Back to School: Reviewing the Strengths of Our 21st Century Economy

September 29, 2004

Mr. DREIER. Madam Speaker, as I look at the clock, I see it is 10 o'clock. At this time tomorrow evening, we will be two-thirds of the way through the debate that is scheduled to take place between President Bush and Senator Kerry, and I know that the focus of that debate is going to be on foreign policy issues. And so I have chosen this evening to talk about economic issues because that obviously will be down the road, but I think that as we get ready for the debate on foreign policy and we spend a great deal of time talking about that, I think it is also important for us to talk about very important economic issues.

Just a few weeks ago, Madam Speaker, most American kids headed back to school signaling what obviously was the end of summer. Kids had 3 months away from the classroom which is usually enough time for them to forget most of what they learned the year before. September is the time when teachers across the country settle down to the task of reviewing what was forgotten and maybe even tackle some new material.

Madam Speaker, I am standing here tonight because I believe that it is not just America's youth that spent the summer forgetting what they have already learned. Last spring I spent a lot of time standing here talking about our economy and debunking a number of the economic myths that were being propounded by so many, like the myth of the, quote-unquote, jobless recovery that is a familiar term. We have heard it so often. We were dealing with a jobless recovery. The myth that we have an economy similar to that of the Great Depression. And, of course, the ever-popular myth that all we have created are hamburger-flipping jobs.

Eventually we saw some sanity in the debate over the state of our economy. Overwhelmingly positive economic news managed to silence or at least quiet this economy's noisiest critics because we were getting very positive news. Strong growth, high consumer confidence, record homeownership, and robust job creation all made it quite clear that our 21st century economy is strong and very vibrant. And the economic policies of this Congress and this administration have been a tremendous success. That was sort of the word that was finally getting through to the American people and to our colleagues on both sides of the aisle before the summer.

Then a few misrepresented statistics this summer managed to convince a lot of pundits, talking heads and even some of my colleagues that our vibrant, dynamic economy was tanking. Once again they began to believe that no jobs were being created, or at least no good jobs were being created. Perhaps it is not just the youngsters that needed to go back to school. I would like to set the record straight on the true state of our economy and give this summer's data and figures a very much needed perspective.

Gross domestic product is perhaps the broadest measure of the economy's health. The growth in GDP. In the second quarter of this year, Madam Speaker, gross domestic product growth grew at a 3.3 percent annualized rate. This is a very healthy and solid pace. But initial GDP estimates were somewhat lower, first 3 percent, and they were later revised downward to 2.8 percent, just under that 3 percent growth. Even these numbers indicate a healthy rate of growth.

But because they were lower than predicted by most economists, the growth rate was widely reported as an alarming sign that our economy was in trouble. I think perhaps the media missed the point. The fact that economists incorrectly forecasted second-quarter growth may be interesting, but the big news here is that the U.S. economy has had 11 straight quarters of economic growth. Eleven straight quarters uninterrupted growth in this economy. Not only do we now know that it grew by 3.3 percent in the last quarter, but the first-quarter rate was revised upward from 3.9 percent to a 4.5 percent rate. This means that the average growth rate of our economy for the first half of 2004 was 3.9 percent, very robust by any standard and higher than the average during the much-heralded Clinton era where we had strong economic growth. The rate then was 3.7 percent on average. Again the first 6 months of this year saw a 3.9 percent GDP growth.

Another supposed cause for concern are the latest consumer confidence numbers. After steadily rising month after month, consumer confidence decreased somewhat in recent months. There is no doubt that constant headlines reporting rising oil prices caused Americans to wonder what impact they would have on the economy resulting in a modest dip in consumer confidence. But despite this blip on the screen, consumer confidence remains at a nearly 2-year high. Let me say that again, Madam Speaker. Consumer confidence, even with that dip with the increase in oil prices, it is at a nearly 2-year high.

Perhaps the more telling number, consumer spending, is also very healthy. Retail spending has grown 5 percent over the past year, a strong pace by historical standards. Excluding auto sales, retail sales have grown at a rate of 7 percent. Americans are clearly demonstrating their confidence in the strength of our economy. Madam Speaker, real earnings also continue to grow. Real average weekly earnings grew seven-tenths of 1 percent in the month of July, and they are up 1 percent during the Bush administration.

