The Federal Reserve (Fed) took unprecedented action to put private sector assets, and therefore risk, onto its, and hence the taxpayers, balance sheet. That action was part of the Fed’s backstop for the acquisition by JPMorgan Chase & Co. of Bear Stearns Companies Inc (Bear), following a run on Bear by its creditors. The Fed has also continued to supply more liquidity to financial markets in the face of incoming data that increasingly suggest that the economy may be in a recession.

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The inflation-adjusted (real) GDP increased at a sluggish 0.6% annualized rate in the 4th quarter of last year. Payroll employment declined in January, the first month with a decline since August 2003. Financial markets remain under stress, which has led to tightening of credit for some businesses and households. With that backdrop, the Federal Reserve cut its target for overnight interest rates by 50 basis points at its scheduled monetary policymaking meeting on January 30, following a more aggressive 75-basis-point inter-meeting cut. Housing market adjustments continue, including reductions in home sales and builder activities along with increased delinquencies and foreclosures on mortgages.

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WASHINGTON, D.C. – Chairman Bernanke, I am pleased to join in welcoming you once again to the Joint Economic Committee and appreciate your testimony on the economic outlook. 

According to standard measures of performance such as economic growth and the unemployment rate, the U.S. economy appears to be doing well.  Real economic growth was 3.9% in the third quarter, while the unemployment rate remained at a relatively low 4.7 percent rate in October.  Exports and consumer spending continued to advance, reflecting the resilience of the U.S. economy.

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The inflation-adjusted (real) gross domestic product (GDP) increased at a robust 3.9% annualized
rate in the 3rd quarter. Employment also continues to expand, with 166,000 new jobs added to
payrolls in October.

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WASHINGTON, D.C. – The 166,000 increase in nonfarm payroll employment in October reflects the great resilience of the U.S. economy, Congressman Jim Saxton, ranking member of the Joint Economic Committee, said in a statement today.  This morning the Bureau of Labor Statistics (BLS) released the new data on October payroll employment, as well as household data showing the unemployment rate steady at a relatively low 4.7 percent.

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WASHINGTON, D.C. – Payroll job gains of 110,000 in September and a revised 89,000 increase in August mark the longest consecutive employment expansion on record.  Today, the Bureau of Labor Statistics (BLS) also released data showing a 4.1 percent increase in average weekly earnings since September 2006.

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After credit market participants discovered that subprime residential mortgage collateralized debt obligations (CDOs) were riskier than previously thought, fears about default risk spread, and the value of these CDOs fell.

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Housing market adjustments have included reductions in home sales and builder activities along with increased delinquencies and foreclosures on mortgages. Those delinquencies, and related losses on some mortgage-backed securities, led to a systemic liquidity event in early August, with borrowers facing increased difficulties obtaining funds.

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Economic growth rebounded in the 2nd quarter, with annualized growth in the inflation-adjusted (real) gross domestic product (GDP) rising to 3.4%. This is a significant acceleration from the modest 0.6% growth in the 1st quarter and represents the 23rd consecutive quarter of expansion of real GDP.

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WASHINGTON, D.C. – The U.S. economy advanced at a 3.4 percent rate in the second quarter of 2007, while the Fed’s preferred inflation measure slid to 1.4 percent.

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WASHINGTON, D.C. – The latest data on industrial production, employment, and manufacturing activity all signal a solid pattern of economic growth in the second quarter of 2007. Today, the Federal Reserve released industrial production figures showing a 0.5 percent increase in June, and a 1.4 percent increase over the last year. A few weeks ago, June employment data were released showing a monthly increase of 132,000 payroll jobs, or 2 million jobs over the last year.

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WASHINGTON, D.C. – The economy cooled in the 1st quarter, with annualized growth in the inflation -adjusted (real) gross domestic product (GDP) dipping to 0.6%, the weakest in four years. However, recent data on consumer and business investment spending, construction activity, and net exports all suggest improvements in final demand for goods and services. Measures of activity in the manufacturing and services sectors over the past two months also indicate a rebound of production relative to averages in the 1st quarter. Private forecasters expect growth to remain moderate in the near term as adjustments continue in the housing market, but also expect growth to accelerate to a more trend-like rate of close to 3.0% by year's end. Real GDP has grown at a healthy average rate of 2.9% over the past 22 consecutive quarters of expansion. Employment has also continued to expand; over 8 million new payroll jobs have been created in the past 45 months of consecutive job gains.

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WASHINGTON, D.C. – Recently released data on manufacturing activity, employment, business investment, and business activity in the non-manufacturing sector show that the pace of economic growth is picking up in the second quarter of 2007.  For example, May payroll employment increased by 157,000, while the unemployment rate was unchanged at a low 4.5 percent.  Today, the Institute for Supply Management (ISM) released its index of business activity in the non-manufacturing sector for May, which posted a 3.7 percent monthly increase to a level of 59.7 percent.  In addition, the most recent reading of the Fed’s preferred inflation measure has fallen to just within the central bank’s comfort zone.

