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



 
BUILDING AN ECONOMIC RECOVERY PACKAGE: CREATING AND PRESERVING JOBS IN 
                                AMERICA

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


                                HEARING

                               before the

                              COMMITTEE ON
                          EDUCATION AND LABOR

                     U.S. House of Representatives

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, OCTOBER 24, 2008

                               __________

                           Serial No. 110-115

                               __________

      Printed for the use of the Committee on Education and Labor


                       Available on the Internet:
      http://www.gpoaccess.gov/congress/house/education/index.html



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                    COMMITTEE ON EDUCATION AND LABOR

                  GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice       Howard P. ``Buck'' McKeon, 
    Chairman                             California,
Donald M. Payne, New Jersey            Senior Republican Member
Robert E. Andrews, New Jersey        Thomas E. Petri, Wisconsin
Robert C. ``Bobby'' Scott, Virginia  Peter Hoekstra, Michigan
Lynn C. Woolsey, California          Michael N. Castle, Delaware
Ruben Hinojosa, Texas                Mark E. Souder, Indiana
Carolyn McCarthy, New York           Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts       Judy Biggert, Illinois
Dennis J. Kucinich, Ohio             Todd Russell Platts, Pennsylvania
David Wu, Oregon                     Ric Keller, Florida
Rush D. Holt, New Jersey             Joe Wilson, South Carolina
Susan A. Davis, California           John Kline, Minnesota
Danny K. Davis, Illinois             Cathy McMorris Rodgers, Washington
Raul M. Grijalva, Arizona            Kenny Marchant, Texas
Timothy H. Bishop, New York          Tom Price, Georgia
Linda T. Sanchez, California         Luis G. Fortuno, Puerto Rico
John P. Sarbanes, Maryland           Charles W. Boustany, Jr., 
Joe Sestak, Pennsylvania                 Louisiana
David Loebsack, Iowa                 Virginia Foxx, North Carolina
Mazie Hirono, Hawaii                 John R. ``Randy'' Kuhl, Jr., New 
Jason Altmire, Pennsylvania              York
John A. Yarmuth, Kentucky            Rob Bishop, Utah
Phil Hare, Illinois                  David Davis, Tennessee
Yvette D. Clarke, New York           Timothy Walberg, Michigan
Joe Courtney, Connecticut            [Vacancy]
Carol Shea-Porter, New Hampshire

                     Mark Zuckerman, Staff Director
                Sally Stroup, Republican Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on October 24, 2008.................................     1

Statement of Members:
    Altmire, Hon. Jason, a Representative in Congress from the 
      State of Pennsylvania, prepared statement of...............   124
    McKeon, Hon. Howard P. ``Buck,'' Senior Republican Member, 
      Committee on Education and Labor, prepared statement of....   124
    Miller, Hon. George, Chairman, Committee on Education and 
      Labor......................................................     1
        Prepared statement of....................................     3
        Additional submissions:
            Letter dated October 22, 2008, from Alan S. Blinder, 
              professor of economics, Princeton University.......    78
            Statement of the National Youth Employment Coalition.    79
            Statement of Goodwill Industries International.......    87
            Pension Benefit Guaranty Corporation (PBGC) graphic..    83
            Joint statement of Rev. Donald Roberts, president and 
              CEO of Goodwill Industries of Manasota, and Sandra 
              Purgahn, president and CEO of Goodwill Industries 
              of Acadiana........................................    89
            Letter dated October 23, 2008, from Allen Sinai, 
              chief global economist, Decision Economics, Inc....    83
            Inslee, Hon. Jay,, a Representative in Congress from 
              the State of Washington, statement for the record..    91
            Letter dated October 23, 2008, from the National 
              Urban League.......................................    92

Statement of Witnesses:
    Beach, William W., director, center for data analysis, the 
      Heritage Foundation........................................    52
        Prepared statement of....................................    54
    Bernstein, Jared, living standards program, Economic Policy 
      Institute..................................................    14
        Prepared statement of....................................    17
    Blackwell, Ron, chief economist, AFL-CIO.....................    10
        Prepared statement of....................................    12
    Hansen, Chris, president, American Electronics Association...    31
        Prepared statement of....................................    33
    Millard, Charles, director, Pension Benefit Guaranty 
      Corporation................................................    95
        Prepared statement of....................................    98
    Pollin, Robert, professor of economics and co-director, 
      Political Economy Research Institute, University of 
      Massachusetts-Amherst......................................    34
        Prepared statement of....................................    36
    Stevens, Dana, human resources professional..................     6
        Prepared statement of....................................     8


                BUILDING AN ECONOMIC RECOVERY PACKAGE: 
                CREATING AND PRESERVING JOBS IN AMERICA

                              ----------                              


                        Friday, October 24, 2008

                     U.S. House of Representatives

                    Committee on Education and Labor

                             Washington, DC

                              ----------                              

    The committee met, pursuant to call, at 10:03 a.m., in room 
2175, Rayburn House Office Building, Hon. George Miller 
[chairman of the committee] presiding.
    Present: Representatives Miller, Woolsey, Sarbanes, 
Loebsack, and Courtney.
    Staff Present: Aaron Albright, Press Secretary, Tylease 
Alli, Hearing Clerk; Chris Brown, Labor Policy Advisor; Jody 
Calemine, Labor Policy Deputy Director; Lynn Dondis, Senior 
Policy Advisor, Subcommittee on Workforce Protections; Carlos 
Fenwick, Policy Advisor, Subcommittee on Health, Employment, 
Labor and Pensions; Patrick Findlay, Investigative Counsel; 
David Hartzler, Systems Administrator; Ryan Holden, Senior 
Investigator, Oversight; Brian Kennedy, General Counsel; 
Therese Leung, Labor Policy Advisor; Sara Lonardo, Junior 
Legislative Associate, Labor; Ricardo Martinez, Policy Advisor, 
Subcommittee on Higher Education, Lifelong Learning and 
Competitiveness; Alex Nock, Deputy Staff Director; Megan 
O'Reilly, Labor Policy Advisor; Rachel Racusen, Communications 
Director; Meredith Regine, Junior Legislative Associate, Labor; 
Melissa Salmanowitz, Press Secretary; James Schroll, Staff 
Assistant; Michele Varnhagen, Labor Policy Director; Michael 
Zola, Chief Investigative Counsel, Oversight; Mark Zuckerman, 
Staff Director; Robert Borden, Minority General Counsel; 
Cameron Coursen, Assistant Communications Director; Ed Gilroy, 
Minority Director of Workforce Policy; Rob Gregg, Senior 
Legislative Assistant; Alexa Marrero, Minority Communications 
Director; and Jim Paretti, Minority Workforce Policy Counsel.
    Chairman Miller. Good morning. A quorum being present, the 
Committee on Education and Labor will come to order. The 
purpose of this morning's hearing is to listen to witnesses on 
the issue of building an economic recovery package and creating 
and preserving jobs in America. I want to thank in advance all 
our witnesses for your testimony and for your time and your 
expertise in this challenge that we have here.
    The real economy, I think it is apparent to everyone at 
this point, is in a shambles. If you look at the staggering job 
losses, the rising unemployment and the sharp decline in 
families' earnings, September, for example, saw more mass 
layoffs than any other month since September 2001 after 9/11.
    Earlier this month, we enacted an emergency $700 billion 
financial rescue plan to stem the collapse of the credit 
markets. This was a necessary step to prevent the bottom from 
falling out, but we knew it would not cure all that ails our 
economy. What we are seeing now in the continued decline in the 
volatility of the financial markets is a realization that 
recession is setting in and it is likely to be long, it is 
likely to be deep, and it is going to be global. It is urgent 
that we prepare now to take the next steps to rescue the 
economy by creating jobs, providing for immediate relief to the 
States and small businesses, and making real investments in 
energy, technology and education. We must have a plan to speak 
directly to the needs of America's families and workers today.
    At a forum convened by Speaker Pelosi last week, leading 
economists agreed that creating jobs is essential to rebuilding 
our real economy. Alan Blinder and other economists told us 
that they fear unemployment could soon hit 8 percent or higher, 
and I think, Jared, you concurred in that, and I think Alan 
Sinai also concurred in that determination last week in that 
meeting.
    In testimony early this week, Fed Chairman Bernanke agreed 
that Congress should develop an economic recovery package to 
help blunt rising unemployment. American families are facing a 
quadruple economic whammy; falling home values, shrinking 
retirement savings, rising basic costs and job insecurity. The 
economists warn that things are likely to get worse, since the 
real prospect of today's economic realities will result in a 
generation of Americans that are worse off than previous 
generations.
    In September, the House approved an economic recovery plan 
that would have created good-paying jobs by investing in energy 
technology and infrastructure and retrofitting our schools; 
investments that would prevent the falling recession. It also 
would have provided access to job training and helped working 
families with grocery and health care bills. It also approved 
an extension of the unemployment benefits in October. 
Unfortunately, these efforts were blocked by Senate Republicans 
and the President in denial of the impact of their disastrous 
economic policies on American families.
    Democrats, on the other hand, recognize that we should act 
now to restore confidence. For starters, we have to deal with 
growing numbers of the unemployed. Over the past year, 
unemployment rates have increased in 47 States. We must extend 
unemployment benefits for out-of-work Americans whose current 
benefits are set to expire or, in fact, maybe already have 
started expiring.
    Next, rebuilding our crumbling roads, businesses, transit 
and schools must be central to our jobs and economic policy for 
an economic recovery package. These investments not only 
provide urgently needed repairs, but increase productivity, 
create good-paying jobs, and spur additional private 
investment. States and localities have projects ready to go, 
but lack funding as they face declining revenues. We will hear 
testimony this morning that making infrastructure investments 
are some of the most effective uses of Federal dollars in 
creating, jobs both in the short term and in the long term.
    Encouraging the development of the green economy must also 
be a core component of any jobs recovery package. Not only will 
these investments create millions of good-paying jobs, but they 
will lead to fundamental change in the way we produce and 
consume energy.
    Other infrastructure investments such as the build-out of 
the national broadband network promises similar benefits. The 
U.S. Lags behind dozens of other industrialized countries in 
terms of broadband diffusion.
    As a letter from my colleague, Anna Eshoo from California 
points out, in a recent paper presented, the availability of 
broadband in communities added 1 percent to the employment 
growth and over a five-tenths of a percent increase in the 
growth of business establishments and five-tenths of a percent 
increase in the share of establishments represented by the 
information technology firms. The broadband build-out would add 
$500 billion to the GDP and 1.2 million additional jobs in 
construction and use of the national broadband network. We know 
how important this is to the rural communities in our country.
    There are a number of the other proposals that will be 
considered in an economic recovery package, including job 
training, food stamps, heating assistance and help to the 
States to cover critical costs.
    As we continue our efforts to create an economic recovery 
plan, we must make sure that these ideas provide the best help 
to struggling families and the best return to the taxpayers' 
investment.
    After we hear from the first panel, we will also hear from 
the director of the Pension Benefit Guaranty Corporation, 
Charles Millard. The Pension Benefit Guaranty Corporation 
provides pension protection for 44 million workers and is 
responsible for administering benefits of more than 1 million 
Americans.
    Director Millard will also discuss the new investment 
policy his agency has adopted in February of this year and 
whether it is a prudent approach for the unique mission of the 
Pension Guarantee Corporation. The new policy dramatically 
shifts PBGC's investments away from fixed income securities 
such as U.S. Treasuries into equity securities and aggressive 
asset classes. We will examine the rationale for such a change 
in light of the recent market meltdown and the reported loss of 
at least $3 billion, and I think we will hear later this 
morning it is much more than that, in investment in recent 
months. We must preserve and strengthen these retirement plans. 
For example, we must strengthen 401(k)s to provide complete 
disclosure of all related fees and requiring independent 
management advice. That will be the second panel that we will 
hear from.
    With that, I would like to recognize Ms. Woolsey or other 
members for any opening remarks they may have.
    [The statement of Mr. Miller follows:]

   Prepared Statement of Hon. George Miller, Chairman, Committee on 
                          Education and Labor

    The Committee on Education and Labor meets this morning to examine 
the state of employment and solutions that will put our economy on the 
road to recovery and get Americans back to work.
    The ``real'' economy is in shambles. Just look at the staggering 
job losses, rising unemployment, and a sharp decline in families' 
earnings. September, for example, saw more mass layoffs than in any 
other month since September 2001, after 9-11.
    Earlier this month, we enacted an emergency $700 billion financial 
rescue plan to stem the collapse of the credit markets. That was a 
necessary step to prevent the bottom from falling out. But we knew that 
it would not cure what ails our economy.
    What we are seeing now, in the continued decline and volatility in 
the financial markets, is the realization that recession is setting in; 
that it is likely to be long; it is likely to be deep; and it is going 
to be global.
    It is urgent that we prepare now to take the next steps to rescue 
the economy by creating jobs, providing immediate relief to the states 
and small businesses, and by making real investments in energy, 
technology and education.
    We must have a plan that speaks directly to the needs of American 
families and workers today.
    At a forum convened by Speaker Pelosi last week, leading economists 
agreed that creating jobs is essential to rebuilding our economy.
    Alan Blinder and other economists told us that they fear that 
unemployment could soon hit 8 percent or higher.
    Even Fed Chairman Ben Bernanke agrees that Congress should develop 
an economic recovery package to help blunt rising unemployment.
    American families are facing a quadruple economic whammy: Falling 
home values, shrinking retirement savings, rising basic costs, and job 
insecurity.
    And economists warn that things are likely to get worse. There is a 
real prospect that today's economic realities will result in a 
generation of Americans worse off than the previous generation.
    In September, the House approved an economic recovery plan. It 
would have created good-paying jobs by investing in new energy 
technology and our infrastructure--investments that would prevent our 
economy from falling deeper into recession.
    It would have also provided access to job training and helped 
working families with grocery and health care bills. We also approved 
an extension of unemployment benefits in October.
    Unfortunately, these efforts were blocked by Senate Republicans and 
a President in denial of the impact of their disastrous economic 
policies on American families.
    Democrats, on the other hand, recognize that we should act now to 
restore confidence.
    For starters, we have to deal with the growing numbers of the 
unemployed. Over the past year, unemployment rates have increased in 47 
states.
    We must extend unemployment benefits for out-of-work Americans 
whose current benefits are set to expire.
    Next, rebuilding our crumbling roads, bridges and schools must be 
central to our jobs and economic recovery package.
    These investments not only provide for urgently needed repairs, but 
increase productivity, create good-paying jobs, and spur additional 
private investment.
    States and localities have projects ready to go but lack funding as 
they face declining revenues.
    We will hear testimony this morning that making infrastructure 
investments are some of the most effective uses of the federal dollar 
in creating jobs in both the short-term and the long-term.
    Encouraging the development of a green economy must also be a core 
component to any jobs recovery package.
    Not only will these investments create millions of good-paying 
jobs, but they will lead to a fundamental change in the way we produce 
and consume energy.
    Other infrastructure investments, such as increasing broadband 
diffusion, promise similar benefits.
    The U.S. lags behind a dozen other industrialized countries in 
terms of broadband diffusion.
    This gap slows our efficiency and our ability to remain globally 
competitive.
    There are a number of other proposals that will be considered in an 
economic recovery package, including job training, food stamp and 
heating assistance, and help to states to cover critical costs.
    As we continue our efforts to create an economic recovery plan, we 
must make sure that these ideas provide the best help to struggling 
families and the best return on taxpayers' investment.
    We will also hear from the director of the Pension Benefit Guaranty 
Agency Charles Millard.
    PBGC provides pension protection for 44 million workers and is 
responsible for administering benefits for more than 1 million 
Americans.
    Director Millard will also discuss his new investment policy that 
his agency adopted in February of this year and whether this is a 
prudent approach for the unique mission of the PBGC.
    The new policy dramatically shifts PBGC's investments away from 
fixed income securities, such as U.S. Treasuries, into equity 
securities and other aggressive asset classes.
    We will examine the rationale for such a change in light of the 
recent market meltdown and the reported loss of at least $3 billion in 
equity investments in recent months.
    We must preserve and strengthen Americans' retirement plans. For 
example, we must strengthen 401(k)s by increasing transparency and 
providing complete disclosure of all related fees and providing 
independent management advice.
    We must also waive the current tax penalty for seniors over 70 and 
a half who don't take a minimum withdrawal from their retirement 
accounts. And we must prohibit privatizing Social Security.
    Today's witnesses will help us understand what's happening in the 
real economy, where we are headed, and help us consider what proposals 
might work best to get the economy moving in the right direction.
    I look forward to their testimony.
                                 ______
                                 
    Ms. Woolsey. Thank you, Mr. Chairman. This is going to be 
very interesting. But I want to get on with this, so I won't 
have opening remarks. Thank you.
    Mr. Loebsack. Thank you for convening this hearing, Mr. 
Chairman. Like my colleague, Ms. Woolsey, I will just hold off 
until we get to the Q&A.
    Mr. Courtney. I will also, Mr. Chairman.
    Chairman Miller. Thank you. What wonderful Members of 
Congress.
    This morning on our panel we will first hear from Dana 
Stevens from Thorofare, New Jersey, who has worked in benefits 
administration for the past 10 years. She wad laid off by her 
employer in July due to corporate restructuring and she will be 
discussing her experience with the deteriorating job market 
over the past several months. Thank you so much for joining us 
this morning.
    Next we will hear from Ron Blackwell, the chief economist 
at the AFL-CIO. Before joining the AFL-CIO, Mr. Blackwell was 
assistant to the president of the Amalgamated Clothing and 
Textile Workers and chief economist of Unite Here. Before that, 
he was a faculty member and academic dean at Seminar College at 
the New School where he taught economics.
    Gerald Bernstein is the director of the Living Standards 
Program at the Economic Policy Institute. Dr. Bernstein joined 
EPI in 1992 and has written extensively on issues such as 
income inequality, mobility and trends in employment and 
earnings. His latest book is Crunch: Why Do I Feel So Squeezed, 
and Other Unsolved Economic Mysteries. Dr. Bernstein earned his 
Ph.D in social welfare from Columbia University.
    Chris Hansen is president and CEO of AEA, the Nation's 
largest association representing the electronics and IT 
industries. Before joining AEA in November of 2007, Mr. Hansen 
was AARP's group executive officer for State and national 
initiatives. Previous to his work at AARP, Mr. Hansen was a 
senior vice-president at Boeing. Mr. Hansen holds a BA from the 
University of Denver and a masters from the American Graduate 
School of International Management.
    Robert Pollin is a professor of economics and founding co-
director of the Political Economy Research Institute at the 
University of Massachusetts, Amherst. Dr. Pollin's research 
centers on microeconomics conditions and low-wage workers, the 
analysis of financial markets and the economics of building a 
clean energy economy. He earned a BA from the University of 
Wisconsin and an MA and Ph.D. from the New School of Social 
Research.
    William W. Beach is the director of the Center For Data 
Analysis at the Heritage Foundation. In his position, Mr. Beach 
oversees statistical research on taxes, Social Security and 
trade, among the other issues. Prior to joining Heritage in 
1995, he served as a litigation economist and economist for the 
Missouri Office of Budget and Planning. Mr. Beach is a graduate 
of Washburn University and holds a master's degree from the 
University of Missouri in Columbia.
    With that, we will start with you, Ms. Stevens. Again, 
thank you so very much for joining the committee. I know that 
it is not easy to tell personal stories in public settings, but 
having looked at your testimony, I think you are presenting a 
face on this problem that many, many, unfortunately millions of 
Americans will recognize and understand that yours is a problem 
that we are trying to address in providing for strengthening 
the economy.
    Under the system, when you begin to speak, a green light 
will go on, that will be about 4 minutes. An orange light will 
go on which suggests you might want to start wrapping up your 
remarks, but we want you to finish in a way that you are 
comfortable and is also coherent for us.
    So thank you again. We look forward to your testimony.

    STATEMENT OF DANA STEVENS, HUMAN RESOURCES PROFESSIONAL

    Ms. Stevens. Chairman Miller, Ranking Member McKeon, 
members of the committee, thank you for inviting me to testify 
at this hearing today. My name is Dana Stevens and I am a 
resident of Thorofare, New Jersey, in Gloucester County.
    Since July 11th, I have been unemployed and struggling to 
find a new job to make ends meet. My story is not unique, I am 
sure. I am like millions of others who are struggling in the 
current economy. I am grateful for the opportunity to share my 
story today on behalf of all the unemployed workers out there 
who are ready, willing and eager to work, but simply cannot 
find a job.
    I am 31 years old and have been working continuously since 
I was 21 years old. Shortly after high school, I began working 
full-time and going to college on a part-time basis, steadily 
pursuing my degree in business administration.
    In June of 2007, I began working for an insurance broker. I 
was recruited to join that employer and was hired to fill a new 
position of benefits administration supervisor. I loved the job 
and I felt very comfortable and secure and settled, until last 
March.
    I was notified that my department would be outsourced in 
order to save $80,000 in business costs in addition to the 
salaries and additional money spent on benefits for the 
employees. This decision was also made as part of the sale of 
my employer to a much larger insurance company. I was initially 
told to remain positive and that my employer wanted to find me 
another position. However, in May, I was told that July 11th 
would be my last day of work.
    As soon as I learned that I would lose my job, I 
immediately began looking for a new one. I followed every 
avenue I could. I posted my resume on line. I networked 
extensively with the clients of the employer. I applied for job 
openings. I have even worked with professional headhunters. My 
husband and I also began saving every single penny that we 
could to be able to pay our mortgage and bills once my position 
had ended. We have always lived within our means and paid our 
bills on time, but I knew that the amount I receive in 
unemployment insurance benefits would not be enough to cover 
our monthly mortgage.
    Since I learned that I would lose my job, I have applied 
for over 143 positions, in addition to all of the other network 
I have done. In that time, I have had interviews with only 
seven companies. While I have come close to getting a job and I 
have received compliments on what a strong candidate I am, I am 
still unemployed.
    I am looking as broadly as I can. I live in Southern New 
Jersey, so I am applying for jobs within Wilmington, Delaware, 
Philadelphia, Pennsylvania, and the entire region. I am not 
simply looking for human resources or insurance jobs, but for 
anything that I could do, including office work and 
administrative jobs. Most would be a step backwards from the 
positions that I have previously held. I am even willing to 
take a significant pay cut just for the sake of working, but I 
do need a job that will pay me enough so I can keep my house 
and avoid becoming part of the working poor.
    I am even willing to do contract work that offers no 
benefits, just for the sake of being employed and be able to 
pay my bills.
    I thought I had a good chance of finding a job two weeks 
ago when a headhunter called me about an open position within 
an organization. The next day I got a phone call from that 
headhunter stating that the corporation had decided to put the 
position on hold until at least February because they do not 
have the money to fill it right now.
    Everyone is willing to accept jobs for which they are 
overqualified and take pay cuts, so the competition is really 
tough out there. Luckily, my husband still has his job, but in 
order for us to make ends meet, he has been working overtime. 
He also goes to school two nights a week for 4 hours each night 
so he can better his employment prospects for the future.
    While I am lucky that he has a job and is working hard to 
support us, it upsets me that he is doing it alone. I am a very 
independent person and I feel bad that my husband has to endure 
the extra hours of work, plus his school work and working full-
time.
    Even though he is working overtime, we have used up almost 
all of our savings just to continue to pay the mortgage. We 
have just enough savings left to scrape by on our December 
payment. After that, I don't know what we will do if I can't 
find a job.
    My husband and I are careful and responsible people. We own 
a home and made sure to purchase a House we could afford in 
order to avoid risky financing. We made educated decisions and 
worked hard for what we have. I have worked continuously for 
over 10 years. Now I feel like the odds are against me because 
I have had to rely on unemployment.
    Beyond that, my self-esteem has taken a real hit. You can't 
help but ask yourselves sometimes, what is wrong with me? Why 
am I not picked? At times, even when I go for an interview, I 
hope that employers don't see that.
    Congress can help people like me. In the short-term, please 
extend unemployment benefits since the economy isn't getting 
any better and jobs are continuing to disappear. You have been 
elected to serve the people of the United States, and we have 
never needed you more.
    Thank you again for the opportunity to tell my story and 
represent all of the unemployed workers throughout the country 
who are struggling just to survive in this current economy.
    [The statement of Ms. Stevens follows:]

    Prepared Statement of Dana Stevens, Human Resources Professional

    Chairman Miller, Ranking Member McKeon, and members of the 
Committee, thank you for inviting me to testify at this hearing today. 
My name is Dana Stevens, and I am a resident of Gloucester County, New 
Jersey. Since July 11th , I have been unemployed and am struggling to 
find a new job and make ends meet. My story is not unique--I am like 
millions of others who are struggling in the current economy. I am 
grateful for the opportunity to share my story today on behalf of all 
the unemployed workers out there who are ready, willing and eager to 
work, but just cannot find a job.
    I am 31 years old, and have been working continuously since I was 
21 years old. Shortly after high school, I began working full time and 
going to college on a part time basis, steadily pursuing my college 
degree in general business administration.
    In June of 2007, I began working for an insurance broker. I was 
recruited to join that employer and was hired to fill a new position of 
Benefits Administration Supervisor. I loved the job and felt very 
secure and settled, until last March. I was notified that my department 
would be outsourced in an effort to save $80,000 in business costs, 
plus salaries and additional money in benefits. This decision was also 
made as part of a sale of my employer to a much larger insurance 
company. I was initially told to remain positive and that my employer 
wanted to find me another position within the organization. However, in 
May, I was told that July 11th would be my last day of work.
    As soon as I learned that I would lose my job, I immediately began 
looking for a new one. I followed every avenue I could. I posted my 
resume on-line, networked extensively with the clients of my employer, 
applied for job openings, and even worked with professional head-
hunters. My husband and I also began saving every penny we could to be 
able to pay our mortgage and bills once my employment ended. We have 
always lived within our means and paid our bills on time, but I knew 
that the amount I receive in unemployment insurance benefits would not 
be enough to cover our monthly mortgage payment.
    Since I learned I would lose my job, I have literally applied for 
over 140 jobs, in addition to all of the other networking I have done. 
In that time, I have had interviews with only seven companies. While I 
have come close to getting a job, and have received compliments on what 
a strong candidate I am, I am still unemployed. I am looking as broadly 
as I can. I live in southern New Jersey so I am applying for jobs in 
Wilmington, Delaware, as well as Philadelphia, Pennsylvania, and the 
entire region. I am not simply looking for human resources jobs, but 
for anything I could do including office work and administrative jobs 
that are a step backwards from the positions I previously held. I even 
am willing to take a significant pay cut for the sake of working, but I 
need a job that will pay me enough so that I can keep my house and 
avoid becoming part of the working poor. I am even willing to do 
contract work that offers no benefits, just for the sake of earning 
money to pay our bills.
    I thought I had a good chance of finding a job two weeks ago when a 
head hunter called me about an open position. But then she found out 
the next day that the position was put on hold until at least next 
February because the employer could not afford to fill it right now. 
That is the situation I am facing everywhere I look. There just are not 
a lot of good jobs out there right now, and the ones that do exist have 
hundreds of people applying for them. Everybody is willing to accept 
jobs for which they are overqualified and take pay cuts, so the 
competition is really tough.
    Luckily my husband still has his job, but in order for us to make 
ends meet, he has to work over-time. He's also going to school two 
nights a week, for four hours each night, so he can better his 
employment prospects for the future. While I am lucky that he has a job 
and is working hard to support us, it upsets me that he is doing it 
alone. I am a very independent person and I feel bad having my husband 
endure the long hours and extra work. Even though he is working over-
time, we have used up almost all of our savings just to continue paying 
the mortgage. We have just enough in savings to scrape by on our 
December payment. After that, I don't know what we'll do if I can't 
find a job.
    My husband and I are careful and responsible people. We own a home 
and made sure to purchase a house we could afford in order to avoid 
risky financing. We make educated decisions and work hard to earn what 
we have. I've worked continuously for over ten years. I'm going to 
school to get my degree, and I have never received government services 
before. Now, I feel like the odds are against me because I have had to 
rely on unemployment in order to help support our family.
    My unemployment has had very real consequences that will take years 
to correct. I had to transfer colleges, because the school of my choice 
was just too expensive. Even at the local community college, I've had 
to pay my tuition on a credit card. At times, I've even had to put the 
cost of groceries on my credit card so we can pay our bills and still 
have food to eat. I will pay high interest rates on that tuition and 
food as I pay it off over several months, possibly years. In addition, 
my husband and I were getting ready to start a family right before I 
lost my job. This is something we both want very much. As disappointed 
as I am that we had to postpone having children, I am also relieved 
that I did not get pregnant before I lost my job. I'm sure my job 
opportunities would be nominal, as very few employers would hire me 
knowing that I would have to take maternity leave within months of 
starting a new job.
    Beyond that, my self-esteem has taken a real hit. I've always been 
a very confident person and feel that I present myself well. But, when 
you apply for so many jobs and nothing comes through, you can't help 
but think ``what's wrong with me?'' Imagine going into an interview and 
trying to project self-confidence when you feel completely defeated. 
I'm putting on a front every time I have an interview and I just hope 
that potential employers cannot see through it. There are even times 
when I apply for a position and know that I would be a great fit for 
the role and I don't even get a response on my resume submission.
    I really feel like I've done the right things in life. In spite of 
all my efforts and being responsible, I cannot get ahead. It makes me 
worried and frustrated, even angry at times. I hope that by being here 
today, my story will be beneficial to others that are in my situation. 
They need to know they're not alone, even though being unemployed is 
one of the loneliest feelings in the world. I look at the rising 
unemployment statistics to gain some perverse comfort in realizing I'm 
not the only one out there struggling to find a job.
    People like me are really hurting. We want to work. Believe me, the 
amount we get for unemployment is no incentive to stay home. I hear the 
President's spokesperson say that extending benefits again might create 
an incentive for people like me to stay home longer and that's just 
wrong. There is nothing fun about staying home when you can't find a 
job. There is nothing enjoyable about being up at night worrying about 
how you are going to make ends meet. Being unemployed hurts you and 
your family financially, but emotionally and physically as well. For 
anyone to suggest that receiving unemployment is like getting a free 
vacation is insulting and degrading to the millions of people like 
myself who are desperately trying to get back to work.
    Congress can help people like me. In the short-term, you need to 
extend unemployment benefits again because the economy is not getting 
any better, jobs are continuing to disappear, and the winter is coming 
when we need to money to pay our heat and other bills. But I also ask 
you to come up with legislation that will help provide a financial 
recovery for all people in this country, especially those who are 
struggling the most. Use your influence to help create new jobs with 
good pay and good benefits. Find ways to create incentives for 
companies to keep good jobs in-house, rather than outsourcing them to 
cheaper vendors who undercut the market for hard working men and women. 
You have been elected to serve the people of the United States, and 
we've never needed you more.
    Thank you again for the opportunity to tell my story and to 
represent all the unemployed workers throughout this country who are 
struggling just to survive in this current economy.
                                 ______
                                 
    Chairman Miller. Thank you very much for your testimony. 
Again, we appreciate how difficult it is for you to discuss 
this in public among strangers.
    Mr. Blackwell.

