ON-THE-RECORD PRESS CALL
BY CEA ACTING CHAIRMAN TOMAS PHILIPSON
ON THE 2020 ECONOMIC REPORT OF THE PRESIDENT
Via Teleconference
10:05 A.M. EST
MS. SLOBODIEN: Good morning and thank you for joining us on this call today to unveil the 2020 Economic Report of the President.
Before I turn things over to CEA’s Acting Chairman Tomas Philipson,
I want to remind everyone that today’s call is on the record. Chairman
Philipson will make opening remarks about this year’s report, and with
any remaining time, we will take questions.
Joining Tom for the question-and-answer portion of today’s call is
Tyler Goodspeed, a member of the Council of Economic Advisers, and chief
economists Don Kinkel and Josh Rauh.
I will now turn things over to CEA’s Acting Chairman Tom Philipson
to provide an overview of the 2020 Economic Report of the President.
ACTING CHAIRMAN PHILIPSON: Thanks, everyone, for joining us.
Today, the Council of Economic Advisers released its Annual Economic
Report of the President, which is required by statute to be submitted to
Congress every year to provide an update on the state of the economy.
I wanted to take this call to basically reiterate some major
themes. Two of them are as follows: The first theme is that the current
economy is not a continuation of the expansion after the Great
Recession. The second theme of the report that goes through a lot of
chapters is that the growth that we’ve seen in the Trump economy has
been very inclusive in terms of lowering both income and wealth
inequality.
As the President wrote in a letter introducing the report, and I
quote: “These results did not come about by accident. Instead, they
were supported by our foundational pillars for economic growth that put
Americans first, including tax cuts, deregulation, energy independence,
and trade negotiations.”
The report also identifies several Trump administration responses
to challenges to continued growth, including keeping U.S. markets
competitive and our trading relationships fair.
Also, for the first time in an Economic Report of the President,
we’re discussing the economic factors driving the opioid addiction
issue.
Thirdly, we have several chapters discussing the overregulation of certain markets, in particular housing and healthcare.
The report concludes by setting forth the administration’s
long-run policy-inclusive projections. Historically, the
administration’s projections are always higher than other agencies
because they assume that all policy proposals of the administration are
implemented.
In contrast, CBO projections assume no such proposals are
implemented while Blue Chip and Wall Street forecasts assume something
in between, taking a stance on the likelihood of policy proposals being
implemented.
So let me get to -- the first theme of the report is that the
current economy breaks or reverses trends of the past part of the
expansion. Typically, economies grow faster following a recession after
which growth levels off, particularly recession induced by financial
markets, as was the case with the Great Recession.
The current expansion differs from that in that growth accelerated
later in the expansion despite that monetary policy was much more
constrained in the later part of the expansion relative to the zero
rates of the early part of the expansion.
This is perhaps why 2016 projections of the economy were much more
pessimistic to compare to what actually happened. It is very
important, we believe, to stress that we were told by the agencies’
economists around the country what a continuation of an expansion would
look like in 2016. There were several reports outlining what the
forecast would be of the economy in 2016, going forward.
And, consequently, the Trump economy has basically shattered those
projections on pretty much all dimensions in terms of new jobs, GDP,
wages, unemployment, et cetera.
So to put it simply, those who say this is currently a
continuation of the past expansion are contradicting what they
themselves said in 2016.
The report goes through these differences, but the Congressional
Budget Office’s final pre-election forecast from August 2016 illustrate
how today’s economic turnaround was unexpected before President Trump’s
election.
The total -- for example, the total nonfarm employment is
three-and-a-half times higher than projected: 7 million jobs versus 2
million jobs.
Under the Trump administration, for the first time on record,
there are more job openings than unemployed people. The unemployment
rate is, again, better than people predicted the continuation of the
expansion would look like. It is 1.4 percentage points below the 2016
projections, reaching a 50-year low of 3.5 percent across all the --
virtually, all demographic groups are experiencing a historically low
unemployment rate.
