[Economic Report of the President (2009)]
[Administration of Barack H. Obama]
[Online through the Government Printing Office, www.gpo.gov]

 
CONTENTS

Page

OVERVIEW.......................................................... 19

Chapter 1. the year in review and the years ahead .................31
Developments in 2008 and the Near-Term Outlook .................. 33
Consumer Spending and Saving................................... 33
Residential Investment......................................... 39
Business Fixed Investment...................................... 41
Business Inventories........................................... 43
Government Purchases........................................... 43
Exports and Imports............................................ 44
Employment..................................................... 45
Productivity................................................... 46
Prices and Wages............................................... 46
Financial Markets.............................................. 50
The Long-Term Outlook Through 2014............................... 53
Growth in GDP over the Long Term............................... 55
A Perspective on the Past Eight Years.......................... 56
Conclusion ...................................................... 58

Chapter 2. Housing and Financial Markets.......................... 61
Origins of the Crisis............................................ 63
The Global Saving Glut......................................... 63
The Global Credit Boom and the Housing Market.................. 64
The Credit Crunch.............................................. 69
Leverage and Reliance on Short-Term Funds...................... 71
Macroeconomic Consequences of the Crisis......................... 72
Banks Reduced Lending to Consumers and Businesses.............. 73
The Onset of the Crisis........................................ 74
Credit Market Investors Reduced Lending to Businesses.......... 75
The Effect of the Crisis on the Non-financial Economy.......... 77
Policy Responses to the Crisis................................... 79
Policy Responses in 2007....................................... 79
Policy Responses in 2008....................................... 80
Results So Far.................................................... 85
Looking Forward................................................... 87
Developing a New Regulatory Structure for Financial Markets.... 87
Unwinding Temporary Programs................................... 89
Modernizing Financial Regulation............................... 90
The Future of Mortgage Financing and Fannie Mae and
Freddie Mac....................................................... 93
Conclusion........................................................ 96

Chapter 3. Energy And The Environment............................. 97
U.S. Energy Use and Policy Goals................................. 98
The Promise of Market-Oriented Policy Approaches................ 100
Market-Oriented Environmental Regulation........................ 100
The Role for Technology Inducement Policies................... 101
Increasing Use of Alternative Energy Sources.................... 103
Generating Electricity........................................ 104
Alternative Transportation Fuels.............................. 106
Harnessing Existing Energy Sources More Responsibly............. 109
Increasing Efficiency......................................... 109
Cleaner Use of Fossil Fuels................................... 112
Removing Regulatory Impediments to Domestic Production........ 116
Overarching Challenges.......................................... 116
Balancing Local, Regional and Global Goals.................... 117
Efficient R&D Support for Alternative Energy Sources.......... 118
Economically Efficient Regulation under Existing Statutes..... 119
Global Action on Climate Change............................... 123
Conclusion...................................................... 126

Chapter 4. The Benefits Of Open Trade And Investment Policies     127
Trade and Investment in the United States....................... 128
Openness to Trade and Investment Has Substantially
Contributed to U.S. Growth.................................. 129
The Benefits of Free Trade...................................... 130
Free Trade Agreements......................................... 132
Reductions in Tariffs......................................... 134
The Benefits of Open Investment................................. 136
U.S. Investment and Investment Policy......................... 139
Foreign Investment Policy..................................... 144
Development Assistance Initiatives.............................. 144
Millennium Challenge Corporation.............................. 146
Trade Capacity Building....................................... 146
Investment Promotion Programs................................. 147
Trade Preference Program...................................... 148
Trade Policy Going Forward...................................... 149
Conclusion...................................................... 150

Chapter 5. Tax Policy............................................ 151
Individual Income Tax Reform.................................... 152
Lowering Tax Rates Stimulates Economic Growth................. 153
A Record of Tax Reform.......................................... 159
Lower Tax Burdens............................................. 161
Pro-Growth Business Tax Reform.................................. 162
Reducing the Double Taxation of Corporate Income.............. 162
Accelerating Depreciation Allowances.......................... 163
Increasing Small Business Expensing........................... 164
Tax Credits for Research and Development...................... 164
International Competitiveness................................... 165
Future Challenges............................................... 166
Making Tax Relief Permanent................................... 166
Fixing the Alternative Minimum Tax............................ 168
Simplifying the Tax Code...................................... 170
Conclusion...................................................... 172

