George W. Bush photo

Press Briefing by Treasury Secretary Henry Paulson and Chairman of the Council of Economic Advisors Ed Lazear

January 18, 2008

James S. Brady Press Briefing Room

12:14 P.M. EST

MR. FRATTO: Hello, everyone; thanks for coming. We have for our briefing this afternoon Treasury Secretary Hank Paulson will open with some remarks -- I know you saw the President's statement, so the Treasury Secretary will make some remarks. And then we have the Chairman of the President's Council on Economic Advisors, Ed Lazear, who will also be here available for questions.

I'm going to turn it over to Hank and let him get started.

SECRETARY PAULSON: Thanks, Tony, and good afternoon. Before the President left the Middle East he told the nation he recognized the growing concerns about the economy and he asked his economic team to assess the need for a growth package.

I talked with knowledgeable people in all parts of the economy and reviewed the data with our economic team, and we regularly reported our thinking to the President while he was traveling. When he returned he made the decision that we need to act quickly to support the economy in the short term.

The long term fundamentals of our economy are strong and I believe that our economy will continue to grow. At the same time, the U.S. economy is experiencing a significant housing correction. This correction was inevitable after years of unsustainable whole price appreciation and it is exacting a penalty on our economic growth. We are taking steps to minimize impact on homeowners and the real economy, and we will continue to work with Congress to do more on housing.

The housing correction, capital market turmoil and high oil prices together have caused our economy to slow materially in recent weeks. While I'm confident in our long-term economic strength, the short-term risks are clearly to the downside and the potential cost of not acting has become too high. We must act now to support our economy this year.

The President laid out today clear principles that should guide the creation of an effective growth package. We are focused on working with Congress to quickly reach consensus on a plan that gets cash to consumers and gives businesses incentives to invest, to grow and to hire. We know from experience that these policies work to stimulate growth in the short term. The package should be robust enough to make an impact this year and should be temporary, so that it doesn't significantly impact our long-term fiscal position.

Over the last few weeks I have consulted the leaders in Congress and a broad group of members of both parties to gather their views. I heard from them the same thing the President heard from them yesterday: Our economy is growing slower than expected, and that means we need to act quickly to put together a package that is temporary, simple enough to get enacted quickly, effective at boosting growth and job creation this year, and large enough to make a difference.

I am confident that the principles the President outlined today are a solid foundation on which to build. They reflect the principles members of Congress have advocated publicly and have discussed with me privately in recent weeks. I look forward to engaging with congressional leaders immediately to support our economy this year.

Thank you, and now we'll take your questions. Yes.

Q: Can you talk about the amount of rebate (inaudible) incentive that the White House is prepared to (inaudible)? And will any cash go to people who don't pay taxes?

SECRETARY PAULSON: Well, again, what has been put out is our broad and important principles. And a significant part of this is going to be tax relief that will go to consumers. And we've been talking about a package that is 1 percent of GDP, so that's in the neighborhood of, you know, $140 to $150 billion. And we have been thinking that the biggest portion of this package should be aimed at consumers, taxpayers, and providing them relief.

Q: Can you be any more specific than that?

SECRETARY PAULSON: I think I shouldn't be more specific here. The President intentionally put out guidelines, broad principles, because we're looking to be collaborative in working with Congress here.

Q: But folks on the Hill are saying that the White House already has something in mind in the neighborhood of $800 for individuals, $1600 for families.

SECRETARY PAULSON: As I said, we've done a lot of work, but the President felt, and we strongly agree, that there's strong bipartisan support, and there's a lot of agreement. And it's really -- the areas of agreement are huge. When you can get leaders on both sides to agree that we should be focusing on something that's temporary, there are lot of important long-term priorities -- differences in long-term priorities -- but when they say we want to focus on something that's temporary and something that will be stimulative, that will help growth this year, and we'll work quickly, that's -- those are very, very important areas. And so what we're doing now -- and I'm not looking to emphasize differences, and we intentionally don't want to be overly specific because, again, we're looking to be collaborative, and there's a lot of bipartisan agreement.

Q: But is that broadly in the neighborhood?


