The nation's pace of hiring slowed dramatically last month, the Labor Department reported today, reinforcing the increasing belief that economic growth in this election year is hitting a rough patch.
Jason Furman, economic adviser for the Kerry-Edwards campaign, discussed the latest economic numbers.
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The transcript follows.
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Mr Furman, Isn't beating up the Bush administration a bit disingenuous? How much affect can an administration really have on the economy?
Jason Furman: Hello everyone, thank you for joining us today. I'm the Economic Policy Director for the Kerry campaign and I really appreciate the opportunity to chat with all of you.
To address the first question, the right economic strategy to create jobs and foster long-term economic growth is a crucial issue in this election.
The President and his top advisers claim that the President's tax cuts have worked because they are increasing economic growth. We are simply pointing out that job growth continues to be extraordinarily weak by historic standards and that the tax cuts have been a failure.
John Kerry and John Edwards were out there in 2001, 2002, and 2003 arguing for better bang-for-the buck stimulus that would create jobs without increasing the long-run deficit. So this is not just after-the-fact wisdom.
Silver Spring, Md.:
It used to be that the American public could depend on the numbers coming out of the President's Council of Economic Advisers, Treasury, etc. In fact, during the Clinton years, the figures seemed to be intentionally conservative, so that the economy often out-performed the forecasts. In the last couple years, we have routinely seen forecasts coming out of the Administration that appear quite rosy in hindsight (jobs created, revenues raised, even tax refund projections). Do you think the economic forecasts have become politicized under the Bush Administration?
Jason Furman: I was privileged to work as a Staff Economist at the Council of Economic Advisers in 1996 and 1997. I believe that economic policy was conducted in a very serious, rigorous way in the Clinton Administration.
You are right that the economy has fallen far short of the Bush Administration's forecasts. In February 2002 they projected the economy would create 6 million jobs. Instead we've lost over a million jobs. As a result, today we are 7 million jobs short of the CEA forecast.
Last year they promised that the stimulus would create 306,000 jobs per month. We've fallen well short in 12 of the last 14 months, including creating only 32,000.
CEA still has a very serious and capable economic staff. The bigger problem is not with their forecasts but with the Bush Administration's economic policies which have undermined confidence, increased the deficit, while not having the proper stimulus to create jobs.
What kind of plans does Kerry have to ensure that or manufacturing jobs in Michigan don't get outsourced AND to restore those jobs that have been lost as Michigan and Ohio have been left behind with the so-called economic recovery.
Jason Furman: John Kerry recognizes that we live in a global economy and that we cannot keep all jobs in America. But we should not ask workers to subsidize the export of their own jobs either. John Kerry will end special tax breaks for investment and job creation overseas. This will create a level playing field, or what economists call "tax neutrality." In addition, John Kerry will enforce our trade agreements, and end China's currency undervaluation, which is putting our exporters at a disadvantage.
In the long run, the best strategy to address outsourcing is to make America a more attractive place to invest. The Kerry-Edwards plan does this by cutting taxes for 99 percent of companies, reining in spiralling health costs, moving towards energy independence, cutting the deficit, and investing in education and technology.
Isn't it about time to begin to hit and hit hard with these "negative" job-growth numbers?
The Carville dictum, "It the economy, stupid!" needs to highlighted in concrete ways. Otherwise, four more years...
Jason Furman: I couldn't agree more. By election day every American should know one economic fact: George Bush will likely be the first President to preside over a loss of jobs since Herbert Hoover in the Great Depression.
How does Sen. Kerry respond to President Bush's assertion as follows? Are Mr. Blank's figures (90 percent of....) accurate? Are the businesses Mr. Blank is referring to large corporations or "Mom & Pop" stores?
Gary Blank: Senator Kerry has proposed to raise a number of taxes, but primarily he has discussed increasing taxes on individuals and small businesses earning more than $200,000.
90 percent of businesses pay taxes through the individual income tax system rather than the corporate income tax. Senator Kerry's tax increase would hurt hundreds of thousands of successful small business owners and entrpreneurs.
7 out of 10 new jobs are created by small businesses. Obviously increasing their taxes isn't what our economy needs.
Jason Furman: John Kerry and John Edwards have proposed rolling back the Bush tax cuts for families making over $200,000. That would simply restore the tax rates to what they were under Bill Clinton, a period that saw the longest economic expansion in American history and 23 million new jobs. They believe this tax roll-back is necessary so that we can cut the deficit and invest in health care.