          STATEMENT OF RON BLACKWELL, CHIEF ECONOMIST,
                            AFL-CIO

    Mr. Blackwell. Thank you, Chairman Miller. Unfortunately, 
Ms. Stevens is not alone. There are currently 10 million 
Americans that are formally unemployed and looking for work 
every day and can't find it. If you added the number of 
Americans that are working part-time when they need a full-time 
job or people who have been discouraged or people that are near 
taking employment, you would double that number.
    As we meet today, we face the most complex and dangerous 
economic crisis that I have seen in my career. I wasn't around 
for the Great Depression, but this is much more serious than 
the 1980s, as I recall. The bursting housing bubble last year 
has triggered a global credit crisis, and together they are 
dragging the U.S. And other economies into recession and 
slowing growth worldwide.
    As a result, the American economy has been shedding jobs in 
accelerating rates since the beginning of the year. The economy 
lost 168,000 in September alone. There has been a total of 
900,000 private sector jobs lost this year so far.
    The unemployment rate has increased by 1.2 percentage 
points since January and now stands at 6.1 percent. Nearly 10 
million workers, as I said, are now unemployed and seeking 
work. Over 2 million of those have been unemployed for over 27 
weeks, and hundreds of thousands of American workers are 
approaching the exhaustion of their unemployment benefits even 
as recently extended.
    Unemployment claims are now running at nearly 500,000 a 
week, which is clearly consistent with the rapidly 
deteriorating labor market, and this kind of deterioration has 
not been seen outside of the context of a recession in our 
history.
    A majority of private sector economists now consider the 
economy is either in or entering a recession of uncertain depth 
and duration. And with job loss projected to continue for 
several quarters, private economists are forecasting a rise the 
unemployment rate, as you mentioned, to a total of 7 to 8 or 
even above percent by the end of next year.
    In my judgment, we are clearly in the early stages of a 
potentially very seriously recession that will likely be as 
deep as anything we have experienced in a generation, last 
longer than most, and one which is rapidly becoming global in 
scope. Just how deep and protracted this recession will be 
depends on the timeliness of congressional action, the 
aggressiveness of congressional action, and whether it is 
properly focused on the activities that we need supported.
    The current economic crisis is the conjunction of three 
distinct elements; a housing crisis, a credit market crisis and 
an employment crisis. Each of these crises is serious enough in 
itself, but their interaction is now making for a particularly 
dangerous dynamic.
    Housing prices have already lost 20 percent of their value 
on average and can be expected to fall another 10 to 15 
percent, even if they do not overshoot their fundamental 
values. Home foreclosures are spiking, people are losing their 
homes, communities are being devastated and trillions of 
dollars are being drained from the net worth of households.
    Consumers, who have been driving the economy, debt finance 
consumption spending is what has been behind the recent 
recovery from the last recession, but they are pulling back 
sharply. They started initially on autos, of course, as you 
know, and houses, but in September, it seems like the dam has 
broken and consumer has capitulated. So it looks like the 
consumers are pulling back very sharply. They represent 70 
percent of the spending in the economy, and with housing prices 
continuing to fall and with people continuing to lose their 
jobs, that can only get worse.
    Unfortunately, the complexity of the forces dragging us 
into recession makes formulating and calibrating an economic 
recovery plan particularly difficult. We truly are in uncharted 
territory in terms of economic policy.
    Nevertheless, this designing and building an economic 
recovery plan, Congress should bear in mind three particular 
considerations which I think bear on the shape and the 
appropriate size of a recovery program and that follow from the 
very distinctive characteristics of this last recovery and the 
recession that we are now in. I detail some of these 
considerations in my written remarks. I don't have time to 
present them here.
    I will simply mention that we have to focus on two things: 
One is the urgency of congressional action. We have no time to 
waste. The labor market is deteriorating very, very rapidly, 
and the consumer, as I said before, has capitulated and is 
pulling back very, very sharply.
    If housing prices continue to fall like the way they are 
falling and people continue to lose the jobs the way they are 
doing, then all of the effort that Congress made to stabilize 
our credit markets by committing this money will be lost, 
because even as the government pours money into these financial 
organizations, the net worth of the assets they control are 
draining out.
    Secondly is to be aggressive. I think the stimulus program 
that was undertaken earlier this year was more than welcome and 
very timely. It was poorly targeted, in my view. But it is 
clearly not adequate to match the kind of challenge that we 
have in front of us.
    Finally, I need to say that it needs to be well-focused. 
This current crisis is the result of fundamental economic 
imbalances in the U.S. and global economy that have been 
allowed to develop over the past 30 years, and we need to take 
action now that addresses those. I think your suggestion that 
we get involved in aggressive infrastructure spending is 
exactly the kind of focus that we need.
    These are long-term needs that we need to rebuild the 
competitiveness of our country, to have broadband in our 
cities, to have bridges that aren't falling into rivers and 
cities that aren't drowning, and to provide the basis for this 
country to be able to pull its weight in the world and produce 
more of the value equivalent of what it consumes.
    I think I will stop there.
    Chairman Miller. Thank you.
    [The statement of Mr. Blackwell follows:]

     Prepared Statement of Ron Blackwell, Chief Economist, AFL-CIO

    Thank you, Chairman Miller, Ranking Member McKeon and members of 
the Committee. I welcome the opportunity to be here today to testify on 
behalf of the ten million members of the AFL-CIO and share our views on 
the state of the economy and the importance and the urgency of building 
an aggressive economic recovery program.
    I want to begin by mentioning that I serve on the board of 
Baltimore Branch of the Richmond Federal Reserve Bank. I want to make 
it clear that I am speaking today exclusively in the role of chief 
economist of the AFL-CIO and nothing I say should be taken to reflect 
the views of the Bank or the Board of Governors.
    As we meet today, we face the most complex and dangerous economic 
crisis since the Great Depression. A bursting housing bubble last year 
has triggered a global credit crisis and together they are now dragging 
the U.S. and other economies into recession and slowing growth 
globally.
    As a result, the American economy has been shedding jobs at an 
accelerating rate since the beginning of the year. The economy lost 
168,000 jobs in September alone, bringing total private sector job loss 
to nearly 900,000 so far this year. The unemployment rate has increased 
1.2 percentage points since January and now stands at 6.1 percent. 
Adding the millions of workers who want a job, but who are not now 
looking, would bring the 'under-employment' rate into double digits.
    Nearly ten million workers are now unemployed and seeking work, 
over two million of whom have been unemployed for over 27 weeks. 
Unemployment claims are now running at over 500,000 a week, indicating 
a sharp recession is well underway. A majority of private sector 
economists now consider the economy as either in, or entering, a 
recession of uncertain depth and duration. And, with job loss projected 
to continue for several quarters, private economists are forecasting a 
rise of the unemployment rate to between seven and eight percent by the 
end of next year.
    In my judgment, we are clearly in the early stages of a potentially 
very serious recession that will likely be as deep as anything we have 
experienced in a generation, last longer than most recessions and is 
becoming increasingly global in scope. Just how deep and protracted 
this recession will be depends on a timely, aggressive and well-focused 
economic recovery package.
    The current economic crisis is a conjunction of a housing crisis, a 
credit market crisis and an employment crisis. Each of these crises is 
a serious enough in itself, but their interaction is now making for a 
particularly complex and dangerous dynamic. Housing prices have already 
lost 20 percent of their value on average and can be expected to fall 
another 10-15 percent even if they do not overshoot their fundamental 
values. Home foreclosures have spiked to between 9000-10,000 a day and 
trillions of dollars have been drained from household net worth. 
Consumers are pulling back sharply as their wealth declines, slowing 
the economy and forcing employers to shed jobs and cut wages and 
benefits. The continuing decline of housing prices also aggravates the 
credit crisis as the value of mortgage-backed assets continues to 
undermine the balance sheets of under-capitalized financial firms.
    Unfortunately, the complexity of the forces dragging us into 
recession makes formulating and calibrating an economic recovery plan 
particularly difficult. We truly are in uncharted territory. 
Nevertheless, in designing and building an economic recovery plan, 
Congress should bear in mind three considerations that bear on the size 
and shape of a recovery package that flow from the distinctive features 
of the most recent expansion and the forces behind the crisis.
    First, Congress must act with appropriate urgency to address the 
acute pain and anxiety that the current economic crisis is producing in 
the lives of millions of working families. The current crisis brings to 
an end the slowest recovery in terms of job creation, wages and family 
incomes of any business expansion since the Second World War. And it 
comes at the end of a generation-long stagnation of wages and rising 
economic insecurity.
    American workers are the most productive workers in the world and 
we are now working longer hours than workers in any other developed 
country. Nevertheless, wages and family incomes have stagnated, making 
it very difficult for workers to sustain their living standards. Since 
1980, productivity has grown 70 percent, but wages have increased by 
only 5 percent. Real median family income has only increased by 15 
percent, but only because each worker is working longer hours and more 
jobs and especially because each family is sending more family members 
into the labor force. The only reason median family income has 
increased at all is because of increased female labor force 
participation.
    Productivity increased by 16 percent in the recovery from the 2001 
recession, but real wages and earnings increased only 2 percent. As a 
result, the recovery just ended was the first business expansion on 
record that left real median family income below its pre-recession 
level (-$2000) and even below its level in the 2001 recession year (-
$1000). Because of stagnating wages, working families have exhausted 
their savings and have increasing turned to personal indebtedness to 
maintain their living standards.
    Any economic recovery program should move with the same urgency in 
addressing the acute pain and anxiety of working families as shown in 
addressing the global credit crisis. At a minimum, this means the 
recovery program should contain measures to extend the unemployment 
benefits for the hundreds of thousands of workers who are now 
exhausting their unemployment benefits. It should also greatly expand 
the food stamp program for our lowest-paid workers. And it should aid 
state and local governments who are otherwise forced to cut back their 
expenditures on health care in order to balance their budgets.
    Second, any economic fiscal package must be aggressive enough to 
make a difference against the powerful and still developing forces 
dragging the economy into recession. The economic expansion from the 
2001 recession--like the previous recovery from the early 1990s 
recession--was very different from all other post-World War II 
recoveries. The earlier recoveries ended as a result of policy actions 
by the Federal Reserve to stanch inflationary pressure by slowing 
economic growth by raising interest rates. The last two recoveries 
ended with the bursting of asset bubbles--equities in the late 1990s 
and housing prices since 2000.
    The importance of this difference between the older business cycles 
and the newer is in the usefulness of traditional monetary policy 
instruments in mitigating the damage of recessions and aiding in the 
subsequent recoveries. In policy-induced recessions, monetary 
authorities could expect a reversal of policy--lowering interest 
rates--could be counted on to provided much of what was needed to spark 
a recovery of interest sensitive industries and restart growth. In 
response to asset deflation, a lowering of interest rates cannot be 
counted on alone to restart growth. Instead, counter-cyclical fiscal 
policy is necessary to arrest the decline and help power a recovery. 
Moreover, the deflation of housing values in the current recession is 
much more serious than the decline of equity values in the 2001 
recession and, therefore, the current recession is likely to be much 
more serious than that recession and will require much more aggressive 
fiscal policy to stabilize.
    The recent aggressive lowering of interest rates by the Federal 
Reserve is certainly welcome, but they are not sufficient to restart 
robust and sustainable growth under current circumstances. For this 
reason, the first $168 billion economic stimulus package passed by 
Congress in the Spring was especially appropriate and timely, but it 
was simply too small to counteract the combined depressing effects of a 
bursting housing bubble and the global credit crisis it triggered.
    Congress acted with great dispatch to enact the $700 billion 
package to address the credit crisis and help maintain the stability of 
global capital markets. The same energy and imagination is called for 
in shaping an economic recovery package if we are to stabilize the 
rapidly deteriorating conditions in the real economy. This is not the 
time for undue caution or misplaced concern for federal budget 
deficits.
    Third, an economic recovery package should target the underlying 
fundamental economic imbalances that have produced the current crises 
if we are to avoid repeating them in the future. Three imbalances are 
particularly worth noting:
    The imbalanced between the U.S. and global economy. The 
unsustainable U.S. external account imbalance requires us to borrow 
five to six percent of our national income to pay for the things we 
consume as a nation but no longer produce. Our external imbalance with 
our Asian trading partners is maintained by our partners buying large 
quantities of dollar-denominated assets--U.S. Treasuries, of course, 
but also mortgage- backed securities--to maintain their competitive 
advantage. These trade surpluses in this way have fueled what Fed 
Chairman Bernanke refers to the `` global savings glut'' which has 
powered the housing bubble that has now burst and is the proximate 
cause of the current crises. Either we find a way to produce more of 
the value equivalent of what we consume as a nation or, one way or 
another, we will be forced to consume less.
    Correcting this imbalance suggests that any economic recovery 
program focus the needed fiscal spending on improving our nation's 
competitiveness through public investment to create a world-class 
workforce and a world-class national transportation, information and 
communications infrastructure. A public investment-led recovery program 
would focus needed spending on longer term needs that we must find a 
means to address if we are to support our living standards in an 
increasingly competitive global economy, crowd in private investment 
and provide a more sustainable basis than that provided by asset 
inflation for our nation's economic growth.
    The imbalance between finance and the real economy. In a well 
functioning economy, finance is supposed to be the servant of the real 
economy, not its master. But a combination of financial deregulation 
and financial innovation has allowed the bursting housing bubble to 
trigger a global financial crisis. Correcting this imbalance is more a 
matter for the regulatory reform of our capital markets than the 
economic recovery program. Nevertheless it is an essential component of 
a comprehensive program to build a strong, sustainable and 
internationally competitive national economy.
    The imbalance of bargaining power between workers and their 
employers. This imbalance is responsible for the stagnation of wages 
and the rupture of the crucial relation between wages and productivity 
that has served as the foundation of the American social contract. The 
stagnation of wages has motivated American workers to work more, save 
less and borrow imprudently against appreciating assets to maintain 
their living standards. Correcting this imbalance requires sufficient 
demand from public and private investment to produce something close to 
full employment, a meaningful minimum wage and reforming our labor law 
to allow workers to freely associate with their fellow workers and form 
a union to bargain collectively. Again, this is beyond the concern of 
an economic recovery program, but is essential to restoring an American 
economy that is strong, sustainable and internationally competitive, 
but also one whose prosperity is broadly shared.
    And finally, although it is not the subject of today's hearing, 
Congress must find away to address the continuing decline in housing 
prices, the proximate cause of the credit market crisis and the current 
recession. RealtyTrac reports a record 775,000 foreclosures in the 
third quarter, a 71 percent increase from the same period last year. 
Whether a part of an economic recovery package, or parallel to it, the 
Congress must address the housing crisis with an aggressive program to 
keep families in their homes. The AFL-CIO has long supported a 
moratorium on foreclosures and action to allow the terms of mortgages 
on primary residences to altered in the bankruptcy process. Given the 
scale of the housing crisis, and the central role it plays in resolving 
the credit crisis and mitigating the employment effects of the 
recession, even more aggressive steps should be considered to 
restructure mortgages more broadly.
    Other panelists will address more specific recommendations for the 
composition of an economic recovery program, but I am prepared to offer 
the views of the AFL-CIO on these suggestions in answer to the 
Committee's questions.
    Thank you again for the opportunity to be with you today and share 
the views of the American labor movement.
                                 ______
                                 
    Chairman Miller. Mr. Bernstein.

    STATEMENT OF JARED BERNSTEIN, LIVING STANDARDS PROGRAM, 
                   ECONOMIC POLICY INSTITUTE

    Mr. Bernstein. Chairman Miller, Ranking Member McKeon and 
members of the committee, I thank you for the chance to testify 
on this urgent topic. As other panelists have covered the 
current conditions, I will focus on two other points: First the 
impact of recessions on incomes; and, second, policy options 
intended to address the downturn and offset these negative 
effects.
    Due to the factors Ron just talked about, including job 
loss, fewer hours and slower wage growth driven by the weaker 
labor market, incomes usually fall in recessions. Moreover, as 
recoveries following the two previous downturns, the 1991 and 
the 2001 recessions were both weak, both were labeled jobless 
recoveries, family incomes fell in the early years of these 
recoveries as well.
    These dynamics are plotted in figure 7 in my written 
testimony, which shows the trend in real average income of low 
and median income families in the first and third income 
quintiles. The peak year is either 1989 or 2000, the slide is 
up there now, and the years that follow include the 
recessionary period. Both of these recessions lasted 8 months 
and the first few years of recovery.
    Note that lower income families tend to experience greater 
income losses as these families response to labor market 
changes is more highly elastic. This is one reason why the real 
incomes for middle and low income families rose quickly in the 
latter '90s when very different job market conditions prevailed 
and the labor market was uniquely tight.
    As others have noted, one prominent forecast predicts the 
rising unemployment through at least next year, reaching 8 
percent by the end of 2009. Comparing this to a baseline of 4.6 
percent in the next figure that prevailed in 2007, I expect 
that the increase in unemployment will lead to losses in the 
average income of low income families of 5 percent in real 
terms, about $900 in 2007 dollars. Poverty may increase from 
12.5 percent to 14.3 percent. I expect the average income of 
the middle fifth to fall by about $2,500. As the figure 
reveals, these losses continue for a few years into the 
recovery.
    Turning to the recovery agenda, I note that public 
officials both at the Congress and Federal Reserve have 
historically acted to offset recessionary conditions. Both the 
Fed and the Treasury have been aggressively intervening in 
financial and credit markets and their efforts are beginning to 
show some thawing of the freeze in these markets.
    I view these as supply side interventions. That is, by 
opening up frozen credit lines, these actions are intended to 
clear supply lines of credit such as the borrowers and lenders 
will now lend at least somewhat more freely to each other. But 
in the absence of stronger demand, it is less likely these 
supply lines will be tapped. Thus, a demand side stimulus is 
warranted.
    What form should it take? I recommend a 1-year recovery 
package in the neighborhood of 1 to 2 percent of GDP, $150 
billion to $300 billion, targeted at infrastructure, State 
fiscal relief, unemployment insurance and food stamps.
    I do not stress direct payments to households, though these 
may be helpful as well. But by emphasizing rebates, the last 
stimulus package overlooked other important priorities, and 
these channels are likely to provide a bigger bang for each 
stimulus buck.
    A first priority should be to extend unemployment insurance 
benefits. Hiring freezes and layoffs have led to higher 
unemployment and at this point about a fifth of the jobless 
have been so for at least 6 months. Congress previously enacted 
an emergency unemployment compensation program, which provided 
up to 13 weeks of federally funded jobless benefits beyond the 
26 weeks provide by States.
    The National Employment Law Project estimates that 
beginning in October, in early October, 800,000 jobless persons 
began to exhaust their benefits and will be left without 
employment compensation.
    But Congress may want to go beyond the extension in two 
ways: Raising the benefit levels of UI compensation and 
extending eligibility to unemployed persons who currently need 
but do not qualify for benefits.
    Like unemployment insurance, food stamp expansion would 
also address a critical human need while generating a large 
multiplier effect. State fiscal relief was also left out of the 
last stimulus package, and while last time Congress invested 
about $20 billion in State fiscal relief, it was helpful but it 
was enacted late in the game as was thus less effective.
    Finally, I urge this body to strongly consider including 
funding for infrastructure projects in a second package. A 
common argument against such investments in the context of a 
recovery package is that the water won't get to the fire in 
time, that the implementation lag is so long it will be unable 
to inject growth quickly enough to aid the ailing economy.
    However, researchers at EPI have carefully documented 
current infrastructure needs that could be quickly converted 
into productive job producing projects. My written testimony 
lists many examples. I am happy to discuss them later.
    Thank you.
    [The statement of Mr. Bernstein follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Chairman Miller. Mr. Hansen.

  STATEMENT OF CHRIS HANSEN, PRESIDENT, AMERICAN ELECTRONICS 
                          ASSOCIATION

    Mr. Hansen. Chairman Miller, members of the committee, good 
morning. Thank you for providing this opportunity to testify 
before your committee today.
    The subject of this hearing is extremely important to those 
of us in the high technology industry, which currently employs 
nearly 6 million people in the United States. The average wage 
of those U.S. workers is 87 percent higher than the average 
U.S. private sector wage. In other words, high-tech in the U.S. 
is providing the kind of good, high-paying jobs that America 
wants to keep.
    I have three recommendations that I would like to make 
about the stimulus program that we would ask that Congress 
consider.
    The first, Chairman Miller, is actually the same thing that 
you mentioned in your statement about broadband deployment and 
infrastructure. Advanced networks will allow increased 
opportunities for the creation of even more highly skilled 
jobs, to invent new products and improve existing ones in the 
vital areas of energy, health care, education, public safety 
and services. These are the jobs of the future.
    AEA research shows that the United States now trails 15 
other major countries in terms of broadband connectivity. 
Internet speed is the determining factor in promoting 
technology-based economic growth. The median download speed in 
Japan is 30 times faster than it is here, while Japanese pay 
about the same as we do for their significantly faster Internet 
connection. Telemedicine, telework, rural development and job 
creation are all predicated on having large numbers of people 
in disparate regions having access to fast, secure Internet 
service. We don't want to lose any more jobs or economic growth 
opportunities to overseas economies that have faster, more 
developed networks.
    My second recommendation will be very familiar with you, 
Mr. Chairman, since it was included in the Democratic 
Innovation Agenda and it was also highlighted in President 
Bush's American Competitiveness Initiative, and that is that 
America must continue to invest in government-funded research 
in the physical sciences.
    The goal of the America Competes Act was to honor the 
commitment of both political parties to double funding for the 
National Science Foundation, the Department of Energy's Office 
of Science and the National Institute of Standards and 
Technology. I would note that both presidential candidates 
support such an increase as well.
    Unfortunately, the funding level for these organizations 
has remained relatively flat for the last 2 years. The economy 
and the American people need the kinds of breakthroughs that 
these agencies provide in environmental technologies, 
alternative energy sources and communications technologies that 
will enable wider use of medical health records, E-
prescriptions and remote diagnostic procedures. This 
recommendation, Mr. Chairman, is not just about future ``dot'' 
jobs. R&D funding is about the job pipeline now and into the 
future. We can't afford to see these high-end research jobs 
disappear.
    My third recommendation for crafting a new economic 
recovery package is to quickly increase liquidity and stabilize 
the U.S. economy by temporarily reducing the effective 
corporate tax rate for foreign earnings repatriated back to the 
United States.
    The United States corporate tax system discourages 
companies from reinvesting their foreign earnings back into the 
U.S. And enacting such a provision would encourage companies to 
bring back overseas capital at a time when our companies are 
facing a difficult credit crunch. This would infuse the U.S. 
economy with funds needed to create new jobs and spur new 
investments.
    As The Wall Street Journal pointed out on July 1st of this 
year, the capital infusion that resulted from the 2004 
repatriation may be the reason why U.S. investment rose 9.6 
percent in 2005. When this policy was enacted in 2004, at least 
$360 billion was brought back into the United States, 
generating billions of dollars in Federal tax revenues. This 
far exceeded the government's expectations. Instead of 
receiving 35 percent of nothing, since companies are now 
incentivized to keep their cash abroad, the U.S. Treasury 
received 5.25 percent of billions of dollars brought back into 
the United States. This benefited our companies, our economy 
and the U.S. Treasury, and it is precisely the type of 
provision that we need today.
    Mr. Chairman, I congratulate you on conducting this 
hearing. It is very important to the future of American jobs 
and our economy, and I am grateful to have the opportunity to 
testify before you today. I will look forward to answering 
questions as appropriate.
    Chairman Miller. Thank you very much.
    [The statement of Mr. Hansen follows:]

  Prepared Statement of Chris Hansen, President, American Electronics 
                              Association

    Chairman Miller, Ranking Member McKeon, Members of the Committee, 
good morning. My name is Chris Hansen, and I am the President and CEO 
of AeA, which the nation's largest high-tech trade association. I know 
you are both very familiar with AeA, and I would like to thank you for 
this opportunity to testify before your Committee to provide our 
perspective on your efforts to lay the groundwork for a comprehensive 
economic recovery and job creation program. This subject is important 
to us in the high-tech industry, which currently employs nearly six 
million people in the United States. And the average wage for those US 
workers is 87% higher than the average private sector wage. In other 
words, high tech in the US is providing the kind of good, high-paying 
jobs that America wants to keep.
    I have three recommendations for any stimulus program that Congress 
might consider. First, under the category of infrastructure, we need 
even greater deployment of high-speed broadband networks in the United 
States. Advanced networks will allow increased opportunities for the 
creation of even more highly skilled technology jobs to invent new 
products and improve existing ones in the vital areas of energy, health 
care, education, public safety and services. These are the jobs of the 
future.
    AeA research shows that the United States now trails 15 other major 
countries in terms of broadband connectivity. Internet speed is the 
determinative factor in promoting technology-based economic growth. The 
median download speed in Japan is 30 times faster then it is here, 
while Japanese pay about the same as we do for their significantly 
faster Internet connection. Telemedicine, telework, rural development 
and job creation are all predicated on having large numbers of people 
in disparate regions having access to fast, secure Internet service. We 
do not want to lose any more jobs or economic growth possibilities to 
overseas economies that have faster, more developed networks. And the 
government has a critical role to play. Just one example: it was 
government research 40 years ago that ultimately led to the development 
of the Internet. That development created a major industry in this 
country and created incredible benefit to Americans and populations 
worldwide.
    My second recommendation will be very familiar to you, Mr. 
Chairman, since it was included in the Democratic Innovation Agenda and 
was also highlighted in President Bush's American Competitiveness 
Initiative. America must continue to invest in government-funded 
research in the physical sciences. The goal of the America Competes Act 
was to honor the commitment of both political parties to double funding 
for the National Science Foundation, the Department of Energy's Office 
of Science, and the National Institute of Standards and Technology. I 
would note that both presidential candidates support a funding 
increase. For many reasons, the funding level for these organizations 
has remained relatively flat for the last two years. The current 
Continuing Resolution calls for no increase in funding. America needs 
the vital research that these government agencies promote. The economy 
and the American people need the kinds of breakthroughs that these 
agencies provide in environmental technologies, alternative energy 
sources, and communications technologies that will enable wider use of 
medical health records, e-prescriptions, and remote diagnostic 
procedures.
    This recommendation, Mr. Chairman, is not just about future jobs. 
R&D funding is about the job pipeline now and into the future. Our best 
and brightest need to know that cutting-edge jobs are waiting for them 
and that they're available now. We cannot afford to see these high-end 
research jobs disappear. We need our best people working now to create 
the technologies and innovations for the future.
    My third recommendation for crafting a new economic recovery 
package is to quickly increase liquidity and stabilize the US economy 
by temporarily reducing the effective corporate tax rate for foreign 
earnings repatriated back to the United States. The United States' 
corporate tax system discourages companies from reinvesting their 
foreign earnings in the United States, and enacting such a provision 
would encourage companies to bring back overseas capital at a time when 
companies are facing a difficult credit crunch. This would infuse the 
US economy with the funds needed to create new jobs and spur new 
investments. As the Wall Street Journal has pointed out (7/1/2008), the 
capital infusion that resulted from the 2004 repatriation provision may 
be the reason why US investment rose 9.6% in 2005.
    When such a policy was enacted in 2004, at least $360 billion was 
brought back into the United States, generating billions of dollars in 
federal tax revenues. This far exceeded the government's expectations. 
Instead of receiving 35% of nothing, since companies are now 
incentivized to keep their cash abroad, the US Treasury received 5.25% 
of the billions of dollars brought back to the United States. This 
benefited our companies, our economy, and the US Treasury, and it is 
precisely the type of provision we need today.
    Mr. Chairman, congratulations on conducting a hearing of this kind. 
It's very important to the future of American jobs and the economy. I'm 
grateful for the opportunity to testify today, and I look forward to 
any questions you might have.
                                 ______
                                 
    Chairman Miller. Dr. Pollin.