To give these numbers a little context, real average weekly earnings increased by just four-tenths of 1 percent during the first 4 years of the Clinton administration, less than half the growth that we are experiencing today. Real hourly compensation has grown four-tenths of 1 percent in the first half of this year and is up 5.2 percent since President Bush has been in office.

Again, in order to give some context, Madam Speaker, real hourly compensation fell four-tenths of 1 percent during the first 4 years of the Clinton administration. That is 5.2 percent growth that we have had during the Bush administration versus a four-tenths of 1 percent reduction in real hourly compensation.

Real disposable personal income is perhaps the best and broadest measure we have of an individual's wealth because it takes into account many forms of after-tax income. This measure also shows a steady, solid pace of growth. During the Bush administration, real per capita disposable income has increased by $1,521 versus the $1,332 increase of real per capita disposable income during the first 4 years of the Clinton administration. So we have actually seen a pretty dramatic increase in the 4 years of the Bush administration juxtaposed to the 4 years of the Clinton administration.

Again, the reason I make these comparisons is that we constantly hear about how we long for the days of the bold and strong and dynamic economic growth that we had during the Clinton administration; and, of course, we recall very well that Bill Clinton was running for reelection in 1996, running on that strong, bold and dynamic economy; and if you look at real per capita disposable income, it actually has increased more in the past 4 years of the Bush administration than it did during those first 4 years of the Clinton administration.

Industrial production continues to climb. Manufacturing output is stronger than ever. Let me underscore that again, Madam Speaker, because we have over the last few months been continuing to hear these lines about how the manufacturing sector of our economy is in the Dumpster. Manufacturing output is stronger than it has ever been.

Productivity. Remember how important productivity is. Constantly for decades we have really had a focus on productivity. Productivity is on a long, steady upward trend. Exports, one of the important things that this administration has focused on, prying open new markets for U.S. goods and services, exports are surging. Business investment is very healthy, growing nearly 9 percent in the last quarter, marking the fifth consecutive quarter of growth. This is particularly significant in light of the 2001 economic recession which was characterized by abysmally poor business investment.

Madam Speaker, today's robust investment demonstrates the strength and competitiveness of U.S. companies as well as a healthy climate in which firms are willing to take risks. Madam Speaker, on all fronts, the U.S. economy is vital and strong. Despite some misrepresentation, the recent economic data demonstrate a healthy and growing economy.

This is not just a temporary phenomenon. These positive indicators are part of a 2 1/2 -year trend of growth and a rising standard of living. Of course, we are not going to be satisfied until every single American who wants a job has a job, but as we hear these constant gloom-and-doom predictions and these outlines from so many of our colleagues that you would think that we were in a deep depression, the numbers as well as empirical evidence prove otherwise.

Of course, as I say, in any discussion of the economy, the issue of job creation is obviously the highest priority. On this front as well, the outlook is very bright and continues to be bright. But once again, as I say, some misrepresented numbers are leading to more rhetoric of doom and gloom that have come from so many naysayers.

In July, the new payroll jobs number, the payroll survey jobs number was 32,000. This was much lower than previous months' numbers and fell far short of expectations. Immediately when those numbers came out for the month of July of 32,000, we heard the naysayers, led by John Kerry. They could be heard lamenting the end of our recovery and the start of a downward trend. That is what we continued to hear at midsummer. The announcement of 144,000 new payroll jobs in August has quieted some of the gloom-and-doom rhetoric, but John Kerry & Company still claim that good new jobs are not being created.

But in order to understand what the payroll numbers mean, the payroll survey, there are several key points that we need to keep in mind. The first is that in spite of the July number, the payroll survey does in fact show a very strong job growth. This is the payroll survey, and I am going to talk about the difference between the payroll and the household surveys in a moment; but the payroll survey itself has shown 1.4 million new jobs created in this calendar year alone and almost 1.7 million new jobs created since August of last year.

The second point, Madam Speaker, to keep in mind is that the payroll survey is notoriously inadequate at accurately accounting for new job creation following an economic recession.

