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


                                                        S. Hrg. 110-861
 
  HOW MUCH MORE CAN AMERICAN FAMILIES BE SQUEEZED BY STAGNANT WAGES, 
         SKYROCKETING HOUSEHOLD COSTS, AND FALLING HOME PRICES?

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


                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 23, 2008

                               __________

          Printed for the use of the Joint Economic Committee



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                            C O N T E N T S

                              ----------                              

                      Opening Statement of Members

Hon. Charles E. Schumer, Chairman, a U.S. Senator from New York..     1
Hon. Jim Saxton, Ranking Minority Member, a U.S. Representative 
  from New Jersey................................................     4
Hon. Carolyn B. Maloney, Vice Chair, a U.S. Representative from 
  New York.......................................................     5
Hon. Maurice D. Hinchey, a U.S. Representative from New York.....     7
Hon. Robert P. Casey, Jr., a U.S. Senator from Pennsylvania......     8
Hon. Bernard Sanders, a U.S. Senator from Vermont................    10
Hon. Amy Klobuchar, a U.S. Senator from Minnesota................    11

                               Witnesses

Professor Elizabeth Warren, Leo Gottlieb Professor of Law, 
  Harvard Law School, Cambridge, MA..............................    14
Dr. Jared Bernstein, Senior Economist and Director, Living 
  Standards Program, Economic Policy Institute, Washington, DC...    16
Ms. Kristen Lewis, Co-Director, American Human Development 
  Project, New York, NY..........................................    18
Dr. David Kreutzer, Senior Policy Analyst in Energy Economics and 
  Climate Change, The Heritage Foundation, Washington, DC........    20

                       Submissions for the Record

Prepared statement of Senator Charles E. Schumer, Chairman.......    38
Prepared statement of Representative Jim Saxton, Ranking Minority    40
Prepared statement of Representative Carolyn B. Maloney, Vice 
  Chair..........................................................    42
Chart entitled ``Annual Change in Real Earnings''................    44
Prepared statement of Professor Elizabeth Warren.................    45
Prepared statement of Dr. Jared Bernstein........................    67
Prepared statement of Ms. Kristen Lewis..........................    87
Prepared statement of Dr. David Kreutzer.........................    96
Essay entitled ``How Rising Gas Prices Hurt American Households''   101


  HOW MUCH MORE CAN AMERICAN FAMILIES BE SQUEEZED BY STAGNANT WAGES, 
         SKYROCKETING HOUSEHOLD COSTS, AND FALLING HOME PRICES?

                              ----------                              


                        WEDNESDAY, JULY 23, 2008

                     Congress of the United States,
                                  Joint Economic Committee,
                                                    Washington, DC.
    The committee met at 10:00 a.m. in room 608 of the Dirksen 
Senate Office Building, The Honorable Charles E. Schumer, 
Chairman, presiding.
    Senators present: The Honorable Amy Klobuchar and Robert P. 
Casey, Jr.
    Representatives present: The Honorable Carolyn B. Maloney, 
Maurice D. Hinchey, Lloyd Doggett and Jim Saxton.
    Staff present: Christina Baumgardner, Heather Boushey, Nate 
Brustein, Stephanie Dreyer, Tamara Fucile, Nan Gibson, Colleen 
Healy, Israel Klein, Ted Boll, Chris Frenze, Tyler Kurtz, 
Rachel Greszler and Jeff Wrase.

OPENING STATEMENT OF HON. CHARLES E. SCHUMER, CHAIRMAN, A U.S. 
                     SENATOR FROM NEW YORK

    Chairman Schumer. The Committee will come to order. I 
apologize to the witnesses and my colleagues for being late.
    Let's begin. Now, before I read my opening statement on 
this very important topic, the middle class squeeze, I've been 
asked to just say a few words, because the President lifted his 
veto threat on the Housing Bill.
    That is good news. It comes at last. The bottom line is, 
the President had no choice, but it's better that he did it 
sooner, rather than later.
    He had no choice, because his own Treasury Secretary 
proposed remedies for Fannie and Freddie, which are at the 
heart of the housing dilemma and the mortgage market, and to 
have vetoed that would have said, I don't give a hoot about the 
economy or even what my Treasury Secretary thinks about the 
economy, and he couldn't have done that.
    But it is good that he came off the sort of ideological 
horse that you shouldn't spend any money on CDBG. On the 
merits, CDGB is needed.
    We have large numbers of vacant homes in cities and suburbs 
throughout America, and for the CDBG funding to allow 
localities to buy these homes will help put a floor on the 
housing market that would be much worse without it.
    So, the CDBG component of this proposal is every bit as 
essential as any of the others, and simply an aversion to 
government programs, no matter what, shouldn't get in the way 
of us trying to recover from the housing crisis that we have.
    So we welcome the President's dropping of his veto threat, 
and hopefully, finally, he will get off his ideological high 
horse and come work with us to solve this problem, because 
that's what we're trying to do.
    Okay, I'll let Jimmy say a few words on the other side on 
this, or anyone who wants to, on this issue, as well.
    Now, let's talk about the issue at hand, which is the 
fundamental issue plaguing our economy, and that is the middle 
class squeeze. We convene today's Joint Economic Committee 
hearing to examine this tightening middle class squeeze, the 
serious impact of rising household costs and stagnant wages and 
a slumping economy, and we're very fortunate to have a 
distinguished panel of experts to discuss the strangle-hold 
these tough times have on middle class households.
    There's a silent cry going out as middle class families 
gather around the dinner table Friday night after dinner and 
talk about how they are ever going to pay their ballooning 
bills.
    Middle class families are the engine of our economy, but 
their earning power and economic security has declined 
significantly in the last seven years. It declined during the 
times of prosperity, and now it's declining even further during 
times of recession.
    What are most American families talking about around their 
dinner tables? They're talking about gas prices, which have 
more than doubled since 2001. They're talking about how much 
more their supermarket trip costs each week, or how they're 
paying so much more for college tuition or childcare or 
healthcare, and they're saying that their wages, their 
salaries, have not kept up with these increasing prices, in a 
way that they haven't seen and the American economy hasn't seen 
over the long term since World War II.
    We have worked on many of these issues in the last year, 
and here at the Joint Economic Committee, we've been holding 
hearings on rising food prices, the energy crisis, 
unemployment, the economic costs of the Iraq War, and countless 
other kitchen table issues facing the American middle class.
    And what we've learned is that all of these problems are 
serious, all affect real people every day. We had a baker from 
Long Island talk about rising wheat prices and dwindling profit 
margins for his small business.
    We've heard from folks who have firsthand experience with 
the subprime mortgage mess, and have seen the rash of 
foreclosures in Slavic Village in Cleveland, and we've had 
Veterans testify to the serious economic and health 
consequences of the War in Iraq.
    I can tell you one thing that Americans are not doing: 
Americans are not whining about the mental recession they're 
experiencing, as John McCain's top economic advisor, former 
Senator Phil Gramm, might have you believe.
    This year's Republican Presidential campaign isn't the only 
place to find questionable economic commentary. Just last week, 
President Bush said, ``I'm not an economist, but I do believe 
that we're growing. I can remember this press conference here, 
where people yelling recession this, recession that, as if 
you're economists.''
    ``And I'm an optimist,'' the President said, ``I believe 
there's positive things for our economy.''
    This is the same President who was caught by surprise when 
he was asked about predictions of $4 gas. He said, ``That's 
interesting; I haven't heard about it.''
    And, you know, the comments of Phil Gramm about whining, 
remind me of the interchange my wife had with a very wealthy, 
very conservative friend of ours, who inherited a load of 
money. And he talked about freedom, how he wanted freedom to do 
whatever he wanted.
    And my wife said to him, in front of his wife and children, 
said, sir--said his name, but I don't want to give it here--
come back and talk to me about freedom after you live on 
$60,000 a year for two years and your kid is sick and you can't 
afford the health bills. Then you come back and talk to me 
about freedom.
    And that says it all. The middle class, the solid middle 
class that has marched forward since World War II, is now 
having the most serious trouble that they have faced, and 
that's what our panel is going to explore.
    And Americans hear President Bush, and, frankly, Senator 
McCain, address serious economic issues and it's like they're 
on a different planet. It's like they're that friend of ours, 
talking about freedom, when he's worth multi millions of 
dollars.
    It's no wonder that American families today are feeling 
increasingly anxious about their jobs, their wages, and their 
economic security, because every day we learn bad news about 
the economy, and I have a whole bunch of statistics here, which 
I'm just going to ask to be added to the record, so we can move 
on.
    Now, we're in danger for the first time, of seeing the 
economy--now, for the first time, we're seeing danger in the 
economy on both sides: Growth is too slow, and inflation is too 
high.
    And who's squeezed in the middle? Once again, the middle 
class. So it isn't time for us to throw up our hands and say 
forget it; it isn't time to attach ourselves to some 
ideological nostrum like, oh, government is to blame, or 
freedom for all.
    In fact, your testimonies, while shedding light on the 
difficult economic times at hand for most American families, 
suggests we can do better. Of course, we need freedom, but we 
need other things, as well, and that's what America's all 
about.
    [The prepared statement of the Honorable Charles E. Schumer 
follows in Submissions for the Record on page 38.]
    Chairman Schumer. I'm now happy to turn to the Ranking 
Republican, Jim Saxton, from New Jersey, for an opening 
statement, and he will be followed by Vice Chair Maloney, who 
just released a terrific JEC report on Women in the Recession, 
and I'm going to encourage--I will encourage all members to 
make brief opening statements here. Senator Sanders asked if he 
could sit in on this hearing, even though he's not a member of 
the Committee, and he'll have the opportunity to ask questions, 
as well.
    Ranking Member Saxton.