   STATEMENT OF ROBERT POLLIN, PROFESSOR OF ECONOMICS AND CO-
 DIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE, UNIVERSITY OF 
                     MASSACHUSETTS-AMHERST

    Mr. Pollin. Thank you, Chairman Miller and Ranking Member 
McKeon.
    As the other panelists have already emphasized, it is 
imperative to take action now to combat what is quickly 
metastasizing into a general economic crisis off of the 
financial crisis; that is, a general crisis with respect to 
jobs, private business investments, budgets of State and local 
governments.
    The Federal Government has already, of course, committed 
unprecedented resources to stabilizing the financial sector, 
but we haven't done enough to advance an effective stimulus to 
address problems in the real economy. This must be done now and 
it must be done in the most efficient possible way.
    What do I mean by most efficient possible way? Three 
criteria:
    Number one, we must get the maximum amount of employment 
gain for a given amount of spending, the biggest bang for the 
buck.
    Second, the targets must be such that the short-term 
injections also create long-term gains for the economy.
    Third, we have to continue the fight against global 
warming.
    I was here testifying a month ago on a hearing before the 
Committee on the Environment and Climate Change, and one of the 
speakers said, well, we have to put aside these issues about 
the environment.
    Quite the contrary. I argue that addressing issues about 
the environment is a very effective way for also addressing the 
jobs crisis. In fact, part of my testimony draws on a study 
that I published last month called Green Recovery that was put 
out by the Center For American Progress.
    Okay, the focus of the investments that I emphasize in my 
testimony are three: Educational services; public 
infrastructure, including transportation infrastructure, water 
management and institutional structures such as educational 
buildings; and, three, green investments. That combination of 
expenditures, as I show in my testimony, is by far, the most 
efficient way of creating jobs.
    If we look at table 1 in my testimony, just to go quickly 
through some numbers, educational services for $1 million of 
expenditures creates 23.1 jobs; public infrastructure, 17.2 
jobs; green investments, 16.7 jobs. Now, the next highest in 
the categories is the kind of tax cuts that you enacted in 
April, 14 jobs. By contrast, oil and gas industry expenditures 
is going to create about 4 jobs.
    Now, where why do we get these very, very large disparities 
in job creation? There are two factors. Number one is relative 
labor intensity. When you spend a given amount of money, how 
many jobs are created, as opposed to buying supplies or buying 
imports?
    Secondly is domestic content. The domestic content of 
investments in infrastructure, in education, in the green 
economy, are all retained within the United States. By 
contrast, as we know, on average, any dollar spent in the U.S. 
economy, 17 cents goes out into imports. So we need to focus on 
things that are going to be retained within the U.S. economy.
    Now, if we do a $150 billion program that is roughly the 
same size as the stimulus of last April, what we would see, as 
I show in my testimony, is that you will get nearly 3 million 
jobs created through a combination of educational services, 
public infrastructure and green investments. That is roughly 
double the amount of jobs for the same amount of dollars for 
expenditures to tax cuts for household consumption, military 
spending and oil and gas industry.
    Now, can these investments be done quickly enough? Jared 
spoke to that, and my own testimony also addresses that. Of 
course, some things are more long-term, but there are other 
things that can be done very, very quickly, including reversing 
the cuts in educational services, including building retrofits, 
such as this building. There are long-term benefits through 
public infrastructure and green investments. I discuss that in 
some detail in my testimony.
    But one of the things that we show is that the average 
expenditure for public investment fell in the last 30 years to 
2.4 percent growth versus 3.8 percent growth from 1950 to 1980. 
Bringing it back to even 3.4 percent would generate about $40 
billion of GDP per year.
    Finally, how do we pay for all this? Of course, the first 
way we pay is through the fiscal deficit. The deficit is large. 
It is not unprecedented. The deficits under Reagan were still 
bigger.
    I would also finally add that given the financial crisis 
now, the interest rates on Treasuries is extremely low because 
the risk-premium on everything else is so high. Treasuries are 
the most desirable financial asset in the markets. Therefore, 
the interest that we would pay, the U.S. Government would pay, 
is extremely low now. For example, T-bills are at 0.05 percent. 
Even 3-year Treasury bonds, 1.9 percent. So we can borrow now 
for a much lower rate than we would have even 1 year ago. That 
makes pursuing a fiscal deficit much more affordable than it 
would be otherwise.
    Thank you.
    Chairman Miller. Thank you.
    [The statement of Mr. Pollin follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Chairman Miller. Mr. Beach.

STATEMENT OF WILLIAM BEACH, DIRECTOR, CENTER FOR DATA ANALYSIS, 
                    THE HERITAGE FOUNDATION

    Mr. Beach. Mr. Chairman, Ranking Member McKeon and other 
members of the committee, it is a pleasure to be with you this 
morning to testify on behalf of a dimension which has been 
mentioned, but I think I am going to mention a little more, and 
that is how can we use the tax window to actually expand jobs 
and stimulate the economy.
    The main question we have before us is what should Congress 
do? I recommend that Congress address economic policies that 
really do create good-paying jobs in three interrelated areas, 
all of which affect near-term and long-term economic 
performance; a tax policy, energy policy and long-term 
spending. I am going to focus most on the first and the second.
    Investors are driven in general by comparative rates of 
return when making investment decisions between various 
opportunities. If two business opportunities are possible, but 
one has a better rate of return than the other, then the 
investor will choose the superior opportunity, the one with the 
higher rate of return.
    Suppose, though, that outside factor intervene, a flood, a 
war, regulatory changes, and this otherwise superior investment 
now carries more risk than the inferior one. The investor 
discounts the rates of return for the greater amount of risk, 
and if the rate of return on the first opportunity is still 
superior, the investor chooses the same opportunity. If, on the 
other hand, the risk is too great to choose the otherwise 
superior opportunity, the investor may take the more cautious 
approach of avoiding risk and placing funds in the opportunity 
with the otherwise lower rate of return.
    So what can increase risk? Of course, there are many 
factors. If we are talking about the situation today in the 
markets, risk is enormous. But public policy commonly really 
looms very, very large. Tax increases, especially if they are 
on capital, increase the cost of capital and lower investment 
returns. When investors are uncertain about whether taxes will 
increase or stay the same, they can still act as though taxes 
have risen if they judge the risk of an increase to be nearly 
equal to the actual increase. And rising uncertainty can have 
the effect of driving down investments, making an economy that 
is weak even weaker, so I say.
    Among the first actions that Congress can take is in 
addressing the current slowdown, and, of course, the slowdown 
in employment, is to pronounce definitively on the tax 
increases scheduled for 2009 and 2011. There are projects, new 
businesses and expansions of existing businesses that would be 
undertaken today if Congress signaled that taxes would be lower 
in 3 years. But if you decide not to do that, at least signal 
the direction that you are going to go in order to reduce risk.
    Then there are some other ideas that Republicans and 
Democrats have commonly joined hands together in the past to 
do, accelerated depreciation and bonus expensing. We know from 
past experience that accelerating the tax depreciation of 
capital equipment and buildings or 1-year expensing of business 
purchases that otherwise would be depreciated over a longer 
period of time is excellent in terms of jumping the economy. 
This is certainly the record in the last slump.
    Taxes on capital gains and dividends. We also have recent 
experience with reducing the tax rate on long-term capital 
gains and on dividend income. If Congress were to reduce the 
tax rates by 50 percent for the next 2 years, the cost of 
capital to businesses would fall and investments stability 
would be enhanced. Indeed, if Congress were to approve a 
temporary zero capital gains tax rate for new stock issues, 
troubled banks could raise more capital from the private 
markets, as opposed to going every other day to the Treasury 
for a handout.
    If Congress were to make the tax reductions of '01 and '03 
permanent and lower the corporate profit rate from 35 to 25 
percent, which I think is an excellent idea and I join Mr. 
Hansen in corporate tax rate reduction, I estimate the 
following economic effects would ensue: More jobs. By making 
the 2001 and '03 tax reductions permanent and reducing the 
corporate profits tax rate by 1,000 basis points, we estimate 
an average of 2.1 million more jobs would be created on average 
over the next 10 years. Indeed, 3.4 million jobs would be 
created based on the current baseline in 2018 alone.
    Overall economic activity would rise. These tax changes 
dramatically increase the level of national output and the 
growth rate of the economy increases a full half percentage 
point in 2011 and 2012 when taxes would otherwise increase.
    More after-tax household spending. These tax changes 
dramatically improve household income, partly because the 
economy is so much healthier and partly because the average tax 
burden falls. The average household would have about $5,140 
additional to spend after taxes. In 2018, the end of our 
forecast period, that rises to $9,7509 after inflation and 
after the payment of taxes.
    In the last 2 seconds, I would like to mention that I also, 
like Dr. Bernstein, have a new book. It is a good time to 
mention it here. This one goes directly to the issues that are 
before this committee, and it was published by Pugh Charitable 
Trust on a grant that we have, and it is ``The Indicators of 
Economic Mobility: What You Can Do to Invest in People and 
Families to Make Sure That the Next Generation is Better Off 
Than the Current Generation.''
    Thank you very much.
    [The statement of Mr. Beach follows:]

   Prepared Statement of William W. Beach, Director, Center for Data 
                   Analysis, the Heritage Foundation

    The stock market turmoil that has captured everyone's attention is 
rooted in the ongoing crisis in credit markets and aggravated by the 
slowdown in general economic activity that stems from the ills of the 
financial sector. It is all the more spectacular by the extraordinary 
highs and lows that equity markets are recording. It almost seems that 
what is truly predictable about today's investment markets is just how 
unpredictable they have become.
    Yet, the current situation on Wall Street and in bourses around the 
world is not altogether new territory. We have experienced amazing 
changes in stock market indexes before, and we have seen recovery in 
each instance. What is new to everyone except the very few who can 
remember market activity during the early 1930s is the high level of 
risk aversion that surrounds virtually every transaction. The LIBOR/Fed 
funds spread, a reliable measure of risk, has reached record levels in 
the past four weeks; and the Federal Reserve lost all control of their 
Fed funds target rate in the middle of September and has failed as of 
yet to recapture it. (See the attached Figures 1, 2, and 3.) Despite 
some of the boldest moves ever made by the government of the United 
States to tame these fears, a high intolerance to risk continues.
    We are at an odd moment in the evolution of these economic 
challenges: there is great hope but little evidence that the credit 
market fixes will work; and there is increasing concern but, again, 
little evidence that the financial crisis will push the general economy 
into a severe recession. My own sense is that we have passed into a 
mild recession that could become significantly worse and long-lived if 
Congress and other governments make wrong or ineffective policy 
decisions. Recessions that begin in credit markets last longer than 
those that stem from shocks to aggregate demand or supply. This one 
appears that it could be with us for a long while unless we execute 
highly effective actions to reduce its impact. As we learned from the 
last recession, recovery in the nation's job markets can take a great 
deal longer than the recovery in output or in the financial sector.
    There is also an increasing awareness that the roots of the current 
crisis are firmly planted in public policy mistakes, which includes 
excessive liquidity produced by decisions by the Federal Reserve. The 
engaged public appears to understand that staunching the current flow 
of bad economic news requires that the root causes of this crisis be 
handled. Congress and the past two Administrations bear responsibility 
for expanding the spectrum of home mortgages into segments of the 
population that were not ready for the financial responsibilities of 
mortgage credit. The Fed bears responsibility for fueling the feverish 
pace of speculation surrounding mortgages, and regulatory bodies must 
own up to their failure to rein in these market excesses.
    Congress also finds itself at the center of debate over how best to 
respond to the deepening economic slowdown. Indeed, there is widespread 
expectation that the House and Senate will send the President 
legislation very soon to stimulate the economy. Many who find 
themselves out of work or have experienced declines in their incomes or 
businesses doubtless look forward to congressional action. Now, the 
question is, what should Congress do?
    As I will argue later in my testimony, Congress obviously should do 
nothing to harm the economy; it should let the Federal Reserve lead the 
effort to stabilize economic activity; and it should keep its focus on 
crafting long-term, pro-growth economic policy. Most importantly, 
Congress should make no change to basic policies that would signal 
increases in risk either through raising taxes or through increasing 
burdensome regulations. It also should be extremely wary of any 
legislation that could in any way be interpreted as America withdrawing 
from international product or capital markets. Congress can ill afford 
to repeat the awesome errors of its predecessor in the early days of 
the Great Depression and retreat from the world economic stage.
    Congress should take this moment of slow growth to do what it does 
best: set broad economic policy. In this instance, Congress should 
concentrate on signaling to investors and workers alike that its 
principal focus will be on improving pro-growth economic policy, mainly 
in the areas of tax, regulatory, and spending policies. Serious work by 
the Congress in these areas will create greater predictability for 
investors and business owners and assure workers that they will have a 
better chance of improving their wages through increased productivity. 
Efforts to enhance the long run may very well have immediate, short-run 
benefits as economic decision makers reduce the risk premium they place 
on starting new businesses or expanding existing enterprises.
    I recommend that Congress address economic policies in three 
interrelated areas, all of which affect near- and long-term economic 
performance: (1) tax policy, (2) energy policy, and (3) long-term 
spending.
    Nearly every significant general slowdown in economic activity is a 
good time for congressional policymakers to ask: Are we doing 
everything we can to support long-term economic growth? That is, 
slowdowns are good opportunities to return to policy fundamentals and 
ascertain that Congress has explored all possible avenues and acted 
upon them to allow the economy to grow.
    I am convinced the Congress is not the best policymaking body for 
addressing the short-run challenges of the economy. That role is better 
played by the Federal Reserve System. So much of Congress's activity is 
tied to the budget and appropriation processes, which take time to 
reach legislative results. Moreover, Members of Congress frequently do 
not have the time or background for keeping pace with financial 
markets, the ebb and flow of economic data, and the actions of economic 
institutions in the same way as the Fed, or even as the economic 
agencies of federal and state governments. These institutional factors 
explain why congressional action often occurs after the need for action 
has expired and why the actions it takes often are not as targeted as 
deemed necessary.
    However, there are areas of economic policy where congressional 
action can be timely and targeted, though it may not intend to be 
short-range in focus at all. Those areas involve the reduction of 
investment risk.
    Investors are driven, in general, by comparative rates of return 
when making investment decisions between various opportunities. If two 
business opportunities are possible but one has a better rate of return 
than the other, then the investor will choose the superior 
opportunity--the one with the higher rate of return. Suppose, though, 
that outside factors intervene (a flood, war, regulatory changes) and 
this otherwise superior investment now carries more risk than the 
inferior one. The investor discounts the rates of return for the 
greater amount of risk, and if the rate of return on the first 
opportunity is still superior, the investor chooses that same 
opportunity. If, on the other hand, the risk is too great to choose the 
otherwise superior opportunity, the investor may take the more cautious 
approach of avoiding risk and placing funds in the opportunity with the 
otherwise lower rate of return.
Tax Policy Changes
    What can increase risk? Many factors, of course, but public policy 
commonly looms large. Tax increases, especially if they are on capital, 
increase the cost of capital and lower investment returns. When 
investors are uncertain about whether taxes will increase or stay the 
same, they still can act as though taxes have risen if they judge the 
risk of an increase to be nearly equal to an actual increase. And 
rising uncertainty can have the effect of driving down investments in 
riskier undertakings.
    Make the tax reductions of 2001 and 2003 permanent: Thus, among the 
first actions Congress can take to address the current slowdown is to 
pronounce definitively on the tax increases scheduled for 2009 and 
2011. There are projects, new businesses, and expansions of existing 
businesses that would be undertaken today if Congress signaled that 
taxes would be lower in three years. Since nearly all major capital 
undertakings last beyond this three-year period, it is likely that 
making all or most of the Bush tax reductions permanent would stimulate 
economic activity today as well as in 2011.
    I am probably not the only one here today who knows of businesses 
that are preparing now for higher taxes in 2011. They are preparing 
themselves by reducing their riskier projects and providing for 
stronger cash flows in 2010. It is altogether possible that there are 
projects being cancelled today that would otherwise go forward if taxes 
were not scheduled to rise in 2011. At times like the present, the 
speech of policymakers is as important as the policy actions they take. 
The decision makers in business and investment are watching Washington 
closely to discern the direction Congress will take in responding to 
this crisis. If that direction includes tax increases, then investors 
will find more favorable economies to support and business owners will, 
as much as they can, locate their expanded activities in other 
countries with more favorable tax regimes.
    Thus, Congress should signal today what it plans to do on taxes in 
two or three years. For my part, I urge the Congress to make permanent 
the key provisions of the 2001 and 2003 tax law changes. Maintaining 
lower tax rates on labor and capital income will encourage both labor 
and capital to work harder now when we need that greater activity.
    Accelerated depreciation: In addition, we know from past experience 
that accelerating the tax depreciation of capital equipment and 
buildings or one-year expensing of business purchases that otherwise 
would be depreciated over a longer period of time for tax purposes can 
help during periods of slow growth. This was certainly the record in 
the last slump.\1\
---------------------------------------------------------------------------
    \1\ Matthew Knittel, ``Corporate Response to Accelerated Tax 
Depreciation: Bonus Depreciation for Tax Years 2002--2004,'' U.S. 
Department of the Treasury, Office of Tax Analysis, Working Paper No. 
98, May 2007.
---------------------------------------------------------------------------
    Taxes on capital gains and dividends: We also have recent 
experience with reducing the tax rate on long-term capital gains and on 
dividend income. If Congress were to reduce these tax rates by 50 
percent for the next two years, the cost of capital to businesses would 
fall and investment stability would be enhanced. Indeed, if Congress 
were to approve a temporary zero capital gains tax rate on new stock 
issues, troubled banks could raise more of the capital they desperately 
need without having to go to the Treasury Department.
    Lower the corporate profits tax: In one area of fundamental tax 
policy there is now nearly universal agreement: our federal business 
taxes are far too high. The tax rate on corporate profits is the second 
highest in the world. Why is it not the firm policy of the government 
of this country to ascertain that the corporate profits tax is always 
below the average corporate income tax of other industrialized 
countries? Such a policy would enhance our competitive standing 
worldwide and significantly reduce the incentive for U.S. firms to 
relocate to lower tax countries.
    The current high rate affects the location decisions of businesses 
that end each tax year with taxable income and every business decision 
by taxable and non-taxable corporations who estimate the costs of 
buying new equipment and expanding operations. Congress should follow 
the lead of its Ways and Means Chairman and decrease the income tax on 
corporations. In fact, it should dramatically drop that rate.
    If Congress were to make the tax reductions of 2001 and 2003 
permanent and lower the corporate profits tax from 35 to 25 percent, I 
estimate the following economic effects would ensure:
     More jobs: By making the 2001 and 2003 tax reductions 
permanent and reducing the corporate profits tax by 1000 basis points, 
an annual average of 2.1 million more jobs are created. Indeed, 3.4 
million jobs above a current law baseline are created in 2018 by newly 
energetic businesses.
     Overall more vigorous economic activity: These tax changes 
dramatically increase the level of national output. The growth rate of 
the economy increases a full half percentage point in 2011 and 2012, 
when taxes will otherwise increase under current law. The annualized 
growth rate jumps by 0.3 of a percent, and Gross Domestic Product 
averages $284 billion more over a 10-year forecast window than would 
prevail under current law. By 2018, GDP is $321 billion higher.
     More after-tax household spending: These tax changes 
dramatically improve household income, partly because the economy is so 
much healthier and partly because the average tax burden falls. The 
average household would have $5,138 dollars more to spend or save after 
paying their taxes. By 2018, this amount is $9,750 (after subtracting 
inflation).
    Do not depend on demand-side stimulus: Demand-side stimulus (tax 
rebates, the child tax credit, and the 10 percent tax bracket) do 
little to change the course of the sluggish economy. Certainly for tax 
rebates we have just passed through a laboratory experiment of sorts. 
President Bush signed legislation earlier this year that gave each 
taxpayer a $600 tax rebate ($1,200 for married taxpayers). Congress 
hoped that these rebates would stimulate consumption and prevent the 
economy from falling into a recession. While the jury is still out on 
this experiment, initial and supporting evidence for this view looks 
very thin.
    More than likely, the tax rebate of 2008 will join those of 2001 in 
falling well below expectations as a way to stimulate the economy or 
move it from a prolonged sluggish growth trend. Indeed, the contraction 
in investment, and thus job creation, did not begin to improve until 
after the 30 percent partial expensing in the 2002 act and the 50 
percent partial expensing in the 2003 act, which also cut the tax rates 
on dividend and capital gain income. Congress has enacted depreciation 
and expensing stimulus plans under Republican and Democrat majorities.
Energy Policy
    Rapidly increasing prices for gasoline and petroleum-based energy 
generally slowed the economy, helped bring about our current recession, 
and their effects continue to impede job and income growth. If Congress 
acts to expand energy supplies, forward-looking prices will fall and 
economic activity will shed off the drag that stems from this sector.
    Let me illustrate. Economists working with me in the Center for 
Data Analysis at Heritage estimated the economic effects of a $2.00 
increase in retail unleaded gasoline.\2\ We have just experienced such 
an increase over the past 14 months. We found that
---------------------------------------------------------------------------
    \2\ See Karen A. Campbell, ``How Rising Gas Prices Hurt American 
Households,'' Heritage Foundation Backgrounder No. 2162, July 14, 2008, 
at http://www.heritage.org/Research/Economy/bg2162.cfm. A copy of this 
report is attached to this testimony as Appendix 1.
---------------------------------------------------------------------------
     Total employment falls by 586,000 jobs
     After-tax personal income falls by $532 billion
     Personal consumption expenditures fall by $400 billion, 
and
     Significant personal savings would be spent to pay for the 
increased cost of gasoline.
    These national level results reflect the economic effects of price 
changes. That is, disposable income falls because the economy slows 
below its potential. In addition, households must spend more in 
gasoline.
    We looked at the economic effects on three types of households. Let 
me describe the effects on one of these: a married household with two 
children under the age of 17. For this household, disposable income 
falls by $1,085; purchases of goods and services falls by $719; and 
$792 is taken out of personal savings just to pay the gasoline bill.
    Some analysts argue that gasoline consumers can adapt to higher 
prices by changing their driving patterns and their automobiles. 
However, new research by Jonathan Hughes, Christopher Knittel, and 
Daniel Sperling (all from the University of California-Davis) shows 
that families today have little opportunity to quickly adapt to higher 
prices. Most working families have two income earners who commute by 
automobile to work. They live in suburbs away from mass transit 
opportunities. Their children have extensive after-school activities to 
which they are transported more often than not in an SUV. Today's 
short-term price and income elasticities are a full ten times smaller 
than those estimated using data from 20 years ago.\3\
---------------------------------------------------------------------------
    \3\ See Jonathan E. Hughes, Christopher R. Knittel, and Daniel 
Sperling, ``Evidence of a Shift in the Short-Run Elasticity of Gasoline 
Demand,'' National Bureau of Economic Research Working Paper No. 12530 
(September 2006).
---------------------------------------------------------------------------
    These lower elasticities mean that it is much harder for consumers 
to adapt to gasoline price shocks today than two decades ago. For most, 
their primary option is to reduce their consumption on other items and 
take funds out of savings to pay for the higher priced gas. Doing so, 
of course, slows the economy and affects everyone for the worse.
    There are many economic problems facing Congress, from slowing 
global economic activity to persistently bad news from our financial 
sector. Congress can act on some of the economic fronts before it, but 
its ability to affect the nation's economic future is limited. On 
energy, however, its actions to increase supplies in the short and long 
run could accomplish some good, particularly for workers looking for 
jobs and families hoping to keep their children in violin lessons and 
little league baseball.
    I am a free trader who believes imports are central to our economic 
vitality and future economic strength. However, our heavy reliance on 
foreign oil producers (imported oil now constitutes over 60 percent of 
our daily petroleum demand) has made us subject to price variations due 
to supply disruptions, supply extortion, and booming world demand. I 
believe that increasing the domestic production of petroleum and 
refined oil products would have a positive effect on our domestic 
economy, largely through creating more jobs and income.
    In another study prepared by economists in my Center, we asked what 
would be the economic effects of increasing domestic production of 
petroleum by 10 percent. The U.S. currently consumes 20 million barrels 
per day, of which around 65 percent originate from foreign sources. If 
domestically sourced petroleum increased by 2 million barrels per day, 
what would be the economic effects.
    Our analysis indicates that such an increase would
     Expand the nation's output as measured by the Gross 
Domestic Product by $164 billion and
     Increase employment by 270,000 jobs.
    Congress exercises enormous authority over petroleum mining, 
largely through its regulation of off-shore and federal land oil 
reserves. Authorizing more oil mining in these reserves today would 
begin to wean the U.S. from the economically harmful reliance on such 
high amounts of foreign petroleum.
    One of the more tragic features of recent energy policy actions by 
Congress is how often it has failed to increase access to energy 
resources on the grounds that doing so would not have any effect on 
supply or price for years. While possibly correct from an engineering 
standpoint, this excuse for inaction makes no sense economically. If 
Congress were to announce greater access to proved reserves, mining 
activity would immediately begin, capital and talent would leave other 
parts of the world and travel to the United States, forward pricing 
markets would feel the downward pressure on prices that impending 
supply increases make, and ordinary Americans would not discount their 
own economic futures as much as they do today.
Spending Policy
    Increase confidence in the U.S. economy by addressing long-term 
spending challenges. While the attention of most policymakers will be 
on immediate responses to the current slowdown, everyone should attend 
to a factor that is increasingly important to confidence in the U.S. 
economy: the seeming unwillingness of Congress to seriously address the 
enormous financial challenges from entitlement spending. Many investors 
and organizations that play key roles in the future of the U.S. economy 
are worried about long-term growth given the fiscal challenges posed by 
Social Security's and Medicare's unfunded liabilities. The Financial 
Times recently reported that Moody's lead analyst for the U.S. warned 
that the credit rating agency would downgrade U.S. treasury government 
debt if action was not soon taken to fix entitlements.
    Thus, at a time when the economy is slowing and the voice of 
Congress, as well as its actions, can affect economic activity, 
policymakers should take concrete steps that will announce their 
intention to address unfunded liabilities in these important programs. 
While reforms in these programs may be beyond what this Congress can 
accomplish, it is possible to signal change by reforming the budget 
rules.
    Currently, the federal budget functions as a pay-as-you-go system, 
with a very limited forecast of obligations and supporting revenues. We 
just do not see in the official budget what may happen over the next 30 
years. The five- and ten-year budget windows do not permit Members or 
the general public to sense the obligations that are coming beyond that 
ten-year time horizon.
    A good first step in addressing the long-term entitlement 
obligations of the United States would be to show these obligations in 
the annual budget. This could be done by amending the budget process 
rules to include a present-value measure of long-term entitlements. 
Such a measure would express in the annual budget the current dollar 
amount needed today to fund future obligations. Such a measure has been 
endorsed by a number of accounting professionals, including the Federal 
Accounting Standards Advisory Board.
    A solid second step would be to convert retirement entitlements 
into 30-year budgeted discretionary programs. Such a move recognizes 
that mandatory retirement funding programs for millionaires that crowd 
out discretionary spending programs for homeless war veterans do not 
make any sense at all. If we are to contain entitlement spending and 
reform the programs driving those outlays, then a paradigm shift likely 
will be required. Recognizing Social Security and Medicare as 
discretionary programs helps to force attention on changes that will 
assure their survival well into the 21st century.\4\
---------------------------------------------------------------------------
    \4\ See Stuart M. Butler, ``Solutions to Our Long-Term Fiscal 
Challenges,'' testimony before the Committee on the Budget, U.S. 
Senate, January 31, 2007.
---------------------------------------------------------------------------
                                 ______
                                 
