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JOINT ECONOMIC COMMITTEE REPUBLICANS RANKING MEMBER - SENATOR MIKE LEE

Minority Response to the 2022 Economic Report of the President

Minority Response to the 2022 Economic Report of the President

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The Joint Economic Committee is responsible for responding to the Economic Report of the President (hereafter “Report”) as part of advising Congress on policies that promote the objectives of the Employment Act of 1946—to pursue maximum purchasing power, employment, and production. This year’s minority Response is intended to serve as a guide for policymakers to meet these objectives, and in so doing, enable American families to prosper. Each chapter of the Response is summarized below.

Chapter 1: The Importance of Defined Goals for Sound Economic Policy

This year’s Response highlights how recent departure from pursuing the agreed upon economic goals of the Employment Act has contributed to a breakdown in the budget process, an incoherent fiscal policy, and historically high Federal deficits and debt.

  • The President’s Budget and the accompanying Report represent a concerning departure from the Employment Act’s defined economic policy goals—focusing on race, gender, equity of outcomes, and environmental indicators at the expense of inflation, the job market, and economic growth.

  • The President’s 2023 Budget was nearly two months late and is the second-latest in history. The Report was also late when it was transmitted to Congress 17 days after the Budget, later in the year than any previous Report.

  • Returning to a budget process that is bounded by measurable economic policy goals is key to setting Americans up for a future of robust economic growth and increased well-being.

Chapter 2: Purchasing Power

Americans are facing the highest inflation rates in four decades, making it harder to afford everyday goods and more expensive to raise a family. The Response documents trends in fiscal and monetary policy and quantifies the costs inflation has imposed on American families since January 2021. It also identifies the policy errors that worsened inflation and offers solutions that would restore Americans’ purchasing power.

  • The average American household faced a 10.5 percent price increase between January 2021 and April 2022, implying that the average U.S. household had to spend an extra $569 in April 2022 to afford the same goods and services it purchased in January 2021.

  • While elevated inflation in 2021 and 2022 was a global phenomenon, U.S. policy decisions worsened inflation in the United States relative to other countries. Excessive fiscal and monetary responses over-fueled consumer demand, as Government regulations that weakened supply chain efficiency and policies that disincentivized work stunted supply.

  • To address inflation, policymakers should halt the pursuit of further expansionary fiscal policy. They should also remove barriers to supply chain efficiency, encourage domestic production, and enact policies that boost labor supply.

Chapter 3: Employment

The COVID-19 pandemic resulted in a historic shock to the labor market in the United States. Between February 2020 and April 2020, 22 million workers left the workforce. Unfortunately, Government policies during the Biden Administration have slowed the return to full employment by weakening labor supply.

  • As of May 2022, 6.3 million workers remained out of the workforce measured against the pre-pandemic employment trend, and inflation caused real earnings to fall over the past year. Fewer willing workers and high inflation are holding back the labor market.

  • Weak labor supply is a result of policies that have disincentivized work with the expansion of unemployment compensation and changes to the Child Tax Credit, threatened to prohibit work with vaccine mandates, made it more difficult to work due to school and childcare closures, and enabled non-work through cash transfers in the form of Economic Impact Payments and student loan forbearance.

  • The strong pre-pandemic economy demonstrated how to improve labor market outcomes for American families, especially those with low wages and from historically disadvantaged groups—a labor market where workers and employers are freed from burdensome regulation and work is rewarded more than non-work.

Chapter 4: Production

The Report argues that economic growth has slowed in recent decades as a result of the Government retreating from its core responsibility of intervening in markets to keep them from failing. Chapter 4 of the Response documents the opposite—how the growth of Government and the regulatory state is an important cause of lower economic growth rates over the last half-century, and why pro-growth policies that rely on the private sector remain the best way to maximize long-run economic production and economic well-being for all Americans.   

  • The public sector has expanded dramatically over the last half century, with annual government spending more than doubling in real terms, reaching $24,508 per person in January 2022 as compared to $11,928 per person in January 1970. Regulatory restrictions more than doubled over the same period.

  • Growth of the public sector, in terms of regulation, spending, and taxes—is a major driver of the slowing growth trends of recent decades.

  • To support growth and prosperity, policymakers should establish an aggressive deregulatory agenda to unleash America’s innovative producers and reduce the burden of spending and taxes.

Chapter 5: Social Capital

In recognition of the importance of social capital in fostering a strong society, including supporting employment and production, Chapter 5 highlights recent trends in drug overdose deaths, homicides and violent crime, learning loss among children, poor teen mental health, and declining family formation. Despite their substantial economic implications, the Report largely ignores concerning trends in social capital that have worsened since 2020.

  • During the 12-month period ending in October 2021, drug overdose deaths reached approximately 104,000—the highest total recorded in a 12-month period. Between 2019 and 2020, homicides spiked by 27 percent and remained elevated through at least the first two quarters of 2021.

  • School closures in response to the pandemic resulted in learning loss for children which was particularly high among disadvantaged students, who were more exposed to school closures. This learning loss is projected to reduce lifetime earnings for children and lead to worse economic outcomes in the United States for decades to come.

  • During the last five years, the Joint Economic Committee’s Social Capital Project has proposed a variety of policy options designed to help strengthen individuals, families, and communities. These solutions are needed more than ever to counter worsening social problems exacerbated by the pandemic.

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