Ben S. Bernanke was sworn into office just over two weeks ago as the new chairman of the President's Council of Economic Advisers. Mr. Bernanke will review the current state of the U.S. economy and discuss economic security for U.S. workers in the context of a new global economy. He will outline a vision of economic security that includes topics such as developing a skilled workforce, encouraging security through individual ownership, and reforming our employment, health care and retirement systems so that workers can more easily change jobs.
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Christopher DeMuth, AEI
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Ben S. Bernanke, President's Council of Economic Advisers
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Skills, Ownership, and Economic SecurityRecently sworn in as the new chairman of the President’s Council of Economic Advisers, Ben S. Bernanke reviewed the current state of the U.S. economy and discussed economic security for U.S. workers in the context of a new global economy at a July 12 AEI conference. He outlined a vision of economic security that includes topics such as developing a skilled workforce, encouraging security through individual ownership, and reforming our employment, health care, and retirement systems so that workers can more easily change jobs.
Ben S. Bernanke
Council of Economic Advisers
The economy has continued to strengthen. GDP grew at 3.8 percent in the fourth quarter of 2004 and the first quarter of 2005. Growth in 2005 is on target to meet the forecasted 3.4 percent. In addition, the labor market is also strengthening: 181,000 jobs were added per month in the first half of 2005--above the forecasted 175,000 jobs per month. As a result, unemployment is at 5 percent, the lowest level since September 2001. In addition, wages and salaries have grown more than expected, bringing in more tax income that can be used to shrink the budget deficit.
The residential housing market is also very strong, and homeownership has reached an all time high--seven out of ten families now own their own home. Although some speculative behavior has arisen, the housing boom is based on sound economic fundamentals such as a strengthening economy, low mortgage rates, and localized limited housing supplies.
As globalization has brought more foreign competition, there have been calls for economic isolationism. However, such barriers to competition would ultimately be harmful because it would remove the basis for U.S. economic prosperity. With the world’s most productive workers, most sophisticated capital markets, and best universities, American workers can more than hold their own. However, doing so will likely require American workers to change jobs, locations, or careers more often. To ease this transition, it is important that Americans have skills for the changing global economy and more economic ownership opportunities to stay with them as they move.
We first learn the job-related skills we need in school. In many ways, our education system is first rate. Over half of American students go on to college--the highest rate in the world--and U.S. schools focus more on generally applicable skills than on narrow vocational training. Still, in some ways our system is lacking. For example, a recent international study ranked American fifteen-year-olds twenty-fourth out of thirty-nine in math literacy. President George W. Bush’s No Child Left Behind Act is addressing this issue by requiring poorly performing schools to make quantifiable progress. If the schools continue to fail, students can now get outside help or move to other schools.
Although strengthening our education system is important, a changing economy means that many Americans will continue to need job training long after leaving school. To this end, in 2005 the federal government will dispense $15 billion for job training. In addition, President Bush requested, and Congress approved, $250 million in grants for community and technical colleges to train workers in high-growth industries.
However, the job training system is also in need of reform. There are over forty federal programs--each with different requirements--distributing job-training funds. President Bush has a job-training reform proposal that would consolidate four of the largest programs to improve efficiency. In addition, the president has proposed personal reemployment accounts that would give $3,000--on top of traditional unemployment benefits--to pay for job-search-related expenses such as transportation, childcare, and job training. Afterwards, the money would remain with the recipient, thereby creating an incentive to get a new job quickly. Studies have shown that this can cut the time of unemployment by an average of a week.
Ownership of assets, as opposed to others supposedly holding assets in one’s name, can improve American’s economic security. For example, the president has strengthened individual-based--rather than employer-based--healthcare in part by creating health savings accounts (HSAs), tax-free accounts available to purchasers of high-deductible health insurance, which are generally less costly than other types of insurance. Although HSAs can be set up with employers, they are owned by a family or individual and are thus portable. The president has also proposed to allow individuals to deduct from their income taxes the premiums they pay for their high-deductible policies. He has also proposed that the government contribute $1,000 to HSAs owned by low-income families, along with giving a $2,000 tax credit towards their purchasing of high-deductible insurance. Lastly, the president also proposed to allow health care purchases across state lines to create a national health insurance market that is less restricted by expensive state mandates.
President Bush has also proposed important pension reforms that would make it harder for corporations to renege on their pension promises. The changes would include new transparency requirements and different accounting rules that would make corporations actually put aside money to fulfill their promises. The president has also made several proposals to strengthen another pillar of retirement funding, Social Security. Chief among them is the creation of voluntary personal savings accounts that will allow workers to create a nest egg, pass on the account if they die, and help simplify the current tangle of different tax-advantaged retirement accounts.
AEI intern Leon Maurer prepared this summary.