    Chairman Miller. Thank you very much to all of the 
witnesses for your testimony.
    Ms. Stevens, I there is kind of a dual message in this for 
you. One, it isn't about you in the sense of your talents, your 
skills and your obvious presence. You are caught up in a much 
larger downturn in this Nation. But the bad news is you are 
caught up in a much larger downturn in this Nation that, as I 
said at the outset, is affecting millions of individuals like 
you who are going out every day making every effort to try to 
connect to a new employment opportunity, in-field, out-of-
field, completely new, trying to provide for household income, 
and are finding it more difficult every day, not easier every 
day, more difficult every day, because your ranks are being 
joined by those who have involuntarily lost their employment, 
their jobs.
    I really want to thank you again for your testimony. I 
don't know if you want to comment on anything you heard here as 
you are sitting here listening. I want you to feel free to do 
so. You can raise your hand later if you hear something you 
want to comment on, all right? You have special status as a 
witness. These guys raise their hands, they get nothing. You 
raise your hand, you will get recognized.
    Thank you again for your testimony. I would like to make a 
couple of comments and use my time. One is I don't want to 
suggest, and Mr. Beach has touched upon that tax policy that is 
under consideration both within the leadership and certainly 
within the Congress. It is not the core of this committee's 
jurisdiction. In fact, the other committee will argue it is not 
at all in our jurisdiction. But that will be determined too.
    As many of you commented on, we had the rebate policy 
earlier in the year. That is when people thought this was a 
different kind of problem for the economy. At that time, if you 
remember, people were still arguing it was going to be a V 
downturn, down sharply, up quickly; then it was going to be a 
U; and now we have this sort of elongated L that people now 
really no longer want to speculate on where the end of that is. 
They say 2009 out of convenience, but all of them immediately 
then tell you it could be longer.
    What we are starting to see is you have a situation in 
which money is rapidly being extracted from the economy, either 
because of the loss of wages, as Mrs. Stevens so incredibly 
testified to. We see the loss of investment being made. We see 
simply the loss of assets, the loss of equity. I think someone 
can correct me, but I think the number was over the last 
several years up until a year ago, we were pulling about $700 
billion to $800 billion out of home equity, and most it was 
being spent in real time. That has ceased because obviously it 
is not available because of the credit crunch and people are 
too far in debt.
    This morning we look at the headlines and we see that 
General Motors and other employers are reducing their 
contributions to 401Ks, they are reducing their contributions 
to health care, they are freezing their contributions on other 
benefits. That obviously has ramifications because people now 
see that their retirement funds will be less than they thought 
because the contributions will be less. We all love the miracle 
of compounded interest, but it works the other way too if you 
don't take advantage of it.
    So people are really looking out at a situation where they 
will have fewer resources, and clearly they are not going into 
the market to spend them as they did in the past. Apparently, 
again from this morning's papers, they are not going to 
restaurants, they are not going to stores, they are not going 
to the movies as often, they are not doing a lot of things, and 
the question is obviously for us, as you testified, is how do 
we get this to jump-start.
    Just as I can, without belaboring this because it really 
isn't our jurisdiction, but this question of whether you get a 
bigger bang for tax cuts, we have had some discussions of this 
at the leadership amongst economists, or in this kind of public 
spending that you outlined.
    Jared or Mr. Beach, do you want to just talk on how you see 
that?
    Mr. Bernstein. I will give you one statistic. Bill Beach 
suggested accelerated depreciation as a job creation measure. 
There is a very good, often cited authoritative study by the 
group moodyseconomy.com which looks at the bang for buck for 
all of the stimulative measures that we have discussed and all 
the others as well.
    I think there are 12 or 13 measures, and the very lowest on 
that list is accelerated depreciation, 27 cents per dollar of 
GDP investment. That is, invest a dollar in accelerated 
depreciation and GDP grows by 27 cents. Invest a dollar in 
unemployment insurance benefits and the bang for the buck is 
about $1.75. That is $1.75 for UI extension, 27 cents for 
accelerated depreciation. Food stamps is about $1.65. 
Infrastructure is about $1.60. As I said, all the way down that 
is accelerated depreciation. This is what I think is commonly 
referred to as supply side economics, and it has been shown to 
be uniquely ineffective in terms of job creation.
    Chairman Miller. Mr. Beach?
    Mr. Beach. Well, I have to dispute that. Absolutely. I 
wouldn't be earning my buck if I didn't.
    Every recession is a little different than every other 
recession. That is the first thing you as members must keep in 
mind very, very clearly. You hear testimony and people use 
averages and they say the typical recession. We are not in a 
typical recession.
    Chairman Miller. No one is using the word ``typical'' at 
this stage of the game.
    Mr. Beach. That is good, because I think that is the 
beginning of wisdom. This is a recession that started in credit 
markets. They always last longer if they are in credit markets.
    You can't address this either with exclusively tax cuts or 
exclusively infrastructure. You have to do humanitarian things 
immediately; food stamps, unemployment insurance. Those are the 
sorts of things that you have to step forward and actually 
produce, because people will be hurting. But don't bet the 
ranch on that getting you out of this recession. As important 
as those are, we need to stimulate two things simultaneously.
    On the one hand, we have to go into credit markets and 
reduce the cost of capital in such a way as to augment what the 
Federal Reserve and the Treasury are doing. You have a job of 
augmenting their mission. You don't have a unique mission. You 
are a partner in all of this.
    Your part of this is to direct your members who are in Ways 
and Means and Finance on the Senate, in a positive move on the 
tax side. That has to be part of your picture. I think 
everybody on this panel has testified that rebates really 
didn't work the last time. And you just nailed it, because we 
didn't----
    Chairman Miller. In fact, rebates worked for the purpose 
for which they were instituted. Most people have testified they 
carried us through a quarter that we would not have gotten 
through with that growth.
    Mr. Beach. About 30 cents of the dollar was spent.
    Chairman Miller. I understand. That was for a different 
purpose. If you talk to the Secretary of the Treasury or 
President of the United States or leader of the House it was 
for a different purpose.
    Mr. Beach. But now you know that the recession that you 
were addressing back in the spring is not the recession that 
you thought you were addressing. So it has to be a combination. 
And my mission here this morning is to say that the tax handles 
which Congress controls are powerful handles in the combination 
of public policy responses that must be made in order to move 
us into a shorter run as opposed to a longer run. And Dr. 
Pollin is holding up his hand.
    Chairman Miller. Dr. Pollin, you are not going to talk on 
this point on my time, but you can talk about it later. But I 
wanted to ask you a question.
    One of the things that we have been told, and this includes 
Mr. Hansen's group, and when we started the Innovation Project 
for the Democratic leadership that later became the COMPETES 
Act that passed and was signed, was we were told by people in 
the technology industry if you want a new generation of 
technology, invest in energy; that just as telecommunications 
drove a generation of technology, Craig Barrett said at one 
point this is where you would go, both for the future of the 
country in terms of balance of payments, foreign oil, 
dependency, all those other issues, and also the issue of 
whether or not you would drive a new generation of technology 
as you try to become a more efficient energy user.
    One of the interesting things I am going to ask you is you 
are sort of seeing a convergence here where if you do the 
public investment policy right in terms of green, energy 
efficiency, all of those characteristics, you start to see a 
confluence of benefits beyond the simple creation of the job. 
You start to see policy implications for foreign oil 
dependency, for energy use, for climate change. You start to 
see these other things kick in in terms of that investment 
policy.
    If you went over and invested in the broadband, you start 
to see not just simple job creation, but business creation. You 
start to see other opportunities that come from that. You may 
also see opportunities to cut down on commuting, to cut down on 
people traveling for the purposes of conducting businesses 
because they have those resources. I am just kind of interested 
in that in this hearing, and I will give you, Dr. Pollin, a 
chance to respond, and then I am going to go to Congresswoman 
Woolsey and we will start there.
    Mr. Pollin. Thanks. Yeah, I mean, there are two basic ways 
to invest in a green economy that will have massive short-term 
benefits, as well as long-term benefits; and one is, of course, 
energy efficiency, and the other one is in renewable energy.
    The investments in energy efficiency, at this point, seem 
to me to be no-brainers. We are dealing with known 
technologies. Again, an example is retrofitting existing 
buildings. We can invest in retrofitting the public sector 
buildings starting tomorrow. There are 800,000 construction 
workers who have lost their jobs. We can put them back to work. 
We can get these projects going.
    They're relatively short-term projects and will pay for 
themselves. I mean, there are various--it depends on building 
types, but on average, you will see a full return on your 
investment within about 5 years, and you will create, you know, 
hundreds of thousands of jobs just from that alone.
    Now, with respect to renewable energy, in terms of tax 
credits, we do know that the renewable energy tax credits, 
which you had stalled and now you have restored, are very 
effective. The market is extremely responsive. We saw a 
doubling--the last time you held back on the renewable tax 
credits and then increased them, you saw a doubling, for 
example, in investments in wind energy. So those things are 
there before us.
    I do think that the first priority for now in terms of 
short-term, big kick into the energy area is energy efficiency. 
And you will get the most jobs, it will be done fast, the 
technologies are there, and you will fight global warming. You 
will increase energy independence. You will create a lever 
against future rises in the price of oil.
    Chairman Miller. Thank you.
    Congresswoman Woolsey.
    Ms. Woolsey. Thank you, Mr. Chairman. Just to follow up on 
what Dr. Pollin just said, don't forget national security when 
you make that list of what energy independence will make.
    Ms. Stevens, you're delightful, you're wonderful, and thank 
you for being here.
    Ms. Stevens. Thank you.
    Ms. Woolsey. All the rest of us, everybody here needs to 
use Ms. Stevens right now as our example of a talented, smart, 
qualified individual who is out of trouble--I mean, out of work 
and in trouble. Imagine then what happens to the entry-level 
worker, the basic high school graduate if--the older worker 
who's lost their job because, guess what, they got paid more 
than the middle-level worker, and they were one of the first to 
be let go. We have trouble all over.
    So my question is mainly to Mr. Pollin and Mr. Hansen: 
We're talking about creating jobs. We're talking about, 
certainly, infrastructure and 800,000 workers that are out of 
work and green technology jobs which are, I believe, the jobs 
of the future for the United States of America if we are wise 
enough and quick enough to step up to the plate and bring this 
technology home. It's being created in your area, Mr. Hansen. 
Those are the brains. Let's not give it away to a foreign 
country.
    Do we then--in our stimulus package, should we also include 
an education and training component that we will invest in? 
Not, probably, many of these 800,000 construction workers--they 
probably are not totally ready for the green technology changes 
to our buildings. I mean, they need some help. They need to 
learn some things.
    Ms. Stevens, use her as our example. How do we move her 
from the insurance industry into the green technology industry? 
I'm a human resources person, too. She can move any place; 
she's very talented, believe me. But not everybody can. So we 
need--so should we in our stimulus package be including 
training and bringing existing workers into these new jobs?
    Mr. Pollin. I think that----
    Ms. Woolsey. Go ahead.
    Mr. Pollin. Absolutely, the green sector is the future of 
this economy. We may not have any future unless we build that 
green sector starting now.
    At the same time, I want to emphasize that, yes, we do need 
training. We do need people to learn how to operate new kinds 
of work in buildings, in public transportation, and there's a 
lot of research and development in renewable energy and using 
the Internet.
    At the same time, I want to emphasize, virtually all the 
employment that's going to get created through green 
investments are for people doing things not that different than 
what they do now. There is this notion that the green 
investments is something esoteric. Part of it is esoteric.
    There are my colleagues at the University of Massachusetts, 
for example, that are researching new ways of using biofuels. 
That requires a lot of training, and it all may go bust; we 
don't know. But there's also a huge swath, the overwhelming 
majority of investments are in known technologies. There are 
people doing things that they are going to do otherwise. They 
are going to be roofers putting on solar panels. They are going 
to be machinists. They are going to be truck drivers delivering 
solar panels as opposed to oil pipe.
    So, yes, we do need the education and training component, 
but no, I don't want people to have the impression that we will 
be stymied, we can't get people into jobs now. We can. We can 
move things right now.
    Ms. Woolsey. In, particularly, existing infrastructure, 
roads and bridges. Those jobs are just sitting there waiting to 
go.
    Mr. Hansen.
    Mr. Hansen. Well, I think the investment in education and 
training is extremely important. First of all, we have 
companies today that are looking for employees that have 
technology backgrounds, and they can't find them. A lot of that 
is, we need to educate people so that they are able to fill 
those jobs and do it here in the United States.
    We do a lot on--we do as an organization around the country 
in trying to promote STEM education, trying to work with 
organizations all across the country on creating programs to 
help get students and teachers more involved in STEM education.
    The other thing is, a lot of the research--R&D spending 
that we're talking about with organizations like DOE and the 
National Science Foundation and NIST, that keeps a lot of 
technical professionals employed working on things that create 
job opportunities, also, in addition to keeping them employed. 
So the training aspect is huge.
    I'd also like to just add one other thing back on the 
energy R&D question because I think a lot of times people don't 
really understand exactly all the things that come out of that 
kind of research. And I'll give you one example out of our 
industry. If you look at an iPod, a lot of what's in that iPod 
comes out of DOE research. You know, lithium ion batteries come 
directly from that kind of research. And all kinds of other 
things that pertain to the circuitry and the protection of 
those systems, I mean, it comes out of that research.
    We wind up storing a lot of things that sometimes we don't 
have any knowledge that we're going to create when we do those 
things. I could give you an example. I mean, it's not exactly 
what we're talking about.
    If you look at GPS technology that we use for a national 
security purpose, nobody really knew, even though the Air Force 
used to say that there would be some commercial utilization of 
that technology, they had no idea how broad that would be.
    Ms. Woolsey. I can use an example. I come from the 
telecommunications industry, 1969, and after Kennedy's Apollo 
program that--whoever knew how important an integrated circuit 
would be and what could happen from that point on?
    Thank you, Mr. Chairman.
    Chairman Miller. Mr. Loebsack.
    Mr. Loebsack. Thank you, Mr. Chairman. It's great to be 
here today and listen to the experts on the panel, all of 
them--in particular, Ms. Stevens. I really do appreciate your 
being here and sharing your personal story.
    I might just say at the outset, Rockwell Collins in my 
district does a lot with GPS and, in particular, the handheld 
GPS receivers for our warfighters in the field. It's remarkable 
the improvements that they've made along those lines.
    Earlier this year, I introduced a bill intended to spur 
investment in our crumbling infrastructure. It's the Green 
School Improvement Act, and it focuses on helping schools 
repair and renovate using green technology, and I was able to 
cooperate with Congressman Chandler and Congressman Dale Kildee 
and many other members of this committee to incorporate 
provisions of that bill into the 21st Century Green High-
Performing Public Schools Facilities Act. And that bill was 
incorporated into our stimulus package, as you probably know, 
that we voted on and passed here in the House, right at the end 
of September, beginning of October. So I'm really happy, of 
course, to hear from folks about the importance of green 
technology.
    And, Dr. Pollin, in particular, I'd like to ask you--you've 
already elaborated a little bit on how quickly any investments 
in infrastructure could have an effect on the economy. Could 
you be a little more specific with respect to educational 
investments and green schools in particular?
    Mr. Pollin. Well, first, the big picture: I mean, what are 
the things in the green area that can be implemented 
immediately? Certainly, the whole range of building retrofits 
is an area that is just waiting to be done tomorrow, as soon as 
you pass your legislation. Again, we have--from September '07 
to September '08, we've lost 800,000 construction jobs, and 
these types of projects can be done right away.
    In the area of public transportation, we have enormous 
opportunities. I mean, the argument has always been that, well, 
people don't like public transportation, they want their cars. 
Well, what happened when energy prices went up is people 
switched to public transportation. I think we ought to invest 
in simply improving, expanding those services.
    Now, what about construction of educational buildings? 
Well, as Jared Bernstein mentioned and is documented more fully 
in his testimony and other work by EPI, there are things such 
as in the area of educational structures that have been sitting 
and waiting to be implemented now. Of course, you cannot start 
a building from scratch and expect it to be on line in a matter 
of months, but these things are waiting. We have documented 
that.
    So there are things that are ready and waiting to be done. 
They will have a massive short-term impact. They will have 
almost 100 percent domestic content, which I know everyone 
cares about, and they will benefit the economy long term.
    Mr. Loebsack. Thank you.
    Dr. Bernstein, in your testimony you outlined the 
importance of investment in public infrastructure, and you cite 
one example of investments that could help quickly spur the 
economy as investment in combined sewer overflow systems, 
something that's not particularly sexy, obviously, out there in 
the world to talk about. But I'm very interested in that, in no 
small measure because in the 2nd District of Iowa, we have a 
lot of smaller, mid-size and smaller communities that, of 
course, are facing EPA mandates, and they've got to spend a lot 
of money, in some cases tens of millions of dollars to separate 
the sewer systems. Ottumwa, Iowa, is one place where we're 
looking at $160 million over the course of 20 years.
    Can you talk about how you think that investments in that 
kind of infrastructure are really important at this time and 
obviously to spur economic activity?
    Mr. Bernstein. Much in the spirit of what Bob Pollin was 
talking about, in terms of activities that are ready to go in 
the sense that they are needed but either underfunded or simply 
ignored, there are 770 communities in 33 States with a total of 
about 9,500 identified combined sewer overflow problems, much 
like the one you just mentioned, releasing approximately 850 
billion gallons of raw, partially treated sewage annually. EPA 
estimates that somewhere between 25- and 75,000 sewer overflows 
occur each year; and according to the National Association of 
Clean Water Agencies, communities throughout the Nation have 
more than $4 billion of wastewater treatment projects that are 
ready to go to construction if funding is made available, and 
we outline those in greater detail in the written testimony and 
other documents we have.
    So there is--that's kind of the exciting part of this, and 
I grant you maybe exciting is an unusual word for toxic 
overflow, but the point is exciting in the sense that we're 
talking about this in the context of infrastructure in a 
recovery package. These are projects that are ready to go that 
have good jobs associated with them and that are currently 
constrained for resources.
    Mr. Loebsack. Thank you very much. And I do want to 
mention, too, obviously in many cases in these smaller 
communities--if I might just take an extra 30 seconds, we're 
talking about--really if these communities are not helped, 
we're talking about a huge tax bill that's going to be in terms 
of water costs, the usage, and how much it's going to cost 
individual members of the community just for their water.
    So I think it's all the more--I think that's all the more 
reason why we have to have this kind of package at this point 
to help those communities in the long term as well.
    And I want to thank Ms. Stevens again and wish you all the 
luck in the world in getting back on your feet. Thank you.
    Chairman Miller. Mr. Courtney.
    Mr. Courtney. Thank you, Mr. Chairman. I want to thank you 
for holding this hearing.
    Leading up to the vote on October 4, the hype that was 
being presented in support of that measure, that it was somehow 
the answer to our economic ailments, obviously, the events over 
the last few weeks have demonstrated we have a much more deep-
seated, broad-based problem; and this hearing, I think, is 
probably giving some voice to that, particularly from Ms. 
Stevens. Again, thank you for your testimony.
    Dr. Bernstein, I wanted to focus a bit on the State fiscal 
relief issue which you talked about. The governor of 
Connecticut, where I come from, just announced a special 
session of the legislature in the next few weeks to talk about 
$200 million in spending reductions, deficit reduction. 
Governor Deval Patrick, up the road in Massachusetts, has 
announced a billion dollars of deficit reduction. And the 
feeling from most people in those States is that really this is 
just the first round of deficit reduction, that there's 
actually going to be even harder choices being made.
    You talked about in your testimony the impact of this 
trend, that it would, quote, ``deepen the negative cycle''; and 
I was wondering if you could just elaborate a little bit more 
about how that aggravates a recession.
    Mr. Bernstein. Thank you. That's a great question. The 
States have to balance their budgets, as you well know, and so 
at a time of economic distress, when their tax revenues are 
constrained by the diminished consumption that Mr. Blackwell 
mentioned, by lower property taxes, lower sales taxes, lower 
income taxes, the only way they can do so is by--they have 
three channels. One is to tap rainy day funds. And they're 
doing that. The other two are to raise taxes or to cut 
services, meaning directly cut services to--publicly provided 
services to their citizens, typically in the form of lower 
public employment. So that deepens the economic cycle that Ron 
and others have talked about. That's precisely the opposite 
kind of intervention you'd like to see.
    I'll just note on top of that that the other dimension--
there's a credit crunch out there, as we all know, and the 
other dimension of that is that this has significantly raised 
the cost of borrowing for States; and even though they have 
sterling borrowing records, very rarely default, they're facing 
much higher interest rates on their bond issues. And this, too, 
is leading to cutbacks.
    I'll give you one example from a new study by John Irons 
and you can pull it up at EPI. The Metropolitan Washington 
Airports Authority recently postponed transfer of a $2.2 
billion bond sale to expand terminals at Dulles and Reagan 
National, forgone infrastructure projects which have so far 
been estimated to total $100 billion, resulting in more 
unemployment, less demand for goods and services, and less 
overall economic activity. That is going on in at least 30 
States at this point, those types of reductions.
    Mr. Courtney. So in 2001, after 9/11, there was an infusion 
to States, which your testimony mentioned. Again, your comment 
was that, in retrospect, it appears that it probably got there 
a little too late. And I guess, sitting here on October 24, we 
passed a stimulus measure on September 26 which did have an 
infusion to the States. Obviously, we've lost a month. If this 
initiative doesn't move forward until after a new President is 
sworn in, we are talking January. I guess--seeing States 
already having to move now to address these problems, I guess--
I mean, time is of the essence.
    Mr. Bernstein. I believe it was--I don't think it was 2001; 
I think it was 2003. And that's exactly what we want to avoid, 
you're right. The sooner, the better, particularly from the 
perspective of States.
    Mr. Courtney. I guess--and you mentioned the infrastructure 
piece as well. I mean, the time frame even for some of the 
stuff that's right on the shelf and ready to move is 30 to 90 
days. So every sort of delay that Washington, you know, 
experiences is just going to keep pushing back the 
antirecessionary benefit of these kinds of ideas.
    Mr. Bernstein. Right. As Ron Blackwell described, there's a 
vicious cycle, and as employment falters and as assets 
depreciate, households have less income, they consume less, the 
economy faces that much more negative downward pressure.
    Mr. Courtney. Mr. Chairman, I hope the administration who 
came in here with great urgency last September is listening. I 
yield back.
    Chairman Miller. Thank you. Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman, for holding the 
hearing.
    Ms. Stevens, I just want to commend you for being as calm 
as you are. I've been sitting for the last few weeks in 
hearings in the Oversight and Government Reform Committee where 
we've had this parade of people come forward who are largely 
responsible for the situation we're in. I mean, it's bad enough 
to be facing the difficulty you are in, but to face it feeling 
that it didn't have to be this way makes it just that much 
worse.
    Ms. Stevens. Not easy.
    Mr. Sarbanes. And frustrating, I'm sure. So thank you for 
being here.
    I had a few questions related to--well, first one--I guess, 
Mr. Blackwell, maybe you're the best one to answer it, but talk 
just very briefly about the difference between a, quote, ``good 
job'' and one that we wouldn't characterize as good and 
particularly in terms of the loss of it. In other words, are 
there certain kinds of part-time jobs that are being lost that 
are important to people obviously to their livelihood but 
aren't maybe being captured in the job loss figures in the same 
way as the, quote, ``good jobs'' or ``full-time jobs'' or 
whatever?
    I'm just trying to get a sense of whether the job loss 
figures are accurately portraying the actual job loss that's 
occurring out there.
    Mr. Blackwell. That's a very good question. I think the 
gross net job losses that are reported by the Bureau of Labor 
Statistics, it's a pretty crude figure. It really doesn't 
express the kind of distress that we see in our labor markets 
right now for people who are working, as well as the people who 
are looking for work.
    Ms. Stevens mentioned that she's willing to take contract 
work with no benefits just to be employed. People take part-
time jobs when they can't get full-time jobs. People are taking 
jobs and working every day with no expectation that in the 
future--somewhere in the future of their life they will be able 
to stop working and be able to retire and move on to something 
else and still get--live a dignified life.
    American labor anyway has some values at risk here, and 
this is something that's been going on for 35 years. It's 
gotten very much more acutely painful lately, and that is, we 
believe that if you want to work in this country, you should 
have a job. You shouldn't be looking for a job. You should have 
a job, and the government should be the organization that has 
that responsibility to provide those jobs.
    Secondly, if you do work, your family should not live in 
poverty and your family members should have health care and you 
should have some expectation that at some point in your life 
you can stop working and still live a dignified life.
    Finally, we believe that if you're working and you want to 
associate with your brothers and sisters at work and form a 
union and bargain collectively and help improve the quality of 
the jobs that you all have, you should have that freedom, as 
American workers today do not.
    So I think what you're seeing over a very long period of 
time in this country is a very different pattern than when I 
grew up, is a deterioration in the standards of work and the 
disappearance of really a systematic employment policy and 
dereliction of duty on the part of the U.S. Government to 
pursue full employment in this country.
    Mr. Sarbanes. We've invested in many, many things, but 
we've not seemed to have invested in the American worker, I 
think is what you're saying.
    Let me ask a question about--I'm going to run out of time, 
so I've got to decide which one I want to ask.
    Dr. Bernstein, you talked about $150 billion, $100 to $150 
billion. How do you come up with that number? In other words, 
would 300 be better to do the job, or do you get to a point of 
diminishing returns in terms of this kind of a stimulus 
investment?
    Mr. Bernstein. Obviously, it's a very important question 
because we don't want to spend $1 in a recovery package 
inefficiently.
    I can give you the background. Some of it is in my written 
testimony, but in my judgment, the State fiscal constraints 
that I just discussed with Mr. Courtney would amount to about a 
$50 billion investment that--the Center for Budget and Policy 
Priorities very closely agrees with that number--infrastructure 
investment of the kind you discussed in the short term. I 
believe that system could also absorb about $50 billion. 
Similarly, the unemployment and food stamp extensions I 
mentioned would also come to around that amount. That's $150 
billion.
    Mr. Sarbanes. Okay. So it's about what the system can 
reasonably absorb over a period of time?
    Mr. Bernstein. Short of direct payments to households. That 
$150 billion, in my thinking, is the magnitude of a stimulus, 
based on the factors I just took you through. To the extent 
that Congress wants to also send a check to households, which I 
believe are an effective stimulus, they're less effective than 
the ones I've mentioned so far, and there's always focus on the 
first package. So, to me, that's at the back of the line. Once 
you get past the $150 billion, I think that's where you have to 
go.
    Mr. Sarbanes. Well, I'm out of time, but couldn't you 
expand the number if you were thinking about this direct aid to 
States, like was just being discussed? I mean, why isn't that 
an expandable number? Why can't that absorb more, for example?
    Mr. Bernstein. Well, the $50 billion comes off of the 
amount that States are currently--not just currently, but the 
amount that States are looking at in terms of their budget 
deficit now and in the near-term future, that number will 
likely get larger as the negative cycle deepens, as others have 
mentioned, so there may be more room there.
    My estimate is conservative.
    Chairman Miller. Thank you. If I might go back here, this 
question of what seems to be sort of an emerging consensus that 
we are going to be looking at something like an 8 percent 
unemployment rate; and many people think it's higher, some 
people think it's a little lower, but it's well past where we 
are today. And also this, again, people arrived at the 
conclusion at different times. Some people were talking about 
this many, many months ago. Yet, we were looking at sort of an 
L-shaped recovery here, both recession and recovery, that would 
be deep and long now. It just used to be sort of deep and maybe 
short. And when people look at the market, they realize that's 
kind of what happened to them here.
    We're back to where we were in 2000. People were banking on 
that they were going to beat the S&P. Well, the S&P got back to 
2000; we're in the tank again.
    One of the things that came up in the meeting with the 
Speaker was that when people say, Well, this is going to go out 
to 2009, was--I think it was you that said, Yes, but 
unemployment will continue to grow after you recognize either 
officially or otherwise, you recognize the recovery, that the 
rate--I think one of the last downturns it went for 19 months. 
Can you just elaborate on that, because it goes to the question 
of how you stage it?
    You know, tax cuts you can do rather quickly by adjusting 
withholding tables or what have you. You can do those things, 
but you'd also better figure out how you're going to have some 
employment opportunities here if you're going to endure that 
kind of time and you want the Nation to get out of this deep 
recession.
    Mr. Bernstein. Exactly, and this also has bearing on the 
infrastructure discussion, because if you believe that any 
infrastructure program that wasn't in place when the recovery 
began was not useful, that would be wrong based on precisely 
this logic. In fact, the unemployment rate did rise for 19 
months after the last recession ended.
    Typically, at least the way the National Bureau of Economic 
Research has been dating recessions, when the recession ends, 
the economy begins to grow in terms of real GDP, but it's not 
growing fast enough to create the economic activity needed to 
absorb the people coming into the labor market and to rehire 
all the folks that got laid off during the downturn.
    The forecasts, which I view as fairly optimistic, have a 
gross domestic product in real terms growing at 1 or 2 percent 
by the end of the next year. That's still below trend. Trend 
GDP growth is in the neighborhood of 3 percent. Unemployment 
also lags. So if these forecasts are correct, and again I 
believe that you heard at the meeting that they may be 
optimistic, it's extremely likely that unemployment will 
continue to rise through 2009 and 2010.
    So we unfortunately have the time to implement these 
measures. Of course, the sooner, as we've stressed, the better.
    Chairman Miller. I think a point that Mr. Loebsack and you 
responded to, and it's in your testimony, in this question 
we've tried to say that--somebody said they want dirt to fly in 
60 days or 90 days, really projects that are ready to go.
    When you look down the list, whether it's submitted from 
the administration or from different organizations that are 
involved in different infrastructure projects, you really see a 
very substantial number of projects that could comply with that 
edict. I mean, I think it's clear that we want this to be as 
timely as possible. And in some cases, it's not just a small 
project. These are projects that have cleared the committee 
processing and everything else that's in place except that 
component of Federal funding.
    I know in California, through the Southwest to Texas, water 
recycling projects, there's a huge backlog of projects that are 
ready to go, where municipalities have put up the money, the 
States have put up their money, in some cases private 
organizations have put up the money, and they're simply waiting 
for that component to go.
    Again, we're looking at projects where we start to yield 
benefits for the Nation far beyond the building of the project. 
Water recycling may be the most important economic component of 
the California and Southwest economy if we can both provide 
economic growth in the cities and maintain a farm economy that 
has huge export markets for this Nation and internal markets 
and how we segue that, because we also look like we're not only 
in a tough recession, we're in a very tough drought. And nobody 
suggests that we're halfway through it or wherever we are in 
it, but we know it looks persistent during that period.
    I think one of the contexts of this idea of rebuilding 
America, if you will, is that there's investments that have 
simply been lacking. As we expand world trade, we're looking at 
millions of new containers coming to the West Coast, millions 
of new containers coming to the Gulf Coast, millions of new 
containers coming to the East Coast, and yet we don't have 
ports or transportation routes or freight routes on rails that 
are compatible with that kind of economic growth that we want 
as a Nation with that kind of growth in world trade that we say 
we want.
    So a lot of this is about sort of clean up, company's 
coming, that we've got to deal with some of these issues in 
advance of laying the foundation for long-term economic growth, 
it appears to me; and the testimony I looked at and the kinds 
of infrastructure projects that are now on hold that are linked 
directly to well-founded--the ports of the Gulf. There's no 
question that we're now seeing a dramatic change in the trade 
between South America and the United States. You know, we're 
much more in sequence here on how we trade.
    So I just would want to raise that point because the idea 
that we're recovering and everybody will find a job when 
everybody's talking about the recovery we'll continue to see 
this increase in employment.
    Ms. Woolsey.
    Ms. Woolsey. Thank you. I would like to ask Mr. Blackwell a 
question. You have had an easy go of it so far. I would like to 
ask you what your opinion is of a $150 billion stimulus 
package. Is that sufficient? If not, what would you suggest and 
why?
    Mr. Blackwell. I think the way that the Congress approached 
the credit market problem is instructive here. It started out 
with a proposed $700 billion, and then you graduated access to 
those funds because we don't know how much we're going to need.
    I would say that you need to think about this with the same 
level of ambition and the same kind of flexibility. We simply 
haven't been where we are today before. We do not know how much 
and how long we will need this. I would think an immediate 
consideration, it does depend on how much you can absorb over 
what period of time. There is an absorption problem. We don't 
want to waste money, but we may need government fiscal support 
for public investment-led recovery.
    I think it is very important that this committee think 
about this as a recovery program, not as a simple stimulus 
program, in a policy-constrained economic cycle because the Fed 
can't get this thing going simply by dropping interest rates, 
as welcome as that is. It is going to take fiscal support, and 
it may have to be protracted. So I would start with a number 
closer to $300 billion myself, and I would urge you to have the 
flexibility to take it longer.
    This is an asset-based recession. This is not like the 
normal policy-constrained recession. And I think it is going to 
take--and we have some fundamental problems with this, just as 
I described in my testimony, that I think we have to get after 
in the long run. We don't want to spend any money that we don't 
have to spend to get out of this, and we certainly don't want 
to waste any of it.
    Ms. Woolsey. Would you recommend some of the funds being 
spent for training?
    Mr. Blackwell. Absolutely. I couldn't describe it here, I 
didn't have the time, but one of the problems here is we borrow 
as a Nation 5 to 6 percent of our GDP every year. We are not 
pulling our weight in the world. We have some of the most 
competitive companies in the world, but our country is not 
competitive, and ultimately nobody believes that is sustainable 
sooner or later unless we find some way to produce more in a 
value equivalent of what we consume. We will be forced to 
consume less, and that is not the America we want to live in.
    This will require that we invest in a world-class workforce 
to be able to attract the kind of businesses that can allow the 
country to pull its weight in the world, and it means that we 
are going to have to invest in a world class infrastructure. 
Otherwise we are a high-wage, high-standard country. We simply 
won't have a future in a globalized world unless we have those 
two ingredients, and right now we are not investing adequately 
in either. Even if we were outside of the problems of the cycle 
we are in, we need to spend more on producing the 
infrastructure that we need to be a successful country in a 
global economy, and we certainly need to invest more in the 
skills and the abilities of our workforce.
    Ms. Woolsey. Thank you, Mr. Chairman.
    Chairman Miller. Mr. Loebsack.
    Mr. Loebsack. Thank you, Mr. Chair.
    First, I want to say to Mr. Beach, I suspect that were 
there folks on the other side of the aisle here, you might have 
gotten a little more attention today. But I just want to say I 
appreciate your comments as well and your contribution to the 
discussion today.
    But I would quickly, however, like to move to Mr. Hansen, 
if I may, especially when it comes to what you talked about 
with respect to broadband connectivity. You know, Iowa is a 
fairly rural State, everyone knows that, perhaps not as rural 
as some might think. But I have been getting around my district 
a lot the last 2 years, go back every weekend, and certainly 
broadband is absolutely critical, I think, in the rural areas 
of America and not just to Iowa, but all over.
    Telemedicine, for example, is something, if you could 
address that, I would like that. But also you mentioned how 
important broadband connectivity is for business, and I have 
been hearing that a lot, especially small businesses, and, of 
course, how that can create the jobs as well. Both those, could 
you address both those?
    Mr. Hansen. Yeah. First of all, on just the general 
business competitiveness, broadband connectivity, broadband 
speed gives you a variety of other options that really have to 
do with general productivity and competitiveness. You can do a 
lot of things in a company if you have that kind of capability, 
but these two questions that you are asking are really related.
    You know, in a rural community in a lot of places today, 
there is no broadband access at all. There is a fairly large 
percentage of our population that has no access to broadband. 
That takes away all kinds of options.
    Telework. Telework is a wonderful option that saves energy, 
allows people to work in the workforce with less cost. It 
allows you to broaden the workforce in a way that companies and 
all employers can access a better workforce.
    In medicine, if you take a look at just one area, 
specialists, there are areas of medical specialization where 
there aren't enough specialists to go around. We have shortages 
in those areas, and telemedicine allows you basically to take 
one specialist and deploy them in several other areas so they 
can basically support emergency rooms in several different 
communities, several different States, because you have that 
capability. It allows you to take what you have and deploy it 
in a way that you are far more efficient.
    Mr. Loebsack. Thank you.
    Chairman Miller. Will the gentleman yield?
    Mr. Loebsack. Yes.
    Chairman Miller. Just on that point, my colleague Anna 
Eshoo wrote a letter to the Speaker on this issue about this 
being included in a stimulus package, and she suggested there 
is a number of different ways that you could speed this process 
up, either immediate expensing of it, you could provide tax 
incentives. There is a question of whether there could be a 
bonding for this purpose, broadband bonds, and then advanced 
wireless, where you would auction part of the spectrum off, and 
that entity would make a commitment to fill out the Nation 95 
percent rural over the next 10 years. Ten years seems like a 
very long time to get this completed.
    But in any case, I am not asking you to take a position on 
those, but apparently there is a number of ways that different 
parts of the industry have talked about how this could be 
funded so that we could expedite this economic asset 
nationwide, rural communities and across the board. Is that a 
fair representation? Again, I know there is different attitudes 
within the industry.
    Mr. Hansen. Absolutely. I would have to say I am in violent 
agreement with everything she mentioned. I think those are 
wonderful ways to do it. I think there are some other things we 
can do. There is S. 1492, the Broadband Data Improvement Act, 
that was passed, and I think quick implementation of the 
studies in that bill, I think, would be helpful. I think in the 
FCC's deployment of spectrum, I think flexible use of licenses 
so you can get more of it into the hands of people that can 
make use of it in this industry area and broadband, I think, 
would be tremendously helpful. So I think all the things you 
mentioned are good ways to go about it. I think we would be 
happy to provide for the record some additional ways.
    Chairman Miller. I think it would be helpful. Clearly that 
is going to be discussed, and I think the point, Mr. Loebsack, 
again, knowing the Speaker, the focus on the rural communities 
and its potential for economic growth in services into the 
rural communities, that would be helpful if you would do that.
    Mr. Loebsack. I just want to make one final comment. It is 
really critical for a place like Iowa, as far as telemedicine 
is concerned, especially places like Iowa where the Medicare 
reimbursement rates are so low, where it is very difficult, 
obviously, for us to keep doctors, MDs and other health 
professionals, and then that access to those folks. It is a 
real problem. Telemedicine is one way that we can make some 
progress, I think, in solving that problem as well.
    Thank you very much. Thanks to the whole panel.
    Mr. Beach. Mr. Chairman, I wonder if I could just make a 
quick comment on that.
    I was with the Sprint Corporation when we built the first 
entire fiberoptical system in the United States from the ground 
up. I was with a company called United Telephone that bought 
U.S. Sprint. We put that company in place, and among the things 
that we found most helpful was a competitive environment for 
that company to go out and merge and develop other companies in 
partnerships. That was crucial. Building businesses along the 
fiber hub was enormously important, and so local communities 
and State governments were crucial, and, I must return to it, 
we had a much better tax environment at that time.
    So, yes, Mr. Hansen is absolutely right, that can create 
enormous businesses and wonderful opportunities, but you have 
to have it in the right envelope.
    Chairman Miller. Mr. Courtney.
    Mr. Courtney. Thank you, Mr. Chairman.
    Just quickly, I don't want to put Ms. Stevens on the spot, 
but I was just kind of curious what your response was to Mr. 
Blackwell's sort of overall comment that there ought to be some 
parity about the level of seriousness in terms of how we 
address this issue, using the bailout bill or the rescue plan, 
the $700 billion rescue plan as sort of a benchmark. I mean, 
obviously the whole country watched the Congress move very 
quickly to address that problem. At the same time, a lot of 
people have economic issues like you have eloquently described, 
and just I don't know if you wanted to comment. If you don't, I 
understand. I just thought I would give you a chance.
    Ms. Stevens. One of the things that actually comes to mind, 
it is wonderful, and it does seem like there are a lot of 
opportunities for the future, and that is great. But one of the 
things I am really thinking about here is, okay, there will be 
new jobs, but at what price? Will I have to take a pay cut? 
There is training, that is great, but to who? I don't qualify 
for financial aid. I would never be able to afford training 
right now myself and on my own.
    Also, a lot of the unemployed are relying on credit cards 
right now. I am actually in the negative for my unemployment 
insurance and what that pays versus what my monthly mortgage 
is. So, you know, yes, my husband's working overtime, but where 
is the rest of the money coming from? So my debt is going up, 
and I just want to know that there is going to be something out 
there for me, you know. Job creation is great, but I just want 
to know if there is help, and if creation of these positions 
would be able to find a job for me that I wouldn't have to go 
into major financial trouble just to be employed.
    Mr. Bernstein. Mr. Courtney, can I add one point to that?
    Replacement rates, this is the share of lost salary 
replaced by unemployment insurance, are typically well below 50 
percent. We just heard from Ms. Stevens how that can be so 
difficult in the real lives of unemployed people. As part of a 
stimulus package, a temporary federally funded initiative to 
take replacement rates up to 50 to 70 percent would be highly 
stimulative for the macroeconomy, but, more importantly, 
provide the unemployed with a much-needed boost. We have done 
that in the past and, in my judgment, been quite successful.
    Chairman Miller. Mr. Sarbanes.
    Mr. Sarbanes. Thank you.
    So that is another way in which you might expand the amount 
that you think could be absorbed, right?
    Mr. Bernstein. That is included in my $50 billion.
    Mr. Sarbanes. That going up to 70 percent is included in 
your 50-?
    Mr. Bernstein. Right.
    Mr. Sarbanes. I wanted to thank Mr. Hansen for the 
reference to the telework. I coauthored this year the Telework 
Improvement Act, which is trying to get Federal agencies more 
into the business of doing this and kind of leading the way. 
Obviously, private industry has done quite a bit with that, but 
broadband will allow us to move forward by leaps and bounds.
    Mr. Hansen. It also addresses another problem, and that is 
the cost of health care. Telemedicine, e-prescribing, e-health, 
all of these things make--I think that a step in health care 
reform is making it less expensive, more efficient, better 
quality, and that is something that results from this kind of 
deployment.
    Mr. Sarbanes. One of the themes we are kind of touching on, 
it seems, in the hearing, but maybe not articulating 
explicitly, which I am hearing is, you know, we don't have to 
characterize this as stimulus. We don't have to characterize it 
as recovery. We can characterize it very fairly as investment, 
you know, forward-funded investment. I mean, most of the things 
that you are proposing are things we need to do as a Nation 
anyway. You know, we may just now be borrowing against the 
funds that would have been outlaid a little bit further down 
the line, but all of these things make perfect sense to do, and 
I am certainly going to present it, as I argued for this plan, 
as an investment opportunity and all the things that make 
sense.
    On that point, one of you in your testimony, I can't 
remember which, describes this crowding in concept, and you 
know it was said that it is a no-brainer that we would commit 
ourselves to green jobs and so forth. I think you meant because 
it just makes sense and it is a good investment. But I think it 
is also a no-brainer, many of the things being mentioned, 
because you are investing in things that are, in fact, the 
place the private economy is going to go, the private-sector 
economy is going next. So you are sort of paving the way or you 
are teeing that up, as opposed to something that you might say, 
well, that is an old economy, and it might create some jobs in 
the short term through public investment, but it is not really 
getting us closer to where the private economy is going to go. 
And I think that is the crowding in concept, if I am not 
mistaken, but maybe you could speak to that. Dr. Pollin.
    Mr. Pollin. The term ``crowding in'' and the way I used it 
in the written testimony basically refers to public investments 
as we have been talking about, enhancing opportunities for 
private investments. So, in other words, the fact that the 
public investments, rather than being in competition with, 
i.e., crowding out, private investments, encourage private 
investments, create a better climate for private investments. 
So it is a very important number that I refer to in the written 
testimony and I mention very quickly.
    For 30 years the growth rate of public investment was 3.8 
percent. That means it was faster than the average growth rate 
of the overall economy, which, as Jared said, is about 3 
percent. For the last 30 years, it has been 2.4 percent. Why? 
Again, as Ron Blackwell is saying, we have got to build a more 
competitive economy. We have got to do well by our workers. We 
have got to do well by our businesses. So that means we have to 
raise the rate of public investment. Green public investment is 
part of the story. It is not all the story, but we have to 
raise that rate.
    Why would we be at a rate that is, you know, a full 
percentage point or more below where we had been 30 years ago? 
It is a way to enhance our business environment.
    Mr. Sarbanes. That is what is so exciting about this, 
because we are saying this may be our opportunity to begin 
modeling the kind of public investment that we should be making 
as a Nation, regardless of the particular economic situation we 
are in. This is our chance. We have been brought to this 
realization; now we can begin this new process and this new 
approach.
    Mr. Pollin. Just one other quick point on that. Investments 
in the public sector now have the feature of certainty. We are 
in a highly uncertain business environment. That is exactly why 
the risk premium in financial markets for the private-sector 
borrowing is extremely high. We don't know what is going to 
happen. No matter what the incentives are for business 
investment, those are going to be very uncertain.
    The public investments that occur now are certain. Once you 
legislate them, they will happen, and they will enhance 
productivity and create a better environment for the private 
sector over time.
    Chairman Miller. Thank you.
    I would also say, I guess, from a business point of view, 
if you are going to have to buy cement and steel and copper 
right now, this would be a pretty good time to do it, wouldn't 
it? There is a silver lining.
    Let me thank you very much for your testimony and your 
expertise. Obviously this discussion, conversation is going to 
continue in the Congress. As you may be aware of, a number of 
the committees have been holding hearings with respect to the 
recovery, with respect to the problems in the financial 
institutions and the credit markets of this country.
    I think, as my colleagues have pointed out here, we 
responded very rapidly with respect to the Wall Street bailout, 
and I think it is very clear not only to my colleagues, but 
clearly to our constituents as we now move among them during 
the election season that they clearly believe that there has 
got to be a Main Street recovery plan. It is just very clear 
they want a Main Street recovery plan. And how we combine that, 
you know, how we integrate tax policy and public works and 
infrastructure and energy policy and broadband and innovation 
is going to be critical for the success of that policy, but I 
think it is clear that it has to be done, and it is going to be 
done by the Congress in relatively short order. Although when 
you look at the fallout from our current situation, it almost 
appears that nothing can be done fast enough.
    It is just amazing when you look at the wealth that has 
been stripped from families in terms of the loss of equities, 
loss of home values, the loss--was it just the other day, four 
point something trillion dollars in pension assets that has 
been stripped. I guess if they can all hang on long enough, 
theoretically that will come back, but some of them don't have 
that luxury. So we are really talking about a dramatic loss in 
wealth.
    I don't know what the old wealth effect used to be when the 
market was going up and going down, but when you lose the 
equity in your home, and you are starting to lose the value of 
your pension, and the value of your home is continuing to 
decline, I suspect there is a wealth effect, and I think that 
is what we are seeing in the general economy, and we are going 
to have to change that, and the Federal Government may be--in 
fact, is the only institution that can do that. We hope to be 
able to do it in a prudent fashion and an efficient fashion and 
in an effective fashion.
    So thank you so much for all of your testimony.
    Ms. Stevens, again, thank you. I think you know how much 
the members of the committee appreciate you taking your time, 
and we hope that your fortunes change and they change soon. 
Thank you so much.
    Ms. Stevens. Thank you for having me.
    Chairman Miller. Thank you.
    As this panel retires, I would like to ask unanimous 
consent to introduce into the record a letter from Alan 
Blinder, professor of economics at Princeton University; a 
letter from the National Youth Employment Coalition; a letter 
from the National Urban League; a letter from Congressman Jay 
Inslee in support of the Green Jobs Initiative.
    [The information follows:]
    
