[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                     MONETARY POLICY AND THE STATE
                        OF THE ECONOMY, PART II

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 16, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 110-4

                    U.S. GOVERNMENT PRINTING OFFICE
34-674                      WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana                RON PAUL, Texas
BRAD SHERMAN, California             PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York           STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas                 DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts    WALTER B. JONES, Jr., North 
RUBEN HINOJOSA, Texas                    Carolina
WM. LACY CLAY, Missouri              JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York           CHRISTOPHER SHAYS, Connecticut
JOE BACA, California                 GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West 
BRAD MILLER, North Carolina              Virginia
DAVID SCOTT, Georgia                 TOM FEENEY, Florida
AL GREEN, Texas                      JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin,               J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee             RICK RENZI, Arizona
ALBIO SIRES, New Jersey              JIM GERLACH, Pennsylvania
PAUL W. HODES, New Hampshire         STEVAN PEARCE, New Mexico
KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
RON KLEIN, Florida                   TOM PRICE, Georgia
TIM MAHONEY, Florida                 GEOFF DAVIS, Kentucky
CHARLES WILSON, Ohio                 PATRICK T. McHENRY, North Carolina
ED PERLMUTTER, Colorado              JOHN CAMPBELL, California
CHRISTOPHER S. MURPHY, Connecticut   ADAM PUTNAM, Florida
JOE DONNELLY, Indiana                MARSHA BLACKBURN, Tennessee
ROBERT WEXLER, Florida               MICHELE BACHMANN, Minnesota
JIM MARSHALL, Georgia                PETER J. ROSKAM, Illinois
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 16, 2007............................................     1
Appendix:
    February 16, 2007............................................    51

                               WITNESSES
                       Friday, February 16, 2007

Bernstein, Jared, Senior Economist, Economic Policy Institute, 
  Washington, D.C................................................     6
Blackwell, Ron, Chief Economist, American Federation of Labor and 
  Congress of Industrial Organizations (AFL-CIO).................     8
Blank, Rebecca M., Gerald R. Ford School of Public Policy, 
  University of Michigan.........................................    11
Grant, James, Editor, GRANT'S Interest Rate Observer.............    14

                                APPENDIX

Prepared statements:
    Bernstein, Jared.............................................    52
    Blackwell, Ron...............................................    68
    Blank, Rebecca M.............................................    74
    Grant, James.................................................    90
    .............................................................    00
    .............................................................    00
    .............................................................    00
    .............................................................    00
    .............................................................    00

              Additional Material Submitted for the Record

Hon. Barney Frank:
    New York Times article by Bob Herbert, dated 1/22/07, ``Your 
      MasterCard or Your Life''..................................    95


                     MONETARY POLICY AND THE STATE
                        OF THE ECONOMY, PART II

                              ----------                              


                       Friday, February 16, 2007

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room 2175, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Present: Representatives Frank, Maloney, Watt, Moore of 
Kansas, McCarthy, Lynch, Scott, Green, Cleaver, Sires, Hodes, 
Ellison, Klein, Wilson; Bachus, Lucas, Paul, Gillmor, Jones, 
Capito, Neugebauer, Putnam, Blackburn, and Roskam.
    The Chairman. Today's hearing of the Committee on Financial 
Services will come to order. Would members of the staff please 
close the doors? This is a continuation of a hearing on 
Monetary Policy and the State of the Economy, and today we have 
a panel of four economists. Three were selected by the 
majority, one by the minority, and we think they represent a 
good panel of people to express their views on the subjects 
that are covered in the Monetary Report that are covered in the 
Humphrey-Hawkins bill that are before us today.
    The key issue, I believe, before the country economically 
is how to continue and perhaps improve on economic growth in a 
manner that more fairly distributes the proceeds of that 
growth. No serious individual is trying to do away with 
inequality. Inequality is a driver of the capitalist economy, 
and it serves us well. But too much inequality can become 
socially problematic, it can become economically problematic, 
and it can become politically problematic. And the task I 
believe, for us, is not to do away with inequality, as I said, 
but to try to have public policies that contain it so that 
there is enough inequality to provide the incentives that the 
system needs to be productive, but not so much as to become 
socially, economically, and politically counterproductive.
    Now politically, it is clearly counterproductive now. 
Whether or not it is socially, and whether or not it will 
become so economically, remains to seen. I would note that the 
Federal Reserve Chairman and others have cited the great 
strength of consumer spending as we go forward in the economy, 
but a number of people, including, I believe, the gentleman 
from Connecticut, Mr. Shays, yesterday raised a kind of 
paradox, which is that consumers are being told two things: 
One, to consume; and two, to save. And you cannot consume and 
save the same dollar, at least not legally. So the issue then 
becomes do the consumers have enough to do both? And that's the 
economic problem. You can reach a point where there is simply 
not enough money going to the great bulk of citizens for them 
to do both. And it does appear right now that consumption is 
being maintained, but to some extent at the expense of savings. 
I've had friends in the financial community who are concerned 
about the low savings rate in America, the negative savings 
rate in some cases, saying to me, ``Don't you think we need to 
do things to help the average citizen save more?'' My answer is 
yes, begin by letting him or her have more money. For people 
who have run out of money by the end of the month, there is no 
incentive in the world that is going to get them to save. They 
cannot save what they do not have, and I think that is the 
problem.
    And, of course, it is also the case that Henry Ford, when 
he decided to pay the workers $5 a day and was chided by some 
of his fellow industrialists for profligacy, made the very 
sensible statement that if he didn't pay them, they couldn't 
buy the cars. You can't have a mass production economy without 
mass consumption. And he, although he was a raving anti-semitic 
lunatic in other contexts, he was a pretty good economist as 
well as obviously a great industrialist, showing that 
intelligence does not necessarily jump from area to area.
    But that's the dilemma we have, and I do think it is clear 
that certainly politically we have reached a point where 
excessive inequality has become a cause of political gridlock, 
not just in America, but elsewhere. You see it in Latin America 
with the increasing success of some politicians winning 
elections who many in America disagree with. And I must say I 
think it is far healthier to have elected officials like Lula 
and Kirshner than Morales and Chavez, but we are, I think, 
undercutting the responsible democratic left.
    In America, it is clear to me that as trade promotion 
expansion, trade promotion authority expires, it will not be 
renewed in the current context. A Doha Round is unlikely 
probably because of resistance from many of my colleagues in 
the areas that represent agriculture, agriculture apparently 
being an exception in the minds of many of my conservative 
friends to all the doctrines of free enterprise and little 
government that they otherwise support.
    But apparently Von Mises has a footnote that says that none 
of this applies to agriculture. It's apparently written in 
German, so I couldn't understand it, but my colleagues from the 
agricultural area apparently all seem to understand it.
    But if they got a Doha Round, I don't think it would pass 
the House. We are bringing out a bill from this committee on 
foreign investment, direct foreign investment, which is clearly 
in the interest of the United States and of our workers. It is 
more controversial than it ought to be, because there is this 
fear on the part of the average American that foreign economic 
activity somehow will undercut them. I think it is wrong in 
this case, but it is not wrong in general. So that is the 
subject that I hope we will be able to address. I think all of 
us want to see growth go forward.
    And I will just close by saying I was troubled by what 
seemed to me some bias that had crept in--well, not crept in, 
that is present in the Federal Reserve's approach, where in the 
Federal Reserve Monetary Report they say three things. One, 
production in America is now below capacity, will remain below 
capacity for several quarters, and is expected to reach 
capacity, not to go above it. Two, inflation appears to be 
diminishing. Three, therefore, our major concern is inflation.
    That does not compute. That bespeaks a bias, and while I do 
not believe--I think we've gotten proof that growth alone is 
not a sufficient basis for the kind of economy we want, it 
certainly is a necessary one. So as bad as things are when 
growth is not fairly shared, they would be worse if growth is 
diminished. And that is the set of problems we have today.
    And I believe now I will turn to the gentleman from Texas, 
the ranking member of the subcommittee, for his time.
    Dr. Paul. Thank you, Mr. Chairman. I want to thank you for 
holding these hearings, and I am very pleased that you do have 
an interest in monetary policy, because over the years, I have 
emphasized monetary policy as being very important. I think 
it's frequently neglected.
    There was a time that the Humphrey-Hawkins type of hearings 
that we've had semi-annually emphasized the issue of money 
growth and how this affected the economy. That is no longer the 
case; as a matter of fact, it's been de-emphasized. The Federal 
Reserve no longer even reports M3, as if total money supply has 
no importance, and yet there are some who think it still is 
important, even though most of us recognize that measuring 
money in this age of global financing has become more 
difficult.
    Most of the time when we, in the Congress, and other 
economists talk about the Federal Reserve, they talk about the 
fixing of interest rates on the overnight rate and its 
influence. Generally speaking, they're dealing with central 
economic planning rather than dealing with the currency itself. 
I like to think more that the role of the Federal Reserve ought 
to be to guarantee that we have a stable value of the dollar 
rather than concentrating on prices. Because if we have a 
dollar that falls in value, and prices go up and you 
concentrate on the prices, then the policies are directed 
toward rising prices and not to the cause of the inflation, 
which happens to be the inflation of the dollars themselves.
    The other thing that has always concerned me over the years 
has been the neglect in emphasizing that there are other things 
that occur when a central bank increases the supply of money. 
Not only might it lead to higher prices--the one thing is, you 
don't know exactly which prices will go up. Sometimes they're 
in the financial markets and sometimes they're in the asset 
markets.
    But there also tends to be a neglect of some other 
consequences of what the Federal Reserve does. For instance, 
even if prices happen to be relatively stable because of 
increased productivity, generally, everybody is reassured. 
Well, there's no inflation. And they fail to recognize that 
there are other consequences of Federal Reserve monetary policy 
such as the misdirected investment, the malinvestment, the 
accumulation of debt, and the formation of bubbles. And if we 
look at our history, we know something about bubbles. We know 
about NASDAQ bubbles. We know about housing bubbles and the 
various different portions of the economy that will get out of 
control.
    So, I am very pleased that we are having these hearings 
with this emphasis on Federal Reserve and monetary policy, and 
also the important issue that we have been dealing with more 
recently, that of transparency of the Federal Reserve. And 
though there have been some new items introduced, like the 
release of the minutes, and we know a little bit more a little 
faster about the Federal Reserve, what's going on, we still 
don't know the details of international transactions, the 
international conversations and what type of agreements there 
might be with central banks, which I think are very important.
    These are the kinds of things that I hope we can move 
forward and for which Congress will assume more responsibility. 
It is the Congress that is responsible, and I think we have 
been derelict in many ways of delivering so much of this 
responsibility to the Federal Reserve, and in many ways, the 
Congress, as it has in other areas in recent years, has not had 
adequate oversight, so I like the idea that we will have more 
oversight.
    I have had concerns about the President's working group on 
financial markets, and not too many people talk about it or 
know about it, and quite frankly, even as a member of the 
Banking Committee, I wish I knew more about it. I haven't been 
getting information, and to me, that is rather significant if 
there is a group. We know the group exists, we know they meet, 
but we don't know what they do, and I'm hoping I get 
cooperation on the committee so we can find out more about how 
they do and what their plans are and what their intents are. 
That to me, is very important.
    So, with that in mind, more transparency and more 
concentration on the value of our money and how it affects the 
distribution of wealth in this country, there is a saying that 
goes when you inflate a currency, there is a redistribution of 
wealth and it leaves the poor and the middle class and goes to 
the wealthy, and there are some statistics that point this out. 
And that's one of the reasons the working class can't keep up, 
because they suffer more from the inflation.
    And with that, I yield back to the chairman.
    The Chairman. The Chair apologizes. The gentleman has 
concluded. The gentleman from North Carolina, then we'll go to 
the gentleman from Illinois.
    Mr. Watt. Thank you, Mr. Chairman. I'll be brief, although 
I wouldn't bet you that it would be the 1 minute that I told 
you it would be. I'm not betting, but I'm going to try to stay 
within that minute.
    The Chairman. 10 seconds gone.
    Mr. Watt. I walked into the discussion when the Chair was 
talking about Chairman Bernanke's statement that we wanted to 
both increase savings and increase consumption at the same time 
and how that may be difficult to do or impossible to do. I'm 
wondering whether, in the course of this discussion today, 
somebody can address the concern I have that there probably is 
actually a negative savings going on that's feeding this 
consumption in the sense that my sense is that most of the 
consumption that's taking place with a number of my 
constituents is taking place with borrowed money. It's not 
coming at the expense of savings, it's coming at the expense of 
negative savings, because people are borrowing money to 
consume. And it would be helpful in this discussion today to 
see how this massive increase in personal debt that we are 
observing plays into this whole equation that we're discussing 
for the last 2 days.
    And with that, I'll yield back.
    The Chairman. I thank the gentleman. Since he did leave us 
some time, I would ask him to yield for the purposes just of 
saying, and he reminded me to do something. Bob Herbert of the 
New York Times did a very good column a while ago about the 
extent to which credit card debt and bankruptcies based on 
credit card debt have in some cases resulted from the need to 
pay medical bills by people who had no other alternative. And I 
would ask that the article which references a broader study be 
made a part of the record, because that's exactly the problem 
the gentleman was talking about, and it clearly is directly 
relevant here.
    Mr. Watt. Just to reclaim my time for a second. That's part 
of it, but that's at least a mandatory expenditure when you're 
talking about medical expenditures. A lot of what I'm talking 
about is discretionary expenditures, which is not in an 
emergency medical situation of that kind. I just think people 
are putting more and more and more debt onto credit cards at 
the expense of savings of any kind, really getting further and 
further into a negative savings situation.
    The Chairman. The gentleman is correct. The gentleman from 
Illinois.
    Mr. Roskam. Thank you, Mr. Chairman. I just want to thank 
you for holding these hearings and really setting the tone in 
terms of a macro level. I think you made a very interesting 
point about sort of the orthodoxy of the free market. I ran 
into that in the Illinois legislature where we would all sort 
of worship at the altar of local control until our ox was being 
gored, and then suddenly we would all sort of manipulate things 
around.
    But I think yesterday we heard some very interesting news, 
and I think encouraging news from Chairman Bernanke, and that 
is that the economy is strong, and I just want to point out a 
couple of those elements and then speak directly to what I 
think are some of the challenges that we face.
    3.4 percent growth in 2006 with 7.5 million new jobs 
created since 2003, no small task. Unemployment is low 
comparatively, 4.6 percent in 2006. Inflation is under control. 
It fell from 3.4 percent in 2005 to 2.5 percent in 2006. And 
our productivity is up by 2.2 percent, and of course we've all 
been reading about how the stock market is exceedingly strong.
    But there are still some challenges that are out there. We 
heard them yesterday a little bit, and that was a discussion or 
allusions at least to long-term entitlement costs and devising 
new ways to train dislocated workers and workers who are coming 
into the workforce.
    I think it's important as we begin these conversations to 
realize that all of us on this committee, and I think all of us 
in Congress, agree that it's essential to help those in the 
lower wage portions of the economy to improve their earning 
power, but I don't think some of the rhetoric that has bubbled 
over characterizing all of these positions as merely Wal-Mart 
jobs or low skill jobs is accurate. In fact, Chairman Bernanke 
said yesterday, ``There certainly has been job creation at the 
high level as well as throughout the distribution of wages.''
    And at that, higher wage jobs, the problem is often that 
there's not enough skilled workers to fill that demand. And I 
agree with him. I have run into this problem in terms of 
interacting with manufacturers in my district, which is the 
west and northwest suburbs of Chicago, who are having a very 
difficult time filling competitive slots based on training 
levels.
    So it's my hope that this will turn into a frank and 
positive discussion and that we avoid can some of the pitfalls 
that sometimes come up in economic conversations. We need to 
find ways to create and promote economic growth, but in my 
view, protectionism doesn't work, can't work, and will 
ultimately hurt our economy. As I've interacted with 
manufacturers, particularly in my district, they've said, 
``Look, we don't need help from that point of view. We just 
need help being more competitive here and at home.'' And we've 
all heard and seen egregious examples of CEO compensation 
that's been reported in the news media, but I think we risk 
killing the goose that lays the golden eggs if we overly 
regulate in that area. I think we need to create greater 
transparency. Again, my experience in Illinois has run its 
economy down considerably, now ranking 46th out of 50 in job 
creation due to a high regulatory environment.
    Mr. Chairman, our success has always been tied to an ever 
expanding wave of social and economic opportunity for citizens, 
and that's why I believe that our best solution involves 
finding new ways to empower our citizens. I look forward to 
hearing these witnesses and their testimony, and I yield back 
the balance of my time. Thank you.
    The Chairman. I thank the gentleman, and we will now get to 
our panel of witnesses who are being called upon in 
alphabetical order so that no one reads significance into it. 
And the first witness is Dr. Jared Bernstein, who is director 
of the Living Standards Program, the Economic Policy Institute 
and has been a very, in my judgment, welcome contributor to the 
policy debates we've been having in recent years about this 
very set of topics.
    Dr. Bernstein.

