ECONOMIC PERFORMANCE
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[Download Research Report] Top of PageSKatrina will temporarily reduce economic and employment growth through the end of 2005, but economic and employment growth is likely to rebound in 2006. Despite significant infrastructure damage, maritime commerce is being restored. Oil and natural gas production are continuing to recover from severe disruptions. The U.S. economy has displayed remarkable resilience in absorbing the effects of this catastrophe.
[Download Research Report] Top of PageSocial Security has a serious financial problem that will deteriorate if policymakers do not act to prevent it. While Social Security's income from payroll taxes currently exceeds its outgo in benefit payments, Social Security's trustees project that outgo will exceed income in 2017.
[Download Press Release] Top of PageThe bursting of the stock market bubble in 2000 was the primary factor sowing the seeds of economic weakness for several subsequent years, according to a new Joint Economic Committee (JEC) study released today by Vice Chairman Jim Saxton. The new study, Macroeconomic Performance Since 2000, analyzes how the impact of the bursting stock market bubble undermined investment and economic growth, and aggravated ongoing problems in the manufacturing sector.
[Download Press Release] Top of PageThe pattern of economic slowdown following the bursting of the stock market bubble in 2000 has been very similar in the major advanced economies, according to a new study released today by Vice Chairman Jim Saxton. After the sharp decline in the stock markets of the advanced economies, investment slowed dramatically, industrial production fell, and unemployment increased in all, according to the new Joint Economic Committee study, International Economic Performance Since the Stock Market Bubble. The study also shows that in the subsequent expansion period, the U.S. economy has performed relatively well compared to the other advanced economies. The study examines the macroeconomic performance of the U.S., European Union, Japan, and Canada.
[Download Press Release] Top of PageThe bursting of the stock market bubble in 2000 has had long-lasting negative effects on business investment and economic growth, according to a new study released today by Joint Economic Committee (JEC) Vice Chairman Jim Saxton. The soaring stock market had encouraged and facilitated increases in business investment up to its peak in early 2000, but the popping of the bubble reversed this process. For most of the period since 2000, business investment has been a drag on economic growth. The new study, Economic Repercussions of the Stock Market Bubble, examines the relationship between the stock market bubble, business investment, and economic growth.
[Download in PDF format] Top of PageTechnology advancements and the information revolution have provided enormous benefits to our economy. At the same time, they have also exposed our nation to new vulnerabilities and security threats. Recent terrorist attacks against America have demonstrated the importance of understanding potential threats and developing strategies to counter them.
Computer networks create new avenues for those with malicious intent. Because many critical activities rely upon telecommunications and computer systems, our economy can be crippled as a result of information warfare and mass disruption of these systems. Physically securing buildings with guards and gates isn't enough to protect systems that can be accessed via cyberspace from anywhere in the world. Infrastructures providing energy, transportation, communications, water, human services, banking and finance, civilian government services, and military services are all at risk.
We need a better understanding of security and our critical infrastructure, in particular the vulnerabilities resulting from our growing reliance on networked technology. This report represents a range of perspectives on infrastructure protection, from definitions and strategies to business challenges and policy options.
[Download in PDF format] Top of PageThis study examines the market for terrorism insurance in the United States, discusses the economic implications of the cost and availability of terrorism insurance and considers the proposed federal role in terrorism insurance. Among the study’s principal findings:
The market for terrorism insurance remains limited.
Only a small number of insurers are actively providing stand-alone terrorism insurance policies. When available, coverage for terrorism losses is expensive, terms of coverage are restrictive and policy limits are often insufficient. The problems associated with terrorism insurance pose a significant threat to sustained economic growth.
The lack of terrorism insurance is stopping some business deals, such as real estate and construction projects where terrorism insurance may be necessary to obtain financing. The high cost of terrorism insurance (when available) diverts resources from other more productive uses, negatively affecting investment and jobs. Low coverage limits in terrorism insurance policies mean that businesses are bearing a huge amount of risk themselves. In the event of another attack similar to that of September 11th, insurance payments will not be available to the same degree to rebuild.