    
    
    
                                ------                                


     Prepared Statement of the National Youth Employment Coalition

    Chairman Miller, Ranking Member McKeon and Members of the 
Committee: On behalf of the National Youth Employment Coalition and our 
250-plus membership network, I am pleased to submit testimony to the 
Committee on strategies to address unemployment and promote job 
creation, particularly as they relate to the nation's disconnected 
youth and young adults. Across the country, we face a crisis of 
``disconnected'' youth and young adults: individuals between the ages 
of 16 to 24 who are not in school and not working. Approximately one-
third of the 17 million Americans aged 16 to 24 have neither a diploma 
nor a job.
    Job training and employment services for many disconnected youth 
are less available now than in the last two decades. In crafting a 
national stimulus package, we urge you to consider policy measures that 
not only mitigate the impacts of this economic slowdown, but also make 
smart investments in longer-term, sustained economic prosperity that 
provide employment opportunities for low-income and disconnected youth 
and strengthen low-income communities.
    Failure to make these investments will have profoundly negative 
impacts on our nation and our economy. More than 540,000 students drop 
out of high school each year and the implications of this phenomenon 
are staggering:
     Three quarters of state prison inmates are high school 
dropouts, as are 59 percent of inmates in the federal system.
     The death rate for persons with fewer than 12 years of 
education is 2.5 times higher than for those with 13 or more years of 
education.
     Ten years from now, at least 200,000-300,000 youth, 5 to 7 
percent, will reach age 25 without having successfully transitioned to 
independent adulthood. About 60 percent will be men; of these, over 
half will be in prison, while the remaining young men will be mired in 
protracted spells of long-term unemployment.
     Approximately 16 percent of all young men, ages 18-24, 
without a high school degree or GED are either incarcerated or on 
parole at any one point in time;
     The situation is even more dire in minority communities 
where as few as 20 percent of black teens are employed at any time, 
unemployment among young black men aged 16-24 not enrolled in school is 
about 50 percent, and approximately one-third of all young black men 
are involved with the criminal justice system at any given time.
    While it is imperative that we adopt strategies that keep students 
in high school, we must also recognize the fact that millions of youth 
and young adult dropouts will not return to traditional high schools 
because they have ``aged-out'' from public education systems, or have 
had such bad experiences in our schools that they are reluctant to 
return to those settings.
    Even in the best of times, fewer than half of all high school 
dropouts aged 16 to 24 are working. Public/ Private Ventures reported 
``nationwide, 15 million people between the ages of 16 and 24 are not 
prepared for high-wage employment. Inadequate education or training is 
a major reason.'' Many young people are unprepared to meet the needs of 
employers or the challenges of higher education. American business 
currently spends more than $60 billion each year on training, much of 
that on remedial reading, writing, and mathematics. High school 
dropouts are unable to enter the workforce with the necessary skills to 
meet the demands of the nation's global economy.
    A recent study conducted for the National League of Cities by the 
Northeastern University's Center for Labor Market Studies, reported 
that youth ages 16 to 24 have lost 900,000 jobs since 2002. In 
September 2008, adult unemployment remained at slightly more than six 
percent, while youth unemployment (16-19) reached 19.1 percent. The 
2008 summer teen employment rate, 32.7%, is the lowest since 1948, a 
new 60 year historic low. The 2007 year-round teen employment rate of 
34.8% is a 10.4 percentage point drop from 2000.
    Without adequate education options and training for 21st Century 
jobs, many of these young people will lack the basic skills necessary 
for even minimum-wage jobs. If re-engaged into our economy, they are a 
potentially valuable resource in improving American competitiveness and 
strengthening the fabric of our nation. If, on the other hand, they 
remain on the margins, they will potentially drain the economy of 
needed resources and energy.
    In today's competitive labor market, with the demand for advanced 
and more diversified skills, it is vital that training keep pace with a 
rapidly changing employment environment. In fact, public investment has 
lagged substantially. Inflation-adjusted spending for programs that 
target at-risk youth dropped by 63 percent from 1985 to 2003. Since 
2001, funding for youth workforce development and training programs has 
been cut by 33 percent ($454 million). The Fiscal Year (FY) 2008 
consolidated appropriations bill set an all time low for Workforce 
Investment Activities (WIA) Youth Activities funding at $924 million, 
coupled with a $245 million rescission of WIA funding applicable to 
fiscal years 2005 and 2006.
Short Term Stimulus
    NYEC proposes the following recommendations to address the short-
term needs of these disconnected youth and encourages you to 
incorporate these measures into a comprehensive economic stimulus bill 
to set the stage for longer term success.
     Invest $2 billion in funding for youth workforce 
development and training programs, including summer jobs, year round 
employment opportunities for out of school youth, and work experience. 
This investment will contribute immediately to our economy by offering 
income and opportunities to youth across the nation, and will also 
improve young people's longer-term employment and earnings prospects by 
providing meaningful work experience.
     Support investment in the maintenance and expansion of the 
infrastructure of our nation and thereby create training and employment 
opportunities for youth and young adults
Long Term Strategy
    In the longer term, as there are so few pathways that adequately 
prepare disconnected young people for the world of work, we make the 
following recommendations for a $10 Billion annual investment for 5 
years to:
    1. Invest in Communities Across Systems. Invest $3 billion to 
target support to 100 communities of high youth distress to build 
systems and enhance capacity to enable them to build the alternative 
pathways and supports for reconnecting and transitioning youth. Funds 
would be available from the U.S. Department of Labor to encourage 
communities to engage in joint planning, to set benchmarks, and design 
interventions, at scale, to provide youth with the academic and labor 
market skills needed for success. This includes support to those 
communities to work in tandem with their education system to build 
these pathways. The Secretary shall make grants to local Workforce 
Investment Boards and eligible entities such as community-based 
organizations, faith-based organizations, education organizations, and 
business groups in urban and rural high poverty areas. Communities may 
use these funds to provide eligible youth a variety of options for 
improving educational and skill competencies that will lead to long 
term employment and provide effective connections to employers; to 
ensure on-going mentoring opportunities; to provide opportunities for 
training; to provide continued supportive services; and to provide 
opportunities for eligible youth in activities related to leadership 
development, decision-making, citizenship, and community service. Funds 
shall also be available for intensive placement and follow-up services. 
In applying, eligible entities will have to provide a description of 
the activities that the local board or entity will provide under this 
section to youth in the community, a description of performance 
measures and the manner in which the local boards or entities will 
carry out the activities to meet the performance measures, and a 
description of the community support, including financial support 
through leveraging additional public and private resources, for the 
activities.
    2. Expand opportunities for work experience, internships, and civic 
engagement
    Invest $2 billion into new and existing competitive grant programs 
located in the U.S. Department of Labor, the U.S. Department of 
Justice, the U. S. Department of Health and Human Services (HHS), the 
Department of Agriculture (for rural youth), and the Corporation for 
National and Community Service to greatly expand programs for work 
experience, internships, transitional and summer jobs, and civic 
engagement in communities of high youth distress.
    Each Federal agency will develop applications and guidelines 
consistent with the goals of creating and expanding opportunities for 
disconnected youth to gain work experience through national and 
community service, internships, pre-apprenticeship and apprenticeship, 
and other programs.
    A percentage of these funds will be available to fund new programs 
that are based on effective practices in meeting the needs of 
disconnected youth. A percentage will be available to fund existing 
programs that have a proven track record in meeting those needs.
    In applying, each eligible entity will have to provide a 
description of how it intends to work with the local boards and 
eligible entities created in #1 (above) as well as the activities that 
the local board or entity will provide under this section to youth in 
the community. Each entity will be required to provide a description of 
chosen performance measures and the manner in which the local boards or 
entities will carry out the activities to meet the performance 
measures, and a description of the community support, including 
financial support through leveraging additional public and private 
resources, for the activities.
    Finally, this section will provide funds to stimulate innovative 
collaborations and partnerships between employers and programs that 
enroll disconnected youth, alternative educational entities that 
provide such youth with the opportunity to gain a high school diploma 
or GED, local education agencies, and institutions of post-secondary 
education. In order to be eligible for such funds, applicants must be 
able to describe pathways that lead from a youth serving program to a 
recognized educational institution, to attainment of a credential or 
degree, to employment.
    3. Create and Expand Multiple Pathways to Education and Employment. 
The high-paying jobs and careers of the future will require levels of 
education, skill, and technical competence that far exceed those 
typical of youth coming from distressed communities and school systems. 
These youth are the least likely to be exposed to exciting new career 
opportunities in growing areas of the economy where they will be able 
to earn a living wage. Expanding their horizons and aspirations can 
only be accomplished by engaging the corporate sector to help young 
people explore workplaces and understand the demands, rewards and 
prerequisites for entry.
    Invest $2 billion to build pipelines to create a program of 
incentives and programmatic support to stimulate business and labor to 
become aggressively engaged in the creation of alternatives that 
establish industry specific pipelines for high-risk youth. For there to 
be meaningful pathways from service to employment, we must understand 
the skills needed to participate in the economy, how training in those 
skills can be provided, and how to establish industry-wide 
certifications that make the training ``portable.'' To be successful, 
we need incentives to more closely link workforce development to 
employers and labor to help connect those seeking training and 
employment to the sources of that training as well as ensuring that the 
training meets the needs of employers. Workforce professionals must 
learn the landscape if they are to effectively provide guidance about 
pre-apprenticeship and other training programs, job search assistance, 
link young people to mentors who will help prepare them for the world 
of work, and help to ensure that those seeking the training also have 
access to other supportive services. Workforce experts will have a 
crucial role to play in linking those who have training to real, 
unsubsidized employment.
    Funds authorized under this section will strengthen the workforce 
system so that it can meet the needs of the 21st century and involve 
employers and labor even more intimately in the development of 
training, credentialing, and hiring of disconnected youth by making the 
workforce system more responsive to their needs.
    4. Identify, Collect, and Support Effective Practices. $200 million 
shall be available for activities (for which nonprofit organizations 
shall be considered eligible entities) to collect information about 
effective practices, recognize effective programs, provide incentives 
to those programs, and publish information about how and why they 
succeed to build knowledge across youth-serving systems. Guidance 
regarding the measurement of interim and progress measures may be found 
through resources such as NYEC's ``Promising and Effective Practices 
Network (PEPNet) Guide to Quality Standards for Youth Programs'' and 
``From Data to Results.'' PEPNet is the nation's premier resource on 
what works in youth employment and development. Established in 1995, 
the NYEC PEPNet initiative has been a pioneer in showing youth 
programs, donors, and policymakers how to combine workforce 
development, youth development, and challenging education to create 
quality programs that help vulnerable youth successfully transition to 
adulthood and the world of work.
    5. Provide Transition Support. Invest $2 billion in a new 
initiative to ensure that disconnected youth receive support, services, 
and opportunities designed to increase their postsecondary enrollment, 
persistence and completion similar to what is offered to high school 
graduates and high achieving students.
    Disconnected youth need comprehensive and consistent support, 
services, and opportunities to help them enter, persist and complete 
postsecondary education. While postsecondary institutions often offer 
outreach, access and support service programs to students from low-
income backgrounds through some federally funded TRIO programs, these 
programs typically target high academic achievers.
    When program funding and staff capacity allows it, some out-of-
school and disadvantaged youth receive critical postsecondary 
transition support, services, and opportunities from the same 
community-based youth service organizations that are helping them 
complete their high school diploma or equivalent. There is a need to 
increase their academic skills and help them obtain job training and 
employment. This section of the RAY Act provides funding to community-
based youth service organizations and for partnerships between 
community-based organizations and postsecondary institutions to prepare 
and support youth to make a transition into and through postsecondary 
education.
    6. Build Organizational and Professional Capacity. Invest $400 
million in professional and organizational capacity building for youth-
serving systems. In today's competitive labor market, with the demand 
for advanced and more diversified skills, it is vital to local 
communities and the national economy that youth-serving systems 
strengthen their capacity to provide effective training and 
preparation. Youth service professionals, including intake workers, 
case managers, job developers, and independent living specialists, are 
often the first contact or ``face'' of youth-serving systems and must 
gain specific knowledge, skills, and abilities (KSAs) to work with this 
emerging workforce. There is currently no national system of 
professional development that identifies, builds, and certifies the 
KSAs of practitioners. Yet professional development has been linked to: 
professionalization of a field, increased job satisfaction, better 
youth programs, and improved youth outcomes.
    7. Improve Data Collection and Accountability Systems Invest $400 
million in data collection, evaluation, and insist on accountability. 
Federal agencies and grantees serving disconnected youth should 
publicly report their demographics, service levels, expenditures and 
outcomes. This would enable local communities to assess the magnitude 
of the problem, system performance, who is--and is not--effectively 
served, and monitor improvement over time. NYEC recommends the 
following:
     Develop a uniform definition for measuring graduation and 
dropout rates for local high schools, alternative schools, charter 
schools, school districts, and states. Establish accountability 
measures related to graduation rates and hold states and local systems 
accountable for making progress towards those benchmarks for all youth, 
not just youth who stay in school.
     Require states to monitor policies and practice that 
result in youth being ``pushed out'' or disproportionately tracked to 
inappropriate educational alternatives
     Incorporate and potentially expand upon the data 
collection requirements established by the Foster Care Independence Act 
of 1999, which established the Chafee Foster Care Independence Program 
and mandated by the implementation of a National Youth in Transition 
Database (NYTD).
     Provide both incentives and sanctions to state and local 
child welfare and juvenile justice systems to ensure effective 
transitional services, including the requirement that at key risk 
points and before a youth is discharged, there are explicit transition 
plans to connect youth to key education, training, housing, and support 
services
    We firmly believe that, over the long term, the economic health of 
our nation depends on investments we make in youth workforce 
development, secondary and postsecondary systems and that our economy 
will suffer if we do not increase our national investment in our 
emerging young workforce--which includes all youth. If re-engaged into 
our economy, youth who often remain on the margins can be potentially 
valuable resources in insuring American competitiveness.
    Our nation is facing an economic and social crisis--millions of 
youth lack the opportunities they need to develop the skills they must 
possess in order to succeed in today's global economy. Investing in job 
training and employment services for youth will provide immediate 
economic stimulus and enduring benefits to our youth and to our nation. 
Funding for youth employment should be a part of any stimulus package 
you consider in the coming weeks.
    Please do not hesitate to contact me for assistance or questions.
                                 ______
                                 