STATEMENT OF JARED BERNSTEIN, SENIOR ECONOMIST, ECONOMIC POLICY 
                  INSTITUTE, WASHINGTON, D.C.

    Mr. Bernstein. I thank Chairman Frank, Ranking Member 
Bachus, and the members of the committee for our opportunity to 
testify on the critical issue of the importance of full 
employment in today's economy.
    In recent months, top policy officials and economic 
commentators have wondered why there seems to be more economic 
anxiety among working Americans than might be expected, given 
the low unemployment rate and solid macro economy.
    While some officials remain puzzled by this apparent 
disconnect between macro performance and perceptions of 
economic wellbeing, a quick look at some relevant data suggests 
it should not be such a head scratcher. After rising at rates 
close to that of productivity over the latter 1990's, the real 
wage of the typical worker, the median wage, flattened in real 
terms, as did the average real wage of high school and even 
college graduates. After rising along with productivity growth 
over the latter 1990's, the real median income of working age 
families fell 5 percent or $3,000 since 2000.
    In fact, the latter 1990's were anomalous. For most of the 
past 3 decades, real middle wage and income growth has occurred 
at a pace far below that of productivity growth. The 
economist's mantra, rising productivity growth boosts living 
standards, now begs the question: Just whose living standards 
are being lifted?
    Two of the main reasons for the evolution of this 
productivity income gap are the absence of full employment and 
the loss of worker bargaining power. My key points today are 
truly tight labor markets are critically important for middle 
income working families. In a labor market that lacks the 
institutions and the norms to provide workers with some 
bargaining power in a global economy where those whose access 
to power and assets gives them a huge upper hand in the 
distribution of wealth, the predictable outcome is precisely 
the surge in inequality we've seen over the past few decades. 
In this context, full employment is one of the few reliable 
sources of bargaining power available to the American worker 
today.
    Now one reason for this imbalance has been the allegiance 
to a ``natural rate'' theory of unemployment. Despite little 
evidence to support its contemporary use, this theory has led 
policymakers to give greater weight to inflation relative to 
unemployment concerns, and this has been partly responsible for 
years of unnecessary slack in the labor market. Economic elites 
have been operating from a playbook with an inherent bias 
against broadly shared prosperity.
    Now the views of many economists and the policymakers who 
still heed their advice are driven by the belief that there is 
this so-called ``natural rate'' of unemployment, the rate below 
which inflation would not merely rise, it would continually 
accelerate until unemployment went back up to the so-called 
``natural rate.'' The Congressional Budget Office currently 
sets this rate to be 5 percent.
    Like many other economists today, I consider this concept 
to be a poor guidepost for policymakers. Events have overtaken 
the original model, and the evidence I present below suggests 
that subscribing to the model risks persistent and unnecessary 
slack in the economy, wasting billions of dollars, and 
consigning millions of potential workers to fewer job 
opportunities and lower wages than should be the case.
    We're not denying that a relationship between unemployment 
and inflation exists. We do, however, deny that policymakers 
can effectively identify the so-called ``natural rate'' and 
that unemployment below that rate leads to spiraling inflation. 
To the contrary, I provide evidence that when unemployment has 
fallen below the natural rate, middle-income families have 
prospered and vice versa. Tight labor markets are a critically 
important ingredient to a balanced economy where the benefits 
of growth are broadly shared.
    Let me take a few moments to clarify these claims. First, 
the unemployment rate has been below 5 percent for over a year. 
Are we not currently at or at least close to full employment? 
And second, given that we're below this alleged natural rate 
that I claim looms large in economists' thinking, why has the 
Federal Reserve not raised interest rates since last June?
    On the first point, while the current job market is 
relatively tight and a lot tighter than it was for the first 
few years of this recovery, our workforce has not enjoyed a 
sustained period of full employment in this business cycle, and 
the result has been the absence of broadly shared economic 
gains.
    Second, while concerns about tight job markets generating 
wage push inflation are of course evident in their statements 
and speeches, the actions of neither the later years of the 
Greenspan Fed nor the Bernanke Fed appeared to be dominated by 
concerns about the natural rate. And to their credit, both men 
have consistently practiced a more nuanced version of monetary 
policy than would be the case if they were bound by the belief 
that unemployment below 5 percent would automatically lead to 
spiraling wage growth.
    Allow me to demonstrate the points I'm trying to make here 
with a table that I handed out to all the members on the 
committee. They contrast two periods with very different 
outcomes for the median family. They are also two periods where 
the goals of macroeconomic policy were quite different.
    Using historical estimates of this natural rate, we can 
determine when the actual unemployment rate was above or below 
the supposed floor in the job market. In truly full employment 
periods, the unemployment rate will be below the natural rate 
and vice versa. Between 1949 and 1973, as the table that I 
handed out shows, the unemployment rate was often below the 
natural rate, cumulatively 19 percentage points. This happens 
to be about the same number of points that unemployment was 
above the natural rate in the latter period. Not only was 
middle income growth much higher in the period when we were 
often below the natural rate, but inflation was lower as well.
    Clearly, from the perspective of middle class incomes, and 
especially for minority families, for whom full employment has 
consistently made a huge and positive difference, tight labor 
markets, even below the supposed natural rate were associated 
with much better income growth.
    Thank you.
    [The prepared statement of Mr. Bernstein can be found on 
page 52 of the appendix.]
    The Chairman. Thank you. Next, sticking with my 
alphabetical order, which the gentleman from Alabama is helping 
me master, we will hear from Mr. Ron Blackwell, who is the 
chief economist for the AFL-CIO.
    Mr. Blackwell.

     STATEMENT OF RON BLACKWELL, CHIEF ECONOMIST, AMERICAN 
 FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS 
                           (AFL-CIO)

    Mr. Blackwell. Thank you, Chairman Frank, Ranking Member 
Bachus, and other members of the committee for the opportunity 
to be here and to testify on behalf of the 10 million members 
of the AFL-CIO and its affiliated unions on the economy and the 
conduct of monetary policy.
    I should begin by acknowledging that I happen to sit on the 
board of the Baltimore branch of the Richmond Federal Reserve 
Bank, but I'm appearing here today exclusively as a 
representative of the AFL-CIO, and nothing I say is intended to 
express the thinking of either the Richmond Bank or the Board 
of Governors.
    The Chairman. Unfortunately.
    Mr. Blackwell. Our view of monetary policy, like our view 
of economic policy in general, proceeds from a single important 
central fact of our times, which is that in the richest country 
in the history of the planet, it's increasingly difficult for 
people to make a living by working.
    We have a $13 trillion a year economy, and it's growing at 
over 3 percent a year, while real family incomes have 
stagnated. The rupture between productivity and wages that Dr. 
Bernstein mentioned is one of the signal facts of our time. I 
think I understand the diagram that you're looking at.
    If you look at the early period of the post-war period, the 
period when the middle class was built, we had very rapid 
economic growth, over 5 percent a year. Rapid productivity 
growth and real wage growth tracked productivity step for step. 
That was the most rapid increase of living standards not only 
in the United States' history but in world history.
    But the period after that is very different. Today, we 
believe that 3 percent is a very rapid pace of economic growth. 
Productivity growth is growing today very strongly, at least 
since 1995, but wages have been stagnant. The increase in 
productivity since 1973 is something like 67 percent, 
contrasted with 100 percent increase in the earlier period. But 
real wages have increased by 8 percent, 8 percent compared to 
67 percent.
    The only reason--and family incomes have gone up by 
something like 15 percent. But the only reason they've gone up 
is because each worker is working more hours per job. Each 
worker is working more jobs on average. And most importantly, 
each family is sending more of its members to work, placing 
enormous strains on the working family.
    And of course, there's the borrowing of money against 
rising housing prices, first and foremost, but in general, 
rising indebtedness of households as they try to maintain 
living standards in a stagnating environment.
    Moreover, economic insecurity is on the increase, as the 
chances of a working family losing 20 percent of its income in 
any 2-year period have doubled since 1980. And with 46 million 
people with no health insurance in this country, despite the 
fact that we spend more per capita on healthcare than any 
country in history, and with the shift by employers from 
defined benefit to defined contribution plans, which it's 
estimated by Ed Wolfe at NYU, has basically left older 
Americans aged 55 to 60 with lower net worth than their parents 
had, despite all the increases in wealth over the past 
generation.
    So we basically have a situation where workers are 
struggling to make a living in the midst of the most prosperous 
country in the history of the world. And this is what--the 
stagnation of wages and the rupture between productivity and 
wages, which used to be the standard of fairness in our 
country, is one of the things that's driving inequality. Today 
the United States has the most unequal distribution of income 
and wealth in the developed world, and we're more unequally 
developed today in terms of income and wealth than we have been 
since the 1920's, and we're headed backwards.
    There are many causes for this stagnation of wages and the 
growing inequality, but I think we have to rethink our 
country's economic policy if we're going to be able to respond 
to this and allow our country to grow together again instead of 
growing apart economically, politically and socially.
    The core issue, and Dr. Bernstein mentioned this, but I 
want to stress it, these various policies have shifted the 
balance of bargaining power from working people, whether 
they're in a union or not, to their employers. And the 
employers are using this increased relative bargaining power to 
reduce wages, keep productivity gains for themselves in the 
form of higher profits, shareholder pay, CEO pay, but also to 
walk away from their responsibilities for healthcare provision 
for their employees and for the retirement security of their 
employees.
    And the solution to this, I mean, the guiding thread of 
economic policy from our point of view is that we have to enact 
economic policies that rebalance power between working people 
and the people for whom they work. And in doing so, it's not 
against these employers. We need great American companies led 
by far-sighted business leaders, and we understand the 
increased competitive pressure they're under from globalization 
and other forces. But we do have to find a way in this new 
global economy to balance this power between working people and 
their employers.
    We proceed on economic policy and monetary policy from the 
point of view of the values of American working people, and 
four of those, in particular, are very important to mention.
    The first one is that anybody in this country who wants to 
work should have a job. It's a terrible thing when people are 
left, as a matter of government policy, unemployed, as we 
currently do millions of people, unemployed, looking for a job, 
and unable to find one because of our policy of controlling 
inflation.
    Second, if anybody does work in this country, their family 
shouldn't be living in poverty. And their family members, 
especially their children, should have access to healthcare, 
and they should have some reasonable hope that at some point in 
their working life they could stop working and live a dignified 
retirement.
    Third, if they want to associate with their brothers and 
sisters at work and form a union, they should be able to.
    And fourth, in conclusion, we know we live in a global 
economy, but American workers want to have a strong American 
economy, one that pulls its weight in the world and that is 
internationally competitive. The fact that we're borrowing 6 
percent of our GDP to consume things that we no longer produce 
is a problem from the point of view of the sustainability of 
our country's competitiveness, and it's a problem for American 
working families.
    But in this context, the very foundation of economic policy 
is the first value. If someone wants to work in this country 
and improve their living standards and that of their family 
through their own efforts, the government should assure that 
they have a job to occupy. This was recognized in 1946 in the 
Employment Act, and in 1978 in the Humphrey-Hawkins Act. But 
the conduct of monetary policy since that time has narrowed the 
dual mandate of the Federal Reserve to maximize employment on 
the one hand, maintain price stability on the other. That is 
has been effectively narrowed because of this NAIRU concept, on 
to inflation fighting. Hence, the irony that you were noting, 
Mr. Chairman, about the fact that inflation is still our 
biggest concern even though there's no sign of it anywhere.
    I want to recommend shortly, briefly in closing that 
instead of narrowing the mandate of the Federal Reserve, we 
need to broaden and bring up to date that mandate. We currently 
have an economy, as mentioned by Mr. Bernanke as a strong 
economy. The current recovery is the weakest in terms of job 
creation of any recovery since the Second World War. And wages 
and productivity are still dividing. It's higher now than it 
was when the recession began. Our employment population is 
lower. We need to broaden it to include a genuine full 
employment and establish full employment as the foundation of 
our economic policy.
    Thank you very much.
    [The prepared statement of Mr. Blackwell can be found on 
page 68 of the appendix.]
    The Chairman. Thank you. Next is Dr. Rebecca Blank, who is 
the Joan and Sanford Weill Dean of the Gerald R. Ford School of 
Public Policy at the University of Michigan, and I assume by 
the time you go back, they will have found someone to name the 
State of Michigan after so that they can maximize the deference 
that we pay.
    Dr. Blank.