Chapter 6. The Long-run Challenges Of Entitlement Spending....... 175
Background Facts about Entitlement Programs..................... 176
Social Security............................................... 176
Medicare...................................................... 177
Medicaid...................................................... 178
Major Entitlement Spending Over Time............................ 180
Social Security............................................... 181
Medicare and Medicaid......................................... 184
Factors That Drive Expenditure Growth Over Time................. 187
Demographic Shifts............................................ 187
Increased Health Care Spending Per Beneficiary................ 188
The Bottom Line............................................... 189
The Financial Future of Social Security......................... 189
Addressing Future Solvency.................................... 189
Funding Future Benefits....................................... 190
The Financial Future of Medicare and Medicaid................... 192
Conclusion...................................................... 195

Chapter 7. Balancing Private And Public Roles In Health Care..... 197
The Health of the U.S. Population............................... 198
U.S. Health Care Spending....................................... 200
Improving the Effectiveness and Efficiency of Health Care....... 202
Health Information Technology................................. 203
Comparative Effectiveness..................................... 203
Price and Quality Information Transparency.................... 204
Pay-for-Performance........................................... 205
Using Market-Based Approaches to Improve Access to Health
Insurance................................................ 206
Private Health Insurance........................................ 206
Public Insurance.............................................. 210
The Uninsured................................................. 212
Investing in Public Health...................................... 214
Strengthening Community-Based Health Care..................... 214
Preparing for Public Health Emergencies....................... 214
Supporting Research........................................... 214
Promoting Global Health Improvement........................... 215
Conclusion...................................................... 216

Chapter 8. Education And Labor................................... 217
Economic Benefits of Education.................................. 218
Primary and Secondary Education................................. 221
Early Signs of NCLB Success................................... 221
NCLB Challenges............................................... 223
Higher Education................................................ 225
College Preparedness.......................................... 226
Funding Higher Education...................................... 227
Labor Issues: Income Trends, Worker Flexibility, and Pension
Reform..................................................... 228
Recent Trends in Real Incomes................................. 229
Worker Flexibility and Training............................... 231
Retiree Income................................................ 232
Looking Ahead................................................... 235
Income Inequality............................................. 235
Immigration Reform............................................ 236
Conclusion...................................................... 237

Chapter 9. Economic Regulation................................... 239
Telecommunications and Broadband................................ 241
New Technologies Permit Greater Competition in
Telecommunications............................................ 241
Telecommunications Regulation in an Evolving Market........... 243
Spectrum Policy................................................. 244
Tort Reform..................................................... 247
Corporate Governance Reform..................................... 249
Insurance Against Terrorism and Natural Disasters............... 251
Roads........................................................... 254
Aviation........................................................ 258
Conclusion...................................................... 259


APPENDIXES
A. Report to the President on the Activities of the Council of
Economic Advisers During 2008.............................. 267
B. Statistical Tables Relating to Income, Employment,
and Production............................................. 275


List Of Tables
1-1. Administration Economic Forecast ........................... 54
1-2. Supply-Side Components of Real GDP Growth,
1953-2014................................................... 56
3-1. Projected Net Benefits from Selected 2001-08 EPA Clean
Air Regulations............................................ 115
4-1. U.S. Trade and Investment.................................. 128
4-2. Capital Flows into and out of the United States (Billions
of U.S. Dollars)........................................... 139
5-1. Estimated 2008 Effects of Individual Income Tax Relief
from the Past 8 Years...................................... 162
5-2. Statutory Corporate Income Tax Rates, Depreciation
Allowances, and Effective Marginal Tax Rates for Selected
OECD Countries, 2005....................................... 167
6-1. Old-Age, Survivors, and Disability Insurance (OASDI)
Benefits and Beneficiaries, 1950-2050...................... 182
7-1. Uninsurance Rates by Household Income Category............. 213
8-1. Proficiency Levels of Fourth Grader........................ 222