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WASHINGTON, D.C. – In 1975, U.S. workers with high school diplomas earned a real mean average of $28,471 (all earnings herein are in real 2005 dollars; see Chart 1 for increases in real mean earnings and Chart 2 for education premiums).  U.S. workers with bachelor’s degrees earned a real mean of $44,767, a premium of 57 percent more than high school graduates, while U.S. workers with masters, professional, or doctoral degrees earned a real mean of $60,714, a premium of 113 percent more than high school graduates.

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WASHINGTON, D.C. - The economy continued to grow in the 4th quarter of 2006 – annualized growth in the inflation adjusted (real) gross domestic product (GDP) was 2.5%. Despite a resilient increase in consumer spending and rising exports, growth remained somewhat below trend, held down by continued adjustments in the housing market and a downturn in business investment. Private forecasters expect growth to remain moderate in the near term as adjustments in the housing market continue, but also expect growth to accelerate to more trend-like rates of around 3.0% by year’s end. Real GDP has grown at a robust average annualized rate of 3.0% over the past 21 consecutive quarters of expansion. Employment has also continued to expand; over 7.8 million new payroll jobs have been created in the past 43 months of consecutive job gains, and the Nation’s unemployment rate fell to a low 4.4% of the labor force in March, among the lowest readings in six years.

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WASHINGTON, D.C. – Following a 9% decline in Shanghai’s stock market, equity valuations tumbled in the U.S. and across Europe and Asia on Tuesday, February 27, though analysts lack an identifiable single trigger. The recent volatility in financial markets appears to have had little effect on expectations about the pace of economic growth this year. Private forecasters continue to see somewhat below-trend growth in the near term but a return to more trend-like growth of around 3.0% by year’s end. Annualized growth in the inflation-adjusted (real) gross domestic product (GDP) was 2.2% in the 4th quarter of 2006 and has averaged 3.0% over the past 21 consecutive quarters of expansion. Employment has also expanded; close to 7.6 million new payroll jobs have been created in the past 42 months of consecutive job gains. February’s unemployment rate was a low 4.5% of the labor force.

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Third quarter GDP growth for 2006 was revised up to 2.2%. The annual rate of economic growth for the last year – from the third quarter of 2005 to the third quarter of 2006 – was 3.0%. More than six million non-farm payroll jobs have been added since August of 2003.

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The economy is poised to achieve the 3.25% to 3.5% annual growth rate forecast by the Federal Reserve for 2006. In August, the economy added 128,000 non-farm payroll jobs.

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The economy is growing at a rapid rate. Employment is likewise expanding. The economy has shown itself to be resilient to significant shocks and most key economic data continue to reflect healthy growth. As Federal Reserve Chairman Bernanke recently testified before the Joint Economic Committee, the economic outlook continues to be positive.

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WASHINGTON, D.C. - The U.S. economy is now much more able to withstand energy price shocks than it was 25 years ago, according to a new Joint Economic Committee study released today by Chairman Jim Saxton. The study, Energy Prices and the Economy, examines how the U.S. economy has become more energy efficient, less energy intensive, and more resilient in recent decades. As a result, past studies suggesting that significant oil price increases would lead to sharp declines in GDP growth were not reliable guides in predicting the course of economic growth in recent years. However, higher energy prices continue to have potential negative economic effects, even if they are much less severe than during the 1970s and early 1980s.

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WASHINGTON, D.C. - Although some people have expressed dissatisfaction about the performance of the U.S. economy, the economic data show that since 2001 the United States has outperformed every other large developed economy. This report examines the performance of a peer group of large developed economies from 2001 to the present. The peer group includes Canada, Japan, the United States, and the twenty-five member-states of the European Union, but excludes the smaller developed economies of Australia, Iceland, South Korea, New Zealand, Norway, Singapore, Switzerland, and Taiwan. Together, the peer group produced 78 percent of the world’s GDP in 2003.

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The 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.

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The 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.

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The 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.

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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.

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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 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 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:

• 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.

The prospects for continued expansion look favorable so long as appropriate macroeconomic policies are maintained and no serious policy errors are made.

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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 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.

The paper concludes with an assessment of the longer term prospects for growth.

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Among the most popular monthly labor measures, the unemployment rate is the most useful as an indicator of recession, whereas two top measures of employment – payroll job growth and CPS employment growth – have little value.  Another data series is even more valuable in that respect – claims for unemployment insurance (UI).

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This paper investigates the value of employment data as real-time recession indicators. Among popular monthly labor measures, the unemployment rate is the most useful as an indicator of recession, whereas two top measures of employment growth –payroll jobs and civilian employment –have little value. Two other series, the labor force participation rate and the employment-population ratio, also provide little or no value in anticipating a recession. The best pre-recession employment indicator is actually weekly claims for unemployment insurance (UI). The paper reviews a new technique for predicting recessions, and develops an employment recession probability index. The index indicates a 35.5 percent chance that the U.S. economy is in recession, sharply up from 10 percent last month.

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WASHINGTON, D.C. – Despite strong economic growth in recent quarters, the downside risks to the economic outlook are growing, a situation aggravated by plans for a variety of tax increases.  This morning, Republican Leader John Boehner and other Republican leaders issued a new report highlighting the danger tax increases would pose to the economy. 

