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6-2. Market-Based (Arm’s-Length) Versus Relationship-Based (Insider) Finance................................................ 2306-3. The Asian Growth Model in Perspective.......................... 2326-4. Sovereign Spreads in Emerging Markets ........................ 2346-5. Moral Hazard in Financial Institutions........................... 2387-1. Currency Boards................................................................ 2897-2. Is Europe an Optimum Currency Area? .......................... 2957-3. How Does the Dollar Rank Today Against OtherInternational Currencies?............................................. 30018
CHAPTER 1Meeting Challenges and Building forthe FutureTHE ECONOMIC POLICIES of the past 6 years have nurtured andsustained what is now the longest peacetime expansion on record. ByDecember 1998, the 93rd month since the bottom of the last recession,18.8 million jobs had been created (17.7 million of them since January1993). More Americans are working than ever before, the unemploymentrate is the lowest in a generation, and inflation remains tame.This record of achievement is especially noteworthy in light of the troublesexperienced in the international economy in 1998. The UnitedStates has not entirely escaped the effects of this turmoil—and calmhas not been restored completely abroad. But the fundamental soundnessof the U.S. economy prevented it from foundering in 1998’sstorms.This Administration laid a strong policy foundation for growth in1993 when the <strong>President</strong> put in place an economic strategy groundedin deficit reduction, targeted investments, and opening marketsabroad. Since then the Federal budget deficit has come down steadily,and in 1998 the budget was in the black for the first time since 1969.This policy of fiscal discipline, together with an appropriately accommodativemonetary policy by the Federal Reserve, produced a favorableclimate for business investment and a strong, investment-drivenrecovery from the recession and slow growth of the early 1990s. Evenwhile reducing Federal spending as a share of gross domestic product(GDP), the Administration has pushed for more spending in criticalareas such as education and training, helping families and children,the environment, health care, and research and development. Andalthough international economic conditions have led to a dramaticwidening of the trade deficit, the United States has succeeded inexpanding exports in real (inflation-adjusted) terms by almost 8percent per year since 1993.Clearly, there is much for Americans to be proud of in the economicaccomplishments of the past 6 years. But as recent events in therest of the world have reminded us, our prosperity is threatened whenthe global economy does not function well. Our immediate challengeon the international front is to help ensure that the global economyrebounds and begins to regain strength. Our longer run challenge aswe enter the 21st century will be to continue to build and refine the19
Page 1 and 2: EconomicReportof thePresidentTransm
Page 3 and 4: C O N T E N T SPageECONOMIC REPORT
Page 5 and 6: ECONOMIC REPORT OF THE PRESIDENTTo
Page 7 and 8: Once we have saved Social Security,
Page 9 and 10: THE ANNUAL REPORTOF THECOUNCIL OF E
Page 11 and 12: C O N T E N T SPageCHAPTER 1. MEETI
Page 13 and 14: PageCHAPTER 5. REGULATION AND INNOV
Page 15 and 16: Page2-3. Accounting for Growth in R
Page 17: Page6-5. Terms of Trade ...........