OPENING STATEMENT OF HON. JIM SAXTON, RANKING MINORITY, A U.S. 
                 REPRESENTATIVE FROM NEW JERSEY

    Representative Saxton. Mr. Chairman, thank you. It's a 
pleasure to join in welcoming the panel of witnesses before us 
today. Thank you all for being here. We are concerned about the 
increases in the cost of living to threaten to erode the 
American living standards.
    I just returned from a weekend at home, and as I talked to 
my constituents in New Jersey, it won't surprise anyone here, 
that the number one thing on their mind, is the high cost of 
gasoline and other petroleum products.
    This year, the oil price has risen 40 percent so far, with 
further price increases a distinct possibility.
    These higher energy costs leave families with less money to 
cover their expenses, such as food. Of course, rising food 
prices also reflect higher costs for fertilizer, 
transportation, packaging, and the impact of our ethanol 
tariff, among other things.
    As a first step, Congress might look at repealing the 
ethanol tariff. It would help all Americans, and also seek to 
produce more energy here in the United States.
    With gasoline prices and food prices soaring, it's no 
wonder that income and wages, adjusted for the cost of living, 
are staggering. Unfortunately, Congress has done little, except 
to pass more farm subsidies, which actually increase the price 
of food, because farm subsidies pay farmers not to produce 
food.
    As supplies remain stable and demand increases, food prices 
go up. Many American families are experiencing economic stress, 
due to high energy and food prices, but Congress is not acting 
to address their concerns, either.
    On household income there are a number of different 
measures of household income and different ways to interpret 
them. The nonpartisan Congressional Budget Office, CBO, of 
course, publishes a comprehensive measure of household income 
trends, as well as taxes.
    I recently asked the CBO to supplement these data, by 
providing a measure of real median after-tax household income. 
This is after tax. The most recent year available for CBO, is 
2005, and this measure shows a gain of 5.3 percent since 2000, 
and 26 percent since 1980.
    In 2005, the level of after-tax median household income, is 
$55,900, including various benefits, as well as the effects of 
tax changes. The moderate increase since 2000, does not mean 
that many families are not experiencing hardship, but it does 
put perspective into the other data.
    It's also important to recall that there's quite a lot of 
income mobility in the economy. A recent Treasury study on 
income mobility, found that the median income of all taxpayers, 
increased by 24 percent between 1996 and 2005, after adjustment 
for inflation.
    Other measures of income show less positive results. The 
reference period chosen, can be important.
    For example, Census Bureau data can be used to suggest that 
median income began to stagnate between 2000 and 2006, however, 
the stagnation in this measure, actually started in the 1999-
2000 period.
    In other words, the trend started during the last year of 
the Clinton Administration, and not for the first year of the 
Bush Administration.
    Neither Administration had much to do with causing it, but 
those unaware of the facts, might think the trend was triggered 
by the current Administration's economic policies, when 
actually they started during the last year of the Clinton 
Administration.
    Another issue that often arises, is the increase in income 
inequality and suggestions that this worsened significantly in 
recent years. However, the CBO data show that inequality rose 
rapidly during the 1990s. For example, between 1992 and 2000, 
the income share of the top one percent surged from 12.3 
percent to 17.8 percent, a startling increase of 5.5 percentage 
points.
    Since 2000, this income share has edged up by only three 
tenths of one percent. In summary, the increase in inequality 
during the 1990s, was much, much greater than it has been since 
2000.
    The ongoing decline of housing prices, is something that 
many American families are very right to be concerned about. 
Government policies promoting home ownership may have been 
useful up to a point, but they contributed to a giant housing 
bubble that has now burst, causing widespread problems for many 
American families.
    For example, the regulations finalized in 2000 by HUD, 
encouraged Fannie Mae and Freddie Mac to finance more subprime 
mortgages, and this is only one part of a much larger policy 
failure. Both institutions are too highly leveraged and have 
manipulated the political system to a point that an expensive 
taxpayer bailout may unfortunately be the only alternative 
ahead of us.
    In closing, American families face a number of challenges. 
Unfortunately, Congress has failed to help address them.
    The Congress has acted to support high food prices, and not 
acted to reduce high oil prices. Congress has coddled Fannie 
Mae and Freddie Mac institutions and contributed to creating a 
housing bubble that now threatens to cost taxpayers and 
families many billions of dollars to fix.
    The economic problems now confronting the country have 
their origins in mistakes made by both public officials, as 
well as private parties, so there is plenty of blame to go 
around.
    The truth is that the government policy has contributed to 
the challenges currently faced by American families, and ill-
considered policies that are capable of doing even greater 
damage. Thank you, Mr. Chairman.
    [The prepared statement of the Honorable Jim Saxton follows 
in Submissions for the Record on page 40.]
    Chairman Schumer. Vice Chair Maloney.