This survey showed a very weak job recovery following that recession in 1991. Quarter after quarter, the meager payroll survey numbers seem to suggest a jobless recovery. Sound familiar? Once more, complete data became available, and once we were able to look at more complete data, we realized that the job creation had, in fact, been very strong throughout 1992. The payroll numbers were revised upwards significantly. Most economists agree that this phenomenon is taking place again today and that the payroll numbers will once again be revised upward.

But the third and more fundamental point about the payroll survey is that it does not measure the entire workforce. Again, the payroll survey numbers that we regularly have come out on a monthly basis do not reflect the entire workforce of this country. This survey only counts jobs in established firms. It does not count self-employed workers. It does not count small-business owners, independent contractors and consultants, LLC partners, and it does not count farmers. The payroll survey, the numbers that we regularly look at, do not take all of those into consideration. Those innovative job creators out there are not taken into the mix.

Historically self-employed workers represented only a small slice of the entire labor force. That is one of the reasons people have relied on the payroll establishment survey as opposed to the household survey. But our economy is many years into a fundamental shift in the overall nature of job creation. Self-employment currently accounts for one-third of all new job creation. Self-employment accounts for one-third of all new job creation, Madam Speaker. That means that that is not taken into consideration in the payroll survey. The Internet and modern technology, especially digital technologies, are making the American dream of owning one's own business a much more accessible reality. Small business startups are booming. LLC partnerships are exploding, doubling the total number in just 3 years in some States. And these small merchants, empowered by the Internet age, are able to compete in the global market right alongside the multinational counterparts. And yet their work is not taken into consideration when the payroll survey is done.

Our 21st Century economy is giving a quickly growing number of Americans the flexibility to work independently and to be their own bosses. This is very good news for workers and, Madam Speaker, for families as well. But it means, as I say, that the payroll survey is increasingly inadequate for measuring this new dynamic 21st Century workforce because that innovation and creativity that is out there is not taken into the mix. It is not taken into the mix at all. Furthermore, the payroll survey numbers are highly susceptible to changing the rates in job turnover. When job turnover is high, a significant amount of double counting takes place as workers move from one employer to another during a short period of time. The result is an inflated payroll number during periods of high turnover. Subsequently, when turnover begins to ebb, the payroll number is artificially deflated.

A number of economists have long been pointing out this volatility in the payroll survey. Tim Kane, who is a very bright economist whom I know at the Heritage Foundation, estimates that high turnover could inflate the payroll jobs survey number by over a million jobs. As a result, there is huge potential for overstating job losses during points in the business cycle when turnover drops. The Bureau of Labor Statistics recently published its first assessment of this problem. Its report did not estimate the full potential for inflating payroll job numbers during high-turnover periods. But the Bureau of Labor Statistics did find that this turnover effect has led to an undercount of at least a quarter of a million, 250,000 jobs, during the period between March of 2001 and June of 2004, a period of low turnover and economic recovery.

Let me run through that problem again. High job turnover prior to the 2001 recession inflated the payroll number in the preceding years. The result has been that, over the past 3 years, while turnover has been low, the payroll survey has shown an artificially low number by at least 250,000 jobs. Based on Mr. Kane's estimate of a potential overstatement of 1 million jobs, the current undercount could be even greater than that quarter of a million. It could certainly be smaller.

Steven Braun at the Council of Economic Advisors estimates that the current undercount could be as low as 145,000. But the point is, there is simply no doubt that the payroll survey is vulnerable to distortion from the job-turnover effect.

So we know that the payroll survey has its shortcomings. But we have several measures of our labor force that, taken together, help to paint what is clearly a more accurate picture of job creation in this economy. The Bureau of Labor Statistics' household survey that I have been mentioning, for example, counts employed workers by going directly to households, directly to the households and counting the number of employed persons. Rather than surveying established businesses, the household survey counts all types of workers. This method makes it possible to account for the self-employed workers who are missed by the payroll survey.

As I have said, the self-employed historically accounted for a relatively small section of the workforce in years past. Because of this, the payroll and household surveys, while taking different approaches to assessing employment, came up at that time in the past with similar results. There were differences here and there, but the two surveys, because of the fact that self-employed made up such a small segment of the workforce in the past, the difference between the household and the payroll surveys, so-called establishment survey, trended together, and the differences were not that great, and they demonstrated a very similar sort of the same employment climate.

