THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY CHAIRMAN OF THE COUNCIL OF ECONOMIC ADVISORS, MARTIN BAILY
The Briefing Room
1:10 P.M. EDT
MR. LOCKHART: As announced, Martin Baily is here, the head of the CEA, to talk the GDP numbers, which are quite good; and also about some of the changes in how that measurement is done, which is quite interesting. And we wanted a chance to give you a shot at asking some questions.
Let me, before he comes up, draw your attention to one development. The CBO, this morning, put out a letter which, I think, puts the end to a debate that's been going on for some time in this town about whether the Republicans are planning to spend the Social Security surplus. According to today's CBO analysis, the Republican budget process, which is complete with Labor-H now, has resulted in taking a $14.4 billion on-budget surplus and creating a $17.1 billion on-budget deficit. For months, they've been saying that they weren't going to do this, but today you no longer have to listen to what they say, you can just look at what they've done.
The Republicans, through the 13 appropriations bills that they've passed and sent down to the President, have, by -- you know, it's not even close -- by $17 billion, spent the Social Security surplus. We had to go into -- you know, in this great new world of accounting, a 13th month to find this out, but now we know.
I think it ends what at times has been a somewhat ridiculous debate, marked by a bunch of press conferences and misleading ads. But this is the CBO that the Republicans rely on for their budget numbers, and they've come in looking at their complete 13 appropriations bills and said they've spent the Social Security surplus.
Q So that's $3 billion to Social Security?
MR. LOCKHART: That's $17 billion.
Q I thought you said there was a $14 billion on-budget surplus.
MR. LOCKHART: Yes, well, they're now -- they've spent all of the on-budget, according to their figures. According to their budget, they have a $14 billion on-budget surplus for FY 2000. They've spent that, and then they've gone $17 billion in addition, which --
Q The Republicans already have another letter that apparently they've circulated on the Hill today, with a different set of budget assumptions, that comes to a $1 billion surplus. So is -- the debate is over or they're just --
MR. LOCKHART: Listen, you -- they can try their tricks, their magic acts, whatever they want to do. But the CBO was asked, look at the bills, what are the numbers? And they find a $17 billion dip into the Social Security surplus.
Now, you can do a special gimmick table, if you want. They've put one in here especially for the Speaker, which, if you use sleight of hand, magic, and, as Bob Reischauer said, the "Look ma, no hands" approach to budgeting, you can find a way to all try to magically add up. When you use arithmetic, pretty simple stuff -- one plus one equals two -- you find that they spent the Social Security surplus.
Q But you don't accept this number, do you? The $17 billion number? I mean, this is the CBO estimate, not an OMB estimate.
MR. LOCKHART: No, under the President's plan there is no spending of the Social Security surplus. The interesting thing about this is, this is $17 billion and it includes a 1 percent across-the-board spending cut. This isn't excluding that, this includes it. So we'll do what we view as a mindless, meat cleaver approach to budgeting -- cut a bunch of programs in defense, education, law enforcement, that shouldn't be cut, and you still spend the Social Security surplus. So I think it's hard to argue with these numbers.
Q My point is, though, that these are not numbers that the administration accepts, because this is based on analysis that is different than your own analysis.
MR. LOCKHART: Well, we certainly -- OMB numbers -- under the OMB numbers, the President's proposals for what we want to do add up. We certainly believe, looking at these numbers we have no doubt that what the Republicans have done through the appropriations process is spent the Social Security surplus.
Q Joe, where does the emergency provisions -- the census and so forth, how are they accounted for in this?
MR. LOCKHART: I don't know. You'll have to go to CBO on all of their calculations. Again, I think you can find some of that in the gimmick table that they've provided for the Speaker of the House. Just read it yourself, you don't really need my interpretations. Read the letter. The letter is clear. They've spent the Social Security surplus, the game is up. They can run $500 million of ads saying something else. The numbers are clear. It's time for them to get to work, work with us. We don't have to do this. There is a better way to do it, and we should get forward.
With that, I'm going to let Mark come up.
Q But when you say that they've spent the Social Security surplus, you really mean that they dipped into it, because there's still a whole lot of surplus left.
MR. LOCKHART: Well, they spent at this point, even with a 1 percent across-the-board cut in spending, which we oppose, in the 13 appropriations bills they've passed, they've spent $17 billion from the Social Security trust fund.
MR. BAILY: Thank you. We have gotten a set of extraordinarily good numbers for the GDP. As you may know, 4.8 percent was the increase for this quarter. For the past four years, we see GDP has increased by 4.1 percent. If you take out the government and just look at the private part of the economy over the past four years, we've had 4.6 percent growth in the private sector of the economy. That's a really extraordinary record over any period, and certainly well into an extended boom -- potentially the longest boom in history. That is a remarkable achievement.
