Bush adviser says 'strong' economy should continue

Credits President's economic policies, but not all hold that view

By David Flaum
Contact
October 28, 2005

The U.S. economy is doing just fine, thank you, and the run of the past two years should continue in 2006, said President Bush's top economic adviser.

"The economy is quite strong," said Allan Hubbard, assistant to the President for economic policy and director of the National Economic Council. "We think it's very much sustainable."

Hubbard was in Memphis Thursday to speak to the Economic Club of Memphis.

Since the unemployment rate peaked at 6.3 percent in 2002, the nation has added more than 3 million jobs, about 2 million of them this year, he said.

Gross domestic product -- the value of goods and services produced in the United States -- is growing at a 3.5 percent annual rate and should be up 3 percent in the third quarter despite the effects of Hurricane Katrina.

Next year, growth should be "more than 3 percent," he said.

It's no surprise that Hubbard credits Bush's economic policies.

"The President inherited a recession (it actually started two months after he took office and ran until November 2001)," Hubbard said in a telephone interview. "Congress immediately passed a major tax cut he had run on and in 2003 added another tax cut."

Those actions, he said, not only spurred economic growth, but also are contributing to a reduction of the federal budget deficit.

That's not the view of the Economic Policy Institute, a Washington-based research group backed largely by trade unions.

In a report Wednesday, EPI's research director, Lee Price, said the $860 billion in tax cuts since 2001 "had little, if any, positive effect and that the largest impact has been negative: creating excessive permanent deficits that will lower our future standard of living."

GDP growth over the 17 quarters since the recession ended has been below the average for the previous six recoveries, EPI analysis of Bureau of Economic Analysis data showed. So is employment, income, business equipment and software investment and nonresidential real estate investment, the EPI said.

"We disagree with the numbers they're using," Hubbard said. "This President very much believes in leaving as much money as possible with the people who earn it. The only thing raising taxes does is slow the economy."

Tax cuts speed productivity and economic growth and lead to rising compensation and growing tax revenues to help solve the problem of deepening federal budget deficits, he said.

Another key to cutting deficits -- Bush has promised to halve the current projected $310 billion in red ink by 2009 -- is slashing government spending, Hubbard said.

That won't come at the expense of the war on terrorism or the war in Iraq. Bush backs spending whatever is necessary to win those wars, Hubbard said.

But other "discretionary spending" must be cut.

When asked why the President didn't veto the $284 billion highway spending bill for those reasons, Hubbard said Bush, through "aggressive negotiations," got Congress to reduce the amount from $400 billion.

-- David Flaum: 529-2330