Q: When you say you want broad-based tax relief, does that mean that you're not open to targeting it towards the middle class, or low-income people? And also, are you open to things like unemployment insurance extensions -- some of these things that Democrats want; aid to the states?

SECRETARY PAULSON: Again, let me say, and I was expecting questions like this, they're natural questions -- (laughter) -- I think it's not my job to negotiate this package in this room. Obviously I've heard a lot of ideas, and there are a lot of ideas, and those are things I hear discussed. But again, what we are -- what we're focused on is, again, tax relief, quick tax relief, to consumers and then encouraging business, incentivizing business to grow and to hire.

CHAIRMAN LAZEAR: Can I just add to that?


CHAIRMAN LAZEAR: Excuse me, I'd just add to that. There are two major parts of the economy that we have to deal with: the consumption side, and the investment side. Consumption is important, of course, because it is the major component of GDP; it's 70 percent of GDP. But in addition to that, investment is extremely important not only because it's a significant part of GDP, but also because investment is the way that we create demand for labor. And demand for labor means more jobs and more wages, and that's the reason that we have to focus on that side as well.

Q: But for those of us who aren't economists, does broad-based tax relief mean for everybody, or -- I mean, can you explain what that term means?

SECRETARY PAULSON: Well, the -- again, the President again is focused on broad-based tax relief for those who are paying taxes, and that was the principle he laid out. This is something that has worked well before, has worked in 2001, worked in 2003 -- get to consumers, put money in the hands of people, letting them spend it rather than the government spend it.

CHAIRMAN LAZEAR: Yes, let me get -- I don't want to get all in the front row.

Q: Can we just -- can we say the neighborhood of $800, what's coming from the Hill? I know you don't want to be specific, but does that sound like in the neighborhood of something you might find reasonable?

SECRETARY PAULSON: I don't want to play, "is it bigger than a breadbox" or whatever.

Q: Well, we don't either. And those are the figures we're hearing

SECRETARY PAULSON: I know that -- I would just simply say, I heard the rumors out there, I know those numbers are out there. What the President said today is, he laid out guidelines -- and again, what we're trying to do is we're -- want to be open, collaborative, not have too much specificity while we're working on a collaborative basis with Congress to work out the details.

Q: Senator Obama had suggested using Social Security as a form of payment --

Q: So then that means you haven't decided anything then?


Q: -- $250 check for Social Security, one time. Are you guys looking at anything like something for elderly people on fixed incomes?

SECRETARY PAULSON: We've looked at a lot of things. We believe that there's a great benefit to being simple. The Christmas season has come and gone. We're not trying to decorate a Christmas tree here. That a huge part of this is going to be speed, it's going to be getting money out quickly. And it will make a difference. And if we can stay broad-based and simple, we'll be able to be quicker and be able to have a bigger impact on the economy sooner.

CHAIRMAN LAZEAR: Excuse me, may I just add to that? There are many noble goals, and there are many things that we want the government to do, many programs that have been important and effective. But remember that the goal that we are thinking about right now is to ensure that the economy does not slow significantly. We're trying to make sure that growth is enhanced, and that people who would not otherwise be working will be working.

So our primary focus is on that, and not on thinking about ways to distribute and take care of different needs, albeit those needs perhaps particularly important. We believe that this is what we're talking about right now, and that's growth.

SECRETARY PAULSON: Corbett. I recognize one of my own.

Q: Thank you. I just wanted to ask you -- you said the goal seems to be about speed. And I'm wondering, there seems to be a love-fest here in Washington, which is pretty rare, over this stimulus package. But what are your thoughts about when it gets to the Senate -- Senator Reid is not quite maybe on the same page as everybody else, and if you're worried about it slowing down once it gets to the Senate? And secondly, without getting into the specifics, the principles mean that you want everybody to get a tax cut?


Q: Rebate, excuse me. That was very important for the President in 2001.

SECRETARY PAULSON: First of all, Corbett, I would say that I had talked before the call yesterday with all of the leaders. I talked with them after the call. What I heard before the call, during the call, and after the call was an emphasis of the things we agree on, wanting to be collaborative from every one of them, wanting to work together in a bipartisan fashion; everyone recognizing that the most important needs were the American people, the economy, the need to do something quickly, and sticking to the principles we talked about. So I would say that.