Page 21 and 22: Box 1-1.—The Dating of Business C
Page 23 and 24: Chart 1-1 Core Inflation and Unempl
Page 25 and 26: expansion prematurely. In fact, the
Page 27 and 28: the duration of the typical unemplo
Page 29 and 30: throughout that decade of peace and
Page 31 and 32: all individuals aged 65 and older r
Page 33 and 34: extent that it would reduce Social
Page 35 and 36: the vulnerability of the internatio
Page 37 and 38: access. Even so, international agre
Page 39 and 40: eliminated entirely, because the go
Page 41 and 42: Nevertheless, adjustment assistance
Page 43 and 44: CHAPTER 2Macroeconomic Policyand Pe
Page 45 and 46: Then the chapter explores two other
Page 47 and 48: target Federal funds rate brought t
Page 49 and 50: high of 66.8 percent in the third q
Page 51 and 52: the third-quarter deceleration and
Page 53 and 54: (that is, excluding food and energy
Page 55 and 56: probably would have increased by ab
Page 57 and 58: Equities clearly involve risk as we
Page 59 and 60: highest level in at least 40 years
Page 61 and 62: attributed to the lesser liquidity
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Page 65 and 66: about the potential impact of large
Page 67 and 68: With respect to leverage, the degre
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noted earlier, investment-grade bor
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Chart 2-8 Corporate Profits and Net
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is attributable to the strong econo
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productivity; the latter is in turn
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the year 2000, mistaking it instead
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Box 2-2.—continuedare not expecte
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construct an accurate forecasting m
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is estimated as the location where
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the recent surge in productivity re
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Box 2-3.—continuedhowever. Import
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Chart 2-12 Three Measures of Core I
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a level of capacity utilization tha
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Box 2-4.—continuedChanges to be i
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Nonfarm manufacturing and trade inv
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has been for the past 3 years. But
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who have traditionally not fared as
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Box 3-1.—continuedas well as full
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and been replaced by younger, more
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Particularly interesting, however,
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Chart 3-5 Median Hourly Wages of Me
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In fact, in 1990 immigrants and nat
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Box 3-2.—continuedsome firms may
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Box 3-3.—continuedmaximum of $3,7
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willing to hire welfare recipients
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participation. The renewed increase
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TANF grants in reserve at the Treas
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JOB DISPLACEMENTWorkers are conside
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evidence finds that the percentage
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their non-labor market activities.
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The Administration is especially co
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CHAPTER 4Work, Retirement, and theE
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Chart 4-1 Life Expectancy at Age 65
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Population aging is not just an Ame
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Box 4-1.—continuedfor couples and
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earlier retirement, by increasing l
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uyouts may also have contributed to
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Box 4-2.—Social Security RulesThe
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available with the same hourly pay,
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Box 4-4.—Types of Pension PlansUn
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worker—declined. More of these ol
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survey) was about 13 percent higher
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well-being is that families have di
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Chart 4-9 Living Arrangements of El
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mentioned earlier in this chapter a
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Box 4-7.—The Federal Role in Empl
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inequality among retirees who have
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whether minorities and women are li
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TABLE 4-4.—Poverty Rates Among th
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TABLE 4-6.—Family Holdings of Fin
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variety of reasons, including the f
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the number of patents granted in th
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The United States has a decades-lon
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matter, depending on various condit
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company Roche Holdings, Ltd. Some o
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The antitrust authorities’ linkin
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espective Writings and Discoveries.
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Box 5-3.—Cooperative Innovation a
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machine owned by another. The disti
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companies begin to offer DSL servic
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and compete for customers on the ba
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In another part of the Internet mar
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technology at hand. But incentive-b
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the flexibility to choose lower cos
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In contrast to both performance and
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The SO 2 experience reveals several
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Box 5-7.—The Partnership for a Ne
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Consumers’ investment in energy e
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clean-energy projects in developing
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Chart 5-2 Energy Efficiency and Pri
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equipment, and more than 90 percent
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Box 5-9.—Is There an Environmenta
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larger coal plants. In 1994 these t
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around the country, and seven other
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other social goals. The fund would
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greater opportunity, faster growth,
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Chart 6-1 Net Capital Flows to Deve
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Box 6-1.—The Explosive Growth of
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Recent Financial LiberalizationIn m
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and investment (although openness t
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Box 6-2.—Market-Based (Arm’s-Le
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conditionality in the face of unsou
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Box 6-4.—Sovereign Spreads in Eme
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social safety nets in the crisis co
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Box 6-5.—Moral Hazard in Financia
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Empirical studies confirm that, by
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withdrew $26 billion in 1997. Altho
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America, and these linkages partly
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8.5 percent of GDP in 1998. Indones
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sary revenues to meet these extra i
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which is considered a monetary asse
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ates at home, they sought higher re
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Chart 6-3 Real Value of the Dollar
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The increase in the trade deficit a
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Chart 6-6 Current Account BalanceTh
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Chart 6-7 Economic Growth and Trade
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investment. The U.S. gross investme
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Chart 6-10 Current Account Deficit
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with other countries to strengthen
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REFORM OF THE INTERNATIONAL FINANCI
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about their macroeconomic and finan
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decisions respond to market signals
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Other measures recommended by the w
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ADOPTION OF MEASURES TO REFORM THEI
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Another way to improve global surve
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Issues Posed by Hedge Funds and Oth
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the best investment opportunities,
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egulation of inflows to banks alone
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complement the role of official fin
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emerging markets will take time to
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Box 7-1.—continuedpartner; a stro
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Chart 7-1 European Short-Term Inter
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members agreed in a separate Growth
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Box 7-2.—continuedthrough an auto
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advantages of EMU to U.S. residents
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Box 7-3.—How Does the Dollar Rank
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connection between the currency in
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as an economic superpower early in
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Appendix AREPORT TO THE PRESIDENT O
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Council Members and Their Dates of
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The Chair and Members work as a tea
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countries. The Council heads the U.