  OPENING STATEMENT OF HON. CAROLYN B. MALONEY, VICE CHAIR, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Vice Chair Maloney. Thank you, Senator Schumer, for 
arranging this important hearing, and all of the panelists. I'm 
particularly pleased to learn the President has decided that he 
will not veto the housing package, so that we can move forward 
to help American families and help the economy recover.
    While my District, New York's 14th, is lucky enough to rank 
the highest on the American Human Development Project's Well 
Being Index, economic insecurity lurks on all corners of the 
nation during this downturn.
    Families are being squeezed from all sides: Unemployment is 
rising and private employers have shed over half a million jobs 
so far in this year alone.
    We learned from a report of the Joint Economic Committee, 
released yesterday, which I requested, that both men and women 
were hurt in the most recent recession in 2001, and that the 
weak recovery led women's employment rates to stop rising, a 
sharp departure from the trend over the latter half of the 20th 
century.
    The report was interesting to me, because we have struggled 
so hard for equal pay for equal work, but what it showed is 
that women had achieved, regretfully, equal job loss, not equal 
pay for equal work, but equal job loss.
    Wives and mothers may no longer be able to shelter their 
families from the economic storm that's hitting now. Over the 
past three decades, only families who have a working wife, have 
seen real increases in family income.
    Higher job losses for women will be devastating for 
families. Rising job losses are occurring alongside rising 
prices and falling of real wages.
    Families are spending more and more on the rising cost of 
basic necessities like gasoline and milk, leaving little left 
for much of anything else.
    Annual wage growth has fallen for the past eight months. 
Adjusting for higher prices, wages are lower today than they 
were over a year and a half ago.
    Too many families have lost ground on President Bush's 
watch. The weak recovery has left families heading into the 
current downturn with income that is about $1,000 lower than it 
was when President Bush took office.
    Families coped with the lack of income gains by taking on 
more debt, but this is no longer an option. As Professor Warren 
will speak about today, over the economic recovery of the 
2000s, families took on more debt of all kinds. Much of it was 
mortgage debt, but there were also sharp increases in consumer 
debt.
    Now families are seeing lower home values, rising 
foreclosures, and tightening credit conditions. Millions have 
little to fall back on if the economy continues to deteriorate.
    The Federal Reserve has now joined me in recognizing that 
greater consumer protections are needed so that the credit card 
house of cards does not come crashing down next.
    Congress has already taken steps to help blunt the effects 
of the downturn on families by passing the first stimulus 
package and by extending unemployment benefits to the long-term 
unemployed.
    We can see the boost from the recovery rebates in the 
upticks in personal income and retail sales last month, but the 
data show that we still must do much more to help American 
families.
    The President should work with Congress to enact a second 
stimulus package of aid to the states and infrastructure 
investment, to get the economy back on track.
    Over half of the states are projecting budget shortfalls 
for fiscal year 2009, and this will lead not only to cutbacks 
in necessary services, but likely higher unemployment, 
especially for women, who disproportionately work in social 
service agencies in states, and in education.
    Mr. Chairman, I would like to take this opportunity to 
thank you once again for holding this important hearing, and I 
look forward to gaining insights from our witnesses today. 
Thank you.
    [The prepared statement of the Honorable Carolyn B. Maloney 
follows in Submissions for the Record on page 42.]
    Chairman Schumer. Congressman Hinchey.
    Representative Hinchey. Well, thank you very much, Mr. 
Chairman. The first thing I would like to do, is express my 
deep gratitude and appreciation to you for the way in which 
you've handled this very important Joint Committee of both 
Houses.
    And I think it is clear to anyone who is looking at this or 
interested in the economic circumstances that our country 
confronts, realizes that the job that you've done as Chairman, 
has been much, much more effective than this Committee has been 
over the course of the last many years, so I deeply appreciate 
that and I appreciate this opportunity to be here today with 
these very wonderful people, and to listen to them closely, and 
to learn more about the dire circumstances that the American 
people are confronting with regard to the economic conditions, 
nationally.
    And those conditions are getting worse and worse. We now 
have a national debt, for example, which is $9.5 trillion and 
running up to $10 trillion.
    That national debt is driven by a number of things that 
could have been prevented, like tax cuts, for example. A huge 
percentage of that national debt, is driven up these tax cuts, 
and those tax cuts have driven more and more income into the 
hands of a handful of people.
    We now have a situation in the United States where nearly 
60 percent of the wealth of America, is in the hands of five 
percent of Americans.
    We haven't seen anything like that since a very significant 
year, 1929. We've also seen a very substantial decline in the 
median-income population of our country, and that decline has 
been driven a lot by a number of things, including the decline 
of the economy, increase in inflation, and a decline in the 
number of jobs, particularly manufacturing jobs, but now 
service jobs, as well are dropping at a dramatic rate.
    We have lost more jobs over the course of the last six 
years, than at any time since the Great Depression, in that 
similar period of time.
    So there's an awful lot of adverse circumstances that we're 
confronting now as a government, and it's interesting that this 
President has threatened to veto any piece of legislation 
passed by the Congress, which would engage in investment 
internally in our own country, at the same time that he's very 
comfortable spending more than $10 billion every month on this 
illicit military occupation of Iraq and on these tax cuts that 
he's been pushing and now would like to make permanent. 
Happily, that's not going to happen.
    We've got a lot of issues to confront, unemployment among 
them. The official rate of unemployment is 5.5 percent now, but 
the fact of the matter is, if you look at the real number of 
people who are not really employed, who are working maybe a 
couple of days a week, at most, or who have run out of the 
unemployment insurance and they've dropped off the picture 
here, then you see the unemployment rate in this country, is 
almost double that 5.5 percent.
    So, again, Mr. Chairman, these are issues that we have to 
deal with as a Congress and that we've got to force this 
Administration to try to address, before they leave office, so 
that people can stop the suffering that they have been 
experiencing over the course of the last six or seven years.
    And the attention that you have focused on this issue, has 
been very, very productive, and I'm deeply grateful to you for 
the work that you've done. I thank you for joining us today.
    [The chart entitled ``Annual Change in Real Earnings'' 
appears in the Submissions for the Record on page 44.]
    Chairman Schumer. Thank you, Congressman Hinchey. Senator 
Casey.
    Senator Casey. Mr. Chairman, thank you very much. I want to 
reiterate what the Congressman said about your leadership on 
this Committee and also the important issues that you're 
bringing before the American people today, by way of the panel, 
the members of the House and Senate who are here, but 
especially today, our witnesses, who can bring insight and 
wisdom and knowledge and data to the debates we're having here 
in Congress, as it pertains to the struggles of the American 
family in this difficult economy.
    I think the best--and I'll refer to some data, but probably 
the best summation of what families are facing, came from, in 
my judgment--and I'm a little biased, because she's from 
Pennsylvania--came from a mother in Pleasant Gap, Pennsylvania, 
and a story in the Centre Daily Times newspaper, just about two 
weeks ago. I don't have the date in front of me, but--and I 
quoted her in front of Chairman Bernanke last week, just to 
focus his attention on these issues.
    This is Tammy May, a single mother from Pleasant Gap, 
Pennsylvania, and she said, and I quote, ``Pretty much, we have 
reprioritized . . .'' for she and her two children, ``the house 
payment is first, then daycare, then we worry about gas, then 
food.''
    She summarizes, I think, the struggles that a lot of 
families face. I think it's interesting and noteworthy, but 
also depressing in some ways, that she notes that food is 
number four, that she can only worry about food, after paying 
those other three costs in her life and the life of her family.
    We know the data that undergirds that statement: 438,000 
jobs lost, that's the low end. I've seen numbers as high more 
than 480,000 jobs, but let's just say it's 438, just in six 
months. Just today, the New York Times and others, are 
reporting that the average interest rate for a 30-year, fixed-
rate mortgage, rose to 6.71 percent on Tuesday, from 6.44 
percent on Friday.
    That's good news about the President lifting his veto 
threat. We have to get housing legislation passed. It's the 
foundation of all of our trouble.
    I think that the earnings chart that the staff prepared is 
significant. If you look from June 07 to June 08, in terms of 
hourly earnings and weekly earnings, it's going right in the 
wrong direction, right down.
    And I think also, in the Committee, the Committee staff 
prepared a great report on earnings from a couple of different 
vantage points. One of them was earnings versus productivity.
    In the first quarter of 08, output per hour in the non-farm 
business sector, grew at a 2.6 percent average annual rate. So 
you have output per hour going up, and at the same time, real 
hourly compensation, pay plus benefits, of workers producing 
that output, increasing by only 0.6 percent.
    So, over and over again, this year, last year, for the last 
several years, you have output or productivity going up, and 
wages, at best, flattening out or maybe increasing just a 
little bit, at best, but mostly going down or not nearly 
increasing.
    So there's that dichotomy of wages and output, so our 
workers are doing their jobs, and they're struggling, just to 
make ends meet, but our policymakers, in what we're doing in 
Congress, what the Administration is doing, is not compensating 
for or taking into consideration, that dichotomy.
    I'll end with one note, rural America. I come from a state 
that is largely rural, outside of our major cities like 
Pittsburgh and Philadelphia, and all of these issues that we 
just talked about, wages, or the cost of--the impact of the 
housing crisis, childcare costs, gasoline costs, hit rural 
America at least as hard as urban America, and sometimes much 
harder.
    The Oil Price Information Service, which is a fuel 
analysis--has done fuel analysis, talks about the impact of 
fuel prices in parts of Pennsylvania, and then their data was 
reviewed by a Penn State Professor, and they say, in part, that 
rural populations generally have lower incomes, drive longer 
distances to work, and have less access to public 
transportation than their urban counterparts.
    Rural America is being hit hardest, in some ways, by the 
cost of gasoline, and, in Pennsylvania, this news article was 
pointing out that among the 67 counties in Pennsylvania, Forest 
County, a very small county in northwestern Pennsylvania, which 
has its name for a reason--it's a vast wilderness, in some 
ways, a very low population as compared to the rest of the 
state--the pain-at-the-pump rating, which others have come up 
with, is highest in that county than any other county in 
Pennsylvania.
    So when you talk about these problems, this isn't just the 
problem of some big cities and some populations in urban areas 
of Pennsylvania or any other state; this is a problem, whether 
it's the cost of gasoline, the cost of childcare, the cost of 
healthcare, the cost of food, which hits rural America very 
hard.
    So, Mr. Chairman, we're grateful for this opportunity 
today, and we look forward to the testimony of our witnesses 
and the questions. Thank you.
    Chairman Schumer. Thank you once again, Senator Casey, for 
your passion and your erudition at the same time.
    Senator Sanders is not a member of this Committee, but has 
shown a long-term interest in this area and has asked to come 
here, and we welcome him, we're glad he did, and I'm going to 
ask him to make a brief opening statement.
    I have to go make a quorum in the Finance Committee. I'm 
not upset with any of the witnesses or anything like that. I'll 
be back as quickly as I can. It's downstairs, but in the 
meantime, Vice Chair Maloney will introduce our witnesses. 
Thank you. Senator Sanders?
    Senator Sanders. Senator Schumer, thank you very much for 
holding this hearing, and I want to thank our panelists for 
being with us, especially, perhaps, Professor Warren, who came 
to Vermont, Mr. Chairman, to do two hearings on the economy, 
which brought out many, many hundreds of people, and thank you, 
Elizabeth, for doing that.
    I concur with much of what the members of Congress have 
said this morning, except for one thing: The title of this 
hearing is ``The Squeeze of the Middle Class.'' I don't think 
it's a squeeze; I think it's a collapse, and I think this is 
one of the most under-reported issues in the last ten years.
    The reality today, is that in many respects, the middle 
class of this country is collapsing. The vast majority of our 
people have seen a decline in their standard of living.
    Another point that has not been made often enough, is, it's 
not everybody who is hurting. The people on top, are doing, in 
many ways, better than has been the case since the Great 
Depression, and what we are looking at is a gap between the 
very, very rich and everybody else, as Congressman Hinchey has 
pointed out, that we have not seen since just before the Great 
Depression.
    This is the reality of life that we're seeing in America 
today. Since President Bush has been in office, some five 
million Americans have slipped into poverty. We don't talk 
about poverty very much, but that's the reality. Since Bush has 
been President.
    I think I would have some disagreements with the 
information that Congressman Saxton put out there, but my 
understanding is that for working families, for working-age 
Americans, median household income has declined by nearly 
$2,500.
    We don't talk about it within the context of this hearing, 
but we have to. Eight and a half million people in the last 
seven years, have lost their health insurance. Millions more 
are paying higher and higher rates for, in many cases, inferior 
coverage.
    Senator Casey has mentioned the loss of manufacturing jobs, 
and three million, good-paying manufacturing jobs are gone; 
nearly four million American workers have lost their pensions; 
35.5 million Americans struggled to put food on the table last 
year--hunger in America, the United States of America, and the 
number of the hungriest Americans keeps going up.
    College students are graduating school very, very deeply in 
debt, and many of them cannot even go into the professions that 
they want, because they have to make money to repay those 
debts.
    Home foreclosures, as we all know, are now the highest on 
record. And here's something that we have got to understand and 
not be proud of: The United States has the highest rate of 
childhood poverty in the industrialized world. Almost one out 
of five our kids is living in poverty.
    We have the highest infant mortality rate in the 
industrialized world, the highest overall poverty rate, the 
largest gap between the rich and the poor, the largest 
incarceration rate, which, to my mind, has a lot to do with the 
highest childhood poverty rate, and we are the only country in 
the industrialized world not to have a national healthcare 
program.
    That's what's going on, so when people tell you how great 
the economy is doing, I don't know who they are talking to; 
certainly not to working families.
    Now, here's the story: In preparation for the town meetings 
that Professor Warren had with me in the State of Vermont, we 
sent out an e-mail to people in Vermont and said, tell me how 
is life going for you? What's going on in the middle class.
    We expected to get a few dozen responses, but, in fact, we 
got 800 responses and we ended up publishing them and they are 
on our website. And the responses were so heartbreaking, were 
so powerful, it just blew me away, and it was difficult to 
read.
    The reality is, the middle class is hurting, and we have 
got to address those problems and we've got to be bold and 
aggressive in addressing it, and we also have to understand 
that there is something wrong in this country, that while the 
middle class shrinks and poverty increases, the people on top, 
in many instances, are making out like bandits.
    In 2006, the top one percent of Americans, received the 
largest share of national income since 1928; in 2005--and I 
would like people to hear this--the top one percent earn more 
income than the bottom 50 percent--one percent, 50 percent, and 
there are some people who think, by the way, that that gap is 
even larger.
    That is a disgrace, to my mind, and a real threat to 
American democracy. The collective net worth of the wealthiest 
400 Americans, increased by $290 billion last year, to $1.5 
trillion. Let me repeat that: Wealthiest 400 Americans saw 
their wealth increase by $290 billion last year, so the point 
is not just collapse of the middle class and the increase in 
poverty; it is that the people on top are making out very, very 
well.
    So if people ask me, have Bush's economic policies worked? 
Yeah, I think they have worked; they have worked and done 
exactly what they are supposed to do, is to make the richest 
people in this country, richer; they have worked fantastically.
    Unfortunately, the question remains, whether we will have a 
middle class and whether, in fact, for the first time in 
American history, we will see our younger people have a lower 
standard of living than their parents, a reverse of the 
American dream. Madam Chairman, thank you very much.
    Vice Chair Maloney [presiding]. Thank you, Senator, and we 
miss you in the House. I would now like to recognize Senator 
Klobuchar.
    Senator Klobuchar. Thank you very much, Madam Chair, thank 
you for holding this hearing, and thank you to our witnesses. I 
have quoted Professor Warren so much in the last few months, 
about the great work that she's done on statistics, that I'm 
very pleased to see her and hope I've been quoting her 
correctly.
    I will tell you that in my home state of Minnesota, I have 
just heard over and over again, how difficult it is for middle 
class people to get by.
    You know, I remember going to a cafe a while back, and it 
was in an area where I didn't think a lot of people would show 
up for a Democratic Senator, and there were about a hundred 
people there, squeezed in. We had set up one table for eight 
chairs, so it doesn't look bad if people don't show up, and 
there were a hundred people that showed up in a rural part of 
our state, and I remember thinking to myself, you know what 
this is about, when you've got less disposable income, like so 
many of our citizens in rural areas, and the tuition at the 
University of Minnesota goes up 100 percent, like it has in 
just the last ten years, you feel it first in your pocketbook.
    And when the healthcare premiums go up 100 percent as they 
have in our state, even though we have one of the highest 
coverage rates for people in the country, the healthcare 
premiums are up 100 percent, and you're in rural Minnesota and 
you've got less disposable income, you feel it first in your 
pocketbooks.
    And when gas is up over four bucks a gallon and you've got 
a long way to drive and there is no--you know, you're not going 
to have a lot of bus service out there in Pipestone, Minnesota, 
you feel it first.
    And when it's your kids going to war and your neighbor's 
kids and your cousins that are in the National Guard and 
thought they were going to come home in three months, and then 
they have left a job behind and left a family behind, you feel 
it first in your pocketbook and you feel it first in your 
heart.
    And that's what's been going on, and, time and time again, 
families would talk to me, parents, and say, I feel like it's 
my fault. You know, my parents were able to afford to send me 
to college, and how come I can't afford to send my kid to 
college? Or howcome my kid, after they have a job, a pretty 
job, can't even afford to buy a house?
    And that's what's been going on in this country. I know 
that Professor Warren and other witnesses have the statistics 
to back that up.
    The New York Times did an article just this week, about a 
woman who had fallen farther and farther behind. I like the 
article--Senator Schumer, whose home is New York--because she 
wasn't the perfect citizen. She had, you know, done things she 
shouldn't have, she had run up credit card debt. She had done 
things she shouldn't have, she bought too much stuff, but at 
the same time, she was paying something like $20,000 a year in 
interest.
    When I think of Professor Warren's study showing about how 
the average middle class family has lost about a thousand bucks 
at the same time their expenses have gone up something like 
4,000 bucks, a lot of them have been putting it on the credit 
card in my state and across the country, so, in some ways, 
we're just seeing the tip of the iceberg with this crisis.
    The most thing that I remember from that article, Senator 
Schumer, was this woman hid her telephone in the dishwasher, 
because the bill collectors were calling all the time, so she 
couldn't hear that phone ring.
    And we can no longer hide this problem in the dishwasher, 
and that's why I'm so grateful that we're doing this hearing 
today, and we start talking about some sensible solutions.
    I mean, I have mine about rolling back some of these tax 
cuts on the wealthiest and putting the money into the middle 
class, an energy policy that looks to the future, and 
healthcare reform, which I hope will be one of the first things 
on a new President's agenda.
    But I want to thank you for taking on this issue and I look 
forward to hearing the testimony.
    Chairman Schumer. Congressman Doggett.
    Representative Doggett. Thank you, Mr. Chairman, for 
convening this hearing. You identified a number of problems in 
your written testimony, that deserve our immediate attention. 
If we're unable to address them immediately this year, we 
clearly will address them next year.
    And hopefully, you can identify in your oral testimony and 
in response to our questions, specific steps that you think we 
should or should not take.
    As others have indicated, the crisis that we now face, is 
the natural product of the last seven and a half years of the 
Bush-Cheney Administration, and, as we begin to dig out of the 
disastrous policies and the effects of those policies, we need 
your guidance as to the specific steps we should take. Thank 
you.
    Chairman Schumer. Thank you, Congressman Doggett. I want to 
thank every one of the members for excellent opening 
statements.
    Now,let me introduce the four witnesses. Elizabeth Warren 
is currently the Leo Gottlieb Professor of Law at Harvard Law 
School, and has co-authored several books, including the 
recently-published, ``All You're Worth,'' which is a 
bestseller.
    Professor Warren is the Vice President of the American Law 
Institute and is on the Executive Committee of the National 
Bankruptcy Conference. Former Chief Justice Rehnquist appointed 
Professor Warren to the Judicial Education Committee of the 
Federal Judicial Center, from 1990 to 1999.
    Dr. Jared Bernstein is the Director of the Living Standards 
Program at the Economic Policy Institute. Dr. Bernstein's areas 
of research include: Income inequality, poverty, and the 
analysis of federal and state economic policies.
    He, too, is the author of several books. His latest is 
titled ``Crunch: Why Do I Feel So Squeezed and Other Unsolved 
Economic Mysteries,'' which is apropos for this hearing.
    Dr. Bernstein has been published extensively in the New 
York Times, Washington Post, American Prospect, and is a 
contributor to the Financial News Station, CNBC.
    Kristen Lewis is the Co-Director of the American Human 
Development Project, a new, independent, nonprofit initiative 
which just released ``The Measure of America: A First Ever 
Human Development Report for the United States,'' that 
introduces to our country, a well-honed international tool for 
measuring people's well being and opportunity.
    Prior to the American Human Development Project, Ms. Lewis 
worked in international development for 15 years, and was a co-
author of ``The Water and Sanitation Report of the Jeffrey 
Sachs Millennium Project.''
    Finally, last, but certainly not least, Dr. David 
Kreutzer--did I pronounce that correctly, sir?
    Dr. Kreutzer. Yes.
    Chairman Schumer. Dr. Kreutzer is the Senior Policy Analyst 
in Energy, Economics, and Climate Change at the Heritage 
Foundation's Center for Data Analysis.
    Before joining Heritage in February of 2008, Dr. Kreutzer 
was an economist at Berman & Company, a Washington-based public 
affairs firm, and from 1984 to 2007, he taught economics at 
James Madison University in Virginia, and also served as 
Director of the International Business Program.
    To each of the witnesses, your entire statements will be 
read into the record, and please proceed. We all tried to limit 
our statements to five minutes. If you can sort of stick to 
that, that would be great.
    Professor Warren, you may begin.