95 percent of small businesses would be unaffected by this tax change.
Under the Kerry-Edwards plan small businesses will get additional tax cuts if they create jobs or provide health insurance to their low- and moderate-income workers. In addition, millions of small businesses paying corporate taxes would get a tax cut.
That's a difference in philosophy: John Kerry believes tax cuts should provide an incentive for job creation, George Bush believes they should reward the wealth of the most fortunate.
If more jobs should be created to stimulat the economy and it is the President's responsibility for promoting this, how does Kerry expect to do this if he were elected? And, if he can create more jobs, how can he be sure that the jobs created match the skills of the unemployed?
I am interested in hearing what Kerry plans to do rather than what the Bush administration is doing wrong.
Jason Furman: That's a very good question. We want you to vote for John Kerry, not against George Bush. You can read our full plan to create jobs at www.johnkerry.com, but here is a brief version:
--First, jumpstart the economy. Kerry proposes a payroll tax holiday for new jobs created in manufacturing, other businesses affected by outsourcing, and small businesses. In addition, Kerry would provide a one-time fiscal relief of $25 billion to help states avoid contractionary economic policies like raising tuition or property taxes.
--Second, make America more competitive. Kerry will end tax breaks for companies that create jobs overseas and use the savings to create jobs in America by cutting corporate taxes by 5 percent. His plan will rein in the spiralling costs of health care, contributing to more jobs at higher wages. The Kerry plan will also help make America energy independent of Middle East oil.
--Third, John Kerry believes we need to invest in our economic future. He would fund research at places like the National Science Foundation and the Advanced Technology Program. And he would invest in education and provide tax cuts to make college accessible to all Americans.
Where does Kerry stand on the jobs moving offshore? Is this simply the byproduct of a changing economy? I have heard many economists state that the change is not a bad thing for America yet it is obviously a political hot potato.
Jason Furman: As I said in an earlier question, John Kerry says very frankly that we neither can nor should try to keep all jobs in America. But we can end is tax incentives and lax trade enforcement that encourage companies to outsource jobs.
As an economist, I think the single tax that most cripples our economy is the payroll tax. Rather than keeping any of the Bush tax cuts, I would like to see a President Kerry repeal the payroll tax. (The Social Security and General Fund are already comingled anyway). This would put $255 a month in the average ($40K per year) worker's pocket which would undoubtedly go to consumer spending (70 percent of the economy) and generate lots of taxable events. In addition a small firm with about 12 employees could afford to buy them all health insurance or hire another worker (both of which would create more general revenue taxes). I think the ripple effect would be a tremendous boon for the economy--what are your thoughts?
Jason Furman: You make a lot of good points. But at a time with a large deficit and imminent retirement of the baby boomers, we simply cannot afford to permanently lower the payroll tax.
But John Kerry does support a temporary, two-year payroll tax holiday for manufacters, other businesses affected by outsourcing, and small businesses -- this would encourage job creation and help jump-start the economy.
Every passing day I get the impression the record deficit cannot be brought down, let alone projecting a surplus. How can "President Kerry" address this issue without raising Taxes to "any class"?
Jason Furman: CBO's latest projection is that America will have a $422 billion deficit this year, that is the largest dollar deficit in history -- $50 billion more than last year. If you take out the Social Security surpluses, the deficit is even larger.
John Kerry believes we need a major change in the way we conduct fiscal policy in Washington. In the 1990s, there was a bipartisan consensus with everyone from Bill Clinton to Newt Gingrich agreeing that we should pay for all of our proposals. President Bush shattered this consensus, passing or proposing more than $6 trillion of unpaid for initiatives.
John Kerry would restore the simple principle of paying for all of his proposals, in fact he is doing it right now on the campaign trail. His plan would simply rollback the Bush tax cuts for families making over $200,000. At the same time, he will restrain the growth of spending and crack down on corporate welfare in order to cut the deficit in half in four years.
Instead of proselytizing about "worst job losses since Hoover," isn't it intellectually honest to preach that employment rates are at or below historical "full employment" rates, GDP is growing, inflation is low, and the only apt comparison of the economy over the last 4 years is to an economy over the last 4 years if alternative steps were taken?
