In the annual Economic Report of the President, the Bush administration predicted the economy will add 2.6 million this year. The White House also defended the outsourcing of jobs, saying its just the latest impact of freer global trade and that it will ultimately help the U.S. economy.
The Post's Jonathan Weisman was online Tuesday, Feb. 10 to talk about the report and the U.S. economy.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
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Jonathan Weisman: Good morning, everyone. We've got questions lined up so I'll jump right in.
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Fort Washington, Md.:
You wrote, " Mankiw released the White House's annual Economic Report of the President yesterday, predicting 2.6 million new payroll jobs by the end of the year."
That is incorrect. The Annual Economic Report of the President predicted that the annual average number of jobs in 2004 would be 2.6 million higher than the annual average number of jobs in 2003. A year end job growth number consistent with the average annual growth in jobs prediction would be job growth of 5.3 million net new jobs from the end of 2003 to the end of 2004.
That is obviously an absurd forecast. There hasn't been one year in the last 60 years where job growth was that rapid. You should have caught this. For more on this topic go to Brad Delong's web blog.
washingtonpost.com: Bush Report Offers Positive Outlook on Jobs (Post, Feb. 10)
Jonathan Weisman: I am not doubting your statistic, but when we quote a net figure like 2.6 million, it is a good representation of the real-world impact of the White House's projections.
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Birmingham, Ala.:
Hi,
Disregarding the outlandish claim of 2.6 million jobs being created, the dollar has fallen significantly against the euro but not the yen - presumably as the Japanese are buying US debt which is helping to keep interest rates low here. The current account deficit is around 5.0% of GDP and this is unsustainable - as is the Asian appetite for US Treasury bonds. If the Japanese figure they hold enough falling dollar denominated debt, interest rates could rise here fairly quickly which would put the kibosh on most any nascent economic recovery. Does anyone in the Administration even discuss this?
washingtonpost.com: Bush Report Offers Positive Outlook on Jobs (Post, Feb. 10)
Jonathan Weisman: Actually, Mankiw was asked pointedly about this issue, and he answered the only way he could without creating a crisis of confidence: "There is every reason in the world for international investors to have every confidence in the world in the United States." He noted that the U.S. has among the highest growth rates in the developed world right now. With our trade deficit so high with China and Japan, they have tons of money to buy dollars and tons of incentives to keep their currencies pegged to the dollar. That said, few would say this is sustainable.
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Fairfax, Va.:
How will people being out of work eventually help the economy? Isn't that backward thinking?
Jonathan Weisman: Economists have an uncanny faith in a dynamic economy to come up with work for people. Remember in the late 80s and early 90s, we all learned the U.S. was being eclipsed by Japan and Germany, especially in manufacturing. Then came the high-tech and telecom revolution and our unemployment rate plunged in the 90s. The question is, what, if any, revolution is waiting in the wings? Mankiw did not offer an answer.
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Ashland, Ore.:
This may sound naive, but that's because I am ... and I'm trying to learn.
Is it possible, even easy, to determine what constituencies are being served by Mr. Bush's budget just by looking at the budget itself? What I mean is, apart from the partisan name calling and stereotypes, what is the reality of how this administration is skewing U.S. spending?
Who is getting preferential treatment versus, say, previous administrations' budgets.
Jonathan Weisman: It's fairly easy to look at the positive signs and negatives to see homeland security and defense shooting up, the environment, agriculture, Treasury and transportation going down. Also, in the basic budget, look at Table S-9 in the back to see the cost to the Treasury of the president's tax cuts. But beyond those broad numbers, the nitty gritty is in the budget's appendix, where you can look up individual programs and see their fate. It's tough work, but worth it.
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Anonymous:
If one were expecting a severe downturn in the economy beginning at some point during the next 12 months, what would be the early warning signs of such a downturn?
What are some key indicators to watch?
Are there any specific events which could precipitate such a downturn?
Are there any looming problems already visible?
Jonathan Weisman: There aren't a lot of warning signs like that, nor are many expected. But watch long term interest rates. If the spread between long term and short term rates continues to widen, the Fed will have to raise short term rates. That would slow economic growth and, so the fear goes, send investors scurrying from the stock market. Then all will be plain to see.
