Home Archived Articles Q&A With U.S. Chamber of Commerce Chief Economist J.D. Foster

Q&A With U.S. Chamber of Commerce Chief Economist J.D. Foster

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J.D. Foster is senior vice president, Economic Policy Division, and chief economist at the U.S. Chamber of Commerce, in Washington, D.C. In addition to interpreting developments in the U.S. and global economies, he participates in discussions around the country regarding the economy and economic policy — such as a recent address at the Central Maryland Chamber’s Economic Forecast Luncheon.

Prior to joining the chamber in June 2013, Foster was the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at The Heritage Foundation, a Washington, D.C., research organization.

Before coming to Heritage in 2007, Foster spent five years as associate director for economic policy (i.e., chief economist) at the Office of Management and Budget, the White House. In 2001, Foster served as economic counsel in the Office of Tax Policy, the U.S. Department of the Treasury. Previously, he served as legislative director to Rep. Phil Crane (R-Ill.), vice chairman of the Committee on Ways and Means of the U.S. House of Representatives.

From 1993 to 1999, Foster was executive director and chief economist of the Tax Foundation. Prior to serving in that capacity, he was chief of staff at the White House Council of Economic Advisors under Michael Boskin; earlier he served, consecutively, under Sens. Bill Armstrong (R-Colo.), Steve Symms (R-Idaho) and Don Nickles (R-Okla.), representing them on the Senate Finance, Budget and Policy committees.

Foster writes extensively on tax policy and entitlement reform, as well as on matters of monetary policy and international economics. He received a B.A. in economics and a B.A. in mathematics from the University of Colorado, an M.A. in economics from Brown University and a Ph.D. in economics from Georgetown University.

You were obviously quite busy at the end of 2017 interpreting the new tax reform legislation. What’s your take on its immediate impact?

In terms of economic effects, the first thing you’ll hear about is companies increasing pay and offering bonuses. But the most important effects will be longer-term, as businesses invest more in new productive facilities, raising productivity, competitiveness and workers’ wages. We’re already seeing announcements by U.S. and foreign companies about increasing investment in the U.S.

How do you think tax reform will play out?

Know that there is a psychological component to such announcements. The outlook for the economy was optimistic in the first place, but tax reform is making businesses even more confident in making investments; in the coming year, I think you’ll see even more hiring and expansion.

I don’t see a downside to tax reform. One criticism raised involved tax reform’s effects on the deficit, but these arguments were based on misconceptions. The whole purpose of tax reform was to allow the economy to grow more rapidly during the coming years, which will produce a substantial revenue feedback that was omitted from the official scoring.

The argument isn’t that tax cuts pay for themselves, as some allege. The tax bill had trillions of dollars in increases offsetting most of the tax reductions. The additional revenues from additional growth just close the gap.

Will tax reform affect small business in a positive way?

Absolutely, directly and indirectly. They will see a simpler tax system and most will face a substantially lower tax rate. Secondly, when the overall economy expands more rapidly in the future, that will also mean good things for small businesses. The economy does not prosper without small business prospering.

How will it affect big business?

Much the same, only bigger businesses are more likely to be competing globally, and tax reform gives them a tax system that makes them not only more competitive at home, but globally as well. And rather than driving U.S. companies away, the tax system now beckons foreign companies to invest more in the U.S.

What’s your take on Walmart increasing its pay and benefits to its employees in the wake of tax reform?

Walmart, and other businesses, are seeing two things. First, they see an opportunity to share some of the immediate benefits of tax reform with their workforce. More importantly, they know they have to invest in their workers. Labor markets are tightening. This not an act of charity. These companies understand they have to treat their employees well to retain them.

How does the high cost of health care weigh into the nation’s overall economic mix?

When you spend more money on health care, you can’t spend it on something else. So the first issue is how rising health care costs are restructuring our economy from the demand side; but also, when health care costs are rising rapidly, health insurance costs tend to rise in tandem, which tends to substitute for wage growth.

Although the economy is doing well, some observers from various sectors seem to think the U.S. could be due for another recession. Are you surprised that hasn’t happened?

No, because recessions just don’t happen because you hit the wrong button on the economy roulette wheel. They happen because of bad policy decisions. President Obama’s policies largely restrained the economy, but didn’t trigger recession. President Trump’s policies, especially undoing much of Obama’s regulatory policies, have to date been profoundly pro-growth.

