Table Of Content^
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^ THE 1993 ECONOMIC REPORT
OE THE PRESIDENT
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BEIORETHE
ECONOMIC COMMITTEE
JOINT
CONGRESS Of THE UNITED STATES
ONE HUNDRED THIRD CONGRESS
EIRST SESSION
PARTI
January27andFebruary11,1993
PrintedfortheuseoftheJointEconomicCommittee
«iironcrnnov
JUN 2 ^ 199A
'^2®' U.S.GOVERNMENTPRINTINGOFFICE
WASHINGTON:1994
ForsalebytheU.S.GovernmentPrintingOffice
Suf)erintendentofDocuments.CongressionalSalesOffice,Washington.DC 20402
ISBN 0-16-044030-0
^
\ I \ THE ECONOMIC REPO.VR. HrTc. 103-279
^ 1993
OE THE PRESIDENT
A
^
^^^^^
/^q3/pr.
I
BirORETHE
ECONOMIC COMMITTEE
JOINT
CONGRESS Of THE UNITED STATES
HUNDRED THIRD CONGRESS
OIME
FIRST SESSION
PART
1
January27andFebruary11,1993
PrintedfortheuseoftheJointEconomicCommittee
JUN 2 * 199A
'^2®' U.S.GOVERlMMtNTPRINTINGOfHCE
WASHINGTON:1994
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments.CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-044030-0
JOINT ECONOMIC COMMITTEE
[Createdpursuant toSec.S(a)ofPublic Law304,79thCongress]
HOUSEOFREPRESENTATIVIS SENATE
DAVIDR.OBEY,Wisconsin, PAULS.SARBANES,Maryland,
Chairman ViceChairman
LEEH. HAMILTON,Indiana EDWARDM. KENNEDY,Massachusetts
FORTNEYPETESTARK,California JEFFBINGAMAN,NewMexico
KNX^ISIMFUME,Maryland CHARLESS.ROBB,Virginia
RONNJTYDEN,Oregon BYRONL.DORGAN,NorthDakota
MICHAELA.ANDREWS,Texas BARBARABOXER,California
RICHARDK.ARMEY,Texas WILLIAMV.ROTH,JR.,Delaware
JIMSAXTON,NewJersey CONNIEMACK,Florida
CHRISTOPHERCOXCalifornia LARRYE.CRAIG,Idaho
JIMRAMSTAD,Minnesota ROBERTF.BENNETT, Utah
RICHARDMcGAHEY,ExecutiveDirector
RICHARDFKAUFMAN,GeneralCounsel
LAWRENCEA.HUNTERMinorityStaffDirector
(u)
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CONTENTS
WITNESSESAND STATEMENTS
EORTHE RECORD
Wednesday, January 27,1993
PAGE
Obey, Hon. David R., Chairman, Joint Economic Committee:
Opening statement
1
Armey, Hon. Richard K., Member, Joint Economic Committee:
Opening statement 3
Sarbanes, Hon. Paul S., Vice Chairman, Joint Economic Commit-
tee: Opening statement 4
Saxton, Hon. Jim, Member, Joint Economic Committee: Opening
statement 6
Bennett, Hon. Robert P., Member, Joint Economic Committee:
Opening statement 8
Greenspan, Hon. Alan, Chairman, Board of Governors, Federal
Reserve System 8
Craig, Hon. LarryE., Member,Joint Economic Committee: Open-
ing statement 31
Andrews, Hon. Michael A., Member, Joint Economic Committee:
Opening statement 33
Dorgan, Hon. Bryan L., Member, Joint Economic Committee:
Opening statement 34
SUBMISSIONSFORTHERECORD
RepresentativeArmey: Written opening statement 49
Senator Sarbanes: Written opening statement 50
Mr. Greenspan: Prepared statement 52
Attachment: Letterto Senator Sasser 56
SenatorCraig: Writtenopening statement 58
Thursday,February11,1993
10:00 a.m.
Obey, Hon. David R., Chairman, Joint Economic Committee:
Opening statement 59
Chart entited "Budget Deficits" 60
Chart entided "Federal Debt as a Share ofGDP" 61
Chart entided "DebtofPrivate Nonfinancial Sector" .... 52
(iii)
IV
Thursday, February 11, 1993 (Continued)
10:00 a.m.