The labor force participation rate is 1.5 percent above what
people thought the continuation of the expansion would look like,
despite the aging of the labor force, which reduces labor force
participation of people retired.
Real GDP has accumulated 1.4 percent higher than what people
thought the continuation would look like. And real wages are about
$2,300 for the average household higher.
The current economy is not just beating projections of what the
continuation expansion was told -- we were told would be. It’s also
outperforming the past part of the expansion. So the report also
outlines, basically, how the data prior to ’16 and post ’16 looks like.
The Trump economy is bringing people off the sidelines more than
over the previous part of the expansion. The prime-age labor force is
growing under President Trump by 2.2 million, reversing losses under the
previous administration of 1.5 million in the labor -- in the prime-age
labor force participation.
Since President Trump’s election, the economy added half a million
manufacturing jobs, which is a big trend right from before. Nearly
twice the amount added over that same amount of time before the 2016
election.
Additionally, over the Trump administration, manufacturing
industrial production grew at an annual rate 11 times higher than the
rate over the end of the Obama administration.
Of central importance to economists is labor productivity in the
non-farm business sector. And it’s after President Trump took office.
This is key for long-term GDP growth because productivity growth -- how
much each worker produces, essentially -- together with unemployment
growth determine the total amount produced in the economy, or GDP
growth.
This growth in productivity was predicted by CEA in 2017 through
more capital being available per worker, being enabled through tax
reform, and less red tape burdening employers and employees through
deregulation.
Last year, we saw a doubling of the rate of the productivity at
1.8 percent growth in productivity compared to President Obama’s second
term.
Lastly, that the data on homeownership rate in the United States
fell throughout most of the recovery but has rebounded under President
Trump -- an increase to 64.8 percent.
So that covers the first part of -- the first theme of the report
of basically the facts supporting the claim that this is not a
continuation of the expansion after the Great Recession.
The second theme of the report stresses the new economy generated
-- has generated an inclusive -- so-called inclusive growth that
benefitted the less well off the most. One of the most important
reversals, pre- and post-election, is that the previous part of the
expansion saw inequality rising in the U.S., but the Trump economy has
delivered so-called inclusive growth, with the working class seeing the
largest income and wealth growth compared to the upper classes.
Nominal wage growth for all private-sector workers has been, or at
least, 3 percent for a year and a half now. But this doesn’t tell the
whole story. Income growth has been inclusive in the sense that wage
growth for many historically disadvantaged groups is now higher than
wage growth for more historically advantaged groups, reversing the
trends observed under the previous part of the expansion.
This private-sector, blue-collar boom under the Trump economy has
generated wealth gains for the least well off. Net worth held by the
bottom 50 percent of households have increased by 47 percent, more than
three times the rate of increase for the top 1 percent of households.
Instead of fostering dependency on government programs, these
gains among the poor have generated self-sufficiency the way envisioned
by President Johnson in declaring a War on Poverty.
To put these gains in perspective, the wealth gains for the bottom
half of households under the Trump economy exceeds a year of combined
federal spending on the largest anti-poverty programing, including
Medicaid, food stamps, and TANF -- where Medicaid (inaudible) pretty
much every other means-tested program.
In addition to Opportunity Zones created by the 2017 tax reform, it
provides an alternative approach to standard anti-poverty programs,
which we discuss in the report. As opposed to taxing the population to
create programs that incentivize participants to not be successful to
remain in the program, this new approach reduces taxes to stimulate
investment and demand for workers. Pretty much the best anti-poverty
program known to man.
A booming job market and more money in Americans' pockets continue
pulling people out of poverty and off means-tested programs.
Over the first two years of the Trump administration, the number of
people living in poverty decreased by about 2.5 million, including
nearly 1 million children of single mothers.
The poverty rates for African Americans and Hispanics are at record lows.
Food security has risen at the same time, as nearly 7 million
fewer people are participating in the food stamp program, SNAP, than at
the time of the 2016 election.
Similarly, enrollment in means-tested welfare programs is down
across the board due to income gains rather than eligibility
restriction.
