(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-1931
Good afternoon, I'm delighted to be here with you all today to talk about our economy – a marvel of prosperity and innovation that makes you and me and every American the envy of the world.
I want to talk about the incredible resilience of our economy, the way it recovers and grows, enabling Americans to achieve financial security and always look forward to an even better tomorrow for their children.
And I also want to address our challenges; how can we ensure that our economic predominance continues for generations to come?
But first I want to discuss our economy in the context of the larger world we live in, our economy as it relates to the global economy.
Working with my counterparts in the G7 is one of the highlights of my job as Treasury Secretary. Our work with our economic partners all over the globe is so important… because our prosperity is tied to the prosperity of the world.
The world economy is in better shape now than it has been in a long time. We've seen the highest growth rates in 20 years in some parts of the world. And I believe firmly that American economic policies are at the forefront of creating prosperity around the globe. We are looked to as a leader on this front, without question.
That said, the rest of the world is still growing too slowly. And while the growth of the U.S. economy is important to other countries, the sustained growth of the other industrialized nations of the world is also very important to us. It is important to have balanced growth in the world; the trade deficit is largely a result of the global growth deficit.
When the rest of the world grows, it deepens our export markets, which aides our manufacturing industry and families. This Administration is committed to opening markets, ensuring fair trade and reducing barriers to trade because fair and open trade leads to American job creation. America's manufacturing workers are the most productive in the world; with access to the worldwide marketplace, their potential for success is limitless.
I take real pride in the work the U.S. has done to get the G7, both at the ministerial level and the head-of-state level, to focus on the need for global growth. G7 policy today is to pursue growth in each individual country. The President took that message to SeaIsland, and at Treasury we've taken it to every international meeting we participate in.
The world economy today is more stable than it has been in years. Unlike the recent past, we have no financial crises. The spreads on government debt are down and volatility has been reduced as well. One reason for this is the greater role today that flexible exchange rates play in the word economy.
The U.S. has been successful in recent months and years in advancing the essential idea of flexibility in exchange rates. It's critically important to keep this issue on the forefront of international economic policy, so the adjustment process that flexible exchange rates make possible can continue and can be encouraged and nurtured. We cannot continue to have artificially set rates developing exaggerated imbalances in the world economy. As I have stated numerous times, this administration believes that the international trading system works best with free trade, the free flow of capital and with market-based exchange rates.
Flexible currency exchange rates is another message that we've taken to the G7, and it has been accepted. The G7 and G20 communiqués reflect this desired policy. We've also taken this message to China and they have agreed. As Governor Zhou of the Central Bank of China said recently, building a more market-driven trading system for the renminbi is now a task of top priority.
A final issue impacting the global – and therefore the U.S. – economy has to do with efforts to alleviate poverty. Simply put, those efforts are not working effectively enough. That is why the President came up with the idea of the Millennium Challenge Account, which encourages all nations to embrace political and economic reform. I believe this is the most progressive economic development idea of our times to deal with poverty in developing countries.
With that backdrop of global growth and progress, I'd like to dive in to the U.S. economy – what makes it tick, where have we been, and where should we be going?
The most powerful elements of our economy today, and historically, are our small-business owners and entrepreneurs, our outstanding workforce and the simple fact that we operate as a free market. These elements have made our economy more open, flexible, adaptive and resilient than any other in the world.
These fundamentals should not – and I believe literally can not – change if we are to maintain our economic resiliency and dynamism.
We have a foundation that other nations envy and seek to emulate. That does not mean that we can rest. Adjustments to the times are necessary, and have occurred throughout our history.
We have recently adjusted to the need to fight the global war on terror, which includes a critical, ongoing battle on the financial front.
As Treasury Secretary I take special pride in the response of the financial community – public and private – to the menace of terror. Working together closely since September 11 th, we have regained financial and economic strength… and we're making sure that the terrorists are cut off from theirs.