Still, I am deeply concerned about the possibility of withdrawing from the North American Free Trade Agreement (NAFTA), as Trump has suggested doing. That would undo much, if not all, of all of the gains from the changes in regulatory policy. A second concern is the debt limit. No doubt, the federal budget deficit is much too large and growing, but if Congress fails to raise the debt limit in time, we would have a big financial crisis on our hands.
But absent major policy mistakes, the economy is poised to grow for years to come. Even so, we will have another recession at some point.

What’s your take on the $15 minimum wage, which is slated to begin in Montgomery County in the coming years?

It’ll hurt a lot of small businesses and hurt a lot of people it was intended to help. That happened in Seattle a few years ago. Some employers moved out; others found ways to replace workers with technology. Other employers who stayed in the city reduced the hours of their workers — so, on net, those workers had less income than they did before.

On that note, what’s your take on human beings losing jobs to automation and struggling to find suitable future employment?

Technology replacing jobs is nothing new. You don’t see many horse and buggy teams going up the street anymore in New York City. Cars replaced the buggy. The personal computer replaced the typewriter. Larger companies once had substantial secretarial pools; now they have large IT [information technology] departments. IT pays better.

The continuing march of technology isn’t about destroying jobs, but reshaping the economy and the workforce, while raising the quality of life and productivity. Workers have to be constantly aware of these changes and be prepared to learn new skills for new jobs. It’s a different world than when people went to work at age 18 and pretty much did the same job for decades, then retired.

I know that it’s easy to be worried when there is so much change, but trying to stop this train in its tracks would be counterproductive. We have to adapt to the times, because the times surely won’t adapt to us.

What is your take on the Maryland economy being overly reliant on being next door to Washington, D.C.?

If you have an investment portfolio, do you hold Treasury bills? You should as part of a diversified portfolio, because they’re low-risk. Likewise, a state’s economy should have a portfolio of industries, and having one that’s slow growing, but relatively stable, is an advantage.

Do you think the steady, but slow, post-2008 recession growth that began during the Obama administration is part of the reason that the economy hasn’t heated up like it did during the ’80s and the ’00s — when it eventually, on both occasions, crashed and burned?

Yes. We had an administration that had other priorities. Growth was important, but other issues were more important to President Obama and he manifested those priorities in a regulatory deluge that stunted the economy’s growth. Obama acknowledged as much, and even Secretary Clinton and Sen. Sanders talked about the disappointing economy at length during the 2016 campaign.

The biggest economic policy shift under President Trump was to relax Obama’s regulatory state. The result? Even at this late stage of the expansion, the economy is accelerating, and with tax reform’s passage this higher growth rate should persist for a few years.

Do you think some of Obama’s actions, like establishing the American Road & Recovery Act, prevented “The Great Recession” from getting worse?

My view is that the Obama fiscal stimulus had an imperceptibly small effect on the economy. Obama alluded to that himself when he acknowledged, some years later, there were not that many shovel-ready projects. Massive fiscal stimulus was basic to his economic philosophy; but, to be fair, many Republicans believed in it, as well.

How much of an economy’s performance is tied to who the president happens to be?

The president has an influence. We saw that with Obama: he regulated heavily and he raised taxes on productive activity — and it slowed the economy, just as we at the chamber said it would. For the most part, presidents and Congress move the dial a little bit in terms of annual growth, but these small changes matter because they really add up over time.

The recent tax reform is of an entirely different character. It is a game changer far beyond anything else Congress is likely to consider. Federal tax policy, which was previously a real handicap for American businesses and workers, is now a big advantage in competing with the rest of the world.

Do you buy the old adage about how the market always “corrects itself” after an economic downturn?
Generally, yes, I do. An old saying runs that the stock market has predicted three of the last 10 recessions. This saying reminds us the stock market isn’t always right at every point in time.
However, the market does generally reflect the long-term health of the economy. As long as America’s economic future is bright, the stock market will recover from corrections, recessions and the like.

What about the economy do you think the business community and the general public fail to understand?
That it’s the nature of the economy to grow, driven by technology and labor force growth — unless bad policy holds it back. Growth is natural, but policy matters.

Where do you think the economy will be a year from now?
Not to be flip, but it’ll be bigger. We will grow, significantly faster than in recent years, and hold that pace going into 2019. Why? The ongoing benefits from regulatory relief and the new benefits from tax reform. This assumes, of course, Congress and the President avoid any big mistakes as with NAFTA and the debt limit.