[Download in PDF format] Top of PageThe events of September 11 stunned Americans not only because of the heinousness of the attacks themselves, but also because of the underlying vulnerability they revealed. The toll such attacks take on open, unprepared, and unsuspecting nations is severe; particularly significant are the economic effects of such acts and the responses they elicit. These effects need to be understood in order to prescribe appropriate economic policy remedies. This study categorizes and briefly summarizes both the short- and long-term economic effects and costs of such terrorist attacks. Prominent among the long-term effects are: (1) the increased transaction costs and inefficiencies imposed on the economy by terrorism, and (2) the fact that increased spending on security necessarily diverts labor and capital resources away from productive private sector activities and toward necessary, but less productive, anti-terrorist activity. Several estimates of the magnitudes of the various costs are briefly summarized. In general, the estimates of the costs surrounding the September 11 terrorism suggest that these costs are significant, but not inordinately large relative to GDP. While these complex estimates of the long-term costs are commendable, there are a number of reasons to be skeptical of their conclusions. In particular, they fail to consider multiple forms of terrorism, important measurement problems, or the cost-related behavior of terrorists. Consequently, terrorism’s long-term costs may be more severe than suggested by many existing estimates. Some timely monetary and fiscal policy responses to such terrorist activity are appropriate.
[Download in PDF format] Top of PageThe superior performance of the U.S. economy in the late 1990s has led many commentators to speculate that a "New Economy" has emerged in which heavy investment in information technology (IT) has led to an era of sustained economic growth. Although the recent economic slowdown has dampened some of the enthusiasm for the idea of a New Economy, a fundamental question remains: can the output growth experienced in the late 90's, which was significantly higher than that observed in previous decades, be traced back to IT? This paper addresses this question by looking at the behavior of labor productivity, a key measure of economic well-being that grew at a significantly faster rate in the late '90s. The New Economy hypothesis to be examined is whether investment in IT caused the acceleration in productivity. The evidence suggests a growing consensus on two conclusions:
Information technology is an important factor in the recent acceleration in productivity growth. Both the production and the use of IT contributed to the productivity revival.
After experiencing a remarkably extended period of economic expansion lasting nearly 18 years, the U.S. economy’s growth suddenly slowed substantially in mid-2000. The speed and significance of this slowdown surprised most economists. Some analysts believe this slowdown will be brief; the economy’s growth should turn around and return to healthy growth quite rapidly. Generally, explanations suggested by economists endorsing this view indicate the factors causing the slowdown are temporary, short-lived, and readily reversible. Once policymakers take remedial action to reverse these factors, economic recovery will readily ensue and the slowdown-recovery can be characterized as “V-shaped” in nature.
Other economists argue that the factors causing the slowdown are longer-term or structural in nature. These explanations portend a longer, more drawn-out slowdown period followed by a significantly weaker, more sluggish recovery. The slowdown-recovery character of the later view is associated with asset price deflation as well as burdensome debt and can be characterized as “U-shaped” in nature. If this set of conditions best characterizes current circumstances, policymakers should undertake faster, more forceful policy responses using reliable indicators to prevent a more serious, protracted downturn while ensuring no meaningful resurgence of inflation. [Download in PDF format]
The current economic expansion is remarkably resilient, sustained and has set longevity records. One of the remarkable features of the expansion is the simultaneous achievement of low rates of inflation and unemployment together with relatively robust rates of economic growth.A key reason for the durability of the expansion owes to the maintenance of macroeconomic policies promoting long-run efficiency and growth without inflation. Appropriate macroeconomic policies evolved from the gradual recognition that monetary and fiscal policies should be directed at different and independent objectives; monetary policy should focus on achieving price stability whereas fiscal policy should focus on open market, growth-promoting tax and spending restraint policies encouraging entrepreneurial activity (i.e., policies promoting aggregate supply).
More specific reasons for the economy's remarkable sustainability all promote growth without inflation and include the following:
The Administration offers an alternative explanation. It contends that its 1993 policy of raising tax rates worked to reduce budget deficits and interest rates and thus fostered sustained recovery. This view proves inadequate for a number of reasons including the following:
- The growth-enhancing effects of a gradual, credible anti-inflationary Federal Reserve monetary policy.
- The growth-promoting effects of credible government spending restraint.
- The long-term growth effects of an efficiency-promoting incentive structure embedded in the tax code.
- The effects on aggregate supply and capacity of substantial investment in equipment as well as in productivity-enhancing new technologies.
- The specialization and efficiency-promoting effects of increased international integration and open markets (globalization).
