THE WHITE HOUSE
Office of the Press Secretary
STATEMENT BY MARTIN N. BAILY CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS Over the last eight years, the U.S. economy has enjoyed the
emergence of a "New Economy," during which the country achieved a remarkable record of broad and inclusive growth that has provided some of the largest gains to those at the bottom of the income distribution. The 2001 Economic Report of the President (ERP), which will be released January 12, analyzes the emergence of a New Economy and examines the driving forces that created this dynamic economy: technology, changed business practices, and wise economic policies.
The ERP defines the New Economy by the extraordinary gains in performance -- including rapid productivity growth, rising incomes, low unemployment, and moderate inflation -- that have resulted from the combination of mutually reinforcing advances in technologies, business practices, and economic policies. The New Economy is pervasive. It has transformed not only high technology, but virtually all sectors of the economy.
Fiscal discipline has played a critical role in this New Economy. In the past 8 years, the structural Federal budget balance has moved steadily from deficit to surplus. The policy decision to exercise fiscal discipline was critical to setting in motion a virtuous cycle that has helped sustain this expansion. The swing from large deficits into surpluses helped keep interest rates low and stimulated dramatic growth in investment, which in turn boosted productivity, thereby contributing to faster growth.
The convergence of dramatic advances in computer hardware, software, and telecommunications brought a new technological dynamism to the economy. Meanwhile, widespread changes in business organizations introduced by entrepreneurs, including new production methods, new relationships with customers and suppliers, new business strategies, and new forms of finance and compensation, helped make the most of these technologies across all sectors. Combined with Administration policies to enhance workers' skills, open new markets at home and abroad, and pursue fiscal discipline, these forces produced a dramatic strengthening of our economy.
To be sure, the New Economy is not a panacea. Left unassisted, the New Economy will not guarantee that everyone participates in the prosperity it generates. There is a continuing need for government policy to address the needs of those at risk of being left behind. Moreover, a New Economy does not mean that the basic rules of economics no longer apply. In particular, demand cannot outpace supply without the danger of rising inflation, and the economy remains susceptible to cyclical fluctuations. However, the New Economy has increased the pace at which supply is expanding, and one of the fruits of pursuing sound policies over the past eight years is that policymakers are in a particularly good position to deal with unexpected events.
Economic growth appears to be moderating somewhat more than was expected when the Administration forecast was made in mid-November. However, while the short-term growth outlook is somewhat weaker, the underlying economic fundamentals remain strong. To keep the economy on a sustainable growth path with low unemployment and stable inflation, it is critical to maintain the policies that have served us so well in the past.
This is not the time to abandon fiscal discipline in favor of large tax cuts. Maintaining a fiscal surplus helps keep interest rates attractive for investment. Moreover, continued fiscal discipline is key to ensure that the Nation has the resources needed to meet the challenge of an aging population. The New Economy has brought with it many great new chances and challenges. With prudent policies, we can meet those challenges and continue to expand the circle of opportunity.