Jason Furman: The economy has gained 1.5 million jobs in the last year. This is worse than any 12 month period under President Clinton. It is slightly below the growth in jobs required to keep up with population, meaning that we are further behind on jobs than we were a year ago. And it is the slowest job growth of the comparable period in any economic recovery since 1949.
President Bush could have taken a different course. He could have supported Democratic proposals to have even more up-front stimulus without the same increases in the long-term deficit. Instead, he chose to push for tax cuts like capital gains and dividends that provide little economic stimulus while increasing the long-run deficit.
Kerry's economic plan is built around incentives to create jobs, restraining spiralling health costs, and effective stimulus through state fiscal relief. These would help jobs today without increasing the long-run deficit.
St. Joseph, Mo.:
Does John Kerry have any plan to curb waste in government spending?
Jason Furman: Yes. John Kerry has joined with Senator John McCain to lead the effort to establish a Corporate Welfare Commission. This commission would identify corporate welfare and submit it to Congress for an up-or-down vote. Members of Congress would not be allowed to make amendments to protect their favorite pork projects. John McCain has estimated that this commission would save tens of billions of dollars per year.
Second, John Kerry would like Congress to pass a constitutionally-acceptable form of the line-item veto so he can use it to control pork barrell spending.
Third, Kerry has proposed many more speciic spending cuts, including eliminating the Office of Thrift Supervision, eliminating several statistical agencies and replacing them with a single Statistics USA, and cutting the number of federal contractors. You can read about all of these at www.johnkerry.com.
There are two jobs surveys, a household and a payroll survey. How does the Kerry campaign respond to the news that the number of people employed rose by over 600,000 last month, with a decline by over 50,000 in those not employed, and a decline by over 350,000 in those "not in the labor force"? This means strong job growth, and that the unemployment rate didn't fall because people were dropping out of the labor force.
Jason Furman: Economists agree that the payroll survey, which showed only 32,000 jobs gained, is a much more accurate gauge of the employment situation than the household survey. The household survey has a much smaller sample and a margin-of-error of 350,000 -- which is why Wall Street, Alan Greenspan, and others all pay attention to the payroll numbers.
The Kerry campaign has been very consistent about this. In March, the payroll survey showed 353,000 new jobs but the household survey showed 3,000 jobs lost. We never pointed to the household survey or tried to argue that March was a bad month for jobs. Instead we said that we were pleased with the job growth in March, but that one month was not enough to make up for years of lost jobs.
The Bush Administration, in contrast, has been extremely political in its discussions of the jobs numbers, raising serious questions about their credibility on economic issues. Today Secretary Snow was out talking about how strong the household numbers were. But I didn't hear him mention the household survey in February or March when the household numbers showed 268,000 lost jobs.
Given the current deficit and American reliance on Japanese and Chinese purchases of U.S. treasury securities, how does the U.S. go about breaking this dependence on foreign financial resources which have implications for other foreign policy alternatives, i.e. Taiwan?
Jason Furman: Right now 40 percent of American debt is held abroad, 20 percent of it in China and Japan. This makes America more vulnerable to a "hard landing" if these countries choose to dump our debt.
The best step we can take to reduce our dependence on foreign borrowing is to cut the budget deficit. If our government borrows less, America will have to borrow less. The flip side is that the trade deficit will fall.
In addition, John Kerry believes we have to stop China's undervaluation of its currency -- something that has contributed to the record bilateral trade deficit with China.
I'm a programmer, with a good hourly rate, health benefits, and a solid contract. Why is my job less valuable than a manufacturing job, and why am I not entitled to a payroll tax holiday, as well? Isn't this exactly the kind of high-paying service job we want to encourage, too?
Jason Furman: Actually, your industry would be eligible for the payroll tax holidy -- it is for manufacturing and other businesses affected by outsourcing. Computer programming would certainly qualify.
The kind of jobs that are now being outsourced to India are at fairly high technical level. Does John Kerry have any specific idea about how "investment in technology" would compensate for these challenges? Do you guys really have a serious game plan?
Jason Furman: Did you know that the United States has fallen to 10th in the world in broadband penetration? John Kerry would like us to be number one again.
Senator Kerry has a long history of working on technology issues. He played an important role in the extension of broadband Internet to rural areas in western Massachusetts.
