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Tuesday, August 09, 2005

Bernanke and Bush on the Housing Bubble, Tax Reform, Social Security, and Other Issues

There is lots of information from the press briefing president Bush held today in Crawford, Texas to promote his economic record and from the report on the state of the economy from the Council of Economic Advisers (CEA).  First, Bernanke’s remarks on the housing bubble from his comments on the CEA report.  For the most part, it's all fundamentals:

Press Briefing by Director, National Economic Council, AL Hubbard, and Chairman, Council of Economic Advisors, Ben Bernanke, Crawford, Texas:  CHAIRMAN BERNANKE: We talked some about housing. There's a lot of good news on housing. The rate of homeownership is at a record level, affordability still pretty good. The issue of the housing bubble is … whether there is a housing bubble … Housing prices certainly have come up quite a bit. But I think it's important to point out that house prices are being supported in very large part by very strong fundamentals. … we have a strong economy, we have lots of jobs, employment, high incomes, very low mortgage rates, growing population, and shortages of land and housing in many areas. And those supply-and-demand factors are a big reason for why housing prices have risen as much as they have. I think … housing prices are likely to stabilize. … But, again, I do think that the bulk of the increases are associated with strong economic fundamentals...

Part of the discussion concerned tax reform which continues to heat up.  There is lots of organized action on this issue from the GOP side, there’s even a reform panel working on the problem.  Democrats would, in my opinion, be well-advised to get out in front of this issue, if it isn’t too late already, and propose a revenue-neutral, simplified, yet progressive (as opposed to flat) tax structure as an alternative to the coming GOP proposal:

President Bush Calls for Permanent Tax Cuts, By Jim VandeHei, Washington Post:  President Bush on Tuesday called on Congress to make permanent tax cuts enacted over the past five years and restructure the U.S. tax code soon to keep the economy growing at healthy pace. … Democrats and many Republicans oppose making all of the tax cuts permanent because it could drive up deficits …

Next, The Financial Times, reports on Bush’s defense of tax cuts and his comments on Social Security from the same news conference:

Bush defends record on growth, By Caroline Daniel, FT: President George W. Bush on Tuesday sought to defend his record at fostering economic growth  … The council of economic advisers in a report on Tuesday called strong US economic growth “remarkable” and directly linked it to Mr Bush's tax relief policies. … Mr Bush appeared to downgrade personal accounts as a priority for Social Security reform and focused instead on how to address solvency concerns for Social Security as soon as possible…

I was surprised to hear that personal accounts had been downgraded so I checked the transcript.  I don’t agree. It appears to me that three issues, private accounts, progressive indexing, and solvency are three things the White House will insist upon and they are all in today's remarks:

President Meets with Economic Team:  And finally on Social Security … we have got to deal with problems now, to solve problems now before they place an undue restraint on our families and an undue restraint on the ability to grow our economy. And Social Security is a -- is a liability that -- it needs to be addressed now. … Part of the solution for Social Security is to make sure that the poor do not retire into poverty, to make sure that people get benefits that grow at least with the rate of inflation -- that will be the wealthier citizens get benefits growing at the rate of the cost of living -- but poorer citizens should have their benefits go up by wage increases. And that reform alone will fix a lot of the solvency issue of Social Security. And while we're fixing Social Security, I strongly believe younger workers ought to be allowed -- given the chance to, given the opportunity to take some of their own money and set it aside in a personal savings account. And that will have two effects. One, it will increase savings throughout our society, which is important to economic growth and vitality. But more importantly, it will mean workers from all walks of life will be able to own an asset that they call their own and that the government cannot take away.

Finally, here are Bernanke’s remarks on the state of the economy from the CEA report.  Unsurprisingly as the administration’s economist, the view is rosy:

CHAIRMAN BERNANKE: ... It fell to me as the CEA Chairman to report to the President on the state of the economy, and I was pleased to be able to report to him that the U.S. economy is in a strong and sustained expansion at this point. I stressed for him four key indicators, which, like many other economists, I think are really central to looking at the state of the economy. First is economic growth. ... In the last couple of years, we've seen 4.1 percent real growth per year; 3.6 percent in the last year. This is a very strong rate of output expansion. Second, jobs. So far this year, we've had 191,000 jobs per month added to U.S. payrolls, … so the labor market is improving and getting stronger.  Third, inflation. ... Inflation is well contained, under control. ...  And, fourth, the statistic which economists really think is very important and perhaps doesn't get enough attention in the media is productivity growth. Productivity growth ultimately determines how much an economy can produce, what the living standards will be, and what wages and profits will be. The U.S. economy in recent years has been remarkable in terms of productivity... Looking back over the last four years, ... These are remarkable numbers, much higher than long-term averages, and they bode very well for the sustainability of the economy.

… There certainly are risks to the economy; two I would mention. One is high energy prices. ... But the good news is that at least so far the U.S. economy has not been slowed by the high energy prices. … and job creation has proceeded apace. The other concern ... is the rising cost of health care and health insurance. This is a major problem. … These are two issues that remain very important. But to come back to what I said earlier ... coming from where we were in 2001 and 2002, following 9/11, following the corporate scandals, this economy has turned around, and it's currently on a very strong and sustainable growth path…

    Posted by on Tuesday, August 9, 2005 at 05:04 PM in Economics, Health Care, Housing, Politics, Social Security, Taxes | Permalink  TrackBack (0)  Comments (1)

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