The prospects for continued expansion look favorable so long as appropriate macroeconomic policies are maintained and no serious policy errors are made. [Download in PDF format]
- Raising taxes does not promote economic growth without inflation.
- The current expansion began well before President Clinton's inauguration.
- The budget deficit began contracting well before Clinton Administration policy could have been implemented.
- The timing of interest rate movements contradicts the Administration's explanation.
- The Clinton Administration's own economic projections were not consistent with its after-the-fact explanation.
- The Clinton Administration provides an inaccurate explanation of the disappearance of budget deficits.
After briefly summarizing recent macroeconomic experience, this paper explains why the current economic expansion has been sustained -- despite growing tax burdens partly related to the Budget Act of 1993.The key reasons for this sustained recovery include:
The paper concludes with an assessment of the longer term prospects for growth. [Download in PDF format] Top of PageThe economic and financial market stabilizing effects of a credible anti-inflationary monetary policy. The fact that monetary policy has produced stable growth in total spending, dominating fiscal policy's influence on both aggregate demand and interest rate movements.
Unemployment rates once were higher in the United States than other major nations, but are now significantly lower than all other major nations except Japan; A larger proportion of the working age population is employed in the United States than in other major nations; the proportion working in America has increased over time, while it has fallen in most of Europe and in Japan; Variations in the unemployment rate over time are largely explainable by changing real unit labor costs; when the cost of hiring workers rises, employment opportunities decline and unemployment increases; Longer term levels in unemployment, or the "natural rate" of unemployment, are influenced by structural and institutional factors, including the size of governmental involvement; the bigger the relative size of government, the higher the natural rate of unemployment; If high-taxed European and other nations were to lower their tax burden as a percentage of output by 10 points (e.g., from 45 to 35 percent), it is predicted that this would lower the natural rate of unemployment by 3 percentage points (e.g., from 9 to 6 percent); and The American success in maintaining relatively low unemployment is at least in part due to the relatively free labor markets in the United States and the smaller size of the U.S. welfare state.
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Costs of Regulation
Tradable Emissions (JEC Study -- July 1997)
Tradable emissions have proven to be an efficient market-based tool for reducing the cost of pollution control. Exchanging emissions in competitive markets with low transactions costs can be used as a way of finding the lowest cost points of abatement in an industry or geographical region. The Congress used this approach in creating tradable sulfur dioxide allowances in the Clean Air Act Amendments of 1990 to reduce the cost of acid rain control, a policy which has demonstrated great success. New pollution control policies would benefit from the use of tradable emissions as a method of reducing a national abatement cost already estimated at over $100 billion. [Download in PDF format] Top of PageSmothering Economic Growth One Regulation at a Time (JEC Report -- June 1996)
This report expands upon two JEC studies, The Impact of the Welfare State on the American Economy and The Impact of the Welfare State on Workers, which demonstrate that excessive government regulation has hampered economic growth and worker incomes. The report concludes that some economic rationality needs to be introduced to important regulations and that serious economic reform must reduce the size and scope of the federal government. Top of PagePension Security
The Pension Grab (Policy Analysis -- September 1995)
This policy analysis provides a detailed overview of the Administration's practice of promoting Economically Targeted Investments (ETIs). Top of PageThe Economics of ETIs: Sacrificing Returns for Political Goals (JEC Staff Report -- September 1995)
The Administration has taken to advocating Economically Targeted Investments (ETIs). This six-page paper provides a detailed analysis of the ETI approach and concludes that the potential loss over a 30-year period would be more than $43,000 per pension-plan participant. Top of PageThe Attack on Middle Class Pension Wealth (Economic Update -- September 1995)
This five-page update describes the Administration's agenda with regard to Economically Targeted Investments (ETIs). It also shows that liberal groups (e.g., the Center for Policy Analysis) are helping to formulate the Administration's ETI policies and are providing the program's driving force. Top of PageEconomically Targeted Investments (ETIs) (JEC Briefing -- June 15, 1995)