As President, he would build on this experience. You should read his detailed plan at www.johnkerry.com. Some highlights: increase investments in Federal research and technology; make broadband universally accessible; and encourage more students, particularly girls and minorities, to study science and engineering.
In addition, John Kerry will respect science and take scientific advice seriously when formulating his policies, including lifting the ban on stem cell research.
Does anyone look at the big picture of Federal, state, and local outlays as percentages of GDP? Currently, Federal outlays are around $2 trillion or 20 percent of GDP. State and local outlays are around $1 trillion or 10 percent of GDP. In economic terms, is a total outlay of around 30 percent of GDP the right number?
Jason Furman: Yes, those numbers are about right from the last I looked.
It's important to think about the state and local picture. Some of President Bush's tax cuts exacerbated the state and local fiscal crisis, forcing them to take steps like raising college tuition and property taxes while cutting health care for children.
This has resulted in a stealth tax increase -- and helped contract the economy. John Kerry supports a one-time $25 billion in state fiscal relief to help restrain tuition growth, help states avoid property tax increases and help states make the investments they need in homeland security
I won't disagree that today's numbers are disappointing, the problem I have is that Senator Kerry seems to draw a straight line from January 20, 2001 to today. He doesn't comment at all on the challenges the economy has faced over the last three years. I'm not saying President Bush followed the correct path, but to ignore a recession, an internet bubble, the worst attack in America's history and at as though Bush just screwed everything up seems dishonest and a little scary. What would President Kerry have done differently over the last three years? Does he not see that we've has some pretty big hits to our economy? Can you really say the President Clinton was operating in a similar environment?
Jason Furman: I am not saying that everything in the economy is President Bush's fault. It is not. The tech bubble, the recession, and the horrific tragedy of 9/11 have all had an adverse impact on the economy.
What is a greater concern to me is that since the recovery began we have continued to see anemic job growth and wages not keeping up with inflation.
As discussed earlier in this thread, there was another path: larger and more effective short-term stimulus and smaller long-term deficits. The President chose not to take that path. This has contributed to the weak jobs performance.
New York, N.Y.:
I took your macro class at SIPA, which was excellent, by the way. I'm curious to know your thoughts on Senator Kerry's health care "re-insurance" plan and how that will help lessen the growing costs of health care for small businesses. Glad to know great minds are working on this campaign! Jennifer Katz
Jason Furman: Thanks for the note Jennifer, you were a great student!
Much of the costs in the health care system are being driven by a few of the highest-cost patients. The Kerry-Edwards plan would include "government reinsurance" to pay a large share of these catastrophic costs, amounting to about 10 percent of total premiums. In exchange, the company would have to implement disease management and offer high-quality health insurance to all their workers.
This plan would cut premiums by up to $1,000 for a family. And it would make the health system more effective by reducing the incentives insurance companies have to cherry pick the healthiest patients. That would reduce red tape, bring more people into the health system, and ensure more efficient pooling of risk and management of diseases at an earlier stage.
In addition, Kerry supports allowing all Americans to buy into the same health plan as Members of Congress, the so-called FEHBP. This will be particularly beneficial to small businesses because it will allow them to join a larger risk pool with lower premiums and better-quality coverage.
Ann Arbor, Mich.:
Would a payroll tax holiday reduce the amount of revenue going into Social Security?
Jason Furman: No, it would be refunded to employers in the form of an income tax rebate -- the money would not come out of Social Security and would have no impact on Social Security solvency.
Foggy Bottom, Washington, D.C.:
Huh? "The John Kerry plan will make America energy-independent of Mid-east oil?"
I love the Kerry ticket and the policies, but I'd LOVE to hear HOW that Kerry thinks the USA can become energy independent. That is a popular political goal, but a review of the numbers belies the goal. I believe it just can't happen. I won't vote for Bush, but I think claims like that can hurt the Kerry campaign!
Jason Furman: This is my last answer. It's been great participating in this chat, there were tons of great questions and I hope that washingtonpost.com invites me back another time to answer the rest of the questions.
Today, John Kerry and John Edwards released a detailed energy plan -- you should read it at www.johnkerry.com. The plan will help to encourage the use of alternative fuels and renewables and provide incentives for people to buy more fuel efficient cars and buildings. With a national energy strategy, we can move America towards energy independence.