                                 
                                 
                                                  October 23, 2008.
Hon. George Miller, Chairman,
House Committee on Education and Labor, Rayburn House Office Building, 
        Washington, DC.
    Dear Chairman Miller: I am happy to provide some overview comments 
relating to the Hearings on ``Building an Economic Recovery Program: 
Creating and Preserving Jobs in America,'' to take place Friday, 
October 24, 2008.
    You will see from my comments that: 1) the U.S. and Global 
Economies are in recession, which suggests rising joblessness; 2) a 
second stimulus program, or perhaps better called an Economic Recovery 
Program, is absolutely needed, particularly to generate jobs, near- and 
long-term, given the ``Long and Deep Recession'' that is expected; and 
3) federal government spending should be increased, targeted on 
extending unemployment benefits as an automatic stabilizer, on 
increased ``infrastructure'' spending as part of a longer-run program 
to Rebuild America's infrastructure, aid to states and localities 
increased to help offset high and rising deficits and where cutbacks in 
jobs are increasingly likely, and tax credits and permanent tax 
reductions instituted for middle- and lower-income families.
    Policies to aid homeowners in distress on foreclosures, 
bankruptcies, or refinancing mortgages also would make a lot of sense.
    Hopefully, these comments are of help to you and the House 
Committee on Education and Labor.
            Sincerely,
                                               Allen Sinai,
      Chief Global Economist, Strategist and President of Decision 
                                                    Economics, Inc.

    A second stimulus, or now Economic Recovery Program, is essential 
given the current state and prospect for the U.S. and global economies, 
which is recession. The timing should be immediate. Policies, fiscal 
and monetary, are behind-the-curve given lags in gestation, 
implementation, and in the response of economic behavior to policy 
changes. Congress can also weigh-in on the Financial Crisis to the 
Administration, Federal Reserve, and SEC, with or without legislation 
in-process.
Full-Fledged U.S. Recession; Global Recession a Reality
    Recent U.S. economic data show a sharp slide and deterioration in 
the economy, also so for numerous non-U.S. economies and several global 
regions.
    The U.S. economy in the third quarter is tracking negative for real 
GDP with a sharp downturn in inflation-adjusted consumer spending of 
nearly 3%, at an annual rate, and ripple effects to-come, for example 
in reduced business capital spending. Better foreign trade, that is 
lower imports, should provide an offset but not big enough to prevent a 
-0.7% decline for GDP in the third quarter.
    The Baseline forecast is then for a -3\1/2\% to -4% decline of real 
GDP in Q4; in Q1:2009, -3% to -4%; a small decline in Q2; and second 
half growth for real GDP flat-to-up a little. The unemployment rate 
likely will rise to 7\1/2\%-or-more by mid-2009. Price inflation should 
move lower, particularly for commodity prices, but may be sticky 
downward given the large role of the services economy in the United 
States.
    The view is a ``Long and Deep Recession,'' extending through most 
of 2009. The previous longest U.S. economic downturns were 16 months 
each in 1973-75 and 1981-82. This one probably will be longer.
Why? The Main Causes
    1. A ``hunkering-down'' of consumer spending, with rare outright 
reductions in consumption spending and an intensification of the 
downturn because of the financial crisis and credit crunch. All 
consumer fundamentals are negative at this time.
    2. The freezing-up of funds inside the financial system as between 
bank and nonbank financial intermediaries and a ``Credit Crunch'' 
outside the financial system affecting borrowers including consumers, 
businesses, and government.
    Historically, when in force, a ``Credit Crunch'' can produce 
sharply declining economic activity; therefore, an even more negative 
pattern could occur with real GDP potentially off by -3% to -7% from Q4 
to Q2:2009.
    3. A housing bust and depression in financial services have been 
both a catalyst and cause of the downturn. A housing boom, then bust 
after a long period of excesses in housing activity, mortgage finance 
and mortgage indebtedness was one reason. A housing price bubble then 
bursting of that bubble, brought down the values of mortgage debt, 
credit, derivative mortgage products, structured investment vehicles, 
and financial businesses structured around housing, and continues now.
    The housing downturn is the biggest since the 1930s, with housing 
starts down 64.1%, peak-to-trough, new home sales off 65%, existing 
home sales down by 35%, and home prices declining by over 15% year-
over-year and near 20% peak-to-trough. This represents a bursting asset 
price bubble, with falling debt and a worsening of financial businesses 
tied to mortgages and residential real estate activity.
    4. The financial services sector, particularly investment banking/
brokerage and commercial, banks, also is in recession now. The sector 
is around 15% to 20% of the U.S. economy and is consolidating and 
squeezing down to a much smaller size, with a downturn in the volume of 
activity and large losses of jobs.
Cyclical Processes--About 10 Months Into the Downturn
    The recession likely started at the turn of the year, as reflected 
in a number of key monthly economic indicators although not real GDP. 
Real GDP is a quarterly statistic and an imperfect, late, summary 
measure of the state of the economy; the monthly economic indicators do 
a better job. On this dating, nearly 10 months of the downturn have 
passed. The cyclical processes to go indicate quite some time left 
before a recovery can begin.
    The role of an Economic Recovery Program would be to cushion the 
downturn and speed up the onset of economic recovery, hopefully 
dovetailing with longer-run objectives for the economy.
    A housing decline and then bust came first with real estate asset 
prices tumbling, causing weakening consumption and worsening economic 
activity from the loss of household wealth and lessened ability of 
households to borrow.
    The declines in housing prices brought down the values of a 
mountain of housing-derivative mortgage debt, credit, and complicated 
financial instruments based on the asset values of houses. The Rating 
Agencies mistakenly rated many of these securities as AAA. Investors 
willingly bought them, only to find out later that many of the 
securities lost massive amounts of value and could not be sold at any 
price.
    Financial institutions, both commercial banks and nonbank financial 
intermediaries such as investment banking/brokerage firms, heavily 
exposed and involved in the boom of housing-related mortgage debt and 
finance, saw a shrinking of asset values and balance sheets, a need for 
capital, and periodic ``runs'' on financial firms that were capital 
markets-centric. Considerable capital was required and several large 
financial institutions--Bear Stearns, Lehman Brothers, AIG, FMNA-Freddy 
Mac, Washington Mutual, Wachovia, Merrill Lynch--either failed or were 
absorbed into other relatively strong institutions.
    Economic downturn and crunch within the financial system caused 
distress in financial markets. As a consequence, financial institutions 
have hoarded funds and refused to lend to one another, fearing default 
and/or failure. The financial system seized-up and economic and 
financial activity, as well as equity market prices, suffered. The 
freezing-up of the financial system still remains, despite huge 
injections of liquidity, directly and indirectly, by the Federal 
Reserve and other central banks around-the-world.
    A by-product of this has been a significant equity bear market 
which, in turn, has made IPOs and secondary financing extremely 
difficult, and the cost-of-capital relatively high. Falling stock 
prices also reduce household wealth, consumer confidence, and consumer 
spending. And, financial institutions earnings have suffered.
    The Financial Crisis, worsening stock markets, and worsening credit 
have fed back to intensify the downturn. The U.S. downturn is hurting 
non-U.S. exports, with a squeeze on the domestic purchasing power of 
other countries from high oil, energy and food prices impacting to 
produce a global recession.
    Policy actions and responses so far have been too late and too 
little, which is not unusual--not focused on the places and problems 
that could alleviate, ease, or cushion the economic downturn and 
financial crisis, e.g., housing price declines, the consumer downturn, 
removing bad mortgage-based assets fast enough from financial 
institutions on current plans to prevent further contraction. Financial 
markets moving at lightening speed are ahead of policy actions, 
aggravating the problems.
    The result has been an incredible series of swift declines in stock 
prices, with the major U.S. indices now down nearly 40% from the 
previous peak; total risk aversion and seizing-up of credit in the 
financial system and a credit crunch outside; flight-to-quality into 
U.S. Treasuries; a drying-up of funding in the U.S. and increasingly 
globally; panic and paralysis.
Policy Actions and the Role of Congress
    Much of the distress and economic downturn is stemming from a 
financial crisis and bursting of several long-time bubbles--housing, 
credit, debt, financial services businesses, and others. This would 
normally be handled by the Federal Reserve and U.S. Treasury, but their 
actions up-to-now have been too slow.
    Congress can push for measures in this area to help resolve the 
financial-side of the crisis. The Congress has oversight and leadership 
and can respond to some of the non-Congressional actions even if not in 
legislation.
    The role of Congress also should be to motivate additional programs 
to help cushion the downturn, its fallout, and to establish a base for 
future recovery and expansion.
Problems to Deal With
    There are at least four problems to be dealt with by one-or-more 
branches of government and/or through multiple policy actions perhaps 
from multiple sources----
    1) Financial Crisis--the tasks.
     unfreezing credit frozen within the financial system and 
easing the credit crunch outside the system.
     stopping the contraction of balance sheets and financial 
institution failure fallout--which now amounts to an implosion of the 
credit channel in the private sector.
     stabilizing financial markets, especially equity markets, 
also credit which is impeding flows-of-funds in the financial system 
and through the economy.
    2) Recession--the task is to cushion or reverse the forces causing 
the downturn.
    Notable is the important role of U.S. consumption in the 
recession--now the center of the storm.
     U.S. consumption is declining sharply as consumers cut 
back.
     Housing activity is still declining with continuing 
housing price declines.
     The financial and credit crisis is leading to massive 
losses of wealth and restrictions in the availability of funds.
     Declining non-U.S. economies--at least 20 countries of the 
47 countries analyzed and forecasted by DE, including the U.S., are 
probably in some sort of ``recession.'' These countries account for 
about 75% of total global output.
    Policies need to be designed to offset, or reverse, the down thrust 
of consumption, given that its multiplier effects throughout the U.S. 
and global economies are quite considerable.
    3) Financial Markets Disarray--declines in equity prices and 
volatility characterize a substantial bear equity market as investors 
search for appropriate valuations in a situation of declining company 
earnings, loss of confidence, and a disturbing macroeconomic backdrop. 
The mechanisms that are intensifying and speeding up the declines of 
equity prices--including fair value accounting, short selling, and 
rating agencies ratings--should be impeded.
    4) Panic, Loss of Confidence, and Fear--distress selling of assets 
to raise cash as well as fear and panic selling are characterizing 
equity markets. Generally, there has been a growing loss of confidence 
in the ability of any government to stem the declines.
    Not all of these problems lie within Congressional jurisdiction. 
But Congress can contribute to all of them through the deliberations 
and debates that go on.
A New Stimulus, or Economic Recovery, Package--Size, Diagnosis, 
        Components
    One principal of operation for any Economic Recovery Program would 
be to ``fit'' actions into a coherent and thematic long-run vision of 
what needs to be done, e.g., Rebuilding America's Infrastructure; Tax 
Relief for the Middle Class; Rebuilding and Restructuring the Housing 
of America; Rewriting the Rules of the Financial System.
    This way of looking at it ultimately would be cost- and policy-
efficient and better than disparate policy actions from different 
points without coordination.
    Size is important--big enough to make a difference but not too big 
to cause a significant and sustainable increase in the federal budget 
deficit.
    The recommendations would be around $200 billion, nearly 2% of 
nominal GDP.
    Bush Administration tax reductions over 2001-2005 cumulated to 
nearly 2% of average GDP per annum over that period. Federal government 
spending added more to the stimulus. The Reagan tax cuts were 
approximately 3% of GDP. Federal government spending added to this. The 
Kennedy-Johnson tax cuts in 1963-64 were 1.6% of GDP. Increased federal 
government spending also occurred here.
    Any fiscal stimulus can be spread over multiple years. Fiscal 
stimulus and monetary ease together set the stage for an economic 
recovery and upturn.
    The components of the Economic Recovery Program should depend on 
the diagnosis of problems.
Tax Reductions
    The consumer is now the main source of the economic downturn and 
household financial conditions are the worst since early 1980s. This 
favors personal income tax rate reductions for middle- and lower-income 
families. Social Security tax reductions are another possibility, or 
tax credits.
    More supportive to consumer confidence than temporary tax cuts and 
lasting in effects, as a source of help for household finance, offset 
to huge losses in household wealth, and increased tax receipts on 
growth stimulus, would be permanent tax reductions.
    $100 billion phased-in over the next three years but passed 
immediately post-election is one option. Tax reductions could be 
retroactive for 2008, showing up in reduced withholding by Jan. 1, 
2009. The amounts would be: $50 billion in Year 1, $25 billion in Year 
2, $25 billion in Year 3.
    Income tax rate reductions provide more stimulus than lump-sum tax 
credits or tax rebates. Cash flow and incentive effects help both 
consumption and saving.
    Capital gains tax and dividend tax rates should be sustained at 
current levels in order to provide stimulus to equity markets and the 
financing of new enterprise.
Federal Government Outlays: $100 billion
    Federal government outlays of nearly $100 billion would be 
appropriate, helping in the following areas.
     Support for Homeowners and Housing Prices--this could be 
through the establishment of a new entity that would deal with 
foreclosures and homeowner relief. The principal would be to take down 
the excess supply of mortgages and/or housing to help floor the 
declines in housing prices; thus, to stop the continuing devaluation of 
mortgage debt derivative instruments.
    A government entity, or agency, as established in the 1930s, or 
direct purchases of excess supply of housing or mortgages, could be 
legislated--$20 billion.
     Unemployment Relief--extension to cover the long-term 
unemployed--$15 billion.
     Infrastructure, Including Education--short- and long-run, 
with projects on-the-shelf rolled-out that fit longer-run 
infrastructure needs. Some $20 billion near-term and $80 billion more 
over 10 years are rough approximations.
     Aid to States and Localities--to offset budget deficits, 
$20 billion to $30 billion.
    The impact of this would be roughly 1\1/2\ to 2 percentage points 
of increased real economic growth in Year I; about half that in 
additional real growth in Years II and III. The tax revenue feedback 
from the increased growth would be about $0.20 per dollar of fiscal 
stimulus.
The Financial Crisis--Potential Actions
    The Congress should support the recapitalization of banks by the 
federal government through equity shares, partial nationalization, 
management oversight but not government-controlled, and no wiping-out 
of equity shareholders.
    This would mean a temporary bypassing of the private sector credit 
channel with public funding.
    The creation of a new entity that could enter into the LIBOR market 
as a direct counterparty, or direct guarantor of loans between 
financial institutions in the LIBOR markets. Some of these functions 
are being performed by affiliate executives
    There should be more flexible mark-to-market accounting and 
measures to make short selling more costly. Increased margin 
requirements, and/or reinstatement of the uptick rule come to-mind.
    Increase federal insurance of consumer deposits to $350,000 from 
$250,000.
    Rating agencies have to be reformed, with supervisory and 
regulatory actions to clarify their role.
    Reform, supervision, regulation to be moved ahead.
    Let me note again that in times of stress and extremis, when 
markets fail and/or move way out-of-line with fundamentals, mark-to-
market accounting, while appropriate as a general rule for 
transparency, can give false readings, add to financial disarray and 
conditions that can make a solvent financial institution insolvent, 
encourage short-selling and further declines in stock prices, and 
intensify an economic downturn.
    Short-selling and circuit-breakers to slow down stock market 
movements need to be considered, perhaps are necessary, even if 
shutting-down stock markets, in order to give time for responsible and 
careful public sector decisionmaking and deliberation.
                                 ______
                                 

        Prepared Statement of Goodwill Industries International

    Goodwill Industries International, Inc represents 184 local and 
autonomous Goodwill Industries agencies in 48 states and 16 countries 
that help people with barriers to employment to participate in the 
workforce. The roots of today's Goodwill Industries International began 
as a simple idea in 1902 when Rev. Edgar Helms set out to help poor 
immigrants in Boston's South End by collecting clothes and household 
items from wealthier Bostonians to give clothing and household items 
for the struggling immigrants. He discovered, to his surprise, that the 
immigrants were too proud to simply accept the items. So he took his 
idea a step further by enlisting volunteers to repair, clean, and sell 
the items at reasonable prices. He used the revenue to provide wages to 
the workers--and the first Goodwill Industries store was born.
    More than 100 years later, Edgar Helms' idea of ``a hand up, not a 
handout'' has become a powerful one. In 2007, the Goodwill Industries 
network raised more than $3 billion through its retail, contracts, and 
mission services operations. Nearly 84 percent of the funds Goodwill 
Industries raised last year was used to serve more than 1 million 
different people, including more than 163,000 job placements. As our 
nation--our World--faces an economic crisis that many experts believe 
to be the worst since the Great Depression, Goodwill Industries stands 
ready to continue in its long tradition of enhancing the dignity and 
quality of life of individuals, families, and communities by 
eliminating barriers to opportunity and helping people in need to reach 
their fullest potential though the power of work.
    Local Goodwill Industries agencies are seeing first hand the 
effects of the recent economic crisis. In terms of retail, sales in 
North America increased by approximately 7 percent during the first 
eight months of this year, a statistic that is likely to demonstrate 
that more people, particularly more middle-class people, are shopping 
at Goodwill Industries stores in an effort to cut costs. On the supply 
side, donations, Goodwill Industries International has been concerned 
that donations may decrease as people, short on cash, decide to hang on 
to the items they have longer than usual. While some local Goodwill 
Industries agencies, particularly those in areas affected by recent 
hurricanes, have seen donations decrease, Goodwill Industries agencies 
nationwide report that the number of drop-offs in North America has 
remained stable; however it is just too soon to tell. For these and 
other reasons, Goodwill Industries International has been closely 
monitoring Congressional efforts to stabilize the financial sector and 
stimulate the economy. We are hopeful that the package Congress 
recently passed, the Emergency Economic Stabilization Act of 2008, will 
be good for both Wall Street and Main Street as Congress intended. We 
are also encouraged by Federal Reserve Chairman Ben Bernanke's recent 
testimony before the House Budget Committee, in which he stated that 
``consideration of a fiscal package by the Congress at this juncture 
seems appropriate.''
    Considering the nearly 900,000 lost jobs since January and the 6.1 
percent unemployment rate, Goodwill Industries International believes 
that such a package should reflect a strategy to stimulate the economy 
while investing in job training that support efforts to restore 
struggling and discouraged workers to employment. Therefore, Goodwill 
Industries International was encouraged by Speaker of the House, Nancy 
Pelosi's September 18 letter to President George W. Bush, which called 
for a second stimulus bill that invests ``in infrastructure for 
economic growth and job creation here at home.'' While extending 
Unemployment Insurance benefits is necessary to extend a lifeline for 
people who have exhausted or are close to exhausting their benefits, a 
second stimulus bill should include additional investments in job 
training. For example, it should include funds such as those proposed 
in a Senate economic stimulus proposal to provide $300 million for 
``part-time jobs after school, paid internships, and community service 
jobs for older youth,'' and an additional $300 million for employment 
and training activities for dislocated workers.
    Beyond such existing proposals, Goodwill Industries International 
urges Congress to include significant funding in the second economic 
stimulus bill that would allow us to do more. For example, with a 
minimal investment on the front end, our agencies can expand into new 
areas to increase transitional employment placements until job losses 
and the unemployment rate show a sustained trend in a positive 
direction. Goodwill Industries is in a unique position to become an 
administrative conduit and employer for putting workers into public 
sector jobs while providing the training and supports necessary to move 
their careers toward permanent jobs that help stabilize their family 
financial situation. Such an investment would help stimulate the 
economy and help restore people to employment in a number of ways. 
First, the provision of temporary employment would provide a much 
needed lifeline to unemployed workers. For example, those who have 
exhausted or those who are likely to exhaust their Unemployment 
Insurance benefits could be quickly placed in temporary employment, 
providing an immediate source of income in addition to other available 
public supports that they will quickly spend on basic needs such as 
housing, food, and utilities. As this money starts to circulate in the 
economy, our employment specialists could assist their efforts to find 
more permanent employment.
    While most Goodwill Industries agencies provide transitional 
employment opportunities, Goodwill's 2007 Annual Statistical report 
shows that at least 82 local Goodwill Industries agencies in the United 
States provided more than $61.6 million in paychecks to 11,470 
individuals participating in training. Goodwill's Annual Statistical 
Report includes a wealth of information about all the local Goodwill 
Industries agencies; however, I'll highlight the contribution made by 
Goodwill Industries of the Greater East Bay, which provides workforce 
development services, including transitional employment, job readiness 
training, and placement services to people facing barriers to 
employment in Alameda, Contra Costa, and Solano Counties. In 2007, 
Goodwill Industries of the East Bay reported that 324 individuals 
earned more than $6.2 million by participating in its paid employment 
training programs.
    As I stated earlier in this testimony, last year, local Goodwill 
Industries agencies raised more than $3.1 billion through retail, 
contracts, and mission services. Nearly 84 percent of that revenue was 
used to provide services and activities, including transitional 
employment, to help people become productive contributing members of 
their communities--individuals who face such disadvantaging conditions 
as welfare dependence, homelessness, a criminal background, or a 
physical, mental, or emotional disability. During these uncertain 
times, the unemployment levels and social needs of Goodwill Industries 
constituents are likely to expand, despite the steady and disturbing 
trend observed over the past several years of reduced federal funding 
for workforce development.
    Many of our local agencies operate One Stop Centers or function as 
service providers in the public workforce system. As Members of the 
Committee know all too well, the Workforce Investment Act expired in 
2003. Although Congress has continued to appropriate funds for WIA's 
expired Adult, Youth, and Dislocated Workers programs, funding levels 
for these programs have steadily eroded--from $3.9 billion in FY 2002 
to $3.2 billion FY 2007. Certainly, the time to reverse this trend is 
now. A time of recession is no time to cut funding for job training. 
Goodwill Industries International urges Congress to make funding for 
and the reauthorization of WIA a top priority. The reauthorization of 
WIA offers an opportunity to ensure that our public workforce system is 
responsive to the diverse needs of workers and employers. Goodwill 
Industries International looks forward to working with Congress and the 
new Administration toward developing a bi-partisan WIA reauthorization 
bill that invests in the future of our workforce while assisting 
individuals with barriers to employment to obtain the job skills 
necessary to become self-sufficient and meet the needs of our nation's 
businesses.
    Earlier in my testimony, I cited Goodwill Industries of the Greater 
East Bay to illustrate the positive impact that just one Goodwill 
Industries agency can have on the communities it serves; yet Goodwill 
Industries agencies nationwide are making similar contributions that we 
will gladly share with this Committee. In closing, Goodwill Industries 
International would like to take this opportunity to extend an open 
invitation to Members of this Committee--as well as to other interested 
Members of the U.S. House of Representatives and the U.S. Senate--to 
visit the local Goodwill Industries agency in your district when it is 
convenient for your busy schedule. I hope that many of you will accept 
my offer to get a first-hand look at how Edgar Helm's entrepreneurial 
vision lives on in the communities you represent and others across the 
country.
                                 ______
                                 

 Joint Prepared Statement of Rev. Donald Roberts, President and CEO of 
Goodwill Industries of Manasota, and Sandra Purgahn, President and CEO 
                   of Goodwill Industries of Acadiana