Lastly, the report also discusses direct effects of the President's pro-growth policies in various chapters.
One discusses removing harmful regulations and supporting
innovation. And that's been a central component of the pro-growth
policies behind these impressive economic gains.
The Trump administration's deregulatory agenda has two
components. One is slowing the growth of new regulations, and second,
cutting harmful regulations. Once fully in effect, the administration's
approach to federal regulation will have raised real incomes by an
estimated $3,100 per household per year, according to the analysis in
our report.
The report shows that excessive regulation is a hidden tax that
hurts the poor, and deregulation that is undergoing is therefore
progressive.
For prescription drugs and Internet access, savings as a share of
household income are eight times higher for the bottom fifth of the
households than for the top fifth, the report documents.
Rather than overregulating the energy sector to attempt to guide
it in the direction desired by government officials, the Trump
administration supports the great force of private-sector innovation and
investment in the energy sectors, which has led to tangible benefits
for all Americans.
Gains in shale drilling productivity have led to lower prices for
natural gas, gasoline, electricity, and oil, saving the -- we document
-- saving the average American family of four about $2,500 a year.
After most instances of deregulation, shale-driven savings
represent a much larger percentage of income for the poorest fifth of
households than for the richest fifth. Again, being progressive in
nature.
Embracing energy innovation instead of overregulating America's
abundant human and energy resources has environmental benefits as well.
The shale-driven decline in emissions allowed the United States to
realize a larger decline in carbon dioxide emissions than the European
Union, adjusted for the size of the economy. The shale revolution has
cut U.S. greenhouse gas emissions by more than double the Obama EPA's
projections for the now-rescinded Clean Power Plan.
To summarize, the 2020 Economic Report of the President shows the
success of the administration's economic policy agenda and demonstrates
that its foundational policy pillars are enabling the U.S. economy to
overcome structural trends that are perversely suppressing growth.
There are still barriers that prevent lower-income workers from
realizing the full benefits of the strong labor market, which is why the
report also focuses on the opioid crisis, housing affordability, and
anti-poverty measures like Opportunity Zones.
As President Trump concludes in his introduction to the report, I
quote: "Though the American economy is stronger than ever, my
administration’s work is not yet done. With a continued focus on
policies that increase economic growth, promote opportunity, and uplift
our workers, there is no limit on how great America can be."
With that, I'll be happy to take some questions.
MS. SLOBODIEN: Operator, we're now ready to open the line for questions.
Q Good morning. Thanks for doing the call. Two questions.
First, earlier in your remarks, you said that the economic performance
over the past three years -- you described it as a separate and distinct
phenomenon apart from the recovery that began under President Obama.
But if you look at graphs of economic growth, job growth, it's really a
straight line. What would you say is the delineating event that would
make that straight line break into two separate categories to which you
can attribute different causes?
And the second, on job growth: How do you account for the fact
that the last three years of the Obama administration saw more jobs
created than the first three of President's Trump's administration? How
do you say that the job growth is better, when it wasn’t?
ACTING CHAIRMAN PHILIPSON: Okay. So let me address those
questions in turn. The first thing you need to understand is that
particularly after a financially induced recession, it’s much easier to
grow the economy than if you'd been growing it for several years.
The second point, the most extreme version of that is that suppose
everyone has a job; then it's, by definition, impossible to additional
job growth. That’s the extreme version. But that’s essentially what is
going on.
But if you look at -- my point that I wanted to make is that we
had people saying what the continuation of Obama policies would yield in
terms of economic performance. We have that data. They told us what
it would look like in 2016. And if you look at what actually happened,
compared to that later part of the expansion -- which most economists
would predict would be more slower growth because it was later in the
expansion -- what happened was that we accelerated relative to the
previous year. And that is the --
Q But respectfully --
ACTING CHAIRMAN PHILIPSON: Excuse me?
Q But respectfully, sir, whatever economists predicted, that
doesn’t change the fact that job growth over the last three years of the
Obama administration was better than the first three years of the Trump
administration. And yet, the President and, I believe, you are
claiming that that's not true.
