[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                    PROSPECTS FOR EMPLOYMENT GROWTH: 
                     IS ADDITIONAL STIMULUS NEEDED? 

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 23, 2010

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-101

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 23, 2010............................................     1
Appendix:
    February 23, 2010............................................    43

                               WITNESSES
                       Tuesday, February 23, 2010

Hassett, Kevin A., Director, Economic Policy Studies, American 
  Enterprise Institute...........................................    11
Mishel, Lawrence, Ph.D. , President, Economic Policy Institute...    10
Stern, Andy, President, Service Employees International Union....     8
Zandi, Mark, Chief Economist, Moody's Analytics..................    13

                                APPENDIX

Prepared statements:
    Hassett, Kevin A.............................................    44
    Mishel, Lawrence, Ph.D.......................................    54
    Stern, Andy..................................................    83
    Zandi, Mark..................................................    91

              Additional Material Submitted for the Record

Package of statements from the National Council of La Raza (NCLR)   114


                    PROSPECTS FOR EMPLOYMENT GROWTH:
                     IS ADDITIONAL STIMULUS NEEDED?

                              ----------                              


                       Tuesday, February 23, 2010

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 2:03 p.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Maloney, 
Watt, Sherman, Moore of Kansas, Clay, Baca, Miller of North 
Carolina, Scott, Green, Bean, Ellison, Perlmutter, Donnelly, 
Foster, Carson, Kosmas, Himes, Peters; Bachus, Castle, Royce, 
Manzullo, Biggert, Capito, Hensarling, Garrett, Marchant, 
Posey, Jenkins, Paulsen, and Lance.
    The Chairman. The hearing will come to order. This is a 
hearing, in conjunction with the hearing we will be holding 
tomorrow, according to the statutory requirement that the 
Chairman of the Federal Reserve report twice a year to both the 
House and the Senate to talk about the state of the economy, 
and particularly about employment under the Humphrey-Hawkins 
Act. It has been our practice since I have been the chairman 
not simply to have the official view of the Chairman of the 
Federal Reserve, but also to invite some other witnesses, 
economists in particular, to talk about these issues. And that 
is today's hearing.
    The question is whether additional stimulus should be 
adopted by the Congress, given the state of the economy. I want 
to address a couple of issues. One of the things I have heard 
from some of my Republican colleagues from time to time is that 
part of the problem has been taxation. Indeed, I was on a panel 
with some of my Republican colleagues in which they complained 
about increased taxation. I think it has not, I guess, been 
expressly underlined, maybe because someone thought the obvious 
need not be underlined--but that is not politics--that a 
substantial part of the bill that passed a year ago was in fact 
tax reduction.
    People used the $787 billion figure or whatever figure they 
used as if it was all spending, where over $200 billion of it 
was tax reduction. There have subsequently been two other much 
smaller tax reductions adopted to try to stimulate the economy: 
the Cash-for-Clunkers to stimulate the sale of automobiles; and 
the homeowners' tax. Now those were supported in varying 
degrees by different Members, but in fact those were also 
additional tax cuts. So while a majority of the activity 
designated stimulus was spending, in fact a significant amount 
was tax cutting, and certainly people who talk about $787 
billion of spending as if that were the whole stimulus are 
simply wrong.
    There is also the argument that because, having passed an 
economic recovery plan, we did not see unemployment disappear, 
the plan hadn't worked. The crudity of that logic is so basic 
that, once again, one would not have thought you needed to talk 
about the obvious, but apparently you do. The relevant question 
is: What would things have been in its absence? I know of very 
few economists who think that there were no jobs created or 
kept and that the unemployment would have been the same as it 
is today if we hadn't passed the stimulus.
    I am particularly struck, and I know Bloomberg talked about 
this, with some of my Republican colleagues who have, with a 
very straight face, maintained two propositions which one might 
have thought inconsistent: one, that the stimulus did not 
create any jobs; and, two, that officials in charge of stimulus 
money should provide some to their districts so jobs could be 
increased. I have seen the releases from people who have 
steadfastly denied there were any jobs here, arguing the 
stimulus would produce jobs in their district.
    Now I am not making the argument that, having voted against 
something which passed, you should boycott it. That is simply 
wrong. That is undemocratic. People who live in a particular 
district should not be denied anything because their Member 
voted against it. What I am talking about is the intellectual 
inconsistency of writing a letter to Administration officials 
to ask that certain funds be made available because of the job 
creation and then denying there was any such job creation. 
That, I think, flies in the face of a number of things, 
including the facts.
    I will reserve the balance of my time because I will have 
other Members. The gentleman from Alabama is now recognized for 
4 minutes.
    Mr. Bachus. Thank you, Mr. Chairman.
    First, let me say that Mr. Peters and I and some others 
traveled to Afghanistan last week, and I enjoyed our 
conversation. I think we came back better informed. I think you 
have a good Member in Mr. Peters.
    The Chairman. We can arrange for you to say that in 
Michigan.
    Mr. Bachus. Mr. Chairman, we all want the same thing. We 
want every American who wants a job to have a job. We want 
those jobs to be real productive employment. And a jobless 
recovery is no recovery for millions of Americans on the 
unemployment line. And that is basically what we have. I am 
really surprised that we are even debating the need for a new 
stimulus in light of our experience with the old stimulus.
    It was just a year ago today that the Obama Administration 
and congressional Democrats really sold the American people on 
the idea of a government stimulus as a way to create 3.5 
million jobs by the end of 2009 and to cap unemployment at 8 
percent.
    The chairman mentioned his Republican colleagues. Well, we 
warned that the stimulus wouldn't work and that those were 
overblown promises. We said the way to fix an economy that had 
been distorted by government meddling was not for the 
government to meddle further. And we continue to believe that 
the answer is not growing government. Our warnings were not 
realized, and I think it is time to reevaluate the current 
course of action, which is just to grow government and more 
government response, which pulls money out of the private 
sector. The last thing America needs is a sequel to the so-
called stimulus, which only succeeded in adding hundreds of 
billions of dollars to the debt, an unsustainable debt and one 
that I think is a fiscal catastrophe waiting to happen.
    The time has come, Mr. Chairman, for this Congress to stop 
pretending we can spend our way out of a recession caused by 
excessive debt by borrowing and spending yet more money we just 
don't have. That is not the way that American families recover, 
by spending more and borrowing more when they are deeply in 
debt, and that is not the way the government ought to address 
it.
    Before he became the Chief White House Economic Advisor, 
Larry Summers famously asked, ``How long can the world's 
biggest borrower remain the world's biggest power?'' We must 
remember this as we go forward. Unless and until we take the 
steps necessary to put our house in order, our financial house 
in order, we will not have an economy capable of producing the 
kind of jobs that sustain families and communities. We can't 
continue to waste billions of taxpayers' dollars on job 
creation schemes which fail to produce jobs. What we need are 
new solutions that will put Americans back to work without 
burdening future generations with crushing deficits.
    A good first step would be to abandon the Administration's 
health care and cap-and-trade proposals, which are freezing 
small business in place and impeding economic recovery and 
focus on policies that promote growth and investment. There is 
one way and one way only to spur the creation of new jobs; it 
is to take the heavy hand of government off the economy's neck 
and take the government's hand out of ordinary people's 
pockets. That will let business make what it knows how to make 
best and people to have enough money to buy the things they 
need.
    The government doesn't make jobs. People create jobs by 
making things and buying things. Jobs created by government 
spending, especially in the public sector, take money out of 
the private sector, where most productive jobs are created.
    So, Mr. Chairman, I want to take a page from President 
Obama's playbook and invite you and the congressional Democrats 
and the President to come work with us. Let's pass a financial 
regulatory reform bill that fixes what is wrong without 
wrecking what isn't. Let's do the same thing with health care. 
And let's give businesses and families some certainty about 
what their income picture will be like for years to come so 
they can start budgeting for spending again without worrying 
what their government will do next, increased taxes and failure 
to be able to meet our obligations.
    Thank you again, Mr. Chairman, for holding this hearing. I 
look forward to the testimony of the witnesses.
    The Chairman. The gentleman from Delaware is recognized for 
1\1/2\ minutes.
    Mr. Castle. Thank you, Mr. Chairman.
    Despite signs that our financial system is more stable than 
it was a year ago, we are still facing obvious serious economic 
problems. Millions of Americans are unemployed and finding it 
difficult to pay their bills. I recently held a second job fair 
in my State, which brought over 400 job-seeking Delawareans for 
an opportunity to meet with businesses that were hiring or 
offering training. This fair was in Kent County with an 8.2 
percent unemployment rate, under the double digit numbers we 
have in other parts of the State.
    With respect to the American Recovery and Reinvestment Act, 
commonly known as the stimulus bill, I am concerned about the 
longevity of the employment opportunities derived from this 
law. I worry that too much of the stimulus has failed in this 
respect.
    How many of these jobs were long term, and how many were 
just temporary? When the stimulus funds run out, how many more 
Americans will become unemployed? As I see it, we should be 
creating permanent jobs by helping small businesses grow and 
American companies to innovate and expand.
    As we move forward here, I hope we can collaborate in a 
bipartisan way to address the unemployment and economic 
challenges in this country and focus on providing long-term 
solutions that will create jobs and improve job training and 
placement programs for those people unable to find work.
    I yield back the balance of my time.
    The Chairman. The gentleman from Georgia is recognized for 
2 minutes.
    Mr. Scott. I can't express to you how much I appreciate 
this hearing, because the jobs and economy is the most 
important issue we are faced with today. But I hope that this 
panel will take just a couple of minutes to talk about the 
disproportionate impact that unemployment is having in the 
African-American community.
    The overall White unemployment rate is right around 8 
percent. But among African Americans, it is 6.4 percent. And we 
haven't even begun to factor in those individuals who have 
given up looking for work or, especially, African-American 
males. In some communities, it is 50 percent.
    Now, we can put our head in the sand and not want to talk 
about this because it brings up the big question of race, but 
it has to be dealt with. We can't begin to deal with this 