    Mr. Chairman, Ranking Member and Members of the Committee, we 
appreciate this opportunity to submit written testimony outlining our 
experience in addressing the needs of our local communities, and how 
those strategies can help the nation address the severe unemployment 
outlook and spur job growth.
    As you may know, Goodwill agencies located on Main Streets across 
the country see firsthand the impact of the current economic crisis and 
are uniquely able to tailor their programs to respond to local needs. 
Goodwill Industries International has submitted separate written 
testimony which describes the broad activities of Goodwills nationwide. 
We would like to describe to you the success of our specific programs 
that resulted from a federal welfare-to-work grant, and how that model 
of capitalization could be expanded to address the current spike in 
unemployment and promote job growth. The fundamental assumption tested 
by our welfare-to-work grant was that the building of new facilities is 
a long-term investment in job placement as opposed to the short-term 
investment associated with traditional programs that simply focus on 
hiring personnel. The fact that the one-time capital infrastructure 
investment provided to us by the U.S. Department of Health and Human 
Services (HHS) in 1997 has continued to reap benefits for job placement 
and training every year since demonstrates that this model works for 
both the short-term and long-term.
    Although Goodwill is often recognized simply for its donation 
centers and donated goods stores, our most valuable role is through our 
job training and placement activities. The Goodwill Job Connection 
concept was initially developed by Goodwill of Manasota in 1988, and 
was recognized by the American Rehabilitation Association with its 
``Employment for Tomorrow Award'' in 1994. As described in an 
evaluation of our program submitted to the Administration for Children 
and Families, our Job Connection model provides services in convenient 
locations situated throughout Goodwill community service areas, and are 
paid for through the donated goods business. Once the new 
infrastructure is built and operational, these Job Connection services 
are not dependent on external subsidies for either staff or referrals. 
The flexibility inherent in this approach allows Goodwill to serve 
anyone in need without consideration of eligibility criteria, on a 
timely basis, at no cost to the consumer. In summary, Goodwill can 
support its own Job Connection programs with the proceeds from its 
donated goods stores.
    Nevertheless, our challenge is related to the capitalization costs 
of infrastructure to grow our donated goods business, particularly the 
cost of site acquisition for new donation centers and stores, so that 
we can meet new and emerging needs in our communities. Congress 
recognized the potential for a system of capitalizing new Goodwill 
facilities in Section 413(h)(3)(A) of the Social Security Act, which 
allowed HHS to grant $10 million combined to our agencies ($7 million 
to Manasota and $3 million to Acadiana) for the purpose of purchasing 
additional sites and the construction of new facilities. In exchange, 
our Goodwill agencies were expected to demonstrate job placements for 
those leaving welfare to work with Job Connection programs funded by 
the proceeds from our new donated goods stores. A three-year evaluation 
of our grant showed that we met and exceeded our placement quotas. The 
dollars invested by Congress more than ten years ago have created 150 
sustainable jobs within Goodwill with an annual payroll of $3.5 
million--in 10 years that translates into payroll of $35 million and we 
are still going. It also resulted in training and placing hundreds of 
persons into unsubsidized employment through our Job Connection 
services, which includes job training and placement services--and that 
number grows every year without any additional federal subsidies and 
will continue to grow as long as the business continues.
    The major target population for Goodwill of Manasota's ``Hand-Up'' 
services resulting from our welfare-to-work grant include persons with 
disabilities, senior citizens, ex-offenders and immigrants with English 
as second language. The major target population for Goodwill of 
Acadiana's ``Hand-Up'' services has been largely women with families 
moving from welfare to work and a younger population.
    The benefits of capitalization can vary based on the needs of the 
community being served. In addition to our traditional Job Connection 
services, Goodwill of Manasota created a ``Good Partner Coaching'' 
program whereby each Goodwill client/employee is assigned a personal or 
family coach whose job is to provide financial planning services, 
address the educational needs of both parents and their children, and 
provide training to enhance employment opportunities. For our most 
vulnerable clients, we start with their G.E.D. while providing them 
with ``Opportunity Wages'' during their work with Goodwill, and 
eventually place them in employment outside Goodwill.
    Additionally, Goodwill of Manasota is able to provide ``Goodhomes'' 
services leading to home ownership for those in our program based upon 
the concept that a steady paycheck, which often results from vocational 
training and transitional employment, and a mortgage, the American 
dream of home ownership, are the two key elements for family stability 
and economic security.
    Goodwill of Acadiana has expanded its services by building certain 
skills for our clients. For example, we provide work skills such as 
resume preparation, interviewing, and vocational counseling, as well as 
life skills such as budgeting and conflict management. Other priorities 
include computer literacy, interpersonal skills, and educational skills 
such as G.E.D. preparation and literacy classes. Goodwill of Acadiana's 
work has often focused on proving a realm of services that allow a 
single parent to manage work and parenting. Our welfare-to-work grant 
also has allowed Goodwill of Acadiana to expand its scope of services 
to youth aging out of foster care who otherwise are at-risk for 
interactions with our criminal justice system.
    The benefits of capitalization go well beyond our Job Connection 
programs. The welfare-to-work grant provided to each of our agencies in 
1997 resulted in immediate benefits to the local economy as we 
constructed new facilities and began employing those we serve in our 
new donation centers and in our job training centers and stores. In 
addition, Goodwill activities are consistent with the nation's 
commitment to recycling as we divert millions of pounds of recycled 
goods away from landfills and back into the economy. By moving our 
clients/employees into jobs, there is the tangential benefit of taxable 
income generated to support our federal and local governments.
    We believe that we must be accountable to the nation's taxpayers 
who expect their monies to be used in the most effective way possible, 
not only to simply fund programs but also to build the infrastructure 
to sustain those programs well into the future. Therefore, we urge 
Congress to learn from our experience and consider making 
capitalization a permanent program for addressing the workforce issues 
facing our nation. The one-time infusion of capital can lead to a 
lifetime of services for the hardest-to-serve populations.
                                 ______
                                 
                                 
                                 
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    Chairman Miller. So thank you very much.
    We will now move to our second panel, which is Mr. Millard. 
Bear with us as we make a transition here.
    The second panel will be made up of Mr. Charles Millard, 
who is the Director of the Pension Benefit Guaranty 
Corporation. Prior to joining the Pension Benefit Guaranty 
Corporation, Mr. Millard was the managing director at Broadway 
Partners, a national real estate investment and management 
firm, and was the managing director and group head of both 
Lehman Brothers and Prudential Securities. He also served as 
president of the New York City Economic Development Corporation 
and chairman of the New York City Industrial Development 
Agency. He holds a B.A. From Holy Cross and a J.D. From 
Columbia Law School. He also informs me he spent some time 
working on the Hill for our former colleague Millicent Fenwick, 
who was also a member of this committee.
    Welcome to the committee, Mr. Millard. Thank you for 
agreeing to testify. Before we move on with your testimony, I 
would like you to please stand and raise your right hand so 
that I might swear you.
    [Witness sworn.]
    Chairman Miller. Please note for the record that the 
witness has answered in the affirmative, and thank you.
    We will proceed now, Mr. Millard, for your testimony. You 
proceed in the manner you are most comfortable with. Your 
written testimony will be made a part of the record in its 
entirety, and you know the light system here on the Hill. Green 
light, you will be given 4 minutes; and then an orange light; 
and then, if you can, if you can complete your testimony. But 
again, we want you to make the points that you desire to make 
here. Thank you.