And in terms of the other question, I've answered that several times.

Q: Mr. Secretary, how confident are you that this is actually going to make that much of a difference to the economy at this stage of the game? You know there's some economists out there who point to the track record, historical track record of the fiscal stimulus in question or that these kinds of principles even will make that much difference in a $14 trillion economy.

SECRETARY PAULSON: I'm going to go to Ed in a minute, but I just want to say that that's why the President wants to do something that's meaningful, that's robust, that will make a difference this year. There are no silver bullets. There's nothing that's perfect, but to be quick and to focus on the areas we've mentioned, to give money to consumers -- there's plenty of evidence you give money to people quickly, they're going to spend it, and they're going to spend a reasonable percentage of that. We've got good basis for that, looking at 2001 and 2003, and of course when you look at putting incentives in place for business to invest quickly and grow and hire people, that will work.

So the -- remember, what this focus is, is to boost the economy, support the economy this year, give us growth this year, give us more jobs this year. It won't be perfect, but again, the key in my mind is being simple and being quick.

CHAIRMAN LAZEAR: I would just add to that, that's the main reason why we feel that it's very important to focus on those components that are growth-related rather than other goal-related. We've looked at this. We've done some scoring.

Obviously this depends on what the actual program looks like, and that will evolve as negotiations go through. But some of the things that we've looked at, we believe will be quite significant both in terms of the historical perspective and also in terms of the number of jobs that we will create relative to what would have been the case in the absence of these programs. That's the most important thing.

Q: Do you have any --

Q: (Inaudible) lead to recession?

SECRETARY PAULSON: I've never seen so many enthusiastic -- okay, the lady in the back.

Q: In terms of long-term --

SECRETARY PAULSON: This is almost like India, where they were -- (laughter.)

Q: I have a question on India. (Laughter.)

SECRETARY PAULSON: It's a great country. (Laughter.)

Q: In terms of long-term growth, a lot of people are saying because the manufacturing base is gone, where do you see, in the next two to three years, long-term growth? What sectors in this economy?

SECRETARY PAULSON: Well, let me start. I want to give you more detail than you want on the manufacturing base because I would say it's fascinating when you look at it. You may not know it, but who is the largest manufacturer in the world? The U.S., by a lot. It's fascinating. When I had looked at the data in 1950, we had about 30 million -- manufacturing jobs in the U.S. were about 30 percent of the country then, and there are about 15 million manufacturing jobs, okay?

Today, we've got the same 15 million manufacturing jobs; they're about 10 percent. But the output has gone up seven times over that period, and we -- you know, our manufacturing base is two-and-a-half times larger to China, it's bigger than Japan, it's bigger than Germany. This is a story about automation. And I would say to you, we have a broad-based, diverse economy in the U.S.

And when people think of services, they very often think, well, gee, those are low-quality jobs, et cetera. There are many high-quality, high-paying service jobs in many sectors. So our economy is more diverse, stronger, more -- you know, I've traveled all around the world and I will tell you, the more I'm outside of the country, the more I see that even though we've got our problems, I would put us up against any country in the world in terms of our economy and our ability to compete.

Q: But what areas do you have to grow?

SECRETARY PAULSON: Areas to grow? Well, first of all, exports are growing very quickly right now. They've been growing faster than imports for some time. So that is an area that's growing. And again, there are good -- we have growth. When you look at our economy, we grew at almost 5 percent in the third quarter, and we've had a headwind in terms of housing for some time. We've got a headwind now in terms of energy prices.

We're concerned, and we're looking at the risk of the downside and we're all over it. But again, this economy in my judgment is going to continue to grow, albeit at a slower growth. And that's what we're focused on.

Q: How many jobs would the stimulus create? How many jobs? You've got an estimate.

SECRETARY PAULSON: Well, we sure looked at numbers. It depends on which one. But the kinds of numbers we were looking at was half a million jobs, more or less this year, and then carrying over into next year.

CHAIRMAN LAZEAR: Let me just qualify that. That's half a million jobs more than would be the case were we not to enact these kinds of programs.

