[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 THE COMMERCE AND CONSUMER PROTECTION IMPLICATIONS OF HURRICANE KATRINA

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE, AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 22, 2005

                               __________

                           Serial No. 109-74

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________



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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

FRED UPTON, Michigan                 JAN SCHAKOWSKY, Illinois
NATHAN DEAL, Georgia                   Ranking Member
BARBARA CUBIN, Wyoming               MIKE ROSS, Arkansas
GEORGE RADANOVICH, California        EDWARD J. MARKEY, Massachusetts
CHARLES F. BASS, New Hampshire       EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania        SHERROD BROWN, Ohio
MARY BONO, California                BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  GENE GREEN, Texas
MIKE FERGUSON, New Jersey            TED STRICKLAND, Ohio
MIKE ROGERS, Michigan                DIANA DeGETTE, Colorado
C.L. ``BUTCH'' OTTER, Idaho          JIM DAVIS, Florida
SUE MYRICK, North Carolina           CHARLES A. GONZALEZ, Texas
TIM MURPHY, Pennsylvania             TAMMY BALDWIN, Wisconsin
MARSHA BLACKBURN, Tennessee          JOHN D. DINGELL, Michigan,
JOE BARTON, Texas,                     (Ex Officio)
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Dow, Roger J., President and CEO, Travel Industry Association    29
    Hall, Keith, Chief Economist, U.S. Department of Commerce....    21
    Huether, David M., Chief Economist, National Association of 
      Manufacturers..............................................    24
    Niskanen, William A., Chairman, CATO Institute...............    34
    Seesel, John H., Associate General Counsel for Energy, 
      Federal Trade Commission...................................    10

                                 (iii)

  

 
 THE COMMERCE AND CONSUMER PROTECTION IMPLICATIONS OF HURRICANE KATRINA

                              ----------                              


                      THURSDAY, SEPTEMBER 22, 2005

              House of Representatives,    
              Committee on Energy and Commerce,    
                       Subcommittee on Commerce, Trade,    
                                   and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11:10 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Cliff 
Stearns (chairman) presiding.
    Members present: Representatives Stearns, Radanovich, Bass, 
Otter, Barton (ex officio), Schakowsky, and Ross.
    Staff present: David Cavicke, general counsel; Chris Leahy, 
policy coordinator; Shannon Jacquot, majority counsel; Will 
Carty, professional staff; Brian McCullough, professional 
staff; Lisa Miller, deputy communications director; Kevin 
Schweers, communications director; David Nelson, senior 
minority investigator; Jonathan Brater, staff assistant; and 
Billy Harvard, clerk.
    Mr. Stearns. The subcommittee will come to order.
    As the country begins to come to terms with the scope of 
the devastation caused by Hurricane Katrina and its 
immeasurable human toll, our fellow Americans on the Gulf Coast 
are again facing another potential natural disaster as we 
speak. We can only hope that our fellow citizens in the path of 
Hurricane Rita will be spared disaster this time. All of the 
people so horribly affected by Katrina, as well as those who 
are working hard to lead the country through this challenging 
time, remain in our thoughts and, of course, in our prayers.
    The devastation caused by Hurricane Katrina and, for that 
matter, any natural disaster on this scale, is hard to 
comprehend for most of us. My home State of Florida has been 
through some terrible hurricanes, and mainly as a function of 
its geography, will continue to be very vulnerable. I have seen 
firsthand how deeply these catastrophic events affect people, 
families, and the local and regional economies. I also know how 
important it is to do what it takes to understand the economic 
consequences of these disasters, so we can better protect those 
affected and get them back on their feet again in the wake of 
such storms.
    To help us understand in more detail the broader 
macroeconomic impact of Katrina, the subcommittee has an 
opportunity today to hear from several sectors that have been 
particularly hard hit by the direct and indirect effect of 
Katrina, including manufacturing, travel, and tourism, and 
import-export trade activity. According to Hank McKinnell, 
chairman of the Business Roundtable, and chief executive of 
Pfizer, Inc., the storm will have ``a catastrophic regional 
effect, a significant but not catastrophic national effect.'' 
My colleagues, it is my hope that today's hearing will initiate 
a closer examination of the longer term consequences of the 
economic disruption caused by the hurricane, where the most 
significant vulnerabilities are in each sector and region, and 
how the Congress can help better protect these sectors in the 
event of future hurricanes and natural phenomena in the region.
    In addition to Katrina's economic impact, the subcommittee 
will examine today's issues related directly to the human cost 
of Katrina. We will consider both the immediate victims in the 
Gulf region, as well as the average consumer who feels the 
pinch at the pump, or who may fall prey to the fraudsters 
hoping to capitalize on this tragedy by exploiting the American 
spirit to help others. These vulnerabilities, though economic, 
are also part of what we see as the human toll. And regardless 
of context, any attempt to victimize folks when they are most 
vulnerable is abhorrent, and deserves swift justice and strong 
sanctions. Today, we will learn what is the arsenal to 
prosecute these acts, and what we may need on a national level 
to make that prosecution work. Fraudulent and predatory 
activity, like price gouging and fraud, whether at the pump, in 
the store, or online marketplace, not only creates additional 
financial burdens to the customer, but it also stresses the 
health of the service economy's businesses and industries that 
help support our greater community.
    Specifically regarding gas prices, of course I do not think 
taking advantage of consumers in times of crisis is 
reprehensible, but I would hope that an efficient market, not 
price controls, would quickly beat down the bad actors. Prices 
are indicators to consumers to buy, or modify their behavior, 
or go elsewhere for a product. However, if that is not the case 
or is not possible, the inquiry should then focus on factors 
like collusion in the marketplace. I commend the Federal Trade 
Commission for initiating an investigation into gasoline price 
gouging, and I look forward to hearing more about that as well, 
as more detail about its recent report on gas price collusion. 
Americans are raising very justified questions about the prices 
at the pump, and these questions, my colleagues, demand 
answers. I also would suggest that we look at the prices of 
other goods and services. Again, we must determine if current 
law, including antifraud and contract law, provides adequate 
consumer protection in a crisis, all in addition to the 
positive effects of a free market's natural tendency toward 
efficiency.
    My colleagues, it is also imperative that we better protect 
consumers from fraudulent and other egregious behavior designed 
to steal from those who want to give aid and comfort to the 
victims of these tragedies. Charity fraud is one of the things 
that belongs with the lowest of the low, and should be dealt 
with in harsh terms in this life and thereafter. The FBI 
recently reported there were 4,000 Katrina-related charity 
websites, a large number of which are suspected to be 
fraudulent. Reports also suggest that fraudulent telephone 
solicitation remains a very serious problem. I am very 
interested to hear more about what we can do, and the Federal 
Trade Commission's approach to secure the charitable giving 
network, both on and offline from these criminals. I would like 
to commend my colleague Mr. Bass' great work in his area, and 
look forward to learning more about his bill, H.R. 3675, the 
``American Spirit Fraud Prevention Act.'' A very large part of 
our national relief effort comes from the hearts of our fellow 
Americans, who are willing to help, to care, and to comfort. 
Charity fraud undermines an American tradition of giving to 
those most in need, and must be met with severe penalties.
    I would like to thank our distinguished panel of witnesses 
for joining us this morning, and I look forward to their 
testimony, and I thank you. And with that, I ask the ranking 
member, Ms. Schakowsky, for her opening statement.
    Ms. Schakowsky. Thank you, Mr. Chairman, for convening 
today's hearing on Hurricane Katrina's effect on commerce and 
consumers. I appreciate the panel that is assembled before us, 
and look forward to their testimony.
    The immediate impact on consumers is obvious, given that 
adequate food, shelter, water, and fuel are still lacking for 
many of the residents of the Gulf Coast. Gas prices are 
projected to reach as high as $5 per gallon, and heating prices 
are projected to be as high as an additional 71 percent this 
winter, meaning families across the country, not just those 
evacuated, are going to be breaking the bank just to get to 
work and heat their homes this winter.
    With Hurricane Rita ready to ravage that region once again, 
those natural disasters, compounded with the shaky fiscal state 
of our country, could turn into one of the greatest consumer, 
human, and economic catastrophes our country has seen. The 
response, to the average American, to Katrina is as 
overwhelming as the efforts of the Administration have been 
underwhelming. We all have watched with shock and shame, not 
shock and awe, as the Federal Government failed in its primary 
mission: providing for the safety and security of the public.
    As American consumers open their hearts, their homes, and 
their pocketbooks, this Administration stayed the course of 
giving tax cuts to the rich, and providing unlimited and 
unsupervised Federal dollars to big contractors. The same 
companies that have so profited handsomely--that have profited 
so handsomely from the war in Iraq are poised to gouge the 
American taxpayer once more in the rebuilding of the Gulf Coast 
with the Administration's help.
    Don't misunderstand me. As a country, we must move swiftly, 
with great compassion, to stabilize and rebuild the area. We 
must protect and nurture the families devastated by this 
disaster. However, we cannot pretend that this is business as 
usual, and that we can give more tax cuts to the wealthy, when 
the break of the levees revealed the unmet need, both old and 
new, in our country. As faulty as the logic was that we should 
cut taxes for millionaires while fighting a war that costs 
hundreds of billions of dollars, it is morally irresponsible to 
cut them even further, when we are facing the rebuilding of one 
of our vital coastal regions.
    Once again, everyone except for millionaires are being 
asked to sacrifice. The raids on the Treasury to swell the 
coffers of Halliburton and other large contractors in Iraq are 
bad enough, but what the Administration has done in this crisis 
is to further fatten those firms, and that is even worse. If we 
are going to talk about cutting pork, trimming the fat should 
start with them. Instead, what we get from a large portion of 
the Republican majority, the Republican study committee, is the 
cruelest document I have ever seen, that will most heavily take 
from the poor once again, and prevent them from long-term, even 
short-term recovery.
    Instead, the first response of the Administration was to 
spend Davis-Bacon and cut the wages of workers that face the 
dangers of cleaning up toxins. Reducing wages does not 
guarantee lower costs of rebuilding, only higher profits for 
contractors. Now, we are told that those contractors should 
have no liability if they fail to adequately engineer and 
construct the infrastructure they are being paid enormous sums 
to rebuild. Who is responsible if they cut corners to pad their 
pockets? Will they charge double for materials, like they did 
with oil in Iraq?
    On energy. We have already seen gas prices soar, as energy 
profits rise, and as this committee and this Congress passed an 
Energy Bill that will only provide Big Oil with more subsidies, 
the loss of refinery and offshore production capacity has 
increased the burden on American consumers eve more. Heating 
bills this winter may truly break the backs of many of our 
constituents. If the refineries off the Texas coast are hit, as 
it looks inevitable, and six have already closed as a 
precaution, my constituents will have a nearly impossible feat 
of surviving the heating costs of a Chicago winter. After 
Katrina, People's Gas in Chicago estimated that families would 
have to pay $1,475 for heating this winter. That is a 39 
percent increase.
    Again, the U.S. Energy Information Administration predicts 
that we could see increases of 71 percent. What is it going to 
be after Rita? We saw in the California electricity crisis how 
these energy firms express their patriotism by soaking 
consumers to increase profits and bonuses. We must assure that 
this disaster does not provide coverage for another Enron-like 
bilking of the American people that would result in serious 
harm to consumers and damage to our economy.
    I ask the Administration, where are your protections for 
American consumers? Why do we hear nothing of emergency 
measures to control heating prices this winter? Where are the 
proposals to repeal tax cuts for millionaires, to help our 
country to respond to a crisis, as it should? Why aren't we 
expanding the powers of the FTC to pursue price gouging by Big 
Oil? Why aren't we considering Mr. Waxman's bill to create an 
independent antifraud commission to present waste, fraud, and 
abuse in relief and recovery contracts? Where is the 
announcement that the Justice Department is sending a 
meaningful task force to Louisiana and its sister States to 
provide assistance to the local authorities in keeping down 
gouging, insurance company reneging, and all manner of fraud as 
the Federal dollars are dispensed?
    Do we need pictures of suffering and death from the lack of 
heat to add to the pictures of flooding before this 
Administration will act as responsible and moral leaders? I 
fear that if the Administration does not soon realize that 
there is a serious consumer and energy crisis on our hands, 
that the welfare of all Americans must be their primary 
concern, and we will all feel the effects of a devastated 
economy. It is up to us in this subcommittee, in this 
committee, and in this Congress to respond to this crying need.
    Thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentlelady, and for my colleagues, 
we can see why the gentlelady from Illinois is such a great 
consumer advocate, from her opening statement.
    I would remind all my colleagues, as--that a lot of tax 
cuts went for the poorest people, helping out with their IRAs 
and Roth accounts. They don't have penalty withdrawal, and of 
course, the bill we just passed yesterday was particularly 
helpful and concentrated for tax reduction for those who are 
poorest.
    But the Federal Trade Commission can take note that the 
gentlelady is giving you a full plate here, to add to your 
already long list of things you could do, and so we appreciate 
her comments.
    Is there anything wishing to--opening--yes. Mr. Ross.
    Mr. Ross. Thank you, Mr. Chairman, and Ranking Member 
Schakowsky, for holding this important hearing today to discuss 
the economic implications of Hurricane Katrina, and what is 
needed to protect consumers from deception and fraud during 
this time.
    The devastation from Hurricane Katrina, and the impact it 
has had on lives was unprecedented, and will take a collective 
effort from both the government and the private sector to 
repair. My home State of Arkansas has received the highest 
number of evacuees from the affected areas outside of Texas, 
and we are doing all we can to help those in need.
    We received some 5,000 additional evacuees from Louisiana, 
who were being housed in Houston just this week, as Texas 
prepares for Hurricane Rita. This may not be the place, but 
every place I go, I am sharing this, until we finally get 
someone's attention. You know, we come to Washington, and we 
approve all this money to help our hurricane victims, and then 
I go home to a shelter, and constituents from New Orleans, who 
were at the Superdome, who are now at a shelter in my district, 
share with me a letter from FEMA.
    This is one of many. This one is addressed to Ms. Debra L. 
Bowers, #1 Convention Center Plaza, in care of the shelter, 
Pine Bluff, Arkansas, like someone lives in a convention 
center. And it starts off: ``Based on the information you 
provided during the application process, you are not currently 
eligible for assistance under FEMA's Individuals and Households 
Program.''
    They write the letter to Ms. Bowers in care of the shelter 
at the convention center, and then go on to tell her she 
doesn't qualify for any help, and then, they have the nerve to 
go on to say next sentence: ``You may make an application to 
the Small Business Administration for a loan.'' Ms. Bowers does 
not need a loan. Ms. Bowers does not have anything except the 
clothes on her back. She is from New Orleans. She was at the 
Superdome. She has lived now for a month at the convention 
center in Pine Bluff.
    Ms. Schakowsky. Will the gentleman yield?
    Mr. Ross. Sure.
    Ms. Schakowsky. Could I ask unanimous consent that that 
letter be submitted as part of the record?
    Mr. Stearns. By unanimous consent, so ordered.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T4249.001
    
    Mr. Ross. Additionally, the economic impact is being felt 
throughout the nation. As we continue to address the needs of 
those affected, we must examine the hurricane's effect on our 
overall economy, and what policies or initiatives are needed to 
restore it. One of the areas I am particularly concerned about 
is the disruption in shipping that has resulted from the damage 
to the Port of New Orleans and other ports that commerce 
depends upon along the Mississippi River, and I hope the 
Federal Trade Commission representatives who are here, as well 
as the U.S. Department of Commerce representatives who are 
here, will listen to what I am about to say.
    I was in a meeting just a few days ago with my colleagues. 
The Port of New Orleans and its neighbors just upriver, the 
Port of South Louisiana and the Port of Baton Rouge, are 
unique, because they connect with the Nation's most extensive 
and heavily used inland waterway system for the transport of 
bulk materials, including those in Arkansas. Due to the 
disruption in operations at these ports, primary products that 
are transferred between ships and barges have been halted, and 
have created a backup of barges from Illinois to Louisiana. 
Significant losses in agriculture products, our shipping costs 
and transport capacity shortages have occurred as a result. 
Grain bins from Illinois south are all full. Barges are full 
and parked up and down the Mississippi River. Most towns have 
as many as 50 barges parked in full.
    And just this week in Arkansas, we were forced to dump 
200,000 bushels of corn on the ground. Export markets are vital 
to America's agriculture, and the Mississippi River transports 
the vast majority of these products. Therefore, it is--let me 
repeat that. The Mississippi River transports the vast majority 
of these products, therefore, it is the lifeline to all those 
who depend on it for their survival, and for those who depend 
on us for their food and fibers. So I hope that the 
representatives here today from the Department of Commerce, or 
the Federal Trade Commission, will share with anyone they can 
get to listen. I talked to Karl Rove about this yesterday. I 
mean, anyone that will listen, I am talking to about it, 
because our farmers are at a critical juncture, as we try to 
deal with getting the Port of New Orleans back up and running.
    And with that, Mr. Chairman, I know I have gone over my 
time. I thank you for allowing me to do that, and I yield back 
the minute and 35 seconds I no longer have.
    Mr. Stearns. Thank you. I thank the gentleman. The 
gentleman from New Hampshire, Mr. Bass.
    Mr. Bass. Thank you very much, Mr. Chairman, and this is a 
timely and important subject to be talking about. 
Unfortunately, perhaps, a little bit too timely.
    I note that the coverage on television of Rita crossing the 
Gulf of Mexico has been quite different from that of Katrina, 
in that they talked a lot, during the Katrina process, of 
where--whether it would be--what--how strong it would be, where 
its track was going to be. But now, they--and what was going on 
with evacuations and so forth, but not so much--now, the 
discussion is primarily about what is going to happen to oil 
refineries, what is going to happen to drilling platforms, how 
effective the evacuation is going, and it really--the lessons 
that have been learned from Katrina really are being applied 
now, and this hearing just couldn't be a better opportunity to 
explore some of those issues.
    Now, unfortunately, a lot of what has gone on the last 2 
weeks is reminiscent of what happened after, I guess I should 
say fortunately, after 9/11, in that every town and city and 
community and church and so forth have opened up their hearts 
and their wallets and everything to help, and it really makes 
us feel good about being Americans. But there is, always, this 
underlying problem of fraud and deception. Even in my home 
State of New Hampshire, the Attorney General has issued a 
number of warnings to New Hampshire's citizens about fraudulent 
schemes to raise money over the telephone. Every good--sounds 
good, but the money disappears.
    Now, after 9/11, I introduced legislation, the American 
Spirit Fraud Protection Act, which gave the FTC enhanced fining 
capabilities and other things, in order to prevent the kind of 
fraud that is always potentially--may occur, as a result of a 
national disaster such as this. I am hopeful that we can move 
this legislation. It, by the way, passed the House in the last 
Congress. It did not pass the Senate. We are working on a plan 
to get this legislation through the Senate, should this 
committee see fit to send this legislation to the floor again, 
and pass it. I think it is, again, either fortunately or 
unfortunately, timely, to move this legislation, and I hope we 
do so.
    I am looking forward to hearing from our witnesses today, 
and I want to thank the chairman for holding this hearing. I 
yield back.
    Mr. Stearns. And I thank the gentleman for his good work on 
that bill, and I had mentioned earlier, in my opening 
statement, your efforts in that regard, and thank you for it.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Thank you, Mr. Chairman.
    We meet today to address the aftereffects of perhaps the most 
devastating natural disaster our nation has seen. I am sure all of us 
have witnessed in various ways the untold suffering and heartbreak 
caused by Hurricane Katrina.
    As our panel today will point out, the storm also left a regional 
economy in shambles, causing residential and business damages amounting 
to tens of billions of dollars. This destruction of capital is 
compounded by the storm's negative impact on energy production, massive 
displacement of nowunemployed individuals, and disruption of commerce 
in the nation's busiest inland waterway.
    The nation as a whole will feel the less dramatic but meaningful 
effects of higher gasoline prices and slowed economic growth.
    As if the sheer destruction of the storm were not enough, there are 
also those who would take advantage of the vulnerable in times of 
turmoil. We saw it on the streets of New Orleans immediately following 
the storm. I fear we will continue to experience it now in the form of 
fraudulent business activities like price gouging and phony charitable 
organizations seeking to take advantage of the generosity of the 
American people.
    As the committee of jurisdiction over commerce and consumer 
protection, we are in a unique position to assess Katrina's economic 
effects as well as investigate opportunities for fraud in the wake of 
the disaster.
    I am sure our panel today will shed light on the nature and extent 
of Katrina's economic damage, as well as the role of the federal 
government in fostering economic recovery.
    Mr. Chairman, I yield back the balance of my time.