We also learned today that inflationary pressures coming from the labor market are moderate. The employment cost index over the past year has increased 3.1 percent. Given the productivity growth that we're getting, that's consistent with very moderate inflation. So that's the basis for us to think that this expansion is going to continue with strong growth and low inflation.
We believe that some of the -- we believe that the President's economics policies have contributed substantially to this strong economic performance -- in particular, the move to fiscal discipline. If we go back to 1992, there was a 4.7 percent of GDP deficit, budget deficit. We're now looking this year at a 1.4 percent budget surplus. Some of that is the effect of the business cycle, but even after adjusting for that, there's been a huge swing in our fiscal position. And this has allowed interest rates to come down. It's allowed an investment boom, which has spurred productivity growth, increased capacity and allowed the economy to create jobs without inflation.
Let me say a bit about some of the benchmark revision changes and the methodological changes as way of background here. There have been several changes that the BA has made to improve the quality of our GDP numbers. Some of this I think is an improvement that allows us to better reflect the kind of information technology economy in the modern economy that we have. We are now capturing software as part of business investment. Over a longer period that adds about one-tenth of a percent to GDP growth, something closer to two-tenths of a percent over the last couple of years.
In addition, they have back-cost the way they've done the price deflators. They were doing prices in a particular way from 1995 to the present, using geometric means. I won't go into the details there, but it's -- I think most economists believe that that's a preferable way to measure overall GDP inflation. That was already in place in the post-'95 period. They've done that now back prior to 1995.
I also want to mention an important, in a way, new substantive piece of information that came out of these benchmark revisions. And that is, when you get new data you get more extensive data. A lot of the GDP numbers come from preliminary surveys, partial surveys which cover only part of the economy. And as you do censuses and get more data, you find out more accurately what's going on.
And we found that there was more GDP and more income, particularly in 1997 and 1998. This means that we have -- we are now seeing, we already knew that the last four years were remarkable growth. We're now seeing -- even aside from any changes in measurement -- that that growth is even stronger. We had previously thought that productivity growth over the last four years, non-farm business was over 2 percent -- 2.1 percent over the last four years. That number will almost certainly be -- that number is officially revised, will come out next week; but almost certainly that will be revised up, so we will see stronger productivity growth over the whole past period, but certainly over the last four years, I think, beginning to suggest now that we are seeing some acceleration of productivity growth as this strong expansion continues.
Let me stop there and see if there are any questions.
Q Are you concerned that with this robust growth in the economy, that the Fed chairman may again move to raise interest rates to try to slow the economy down?
MR. BAILY: Well, we don't -- as you know, we don't comment directly on Fed policy. I would point out that the fundamentals of this economy are very strong, and we are not seeing, at this point, signs of accelerating inflation. The only change that's taken place in the inflation picture is that energy prices, which had fallen dramatically over the -- energy prices rose over this past year. They had fallen substantially over the prior year. And that has had an effect, particularly on consumer price inflation and on the producer price inflation.
But in terms of worrying about inflation going forward, there's really no sign in the core inflation, there's no sign in wage growth, which cannot be accommodated by productivity growth, that we're getting inflationary pressure. So at this point, the signs of inflationary pressure aren't there. But I'm not going to make any particular comment on the Fed policy.
Q Are there any warning signs out there, things that you're tracking that could possibly end the expansion, or slow it?
MR. BAILY: Well, one had previously thought that it was very hard to operate this economy with such low rates of unemployment. But that is not proving to be the case. We're proving now, month after month, with an unemployment rate a little above 4 percent and no acceleration in underlying or core inflation, that it now seems possible to operate this economy with much lower rates of unemployment.
One of the reasons for that is the capacity utilization remains rather moderate, and that's another benefit of this strong economy and fiscal discipline that we've had. With the investment boom, we've increased capacity, and that, as I said earlier, allows us to create jobs without accelerating inflation. There's a lot of competition in this economy, and we now have incentives and encouragement for people to go to work, so there's a substantial supply of people who want to work, the jobs are being created for them to work, and that's what's allowing us to operate this economy without accelerating inflation.
Q Mark, what about the flip side of this coin? The GDP has been growing at a robust rate and, yet, the labor price index has been low. It would suggest, if you look at the other side of that, that while the economy is surging ahead, there's a lot of people who are being left behind.
MR. BAILY: We don't want to view this as a sort of rosy scenario. I wouldn't want to say that everyone is better off. We know that there are people still in poverty, we know that manufacturing jobs are down. We know that there's more that needs to be done to improve and to make sure that every American benefits.
But at the same time, let's be aware of how good the news is. We had, recently, reports of income data. We had had, in previous expansions, a pattern under which the people, the families in the lowest quintiles of the income distribution had relatively small increases in their real income. In this expansion, we've seen about a 10 percent -- over five years -- a 10 percent increase in income across all the quintiles of the income distribution.
So the latest numbers, I think, that we're seeing suggest that everyone is sharing in the expansion and the benefits of this expansion.
END 1:25 P.M. EDT