STATEMENT OF REBECCA M. BLANK, GERALD R. FORD SCHOOL OF PUBLIC 
                 POLICY, UNIVERSITY OF MICHIGAN

    Ms. Blank. Thank you, Chairman Frank, Ranking Member 
Bachus, and the distinguished members of the committee. I'm 
delighted to be here this morning. I want to give you just a 
few facts about life for low-skilled workers in America. I want 
to say something about the implications of rising inequality 
and then close with a very, very brief discussion of the policy 
implications.
    It has always been clear that the most important policy to 
assist less-skilled workers is a healthy macroeconomy with 
strong job growth. There has historically been a strong 
positive correlation between unemployment rates and poverty 
rates. When unemployment rises, so does poverty. It is worth 
noting that inflation actually has little correlation with 
poverty among non-elderly adults. At the bottom of the income 
distribution, keeping employment high is significantly more 
important than keeping inflation low.
    A primary reason why unemployment and poverty are strongly 
correlated is that unemployment tends to be concentrated among 
less-skilled and lower-wage workers. If you look at the trends 
in unemployment by skill over the past 25 years, three points 
become very quickly apparent. One, unemployment rates are 
substantially higher among less-skilled workers than more-
skilled workers. Two, unemployment is much more cyclical among 
less-skilled workers. When jobs become scarce, those who lose 
their jobs first are those who are lower wage. Three, while 
overall unemployment rates do remain quite low at present, the 
unemployment rates among less-skilled workers still are 
relatively high, higher than they were, for instance, at this 
point in time in the expansion of the 1990's.
    Unemployment rates of course are only an imperfect 
indicator of what's going on in the labor market, and many 
people also look at labor force participation rates. Trends in 
labor force participation rates show a very interesting 
divergence by gender. Labor force participation rates among 
less-skilled men have been falling steadily, even through the 
rapid economic expansion of the 1990's, while they've been 
rising among less-skilled women. I might note those falls in 
labor force participation among less-skilled men are 
particularly strong among African American men in communities 
of color.
    It's important to understand why labor force participation 
among less-skilled women is going up, while it's going down 
among men. Part of the answer is microeconomic policy, which, I 
realize, is not the jurisdiction of this committee. There have 
been changes in terms of welfare reform, in terms of expansion 
in the earned income tax credit, in child care subsidies, and 
in Medicaid that have made work more attractive, particularly 
for less-skilled women.
    But policy changes at the micro level are only one part of 
the story. Macroeconomic shifts in demand are also very 
important. And the changes in relative wages that both of the 
previous speakers have referred to are a major reason for 
declining labor force participation among less-skilled men. 
Calculations of inflation-adjusted median weekly wages indicate 
that women who are high school dropouts have seen their weekly 
wages rise by 14 percent over the last 15 years. Men who are 
high school dropouts have basically seen no change whatsoever 
in their wages.
    In short, as wages have changed in this economy, both less-
skilled men and women have fallen further behind their more-
skilled brothers and sisters. The job market has simply gotten 
tougher for less-skilled workers. But other changes among 
women, growing work experience, changes in policy, and greater 
returns to experience have offset these problems and led to 
somewhat greater wage increases and hence greater workforce 
participation.
    And as others also have noted, this rising inequality of 
wages also reflects itself in rising inequality in household 
incomes. Some of that has been offset by the fact that more 
people are working, and working harder, so rises in household 
inequality are not quite as great as rises in wage inequality.
    So why should we care about rising inequality? I think 
there are at least three reasons. First, there's a sense of 
economic deprivation among lower-income families as they watch 
others move further ahead. Tuition for higher education is 
increasing faster than inflation. Housing and rents in many 
areas are going up faster than inflation. Healthcare is almost 
impossible to purchase if you don't get it through your 
employer. Lower-wage workers in today's economy are finding it 
harder to achieve those things that are part of the American 
Dream: a house; a job with pension and health benefits; and the 
opportunity to send their children to college.
    Second, economic inequality is linked with other types of 
social inequality. Health disparities between more- and less-
skilled workers have risen. Differences in educational 
achievement between the best and the worst students have risen. 
These social inequalities only reinforce economic inequality, 
and most troublesome, they limit opportunities for the children 
of today's lower-wage workers. Quite a bit of evidence now 
suggests that economic mobility is greater in many European 
countries than it is in the United States.
    Third, economic inequality and a sense of relative 
deprivation have negative effects on the civic and the 
political realm. The economic experiences of the past 2 decades 
are simply different for those with a college education as 
opposed to those with a high school education. Fear of 
technological change and growing economic internationalization 
is fueling a backlash that will lead to bad policies that limit 
future economic growth. Public discussions of Social Security 
reform or health insurance are simply hard to hold when the 
bottom third of the population is going to retire only on 
Social Security and Medicare, while the top third has extensive 
market investments and long-term supplemental health insurance 
through their employer.
    In short, economic inequality makes it harder to solve our 
common problems, and harder to evoke a sense of common purpose 
and experience. This is not only inconvenient for politicians, 
it threatens the civic nature of public debate in a democracy.
    What should we be thinking about on the policy front? 
Chairman Bernanke, in a recent speech, called for investments 
in education and training to moderate inequality, and he's 
absolutely right. In the long run, more Americans need more and 
better education. But by itself, that's not a complete 
strategy. Three additional policy emphases need to be 
considered.
    First, we need a strong labor market with growing demand 
for workers at all skill levels. This means macroeconomic 
policies that promote stable economic growth and low 
unemployment among all.
    Two, we need to maintain and expand our policies that 
subsidize work for the least skilled and that encourage adults 
to take and keep jobs. This committee, I know, is focused 
primarily on macroeconomic issues, but the answers to these 
questions will also include some more specific focused 
microeconomic policies, such as expansions in the earned income 
tax credit, a moderate minimum wage level at levels similar to 
where it's historically been set, and assurances that low-
income families have healthcare available to them.
    Third, and finally, it is important to think creatively 
about ways to make sure that all Americans benefit from the 
economic growth that is resulting from our recent economic 
changes. There are two ways to redistribute the benefits of 
these changes more broadly. First, we do redistribute some of 
it through the tax and transfer system through such things as 
the earned income tax credit or better healthcare. But 
secondly, we can assist those workers who are displaced by new 
technologies or by shifts in where goods and services are 
produced. Policies such as wage insurance, aimed at cushioning 
income losses for displaced workers, can help America's workers 
adjust to a changing economy.
    Work is a good thing in the lives of adults. It produces 
income, a sense of self-value, and demonstrates that an 
individual has skills to contribute to the society. We should 
do all we can to encourage men and women to acquire the skills 
and work behavior that allows them to support themselves and 
their children, but we should also do all we can to guarantee 
there are jobs available to those who work, and to ensure that 
those who demonstrate their ability and their willingness to 
work are able to support themselves and their families.
    Thank you.
    [The prepared statement of Ms. Blank can be found on page 
74 of the appendix.]
    The Chairman. And to introduce our final witness, the Chair 
recognizes the gentleman from Texas.
    Dr. Paul. Thank you, Mr. Chairman. I would like to welcome 
Mr. James Grant, who is a financial journalist and the editor 
and founder of the GRANT'S Interest Rate Observer. He's also 
written several books on finances as well as even been involved 
in writing history books. So I welcome Mr. Grant today.
    Thank you.