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Washington, D.C.:
Where is the focus on the economy of real people in these reports? By 'real people' I mean the people who have to work to make a living.
This report and statements by N. Gregory Mankiw, chairman of the White House Council of Economic Advisers seem to be about the economy of people who derive their incomes from capital gains and dividends.
For them -- maximizing corporate profits by shipping jobs overseas seems like a good idea. For those of us who need those jobs and opportunities it's lousy policy.
I see nothing in this report that refers to my reality or the reality of anyone I know.
Jonathan Weisman: An understandable point. Mankiw concedes that this report is "the nerdiest" part of the White House, and it dwells more on the theoretical than the real world. He makes the point, for instance, that the estate tax is a tax on "capital accumulation." By stifling capital accumulation, the government hurts investment. By holding down investment, the estate tax ultimately hurts worker wages. Well, theoretically. But in the real world, it is also a tax on really rich heirs, at a time of record budget deficits. Policy makers must weigh the theoretical against the practical, but economists don't necessarily do so.
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Wheaton, Md.:
Does our dependency on oil from Arab-occupied countries still contribute to our current economic problems?
Jonathan Weisman: It does if oil prices suddenly spike. OPEC announced today it planned to cut back production in April, a potentially troubling development. Since so much of the economy runs on foreign oil, there is always a chance that an oil price shock will raise inflation, trigger interest rate hikes and really hurt the economy. That said, we are actually far less dependent on Middle East oil now that we get oil from Venezuela, Mexico, Nigeria and the former Soviet Union.
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Ellicott City, Md.:
Given that they failed on the creation of 1.7 million jobs last year, is there any accounting or accountability for such bad numbers last time? Why should anyone give credibility to the numbers this year?
Jonathan Weisman: We'll keep track of the numbers for you, but in a democracy, accountability is supposed to be exacted at the ballot box.
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Anonymous:
Unemployment figures are just half the story. The other half is wage stagnation/deflation. I know first-hand that some new jobs are offered at lower and lower salaries, because applicants are so desperate they'll take it. Does the report address this problem at all?
Jonathan Weisman: If it does, I haven't found it. A colleague of mine mentioned that as a major missing piece in analyses extolling the virtues of outsourcing jobs overseas. International wage competition tends to depress wages globally.
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Boston, Mass.:
Mr. Weisman,
Can you explain how this economy can add 2.6 million jobs (I guess it's 2.48 million jobs if you include January), when last year we lost 53,000 jobs, and companies, such as Cigna are already announcing layoffs?
Jonathan Weisman: Theoretically, at this stage of a recovery, we should be adding hundreds of thousands of jobs a month, but that hasn't happened yet. Most economists are puzzled, and some have said official Washington is in denial about the true impact of the globalization of the labor market on the U.S. recovery. We shall see.
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New York, N.Y.:
What is the purpose of this report? Has it been produced every year?
Jonathan Weisman: It is produced every year, by the White House Council of Economic Advisers. But it has the president's signature on it and is sent to Congress as the president's broadest view of the economy, both its recent performance and its future.
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Mt. Lebanon Pa.:
What's the difference between cyclical jobs - many which won't be coming back - and jobs relating to structural changes in the American economy?
Thanks much. Armchair economist
Jonathan Weisman: The New York Fed studied this question this summer and produced an important paper concluding that many of the jobs lost in this "job-loss recovery" are not coming back. Here's a link:
http://www.ny.frb.org/research/current_issues/ci9-8.html
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Germantown, Md.:
What can the unemployed, manufacturing workers, software engineers, and radiologists do, when employment is outsourced?
What industries are going create the 2.6 million job?
Jonathan Weisman: The first is a fair question. Politicians love to talk about going back to school or "re-training" but that is cold comfort to a 55-year-old textile mill worker. As for the second question, Mankiw put it this way: If he had told farmers in the 1950s that is was OK if their children left agriculture, since they would get jobs as web designers, they would have told him he was nuts. We just don't and can't know what the next big thing is.
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Washington, D.C.:
Isn't the White House's claim for creating 2.6 million new jobs akin to it claiming the health care reform would only cost 400 billion, when now estimates raise that to nearly 540 billion? The economy was "supposed" to add 1.7 million new jobs last year but it actually lost 53K. Perhaps this is the return of "fuzzy math"
Rarely is the question asked, is our president learning?