ACTING CHAIRMAN PHILIPSON: So, first of all, you can’t cherry
pick years of Obama and then compare it to Trump. He was responsible
for the slowest recovery on record since the Great Depression. And so
you can't just say that the last three years is what represents these
policies.
The second point is that it's much harder to grow jobs when
everyone has a job. And that’s taking into account why economists in
2016 predicted what they did in terms of job growth going forward, which
was three times -- three and a half times lower than what actually
occurred. I mentioned 7 million versus 2 million.
Q Hi, thank you for doing the call. What do you project GDP
growth to be this year, if policy just stays the same? Is it 2.4
percent?
ACTING CHAIRMAN PHILIPSON: Yeah, that’s in the report. I believe
it's -- it's published in the report. So all of those numbers in there
are what we have, what we believe is the policy add of inclusive
policy.
Q Thank you.
Q Hi, guys. Thanks for doing the call. I am wondering --
there is no mention that I can see in the report of the budget deficit.
And I’m curious, A, to what degree you think increased deficits have
contributed to, or detracted from, growth in the last year; and, B,
whether you see deficits as a threat to growth moving forward.
ACTING CHAIRMAN PHILIPSON: So we're doing analysis on the impact
on revenues. But if you look at CBO's numbers, their impact of revising
up for GDP growth in the Trump economy is essentially saying that the
tax cuts had very limited effects on revenues, just using their
numbers. But again, we're looking over that -- the question on that.
On the slowing down on the deficit, with the low rates, we haven’t
really seen any slowing down in terms of high rates being induced by
the deficits. So we haven’t really discussed it in the report.
Q Thank you.
Q Thank you for doing this call. I’m actually going to pick
up on that. I wanted to ask you about debts and deficits as well. The
Washington Post has a story out today that Mick Mulvaney spoke in
private to a group overseas in which he said the following, and I’ll
quote. This is from a tape recording: “My party is very interested in
deficits when there’s a Democrat in the White House. The worst thing in
the whole world is deficits when Barack Obama was the President. Then
Donald Trump became President, and we’re a lot less interested as a
party.”
Mulvaney went on to describe the trillion-dollar deficit in 2019
as, quote, “extraordinarily disturbing.” And he said the Republican
Party is, quote, “evolving” since President Trump took the Oval Office.
So to pick up on what -- the New York Times question, there really
isn’t any references here about debts and deficits. I guess, my
question is, you know, Mick Mulvaney suggests, essentially, that
Republicans are -- have become hypocritical on debts and deficits. How
important is it to this administration?
ACTING CHAIRMAN PHILIPSON: So, first of all, the administration
does not determine fiscal policy. That’s voted on by Congress. So,
just to make that clear.
The second issue is I think there’s a narrative out there on two
dimensions on what the tax cut implied. One was that it was only
helping rich people, and the second was that it drove a hole in the
debt.
This report lays out exactly the opposite type of evidence: that we
have the poor actually doing better than the rich in this economy,
through the tax cuts stimulating labor demand, essentially. And,
second, the CBO numbers, as I indicated, has shown that there’s been
very limited revenue effects if you take into account the growth of the
economy and how that affects other sources of revenue than the corporate
tax cuts from the tax reform due to the Trump economy.
So I think that’s -- I’m not going to comment on what Mick said,
but I think that’s the CEA stance on that kind of common argument about
the tax reform.
Q Isn't tax reform just one part of debts and deficits? I mean,
when you look at the whole picture, your administration is endorsing,
through the budget, a trillion-dollar deficit.
ACTING CHAIRMAN PHILIPSON: No, it’s clearly (inaudible) in
revenue. Both enter in to generate a difference, which is called a
deficit. But clearly, everyone in the administration believes that we
needed to support our military, build up our military from how drained
is has become. And that’s reflected in the new spending, particularly
the new military spending that took place.
