FROM THE OFFICE OF PUBLIC AFFAIRS

September 14, 2004
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The Honorable John W. Snow
Prepared Remarks:
New York Economic Club
September 14, 2004

I'm delighted to be here today in New York, the financial and commercial capital of the world, to talk about our economy – a marvel of prosperity and innovation that makes you and me and every American the envy of the world.

I want to talk about the incredible resilience of our economy, the way it recovers and grows, enabling Americans to achieve financial security and always look forward to an even better tomorrow for their children.

And I also want to address our challenges; how can we ensure that our economic predominance continues for generations to come?

But first I want to discuss our economy in the context of the larger world we live in, our economy as it relates to the global economy.

Working with my counterparts in the G7 is one of the highlights of my job as Treasury Secretary. Our work with our economic partners all over the globe is so important… because our prosperity is tied to the prosperity of the world.

The world economy is in better shape now than it has been in a long time. We've seen the highest growth rates in 20 years in some parts of the world. And I believe firmly that American economic policies are at the forefront of creating prosperity around the globe. We are looked to as a leader on this front, without question.

That said, the rest of the world is still growing too slowly. And while the growth of the U.S. economy is important to other countries, the sustained growth of the other industrialized nations of the world is also very important to us. It is important to have balanced growth in the world; the trade deficit is largely a result of the global growth deficit.

When the rest of the world grows, it deepens our export markets, which aides our manufacturing industry and families. This Administration is committed to opening markets, ensuring fair trade and reducing barriers to trade because fair and open trade leads to American job creation. America's manufacturing workers are the most productive in the world; with access to the worldwide marketplace, their potential for success is limitless.

I take real pride in the work the U.S. has done to get the G7, both at the ministerial level and the head-of-state level, to focus on the need for global growth. G7 policy today is to pursue growth in each individual country. The President took that message to Sea Island, and at Treasury we've taken it to every international meeting we participate in.

The world economy today is more stable than it has been in years.  Unlike the recent past, we have no financial crises.  The spreads on government debt are down and volatility has been reduced as well.  One reason for this is the greater role today that flexible exchange rates play in the word economy.

The U.S. has been successful in recent months and years in advancing the essential idea of flexibility in exchange rates. It's critically important to keep this issue on the forefront of international economic policy, so the adjustment process that flexible exchange rates make possible can continue and can be encouraged and nurtured. We cannot continue to have artificially set rates developing exaggerated imbalances in the world economy. As I have stated numerous times, this administration believes that the international trading system works best with free trade, the free flow of capital and with market-based exchange rates.

Flexible currency exchange rates is another message that we've taken to the G7, and it has been accepted. The G7 and G20 communiqués reflect this desired policy. We've also taken this message to China and they have agreed. As Governor Zhou of the Central Bank of China said recently, "building a more market-driven trading system for the renminbi is now a task of top priority."

A final issue impacting the global – and therefore the U.S. – economy has to do with efforts to alleviate poverty. Simply put, those efforts are not working effectively enough. That is why the President came up with the idea of the Millennium Challenge Account, which encourages all nations to embrace political and economic reform. The United States has pledged to increase its core development assistance by half, adding $5 billion annually by 2006. To be eligible for this new money, nations must root out corruption, respect human rights, and adhere to the rule of law. They must invest in their people by improving their health care systems and their schools. They must unleash the energy and creativity necessary for economic growth by opening up their markets, removing barriers to entrepreneurship, and reducing excessive bureaucracy and regulation.

I believe this is the most progressive economic development idea of our times to deal with poverty in developing countries.

With that backdrop of global growth and progress, I'd like to dive in to the U.S. economy – what makes it tick, where have we been, and where should we be going?

The most powerful elements of our economy today, and historically, are our small-business owners and entrepreneurs, our outstanding workforce and the simple fact that we operate as a free market. These elements have made our economy more open, flexible, adaptive and resilient than any other in the world.

These fundamentals should not – and I believe literally can not – change if we are to maintain our economic resiliency and dynamism.