STATEMENT OF PROFESSOR ELIZABETH WARREN; LEO GOTTLIEB PROFESSOR 
           OF LAW; HARVARD LAW SCHOOL; CAMBRIDGE, MA

    Ms. Warren. Thank you very much, Senator Schumer, for the 
invitation to come here today, and to the Committee members. 
I'm here to do whatever I can to be helpful.
    I've done some numbers to try to look at middle class 
America, the median American family, comparing that family in 
2000 with that family in 2007. I've tried to be very 
conservative with the numbers and everything I will talk about 
today has been adjusted for inflation.
    I'm not looking for anything fancy to try to shake and stir 
the data, but just what's happened to middle-income Americans. 
There are two key things we need to look at on the income side 
and the expense side:
    On the income side, what's happened is that income is down. 
Adjusted for inflation, the median American family in the 
United States is making somewhere in the neighborhood of about 
$1200 less than they were making just back in 2000.
    On the expense side, however, this family that's got to 
make up a gap on the income side, has been hit hard with basic 
expenses. The current story, obviously, is gasoline. I'm going 
to use numbers only up to May, because those are the ones that 
are clearest.
    The average family is spending about $2200 more than they 
were spending on gasoline back in 2000, and, as you rightly 
point out, for rural families, this vastly understates what 
they're spending. They are out of options in rural America.
    Increases in mortgage took another big bite, about $1700 
annually. Now, with the falling housing market, many have 
mortgages they can neither refinance nor can they move. These 
are families headed for default, as surely as the next car in 
the train wreck.
    Increases in health insurance, in food, in basic telephone, 
the land lines--this is the one I did the comparison on--and 
appliances, knocked about another $730 out of the family 
budget.
    Altogether, just on these basic expenses, adjusted for 
inflation, American families are spending--are asked to spend 
about $4700 more. And I want to pause here. That's the average 
American family.
    That's a family who doesn't have to spend a penny on their 
children. Now let's talk about a family with children. 
Childcare costs for a child under five, in this seven-year 
period, increased by $1,508. That's $125 a month.
    Chairman Schumer. Excuse me, but there's a chart right 
here. I know my colleagues can't see it.
    Ms. Warren. That's right. It's a chart that just puts these 
together, but I want to be clear. I don't think childcare is on 
there.
    Chairman Schumer. Yes, it is.
    Ms. Warren. Is it on there? Good.
    And I want to draw a line under this again, $125 a month, 
not total expense; $125 a month more than they were spending to 
keep a child in daycare back in 2000.
    For those with an older child, a school-age child, just one 
child, an additional $622 a year, and all parents have watched 
with alarm, as the Senator pointed out, as costs for college 
have spiraled upwards.
    Taking the most conservative measure of costs in college, 
net of all scholarships and grants, we're talking again about 
an increase of about $1,050.
    With a median household budget of about $48,200, these 
costs are tearing a hole in the family that they simply can't 
make up. And so I want to just say briefly, the next time you 
look at debt figures, the next time you look at home mortgages, 
keep in mind that some of that home mortgage debt was used to 
purchase houses, some of it was used to refinance houses in 
home equity lines of credit, where people have tried to pay off 
credit cards or to pay medical bills that they otherwise could 
not afford.
    The next time you look at the mortgage debt numbers, the 
next time you look at credit card debt numbers, the next time 
you look at revolving debt numbers, the next time you look at 
consumer debt numbers, and see that they have all gone up, 
please pause to understand the income and expense side of this 
calculation.
    Families are not laying down the credit cards because it's 
fun; they're laying down the credit cards because it's the only 
way to put food on the table.
    Families are stressed, and what this is creating, that does 
not appear in the government statistics, is that families are 
creating an additional expense category. For the 44 percent or 
so of American families that are revolving their debt, that is, 
they cannot pay their credit card debts, we're talking about an 
average debt load of about $8,400.
    They would have to take three months of their before-tax 
income and they would have to not eat, not pay rent, not pay 
interest on the debt, in order to be able to pay off the 
balances on their credit cards, and that's at the average for 
these families.
    So, I will pause. I see I'm out of time, but I thank you so 
much for having this hearing today, and so much for talking 
about these families. They're in trouble.
    [The prepared statement of Elizabeth Warren follows in 
Submissions for the Record on page 45.]
    Chairman Schumer. Dr. Bernstein.
    And thank you so much, Professor Warren. I think your 
numbers here have influence, because some of us have heard your 
discussions before. That's why I wanted you to be here. They 
have influenced so many people around here.
    Dr. Bernstein.

    STATEMENT OF DR. JARED BERNSTEIN; SENIOR ECONOMIST AND 
DIRECTOR, LIVING STANDARDS PROGRAM; ECONOMIC POLICY INSTITUTE; 
                         WASHINGTON, DC

    Dr. Bernstein. Chairman Schumer, Ranking Member Saxton, I 
thank you for the opportunity to testify today, and I applaud 
your focus on the economic difficulties facing middle-income 
families.
    My remarks this morning stress two points: First, middle-
income families made considerable contributions to our 
economy's growth over the past business cycle, yet they have 
little to show for it.
    As Senator Casey said, our workers are doing their job. The 
productivity of the American workforce grew a stellar 19 
percent between 2000 and 2007, but the typical family's income, 
after inflation, fell about a percent over those years.
    And since 2000, as this Committee well knows, the economy, 
in general, the job market, in particular, has weakened, 
further undermining the economic security of these families.
    Second, I offer both short- and long-term policy solutions 
targeted at this historically unprecedented gap between overall 
economic growth and the living standards of middle-income 
families.
    In the short term, a second stimulus package is necessary. 
While some of the package should again include direct payments 
to strapped households, more of the stimulus should be targeted 
to direct spending on relief to states and infrastructure 
investment.
    Longer-term steps need to be taken to address the market 
bubbles that have caused the last two, and, arguably, three 
recessions. In this regard, I recommend a return to common-
sense regulation in mortgage and financial markets.
    Some of this involves enforcing rules already on the books 
but ignored, and some involves creating new rules designed to 
bring greater transparency and stability to these markets.
    One key reason for the stagnant growth in incomes was the 
weak rate of job growth in the 2000s. Middle class families 
depend on their paychecks, not their stock portfolios, and 
their living standards thus depend on robust job and wage 
growth.
    On net, the number of jobs expanded by six million in the 
2000s cycle, compared to over 22 million in the 1990s. 
Annualized, jobs grew at a rate that was one-third that of the 
historical average.
    More recently, the job market has, of course, begun 
shedding jobs, over 400,000 this year, and as job growth stalls 
and unemployment rises, wages for many workers have shifted 
from stagnation to decline. This June, real weekly earnings for 
most workers are 2.4 percent lower than last June; average 
hourly compensation for all workers, the broadest measure of 
wages and benefits, is down 2 percent in real terms over the 
past year.
    In other words, while people, understandably, identify high 
prices, especially at the pump, as being at the heart of this 
squeeze, the wage side of this equation is also crucial. It's 
not just that prices are rising, it's that they're rising so 
much faster than pay.
    What are the most effective interventions to offset these 
negative trends? Given the protracted nature of the current 
downturn, Congress is beginning to discuss a second stimulus 
package. For reasons I articulate in my written testimony, I 
suggest that this next round again includes direct payments to 
families, but I strongly recommend that the resources in this 
second package be heavily weighted toward fiscal relief to 
states and toward infrastructure investment.
    Both of these options would yield considerable stimulative 
bang for the buck, relative to other options right now. Many 
states are strapped, and since they are required to balance 
their budgets, they are forced to undertake service cuts or tax 
hikes, both of which push exactly the wrong way in terms of 
family budgets and the macro economy.
    Given the deficits in much of the nation's public capital, 
along with the need to create quality jobs, infrastructure 
investment also deserves consideration.
    However, it's commonly argued that such projects have too 
long of a lead time to serve as effective stimulus. I think 
this argument is overplayed.
    In my testimony, I identify many current infrastructure 
needs that could quickly be converted into productive, job-
producing projects. Consider, for example, the August 2007 
bridge collapse in Minneapolis. The concrete for the 
replacement bridge began flowing last Winter, the bridge is now 
halfway done, with full completion expected by December.
    State transportation officials claim that their departments 
could award and begin more than 3,000 highway projects totaling 
approximately $18 billion, within 30 to 90 days from enactment 
of federal stimulus legislation.
    Long-term, the regulatory agenda I offer is ultimately 
targeted at the problem of what might be called the ``shampoo 
economy'' of the last few business cycles, with their pattern 
of bubble/bust/repeat.
    The last two, and possibly three, recessions were caused by 
bubbles that were fairly widely recognized as they inflated, 
yet key policymakers ignored the signs, and, in some cases, 
even nudged the bubbles along by endorsing the practices that 
inflated them.
    This was a major contributor to the middle class squeeze, 
all the more unfortunate in that this economic pain is largely 
self-inflicted. My testimony offers numerous options for 
correcting these imbalances that comprise our financial 
markets, markets that are among the historically most 
innovative and effective in the world, proven to be integral to 
both providing credit to household and business sectors, but 
excessive deregulation, the absence of common-sense oversight, 
threaten to undermine this vital track record. Congress must 
not let this occur.
    The agenda contains these components elaborated in my 
written testimony: Apply oversight based on what entities do, 
not who they are; increase capital reserve requirements; 
improve transparency by limiting off-balance-sheet entities and 
monitoring market positions and liquidity; improve and enforce 
mortgage underwriting standards; for Fannie Mae and Freddie 
Mac, resolve the ambiguity regarding their public/private 
status; and from the perspective of executive compensation, 
treat government bailouts as bankruptcies, clawing back bonuses 
and excessive compensation.
    I thank you for your attention, and I await any questions 
you may have.
    [The prepared statement of Jared Bernstein follows in 
Submissions for the Record on page 67.]
    Chairman Schumer. Thank you, Dr. Bernstein. Ms. Lewis.