  Prepared Statement of Hon. Tim Murphy, a Representative in Congress 
                     from the State of Pennsylvania
    Thank you Mr. Chairman for scheduling this important hearing on the 
economic and consumer implications of Hurricane Katrina. After a 
thorough 8-hour Full Committee hearing two weeks ago, it is now 
important for this Committee to exercise its jurisdiction and examine 
at the subcommittee level the various aspects of this catastrophe. The 
Subcommittee on Health held a hearing this morning and I note that next 
week the Subcommittees on Environment and Hazardous Materials and 
Telecommunications and the Internet will also examine the implications 
of this storm from their subcommittees' perspective.
    I look forward to hearing from our witnesses today. The economy of 
Louisiana and Mississippi will clearly suffer devastating effects from 
this storm for some time. We already know about the havoc wreaked on 
the energy industry, but there are many other large and small 
manufacturers, distributors, suppliers, retailers, restaurants and 
other businesses that were wiped out and may or may not recover in 
their previous form. We will hear today from the travel and tourism 
industry, a leading sector of the economy in New Orleans and the 
Mississippi coast. The trickle down effect to all levels of the economy 
from the destruction of businesses and jobs is frightening. This 
economic slow down will be helped by the boost to the economy from 
rebuilding, but we must ensure that those jobs and dollars are 
distributed appropriately. I am also very interested on the effect of 
this storm on the national economy.
    Damage to the Port of New Orleans and to ports along the 
Mississippi will also be costly. I hope that we will examine today the 
cost to the economy of shipping disruptions.
    From a consumer standpoint, we all suspect that price gouging has 
taken place after the storm, at the gas pump. There is no federal price 
gouging law, however, so I look forward to hearing what our government 
is doing to address this issue. We also face the issue that Mr. Bass 
has worked to reduce, that of charity fraud. It is a sorry truth that 
there are always going to be some people who will attempt to profit 
from the misfortune of others. If someone gives their hard earned 
dollars to help Katrina victims, they should be assured that this is 
where the money is going. The penalties for this practice must be 
greatly increased.
    Other consumer issues are bound to pop up as the area rebuilds, 
such as the concern that flood-damaged vehicles could be superficially 
refurbished and passed off to unwitting consumers. These vehicles can 
be a threat to the safety of the new owners. Or a possible influx of 
dishonest contractors taking people's money for work that will not be 
performed, or performed in a shoddy manner.
    Thank you again, Mr. Chairman, for scheduling this hearing. I look 
forward to hearing from all of the witnesses today.

    Mr. Stearns. We have our first and only panel. Our 
witnesses: Mr. John Seesel, who is the Associate General 
Counsel for Energy at the Federal Trade Commission; Dr. Keith 
Hall, Chief Economist, U.S. Department of Commerce; and Mr. 
David Huether, Chief Economist, National Association of 
Manufacturers; Mr. Roger Dow, President and CEO of Travel 
Industry Association; and Dr. William Niskanen, Chairman of the 
Cato Institute.
    We probably could start on these. We have a vote shortly, 
and I believe just--if we have a few moments, we will just 
continue forward, and have a 15-minute vote, so I will have you 
start with your opening statement.

  STATEMENTS OF JOHN H. SEESEL, ASSOCIATE GENERAL COUNSEL FOR 
ENERGY, FEDERAL TRADE COMMISSION; KEITH HALL, CHIEF ECONOMIST, 
U.S. DEPARTMENT OF COMMERCE; DAVID M. HUETHER, CHIEF ECONOMIST, 
NATIONAL ASSOCIATION OF MANUFACTURERS; ROGER J. DOW, PRESIDENT 
AND CEO, TRAVEL INDUSTRY ASSOCIATION; AND WILLIAM A. NISKANEN, 
                    CHAIRMAN, CATO INSTITUTE

    Mr. Seesel. Good morning, Mr. Chairman and members of the 
subcommittee. I am John Seesel, the Associate General Counsel 
for Energy of the Federal Trade Commission, and I am pleased to 
have this opportunity to describe for you the many actions that 
the FTC has taken to protect consumers in the aftermath of 
Hurricane Katrina.
    I want to reemphasize what I told the House Energy and 
Commerce Committee 2 weeks ago and the Senate Commerce 
Committee yesterday. The FTC fully shares in the terrible shock 
and sadness that the Nation has experienced since Hurricane 
Katrina wrought such tragic devastation on the Gulf Coast 
region, and we all know that the affected areas face a long 
road to recovery.
    The FTC applauds this subcommittee for taking the 
opportunity to address Katrina's impact on commerce and 
consumers. I can assure you that the FTC is acutely aware of 
the pain that consumers have suffered, not only from the high 
gasoline prices that we have all experienced recently, but also 
from the potential for a disaster such as Katrina to spawn a 
host of efforts to commit fraud upon the victims of the 
devastation. The FTC has taken numerous actions to protect and 
educate consumers in the wake of the hurricane, and will 
proceed aggressively against any violations of the consumer 
protection and antitrust laws that it enforces.
    As detailed in the FTC's written testimony, the agency 
moved forward quickly after the hurricane hit, when it was 
clear that many victims of the storm would need assistance and 
protection from fraud and deception. Our Office of Consumer and 
Business Education responded immediately to deal with a number 
of pressing consumer issues, including the financial challenges 
the displaced Katrina victims would face due to separation from 
their financial records, the heightened risk of identity theft, 
and the need to be alert for scams.
    Not only have educational materials addressing these 
problems, now both in English and in Spanish, been on the FTC's 
website for more than 2 weeks, but we have asked the Postal 
Service, FEMA, and the Red Cross to help distribute these 
materials to places where displaced persons will see them. We 
have also sent scripts of public service announcements to radio 
stations in the Gulf Coast region to alert consumers to 
possible home repair scams in the wake of Katrina.
    The FTC is working actively as a member of the Hurricane 
Katrina Fraud Taskforce, which also includes the U.S. 
Department of Justice, the FBI, the Postal Inspector's Office, 
and the Executive Office for U.S. Attorneys. Under Attorney 
General Gonzalez's direction, this taskforce is expected to 
move swiftly and effectively against cases of fraud perpetrated 
upon the victims of Katrina. The FTC's huge Consumer Sentinel 
data base of fraud and identity theft complaints will play an 
instrumental role in the taskforce's work.
    As you may know, Consumer Sentinel is an online, fully 
searchable fraud complaint data base used by over 1,400 local, 
State, and Federal law enforcement partners, and already 
populated with complaints about possible Katrina frauds. To 
make it easy for our partners to find the complaints, we have 
created reports breaking down Katrina-related complaints. The 
reports that I am showing you on the screen to your right are 
models toward which we are working. All Katrina-related 
complaints are available to law enforcers through the reports 
currently on Consumer Sentinel. The reports show Katrina-
related complaints in different formats. We are showing you the 
actual interface and reports, but because the data are 
confidential, you are seeing the reports in encrypted form.
    For example, on the subject State report, law enforcers can 
see complaints about companies and individuals who are located 
in their State. If law enforcement--enforcers want to see 
complaints from consumers in their States, they can click on 
consumer state. Clicking on top subject shows a list of the 
entities about which we received the most Katrina-related 
complaints. This is an easy one stop shop for law enforcers who 
want to immediately investigate frauds exploiting the victims 
of public--or public concern in the aftermath of this disaster.
    In addition to participating in the taskforce, we are 
adding referrals that we receive from Better Business Bureau 
offices, the FBI, and other sources, to our Consumer Sentinel 
tracking system for post-Katrina frauds. Anyone accessing 
Sentinel will have access to our complete data base of Katrina-
related complaints, easing their use of the system, and 
ensuring that users see all relevant information. Moreover, FTC 
attorneys and investigators are analyzing complaint data every 
day, and are prepared to file civil law enforcement actions to 
shut scams down or, in appropriate circumstances, to refer 
cases to criminal enforcement authorities for prosecution.
    I should add that we at the FTC, like the whole country, 
are hoping and praying that Hurricane Rita will not be a repeat 
of Katrina, but in the event that Rita results in similar 
consumer problems, we will redouble our efforts to deal with 
them.
    Beyond these varied actions to protect consumers following 
Katrina, the other focus of the consumers' written testimony 
today is the FTC's commitment to maintaining competitive 
markets in refined petroleum products. The FTC has pursued a 
three-pronged approach to the petroleum industry, consisting of 
vigorous law enforcement against anticompetitive business 
conduct and mergers, careful study of various developments with 
competitive implications for the petroleum industry, and an 
ongoing project to monitor gasoline and diesel prices to detect 
unusual price movements.
    Before I continue, I want to address briefly a topic that 
has loomed large in the public consciousness and in the minds 
of many in Congress in recent weeks, the subject of gasoline 
price manipulation and gasoline price gouging. The FTC already 
has launched an investigation, pursuant to Section 1809 of the 
recently enacted Energy Policy Act, to search for evidence of 
gasoline price manipulation and expeditiously prepare a report 
to Congress on its findings. Despite the complexities of 
dealing with the concept of price gouging discussed in the 
FTC's written testimony, there should be no doubt that the 
agency will take aggressive enforcement action against any 
conduct unearthed in its Section 1809 investigation that 
violates the Federal antitrust laws.
    In aid of its extensive law enforcement work, the FTC also 
conducts careful research on key competitive issues in the 
petroleum industry. I especially commend our recent report on 
gasoline price changes to the subcommittee's attention. The 
report sets forth in detail the numerous supply, demand, and 
competitive factors that influence gasoline prices or cause 
gasoline price spikes. Another aspect of our approach is a 
continuous effort by our staff to identify unusual gasoline and 
diesel price movements. Our economists monitor daily pricing 
data from 20 wholesale regions, and nearly 360 retail areas 
across the Nation. If the statistical model that they apply 
detects any unusual price movement that cannot be explained by 
a refinery outage, a pipeline break, or another business-
related cause, the FTC staff, in consultation with other 
Federal and State officials, will examine whether a law 
violation has been committed.
    In view of the escalating prices that consumers have been 
paying for gasoline and other energy products, we will examine 
the information that we receive about pricing to determine 
whether there is a basis for legal action under the anti-
collusion and antimonopoly laws that the FTC enforces. For 
those complaints that do not set forth a violation of Federal 
law, State attorneys general appear to be going forward----
    Mr. Stearns. Just have you sum up.
    Mr. Seesel. [continuing] with multi-state--pardon me, Mr.--
--
    Mr. Stearns. Just have you sum up, if you could.
    Mr. Seesel. Yes, thank you, Mr. Chairman.
    The energy industry has been a centerpiece of FTC 
enforcement for decades, and the Commission will give--and the 
Commission intends to make this a continuing centerpiece of our 
work, and I thank the subcommittee for this opportunity.
    [The prepared statement of John H. Seesel follows:]
  Prepared Statement of John H. Seesel, Associate General Counsel for 
                    Energy, Federal Trade Commission

                            I. INTRODUCTION
    Mr. Chairman and members of the Subcommittee, I am John Seesel, the 
Federal Trade Commission's Associate General Counsel for Energy. I am 
pleased to appear before you to present the Commission's testimony on 
FTC initiatives to protect consumers in the aftermath of Hurricane 
Katrina.1 Because rising prices have been one of the most 
visible effects of the interruption of gasoline supply caused by 
Katrina, I will also comment on our efforts to protect competitive 
markets in the production, distribution, and sale of gasoline.
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    \1\ This written statement represents the views of the Federal 
Trade Commission. My oral presentation and responses to questions are 
my own and do not necessarily represent the views of the Commission or 
any Commissioner.
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    Our hearts go out to those who have been harmed or dislocated by 
Katrina. It taxes everyone's credulity that, even in the midst of 
tragedy, some people will try to take advantage of their fellow 
citizens for pecuniary gain. People whose houses have been destroyed or 
rendered uninhabitable, whose paychecks have been interrupted, or who 
have lost access to bank accounts are especially vulnerable to fraud 
and deception designed to separate them from what little they may have 
left. The Commission has moved aggressively, on its own as well as in 
cooperation with state and other federal law enforcement authorities, 
to help victims avoid fraudulent and deceptive activities, and to 
rebuild their financial futures.
    Katrina is expected to have widespread effects throughout the 
economy. The Congressional Budget Office tentatively estimated that 
Katrina could reduce real gross domestic product growth in the second 
half of this year by one-half to one percentage point and could reduce 
employment by about 400,000 through the end of the year.2 
Higher energy prices will be a burden on other sectors of the economy 
and will affect consumers not only directly in the gasoline and other 
energy products that they purchase, but also indirectly in raising 
prices of inputs into other goods and services. In addition, Katrina 
damaged many other industries and businesses on the Gulf Coast, and 
some of those impacts--such as the damage to port facilities--may 
significantly impede the flow of raw materials or finished goods to 
producers and distributors in many industries.
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    \2\ Letter and attachment from Douglas Holtz-Eakin, Director of the 
Congressional Budget Office, to Honorable William H. Frist, M.D. (Sept. 
6, 2005), available at http:///www.cbo.gov/ftpdocs/66xx/doc6627/09-06-
ImpactKatrina.pdf.
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    The Commission's testimony today addresses the Subcommittee's 
inquiries in three parts. First, it reviews the actions that the 
Commission has taken to protect consumers made more vulnerable by the 
hurricane's impact. Under the leadership of the Department of Justice, 
the Commission is participating with other federal agencies in a 
Katrina-related fraud task force designed to find and prosecute those 
who would use the chaos of disaster to take advantage of the victims. 
As part of this effort, the Commission is acting as a central 
repository for fraud complaint data for all levels of law enforcement. 
The Commission has also used its website to collect and disseminate 
important information necessary for consumers to regain their financial 
stability. Beyond the immediate need to prevent fraud and deception, 
consumers need to rebuild their financial lives. The Commission is 
offering consumer education to assist victims in this process and to 
help them avoid frauds and scams.
    The second part of today's testimony highlights the Commission's 
gasoline monitoring project. Through this activity, the Commission 
receives data on retail and wholesale gasoline prices across the 
country. Those data are starting points for FTC investigations, 
research, and consultations with state attorneys general designed to 
identify any anticompetitive activity that may result in higher prices.
    Finally, the testimony briefly discusses the basic tools that the 
Commission uses to promote competition in the petroleum industry--
namely, aggressively investigating possibly anticompetitive conduct in 
the industry and commencing enforcement actions as appropriate and 
challenging potentially anticompetitive mergers and acquisitions in the 
industry. This review of the Commission's petroleum industry agenda 
highlights the FTC's contributions to promoting and maintaining 
competition in the industry on an ongoing basis. It also notes the 
Commission's current activities to identify anticompetitive conduct 
during the short-term gasoline product shortage.