In partnership, the government and the private financial sectors have dedicated ourselves to cutting the flow of blood money off from the killers. Because while hatred fuels the terrorist agenda, money makes it possible.
The public and private financial community has accomplished a lot together on this front of the war on terror in the last three years. The United States has designated 387 entities as terrorists or supporters of designated terrorists and frozen nearly $142 million in terrorist-related assets. More than $37 million has been frozen in the United States.
The U.S. has also identified and frozen over $4.5 million in al Qaida-related funds. In addition, almost $72 million has been frozen by other governments worldwide.
Almost 1500 terrorist-related accounts and transactions have been blocked around the world, including 151 in the United States.
Our efforts are making a difference.
Recent history has certainly provided us powerful lessons on the U.S. economy and I'd like to look at what worked, what is working, and what could use improvement.
For example, when I became Treasury Secretary, I never thought that I'd be spending so much time on education and health care – two areas where the President has shown clear leadership – but those are clearly the two issues driving the future of our economy.
In recent history, we've been able to see the incredible resiliency of our economy.
Think of how gloomy things looked just a few years ago, after enduring a series of harsh blows.
In 2000 and 2001 our economy was in steep decline.
GDP was slowing down, showing negative growth. What that means is that our businesses weren't selling as much, they weren't growing or hiring new employees, and consumers weren't buying as much. The high tech bubble had also been pierced.
What was happening is what economists call a softening and it's usually the predecessor of a recession.
President Bush understood that the economy was headed for trouble and therefore made tax cuts – a mechanism that stimulates our economy with near-certainty – a top policy priority.
But the oxygen that came from the first round of tax cuts was overshadowed by the blow to our economy that was the day of unthinkable terror: September 11 th. The economic repercussions of that day would go on for months, and hundreds of thousands of jobs would be lost as a result. Our nation mourned and the process of healing was slow.
The realization of corporate scandals in the months following that terrible day quite literally kicked us while we were down. Some economists were holding out the specter of deflation.
The President persisted with another round of tax cuts well designed to give the economy a lift in the short term and lead to higher long term growth. He believed in the strength of our economy, in the ability for our citizens and entrepreneurs to rise from the ashes. He knew that tax relief is like oxygen to businesses. He knew that tax cuts would bring renewed life to an economy that had been wounded.
This gets us back to those fundamentals I mentioned earlier. A free-market economy fueled by entrepreneurs responds almost organically to increased freedom. Freedom from excessive taxation and other burdens.
At the same time as the tax cuts took effect, the Federal Reserve Board was providing extra financial relief and freedom by making sure that interest rates were low so that investment would be encouraged.
Sure enough, our economy is coming back. Now we're beginning to do very well and the outlook is good. We've seen 12 consecutive months of job creation, with new jobs having been created for 1.7 million Americans, according to the Department of Labor's Bureau of Labor Statistics (BLS). Another BLS survey shows job gains at 2.4 million… and I imagine the real number is somewhere between those two. Since August 2003, employment has increased in 47 states and unemployment rates have decreased in 45 states. We're on the right path.
We absolutely won't be satisfied until every worker who seeks a job can find one – and we need to implement the rest of the President's pro-growth economic agenda to help job creation for those workers – but our economy has found solid footing and is certainly heading in the right direction. Businesses are growing, and they're hiring people. Families are bringing more money home; they're buying new houses and talking about where they should go on vacation.
Since our economy has recovered, homeownership has reached an all-time high with 69.3 percent of all Americans owning their own homes. Minority homeownership is also setting records at 51 percent.
We're growing from the base of our economy: small business. When I travel around the country I meet frequently with the owners of these very small firms.
Their perspective on our economy is critical – because they are the front lines, they are the job creators, and they are the future.
The National Federation of Independent Business (NFIB) optimism index has tracked 16 straight months of high optimism among small-business owners. The index is part of NFIB's survey of Small Business Economic Trends – frequently cited by Chairman Greenspan.
