The chair of the Council of Economic Advisers has requested that you write a sho

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Though the long-term fundamentals for the U.S. economy are strong, we still face a number of challenges. The recovery which began in the fourth quarter of 2001 must be maintained, and fiscal policy must remain on sound foundation. By focusing on the economy's most uncertain component-business investment-the President's proposals insure that the recovery will proceed. Indeed, the Council of Economic Advisers has estimated that the President's proposals will raise the level of real GDP by 0.9 percent by the end of 2003, assuming that the proposals take effect in the middle of the year. At the end of 2005, the level of GDP will be 1.8 percent higher. Although the proposals focus on the economy's near-term needs, they also promote stronger growth in the long term as well. In doing so, they insure that the standard of living enjoyed by American workers will continue to improve in the coming years. Given the substantial role of the U.S. recovery in the global recovery, that is good news for the world.

This paper is based on a speech given at the NABE Policy Conference, March 24-25, 2003

R. Glenn Hubbard is the immediate past Chair of the Council of Economic Advisers. Currently, he is the Russell L Carson Professor of Economics and Finance and Academic Director of The Entrepreneur-ship Program at Columbia University. Prior to joining the Columbia faculty in 1988, he taught at Northwestern. He received his Ph.D. in economics from Harvard in 1983. He has also served as a visiting professor at Harvard and the University of Chicago and as a John M. Olin Fellow at the National Bureau of Economic Research, where he remains a research associate. From 1991-1993, he was Deputy Assistant Secretary (Tax Analysis) of the U.S. Treasury Department.

Recent increases in the current account deficit have led to some concerns that continued current account deficits (and the subsequent increases in international debt that would result) cannot be sustained. Because debt has to be serviced by the repatriation of capital income abroad, the ratio of a country's debt to its income must stabilize at some point. Yet the United States is currently far from the point at which servicing our international debt becomes burdensome. In fact, until 2002, more investment income was generated by U.S. investment in foreign countries than was generated by foreign investments inside the United States.

In the end, the key determinant of the sustainability of the U.S. international debt position is continued confidence in the economic policies of the United States. As long as the United States pursues its current market-oriented, pro-growth policies, then the current account deficit will not represent an impediment to continued economic growth.

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