Remarks by Angel Gurría, OECD Secretary-General
13 June 2014, Washington, D.C.
(as prepared for delivery)
Ladies and Gentlemen,
I am very pleased to be here today at the National Press Club to present our latest Economic Survey of the United States. I am particularly honoured that the Chairman of the Council of Economic Advisers, Mr. Jason Furman, has agreed to discuss our analysis and key policy recommendations.
The US economy has recovered from the crisis
What a difference two years make! When we published our last Survey, in the spring of 2012, the US economy was still struggling with the financial crisis. Activity was weak, consumer sentiment was low, the housing market was depressed, and unemployment was above 8%. There were fears about falling off the fiscal cliff. Today, it is clear that the economy has recovered from the crisis and we expect growth to reach 2.5% this year and 3.5% in 2015.
What is driving the recovery? To a large extent, it is the Federal Reserve policy of keeping interest rates low, and the slower pace of fiscal consolidation. But this is not all. The US business sector is also playing an important role. The services sector is doing well, while firms in the manufacturing sector have become competitive again in international markets, thanks to lower unit labour costs and cheaper energy. The fact that the recovery is happening across a broad range of sectors is giving us confidence in its resilience.
Recent developments also signal that the economy has turned the corner: job growth has been persistent, with 200,000 new jobs being created per month on average; unemployment has fallen from 10% in October 2009 to 6.3% in May this year, faster than most people predicted.
Banks have generally returned to health; corporate profitability is high; and the housing sector, while still weak, is beginning to recover. GDP now exceeds its pre-crisis level by about 6% – an impressive achievement compared to other OECD countries.
So, are we satisfied? Yes, but only partially. By historical standards this recovery is slow and it is not being helped by: the lingering effects from the financial crisis; significant cut-backs in public spending since 2010; and the retirement of baby boomers who are exiting the labour market in large numbers, to name but a few of the challenges.
In addition, high income inequality shows that achieving stronger economic growth is simply not enough. In the United States, the average income of the richest 10% of the population is about 16 times that of the poorest 10% compared to the OECD average of 9.5 times. This implies that growth and rising living standards must be coupled with greater well-being and a more equitable sharing of the dividends of growth, ultimately leading to more inclusive societies.
Our Economic Survey addresses these challenges while proposing targeted policy reforms to remove obstacles to higher economic growth and to greater well-being for all Americans. It also focuses on making the most out of the country’s shale oil and gas supplies as the living standards of current and future generations hinges on a careful management of the country’s natural capital.
Boosting growth will require courageous policy reforms
Let me briefly outline three priority reforms which our Survey identifies as essential for boosting economic growth.
The first one is tax reform, which has been on the agenda for a long time. There is indeed considerable scope for simplifying the tax system. Both corporate and personal income tax are burdened by numerous distortive tax exclusions, complex rules and, in the case of corporate income, high marginal tax rates. The comprehensive tax reform put forward by the Chairman of the House Ways and Means Committee, Dave Camp, is an interesting – and indeed courageous – proposal to move forward and make headway on this debate.
The second policy priority is to upgrade the skills of American workers. The OECD study on adult skills (PIAAC) identified a large proportion of American adults with weak literacy and numeracy skills. Participation in adult learning is relatively high, but employers do not always consider these programmes as adequate. Closer cooperation between employers, educators and government agencies to strengthen quality assurance and establish better links to industry is therefore paramount. Useful lessons can be drawn from training programmes in states such as Mississippi and Georgia, which were designed in close cooperation with employers and have led to the creation of many jobs.
A third policy priority is to encourage and facilitate participation in the labour market. One quarter of working age Americans (aged 16 to 64 years) remain outside the labour market, even though they may possess sufficient skills and experience to be employed. Many women, for example, do not work because they do not have access to affordable and quality childcare and preschool education. In addition, more can be done to incentivise disabled workers, who are able to work, to stay in employment and to encourage employers to hire them.
Improving well-being of Americans and making best use of energy
So what does our latest Economic Survey say about well-being? Since well-being is closely linked to income, the financial difficulties of working families must be addressed. Stagnant real incomes, high health care costs and rising tuition fees have made things worse. Many families have increased their working hours to earn more income, but this results in unsatisfactory levels of work-life balance and makes it difficult to invest in the future of American children.
Many of the policies that can help to improve well-being in the United States are already in place or are currently being discussed. For instance, the Affordable Care Act has allowed millions of previously uninsured persons to enrol in health care; whereas raising the federal minimum wage, as currently debated by Congress, could help improve well-being at the lower end of the income distribution.
Policies that are better tailored to well-being, such as more flexible working arrangements and paid parental leave, would improve chances for women to work and stay in the labour force. At the same time, broadening the earned-income tax credit could encourage greater labour force participation. Moreover, training programmes must ensure that people are equipped with skills that are sought by employers.
Improving the well-being of current and future generations also requires a careful management of the country’s natural resources. Advances in hydraulic fracturing or “fracking” technology have allowed the United States to become the world’s largest producer of natural gas. Shale gas is a practical and cost-effective energy option, though it should be seen as a transitional solution in the long-term shift away from fossil energy, especially given the risk of negative environmental impacts of hydraulic fracturing.
Making full use of new energy resources remain a challenge. The switch from coal to natural gas in electricity production has helped bring down US greenhouse gas emissions. And natural gas can potentially become a “bridge fuel” toward even lower emissions.
To make sure this happens, the transition needs support, such as putting a price on greenhouse gas emissions and supporting energy saving and low carbon technology. Moreover, to limit negative local environmental impacts, local governments need to put in place a consistent set of regulations, where needed.
The “energy renaissance” is creating a welcome burst of financial income, but there is a danger that this will be temporary. And much like the end of the gold rush era, in the future we could once again see ghost towns when gas and oil run out.
Or we could take a page out of the history books and use the example of Mr. Leland Stanford, the visionary gold-rush entrepreneur and governor of California. In the late 19th Century, he demonstrated that natural resources could be usefully invested in railroad infrastructure and in universities. In the same spirit, state governments today can reinvest the tax earnings of the energy boom to ensure that future generations also benefit from these resources.
Ladies and Gentlemen,
The United States is doing better, but the legacies of the crisis are heavy and there is a lot of room for improvement. As we gradually exit the gravest crisis of our lifetimes, we have the unique opportunity to push forward reforms which will lead to sustainable, green growth and some inclusive societies.
The OECD stands ready to support you in the design, promotion and implementation of “Better Policies for Better Lives for all Americans”.