    STATEMENT OF CHARLES MILLARD, DIRECTOR, PENSION BENEFIT 
                      GUARANTY CORPORATION

    Mr. Millard. Chairman Miller and committee members, I 
appreciate the opportunity to appear before you today to 
discuss the state of the Pension Benefit Guaranty Corporation 
and the defined benefit pension system. Concern about 
retirement income security is especially important in these 
challenging economic times.
    Created by Congress under ERISA, PBGC is a wholly owned 
Federal corporation with a three-member Board of Directors; the 
Secretary of labor, who is the Chair, and the Secretaries of 
Commerce and Treasury.
    Under the Pension Protection Act of 2006, PBGC is headed by 
a Senate-confirmed Director, and I am proud to be the first 
person confirmed by the Senate for this important position.
    PBGC is self-financed, receives no funds from general tax 
revenues, and its obligations are not backed by the full faith 
and credit of the U.S. Government. PBGC's revolving funds 
receive premiums which are invested in U.S. Treasuries, and 
PBGC's trust fund holds assets from trustee plans and 
recoveries from employers which can be invested in more varied 
holdings, consistent with sound fiduciary principles.
    When an underfunded plan terminates, PBGC takes over the 
plan as trustee and pays benefits to the full extent permitted 
by law. As you know, PBGC has been in a deficit position for 
most of its 34 years. At the end of fiscal year 2007, PBGC had 
a $14 billion deficit with $82 billion in long-term liabilities 
versus $68 billion in assets.
    PBGC staff and our independent auditors are working long 
hours to ensure that our financial results for fiscal year 2008 
will be available by the annual November deadline. We expect 
the deficit will be somewhat lower for fiscal year 2008, but 
that it still will be in double digits, somewhere in the range 
of $10- to $12 billion, and we can go into that further in 
testimony.
    I do want to emphasize that any numbers that I use today 
are unaudited, as we discussed previously with your staff, Mr. 
Chairman. We close the books from September 30 until November 
15, and it's a very, very hectic time to get books of a $55 
billion organization closed. So these are all unaudited. 
They're obviously subject to change, but they're reasonable 
estimates.
    Despite the current deficit, PBGC does not face an imminent 
financial threat. Unlike a bank, PBGC is not a demand 
institution. We pay monthly pension benefits spread over the 
lifetimes of participants and beneficiaries, not as lump sums.
    At the end of fiscal year 2007, PBGC had $55 billion of 
investable assets. How those funds are invested is a 
significant factor in our ability to meet our long-term 
obligations to workers.
    In February our Board unanimously adopted a more 
diversified investment policy to better enable PBGC to meet its 
long-term obligations. The old policy gave us only about a 19 
percent chance of getting out of our deficit in the next 10 
years. The new policy, which is designed to take advantage of 
our long-term time horizon, will give us about a 57 percent 
chance of meeting that important goal.
    As you recently noted, Mr. Chairman, PBGC has suffered an 
approximately $4.1 million decline in our portfolio for fiscal 
year 2008. This represents a negative 6.5 percent return on 
investment compared with a 22 percent decline in the S&P. As a 
result of our prudent, diversified approach to investments and 
our slow and deliberate approach to implementing the new 
policy, PBGC's losses are far smaller than those suffered by 
most other investors.
    PBGC's main sources of information on underfunded plans are 
the Annual Form 5500 and the additional information from plans 
required to report under ERISA section 4010.
    As you know, the Form 5500 data is typically 2 years old 
when we receive it. It is difficult to make informed decisions 
based on such outdated information, especially given the 
volatile nature of the financial markets.
    Section 4010 gives us more current data, but it only 
applies to a relatively few underfunded plans. These filings 
play a major role in our ability to identify potential risks to 
participants and the pension insurance system.
    Prior to the PPA, plan sponsors were required to report if 
total underfunding in their plans exceeded $50 million. PPA 
replaced the $50 million threshold with an 80 percent funding 
test. Under this new standard, many long-term filers with plans 
that are underfunded by significantly more than $50 million 
will no longer have to file.
    In summary, please let me say the following. I would like 
to make five quick points.
    Number one, PBGC's problems, our deficit, are very long-
term problems. The people who depend upon us for our pensions 
and their payments should not be concerned. Basically, our 
problem is that we take in the assets and the liabilities of 
plans. So we take in sevens, but we owe tens. We get the sevens 
now; we owe the tens over time. So people who are watching this 
hearing should understand that the assets that we have will be 
paid out over many, many decades, and we hope that over time we 
will close the deficit. But taking in sevens now and owing tens 
later is something people need to understand very well.
    Secondly, the new investment policy is designed to give us 
a better chance to close that gap over time without taking any 
undue risks. In fact, the standard deviation, one measure of 
risk, in the new policy is even lower than the standard 
deviation in the old policy. The diversification of the new 
policy gives us a far better chance, about a three times better 
chance, to close the deficit over time.
    The old policy was premised on the argument that someday we 
will have to rely on Congress to write a multi-billion dollar 
check to close our deficit. The new policy is based on the idea 
that we should do our best to avoid that eventuality.
    Three, the new policy does not say, let's take a bunch of 
very secure Treasuries and dump them into a bunch of high-risk 
stocks. It is very, very moderate, very sensible, very 
consistent with what other large investors in the marketplace 
would do. It is 45 percent equities diversified; 45 percent 
fixed income, somewhat diversified; 5 percent real estate; and 
5 percent private equity.
    It is designed to be diversified enough to avoid a lot of 
risk but also to give us a chance to, over time, achieve the 
goal, which is about a 7.5 percent annual return. Somehow the 
press around this makes it sound like we are trying to shoot 
the moon. It is anything but.
    Finally, we knew that it would take time to implement this 
policy when we did. So we haven't actually made any of the 
equity allocations in the new policy yet because we knew we 
would have to do manager selection and we knew we would have to 
be guided by market conditions. So that slow and deliberate 
approach has been very, very strong and has borne very good 
results for PBGC. Over the last 12 months, we are down about 6 
percent in a marketplace where we estimate most pensions are 
down 15 percent.
    Last of all, our deficit on an unaudited basis has gone 
from approximately $14 billion to approximately $11 billion 
this year. That is for a variety of things we can talk about. 
It includes the fact that interest rates that value our 
liabilities have changed and numerous other factors.
    But, in fact, it is counterintuitive to think this, but the 
PBGC itself is actually sounder today than it was 12 months 
ago. That doesn't tell us how things are going to be in the 
future, but our funded status is better, and we have an 
investment policy that will give us a chance to get out of our 
deficit. But we have avoided the market turmoil in the 
implementation of that investment policy.
    I look forward to your questions.
    Chairman Miller. Thank you.
    [The statement of Mr. Millard follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Chairman Miller. On your last point, that you have avoided 
market turmoil because of your prudence, the fact is you have 
been moving steadily along to adopt the new policy. You simply 
haven't adopted this yet because you haven't signed the 
contracts with the entities that would manage those funds for 
you, is that correct?
    Mr. Millard. No. We have not--we have taken a few small 
steps so far in changing some of our----
    Chairman Miller. That was all with the wisdom of the market 
that you took those few small steps?
    Mr. Millard. Yes. I mean, for a variety of reasons. We knew 
we would have to take time.
    Let me give you an example specifically, private equity. If 
we could have implemented everything in February, we wouldn't 
have. It is not a prudent way to invest in private entity. 
Private equity, you want to have multiple vintage year 
diversification. So you would expect a private equity 
allocation, which in our case would be about $2.8 billion, to 
be put in place over time, over 2, 3, 4, even 5 years.
    That was expected the day the policy was implemented. When 
the board met, we discussed making sure that we took a 
deliberative and careful approach to the implementation of the 
policy. It would have taken some time anyway to find some new 
managers, but we also even at this very moment are being very 
concerned about market conditions before we take any actions.
    Chairman Miller. So the only reason you haven't invested is 
because you understood the downside of this current market and 
you understood that in February, March and April?
    Mr. Millard. We took a deliberative approach from the 
start. It took some time to think of who our managers would be; 
and, as we found the market turmoil of late, we have been 
careful about getting into a specific transition.
    Chairman Miller. Okay. You are familiar with the General 
Accountability Office discussion. Their April--the 
Congressional Budget Office, excuse me, their April letter to 
me and their discussion of the asset diversification, the risk 
of the PBGC's funded status.
    Mr. Millard. Yes.
    Chairman Miller. How do you recognize their concerns with 
your policy? This is their comments on your expected new 
policy.
    Mr. Millard. Yes. They said it was likely, if I recall 
correctly, that we would have a better chance of closing our 
deficit over time, which is exactly the purpose of the new 
policy. They also highlighted some risks that I don't disagree 
with. Every policy has risks, and certainly there will be up 
years and down years, and we are obviously right in the middle 
of a down year. And they highlighted there are risks in any 
policy, which is true.
    Chairman Miller. They highlighted there are particular 
risks with respect to PBGC and that, as they point out, offers 
a greater expected return with lower--this is a suggestion 
from, I guess, your consultants--offers a greater expected 
return with lower risk and assets on the PBGC's portfolio. This 
strategy reduces the timing match between the Corporation's 
future pension obligations and the cash flow streams from its 
investments.
    They are addressing that very often you launched the 
lifeboat in the middle of the storm.
    Mr. Millard. I am not sure exactly--obviously, I want to be 
helpful and direct in your answering your question.
    Chairman Miller. That you may receive your greatest burdens 
at the same time in a down economy.
    Mr. Millard. Right. And let me respond to that in a couple 
of ways. It is a pithy statement that some say it is like being 
an insurer and taking all of the premiums and investing them in 
Florida real estate. Also, some people refer to it as a Texas 
hedge.
    That is not the case in our actual experience. Our actual 
experience is that 76 percent of all the liabilities the PBGC 
has ever taken in come from two industries, steel and airlines. 
They come because of industry consolidation and industry 
upheaval. That is the thing that is the most consistent theme 
in the actual liabilities we take in. Not necessarily 
recessions.
    For example, Bethlehem Steel came to the PBGC in 2002 
during a time of economic recovery, although the markets were 
down. Delta and United Airlines came at a time when the economy 
was stronger and when the markets, the equity markets, were 
rising. So the worry that people say, well, you are going to 
have a recession and pension plans' assets will be down at the 
very time you take those plans in isn't actually consistent 
with our experience.
    Chairman Miller. Okay. You in your statement suggested that 
your loss of 6.5 percent is better than the other pension 
plans, correct?
    Mr. Millard. It certainly is better than some, yes.
    Chairman Miller. But on the equity portion of your plan you 
lost 23.2 percent.
    Mr. Millard. Approximately consistent with Standard & 
Poor's, yes.
    Chairman Miller. Yes. So the idea that you are structured, 
one, differently than many pension plans because of your 
current policy of fixed income investments, but it is a little 
disingenuous to suggest that the equity thing is going 
swimmingly.
    Mr. Millard. I haven't suggested that anything is going 
swimmingly. Obviously, this is an unbelievable time, probably, 
let's hope, a once-in-a-lifetime experience for everybody 
involved investing in the markets today. I won't say that 
anything has gone swimmingly, and I don't mean to claim that. 
Our equity investments are pretty much consistent with other 
people's equity investments. I am just trying to give you the 
facts as I know them about where we stand today.
    Chairman Miller. I guess if you want to extrapolate out the 
new policy in today's markets, the $4.8 billion would look 
something like more than $8 billion in losses?
    Mr. Millard. If the new policy had been implemented in 
February, our experience from February to now--well, let me go 
back a step. It would have been impossible to implement the new 
policy in February anyway. As I discussed before, it takes 
years to layer in some of those asset classes and would have 
taken many months to layer in some of the others. So it is not 
the kind of thing that would have all happened at once anyway.
    Additionally, it is far more diversified than the current 
equity portfolio. You are extrapolating our experience, which 
is mostly right now matched to the S&P, with what the new 
experience in equities would be, which is not nearly matched to 
the S&P because it is intended specifically to be far more 
diversified. So extrapolating an S&P number isn't really a fair 
characterization of how the new policy would have performed. 
But I think it is reasonable for us to conclude that it would 
have performed worse over the last 8 months.
    But it is not a policy that is designed to function over 8 
months. We take in sevens now. We owe tens over time. Our 
obligations are not measured in years. They are measured in 
decades, just like the lives of the Bethlehem Steel workers we 
need to pay.
    So we need to make sure that we do our best not to ask 
Congress to bail us out with an asset liability matching 
policy. The old policy tried to match $62 billion in assets 
with $76 billion--I am sorry if I don't have those numbers 
exact, but $55 billion in assets--$62 billion in assets with 
$78 billion in liabilities. Well, as I say to a lot of folks, 
if you can match 68, 62 and 78, you are hired. Because the old 
policy locked in the old deficit, and it was premised on the 
idea that we would come to Congress some day for a bailout.
    Chairman Miller. The new policy you mention is more 
diversified, and that would be how?
    Mr. Millard. You mean specifically what are the projected 
asset classes? Currently, we are in U.S. equities approximately 
25 percent; the non-U.S. equities approximately 2 percent; 
emerging market equities about one-half of one percent; long 
corporate bonds, approximately 40 percent; long Treasuries, 
approximately 25 percent; other Treasuries, approximately 4 
percent; total fixed income, approximately 69.4 percent; cash, 
1.6 percent; and private equity or real estate, approximately 
1.8 percent. That is the current.
    The new would be 20 percent, U.S. equities; 19 percent, 
non-U.S. equities; 6 percent, emerging market equities; long 
corporate bonds, 13 percent; long Treasury bonds, 19 percent; 
high-yield bonds, 2 percent; emerging market debt, 3 percent; 
total fixed income, 42 percent; cash, 3 percent; total fixed 
income and cash, 45 percent; private equity and real estate, 5 
percent each.
    Now if I can just add one point there, we could pick any 
one of those and say, you are going to put your money in what? 
And the point of that is we want a diversified investment 
policy. We don't want to be subject to just what is the S&P 
doing on any given day. We don't want to be relying on how are 
Treasuries doing on any given day. The whole point is the 
diversification mitigates risks and gives us a better chance to 
make our payments to the Bethlehem Steel workers and other 
people like them without having to ask Congress for a bailout.
    Chairman Miller. But you do admit the higher risk 
component. You are chasing yield. It is very hard to chase 
yield without increased risk. A lot of people con themselves 
into that notion, but it is very hard to do.
    Mr. Millard. Risk and reward are both on a spectrum. Yes, 
if you sit here in one place and you say, I want more reward, 
then you will probably have to take more risks to get it. But 
if you diversify, you can say, well, I will take the exact same 
risk I am taking. How much more reward can I get, assuming that 
diversification has a benefit? Or you can say, I will take more 
diversification. I am happy with the return I am getting. 
Please lower my risk. Or you can say, I am going to diversify 
enough to get a little bit more return and a little bit less 
risk.
    And the standard deviation, which is only one measure, 
there are other measures we can talk about if you like, of the 
new policy is actually lower than the standard deviation of the 
old. But just as important is how bad things can get, and how 
bad things can get is actually safer, if you can call it safer, 
on a how-bad-things-can-get extreme tale under the new than the 
old.
    I mean, the whole point here is time is on our side. We 
have decades to pay these people, and we are trying to put 
ourselves in the best position to make those payments.
    Chairman Miller. So in your equity portions, if you can 
just review this again for me, your equity portions under the 
current plan are divided how again?
    Mr. Millard. Twenty-four percent of our portfolio today, 
24.5 percent, is in U.S. equities; 2.1 percent is non-U.S. 
developed; and one-half of one percent is in emerging markets.
    Chairman Miller. And the second one, non-U.S. developed, 
that is foreign equities?
    Mr. Millard. Yes, except not emerging markets. That is an 
emerging category.
    Chairman Miller. And emerging markets, the third one, is 
equities?
    Mr. Millard. Currently, 0.5 percent emerging market 
equities, yes.
    Chairman Miller. So those are all equities?
    Mr. Millard. Yes.
    Chairman Miller. Now, in the new plan, if I understand what 
you said, you have emerging market equities, which would be 
consistent with what you do now, some percentage. You allow 2 
percent for junk bonds?
    Mr. Millard. Yes.
    Chairman Miller. I think there is a euphemism for junk 
bonds.
    Mr. Millard. We call them high yield.
    Chairman Miller. Right, high yield. Until the day they 
don't yield. Emerging market debt?
    Mr. Millard. Yes.
    Chairman Miller. That is in what form?
    Mr. Millard. The form that our managers will buy, and that 
is an important point to make. PBGC doesn't say, you know, I 
think we would like to have----
    Chairman Miller. Well, what have you discussed in that 
form? What form? Do you expect to buy Treasury notes of foreign 
governments, of emerging markets?
    Mr. Millard. Give me one second.
    Yes. It could be the debt of a foreign government. It could 
be the debt of a company in one of those countries.
    Chairman Miller. Would it be the actual debt or would it be 
a securitization of that debt?
    Mr. Millard. I think the expectation is that it would be 
the debt itself.
    Chairman Miller. Have you discussed it, the securitization?
    Mr. Millard. It could possibly be securitization as well.
    Chairman Miller. I mean, to a great extent, emerging market 
debt is marketed as a securitized product. Because, otherwise, 
some people could not get their debt to market without 
absorbing a cost. We can expect that that might possibly be 
securitization.
    Mr. Millard. I think we could expect that it could be. We 
could also expect it would also be direct. But the point I want 
to emphasize is it is diversified.
    Chairman Miller. I understand it is diversified. I will 
concede the point it is diversified. I want to know what it 
looks like. So, in fact, it can be securitized debt of foreign 
companies. It can be securitized debt of foreign countries.
    Mr. Millard. Yes, it could be.
    Chairman Miller. And I assume it would be insured? Are you 
going to buy A-rated debt? Are you going to buy triple-A debt? 
Are you going to buy BB debt? What are you going to buy?
    You are chasing yields. It is of some pertinence here as to 
what it is, because you have obviously made the decision to 
chase yields.
    Mr. Millard. I wouldn't say we made a decision to chase 
yields.
    Chairman Miller. Well, why would you do it? Of course you 
have.
    Mr. Millard. I would say--expressing it as chasing yield 
makes it sound as though----
    Chairman Miller. Everybody does it. I mean, any investment 
advisor is always trying to tell you we think we can do better 
on this side. You then have to decide what the risk is for the 
yield that you expect. There is all kinds of ways you can 
discuss it, but that is the basic premise. And we see people 
place great bets, institutions place great bets to chase yield. 
We just were looking at a number of cities and counties that 
made that bet in this last economy and the risk overwhelmed the 
bet.
    But that is what people do. That is risk and reward. You 
can attach all the terms you want. So it is important as to 
what are the components of the emerging market debt. It is 
important to know the components.
    Mr. Millard. No, I am not saying it is not important to 
know it. Of course it is important to know it.
    Chairman Miller. That is why I am asking.
    Mr. Millard. Okay. And I believe I have answered. It can be 
securitized. It can be direct debt of a company, you know, the 
actual bond of the company.
    Chairman Miller. I am asking if one of the vehicles by 
which securitized debt became acceptable was because it was 
insured?
    Mr. Millard. I'm not sure I know what you mean by 
``insured.'' I mean, if we buy the debt of the government of 
Brazil, no, I don't----
    Chairman Miller. But if you buy securitized debt of Brazil 
and Zimbabwe and a lot of other people, you are not buying that 
instrument itself. That is one decision. The other decision is 
to buy a securitized tranche of debt. This is not foreign right 
now to anybody, and that would be a different decision.
    Mr. Millard. Correct. And that decision----
    Chairman Miller. And that allows for that.
    Mr. Millard. And that decision is not one I would ever 
attempt to make myself.
    Let me be very clear here: PBGC does not pick the debt of 
Brazil or the bond from the company in China. We pick 
managers----
    Chairman Miller. I understand that. The world is littered 
with institutions who relied on other people to make those 
choices for them. They all hired the smartest people in the 
room. I mean, that is just a casualty of the system. That is 
the system. You shouldn't be making those decisions. You should 
hire somebody who knows how to do it. But that is not an 
insurance policy to success.
    Mr. Millard. I didn't promise it is. And to make very 
clear, I am not guaranteeing that this new policy will succeed. 
I will tell you that it gives us a much better chance of being 
out of our deficit over time.
    Chairman Miller. And the GAO tells us that they think the 
risk is much higher. So we have a difference of opinion. We are 
just trying to sort this out.
    Mr. Millard. Actually, that is not the what GAO said. The 
GAO used a different set of assumptions that were not the GAO's 
assumptions. They were J.P. Morgan's assumptions. And they 
said, under these assumptions, you would get a different 
answer, which would have a higher standard of deviation. GAO 
did not in any way conclude that that proved that the new 
policy was riskier.
    Chairman Miller. And private real estate would be what 
components?
    Mr. Millard. When you say ``what components''----
    Chairman Miller. What would that be? Would that be REITs? 
Would that be actual investment in real estate? Would that be 
mortgages? Would that be securitized mortgages? Would that be 
residential properties?
    Mr. Millard. We are actually in the process of consulting 
with a variety of consultants right this moment to reach those 
conclusions, but likely, trying to be helpful here, I can't say 
it is going to be A, B and C.
    Chairman Miller. I just want to know if that component is 
allowed. I am not asking for a conclusion. I want to know if 
that is the component.
    Mr. Millard. If it is allowed under the board policy----
    Chairman Miller. I don't want to know what the board policy 
is. At some point, you will tell us.
    Mr. Millard. We have provided it. It is a public document. 
It is on our Web site. The investment policy statement--I mean, 
I can hand you a physical one right now, if you like. It is a 
public document. And under that policy, those kinds of 
investments would be permitted.
    What we are going to do in real estate, we have not reached 
a conclusion yet, but likely--again, I am trying to be as 
transparent as I can, yet we don't know this answer. We are 
talking to real estate investment professionals now about what 
it should look like. Likely, it will have some components of--
--
    Chairman Miller. So in each of these categories----
    Mr. Millard. You asked me a question. I am just trying to 
tell you what it is likely to hold.
    Real estate is likely to hold some funds of funds in large 
U.S. office properties, possibly some funds that invest in 
retail, perhaps some European office buildings, with managers 
whose names I can't say because we don't know yet, but of the 
kinds of real estate investors that I think would give you as 
much comfort as you can have about a sober, careful, not-
trying-to-shoot-the-moon policy of diversifying into real 
estate.
    Chairman Miller. And venture equity. That would be----
    Mr. Millard. Private equity can include venture capital. It 
can include lots of other classes as well. Without knowing the 
final breakdown that we will conclude to have, I would guess 
that, of our 5 percent in private equity, chances are 1 to 1.5 
points of that will be in venture.
    So let's say--just trying to be conversational here with 
numbers we haven't made decisions on yet--it would be something 
like 1.5 percent of our portfolio. Again, please don't hold me, 
because it could change, but about 1.5 percent of our portfolio 
would be in venture capital.
    Chairman Miller. The numbers--I don't know that these are 
your numbers. Just, for example, the venture equity you have 5 
percent. That is the upside limit. It could be 1.5, as you say?
    Mr. Millard. No. No. Private equity we are permitted to 
have 5 percent.
    Chairman Miller. You have is a category called venture 
equity.
    Mr. Millard. I don't think we have ever listed a category 
called venture equity.
    Chairman Miller. Private equity I guess can include buyout 
and venture.
    Mr. Millard. Right. Our expectation is that that 5 percent 
will be broken down approximately 3.5 to 4 points more large 
cap and mid cap buyout and 1 to 1.5 points venture. So that 
would mean that 1 to 1.5 percent of our portfolio, if that is 
where we come out, would be invested in venture capital.
    Chairman Miller. So just trying to conclude and not to put 
words in your mouth, in each of these categories--junk bonds, 
emerging market debt, private real estate, venture equity and 
emerging market equity, excuse me--all of those allow for a 
range of investments within those categories from what today 
would be considered very risky--you probably wouldn't make 
those choices today looking at the market--to a more staid 
investment within that category of emerging market equities or 
junk bonds or what have you.
    Mr. Millard. I am sorry. I am not following the question. I 
am sorry.
    Chairman Miller. Again, you have defended each one of these 
as being prudent based upon what they allow under those 
categories, and all I am saying is you can go from a very risky 
investment under emerging markets or you can go for a very 
prudent investment under emerging markets, but both of them are 
in fact allowed.
    Mr. Millard. Within the class of private equity right now, 
the board's decision to have 5 percent in private equity was 
not prescriptive about how much of that should be venture and 
how much of that would be a buyout. That is a decision that 
PBGC staff is considering.
    Chairman Miller. Right. I understand that. And my point is 
that, in emerging market debt, it could be securitized debt, it 
could be the actual instrument, it could be a Treasury bond of 
the state of Brazil or what have you. In private real estate, 
it could be securitized real estate or it could be actual 
mortgages or it could be, I guess, an investment share in a 
development. That is not unusual for pension plans.
    Mr. Millard. It could be those things. But what we are 
looking at, without having reached a conclusion yet, is 
approximately 75 to 85 percent buyout in our private equity, 
which would leave 1 to 1.5 percent venture. And in the real 
estate area, no, we are not looking at securitized mortgages; 
we are looking at people that buy----
    Chairman Miller. I am not suggesting that you are. I just 
want to know the ranges. You have an old adage in life, if you 
can handle the worst, you can probably handle the best. And I 
just want to know the range of decisions that are available to 
this board over this long-term that you are talking about. 
Because you are launching a new policy, and one of the things 
we see is that people lose their memories about the last 
downturn, the last bubble, the last uptick, the last growth 
pattern. Whatever it is, we kind of lose our memories over a 
10-year period here.
    So I just want to know what we are setting in motion, and 
this is why we were trying to have these discussions with you 
prior to this, what we were setting in motion here so that the 
Congress will understand. Because a lot of times we get to be 
surprised by the people who want to use your facility. They 
don't necessarily give you a lot of warning.
    You can anticipate it. You have done some work in the auto 
parts business. You have done some work with what I guess I 
call Chrysler and General Motors trying to anticipate where you 
would be, where the taxpayers would be and where the retirees 
would be.
    But, again, in your business, every now and then, you can 
get a surprise. Most of the things we have learned about Wall 
Street in the last year have been a surprise to everybody. They 
are not playing all their cards up here.
    Mr. Millard. And you are right that we tend to forget 
things. But in today's moment, we can tend to forget that over 
20, 25, 30 years, a diversified policy that has equities as a 
greater than 30 percent portion of it is a lot more likely to 
pay the bills over time, and the diversification can help 
mitigate some risks. The whole point here is we are not 
investing this money to do better between February of 2008 and 
September of 2008.
    Chairman Miller. I understand that. You also would, I 
assume--well, I will come back to that. I want to let my 
colleagues have time. I am sorry I have expanded my time here.
    Ms. Woolsey. You are the chairman, Mr. Chairman.
    Chairman Miller. But fair, as always.
    Ms. Woolsey. But always fair, knowing that you are the 
chairman.
    This is so frustrating. I am sitting here thinking that if 
I am frustrated with this conversation between our chairman and 
the director of the PBGC, imagine what the average, every-day 
pensioner and the companies that have pension commitments, 
imagine what they are thinking. They must be, you know, 
spinning, because I certainly am.
    So I wanted to ask a question, and I think the chairman 
asked the question, but I am going to ask it, so maybe you can 
talk to me, so maybe I will get it. And maybe the pension 
people, people with commitments and expectations, will get it, 
too, because, as the director of the PBGC, given the current 
state of this economy, where we absolutely know that more 
employers are going to be unable to make good of their pension 
commitments to their workers, what would you do, in 
straightforward language, to adjust to the situation we are in 
right now?
    I mean, in part of your answer, could you please tell me 
what you meant by outdated information, 2-year old information? 
I mean, how much of what you are deciding is based on 2-year 
information?
    Mr. Millard. Well, we have some information about the plans 
throughout the United States. They have to file a thing called 
the Form 5500. They file it. They are required to file it 
nearly a year after the information is current. And through 
processing, et cetera, it takes us sometimes as much as 2 years 
before we have current information. And even if we had it that 
very day, it is not very detailed. That is number one. The 
general matter of reporting that we are permitted under law to 
receive from corporation pension plans throughout America is 
not very in-depth.
    Secondly, there is a form called the 4010 form. The 4010 
form is required to be filed. Under the old law, it was 
required to be filed if your underfunding was greater $50 
million of underfunding. And the new says if your funded status 
is below 80 percent funded.
    Those two things are very, very different, and we have 
actually ended up getting fewer 4010 forms, which are the more 
current ones, than we used to, because fewer people are 
required to file.
    Even more concerning is the fact that if you have a $1 
billion pension plan that is 81 percent funded today, then it 
is not required to show me the detail that I would like. But if 
you have a $100 million pension plan that is 78 percent funded 
today, they are. So the one that presents me a $22 million 
potential by liability for PBGC, I get all the information that 
I want. But the one that shows me a $180 million potential 
liability for PBGC, I don't get the more detailed filings.
    Ms. Woolsey. So I can assume in my question to you, what 
would be one of the things you would change, would you change 
that?
    Mr. Millard. Yes. In fact, we would change it for sure. We 
actually asked for better 4010 information in the Pension 
Protection Act, but did not get it.
    Ms. Woolsey. All right. What would be your response with 
the current information on, we're down 6 compared to the market 
of 15 percent, and we're down 23 percent in equity markets; 
what would you do to change that, if you could?
    Mr. Millard. What we are trying to do is implement a long-
term policy, but we are trying to do in a deliberative and 
careful way.
    Ms. Woolsey. What would you do?
    Mr. Millard. This is what we are doing. We are looking at 
the marketplace. We are talking to transition managers. We are 
evaluating their best judgment about how we should implement a 
multi-decade policy at a time of market turmoil.
    Ms. Woolsey. So you are ready for this market turmoil? Are 
we going to wait long-term to be ready?
    Mr. Millard. Well, how ready PBGC is, is probably best 
measured, if you want a snapshot, and I am very reluctant to 
offer snapshots, because we all know they change, right? I 
mean, we use a certain rate to value our liabilities. That 
interest rate went up this year. That means the value of our 
liabilities went down. I don't find that all that comforting, 
because when interest rates go down, the value of those 
liabilities go up. But PBGC will have to pay a U.S. Air 
stewardess or flight attendant a certain amount of money 27 
years from now. Whatever that money is, let's call it $1,000 a 
month, that is not going to change. If interest rates drop and 
the value of our liabilities go up tomorrow, or if interest 
rates go up more and the value of our liabilities go down 
tomorrow, we still owe that flight attendant $1,000 a month 27 
years from now.
    So we are trying to keep our eye on a different North Star 
which is not focused on the funded status snapshot of any given 
month or 3-month or even couple-of-year period. We are focused 
on trying to make sure that we can pay those bills without 
turning to Congress to bail out the deficit. So that is why we 
are in the process of focusing on this policy.
    But if you ask, how is PBGC, because that is really I think 
part of your question, if you want the snapshot answer, in fact 
our deficit will have dropped from approximately $14 billion to 
approximately $11 billion over the last fiscal year, partly 
because the value of our liabilities has gone down, other 
factors and mortality tables that help us calculate the 
liabilities, et cetera.
    Ms. Woolsey. Okay.
    Thank you, Mr. Chairman.
    Chairman Miller. Mr. Courtney.
    Mr. Courtney. Thank you, Mr. Chairman.
    You know, listening to you sort of frame the new policy 
with language like the long-term and the long view, I mean, 
given the moment that we are in right now, it sort of reminds 
you of another observation by an economist during the 
Depression that said, in the long run, we are all dead.
    At some point we do have to focus on what is right in front 
of us right now. We just had a whole table full of economists 
testify before you, right and left, who all had pretty grim 
prognosis about where we are in terms of not just 2008 but 2009 
and possibly into 2010.
    I mean, the staff here has provided us with information 
about the losses that other pension plans have taken just in 
the month of September of 2008. And it suggests that your sort 
of reassuring words that, in past recessions, there wasn't a 
run on the plan, because, you know, we shouldn't use recessions 
as necessarily a warning or a precondition that there is going 
to be a strain on the plan. I mean, what I heard earlier this 
morning was something a little bit deeper and more deeply 
rooted in terms of what we are up against right now.
    So I guess the question I have is this: You have made this 
change in policy to invest in a broader range of instruments. 
Again, the report we have is that you lost $3 billion in equity 
investments. I mean, if we hadn't done that, wouldn't we be in 
a better position today, I am not talking about the long-term, 
but today, to deal with the challenge we face today?
    Mr. Millard. No. The investment performance for fiscal year 
2008, which concluded September 30th, and these are, again, I 
want to emphasize unaudited numbers, is based principally on 
the prior policy. We have made very small changes so far in 
transitioning into the new policy because as we went into 
manager selection and as we talked to transition managers and 
we saw what was happening in the fixed-income markets, we saw 
things like the liquidity crisis, et cetera; it made sense to 
not only have a long-term strategy, we are not market timers, 
we are not trying to be a market timer, have a long-term 
strategy that is designed to pay our bills over time without 
having to turn to Congress for a multibillion dollar bailout, 
and at the same time as we transition, to do so in a deliberate 
and measured way.
    Mr. Courtney. Then your testimony is then that this loss 
was not the result of any new policy?
    Mr. Millard. Correct. The decline in our portfolio, the 
portfolio was approximately 70 percent equities in September a 
year ago, and other than the fact that equities have dropped, 
we have not changed our allocation yet. We have interviewed 
managers. We have prepared to make transition, but we haven't 
moved anything yet. We will do so very, very deliberatively. 
Obviously, I can't say specifically too much, like tomorrow we 
are going to sell, and nothing is happening tomorrow, X amount 
of fixed income. We would not want to say that to the world at 
large.
    Sorry, I think I mixed the 70 and the 30. It was 70 percent 
fixed income last September, and it has stayed approximately 70 
percent fixed income, other than the fact equities have gone 
down. We did not make the shift yet, even though we have 
prepared ourselves to do so.
    Mr. Courtney. I guess the other question I would like to 
follow up on is, again, your comment that past recessions have 
not necessarily triggered a run on the plans necessarily. I 
assume you were here for at least a portion of the other 
testimony and just your own analysis of where we are headed 
over the next 18 months to 24 months, do you have any concern 
that this is going to be a little--that that sort of feeling 
that recessions don't necessarily cause a problem may be 
different this time, given the fact that pension plans are 
taking a huge hit out there?
    Mr. Millard. I was only trying to answer the question about 
our policy and its relationship to recessions. I am very 
concerned about the future. I certainly am not an economist, 
and I wouldn't want to try to predict it, but like any well-
informed American, I look at what is going on in the economy, 
and I am very concerned. And I am concerned about the funded 
status of the plans that we insure. I am concerned about making 
sure that promises made by these corporations are promises that 
they can keep. I am concerned about making sure that companies 
do fully fund their plans so we don't end up with more things 
like U.S. Air and Bethlehem Steel, who we thought were fully 
funded and we found out that they weren't. Yes, I am concerned.
    Mr. Courtney. Thank you.
    Chairman Miller. Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    What is the benefit that--if I am a worker and a retiree 
and the pension plan that my company is supposed to be standing 
behind, they can no longer stand behind, so now I am relying on 
the PBGC, correct?
    Mr. Millard. Yes.
    Mr. Sarbanes. So what is the level of benefit I am getting 
when the PBGC steps in, in relationship to the original 
bargained benefit that I would get? What is the relationship? I 
am not getting the full benefit, correct?
    Mr. Millard. We have a guaranteed limit. The most that we 
pay right now is $51,000 a year. If your pension is to pay you 
$45,000 a year, then you get that full amount from PBGC, and 
about 85 percent of the people we pay actually do receive the 
full pension that they were promised.
    Mr. Sarbanes. And what does pension include? Does it 
include health care benefits that were going to be part of 
that?
    Mr. Millard. No.
    Mr. Sarbanes. No. But that was part of the original 
bargain. In other words, when a plan says it is fully funded 
and is still under the control of the private employer, is the 
dollar figure that they are looking at one that is including 
the defined pension benefit plus, for example, health care 
benefits that were part of that equation, or not?
    Mr. Millard. No. The pension plan does not include health 
care benefits. But to your point, in our view, companies should 
not be making promises that they cannot keep. And while I don't 
have a role in the health care issue you are getting at, it is 
the same point, right? Companies should not make promises they 
can't keep. And PBGC is on the hook for the pensions, but, no, 
we are not on the hook for health care.
    Mr. Sarbanes. So a company may be making a promise that 
includes quota promise for the ``pension'' and a promise with 
respect to the kind of health care coverage or benefits that 
you might have as a retiree. But the part of the promise that 
you back up at the capped level of $51,000 is just the part 
that has to do with that pension benefit.
    Mr. Millard. Right.
    Mr. Sarbanes. So with respect to the other piece, they are 
out of luck.
    Mr. Millard. Well, it is not what PBGC does.
    Mr. Sarbanes. I understand. I understand that that is not 
what you do. I am just in constant quest of whether we actually 
have a real pension system in this country, and I keep finding 
evidence that we don't.
    What is the best kind of scenario under which a company 
ends up coming to you to back them up? And what is the worst 
kind of scenario, from your standpoint?
    Mr. Millard. Well, if a company is in distress, sometimes 
there are things that we can do to try to avoid having the PBGC 
take over the plan, and that is, in a sense, I don't want to 
say it is a good situation, but to answer your question, it is 
the better kind of situation.
    So, for example, right now, Delphi is in bankruptcy, but 
they have kept their plans. Frequently, by the way, partly 
through the negotiations of PBGC, a company can be in 
bankruptcy, but we try to fight to have them exit bankruptcy 
with their plan still intact.
    That is one of the most important things we can do, is to 
have a seat at the table to negotiate keeping that plan intact, 
so that the people who might not get their full benefit, in 
other words, the people whose pensions would be above $51,000, 
still can get the amount above. And, of course, secondly, so 
PBGC is not on the hook for the underfunded status.
    So, in the Delphi case, we negotiated very, very hard 
between Delphi and General Motors to get General Motors to take 
part over part of the Delphi plan. We were successful in that. 
In our success in that, we reduced our exposure to Delphi by 
about $1 billion this year,
    Mr. Sarbanes. Let's take that example. Because if the fact 
that General Motors has now stepped in to assist or backstop 
the Delphi pension obligation is viewed by you as a positive, 
then what do you say about the fact that General Motors is now 
in serious condition?
    Mr. Millard. Well, that almost gets to the part of your 
question. General Motors' pension plan, some of the information 
I have is confidential, but I would just say is reasonably well 
funded. So, obviously, the company is having tremendous 
difficulty. So I can't predict whether General Motors will file 
for bankruptcy ever or never. Obviously, I hope it is never. 
But their pension plan and the security of those workers 
involved is better today than it was before.
    Mr. Sarbanes. I don't understand a lot about this. But if 
General Motors pension plan is reasonably well-funded, are 
those funds sort of escrowed, segregated, somehow protected 
against being invaded by the other fortunes of the company, or 
is it sort of well-funded today, but tomorrow it may not be 
well-funded or protected?
    Mr. Millard. Those are segregated funds. You put $100 in 
the pension plan. You are not able to take it out because 
business is going badly. You may have to put more in if the 
assets go down. You may have to put less in if those assets go 
up.
    So, in other words, and I hate to use this example, but if 
General Motors were in bankruptcy, chances are PBGC would say 
whatever entity exits bankruptcy should keep this plan in tact, 
because if it is well funded, then keeping that plan alive is 
not going to be so difficult for that company that is exiting 
bankruptcy, and that is what we do all the time.
    Dana and Dura are two auto parts companies in the last year 
or so that we did this successfully. We have had a run of about 
13 auto parts companies that have been in bankruptcy and that 
we have helped negotiate to make sure those plans stay in tact 
upon exiting from bankruptcy, they can't just use the PBGC and 
the bankruptcy policy to shed those obligations.
    Mr. Sarbanes. Can I just ask one more question? What is the 
average percentage status of being funded that the plans that 
end up coming to you are at, if you understand my question?
    Mr. Millard. Around 70 percent. It can change from year-to-
year. But what I said in the beginning, we inherit sevens, but 
we owe tens. As a rule of thumb, it has been around 70 percent.
    Mr. Sarbanes. Has there been any trending on that or not? 
In other words----
    Mr. Millard. Sorry, I misspoke. When they come to us, it is 
in the 50 to 60 percent range. We are about 70 percent funded. 
And no, there hasn't been much change in the level of funding 
of plans that come to us.
    Mr. Sarbanes. Are you expecting or projecting or modeling 
that you are going to start getting more funds coming to you 
that are at a lower percentage of the funded status?
    Mr. Millard. Well, as I said before, it is more about 
industries than it is about specific funded status of 
companies. If I can give you an example, health care is an 
industry that we are concerned about, small hospitals in 
particular. So we are actually dealing with a lot of health 
care agencies in States and small hospitals to help them 
understand better their own pension obligations.
    Hospitals are very thin margins. They are not-for-profits. 
They don't have as much money to put into their pension plans, 
and the nurses and the janitors who work there are depending on 
those hospitals, so we are looking across the country at 
hospitals to try to help them solve some of their problems. Not 
because of a measurement of how well-funded are they, but more 
because of the question of how is that industry doing? How are 
those hospitals in general doing?
    Mr. Sarbanes. Thank you.
    Chairman Miller. Thank you very much.
    I want to thank you for coming this morning and testifying. 
We have had a spat, I know, about your testimony and documents, 
and some of the questions about documents remain, and I will 
pursue those.
    I do have to say I appreciate your explanations, but I am 
not sure I am satisfied. Maybe it is witnessing the trauma in 
the community I represent and across the country of this 
particular economic downturn and the breadth of it.
    I would say that diversification is not a defense in this 
downturn unless, of course, you are into Treasuries or 
something, and there the defense was simply to hold on to your 
own. People pay into the Treasury and take their money; it is 
not a great defense.
    So I worry that we not cloak this policy, that may be 
legitimate. I disagree with it at the moment. I am not 
persuaded at this point, that those phrases have a different 
meaning today, and we have to recognize them in what may be a 
different market for a considerable period of time.
    The concern is that losses that are unrealized become 
realized because of the demands of that market at the same 
time; I think that is what some of the critics of this plan 
have said. You have refuted that with your sense of history of 
how plans come to you or participants come to you.
    But I think it is incumbent upon this committee to tease 
those efforts out. I mean, most people were quite stunned to 
see a $4 billion loss in this market in the PBGC. Those who are 
aware of your function realize you are sort of the last-stop 
pension plan for America's workers and the level of trust 
security that they imagine or assume, probably more to assume, 
is very, very high. I think those expectations have got to be 
met.
    I appreciate that you want to characterize your losses at 6 
percent, but in the part that is controversial here in terms of 
investment policy, the losses are 23 percent. So you don't 
necessarily stand out differently than many others, other State 
pension plans or public pension plans or others. Everybody is 
having a tough time right now. And I think it raises questions 
about that investment policy. It may be that you go forward and 
PBGC works out for them, or it is modified further. I hope 
there is some ongoing assessment based upon this market.
    But, again, the previous panel and many of the economists 
commenting on the market and in other meetings, we had 
suggested that for individuals or for pension plans or for 
companies to recover those holdings could be considerable. I 
appreciate there is a lot of people running around today saying 
this is the bottom, this is the bottom, buy everything, buy, 
buy, buy, buy, and other people are saying no. As we found out 
prior to this crash, we were only back to where we were in 
2000. So we went sideways. It took a long time to get there, 
and essentially, we ended upside ways where people were in 
2000.
    I find it interesting that just a few weeks before 
nationally recognizing the extent of the financial problems, 
the hottest words in foreign debt were BRICs. Now a lot of 
people don't know whether BRICs are going to survive, whether 
Russia, India and China are going to survive, their economies, 
in their current forms. One is considering going back to the 
IMF. Others are deciding whether or not they want to consider 
sort of thug capitalism or not.
    But those were the havens a few weeks ago, and today they 
are gone, in the sense of presenting the kind of opportunity 
that people envision they would. So the trajectory around here 
is rather rapid, and I think that is why I have tried to insist 
upon a full airing of this policy.
    I don't think we as a Congress can empower the GAO and the 
CBO and then say, well, that doesn't count. So we will have 
them back, and we will sort of figure this out, and people will 
make their decisions. But how long it takes and how long you 
have to carry this loss that doesn't reflect October and what 
that means down the road is going to be very important to 
America's working people.
    A lot of people think that they are in a far more 
precarious position now than they have ever witnessed in their 
adult life, and I think that that means it is incumbent upon 
the government to be prudent about what we are doing in that 
context.
    I am not suggesting you aren't. You have a game plan, and 
you have defended it. I am not sold at this point, but you are 
certainly entitled to your defense. But Wall Street and this 
country is littered with people that had game plans designed by 
the brightest people in the room, and some of them are on their 
way to jail. And some of them are on their way to wherever they 
go next.
    But those old touchstones don't necessarily hold for the 
American public when they are thinking about their money, and 
most of all of this was done with other people's money. This 
was other people's money that was put into the securitization, 
put into the deficit swaps. This was all other people's money.
    I appreciate the fees and commissions that have been 
exorbitant, but it was only enabled by other people's money, 
and a hell of a lot of it was people's pensions that they were 
relying on, where they have seen about $4 trillion stripped out 
of those assets in all the various pension and 401(k) plans 
that we have.
    So it is my intent, with the consent of my members, that we 
are going to continue this discussion about this decision by 
PBGC, because I think in fact both the Congress and the country 
are entitled to have this laid out on the table to its fullest 
extent.
    So I want to thank you very much for your defense of this, 
but we will continue to do this. I will leave the record open 
for that purpose, both for members and members of the public. 
Thank you.
    With that, the committee will stand adjourned. I thank my 
colleagues for coming to participate in these hearings. I know 
it is a difficult time of year in terms of schedule, but we all 
know that we have an awful lot of work to do in the next few 
weeks and months.
    Thank you. The committee is adjourned.
    [Statements submitted by Members follow:]

Prepared Statement of Hon. Jason Altmire, a Representative in Congress 
                     From the State of Pennsylvania

    Thank you, Chairman Miller, for holding this important hearing on 
economic recovery and job creation.
    It is clear that the financial crisis is having an enormous impact 
on jobs and employment. More than 2.2 million American workers have 
lost their jobs in the past 12 months. New claims for unemployment 
benefits are at their highest rate since just after 9/11. This 
employment crisis is expected to grow. Employers have signaled that 
they will move to cut jobs and reduce costs in the face of a recession. 
Experts predict that the unemployment rate could be at 8 percent by the 
end of 2009.
    I look forward to hearing from our witnesses about strategies for 
stimulating employment and job growth. I hope that we can work together 
to develop a plan that helps American workers on the road to economic 
recovery.
    I also look forward to hearing from Pension Benefit Guaranty 
Corporation (PBGC) Director Charles Millard. The PBGC protects the 
pensions of nearly 44 million American workers and retirees. In this 
time of financial crisis, it is more important than ever to ensure that 
PBGC is fiscally sound.
    Thank you again, Mr. Chairman, for holding this hearing.
                                 ______
                                 

Prepared Statement of Hon. Howard P. ``Buck'' McKeon, Senior Republican 
                Member, Committee on Education and Labor

    This year has been a difficult one for working families. The 
American economy has shed jobs month after month, and the stock market 
rollercoaster has shaken the confidence of investors and savers alike. 
It is clear that we need a bold and decisive plan to spur economic 
growth and job creation.
    Unfortunately, the Democratic majority in Congress has failed to 
advance this type of pro-growth strategy. Instead, they have outlined 
an economic stimulus package that will cost upwards of $300 billion 
without providing the long term stability or job creation that our 
economy so desperately needs.
    We know the ingredients necessary to economic recovery. We know 
that tax relief will help struggling consumers and job-creating 
American businesses, and we know that a long term strategy for energy 
independence will help keep energy costs down while putting Americans 
to work. We also know what won't work. We know that higher taxes on 
businesses are chasing American jobs overseas, and that American 
companies are now at a disadvantage compared to their international 
peers. We also know that big government programs can create more red 
tape and federal bureaucracy than actual good-paying American jobs.
    There are some steps that should be taken--indeed, that we could 
have taken earlier this year, before we reached this point of economic 
distress--right here in the Education and Labor Committee. For 
instance, the Workforce Investment Act has not been renewed in a 
decade. In today's economy, it is absolutely imperative that we 
strengthen the job training programs under WIA, which help Americans 
who have lost their jobs or those seeking better employment to get the 
skills, training, and job placement assistance they need to re-enter 
the workforce.
    The title of today's hearing is, ``Building on Economic Recovery 
Package: Creating and Preserving Jobs in America.'' It's an appropriate 
focus for our committee, and for Congress. This hearing follows two 
prior in which we looked at a different angle on the current economic 
downturn, namely how it has impacted workers' retirement security. I 
would note that PBGC Director Charles Millard is offering testimony 
today, and I'm sure we'll take his findings and counsel into 
consideration alongside the witnesses who testified at our previous 
hearings on retirement security.
    But with regard to the topic at hand today, I would say simply 
this: now is not the time for politics. It is not the time for partisan 
finger pointing. The question of how to create and preserve American 
jobs in a struggling economy is more than a political talking point; it 
is a question of the livelihood of real American families.
    I hope today's hearing was called not as a means to score political 
points less than two weeks before an election, but in a genuine effort 
to foster a dialogue about pro-growth policies and economic recovery. I 
hope that we can reach across the aisle and work together to provide 
real reforms that create good jobs, lower energy costs, and allow our 
employers to compete. And I hope that today's hearing is not the final 
step but a first step in this process.
                                 ______
                                 
    [Whereupon, at 12:53 p.m., the committee was adjourned.]

                                 
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