   II. FTC INITIATIVES TO PROTECT CONSUMERS FROM FRAUD AND DECEPTION
    Those displaced by Hurricane Katrina have suffered significant 
harm, yet they remain vulnerable to even more financial devastation. 
With no access to their homes, financial documents, or computers, and 
sometimes lacking any proof of identification, the displaced must 
rebuild their financial lives. Scam artists will seek to prey on the 
vulnerability of the already victimized, and Americans responding 
generously may find their donations going to line the pockets of the 
unscrupulous. The Commission, therefore, has committed its expertise 
and resources to assist victims of Katrina to regain control of their 
financial lives and avoid scams, and to ensure that Americans' generous 
charitable donations are not siphoned off by bogus fundraisers.
    A central mission of the Commission is to educate consumers so that 
they can make informed choices in the marketplace. The FTC's Office of 
Consumer and Business Education (``OCBE'') also serves as the first 
line of defense against fraud and deception. For example, through OCBE, 
the Commission launches a comprehensive education campaign with each 
major consumer protection campaign and provides consumer education in 
response to new scams, such as ``phishing'' and ``spyware.'' OCBE 
provides consumers with straightforward descriptions of, and practical 
advice about, their rights under important consumer regulations--such 
as the recent Fair Credit Reporting Act rules and the Gramm-Leach-
Bliley Act privacy and data security regulations--and also provides 
businesses with clear written guidance on how to comply with those 
regulations. Finally, OCBE acts quickly to educate consumers about the 
specific risks posed by significant one-time events, such as Katrina.
    When the hurricane hit, OCBE quickly prepared new materials to 
address: (1) the many financial challenges faced by those who had been 
displaced by the storm and separated from their financial and other 
records; (2) the heightened risk of identity theft; and (3) the need to 
be on alert for scams. The materials provide practical and easily 
understood steps that consumers can take to protect themselves. The 
introduction provides the following summary:

1. Communication is more important than ever. Call your creditors. Many 
        are putting programs in place to defer your loan payments, 
        waive late fees, or raise your credit limit temporarily while 
        you get back on your feet. If you've lost your records and need 
        help identifying your creditors, get your credit report. It's 
        free from www.annualcreditreport.com or 1-877-322-8228.
2. Many people will be asking you for your personal information. Ask 
        them for appropriate identification before you give it out. 
        Government officials will not ask you for money in exchange for 
        your information or the promise of a check.
3. Be on the alert for scams. Advance-fee credit arrangements, where 
        you are required to pay a fee for a credit card or some other 
        line of credit before you receive it, are illegal.
    Once the immediate hazards of a natural disaster are over, it's 
inevitable that other problems surface. Among these are scams, frauds, 
and other consumer protection issues.
    The FTC first posted these new educational materials on a special 
website for consumers and businesses affected by Hurricane Katrina on 
September 7.3 They are now also available in Spanish. Of 
course, the Commission recognizes that information posted on a website 
may have no value to people who have little more than the clothes on 
their backs, let alone reliable Internet access. Therefore, we are 
actively reaching out to the U.S. Postal Service, the Federal Emergency 
Management Agency (``FEMA''), and the Red Cross to arrange to have 
printed copies of these materials, in English and Spanish, placed in 
locations where persons displaced by Katrina will see them, such as 
shelters operated by the Red Cross and FEMA outposts.4 OCBE 
has sent scripts of public service announcements to radio stations in 
Louisiana, Mississippi, and Alabama, alerting consumers to possible 
home repair scams in the wake of the hurricane. OCBE also sent public 
service announcement scripts to radio stations throughout the nation 
urging consumers to be cautious when making donations to help the 
victims of the disaster. Announcers often read these scripts on the air 
as public service messages from the FTC and the radio station.
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    \3\ That website is http://www.ftc.gov/bcp/cponline/events/katrina/
index.html. The consumer information section of the website also lists 
specific consumer education materials on topics related to other 
possible problems and frauds that victims may face, such as ``Debris 
Removal Scams,'' ``Fake Disaster Officials,'' ``Home Ownership 
Issues,'' ``Job Scams,'' ``Rental Listing Scams,'' and ``Water 
Treatment or Purification Devices.''
    \4\ Copies of these materials are attached to this testimony.
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    The FTC also is participating in the Hurricane Katrina Fraud Task 
Force, which includes members from the Department of Justice, the FBI, 
the Postal Inspector's Office, and the Executive Office for United 
States Attorneys, among others. The Attorney General has directed the 
Task Force to track referrals of potential cases and complaints, 
coordinate with law enforcement agencies to initiate investigations, 
match referrals with the appropriate U.S. Attorney's offices, and 
ensure timely and effective prosecution of Katrina fraud cases. A 
critical element of the Task Force's work is the consumer complaint 
data collected, maintained, and analyzed by the FTC in its Consumer 
Sentinel database. The Consumer Sentinel system is a web-based network 
that links more than 1,400 law enforcement agencies throughout the 
United States, Canada, and Australia to over two million fraud and 
identity theft complaints. These agencies have direct access to 
complaints that enable them to develop cases, locate witnesses, and 
seek enhanced sentences for criminal prosecutions. Membership in the 
Sentinel network ranges from local police departments to every state 
attorney general and every major federal investigative agency. In 
addition to their use by law enforcement agencies in developing and 
pursuing investigations, the Sentinel data provide a window into 
consumer fraud and identity theft, which we track year-by-year for 
statistical analysis.
    The Commission receives complaints through its toll-free hotline 
and online complaint form, as well as from external database 
contributors, such as local offices of the Better Business Bureau, the 
FBI's Internet Crime Complaint Center, and others. The FTC staff has 
developed a code for Katrina-related complaints in Consumer Sentinel to 
make it easy for FTC staff, Task Force members, and other Sentinel 
users to identify these post-hurricane fraud data. The staff is 
creating weekly reports on post-hurricane charity scams, identity 
theft, advance fee credit scams, and other post-disaster frauds, and is 
posting them directly on Consumer Sentinel. With these reports, 
Sentinel users will be directed to the complete list of Katrina-related 
complaints, easing their use of the system and ensuring that the users 
see all relevant data. These reports also can be sorted to identify 
complaints by state, so that the appropriate U.S. Attorney's office, as 
well as state and local law enforcement, can focus their enforcement 
efforts on local targets.
    Finally, experienced FTC attorneys and investigators are analyzing 
complaint data daily and are prepared to file civil law enforcement 
actions to shut down scams as they are identified. The FTC has 
extensive experience bringing quick and effective actions to stop 
fraud, obtain strong injunctive relief, and recover redress for 
defrauded consumers. The appropriate resources have been redirected to 
this effort. For example, senior litigation attorneys in the 
Commission's Northwest Regional Office, who have long led the FTC's 
efforts against bogus charities, are poring over charity fraud 
complaint data. An Assistant Director in the Division of Marketing 
Practices is coordinating our law enforcement resources and attending 
Task Force meetings, and the FTC has lent staff assistance to a multi-
agency call center that is fielding telephone calls about Katrina-
related problems. At the same time, the Commission recognizes that 
civil remedies are likely insufficient punishment for scam artists who 
seek to benefit from this great national tragedy. Therefore, the Chief 
of the FTC's Criminal Liaison Unit, which was established two years ago 
to facilitate the referral of egregious frauds to criminal prosecutors, 
is directly participating in the Task Force and is seeking input from 
all staff regarding potential Katrina-related criminal referrals.

           III. GASOLINE AND DIESEL PRICE MONITORING PROJECT
    In addition to litigation against fraud, deception, and 
anticompetitive practices, the Commission has undertaken aggressive 
measures to protect consumers through other initiatives. As part of its 
mission to protect competition and consumers in all markets, the 
Commission has mobilized significant resources to respond to issues 
raised by higher gasoline prices since Katrina. The petroleum industry 
plays a crucial role in our economy. Not only do changes in gasoline 
prices affect consumers directly, but the price and availability of 
gasoline also influence many other economic sectors. No other 
industry's performance is more deeply felt, and no other industry is 
more carefully scrutinized by the FTC.
    For example, in a program unique to the petroleum industry, the FTC 
actively and continuously monitors retail and wholesale prices of 
gasoline and diesel fuel.5 Three years ago, the agency 
launched this initiative to monitor gasoline and diesel prices to 
identify ``unusual'' price movements 6 and then examine 
whether any such movements might result from anticompetitive conduct 
that violates Section 5 of the Federal Trade Commission Act. FTC 
economists developed a statistical model for identifying such 
movements. These economists scrutinize regularly price movements in 20 
wholesale regions and approximately 360 retail areas across the 
country. Again, in no other industry does the Commission so closely 
monitor prices.
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    \5\ See FTC, Oil and Gas Industry Initiatives, at http://
www.ftc.gov/ftc/oilgas/index.html.
    \6\ An ``unusual'' price movement in a given area is a price that 
is significantly out of line with the historical relationship between 
the price of gasoline in that area and the gasoline prices prevailing 
in other areas.
---------------------------------------------------------------------------
    The staff reviews daily data from the Oil Price Information 
Service, a private data collection agency, and receives information 
weekly from the public gasoline price hotline maintained by the U.S. 
Department of Energy (``DOE''). The staff monitoring team uses an 
econometric model to determine whether current retail and wholesale 
prices are anomalous in comparison to the historical price 
relationships among cities. When there are unusual changes in gasoline 
or diesel prices, the project alerts the staff to those anomalies so 
that we can make further inquiries.
    This gasoline and diesel monitoring and investigation initiative, 
which focuses on the timely identification of unusual movements in 
prices (compared to historical trends), is one of the tools that the 
FTC uses to determine whether a law enforcement investigation is 
warranted. If the FTC staff detects unusual price movements in an area, 
it researches the possible causes, including, where appropriate, 
through consultation with the state attorneys general, state energy 
agencies, and DOE's Energy Information Administration. In addition to 
monitoring DOE's gasoline price hotline complaints, this project 
includes scrutiny of gasoline price complaints received by the 
Commission's Consumer Response Center and of similar information 
provided to the FTC by state and local officials. If the staff 
concludes that an unusual price movement likely results from a 
business-related cause (i.e., a cause unrelated to anticompetitive 
conduct), it continues to monitor but--absent indications of 
potentially anticompetitive conduct--it does not investigate 
further.7 The staff investigates unusual price movements 
that do not appear to be explained by business-related causes to 
determine whether anticompetitive conduct may underlie the pricing 
anomaly. Cooperation with state law enforcement officials is an 
important element of such investigations. The Commission's experience 
from its past investigations and from the current monitoring initiative 
indicates that unusual movements in gasoline prices often have a 
business-related cause.
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    \7\ Business-related causes include movements in crude oil prices, 
supply outages (e.g., from refinery fires or pipeline disruptions), or 
changes in and/or transitions to new fuel requirements imposed by air 
quality standards.
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IV. FTC ACTIVITIES TO MAINTAIN AND PROMOTE COMPETITION IN THE PETROLEUM 
                                INDUSTRY
    Prior to Hurricane Katrina, increasing crude oil prices had 
resulted in rising gasoline prices during much of this year. Despite 
these rising prices, the demand for gasoline during this past summer 
was strong and exceeded summer demand in 2004. In the recent weeks 
since Hurricane Katrina, gasoline prices rose sharply to $3.00 per 
gallon or more in most markets. In part because of the soaring prices 
associated with Katrina, gasoline demand has decreased somewhat. 
National gasoline inventories remain at the lower end of the average 
range.
    On top of an already tight market, Katrina has temporarily 
disrupted an important source of crude oil and gasoline supply. At one 
point, over 95 percent of Gulf Coast crude oil production was shut in, 
and numerous refineries and pipelines were either damaged or without 
electricity.8 As of one week ago, 56.1 percent of Gulf Coast 
production remained shut in.9 Because of this massive supply 
disruption, substantial price relief has been and will be delayed. 
Although it is heartening to see that much Gulf Coast production is 
back online, full-scale production in that region has yet to resume. 
Our past studies suggest that as gasoline supplies return to pre-
Katrina levels, prices should recede from recent high levels. Indeed, 
retail prices in nearly all areas have fallen in recent days, and 
accompanying declines in wholesale prices presage further price 
declines at retail. It is important to remember, however, that Katrina 
damaged important parts of the energy infrastructure in the Gulf Coast 
region, including oil and gas production and refining and processing 
facilities. Some adverse effect on energy prices may persist until the 
infrastructure recovers fully--a process that could take months.
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    \8\ See Minerals Mgmt. Serv., U.S. Dep't of the Interior, Release 
No. 3328, Hurricane Katrina Evacuation and Production Shut-in 
Statistics Report as of Tuesday, August 30, 2005, at http://
www.mms.gov/ooc/pres/2005/press0830.htm.
    \9\ See Minerals Mgmt. Serv., U.S. Dep't of the Interior, Release 
No. 3347, Hurricane Katrina Evacuation and Production Shut-in 
Statistics Report as of Thursday, September 15, 2005, at http://
www.mms.gov/ooc/pres/2005/press0913.htm.
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    The Commission is very conscious of the swift and severe price 
spikes that occurred immediately before and after Katrina made 
landfall. There have been numerous calls for investigations of ``price 
gouging,'' particularly at the retail gasoline level. Legislation that 
would require the Commission to study this issue recently passed the 
Senate.10 In addition, Section 1809 of the recently enacted 
Energy Policy Act 11 mandates an FTC investigation ``to 
determine if the price of gasoline is being artificially manipulated by 
reducing refinery capacity or by any other form of market manipulation 
or price gouging practices.'' The Commission staff already has launched 
an investigation to scrutinize whether unlawful conduct affecting 
refinery capacity or other forms of illegal behavior have provided a 
foundation for price manipulation. A determination that unlawful 
conduct has occurred will result in aggressive law enforcement activity 
by the FTC.
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    \10\ On September 15, 2005, the Senate passed the Fiscal Year 2006 
Commerce-Justice-Science Appropriations bill, which included funding 
for the FTC. An amendment to this bill introduced by Senator Mark Pryor 
requires the FTC to conduct an investigation into gasoline prices in 
the aftermath of Hurricane Katrina.
    \11\ Energy Policy Act of 2005, Pub. L. No. 109-58  1809, ---- 
Stat. ---- (2005).
---------------------------------------------------------------------------
    The FTC has initiated this inquiry with a keen understanding of its 
importance to the American consumer and intends faithfully to fulfill 
its obligation to search for and stop illegal conduct. We recognize, of 
course, that our investigation will not be a simple one. As many have 
already pointed out, ``price gouging'' is not prohibited by federal 
law. Consumers justifiably are upset when they face dramatic price 
increases within very short periods of time, especially during a 
disaster. Some prices increases, however, benefit consumers in the long 
run. In our economy, prices play a critical role: they signal producers 
to increase or decrease supply, and they also signal consumers to 
increase or decrease demand. In a period of shortage--particularly with 
a fungible product, like gasoline, that can be sold anywhere in the 
world--higher prices create incentives for suppliers to send more 
product into the market, while also creating incentives for consumers 
to use less of the product. Higher prices ultimately help make the 
shortage shorter-lived than it otherwise would have been. There may be 
situations where sellers go beyond the necessary market-induced price 
increase, taking advantage of a crisis to ``gouge'' consumers. However, 
it can be very difficult to determine the extent to which any price 
increases are greater than necessary. Furthermore, even these 
``gouging'' types of price increases do not fit well under longstanding 
principles of antitrust law. Under the antitrust laws, a seller with 
lawfully acquired market power--including market power arising from an 
act of God--can charge any price the market will bear, so long as this 
seller does not join with others to set prices or restrict supply.
    Finally, many states have statutes that address short-term price 
spikes in the aftermath of a disaster, and we understand that a number 
of them have opened investigations of gasoline price gouging. At the 
retail level, state officials--because of their proximity to local 
retail outlets--can react more expeditiously than a federal agency 
could to the many complaints that consumers have filed about local 
gasoline prices. Nevertheless, these issues will not deter the FTC from 
investigating and responding to any manipulation of gasoline prices we 
are able to uncover that violates federal antitrust law.
    In addition to commencing its investigation pursuant to Section 
1809 of the Energy Policy Act and dealing with the short-term market 
dislocations caused by Katrina, the FTC has been and remains vigilant 
regarding anticompetitive conduct in the energy industry in the long 
run. Recent FTC activity in the gasoline industry includes the 
acceptance on June 10, 2005, of two consent orders that resolved the 
competitive concerns relating to Chevron's acquisition of Union Oil 
Company of California (``Unocal'') and settled the Commission's 2003 
monopolization complaint against Unocal. The Unocal settlement alone 
has the potential to save billions of dollars for California consumers 
in future years.
    Moreover, in early July 2005, the Commission published its study 
explaining the competitive dynamics of gasoline pricing and price 
changes.12 This study grew out of conferences of industry, 
consumer, academic, and government participants held by the Commission 
over the past four years, as well as years of research and experience, 
and sheds light on how gasoline prices are set.
---------------------------------------------------------------------------
    \12\ Federal Trade Commission, Gasoline Price Changes: The Dynamic 
of Supply, Demand, and Competition (2005), available at http://
www.ftc.gov/reports/gasprices05/050705gaspricesrpt.pdf.
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    In 2004, the FTC staff published a study reviewing the petroleum 
industry's mergers and structural changes as well as the antitrust 
enforcement actions that the agency has taken over the past 20 
years.13 Commission enforcement statistics show that the FTC 
has challenged proposed mergers in this industry at lower concentration 
levels than in other industries. Since 1981, the FTC has filed 
complaints against 19 large petroleum mergers. In 13 of these cases, 
the FTC obtained significant divestitures. Of the six other matters, 
the parties in four cases abandoned the transactions altogether after 
agency antitrust challenges; one case resulted in a remedy requiring 
the acquiring firm to provide the Commission with advance notice of its 
intent to acquire or merge with another entity; and the sixth case was 
resolved recently with the execution by the parties of a 20-year 
throughput agreement that will preserve competition allegedly 
threatened by the acquisition.14
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    \13\ Bureau of Economics, Federal Trade Commission, The Petroleum 
Industry: Mergers, Structural Change, and Antitrust Enforcement (2004), 
available at http://ftc.gov/os/2004/08/040813mergersinpetrolberpt.pdf.
    \14\ See http://ftc.gov/opa/2005/09/alohapetrol.htm.
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    The Commission has gained much of its antitrust enforcement 
experience in the petroleum industry by analyzing proposed mergers and 
challenging transactions that likely would reduce competition, thus 
resulting in higher prices.15 In 2004, the Commission 
released data on all horizontal merger investigations and enforcement 
actions from 1996 to 2003.16 These data show that the 
Commission has brought more merger cases at lower levels of 
concentration in the petroleum industry than in other industries. 
Unlike in other industries, the Commission has obtained merger relief 
in moderately concentrated petroleum markets.
---------------------------------------------------------------------------
    \15\ Section 7 of the Clayton Act prohibits acquisitions that may 
have anticompetitive effects ``in any line of commerce or in any 
activity affecting commerce in any section of the country.'' 15 U.S.C. 
 18.
    \16\ Federal Trade Commission Horizontal Merger Investigation Data, 
Fiscal Years 1996-2003 (Feb. 2, 2004), Table 3.1, et seq.; FTC 
Horizontal Merger Investigations Post-Merger HHI and Change in HHI for 
Oil Markets, FY 1996 through FY 2003 (May 27, 2004), available at 
http://ftc.gov/opa/2004/05/040527petrolactionsHHIdeltachart.pdf.
---------------------------------------------------------------------------
    The aforementioned case involving Chevron's acquisition of Unocal 
illustrates our approach to protecting competition in the petroleum 
industry. When the merger investigation began, the Commission was in 
the middle of an ongoing monopolization case against Unocal that would 
have been affected by the merger. As detailed below, the Commission 
settled both the merger and the monopolization matters with separate 
consent orders that preserved competition in all relevant merger 
markets and obtained complete relief on the monopolization 
claim.17
---------------------------------------------------------------------------
    \17\ Chevron Corp., FTC Docket No. C-4144 (July 27, 2005) (consent 
order), at http://ftc.gov/os/caselist/0510125/050802do0510125.pdf; 
Union Oil Co. of California, FTC Docket No. 9305 (July 27, 2005) 
(consent order), at http://ftc.gov/os/adjpro/d9305/050802do.pdf.
---------------------------------------------------------------------------
    On March 4, 2003, the Commission issued its monopolization 
complaint against Unocal, alleging that it had reason to believe that 
Unocal had violated Section 5 of the FTC Act.18 The 
complaint charged that Unocal deceived the California Air Resources 
Board (``CARB'') in connection with regulatory proceedings to develop 
the reformulated gasoline (``RFG'') standards that CARB adopted. Unocal 
allegedly misrepresented that certain technology was non-proprietary 
and in the public domain, while at the same time it pursued patents 
that would enable it to charge substantial royalties if CARB mandated 
the use of Unocal's technology in the refining of CARB-compliant 
summertime RFG. The Commission alleged that, as a result of these 
activities, Unocal illegally acquired monopoly power in the technology 
market for producing the new CARB-compliant summertime RFG, thus 
undermining competition and harming consumers in the downstream product 
market for CARB-compliant summertime RFG in California. The Commission 
estimated that Unocal's enforcement of its patents could potentially 
result in additional consumer costs of up to 6 cents for every gallon 
of gasoline pumped in the State of California, which amounts to over 
$500 million of additional consumer costs per year.
---------------------------------------------------------------------------
    \18\ Union Oil Co. of California, FTC Docket No. 9305 (Mar. 4, 
2003) (complaint), at http://ftc.gov/os/2003/03/unocalcmp.htm.
---------------------------------------------------------------------------
    The proposed merger between Chevron and Unocal raised additional 
concerns. Unocal had claimed the right to collect patent royalties from 
companies with refining and retailing assets (including Chevron). Had 
Chevron unconditionally inherited these patents by acquisition, it 
would have been in a position to obtain sensitive information and to 
claim royalties from its own downstream competitors. The Commission 
alleged that Chevron could have used this information and this power to 
facilitate coordinated interaction and detect any deviations.
    The key element in the consent orders by which the Commission 
resolved both the Chevron/Unocal merger investigation and the 
monopolization case against Unocal is Chevron's agreement not to 
enforce the Unocal patents.19 The FTC's settlement of these 
two matters is a substantial victory for California consumers. The 
Commission's monopolization case against Unocal was complex and, with 
possible appeals, could have taken years to resolve, with substantial 
royalties to Unocal--and higher consumer prices--in the interim. The 
settlement provides the full relief sought in the monopolization case 
and also resolves the only competitive issue raised by the merger. With 
the settlement, consumers will benefit immediately from the elimination 
of royalty payments on the Unocal patents, and potential merger 
efficiencies could result in additional savings at the pump.
---------------------------------------------------------------------------
    \19\ Chevron Corp., supra note 17.
---------------------------------------------------------------------------

                             V. CONCLUSION
    The Federal Trade Commission has instituted aggressive initiatives 
to protect consumers in the aftermath of Hurricane Katrina. The 
Commission has taken action whenever fraud, deception, anticompetitive 
conduct, or a potentially illegal merger has threatened the welfare of 
consumers or competition in the petroleum (or any other) industry. The 
Commission continues to take whatever action is warranted to protect 
consumers and preserve competition. In the petroleum industry in 
particular, the Commission continues to seek out and challenge illegal 
conduct, to monitor retail and wholesale gasoline and diesel prices, 
and to study and report on the industry in detail.
    Thank you for this opportunity to present the FTC's views on this 
important topic. I would be glad to answer any questions that the 
Subcommittee may have.

