A Vision of Steady Growth
Concerns about income inequality and slow wage growth have blemished what perhaps has been President Bush's greatest success: presiding over an economic boom that's in its sixth year and has created more than 6 million new jobs during the past three years. It is Edward Lazear's job, as chairman of Bush's Council of Economic Advisers, to help keep the good times going and to make sure more Americans participate in them. Luckily, that's kind of his specialty. Before joining the Bush team, he was a labor economist at Stanford University and specialized in how pay structures motivate workers.
Are you surprised that the economy performed as well as it did last year despite the housing bust and the spike in oil prices?
To be honest, the resilience does surprise me, but not because the fundamentals aren't there. The reason the economy is so resilient is that we have the kind of flexibility built into our system that is really necessary to have a robust economy. You've got flexible job markets; you've got flexible capital markets. The housing market decline was offset by nonresidential construction to a significant degree. It was also offset by export growth, which is great.
How about now, with the stock market drop and a string of weak economic reports?
Our forecast [of percentage growth in gross domestic product] for this year was the upper 2s, and I think we stand by that. This quarter might be a little below that, simply because we are still living with the effect of the decline in the housing market.
Alan Greenspan has suggested that we are closer to the end of this expansion than to the beginning. Is that how you see it?
I am not a believer in "what goes up must come down." I think that if the fundamentals are strong, we can have continued high levels of growth for a very prolonged period. In the early '80s, we had a couple of recessions almost back to back. Then we went for, what, eight, nine years before a recession, and then we went 10 years. ... As you look way, way into the distant future, there are some fundamentals that are inherently going to slow our growth. Our labor force isn't going to grow as fast, so what that means is that the total growth rate will be lower. The per capita growth rate could actually be higher. So we may be richer and be growing relative to the individual at a higher rate in the future, but in terms of the size of the overall economy, the demographics are going to catch us.
Are you worried about inflation?
I think the Fed is doing a good job. I don't see that we're going to have significant inflation.
How big a problem is China and the trade deficit?
It is certainly the case that China is a significant portion of our trade deficit, about a third right now, about $230 billion out of $800 billion-it's a chunk, but it's not the whole picture. The reason for the trade deficit is primarily, to my mind, the capital accounts surplus. People want to invest in the United States. In order to invest in the United States, they have to give us something. ... And so what they are giving us is their goods in return. So I basically think of the trade deficit as funding their desire to invest in our capital, which is why I think of that as a good thing.
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