This two-page document provides a brief overview of the topics covered at the JEC briefing that focused on ETIs. JEC staff and Professor Edward Zelinsky of Cardozo Law School discussed the history, present status, and the future of the Labor Department's policy of pushing pension fund managers to invest in Economically Targeted Investments. Top of PageStopping the Pension Grab (JEC Quotes -- June 7, 1995)
This is a compilation of selected quotes from Members of Congress, journalists, scholars, and organizations on the issue of Economically Targeted Investments (ETIs). Top of PageEconomically Targeted Investments (ETIs) (JEC Briefing -- June 7, 1995)
This five-page document offers a variety of useful facts regarding ETIs and answers many common questions about this issue. Divided into six sections, this briefing covers various topics, including how ETIs first came into existence, examples of failed ETIs, and the benefits of enacting H.R. 1594. Top of PageEconomically Targeted Investments (ETIs): The Solution (Issue Summary -- June 6, 1995)
This two-page brief explains various aspects of the ETI issue: the Clinton strategy, ETIs and the law, early returns, and the solution (H.R. 1594). The summary gives a succinct analysis of the situation and how it affects workers' pensions. Top of PageEconomically Targeted Investments (ETIs): The Issues (Economic Update -- May 23, 1995)
This update briefly addresses the Labor Department's promotion of Economically Targeted Investments. ETIs are programs designed to channel private pension investment into so-called socially-desirable projects such as public housing, infrastructure, and public sector job creation. Top of PageSpeech by Speaker Gingrich at ETI Press Conference (JEC Excerpt -- May 9, 1995)
This paper consists of excerpts from the speech given by Speaker Gingrich at the press conference that introduced the Pension Protection Act of 1995 on May 9, 1995. Top of PageMinimum Wage
JEC Reports: The Case Against a Higher Minimum Wage (May 1996)
This is a compilation of JEC reports on the issue of increasing the minimum wage. These reports clearly document the economic arguments against an increase in the minimum wage. Top of PageThe Case Against a Higher Minimum Wage (JEC Report -- May 1996)
This report clearly demonstrates that raising the minimum wage actually increases unemployment. It also shows that the majority of minimum wage earners are young people still living with their parents or married individuals in a "two-earner" family. Top of PageRaising the Minimum Wage: The Illusion of Compassion (Economic Update -- April 1996)
This four-page report explains how raising the minimum wage will result in fewer jobs for young and unskilled workers. It also addresses the errors made by the "Card-Krueger Study," which incorrectly concluded that raising the minimum wage would actually increase employment. Top of PageNouveau Reich Economic Theories (Economic Update -- March 20, 1995)
This paper is a critical review of Labor Secretary Robert Reich and the Clinton Administration's flawed economic case for an increase in the minimum wage. Both the original "Reich Curve" and the "Nouveau Reich Curve" are explained and discussed. Top of PageMinimum Wage Hearing Testimony (JEC Hearing Excerpts -- March 6, 1995)
This piece consists of excerpts from Herman Cain's (CEO of Godfather's Pizza) testimony before the JEC hearing on the Clinton Administration's proposal to raise the minimum wage. Top of PageMinimum Wage Hearing Testimony (Hearing Excerpts -- March 3, 1995)
This is Vice-Chairman Jim Saxton's opening statement before the JEC hearing on the Clinton Administration's proposal to raise the minimum wage. Top of Page50 years of Research on the Minimum Wage (Annotated Talking Points -- February 15, 1995)
Contrary to the claims of the Clinton Administration, the weight of evidence on the minimum wage shows that increases in the minimum wage cause unemployment. These talking points provide a useful reference to over 100 relevant studies on the minimum wage and its effect on workers and the economy. Top of PageThe Minimum Wage: Part 1 and Part 2 (Talking Points -- February 16 and 21, 1995)
These two papers offer facts about the minimum wage--who gets it, where they are likely to work, and the income level of their family unit. Facts on the minimum wage are presented in a framework useful for debating the issue. The talking points highlight a number of issues, including: 1) most minimum wage earners work at entry-level jobs; 2) they are not supporting a "family of four"; and 3) most minimum wage earners remain at minimum wage for a relatively brief period of time. Top of PageThe Minimum Wage (JEC Briefings -- February 15, 1995)
This four-page paper summarizes a JEC briefing on the minimum wage. The history of the minimum wage and where it has been applied over time is reviewed. Top of PageThe Minimum Wage (Economics Untangled -- January 24, 1995)
This one-page brief provides an easy-to-understand explanation of how and why a minimum wage increase is misguided economic policy. The analysis explores, from an economic perspective, the inevitable destruction of entry-level jobs and the burden placed on employers of marginal workers. Top of Page