    Mr. Stearns. I thank the gentleman. We are going to break 
to vote, but the full committee chairman, Mr. Barton, is here, 
and since we are getting ready to break, it might be 
appropriate, if he has any comments, before we come back with a 
further witness, opening statement.
    Mr. Chairman.
    Chairman Barton. Mr. Chairman, I am going to put my 
statement in the record. I just want to thank--this is--thank 
this panel. This is a very distinguished panel. Some of you I 
know personally, all of you I know by reputation.
    The issues that this subcommittee is looking at are not as 
sexy as the health issue and environmental issue, but in terms 
of the economic consequences, you are very, very important, and 
I want to thank each of you for coming today. Substantively, 
this is a very, very significant hearing, and I appreciate your 
personal attendance today.
    And I would yield back.
    Mr. Stearns. And I thank the full committee chairman, and 
it is by unanimous consent his opening statement be part of the 
record.
    [The prepared statement of Hon. Joe Barton follows:]
 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce
    Thank you Mr. Chairman for holding this hearing today. Two weeks 
ago we held a Full Committee hearing on issues related to Hurricane 
Katrina. This is the first of the follow up hearings. As we continue on 
our efforts toward recovery, we are increasingly aware of the scope and 
the scale of the need. Our thoughts are still with those affected by 
the disaster and we will work in an earnest manner to meet the needs of 
our fellow citizens. This hearing will focus on the commerce and 
consumer protection issues related to the recovery effort.
    On the consumer protection front, the Committee is taking a close 
look at a number of issues. One of those is charity-related fraud. 
Americans respond with great generosity in the wake of disaster. 
Unfortunately, fraudsters know this and use national emergencies to pad 
their own pockets. The FBI recently reported more than 4000 suspected 
fraudulent sites related to hurricane Katrina donations. We saw a 
similar rise in charity-related fraud after the terrorist attacks on 
September 11, which is when Representative Bass first introduced the 
``American Spirit Fraud Prevention Act.'' That legislation provides for 
increased penalties for fraudsters that prey on others' generosity 
during national emergencies. The legislation has passed the House 
twice. We will work to see it through the House again and urge our 
Senate colleagues to move it through that body.
    Another consumer protection issue relates to flood damaged 
vehicles. Many cars that are deemed ``totaled'' by insurance companies 
are sold at auctions for salvaged parts. But unscrupulous dealers can 
buy these cars, clean them up, re-title them and sell them to 
consumers. These cars can be a threat to the safety of the new owners. 
We will take a closer look at this issue and ways in which we can 
discourage this practice.
    A third consumer protection issue we intend to examine is price 
gouging. Many states have laws that limit price increases of certain 
consumer goods and services after a national emergency. Those laws 
cover products and services such as gasoline, hotel rooms, lumber, 
food, generator services, home repair services, and tree removal 
services. There is currently no Federal law against so-called price 
gouging, though in the aftermath of Hurricane Katrina there have been a 
number of calls for such a federal law. ``Price gouging'' can be very 
difficult to define, particularly in terms of greatly reduced supply. I 
welcome comments from witnesses on that and other issues, but I believe 
price caps are rarely appropriate for all products and services and 
usually backfire, hurting consumers. I would also like to learn the 
efficacy of temporary reductions in taxes on specific products--such as 
gasoline taxes--in times of emergency.
    On the Commerce front, we have much work to do. Though incredibly 
resilient, the U.S. economy has experienced disruption following 
Katrina and that disruption may impact areas of the economy beyond the 
ability to rebuild the areas devastated by the hurricane. There are the 
obvious needs of opening ports, roads, and rail routes and 
reconstructing supply chain infrastructure for the rebuilding efforts 
in the South. Energy and labor are also important variables in the 
rebuilding efforts, both to move goods down to the region and to do the 
actual work of rebuilding. Meeting the needs of the South in its 
efforts to care for affected individuals and for rebuilding is clearly 
the highest priority. I look forward to witness testimony on these 
issues as well as the broader impact on the U.S. economy.
    I thank the witnesses for their participation today. I yield back 
the balance of my time.

    Mr. Stearns. And so we are going to vote, and we will be 
right back after the vote, and I appreciate your patience.
    [Brief recess.]
    Mr. Stearns. Continue, Dr. Hall, with your opening 
statement, if you don't mind, we will just continue on, and 
members will come in. We have finished our votes for about an 
hour, hour and a half. So I think we are all set.
    Dr. Hall.

                     STATEMENT OF KEITH HALL

    Mr. Hall. Chairman Stearns, Ranking Member Schakowsky, 
members of the subcommittee, my name is Keith Hall. I am the 
Chief Economist for the U.S. Department of Commerce. I would 
like to summarize my written testimony, and would ask that it 
be submitted into the record.
    Mr. Stearns. Unanimous consent, so ordered.
    Mr. Hall. Thank you for the opportunity to talk to you 
today about our national economy and the effect of Hurricane 
Katrina.
    Clearly, the effects to the Gulf Coast have been 
devastating to residents there. Those of us--oh, great. Sorry. 
Those of us who have not been through such overwhelming loss 
cannot imagine it, much less assign it a number. However, the 
statistical agencies in Commerce and other Federal departments 
are working quickly to estimate Hurricane Katrina's effects on 
the overall economy, as well as the regional, State, and even 
some local economies. Using the range of existing economic 
surveys and data collections, we can also examine the effects 
of Hurricane Katrina on the population, using the American 
Community Survey and other population surveys. We are seeing 
some Katrina-related shifts in the data already, and can expect 
to see more in the future. All of the economic consequences are 
not known, and the full effects of the hurricane may never be 
completely revealed in economic data, because the upheaval in 
the Gulf Coast will be diluted in the macroeconomic data by 
continued strong economic growth elsewhere in the country.
    I am, in fact, optimistic about the continued strength and 
strong performance of the U.S. economy, despite the devastating 
effects of Hurricane Katrina. In 2004, the U.S. economy 
generated nearly $12 trillion in Gross Domestic Product. 
Louisiana, Alabama, and Mississippi together, combined for 
about 3.1 percent of this GDP. And for comparison, GDP last 
year grew 4.2 percent over the previous year. Employment and 
production in the region are quite diversified. However, the 
affected area counts for an unusually large portion of U.S. 
employment in certain industries. These include shipbuilding 
and repairing, petroleum refining and many types of chemical 
manufacturing, and tourism, including casinos. The ports 
damaged by Katrina accounted for 4.5 percent of total exports 
of goods from the United States last year, and 5.4 percent of 
total imports. Importantly, 19 percent of all crude petroleum 
imports into the U.S. entered the country in the New Orleans 
Customs District.
    For the most part, economic data released in the past 2 
weeks have measured economic activity prior to the impact of 
the hurricane. The Bureau of Labor Statistics employment 
released on October 7 will give us the first monthly to 
estimate the full impact of the storm. We do have a little 
information this morning from the Department of Labor. They 
have estimated that over the past 3 weeks, 214,000 people have 
filed new claims for unemployment insurance as a result of the 
hurricane. What makes the employment disruptions different now 
is that we have an unusually high displacement of workers and 
economic activity for an as yet unknown period of time.
    Please understand that it may be impossible in some cases 
to even fully differentiate Katrina's impact from other changes 
in economic activity that were occurring at the time. At both 
the national and regional levels, the precise impact of a 
natural disaster on GDP and other data cannot be separately 
measured, because our statistical system is designed to 
estimate what actually occurred, rather than what might have 
happened in the absence of a disaster.
    The broadest summary measure of our economy is Gross 
Domestic Product. The most important thing to understand when 
thinking about the impact of Katrina is that GDP measures new 
things being produced. Storms and flood damage are old things 
that were produced in the past. The loss of those old things 
does not figure into GDP, and the fact that workers--but the 
fact that workers and factories are not producing anything, 
because they are closed, underwater, or damaged will reduce 
future GDP. But mitigating that somewhat is the economic 
activity related to replacing all the old things that were 
damaged, to rebuild houses, factories, and infrastructure, and 
this will eventually show up as increased economic activity 
later on.
    We can see how this worked during last year's hurricane 
season. Third quarter GDP growth was a strong 4 percent at an 
annual rate, despite a heavy hurricane season, which included 
four hurricanes in Florida. Their effect on activity and 
employment which, granted, was much smaller than Katrina's, was 
overwhelmed by the fundamental forces that underpin the 
Nation's strong economic growth, and was also offset by the 
immediate rise in construction activity as the structures 
damaged by those hurricanes were rebuilt.
    Katrina is also unusual because of its impact on the 
economy's energy sector. For some time now, we have been 
concerned about the potential effects of rising energy prices 
on the economy. The direct effects from Katrina are expected to 
be significant, but still modest, relative to the overall 
economy. Last year, consumers spent $230 billion for gasoline. 
At about $3 per gallon, recent gasoline prices were 50 percent 
above levels 1 year ago. If consumers wish to purchase the same 
amount of gasoline this year, they would spend an extra $115 
billion, which would leave $115 billion less for spending on 
other goods and services, all other things equal. By 
comparison, total consumer spending grew about $500 billion 
last year. Thus, the higher energy bill will have a significant 
impact, but there is no reason that real consumer spending on 
other goods and services cannot continue to grow at a healthy 
rate, despite the higher energy bill.
    Substantial pre-Katrina energy price increases have not yet 
led to inflation or pricing pressures elsewhere in the economy. 
Core inflation, a measure of the underlying inflation pressure 
in the economy, has remained low, even as energy prices have 
risen to unusual levels. The Consumer Price Index for core 
goods and services increased at a modest 1.3 percent annual 
rate over the past 5 months, and this is actually a step down 
from the previous 12 months, which is--where prices grew at 2.4 
percent.
    Mr. Chairman, my team at Commerce will continue to monitor 
these economic data for evidence of the storm's impacts, and I 
would be happy to update you on our analysis of the hurricane 
and its consequences. I would also be pleased to take your 
questions later.
    [The prepared statement of Keith Hall follows:]
   Prepared Statement of Keith Hall, Chief Economist, U.S. Commerce 
                               Department
    Chairman Stearns, Ranking Member Schakowsky, Members of the 
Subcommittee. My name is Keith Hall. I am the Chief Economist at the 
U.S. Department of Commerce.
    I would like to summarize my written testimony and would ask that 
it be submitted for the record.
    Thank you for the opportunity to talk with you today about our 
economy and the effect of Hurricane Katrina.
    Clearly the effects to the Gulf Coast have been devastating to 
residents there. Those of us who have not been through such 
overwhelming loss cannot imagine it, much less assign it a number.
    However, the statistical agencies in Commerce and other Federal 
departments are working quickly to estimate Hurricane Katrina's effects 
on the overall economy as well as the regional, state, and even some 
local economies, using the range of existing economic surveys and data 
collections. We can also examine the effects of Hurricane Katrina on 
the population, using the American Community Survey and other 
population surveys.
    We are seeing some Katrina-related shifts in the data already and 
can expect to see more in the future. All of the economic consequences 
are not known and the full effects of the hurricane may never be 
completely revealed in economic data because the upheaval in the Gulf 
Coast will be diluted in macroeconomic data by continued strong 
economic growth elsewhere in the country.
    I can discuss with you today some of the data released so far and 
how Katrina is similar to and different from other storms.
    In 2004, the resilient U.S. economy generated approximately $11.7 
trillion in Gross Domestic Product. Louisiana's economy was $152 
billion last year. Alabama's economy measured $139 billion and 
Mississippi's economy was $76 billion in 2004. Together the three 
states therefore accounted for about 3.1% of U.S. GDP.
    Employment and production in the region are quite diversified. 
However, the affected area accounts for an unusually large portion of 
U.S. employment in certain industries. These include shipbuilding and 
repairing, petroleum refining and many types of chemical manufacturing, 
and tourism, including casinos.
    The ports damaged by Katrina accounted for 4.5% of total exports of 
goods from the United States last year, and 5.4% of total U.S. imports. 
Importantly, 19% of all crude petroleum imports into the U.S. entered 
the country in the New Orleans customs district.
    For the most part, economic data released in the past two weeks 
have measured economic activity prior to the impact of the hurricane. 
They do not, therefore, answer the question posed at this hearing. The 
Bureau of Labor Statistics' employment release on October 7 will give 
us the first monthly data to estimate the effects of the storm. These 
data regularly show absences of work due to bad weather, with regular 
spikes in the summer and fall months of hurricane season. In the past 
decade, the east coast blizzard of 1996 caused the largest work 
stoppage of any single episode--but that may be challenged by the 
Katrina-related disruptions.
    We do have some limited weekly data about unemployment insurance. 
For the week ending September 10, initial claims for unemployment 
insurance shot up 71,000 from the previous week. This was the largest 
jump since the 1996 blizzard. The Department of Labor estimates that 
68,000 of that increase was hurricane related.
    What makes the employment disruptions different now is that we have 
an unusually high displacement of workers and economic activity for an 
as-yet-unknown period of time. Many of the affected workers must wait 
for the water to be pumped out of New Orleans and for very significant 
cleanup and infrastructure repair to be completed before they can 
return to their homes and their jobs. Will these workers return to New 
Orleans to advance the rebuilding or will they stay in Houston or Baton 
Rouge or Atlanta? And if they do not return to New Orleans, how long 
will it take for them to find jobs?
    The devastation in the affected area is already reflected in lower 
industrial production. While industrial production was up in the most 
recent report for August, the Federal Reserve estimates Katrina-related 
declines in several industries reduced overall growth by 0.3 percentage 
points' even though Katrina only affected production for the last few 
days of the August reference period.
    At the same time, Katrina's impact on August retail sales and 
construction activity seems to have been very small. Of course, those 
releases only cover the first few days of Katrina's effect. We will 
only be able to begin to gauge the broader impact of the storm when the 
Census Bureau releases estimates for September.
    Please understand that it may be impossible, in some cases, to ever 
fully differentiate Katrina's impact from other changes in economic 
activity that were occurring at the same time. At both the national and 
regional levels, the precise impact of a natural disaster on GDP and 
other data cannot be separately measured because our statistical system 
is designed to estimate what actually occurred rather than what might 
have happened in the absence of the disaster.
    The broadest summary measure of our economy is Gross Domestic 
Product (GDP). The most important thing to understand when thinking 
about the impact of Katrina is that GDP measures new things being 
produced. Storms and floods damage old things that were produced in the 
past. The loss of those old things does not figure into GDP--although 
it does figure into the Bureau of Economic Analysis's estimate of 
depreciation (the amount of capital expended during a given period). 
Thus, the destruction of capital itself will not affect current GDP--
although the fact that workers and factories are not producing anything 
because they are closed, underwater, or damaged will reduce future GDP. 
In the coming quarters, however, the economic activity required to 
replace all those old things--to rebuild houses, factories and 
infrastructure--will eventually show up as increased economic activity.
    We can see how this worked during last year's hurricane season. 
Third quarter 2004 growth was a strong 4% despite a heavy hurricane 
season--including four hurricanes in Florida. The hurricanes' effect on 
activity and employment (much smaller than Katrina--s, admittedly) was 
overwhelmed by the fundamental forces that underpinned the nation's 
strong economic growth, and was also offset by the immediate rise in 
construction activity as the structures damaged by those hurricanes 
were rebuilt.
    Katrina is unusual because of its impact on the economy's energy 
sector. For some time now, economists have been concerned about the 
potential effects of rising energy prices on the economy. The direct 
effects from Katrina are expected to be significant but still modest 
relative to the overall economy. Last year, consumers spent $230 
billion for gasoline. At about $3 per gallon, recent gasoline prices 
were 50% above levels one year ago. If consumers wish to purchase the 
same amount of gasoline, they would spend ($115 billion) less on other 
goods and services, all other things being equal. Gasoline prices have 
already declined from peak levels and are expected to continue to 
decline. Price increases in other energy products--mainly natural gas 
and fuel oil--will add to the burden. But consumers spend considerably 
less on these products than on gasoline.
    By comparison, total consumer spending grew about $500 billion in 
2004. Thus the higher energy bill will have a significant impact--but 
there is no reason that real consumer spending on other goods and 
services cannot continue to grow at a healthy rate despite the higher 
energy bill.
    Substantial pre-Katrina energy price increases did not appear to 
lead to inflation or pricing pressure elsewhere in the economy. Core 
inflation--a measure of the underlying inflation pressure in the 
economy--has remained low even as energy prices rose to unusual levels 
The consumer price index for core goods and services increased at a 
modest 1.3-percent annual rate during the past five months (from March 
to August, 0.1 percent per month), a step-down from the 2.4-percent 
pace over the prior 12 months (March 2004 to March 2005).
    Mr. Chairman, my team at the Department of Commerce will continue 
to monitor these economic data for evidence of the storm's impacts. I 
would be happy to update you on our analysis of the hurricane and its 
consequences. I would also be pleased to take your questions.

    Mr. Stearns. Thank the gentleman. Mr. Huether.