This is consistent with the stories I hear on the road. Everywhere I go, I'm seeing small companies that are expanding their businesses, hiring new employees and releasing new products.
The enthusiasm I hear from small-business owners when we talk about what tax cuts did for their businesses seems to me to be one of the keys to this thriving economy we're seeing today. Because those are the folks who create the majority of net new jobs. That makes small business the base of economy, and it helps explain why our economy is so nimble, so resilient. A multitude of small entities turns faster than a few big, stubborn ones.
Let me assure you that the spirit of enterprise is alive and well across America.
The self-employed were one of the key beneficiaries of the President's tax cuts, and it shows. Because so many of them file their business income on personal income tax forms, when the President cut marginal rates, small-business owners felt great relief. And they put those savings back in their businesses. They started hiring more people and increasing pay and benefits.
Many business owners also took advantage of the increased amount they are now allowed to deduct from their taxes for the purchase of business equipment.
I am often asked: what will future of our economy look like?
We certainly can't be content, even as we see this kind of positive growth and expansion. We can't be satisfied while Americans who are looking for work haven't found it yet.
We have to stay focused on our economy, and do everything in our power to make sure it is free to continue expanding.
Small businesses and workers are collectively lifting up the economy right now, but we can't take that for granted. If we want to see continued growth, we've got to keep their burden light.
What small-business owners want from their government is fairness and freedom. Sometimes it's truly not fair when a company with three employees has to comply with regulations designed with big business in mind, especially when all they are asking is the freedom to start up their business, the freedom to grow it, and the freedom to close the door and go fishing if that's what they want to do.
In exchange for that fairness and freedom, small business gives our country a great gift: jobs and the fuel our economic engine runs on.
So we've got to keep tax rates low on small-business owners and on every American who pays taxes.
Fundamental reform of our tax code – something the President has called for recently – also speaks to the issue of fairness. The President wants to make the code simpler and fairer… and he wants to make sure that it encourages economic growth and job creation.
We've also got to have an energy policy that keeps costs low, reduces dependence on foreign oil and creates jobs for American workers.
And we need to take the fear and cost of baseless lawsuits out of the equation. People who have been injured or harmed must be taken care of, must be compensated… we must maintain a fair system… but aggressive personal injury lawyers have been able to take advantage of the system, and their greed puts a financial and psychological drag on our economy.
It is also critically important that we make health care more affordable. American families, and the American economy, simply cannot endure the rate at which medical costs are increasing. We need free market reforms that put health care purchasing decisions back in the hands of patients, and that bring the cost down to the point where the uninsured can afford to buy insurance.
The recently enacted Medicare prescription drug bill contained an innovative new program that empowers consumers to make better health care choices. HSAs, Health Savings Accounts, are really super-charged IRAs that put patients back in charge of their health care. You own it, you control it, you can leave it to your heirs. They're a terrific new health insurance option, and great news for those struggling with steeply rising premiums.
The creation of Association Health Plans (AHPs) would also offer cost-savings to some of those who need it most: small-business owners and their employees. The President strongly supports the creation of AHPs, which would allow small firms to band together, across state lines, creating favorable economies of scale and broadening risk pools to make health insurance more affordable for very small companies.
Perhaps our biggest challenge today, the most important adjustment we can make, is in the area of education – primary, secondary and perhaps more importantly, continuing education.
I am often asked: what is the most important thing I can do, as Treasury Secretary, to strengthen the American economy? And I think that people appreciate the economic significance of tax cuts... that is the obvious answer. But it strikes me that this question is even better answered by Education Secretary Rodney Paige. For nothing will have a bigger, more lasting impact on the American economy than educating and preparing America's workforce for the jobs of today and tomorrow. Primary, secondary and continuing education - for generations to come - are by far the most important efforts toward achieving continued economic prosperity.
The American workforce must be more flexible than ever before in order to remain competitive. We all must dedicate ourselves to a lifetime of learning if we are to keep up with our incredibly dynamic entrepreneurial, job-creating sector.
