Economic Report of the President

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overfishing, and poorly performing public schools. Property rights havefacilitated cleanup of the air at low cost, have allowed fish stocks to recover, andhave improved the performance of schools in those areas where they have beenused effectively. Property rights can be used to help address other policy issues.134 | Economic Report of the President
C H A P T E R 6Innovation and theInformation EconomyInnovation is a primary engine of economic growth. Many commonplacefeatures of modern life, such as personal computers, the Internet, e-mail, ande-commerce, have developed and diffused throughout the economy within ashort span of years. Our Nation’s growing prosperity depends on fostering anenvironment in which innovation will flourish.The innovative process involves the invention, commercialization, anddiffusion of new ideas. At each of these stages, people are spurred to action bythe prospect of reaping rewards from their investment. In a free market, innovatorsvie to lower the cost of goods and services, to improve their quality andusefulness, and—most importantly—to develop new goods and services thatpromise benefits to customers. An innovation will succeed if it passes themarket test by profitably delivering greater value to customers. Successfulinnovations blossom, attracting capital and diffusing rapidly through themarket, while unsuccessful innovations can wither just as quickly. In this way,markets allow capital to flow to its highest-valued uses.This engine of growth can falter, however, if government policies distort themarket signals that guide innovative activity. Well-meaning policies topromote the diffusion of a service or foster entry into new markets can haveunintended consequences. A policy to subsidize an existing service so thatmore people will consume it can deter development of innovative new servicesthat people might otherwise prefer. In addition, pioneering investorsforced to share the fruits of their investment with new entrants would find itless profitable to invest in the first place, and a new market may never bedeveloped. When government regulation, instead of a competitive process,“picks the winners,” people tend to lose.This chapter provides an overview of recent developments in one especiallyinnovative sector of the economy: information technology. The main pointsin this chapter are:• Information technology is a key contributor to economic growth andproductivity, and its importance to the economy is growing.• Competition drives the broad diffusion of innovative low-cost, highqualityinformation services. This has held true in markets for mobilewireless telephones, satellite television, and dial-up and broadbandInternet services.• As circumstances change and industries evolve, existing governmentregulations may need rethinking. In particular, economic regulations135
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Economic Reportof the PresidentTran
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C O N T E N T SECONOMIC REPORT OF T
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ECONOMIC REPORT OF THE PRESIDENTTo
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the playing field is level for our
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Monetary Policy ...................
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Encouraging FDI ...................
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3-4. The Equivalence of Sales Taxes
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Real GDP expanded by 3.7 percent du
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Options for Tax ReformChapter 3, Op
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and better Nation for it. A compreh
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Innovation and the Information Econ
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ecause they do not expect family me
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The Administration has pushed aggre
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C H A P T E R 1The Year in Review a
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Consumer SpendingConsumer spending
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easons for this correlation are dis
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2003, a number of countries that to
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ProductivityRecent productivity gro
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The projected path of inflation as
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strengthen. The forecast is based o
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The growth rate of the economy over
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In sum, potential real GDP is proje
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C H A P T E R 2Expansions Past and
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The behavior of real GDP is similar
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of faltering may be attributable to
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most recent expansions have shown r
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middle of 2003. The more moderate r
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1.2 percent. Employment continued t
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SummaryModerate recessions are foll
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permanent cuts should permanently r
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and the Jobs and Growth Tax Relief
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Federal government revenues had bee
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Fiscal policy played an especially
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C H A P T E R 3Options for Tax Refo
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High Compliance CostsThe complexity
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a reasonable estimate is that a 10
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Excess BurdenBecause taxes distort
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Box 3-3 — continuedThe bottom 40
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more uniform or pure version of the
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Page 87 and 88: The current set of saving incentive
Page 89 and 90: the current system. In addition, so
Page 91 and 92: C H A P T E R 4ImmigrationIn recent
Page 93 and 94: TABLE 4-1.— Foreign-Born Share of
Page 95 and 96: immigrants (also called illegal or
Page 97 and 98: largest group of immigrants was bor
Page 99 and 100: employment costs, including wage fl
Page 101 and 102: Chapter 4 | 103
Page 103 and 104: wages fall in response to immigrati
Page 105 and 106: immigrants from Latin America do re
Page 107 and 108: addition, as migrants leave the cou
Page 109 and 110: include siblings and adult children
Page 111 and 112: despite the tremendous growth in th
Page 113 and 114: The TWP would allow new foreign wor
Page 115 and 116: C H A P T E R 5Expanding Individual
Page 117 and 118: This phenomenon, known as the “tr
Page 119 and 120: producing more of that good. Simila
Page 121 and 122: In 2002, the President proposed “
Page 123 and 124: provide evidence of increased profi
Page 125 and 126: schools are four times as efficient
Page 127 and 128: low administrative costs, estimated
Page 129 and 130: Box 5-2: The Benefits of Land Title
Page 131: development plan designed by others
Page 135 and 136: E-mail is the most common online ac