                  STATEMENT OF DAVID M. HUETHER

    Mr. Huether. Good morning Chairman Stearns, Ranking Member 
Schakowsky, and members of the subcommittee. Thank you for 
giving me the opportunity to discuss the economic effects of 
Hurricane Katrina on manufacturing and the economy.
    My name is David Huether. I am the national--I am the Chief 
Economist of the National Association of Manufacturers, the 
Nation's largest industry trade association, representing small 
and large manufacturers in every industrial sector in all 50 
States.
    By far, Hurricane Katrina is the biggest natural disaster 
to hit our country in recent memory, and the economic effects 
of Katrina will not be lost in the rounding, as has occurred 
with some past national disasters.
    Collectively, the economies of Alabama, Louisiana, and 
Mississippi account for 3 percent of the U.S. economy, roughly 
the size of Michigan, and 3.4 percent of manufacturing output. 
The New Orleans Customs District is the gateway to the global 
economy for much of our country. Fully a quarter of U.S. 
agricultural exports travel through this region to markets all 
around the world. At the same time, about 5 percent of U.S. 
manufacture trade goes through these ports. In addition, the 
Gulf of Mexico accounts for 29 percent of our Nation's oil 
products, and 19 percent of natural gas production.
    Prior to Hurricane Katrina, the U.S. economy had grown by a 
solid 3.6 percent over the last four quarters, and had created 
2.2 million jobs, pushing the unemployment rate down to a 4-
year low of 4.9 percent. At the same time, manufacturing output 
increased by a similar 3.3 percent. Looking forward, the 
economy was on track to grow by 4.3 percent in the third 
quarter, according to our estimates, and manufacturing 
production was expected to accelerate to 5 percent growth by 
the fourth quarter. Hurricane Katrina, however, along with 
future reconstruction efforts, will have a significant impact 
on the economy over the next year.
    The direct impact of Hurricane Katrina displaced upwards of 
300,000 workers, and destroyed an estimated $70 billion worth 
of capital. In the area of energy, though progress has been 
made, over half of the oil production, and a third of natural 
gas production in the Gulf remain shut in by--in mid-September, 
and four refineries remain offline. Currently, estimate are 
that it will take between 3 and 6 months to make repairs.
    In the weeks following Hurricane Katrina, the NAM surveyed 
its membership to see what the effects of the storm would be on 
manufacturers. The survey found that 10 percent of the 
respondents had production facilities that were directly 
affected by Hurricane Katrina. The positive side here is that 8 
percent expect to restore production in a matter of weeks; 36 
percent have experienced supply disruptions from Hurricane 
Katrina; 28 percent say these supply disruptions have affected 
production; and 25 percent, a full quarter, say the supply 
disruptions have caused shortages and higher prices, both in 
energy and in materials.
    These results indicate that a sizable portion of the 
manufacturing has been impacted by Hurricane Katrina. Looking 
forward, Hurricane Katrina is expected to slow economic growth 
in the third quarter from 4.3 percent, as I previously stated, 
to 3.2 percent. This is a 26 percent decline in the pace of 
economic growth. This pace will continue, I think, in the 
fourth quarter as well. At the same time, a quarter of a 
million fewer jobs will be created in the second half of the 
year, due to the effects of Katrina.
    Inflation, as measured by the CPI, will likely increase by 
close to 6 percent in the third quarter, as a result of higher 
energy prices. However, as supply comes back online, 
inflation--the inflation rate is expected to be cut in half in 
the fourth quarter. Much of the slowdown in the third quarter 
will come from a 19 percent reduction in the growth rate of 
consumer spending. The displacement of hundreds of thousands of 
residents in the Gulf Coast, as well as higher energy prices, 
which lowers disposable income, will cut deeply into consumer 
spending in September, and later in the fourth quarter, when 
consumer spending is expected to increase by just 2.4 percent.
    In addition, the pace of capital spending is expected to 
slow by 50 percent in the third quarter, and increase by just 
3.9 percent. This will be the slowest increase in capital 
spending since the first quarter of 2003. Later, in the fourth 
quarter, the pace of business investment will accelerate, as 
reconstruction efforts pick up steam. From the slowdown in both 
consumer spending and business investment, manufacturing output 
will likely increase by just 3.1 percent in the second half of 
this year. This is 40 percent slower than the 5.1 percent 
increase in the pre-Katrina baseline.
    Anticipating efforts in the first half of 2006, 
particularly in the first quarter, and moderating energy 
prices, will create a seesaw effect for the U.S. economy and 
manufacturing. GDP is expected to increase by 4.1 percent in 
the first half of 2006. This is 28 percent faster than the pre-
Katrina baseline. At the same time, manufacturing production 
will increase from 3 percent growth to 6 percent growth in the 
first half of next year, as reconstruction efforts accelerate.
    In summary, while job dislocations and damaged production 
capacity will significantly reduce economic growth and job 
creation in the months ahead, the slowdown in the macroeconomy 
overall will likely be temporary.
    Thank you.
    [The prepared statement of David M. Huether follows:]
   Prepared Statement of David M. Huether, Chief Economist, National 
 Association of Manufacturers on behalf of the National Association of 
                             Manufacturers
    Good morning Chairman Stearns, Ranking Member Schakowsky, and 
members of the Subcommittee. Thank you for the opportunity to discuss 
the economic effects of Hurricane Katrina on manufacturing and the 
economy.
    My name is David Huether and I am the Chief Economist at the 
National Association of Manufacturers (NAM), the nation's largest 
industry trade association, representing small and large manufacturers 
in every industrial sector and in all 50 states.
    By far, Hurricane Katrina is the biggest natural disaster in the 
U.S. in recent memory. In addition to the terrible loss of life, 
Hurricane Katrina hit the Gulf Coast at a time when energy prices were 
already surging. Katrina's impact on the energy-intensive region 
created an additional energy-price shock to the nation. As a result, 
the economic effects of Katrina will not be ``lost in the rounding'', 
as has occurred with some past natural disasters.

              IMPORTANCE OF THE GULF COAST TO THE ECONOMY
    Collectively, the economies of Alabama, Louisiana, and Mississippi 
(the states hardest hit by Hurricane Katrina) totaled $367 billion in 
2004 1, roughly the size of Michigan, or about 3.1 percent 
of the overall U.S. economy, and 3.4 percent of our nation's overall 
manufacturing output. Manufacturing is the largest private sector in 
Mississippi and Alabama, where it accounts for 16% of the economy in 
both sates, and the second-largest industry in Louisiana, where 
manufacturing accounts for 11 percent of the state economy.
---------------------------------------------------------------------------
    \1\ U.S. Department of Commerce, Bureau of Economic Analysis
---------------------------------------------------------------------------
    The New Orleans Customs District is the gateway to the global 
economy for much of the middle of the country. Much of this 
international trade comprises of commodity and agricultural products. 
Fully a quarter of U.S. agricultural exports, including 62 percent of 
corn and soybean exports, travel through this region to markets around 
the world. At the same time, more than 20 percent of iron & steel, 
fertilizer and ore imports enter our economy through the ports of the 
Gulf Coast.
    Overall, 5 percent of U.S. manufactured exports to the world are 
channeled through the New Orleans Customs District; while close to 4 
percent of manufactured imports enter our economy through these ports.
    Most of the Gulf Coast ports escaped the hurricane with minimal 
damage. Based on assessments by the Louisiana Department of 
Transportation and Development, two of the six deepwater ports located 
in Louisiana suffered extensive damage: St. Bernard and Plaquemines. 
The Port of South Louisiana, the nation's largest port by tonnage and 
essential to the nation's agricultural trade, suffered only minor 
damage. All of the state's 21 inland and shallow water river ports 
remain fully operational. Elsewhere along the gulf coast, while the 
ports of Gulfport, and Bayou La Batre, remain closed, most of the 
others are operational. While further work needs to be done to replace 
damaged equipment and restore electricity, the overall effect on 
international trade flows from Hurricane Katrina will likely be modest 
and temporary.
    Perhaps the largest macroeconomic effect from Hurricane Katrina has 
been the storm's impact the nation's energy infrastructure. The Gulf of 
Mexico supplies 29 percent of our nation's domestic oil production and 
19 percent of the domestic gas production.2
---------------------------------------------------------------------------
    \2\ Minerals Management Service, Department of the Interior
---------------------------------------------------------------------------
    In total, Hurricane Katrina destroyed 37 energy platforms, 
representing 1 percent of oil and gas production. In addition, 50 
platforms were damaged extensively, 4 of which account for 10 percent 
U.S. production. Current estimates are that it will take between three 
and six months to make repairs. In addition, four refineries remain 
shut down, and expectations are that these refineries, which represent 
about 5 percent of total U.S. refining capacity, could remain idle for 
an extended period. In summary, while progress has been made over the 
past few weeks, downstream effects from reduced refining and production 
capacity will be felt for months.

                   THE ECONOMIC SITUATION PRE-KATRINA
    Prior to Hurricane Katrina making landfall on August 29, 2005 as an 
extremely dangerous Category 4 storm, the U.S. economy and the 
manufacturing sector were growing at a solid pace. Supported by 3.8 
percent growth in consumer spending; 9.1 percent growth in business 
investment; and export growth (8.3%) outpacing import growth (5.9%), 
the U.S. economy has grown by a solid 3.6 percent in the past 
year.3 Manufacturing output increased by a similar 3.3 
percent. At the same time, the economy created 2.2 million jobs, and 
the unemployment rate fell to 4.9 percent--the lowest level in four 
years.
---------------------------------------------------------------------------
    \3\ Second quarter of 2004 to the second quarter of 2005. Source: 
U.S. Department of Commerce
---------------------------------------------------------------------------
    Despite a pre-Katrina increase in energy prices, core consumer 
inflation, which excludes food and energy, edged up just 1.9 percent 
over the prior 4 quarters.4
---------------------------------------------------------------------------
    \4\ PCE price index excluding food and energy. Bureau of Economic 
Analysis. U.S. Department of Commerce.
---------------------------------------------------------------------------
    More recently, core (non-motor vehicles) retail sales remained 
solid in July and August, while manufacturing production was beginning 
to accelerate from a ``soft'' second quarter. Overall, the economy was 
on track to grow by 4.3 percent in the third quarter and manufacturing 
production was expected to accelerate to 5 percent growth by the fourth 
quarter.

                   KATRINA'S IMPACT ON MANUFACTURERS
    Hurricane Katrina took a staggering human toll and will also leave 
a deep, though not permanent impression on the nation's economy as 
well. In the weeks following Hurricane Katrina, the NAM surveyed its 
membership to gauge the impact of the storm and its aftermath on 
manufacturing. While the survey did not likely get through to many 
companies in the areas most affected by the storm, the responses 
nevertheless provide a preliminary estimate of the impact of Hurricane 
Katrina on the broader manufacturing sector. The results are listed 
below:

    16 percent of survey respondents have operations in the areas 
directly impacted by Katrina. 8 percent have facilities that sustained 
damage while 10 percent have had production capacity reduced. Of these, 
8 percent expect to have production back in a matter of weeks while 
just 2 percent report that it will take months to resume production.
    36 percent have experienced supply disruptions from Hurricane 
Katrina. 12 percent have experienced just energy supply disruptions and 
24 percent have experienced both energy and material input supply 
disruptions.
    28 percent say supply disruptions have affected production. 23 
percent have reduced production operations and 5 percent have had to 
stop production operations due to supply disruptions.
    25 percent responded that supply disruptions have caused shortages 
that have lead to higher prices. 7 percent report energy shortages and 
18 percent report shortages in energy and material inputs.
    32 percent responded that damage caused by Hurricane Katrina has 
affected their company's ability to ship products to customers. 26 
percent report that shipments have been partially halted, while 6 
percent have had shipments completely halted.
    84 percent responded that their companies' employees have not been 
affected (relocated) due to Hurricane Katrina.
    92 percent responded that they will not have to reduce employment 
due to disruptions from Hurricane Katrina.
    Over three quarters (79%) are providing relief assistance. 46 
percent are offering a direct money gift; 34 percent have set up an 
employee matching gift program and 31 percent are donating in-kind 
relief supplies.
    These results indicate that a sizable minority of manufacturing 
output was directly impacted by Hurricane Katrina's destructive force 
either directly (10%) or through supply disruptions (28%). However, 
these impacts appear to be short term. The same will likely go for the 
quarter of respondents who reported higher prices, depending on how 
quickly energy production and port operations are reconstituted. 
Therefore, there will likely be a significant slowdown in manufacturing 
production in the third quarter along with acceleration in producer 
prices.
    Separately, conversations with businesses in both Mississippi and 
Louisiana highlighted other concerns not covered in the NAM survey. In 
addition to damage to plant and equipment, an equally significant 
problem for manufacturers is the state of their workforce. Hurricane 
Katrina displaced thousands of workers and also temporarily cut off 
services such as day care that are used extensively in today's economy. 
This is making it difficult in some cases for companies to bring 
production back on line. In addition, because electricity remains out 
in some rural areas, some employers and employees are having a 
difficult time communicating. While this is likely a temporary problem, 
it nonetheless will delay industrial output in some of the harder hit 
counties and parishes.

                 ECONOMIC EFFECTS OF HURRICANE KATRINA
    While not expected to reduce the economy's long-run growth path, 
Hurricane Katrina, along with the recovery efforts, will have a 
significant impact on the economy over the next year.
    Though the economic effects of Katrina have devastated the Gulf 
Coast, the overall impact on the U.S. economy is expected to be a 
significant (26%) slowdown in the pace of economic growth in third 
quarter and a more-modest negative effect in the fourth quarter, 
followed by an acceleration in economic growth in the first half of 
2006 compared to pre-Katrina outlook as reconstruction efforts begin in 
earnest. (See Table 1 below.)
    Preliminary Estimates of Economic Damage from Hurricane Katrina. 
Based on preliminary analysis, the extent of damage to residential and 
business capital stock totaled $71 billion, 70 percent of which was 
residential housing and personal property. Much of the remaining loss 
was oil and natural gas production facilities and refining capacity.
    Expected futures prices of gasoline for September rose 36 percent, 
based on fears that a significant amount of damaged energy plants and 
equipment would remain off-line for a long time. However, significant 
progress had already been made.
    At the peak of the hurricane on August 30th, 95 percent of daily 
oil production in the gulf and 88 percent of daily gas production was 
``shut in''. These numbers have been drastically reduced. By September 
16th, just over half (56%) of oil production remained shut in (most due 
to problems with onshore infrastructure) and just a third of natural 
gas production remained off-line. While tight energy supplies will 
continue going forward, concerns that energy prices, particularly oil 
and gasoline, will remain at their immediate post-Katrina levels have 
thankfully not proved to be accurate, evidenced by the fact that 
futures prices for gasoline have fallen by 22 percent since late August 
and prices at the pump have also begun to moderate.
    Still, the loss of energy production has been significant. 
Moreover, the rise in energy prices in the wake of the hurricane will 
have a sizable impact on consumer spending, since gasoline purchases 
alone account for close to 3 percent of consumer purchases.
    The loss of production in other areas of the economy from displaced 
workers, estimated at over 300,000, will further cut into economic 
growth in the second half of the year.
    While the destruction caused by Hurricane Katrina will slow GDP 
growth significantly in the second half of this year (see detail 
below), the recovery efforts, some of which are underway but most of 
which are still being conceptualized, will have a positive effect on 
the economy. For example, rebuilding residential capital destroyed by 
the hurricane could require upwards of 50,000 single family starts and 
10,000 multifamily starts by mid-year 2006.
    Economic Outlook Post-Katrina. Hurricane Katrina is expected to 
slow economic growth by more than a percentage point to 3.2 percent 
growth in the third quarter. This is 26 percent slower than the 4.3 
percent pace assumed in the pre-Katrina scenario (see Table 1.) 
5 Similarly modest (3.3%) economic growth is expected in the 
fourth quarter as well.
---------------------------------------------------------------------------
    \5\ SAAR (Seasonally Adjusted Annual Rate). Based on NAM 
projections using the Washington University Macro Model.
---------------------------------------------------------------------------
    Much of the slowdown comes from a 19 percent reduction in the 
growth rate for consumer spending which accounts for 70 percent of the 
economy. The displacement of hundreds of thousands of residents of Gulf 
Coast states as well as higher energy prices (which lowers consumers' 
disposable incomes) will cut deeply into consumer spending in September 
(the last month of the third quarter) and later in the fourth quarter. 
Instead of rising by 4.3 percent, consumer spending will increase by 
3.5 percent in the third quarter. While this sounds optimistic, it must 
be put in the context that consumer spending increased by close to a 9 
percent annual rate in July. In the fourth quarter, consumer spending 
is expected to increase by just 2.4 percent.
    Growth in capital spending by businesses is expected to slow by 50 
percent in the third quarter and increase by just 3.9 percent, the 
slowest pace since the first quarter of 2003. Later in the fourth 
quarter, the pace of business investment will accelerate and grow by 
6.6 percent as the rebuilding of damaged infrastructure begins.
    From the slowdown in both consumer spending and business 
investment, manufacturing output will increase by just 3.1 percent in 
the second half -- 40 percent slower than the 5.1 percent pre-Katrina 
baseline.
    The CPI will likely increase by close to 6 percent in the third 
quarter as result of higher energy prices. However, as supply comes 
back on line, the inflation rate is expected to slow to 2.7 percent in 
the 4th quarter and rise just 2 percent in 2006.
    Anticipated reconstruction efforts in the fist half of 2006 
(particularly in the first quarter) and moderating energy prices will 
create a see-saw effect for the economy and for manufacturing, both of 
which will not only accelerate, but grow faster than in the pre-Katrina 
scenario.
    GDP is expected to increase by 4.1 percent in the first half of 
2006, or 28 percent faster than the pre-Katrina baseline. At the same 
time, manufacturing production will increase by close to 6 percent 
during the first six months of next year before slowing to more modest 
growth later in the year. In summary, while job dislocations and 
damaged production capacity will steer the economy into troubled waters 
in the months ahead, faster quickening growth and job creation will 
make for smoother sailing next year.

    Mr. Stearns. Thank the gentleman. Mr. Dow, welcome.

