Underlying Strengths

Broadcast October 19, 2001

The American economy is almost certainly in recession right now, and a lot of people are scared not only about terrorism, but also about their economic futures. The good news is that the economic fundamentals--that is, the underlying structures of the American economy--are very strong.

Consider employment. Well, undoubtedly, a lot of people are losing jobs, and it's likely that October's unemployment rate will move up a notch from the 4.9 percent it registered in September to about 5 1/2 percent, or possibly even 6 percent. That sounds bad, and it is bad news for the people who can't find a job.

But a 6-percent rate of unemployment is still among the lowest we've had over the past 30 years. When I became secretary of Labor in 1993, national unemployment was hovering between 7 percent and 8 percent. Most economists assumed that 6 percent was the so-called natural rate of unemployment; that is, we couldn't get below 6 percent without igniting accelerating inflation. Well, obviously, most economists were wrong. We could and did get unemployment lower than that. But my point is that just a few years ago, 6 percent was considered a victory.

Note also that the federal government's debt, as a proportion of our national product, is now lower than it's been in more than a decade and a half. Even in the roaring '90s, the national debt was about half of the national product. But the nation has been running surpluses for years now, and these surpluses have been used to pay off that debt. These days, the debt is down to under 38 percent of the national economy. A lower debt means the federal government has more leeway to spend more and tax less.

By the way, there's no sign of inflation. That's a huge strength because it means the whole economy has a lot of spare capacity to wage war, produce a lot more consumer goods and also do other things we might want to have done, such as repairing our highways and cities, expanding our hospitals and improving our schools.

Finally, American businesses are more flexible and adaptable today than ever before. Sure, profits are way down and the stock market stinks, but companies have never been better prepared to ride out the storm. Big, inefficient bureaucracies have been replaced with systems designed to quickly produce exactly what consumers want when they want it.

Now no one knows how long this recession will last, but the supply side of our economic ledger is in good shape. Our fiscal house is in order, and our businesses are highly efficient. The problem is on the demand side. We won't get out of the recession until consumers and businesses feel confident enough about the future to start spending again. But the underlying strength should at least reassure us that when demand picks up, the economy will bounce back quickly.

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