pressing unemployment when we don't look at the high 
disproportionate share. It dovetails into other issues, into 
crime, into family breakdowns. Why?
    So I think we ought to figure out, when we are talking 
about this unemployment, how can we address this issue? How can 
we look at the impact of this issue that is happening to a very 
important part of a segment of our economy? We are never going 
to bring the unemployment rate down unless we target things to 
those areas where there is a high disproportionate number of 
unemployed. And so definitely we need more stimulus, but we 
need it directed, and we need it targeted, and we need it 
focused. Just as surely as we target and focus money to Wall 
Street, to specific banks where the problem was, we need to do 
the same thing with unemployment.
    The Chairman. The gentleman from Texas, Mr. Hensarling, is 
recognized for 1\1/2\ minutes.
    Mr. Hensarling. Thank you, Mr. Chairman.
    The question of this committee hearing, is additional 
stimulus needed, another way of asking the question is, is 
additional debt needed? We know, with the interest factor, the 
so-called stimulus bill created $1.2 trillion of additional 
debt for our Nation, which begs the question, how much debt is 
enough?
    We have seen that the deficit has increased tenfold in just 
2 years. Recently, the President has presented a budget which 
will double the national debt in 5 years, and triple it in 10 
years, from Fiscal Year 2008. We see that the debt held by the 
public will soon go from roughly 40, 43 percent of the economy, 
under the President's budget, up to 77 percent of the economy.
    I spent most of the break, which turned out to be a 2-week 
February break, speaking to small business people in my 
district in Texas. I spoke to community banks, spoke to people 
who are involved in investment management. I hear the same 
message. People are reluctant to create jobs or expand 
business.
    The Chairman. The gentleman's time has expired as allotted. 
We had 1\1/2\ minutes, was that correct? Let me apologize. The 
red light went on. I have to apologize. I need to correct this. 
This doesn't do minutes. I apologize. The gentleman is 
recognized for an additional 30 seconds. Don't have the red 
light go on after 1 minute. Do the 2 minutes.
    Mr. Hensarling. I would be happy to start over from the 
beginning, if that would be helpful.
    The Chairman. I thought the gentleman had, several times.
    Mr. Hensarling. Thank you, Mr. Chairman.
    I continue to hear business people say, how are we going to 
pay for all this debt, all of this deficit? It will lead to 
massive taxation or massive inflation. It is a huge impediment 
to job growth, as is the threatened takeover of our health care 
system, which by any honest accounting, could cost up to $2 
trillion. Add in the threatened $800 billion potential energy 
tax. No one is going to create jobs and expand businesses in 
this economy. Wipe that away and this economy, by any 
historical standards, should already be out of recession and 
creating jobs. That is what needs to be done.
    I yield back the balance of my time.
    The Chairman. The gentleman's time has expired. I am going 
to use my remaining time to repeat, again, I am struck by the 
unwillingness of my Republican colleagues to acknowledge that a 
substantial part of the stimulus was tax reduction. Now the 
gentleman just said more debt. Well, a third of that debt, 
almost 25 or 30 percent of it, came from tax reduction. If what 
we are hearing is a Republican objection to tax reductions this 
time, we may have more agreement than I thought.
    But let's understand that the stimulus package included 
over $200 billion of tax reductions. There were several 
additional tax reductions in a smaller amount, $10 billion or 
$12 billion. So I am, as I said, impressed that there is no 
differentiation. The tax reduction and spending are apparently 
equally destructive to the economy in their rhetoric, not in 
their analysis.
    The second argument that there is no role for the 
government is a very surprising one. Let me talk about two 
elements of the economic recovery that I think are essential. 
One, I think 47 Governors just asked for an extension of the 
FMAP program, the program that helps with Medicaid. That was 
part of the stimulus. They are facing serious problems. The 
notion that we should not help Governors avoid serious cuts in 
Medicaid is shocking to me. In fact, that is a part of what we 
are talking about.
    Secondly, we have the whole problem of State and local 
budgets. We are told, well, the private sector will create 
those jobs. There are police officers in cities in the district 
I represent in New Bedford and Fall River, for example, and 
firefighters who are now at work because of the economic 
recovery funds. The private sector does wonderful work, but 
they don't make cops. They can't hire cops. They are not 
supposed to. They don't hire firefighters. There is an element 
of public service that we are getting, and it is a twofold 
benefit. You are providing services, and you are helping avoid 
strains at the local government.
    So I understand the notion of how much and whether, but the 
notion that it did no good whatsoever; the notion it was all 
bad, when a substantial part, not a majority but a substantial 
part, of that deficit addition was tax cutting, let me put it 
this way, as I listen to the rhetoric here, if we had avoided 
the tax cut part, it would have been better if we simply had 
done the spending. Because that added to the deficit. There is 
no differentiation in their rhetoric.
    Secondly, the notion that the private sector will do it 
all. No, the private sector will not keep policemen on the 
street. It will not keep teachers in the classroom. It will not 
keep them shoveling the snow in the municipalities. And that, I 
think, is a serious fault.
    I reserve the balance for other members who have since 
arrived. The gentleman from New Jersey is recognized for 1\1/2\ 
minutes.
    Mr. Garrett. Thank you, Mr. Chairman.
    Just a quick note. Only about 12 percent of the American 
population believe that they got any tax cut, so that may 
explain the effectiveness of the tax cuts that you speak of.
    I thank the chairman and thank the panel for coming here 
today. It is amazing, isn't it, that there are many voices 
still on the other side of the aisle calling for more massive 
government spending despite the fact that the last massive 
stimulus bill obviously did not work.
    Now some are going to try to defend, as they already have, 
the last year's stimulus, saying that it hasn't created any new 
jobs; it saved jobs that wouldn't have otherwise been lost. 
Yet, I studied economics for a number of years, and I have yet 
to see any chart that shows anything other than employment 
numbers of people employed and unemployed. I have never see 
that column actually say, ``saved jobs.''
    It comes down to this; the American public has spoken loud 
and clear. They are telling us very clearly that the Federal 
Government is doing too much in too many different areas and is 
spending too much money, and they want Washington to stop and 
slow down.
    The consequences of ignoring their call and the spending 
problems are starting to become evident throughout the world. 
Greece has been in the news about possibly defaulting on its 
obligations. But Greece is really only the tip of the iceberg. 
You have Spain and Italy, among others, who are showing serious 
strains because they, too, like us here, ignored their spending 
problems for way too long.
    So here in the United States, we have $1.6 trillion 
deficits and no real serious commitment to cut spending by this 
Administration or the Majority in Congress. So because of that 
now, Moody's is coming out, and they are warning that the USA 
AAA bond rating may be in jeopardy. There are people whispering 
that if things don't change, the United States may default on 
its debt in the coming years.
    Mr. Chairman, I yield back.
    The Chairman. I thank the gentleman.
    I will just take 15 seconds to say this is an interesting 
way to analyze. The reason they didn't mention tax cuts on the 
other side is because 12 percent of the people only thought 
they had them. It is a vicious cycle. They keep telling people 
they didn't exist, so some people are persuaded. The notion 
that tax cuts didn't happen when they in fact did happen 
because 12 percent of the people thought they did, that is an 
odder form of economical analysis than any others the gentleman 
talked about.
    The gentlewoman from Illinois is recognized for 1 minute.
    Mrs. Biggert. Thank you, Mr. Chairman, and thank you for 
holding today's hearing.
    Where are the jobs? About 1 month ago, in his State of the 
Union address, President Obama said jobs must be our number one 
focus in 2010. I couldn't agree more.
    To create jobs, we need to accomplish at least three 
things. The first way to create jobs is right in front of us--
trade. Congress can pass three trade agreements now instead of 
allowing U.S. businesses to lose out to foreign competitors. On 
deals to export, expand, and create jobs, Congress needs to 
move the U.S.-South Korea, Panama, and Colombia trade 
agreements.
    Second, we need serious tax reform. Reduce the corporate 
tax rate. Permanently repeal the death tax. And extend the 
increased section 179 expensing limits, to name a few.
    What we don't need is a bank tax, transaction tax, and more 
out-of-control Federal spending.
    Third, we need commonsense financial services reform that 
will again bring certainty to the marketplace and get credit 
flowing again to small businesses.
    We don't need another Federal program, another Federal 
agency, or another taxpayer-funded bailout. We need for Federal 
legislators and regulators to get their act together and 
implement policies that make sense. We don't need, for example, 
mark-to-market accounting; rules that seem to be distorting the 
books, tying up money that could be lent to small businesses 
and causing some financial institutions to unnecessarily fold. 
Small businesses need tax relief and certainty to help them 
invest, expand, grow, and produce more goods and services, 
create jobs and give our economy the jump start it needs.
    The Chairman. The gentlewoman from California is recognized 
for the remaining 1 minute and 45 seconds.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I want to follow up on David Scott's plea to talk about 
what we do about the disproportionate loss of jobs and 
unemployment in these minority communities.
    As you know--and he cited some of those figures--it is up 
to about 17 percent officially in the 20- to 30-something 
category, and in many communities, this translates into 40 to 
50 percent of unemployed in certain areas in this country. And 
so we have to be serious and creative about creating jobs.
    I would like to hear today from some of the testimony that 
is before us about how we can truly empower businesses to 
create jobs. And it is not simply with tax breaks. Tax breaks 
means you have to spend money on the front end. And if you 
spend money on the front end and you do well, then maybe tax 
breaks will mean something to you. We have to talk about how we 
support businesses and doing training and offset the costs of 
dealing with government and doing training. Of course, tax 
breaks are okay, but we can't simply rely on them.
    Also, I would like to say, those who are saying the 
stimulus has not done anything, that is not quite true. The 
stimulus did save some jobs, create some jobs, but in minority 
communities, after you get through the bid process, the 
Association of General Contractors and the big boys, the well-
connected ones, the ones making all the campaign contributions, 
they are the ones getting these bids. They are not getting down 
to small contractors and minority contractors. And that is why 
we have not felt the impact of the stimulus in some of these 
communities.
    So let me just say that it is not only the Tea Party that 
is angry. We have a lot of small business people, unemployed 
people, and minorities who are angry about what is happening in 
this economy. I hope we can put politics aside and truly deal 
with the issue of job creation.
    I yield back the balance of my time, and I thank you.
    The Chairman. We will begin our testimony now with Andy 
Stern, President of the Service Employees International Union.
    Mr. Stern.