                   STATEMENT OF ROGER J. DOW

    Mr. Dow. Thank you, Chairman Stearns and Ranking Member 
Schakowsky and members of the committee for this opportunity to 
testify on the dramatic impact of Hurricane Katrina on travel 
and tourism in the Gulf Coast region.
    My name is Roger Dow. I am President and CEO of the Travel 
Industry Association of America, known as TIA. It is a 
nonprofit organization representing all segments of the travel 
industry. It is a $600 billion a year industry, employing one 
out of every eight jobs in the U.S. are travel-related. My 
views are also part of the--our partner, strategic partner, the 
good work done by the Travel Business Roundtable, known as TBR. 
Together, we represent the public policy interests of the 
travel and tourism industry to Congress and to the 
Administration.
    Hurricane Katrina had a devastating blow in three States, 
as you heard from my colleagues. Many places were wiped out, 
entire communities gone. The immediate and sudden shutdown of 
the travel industry business occurred. I visited both Louisiana 
and Mississippi 2 days ago, and that with industry and 
political leaders, and television does not do any justice to 
the horrible impact there. When you see it firsthand, you see 
the devastation of what has happened to buildings, to lives, to 
people's livelihood, but it also doesn't do justice to the 
resilience and the attitude of the people that are in that 
area.
    As you look at what is going on, we first of all salute the 
brave young men and women who have been part of the rescue 
effort, but that area, I mentioned one in eight jobs 
nationally, in that area of the country, one in five jobs are 
travel-related, very--and--impact to the travel industry. That 
is 260,000 jobs that are related to the travel industry that 
are basically gone. Business travel, convention travel, leisure 
travel is not occurring as of this moment in those affected 
areas, and that is a loss of $50 million a day.
    The travel industry has been very generous, and I think had 
a very wide range of impact, and that is detailed in my written 
submission, and knowing that the Red Cross charitable 
organizations, the--both former President Bush and Clinton and 
many efforts of companies and organizations to raise money, we 
decided not to focus our efforts, of the travel industry and 
Travel Business Roundtable, on raising dollars, but we decided 
to focus on jobs, because that is what people need.
    On September the 15th, TIA, TBR, and a travel coalition 
made up of 32 associations of our business, launched a job--
free job site called www.katrinajobs.org, with the opportunity 
of helping people find jobs, and it is widely being promoted in 
the Southeast by the Red Cross. The men and women that are on 
the frontlines, the people who have these jobs, deserve our 
very best effort. This job bank not only will lift their 
spirits, but as a way of hope and a way of employing their 
families, and getting back on their feet in the future. The 
great thing about jobs in our industry is they are portable, 
and they have a very wide range of capabilities, from 
maintenance people to housekeepers to customer service people 
to accountants to managers.
    Attached to my written testimony is a legislative relief 
package presented by both TIA and TBR on behalf of the unified 
travel industry; and dozens of companies and associations 
worked on putting this together. The package includes several 
things, detailed information on the impact, specifically, on 
travel and tourism in the area of the Gulf effected. Examples 
of what the industry is doing, but very specifically, 
recommendations aimed at the travel industry employees and 
owners who are affected in the area. I can't stress enough that 
this is not a legislation recommendation or request that 
focuses on our entire industry, but focuses on the area 
affected, and it is very time-limited. We don't wish to use a 
tragedy to advance issues that are important to our industry.
    We applaud everything that is being done to quickly recover 
the--all the appropriations that are being done right now. Some 
of the areas that we are covering in our--in my testimony and 
our recommendations are already underway in tax relief 
packages. What we pledge is to help Congress, work with 
Congress, side by side with the Administration and everyone, on 
a nonpartisan basis, to just make this happen to improve the 
lives of people.
    There is three distinct impacts I think we should focus on. 
First, the complete devastation of the entire travel in the 
related area. The facilities are gone. They are not there in 
many case. You go along Gulfport, you see the antebellum homes, 
they are gone, like someone scraped them right away, and they 
weren't taken away by construction. They are just gone. The 
facilities are gone, destinations are gone, but more important, 
the homes and livelihood of the people are gone. We grieve for 
them, but we salute the people that are rescuing and working 
with them day by day.
    You have heard other people say the damage to our energy 
production, refinement, and transmission, is only going to be 
aggravated by Rita. When you look at the travel industry, we 
need a reliable supply of gas, diesel, and jet fuel at 
reasonable and fair prices. We say--unify--that we have to 
address this energy policy and what goes on, because our 
national mobility is truly at stake.
    And the third thing, and less obvious, and to--maybe, 
perhaps, to the public and policymakers, is the long-term 
ramifications. Around the world were broadcast scenes that made 
America look like a renegade State, the scenes of the looting, 
the violence, and all of that were played throughout the world. 
We have been focusing on a negative image that is a factor 
many--caused by many factors, not just policy, but on many 
factors, and we have got to address it. We couldn't let--as you 
look around the world--the fear, the despair, the what looks 
like lack of concern for people that people see is going to 
hurt an already slumping image. We are measuring the impact on 
this, as visitors begin thinking twice of whether they come to 
this country or they don't for business and pleasure.
    Image matters. As you look at the economy, the impact of 
international travel, $100 billion a year, 1 million jobs, 50 
million people coming to America and saying ``you know, they 
are not like that. They are really a generous, caring people.'' 
We need that. That is critical to our national defense, to have 
people returning home and saying I saw it firsthand. In 
conclusion, what we pledge as the travel and tourism industry 
is to work side by side in whatever we need to do, and to help 
get those people back on their feet, help them get jobs, and 
bring these areas back to their vibrancy.
    Thank you. I will entertain questions when asked.
    [The prepared statement of Roger J. Dow follows:]

Prepared Statement of Roger J. Dow, President and CEO, Travel Industry 
                         Association of America

    The Travel Industry Association of America (TIA), in 
conjunction with the Travel Business Roundtable (TBR), 
appreciates the opportunity to present this testimony regarding 
the impact of Hurricane Katrina on travel and tourism in the 
Gulf Coast region. Chairman Stearns, Ranking Member Schakowsky 
and members of the subcommittee, TIA, on behalf of the entire 
travel and tourism industry, applauds you for holding this 
important hearing to more closely examine the impact of 
Hurricane Katrina on various parts of our economy, including 
travel and tourism, the leading industry in the Gulf Coast 
area.

                       BACKGROUND ON TIA AND TBR

    TIA is the national, non-profit organization representing 
all components of the $599.2 billion U.S. travel and tourism 
industry. TIA's mission is to represent the whole of the travel 
industry to promote and facilitate increased travel to and 
within the United States. Our 1,700 member organizations 
represent every segment of the industry, and are dedicated to 
helping grow the U.S. economy and provide jobs and economic 
opportunity for individuals and communities all across America. 
We are here today also representing our strategic partner, TBR, 
a CEO-based organization of more than 75 member corporations, 
associations and labor groups. TIA and TBR are formal partners, 
working with Congress and the Administration to advance the 
public policy interests of the U.S. travel and tourism 
industry.

         THE IMPACT OF HURRICANE KATRINA ON GULF COAST TOURISM

    Hurricane Katrina dealt a devastating blow to the lives of 
millions of individuals across the Gulf Coast region and 
brought life and commerce to a sudden stop. We grieve for the 
many whose lives were lost in this natural calamity. We also 
want to salute the thousands of first responders and volunteers 
who have saved thousands of lives and are now tending to the 
physical and emotional needs of hundreds of thousands of 
displaced people. These dedicated individuals make us all proud 
by their acts of bravery and selflessness.
    Approximately 260,000 men and women were employed in 
travel-related jobs in the impacted region, and nearly all of 
those jobs have been disrupted for some period of time. More 
than $18 billion in travel-related spending occurs annually in 
the affected counties in Louisiana, Mississippi and Alabama. 
With the total absence of leisure, business and convention 
travel to the region, approximately $50 million in travel-
related spending is now lost every day.

                THE TRAVEL INDUSTRY RESPONSE TO KATRINA

    The travel industry response to Hurricane Katrina has been 
generous and wide-ranging, from American Express' $1 million 
donation to the American Red Cross, to Harrah's Entertainment 
extending pay to displaced employees for 90 days and 
establishing a $1 million Employee Recovery Fund. Other 
examples include the National Restaurant Association's upcoming 
National ``Dine Around'', which should raise millions, and 
Cendant Corporation providing housing and rental vehicles for 
emergency response personnel.
    While we knew it made little sense to launch fundraising or 
humanitarian efforts that would simply duplicate the excellent 
work already underway, the travel industry at the national 
level wanted to weigh in and do our part to help travel and 
tourism colleagues in need. Our organization, TIA, working in 
conjunction with our strategic partner TBR and the Travel & 
Tourism Coalition--a coalition of 37 travel-related national 
associations--believes one of the best contributions we can 
make to the relief effort is to help find employment for the 
thousands of displaced workers in the region.
    On September 15, we launched a free job bank, 
www.katrinajobs.org, which is aimed at finding temporary new 
employment for workers displaced by the hurricane. While the 
site is focused on finding new jobs for travel industry 
employees, it is not limited just to these workers. So many 
workers in the Gulf Coast region were employed by our industry, 
and we are working with our members nationwide to provide 
employment opportunities through this job bank site. As well-
trained employees working in a variety of service jobs in 
travel and tourism, we believe these men and women possess 
transferable skills and could fill any number of new jobs both 
within and outside of the travel industry. We are very grateful 
to the American Red Cross, which has chosen to help promote our 
new www.katrinajobs.org website in the southeast region.
    As mentioned above, there are numerous travel-related 
companies that are extending pay and benefits for their 
employees, or have relocated those workers to other facilities 
around the country to continue their employment. Many other 
companies are providing housing and other necessary services 
for these valuable travel industry associates. These quarter-
million men and women are critical to the industry since we are 
service providers, and these front-line employees help provide 
millions of visitors with a tremendous travel experience. They 
deserve no less than our very best at this critical time. 
Highlights of the industry's response are included in the 
attached legislative relief package.

         TRAVEL AND TOURISM INDUSTRY LEGISLATIVE RELIEF PACKAGE

    We applaud the Bush Administration and this Congress for 
its quick response in passing emergency appropriations packages 
to speed up relief to the region. This was our nation's 
greatest natural disaster to date, and as immediate and long-
term solutions are formulated, we stand ready to assist those 
affected by the hurricane.
    To that end, the travel and tourism industry has drafted a 
legislative relief package to assist employees, employers and 
owners directly impacted by Hurricane Katrina. A package of 
information has been transmitted to Administration and 
Congressional leaders which includes the following items: (1) 
Industry Overview: Reviving the Gulf Coast and U.S. Travel and 
Tourism; (2) Economic Impact of the Travel and Tourism Industry 
in the Gulf Region; (3) Industry Contributions to Katrina 
Relief; (4) Travel and Tourism Legislative Requests. This 
document is included as an addendum to this written testimony.
    In this legislative relief package, we focus first on 
assistance to displaced workers, which are the heart and soul 
of the U.S. travel industry. These millions of men and women 
are the spirit and driving force that has made our industry so 
successful. We applaud all that has been done by both the 
public and private sector to help displaced workers with 
housing, food and medical care. Many of the tax provisions 
suggested in our package are aimed at improving the lives of 
those employees directly impacted by the hurricane.
    Federal tax deductions and credits, much like after the 
events of September 11, 2001, can also be utilized to assist 
business owners in the impacted counties to begin to rebuild 
and repair. It is important that we highlight the fact that we 
are seeking only emergency tax relief for the affected region 
that would be both time-limited and targeted in focus. These 
recommended tax provisions are detailed in the attached 
document and include such items as Private Activity Bonds, Work 
Opportunity Tax Credits, Leasehold Improvements, Bonus 
Depreciation, Small Business Expensing, and others.
    While the focus is currently on recovery, the focus will 
shift to rebuilding the devastated communities in the Gulf 
Coast region. Once facilities are rebuilt and it is appropriate 
once again to invite visitors to enjoy the unique sights, 
sounds, arts and culture and culinary pleasures of this area, 
it is important that the federal government provide limited 
funds to the three impacted states, as well as local travel 
organizations, to promote travel to the region.
    Leisure, business and convention travelers will need to 
hear that the area is open for business, and be encouraged to 
visit once again. We believe that limited federal funds could 
help these three states, as well as local destinations, promote 
effectively to recapture visitors and begin to support the 
region's number one industry--travel and tourism.

          HURRICANE KATRINA'S THREE DISTINCT IMPACTS ON TRAVEL

    Broadly speaking, Hurricane Katrina had three distinct and 
dramatic impacts on travel and tourism in the Gulf Coast region 
of Louisiana, Mississippi and Alabama, and across the entire 
country.
    First and most importantly, Hurricane Katrina killed 
hundreds, uprooted hundreds of thousands of local residents, 
and destroyed entire communities. Many of these areas are 
special places of welcome and hospitality for millions of 
domestic and international travelers. From the world-class 
cuisine and music of New Orleans to the historic mansions, 
casinos, resorts and beaches in Mississippi and Alabama, these 
historic and fun-filled places have been damaged or destroyed.
    The work of rebuilding the physical infrastructure has 
already begun, and once the cleanup is completed, hundreds of 
thousands of new homes and businesses will emerge. It is our 
hope and prayer that all affected communities in the Gulf Coast 
region will be rebuilt and that residents will return to a 
place they can call home again. And we hope those communities 
will be stronger and more viable than ever, with travel and 
tourism continuing as the leading industry in providing 
exciting job opportunities and economic growth for the future.
    The second impact of Hurricane Katrina on the travel and 
tourism industry comes through the strong blow dealt to the 
energy production, refinement and transmission capabilities of 
the region. While some of the energy impacts are perhaps more 
short-lived (e.g. pipeline supply disruptions), production of 
oil and gas has been greatly reduced, and already tight 
refinery operations have been disrupted.
    Reliable transportation fuels provided at reasonable cost 
levels are absolutely essential to the future growth and 
success of the travel industry. Without ready access to 
gasoline, diesel and jet fuel, this nation's ability to travel 
for personal and business reasons would come to a grinding 
halt. In the weeks following Hurricane Katrina, fuel shortages 
(and rumors of shortages) drove up prices and stranded some 
motorists. Again, we must address our nation's energy needs in 
order to ensure a reliable supply of fairly priced fuels. 
Nothing less than national mobility is at stake.
    The third and final impact of Hurricane Katrina is much 
less obvious to the American public and policymakers in 
Washington, but is potentially more devastating over the long 
term. Fair or not, the images viewed abroad by hundreds of 
millions of international citizens of the looting, lawlessness 
and human despair in New Orleans only helps to worsen the 
deteriorating U.S. image abroad. Even when the media was 
reporting wild rumors as fact, international audiences were 
left with the distinct impression that this city's residents 
were abandoned by multiple levels of government and preyed upon 
by roving gangs of thugs. The news coming out of New Orleans 
was in many instances misreported, but audiences around the 
world viewed chaos and human despair that only served to 
reinforce the most negative portrayals of the United States and 
her people.
    The U.S. travel industry has grown more concerned over the 
past few years about America's sinking image abroad. Recent 
polling demonstrates that a substantial number of prospective 
visitors from Europe and Asia are now less inclined to visit 
our nation for business and pleasure due to negative 
perceptions about our culture and politics. Again, the scenes 
from the Gulf Coast region transmitted by satellite around the 
world only helped to bolster this less than flattering opinion 
about the United States and may serve as a further disincentive 
for international visitors to travel here. And this growing 
negative perception matters significantly since international 
travel to the U.S. results in nearly $100 billion in visitor 
spending annually, supporting nearly 1 million U.S. jobs.
    In conclusion, I want to pledge on behalf of the entire 
U.S. travel industry that we will work with Congress, the 
Administration and all involved charitable organizations to 
help in the rebuilding and restoration of the Gulf Coast 
Region. We want nothing less than a region that is even more 
economically viable, more culturally vibrant and that offers 
hope and opportunity to all its citizens--a place for millions 
to call home once again. Hurricane Katrina has served to awaken 
the hopeful spirit and generosity of the American people. In 
that spirit, let us continue to move forward with the 
rebuilding of lives and communities to provide a better 
tomorrow for the citizens of Louisiana, Mississippi and 
Alabama.

    Mr. Stearns. Thank you. Mr. Niskanen, welcome.