    STATEMENT OF JAMES GRANT, EDITOR, GRANT'S INTEREST RATE 
                            OBSERVER

    Mr. Grant. Thank you, Chairman Frank, Ranking Member 
Bachus, and distinguished members of the committee. The 
currency that the Federal Reserve sponsors is the greatest 
achievement in the history of money. It is a miracle. It is 
uncollateralized, and has been since 1971. Nothing tangible 
stands behind it. It is purely faith-based, and yet this piece 
of paper of no intrinsic value passes from hand to hand, and 
they're nice to have as well. And so 30 years have passed since 
Humphrey-Hawkins enjoined the Fed to promote full employment 
and to promote a sound dollar. Those 30 years have by and large 
passed the Federal Reserve by, it seems to me. The Federal 
Reserve is a financial institution of moderate size. Morgan 
Stanley's balance sheet is bigger than the Fed's. The Fed holds 
$850 billion or so of government securities. The foreign 
central banks together hold an admitted $1.6 trillion, and the 
Federal Reserve has one policy tool at its disposal, and that 
is to manipulate a single interest rate.
    Now when Pope Julius II said to Michelangelo, ``Go paint 
the Sistine Chapel,'' he did not say, ``Here is your roller.'' 
And yet this blunt tool is what the Fed has. A roller, however, 
has never destroyed an industry nor stymied an economy, but the 
black art of price control is just that dangerous. The Fed 
essentially is in the business of price control. It is not so 
different than the late and unlamented Interstate Commerce 
Commission, nor the unreformed Texas Railroad Commission. It is 
in the business of picking a rate out of the air and imposing 
that rate on a market.
    Now people acting in markets are not infallible, nor are 
people in bureaucracies always in error. But I think we have 
come to believe, all of us in economics and finance, that by 
and large, prices discovered are better than prices imposed. 
And yet the Fed imposes a price. The Fed is well-intentioned 
and smart, too--so many college-educated economists--but the 
rate that the Fed imposes is not always the rate we ought to 
have.
    Consider, for example, the 1 percent rate the Fed gave us 
from mid-2003 through mid-2004. You'll recall at the time that 
the specter of deflation loomed over the American economy. So 
far as I could tell, that was a specter of every day low and 
lower prices. However, Chairman Bernanke, and then-Chairman 
Greenspan, who had previously sung the praises of globalization 
and high productivity growth, now decided that those things, in 
fact, posed a distinct menace.
    And to save us from a price level too low, an inflation too 
low, they went out and ordered the printing of more money. 
Chairman Bernanke was especially vivid in that mission, 
reminding us that the Fed could, if it wished, drop dollar 
bills from aircraft, which I gather the Fed has done in 
Baghdad. But this was in the United States. So 1 percent was 
the rate for a full 12 months.
    Not since the second Eisenhower Administration had anything 
like that been seen. The result was a great rush of prosperity 
into residential mortgage finance and into housing. Housing for 
the next several years generated fully 40 percent of private 
sector employment growth. Everybody and his brother--you didn't 
have to apply for a loan any more. They came to you. And this 
was fine. It was good for the working man, it was good for the 
families. Home ownership, a great, an inherently great good, 
one hears, went up and up.
    And now we no longer have a 1 percent interest rate. The 
Fed has decided that the market needs a 5.25 percent interest 
rate. In consequence, there is a small but significant and 
growing and financially worrisome problem with mortgage 
finance. The so-called ``subprime'' area of our mortgage market 
is in disarray.
    Interest rates are the traffic signals of a market economy, 
and when they are all switched to green, there is bound to be 
confusion at the intersections and a certain number of pileups. 
We have talked about growth and opportunity. Everyone wants the 
same thing. The question is, can the Fed deliver those things 
through the manipulation of one rate? In 1978, the United 
States was the net creditor to the world. Today we're a massive 
net debtor. In 1978, most interest rates were manipulated by 
the Fed under a regulatory regime that went out the window in 
1980. The world is so very different from 1978 that we ought to 
think about what the Fed can do and what it can't do and not 
ask too much of this body of mere mortal men and women.
    Thank you.
    [The prepared statement of Mr. Grant can be found on page 
90 of the appendix.]
    The Chairman. Thank you, Mr. Grant. I'm going to go, in the 
interest of reaching people who didn't get reached, right to 
the gentlewoman from New York. Does the gentlewoman have 
questions, or do you want to defer?
    Mrs. Maloney. Well, I was going to pull a report out of my 
BlackBerry. Maybe I should defer till I get this report out.
    The Chairman. All right.
    Mrs. Maloney. But I'll just say what it is generally. It is 
a report from the United Nations that rates countries in the 
Western industrialized world, and we are rated very, very low, 
I think 37th, or 47th. Let me look it up.
    The Chairman. All right.
    Mrs. Maloney. But I'll ask one question now. You mentioned 
about the dollar and how important that is. Well, could any of 
the economists comment on the dollar and the fact that the last 
time I looked it was 16 silver dollars to the dollar. The euro 
was much, much higher. The value of the dollar is falling in 
terms of the global market, and what does that mean for us?
    I do want to comment to Mr. Blackwell that I'm very, very 
pleased that you were appointed to the Federal Reserve. Your 
voice is refreshing on the need to make sure that our economy 
expands and grows for all of our citizens, and I thank you for 
that really heartfelt testimony that you gave.
    But could the panelists comment on the dropping value of 
the dollar and what that means for our economy and for our 
people? And also, America doesn't make anything any more. We've 
lost 22 million manufacturing jobs. And when I look around my 
district, it used to be a manufacturing district, now it's a 
service district. Can our economy continue providing just 
services and without really making anything? Thank you all for 
your testimony, and I thank the chairman for holding this very 
important hearing.
    Mr. Bernstein. If I may make a response to your question 
about the dollar, earlier in our discussion, one of the members 
of the committee mentioned that manufacturers in their district 
said they, ``need help being more competitive.'' I've heard 
that myself. I think dollar policy actually plays a role 
therein. If some of the other countries with whom we compete 
manipulate their currency so that the U.S. dollar stays high 
relative to the value of their currency, it is much more 
difficult for our exporters to compete. And this has been 
occurring with, I think, quite alarming results. We've lost 3 
million manufacturing jobs since 2000, and the story you told, 
Representative, is not at all uncommon, particularly in States 
in the so-called rust belt.
    Manufacturing is an integral part of our economy. The 
productivity provided by manufacturing--innovation, not to 
mention the quality jobs, are integral to a powerful, strong, 
innovative economy. So I think as part of the mandate of this 
discussion, this committee needs to look at dollar policy with 
that in mind.
    Now it sounds bad to think about a weak dollar. Weakness 
sounds like something we don't want. And if the dollar is to 
fall too quickly, that could be inflationary, as others have 
mentioned. But an orderly decline in the dollar and a strong 
stance against those who manipulate their currency to boost 
their exports and hurt ours should be well within our mandate.
    Ms. Blank. I'd like to just say something about the loss of 
manufacturing jobs as well. I'm from Michigan, so I'm very well 
aware of some of the concerns here. It's not that we actually 
make a lot less. We make an amazing amount in this country of 
real goods, not just services, but we use a lot less labor in 
it because of the rise of productivity. And the result of that 
has been huge displacement of, particularly, middle-aged men 
who thought they were set for life in terms of a reasonably 
well-paying job, and have now lost those jobs.
    We have done very little to cushion those sorts of economic 
changes, and the loss of income and the loss of employment 
that's happened inside families that have been affected by 
these manufacturing shifts. It has really been very devastating 
in some areas of the country. It's time to think seriously 
about some polices that don't permanently cushion these things, 
but that provide at least some safety net that allows people to 
make transitions in their lives when they get faced with these 
types of major economic changes going on around them.
    Mr. Blackwell. I also wanted to point out that we consume 
just as many things as a people that we've ever consumed, but 
we produce only about 70 percent of what we consume. The other 
part is purchased from offshore, and oftentimes and 
increasingly it's purchased offshore from American companies 
operating offshore.
    Part of the reduction of employment in manufacturing is not 
due just to productivity growth, it's due to the outsourcing 
and the offshoring of manufacturing activities in U.S.-based 
companies. And an increasing, a large portion of that is in 
China, which is the country that is manipulating its exchange 
rates and is tying the exchange rates of all Asian competitors 
above what they would be if the market were operating.
    I think this is a special area of concern of the Federal 
Reserve, and they need to be asked serious questions about the 
strong dollar policy that they have supported since 1995. This 
strong dollar policy is making it more and more difficult to 
have meaningful, productive activity here in the United States.
    When I mentioned before that we have an unsustainable 
borrowing and unsustainable $3 billion a day to pay for the 
things that we consume that we don't produce, nobody believes 
this is sustainable. We've got to find a way to produce a 
competitive U.S. economy that will require a lower dollar.
    Mr. Grant. Since the late 1990's, the price of gold in 
terms of dollars has gone up a great deal. Gold is a more or 
less stable source of purchasing power. Time was when $295 or 
so bought an ounce. Now it's $670. I don't think the dollar 
policy we have is strong, but I think we are hugely vulnerable 
with regard to the dollar.
    This is a world of paper currencies, and there is something 
very fragile about it. These currencies owe their legitimacy to 
governments and their quoted value to speculators. Think about 
it. The U.S. dollar is the global brand name par excellence--
nothing like it. Which, however, puts us at enormous risk for 
the portfolio preferences of the world at large. You know, we 
issue six--I don't know, 800 billion or so greenbacks a year 
into the world payment stream. These dollars are absorbed not 
by private investors who want the dollars because they trust 
them. They are absorbed at the margin, and importantly, by 
foreign central banks.
    And how does a foreign central bank buy a greenback? It 
creates the local currency with which to buy it. So what you 
have been seeing is the huge creation of currencies by all 
countries. We send them paper, they send us stuff. The way they 
absorb the paper is by printing RMB, yen, Singapore dollars, 
and Korean yuan, so there is a huge outpouring of what on Wall 
Street is called liquidity.
    Now liquidity is a word for bank credit. It's a word for 
elixir. You know it's--these currencies are flooding the world, 
and the United States position is much different than it was in 
1978 when Humphrey-Hawkins was enacted. Then we might have been 
able to manipulate interest rates in order to increase 
employment. Now we are at the mercy, to a great deal, of our 
holders of dollars abroad. We no longer have the freedom of 
action that we did.
    The Chairman. The gentleman from Alabama. I'm sorry. The 
gentleman from Texas first? I apologize.
    Dr. Paul. Thank you, Mr. Chairman. I have a question 
relating to a chart on page 4 of Dr. Bernstein's written 
statement. I don't know if you have that chart, but it's a 
chart that shows a tracking with productivity and real 
compensation, and these two lines tracked together up between 
1947 and 1971, then all of a sudden they started to diverge.
    The productivity curve goes up where the real compensation 
flattens out, and I think that demonstrates much of what many 
of us have already talked about, that there is something unfair 
going on here. And yet I don't think we've gotten to the bottom 
of it to find out what was wrong, why it happened, and what 
we're going to do about it, and that is I think very important.
    Not only has it happened in wages, but we see a difference 
in the income on Wall Street. You know, back in 1971 a certain 
event occurred, and I think it was significant. But at that 
time, wages, the CEO pay was 30 times the wage, but today if 
you add up all the benefits of Wall Street, it's 500 times the 
wage. And yet there is one firm in Wall Street that passed out 
bonuses of $16.5 billion, so there's a certain inequity going 
on.
    In this period of time from 1971 up till now, in 1971 in 
today's dollar, the minimum wage was $9.50. Today it's $5.15. 
So we can't deny there's an inequity. But the event that 
occurred in 1971 was the breakdown of the Bretton Woods system. 
And if you put a chart on here with monetary supply increases, 
it would probably be growing much faster than productivity.
    My question is, how willing are you on the panel to 
identify this and relate this to a depreciation of the money 
and it being a monetary problem rather than some other 
condition that we could correct by legislation? Dr. Bernstein?
    Mr. Bernstein. Thank you for that very interesting 
question. And in framing the question, I think you raised most 
of the answers that I personally would sign onto. And by the 
way, myself and Lawrence Mishel have written a mind-numbing 
paper that decomposes the gap between those two lines over that 
period, and I will submit it to your office.
    I think that there are a whole set of factors, and as I 
said, you ticked them off. But let me make a point that you 
didn't quite speak to as much before I talk to your Bretton 
Woods point. The fact is that productivity slowed post-1973. 
This is well known. And family income growth slowed as well. 
But right after that chart in my testimony comes a table which 
showed that as productivity slowed by a percentage point 
between the postwar boom and the latter--the period of the gap, 
where productivity growth slowed by one point, real median 
family income growth slowed by over two points per year. The 
problem was not just one of slower growth, but it was also 
diminished bargaining power, lower minimum wages, and a trading 
system that, I think, began to tilt against American workers in 
a way that Ron Blackwell has articulated and Dr. Blank as well.
    This is also the period wherein monetary policy became, I 
would argue, much less concerned with Humphrey-Hawkins type 
goals of full employment and much more concerned with slaying 
an inflationary threat that has more often than not been a 
phantom menace in terms of the actual pressures on prices.
    In terms of Bretton Woods itself, I do think that the time 
has come upon us once again to have that kind of arrangement 
where countries get together and agree on how exchange rates 
ought to flow instead of allowing the kinds of mechanisms that 
are currently, I think, distorting such flows.
    Ms. Blank. Can I just add one thing to that? One of the 
striking aspects of both that chart and other similar charts 
about what's happening in the United States is that you don't 
see these same patterns to anything like the same extent in 
other parts of the industrialized world. The European nations 
have not seen the sort of executive pay rise. Yes, it's gone 
up, but nothing like the extent it's gone up in the United 
States. So there's nothing that's inevitable about this. It is 
a function of how our economy and our policies organize 
themselves, and we could organize ourselves in ways that would 
turn some of these trends around.
    Mr. Blackwell. I would just say, obviously, our members 
work and live in the real economy for the most part. We are 
concerned about the financial economy and its relationship to 
the real economy, and the Fed is in the center of that mix.
    Clearly, there were very important changes, both in the 
real and the financial economy in the mid-1970's, all through 
the 1970's, including the breakdown of the Bretton Woods 
system.
    I would suggest to you as something you should follow-up on 
is a discussion of whether or not in a global economy, we can 
conduct monetary policy as if we have a closed economy.
    In the mid-1980's, when currencies got out of line, then-
President Reagan was able to convene an accord which brought 
these exchange rates back into line and helped coordinate the 
macro-economic policies of the leading countries of the world, 
to produce more rapid growth and more equitably shared growth 
around the world.
    We have no kind of leadership presently at the 
international level on that basis, and only the United States 
can provide it.
    Mr. Grant. When people talk about inflation, they define 
it, I think, arbitrarily and narrowly. Inflation proverbially 
is too much money chasing too few goods.
    I think that, in fact, the thing that money chases varies 
from cycle to cycle and from era to era. In the 1970's, it was 
merchandise; more recently, it was financial assets.
    For Chairman Bernanke to come before the committee and say 
the inflation rate is 2.1 percent; that is the measured rate of 
inflation. Excess of dollars have been chasing something else: 
stock certificates, bonds, commercial real estate, residential 
mortgages, and residential houses until recently.
    It seems to me that we are the prisoner of the definition 
of ``inflation'' that does not always serve us well.
    The Chairman. The gentleman from North Carolina.
    Mr. Watt. Thank you, Mr. Chairman. I thank the chairman for 
a fascinating panel. I have so many questions in so many 
different directions, that I am not sure which one I want to 
ask, and that is dangerous. Let me wander here a little bit 
before I ask anything.
    The interplay between Dr. Bernstein's testimony and Mr. 
Blackwell's testimony about full employment most profoundly had 
this impact on me. I had this deja vu moment about the first 
Humphrey-Hawkins' hearing that I attended in this committee, 
and Chairman Greenspan was testifying.
    I had come out of the private sector, not paying any 
attention to this interplay between interest rates and full 
employment and inflation, and the whole range of things he was 
talking about.
    Unemployment was 6- to 7 percent at that time. Here was a 
man who was saying to us that we were very close to full 
employment. I would have to say I was stunned to have the 
person who was controlling our whole monetary and economic 
policy in this country tell me that at a time when I observed 
15, 16, 18, and 20 percent unemployment in my Congressional 
district, particularly among African Americans, that we were at 
full employment.
    A stunning revelation. It is the first time I focused on 
this concept of full employment. Had I not gotten side tracked 
yesterday on questions about regulatory stuff, the question I 
wanted to ask Mr. Bernanke was how do you define what ``full 
employment'' is?
    This hearing is actually very helpful in that respect 
because you all are talking about a different kind of full 
employment than I have heard anybody at the Fed talk about. You 
are saying that the Fed's definition of ``full employment'' is 
5 percent unemployment.
    Mr. Blackwell is saying our definition of ``full 
employment'' should be every single person who wants a job 
should have a job. I take it that is what you are saying, Mr. 
Blackwell?
    Mr. Blackwell. That does not translate into zero 
unemployment rate for reasons I will explain, but it should be 
much below 5 percent a year, certainly.
    Mr. Watt. I am going to ask two questions and then I will 
stop. I will ask the first one to Mr. Blackwell and Dr. 
Bernstein.
    How would you want to define ``full employment'' in the 
ideal world? And to Mr. Grant--I am sorry, Dr. Blank, I am not 
ignoring you--you talked about this blunt edge tool, the 
roller, in the paint scenario that the Fed has, just dealing 
with interest rates. It was not clear to me whether you are 
advocating giving the Fed more tools other than interest rate 
variations to have impacts, or whether you were advocating that 
we just pay less attention to the tool that they have and just 
disregard what they are saying more.
    Let's deal with those two questions, and then I will shut 
up.
    Mr. Bernstein. Let me read you a quote from today's Wall 
Street Journal: ``There is no specific level of employment or 
unemployment that is a trigger for inflation.''
    That is a quote from Fed Chairman Ben Bernanke. He is 
clearly saying he does not know what the full employment/
unemployment rate is, in terms of rate. The 5 percent is the 
Congressional Budget Office's estimate of the NAIRU and one 
that I am quite critical of in my paper.
    Second, to my knowledge--he said a lot about unemployment. 
Former Fed Chairman Greenspan never said what he thought the 
natural rate of unemployment was either.
    Third, if you look at a graph in my paper, it shows that 
the best estimates of today's crack macro-economists are that 
the NAIRU is coincident with the average unemployment rate. 
This, as I describe in my paper, is a very poor guidepost.
    I am just corroborating your view. For myself, especially 
given the conversation I just had with Representative Paul 
about the split between productivity and wage growth, I would 
believe that we are at full employment when we see the wages of 
most workers rise not in lock step with productivity, but in a 
range around that of productivity growth.
    We achieved those conditions in the 1990's, between 1995 
and 2000, and Dr. Blank's work has been very helpful in this 
regard as well.
    We saw the wages of workers not at the 90th, 95th, 99th, at 
the 20th percentile, low wage workers, 80 percent, rise in step 
with productivity growth for the first time in 30 years.
    Did skills all of a sudden fall from Heaven and turn these 
workers into highly skilled, more productive workers? No. The 
job market finally tightened up and the benefits of our very 
impressive productivity growth were broadly shared for the 
first time in decades. That is when I will sign off, when we 
are there.
    Mr. Blackwell. I think answering this question of what 
``full employment'' is in general and today is a very important 
thing for this committee to clarify and to understand the 
thinking of the Federal Reserve. In my service there, this term 
very seldom comes up.
    I said in my testimony that it is an important value for 
the American labor movement and, I believe, for the bulk of 
American workers, that if somebody wants to work, they should 
have a job and it is the responsibility of the Federal 
Government to make that possible.
    At any one point in time, Mr. Watt, people are between 
jobs, when you ask them--frictional unemployment; it is about 1 
percent or so. At any given time, workers do not have jobs, or 
do not have the skills for the jobs that do exist--structural 
unemployment; another 1 point or so.
    If you have a stated unemployment rate or full employment 
rate of 5 percent, what is that extra 3 percent of workers out 
there looking for a job every day, and in minority communities, 
it is double or triple that, and they are being told that the 
government is working to keep them from having a job in the 
name of fighting inflation.
    We used to call this tragic situation and these people in 
this tragic situation ``front line inflation fighters.'' Maybe 
that is a contribution to the national welfare, but it is cruel 
economic policy and a very inefficient way of enforcing price 
stability.
    The main point in my testimony was to say that today, 
Humphrey-Hawkins was a long time ago, but today, I believe the 
unemployment rate cannot just be as it is in Humphrey-Hawkins, 
a single unemployment rate number, like 4 percent.
    We have 4.9 percent. In the press, it says we have full 
employment. We are operating at 1 percentage point lower in 
terms of the employment population ratio than we were at the 
peak of the last recovery.
    There are a lot of people who are out of the labor force. 
Professor Blank mentioned this in her testimony.
    The third element is this connection, this rupture, between 
productivity and wages. A relevant concept of full employment 
would include both, all three of those elements.
    The Chairman. Mr. Grant?
    Mr. Grant. Mr. Watt, you asked about the Fed's empty 
toolbox. The Fed can and does manipulate the interest rate. It 
has a second tool which is a soap box on which it is often to 
be seen.
    Proverbially, a regulatory body can fix the price or it can 
fix the supply. If the U.S. Department of Agriculture wanted to 
put corn prices at $1 a bushel instead of much higher where 
they are in the market, it would not get much corn. It can pick 
its poison, supply or price, and since about 1982, the Fed has 
picked price.
    Today, the Fed's price is on outlier. It is the highest 
price for interest rates on the so-called Treasury yield curve. 
The Fed is gambling that its judgment is better than the 
collective judgment of the marketplace. It might be.
    You ask whether I want more armaments. No. I think the Fed 
has enough with one or two.
    I think we ought to ask if the Fed really can fix this 
price any better than New York City rent stabilization 
apparatus could fix the residential rental structure for New 
York City.
    The Chairman. I thank you. These are important questions, 
but please try to stick to one point. We will not be able to 
get everything in.
    I was speculating on the limits of metaphor. I am sometimes 
moved to speculate on the limits of metaphor, and I just wonder 
whether the market could have painted the Sistine Chapel; I 
think things are being metaphorically carried too far.
    The gentleman from Oklahoma.
    Mr. Lucas. Thank you, Mr. Chairman. I could not help but 
note that as we start to write a farm bill this year in the 
U.S. House, the observations about that, and agricultural 
economics is a fascinating part of the science.
    Since 1933, we have done an amazing job of priming both 
sides of the engine by providing resources to encourage 
overinvestment on the production side, to keep food costs down, 
while at the same time providing food stamps to enhance 
consumption of that cheaper food on the other side.
    It is an amazingly successful consumer bill.