In the last few years, however, as I have been saying, an unprecedented divergence has taken place between the establishment payroll survey and the household survey. Since March of 2001, the two surveys have shown an incredible discrepancy in job creation. The gap currently stands at nearly 3 million jobs. That is a 3 million job spread in the disparity between the prediction of the establishment payroll survey, which simply takes into account those in companies that are actually employed, juxtaposed to looking at the household survey, which goes directly to the homes and asks if people are working there. And while the household survey measures 1.9 million new jobs created since 2001, the payroll data suggests a net job loss of a million over that same period of time.

This divergence shows no sign of correcting itself. In July, the household survey showed a net job creation of 629,000. Remember, as I said, the payroll survey, as I mentioned a few minutes ago, showed 32,000 jobs created. So by the antiquated way of determining jobs in the pre-21st Century economy, what we had was 32,000 jobs created, and yet with the household survey, the month of July showed 629,000 jobs created. There are likely a number of reasons contributing to that major divergence. The turnover factor, as I was mentioning earlier, has obviously had a big impact. And as I discussed, the payroll survey tends to undercount jobs in periods of recovery as was the case in the months following that 1991 recession.

But it is clear, Madam Speaker, that the fundamental changes in the nature of job creation that are taking place in our economy have led to a far greater slice of the labor force that is working independently. As this trend continues, the payroll survey will be increasingly incapable of accounting for all working Americans. I think it is already there myself if we look at the numbers. The household survey alone is not enough to see the complete picture, however. But if we look at all the numbers that are available to us, it is clear that the current household survey numbers are much more in line with other economic indicators than is that very antiquated payroll survey. Average weekly jobless claims have been dropping for 13 straight months. The unemployment rate has fallen to 5.4 percent, lower than the average for the past 3 decades. The ISM manufacturing employment index has shown gains for 15 straight months. The same index for nonmanufacturing employment has been showing gains for 11 straight months.

All of these employment figures are pointing in one direction, and that one direction is up. And yet Democratic presidential nominee John Kerry tries to claim that the economic policies of the Bush administration and this Republican Congress have been an abysmal failure. He claims that no jobs are being created. We have heard that line over and over again: ``George Bush is the first President since Herbert Hoover to preside over a net job loss.'' And yet faced with the evidence that thousands upon thousands of jobs are being created, John Kerry says that they are only low-wage hamburger-flipping jobs that have been created.

Yet we can see from the overwhelmingly positive economic data that this is clearly not the case. Even the payroll survey, Madam Speaker, has shown 13 consecutive months of job creation. And these gains have been across virtually every single industry in our Nation. Gains have been especially strong in high-wage, high-skill industries like business and professional services. There is simply no denying the fact that job creation in this economy is strong and sustained. But the negative rhetoric just keeps on coming, and with it comes several new economic proposals.

John Kerry says he would repeal the very tax cuts that halted a recession, revived business investment, gave Americans bigger paychecks, and produced all of the strong economic indicators that I have just been discussing, including $56 billion in unanticipated revenue to our Federal Treasury that came in because of the economic growth that followed our tax cuts.

In addition to raising taxes on individuals, the Senator from Massachusetts would increase the tax burden on U.S. companies, the job creators, who compete and invest in the worldwide market. He would also impose new labor regulations on these global leaders and create new restrictions.

For example, John Kerry supports preventing globally engaged companies from competing for federal contracts. He is also a cosponsor of the so-called Jobs for Americans Act. Sounds great, but it would impose dramatic new restrictions and regulations on any company, large or small, that invests in growing overseas markets. John Kerry would also bring our trade liberalization agenda to a standstill. He has proposed reopening the trade agreements that have removed barriers to U.S. goods and services, and we are all very proud of this Congress having in the past year passed agreements with Morocco and Chile and Singapore and Australia, very important; yes, small economies but very important market-opening opportunities. So he has proposed reopening the trade agreements that have removed barriers to U.S. goods and services and created new opportunities for American workers and provided quality, affordable choices for the American consumer, which is something we so often forget in the trade debate. He says he would put a moratorium on all negotiations currently in progress. And he has called for reinstating the Super 301 process, which would violate our commitments to the World Trade Organization. Remember, the WTO, often maligned, is an entity which has as its goal eliminating tariff barriers, and it would also, by taking the action that John Kerry has proposed, open up an opportunity for retaliation by our trading partners in the world.

