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FROM THE OFFICE OF PUBLIC AFFAIRS January 12, 2000LS-329 Thank you, I am glad to be here today for the opening session of this third annual conference for the Rainbow/Push Wall Street Project. Reverend Jackson, you have been tireless in your national leadership on civil rights and economic empowerment for Americans. Let me take this opportunity to thank you especially for your support for a strong CRA, and your leadership in working with us to expand access to capital in the parts of America that too often get left behind. I would like to kick off this session with some observations about the broader economic environment and what it means for America's most disadvantaged regions and citizens. In many, many ways, the performance of the American economy over the past decade has been miraculous. Even five years ago, if anyone had predicted the growth in output and productivity, the high volume of job creation and the modest inflation that we have been able to sustain: it is fair to say that that person would have met with more than a little skepticism. We can rightly take pride in this prosperity. But enormous challenges remain. And none is more important to this country's future than making sure that every American is included:
This crucial challenge is at the core of the President's New Opportunity Agenda for the coming year - one important piece of which he will be unveiling today with the proposal for a major new expansion of the Earned Income Tax Credit. Today I would like to make three main points:
Economic Growth and Social Inclusion Economists have a long word, hysteresis, for a simple thought: that people form habits; that opportunities have a lasting impact; that exploiting the economy's potential increases the economy's potential; and that by running a strong economy that increases demand for labor we make a lasting difference in the lives of our fellow citizens. Our economic success has created a high-pressure economy where jobs look for people more than people look for jobs. This pulls more people into the workforce and acts as a vital safety valve for pressure that might otherwise have proved unsustainable. And it benefits most the people who would otherwise be trapped in the economic margins. Consider:
II. Economic Empowerment for the Most Disadvantaged A strong economy is and will continue to be hugely important for lifting more Americans out of poverty and into the workforce. But if it is a necessary condition we know well that it is not sufficient. That has been the second pillar of our approach: that a rising tide needs the right kind of public action if all boats are to rise with it. Support for working families Over the past 15 years we have had a sea change in the approach that government has taken to the support of America's working poor. In the mid-1980s the federal government was spending around $5 billion on support for low-income working families. Last year, thanks in large part to an expanded EITC, the government spent ten times that amount. The $45 billion increase in spending on this group is more than twice what was spent on food stamps last year, and it makes an enormous difference to the incentives facing poorer families. For example, a worker with two children who took a minimum wage job in 1993 could expect to earn just over $10,500 in today's dollars - well below the poverty line. As a result of the changes in the EITC and the minimum wage alone, by 1998 that same family stood to earn $13,300, or 26 percent more, in real terms - significantly above the poverty line. It would be wrong to underestimate the role that this change in policy has played in America's recent economic miracles: not least, the fact that a record percentage of Americans are in the workforce - and the fact that, after nearly nine years of economic expansion, inflation and long-term interest rates are still close to or below the levels they were at when the recovery began. For example, the share of single mothers in work has risen from just over 60 percent in 1992 to 75 percent in 1998. One recent study by Bruce Meyer and Dan Rosenbaum, published by the National Bureau of Economic Research, estimates that 63 percent of the increase in participation within this group between 1984 and 1996 can be explained by the EITC. Other estimates suggest that it has moved nearly half a million families off welfare. Today the President is proposing to invest close to $20 billion over ten years in further enhancing the returns to employment for poorer families through the EITC:
All told, these proposals would cut taxes by $315, on average, for 6.4 million working families. Second, expanding access to capital The second key pillar of our approach is democratizing access to capital. The First Lady likes to say that it takes a village to raise a child. She's right. And it takes capital to build a successful village. Traditionally and importantly the question of access to capital has been about debt and the provision of loans. We have continued to built on that tradition in recent years:
At the same time, we have learned that there can be more important barriers to attracting or creating businesses in our disadvantaged communities and making them a success. Notably, lack of access to equity and lack of the kind of technical expertise business networks that firms in the mainstream economy take for granted. Growing businesses in these communities are unlikely to attract the attention of venture capitalists, who tend to work with the relationships and communities they already know. At the same time, local venture funds may have difficulty becoming capitalized, developing deal flow, providing the requisite expertise, or managing the risks that come from less diversified local economies. And isolated businesses, both urban and rural, might need greater levels of technical assistance and business advice to succeed.
The sheer potential that exists here was brought home to me in my very first week as Treasury Secretary, when I visited Harlem, USA, a major retail and entertainment center being developed on 125th Street. This public-private effort - brought together, among other things, by the CRA - is bringing major retailers to an area with a population the size of Cincinnati that previously has had no shopping mall or even, until recently, a major supermarket. The taxpayer's contribution to this project will not go un-rewarded. Higher New York City tax revenues will pay back the public investment in Harlem, USA in just 9 months. Moreover, and values in the area have increased 5- to 10-fold. Third, universal access to a bank account As we think about finance we need also to think about financial services for people. Like money itself, the benefits that a bank account provides are easy to take for granted. Until you do not have one. And today, in the age of the Internet, derivatives, and embedded options, between 10 and 20 percent of American households still lack that basic passport to the broader economy. If it was an important national challenge half a century ago to ensure that essentially every American had access to electricity, to running water, and to a telephone - in new economy, ensuring access to a basic bank account must also be a national priority. One recent survey in Chicago found that 44 percent of recipients of the EITC used a check cashing service to cash their refund check. And estimates suggest that the costs over a lifetime for low- and middle-income families of paying fees for every check or bill payment could be more than $15,000. Having a bank account would save these families precious resources. It would also give them the capacity to save on their own account. As recent research by Dalton Conley makes clear, access to savings takes on even greater significance for African-American families today, at a time when racial wealth differences can make all the difference in the world to whether families and their children can see out bad times and break out of poverty. This can be tackled in a number of ways:
As part of this approach we will also be encouraging direct deposit of the EITC refund into bank accounts, so that the 19 million working families that are eligible for it receive their refund more quickly and securely - and see less of it eaten away by fees. We have all spoken a great deal about opportunity in recent years and we will continue to speak about it a great deal in the future. It is profoundly important. But I would like to conclude today with a different thought: that opportunities only become realities when people are in a position to take advantage of them. It has been estimated that in America today, a child born of a single teenage mother who did not finish high school has an 80 percent chance of living in poverty at the age of ten. As the First Lady has taught us, what we are any of us able to become can be determined to a very large degree by what happened to us in our pre-school years; by the home we grew up in; by the kind of school that we were able to attend. That will be true, regardless of how fast the economy grows and regardless of how low the rate of unemployment falls. That is why economic empowerment is about more than a strong economy - important though that it. And it has to be about more than strengthened incentives and support for those with the capacity to find work. It must also be about ensuring every American child starts out with the core essentials: above all, the capacity to read and write. In this new economy many are rightly focused on preventing a gaping digital divide. We should equally remember that nothing does more to create that divide than the inability to read:
In short, our commitment to sound policies, both at the macro and a micro level has already paid important dividends in some of Americas most disadvantaged communities. But we can and must do more. And we must all work together to do it. Thank you very much. |
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