    STATEMENT OF KRISTEN LEWIS; CO-DIRECTOR, AMERICAN HUMAN 
               DEVELOPMENT PROJECT; NEW YORK, NY

    Ms. Lewis. I would like to thank Chairman Schumer and the 
members of the Committee for inviting me to testify today. It's 
a great honor to be here and to speak alongside scholars whose 
work has so enriched our understanding of America.
    I'm Co-Director of the American Human Development Project. 
It's an independent project funded by Oxfam America, the Conrad 
Hilton Foundation, the Rockefeller Foundation, the Social 
Science Research Council, and the Annenberg Foundation.
    With their support, we've just released a first-ever human 
development report for the United States, or any other 
affluent, industrialized country, ``The Measure of America.''
    The centerpiece of the work is the American Human 
Development Index. The Index is an easy-to-understand numerical 
measure that embraces what most people believe are the basic 
building blocks of a good life: Health, education, and income.
    The Index ranks the 50 states, the 436 Congressional 
Districts, and our major racial and ethnic groups on a scale of 
well-being and opportunity.
    The rankings reveal that some groups of Americans are 
living ten, 20, even 50 years behind in terms of their health, 
education, and living standards, whereas others are enjoying 
levels of well being and human development that the rest of the 
country will not reach for decades.
    Countries around the world use this human development 
approach to understand and track progress and setbacks in their 
own countries, and the UN uses it to gauge global development 
trends.
    So what did we find? Overall, we found tremendous 
variation. There's a map there that shows the Index results by 
Congressional District--first, I'll talk about the states.
    In terms of states, Connecticut was the top-ranked state, 
followed closely by Massachusetts. Washington, D.C. ranked 
third overall, tied with New Jersey. D.C. has the best 
performance on education and income, but it ranked last on 
health, with a life expectancy approximately that of the 
average American in 1980. Residents of Hawaii and Minnesota are 
living the longest lives.
    There is much greater variation, of course, in the smaller 
population size in the Congressional Districts. New York's 
Congressional District 14 has the highest score in the country, 
and California's 20th District, in the Central Valley near 
Fresno, has the lowest score.
    These two Districts are far apart in human development 
terms, with the New York resident ten times more likely to have 
a college degree, earning three times more, and even living 
four and a half years longer.
    Put another way, District 14 is where the country, as a 
whole, will be in about 2040, if current trends continue, 
whereas District 20 is where the country, as a whole, was in 
the late 1970s, a six-decade gap in human development terms.
    Some of the largest differences we saw in the Index were in 
terms of race, gender, and ethnicity. I can talk about this in 
greater detail, if you're interested, later, but, overall, 
Asian Americans have the highest human development level, 
primarily driven by their high education score; followed by 
whites, Latinos, Native Americans, and then African Americans.
    African Americans are ranking third in income and 
education, but they have a huge gap in life expectancy. They 
are basically living 13 years less than the highest-ranked 
group, Asian Americans.
    This 13-year lifespan gap, is about the same as the gap 
between people living in Japan and people living in Guatemala.
    So, what do these disparities mean for American families, 
given the current economic downturn? Those groups of Americans 
with higher Index scores, indicating better health, higher 
levels of educational attainment, and higher earnings, have 
greater human security and resilience in the face of shocks.
    Those with lower scores, on the other hand, are 
significantly more vulnerable to economic downturns, as well as 
shocks to individual households, such as divorce, serious 
mental illness, or job loss.
    The effects of these trends we've heard about today can be 
seen, not just in people's everyday lives; they can also be 
seen in our global standing, compared to our peer countries. In 
1990, the U.S. occupied the second place on the Global Human 
Development Index of the United Nations.
    Today, we've tumbled to 12th place. The 11 countries ahead 
of us, particularly fast-moving countries like Australia and 
Ireland, have been much more successful and efficient in 
transforming income into positive health and education outcomes 
for their people.
    How are they doing it? I'll just touch on three areas: 
Healthcare is the obvious first one. We are spending more, by a 
significant margin, than any other country. In fact, we'll 
spend more than $230 million in the next 60 minutes, but we 
aren't getting our money's worth.
    We're living shorter lives than people in 41 other nations, 
including every single Western European nation and all the 
Nordic countries, except for one.
    The U.S. infant mortality rate is on par with that of 
Croatia, Cuba, Estonia, and Poland. If the U.S. rate were equal 
to that of first-ranked Sweden, 21,000 more American babies 
would have lived to celebrate their first birthday in 2005.
    It's not a question of whether we can afford something 
better; we're already paying caviar prices.
    Education is another area in which our peer countries are 
spending less and doing better. Only 74 percent of American 
public school high school students graduated on time with a 
regular diploma in 2004. This is an 18th place finish among 
industrialized countries, and American 25-year-olds are also 
far behind their international peers in math, at 24th place, 
and science, 17th place.
    Chairman Schumer. How many total countries is that?
    Ms. Lewis. This was the OECD, so it's 30.
    Chairman Schumer. Thirty?
    Ms. Lewis. Thirty countries, yes.
    And a third area in which the U.S. is far behind is in the 
support we give to working families. Two of the last century's 
most far-reaching transformations have been the wholesale entry 
of women into paid work and the sharp increase in single 
motherhood, yet our country has been slow to adapt to this new 
normal of working mothers.
    Our peer countries have faced similar social 
transformations, and they have responded with policies to help. 
To give just one of many, many examples, today the U.S. is in 
the company of Swaziland, Liberia, and Papua New Guinea as one 
of the only four countries in the world with no federally-
mandated paid maternity leave.
    In conclusion, greater security for middle class families, 
will require greater attention to and investment in the core 
ingredients of human well-being: Health, education, and income. 
Thank you.
    [The prepared statement of Kristen Lewis follows in 
Submissions for the Record on page 87.]
    Chairman Schumer. Thank you, Ms. Lewis. Finally, Dr. 
Kreutzer.

   STATEMENT OF DR. DAVID KREUTZER, SENIOR POLICY ANALYST IN 
 ENERGY ECONOMICS AND CLIMATE CHANGE, THE HERITAGE FOUNDATION, 
                         WASHINGTON, DC