                STATEMENT OF WILLIAM A. NISKANEN

    Mr. Niskanen. Thank you. We have all been concerned about 
the nature and magnitude of the human tragedy caused by 
Hurricane Katrina, but the recovery from this tragedy will 
depend importantly on both what the Federal Government does and 
what it does not do. My remarks focus on the appropriate policy 
responses to Katrina.
    Maybe important, do not impose any form of rationing or 
price controls on food, gasoline, rents, and so forth. Price 
increases following a supply shock serve two very important 
functions: they allocate the available supply to those who 
value it most, and they encourage those who own or produce the 
goods to increase the available supply. The historical record 
documents that price controls lead to other less desirable 
forms of rationing, waiting lines, bribery, favoritism, the 
substitution of lower quality goods and services.
    In the absence of price controls, the price of oil has 
roughly doubled since 2002, with little general economic cost. 
In contrast, the economic effects of the oil shocks of the 
1970's were more severe and lasted longer, primarily due to the 
extended price controls. The specific increase in the price of 
gasoline since Katrina was due to the temporary reduction of 
U.S. refining capacity by about 10 percent, not due to some 
antisocial action by oil companies and distributors. I doubt 
whether there is a single documented incident of what is 
carelessly called price gouging in the absence of a supply--
restricted supply. At the time of Katrina, I predicted that the 
price of gasoline would fall quickly as electric power, 
employees, and the supply of oil were restored to the 
refineries, and that is what has happened. The national average 
price of gasoline fell, declined, $0.17 a gallon last week, and 
I expect that it will continue to do so, to decline to the pre-
Katrina average of August of $2.50 a gallon, unless supplies 
are again disrupted by Rita or another hurricane.
    Katrina also destroyed several hundred thousand housing 
units that will take longer to replace. In the meantime, the 
rents on available housing, especially on the Gulf Coast, will 
increase. Governments should not respond to this condition by 
imposing rent controls. Such controls misallocate the available 
supply, and reduce the incentive to increase the supply.
    There is a good case, however, consistent with our natural 
generosity, to make ample assistance to those households who 
are displaced by the Hurricane Katrina, and I contend there is 
ample room within the $62.5 billion already approved for such 
assistance. Such assistance, however, should be temporary, say 
for a year, and should be independent of where the displaced 
households choose to live. Returning to the Gulf Coast, 
specifically, should not be a condition for receiving such 
assistance.
    Now, I recommend a package of three types of vouchers, a 
housing or a rental voucher of maybe, say, $10,000 a year, that 
would have a budget cost of about $6 billion. The Secretary of 
Education has already approved, budgeted for $1.9 billion, to 
provide school vouchers, and the voucher will be usable in 
any--either a private or public school anywhere in the country. 
President Bush has proposed a training and labor voucher of 
$5,000 per head of household, that would probably cost about $3 
billion. Such direct assistance to each displaced households 
allow them to make their own choices about where the 
combination of available housing, schools, and jobs best meets 
their interests. The combination of--this combination of direct 
assistance would be far preferable to the FEMA plan to build 
massive mobile home villages on open land in the Gulf Coast, 
villages with no trees, stores, schools, churches, or community 
organizations that make a house a home. The total budget cost 
for this package of direct assistance to displaced households, 
assuming that there are no more than about 600,000 displaced 
households that have no home to which to return, should be less 
than $15 billion. One wonders what activities financed by the 
$63.5 billion already approved should have any higher priority. 
The primary additional measure to protect both the Treasury and 
consumers would be to assure that the vouchers are allocated to 
and used only by the households displaced by the hurricane.
    A third point. All too often, I hear otherwise thoughtful 
people question whether, how, or we--how--or we should rebuild 
New Orleans. My response is that this is not our problem. 
This--these questions should not be resolved by the Federal 
Government. No one individual or group here in Washington has 
either the information or the incentive to make the decisions 
that best serve the interests of the Gulf Coast residents. 
Nationalize the decisions would make them unusually vulnerable 
to pleas by special interests for the Federal Government to 
favor some post-Katrina composition of commerce that does not 
necessarily serve the interests of the local residents. Most of 
the key decisions about how the Gulf Coast cities should be 
rebuilt, and the post-Katrina composition of commerce on the 
Gulf Coast, should be made by the local property owners and the 
proximate State and local governments.
    The primary remaining Federal role, I contend, other than 
the assistance to the displaced households described above, 
should be to rebuild that part of the local infrastructure for 
which the Federal Government has the historical responsibility. 
It is important to avoid any increase, in the Federal response 
to Katrina, relative to its prior response to natural 
disasters. This would create a moral hazard problem by 
increasing the expectation of local residents and governments 
about the future Federal response, reducing their own 
incentives to make those decisions that would either avoid or 
reduce the cost of future disasters. It is especially important 
for the Federal Government to avoid financing any rebuilding of 
private property that was not covered by flood insurance. 
Although flood insurance is heavily subsidized, many, even most 
property owners in New Orleans, do not buy this insurance, 
expecting the Federal Government to bail them out whether or 
not they are insured. This has already led to a big decline in 
the share of flood-prone properties that have flood insurance. 
One potential Federal measure that deserves serious 
consideration would be to require flood insurance on all 
properties for which there is a mortgage from a federally 
regulated or insured financial institution. But in the 
meantime, the Federal Government should not make this problem 
worse by financing the rebuilding of private property that is 
not covered by the flood insurance.
    Now, on the above three issues, Congress faces dilemma: the 
commendable incentive to be generous to the victims of natural 
disaster may increase the costs, both to the Treasury and to 
the local residents of future disasters. As you address the 
Federal responses to Hurricane Katrina, I encourage you to keep 
this in mind.
    Thank you.
    [The prepared statement of William A. Niskanen follows:]
  Prepared Statement of William A. Niskanen, Chairman, Cato Institute
    Good morning. My thanks for this opportunity to testify about the 
commerce and consumer protection implications of Hurricane Katrina.
    We have all been concerned about the nature and magnitude of the 
human tragedy caused by Hurricane Katrina, but the recovery from this 
tragedy will depend importantly on both what the federal government 
does and what it does not do.
    1. Maybe most important, do not impose any form of rationing or 
price controls on food, gasoline, rents. etc. Price increases following 
a supply shock serve two important functions: they allocate the 
available supply of goods to those who value it most, and they 
encourage those who own or produce the goods to increase the available 
supply. The historical record documents that price controls lead to 
other, less desirable, forms of rationing--by waiting lines, bribery, 
favoritism, and the substitution of lower quality goods and services.
    In the absence of price controls, the price of oil has roughly 
doubled since 2002 with little general economic cost. In contrast, the 
economic effects of the oil shocks of the 1970s were more severe and 
lasted longer, primarily due to the extended price controls. The 
specific increase in the price of gasoline since Katrina was due to the 
temporary reduction of U.S. refining capacity by around 10 percent, not 
to some anti-social action by oil companies and distributors. At that 
time, I predicted that the price of gasoline would fall quickly as 
electric power, employees, and a supply of oil were restored to the 
refineries. And that is what has happened. The national average price 
of gasoline, for example, declined by 17 cents a gallon last week, and 
I expect that it will continue to decline to the pre-Katrina average 
price in August of $2.50 per gallon, unless supplies are again 
disrupted by another hurricane.
    Katrina also destroyed several hundred thousand housing units that 
will take longer to replace. In the meantime, the rents on available 
housing, especially on the Gulf Coast, will increase. Governments 
should not respond to this condition by imposing rent controls. Such 
controls, as with price controls on gasoline, misallocate the available 
supply and reduce the incentive to increase the supply. In addition, 
there is no reason to place the burden of providing housing for the 
displaced households on the owners of existing housing.
    2. There is a good case, consistent with our natural generosity, to 
make ample assistance to those households displaced by Hurricane 
Katrina, and there is ample funding within the $62.5 billion already 
approved for such assistance. Such assistance, however, should be 
temporary, say for a year, and should be independent of where the 
displaced households choose to live. Returning to the Gulf Coast, 
specifically, should not be a condition for receiving such assistance.
    The federal budget cost of a rent voucher for displaced households, 
say of $10,000, would be around $6 billion, and the voucher should be 
usable anywhere in the country. The budget cost of a school voucher for 
all displaced school children would be about the same, and the voucher 
should be usable at either a public or private school anywhere in the 
country. President Bush's proposal for a training and labor voucher of 
$5,000 per head of household would cost about half this amount. Such 
direct assistance to each displaced households allow them to make their 
own choices about where the combination of available housing, schools, 
and jobs best meets their interests. This combination of direct 
assistance would be far preferable to the FEMA plan to build massive 
mobile home villages on open land on the Gulf Coast--villages with no 
trees, stores, schools, churches, or community organizations that make 
a house a home. The total budget cost for this package of direct 
assistance, assuming there are no more than 600,000 displaced 
households that have no home to which to return, should be less than 
$20 billion. One wonders what activities financed by the $63.5 billion 
already approved should have a higher priority. The primary additional 
measure to protect both the Treasury and consumers would be to assure 
that the vouchers are allocated to and used only by the households 
displaced by Hurricane Katrina.
    3. All too often, I hear otherwise thoughtful people question 
whether and how ``we'' should rebuild New Orleans. My response has been 
that these questions should not be resolved by the federal government; 
no one individual or group here in Washington has either the 
information or the incentive to make the decisions that best serve the 
interests of the Gulf Coast residents. Nationalizing these decisions 
would make them unusually vulnerable to pleas by special interests for 
the federal government to favor some post-Katrina composition of 
commerce that does not best serve the interests of the local residents. 
Most of the key decisions about how the Gulf Coast cities should be 
rebuilt and the post-Katrina composition of commerce on the Gulf Coast 
should be made by the local property owners and by the proximate state 
and local governments.
    The primary remaining federal role, other than the assistance to 
the displaced households recommended above, should be to rebuild that 
part of the local infrastructure for which the federal government has 
had the historical responsibility. It is important to avoid any 
increase in the federal response to Katrina relative to its prior 
response to natural disasters. This would create a ``moral hazard'' 
problem by increasing the expectation of local residents and 
governments about the future federal response. This would reduce their 
own incentives to make those decisions that would avoid or reduce the 
cost of future natural disasters. It is especially important for the 
federal government to avoid financing any rebuilding of private 
property that was not covered by flood insurance. Although flood 
insurance is heavily subsidized, many property owners do not buy this 
insurance, expecting the federal government to bail them out whether or 
not they are insured; this has already led to a decline in the share of 
flood-prone properties that have flood insurance. One potential federal 
measure that deserves serious consideration would be to require flood 
insurance on all properties on which there is a mortgage from a 
federally regulated and insured financial institution. But in the 
meantime, the federal government should not make this problem worse by 
financing the rebuilding of private property that was not covered by 
flood insurance.
    On the three above issues, Congress faces a dilemma: the 
commendable incentive to be generous to the victims of a natural 
disaster may increase the costs of future disasters, both to the local 
residents and to the U.S. Treasury. As you address the federal 
responses to Hurricane Katrina, I encourage you to keep this in mind.