In short, John Kerry's economic platform consists of claiming that our vibrant, growing economy is actually weak and then proposing to make innovators and job creators even less competitive than they are today.

Madam Speaker, several months ago I stood in this well and discussed many of the proposals that John Kerry has made and pointed out that he has been advocating policies that countries like France and Germany have had in place for many years. For decades, Madam Speaker, the French and the Germans have saddled businesses with high taxes and heavy regulation all in the name of what? Protecting jobs. As I said a few months ago when I stood here, we do not have to wonder what the impact of the Kerry economic agenda would be. Why?

 

All we need to do is look at the economies of France and Germany and decide that that is what our economy would look like under the policy proposals that have been put forth by John Kerry.

So let us look, Madam Speaker, at these numbers again. Since 1999, unemployment in France has been stuck right around 10 percent. At the end of 2002 it dipped as low as 9.1 percent, but it is now back up to 9.5 percent. The French unemployment rate is nearly double the 5.4 percent unemployment rate that we have here in the United States, and it continues to rise at a time when the overall unemployment rate for OECD countries is actually falling.

Remember, this increase is being led by falling unemployment in the United States. For the overall number of OECD countries, our economy is providing leadership. Unfortunately, the French economy, setting the example for the policies that John Kerry has proposed, unfortunately is headed in the wrong direction.

Economic growth, overall economic growth in France has also been very disappointing. Last year GDP growth grew at a very paltry 1.8 percent. Remember, we have talked about it in excess of 3 percent growth here. Estimates for 2004 are that economic growth in France will be at 1.7 percent. Its finance ministry announced it is hopeful the economy could grow by as much as 2.5 percent next year. But even they admit that this relatively slow rate of growth will be difficult to achieve. Getting up to 2.5 percent will be tough for them.

This stagnation is not a recent or temporary situation in France. Average annual growth in gross domestic product throughout all the 1990s was less than 2 percent, Madam Speaker, just over half of the average growth of 3.4 percent that we have had here in the United States.

Germany has faced similar dismal jobs and growth numbers. Since the late 1990s, unemployment in Germany has remained just above 8 percent, and has steadily climbed over the past year. In 2003 it inched up from 9 percent to 9.2 percent; and unfortunately for the German people, it continues to climb.

At the same time, German GDP growth has been a very meager 1.7 percent for the last 2 years, and economic forecasters have downgraded their predictions of growth for 2004 from 1.8 to 1.6 percent.

Just like their neighbor to the West, Germany has experienced economic stagnation for many, many years. Throughout all the 1990s, economic growth averaged just 1.5 percent, an abysmal one-third of the U.S. growth that we have seen.

But perhaps the most telling numbers of all, Madam Speaker, are what I call the ``innovation indicators,'' the innovation indicators, in terms of new patents, research and development, and venture capital. The United States far outpaces France, Germany, and the entire European Union. As a result, we are the world's leading innovator, right here in the United States.

Our level of innovation, which demonstrates the vitality and dynamism of an economy, together with factors like unemployment and growth in GDP, clearly show that our economy is creating far more and far better opportunities for workers.

Madam Speaker, the competitive edge has led to a significant brain drain from Western Europe to the United States. Over 100,000 European researchers currently work in the U.S. A recent European Commission survey found that more than 70 percent of European recipients of U.S. doctorates in the last decade plan to stay and work in America. This has the commission fretting that by the end of the decade Europe will have 700,000 fewer scientists and engineers than will be necessary to compete in the global economy.

This realization, along with years of flagging growth and rising unemployment, has served as a wake-up call to Europe that their economic policies have failed.

In fact, the policies that John Kerry is advocating have performed so poorly in France, Germany, and throughout the euro-zone area that the Europeans are now proposing significant reforms. It is long overdue, but it is great to hear it. They are starting to move in precisely the opposite direction that John Kerry is proposing to see the U.S. move in. The European Union has realized it is time for them to go back to school and learn what it takes to make sure that economies thrive.

The most sweeping changes are taking place within the European Commission, beginning with the appointment of Jose Manual Barroso of Portugal as the new president of the European Commission. France and Germany had supported the Belgium Prime Minister Guy Verhofstadt, who favors high taxes and heavy-handed government intervention. But EU member countries chose Portugal's Prime Minister, a staunch free market proponent with strong reform credentials.