    Dr. Kreutzer. My name is David Kreutzer, and I am the 
Senior Policy Analyst for Energy Economics and Climate Change 
at the Heritage Foundation, however, the views I express in 
this testimony, are my own and do not necessarily represent 
official positions of the Heritage Foundation.
    Mr. Chairman, I want to thank you and the other members of 
the Joint Economic Committee for this opportunity to address 
you concerning the impacts of higher energy prices on household 
income and expenses.
    I note that many colleagues have helped lay the foundation 
for the analysis I present here, however, they should not be 
held responsible for any errors. In particular, I want to thank 
Dr. Karen Campbell, and request that her essay, ``How Rising 
Gas Prices Hurt American Households,'' be inserted into the 
record.
    [The essay appears in Submissions for the Record on page 
101.]
    Chairman Schumer. Without objection.
    Dr. Kreutzer. Though many commodity prices have recorded 
large increases in the past two years, those of crude petroleum 
and its derivatives, have been especially severe.
    My testimony today focuses on gasoline price increases and 
their effects on households. According to figures from the EPA 
and the Department of Transportation, the average household 
will pay about $1,100 per year for every one dollar increase in 
the price of gasoline.
    In addition, higher gasoline prices impose indirect costs 
on these households. Higher gasoline prices squeeze the 
production side of the economy, from both the demand and cost 
directions.
    Consumer demand for output drops, as they divert 
expenditures from other items to gasoline. In addition, 
gasoline is a factor of production in the distribution of goods 
and services.
    Faced with higher costs, producers raise their prices, but 
the lower demand prevents the prices from rising enough to 
completely offset their cost increases. This leads to 
production cuts, and, therefore, to lower employment.
    In turn, these conditions put downward pressure on wages 
and salaries.
    This summer the Center for Data Analysis at the Heritage 
Foundation estimated what the impact on households would be if 
gasoline prices rose $2 per gallon over two years, which is 
very close to the situation of the past two years.
    We estimate that total employment drops by 586,000 jobs. 
Disposable personal income drops by 532 billion. Because 
households must dig into their savings, personal consumption 
expenditures dropped by the smaller, but significant, amount of 
$400 billion.
    For the household category of Married, 2 children, the 
median income in 2006 was $86,807. The impact of the gasoline 
prices reduces the household's income by over $1000 per year. 
The response of the households is to both cut expenditures and 
withdraw from savings to make up for the loss. Of course for 
many households withdrawing from savings means borrowing.
    It is notable that the impact of gasoline price increases 
extends beyond the period of the price increases. This holds 
even if prices return to their original levels because 
withdrawals from savings and household borrowing force wealth 
below the baseline level--that is, the level that would have 
occurred otherwise--unless and until the wealth is rebuilt with 
increased future savings.
    And any periods with increased savings will lead 
necessarily to lower consumption. Because higher gasoline 
prices have serious negative impacts on household incomes, 
savings, employment, and expenditures, it is important that 
Federal policy not inhibit efficient responses to market 
shocks.
    First, impediments to environmentally sensitive exploration 
and production of petroleum should be removed. Maintaining and 
increasing the supply of crude oil is critical to avoiding high 
fuel prices.
    That there may be a significant delay between leases issued 
today and increases in supply is an argument for moving more 
quickly on this issue. It is not an argument for not expanding 
supply at all.
    In addition, a windfall profits tax would penalize those 
who make the decision to invest in oil resources and will only 
limit current and future oil supplies, raise fuel prices, and 
further harm American households.
    In 1974, 1979, and 1990--and I should point out that there 
was an error in the written testimony on that date, it is not 
1992, but 1990--there were supply shocks that sent world 
petroleum and gasoline prices skyward.
    In 1974 and 1979, government policies, including price 
controls, distribution regulations, and profits' taxes, while 
very popular, extended and deepened the problems. In 1990 there 
was little interference with market adjustments and there were 
no gas lines nor extended high prices.
    Substituting government mandates for market flexibility is 
politically tempting but ultimately harmful.
    [The statement of Dr. Kreutzer follows in Submissions for 
the Record on page 96.]
    Chairman Schumer. Thank you, Dr. Kreutzer.
    I want to thank each of our witnesses. Each tried to stay 
within the five-minute limit, but I think my colleagues would 
agree with me it is some of the best five minutes that we have 
heard in this Committee.
    Just a quick factual question for Professor Warren. You 
said that the average credit card debt was $8400, I believe? I 
don't remember the number.
    Ms. Warren. For families carrying credit.
    Chairman Schumer. For families carrying----
    Ms. Warren. For families carrying credit card debt.
    Chairman Schumer. Right. What would be the average debt of 
the median family, the person you talked about in that chart. A 
little lower I'd guess, right? Is this debt higher in the 
middle income, upper middle income, or lower income? That is 
what I am trying to get at.
    Ms. Warren. It is a fair question. Credit card debt and the 
expenses of managing a credit card are borne in the middle. It 
is not an issue for high income families and, frankly, it is 
not an issue for the lowest income families.
    So it tends to be concentrated. We do not have good data 
that break this down because the credit card companies have not 
revealed the sources of all of their profits, but we know that 
this is a sharply humped curve.
    This is really about working families. Those are the people 
who are turning to credit cards.
    Chairman Schumer. Right. And the second question for you, 
succinctly because I would like to get to the others if I 
could, but what is the single most important step Congress 
could take right now to ease the financial burdens affecting 
middle class families?
    Now that is a hard question, because your chart shows, but 
maybe you can--if there was one thing--and maybe you can factor 
in political doability, not this six months but over the next 
two years.
    Ms. Warren. We have got to repair the holes in the boat on 
credit.
    Chairman Schumer. Okay.
    Ms. Warren. We talk up here about income and expenses, but 
the reality is this is driving more and more families into a 
unregulated credit market. And that credit is becoming an 
independent and ballooning expense that puts the family both 
further at risk and diverting more of its income to debt 
service, thereby creating a downward spiral both for the family 
independently and for the larger economy of the country and the 
world.
    Chairman Schumer. Thank you.
    Dr. Bernstein, you know we are seriously on, certainly on 
our side, exploring a second stimulus package, which you 
recommend, and your concern is not to repeat the first stimulus 
package but rather to focus particularly on infrastructure and 
payments to the States.
    I know some of this is touched on in your testimony a bit, 
but just elaborate why that would be preferable than just 
putting money right into the middle class person's pocket?
    Dr. Bernstein. Well for one reason, given the elevated 
price of oil you have to worry that too much of that stimulus 
in terms of payments to individuals leaks out and stimulates 
the economy of petro states instead of our own.
    Also the debt burdens that Professor Warren has talked 
about mean that for perfectly good and reasonable reasons 
people may decide to use stimulus payments to offset credit or 
debt burdens, which may make sense for them but does not, 
demonstrably does not trigger the macroeconomic multipliers 
that we need right now to generate employment growth, which 
would be my key response to what needs to happen to get middle 
class families back on track.
    The other measures I suggest I believe would have a bigger 
bang in that regard.
    Chairman Schumer. Okay. And finally, to all of our 
witnesses here--well, I would like first, I am going to try to 
do a second round from Dr. Bernstein first, and maybe Professor 
Warren--why is it. No one has given me a very good answer.
    Why is productivity going up so much and wages going down? 
Have we ever seen a period where that happens over an extended 
period of time? And Dr. Kreutzer, I would be interested in your 
answer, too. So this would be to the whole panel.
    That is a fundamental problem here, that the gain that 
workers are actually doing in production is not coming back 
into their paychecks.
    Dr. Bernstein. Would you like me to begin?
    Chairman Schumer. Yes, you start, Dr. Bernstein.
    Dr. Bernstein. I do not consider this a big head-scratcher. 
If you look at the history, the two set of data, the median 
family income and productivity growth, they grew in lockstep 
between 1947 and the mid-1970s. They both doubled.
    Starting in the mid-1970s, productivity continued its 
upward trend, accelerating post-'95 quite sharply, median 
family income began to stagnate more so.
    The key wedge between those two trends is economic 
inequality. Productivity is just another measure of growth. It 
is output divided by hours. And as the economy has grown, ever 
more of that growth has gone to the top realms of the income 
scale, the wealth scale that we heard today, leaving less for 
middle income families who are contributing to that 
productivity growth yet because of this wedge of inequality are 
getting much fewer of the benefits.
    Now we could have a longer discussion of all those factors 
that are responsible for the inequality push that has been kind 
of channeling that----
    Chairman Schumer. You are saying earned income--I mean, 
because one of the charts you have in here--I do not have it in 
front of me--is just productivity and wage growth.
    Dr. Bernstein. Right.
    Chairman Schumer. Doesn't that extend across, someone could 
be making a wage of $250,000?
    Dr. Bernstein. I mean whether you look at average wage 
growth, median wage growth, you are still going to see that 
output gap.
    So again, as the broad middle of the wage or the income 
class, as you have been hearing today, simply is not 
benefitting from the growth, it is going to show up as a 
productivity income gap.
    Chairman Schumer. Professor Warren agrees?
    Ms. Warren. I agree.
    Chairman Schumer. Okay, Ranking Republican Saxton.
    Representative Saxton. Mr. Chairman----
    Chairman Schumer. Oh, I didn't give Dr. Kreutzer a chance.
    Dr. Kreutzer. I would have a slightly different 
interpretation. It is actually not unusual as the economy heads 
into a recession for wages to go down, obviously, but the odd 
thing is the productivity goes up. Because the firms lay off 
their least productive workers first. So we are looking at a 
measure of how much----
    Chairman Schumer. And this has been going on for more than 
the last year.
    Dr. Kreutzer. Yes, this happens frequently when economies 
go into recession.
    Chairman Schumer. This has been going on for the last 10 or 
15 or 20 years, recession or not.
    Ms. Warren. Since--excuse me, Senator--since the early 
1970s.
    Chairman Schumer. Right.
    Ms. Warren. If we look at these, as Dr. Bernstein said, 
wages and productivity used to move together.
    Chairman Schumer. Right.
    Ms. Warren. In other words, as the pie got larger, the 
middle of America got an ever bigger piece. And what happened 
is those two began to decouple in the mid-1970s. American 
families started putting two people in the work force to try to 
make up some of that difference. But the reality is 
productivity as we measure it skyrocketed because the top ate 
more of the pie.
    And the size of the pie for middle class America as a 
proportion just kept shrinking----
    Chairman Schumer. Does income match productivity growth? 
Forgetting wage.
    Dr. Bernstein. No. It is the same phenomenon. And if I 
might add one little wrinkle----
    Chairman Schumer. It's a little confusing.
    Dr. Bernstein. Well, median family income----
    Chairman Schumer. Because, no, no, no. Let me ask the 
question.
    Dr. Bernstein [continuing]. Tracks median wages.
    Chairman Schumer. I know, but you had overall--you said 
``average,'' which is different. So if some guy making a 
million dollars now makes two million dollars, that should pull 
the average up.
    Dr. Bernstein. Yes. The data in my report are on median 
income, not average income.
    Chairman Schumer. Oh, okay.
    Dr. Bernstein. And average income would track productivity 
more closely for precisely that reason.
    Chairman Schumer. Got it.
    Dr. Bernstein. Could I just make one tiny point?
    Chairman Schumer. Yes.
    Dr. Bernstein. There was a period--it lasted about a New 
York minute, with deference to the Chairman----
    [Laughter.]
    Dr. Bernstein. There was a period in the 1990s where 
productivity and wages actually did track each other for a few 
years. And that had to do with the fact that job markets really 
tightened in those years in a way we had not seen in 30 years, 
and certainly has not been the case since.
    Chairman Schumer. Got it.
    Dr. Kreutzer. There needs to be some perspective here. When 
you look at first graders in 2001 and you say what's their age? 
You're going to get something like 6 years old. If you looked 
at first graders this year, you would also get 6 years old. You 
would say, therefore first graders do not ever get older, isn't 
that a shame?
    The median income earner in 2001 is not the same household 
as a median income earner in 2008. And the report that Mr. 
Saxton referred to, the Treasury report from last November, 
actually tracked something that median figures do not track. 
They looked at the--they found a set of people in 1996.
    They followed them for 10 years. All right? And indeed the 
incomes, while median incomes would look stagnant if you took 
the overall population, if you look at particular families they 
grew by 24 percent.
    What happens is the base is coming in. We have people 
coming from overseas more than before, and that is bringing 