     STATEMENT OF ANDY STERN, PRESIDENT, SERVICE EMPLOYEES 
                      INTERNATIONAL UNION

    Mr. Stern. Thank you, Mr. Chairman, and thank you, Ranking 
Member Bachus, for this opportunity to testify today. I 
submitted my formal testimony, which I offer today.
    The Chairman. Let me say, all statements by all the 
witnesses, and any supporting material, without objection, will 
be made a part of the record.
    Mr. Stern. As the president of the Nation's fastest growing 
union, representing more than 2.2 million people, I know that 
our members struggle with the same challenges that nearly every 
working family faces across the Nation. People are scared. They 
are scared that the American Dream, the dream of owning your 
own home, having a decent job with affordable health care, 
retiring with dignity and security, while providing a better 
life for your children and grandchildren, is now slipping away.
    The problem of good American jobs, sadly, is not new. We 
began this decade, 2010, with fewer jobs than we had at the 
beginning of the last decade, although the labor force grew by 
nearly 11 million workers. And now, 16 months into the economic 
crisis, we have lost another staggering 8.4 million jobs.
    So, today we are in a very unusual situation where the 
recession appears to have ended. Economic growth is slowly 
improving, leaving many pundits and politicians to cheerfully 
predict that such a moment does not require the government to 
do more to reduce unemployment.
    As Paul Krugman says, and I believe, ``We are in the 
aftermath of a severe financial crisis which has led to mass 
job destruction, and right now we need more of that deficit 
spending because millions of Americans are blighted by high 
unemployment, and the government should be doing everything it 
can to bring unemployment down.''
    With more than 6 unemployed workers seeking every single 
job opening; nearly 15 million unemployed workers, of which 6 
million have been jobless for over 6 months; and 11 more 
million workers underemployed, which combined between the 
unemployed and underemployed is equal to the population of 18 
States, the scope and scale of the job crisis in the United 
States continues to be a national emergency, and now is not the 
time to put our foot on the brake of job growth.
    Lost jobs, lost wages, and lost wealth cannot fuel an 
economy where consumption drives 70 percent of our growth, 
coupled with Americans losing $11 trillion of wealth in 2008, 
and several years after the supposed recovery in median wealth 
actually declined even before the crisis hit.
    Members of Congress who voted for the American Recovery and 
Reinvestment Act clearly understood this challenge and 
appropriately acted when we were losing more than 2 million 
jobs in just one quarter.
    The Recovery Act, in my opinion, has been a success. It 
stopped a free fall of our economy, saved jobs, and produced 
almost all of the economic growth we have seen in the past 2 
quarters.
    As successful as it has been, it is clearly not enough. 
With unemployment at 9.7 percent and the bulk of the ARRA's 
relief scaling back later this year, just as States and local 
governments start to really feel the impact of their budget 
shortfalls, we still need to act.
    States alone will confront an estimated $100 billion budget 
gap for the coming fiscal year. To address the shortfall, 
Governors are proposing a new round of deep budget cuts that 
would increase unemployment and threaten the fragile economic 
recovery. Without further Federal aid, the actions States will 
have to take to close the budget gap could cost the economy 
another 900,000 jobs, jobs of teachers and firefighters, and 
also make painful cuts at a time when people need help the 
most.
    Nevada, for example, is planning to make cuts to the 
State's Medicaid program, including rationing adult diapers, 
eliminating denture and hearing aid programs, and forcing 
personal care assistants to buy their own disposable gloves. In 
Arizona, there are plans to eliminate the State's Children's 
Health Insurance Program and repeal Medicaid coverage for more 
than 300,000 adults. In California, the Governor has proposed 
eliminating the entire welfare program and reducing eligibility 
for in-home services of the elderly and disabled by 87 percent.
    The magnitude of the job crisis and the deteriorating 
budgets of State and local governments demand serious action 
now and doing more, like putting people to work and providing 
for the services that Americans need today.
    We have offered as part of our testimony a 10-point job 
program, some of which does not require Federal assistance, and 
others which would. But I would also like to state for the 
record that we should not overlook, as some have suggested, the 
role health care reform can play in promoting a robust economic 
recovery.
    First of all, it is important to understand that the 
private sector is supporting, in many cases, the passage of 
health care reform for its own economic security and 
competitiveness. Two, that health care reform, even despite 
this recession, health care has added 631,000 jobs since the 
recession began. And if Congress sends a health care bill to 
the President, that legislation is expected to add between 2.5 
million and 4 million jobs over the next decade and at the same 
time reduce the deficit.
    Health care and bioscience have the potential to be a major 
solution to jobs for our kids and our grandkids. It is now time 
to act aggressively so we don't face the same problem and 
mistakes we made in 1937.
    I thank you very much for the opportunity to address this 
committee.
    [The prepared statement of Mr. Stern can be found on page 
83 of the appendix.]
    Ms. Waters. [presiding] Mr. Mishel.

STATEMENT OF LAWRENCE MISHEL, PH.D., PRESIDENT, ECONOMIC POLICY 
                           INSTITUTE

    Mr. Mishel. Thank you very much for the opportunity to 
testify today.
    The United States is in the worst jobs crisis since the 
Great Depression, with unemployment hovering around 10 percent 
and probably rising to 10.5 percent by the end of the year. 
Note that these projections actually assume that we are going 
to renew UI for the entire year, when in fact it has not yet 
been done.
    Unemployment 2 years from now will probably top 8 percent, 
a rate higher than was achieved in either of the prior two 
recessions. This is unacceptable, as it will lead to severe 
losses of income, a scarred generation of young people, and 
limit our future potential growth by retarding investment and 
innovation.
    So what should we do? I think we should target getting 
unemployment down to 9.5 percent by the end of the year. This 
would mean we need an additional 1.5 million jobs. But I think 
we have to go beyond that because there are three reasons we 
should go beyond that:
    First, we have seen the labor force shrink by roughly 2 
million people since last May. They are going to come back in 
the labor market. If we get growth, that is going to make it 
hard to get unemployment. I think we can expect a million 
people back.
    Second, we have exceedingly high productivity growth, which 
means when we have growth, we are not seeing much job growth. I 
think productivity will likely be a percent faster than what 
most forecasters are saying, meaning we need an additional 1.2 
million to 1.4 million jobs.
    And third, we have seen a historic decline in work hours. 
And so I think that as employers look to increase output, they 
may increase work hours before they add jobs. And I think that 
is another reason to add more jobs.
    Overall, I think we have to look to increase jobs by around 
3.5 million beyond those that would be created by the 
unemployment insurance extension. That would cost $250 billion 
to $300 billion. That is what is needed.
    The Economic Policy Institute has developed the American 
Jobs Plan to accomplish this. I will review the five ways we 
suggest to do jobs:
    First, we need to continue the expanded unemployment 
insurance. This is giving money to people who will spend it. 
This creates jobs throughout the economy. At a time when there 
are 6 unemployed for every job opening, this is both 
compassionate and will lead to around 900,000 jobs.
    Second, as the State and local governments are going to 
pare back on their budgets in response to the deficits, we will 
see a million public sector and private sector jobs lost this 
summer and fall. It is therefore essential, both to preserve 
services and to preserve those jobs, that we do provide more 
relief to State and local governments.
    Third, I think we should do infrastructure investment. I 
think we can provide support for rehabbing and modernizing 
schools. That would create 240,000 jobs this summer.
    Fourth, we need to directly create jobs. It is the most 
cost-effective way to create jobs, providing funds to local 
governments for people to do jobs that are needed in their 
communities. It is a good way to target employment creation to 
those most distressed communities.
    And fifth, I have been in favor of a jobs tax credit if 
these other policies are implemented that would help boost 
demand. I should say, however, that I strongly oppose the 
approach taken by the Senate, which I regard as extremely 
poorly designed and terribly small, especially in the context 
of not any other stimulus besides that.
    Let's talk about the budget deficit. And I encourage 
discussion with the members afterwards on this. This is an 
important issue. We need to understand that we have a large 
deficit because we have a huge jobs crisis that lowered 
revenues and raised safety net expenditures. We do not have an 
out-of-control budget; we have an out-of-control economy. Thank 
you very much.
    [The prepared statement of Dr. Mishel can be found on page 
54 of the appendix.]
    Ms. Waters. Thank you very much.
    Mr. Hassett.

   STATEMENT OF KEVIN A. HASSETT, DIRECTOR, ECONOMIC POLICY 
             STUDIES, AMERICAN ENTERPRISE INSTITUTE

    Mr. Hassett. Thank you, Ms. Waters.
    While the short-term trajectory provides some sign of hope, 
there is no way to sugarcoat the description of the labor 
market.
    In the Post-War period, unemployment has only reached our 
current level once, peaking at 10.8 percent in November and 
December 1982. As bad as the current number is, there are 
indicators below the top line that are truly horrifying. In 
particular, it is astounding the extent, which was mentioned by 
the Member, to which Black Americans have borne the brunt of 
this recession. For Black Americans, the rate at trough was 14 
percent and now has risen all the way to 16.5 percent.
    It is important to look closer at the data for Blacks, as 
this has received far too little attention. While White 
employment has been declining since last November, unemployment 
among Blacks has steadily risen. The picture among less-
educated African Americans is far worse. This month, the BLS 
reported 21.3 of African Americans without a high school 
diploma were unemployed.
    It is, sadly, a statistical regularity that unemployment 
has been far worse for Black Americans. Since 1972, the 
earliest year the BLS reports unemployment data for African 
Americans and Blacks, the White unemployment rate has averaged 
roughly 5.5 percent, while Black Americans have experienced an 
average rate of 12.1 percent.
    In bad economic times, racial differences in unemployment 
are magnified. Since 1972, the monthly unemployment rate for 
Black Americans has risen as high as 21.2 percent, nearly 2 
times the highest rate for the overall population during the 
same period.
    Why are the effects of recession exacerbated for Blacks? 
Economists from the University of Connecticut and the 
University of California examined what is known as the last-
hired/first-fired hypothesis, which speculates that Blacks are 
the last to be hired during an expansion and the first to be 
let go during an economic contraction. They examined labor 
market transitions for Black and White men during the business 
cycle and find Blacks are usually the first to be let go as the 
business cycle deteriorates.
    But contrary to the hypothesis, they are usually hired back 
early in the recovery phase. Thus, it is likely that the gross 
flow data right now would show us, if available up to the 
minute, that Black Americans are flowing into new jobs created 
at about the same rate as everyone else but are 
disproportionately still bearing the job destruction.
    Now I cover a lot of policy prescriptions in my testimony, 
but since time is limited, I want to focus on one that I think 
is the most important.
    Ms. Waters. Unanimous consent for 5 more minutes.
    Mr. Hassett. I think that the policy that I would like to 
focus on is a policy that, for me, it is unusual because Mr. 
Stern and I agree. It was the first that he mentioned. And the 
reason that I think it is such an important policy that has, to 
this point, been neglected in the job creation debate, and the 
reason why I think it is most important is because of these 
Black American statistics.
    The fact is that the policy I am about to discuss is the 
best thing I can think of for addressing the Black unemployment 
problem, precisely because of the academic result that I just 
mentioned, that Blacks bear disproportionately layoffs when 
they occur.
    The fact is that underneath a net change like 20,000 jobs, 
which we saw in January, there is a tremendous amount of job 
creation and destruction. In November, the numbers were along 
the lines of 4 million created and 4 million destroyed. About 
half of the destroyed were people who did it voluntarily. If 
you could reduce job destruction even by a small proportion, 
then, all of a sudden, the monthly data might like more 
favorable. A 10 percent reduction might add 200,000 jobs net in 
the month that this happened.
    There is a policy that can do that effectively, and because 
Blacks bear disproportionately layoffs, it would 
disproportionately benefit them. It is modeled after the German 
policy known as ``Kurzabeit'' or ``short work.'' The idea is 
really simple, and it won't make me run over very much. The 
idea is that if you reduce a worker's hours by say 20 percent, 
then why not let him get 20 percent of his unemployment 
insurance? If you provide an incentive like that, then firms 
will want to spread layoffs out amongst large numbers of their 
workers with hours reductions rather than terminations. And so 
if you reduce hours for 5 workers by 20 percent, then that is 
the same as laying someone off.
    Right now, the government only really shares in supporting 
that worker if you lay the whole worker off. By adopting job 
sharing, we can give firms an incentive to slow job 
destruction. The German experience, and there are other 
countries that have similar programs, has been astonishing. 
Even during this recession, while GDP has declined about at the 
rate we have seen in the United States, the unemployment rate 
has barely budged.
    I share with this committee the concern that the job market 
is the worst in our lifetimes, and that something needs to be 
done. I would encourage the committee members to support 
policies like job sharing that are smart and target precisely 
the things that are the most important things to target and 
don't cost nearly as much as the stimulus of last year.
    Thank you.
    [The prepared statement of Mr. Hassett can be found on page 
44 of the appendix.]
    The Chairman. Finally, a witness who has always given his 
time very generously, Mark Zandi, who is the chief economist 
from Moody's Analytics.