    Mr. Stearns. I thank the witnesses. I will start out with 
the questioning. In my mind's eye, listening to you, the first 
question I have is what should be the Federal role here, how 
much to press the Federal Trade Commission, in terms of 
identifying collusion or dealing with a number of things, 
whether there is or is not price gouging, and then also, 
talking about any fraudulent activity.
    But at the same time, we have passed $61 billion, and most 
of us don't realize where that is going, and as so often 
happens, that the desire to help out is exceeded by the desire 
to investigate and bring accountability, and that is where I 
think a lot of us are concerned.
    I will start with my first question for you, Mr. Seesel. Do 
you have the tools, in your opinion, to deal with fraud that 
might occur, fraudulent activity? Is there something that you 
think Congress should do that we haven't done to give you more 
power dealing with collusion or, perhaps, even identifying 
price gouging at your agency?
    Mr. Seesel. Mr. Chairman, to begin with, on the consumer 
protection side, on the situations involving fraud and scams 
and so forth, I think I have described this morning a fairly 
full panoply of tools and weapons the FTC has to deal with 
consumer problems like deception and fraud.
    On the antitrust side, dealing with collusion and other 
antitrust violations, I think the Commission has a full 
arsenal, also. I think we have----
    Mr. Stearns. You don't need any help from us.
    Mr. Seesel. Well, certainly, Congressman, Mr. Chairman----
    Mr. Stearns. Just more funding.
    Mr. Seesel. As far as funding concern, I----
    Mr. Stearns. I understand that, but I mean in terms of 
legislative tools to help you to work this problem.
    Mr. Seesel. Well, we have some new tools we are working 
with now already. As you know, we are conducting an 
investigation under Section 1809 of the Energy Policy Act, and 
so that will give the Commission a chance to look at issues of 
gasoline price manipulation, and prepare a report for Congress 
after the conclusion of that investigation. But----
    Mr. Stearns. Okay.
    Mr. Seesel. I am sorry.
    Mr. Stearns. But there is no Federal legislation dealing 
with price gouging.
    Mr. Seesel. That is correct, Chairman.
    Mr. Stearns. And at this point, you have collusion. Do you 
feel that you can identify what price gouging is? Do you have a 
definition of it?
    Mr. Seesel. I don't think that we have a definition of it 
at the Commission, and the definitions I have seen have been 
quite diverse and quite diffuse, and both at the State and 
Federal level, I think, it has been hard for people to come to 
a consensus about what that term means.
    Mr. Stearns. There is some concern about flood-damaged 
vehicles specifically being restored, re-titled, and sold to 
unsuspecting consumers. Do you--what is your authority to 
prevent that?
    Mr. Seesel. I think, Mr. Chairman, that the FTC generally 
has the view, again, I don't know what the official Commission 
position is, but in our experience, State motor vehicle 
divisions and consumer protection authorities are probably in 
the best position to monitor issues about flood-damaged 
vehicles being resold in a fraudulent manner.
    I don't know that the FTC's current authority doesn't cover 
that, but I certainly think that--our experiences have been 
State and local officials deal with that quite actively, and 
are best suited to do that.
    Mr. Stearns. So you are pretty much equipped to handle it, 
then. You feel pretty comfortable.
    Mr. Seesel. I think we are.
    Mr. Stearns. Okay.
    Now, Mr. Huether, how can Congress reduce the stress on 
logistic issues from manufacturers that are created by port 
disruptions and other infrastructure failures. I don't know if 
you saw the front page of the Washington Times. It shows, in 
Texas, particularly in the Galveston and Houston, Victoria, 
Corpus Christi, all the oil and natural gas platforms, as well 
as the oil refineries, and this huge number, and if this ever--
if this Hurricane Rita hits as we expect, I assume all of this 
there is going to huge damage, so that there will be even more 
logistic issues for manufacturers and ports and things.
    Mr. Huether. I thought you--someone was going to ask a 
question like that, and one of the things I did was I called a 
number of manufacturers, Mississippi, and Alabama, and 
Louisiana, and I asked them what are your biggest problems 
right now? What are your biggest concerns? Where are the 
bottlenecks?
    And they all responded, and they gave me exactly the same 
answer, and they said the biggest problem right now is the 
human bottleneck. It is getting employees, trying to locate and 
find their employees.
    Mr. Stearns. Because they have no names, and they have no--
--
    Mr. Huether. And the issue isn't just that they don't have 
homes, but where they are right now could be between 4 and 5 
hours away from the company, and so there are employees who are 
traveling great distances every day just to go to work. There 
have been some manufacturers who have actually bought a large 
number of trailer homes and put them in their plant to house 
the workers and their families there.
    That is one significant issue. The other significant issue 
is, that is connected with that, is that a lot of the social 
infrastructure that the--that modern workers use today, such as 
daycare, are gone, and so even if some workers may be only an 
hour or an hour and a half away, a lot of the social 
infrastructure is gone, so if they have, you know, small 
children, there is really no way they can get to work, and you 
know, from a number of manufacturers that I have talked to, 
that right now is their No. 1 concern, in addition to some 
supply bottlenecks, in terms of ores, steel, where the 
Mississippi River is a significant conduit for that. And that 
has broader implications for areas, you know, country, but just 
in terms of the areas, specifically, that are most damaged, it 
is really the human element that is the biggest problem right 
now.
    Mr. Stearns. Mr. Niskanen talked about these manufactured 
homes that the government supposedly is going to buy, and he is 
strongly against that. How do you feel about what he feels, in 
giving the voucher, instead of the government temporarily 
buying these or renting?
    Mr. Huether. Well, I think you would probably have to 
figure out what was going to be the most efficient way to get 
workers in a safe location near their base of employment.
    Mr. Stearns. I mean, how can you go it quickly?
    Mr. Huether. And if this is--and it is basically a short-
term phenomenon to begin with.
    Mr. Stearns. Yeah.
    Mr. Huether. I think that is probably the biggest problem 
with getting production up right now in some areas, is just 
making sure that companies and workers can get together, and I 
think that, on a short-term basis, whatever can be done to try 
to foster that would probably be--we would probably reduce the 
downturn in manufacturing output over the next few months.
    Mr. Stearns. You know, I will just follow up. My time has 
expired. We are going to go around for a second round of 
questioning, but maybe the solution is not necessarily a 
voucher, like Mr. Niskanen mentioned, but maybe give some 
incentive for employers to go out and buy or rent facilities 
quickly, and then the government doesn't have the obligation 
for these mobile home, manufactured home, and they are not on 
the hook for some kind of voucher program, but the employers 
would take the response. They have the best means of executing 
this through their business strategy, and just set up whole new 
areas for them, rent out whole new areas, and things like that, 
or let them take the responsibility for finding the 
manufactured home, and give them tax credits or something.
    What do you think of that idea?
    Mr. Huether. I think that is something that should be 
considered, because I know this is the primary concern of a lot 
of companies in these areas, is just making sure that their 
employees, they can get their employees to work, and their 
employees have a place, a safe place to stay that is somewhere 
close to the location of business.
    Mr. Stearns. Because the institutional memory for a lot of 
these employees, you can't get off the street right now, so you 
have got to get Tom Jones or Bob Smith or Linda Smith, you got 
to get her to come back, so I would say Linda, I have got you a 
place to live. I have got a daycare center for you. We are 
setting up a corporate daycare center. You just come to work. 
We will take care of all your needs here, because you are so 
valuable, we can't--we are going to lose our revenue here.
    So anyway, my time has expired. The ranking member.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    I think Americans watching what happened became aware of a 
couple of things. One is that the Federal Government does, in 
fact, have an important role to play, particularly in its basic 
function of protecting the safety and security of Americans. 
But the other thing people saw was a face of poverty in that 
region, but also, suddenly, the lifting of the veil of poverty 
that exists in all of our cities. And when we can talk--when we 
talk about the economy and how we work to restore it in the 
face of Hurricane Katrina and now Hurricane Rita--and by the 
way, in that regard, Mr. Chairman, let us be thinking about all 
of those people in the path, including our colleague, Gene 
Green, who went home. He is not here right now, because he went 
home to help his constituents, and close his house, which is in 
the direct path of Hurricane Rita right now. That is where he 
is.
    When Mr. Niskanen--am I saying that right? Your executive 
vice president, David Boaz, said something in an article 
called, on September 19, ``Catastrophe in Big Easy demonstrates 
big government's failure,'' that I think is a problem with the 
whole perspective on how we even begin to address this problem. 
And I want to quote from that article. ``The suffering visible 
in the poorest parts of the city, New Orleans, is a perfect 
example of the failure of the non-ownership society. People had 
become trapped in dependency, with neither financial nor moral 
assets to rely on.'' Does--are you saying, and that is the way 
I read it, that somehow, poverty is representative of a lack of 
morals? I mean, we would all agree that financial assets are 
lacking among the poor. That is the definition of poverty. But 
a lack of moral assets? And if we begin with that perspective, 
of course we would result in the answer that government doesn't 
have a role in helping to control the prices that these poor 
people face, or the housing that these poor people need, and 
that we don't have a role to play.
    Mr. Niskanen. The primary point of David's article was that 
one important lesson from Katrina is that government failed at 
every level.
    Ms. Schakowsky. No, I want to know about moral assets. Are 
the poor lacking in moral assets?
    Mr. Niskanen. I am not going to pass judgment on that. I 
think it is quite clear that poverty----
    Ms. Schakowsky. So could be.
    Mr. Niskanen. I said that it is quite clear that poverty, 
in many cases, is the consequence of failure to get a job, of 
having children out of wedlock. These are very strong 
correlates of poverty. If you regard that as a moral response, 
a moral problem, I think that I would probably agree with you.
    Now, that is not necessarily all poverty. I have often been 
asked the most important decision in my life, and I say 
choosing the right parents. We are all a product of our parents 
and our upbringing, and the people who--many of the people in 
poverty are second, third generation poverty. And I think to 
some extent, the--to some extent, I think it is appropriate to 
say that poverty is the consequence of a moral problem.
    One thing that we have found, for example, since the 1996 
Welfare Reform Act is that the number of welfare recipients has 
been cut in half, the number of single mothers----
    Ms. Schakowsky. The poverty level has not been cut in half, 
has it, Mr. Niskanen?
    Mr. Niskanen. Of those people who are no longer welfare 
recipients, they are--and they have a higher income now than 
they did before, with welfare, because of the earned income tax 
credit. They have a job. We have transformed welfare from a 
payment for not working to a payment to supplement the earnings 
of low skilled people. And I think that was an entirely 
appropriate action. We are not going to eliminate poverty, 
however, until ultimately, the primary correlates of poverty 
are changed.
    Huge proportions of children born to single mothers, for 
example, is probably the single most--the strongest correlate 
of poverty. Now, this was----
    Ms. Schakowsky. You know, I need to--I think you have 
sufficiently answered my question, and quite frankly, I am so 
pained by your answer that--you, I think, are among the 
minority of Americans who may have been watching those people 
crying for help in the Convention Center, at the stadium, and 
thought that these are people who must be there because of some 
moral lacking. I am just shocked at that, but I am glad it is 
on the record.
    And speaking of these individuals, one of the things, Mr. 
Hall, that has been done is that the prevailing wage in New 
Orleans for construction workers right now, is $9.55 an hour; 
mason tenders get $7 an hour, some of the lowest prevailing 
wages in the country. I am trying to understand how contracts 
have been issued, no-bid contracts, I understand, cost plus 
contracts, I think, for companies like Halliburton, and yet, 
for the workers, we are going to say that the prevailing wage 
rule, Davis-Bacon, will be lifted, and I am wondering if you 
think that it is important to our economy, or to the economy of 
these individual families, that workers could be paid as little 
as $5.15 an hour, which is the minimum wage, and if those 
families could support themselves on those low wages, or pay 
for healthcare, and might they need government help, and be 
entitled to government help, to support them? In other words, a 
further subsidy for those companies who have gotten the no-bid 
contracts.
    Mr. Hall. Well, I hate to not answer your question, but 
that is getting pretty far out of my expertise, since my focus 
is on the economic data, and what we are likely to see, in term 
of the national data. So I am not sure I have an----
    Ms. Schakowsky. So abandoning the prevailing wage, and 
allowing wages to decline is not in your area of concern?
    Mr. Hall. Well, no. Certainly, I am concerned with the 
performance of the economy overall, the performance of the 
economy in that area. I know they are going to have great 
hardship. We--I would like to see them, obviously, recover 
quickly, not only through construction, but taking care of 
people in the meantime. But it is just, the Department of 
Commerce, the part of commerce that I deal with, we just--that 
is not a policy issue I deal with. I am sorry.
    Mr. Stearns. The gentleman from California, Mr. Radanovich.
    Mr. Radanovich. No questions.
    Mr. Stearns. No questions. I will start with the second 
round then.
    Mr. Dow, you testified that approximately $50 million in 
travel-related spending is being lost every day.
    Mr. Dow. Correct.
    Mr. Stearns. But from my business experience, if I was 
going to take a vacation in New Orleans, and I saw that, I 
would go somewhere else, and so much of the travel that 
occurred in the Gulf Coast region, wouldn't that be diverted to 
other areas of the country? And they might go to Las Vegas. 
They might go to San Francisco. They might go somewhere, other 
places, and I would think that that would sort of change that 
$50 million number. Wouldn't that be true?
    Mr. Dow. My statement was that $50 million lost daily to 
that area, you are correct----
    Mr. Stearns. Every day.
    Mr. Dow [continuing]. That a portion of the travel would go 
to other areas, but there is a great deal of travel that goes 
to that area, that is business related, to doing business in 
that area, will not occur. Immediately after Katrina, we asked 
one of our members, Expedia, to take a look at what their 
reservations were, coming from the United States, and 2 weeks 
before Katrina, the travel to the U.S. from outside of the U.S. 
was up 5 percent, but 2 weeks following, it was down 10 
percent. So that is travel that did not occur.
    You are correct. Some of the travel will move to other 
areas, but there is a lot of travel that would just be 
canceled. The trip, the convention, New Orleans, for example, 
hosts conventions of 5,000 to 10,000 people. You cannot find 
anywhere in the U.S., Las Vegas, Chicago, New York, that can 
house 5,000 people on a month's notice. These cities are full, 
so that business totally goes away, and doesn't happen, except 
for a year from now.
    Mr. Stearns. Okay. Would staff give Mr. Hall this picture 
from the Washington Times, which shows all the oil and natural 
gas platforms, oil refinery, from Corpus Christi, Galveston, 
all the way up to New Orleans? I just want you to look at this. 
This is--will show you the enormous depth of our capacity for 
digging and refining oil, and I guess my question to you, Dr. 
Hall, I am not asking you to be very specific, but you gave 
pretty good figures dealing with GDP from these three, Alabama, 
Mississippi, and Louisiana, and the effect that Katrina had.
    Considering you have a hurricane, maybe 4 level, heading 
into those areas, what do you suspect the impact would be? Just 
give a scenario. You have done this many times, I mean, I 
assume that you could make an educated guess of what we are 
looking for, in terms of we know the GDP of Texas, we know the 
impact of this. I mean, are we going to look at a possibly 
another huge spike in oil, and--I mean, if you can, just take 
me through those scenarios as best you can. I am not going to 
hold you to anything. This is all hypothetical, but I mean, it 
would be helpful for Members of Congress to realize in advance 
what we are, perhaps, looking at.
    Mr. Hall. Well, since at Commerce, we do produce the data 
that comes out, I really make an effort to not try to forecast 
the data, because we really do produce it, and we really will 
measure the impact of these things.
    I can certainly say that the impact, possible impact on the 
energy market, is certainly--would certainly be a thing that I 
would be most concerned about, with the impact of Rita. I can 
tell you, for example, that the top three ports for imports of 
crude oil are Houston, New Orleans, and Port Arthur, and that 
accounts for about 55 percent of our oil imports. So that would 
be a serious concern, and then, of course, all the associated 
refineries and such in the area would be a big concern.
    Obviously, higher gasoline prices would be a great burden 
on people that pay the higher gasoline prices. Most of what I 
have tried to focus on, though, is the idea that although this 
is a burden for people buying gasoline, a burden for people 
with higher prices, in terms of the big picture of the economy, 
that the economy is strong enough, and the growth is strong 
enough, to weather these sorts of things, these sorts of 
impacts. We have done it in the past, maybe not as large of an 
impact as Katrina has, in many ways, but it is something that 
the economy does very well with.
    Mr. Stearns. Well, I can understand your trepidation here 
to try and do a little forecasting. But if we are looking at 
what happened with Katrina, and we see what happens to Rita, 
and you see that is even much more so than New Orleans, in 
terms of the oil capacity, I would suspect it is going to be 
something big.
    Now, the question is for many Members of Congress, if the 
President or anyone comes back with another package, in 
addition to the one we are talking about for New Orleans and 
Louisiana, then a package for this, this is going to be another 
concern of how we do this, and what the Federal role would be.
    If you don't mind, I would like to go to you, Mr. Niskanen, 
and ask you a little bit about--the House unanimously approved 
a plan to offer tax assistance to people and businesses that 
were dislocated by the hurricane. I don't know if you are 
familiar with that package, that tax package, and it asks for 
tax expansion for--tax breaks for charitable contributions. I 
guess, given your idea on limited role of the Federal 
Government, what would be Cato's opinion on that tax package we 
did?
    I mean, I am sort of in your camp in many ways, so I am 
asking, because we are going to be looking at these tax 
packages, and I am just curious what you thought, if you knew 
about yesterday, what you could give me your feeling about it.
    Mr. Niskanen. Well, I don't think the Federal Government 
should try to shape the nature of the recovery, should try to 
shape the post-Katrina composition of commerce in the area.
    Mr. Stearns. It should all be done on a local level.
    Mr. Niskanen. I think the decisions should be made at a 
local level. Now, I went out of my way to endorse a plan of 
helping the displaced households with substantial assistance 
for rents, for schooling, and for jobs.
    Mr. Stearns. Would that include businesses, too?
    Mr. Niskanen. Pardon?
    Mr. Stearns. Would that include businesses, too?
    Mr. Niskanen. It would not include businesses, and I think 
that we should be very careful not to reward business owners or 
private property owners who have not taken out flood insurance. 
The Federal Government enormously subsidizes flood insurance, 
but then it bails out people whether or not they have the flood 
insurance. And we have had a dismal record with the flood 
insurance, in which a lot of claims of Federal insurance are 
for the second or third claim on the same piece of property. 
People have taken their claims from an earlier storm and 
reinvested in the same place. They have made no change in their 
location. And that, both the flood insurance system, I think, 
has to be corrected. I think we need higher premiums in flood 
insurance. I think we probably should have required flood 
insurance, in much the same way that we have required auto 
liability insurance, as a condition for getting mortgages from 
Federal insured or regulated mortgages.
    Now, the kind of enterprise zone that is being proposed for 
the Gulf Coast is a grant, in effect, to restore businesses in 
the Gulf Coast, rather than particularly to help the people who 
were displaced by the storm. And I am much less enthusiastic 
about that, because it will be--it will have the effect of 
biasing the composition of business to those for whom the tax 
breaks make most of the difference. That depends upon how 
capital-intensive they are and other matters.
    Mr. Stearns. Are you----
    Mr. Niskanen. I think we should not make a Federal 
commitment to restore the Gulf Coast to a pre-Katrina 
situation. We should, for the most part, I think, let that 
development happen by the decisions of private property owners 
and local governments.
    Mr. Stearns. In those areas, the people live in high risk 
areas. You know, in this case, it is flooding, but in some 
cases, California, it is earthquake, and some places, it is 
fire. Do you think the Federal Government should adopt a policy 
to discourage housing in those areas that have high risk areas, 
are vulnerable to these natural disasters, by perhaps not 
providing insurance? I guess, what policy would you suggest in 
this case?
    Mr. Niskanen. If people want to rebuild an area, I think 
they should be required to take out flood insurance. If they 
use a mortgage from a federally insured or regulated mortgage 
financial institution.
    Mr. Stearns. Subsidized by the Federal Government or not?
    Mr. Niskanen. And I would raise the premiums on the flood 
insurance. The premiums are too low. We have had to bail out 
the Federal flood insurance system by some billions of dollars 
just in recent weeks. So I think they should be--should make 
their own decision, consistent with the required flood 
insurance, and higher premiums for flood insurance.
    Mr. Stearns. Mr. Dow, you said you had some legislation. 
You talked about a proposal for tourist promotion funding. What 
is the specific dollar amount that you are talking about in 
your legislation?
    Mr. Dow. I don't have the specific dollar amount with me 
right now. What it is is we just ask for tax credits for 
funding for advertising promotions. It is so critical to 
promote these areas, because as the world and the Nation looks 
at this, in my former life in the hotel business, when there is 
trouble in, let us say, Nassau, people don't go to Bermuda. And 
it is so critical to get these people back, to understand the 
geography. So we are asking for tax credits for the activities 
that the industry would fund. We are not asking for money, 
specifically, a large amount of money.
    Mr. Stearns. Okay. My time has expired. The ranking member.
    Ms. Schakowsky. Mr. Hall, or Dr. Hall, excuse me. You were 
talking fairly optimistically about the recovery from the 
spikes in the gas prices, but--and energy prices. This is from 
a report that was issued by the Congressional Research Service 
on September 13, ``The Macroeconomic Effects of Hurricane 
Katrina.'' And here is what they say: ``Why would higher energy 
prices be a cause for broader economic concern? Eight of the 
nine postwar recessions were accompanied by sharp increases in 
the price of oil. The last four recessions followed this 
pattern: 1973-75 recession followed the oil embargo; the double 
dip recession of 1080-82 followed the second oil shock, which 
was caused by the Iranian Revolution and the Iran-Iraq War; 
1990-1991 recession followed the oil spike induced the Gulf 
War; and the 2000 recession followed a sharp rise in oil prices 
from 1999 to 2000.'' So your optimism is perplexing to me.
    Mr. Hall. Well, I guess two things. One is, we have already 
had--pre-Katrina, we had a pretty serious spike in energy 
prices, and----
    Ms. Schakowsky. True.
    Mr. Hall. And it raised prices for a lot of people, but it 
didn't sort of eke out into the rest of economy. Core CPI, in 
fact, has gone down, over the last 5 months. That may not last, 
but so far, the economy has weathered that very nicely.
    The other thing I can say is, in terms of the impact of 
previous spikes, we have had a significant improvement in 
energy efficiency in this country. Over the past 10 years 
alone, we have become 20 percent more efficient. Over the past 
30 years, we are 50 percent more efficient. So I am optimistic 
in that sense, that we have become more energy efficient. We 
are a very large economy. While it is hardship for people, I 
still do think it is something that we can----
    Ms. Schakowsky. I come from the Chicago area, the Midwest 
largely heats with natural gas, where the Energy Information 
Agency has projected as much as a 70 plus percent increase in 
natural gas prices. That was before Rita, and we don't know 
what is going to happen, and now, headlines showing Rita could 
equal $5 a gallon gas. It is hard for me to imagine, let alone 
the individual families that are going to be affected, how it 
is not going to put further strains on the economy of all those 
areas as well.
    Mr. Hall. You know, I don't disagree that it is difficult 
for people paying those prices, it is difficult for lots of 
families, especially families with lower income, where energy 
spending is a higher share of their spending. That is a real 
problem. But if you look at overall consumer spending, 5.5 
percent of that is on energy products.
    Ms. Schakowsky. And when you see an increase of 71 percent, 
doesn't that increase the percentage?
    Mr. Hall. Yeah, absolutely----
    Ms. Schakowsky. And that would be for renters, which 
doesn't necessarily show in how much goes for energy.
    Mr. Hall. Well, no, actually it does, absolutely does, and 
it probably will bump out some additional consumer spending on 
other things. But still, my point is, though, that although it 
is hardship and it is difficulty, it still----
    Ms. Schakowsky. And small businesses that are going to have 
to absorb those costs.
    Mr. Hall. Absolutely.
    Ms. Schakowsky. Okay.
    Mr. Hall. Well, my focus has been on the economy overall.
    Ms. Schakowsky. Yeah.
    Mr. Hall. You know. The forecasts on the impact of Katrina, 
we don't do the forecasting, but they top out anywhere from a 
half a percentage point to somewhere over 1 percent. Well, we 
had a forecast of 4 percent growth in GDP this quarter. That is 
a long way from a point off GDP growth. My point is, in terms 
of worrying about recessions and such, this is not--this is 
hopefully not going to impact, or will not impact the rest of 
the economy in----
    Ms. Schakowsky. Is it Huether?
    Mr. Huether. Yeah. Right.
    Ms. Schakowsky. Let me ask you this. If--the construction 
companies are very interested in getting some protection from 
any kind of--from liability as they rebuild. How would you feel 
if you are a manufacturer, and you want to rebuild your plant, 
about having the inability to get relief from a construction 
company that did their work in a shoddy manner, and a dangerous 
manner? This is legislation that they are pushing, and will 
come to the Congress and ask to support.
    I just wondered what your Association might feel about 
that, or----
    Mr. Huether. Well, I think that we would typically want the 
type of insurance protections that are typically associated 
with reconstruction. And if you wouldn't mind, I would like to 
kind of answer a little bit about your question to Dr. Hall.
    Ms. Schakowsky. Well, answer that one, though. So you would 
not be in favor of that exclusion from liability for 
construction companies?
    Mr. Huether. I don't know that the NAM has taken a position 
on that right now, and it probably would be best for me to 
answer you later, after this is over, because I don't know if 
the NAM has----
    Ms. Schakowsky. And in that regard, by the way, Mr. 
Chairman, if I could submit some other questions in writing, I 
would appreciate it.
    Mr. Stearns. Absolutely.
    Mr. Huether. But in addition, you know, one of the major 
concerns that manufacturers have, and you mentioned about 
natural gas is, you know, the fact that about 40 percent of 
natural gas is used by industry, more than consumers. More than 
retail, more than any other sector. It is manufacturers, 
primarily, that use natural gas. And one of the big concerns 
that manufacturers have isn't necessarily that we have had a 
spike recently, but the main concern is that while there is a 
world oil price, and if oil does come down, refining capacity 
gets back up, then, the price of gasoline is going to moderate.
    The big concern that companies have right now is that 
natural gas prices aren't going to come down, mainly because 
there is not a world market price for natural gas. It is 
determined by local supply and demand. And I think that one 
downside for the economy going forward is continued very high 
natural gas prices. Now, there has been some legislation that 
was passed, that is going to help increase natural gas supply, 
but we have to remember putting things into context right now, 
the U.S. economy has four liquid natural gas terminals in the 
country. That is equal to the number that South Korea has. 
Their economy is a tenth the size of ours. If you look at 
Japan, they have 26 terminals. If you look at Europe, they have 
anywhere between 16 and 20, and they are building more. So you 
know, we all know that probably the use of natural gas, going 
forward, is not going to decline, and so I think it is 
important that the government, you know, help promote an 
expansion of natural gas supply going forward, because it is 
going to be a long term concern going forward.
    Mr. Stearns. Well, I think we completed. I am just going to 
ask Mr. Seesel a question, and I am asking you to answer yes or 
no. This is a yes or no question for you, and I know how--your 
staff is cringing right now, that I am going to ask this, so we 
don't want a maybe here.
    You announced yesterday that you are investigating price 
gouging of gasoline. Is that correct? I think you had some kind 
of press conference or something like that?
    Mr. Seesel. I testified yesterday before the Senate 
Commerce Committee.
    Mr. Stearns. Yeah.
    Mr. Seesel. The Commission is looking at gasoline price 
manipulation under Section 1809.
    Mr. Stearns. So you have started this investigation.
    Mr. Seesel. Yes. It is underway.
    Mr. Stearns. Okay. Should the Federal Government, the 
question is, should the Federal Government have the explicit 
authority to investigate and prosecute price gouging, just yes 
or no?
    Mr. Seesel. In my personal judgment?
    Mr. Stearns. Well, your professional--both--you can give me 
your personal, but I am more interested in your professional 
opinion.
    Mr. Seesel. I think my answer to that, Mr. Chairman, would 
be no.
    Mr. Stearns. Okay. Okay. What is your personal?
    Mr. Seesel. No, that is what I meant.
    Mr. Stearns. Okay. So----
    Mr. Seesel. I can't speak for the Commission officially, 
but----
    Mr. Stearns. Okay. Okay. Well, I think we have had a pretty 
good hearing. I will allow the gentlelady, the ranking member, 
to also ask if she has another question, but Mr. Huether, we 
had a little question on the Bacon Act, and there was some 
question she brought up about the suspension of it, and 
obviously, I support that. She does not support it. I mean, is 
there anything you would like to add to that, because in some 
cases, to expedite this, it--there might be an argument for the 
suspension.
    Mr. Huether. I don't like--repeat other economists, but 
this really gets into an area that is kind of outside my 
expertise.
    Mr. Stearns. Okay.
    Mr. Huether. And I would be happy to go back to the NAM and 
answer the question later in writing, if that is okay----
    Mr. Stearns. Mr.----
    Ms. Schakowsky. We could just fight it out, Mr. Chairman.
    Mr. Stearns. Fight it out. Mr.--Dr. Niskanen, would you 
comment about the Bacon Act, and it being suspended? You might 
want to help Mr. Huether here.
    Mr. Niskanen. I think Davis-Bacon is a bad law, and I would 
be pleased to see that it will at least be suspended for a 
period of time. I think that it should trigger a more general 
investigation of Davis-Bacon, to see whether it is really a law 
that we ought to go forward with. But I think my impression----
    Mr. Stearns. In the short term.
    Mr. Niskanen [continuing]. Of Davis-Bacon right now is 
that--do you have the authority to suspend it for a period of 
time, but not to--but not indefinitely.
    Mr. Stearns. Right. That is--and you support that idea.
    Mr. Niskanen. And I think that it should trigger, maybe, an 
investigation by this committee or some other element of 
Congress to--as to whether this is appropriate labor 
legislation for the future.
    Mr. Stearns. Well, just for your information, there has 
been legislation as long as I have been here in Congress, and 
it has always failed. So the Davis-Bacon Act has succeeded in 
the House floor to continue, even though it has been offered. 
But if you had any suggestions, I am going to close the 
hearing. If there is anything else you would like to say?
    With that, I want to thank you for your patience while we 
went to vote, and I think we had a very substantive hearing, 
and I thank you for your time.
    [Whereupon, at 1:10 p.m., the subcommittee was adjourned.]