PAGE
Chart entitled "Shrinking Federal Investment" 53
Chart entitled "Real Net Nonresidential Investment" .... 53
Chart entitled "Nondefense Research and Development" . 54
Chart entitled "Economic Growth byPresidential Term" . . 55
Chart entitled "Employment Growth" 55
Chart entitled "Nonfarm Payroll Employment" 67
Chart entitled "RealAverage HourlyCompensation" 68
Chart entitled "RealAverage HourlyEarnings" 69
Chart entitled "Change in Share of Aggregate Household
Income byQuintile" 69
Tobin, James, Professor of Ecnomics, Department of Economics,
Yale University; and Nobel Laureate in Economics 70
Solow, Robert, ProfessorofEconomics, Department ofEconomics,
Massachusetts Institute of Technology; and Nobel Laureate in
Economics 74
Meltzer, Allan, Professor of Political Economy and Public Policy,
Carnegie Mellon University 77
SUBMISSIONSFORTHERECORD
Mr. Tobin: Prepared statement 102
Mr. Solow: Prepared statement 110
Mr. Meltzer: Prepared statement 113
Thursday,February11, 1993
1:00p.m.
Obey, Hon. David R., Chairman, Joint Econoimc Committee:
Opening statement 119
Chart entided "Debt Held bythe Public" 120
Chart entitled "Real HourlyCompensation" 120
Chart entided "RealAverage HourlyEarnings" 121
Chart entitled "Change in Share ofIncome" 122
Chart entitled "Real NetInvestment" 123
&
Chart entitled "Nondefense Research Development" ... 123
Chart entitled "ShrinkingFederal Investment" 124
Sarbanes, Hon. Paul S., Vice Chairman,Joint Economic Commit-
tee: Opening statement 125
Wyden, Ron, Member,Joint Economic Committee: Opening state-
ment
126
V
Thursday,February11,1993 (Continued)
1:00p.m.
PAGE
Marshall, Ray, Professor, UniversityofTexas, LBJ School ofPublic
Affairs; and former SecretaryofLabor 126
Weill,James D., General Counsel, Children's Defense Fund .... 132
Shapiro, Isaac, Executive Director, Center for Budget and Policy
Priorities I45
Vedder, Richard, ProfessorofEconomics, Ohio University 14g
SUBMISSIONSrORTHERECORD
Mr. MarshaU: Prepared statement 160
Report entided "A Human Resources Development Plan for
the United States" I54
Mr. Weill: Prepared statement I75
Mr. Shapiro: Prepared statement 183
Mr. Vedder: Prepared statement 191
THE 1993 ECONOMIC REPORT OF THE PRESIDENT:
ECONOMIC OUTLOOK FOR 993
1
Wednesday,January27,1993
CongressoftheUnitedStates,
JointEconomicCommittee,
Washington, DC.
The Committee met, pursuantto notice, at 10:00 a.m., in room 2237, Ray-
bum House Office Building, Honorable David R. Obey (Chairman of the
Committee)presiding.
Present: Representatives Obey, Andrews, Armey, Saxton, Fish and Roth;
and SenatorsBingaman,Dorgan, Robb, BennettandCraig.
Also present: Stephen A. Quick, executive director; William Buechner,
Lee Price, Glen Rosselli, Donald Tobin and ChristopherFrenze, professional
staffmembers.
OPENING STATEMENTOFREPRESENTATIVE OBEY,
CHAIRMAN
RepresentativeObey.IfIcouldaskeveryonetotaketheirseats,please.
Let me simply saythatthe Committee is inthe process ofbeingorganized
forthis coming Congress, and our new members are slowly but surely being
appointed tothe Committee. I shouldannouncethatI havejustbeentold that
Mr. Michel, the Republican Leader, has reappointed Mr. Armey from Texas
and has appointed Mr. Saxton from New Jersey to the Committee, with two
other appointments to be coming shortly. Frankly, I am not certain yet who
the Speaker has appointed on the Democratic side ofthe House. Ajid I as-
sumeourSenatecolleagueswillbejoiningusshortly.
On behalfofthe Joint Economic Committee, I am pleasedtowelcome our
distinguished witness this morning, the Chairman ofthe Board ofGovernors
oftheFederal Reserve System,AlanGreenspan.