  STATEMENT OF MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS

    Mr. Zandi. Thank you, Mr. Chairman, and the rest of the 
committee for the opportunity to speak here today.
    These are my views and not those of the Moody's 
Corporation. I would like to explicitly address the four 
questions that were posed in anticipation of the hearing.
    First, what is your current forecast for employment growth? 
My view is that the job losses will end this spring, and that 
by this coming spring, the spring of 2011, we will have enough 
job growth that it will start to measurably bring down 
unemployment.
    It is not going to be a straight line. At times, we will 
have a better job market. When the Census is hiring in April 
and May, we will get good solid job numbers. And at times, it 
will be weaker. In the summer, for example, when the Census 
jobs fade away, the job market will be softer.
    I don't think we will get enough job growth through the 
remainder of this year to bring down unemployment. I think it 
is very likely that unemployment will drift back up into the 
double digits and, by late this year, be closer to 10.5 
percent. That goes to the fact that the labor force is 
declining, which is incredibly unusual. The last time that has 
happened on a consistent basis was during the Korean War. That 
will start growing again, and many of those people will be 
counted as unemployed, and unemployment will move higher.
    This forecast I just articulated is based on a number of 
assumptions: One, that the Federal Reserve will not raise 
interest rates this year' and two, that we get some legislation 
to add more unemployment insurance benefits for those folks who 
lose their jobs in 2010. Other than that, I am assuming nothing 
else.
    One other point on the outlook. I think the risks are to 
the downside. I think as long as businesses aren't hiring--they 
have stopped laying off, but they have not started to hire. And 
as long as they are not hiring, we can't conclude that the 
coast is clear. I expect them to hire. All of the preconditions 
are now in place. But that is still very much a forecast, and 
we need to see it. And with each passing month that we don't 
see it, I think there are reasons to be concerned.
    One other quick point about the outlook. Even under the 
best of circumstances, I don't think the unemployment rate will 
get back to anything anyone would consider to be full 
employment, say 5.5 percent unemployment rate, until 2014. So I 
think it is going to be a long, long time before we get back to 
full employment.
    The second question, why isn't there any job growth? What 
is going on? Why haven't we seen any job growth since the 
recession ended 6 months ago? I think it boils down to two 
things. The first is credit; a lack of credit for small 
businesses. Big business can get credit. The bond market is 
working. The commercial paper market is functioning very well. 
But small businesses can't get credit. Many rely on their 
credit cards. And the number of credits cards outstanding has 
been falling very rapidly. Many rely on small banks, and this 
is very important in small communities. Small banks, obviously, 
are under tremendous pressure, in large part because the 
commercial mortgage portfolios are not extending loans, so 
small businesses can't get credit, and therefore, they can't 
hire.
    It is confidence, a lack of confidence. And that is really 
a concern in a lot of things. I do think it is necessary to 
address things like health care and energy policy, financial 
regulatory reform and tax policy. But as long as we are 
debating those things, and I think we should be debating them, 
but as long as we are, that creates policy uncertainty, 
particularly among big businesses, and they are reluctant to 
hire as a result.
    It is also important to remember that many businesses were 
put through the proverbial wringer not too long ago. About a 
year ago, many were failing, and it is very difficult for many 
of them to forget that.
    Going to the third question, is this recovery going to be 
more like the jobless recoveries in the wake of the last 
recession and the one in the early 1990's, or not? I think it 
is going to be very much like the jobless recoveries. 
Everything so far suggests that we are not going to see this 
job market revive in a significant way. Maybe for other reasons 
than the ones that we suffered back in the last recession and 
in the early 1990's, credit and confidence. But, nonetheless, I 
think this will be a jobless recovery.
    This goes to the last question, what should we do? Should 
we have any more additional stimulus? I think the answer is 
``yes.'' I think that is prudent risk management. I think 
because the risks in my outlook are to the downside, I think it 
is very important to be aggressive. Moreover, if we go back 
into a recession, although it is a low probability, but if we 
go back into a recession, we are not coming out. We have a zero 
percent funds rate target. We have a $1.4 trillion budget 
deficit. If we have another recession, we will have no policy 
response. Therefore, we have to err on the side of doing too 
much rather than too little.
    Let me just list five things I would do quickly: First, 
unemployment for those workers who lose their jobs in 2010; 
second, more help for State and local governments; third, 
expand out SBA lending for credit to small business; fourth, I 
concur with work share, that is a fabulous idea we should 
implement; and fifth, a jobs tax credit. I think that could 
turn the light switch on and get this job market rolling sooner 
rather than later. Thank you.
    [The prepared statement of Mr. Zandi can be found on page 
91 of the appendix.]
    The Chairman. Thank you, Mr. Zandi, and thanks to all the 
panel.
    Mr. Hassett, I am particularly interested in the create 
jobs directly. Let me ask, on job sharing, is that something 
which would need to be encouraged legislatively? I assume 
people can do that. Are there tax implications? Do we need to 
do this legislatively if we wanted to do it?
    Mr. Hassett. Yes, sir, you do, because what we want to do 
is provide the firm the ability to reduce the salary or the 
payments to the worker and have the government fill in some of 
that so it doesn't damage--
    The Chairman. I meant on the job sharing.
    Mr. Hassett. Excuse me. That is how the job sharing works. 
The way the job sharing works is that the firm will reduce 
hours 20 percent for 5 workers rather than lay a guy off. And 
then those guys will maybe each get 20 percent of their 
unemployment insurance, and he will reduce their wages.
    The Chairman. Also, you talk about the direct jobs program. 
Both of those would require the expenditure of Federal funds?
    Mr. Hassett. Yes.
    The Chairman. Both of them would add to the deficit?
    Mr. Hassett. Yes.
    The Chairman. Both of them you would recommend us doing at 
the current time?
    Mr. Hassett. Yes. They are very cost-effective ways to 
create jobs.
    The Chairman. Right. But you don't get too cost-effective 
until you accept cost. If your mantra is never add to the 
deficit, no way, no how, then what is the most effective way to 
do it becomes irrelevant. That is my difference with many of my 
colleagues. Debating how most efficiently to do that is a very 
important thing for us to do. But to simply take the position 
anything adds to the deficit at a time of this economic 
situation you all described, that is a problem. You can't get 
the cost-effectiveness. So I appreciate what you have to say, 
and I think these are things that are very useful.
    Let me go on to Mr. Stern, in particular. There are two 
things that I have been surprised are not more largely 
supported here. One is extension of the aid for Medicaid. One 
of the things we are told is the private sector would take 
over.
    Mr. Stern, everybody else, if we don't extend aid to the 
States for Medicaid to keep things going, in what way would the 
private sector step in and take up the slack?
    Mr. Stern. I think to the contrary, unfortunately, what the 
private sector is doing is dumping its responsibilities onto 
the States. As their obligations and budgets get tight, what 
they are doing is increasing copays, premium sharing, things 
that make it difficult for workers to take up the health care. 
So I think we are going to see an ever-increasing burden on the 
States. And I think it is appropriate, as the 47 Governors 
said, to continue assistance.
    The Chairman. Let me go back to Mr. Hassett. I want to go 
back to the Governors, because on the creating jobs directly, 
is that the one that I read Governor Barbour of Mississippi is 
employing?
    Mr. Hassett. That is correct.
    The Chairman. So a former Republican National Chairman is 
in fact adding to the deficit by using funds that the Federal 
Government has provided to him to do this?
    Mr. Hassett. That is correct. He has publicly supported 
this program. Again, it is a much more cost-effective way to 
create jobs, maybe on the order of 10,000 or 20,000, as opposed 
to last year's stimulus, if we accept President Obama's 
numbers, is about 100,000.
    The Chairman. I think it is an example of how sometimes 
politics can get in its own way. The notion of directly doing 
this offends some people, and therefore, we get into ways to 
mask it and wind up adding to the costs and being less 
effective in this regard.
    You say that House Democrats have correctly judged this 
program positively. Republicans support such a program, too. I 
want to pay tribute to the bipartisanship of my colleagues who 
did select you as their witness. So I do want to say--
    Mr. Hassett. At least this time.
    The Chairman. I think that people are ready to pick up your 
option if you decide to become a free agent in this regard. But 
I think, again, if you start out with ideological binders--no, 
we will do nothing--you have a problem. Once you agree that 
something needs to be done and that we are not going to get out 
without a combination of public and private efforts, then it 
becomes relevant to talk about these things.
    The last thing I would say is this, and we will get--I am 
just making a statement--we have State Governors also telling 
us that they are going to have to lay off police officers and 
teachers and sanitation workers and home health care workers, 
etc. If we do not extend the aid, that is going to happen, and 
you have a double hit there; you will have important services 
not provided and you will have more people added to 
unemployment and all that does.
    The gentleman from Texas.
    Mr. Hensarling. Thank you, Mr. Chairman.
    I heard you use the word ``offended.'' I must admit, yes, I 
am offended by ineffectiveness. And I have rarely seen a more 
ineffective piece of economic growth legislation than the so-
called stimulus bill.
    As the chairman has referenced, a substance of the bill had 
tax relief, there are a number of provisions and policies that 
I support in Federal law, but I don't necessarily confuse them 
with pro-growth economic policies. I believe $112 billion of 
that package would be more aptly described as tax relief for 
people who don't necessarily pay income taxes. There are 
aspects of welfare. Not to say that they weren't needed in the 
economy, but something that temporarily increases personal 
income does not necessarily translate into increased demand in 
our economy, much less creating jobs. By most calculations, a 
very, very small percentage of that particular legislation had 
anything to do with pro-growth policies that historically have 
created jobs, hope, and opportunity in our society.
    Again, I would point out, you can't fool all the people all 
the time. So if the new talking point for my friend on the 
other side of the aisle is, look at all this great tax relief 
we had to create jobs in the stimulus programs, I would ask my 
friends on the other side of the aisle, then why are you 
getting ready to take it all away? Why is it that all the tax 
relief is about to expire? Why is it that the death tax is 
about to go from zero to 55 percent? Why is it that many small 