Mr. Barroso has signaled his continued commitment to the principles of economic liberty in virtually every major appointment he has made for his team of commissioners. The competition portfolio is one that France in particular was interested in nabbing. But the job did not go to a French favorite. Instead, it went to Neelie Kroes-Smit of the Netherlands, a member of the free-market Liberal Party in the Netherlands. As transport minister in the 1980s, she supervised the privatization of key naturalized industries, such as the postal system and the telephone monopoly.

The trade post went to a Brit, Peter Mandelson, a close ally of Tony Blair and a strong proponent of aggressive trade liberalization. The internal market position went to Charlie McCreevy, that great supply-sider who cut Ireland's taxes to the lowest in the European Union and helped Ireland enjoy 8 percent, 8 percent, GDP growth. Latvia's Ingrida Udre was given the taxation portfolio in a clear signal of his support for lower taxes.

Madam Speaker, Latvia adopted a 25 percent flat tax 10 years ago, and has experienced growth rates averaging over 6 percent during the last 5 years.

Clearly, the European Union has witnessed the damaging effects of Franco-German policies of high taxes and high regulation which stifle innovation and entrepreneurship; and as a result of that, the new leadership is attempting to make a fundamental shift in the EU's economic and labor policies.

While France and Germany still seem to be lagging behind in this enthusiasm for change, there are signs that even they realize that their policies are not working. The German Chancellor, Gerhard Schroeder, has been struggling to institute new labor reforms that would significantly reduce the burdens of employers, particularly small business owners, in an attempt to jump-start job creation.

There have also been some surprising proposals in the area of tax cutting. Last month the influential advisory panel to Germany's Finance Ministry actually proposed a flat tax of 30 percent on both corporate and personal income. That is still a high rate by international comparisons. Russia's individual flat tax rate, for example, is 13 percent. But it would be a significant reduction, not to mention dramatic simplification, of the very, very complex system that they have in Germany.

German corporate profits are now taxed at 37 percent and individual rates as high as 45 percent. The tax burden is so formidable that a recent European Commission report estimates that the black market in Germany has grown to 6 percent of its GDP.

While much of Western Europe still has a very long way to go to undo the decades of burdensome labor regulations and protective tax policies, the seeds of change, I am happy to say, are being sown. But it is simply mind-boggling that at precisely the same time that the European Union is getting the message and beginning to deal with the very detrimental effects that they have had of years of bad economic policies, John Kerry is proposing that we as Americans begin adopting those failed policies.

He wants to saddle employers with new regulations. He wants to burden U.S. companies that are global leaders and innovators with higher taxes. He wants to disrupt trade agreements that have created new opportunities for American workers, business and consumers. He wants to fundamentally alter the U.S. business environment that has made us the global economic leader and a magnet for the world's best and brightest.

It is hard to understand what John Kerry could possibly be thinking, but at least he provides the American people with a very clear, distinct choice. On the one hand you have a President who cuts taxes, boosting the after-tax dollars of all Americans and making U.S. companies more competitive; a President who aggressively seeks to alleviate the burdens of unnecessary regulations and frivolous lawsuits on employers and job creaters, particularly small business owners; a President who tears down trade barriers that hurt U.S. manufacturers, service providers, farmers, investors and consumers; a President who has helped to lead our economy into the 21st century economy so it will continue to be the global standard bearer.

On the other hand you have a candidate who wants to stymie the freedom and flexibility that have allowed innovators to develop and harness new technologies; a candidate who wants to prevent our most competitive businesses from investing in the global market; a candidate who wants to burden employers and individuals with new taxes and new regulations; a candidate who looks at our dynamic, vibrant, growing, innovative economy and sees only an opportunity for more heavy-handed government intervention.

Madam Speaker, it sounds like John Kerry could learn a few things from the very Europeans whom he proposes we emulate. Our economy is the global leader because the hard work and innovations of millions of Americans are not constrained by excessive government meddling. France and Germany are reluctantly learning this lesson.

I hope very much, Madam Speaker, that as he continues his career in the United States Senate after this November, that John Kerry will learn those lessons as well.