Q Hi, thanks for doing the call. I wanted to see if you could
explain a little more about how you arrived at the impact of 0.2
percent, I think, from the coronavirus on growth in the first quarter.
And if you have a projection for the year. Thank you.
ACTING CHAIRMAN PHILIPSON: So, the report was finalized before the
coronavirus became an issue. We have not come out with a full analysis
yet. We’re -- basically, the administration is taking a bit of a wait
and see in terms of the economic analysis.
Obviously, the President’s main concern is the safety of the
American people, and we are putting very strong measures in to prevent
an outbreak here in the U.S.
Q Thanks. But, I guess, you know, Larry Kudlow has said he sees
it at around 0.2 percent for the first quarter. Do you back that, sort
of, perception?
ACTING CHAIRMAN PHILIPSON: That’s consistent with what we have in
terms of if you look at GDP impact from SARS, what it had on the Chinese
economy and what today that would translate into. Again, we’re
undergoing a lot more detailed analysis of the supply chain from China
-- how it’s been hit by the restrictive measures taking place there.
Q Hello, everybody. Thanks so much for doing the call. So I’m
just curious, you know, from talking to (inaudible) conservatives bases,
like (inaudible), or CATO, or AEI. There used to be somewhat of a
consensus that any, you know, major economic policy, whether it’s tax
cuts or trade deals -- any sort of economic policy takes about five to
seven years to take impact. How do you respond to that in regards to
taking credit for growth in the past three years?
ACTING CHAIRMAN PHILIPSON: Yeah, so there’s different parts of our
economic agenda. You know, there’s four pillars usually we assign.
One is tax cuts; one is deregulations; third is energy -- promoting
energy innovation and independence; and the fourth one, renegotiation of
fair trade agreements.
So if you look at the first two, certainly they have kicked in
already. So the tax cuts generated a very predictable sort of capital
(inaudible) to increase investment, which we believe is partly
responsible for the doubling in productivity growth we saw in the last
year compared to the Obama administration. Obviously, productivity
growth is very important for GDP growth. It’s basically: GDP is
employment growth times productivity -- or plus productivity growth.
So we believe both deregulation and tax cuts have enhanced
productivity significantly already. But if you look at the deregulation
chapter of the report, we also project out for the next three or five
years what the impact of those measures will be.
Q So you disagree with those who say that the impact of policies
takes five to seven years and it would only happen in 2020 (inaudible)
Trump policy? So you disagree with those who say that?
ACTING CHAIRMAN PHILIPSON: Yeah, it depends on the policy.
Clearly, we saw investment effects from the tax reform immediately
following the tax reform. It depends on the policy.
Q Thank you. I have actually two questions. The first is, you
haven’t mentioned anything about the 20 percent increase to, I believe,
record levels of farm bankruptcy.
And could you also expand on your statement that the poor has been
making the greatest gain? Because if you start at $10 an hour, and
states have raised the minimum wage to $12 an hour, that’s a whopping 20
percent increase but still not a livable wage. And those state
increases were voted on during the end of the Obama administration,
after the Republicans kept knocking down any down federal increase in
the minimum wage. So could you respond to those?
ACTING CHAIRMAN PHILIPSON: Yeah, we clearly document the low-wage
gains in the report. If all of you want, sort of, the bottom line of a
lot of what we do, the 435-page report might be a lot to digest. But
our CEA -- White House CEA Twitter account has a lot of the bottom
lines, kind of, for people who are more interested in a summary.
So there’s no question that the lower end has grown faster
(inaudible). We also have analysis showing that this has very little to
do with the government policies of raising minimum wages. Those
policies affect a very, very small share of the labor force who are
experiencing these gains.
Q And the 20 percent in farm bankruptcy?
ACTING CHAIRMAN PHILIPSON: We haven’t discussed that in the
report. And we obviously are aware of the trend, but we didn’t go in to
discuss it on the report.
OPERATOR: And we have no further questions.
MS. SLOBODIEN: Thank you, Operator.
END 10:31 A.M. EST
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