Clinton Administration Alumni Counter Bush On Economy January 31, 2007Posted by notapundit in Economic News, Politics, US News, White House.
WASHINGTON (Dow Jones)–Congressional Democrats brought in three alumni from the Clinton administration to provide counterpoint Wednesday to an economic address President George W. Bush gave in New York.
While Bush said the economy is “strong”, the trio argued at a hearing by the Joint Economic Committee that nation’s growing budget deficits, trade imbalance and income inequality are putting the economy on thin ice.
“We are way off track on almost every front,” former Treasury Secretary Robert Rubin testified before the committee.
Rubin highlighted concerns about annual budget deficits and the foreign borrowing that has financed them.
“The vast flows of capital from abroad that have sustained us are exceedingly unlikely to continue indefinitely,” Rubin said. Rubin would not guess when the flow would begin to diminish, but “I am deeply troubled that at some point the global markets will develop concerns.”
Former Treasury Secretary Lawrence Summers agreed that “the most important step the Congress can take is to adopt a fiscal policy that puts the government’s finances on a sustainable footing.”
Summers says the nation needs to better invest in research and development and in education. It must also shore up the nation’s middle class, in part by assuring that some aren’t foisting their share of the cost of government on others by tax evasion.
But, Rubin, Summers, and former Clinton Administration economic advisor Alan Blinder all advised against one likely response to the nation’s economic challenges – trade protectionism.
Citing the 1960’s musical comedy, “Stop the World, I Want to Get Off,” Blinder said “We cannot stop, and we cannot get off.”
Instead, Blinder said, “Americans need to prepare ourselves for the future of globalization.”
The sole counterpoint at the hearing to the Clinton trio was Ohio University economics professor Richard Vedder, who said the economy is strong and that Democratic plans to reconsider Bush’s tax cuts are unwise. As for concerns over income inequality, Vedder said those are based on largely flawed analyses.
For example, comparing wages from one year to the next is based on constant dollar calculations “that very significantly overstate inflation in the eyes of virtually every mainstream economist; liberal, conservative, vegetarian, Presbyterian, what have you,” Vedder said in his testimony.
Vedder said he agreed with the Democrats on the panel that education is the key for future growth. But where the others argued for more government spending on education programs, Vedder said the government must first learn how to better spend that money.
“Despite spending far more in real terms per student than a generation or two ago, American students do not appear to be learning much more,” Vedder said.
Likewise a tripling of student aid since 1994 has been followed by a decline, not an increase, in the proportion of low-income students in colleges “which are increasingly becoming taxpayer-subsidized country clubs for children of the affluent.”
Summers, who recently served as president of Harvard University, seconded that observation.
“One of the most disturbing statistics I’ve encountered (is that) just 10% of students attending our leading universities come from the lower half of the American income distribution, Summers said.
Joint Economic Committee Chairman Charles Schumer, D-N.Y., said education, and the other issues raised by the panelists, were symptomatic of a broader set of challenges facing middle-income families.
Sen. Schumer said changing technology and greater globalization had brought the nation to an economic crossroad.
“I believe we need to lay out a new vision that both accepts the economic forces at work and acknowledges and deals with the new challenges they present to American families,” Schumer said.
At a similar hearing being held across Capitol Hill by the House Ways and Means Committee, Rep. Jim McCrery, R-La., agreed American families face challenges and that Congress, rather than doing more of the same, should try new approaches to address them.
McCrery singled out as an example Bush’s proposal to replace the blanket tax exemption for employer provided health care with a capped tax deduction.
McCrery said he’d have proposed a tax credit, instead of a deduction, to better focus assistance to those with less income, but still the president’s “proposal should get us thinking about ways the tax code could be modernized to better reflect today’s market realities.”
By John Godfrey, Dow Jones Newswires