IT'S STILL THE ECONOMY
SEPTEMBER 12, 1996
His ability to tap middle class anxiety over stagnant wages help President Clinton win in 1992. Four years later, the economy is still a key political issue, but now Republicans are saying that they are the party to better economic times. After a background report by Kwame Holman, Paul Solman leads a debate of the President Clinton and Sen. Dole's economic plans with one economic advisor from each campaign and two independent economists.
PAUL SOLMAN: Now our discussion with a representative from each of the two major parties and two outside analysts. Laura Tyson is National Economic Adviser to President Clinton. John Taylor is a Stanford economist who serves as Senior Economic Adviser to the Dole Campaign. Lawrence Mishel is research director of the Economic Policy Institute in Washington and co-author of the recently published "The State of Working America, 1996-97." Daniel Mitchell is senior fellow in political economy at the Heritage Foundation here in Washington. Welcome to you all.
A RealAudio version of of this NewsHour segment is available.
Previous NewsHour Transcripts:
September 6, 1996:
Unemployment numbers are the lowest in years, but what do the figures mean to American workers
August 27, 1996
In an economic tour of Chicago with chief Clinton economic advisor Laura Tyson, Paul Solman explains the president's economic plan.
August 13, 1996:
Economic correspondent Paul Solman how a Dole administration might run the economy.
The complete NewsHour segments on economic issues.
John Taylor, how serious are the issues weve just been hearing about, economic insecurity, the wage stagnation the income gap?
JOHN TAYLOR, Dole Economic Adviser: I think theyre very serious. This is the first time in a long time, but the best measures we have had were wages just havent gotten anywhere in real terms, basically been stagnant, and it shows up in a number of ways. Savings rates are going down.
PAUL SOLMAN: Because people--
MR. TAYLOR: Because peoples income is not going anywhere. There--some people are trying to keep up their consumption as their wages are not rising as much. And you mentioned the income inequality. I think there has basically been a trend in that direction for a while but in the last couple of years, its really gotten worse. And so I think there is a problem with respect to wages, especially for low and middle income Americans at this point.
PAUL SOLMAN: Okay. So, Laura Tyson, you acknowledge the continuing problem with regard to these, these various issues?
LAURA TYSON, National Economic Adviser: Well, I certainly want to put it in some perspective here. I want to put it in perspective by first of all asking, you know, thinking about what the American people are feeling in their lives right now. I mean, the unemployment rate is down at 5.1 percent, which is now at a seven-year low. The--we have a situation where home ownership is at a 15-year high. Consumer confidence is at a seven-year high. It seems to me were getting some signs, including polling which suggests that the majority of the American people believe that the economy is on track.
Now when you look at the wage and income numbers, and you look at what started to happen to this economy 1993 and 1994, and we see this in 1995, and well see it in 1996, Im quite sure of it.
We have turned a corner. Wages are starting to rise again in real purchasing power terms. Incomes are starting to rise again in real purchasing power terms. A number of the problems that John Taylors talked about are problems which the economy has been confronting for at least fifteen to twenty years. Things have turned around. Were on the right track. And Americans feel that in increasing numbers.
PAUL SOLMAN: Do you really think theres no problem, or, I mean, just less of a problem?
MS. TYSON: Yes. I would say turning the corner is the word that I would use. We are on the right track. We have--we have confronted this problem long-term, and I think we should stay on course. Wages are beginning to show an upward movement if we stand course with balancing the budget and stand course with cutting the taxes in a targeted way in investing education and our future. I think we will see with continued economic expansion growing prosperity.
PAUL SOLMAN: Well, so then right track or not, I mean--which way--
MR. TAYLOR: I dont see it that way. It seems to me especially in the last three and a half years weve seen a remarkable stagnation of wages. We used to see by the best measure of wages, at least they were increasing for a while. And really behind all of this--
PAUL SOLMAN: When you say increasing?
MR. TAYLOR: Increasing in real terms, a little bit each year theyre increasing. Now theyve just actually flattened out, in real terms just really no increase in wages, as best we can measure them. And--
PAUL SOLMAN: I just want to interrupt you for a second. Real terms you mean after you take out inflation?