business men and women in America are about to see their 
capital gains taxes increase by a full third? Why are they 
going to see their dividends tax increased by over 150 percent? 
Why are they going to see their marginal rates for every 
bracket increase under current law, with one exception? And so 
Milton Friedman, Nobel Laureate, who had the permanent income 
theory, and you can't fool people with temporary tax relief.
    I wish it were true, but it is not. And so what we see is a 
policy that still has us mired in almost double-digit 
inflation. It has been a while, but I have actually studied 
economic histories. That is what I had my undergraduate degree 
in. And I cannot find a single instance where you have anywhere 
close to this deep a recession to where you shouldn't have had 
already a bounceback recovery. That has been the post-war 
history of all recessions, and yet we don't see it today. And 
why don't we see it?
    One of the reasons, I believe, again, in my talks with 
business people and bankers, from small and large throughout 
America and in my districts, is fear. I believe that Mr. Zandi 
spoke of a lack of confidence. People who invest capital, 
people who create jobs, have a lack of confidence on how to 
deal with this debt and this deficit.
    I hear absolutely no words of concern from my friends on 
the other side of the aisle. I suppose the theory is that there 
is no level of debt or debt that we cannot exceed for some 
price of short-term economic growth. Number one, we really 
haven't seen it. Perhaps I am paraphrasing Mr. Stern, but what 
I believe I heard him say is: No jobs, no recovery. It is 
certainly what I believe. And I don't see the jobs in my 
district. And people across America continue to ask: Where are 
the jobs?
    And so why would you want to follow the same failed 
policies? I am not even sure John Maynard Keynes would have 
claimed that particular stimulus program. And here we are 
contemplating another one. You look at the spend-out rates; you 
look at the shovel-ready projects. It wasn't there. Even 
following classic Keynesian economics, this package was a 
complete failure. And now we are contemplating more of the 
same.
    I also think there is an aspect of, frankly, generational 
theft here, borrowing from future generations, robbing future 
GDP growth to try to promote current GDP growth. At some point, 
do you ask yourself, is this really fair to future generations?
    I see that my time is drawing near, so I will ask a 
question. And that is, Mr. Stern, you said we need more deficit 
spending. Let me ask you the question, is there any level of 
deficit spending that you would not accept? Are you at least 
troubled by the aspect that perhaps future members of your 
union may have to pay for this debt with future jobs?
    Mr. Stern. I am absolutely concerned about the long-term 
economic stability of this country, including the deficit. I 
don't, however, think there is any way out of this situation 
without job growth and wage growth. I don't think we can cut, 
borrow, or spend our way out until we have Americans back at 
work and gaining raises.
    But I do think we have a short-term and a long-term issue. 
And I think in the short term, as everyone has said up here in 
one form or another, we can debate what are more effective 
ways, but we need an effective way forward from this moment of 
history. We can all attempt to continue to adjudicate what we 
did, but we are here now. I think there are ways you have heard 
to do effective job growth, including from Governor Barbour and 
others. I think we should pursue them.
    The Chairman. The gentleman's time has expired.
    I recognize the gentlewoman from California.
    I will take 20 seconds to say that the gentleman said we 
need to have permanent tax cuts. And look what has happened to 
the estate tax. It is going to go from zero to 55 percent. I 
didn't vote for that. They did. That was George Bush's 
cockamamie way to get around the budget rules. The fact we have 
an estate tax going from zero to 55, that was what was voted on 
in that tax package that I opposed.
    Mr. Hensarling. Will the gentleman yield?
    The Chairman. I will give unanimous consent for an 
additional 15 seconds.
    Yes.
    Mr. Hensarling. Do I understand the gentleman is then 
against the policy and so would support a policy that keeps the 
death tax zeroed out?
    The Chairman. No. I am talking about the gentleman's point 
that it is a mistake to have nothing permanent, and that it is 
going from zero to 55 percent. That is what you guys voted for 
because you were trying to play games with the budget rules. I 
would have kept it up, not at 55 percent, but at a more 
reasonable level. This going from zero to 55 percent, this is 
nothing anybody here voted for. That was part of the Bush tax 
package the Republicans supported.
    The gentlewoman from California.
    Ms. Waters. Thank you very much.
    Mr. Hassett, I would first like to thank you for espousing 
the last hired/first fired scenario that we know something 
about. I would like to thank you for not being afraid to talk 
about Black unemployment. It is real. It is profound. It is 
hurting and destroying communities. Not a lot of people would 
like to give recognition to that.
    I like your idea of job sharing. I like the idea that you 
have some creative thought about what to do about unemployment 
in general and Black unemployment. I want to ask you about a 
few concepts that I am thinking about that have not really been 
employed in trying to do job creation. What about loan 
guarantees for small businesses who employ the unemployed? It 
seems to me, again, I have this idea that small businesses need 
upfront money. Even tax incentives are okay, but it comes after 
the fact. So I like the idea of loan guarantees. I am not so 
sure what others think about it.
    The other thing is, in the bid process, part of what was 
wrong with the stimulus, it is not that it didn't create jobs; 
it just took so long to do because of the bureaucracy and the 
bid process. Our small businesses are up against big businesses 
and competing for some of these contracts and these so-called 
shovel-ready projects. What about breaking up these contracts 
and not having such large contracts? But spreading them out so 
more small businesses can participate and create more jobs? 
What about credits for hiring in the area where the contracting 
is being done? One of the things that we see in some 
communities is once the stimulus projects are awarded, the 
large contractors are getting the contracts. They hire from all 
outside of these districts and not from the districts where 
they are working. What about some credits for hiring in the 
areas where the jobs are being done? And what about joint 
venture projects that would put together some large and small 
businesses so that small businesses would have an opportunity 
and they would get credit in the bid process as the request for 
proposal that is being honored recognizes the fact that they 
should involve small businesses?
    Mr. Hassett. Thank you very much for the kind words, Ms. 
Waters. I think that it would be important to try to shy away 
from a strategy of trying a million little ideas. I think the 
job-sharing program that we have, I guess, all mentioned is 
something that has been designed and implemented in other 
countries and shown to be effective.
    I think that the best strategy right now, if we are going 
to do a targeted program, would be to copy success and do it in 
a big way, but I also think that we should be careful with some 
of the issues that you mentioned to lose sight of the fact that 
we do have an environment right now that is not one that is 
producing a lot of optimism. And we need optimism from every 
business, not just small businesses. We need optimism from big 
businesses and small businesses. And I have other parts of my 
testimony where I talk about why I think there isn't that 
optimism. And there are bigger, less targeted programs, I 
think, that would adopt it.
    I think we do need to have a commission to restore fiscal 
balance so that people aren't worried about future tax hikes, 
and I think we have to address the fact that we have a really 
unfriendly climate for corporate America with really high tax 
rates.
    Ms. Waters. Don't you think that small businesses are 
suffering more than the big businesses?
    Mr. Hassett. I think that is clear. But I think as we are 
trying to create jobs, then big businesses will be an important 
way to do that. And to focus help only on small businesses, I 
think--
    Ms. Waters. Don't we have some statistics that show us that 
small businesses are more job-intensive than large businesses, 
and they actually, in the final analysis, create more jobs?
    Mr. Hassett. That is a long thing to talk about. But those 
statistics have often been misstated to say that small 
businesses create all the jobs and so on. But going forward, 
big businesses definitely could be an engine of growth if we 
could make the U.S. climate more friendly towards them, too.
    Ms. Waters. I like your job sharing. I am not sure I like 
your approach to big business as opposed to small businesses.
    The Chairman. One out of two is pretty good with Ms. 
Waters.
    The gentleman from Delaware.
    Mr. Castle. Thank you, Mr. Chairman.
    Mr. Zandi, I am concerned about the permanency of the jobs 
which have been created in the stimulus bill. If you can help 
me with this and let me tell you why I say what I just said. A 
lot of these jobs are created by the extension of help to the 
States and local governments in terms of their governmental 
jobs. And I assume at the end of a fiscal year, they will no 
longer have that money. Those jobs may or may not continue 
depending on what we do or they are able to do.
    And in addition, a number of the other jobs that were 
created were capital projects, perhaps adding a lane to a 
highway, whatever it may be, which may have expired after 3 
months, and I assume those jobs with the construction companies 
that were hired may also not be continued.
    Have you analyzed that or looked at that at all?
    It is hard to follow it in terms of all the numbers. I will 
be the first to tell you that some jobs were certainly saved 
and maybe even created by this bill. But were they jobs that 3 
or 4 months later have expired? We really haven't changed the 
underlying fundamentals of the economy.
    Mr. Zandi. Your intuition is correct. The stimulus is not 
designed to provide permanent job growth. The purpose of the 
stimulus was to provide a bridge to a time when businesses can 
again get credit and have the confidence to start hiring on 
their own to fill the void left by the fact that businesses 
were panicked a year ago. So the intent of the stimulus is not 
to create lasting jobs; its intent is to stimulate the economy, 
to get private businesses to step up to the plate and begin to 
hire.
    I can give you a sense of what my analysis has shown, that 
the level of employment will be 2.5 million jobs greater than 
it would have been otherwise at the end of this year with the 
stimulus. So that is the net benefit of the stimulus.
    Mr. Castle. But many of those jobs will drop off at some 
point, too.
    Mr. Zandi. That is the peak employment effect. By the year 
end 2011, we are down closer to 1 million; by the year end 
2012, it fades largely away. The stimulus was not designed to 
create permanent jobs.
    Mr. Castle. Thank you.
    You also indicated in your testimony, if I wrote it down 
correctly, that we should have more stimulus, and that could be 
measured in a variety of ways. As you know, we passed a House 
bill. There is a Senate bill which is being acted on this week, 
we think, and there is also more stimulus in terms of the 
stimulus bill that we passed last year which has not yet been 
expended. Can you expand on when you say ``more stimulus,'' 
what you are talking about?
    Mr. Zandi. Right. So you passed a bill at the end of last 
year that is worth about $50 billion to south of that for 2010. 
That was the housing tax credit through April, that was lost 