All over America, jobs are going begging because prospective employees lack the requisite skills.
It therefore makes sense that we should take an entrepreneurial approach to the challenge. Community colleges are doing this already. Their programs are working, especially in those localities where they work closely with their business community to find out what jobs exist, and then design a curriculum that is relevant to local employment opportunities. Look to America's community colleges for the future of worker training.
Before I leave you with those thoughts, let me also deal directly with the issue of both our short-term and long-term deficit outlook.
First, the short term. The budget deficit matters. It's a concern. It's unwelcome. But it is understandable, given the extraordinary circumstances of recent history. But because of the ongoing effects of the President's pro-growth economic policies, the deficit outlook continues to improve. To stay on this path, we need a continuation of the President's policies on spending discipline and economic growth.
Because you cannot achieve deficit reduction without growth. This is a point that is too often missed in economic discussions and commentary.
Let me be as plain-spoken on this point as possible: Growth in GDP, growth in output, and higher national income, are necessary conditions to close the deficit gap. It can't be done otherwise. But growth is not a sufficient method for deficit reduction. We must also control spending.
Let me assure you: we know that deficits matter and we are committed to the President's plan, which will reduce the federal deficit by half over the next five years, bringing it well below historic norms.
Second, I'd like to address the deficit that results from unfunded commitments to the future generations -- the issues associated with the baby boomers seen in social security and Medicare.
Simply put: change is needed.
This year's Social Security Trustees' Report was little changed from last year's report, and showed that the Social Security program is seriously under funded and financially unsustainable in the long run. The unfunded obligation is $3.7 trillion on a present value basis over the next 75 years. Cash flows for the trust fund will turn negative in 14 years, in 2018, while the trust fund will be exhausted in 38 years, 2042. Neither date has changed since last year's report.
The fundamental math of Social Security is inescapable as the large baby boom generation reaches retirement age and the number of workers paying into the system declines significantly relative to the number of retirees. While we have some time to fix the problem, inaction is not a responsible option. The President has called for bipartisan efforts to create a permanently sustainable system and he has been right to do so - and the sooner action is taken, the better for all concerned. Each year that passes without needed changes to the program makes the ultimate resolution more difficult.
Personal accounts are an important part of the solution to strengthen Social Security as they will enable younger workers to accumulate a nest egg towards their retirement needs, creating funding within the system. Now is the time to take the steps to preserve and protect Social Security so that commitments to our seniors are kept and the needs of our children and grandchildren are met.
The 2004 Medicare Trustees' Report revealed even greater challenges than those confronting Social Security. While Medicare faces the same shifting demographics as Social Security, it is additionally burdened by sharp increases in underlying health care costs.
Rapidly rising health care costs place a great burden on the Medicare program, which is already under stress from the underlying shift in the age distribution of our nation's population. Controlling health care costs is the real key to the long run fiscal sustainability of both Medicare and the federal budget.
Clearly steps must be taken to address growing costs while maintaining high quality care for our senior citizens and, indeed, all citizens. The President has shown real leadership in seeking to reduce health care costs without diminishing quality or access to care. This Administration is committed to helping Americans obtain improved and more affordable health care coverage.
This Administration will continue its open and honest discussion of the issues facing Social Security and Medicare and remains dedicated to working with Members of Congress to take the steps needed to secure the long-term strength of these vital programs. These programs should be seen as a shared responsibility, not a political or partisan opportunity.
In conclusion of today's discussion, which I appreciate you joining me for: All economies are subject to some ups and downs and we saw ours take a turn for the worse in recent history. How to help our economy right itself when it is in distress, and how to plan to carry forward, is a lesson in American history. We know from long experience that our economy responds best to the very thing that created it: freedom.
If we stay true to our foundations of free enterprise while maintaining a flexibility that helps us address modern challenges, we will continue to be the economic leader of, and beacon to, the world.