    That said, let's address for a moment the limitations, of 
course, of the Fed's ability to effect policy. A number of my 
colleagues, both today and on a number of occasions, have 
discussed the inequities that seem to be increasing in our 
society in salaries, bonuses, and those kinds of things.
    Let me ask this question. Would the Fed's toolbox limited 
in its nature, and some of you might say that is a good thing, 
one of the traditional ways to address these issues, for the 
last 100 years, has been a progressive income tax code and our 
progressive estate tax code.
    Let me ask the panel your perspective on that. Do you 
support going back to a more aggressive progressive tax code 
and estate tax code, and expand on that for just a moment, if 
you would, why that matters, from your perspective.
    Mr. Bernstein. First of all, I apologize to Chairman Frank. 
We have been chomping at the bit to talk about these issues for 
about 10 years. We will try to do our best to keep our answers 
shorter.
    Here is how I would answer that question. First of all, I 
do support a more progressive tax code. Interestingly, in my 
last comment, I talked about the truly impressive benefits of 
the full employment period, including accelerated productivity 
goals.
    Remember, we had a productivity regime of 1.5 percent for 
about 25 years, a jump up to 2.5 percent in 1995 to 2000, and 
even a little faster in the more recent period.
    This occurred in a period where the Federal income tax was 
more progressive than it is now. I very much reject the notion 
that changes to make the tax let's say, more regressive, has 
somehow boosted growth and gotten us closer to full employment.
    To the contrary, the last time I observed full employment 
was when the tax code was more progressive than it is today. I 
tend to believe those two are not nearly as related as they are 
in the economic debate.
    Secondly, a more progressive tax code, especially at a time 
like this, with high incomes rising so quickly, would give us 
more revenue to implement some of the programs Dr. Blank talked 
about, that I also think are very helpful in this context.
    Ms. Blank. I am a very strong supporter of progressive 
taxes, as well as some forms of estate tax. I will give you a 
slightly more theoretical response, which goes back to some of 
my comments on why we care about rising inequality.
    The question is what do we mean by ``equal opportunity'' in 
this country, and I think equal opportunity has to mean giving 
people the base in order for them to achieve to their fullest 
capacity in terms of their own sets of skills and talents. That 
has to mean good public schools, it has to mean effective 
healthcare, and a whole range of things that require the 
government to be involved at least in part, in the provision of 
those services, even if the government does not do all of it.
    That requires a stable tax base. This is needed to provide 
some re-distribution from those who happen to be advantaged in 
the particular economy to those who happen to be disadvantaged 
to create opportunity for the next generation.
    I would make that same argument about estate taxes as well.
    Mr. Blackwell. The AFL-CIO and American Labor Movement are 
very strong proponents of progressive taxes. We very much 
regret the direction taxes have been pursuing most recently.
    The recent cuts in 2001 and 2003 were very 
disproportionately directed towards capital and away from 
people who work, and toward richer families as opposed to 
poorer families. We would like to see this remedied.
    I also want to say that in terms of inequality, at least 80 
percent of the growth of inequality is pre-tax income. It is 
growing inequality by virtue of the imbalance of power in the 
labor market. It is just adding insult to injury when the 
government weighs in with taxes that increasingly are 
disproportionately burdening poor and working class people.
    It is worth mentioning here, as Mr. Grant has pointed out, 
that the Fed cannot generate full employment by itself. It is 
going to have to require the action of fiscal policy by the 
U.S. Treasury as well, including their decisions on taxes and 
spending.
    These decisions have to be made in ways that respect the 
incentives in our economy to keep economic growth going, but 
you also have to be mindful of leaning against the wind and 
producing full employment.
    Mr. Grant. Mr. Lucas, I would favor something like the 
repeal of the 16th Amendment, but in any case--
    Mr. Lucas. To the point, Mr. Grant. Thank you. I yield 
back, Mr. Chairman.
    The Chairman. I think you might get some screaming around 
here about a package deal if it would include some kind of 
alteration to the 17th Amendment that the United States Senate 
put in.
    Let me recognize myself. One of the things that concerned 
me yesterday raised with the Chairman that has been alluded to 
was what seems to me to be a bias--``bias'' is a negative 
word--a strong focus in the Federal Reserve on inflation to the 
exclusion of employment.
    As I said, it is clear, at least to me, that growth alone 
does not resolve the problem, but the absence of growth would 
make just about everything worse.
    Again, there was this sort of disconnect in my mind. The 
Fed had three statements in a row in the monetary report, not 
just testimony.
    One, we are now producing below capacity and we will be 
doing so for some time and we will probably hit capacity after 
a while. No prediction of going above capacity. Two, inflation 
is moderating and the reasons that cause inflation are 
declining. And, three, a major concern is an outbreak of 
inflation.
    What it suggests to me is that you could have a situation 
where, if we reached capacity without any significant increase 
in inflation, there would be an anticipatory increase in 
interest rates and a drop downward. There is at least a dual 
mandate in the Humphrey-Hawkins Act for employment and price 
stability.
    I am concerned that there are people in the Fed who do not 
really accept that or who argue, and I would ask you to address 
this, who argue yes, they are going to serve employment but the 
best way to serve employment is to deal with price stability, 
that full employment, maximum achievable employment, will be an 
automatic or at least a semi-automatic result of price 
stability.
    Let me begin with Dr. Bernstein to comment on that set of 
concerns.
    Mr. Bernstein. I can be quite brief. I would refer the 
chairman and the committee to the table I produced, which just 
quite clearly shows that over a period of 20-plus years, we 
were 19 percentage points below the NAIRU. That is, if the 
NAIRU is 5 percent and we are at 4 percent, that gets counted 
as a negative one.
    We were 19 percentage points below the NAIRU compared to a 
period when we were 19 percentage points above this natural 
rate, and in the former period, inflation grew more slowly, and 
in the later period, inflation grew more quickly.
    The Chairman. I think you said that there are people who 
say that the non-accelerating inflation rate of unemployment, 
the NAIRU, is roughly the unemployment rate.
    My recollection from the 1990's was that it was a lagging 
indicator of the unemployment rate, that the people who 
believed in it started out by saying it was 6 percent and then 
unemployment was 5.5 percent, when unemployment dropped to 5 
percent, they said it was 5.5 percent. As the unemployment rate 
actually dropped, this rate stayed above it.
    Mr. Bernstein. Half a point. What the economists who have 
defended this view have done is invent something called the 
``TV NAIRU,'' which is not the NAIRU you see on television. It 
is the Time Varying NAIRU. This led Jamie Galbraith to say not 
only is it invisible, but it moves.
    In the policy agenda that I did not speak to in my 
testimony, in my spoken testimony, I argued that there is, of 
course, a role for the Federal Reserve, as we have been 
discussing, i.e., re-balancing the inflation and unemployment 
tradeoff.
    This committee may choose to take another look at the 
Humphrey-Hawkins Act with an eye toward elevating the goal of 
full employment, the Fed's share, and his or her Humphrey-
Hawkins' testimony to this body might be required to explain 
whether the labor market is at full employment and if not, what 
steps will be taken to get there.
    The Chairman. Thank you. Dr. Blank?
    Ms. Blank. We all know a variety of historical cases where 
accelerating inflation has been a disaster. It is clearly 
appropriate for the Federal Reserve to worry about keeping us 
out of those sort of situations.
    The question is, ``Where are we right now?'' One does not 
need zero price change to have a stable economy. Small and 
stable levels of inflation, particularly in the current 
financial markets with the way we are able to adjust to those 
with ARM's and various forms of price adjustment mechanisms 
seem just fine.
    The only reason that I could think of to worry about 
inflation as a major problem right now is if one believes there 
is something lurking out there that could explode, where we do 
not know enough about what is going to happen.
    The obvious example is energy prices. We saw an explosion 
in energy prices in the last several years. They have not come 
down to where they were before. If one believed those prices 
were going to go up again dramatically in the next year or so, 
then I think it would be appropriate to worry about inflation.
    The Chairman. Even there, with a very significant increase, 
it did not trigger any kind of rapid inflation.
    Ms. Blank. That is absolutely correct.
    Mr. Bernstein. Especially in the core rate.
    The Chairman. I would also say that I was struck with Mr. 
Bernanke. When I asked him why inflation was explicitly the 
major concern, and I thought this was rather odd, he said, 
``Well, they think we are going to not get above trend, above 
capacity, and they think there is an inflation problem, but 
they think they might not be right in what they think.''
    You cannot logically say I think, ``A'', but then I also 
think, ``B'', which includes ``anti-A.'' Then you do not think 
``A.'' You cannot be given credit for thinking something and 
simultaneously thinking that you do not really think that. He 
is too smart a man for that logic, so I think it is just an 
institutional bias.
    Mr. Blackwell?
    Mr. Blackwell. I think there is an important lesson in this 
regard to be learned from Mr. Greenspan. I remember in the mid-
1990's when economists were telling him that the NAIRU was 6- 
to 6.5 percent, and that if unemployment fell below that level, 
that there would be ever escalating inflation, accelerating 
inflation.
    Because he was a practical man who studied the material in 
detail and was not given to obeying rules, NAIRU or otherwise, 
he allowed the economy to grow faster than that, and 
unemployment came down to 3.9 percent with no increase in 
inflation, and produced millions of jobs.
    The Chairman. And increases in real wages.
    Mr. Blackwell. That is right.
    The Chairman. Thank you. One of the members of the Fed 
Board who was the greatest opponent of Mr. Greenspan on that, 
and who felt there was some kind of automatic trigger, wage 
inflation, and unemployment went down, is also the one who 
expressed some consternation about the conclusions of Mr. Grant 
and this panel. I suppose it is appropriate to ask Mr. Grant to 
comment.
    Mr. Grant. I think there is a big semantic problem that is 
concealing a bigger conceptual problem, namely that there is no 
such thing as wage inflation. Full employment does not cause 
inflation. People getting work at good wages does not cause 
inflation.
    Money causes inflation. The Federal Reserve, when it falls 
into error, causes inflation.
    They say we are producing below capacity. So we are, but we 
are consuming above capacity. What this trade deficit means is 
that we produce much less than we consume. The risk we face is 
not so much that oil prices will rise or certainly not that 
wages will rise.
    The risk is that this Nirvana in which we find ourselves, 
in which we produce so much less than we consume, and we 
finance the difference with dollar bills we print, that ends 
because they lose confidence in the currency. That is the risk.
    The Chairman. Thank you. Mr. Bernanke, to his credit, did 
address those who tend to blame wages. I appreciate Mr. Grant's 
answer. He acknowledged that, in fact, if wages rise to 
productivity at a point when price mark up's are much higher 
than they have historically been with regard to productivity-
based labor costs, then it is not wages that is driving this 
up, and in fact, it would be a conscious decision, through the 
use of some maybe excessive market power to raise prices even 
higher. I do credit him for that.
    Mr. Roskam?
    Mr. Roskam. Thank you, Mr. Chairman. I thank you, 
witnesses, for your testimony today.
    I am still in the ``trying to size you up and figure you 
out'' mode. What I am trying to do is figure out--I have always 
appreciated over the years when advocates come in and say, 
``Look, here is the good side, here is the bad side, and we are 
advocating this because of this.'' I have not really heard that 
holistic approach from you. Maybe it is the time demands that 
are upon us, and I get that.
    It does seem to me that there are some really good things 
that are happening in our economy today and your testimony, at 
least in terms of what I have heard, has not reflected that.
    Let me challenge you with a quote. Then I will be quiet and 
I will listen and you can use the rest of my 5 minutes. You can 
either answer the question or duck it.
    In the September 4th issue of The American Prospect, a guy 
named Stephen Rose wrote an article, ``What's Not the Matter 
With Middle Class.'' A couple of sentences: ``What 
progressive's generally say about the economy is unrelentingly 
pessimistic, stagnant wages, rising costs, overwhelming burdens 
of debt. It is a message that does not resonate with the middle 
class, not only because it is overly negative, but because it 
simply is flat out wrong.
    ``Absolute living standards for the middle class have only 
improved, even if relative increases in income do not match the 
gains at the top,'' which is basically the argument that you 
have been making today.
    ``It is true that the middle class is shrinking but that is 
because more families are better off. The share of prime age 
adults in households with real incomes above $100,000 rose by 
13.1 percentage points from 1979 to 2004.''
    My dad always used to tell me growing up, he would say, 
``Peter, we live better than kings did 500 years ago'', and I 
do not think there is any question of that.
    In light of that challenge, can you reflect on what you 
think are the good things that are happening? If the premise is 
that it is all pain, death, murder, and sorrow, I do not share 
the premise.
    If the premise is that there are challenges that are out 
there, great. I get that. I think it is always good to reflect 
on the success that we have had, and the success that we have, 
Mr. Blackwell, that have benefitted your organization and your 
membership, and the particular perspectives that you each bring 
to the table.
    Mr. Bernstein. Thank you. That is an important dimension to 
bring to the discussion. I did start my spoken testimony by 
citing how low the unemployment rate is in historical terms and 
how solid the macro-economy is.
    I think those are facts that we absolutely should take a 
lot of credit for and appreciate.
    I think the two sides of the good/bad scenario are probably 
both seen in the second graph in my testimony, where I show 
productivity growth, not just growing, but accelerating. 
Productivity growth accelerated about a point between 1995 and 
2000. Sounds like one little percentage point, but it is 
tremendously important. Then another point or so, although that 
seems to have trailed off, post-2000. Economists assume that 
the increase in productivity growth automatically translates 
into a better living standard.
    I think what we are trying to say and what we are showing 
with this graph is that does not occur, when income inequality 
creates a wedge between the very impressive macro-economic 
system that we all celebrate, low unemployment rate, and the 
actual living standards of middle income families--you 
mentioned the work Stephen Rose cited.
    In David Brooks' column the other day in the New York 
Times, he cited that same work saying middle income families of 
a certain age have an income of $60,000, something like that.
    It turns out, I went to the data, and found those families 
have lost 4 percent, about $3,000, in their real income, 
between 2000 and 2005, when productivity growth was 20 percent.
    That just does not seem right. It does not seem just. It 
does not seem fair. It does not seem like the kind of economy 
that is really linking the good side with the less good side.
    If we have overemphasized the latter, I am sorry. That 
linkage is missing and it is critically important, and full 
employment is part of it.
    Ms. Blank. Economists are notoriously cautious and 
pessimistic. When asked to come and testify about what the 
problems are in the U.S. economy, here is what you get.
    I absolutely agree with Dr. Bernstein that there are a lot 
of good things about the current aggregate economy. We have 
high productivity, low inflation, low aggregate unemployment, 
strong consumer spending, and strong business investment; it is 
a good outlook.
    The issue here really is one of who is sharing in those 
gains. If you are a college-educated worker, the last 10 years, 
the last 25 years, have been some of the best years in history 
for more skilled workers in the United States. Things could not 
have been much better.
    The issue is the very large group in the economy that just 
are not experiencing that same degree of growth. It is not 
trickling down, to use a phrase from President Reagan, and I 
think that is something that we have to be very concerned 
about.
    Mr. Blackwell. I do not want to dodge the question. I 
started my testimony by acknowledging that we have the richest 
country in the history of the planet.
    We have workers who are the most productive workers in the 
world, and they are more productive now than they have ever 
been. American workers work more hours today than workers in 
any other developed country.
    Our key strength economically, as many imbalances we have, 
is our capacity to innovate in this country. In the 
increasingly global world, we are going to have to find a way 
to tap that and tap it together to stay on the leading edge of 
innovation.
    That is not going to come out of labs and classrooms alone. 
That is going to come out of the American workplace. We have to 
be on the same page and working for the same cause if that is 
to happen.
    The problems that we have identified are distributional 
problems, but that is one of the things that is dividing us, 
where we do not see a common purpose, as Rebecca Blank said.
    We are dividing between the very wealthy and the very poor 
in this country. Under that kind of circumstance, we are not 
going to be able to tap the enormous resources we have and meet 
the challenges of an increasingly global world that we live in.
    Mr. Grant. The world is a cornucopia, thanks to the 
augmentation of the world's supply force, labor force, by all 
these people who were previously shut out. The world supply 
curve has moved downward and to the right. It is truly the age 
of abundance.
    It seems to me at a time like this, you are supposed to ask 
questions. You are supposed to be worried when things are 
great. On Wall Street, things are perfect, and yet apparently 
improving. Never so many lent so much at so little margin of 
safety as they do on Wall Street today.
    We should save the cheerleading for the bottom. Be bullish 
at the bottom, and bearish at the top.
    The Chairman. The gentlelady from New York.
    Mrs. McCarthy. Thank you. Thank you for your testimony. I 
find it fascinating.
    One of the things that was not brought up was the 
alternative minimum tax and how that is affecting the middle 
income families.
    I have always had the curiosity when we see so many lost 
jobs and even though unemployment is low, those that have lost 
jobs in the past, what kind of jobs are they exactly in today? 
Are they the same kind of pay? Are they lower pay?
    We just read in the paper the other day that Chrysler is 
going to be letting go 13,000 people, 16 percent of their 
workforce.
    I also sit on the Education Committee. We have been looking 
at, for a number of years now, how do we take these workers who 
are basically earning a decent salary and re-train them?
    A number of issues that came forward and were put into law 
were that they would get a certain amount of money to go back 
to school. Yet, when I saw that amount of money, I am saying 
how are they supposed to go to school, how are they supposed to 
pay their mortgages, how are they supposed to pay their car 
payments and keep going, and that would be it. That would be 
used instead of a substitute of unemployment.
    I do not see good programs that are forecast out there. It 
is one thing to re-train someone, and then they lose their job 
2 or 3 years down the road. I do not think there is a good 
program out there.
    What are we looking for in the future and how are we going 
to re-train these workforce jobs for those that might be 
manufacturing jobs, but obviously, we are in that trend of--we 
are not preparing our people. I think that is one of the big 
problems.
    I will open it up to the panel.
    The Chairman. Let's start with Mr. Grant.
    Mr. Grant. The answer I was formulating is, it is not my 
subject, so I will pass. I am sorry.
    The Chairman. Mr. Blackwell?
    Mr. Blackwell. I think it is a very, very important point. 
We are in a global economy. The economy is changing. Our 
competitive advantages as a country, as opposed to the 
companies involved, are our people and the skills they have, 
and the machinery for giving them those skills is simply not 
there, and neither are the resources.
    I would suggest to you that if we are going to really make 
this an innovation-based economy, we have to make training 
available to all workers, incumbent as well as displaced 
workers. We simply cannot afford not to train people for the 
highest productive and most creative job they are willing and 
able to take.
    We will not otherwise be able to pull our weight in the 
world economy. We are completely supportive of that kind of 
idea. We regret that the discussion in Congress is so much how 
do we deal with the people who are the losers, and how do we 
get them into a Wal-Mart greeter job as quick as possible, and 
not spend any money on them, either on unemployment insurance 
or training.
    I suggest that we should be taking the position that 
whether they are an incumbent worker or whether they have been 
displaced, displaced by trade or anything else, they should 
have an opportunity to train themselves for the most productive 
job they are willing and able to take.
    Ms. Blank. I wish I could be optimistic about re-training, 
but I have to say the evidence that I know suggests that most 
people over the age of 40, and as I look around this room, that 
is most of us, do not re-learn new skills very easily, and are 
not very optimistic about going and taking on entirely new jobs 
and new careers. We absolutely need to provide support for re-
training, for mobility, for workers who have been displaced, 
but we have not been very successful at that in the past.
    We need some demonstration projects, some additional 
funding that would let us test whether there are some better 
ways to do this. I cannot be very optimistic about that. I 
think you have to go back and say what we need to do is to 
ensure that nobody drops out of high school; that those who 
graduate from high school can read, and they can do basic math; 
and that those who get through high school go on and get some 
additional higher education of some sort, whether it is an 
associate's degree or a 4-year college degree. Workers need to 
be ready for a flexible career that means they are able to 
shift between industries and between jobs over their lifetime, 
because that is the prospect for most of today's younger 
workers.
    Mr. Bernstein. My take on re-training is a bit more 
optimistic. We do actually know some things that work. The 
tough news is that they are pricey. You cannot do effective re-
training on the cheap.
    My concern when I look at where our fiscal priorities are 
heading is that we are squeezing that very part of the budget, 
domestic discretionary spending, where our training dollars are 
going to have to come out of, so I think we are going in the 
wrong direction.
    The only other comment I will make is that full employment 
itself is associated with more incumbent training by employers 
of their workers and occupational upgrading. That is, when you 
are in a condition of full employment, labor markets are tight, 
and there is not a long line outside of the factory or the firm 
door.
    Employers are more likely to undertake training themselves 
because they have to. Workers' wages are being bid up, and they 
need to pay for those higher labor costs with increased 
efficiency.
    We call it a full employment productivity multiplier. I 
think it is real and another important dimension of the 
benefits of full employment.
    The Chairman. Mr. Neugebauer?
    Mr. Neugebauer. Thank you, Mr. Chairman.
    I want to go in a little bit of a different direction, 
because some of the things that have been said today, I may not 
necessarily agree with, but one of the things I think this 
country was founded on were principles of liberty, freedom, and 
opportunity.
    And that government, and I have not seen it in the 
Constitution, was not charged with creating jobs, nor do I 
think it is a very good job creator, but I think government can 
cause jobs not to be created.
    I think Mr. Blackwell said, and I agreed with him totally, 
we have moved into a global economy. What we ought to be doing 
from a policy standpoint is trying to figure out ways that we 
can make America more competitive because to me, that creates 
more opportunity, and in the more opportunity is opportunities 
for people to have better jobs, higher paying jobs.
    Two points that I want you to address. One, I question 
today whether monetary policy has any significance in that 
process.
    Two, I think more today if we want to talk about how we 
make more opportunity and create more jobs is we talk about the 
fact that there is kind of a three legged stool that keeps 
America, I think, today not being competitive in a lot of ways.
    One of those is our tax structure. We had the second 
highest corporate income tax rate in the world. Secondly, we 
have a regulatory environment that really strangles those 
people who are trying to create jobs in our country today, and 
all you have to do is look at the fact that we have not built a 
new refinery in this country in over 30 or 40 years.