Q: None of this addresses housing, which you keep saying is the most significant downwind. What other steps are you considering taking to help troubled borrowers? What other steps -- does that include modifying the standards for Freddie Mac, Fannie Mae? What else are you going to do for the housing --

SECRETARY PAULSON: Let me be clear on that, because this is something that the President had directed us to get going on a long time ago. And we have a very important program that put out, I think, some very encouraging data today, which is the HOPE NOW alliance. So that program, which brings together the industry to deal with the sub-prime mortgages whose rates are being reset, and there's going to be 1.8 million mortgages where their rates will be reset over the next two years. We have a big effort there to prevent a market failure, essentially, and avoid preventable foreclosures. And you're going to see -- continue to see data and metrics as we come as to how we're doing there. Now that's one.

Second of all, as the President said today, we have a proposal, FHA modernization. The Senate has passed it, the House has passed it, now we need to get it out of conference so the President can sign it. That's one. Another proposal we have is that we would like to, on a temporary basis, raise the conforming loan limit for the GSEs -- Fannie, Freddie and so on, so that they can be more -- they can be active in securitizing the jumbo in the jumbo market. But we want to do this as a part of a fundamental reform for those agencies, because they need a strong, independent regulator.

We also have a legislative proposal to raise the limits on the amount of tax-exempt financing states and localities can use to help this industry and help in the mortgage area. So we'd like to do that, and give them more flexibility. The current law only lets them use their powers for first-time homeowners.

So we've got those. But the key part of your question really is: The biggest issue we have in our economy is housing and, consequently, why is it that what you're talking about is broad-based general growth plan, not something that is aimed more directly at housing? And the reason is, is we've been open to any good idea we've heard, and we just haven't -- we're focused on what we think are the right ideas. This market needs to correct. We've had unsustainable growth for some period of time. We're not trying to prolong that; it needs to correct. So what we're trying to do is to provide help to the rest of the economy, and to the economy more broadly, to help it better withstand and weather the effects that are coming about largely as a result of this decline in housing prices and the housing slump.


Q: (Inaudible) is really important to feed the stimulus? Do you feel the administration or Washington in general is a little slow to recognize the seriousness, the gravity of this downturn, and to act?

SECRETARY PAULSON: Well, I've got to say this -- and I don't mean to sound defensive here -- but I've spent time talking to economists and others that are saying, now wait a minute, you don't believe the economy is in a recession; you're not predicting it's going to go into a recession; why is it? This is the first time we've heard of a broad-based stimulus plan, growth program, at a time like this.

And what I've said is this: The President has been all over this economy. We were focused very early, all during the August vacation period; the President announced the housing program before Labor Day. He has been -- as we've looked at signs of the economy slowing down, he's had regular meetings with his economic team. We started talking about -- very seriously about the details of the kinds of things we're talking about today in December, watched it over Christmas. Before he went to the Middle East he said publicly that he was going to make a decision sometime before the State of the Union. We've continued to watch this. And frankly, it's very hard to move and get something exactly right.

I think we're on the front end of this, and the key now is going to be to keep it simple and keep it broad-based, and do something that's bipartisan. In other words, the proposal -- you asked a lot of questions that had to do with ideas that you tend to hear from one side of the aisle. And again, remember, we're trying to get something that can get enacted and is going to have bipartisan support and can get active quickly.

CHAIRMAN LAZEAR: Can I just add to that? The language you used was "gravity of the downturn." Remember that we are still at 5 percent unemployment; 5 percent unemployment is below the average for the last three decades. As Secretary Paulson said, our concern is that the risks are on the downside, and there has been weakening in terms of growth. No doubt about it; we're not in denial about that.

That said, we don't want to talk down the economy and make it sound worse than it is. It is still a relatively healthy economy. We want to keep it that way, and that's the reason that we're moving in this direction.

SECRETARY PAULSON: And we have a more than relatively healthy global economy.

Q: How soon are we talking about?

SECRETARY PAULSON: Have you asked a question yet?

Q: No, I haven't.


Q: You've said several times that it's important to do this quickly. Can you give us a time frame? How soon are we talking about? I think a lot of Americans, hearing this news, basically want to know when are they going to get their checks.

SECRETARY PAULSON: Well, I would say this: The first thing we need to do is get something enacted, through both Houses and signed by the President.

Q: What's your time frame for that?

