for economic security in America.
THE VICE PRESIDENT: In that connection, one point that hasn't been made yet is that as President Clinton showed with his extremely successful efforts at the G-7 summit in Tokyo, a significant reduction in the U.S. budget deficit as part of an economic recovery plan is the key to the ability of the United States to offer successful leadership in the world economy -- to secure enhanced domestic spending in Japan, for example. To pull more of the world's products into the Japanese market, lower German and European interest rates. So that the three-way teamwork is successful in reigniting growth in the global economy.
Before the next question, I also want to acknowledge what you already know. The head of the President's National Economic Council, Bob Rubin is with us up here as well, and the Deputy Secretary of Treasury, Roger Altman, who is quarterbacking the socalled boiler room operation these weeks is also here.
Q We can't tell on the report what job growth might have been like state-by-state without the President's plan. Are those numbers available?
THE VICE PRESIDENT: Well, it's very difficult and hypothetical, because without the President's plan being there, you would see -- you would not have seen the reduction in long-term interest rates. You would see interest rates going in the other direction. You would see gridlock and a return to recession. And so it's very difficult to conduct an exercise that would be that speculative.
Yes, in back.
Q Since the interest rate reductions were greater than expected, the markets have already discounted the effects of this plan, perhaps overdiscounted it. And that you'll get a blip-up even if you do pass the plan. Are these reductions sustainable?
THE VICE PRESIDENT: No. Yes, they are sustainable. Yes. And, no, I don't think that there are too many folks analyzing this that we've talked to anyway, who would agree with your point there. You can look at how sensitive the markets are to the fortunes of the plan in the Congressional process. It's really remarkable. As soon as some key senator, key committee chairman says something that looks like it's going to pose a little problem, interest rates will start to trend up. And yet when it is more successful, they go down even more rapidly.
Q The Federal Reserve Chairman said yesterday that at some point interest rates would have to go up sometime in the future. Basically they've bottomed out. How does that factor into all of this, A. And, B, if that scenario comes to pass, how would that affect your model of job growth.
DR. TYSON: Well, I would like to make the following historical observation. Interest rates never remain constant. What I think -- I interpret Chairman Greenspan's remarks in the following way. At some point or other, some interest rate will surely rise. What that point is was not specified by Chairman Greenspan. It could be several years from now or a few months from now. So the question to ask yourself is, is there anything in the economy or in our plan which one would think would likely lead to an increase at either the long end of the market or the short end of the market.
The long end of the market, certainly not. I think, basically, the long end of the market has responded with the notion of -- responded to a credible deficit reduction effort. My sense is there is still some uncertainty out there because the budget has not yet been passed. If anything, I would think that passage might lead to further small improvements at the long end.
But now let me go to the short end of the market. The short end of the market, what Chairman Greenspan also said was over the next two to three months, he would be looking at the numbers on inflation to see if there was anything there which would suggest an adjustment at the short end of the market. Well, we're going to do the same thing, too. We will be looking at inflationary indicators.
We see nothing in the national economy, nothing in the global economy and nothing in our plan which leads us to expect any uptake in the inflation rate, and therefore, we see no reason to anticipate that there will be an adjustment in the short end of the market. So that's how I would interpret the remarks.
Q What was his point then?
DR. TYSON: I cannot read Chairman Greenspan's mind. I read his comments, and that is my interpretation of his comments.
Q Looking at the different states I see that Arizona -- you're expecting almost 321,000 new jobs, and a huge state like Illinois in the midwest, 295,000. Is the reason for the difference in these numbers what was explained previously?
THE VICE PRESIDENT: Yes. And I'll call on her to elaborate on this point. But whatever methodology you choose to try to make it as accurate as possible is going to have some regional factors that diverge from what you're probably going to see. And in this case, because so many of the numbers on which the model was built were taken during the 1980s when the industrial states of the upper midwest were hit harder than the most of the rest of the country, the baseline is a little bit too pessimistic in those states. And we know that, but you can't just tweak the numbers without damaging the integrity of the overall study. But we can tell you in response to a direct question that they're too pessimistic in those states -- in Michigan, Illinois, Ohio. And I think that most people familiar with the numbers and the model would pretty much agree with that.
But if you want to elaborate.
DR. TYSON: I would like to just make one other point. When we say we're conservative in terms of Michigan job growth, it should be remembered that even with our conservative number, we will be creating three times as many jobs over the next four years as was created under the Bush administration. And similarly, in Ohio, where we have a conservative estimate, Ohio lost jobs during the last four years. So the point of the study was to show that there's going to be job growth and there's going to be job growth in every state, and in every state there's going to be more job growth than there was under the last administration.
THE PRESS: Thank you.
END11:05 A.M. EDT