For the tried-and-true we must also look to the government foundations of our economy, designed by our founding fathers and Alexander Hamilton in particular… a man who foresaw what our nation was to become and shaped a Treasury Department that would bear his legacy and provide stability to our financial system for centuries.

So we have a foundation that other nations envy and seek to emulate. That does not mean that we can rest. Adjustments to the times are necessary, and have occurred throughout our history.

Recent history has provided us powerful lessons on the U.S. economy and I'd like to look at what worked, and what could use improvement.

For example, when I became Treasury Secretary, I never thought that I'd be spending so much time on education and health care, but those are clearly the two issues driving the future of our economy.

In recent history, we've been able to see the incredible resiliency of our economy.

Think of how gloomy things looked just a few years ago, after enduring a series of harsh blows.

In 2000 and 2001 our economy was in steep decline.

GDP was slowing down, showing negative growth. What that means is that our businesses weren't selling as much, they weren't growing or hiring new employees, and consumers weren't buying as much. The high tech bubble had also been pierced.

What was happening is what economists call a "softening" and it's usually the predecessor of a recession.

President Bush understood that the economy was headed for trouble and therefore made tax cuts – a mechanism that stimulates our economy with near-certainty – a top policy priority.

But the oxygen that came from the first round of tax cuts was overshadowed by the blow to our economy that was the day of unthinkable terror: September 11^th.  The economic repercussions of that day would go on for months, and hundreds of thousands of jobs would be lost as a result. Our nation mourned and the process of healing was slow.

The realization of corporate scandals in the months following that terrible day quite literally kicked us while we were down. Some economists were holding out the specter of deflation.

The President persisted with another round of tax cuts well designed to give the economy a lift in the short term and lead to higher long term growth. He believed in the strength of our economy, in the ability for our citizens and entrepreneurs to rise from the ashes. He knew that tax relief is like oxygen to businesses. He knew that tax cuts would bring renewed life to an economy that had been wounded.

This gets us back to those fundamentals I mentioned earlier. A free-market economy fueled by entrepreneurs responds almost organically to increased freedom. Freedom from excessive taxation and other burdens.

At the same time as the tax cuts took effect, the Federal Reserve Board was providing extra financial relief and freedom by making sure that interest rates were low so that investment would be encouraged.

Sure enough, our economy is coming back. Now we're beginning to do very well and the outlook is good. We're on the right path.

We won't be satisfied until every worker who seeks a job can find one – and we need to implement the rest of the President's pro-growth economic agenda to help job creation for those workers – but our economy has found solid footing and is certainly heading in the right direction. Businesses are growing, and they're hiring people. Families are bringing more money home; they're buying new houses and talking about where they should go on vacation.

Ladies and gentlemen, we are beyond recovery. We are experiencing solid economic growth.

But what does all of this mean to each person, and to each family?

Altogether, 111 million individuals and families will receive an average tax cut of $1,586 in 2004 because of the tax relief enacted in 2001 and 2003.

And beyond the tax savings, the growing economy has added to American's prosperity. After-tax income is up by nearly ten percent. This increase in after-tax incomes means that an average family of four is about $500 dollars better off every month than they were 3 ½ years ago.

An extra $500 every month makes a significant difference for many families:

That may be three or four trips to the grocery store. It could cover the car payment and the utility bills. That's a semester's books for a college student. It's a new dishwasher or washing machine, and it's nearly enough for a new refrigerator. It's enough to make that car repair you've been putting off or a good down payment on your credit card.

An interesting story I heard recently that I think shows our economic health was from the owners of Mug-a-Bug Pest Control Inc. in Lawrenceville, Georgia. It is a simple example, a micro-study of our economy, but I think it speaks volumes.

The owners of Mug-a-Bug report that homeowners who had previously canceled their quarterly pest-control service during the slow days of the economy re-instated the service after tax cuts went into effect. As a result of the increase in business, Mug-a-Bug purchased five new route vehicles and hired three new employees.

Another great story comes from Bob Ford, President Abrasive Blast Systems in Abilene, Kansas.

Bob has seen a big increase in orders at his small manufacturing firm from client businesses over the past two years due to the strengthening economy, enabling him to hire four additional workers in the past year, bringing his total number of employees to 20.