Jonathan Weisman: We point out the numbers. You decide if there is a price to pay for shooting too high.
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Bowie, Md.:
Does the Economic Report include an estimate of how much capital gains tax income the government should expect to receive, and by extension, how successful the stock market has to be to reach the income target?
Jonathan Weisman: Unfortunately, in the report's tables on tax receipts, cap gains fall under "other". The Congressional Budget Office does have a breakdown of anticipated cap gains receipts, in its annual economic analysis. Capital gains are a small share of total tax receipts, but they were a huge share of the CHANGE in receipts in the late 90s that pushed the budget into surplus and the CHANGE in receipts in 2000-2001 that helped push it back into the red. Both the White House and CBO say they have learned the lesson of overstating future cap gains receipts and have adjusted downward, but tax receipt estimates have proven to be consistently too high for three years. That's why the budget deficit keeps coming in higher than expected.
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Philadelphia, Pa.:
Mr. Weisman:
Any clue as to what President Bush meant on "Meet the Press" Sunday when he talked about discretionary spending growing more quickly under President Clinton? I've looked at the numbers a few different ways, and the president is just plain wrong.
Jonathan Weisman: This is very wonkish and I wrote a whole story on it. It all depends on what you want to count: outlays, or the amount the government actually spends in a given year, or budget authority, the amount Congress authorizes the government to spend. In other words, are you counting the money going into the pipeline or coming out? If you are looking at the business end of the pipeline, spending has risen 27% since Bush came to office, a huge rise over the Clinton years. But budget authority has been tamed lately. The control of authority however has been tempered by the president's propensity to submit "emergency" spending bills for items he knows are coming but refuses to account for in the regular budgeting process (e.g. - war).
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North Hampton, N.H.:
During the NewsHour on PBS last night two economists debated this report and the Presidents comments on it on Sunday. The pro-Bush economist said it will take a while for jobs to be created and we are seeing capital equipment purchases so that's the first step then when employers are more sure they will hire. I'm a capital equipment manufacturer and yes, orders are up but not enough to increase hiring, not this year. Neither economist mentioned the effect of many jobs moving to Asia - what effect that was having on jobs recovery. Isn't this "the" problem? That those jobs are not coming back and there's nothing in the foreseeable future to replace them?
Jonathan Weisman: You have a perspective on the problem that those economists don't have. I was talking to manufacturers yesterday, many of them in machine tool businesses that should be picking up right now. All of them said they laid off large percentages of their work force during the slump. All said orders are picking up, but they have only hired back a few workers. All of them blamed competition from abroad, especially China. The problem with the recovery is that investors and business executives have been benefitting from a return to corporate profitability, but it has not significantly impacted the workers yet. Republicans are betting that the "investor class," which includes some of these workers, will be heartened enough by stock market gains to not worry so much about the job market. And since the vast majority of Americans do have jobs, they may have a point. It becomes a political problem when the people who have jobs fear losing them.
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Dayton, Ohio:
How do we make the general public realize we will never be able to out grow these deficits and that Bush is simply pushing the responsibility to future Presidents and generations to pay the bill for his disastrous policies? Will it take the proposed elimination of all social programs?
Jonathan Weisman: Even if every cent of non-defense, non-homeland security spending at Congress's discretion was eliminated tomorrow, we would still be in deficit. But President Bush is not about to propose that before the election. Budget deficits have never been major political issues, except perhaps when Ross Perot was buying air time to show us all his charts. Perhaps we need Perot back on TV.
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Concord, N.H.:
President Bush has praised the promise of the tax cuts in the past. The idea as I understand is that with lower taxes on dividends will give people more money to invest.
How does the economy grow if people are putting the tax savings in the stock market instead of purchasing goods, services or new issues of bonds, e.g. T-bills or corporate debt?
Jonathan Weisman: The idea is this: with more money in the stock market, companies will have more money to spend on expanding plants, buying new equipment, and innovating with new products. That would put people back to work, and raise wages as products become more valuable. The problem with the formula is that some of that new investment may be lining CEO pockets, buying yachts from New Zealand, or financing new plants in China or India. Remember, tax policy is as much religion as economics. It all depends on your faith.