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Chief of Staff and General CounselM
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affiliations. They are Christopher
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C O N T E N T SNATIONAL INCOME OR E
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B-71. Aggregate reserves of deposit
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General NotesDetail in these tables
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TABLE B-1.—Gross domestic product
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TABLE B-2.—Real gross domestic pr
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TABLE B-4.—Percent changes in rea
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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-9.—Real gross domestic pr
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Year orquarterGrossdomesticproductT
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YearBased on1972 SIC:TABLE B-13.—
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TABLE B-15.—Output, costs, and pr
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TABLE B-17.—Real personal consump
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TABLE B-19.—Real private gross fi
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TABLE B-21.—Real government consu
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TABLE B-23.—Real inventories and
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TABLE B-25.—Real exports and impo
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TABLE B-27.—Relation of national
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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-31.—Total and per capita
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TABLE B-32.—Gross saving and inve
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POPULATION, EMPLOYMENT, WAGES, AND
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TABLE B-35.—Civilian population a
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TABLE B-37.—Civilian employment b
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TABLE B-39.—Civilian labor force
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TABLE B-41.—Civilian employment/p
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TABLE B-43.—Civilian unemployment
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TABLE B-45.—Unemployment insuranc
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TABLE B-46.—Employees on nonagric
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TABLE B-48.—Employment cost index
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Year orquarterTABLE B-50.—Changes
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Year or monthTABLE B-52.—Industri
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TABLE B-54.—Capacity utilization
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Year or monthTABLE B-56.—New hous
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TABLE B-58.—Manufacturers’ ship
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PRICESTABLE B-60.—Consumer price
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TABLE B-61.—Consumer price indexe
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TABLE B-63.—Changes in special co
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TABLE B-65.—Producer price indexe
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YearandmonthMONEY STOCK, CREDIT, AN
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TABLE B-70.—Components of money s
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TABLE B-72.—Bank credit at all co
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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-76.—Mortgage debt outstan
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GOVERNMENT FINANCETABLE B-78.—Fed
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TABLE B-80.—Federal receipts and
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TABLE B-82.—Federal Government re
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TABLE B-84.—Federal and State and
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TABLE B-86.—State and local gover
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TABLE B-88.—Maturity distribution
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CORPORATE PROFITS AND FINANCETABLE
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TABLE B-92.—Corporate profits of
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TABLE B-94.—Relation of profits a
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Year or monthTABLE B-96.—Business
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End of yearTotalassetsTABLE B-98.
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YearFarm population,April 1Number(t
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YearTABLE B-102.—U.S. exports and
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TABLE B-103.—U.S. international t
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TABLE B-105.—U.S. international t
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TABLE B-107.—International invest
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TABLE B-109.—Civilian unemploymen
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TABLE B-111.—International reserv
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