The Committee is here this morningto examine the economic outlook for
1993, and in particularhowthe Federal Reserve can contributeto strengthen-
ingtheeconomicgrowth in 1993 andbeyond.
This country has just come through three nightmare years of recession,
bare-bones growth, disappearingjobs and falling income. During the reces-
sion, which began in 1990, we lost more than 2 million payrolljobs and al-
most 10 million people were unemployed. Since March of 1991, in technical
terms, we have been in what economiststechnically call arecovery. Butdur-
ingthepastsixquarters,theeconomyhasgrownatanaveragerateof1.9per-
cent, lessthanonethirdtherateofaveragepostwarrecoveries.
We
That has not been enough to createjobs or put people back to work.
still have9.3 million people unemployed. Therearemorepeople unemployed
today after21 months ofrecoverythan there were atthe worst pointofevery
otherpostwarrecessionbutone.
Intheprivate sector, whichthiscountrydependsonverylargelyforitseco-
nomic strength, there are 1.4 million fewer federal payroll jobs than there
(1)
were atthe startofthe recession. That situation atthe currenttrends will per-
sistat leasttwomoreyears.
That is probably why only 34 percent ofAmericans feel that the United
States is in a recovery, with 35 percent believing we are still in a recession
and 27 percent believing that we are in a depression. They define the econ-
omy in terms ofwhat is happening in theirown lives, based upon whatthey
see intheirownreal lifeexperiences.
Atthe sametime,ontheothersideoftheledger,theinfl—ation situationnow
is in bettershapethan—atanytime duringthe past25 years the inflation rate
was roughly 3 percent except for 1986 when inflation was helped by a big
drop in oil prices. You have to go backto 1965 to find a lower inflation rate
thanwehad lastyear.
It is apparent that this country needs strongerjob and economic growth.
This Committee held a hearingon December30 underthen-Chairman Sena-
tor Sarbanes, atwhich point ProfessorPaul Samuelson atMTF, aNobel Lau-
reate in economics, and Professor Paul McCracken, who served on the
President's Council ofEconomic Advisers under PresidentNbcon, both testi-
fied that we needed roughly 4 percent growth in 1993, twice the growth we
havegottensofarinthisanemicrecovery.
The New York Times, which is not necessarily an economic source, but
nonetheless observed recently that we need 3.5 percent growthjust to keep
theunemploymentratefromrising. Andtheysaidthis:
Forthree decadeseconomistsheldtothe rulethatan annualgrowth rate
oftwo-and-a-halfto 3 percent forthe American economywas sufficient
toabsorbnearlyeveryoneseekingjobsandthuskeeptheunemployment
ratesteady. Butnowwithcompaniesshrinkingstafifeandreorganizingto
becomemorecompetitive, economiststhinkitwillrequiremoregrowth,
pertiaps more than 3.5 percent on average over the next two or three
years,tomaintainthesameequilibrium. Weneed3.5percentgrowthjust
totreadwater, andyetithasbeenalmostfouryearssincewehaveseena
quarterofgrowththatstrong.
Ourneed forstrongergrowth isdemonstrated, I wouldsuggest, alsobythe
factthat there is avery large numberoffirms which are expectingto reduce
their work force in the coming year. The announcement by Sears oftheir
planstoeliminate some 50,000jobsisonlythemostrecentexample.
I think one ofthe most startling aspects ofthis problem is the fact that
while the country is used to seeing weak firms lose significant numbers of
jobs during recessionary periods, tihe country is not used to seeing massive
job lossonthepartofthecrownjewels,—oratleastwhatweusedtothinkofas
beingthe crownjewels ofthe economy corporations from IBM to General
Motors to Sears to you name it. When I was growing up, those were house-
holdwords. Thosewerethedynamosoftheeconomy.
We are starting a newyearwith a new president, with a lot ofnew mem-
bersofCongress from both political parties. Thatnewpresident iscommitted
to stronger growth. I think it is fairto say that we hope the Federal Reserve
willhaveaverycooperativerelationshipwiththatnewpresident.
Newspaper stories like the January 18 stoiy in the Times, with the title
"Clinton goeshead-to-headwiththeFed," iftheyareaccuratearenotveryen-
couraging.
