Bush Optimistic on Economy, Greenspan More Reserved
Comments React to Rosy November Job Figures

By William Branigin
Washington Post Staff Writer
Friday, December 2, 2005 12:51 PM

President Bush today touted improved employment numbers and other economic indicators as signs that his policies are working and that America has a bright economic future.

But Federal Reserve Chairman Alan Greenspan warned that despite a "solid performance" so far this year, the nation faces tough economic times ahead if it does not deal with ballooning federal budget deficits and a current fiscal policy that appears "unsustainable."

In a previously unscheduled appearance in the White House Rose Garden, Bush pointed to today's Labor Department report showing that jobs grew by 215,000 in November, a number that exceeded expectations and ended two months of relative doldrums caused in part by a devastating hurricane season.

"Thanks to good old-fashioned American hard work and productivity, innovation and sound economic policies of cutting taxes and restraining spending, our economy continues to gain strength and momentum," Bush said.

He pointed to nearly 4.5 million new jobs that have been added in the last 2 1/2 years, third-quarter economic growth of 4.3 percent and a relatively low unemployment rate of 5 percent.

"We have every reason to be optimistic about our economic future," Bush said. "When you think about the news that's come in -- the job report, the recent report on strong economic growth, low inflation, strong productivity, lower gasoline prices, a strong housing market, increases in consumer confidence and business investment -- our economic horizon is as bright as it's been in a long time."

Bush vowed, "We're not going to rest until every American who wants a job can find one," adding, "I'll continue to push for pro-growth economic policies, all aimed at making sure every American can realize the American dream."

With that, he turned and walked back into the White House, declining to answer any questions from reporters.

Bush's brief comments contrasted with the warning from Greenspan, who underscored a need for the administration and Congress to make tough choices now to avoid bigger problems in the future.

In comments taped for a conference in Philadelphia, Greenspan, who is retiring at the end of January, said the government likely will not be able to make good on promised Social Security and Medicare payments and will probably have to reduce benefits to future retirees.

Despite disruptions caused by a series of hurricanes in the last few months, "economic activity appears to be expanding at a reasonably good pace as we head into 2006," Greenspan said. "However, the positive short-term economic outlook is playing out against a backdrop of concern about the prospects for the federal budget over the longer run."

He said the latest projections from the administration and the Congressional Budget Office suggest that "our budget position will substantially worsen in the coming years unless major deficit-reducing actions are taken."

As he has in the past, Greenspan stressed that the government needs to come to grips now with the looming retirement of the baby-boom generation, whose oldest members will start drawing Social Security retirement benefits in 2008.

"The soaring cost of medical care for an aging population is certain to place enormous demands on our nation's resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate," Greenspan said.

"So long as health-care costs continue to grow faster than the economy as a whole, they will exert budget pressures that seem increasingly likely to make current fiscal policy unsustainable," he added.

Greenspan said assuring Medicare benefits in the future presents an even tougher challenge than Social Security. The oldest of the nation's 78 million baby-boomers will reach age 65 starting in 2011 and will thus become eligible for Medicare, he said.

In a separate speech delivered in person in London today, Greenspan also expressed concern that the world economy could be adversely affected by a combination of "fiscal instability" in the United States and growing protectionism.

Addressing an economic conference while attending his final meeting of top finance officials of the world's seven largest economies, Greenspan said the United States has not had much trouble financing its growing trade deficit, which last year hit a record $668 billion.

"Most policy makers marvel at the seeming ease with which the United States continues to finance its current account deficit," he said, according to a text of his speech released by the Federal Reserve in Washington. He attributed this ability to the resilience and flexibility of the U.S. economy.

However, accumulating deficits, ever-increasing foreign debt and rising debt-service costs "cannot persist indefinitely," he said. "At some point, foreign investors will balk at a growing concentration of claims against U.S. residents, even if rates of return on investment in the United States remain competitively high, and will begin to alter their portfolios."

Greenspan warned, "If . . . the pernicious drift toward fiscal instability in the United States and elsewhere is not arrested and is compounded by a protectionist reversal of globalization, the adjustment process could be quite painful for the world economy."