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Federal policymakers have recently floated a number of proposals to levy new taxes or to increase existing taxes.  These include:

• higher individual income tax rates,
• higher tax rates on capital gains and dividends,
• an income tax surcharge on upper income households,
• removal of the earnings cap on payroll taxes for OASDI benefits (i.e., Social Security pensions),
• eliminating the tax treatment of carried interests as capital gains,
• higher motor vehicle fuel taxes, and
• a new tax on the carbon content of energy.

However, these tax proposals are not paired with significant spending reductions.  Instead, many are combined with plans for new spending.  It is doubtful whether these proposals should be considered as deficit reduction measures

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WASHINGTON, D.C. – The overall burden of taxation is much larger than the tax receipts that government collects each year because taxes distort the behavior of individuals and firms.  These distortions reduce potential output or economic welfare.  Economists refer to this reduction as the excess burden or deadweight loss of taxation, which is usually expressed as a percent of tax collections either on average or at the margin (the last dollar of tax collected).

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This 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.

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The 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.

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The 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.

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As discussion continues over the federal government's budget for fiscal year 2000, a large number of political leaders are calling for some form of tax relief. Three factors are contributing to this push for tax reduction: first, the federal budget is in surplus for the first time in decades. It is financially possible to have tax reduction without incurring the political problems associated with budget deficits and/or forced reductions in federal expenditure. Second, federal tax revenues are at a historic high in relation to the nation's output, and many taxpayers feel the federal government is imposing an increasingly unreasonable burden on them, thereby increasing the political appeal of a tax cut. Some areas of taxation - e.g., the taxation of savings and capital - are particularly high and burdensome. Third, some advocates of tax reduction feel that if federal revenues are not soon reduced, that political forces will operate to increase spending, crowding out private sector activity. History suggests that this possibility is indeed very real.

This study argues that tax reduction would have very significant positive welfare effects on the American economy. Based on previous research by a large number of scholars, it is reasonable to foresee the equivalent of tens of billions of dollars of new output being created with a significant reduction in taxes. While it is true that from a Keynesian, demand-side perspective, the case for a tax reduction is rather weak, there are compelling arguments that suggest that lowering taxes would promote economic welfare. A tax reduction that approximates the magnitude of the 1998 or projected 1999 budget surplus would provide benefits to Americans measured in tens of billions of dollars annually.

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Government serves many useful functions, including some economic ones. The findings here support the view that the growth of government in newly emerging nations and economies tends to increase output. Presumably this reflects the reduction in transactions' costs and the improved environment for investment associated with a rule of law and enforceable property rights. At the same time, in modern times relative American federal government spending has expanded rapidly, reflecting sharp increases in transfer payments. The evidence suggests that large transfer payments in particular have negative consequences for growth. The results for the federal government are confirmed for state and local governments and several other countries. The findings suggest that a federal budget strategy of constraining spending growth below output growth, with particular attention paid to constraining transfer payments, would have positive effects on economic growth.

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This paper shows that excessively large government has reduced economic growth. These findings present a compelling case that rather than devising new programs to spend any surplus that may emerge from the current economic expansion, Congress should develop a long--range strategy to reduce the size of government so we will be able to achieve a more rapid rate of economic growth in the future.

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This report examines how tax reduction improves incentives to work, save, and invest and increases long-term productivity and economic growth. The 1960s and 1980s are cited to illustrate the positive effects of tax cuts. Keynesian and free-market perspectives are compared.

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This revised JEC study examines new evidence of economic stimulation from tax rate cuts at the national level as well as tax changes at the state level. Five case studies comparing relatively high and low income tax states are presented. In each case, the low-tax state outperformed the high-tax state.

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This report examines the problem of "rent seeking" and how such activity rewards special interests while hurting the American economy. It explains how special interests seek what economists call "rents" that favor their industry. The report makes the case that to avoid the problem of rent seeking and to help restore long-term economic growth, the size of government should be reduced.

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This report contrasts public sector performance with that of the much more productive private sector. The basic argument of this report is that the federal government is too large, too unproductive, and too burdensome to the American economy.

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This report expands and builds upon the recent Lowell Gallaway and Richard Vedder study on the optimal size of the federal government, commissioned by the JEC, as well as recent in-house JEC works. It underscores the important point that the way to get our economy going is to reduce federal spending and cut taxes.

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The Reagan expansion years marked a period of economic progress for middle class Americans. Middle class household income increased 11 percent after adjustment for inflation, and nearly 20 million new jobs were created. Nonetheless, there are those in the Administration who have attempted to portray the 1980s as a period of economic hardship and decline for most Americans. This paper refutes that position, showing that low- and middle-income households moved upward into the next income group.

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With four years of data now available on the current economic recovery, it is now possible to compare the record of the pro-economic growth policies of Reagan to the tax-and-spend policies of Presidents Bush and Clinton. This substantive, eight-page report shows how the Reagan recovery achieved faster economic growth, created more jobs, generated more revenue, and saw incomes rise faster than the current Bush/Clinton recovery. The report provides crucial ammunition to fight attacks on pro-growth economic policies, such as the tax cuts contained in the Republican budget.

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