MR. TAYLOR: Adjusting for inflation, as people take into account the rising prices of goods, its been flat. And the underlying reason is an extraordinarily dismal performance of our productivity. Thats each worker produces a certain amount of goods and services and by increasing the amount thats produced, not by working harder but by having better equipment, better facilities to work with, productivity rises. Thats been the source of rising incomes for many, many years, and thats stopped. Thats why wages arent increasing.
PAUL SOLMAN: Again, just definitionally, by productivity you mean what exactly?
MR. TAYLOR: The amount that each worker produces per hour of work, and its basically that can grow over time, and it has not been growing recently, and thats why wages are so stagnant, and thats why economic growth is a real problem for us right now.
PAUL SOLMAN: So not becoming more efficient is one way of putting it?
MR. TAYLOR: Exactly, right.
PAUL SOLMAN: A response to this? I mean, youve just--
MS. TYSON: We could debate the statistics all night, and I dont think that would be very helpful. I do think, again, if you look at what the American people are saying, they are saying the economy is on track in increasing numbers. They are very confident about their future, and theyre confident in terms of how theyre consuming income. In point of fact, if you look at the numbers, Ill quote Business Week -- I dont have to give you a government statistic here. Business Week concluded if you look at most recent increases in real average hourly earnings, there is a real increase, there is an inflation-adjusted increase, and that started in 1994, and that reverses a ten-year period of decline and that indicator--now we could debate indicators. But I think the overall evidence is suggestive of the fact that Americans in increasing numbers were doing better. After all, 10.5 million net new jobs have been created in this economy, and 90 percent of those are full-time equivalent jobs. Businesses are being formed in record numbers year after year, new small businesses. Women are starting small businesses in record numbers. We have recovered our world dominance in, in automobile production, semiconductor production. Look at real indicators of the economy and it seems to me that people are feeling better for a reason. Were on the right track.
PAUL SOLMAN: Okay. But were sticking with one piece of this, which has traditionally been defined as a problem by the Democrats more than anybody. But then--let me get into some people who do study these indicators and numbers and without getting into them too deeply, Lawrence Mishel, what do you see doing your state of working America year after year after year?
LAWRENCE MISHEL, Economic Policy Institute: Right. Well, I dont understand how anyone can claim that somehow incomes havent grown for the last two or three years. The latest numbers on family income were available for 1994, and between 93 and 94, it grew. Theres every reason to believe that since 1994, median family income has grown. Unfortunately, incomes are not yet returned to where they were in 1989 before the recession.
And I dont understand the idea that somehow hourly wages were not falling throughout the entire 1980's, the supply side era of tax policy. Thats when we had absolutely the worst behavior of wages where wages didnt keep up for inflation, with the vast of workers. Over the last few years, theres been some wage declines in the early part of the administration but the last year or so, its been flat. And that--I dont think thats good enough, but its certainly better than what weve seen in the prior 12 years.
PAUL SOLMAN: Okay. Dan Mitchell, you wanted to get in here, and tell us where you think wages have been, maybe who was responsible for why they didnt go up, and whether or not they really have been rebounded as now two people of the panel have said.
DANIEL MITCHELL, Heritage Foundation: Well, its very instructive that both Larry and Laura keep talking about seven years ago, since 1989. During the Reagan years, we had strong growth in income as measured by the family income numbers from the Census Bureau that Larry was talking about. But beginning in 1990, with the Bush tax increase and then in 1993, with the record Clinton tax increase, we have punished people in our economy who tried to create wealth and create new jobs. And I think that policy has backfired, and that explains why income growth has been negative ever since Reagan left office. The average family, adjusted for inflation, is more than $2,000 poorer than they were when Reagan left office.
PAUL SOLMAN: Can we agree on one thing, that over the long haul here, through Republican and Democratic administrations alike, there has been a decline in the real income up until recently maybe when theres sort of a--were sort of running steady, no? Nobody agrees with that. Wait a second.