He said that in 2001 and early 2002, companies were very reluctant to spend money on the new equipment that he makes. But from mid-2002 through 2003 and 2004, he has seen a big increase (by at least 50%) in small companies placing orders for new equipment.

When the job creation reports come out each month, it's companies like Mug-a-Bug and Abrasive Blast Systems that I am thinking of… because when you add up thousands of businesses like that, hiring three or four employees each… you end up with hundreds of thousands, and eventually millions, of jobs being created across the country. The 1.7 million jobs that have been created in the last 12 months are mostly thanks to the Mug-a-Bugs and the Abrasive Blast Systems.

In addition to having more after-tax money in their paycheck to afford the things a family needs, the money Americans are keeping after tax cuts is going further for many common purchases – that's another benefit of a growing economy. A dollar goes further for home improvement goods and appliances than ever before. And it's never been more affordable to upgrade to a faster home computer. Look at all the new cars on the road – they've been more affordable, too.

President Kennedy referred to a growing economy as a rising tide. He said that a rising tide lifts all boats… and we can see how true that is when we look at homeownership levels. Since our economy has recovered, homeownership has reached an all-time high with 69.3 percent of all Americans owning their own homes. Minority homeownership is also setting records at 51 percent.

To appreciate how ubiquitous homeownership now is, compare it to this statistic: In 2003, 69 percent of American adults were users of the internet.

Imagine: most Americans have now felt that unique pride that only a homeowner knows as they make a sound investment in their own future and in the future of their communities. We should be gratified, as a nation, by this fact.

The strong pulse of our economy is also due to high levels of innovation and production. We're bringing more new products and services to market – from lifesaving medical technologies to better cookware for your kitchen – when the economy is expanding.

And wherever there's innovation, there's job creation. Every new product and service needs someone to build it, package it, sell it, deliver it, and maintain it. And imagine how many jobs must be filled to get that done.

Innovation is hottest in our smallest businesses, and when I travel around the country I meet frequently with the owners of these very small firms.

Their perspective on our economy is critical – because they are the front lines, they are the job creators, and they are the future.

The National Federation of Independent Business (NFIB) optimism index has tracked 16 straight months of high optimism among small-business owners. The index is part of NFIB's survey of Small Business Economic Trends – frequently cited by Chairman Greenspan.

This is consistent with the stories I hear on the road. Everywhere I go, I'm seeing small companies that are expanding their businesses, hiring new employees and releasing new products.

Let me assure you that the spirit of enterprise is alive and well across America.

From a land surveyor in New England who is employing three times more workers than he did two years ago to a small manufacturer in Alaska who was finally able to buy an expensive new piece of equipment to increase his company's productivity – the news is good among this critical segment of our economy.

The self-employed were one of the key beneficiaries of the President's tax cuts, and it shows. Because so many of them file their business income on personal income tax forms, when the President cut marginal rates, small-business owners felt great relief. And they put those savings back in their businesses. They started hiring more people and increasing pay and benefits.

Many business owners also took advantage of the increased amount they are now allowed to deduct from their taxes for the purchase of business equipment. For example, the increased expensing amount helped Harmon Sign-Planet Neon in Toledo, Ohio buy new computers and two new ladder trucks for their business.

The enthusiasm I hear from small-business owners when we talk about what tax cuts did for their businesses seems to me to be one of the keys to this thriving economy we're seeing today. Because those are the folks who create the majority of net new jobs. That makes small business the base of economy, and it helps explain why our economy is so nimble, so resilient. A multitude of small entities turns faster than a few big, stubborn ones.

A snapshot image of our economy today, might be one of Main Street, USA… where small businesses are putting new products in their windows and shaking the hands of their new employees.

It's a picture of Russell Flock installing a new air conditioning system and a new cash register in his Kentucky Fried Chicken franchise in Warwick, Rhode Island. Or a picture of the cash register manufacturer hiring a new person because demand for their product has increased.

The picture of our economy is very good, and I firmly believe that the President's tax cuts provided the oxygen we needed to turn around from hard times.

The question is: what will future of our economy look like?