SECRETARY PAULSON: I've got to tell you, my time frame is as soon as possible.

Q: Weeks?


Q: Months?

SECRETARY PAULSON: I've been encouraged, though, I've been encouraged by some of the things I've heard very experienced congressional leaders talk about, okay? The timeline that Steny Hoyer, for instance, put out, and some others -- so I would -- what I want to do is say we should have a goal of getting it out very quickly, and then, depending what it is, if it's broad-based and simple, I believe then we'll be able to get it out quickly and in time to make a real difference this year. And I don't think I can say more than that.


Q: So I can ask a follow-up? A number of economists have said it's too late. Do you believe it's too late?

SECRETARY PAULSON: Well, I think we just -- just in the interest of time, I think we just answered that question, okay, because I think that was the question we had here, is, why are you too late, and aren't you too late? And I think what you heard Ed say -- unemployment is at 5 percent. You heard me say some people are being critical and saying, why are you doing something that's unprecedented like this before you've got more evidence of the downturn?

You know, by definition, I've heard all kinds of people that have said to me, the government can never move quickly enough when you have something like this. Well, we're trying to disprove that. And so, again, I'm trying to focus on the positive, and the positive is, we've got broad consensus in Congress we need to do something, and so now we need to turn that into the reality of legislation. And then I can tell you, when we get the legislation, we're going to run like a bunny here to get the relief out.

Q: Has the IRS --

Q: Mr. Secretary?


Q: While you have made quite a few trips to India and recently were there, you were talking about then as far as the U.S.-India civil nuclear deal, and now India is making worse (inaudible) and they now need more and more energy. What discussion you have with India now that Prime Minister of India was in China, also talking about a nuclear deal with China also? So where do India and the U.S. stand on those issues, and the need of future energy for India?

SECRETARY PAULSON: Well, let me say, you're right. India, like China, like the U.S. -- big importers of oil, big energy needs -- a lot of things we can work on, in terms of energy security, in terms of new technologies.

I talked with them about working to eliminate the tariff on environmental goods and services. To me, that is sort of almost unethical, in addition to not making economic sense, when we know that there's technologies that were available today that weren't available when we went through our development stage, and developing countries are charging tariffs.

But on your question, which is the civilian nuclear deal, the point I made when I was there is, this is something -- you know, India is a democracy; they've got to make the decisions that are in their best interest. I think it's good for the U.S. and I think it's good for India, and it's -- clearly, the nuclear power is going to be an important part of their answer, and it's going to help them meet their needs in a clean and in an efficient manner.

Okay, we've got one more. This is the last question, and we're going to go far back.

Q: Mr. Secretary, the crisis seemed to have started at the top of the food chain with a classic liquidity trap. Now the solutions you proposed today are aiming at us people at the bottom of the food chain. Is that to say that the problems at the top of the food chain have been solved, or on the way to being solved?

SECRETARY PAULSON: No, the -- let me say, I think your analysis is broadly right when you say that we have had fundamental imbalances globally, and we've had big, huge amounts of savings that are being recycled. And with all of this liquidity reaching for yield, or investors reaching for a higher yield, I think that's part of how we got here; and mis-pricing risk. And it's going to take a good while to work through that. We have to take longer to work through that period. And then, once we work through it, it's going to take longer to put in place policy measures to reduce the likelihood of these kinds of things happening. And of course, when you look at the global imbalances, that takes longer still to sort those things out.

So what this is -- remember that we made very clear, Ed has made clear, others have made clear that looking at the economy in terms of the longer-term, our economy is very healthy in terms of the long-term, but there are longer-term issues that are very, very important for us to work on -- nothing more important than making the tax cuts permanent; dealing with the structural issues we have in terms of entitlements, Social Security and Medicare; dealing with the structural issues we have in terms of energy security; and of course the global imbalances. What this is, is short-term focused on growth this year, giving relief to the American people.

Thank you very much.

Q: Did you lay any groundwork with the IRS?

SECRETARY PAULSON: We've done a lot of work with the IRS.

END 12:42 P.M. EST

George W. Bush, Press Briefing by Treasury Secretary Henry Paulson and Chairman of the Council of Economic Advisors Ed Lazear Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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