Dr. Gregory Mankiw
Hello, it's nice to be here for my second web chat. I'm happy to field some of your questions about the economy and the President's economic policy.

Kat, from Michigan writes:
I would like to know if the economy id truly on an upward motion. Wwe here about the numbers of unemployment staying same or rising and the big three keep laying off, but stocks are rising and people say the economy is getting better. What other indicators are there for this?

Dr. Gregory Mankiw
According to the National Bureau of Economic Research -- the NBER -- the official arbiter of the beginnings and ends of recessions, the recession ended in November 2001. But since then, growth has been positive but slow. As a result, the labor market was weak.

The quarter that just ended looked very strong (July to September). Most private forecasters are estimating that growth was over four percent at an annual rate. This should be enough to bring the labor market back to life. We started to see some good news in the recent employment report.

One interesting indicator in the employment report is that temporary help employment has been growing strongly. Temporary help employment has been a strong predictor of future employment growth, as firms add to their temporary workers first and then turn to permanent workers. I therefore expect the labor market to improve going forward.

Scott, from Washington DC writes:
Dr. Mankiw - First off, I want to thank you for the insight into economics that your textbooks, "Macroeconomics" and "Principles of Economics," gave me as an undergraduate student. Both are still on my bookshelf at home, where I regularly peruse them to keep abreast of basic economic principles. As a graduate student, I currently work for a Chief Economist at the Department of Labor and as you can imagine, have a vested interest in the current unemployment rate and its implications to the American workforce.

My question is this: Do you feel that the recession is over, and perhaps more importantly, has the President's economic plan began to catch wind?

Dr. Gregory Mankiw
Thank you for your question. I'm delighted to hear that you enjoyed my books.

As I noted in my answer to the previous question, things are starting to look better in the economy. One of the big reasons is the President's Jobs and Growth tax relief package, which went into effect this summer. This put money in people's pockets, stimulating consumer spending. In addition, a variety of tax reforms lowered the cost of capital, stimulating investment spending. Both of these lead to more rapid growth in real GDP and to stronger job creation.

We are starting to see the effects and will see them more fully over the next year.

Justin, from Anderson, SC writes:
I would like to ask the president what measures is he taking to help out the economy and make job oppurtunities better for the people of the country? Also I want to know when I am getting ready to retire will I have social security or will there not be one anymore?

Dr. Gregory Mankiw
These are two excellent questions.

Regarding your first question, the President has put forward a six point plan to further strengthen the economy. It includes streamlining regulations, making healthcare costs more affordable and predictable, reducing the burden of frivolous lawsuits, ensuring a reliable energy supply, opening up markets around the world, and enabling families and businesses to plan for the future with confidence by making the tax cuts permanent.

On your second regarding Social Security, you are right that Social Security will need to be strengthened to make sure it is sustainable for future generations. The President has often spoken of the importance of personal accounts in Social Security as a key element of reform. The President's Budget from February of this year called the unfunded liabilities of the current entitlement programs "the real fiscal danger." This is absolutely correct. These are vital programs for Americans -- the key is to make sure they have a strong foundation and are available for future generations.

Tres, from Gainesville,Fl writes:
Why did you choose Economics as a career and what is a typical day like for the Chairman of the Council of Economic Advisors?Thanks.

Dr. Gregory Mankiw
As a student, I had strong interests in analytic disciplines such as math and science. But I also had a strong interest in public policy. Economics as a field combines rigorous analysis with a focus on social problems. It appealed to me immediately upon taking my first economics course as freshman at college (it was introductory microeconomics, taught by Harvey Rosen, who has been nominated to be my colleague here at the Council).

My day as Chairman of the CEA starts with a 7:30am staff meeting at the White House and continues for a full day of meetings with everyone from CEA interns to the President and his senior advisers. The Council is involved in discussion of many facets of economic policy, both domestic and international. If you want to know more about what the Council does, take a look at the annual Economic Report of the President, published every February.

Justin, from Argillite, Ky writes:
What are the steps that the Administration can take to fix the deficit and how do you think it will play out for the next fiscal year?

Dr. Gregory Mankiw
The administration views the deficit as a concern, and the President has said that he would like to reduce it in half over the next five years. This will involve a combination of more rapid economic growth, which will bring in more tax revenue, and spending restraint.

The primary reason we have a deficit today is that the economy slowed substantially beginning in 2000 and through 2001. This accounts for about half of the deterioration of the fiscal outlook from January 2001 to today. About one-quarter of the change is due to increased spending, primarily on defense and homeland security. The remaining one-quarter is attributable to tax cuts.

When evaluating budget deficits, one has to set priorities. The President has made clear that has first priority is having an economy that is creating jobs for Americans. Reducing the budget deficit is a priority as well, but it is not the only priority.

Marv, from Grand Strand writes:
Hello Greg I am not economist. I don't play one on TV either. I try my best to understand trends, etc. But I really don't understand the significance of the fact that jobless claims dropped. Yes, it fell to the lowest level in eight months, but why the celebration? Is it really a harbinger of things to come? How much of a crystal ball is this data?

Marv

Dr. Gregory Mankiw
There are a variety of indicators of labor market conditions. The data on initial claims for unemployment insurance is closely watched because it is available every week and is therefore one of the first indicators of labor market conditions. The most recent data from yesterday morning were very promising. They suggested that labor demand is picking up and that we should stronger employment growth in the months to come. It is important not to overemphasize any single data point, as all economic statistics are imperfect. This one data point might not be a cause for celebration, but it is a cause for optimism.

brian, from L.A. writes:
I'm a salaryman with big quriosity about tax relief. I alst know that tax relief policy is for small business. but are there any benifits to salarypeople like me.

Dr. Gregory Mankiw
The President's tax packages benefited taxpayers across the board. Lower tax rates, increased child credits, and marriage penalty relief will benefit people on salaries. In addition, the tax cuts will lead to a stronger economy overall. A larger economic pie means that everyone gets a bigger slice.

Stephen, from Newberry, FL writes:
Several parts to my question. How does the role of the Council of Economic Advisors differ from that of the National Economic Council? Which focuses more on foreign economic policy issues?

Can you note some recent successes (or point out some shortfalls) in our use of economic measures to further our international objectives?

Thanks

Dr. Gregory Mankiw
The CEA is the nerdiest part of the Executive Office of the President -- ask anyone at the White House and they will confirm this! We are staffed with PhD economists and others with economics degrees. Our job is to analyze developments in the economy and policy proposals.

We work very closely with the National Economic Council, which coordinates the economic policy process. To put it simply, they run the process, while we contribute with analysis.

On international economic issues, one of the most important of the President's initiatives is to promote free trade around the world. This is accomplished through both multilateral and bilateral negotiations with our trading partners. This keeps U.S. Trade Representative Bob Zoellick busy -- he is tirelessly working to open markets.

Dr. Gregory Mankiw
Thank you for your questions. I appreciated this opportunity to chat with you in cyberspace and I look forward to doing this again in the future.