We certainly can't be content, even as we see this kind of positive growth and expansion. We can't be satisfied while Americans who are looking for work haven't found it yet.

We have to stay focused on our economy, and do everything in our power to make sure it is free to continue expanding.

Small businesses and workers are collectively lifting up the economy right now, but we can't take that for granted. If we want to see continued growth, we've got to keep their burden light.

What small-business owners want from their government is fairness and freedom. Sometimes it's truly not fair when a company with three employees has to comply with regulations designed with big business in mind, especially when all they are asking is the freedom to start up their business, the freedom to grow it, and the freedom to close the door and go fishing if that's what they want to do.

In exchange for that fairness and freedom, small business gives our country a great gift: jobs and the fuel our economic engine runs on.

So we've got to keep tax rates low on small-business owners and on every American who pays taxes.

Fundamental reform of our tax code – something the President has called for recently – also speaks to the issue of fairness. The President wants to make the code simpler and more fair… and he wants to make sure that it encourages economic growth and job creation.

We've also got to have an energy policy that keeps costs low, reduces dependence on foreign oil and creates jobs for American workers.

And we need to take the fear and cost of baseless lawsuits out of the equation. People who have been injured or harmed must be taken care of, must be compensated… we must maintain a fair system… but aggressive personal injury lawyers have been able to take advantage of the system, and their greed puts a financial and psychological drag on our economy.

It is also critically important that we make health care more affordable. American families, and the American economy, simply cannot endure the rate at which medical costs are increasing. We need free market reforms that put health care purchasing decisions back in the hands of patients, and that bring the cost down to the point where the uninsured can afford to buy insurance.

The recently enacted Medicare prescription drug bill contained an innovative new program that empowers consumers to make better health care choices. HSAs, Health Savings Accounts, are really super-charged IRAs that put patients back in charge of their health care. You own it, you control it, you can leave it to your heirs. They're a terrific new health insurance option, and great news for those struggling with steeply rising premiums.

Perhaps our biggest challenge today, the most important adjustment we can make, is in the area of education – primary, secondary and perhaps more importantly, continuing education.

I am often asked: what is the most important thing I can do, as Treasury Secretary, to strengthen the American economy? And I think that people appreciate the economic significance of tax cuts... that is the obvious answer. But it strikes me that this question is even better answered by Education Secretary Rodney Paige. For nothing will have a bigger, more lasting impact on the American economy than educating and preparing America's workforce for the jobs of today and tomorrow. Primary, secondary and continuing education - for generations to come - are by far the most important efforts toward achieving continued economic prosperity.

The American workforce must be more flexible than ever before in order to remain competitive. We all must dedicate ourselves to a lifetime of learning if we are to keep up with our incredibly dynamic entrepreneurial, job-creating sector.

All over America, jobs are going begging because prospective employees lack the requisite skills.

It therefore makes sense that we should take an entrepreneurial approach to the challenge. Community colleges are doing this already. Their programs are working, especially in those localities where they work closely with their business community to find out what jobs exist, and then design a curriculum that is relevant to local employment opportunities. Look to America's community colleges for the future of worker training.

Before I leave you with those thoughts, a word on the budget deficit.

The budget deficit matters.  It's a concern.  It's unwelcome. But it is understandable, given the extraordinary circumstances of recent history. But because of the ongoing effects of the President's pro-growth economic policies, the deficit outlook continues to improve. To stay on this path, we need a continuation of the President's policies on spending discipline and economic growth.

Because you cannot achieve deficit reduction without growth. This is a point that is too often missed in economic discussions and commentary.

Let me assure you: we know that deficits matter and we are committed to the President's plan, which will reduce the federal deficit by half over the next five years, bringing it well below historic norms.

In conclusion: All economies are subject to some ups and downs and we saw ours take a turn for the worse in recent history. How to help our economy right itself when it is in distress is a lesson in American history. We know from long experience that our economy responds best to the very thing that created it: freedom.

If we stay true to our foundations of free enterprise while maintaining a flexibility that helps us address modern challenges, we will continue to be the economic leader of, and beacon to, the world.

Thank you so much for having me here tonight.

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