List Of Charts
1-1. Oil Prices: West Texas Intermediate......................... 37
1-2. Real Consumption and Real Wealth............................ 38
1-3. FHFA versus S&P/Case-Shiller Home Price Index .............. 40
1-4. Nonfinancial Corporate Sector Net Borrowing by Type......... 42
1-5. Output Per Hour in the Nonfarm Business Sector ............. 47
1-6. Consumer Price Inflation.................................... 48
1-7. Gross Domestic Product and Gross Domestic Purchases
Price Indexes............................................... 49
1-8. Corporate Bond Spreads...................................... 52
1-9. Recessions and Recession Recoveries......................... 54
2-1. Home Prices and Owner’s Equivalent Rent............... 65
2-2. Privately Securitized Mortgages and Subprime Loans in
Mortgage Market............................................. 68
2-3. Single-Family Housing Starts................................ 69
2-4. Percent of Mortgages 90 Days past Due or in the Process
of Foreclosure.............................................. 70
2-5. Domestic Banks Tightening Lending Standards................. 73
2-6. The TED Spread.............................................. 76
2-7. Consumer Confidence......................................... 78
2-8. Commercial Paper............................................ 86
2-9. Conforming and Jumbo Mortgage Rates......................... 87
3-1. U.S. Wind Power Generation, 1995-2007...................... 105
3-2. Alternative Fuel Light-Duty Vehicles in the U.S. Fleet..... 107
3-3. Emissions Levels Over Time................................. 113
3-4. Clean Air Act Requirements for New Electric Generating
Units, 2004-2022........................................... 120
3-5. Greenhouse Gas Intensity of U.S. Economy, 1990-2007........ 123
3-6. Global CO2 Concentrations.................................. 124
4-1. Contribution of Net Exports to Real U.S. GDP Growth........ 130
4-2. U.S. FTA Progress, 2000-2009............................... 133
4-3a. U.S. Holdings of Foreign Assets, 2007 (US$ bil)........... 138
4-3b. Foreign Holdings of U.S. Assets, 2007 (US$ bil)........... 138
4-4. U.S. Obligations on Select Development Assistance
Initiatives, 2000-2007..................................... 145
5-1. Real Personal Dividend Income.............................. 158
5-2. Federal Income Tax Relief by Year.......................... 161
5-3. Combined (Federal and State) Corporate Income Tax Rate..... 167
5-4. Number of Taxpayers Subject to the Alternative Minimum
Tax........................................................ 169
6-1. Expenditures as a Percent of GDP........................... 181
6-2. Changes in Source of Funds for Personal Health Care
Expenditures............................................... 184
6-3. Medicaid Enrollees and Expenditures by Enrollment
Group, 2007................................................ 185
6-4. The Population Age 65 or Older as a Percentage of the
Total Adult Population..................................... 188
7-1. Life Expectancy at Birth................................... 198
7-2. Distribution of Adults by Age Group According to
Number of Chronic Conditions, 2005......................... 199
7-3. Distribution of National Health Expenditures by Type of
Service, 2006.............................................. 201
7-4. Prescription Drug Coverage for Medicare Beneficiaries in
2004 and 2006.............................................. 212
8-1. Average Adult Real Earnings by Educational Attainment...... 219
8-2. Growth in Educational Attainment, Capital Intensity, and
Labor Productivity over Time............................... 220
8-3. Enrollees and Degrees Conferred............................ 226
8-4. Real Hourly Earnings and Real Total Compensation Costs
over Time.................................................. 230
9-1. High-Speed Internet Lines in the United State by Type of
Connection, 1999-2007...................................... 242
9-2. U.S. Tort Costs, 1995-2007................................. 248
9-3. Terrorism Risk Insurance (TRI) Deductibles and Take-up
Rates, 2003-2007........................................... 253
9-4. Highway Expenditures by Revenue Source, 2006............... 255


List Of Boxes
1-1. The Economic Stimulus Act of 2008........................... 34
1-2. Different Measures of House Prices.......................... 40
1-3. Alternate Measures of Productivity Growth................... 47
2-1. Definitions of Select Financial Terms....................... 67
2-2. Short Sales................................................. 81
4-1. Farm Subsidies............................................. 135
4-2. Sovereign Wealth Funds..................................... 140
4-3. The Effect of the Current Economic Slowdown on Foreign
Investment into the United States.......................... 141
5-1. Encouraging Human Capital Investment....................... 154
5-2. Double Taxation Slows Economic Growth...................... 157
5-3. Tax Code Complexity........................................ 171
6-1. Undesirable Consequences of Social Security................ 182
6-2. Long-Term Care and Medicaid................................ 186
7-1. Health Savings Accounts: Innovation in Benefit Design...... 207
8-1. The Ensuring Continued Access to Student Loans Act
of 2008.................................................... 227
8-2. Trade Adjustment Assistance................................ 232
9-1. The Do Not Call List....................................... 244
9-2. The Role of Incentives in Road Investments................. 257