carryback, that was the higher conforming loan limits, and some 
UI.
    I would budget another approximately $50 billion for UI 
benefits, extended emergency benefits, for people who lose 
their jobs in 2010. I would allocate another approximately $50 
billion for FMAP extension. I think that is vital to the job 
market later this year, because if the States don't get that, 
we will see very large job losses at States. And then I would 
allocate another $50 billion to include things like a jobs tax 
credit, an empowerment of the Small Business Administration to 
become more aggressive in extending credit to small business, 
and if you are interested, we can talk about how you want to do 
that. If you add all those things up, it comes up to be $150- 
to $200 billion over the course of 2010, 2011.
    I think that would be appropriate in the context of, again, 
risk management. We do not want to go back into a recession. It 
will cost taxpayers measurably more if we do.
    Mr. Castle. This question could be for anybody, but you are 
the one who mentioned it, Mr. Zandi, and that is the need to 
have--one of your five solutions was to have the Small Business 
Administration--you just mentioned it again--do more, get more 
money. But that doesn't speak to bank lending, and a lot of us 
here are concerned about that. So many of our businesses are 
used to dealing in that particular way, and my concern is what, 
if anything, can we be doing to extend bank lending to 
businesses who may hire?
    Mr. Zandi. Be more aggressive. For example, as part of the 
stimulus, the loan guarantee on an SBA loan under the two 
programs went from 70 percent to 90 percent. You could lift it 
to 95, 97\1/2\ percent, make it like an FHA loan, not for very 
long, I wouldn't do it for very long, but if you do that, that 
would incent banks to then go out and be much more aggressive 
in extending credit to small business. There are a number of 
other things you could do, but that would be one of the most 
obvious things to get money out to small businesses very 
quickly. And the President has an idea: Take TARP money, 
provide capital to community banks so that they will go out and 
lend. I don't think that is going to work, at least not that 
quickly.
    Ms. Waters. [presiding] Thank you.
    Mel Watt.
    Mr. Watt. Thank you, Madam Chairwoman, and I thank the 
Chair for convening this hearing. I will say right at the 
outset the witnesses were very clear in their presentations, 
and I am not planning to ask you any questions because I think 
you have been very clear about what you had to say. But I am 
not planning to yield back my time either.
    I just want to get a couple of things off my chest.
    First of all, I don't usually pay much attention to whose 
witness is invited to testify. I just listen to the substance 
of what they say. But I can assure Mr. Hassett that he isn't 
likely to be invited back again by my colleagues on the other 
side. And I can say to him that I wish he had written their 
talking points today rather than all of the crap that we have 
heard.
    And that is what has me a little agitated and frustrated 
here, because I came to Congress in 1993, and I didn't come 
into Congress thinking that I was going to spend a lot of time 
trying to reach a balanced budget and getting us out of 
deficit. I am not even sure at that time I had much of an 
appreciation for what that meant. But it didn't take me long to 
figure out if we kept spending more and more of our budget, 
paying interest on debt, that was taking more and more and more 
of our budget away from things that I came to Congress to work 
for.
    And I took some tough votes in the 8 years, the first 8 
years that I was in Congress, leading to a point that we could 
get to a balanced budget with surpluses projected forward as 
far as the eye could see. And it frustrates me to have a bunch 
of ideologues here making it sound like they are the first 
people in life to have any concerns about balancing the budget 
and creating fiscal discipline when it took their President 
less than 1 year to wipe out everything we had done in 8 years 
of trying to get to a balanced budget. I think that is 
disingenuous. And for anybody to come in here and try to make 
it sound like we created this problem, and we are not trying to 
do anything long term or short term that will have any impact 
on this problem, I think--I can't say under the protocols that 
we are constrained to act under how much of a frustration that 
creates for me.
    I think Mr. Hassett's idea is a wonderful idea. I turned to 
my staff and said, go draw me a bill that will do this kind of 
sharing if nobody else has introduced that bill. But if he 
thinks that the folks who were responsible for inviting him 
here today will get on board, even though it has been 
implemented by a Governor in their party, and that they will be 
more interested in doing something positive to create jobs than 
just bitching and moaning about what isn't working or what 
might be politically expedient for him, then I think he is 
deluding himself.
    On that bill, we aren't going to get any support on the 
stimulus; we didn't get any support on anything that we have 
tried. We haven't gotten any support, including health care and 
the kinds of things that you have talked about cogently today, 
that would help address job creation. We have gotten no 
support, and all we have gotten is opening statements that make 
it sound like we are un-American because we are trying to dig 
out of this situation that they created. I am sick of it. And I 
am glad my time is over because I just can't take it any more.
    I yield back. I thank the lady for allowing me to express 
myself.
    Ms. Waters. Thank you, Mr. Watt.
    Mr. Manzullo.
    Mr. Manzullo. Thank you.
    In going through the testimony and listening to the 
witnesses' answers to the statement, I don't think I have heard 
the word ``manufacturing'' come up once. The area that I 
represent in northern Illinois is the largest county. One of 
the four jobs is directly related to manufacturing. And next to 
it, McHenry County is one out of five, and our unemployment is 
probably effectively 25 percent. You take 17 percent and add 7 
percentages to that.
    We can't buy out of way out of this recession. We have to 
manufacture our way out of it, and none of the four of you have 
mentioned that. And unless we get the supply chains going 
again, we are going to go nowhere.
    I had introduced a bill last year to get our manufacturing 
of automobiles back up to around 15 million vehicles sold each 
year. Follow this: For every 1 million cars that are sold in 
this country, it is 60,000 employees, the government saves--the 
government takes in $1.7 billion in Federal income tax; the 
States take in $300 million to $500 million in State income 
tax; States take in $1.3 billion in sales tax; and the Federal 
Government saves $1.3 billion in unemployment compensation, 
COBRA extensions, food stamps, and job retraining.
    Now, I don't know what it is going to take for this country 
to understand that manufacturing does it all. Once we restart 
the supply chains, we go back to the minerals and the ores and 
the chemicals that start the manufacturing process all the way 
through exporting, once the automobile industry is restarted, 
that will help out.
    Only one person mentioned the lack of credit. I can show 
you case after case--Ibsen, for example, in the congressional 
district that I represent, is the only manufacturer of a 
portable heat-treating machine. It is called the Titan. It 
costs less than $250,000. For high-end carbon, that is not that 
high. A lot of people want to buy it. There is no credit. 
Orders are coming in. The Institute for Supply Management, I 
think it is 7 months in a row, it increases. It is above 50.
    No one in this country seems to think that the way to come 
out of this thing is to start the wheels of manufacturing going 
again. And I would like to know what you gentlemen think about 
that. No one mentioned it.
    Mr. Hassett. Actually, sir, it figures prominently in the 
policy response that Ms. Waters didn't like that I gave that is 
in my testimony. I think you can't expect to have firms decide 
to locate a whole bunch of manufacturing plants in the United 
States when our corporate tax rate is about 10 percentage 
points higher than the average for our overseas--
    Mr. Manzullo. I understand they are not thinking about that 
now. They are thinking about getting a line of credit so they 
can sell their machines. That is the most immediate thing right 
now. They are also concerned, a lot of the shops, about card 
check. They are concerned about the health care bill that would 
cost 5 million jobs. We lost in our congressional district 
because of the carbon tax--the mere fact that came up, an $800 
million project was dumped in East Dubuque, Rentech, a company 
that--could I ask for another minute? Would that be possible?
    Ms. Waters. Without objection, it is so ordered.
    Mr. Manzullo. Thank you. Rentech makes anhydrous ammonia. 
They are going to switch to the Fischer-Tropsch process--1,000 
manufacturing jobs for several years, $800 million investment, 
it would have started the green revolution across northern 
Illinois. It was killed because of the carbon tax and cap-and-
trade. No one has talked about the fact that those are job-
killing policies and scare manufacturers from getting involved 
in it.
    So we have lost out on the latest technology. There is a 
loss of credit, and we seem to be adrift with very few people 
concentrating in restarting of manufacturing. And 
unfortunately, I talked too long and didn't give you the 
opportunity, but if you want to respond to me in writing, I 
would appreciate your thoughts on that. Thank you.
    Ms. Waters. Thank you very much.
    Mr. Moore.
    Mr. Moore of Kansas. I am concerned about how the 
commercial real estate market will impact any economic recovery 
for our country. The Congressional Oversight Panel for TARP 
issued a report this month expressing a concern that a wave of 
commercial real estate loan losses over the next 4 years could 
jeopardize the stability of many banks, particularly community 
banks. In the report they say, ``A significant wave of 
commercial mortgage defaults would trigger economic damage that 
could touch the lives of nearly every American.''
    You touched on this issue in your testimony, Mr. Zandi, but 
is there anything Congress can or should do to minimize the 
negative impact of a commercial real estate crisis?
    Mr. Zandi. You are absolutely right. If you are going to 
list in rank order the impediments to the recovery, potential 
impediments to recovery, commercial mortgage defaults would be 
right at the top. It has two negative consequences for the 
economy. One is obviously small banks that are choking on their 
defaulting mortgage loans, which is restricting credit to small 
business in small communities in particular; and second, the 
collapse in construction as a large employer in many 
communities.
    Unfortunately, there is no direct way that the Federal 
Government can help, unlike the residential mortgage market. In 
the residential mortgage market, Fannie Mae, Freddie Mac, and 
the FHA can come in and fill the void left by the fact that 
private lenders aren't extending credit. There is no direct 
mechanism to do that.
    There are a couple of things that can be done. Fannie Mae 
and Freddie Mac do have arms that make multifamily mortgage 
loans, and so they can be empowered to go out and extend more 
credit to the multifamily sector of the commercial real estate 
market, which is quite important.
    Also, I think it is important to have regulators apply 
forbearance with respect to how they address these commercial 
mortgage loans. If they can figure out ways to work with these 
small banks to make sure that they don't have to force the 
mortgage owner to default on the loan, that would be quite 
therapeutic, and I think it would be good policy for regulators 
to show some forbearance in that regard.
    Mr. Moore of Kansas. Thank you, sir.
    Would any other witnesses care to comment?