that down. I don't want to argue about immigration, but that is 
how the numbers cannot be treated strictly comparable.
    Chairman Schumer. Right. Okay.
    Sorry, to Ranking Republican Jim Saxton.
    Representative Saxton. Mr. Chairman, let me just say that 
yesterday I was very excited about coming here, but I am really 
disappointed in the tone of this hearing.
    When Ms. Maloney for example talked about families being 
hurt on President Bush's watch, and then Mr. Hinchey talked 
about Bush's elicit military operation, I was kind of surprised 
by that. And then Mr. Sanders talked about 5 million Americans 
slipping into poverty under Bush. And then Mr. Doggett talked 
about the economic crisis as a result of the disastrous effect 
of the Bush/Cheney Administration. And even you, Mr. Chairman, 
blasted both President Bush and Senator McCain in your opening 
statement. And I think that sets a really bad tone for the 
American people.
    I guess I should not have been surprised. When I got in my 
office this morning I found an article on my desk from The 
Politico that says ``Obama economic advisors testifying 
today,'' and the article says: Wonder what Barak Obama is 
thinking about----
    Chairman Schumer. That's not today. That's tomorrow at 
the----
    Representative Saxton. It says ``drop by room 608 at the 
Dirksen Senate Office Building at 10 a.m., Wednesday for some 
hints. Jared Bernstein and Elizabeth Warren, two economists who 
are informally advising Barak Obama, are scheduled to testify 
in front of the Joint Economic Committee.''
    Mr. Chairman, this is--you know, I think it is just a shame 
that we are here doing politics on the people's money. In fact, 
Mr. Chairman, you are the Chairman of the Democrat Senate 
Committee. Don't you think it would be more appropriate for the 
Democrat Senate Committee to pay for this hearing today 
inasmuch as it is all about politics?
    Chairman Schumer. Okay, let me just say, because this was 
direct, first Dr. Kreutzer is your choice. But second, why 
don't you combat what they said based on the facts of what they 
said?
    It may be--I did not know this until you brought it up--
that Professor Warren and Dr. Bernstein are informally advising 
the Obama Campaign. For all we know Dr. Kreutzer is talking to 
the McCain Campaign. But who cares?
    We are here to talk about a phenomena. I have not heard any 
one of them mention anything political. They are rather talking 
about middle class squeeze.
    You can deny it. It has gotten worse under President Bush's 
watch. I think that is a legitimate issue for us to pursue. 
And, you know, I think the testimony of our witnesses here was 
quite profound. Quite profound----
    Representative Saxton. May I reclaim my time?
    Chairman Schumer [continuing]. And instead of just--please, 
I am going to give you all the time. This will not be part of 
your time. But I find, again, this is not a political hearing; 
this is a substantive hearing. Most of the talk has been about 
numbers and remedies.
    We as elected officials are entitled to blame who we want, 
and the public can let the chips fall where they may, but I 
have not heard a political thing come out of any one of the 
four of their mouths.
    Representative Saxton. Well, Mr. Chairman, thank you very 
much. And there was not a single Democrat who spoke earlier who 
was not totally political in their remarks.
    And so, Mr. Chairman, I yield back the balance of my time.
    Chairman Schumer. Well thank you. You are my good friend, 
Jimmy, but I do not think you are right on this. Okay? I would 
again say, judge by what they said not by who they support or 
who they advise, or whatever. And that is what we are all 
trying to do here.
    Vice Chair Maloney.
    Vice Chair Maloney. Thank you. I would like to follow up on 
a statement that Ms. Lewis made that we are falling behind 
other countries in terms of our response to social policies to 
balance work and family, and to adjust to what Professor Warren 
said is a trend that started in the 1970s where families were 
losing income and both the wife and the husband had to go to 
work.
    Then with the troubling report that has come out that both 
men and women are losing jobs, so that the wife will not be 
there to buffer the jobs.
    I would like to ask the panelists: Why do you think our 
country has not responded with social policies to adjust to the 
changing reality that both the wife and the husband has to work 
in order to pay down the credit cards, pay for the food, pay 
for the mortgage, and everything else?
    I think Ms. Lewis said we ranked 169th in terms of the paid 
family leave; that we are tied with Papua, New Guinea and 
Swaziland. And I would like to ask you: Why do you think we 
have not adjusted our policies to the reality that both the 
husband and wife have to work? And what is the implication of 
this new report that shows that wives are losing their jobs in 
the same proportion, if not more, than men, and what is that 
going to mean for our economic recovery and strategies that we 
may be looking at?
    Let's start with Professor Warren, and any comment by any 
of you.
    Ms. Warren. Congresswoman, I think you ask exactly the 
right question. It is a deeply disturbing question. My view is 
that you are asking the question of who wields power in 
America?
    There was a time when any legislation passed that would 
support and help and extend the stability of middle class 
families could pass this body with very little dissent. Look at 
the 1930s, the 1940s, the 1950s, the 1960s, and frankly that 
has changed.
    This is no longer about legislation to support the middle 
class, to help what it means to be out there and to be a 
working family trying to get up every morning and go to work, 
take care of the kids, and make it to the end of the month.
    The middle class has been served up as the turkey at the 
Thanksgiving Dinner. They have become the profit source for 
other corporate interests. And frankly our policies have not 
supported middle class families because the people who are 
pulling many of the levers of power are not themselves middle 
class and are not involved in these struggles directly.
    Vice Chair Maloney. Dr. Bernstein.
    Dr. Bernstein. I would add that I think, in answer to your 
question--and it is a very good question--why don't we have 
more of these policies? Because they make tremendous sense to 
you, and they make tremendous sense to me. I think that my 
brother and sister economists are partly to blame for this.
    Because in economics, I would argue, there has been an 
erroneous conception--perception that if you introduce these 
family-flexible policies, it will lead to job losses, and 
employers will just lay people off as a result of the mandate.
    There is very little evidence to support that, and good 
evidence to the contrary, and I urge this body to have hearings 
on precisely these points. Because I believe the public is 
where you are, and where I am, and the research is actually 
much more supportive than I think conventional wisdom would 
suggest.
    Vice Chair Maloney. Ms. Lewis.
    Ms. Lewis. I'll just make two quick points. One is that we 
are the bottom for mandatory maternity leave, but in addition 
we are also at the bottom for so many other policies--and I 
will just give you a few examples.
    98 countries have 14 or more weeks of paid leave for 
mothers. And 31 have 14 or more weeks of paid leave for men, as 
well.
    As you know, the United States has no federally mandated 
paid leave.
    107 countries protect the right to breast feed with 73 
offering paid breaks. And 137 countries mandate annual paid 
leave. So other countries, not just our peers in the 
industrialized world, but all over the world, are far ahead. So 
in comparison, we are doing badly.
    One thing that might contribute to it is that the work that 
primarily women have done for years in caring for families, 
providing the care that workers need, providing the care that 
families need, that older people need, our aging parents, our 
young children, this is invisible to the economy.
    We do not track the economic value of the work that women 
do. And there is a lot of work now on this care economy, and 
until we measure it it is hard to value it and track it. So we 
need to make a lot of progress in this area.
    Vice Chair Maloney. Thank you. Dr. Kreutzer.
    Dr. Kreutzer. Yes. I am an energy economist but I have a 
very family-friendly proposal that would seem to harm only the 
very wealthy.
    The Arctic National Wildlife Refuge holds perhaps 10 
billion barrels of petroleum and is visited by, at most, 1700 
tourists per year at a cost of $3000, $4000, to $10,000. Only 
very wealthy or devoted tourists will make that trip.
    That, by the way, is one fourth the number of visitors that 
the Cuyahoga Valley National Park receives on an average day.
    The 10 billion barrels of petroleum in ANWR would be enough 
to provide fuel for 7 million cars for a century. I think it is 
very important that we balance things. The caribou do not care. 
There are more caribou in Alaska after the Alaska Pipeline was 
built than there were before. And if we are protecting a 
pipeline vista for 1700 tourists per year who are going to pay 
$10,000 to get there and denying 7 million households for a 
century the fuel, I think we are way out of balance.
    Vice Chair Maloney. Well I feel that your comment did not 
answer the question, but since you brought it up, the 
Democratic Caucus met yesterday with T. Boone Pickens who 
really said we cannot drill our way out of this challenge that 
we have, and that we have to move towards energy independence 
here in our own country; that it has got to be issue number one 
on page one.
    And he outlined some of his proposals, some of which have 
been embraced in a bipartisan way, some by the Democrats, some 
by individuals, to moving to more wind, and solar, and 
biofuels. And really I applaud the Democratic leadership for 
pushing for fuel efficiency.
    The first proposal in 32 years requires that we get more 
fuel efficient cars in our country. This is priority number 
one. It is impacting all of our families.
    I am hearing from my constituents that not only can they 
not drive but they are putting a surcharge on everything for 
the cost of the oil. This is a huge challenge, and it is one we 
should confront in a bipartisan way, and it certainly does 
affect the middle class squeeze.
    In terms of the drilling, the Democratic leadership has 
just pushed Use It Or Lose It. We have leased over 68 million 
acres of land owned by the American Taxpayer to oil companies, 
and we are saying: Drill on them.
    We have 300 million that are up right now to be leased, if 
people bid in a competitive way for those leases. If they have 
a lease and they do not want to use it, then let's let another 
American who is a bigger entrepreneur, who has the time and 
wants to invest in making that happen, do it.
    But it is a complex problem. It is one that the Chairman is 
interested in. Maybe we will have another hearing on energy 
policy, but on this one we are working on this middle class 
squeeze.
    I thank all of the panelists today. You have provided many 
important insights, and I am very grateful.
    Chairman Schumer. Thank you, Vice Chair Maloney. 
Congressman Hinchey.
    Representative Hinchey. Well thank you very much, Mr. 
Chairman.
    Mr. Kreutzer, I am interested in what you are saying about 
the Arctic National Wildlife Refuge and how that might provide 
some kind of benefit for the price of gasoline or other 
petroleum products.
    But if you look at the way in which the oil companies are 
handling the leases that they have, and the availability of 
land on which they can drill, and not doing it, then I don't 
know why anyone would speculate that they need to be given 
control of the Arctic National Wildlife Refuge.
    They have already got 68 million acres that they are not 
using. They have had leases on those that they are not using. 
And there is a national--I am not asking you a question; I am 
just saying something to you. [Laughter.]
    Dr. Kreutzer. You did ask. You said why would we want to--
--
    Representative Hinchey. No, I am just making a statement to 
you just to clarify what you were saying. I think that the 
point of why you are doing this is very, very clear. But the 
fact of the matter is that the situation is very different.
    The problem that we are confronting is an increase in the 
price of a barrel of oil, which is driven by a number of things 
including the significant drop in the value of the dollar, the 
threat to invade Iran--which is causing additional speculation 
in the price of a barrel of oil--the situation in Iraq, which 
has also caused speculation rising in the price of a barrel of 
oil.
    And then when you get internally here in our own country, 
what you see is the oil companies, which are now international 
corporations, manipulating the price of refined product by not 
drilling in the land that they already have available to drill 
on, including 20 million acres of land just adjacent to the 
Arctic National Wildlife Refuge, which is completely available 
to them, and which has more oil on it than the Arctic National 
Wildlife Refuge does, and larger than it, but they are not 
touching it.
    So what you are saying, I just want to draw to your 
attention, is completely senseless. Because it is--the way in 
which this Administration has administered its own economic 
circumstances, including the value of the dollar, the way in 
which it has engaged in international activities which have 
driven up speculation, and the way in which the local oil 
companies here, which are international but working here in the 
United States, have driven up the price of the refined product.
    And by the way, one of the reasons why the refined product 
is going up is because they have not built a refinery since I 
think 1975. It has been a long, long time. But the economic 
circumstances that we are confronting here as a Nation, which 
you all talked about, I think is one of the most challenging 
set of circumstances that any government in this country has 
ever faced.
    I think that, as we have pointed out, some of the facts 
that we have got to deal with are very, very similar to what 
they were back in 1929.
    I can remember a meeting of the Joint Economic Committee 
here with the Chairman of the Federal Reserve Board about a 
year ago talking to him about recession, and he was saying that 
we are not in a recession. We talked about the fact of 
inflation, and suggested to the Chairman of the Federal Reserve 
that we may be confronting an issue like stagflation, which is 
