Economic Report of the President

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The Chairman and the Members work as a team on most economic policyissues. Dr. Mankiw is responsible for the Council’s macroeconomic analysisincluding the Administration’s economic forecast. Dr. Forbes’s responsibilitiesinclude international finance and trade issues, with a particular focus onemerging markets and developing economies. Dr. Rosen’s responsibilitiesinclude policy analysis relating to fiscal policy and microeconomic issuesincluding labor and financial markets, health care, and regulation.Macroeconomic PoliciesAs is its tradition, the Council devoted much time during 2004 to assistingthe President in formulating economic policy objectives and designingprograms to implement them. In this regard, the Chairman kept the Presidentinformed, on a continuing basis, of important macroeconomic developmentsand other major policy issues through regular macroeconomic briefings. TheCouncil prepares for the President, the Vice President, and the White Housesenior staff almost daily memoranda that report key economic data and analyzecurrent economic events. In addition, they prepare weekly discussion and datamemos for the President, Vice President and senior White House staff.The Council, the Department of the Treasury, and the Office ofManagement and Budget (OMB)—the Administration’s economic “troika”—are responsible for producing the economic forecasts that underlie theAdministration’s budget proposals. The Council, under the leadership of theChairman and the Chief Economist, initiates the forecasting process twiceeach year. In preparing these forecasts, the Council consults with a variety ofoutside sources, including leading private-sector forecasters.In 2004, the Council took part in discussions on a range of macroeconomicissues. An important part of the Council’s ongoing work involved monitoringeconomic data, including assessing the response of the economy, and the labormarket in particular, to fiscal and monetary policies. Council staff analyzedeconomic conditions at the state level, with a particular focus on labormarket developments. The Council also provided analysis relating to themacroeconomic impact of natural disasters such as hurricanes.The Council works closely with the Treasury, the Federal Reserve, and othergovernment agencies in providing analyses to the Administration on thesetopics of concern. The Council continued to work closely in 2004 with theNational Economic Council, the Office of Management and Budget, andother offices within the Executive Office of the President in assessing theeconomy and economic policy proposals. The Council participated in thedevelopment and analysis of policies relating to domestic and international taxreform and reform of Social Security.194 | Economic Report of the President
The Council continued its efforts to improve the public’s understanding ofeconomic issues and of the Administration’s economic agenda through regularbriefings with the economic and financial press, frequent discussions withoutside economists, and presentations to outside organizations. The Chairmanand Members continued to give public addresses on economic developments,with a focus on the role of policies and the implications of increased internationaleconomic integration. The Chairman also regularly exchanged views onthe economy with the Chairman and Governors of the Federal Reserve System.Council staff provided regular assistance with economic data to other offices ofthe Executive Office of the President, including the Office of Communicationsand the Offices of Speechwriting for the President and Vice President.International Economic PoliciesThe Council was involved in a range of international trade issues, includingdiscussions on trade liberalization at the global, regional, and bilateral levels.The Council participated in deliberations concerning trade policy in a numberof industries, and provided analysis related to U.S. economic interaction withChina and the impact of trade on the domestic economy. Dr. Forbes andCouncil staff participated in dialogues with the Chinese government,including the National Development and Reform Committee and the JointEconomic Committee. Council staff participated in the Beijing workinggroup talks of the Joint Commission on Commerce and Trade in July.The Council participated in discussions concerning international financialpolicy involving relations with both advanced and emerging market economies.The Council provided extensive analysis of the implications of changes in theU.S. external position and developments in foreign exchange markets. TheCouncil participated in the development of U.S. proposals for the G-8 Summitheld at Sea Island, Georgia, which Dr. Forbes attended. Dr. Forbes and Councilstaff also participated in sub Cabinet-level discussions with Japan.The Council is a leading participant in the Organization for EconomicCooperation and Development (OECD), the principal forum for economiccooperation among the high-income industrial countries. The Chairmanheads the U.S. delegation to the semiannual meetings of the OECD’sEconomic Policy Committee (EPC) and serves as the EPC Chairman. Dr.Forbes also participated in meetings of the Economic Policy Committee, aswell as meetings of the OECD’s Working Party 3 on macroeconomic policyand coordination. Dr. Rosen participated in the OECD’s Working Party 1 onmicroeconomic policy and in the annual OECD review of U.S. economicpolicy, as did CEA chief economists Andrew Samwick and Donald Marron.Council members regularly met with representatives of the Council’s counterpartagencies in foreign countries, as well as with foreign trade ministers,other government officials, and members of the private sector.Appendix A | 195
Page 1 and 2:
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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of being collected all at once at t
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would have to differ from state tax
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owner claimed it was for business,
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The current set of saving incentive
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the current system. In addition, so
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C H A P T E R 4ImmigrationIn recent
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TABLE 4-1.— Foreign-Born Share of
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immigrants (also called illegal or
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largest group of immigrants was bor
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employment costs, including wage fl
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Chapter 4 | 103
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wages fall in response to immigrati
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immigrants from Latin America do re
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addition, as migrants leave the cou
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include siblings and adult children
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despite the tremendous growth in th
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The TWP would allow new foreign wor
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C H A P T E R 5Expanding Individual
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This phenomenon, known as the “tr
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producing more of that good. Simila
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In 2002, the President proposed “
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provide evidence of increased profi
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schools are four times as efficient
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low administrative costs, estimated
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Box 5-2: The Benefits of Land Title
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development plan designed by others
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C H A P T E R 6Innovation and theIn
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E-mail is the most common online ac
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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
Page 183 and 184: Trade LiberalizationTariffs and oth
Page 185 and 186: ConclusionThe United States is the
Page 187 and 188: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 189: Report to the President on theActiv
Page 193 and 194: The Staff of the Council of Economi
Page 195 and 196: John List and Ted Gayer provided co
Page 197: Appendix BSTATISTICAL TABLES RELATI
Page 200 and 201: PageB-32. Gross saving and investme
Page 202 and 203: PageB-94. Relation of profits after
Page 204 and 205: NATIONAL INCOME OR EXPENDITURETABLE
Page 206 and 207: TABLE B-2.—Real gross domestic pr
Page 208 and 209: TABLE B-3.—Quantity and price ind
Page 210 and 211: TABLE B-5.—Contributions to perce
Page 212 and 213: TABLE B-6.—Chain-type quantity in
Page 214 and 215: TABLE B-7.—Chain-type price index
Page 216 and 217: TABLE B-8.—Gross domestic product
Page 218 and 219: TABLE B-10.—Gross value added by
Page 220 and 221: TABLE B-12.—Gross domestic produc
Page 222 and 223: TABLE B-13.—Real gross domestic p
Page 224 and 225: TABLE B-14.—Gross value added of
Page 226 and 227: TABLE B-16.—Personal consumption
Page 228 and 229: TABLE B-18.—Private fixed investm
Page 230 and 231: TABLE B-20.—Government consumptio
Page 232 and 233: TABLE B-22.—Private inventories a
Page 234 and 235: TABLE B-24.—Foreign transactions
Page 236 and 237: TABLE B-26.—Relation of gross dom
Page 238 and 239: 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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