    Thank you. I yield back, Madam Chairwoman.
    The Chairman. The gentleman from Texas, Mr. Marchant.
    Mr. Marchant. Thank you, Mr. Chairman.
    Mr. Zandi, I would like to take advantage of your expertise 
in the home building field. Have we ever had a--
    Mr. Zandi. Like is your home going to fall in value? What 
is your address?
    Mr. Marchant. Have we ever had a recession where home 
building was not one of the leading components that led us out 
of that?
    Mr. Zandi. It has always led us. It is one of the sectors 
that has always led us out of recession into recovery because 
it is a very rate-sensitive sector, and historically in 
recessions interest rates come down. That juices up demand, and 
you get more construction. So it has also been a sector that is 
key to recovery.
    Mr. Marchant. So what is different about this recession, 
and why hasn't home building, housing production, led us out of 
this recession?
    Mr. Zandi. Well, of course, housing is ground zero for the 
financial crisis that we are in. It was aggressive lending, 
speculation in the housing market which led to the collapse of 
the financial system and the mess that we find ourselves in. So 
the housing market is now significantly overbuilt. The number 
of vacant homes that are for sale or for rent is still very 
high by historical standards. House prices, we still have a 
mountain of foreclosures to work through which will continue to 
depress prices. And so given the ill effects of all of the 
speculation and euphoria during the bubble, housing is not 
going to be able to lead the way out of this, lead the way 
through--into this early part of this recovery. It is just not 
going to do it. Another reason to suspect the recovery is going 
to be modest as a result.
    Mr. Marchant. Have we ever had the phenomena of apartment 
occupancy actually going down when home building is going down 
at the same time?
    Mr. Zandi. No. This is extraordinarily unusual. When you 
have both rental vacancy rate and homeownership vacancy rate 
high and rising, that goes to the mountain of vacant homes that 
are out there for sale and for rent, and fundamentally due to 
the overbuilding that occurred during the boom and the bubble. 
So I think it is fair to say it is unprecedented, yes.
    Mr. Marchant. So the industries that normally recover 
quickly, manufacturing, furniture, housewares, all of these 
other industries that traditionally will follow right behind 
the housing boom, that is not happening either?
    Mr. Zandi. No, it won't happen--when you get a home sale, 
people go out and they buy furniture, they may even buy a car, 
they refurbish the home. So this is remodeling and repair. So, 
yes, all those things will be depressed, at least compared to 
where they would be normally at this point in an economic 
recovery. We are just not going to see it in this go-round.
    Mr. Marchant. So in any kind of new economic package or 
stimulus package, shouldn't there be some component of it that 
addresses this issue?
    Mr. Zandi. I don't think it is part of the stimulus. I 
think it is part of the policy response, though, and if I were 
you, I would focus entirely on loan modification and 
foreclosure mitigation. That is the most positive thing that 
you could do. At this point, I think an extension of the 
housing tax credit would not be particularly helpful; you have 
done that now 3 times, and it is losing its firepower. You 
extend it a fourth time, it is really not going to add 
anything. In fact, it is going to be very inefficient because 
you are just giving it away to people who would have bought a 
home anyway.
    So if I were you, I would devote all of my resources, and 
you have resources in TARP, to figure out a more effective 
method of modifying mortgage loans.
    Mr. Marchant. So we are finding that this latest round of 
first-time homebuyer stimulus is not having the effect.
    Mr. Zandi. Well, the one that expired in November, 
fabulous, it worked very well. I think the Realtors got out and 
really marketed it. This next round, this next tax credit 
extension expires in April. It is still early to judge, but I 
suspect you are going to get more sales come March or April. 
But if you do it again, I don't think it is going to provide 
much juice, because you pulled forward all those sales as a 
result of these previous three tax credits. You are not got 
going to get much of a benefit, no.
    Mr. Marchant. Thank you, Mr. Chairman.
    The Chairman. The gentleman from California.
    Mr. Baca. Thank you, very much, Mr. Chairman. Thank you for 
holding this hearing.
    I agree with what Congressman Mel Watt said earlier. A lot 
of us are very much concerned that a lot of positive things are 
not happening. But as we look at our Nation and our country, 
and we look at the last quarter of 2009 and again the first 
month of 2010, but obviously the big issue remains high 
unemployment. And in my State of California, the unemployment 
rate is about 12 percent. In my home district, it is over 14 
percent. Many have termed these recent events to be a sign of 
jobless recovery, and people are concerned right now, they are 
saying, hey, what about a job for me? I have lost a job. What 
are you going to do? And they are asking us specifically what 
can be done in that area.
    What is unique about our current economic crisis compared 
to the ones this country has experienced in the past where 
significant job growth has fallen, significant economic growth? 
And I say this because it needs to be addressed in the area 
that we have all talked about.
    You talked about the manufacturing, you talked about home 
loans, Mr. Zandi, but when you look at the mortgage lenders, 
remember that the manufacturers, the furnitures and others, all 
those jobs were never outsourced. So when you look at economic 
recovery from the past, we didn't have the outsourcing, we 
didn't have the trade that is going on right now. That is 
attributed a lot to the growth and economics in the area 
because we don't have those manufacturers in our areas. We 
don't have them creating those jobs here in the United States; 
they are being outsourced. The same greedy corporations that 
got involved with predatory lending and everything else went 
outside of this country, operated outside of this country, and 
then we end up not being able to employ the bodies or people 
that we need.
    Hopefully, you can address that, and address the 
outsourcing the impact it has had on the recovery. And that is 
open for all three of you, maybe starting from labor, Mr. 
Stern, starting from you.
    Mr. Stern. Let me just start by saying I think there is 
something much more profound here, and I know we could talk 
about life in terms of this economic crisis, but I said I want 
to respond to you. This is not our fathers' or grandfathers' 
economy. The ``one job in a lifetime'' economy is gone. We had 
a jobless decade, not just a jobless 2 years. American workers 
faced 5 years before the economic crisis where they didn't get 
a raise, the longest period of economic stagnation in the 
history of our country.
    So there is something profoundly different, I agree with 
you, sir, that is going on, and the first thing is that we are 
in a global economy, and our country no longer salutes our 
flag, they salute their own corporate logo a lot more. And in a 
global economy, the responsibility of America is really 
different. We are a team. And I would say our team has no plan 
to how to deal with a 21st Century economy instead of a 20th 
Century economy. Whether it is about our manufacturing center, 
whether it is about trade or incubating the jobs of the future, 
the privatizing, deregulating, ``let the market solve all our 
problems'' failed us miserably in the last century, at the end 
of last century, and in a global economy we need to change.
    And I think all the policy issues you have talked about, 
what we do about manufacturing, about the fact that if we pass 
the health care bill, we will add 2\1/2\ to 4 million jobs that 
are paid for in America, which no one really wants to talk 
necessarily about; or that health care and bioscience and 
pharmaceutical are really the jobs that we do export--
    Mr. Baca. And those jobs won't be outsourced. They will be 
created right here in the United States.
    Mr. Stern. In every State, in every community. This is not 
a Democrat, a red State or a blue State, it is an American 
solution to a problem as well.
    So there are some things we are looking for jobs in all the 
wrong places I like to say sometimes, because the health care 
bill is a jobs bill that is paid for. But I do think we need a 
different economic plan in the 21st Century, and we don't have 
one right now.
    Mr. Baca. The rest of the panel?
    Mr. Hassett. I just think that if you think of it from the 
point of view, say, a State, suppose you are a State, and you 
are charging corporations a lot more to be in your State than 
all your neighbors. Then what is going to happen is the plants 
are going to locate in the neighboring States because they have 
lower tax rates.
    We are way out of line with the rest of the world right 
now, and the fact is that in order for firms to compete, they 
have to locate activity in places where the taxation of their 
activities is comparable to the people they are competing 
against. And that is not because they are evil or 
unsympathetic, it is because--
    Mr. Baca. There has to be a fair, level playing field 
because they all leave the United States, and they say it is a 
lot cheaper to go outsource out there and create those jobs out 
there versus out here, and then all we end up having is 
distribution centers in our area.
    Mr. Hassett. There is very clear evidence that relates 
changes in corporate taxation to blue-collar wages. If we made 
ourselves a more attractive country for the location of 
manufacturing plants, then wages would go up, and we would 
create jobs. We can't go around and micromanage little things 
like access to credit and expect really big responses when 
there is a fundamental knife in the chest of manufacturing in 
the United States, which is that we are the most unattractive 
tax climate if you add, for example, the California tax rate to 
it on Earth.
    So people aren't going to look at the deficit that we have 
and the high taxes that we have and say, well, I will locate my 
activity there and create jobs there, because there are so many 
more attractive places. And unless you address that fundamental 
problem, then we are going to be tinkering around the edges. 
And it is not because of the motives of corporations, that they 
are bad people. It is because they are competing against folks 
who have a tremendous advantage because our policies are messed 
up.
    Mr. Baca. Mr. Mishel?
    Mr. Mishel. I don't believe that corporate tax rates are 
what is deindustrializing America, but I think we should at 
least mention the fact that exchange rates are way out of line, 
and people are totally afraid to even deal with it. And so we 
have a very large external deficit, especially with China. When 
people complain about all the public debt going to China, that 
is really a process of our trade problem with China and not, in 
fact, anything to do with our current fiscal position. So I 
would suggest that we have an exchange about that.
    Mr. Baca. For a level playing field.
    The Chairman. The gentleman from California.
    Mr. Royce. Thank you.
    Mr. Hassett, I was going to ask you as we talk about the 
need for job creation, I think it is hard for those out there 
who are entrepreneurs to ignore the uncertainty that many 
Americans face when they turn on the news and they hear what is 
coming out of Washington. The rush by the Administration, and 
frankly by this Congress, to transform the U.S. economy into 
one centered on the Federal Government, and that is the way a 
lot of people perceive it, has created, frankly, a level of 
uncertainty among our Nation's small businesses that is a 35-
year low in terms of the polling that you see in business.
    Businesses are not hiring. One of the reasons is they see 