something we confronted back in the 1970s, where you have the 
economy dropping and the inflation rate going up.
    And now we see that the Federal Reserve, in spite of the 
fact that the economy is in dire circumstances so far as the 
middle class is concerned--and when the middle class is 
hurting, everybody is hurting--in spite of that, the Federal 
Reserve now is more focused on inflation, for their own 
reasons.
    The situation that we have to deal with is the way in which 
the middle income people have been adversely confronted over 
the course of the last six or eight years. The gross domestic 
product of our country is determined by a number of things, but 
principally by the way in which median income people are able 
to participate in the economy.
    A little more than two-thirds probably of the Gross 
Domestic Product is driven by median income people. And with 
the decline of the income of median income people, the whole 
economy is suffering.
    We are trying to deal with this in a number of ways. One of 
the interesting ways is a bill that passed the House of 
Representatives just within the last week or so which would 
provide a significant investment in a part of the 
infrastructure, education, which is probably one of the most 
important parts of the infrastructure, probably the most 
important part of the infrastructure, but that investment alone 
would produce probably something in the neighborhood of 100,000 
jobs across the country.
    This is a piece of legislation which the President has said 
he is going to veto. It is just consistent with his policy of 
not wanting to invest any of our money in ourselves, not 
putting any of our money back into our own economy, not trying 
to stimulate our own economy. But simply by wasting it across, 
whatever he wants to, across the world.
    So I do not think that is a political statement. That is 
just a factual statement. That is just the facts that we have 
to deal with.
    And if we are not going to face an economic circumstance 
which is similar to what was occasioned in 1929, we have got to 
be much stronger. Much stronger in this Congress, and much 
stronger with this President to get him to do some of the most 
responsible things.
    So I would just ask you: What do you think we should be 
doing? What do you think the most practical activities are that 
we could engage in now, even over the course of this next year, 
to try to get something strongly done so that the next 
President coming in is not facing something like a depression 
and the consequences we would have to deal with would be much 
more complex and much more difficult?
    I would appreciate it if--yes.
    Dr. Bernstein. I----
    Ms. Warren. Go ahead. You start.
    Dr. Bernstein. I will be brief, because my testimony, which 
I commend to you in this regard--I am not saying you are going 
to agree with everything in there, but I wrote my testimony 
with that question in mind.
    I espouse two points right off the bat:
    I absolutely think that the way you are framing this 
question is exactly right. This is not a matter of waiting six, 
eight, twelve months until the next President and Congress can 
agree on what to do. I think we need to get started right away.
    I articulate a set of five or six infrastructure investment 
ideas that are ready to go. These are off-the-shelf projects 
that are either underway and capital-restrained because of the 
ongoing downturn, or could be moved into production very 
quickly.
    I believe these are critical in terms of American 
production and the preservation of our public capital stock, 
but also in terms of creating good jobs. But the second part, 
which we have not talked about, is that I believe there is a 
window that is narrowly open to implement very important 
reforms in our financial and mortgage market system.
    These are critical markets in our economy that have 
historically operated efficiently, effectively, and 
productively but have been undermined by lack of oversight and 
by bad rules over the past decade or so.
    I urge this body to take both of those steps.
    Chairman Schumer. Thank you.
    Representative Hinchey. Professor Warren.
    Chairman Schumer. Sure.
    Ms. Warren. If I could just add, and I will try to be 
brief, but let me just offer one more way because I agree with 
Dr. Bernstein, I think you have phrased this exactly right. You 
have framed the question right.
    But much of the attention is all directed how at the top--
rescuing Bear Stearns, rescuing Fannie and Freddie, and 
rescuing who knows who we are going to be asked to rescue next 
with American Taxpayer dollars.
    Let me make a point about that. I think there are real 
questions about how much we can do at the top end. The Chairman 
of the Federal Reserve has been here to talk about reaching out 
and trying to do some regulation of nonbank financial 
institutions.
    The reality is, those are a lot of electronic blips, and 
there is a real problem about they've moved to London, they've 
moved to Beijing and we have lost our control.
    This bubble would never have inflated. The American family 
would never have been in this kind of trouble if we had had 
basic safety regulations in place on all financial products, 
not just mortgages but mortgages, credit cards, payday loans, 
across the spectrum.
    The reason this bubble could inflate the reason that money 
flowed into these markets, was because in a deregulated 
environment in effect the promise was made to investors that we 
can give you a risk-adjusted rate of return of 16 percent, 18 
percent, 22 percent, and money came in.
    The only way you could do that was if you were tricking the 
customer at the bottom end: selling them things they could not 
possibly pay for.
    We did not create this problem at the top. This is not a 
problem of asset securitization or collateralized debt 
obligations. We created this problem at the bottom by 
permitting the sale of literally hundreds of millions of 
financial products across this country that can promise more 
than was possible to deliver.
    That is why the money went in. That is why we created this 
bubble. That is why we are on the way down. And now the 
American Taxpayer who, thank you very much, paid for this on 
the front end has paid for it all the way through and now being 
asked to dig deeper into the family budget and pay for it on 
the way out.
    Chairman Schumer. Thank you. Senator Klobuchar.
    Senator Klobuchar. Thank you very much.
    As we were talking about what was going on here, I was 
thinking that probably not many of the panelists had the 
privilege of seeing the ``Kit Kittredge'' American Girl Movie 
that I did with my daughter, but it was actually quite 
interesting because it was set during the Depression. And part 
of the story was about these families who were middle class, 
upper middle class families who were apparently doing fine, and 
they hid everything from people.
    Then suddenly a foreclosure sign would come out, and their 
furniture would be carried out, but up to that point they had 
not told anyone about what was going on.
    I think we see that time and time again with the subprime 
mortgage crisis. And my question is, first of all, Professor 
Warren, I know you have written about this overconsumption 
myth, this feeling I talk about with those Minnesota families 
who think somehow this is my fault, that I did this, when in 
fact the money that people have been spending on clothes and 
groceries have actually been spending less recently.
    Could you talk a little bit about that?
    Ms. Warren. Yes. I wish I had one of my charts here for 
this because the charts are really impressive. What has 
happened is that families have tightened their belt. We could 
look at this over a generation. We could look at it over the 
last seven years.
    They have cut down in every discretionary spending area 
that they possibly can. They have cut down on what they spend 
on cars. The problem is now they are getting hit by gasoline. 
They had cut back on food. The problem is of course they are 
hit by rising prices.
    In terms of consumption, they have cut back. They have cut 
back on clothing. They have cut back on floor covering. They 
have cut back on tobacco. They have not cut back on alcohol--I 
will not talk about whether or not these things are related to 
each other. The pressures on families.
    But the key point to understand is that the American family 
has fundamentally shifted. It has big, fixed expenses. The 
expenses that have to be fed month after month. The mortgage, 
health insurance payments, the fact that you have to have two 
cars to get this family to work with both mom and dad in the 
work force.
    Child care, an expense that a family a generation ago did 
not have. These families are paying more on these big fixed 
expenses, and that means when anything goes wrong this family 
cannot make it.
    I just want to say this the way I say this to families, 
because I get the same message over and over and over:
    I don't understand it. We shop at second-hand stores to buy 
clothes for our kids. We have not been to a movie in nine 
years. I can't live in the house my parents grew up in. I can't 
send my kids off to college the way my parents did.
    The rules of the game have changed.
    Senator Klobuchar. So in other words, where you try to save 
a nickel, save a dime, compared to these large fixed expenses 
is just not going to help them to make it. I am not saying they 
shouldn't do it, and they are, but that is the problem.
    Ms. Warren. Exactly. You cannot save enough on Lattes, cut 
out enough Lattes, to pay for health insurance in America. It 
just cannot be done.
    Senator Klobuchar. So you see the solution--and again you 
can answer this--but part of it is what you were just raising 
with the Congressman in looking at how we can help in terms of 
the credit that is extended, and trying to rein that in.
    We can do the health care reform, the energy reform we have 
been talking about, but what do we do about these families that 
are just on the brink who we know--or we are lying to ourselves 
if we don't admit it--are going to teeter over the brink.
    Is bankruptcy going to be their only protection? What can 
we do to stop that from happening?
    Ms. Warren. It is the right question, Senator. Part of the 
answer is, yes, we do need a safety net on the bankruptcy side. 
But part of the answer--I do not want to sound like Johnny One 
Note on this--is about credit, at least not to make it worse to 
push these families over.
    I think Dr. Bernstein is right when he says we have to 
think in terms of stimulus, how we create more jobs, how we put 
more people into the work force to try to give them a chance 
not to be the next statistics in terms of crashing and burning.
    This is a critical moment in American history. There have 
never been, since the Depression, so many families standing 
right on the edge.
    Senator Klobuchar. Dr. Bernstein, I appreciated you 
bringing up our bridge in Minneapolis. I did want to tell you, 
I think it is going to open in a month-and-a-half.
    Dr. Bernstein. Wow.
    Senator Klobuchar. It has been an amazing feat. It is six 
blocks from my house.
    Dr. Bernstein. I will update my testimony.
    Senator Klobuchar. Okay. But this eight-lane highway just 
one day in the middle of a sunny day just fell into the 
Mississippi River and is something that just should not happen 
in this country.
    But it made me think very hard about this infrastructure 
issue, not only because of our bridge but what we are seeing in 
rural areas where we have this energy boon with the potential 
with wind, and more wear and tear on our highways, and our 
rail, and seeing at the same time when we look at another 
stimulus package, I just think at some point we have to have 
something that lasts longer than when those rebate checks are 
cashed.
    Dr. Bernstein. Exactly.
    Senator Klobuchar. And, we need to have more of a national 
focus on putting people to work by having tangible things that 
will last to actually help build our economy.
    So could you elaborate a little bit on your infrastructure 
plan? Of course we know at this point when gas prices are so 
high we are most likely not going to raise the gas tax to pay 
for this, so we have to look at it as a job stimulus issue in 
order to get this infrastructure back on the table and going 
again.
    Dr. Bernstein. Yes. I think it is interesting to recognize 
that these views that you and I are espousing are widely held.
    The Chamber of Commerce--who does not necessarily agree 
with a lot of the things I argue for--ranks infrastructure as 
very high on their lists, public infrastructure, very high on 
their list of things that ought to be done.
    Many such as Bill Gross, a renowned investment banker, says 
the same thing. These issues are I think well understood, the 
urgency.
    One thing I will emphasize is that again this argument that 
infrastructure is inappropriate or a short-term stimulus is 
based on the notion that the lead time is too long. I have 
offered a number of examples that I think push back against 
that argument, but it is also important to recognize, as your 
question suggests, that these are long-term needs.
    Secondly, recall that in the last two recoveries employment 
recovered long after output began to recover. We had the 
jobless recoveries. Jobless, wageless, income problems. Even 
though GDP was rising, unemployment rose for 19 months after 
the last recovery began in November of 2001.
    So the idea that you have to have a short-term plug 
stimulus for infrastructure that is in there for three months 
and then ends is very wrong. These are projects that need to be 
undertaken.
    We are going to have weakness in the job market that is 
likely to be protracted, and there are investments that private 
firms will not make. They simply cannot claim a return on them. 
So there are great rationales for pursuing these.
    Chairman Schumer. Thank you, witnesses. Thank you, Senator 
Klobuchar. This was really an excellent hearing, and really 
talked about issues I think people of both parties have to talk 
about.
    We have to do something about these things. We may have 
different policy prescriptions, but no one denies it is a real 
problem. It is not just a problem in the abstract. Millions of 
people are hurting every day and every week, and we thank you 
for shedding light on those.
    I want to thank my colleagues for being here, and the 
hearing is adjourned.
    [Whereupon, at 11:48 a.m., Wednesday, July 23, 2008, the 
hearing was adjourned.]
                       Submissions for the Record

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