MR. MISHEL: Hes denying the basic fact that hourly wages were falling during the famed Reagan recovery which is supposedly from 1983 to 1989. Its always curious to me how people who think that was a great era and think that Reagan was only in office for six years from 1983 to 1989, you know, rather than eight years. So it either goes from 81 to 89 or 83 to 91.
MR. TAYLOR: You measure wages by the most comprehensive measure we have, and you dont have to use six years, use the whole eight years--
MR. MISHEL: For a typical worker, or averages--
MR. TAYLOR: --adjusted for inflation, adjusted for inflation they grew steadily--not as fast as in the 50's and 60's, which we would like to come back to--
PAUL SOLMAN: Well, lets--wait for a second. My role here, which I cannot clarify amongst all of you, I was trying to get something which all at least sort of agree on, which is that their--that wage performance at least has not been as good as any of you would have lived, and that inequality over this period has risen. We get a nod from everybody on that? Because then the question is, I suppose, what are you going to do about it? And so the first question that I put to you is what is the Dole campaign going to do to the extent that theres a problem with wage growth, inequality, and economic insecurity?
MR. TAYLOR: Well, its directed exactly at the problem of wage growth, and it addresses the idea we should have faster growing incomes for all Americans, low income Americans, middle income Americans especially, and the way it does that is by reducing marginal tax rates, giving people more incentive to go out there and create new businesses, and introduce their ideas, which raise the efficiency of the work place by reducing the capital gains tax, which stimulates investment, by giving people more incentive to save for their college education through investment education accounts, by introducing opportunity scholarships so that you can have better choice for students at the K-12 grade levels where we have serious problems, and thats a lot to do with the income distribution, by regulatory reform so that businesses can grow more rapidly, introduce new products which improve efficiency, and by litigation reform.
All that--things together--is basically a six point plan which starts with balancing the budget, because thats important too for lowering interest rates and providing for savings and investment in the economy, a six point plan is directed at number one getting growth going again, so that wages start to rise again, and we can think about the next generation as being better off than the current generation.
PAUL SOLMAN: So the assumption is if you get enough growth, then this problem will take care of itself?
MR. TAYLOR: Growth is the solution to the problem. Growth in real wages occurs because of growth in the economy. It is the solution to the problem.
PAUL SOLMAN: And Laura Tyson, respond to that first before we get to the Presidents plan.
MS. TYSON: Well, first of all, a growth, just a growth fact. Growth of the private sector of this economy under President Clinton has been stronger than growth under President Bush and growth under President Reagan. The private sector of this economy is expanding at a faster rate, No. 1. No. 2, as Larry Mishel has already pointed out, in the Reagan boom years when you take off the recession and you just put on the expansion period--
PAUL SOLMAN: This is 83 to 89.
MS. TYSON: This is 83 to 89--it is not true that low and middle income American workers did better. Most of them did worse. It was a period of expanding inequality and the people who did this were the people at the top of the income distribution. Just as another point of fact which I think I would like to hear Dan Mitchell address in the 1960's and the 1950's, the fame 1960's and 1950's which had higher productivity growth and higher growth in the economy than the 70's, the 80's, or the 90's--
PAUL SOLMAN: And less inequality.
MS. TYSON: --and marginal tax rates were 70 percent and higher, so the notion that theres a simple correlation between marginal tax rate and the growth of this economy and the growth of low income Americans is simply a correlation--its a statement which does not--is not provided in fact. My big question to John would be, do you believe your own numbers? I do not believe that you can balance the budget and you can give a $550 billion tax cut, 70 percent of which is paid for by just assuming economic growth and interest rate reductions--theres no assumption that it will occur--
MR. TAYLOR: Thats not true.
MS. TYSON: And it seems to me what are they going to cut?
MR. TAYLOR: The key here is a growth program like Sen. Dole has put on the table, and the budget balance is a key part of his program--balancing the budget and reducing taxes--and the numbers do stand up.
PAUL SOLMAN: Dan Mitchell, do you think they can make the cuts?