    The third piece of that is this litigation web out there 
that if a company is doing well, and they make a little 
mistake, somebody is going to entitle themselves by dipping 
into that corporate treasury and redistributing that money.
    I think the question to each one of you is, does this 
monetary discussion about employment, does it have a relevance 
in a global economy?
    Mr. Bernstein?
    Mr. Bernstein. The financial markets certainly respond to 
the slightest blink of an eye of Federal Reserve bankers. 
Monetary policy means a lot to them.
    It is also the case, I think we heard earlier, that the 
Federal Reserve does not set the unemployment rate. I think 
those comments are accurate in that regard. I think Mr. Grant 
would agree.
    The Federal Reserve does not set the unemployment rate with 
some really acute degree of accuracy. They absolutely can, in 
my view, by ratcheting interest rates up higher than they ought 
to be keep that unemployment rate from falling to a level that 
I think is truly beneficial, and when they do that, they 
squander billions of dollars about putting it into potential 
jobs and wellbeing, as we have all discussed.
    I would certainly agree, especially regarding money supply 
in a global economy, that the actions of the Federal Reserve 
are much less powerful than they would be if we had anarchy. On 
the other hand, they do make a difference.
    Ms. Blank. The economy is not a well-defined system of 
equations; if you push this button, you know what you are going 
to get out of the other end. Would that it were, we would all 
be better off in that we could predict better.
    What does monetary policy do? Monetary policy creates 
stability in the financial markets, in particular. It does 
other things as well. It creates trust that the U.S. economy is 
on an even keel, and what is happening in financial markets 
leads to business investment and consumer behavior in all sorts 
of important ways.
    Therefore, monetary policy affects long-term economic 
stability and aggregate economic growth. That is very highly 
important not just for what happens in business America, but it 
is highly important for what happens to the families out there 
as well.
    I think you cannot look at that and say that they are not 
important to these sets of issues. Certainly the choices that 
the Federal Reserve makes with regard to inflation versus 
unemployment, in particular, can affect the number of jobs that 
are out there.
    Mr. Blackwell. I think it is a very important question. We 
clearly exist in a global economy. No one has any doubt about 
that, and no one expects the Federal Government to create jobs. 
The vast majority of our jobs are private sector jobs.
    The question is, does the Federal Government have any 
responsibility for shaping policies that affect the jobs that 
are created? In that category, I would say emphatically, yes.
    The question is, given the global and changing nature of 
the economy, what is the nature of the changes in those 
policies that we ought to address?
    By our arguing that full employment needs to be re-
established, we are suggesting a very powerful way that we 
think policy could affect the material standards of living that 
we have been talking about here.
    Monetary policy, as Mr. Grant has pointed out, only 
operates with one instrument. We could talk about other 
instruments that it needs to be operating with, in financial 
markets and internationally.
    That institution has more significance in terms of the 
Federal impact on the economy and the level of job creation and 
the important relationship between productivity and wages than 
any other public institution in the country, and it is 
accountable to the public through the Congress.
    Mr. Grant. Everyone says the world is a global economy, but 
I say it is very global. Let me give you an example of how 
``very'' it is.
    In the day, you were a customer of your own nation Central 
Bank. Today, the national markets are basically without 
boundaries, and people can, and massively do, lend and borrow 
in currencies not their own.
    There is an immense trade today in borrowing currencies 
with low interest rates and investing the proceeds in assets 
with much higher yields. The yen is the world's favorite 
currency for borrowing.
    The Federal Reserve does not set monetary policy for the 
Japanese Central Bank. Nonetheless, people outside Japan can, 
and massively do, use the yen as a borrowing source.
    The world is positively awash in this elixir called 
liquidity. The Fed is only one central bank. It is not the 
institution it was in 1978. It is diminished by the idea of 
globalism.
    Where is employment doing well? Wall Street. Why might that 
be? Because people are gaming this system of worldwide 
currencies. Wall Street has never done better. Job growth is 
nearly at an all time high, and it is because of the 
institution of Central Banks, but not for the reason we think, 
because people can game the system of managed currencies.
    The Chairman. The gentleman from Massachusetts.
    Mr. Lynch. Thank you, Mr. Chairman. First of all, I want to 
thank the chairman and the ranking member for holding this 
hearing. One matter of disclosure is that I actually am a 
member of Mr. Blackwell's union; I pay regular dues.
    Mr. Chairman, my voice is gone. I am going to have to come 
back later and ask my questions.
    The Chairman. All right. We thought you were doing your 
Jimmy Durante imitation.
    Mr. Lynch. No. I sound more like one of the Soprano's, I 
think.
    The Chairman. The gentleman will now be temporarily 
wounded/departed. Mr. Scott.
    Mr. Scott. This is a fascinating hearing. Monetary policy 
and the state of the economy, while the economy looks good on 
the surface, there are subtle as well as very obvious problems 
arising, which I certainly believe need to be addressed.
    I want to talk about a couple of those and have you respond 
to them. The first one is this gap in wealth. I would like to 
hear each of your thoughts on the current state of our CEO's of 
these major corporations who are receiving these outlandish 
pensions, and exorbitant amounts of salary. They are all fine 
people. We live in a free capitalistic system where the forces 
of supply and demand and a free marketplace determine these 
things.
    The problem is while all this is happening, we have lower- 
and middle-class workers who are just barely struggling to make 
ends meet. The ratio has gone from something like in the range 
of a differential from 10 to 1 to almost like 200 to 300 times 
what the workers make. This has just been extraordinary.
    I think we have to take a closer look at what we, as 
Americans, value in terms of our workers. Those at the top are 
enjoying the perks of this great wealth, and we can agree that 
the income gap between the wealthiest of Americans and the 
poorest of Americans is continuing to widen.
    When we put that together with the other phenomena that is 
happening in our economy as a result of the baby boomers, the 
entitlement programs, the Medicare, the Medicaid, Social 
Security, and demands on our health system, all are increasing 
because people are going to be living much longer, 80/90 years 
old, and so much of this is a burden on the wage earner. That 
class is shrinking.
    I think our only real opportunity to increase that is with 
an elephant in the room dealing with labor and economy that we 
have not mentioned, and that is immigration, and how you take 
these--I see the immigration issue as giving us kind of a 
windfall to help us to be able to increase this wage earner 
group as we go forward. There is no other group that we can 
really look to.
    There are 14 million people here, many of them not buying 
into the system. We are not cataloging them, but yet they are 
benefitting from it. That is the area that, I think, we can 
increase our wage group, but I think there has to be some 
imbalance there.
    I want to talk about that for a moment. Healthcare, I think 
Mr. Blackwell talked about--it is almost shameful and 
insulting, that in a country as advanced as ours, we have 
people without health insurance.
    I give a health fair in my district every year. In Georgia 
and in that Belt, so many people are without healthcare. We can 
do so much better than that. I think that is part of the 
problem there.
    The other area is one glaring statistic that I want to 
present to you, because it very much concerns me. It is a 
statistic focusing on African American men. Clearly, almost 30 
percent of African American men at some point are going to be 
in jail or in prison. There is such a waste there. It is a 
disturbing number that states that only 66 percent of African 
American men are reporting themselves at work or looking for 
work.
    Those are three areas I want you to just tag for a moment 
if you can. I think it provokes some thought. The status of 
African American men and the peculiar situations they are 
facing in the marketplace, it also dovetails in with this 
imbalance in our labor force and with CEO's making so much, and 
then our challenges for healthcare.
    Mr. Bernstein. Let me try to be brief. I am going to defer 
the African American men question to Dr. Blank because some 
recent work of hers speaks directly to that. In the interest of 
time, I am going to speak about the CEO pay, immigration, and 
just a word on healthcare.
    In the context of my testimony, I stress the issue of 
bargaining power. I think what we have going on right now, as 
we expressed earlier, very positive aspects of our economy 
regarding productivity growth, the efficiency with which we are 
changing our economic inputs into outputs is really quite 
stellar, and a huge gain.
    Given the fact that so many workers lack the bargaining 
power they need to claim their fair share of that growth, it is 
as if the pie is getting larger, the bakers are doing a great 
job, but they are getting smaller slices.
    How do you change that? That is what I would like to focus 
on in talking to a body like this one.
    There is a discussion now about something called the 
Employees' Free Choice Act. This is an act that would level the 
playing field for union organizing, clearly a bargaining power 
tool.
    We have talked about a higher minimum wage. That is another 
way to re-claim some of that fair share of productivity growth, 
redistributing, without, as has been mentioned, killing the 
golden goose. Full employment as well.
    In the interest of time, I will stop there.
    Ms. Blank. Let me say a word about your concerns regarding 
African American men. You are absolutely right. This is the 
most disadvantaged group in the labor market, whether you look 
at skills, wage levels, or labor force participation. This is 
obviously a really big and complex question and it gets into a 
whole lot of history as to how we got here.
    Clearly, one of the biggest issues here are the urban 
schools where an awful lot of African American children, boys 
and girls, are coming to some of the worst schools in our 
country and coming out simply not prepared for the labor market 
in which they are finding themselves.
    You put on top of that some of the changes in our jail and 
incarceration policies, which as you point out, have removed 
large numbers of African American young men, put them into 
prison, and then put them back into society with no support.
    One of my biggest concerns is that after spending 15 years 
talking about welfare-to-work programs, we really need to spend 
the next 15 years talking about jail-to-work programs, about 
ways to move men from incarceration back into the community.
    Mr. Scott. Thank you.
    Mr. Blackwell. Just briefly on CEO pay, it was a 20 times 
differential between CEO's on average and workers in 1980. It 
is now 431 times. The average CEO makes more in the first day 
of work than the average worker does all year, and he makes 
more before lunch on the first day of work than a minimum wage 
worker makes all year.
    This is a signal point. CEO's are now claiming over 10 
percent of all corporate revenue, a point of enormous concern 
to American workers, not only in equality, but even President 
Bush mentioned the lack of relationship of this compensation to 
performance of these companies. He was met by silence on the 
trading floor in New York when he raised this point.
    This is a matter of corporate governance and corporate 
reform for which there is much, much need here, and which needs 
some attention on Capitol Hill in the form of hearings.
    Why is this happening and what can and should be done about 
it without killing the golden goose.
    A quick point on the entitlement question. We spend, as I 
said before--
    Mr. Grant. As to CEO's, I am a CEO of a minor corporation 
and what I aspire to is to become the CEO of a major 
corporation. I think this is a matter of taste and of the 
marketplace. There are some things for which the government 
really cannot provide the solution, and I think this is one of 
them.
    Mr. Scott. Madam Chairwoman, may I just ask if Dr. Blank, 
in her report--I did not know she had a report on this very 
perplexing problem facing African American men and the 
employment labor force, could we ask that she get a copy to us?
    Ms. Blank. I do not have a specific report, but I can get 
some resources to you.
    Mr. Scott. Thank you.
    Mrs. Maloney. [presiding] Mrs. Blackburn.
    Mrs. Blackburn. Thank you, Madam Chairwoman. Thank you to 
our witnesses for being here.
    Mr. Grant, three quick questions for you, and I enjoyed 
your comments last night on the economy. We talked a little bit 
about long-term liabilities for the Federal Government, and of 
course, GAO is saying that with the entitlement programs that 
were put in place 40 years ago, the growth of those, that we 
are looking at that in the near future consuming as much as 30 
percent of the GDP.
    If you will very quickly speak to the effect that is going 
to have on the economy and then relate that to how it would 
affect our low income workers and the poor.
    Mr. Grant. Mrs. Blackburn, a great question, which I 
certainly cannot answer.
    As a truism, we are prosperity; we do not pay. The tendency 
is for prosperity not to pay. Somehow, society gets richer. 
Somehow, these overwhelming and menacing liabilities get dealt 
with. I do not know how we will deal with them. I have 
confidence that we will, but I cannot say exactly how. The 
numbers at the moment look horrific. Beyond those observations, 
I am afraid I really cannot comment.
    Mrs. Blackburn. Let's talk for just a moment about the tax 
structure. You may have already covered this. We know that so 
many countries are going to a flat tax structure. There is 
quite a bit of conversation around that now.
    Mr. Neugebauer talked with you a little bit about 
competitiveness and taxes and regulations and the effect that 
would have on our economic growth.
    I would like your input as to what your thought is on what 
we should do on a tax structure, if we should follow the other 
countries and move to a flat tax structure, move to a different 
type structure that is capped?
    Mr. Grant. In principle, I believe that you tax the thing 
you want less of and tax more lightly the thing you want more 
of. If we want more enterprise, it would seem to me that you 
tax that less.
    For that principle and for the general principle of liberty 
and for keeping what one earns, I am favor of flatter and lower 
taxes.
    Mrs. Blackburn. Let's talk for just a second about 
intellectual property rights. We have discussed the global 
economy. I found it quite fascinating that protection of the 
intellectual property rights has not come up in any of the 
discussions and you have not equated the impact of that onto 
the economy.
    Personally, I feel like when we look at a global economy, 
protection of those rights, fighting against piracy, 
counterfeiting, is very important to having those domestic 
jobs, and Dr. Blank was talking about jobs and re-training, 
capturing those jobs that are semi-skilled and higher skilled 
jobs, keeping them here.
    Do any of you have a comment that you would offer on 
intellectual property rights and how you see that affecting our 
jobs' growth and retention, economic growth?
    Ms. Blank. Other than simply to affirm what you said, this 
is a very important issue for American business, for us to keep 
business competitive, to protect patents and to protect 
intellectual property.
    Mrs. Blackburn. Any additional thoughts? Dr. Grant?
    Mr. Grant. I am in the business of producing written 
matter, which is easily duplicated. It is one of the abiding 
problems of this line of business.
    We aggressively defend our copyright, and I can only begin 
to imagine what it is like to have a global franchise with the 
global risks of piracy and infringement. I cannot imagine a 
more pressing issue in a time when more and more of what we do 
is of a service nature and less and less of the product end.
    Mrs. Blackburn. Mr. Blackwell?
    Mr. Blackwell. We really strongly support intellectual 
property rights protection. We think we need to take piracy out 
of international commerce.
    We feel just as strongly that we ought to take the 
oppression of workers out of competition among countries, and 
therefore, that is the basis on which we argue for the 
inclusion of worker rights, fundamental worker rights, in those 
agreements.
    We wish those rights were protected as well as they are in 
intellectual property rights.
    Mrs. Blackburn. Dr. Bernstein, I had one question for you, 
if I have a couple of minutes left. I have done some reading 
recently on child poverty and the reasons for child poverty, 
which is a heart breaker to all of us.
    So much of what you see are low levels of parental work and 
numbers of single parent homes. Those are two indicators, no 
matter what you are reading and who it is from, that are always 
there.
    When we talk about public benefits, I would love your input 
as we talk about jobs that are not those bottom rung jobs, as 
we talk about public benefits, and just a comment from you if 
they were restructured to reward work and to reward marriage, 
what your feeling is if that would help reduce those levels of 
child poverty.
    Mr. Bernstein. I am quite clear that the evidence is strong 
that precisely that type of program would go a long way in 
exactly the right direction. The reason I get there--it is 
great that we are talking about it in the context of a hearing 
about full employment.
    If you look at the employment rates of single mothers 
during the 1990's, we had welfare reform certainly pushing them 
into the job market, but we also had the first full employment 
economy in 30 years pulling them in, we had an expansion of the 
earned income tax, it could mean $4,000 or more to a single 
mother with two or more children, as well as a whole set of 
work supports to help subsidize the gap between what that woman 
earned and what she needed to bring her family above poverty.
    By the way, I think the poverty line is actually 
insufficient if we are talking about what these families really 
need for wellbeing. I think that the one two punch of work 
supports, a subsidized wage through the earned income tax 
credit, which I think is a program that has wide support in 
this body, and a full employment economy gets us a long way 
towards the goal.
    You mentioned a marriage program. In the interest of time, 
I am going to stop there. Maybe Dr. Blank has also looked at 
that and wants to speak to that.
    Mrs. Maloney. I would like to hear from Dr. Blank as a 
recognized authority on this subject.
    Ms. Blank. On poverty rates among single mothers, it went 
down from 48 percent to 35 percent over the last 12 years. Much 
of that is precisely because of the incentives we put in place 
to make work pay, so to speak, through the earned income tax 
credit, through subsidies to child care, and through some 
pushes from welfare as well, to put people out into work.
    The fact that only one-third of single mothers are poor is 
hardly a cause for a celebration, but things are moving in the 
right direction.
    It is certainly true that all of the research evidence 
suggests that children are better off growing up with more 
adults in their life. If those adults are married, that is 
great. If the dad is not in the household but is involved with 
the kids, that is good. If the grandparents are involved with 
the kids, that is good. The more adults you can put in a kid's 
life, the better off you are in terms of helping them move 
forward.
    I think we do not have very good policies--we do not know 
how to do marriage policies very well. We know a lot more about 
how to create jobs than we know about how to create marriages. 
That is one reason why I tend to focus a lot more on the job 
side because I think we have policy leverage there that is more 
effective.
    Mrs. Maloney. The gentlewoman's time is up. Congressman 
Lynch?
    Mr. Lynch. First of all, thank you, Madam Chairwoman. I 
want to thank the panelists for helping us out here.
    As a matter of full disclosure, I am a former president of 
the Iron Workers Union in Boston. My monthly dues that I pay 
every month, part of it goes to Mr. Blackwell's union, the AFL-
CIO.
    The title of this hearing is, ``Monetary Policy and the 
State of the Economy.'' I am tempted to ask which one, which 
economy?
    I represent both the City of Boston, which is a major 
financial services market as well as healthcare, and I also 
represent the City of Brockton, which is an old shoe 
manufacturing city, both wonderful cities, and I represent 
about 19 towns, the workers in which are probably a blend of 
both economies.
    One of the things that troubles me is when some economists, 
not the ones here today, but some economists talk about job 
loss and wage stagnation, like they were talking about the 
weather, like it is a natural phenomenon that we have nothing 
to do with or no control over, and that we are in this global 
economy, so why try?
    From where I sit, and what I have seen over the past 5 
years here in Congress, I think there is a real purposeful 
dimension and deliberate effort in some cases to undermine the 
bargaining power of workers in this country, both the skilled 
workers who are whipsawed by the threat of moving high tech 
jobs overseas, and also the bifurcation between union jobs 
versus non-union jobs in this country.
    I look at the purposeful efforts by this Administration, 
the Bush Administration, and their policies. They have led 
efforts to cut overtime standards for 6 million workers under 
the Fair Labor Standards Act; the first action by the President 
after Hurricane Katrina was to cut the prevailing wage in 
Mississippi and Louisiana so workers could work for less. That 
is what he thought was the most important thing to do after 
Katrina, cut the wages of workers in Mississippi and Louisiana. 
Come on.
    The trade policies and tax policies that we have adopted in 
this country to incentivize companies to move offshore or to 
ship their jobs overseas, as the kids say in my neighborhood, 
``You got to get real about this stuff.''
    I am a former worker of the General Motors plant in 
Framingham, Massachusetts. That plant closed down because of 
policies that incentivized the practice of General Motors 
closing down plants in Massachusetts, Michigan, Illinois, and 
shipping them over the border into Mexico. They did that.
    That did not happen in a vacuum. That happened as a result 
of policies that successor Administrations have adopted and 
there is a whole framework here of labor policy within the 
United States that is overseen by the Labor Department and the 
National Labor Relations Board.
    People in my district are shocked when I tell them that the 
mission statement of the Labor Department is to strengthen free 
collective bargaining. They are dumbfounded. They are also 
shocked to learn that the National Labor Relations Act, which 
created the NLRB, the Act itself guarantees the employees the 
right to organize and to collectively bargain.
    You would not know that if you simply watched what is going 
on at the NLRB, which together with the Labor Department, more 
so than the Labor Department, has really adopted an attitude 
and a position that is hostile to workers' rights.
    While I do see the greater dynamic here of forces in the 
macro and micro economies, there is a definite effort here of 
this Administration and some of our departments to beat down 
the rights of workers and of these families to make a decent 
living in this country.
    While I really appreciate the high level and the quality of 
your debate, I have to say there are some real things that we 
could be doing here, I think, to empower some of these workers.
    Mrs. Maloney. The gentleman's time has expired. I grant him 
another 20 seconds.
    Mr. Lynch. What do you think we could do in this country to 
strengthen that? You all mentioned at the beginning of your 
statements this imbalance in bargaining power.
    Mrs. Maloney. Mr. Blackwell, very briefly.
    Mr. Blackwell. Put a meaningful floor underneath wages. The 
minimum wage should be one-half of the private sector wage for 
non-supervisory workers. Give workers the right to organize 
unions when they so choose.
    Very centrally and first, I would suggest that at the 
center of this hearing's purpose, to re-establish full 
employment as the responsibility and the purpose of government, 
to maintain tight labor markets.
    With tight labor markets, minimum labor standards and the 
right to organize will close this gap with productivity and 
wages.
    Mrs. Maloney. Thank you. Congressman Green?
    Mr. Green. Thank you, Madam Chairwoman. I thank the 
witnesses. Perhaps I should not say ``witnesses,'' the 
panelists, for being here today. You have really been most 
edifying.
    It may look like a set-up for one labor person to follow 
another, but I, too, associate myself with labor, having been a 
dues check-off member; that means you are really involved in 
the process.
    We talked a lot about full employment. I think it is a most 
important subject, full employment. Some people have some 
degree of consternation or look askance at the term ``full 
employment'' because some people can remember a time when folks 
had full employment but they did not receive the emolument that 
employment should accord.
    An extreme example would be slavery. Every African in 
America, not African Americans, but every African in America 
had full employment, but they did not get the emolument that 
employment should accord the worker.
    I have coined my own term, fruitful employment. Full 
employment is great, but I think fruitful employment is better. 
You can have full employment, work full time, and still live 
below the poverty line. People do it every day in this country. 
Say, someone is a full time employee, they get $10,000 plus a 
year, and they have one child. The poverty line is $13,000, so 
they are working full time, and still living below the poverty 
line.
    You can have full employment and not be able to afford 