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Albany, N.Y.:
Given that the Administration promotes the free market, how can they justify their proposed policy to give illegal immigrants work visas so they can be paid wages that Americans "won't" accept? My understanding of a free market is one in which the price paid by a demander of goods and services meets the price of willing suppliers of goods and services. This holds true in the market for employees and the wages paid by an employer. If Americans won't accept these wages if they are too low, in a free market economy, shouldn't these employers be willing to raise the pay to attract these Americans instead of using the President to create a loophole in immigration law? It seems to me the critique that President Bush gives in to the special interests of corporate America is apt in this situation. Your thoughts?
Jonathan Weisman: Even free marketeers can believe there can be breakdowns in the markets. In this case, the administration believes there are some jobs that Americans won't fill at any price that could be reasonably offered. The problem is that employers are very good at taking advantage of cheap labor if it's available. I remember living in Southern California, and watching an army of Mexican workers mowing the vast lawns of the University of California at Irvine with tiny push mowers. The university must have figured it would be cheaper to hire those workers and give them cheap mowers than to pay a more skilled person to use a more expensive piece of machinery.
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Monterey, Calif.:
What do you believe about the existence of a plan by ultra conservative Republicans to, in effect, shrink government by bankrupting it? It is in this framework -- and perhaps only in this framework -- that the seemingly insane Bush tax cuts and out of control military spending make perfect sense.
I've heard it called "starving the beast." What is your best guess about the degree to which that is the deep agenda we are seeing play out right now?
Jonathan Weisman: I have heard this "starve the beast" argument for awhile, but personally, I don't believe it. Based on President Bush's record, it seems more likely that he wants to be all things to all people: cut taxes for people who want tax cuts, raise spending (especially on education and Medicare) for people who demand that. Since administration economists do not seem overly concerned about deficit spending, so far, the White House has shown little inclination to starve the beast at all. Even this budget, which is pointed to as proof of the plot, raises discretionary spending by 4%, though almost all of that goes to the military. If Bush is re-elected, you should have that answer.
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Arlington, Va.:
Good morning. I hear many times that job creation is the lagging indicator of a growing economy. Is this in fact true? If so, when might we see more robust job growth as the economy recovers? Will it be in 2004 as the President predicts?
Jonathan Weisman: It was certainly true after the 1991 recession and it has proven true after the 2001 recession. But both of these have been anomalous. Based on past recessions, job growth should have started long ago in earnest. That has led many economists to believe we are facing real structural changes that will been fast job growth at bay for some time to come.
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Singapore, Singapore:
What assumptions/estimate about productivity growth does this report make and given the tremendous acceleration in productivity growth are these reasonable assumptions?
Jonathan Weisman: Productivity rose at an annualized rate of 6 percent in the first 3 quarters of 2003, and 4 1/2 percent in 2002, well above the 2 percent average since 1960. The report assumes that rate will slow down but it remains bullish that productivity rates will drive up wages in the long run.
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Re: Germantown, Md.:
So ... how did they make up the number, 2.6 million jobs, ... based on what factors? Thanks.
Jonathan Weisman: Remember, in the 2002 Economic Report to the President, job growth last year was supposed to be 3 million. That was off by 3,054,000 payroll jobs. The numbers are based on formulas plugged into economic models, the same ones that said President Bush's tax cut proposal of 2003 was supposed to create 1.4 million jobs on its own by the end of this year. Obviously, these are not exact.
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Alexandria, Va.:
When you were asked about the shortfall of 1.7 million jobs from last year's forecast, you state, "We'll keep track of the numbers for you, but in a democracy, accountability is supposed to be exacted at the ballot box."
That's a joke of a response. You study these things every day, and as a reporter you have an obligation to translate White House spin into real terms. You're doing Karl Rove's bidding when you paste together the White House press release and then tell us that accountability is at the ballot box. As a supposed reporter, your job is to ask the questions that citizens don't have the time to ask since we're not paid to cover these issues.
Jonathan Weisman: Thank you for your thoughtful and constructive comments.
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Jonathan Weisman: Thanks all for your questions.
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