MR. MITCHELL: You dont have to make any cuts in order to balance the budget by 2002 with the Dole tax cut. All you have to do is limit the growth of spending to 2.1 percent--
PAUL SOLMAN: Im sorry--
MR. MITCHELL: Laura is using Washington math to confuse the voters. But let me answer some of the questions that have been addressed to me. Lower income, middle income, upper income people all saw income gains during the 1980's. The only people who have gotten better off under Clinton and Bush with the high tax regimes are the rich. The bottom 4/5 of the income stream are worse off, and my final point I want to make, look at history. In the 1920s, the 1960s, under John F. Kennedy, and the 1980s, we cut tax rates, the economy grew in all three decades, we raised taxes on the other hand in the 1930s and 1970s through bracket creep and so far during the 1990s. Ill take the 20s, 60s, and the 80s over the 30s, 70s, and the 90s any day.
PAUL SOLMAN: You know, sitting here and trying to adjudicate among all these people just shaking their heads, no, those numbers arent true, those numbers arent true, lets stay away from the numbers and get to the final sort of theory of it, if you would, Lawrence Mishel, and then--
MR. MISHEL: Well, lets identify what the problem is. I think the problem is that the hourly wages of most workers have not been growing for a very long time. Okay. Its not--and average overall workers, the numbers John is using, is the CEO to the janitor--I want to know about what is the typical worker doing.
PAUL SOLMAN: Right.
MR. MISHEL: And that typical workers hourly wage was falling throughout the 1980s and throughout most of the 1990s. Now, you cant fix a problem in workers paychecks by cutting their taxes if the income, the wages that their employers are giving them each year does not keep up with inflation. You can give them a tax cut and give them a 1 percent increase in their income one year and that offsets a 1 percent decline in wages, but the following year, when their wages decline another 1 percent, theyre stuck, and in this plan they not only are stuck on a downward trajectory, they have less government programs to help them.
MR. TAYLOR: The whole programs aims to reduce--to get those wages going again--
PAUL SOLMAN: Okay.
MR. TAYLOR: Reducing taxes stimulates the growth of wages.
MR. MISHEL: But weve tried that before, and its failed miserably. Why would we want to try it again?
PAUL SOLMAN: Gentlemen, gentlemen, lets--you can duke this out afterwards, but--
MS. TYSON: We believe that if you, again, if you look at the numbers from 1993 on, things have shown a course of improvement. Now why? Because we have been serious about deficit reduction and balancing the budget. Interest rates have come down. The economy is enjoying an investment-led, broad-based economic expansion, and employment growth has been very strong -- in many parts of the country, the unemployment rate is below 4 percent. We have a very strong economy.
What else have we done? We have done things to help people at the bottom end of the income distribution. Now we expanded the Earned Income Tax Credit. One other thing in Sen. Doles plan is to cut back the Earned Income Tax Credit by $20 billion. Thats been estimated to increase effectively taxes on 9 million poor and low income working Americans, and increases the minimum wage which we just signed into law which would never have come to the floor of the Congress if it had not been for the president.
And finally, education and training. And this is where I say the numbers in the plan dont add up. John Taylor mentioned the importance of education. It has been confirmed by the Concord Coalition, not by me, by "BusinessWeek," not by me, and by other observers that in order to get cuts in spending to balance the budget with a $550 billion tax plan, you are going to have to cut in real purchasing power terms, education 40 percent--
MR. TAYLOR: Not true.
MS. TYSON: Environment 40 percent--
MR. TAYLOR: Not true.
PAUL SOLMAN: Wait, wait, wait.
MS. TYSON: Department of Justice 40 percent.
PAUL SOLMAN: Wait. Time out.
MS. TYSON: --40 percent--
PAUL SOLMAN: Were running over--
MS. TYSON: Two thirds of all spending has been taken--
MR. TAYLOR: Not true, Laura.
MS. TYSON: --off the table by the Dole plan as not being allowed to cut.
MR. TAYLOR: I think that the plan makes sense. Americans may look at it and will say it makes sense, and it doesnt require any cuts like youre talking about.
MS. TYSON: Those are not my--
PAUL SOLMAN: Im not sure if I should thank you or not, but I suppose I should thank you all for being here.
MS. TYSON: Thanks, Paul.
JIM LEHRER: Well have more of these issue and debate segments on other issues throughout the campaign.