health insurance. You can have full employment and have no 
retirement benefits. Full employment is not as significant as 
fruitful employment, employment that allows one to have the 
emoluments that employment traditionally accords.
    I agree that there are some things that can be done, and I 
think that you are on target when you talk about the 
restoration of the balance between industry and labor, and 
things are out of balance.
    They are not out of balance because of the workers. The 
workers have tried to maintain the balance. Right now, the 
industry has the advantage, and policies have allowed the 
industry to acquire the advantage.
    Either there has to be a reversal or we have to have some 
new policies. I think we have to index the minimum wage. 
Minimum wage ought to be indexed. CPI or possibly poverty. No 
one should work full time and live below the poverty line. 
Index the minimum wage to poverty. You do not live below the 
poverty line if you are working full time.
    There has to be some thought of whether the paradigm that 
we currently utilize to deliver healthcare is the best 
paradigm, because right now, the paradigm is to do it through 
one's place of employment.
    Well, we cannot compete in the global marketplace, it seems 
now, with other world class corporations who do not have to 
factor that in when they compete with American corporations.
    Is this going to be the most efficacious way to deliver 
healthcare through a paradigm that puts corporate America at a 
disadvantage in this global economy.
    I think we have to give much consideration to what has been 
said about the earned income tax credit and I would like Dr. 
Blank, if you would, to say a little bit more about the earned 
income tax credit.
    I am concerned as to whether or not if we expand it, it 
will, of course, have an impact on the economy, but can we 
expand it and not have a negative impact on the economy. That 
is the argument that is always made when you talk about 
expanding these things.
    Finally, I am concerned about living in the richest country 
in the world, where 1 out of every 110 persons is a 
millionaire. The richest country in the world where we can 
spend $269 million not per year, not per month, not per week, 
but per day on the war. $269 million up from $177 million, 
because of what we are appropriating. With that kind of money 
and these kinds of riches, I am concerned about--
    Mrs. Maloney. The time of the gentleman has expired. I 
grant him another 20 seconds.
    Mr. Green. Thank you. I am just concerned about the hope 
index. How does it impact one level of society to see another 
level of society not sharing the sacrifice. The war is being 
funded on the backs of the least, the last, and the lost. What 
about the hope index?
    Thank you. Thank you for the additional time.
    Mrs. Maloney. Dr. Blank?
    Ms. Blank. The earned income tax credit, I think, is one of 
the best policies aimed at low-income families in the country 
today. The reasons that we could expand this without having 
very negative effects are twofold.
    First of all, it is a very well-targeted policy. It is 
focused on workers who have low wages in low-income families. 
Unlike the minimum wage, which benefits even those workers, the 
vast majority of which actually are teenagers, in middle and 
upper income families, the earned income tax credit goes only 
to low-income families.
    Secondly, it has relatively low displacement rates. One of 
the concerns about wage subsidies is often that companies pay 
less, because they basically take the Federal dollars and 
displace their wages with Federal wages.
    The reason this doesn't happen as much with the earned 
income tax credit is it is paid through the tax system, not 
through companies in the way traditional wage subsidies are.
    If I am an employer, I do not know if you are getting the 
earned income tax credit or if Jared here is getting it, and 
therefore, I cannot sort of play games with how much I am 
paying you. I just do not know who is receiving it and who is 
not, because I do not know anything about the rest of your 
family and your total income categories.
    Expanding the earned income tax credit is often viewed as--
it is viewed as a very efficient policy that has fewer of these 
sorts of displacement effects than many others.
    Mrs. Maloney. Thank you very much. Congressman Cleaver.
    Mr. Bernstein. Can I add two sentences to that response?
    Mrs. Maloney. Yes.
    Mr. Bernstein. There are two ideas to expand the earned 
income tax credit currently being discussed by policymakers.
    One is to increase the benefits to childless workers and 
another is to increase what is called the third tier, to add an 
extra benefit for families with three or more workers; right 
now, it is two or more. Both of those have been shown to have 
considerable anti-poverty effectiveness.
    Mrs. Maloney. Thank you very much. Congressman Cleaver.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    I have two hopefully quick questions. First of all, I do 
not know if any of you are able to do so, but I would like to 
speak Chinese for a moment.
    As many of you may know, under the current Administration, 
the U.S. debt to China quadrupled since 2000. In the year 2000, 
$62 billion in U.S. public debt was held by the People's 
Republic of China. China's holdings on foreign securities today 
in terms of the securities held by China in the United States 
exceeds $1 trillion.
    China just tested some new missile as a demonstration that 
they have arrived militarily. We are having this big debate 
here on whether or not we should escalate the fighting in Iraq.
    The truth of the matter is that even though the brave and 
honorable men and women who are fighting in Iraq are doing 
exactly what the country has told them, the truth of the matter 
is that their fighting is being financed by China and other 
foreign countries.
    Do you think this is a matter of national security or is it 
something that we should just push aside because most Americans 
do not understand the debt even if you tell them that every 
single American, including the unemployed, has a portion of the 
debt--$28,000 today and rising.
    The third leading expenditure in the budget that was just 
submitted by the President is the interest on the debt, and it 
rises $600,000 a minute.
    I do not know if any of you can speak Chinese, but if you 
can, I would like your response, and I would like to ask one 
other quick question.
    Mr. Blackwell. I think the issue of the imbalance between 
China and the United States, in particular, is an enormously 
important issue for the world economy. It is also perhaps a 
national security concern.
    I just wanted to point out one thing that might not be on 
your screen. In order to keep its currency at the current 
levels, China is buying large quantities of mortgage-backed 
securities, which keeps housing prices higher than they 
otherwise would be. People are pulling equity out of those 
houses. That is part of what has been driving the economy.
    The only thing that has been driving this economy in the 
past few years is expenditures by consumers, which is debt 
finance, and in part, by the borrowings of the Chinese Bank.
    Mr. Cleaver. What happens if China dumps its diet of 
dollars?
    Mr. Blackwell. Obviously, that is a catastrophe. No one 
expects they will because they would be hurting themselves as 
well. There is this kind of dance.
    Can they continue to buy an unlimited quantity of U.S. debt 
and manage the risk that represents to their own economy, and 
what happens to their economy and the U.S. economy if they 
decide to diversify.
    Mr. Grant. Mr. Cleaver, in the early going, one of the 
Congressmen said that you cannot consume and save the same 
dollar, but in fact, you can, and we do. We buy things from 
China. That same dollar comes back in the form of a purchase of 
a Treasury security or a mortgage-backed security.
    We have what they call the exorbitant privilege of issuing 
this reserve currency, which has stood us in such great stead, 
but we are ever at risk of the world changing its mind. It will 
choose other assets, other reserve assets.
    Yes, it is a clear and present danger to our prosperity. We 
are consuming much, much more than we produce.
    Mr. Cleaver. Final question, Madam Chairwoman. I think my 
colleague is gone, who raised this issue. If everything is so 
good in this country, why is it that for only the second time 
in the history of the Republic we have a negative savings rate?
    In most Asian nations, the savings rate is 20 percent and 
above. I think the savings rate in the United States is like 
.9, close to a full percent.
    We have never had a negative savings rate since the 
Depression, 1932 and 1933, and then we started having a 
negative savings rate in 2005 and 2006.
    If everything is great, why is it that Americans--
    Mrs. Maloney. The gentleman's time has expired. I grant him 
another 20 seconds.
    Mr. Cleaver. Why are Americans spending all they make and 
then borrowing to make ends meet? Thank you, Madam Chairwoman.
    Mr. Bernstein. Quickly, I think one of the reasons for that 
dynamic is because interest rates, up until a while ago, were 
so low. Then-Chairman Greenspan used to make the point in this 
very room, when we talked about these very imbalances, he would 
say that servicing the debt burden does not seem to be any 
worse now than it was in prior years, it is around the average 
level.
    The reason was that even though debt was high, interest 
rates were low. Now, interest rates have crept back up, and 
yesterday, Chairman Bernanke presented a chart on the finance 
obligation ratio, that is how much household income it is 
taking to pay debt, and that is at historically high ranges 
now.
    I agree with you that this is a worrisome development.
    Mr. Grant. One thing to be aware of is that this country's 
current account is mainly trade deficit, almost all of it, but 
there is something called the balance on income; how much we 
earn on our assets abroad versus how much they earn on their 
assets here.
    For three consecutive quarters, that number has been 
negative, the first time it has happened. We are now borrowing 
from the Chinese, as it were, to pay the Japanese. It is a very 
big change in our external financial position.
    Ms. Blank. I do want to say a word about savings. Partly, 
savings rates are low because we have expanded credit 
availability, particularly to lower income households. The 
ability to borrow, for instance, for housing mortgages, in the 
subprime market, has expanded homeownership by 10 points in 
this country.
    That also increases foreclosure rates, because not 
everybody is successful in the long run at that, and you have 
to balance out what you are getting from this additional credit 
with the additional financial stresses you are creating on 
households.
    For some people, the expanded ability to borrow has 
actually really given them a great deal of economic opportunity 
they did not have before.
    Mrs. Maloney. I thank the panel. I would now like to 
recognize the ranking member, and then I have one final 
question.
    Mr. Bachus. I would like the panel to comment on portable 
healthcare plans or portable retirement plans. Companies used 
to be loyal to their employees. Today, there is not that 
loyalty, and senority does not count for as much, 
unfortunately.
    Mr. Bernstein. I have been watching the system of employer 
provided health and pension unravel at a rate that is becoming 
a bit alarming. I think it is still a bedrock system, and I do 
not want to create a sense of hyperbole to my alarm.
    The fact is that employers are shedding these obligations. 
We have seen a large sustained shift from defined benefit 
pensions to defined contribution pensions. Many folks are lucky 
if they even have that.
    The end result is that more risk is placed on workers in 
terms of essentially shopping for those very necessary parts of 
a social insurance system on their own.
    There are those who believe that kind of market competition 
will help, and I salute that up to a point.
    The fact that the risks have shifted such that individuals 
are bearing more and more, I think, is a worrisome trend.
    Mr. Bachus. Can you also comment on whether or not you have 
proposals or know of proposals that might work. I know Wal-Mart 
recently proposed that we have a national healthcare insurance. 
Of course, people wondered if that was because they wanted 
someone else to pick up the tab. At least, they were bringing 
the issue forward and I commend them for that.
    As you said, with less union jobs, and less bargaining 
power, some of these benefits are disappearing.
    Mr. Blackwell. Portability is good. It is not because jobs 
are changing rapidly, but portability cannot be used as a 
mechanism for allowing employers to walk away from their 
obligations under the system, either for healthcare provisions 
or for retirement security.
    We can imagine a system, and we were thinking about 
proposing one, where people who offer a healthcare plan or 
qualified healthcare plan or qualified retirement security plan 
can run their own plan the way they always have.
    Employers who do not have such plans would be required to 
contribute a proportion of their payroll into a public system 
that would supplement a system that we already have and that 
would provide full portability.
    What we are very concerned about is efforts like that of 
the chairman of Wal-Mart. He says that we need to solve the 
healthcare problem, but what he has in mind is off-loading his 
obligations onto some kind of individual mandate onto these 
very working families who do not have the money to pay for it, 
and they simply end up in the ranks of the uninsured.
    Ms. Blank. Just a quick comment. There are a variety of 
portability plan options that really are aimed at people who 
have health insurance who move across companies. That is 
important.
    It is equally important to worry about the folks who are at 
employers who basically do not provide, and cannot provide, 
health insurance because they are small employers. For this 
group, we need to create some sort of risk pooling schemes at 
the State level that can both allow those employers to 
contribute and, at the same time, give portability to people 
who move across industries or who retire early or whatever. If 
we could do this, it would be a wonderful improvement over the 
present system.
    Mr. Bachus. Thank you. Dr. Blank, I think you may have been 
on television, responding to Chairman Bernanke. I had a 
question about the jobs being created. You all may be aware of 
his testimony.
    His response was there is an enormous demand for high-
skilled workers and high-paying jobs, and the constraint on 
highest paying jobs, for example, in manufacturing is not the 
demand but the supply. Firms cannot find workers of sufficient 
qualifications in many different areas. There certainly has 
been job creation at the high level as well as throughout the 
distribution of wages. Is there a problem with educating 
Americans for those jobs?
    Ms. Blank. There is a problem with education and skills in 
this country. We do not have the floor on skills that many 
other countries do. Students who get the worst education come 
out of our public school system with less literacy, less math 
skills, and less job preparation than the bottom end of the 
skill distribution in a number of our competitor countries.
    In the long run, the only way we are really going to 
increase competitiveness and jobs for the entire population, 
and to ensure long term full employment, is going to be a 
strategy of education in the public school system.
    Mr. Blackwell. There has been creation of high-skilled 
jobs, no question about it. The question is the proportion 
between the high skilled jobs, higher paying jobs and the lower 
paying jobs.
    It is often reported, I think, particularly through the 
channels that the Fed hears, they hear from the business 
community that we cannot find workers who have the skills we 
need at the rates we are prepared to pay. That is the kind of 
shortage I think they are reporting. If there were high wages 
being offered out there, there would be workers who would 
respond to those wages.
    Mr. Bachus. One of my frustrations has been--I will just 
take my home State of Alabama. Our medical schools graduate 
about half of the doctors we need. There is a critical need for 
doctors in rural areas. It is not for want of applicants. I 
always hear people had a 4.0 on a 4.0 scale or 3.8. There are 
probably 2,000 qualified applicants each year, and they accept 
125.
    Dr. Blank, you are from the University of Michigan. Why are 
the universities not recruiting these people? Why aren't the 
State--there are qualified applicants. In many cases, the 
education is offered in maybe subjects where there are not 
jobs, in engineering and subjects where we are constantly told 
this is why people are coming overseas; we do not have skilled 
Americans. What can we do about that?
    Ms. Blank. I do not have a good answer. I do not know 
enough about the medical school market.
    Mrs. Maloney. We are going to have to wrap this up in a 
second. Go ahead.
    Ms. Blank. I do not have a good answer. I simply do not 
know enough about the specifics of what limits enrollments in 
medical schools.
    Mr. Bachus. Even in engineering or other fields?
    Ms. Blank. Right. I wish I had an answer for you but I do 
not.
    Mrs. Maloney. Congressman Ellison?
    Mr. Ellison. Thank you, Madam Chairwoman.
    My questions revolve around this issue of bargaining power 
on behalf of workers. I have to be in and out, so I hope you 
have not already addressed this issue.
    Could you talk a little bit about what accounts for the 
diminished bargaining power of working people vis-a-vis labor 
unions or even just on their own?
    Mr. Blackwell. I think there are four major areas that I 
would identify. One is that we have a much more global labor 
market than we had, and this global competition has cost us 
jobs as firms have outsourced. Even the jobs that have not been 
outsourced; we see that across the bargaining table every day. 
If you do not pay more for your healthcare, we are going 
overseas. If you demand a wage increase, we are going overseas.
    The other thing would be privatization of government 
services and de-regulation of particular industries.
    The third thing would be, as Dr. Bernstein has mentioned, 
the fact that the labor market institutions, like the minimum 
wage, has been lowered to virtually subpoverty levels, and the 
lack of workers' rights to effectively organize.
    One that is right in the center of the meaning of this 
hearing is the slack in labor markets. The demand for workers 
is growing more slowly in its recovery than it has in any other 
post-war recovery. That creates, as I think Dr. Bernstein again 
described, where you have a long line of people outside the 
door prepared to take your job if you make unofficial demands.
    Alan Greenspan, I believe, mentioned this in his hearings 
during the late 1990's. Things have changed. There is a lot of 
fear among working people. That is the reason why they are not 
willing and able to make stronger demands for improvements in 
their lives.
    Mr. Ellison. Mr. Blackwell, you mentioned the right to 
organize. Do you think that if Congress strengthened the right 
to organize, for example, if there was employer neutrality, 
binding arbitration on the first contract, how would that 
impact labor? How would that impact workers' bargaining power?
    Mr. Blackwell. There are 90 million workers in the United 
States today who would be eligible to join unions if they want. 
Over 53 percent of those people say they would join a union 
tomorrow if they could. The reason they do not is employer 
interference in their decisions, and hiring anti-union 
consulting firms and firing workers who try to form unions. 
31,000 Americans were fired illegally from their jobs last year 
for attempting to form an union.
    Mr. Ellison. Did not the NLRB do something about that?
    Mr. Blackwell. Those were the ones who were found to be 
illegally fired, but the penalties that are attached to those 
firings are so minimal that it is considered by business as 
just a cost of doing business.
    All you get if you have a finding on your side is you get 
the difference between the wages you actually earned and the 
wages you would have earned if you had your job. The employer 
might have to post something in a lunchroom saying they will 
not do it again. That is not a meaningful bar from interference 
in workers' rights to organize.
    Mr. Ellison. What about this idea of the captive audience? 
This is a practice where employers might just call people into 
a room and say hey look, and make comments about the problems 
with unionization.
    How does that practice impact employee bargaining?
    Mr. Blackwell. Obviously, if you are living on property 
that is the property of your employer, the employer has the 
right to take you into a private room, and this is very 
routine, this is a core tactic of union avoidance, and they 
explain, find out the nature of your concerns, why you are 
interested in forming a union, and that is the occasion where 
they threaten you with the loss of employment or where they 
actually terminate you from employment if they decide you are 
incorrigible on this issue.
    That is why we just basically have to take the employer out 
of the decision among workers about whether they are going to 
join a union or not. This is a question of freedom of 
association. This is not a question of the employer voting on 
whether they have a union or not.
    Mr. Ellison. You talked about a slack in the labor market. 
Could you help put some better definition to the term 
``unemployment?'' I think most people think you are unemployed 
if you want a job and you do not have one.
    I have heard other definitions like these are the people 
who are still applying for unemployment benefits, that is how 
we count them, and then maybe there are some other people who 
might still be looking, which I think would be a little bit 
harder to pin a definite number on because you would have to 
rely on a survey.
    I know this is elementary for you. Just for the sake of 
this record, could you define what ``unemployment'' means so we 
can have a clearer understanding of what we are really talking 
about?
    Mrs. Maloney. If I could add, Mr. Ellison, your exchange 
with Mr. Blackwell earlier showed why we need to pass the 
Employment Free Choice Act that Senator Kennedy and others have 
put in.
    Mr. Ellison. Let me agree with the chairwoman on that 
point.
    Mr. Blackwell. I was suggesting before that we have almost 
lost the term ``full employment'' from our dialogue. I think 
the importance of this hearing is we are re-visiting that 
concept. I think we need to revise the definition of it. It 
cannot just be the 4 percent unemployment rate that was 
stipulated in the Humphrey-Hawkins Act.
    It has to look at the employment population ratio, which is 
still a full percentage point below what it was in the previous 
peak. A lot of people that are not even in the labor force, as 
Dr. Blank had mentioned.
    Also, it has to look at precisely this question of the 
relationship, is there sufficient tightness in the labor market 
in order that productivity and wages are moving together, or at 
least in the same direction?
    Mrs. Maloney. Thank you. The time of the gentleman has 
expired.
    The chairwoman recognizes herself briefly. Mr. Blackwell 
explained earlier that working families are keeping up their 
standard of living or trying to by working harder, longer, 
taking multiple jobs, and sending more of their family members 
to work.
    I want to spend a little time talking about what this 
means. This is really having a serious impact on real people 
whose lives are simply becoming worse.
    It is damaging families in America. The report that I 
mentioned earlier came out from UNICEF at the United Nations. 
This report said that American children are worse off by 
multiple objective measures than children in 21 industrialized 
countries. We come in last.
    The United States was last in health and safety, very low 
in education, and second to last in family and peer 
relationships and behavior and risk.
    I would like the panel's comments starting with Dr. Blank, 
who is a recognized expert in this area. This reflects the 
strains, I would say, on working families caused by the gap 
between productivity and wages. I would say wages are a family 
value and this report certainly shows that.
    I read reports all the time. I was absolutely shocked by 
this recent U.N. UNICEF report. I would like to hear briefly 
from the panel.
    Ms. Blank. I agree entirely with your concerns. I should 
note that if you look at upper income families, you do not see 
some of these same things, if you are looking at educational 
achievement, at health issues, all the things that the U.N. 
report looks at, those are not problems in upper income 
families.
    The reason the United States ranks low on those statistics 
is because we have this wide distribution and a much lower 
bottom end in terms of income and skill levels and health 
disparities than other countries with whom we are being 
compared.
    This whole issue of inequality is key to understanding why 
the United States is ranking so low. We simply do not have the 
same floor, providing the same protections for our lower 
skilled or low wage families as other countries do.
    Mr. Bernstein. Let me talk for a second about that from the 
perspective of middle income families. If you look at married 
couples with kids over the past 25 years or so, their hours of 
work, the time that family spends in the paid labor market, is 
up by about 500 hours over this time period.
    That means typically, working wives are spending more than 
3 months more in the labor market than they were before. That 
is not by any means an automatic bad. Part of that represents 
opportunities that were not available to women in the past.
    The fact is this: If you take wives' earnings out of the 
equation, this family's income has hardly grown at all. Their 
income growth has been a function of working wives going to 
work and working more weeks per year, and more hours per week. 
That is a very positive development, but it is also a 
development that creates stress on middle income families, and 
a lack of work/family balance that I think shows up in those 
types of statistics.
    Mr. Blackwell. I would only add the disproportionate stress 
as to the women, who as we know still absorb a disproportionate 
part of work at home while they enter the labor force to help 
support their family.
    Mrs. Maloney. I want to thank all of my colleagues and the 
panelists and the chairman for putting together an extremely 
interesting hearing.
    The Chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to place the responses in the record.
    This hearing is adjourned. I thank everyone for attending.
    [Whereupon, at 12:44 p.m., the hearing was adjourned.]