Page 137 and 138: Changed circumstances, such as new
Page 139 and 140: Illegal Acts on the InternetThe Int
Page 141 and 142: or develop new markets, which can l
Page 143 and 144: inflation factor for the price cap
Page 145 and 146: U.S. households connecting to local
Page 147 and 148: garbling their transmissions. To li
Page 149 and 150: from 51.3 percent in December 1999
Page 151 and 152: for their property rights. The Admi
Page 153 and 154: C H A P T E R 7The Global HIV/AIDS
Page 155 and 156: Chart 7-1 Estimated HIV Infection L
Page 157 and 158: There is no cure for HIV/AIDS, thou
Page 159 and 160: AIDS is more damaging to a househol
Page 161 and 162: and risk reduction have helped redu
Page 163 and 164: only one price, the drug companies
Page 165 and 166: Box 7-1 — continuedfocused on the
Page 167 and 168: Box 7-2 — continuedenhancing coor
Page 169 and 170: ConclusionThe United States and cou
Page 171 and 172: Good Two. In Ricardo’s simple mod
Page 173 and 174: The Impact of Trade on Labor Market
Page 175 and 176: The U.S. Advantage in Services Trad
Page 177 and 178: U.S. firms is associated with a cor
Page 179 and 180: anked the second-best country out o
Page 181 and 182: the Chinese government agreed to el
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Trade LiberalizationTariffs and oth
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ConclusionThe United States is the
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Report to the President on theActiv
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The Council continued its efforts t
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The Staff of the Council of Economi
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John List and Ted Gayer provided co
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Appendix BSTATISTICAL TABLES RELATI
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PageB-32. Gross saving and investme
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PageB-94. Relation of profits after
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Real gross domestic pr
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TABLE B-3.—Quantity and price ind
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TABLE B-5.—Contributions to perce
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TABLE B-6.—Chain-type quantity in
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TABLE B-7.—Chain-type price index
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TABLE B-8.—Gross domestic product
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TABLE B-10.—Gross value added by
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TABLE B-12.—Gross domestic produc
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TABLE B-13.—Real gross domestic p
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TABLE B-14.—Gross value added of
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TABLE B-16.—Personal consumption
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TABLE B-18.—Private fixed investm
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TABLE B-20.—Government consumptio
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TABLE B-22.—Private inventories a
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TABLE B-24.—Foreign transactions
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TABLE B-26.—Relation of gross dom
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TABLE B-28.—National income by ty
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TABLE B-29.—Sources of personal i
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TABLE B-30.—Disposition of person
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Year or quarterTABLE B-32.—Gross
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TABLE B-33.—Median money income (
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TABLE B-35.—Civilian population a
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TABLE B-36.—Civilian employment a
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TABLE B-38.—Unemployment by demog
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TABLE B-40.—Civilian labor force
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TABLE B-42.—Civilian unemployment
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TABLE B-44.—Unemployment by durat
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TABLE B-46.—Employees on nonagric
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TABLE B-47.—Hours and earnings in
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Year orquarterTABLE B-49.—Product
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PRODUCTION AND BUSINESS ACTIVITYTAB
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Year ormonthTABLE B-53.—Industria
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Year or monthTABLE B-55.—New cons
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TABLE B-57.—Manufacturing and tra
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TABLE B-59.—Manufacturers’ new
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Year ormonthTABLE B-61.—Consumer
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TABLE B-62.—Consumer price indexe
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TABLE B-64.—Changes in consumer p
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TABLE B-65.—Producer price indexe
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TABLE B-67.—Producer price indexe
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TABLE B-68.—Changes in producer p
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TABLE B-70.—Components of money s
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TABLE B-71.—Aggregate reserves of
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TABLE B-73.—Bond yields and inter
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TABLE B-74.—Credit market borrowi
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TABLE B-75.—Mortgage debt outstan
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TABLE B-77.—Consumer credit outst
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TABLE B-79.—Federal receipts, out
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TABLE B-81.—Federal receipts, out
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TABLE B-83.—Federal and State and
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TABLE B-85.—State and local gover
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End of yearor monthTABLE B-87.—U.
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End of monthTABLE B-89.—Estimated
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TABLE B-91.—Corporate profits by
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TABLE B-93.—Sales, profits, and s
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YearComposite(Dec. 31,2002=5,000) 3
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YearAGRICULTURETABLE B-97.—Farm i
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TABLE B-99.—Farm output and produ
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Year ormonthTABLE B-101.—Agricult
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INTERNATIONAL STATISTICSTABLE B-103
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TABLE B-104.—U.S. international t
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TABLE B-106.—U.S. international t
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TABLE B-108.—Industrial productio
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TABLE B-110.—Foreign exchange rat
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TABLE B-112.—Growth rates in real
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