                            A P P E N D I X



                           February 16, 2007


[GRAPHIC] [TIFF OMITTED] T4674.001

[GRAPHIC] [TIFF OMITTED] T4674.002

[GRAPHIC] [TIFF OMITTED] T4674.003

[GRAPHIC] [TIFF OMITTED] T4674.004

[GRAPHIC] [TIFF OMITTED] T4674.005

[GRAPHIC] [TIFF OMITTED] T4674.006

[GRAPHIC] [TIFF OMITTED] T4674.007

[GRAPHIC] [TIFF OMITTED] T4674.008

[GRAPHIC] [TIFF OMITTED] T4674.009

[GRAPHIC] [TIFF OMITTED] T4674.010

[GRAPHIC] [TIFF OMITTED] T4674.011

[GRAPHIC] [TIFF OMITTED] T4674.012

[GRAPHIC] [TIFF OMITTED] T4674.013

[GRAPHIC] [TIFF OMITTED] T4674.014

[GRAPHIC] [TIFF OMITTED] T4674.015

[GRAPHIC] [TIFF OMITTED] T4674.016

[GRAPHIC] [TIFF OMITTED] T4674.017

[GRAPHIC] [TIFF OMITTED] T4674.018

[GRAPHIC] [TIFF OMITTED] T4674.019

[GRAPHIC] [TIFF OMITTED] T4674.020

[GRAPHIC] [TIFF OMITTED] T4674.021

[GRAPHIC] [TIFF OMITTED] T4674.022

[GRAPHIC] [TIFF OMITTED] T4674.023

[GRAPHIC] [TIFF OMITTED] T4674.024

[GRAPHIC] [TIFF OMITTED] T4674.025

[GRAPHIC] [TIFF OMITTED] T4674.026

[GRAPHIC] [TIFF OMITTED] T4674.027

[GRAPHIC] [TIFF OMITTED] T4674.028

[GRAPHIC] [TIFF OMITTED] T4674.029

[GRAPHIC] [TIFF OMITTED] T4674.030

[GRAPHIC] [TIFF OMITTED] T4674.031

[GRAPHIC] [TIFF OMITTED] T4674.032

[GRAPHIC] [TIFF OMITTED] T4674.033

[GRAPHIC] [TIFF OMITTED] T4674.034

[GRAPHIC] [TIFF OMITTED] T4674.035

[GRAPHIC] [TIFF OMITTED] T4674.036

[GRAPHIC] [TIFF OMITTED] T4674.037

[GRAPHIC] [TIFF OMITTED] T4674.038

[GRAPHIC] [TIFF OMITTED] T4674.039

[GRAPHIC] [TIFF OMITTED] T4674.040

[GRAPHIC] [TIFF OMITTED] T4674.041

[GRAPHIC] [TIFF OMITTED] T4674.042

[GRAPHIC] [TIFF OMITTED] T4674.043

[GRAPHIC] [TIFF OMITTED] T4674.044

[GRAPHIC] [TIFF OMITTED] T4674.045