the new mandates. They see the new taxes being debated in the 
health care bill. They understand that the cap-and-trade 
legislation will restrict growth. Certainly, it is going to 
increase their costs of doing business if their energy costs 
are going to go up.
    I know my overarching concern with the regulatory reform 
bill that this committee passed out late last year was the 
power relegated to government bureaucrats in terms of the way 
in which it was done. And I think businesses throughout our 
financial system see the creation of a new expensive consumer 
protection agency. They understand that a common theme found 
throughout the legislation is a spike in legal liabilities, 
which is another thing for them to be concerned about. They are 
going to have to deal with that. In the past few months, you 
saw the Speaker and an advisor to the President, John Podesta, 
both raise the idea of another tax, a Value Added Tax, or VAT 
tax, to generate revenue.
    Well, if you are in the small business community, and you 
are looking at what is around the corner, and you are looking 
at the potential of facing all of those taxes, card check would 
be another thing that you would put into the equation, all of 
these factors, arguably, lead to an aversion to risk across-
the-board, an aversion to the idea that you are going to put 
more capital at stake. And instead of bringing on new employees 
or investing in the firm, I think businesses are preparing for 
what they believe will be hostile operating environments that 
they are going to have to live in for years to come, basically 
a politically hostile environment as the government grows and 
the private sector shrinks.
    The National Federation of Independent Businesses were the 
ones that did the recent study on capital expenditures and 
near-term plans for new capital investment. They say that is at 
a 35-year low.
    So these facts suggest that it was a serious economic 
mistake to press for this major transformation, in my mind, to 
government power in Washington, centered in Washington. That 
has been a lot of the messaging, that these decisions are not 
going to be made in the private sector. A lot of them, 
including even the ownership of institutions, are going to stay 
with Washington for a while. Political pull is going to replace 
market discipline, is going to replace market forces on the 
heels of the worst financial crisis in decades.
    And I would like to ask you, Mr. Hassett, for your views on 
that topic. Are small businesses around the country hesitant to 
expand because of the rhetoric coming out of Washington and the 
concerns that some of these things are going to come to pass?
    Mr. Hassett. Thank you for the question, Mr. Royce. I think 
that absolutely uncertainty about policy is something that 
squashes investment, especially capital formation. It is 
something we have seen repeatedly in the past. But also 
uncertainty about things like tax policy and future taxes. If 
we take just the stimulus, for example, if you are a small 
business or a medium-sized business with a taxable income, say, 
between $200,000 and $500,000 a year, you employ a few people, 
your own bill for the stimulus and expected future taxes is 
about $41,000 just for that one guy. That is his share of the 
stimulus. It is about $8,000 for every taxpayer.
    And the fact is that we have to pay off this stuff or we 
are going to keep making our credit card payments every month. 
And I think that that creates a lot of uncertainty. That is why 
the first policy that I addressed in my testimony was fiscal 
consolidation, the notion that--I know it was addressed in the 
Senate recently where it was actually a failed initiative to 
have a panel, a bipartisan panel, try to seek ways to fix the 
budget deficit. If we don't address these problems and provide 
some kind of clarity, then we should expect high-risk aversion 
to continue, and we will continue to be disappointed by the 
recovery.
    Mr. Royce. Mr. Zandi?
    Mr. Zandi. I think it is fair to say that policy 
uncertainty is contributing to the lack of hiring. I think, 
though, that these are issues that need to be addressed. And I 
think health care needs to be addressed, and energy policy, and 
financial regulatory reform and tax policy. All those things 
are very, very important. I don't think there is any way around 
addressing them. But I think one unfortunate byproduct of that 
is it creates uncertainty and is playing a role in the lack of 
hiring, yes.
    Mr. Royce. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from New York.
    Mrs. Maloney. Thank you. I didn't expect to be called on, 
but I am delighted to be called on, and thank all of you.
    I would like to follow up on the gentleman's questioning on 
uncertainty. And I believe that part of what the Democratic 
Congress and President was attempting to do was to create 
certainty. We had whole segments of the housing market that 
were not regulated, and it burst into a flame of pain for many 
people. And we came forward with regulations so that there 
would be certainty. So what we were doing was working to put 
certainty back into the system so that you knew what the health 
care plan was and what the housing regulation was going to be. 
But many of these economists have said that we basically have 
two choices: We can either provide stimulus money or tax 
credits for jobs.
    I would like to ask Mr. Zandi, which do you think is more 
effective in creating jobs? Or do you need a combination of 
both?
    Mr. Zandi. I think a combination of both would be 
appropriate. I think a jobs tax credit is probably the best 
idea for trying to generate hiring this year to do it quickly.
    Mrs. Maloney. Do you think we need more stimulus to keep 
the recovery that we are experiencing now going forward? I 
understand OMB came out with numbers today that showed that we 
are really continuing to trend in the right direction, but 
rather slowly.
    Mr. Zandi. Yes, I think we need more stimulus, including 
the job tax credit and the help for unemployed workers and 
State governments. Work Share, helping to fund Work Share would 
be a good idea, more money to the Small Business Administration 
so that they can get more credit out.
    So I think--I expressed this early on, and I will restate 
it--the odds are that our economy, without any more policy 
help, will get through this. The job market will rev up, and by 
this time next year, we will feel better. But I think the odds 
are uncomfortably high that I am wrong and that we go back into 
a recession or some very weak economic environment, and if we 
do, it is going to be very difficult to get out. So prudent 
risk management would say err on the side of doing too much 
rather than too little.
    Mrs. Maloney. Now, in terms of the jobs tax credit, 
Professor Blinder in his op-ed in the Washington Post this 
week--and incidentally, he was supposed to testify when you 
were, but he was snowed in, so he turned his testimony into an 
op-ed, and he talked about major ways employers may ``game'' a 
jobs tax credit. So I would like to ask you, and the others if 
they would like to participate, how would you design a credit? 
What would be the key parts? For example, should we target 
firms of a particular size or age, or should it be all firms? 
Should it be tied to head counts, or should it be tied to 
overall payroll increase?
    If you were to design a tax credit bill--and there are a 
number of them out there, the Senate may be moving forward with 
theirs, and I even have my own in, I am sure the chairman has 
two or three in, everybody on the committee has one--but I 
would ask Mr. Mishel since you seem to want to respond, how 
would you design it if you--and anyone who would like to 
participate or have ideas?
    Mr. Mishel. Thank you for the opportunity.
    My institute has offered a jobs tax credit designed by 
Professor John Bishop of Cornell and Tim Bartik of the Upjohn 
Institute, and it works in the following way: Employers have to 
file a quarterly tax return, and in that you can see how much 
payroll tax they pay this year versus four quarters ago. If 
they are paying more payroll tax this year, over a certain 
amount, then you estimate, not normal wage growth would 
generate, and they get a credit up to around, I think, 15 
percent. So what you are doing is you are rewarding employers 
for raising wages, increasing hours of work, and increasing 
head count. And I think that is pretty impossible to game other 
than issues around new firms, which I think are easily handed. 
I think this is a useful thing to do in the context of getting 
more growth.
    One of the things we haven't talked about here is that we 
have also seen--whatever growth we have seen, it has been from 
the stimulus. But the growth that we have seen is very slow, 3 
percent growth. We need to have twice as much growth. So, in 
fact, we need robust, increased demand. If employers see that, 
and if they have some kind of job tax credit, I think we can 
multiply the effect of that.
    The Chairman. The gentleman from Alabama.
    Mr. Bachus. Thank you, Mr. Chairman.
    Mr. Zandi, if you look at possible ways to create jobs 
without taking on more debt, in other words, government 
expenditures, or without expanding the deficit--that is 
actually one thing about tax cuts is you do expand the 
deficits--but are there ways that we can create jobs without 
doing either of those? What might some of those be?
    Mr. Zandi. Well, there is no reason that these stimulus 
proposals that we are talking about can't be paid for. In fact, 
I wouldn't pay for them this year, but I would pay for them 
over a 10-year budget window.
    Mr. Bachus. Which ones?
    Mr. Zandi. All of them. I think it is important to show 
fiscal discipline, particularly now. In fact, that will buy us 
a lot of goodwill in financial markets and will help our 
economy. So we should run a larger deficit this year, and some 
of the proposals I said would do that. That doesn't mean we 
can't pay for it over a 10-year budget window.
    Mr. Bachus. What are some of the things that you think 
would do that? Are you saying the tax cuts?
    Mr. Zandi. Yes. I would think that some of the things that 
you could do to pay for it would be to focus on things, and I 
am just blue-skying it for you, but the financial TARP tax, the 
so-called TARP tax that has a 10-year window. I think that is a 
very legitimate kind of tax. It is a way to address the ``too-
big-to-fail'' issue. You are raising the cost of capital for 
large institutions. It is a much more effective way of 
addressing it than trying to break these institutions apart, 
and you generate revenue. I would make that permanent, and I 
would use that money to pay for this additional stimulus. That 
would be one way of paying for it.
    Mr. Bachus. What are some of the other tax cuts that you 
think would be beneficial and revenue-neutral?
    Mr. Zandi. I agree with Kevin that I think the corporate 
tax rate, of all the taxes we have, that is the worst tax. It 
is inefficient. It is reasonable to argue that it is 
inappropriate and that we should work to reduce that, and we 
have to do that--
    Mr. Bachus. Do you think that would create jobs?
    Mr. Zandi. I do, but we have to do it in the context of 
broader tax reform and make sure we don't raise future 
deficits, because this is 10 percent of tax growth.
    Mr. Bachus. Mr. Hassett, do you agree with him that the tax 
cuts actually would create jobs and would in the long term be 
revenue-neutral or actually produce revenue?
    Mr. Hassett. On the corporate tax specifically, there is a 
fairly recent Brookings paper by Kim Clausing, who is a 
professor at--is it Reed College--who shows that again the 
multinationals are so nimble with respect to the corporate tax 
that it appears that we are on the wrong side of the Laffer 
curve. That is probably the only tax rate that I can think of 
where that is really true. But there is academic literature 
that suggests that reducing the corporate rate wouldn't be very 
costly at all.
    I agree the deficit is so large, it is a key part of my 
testimony that we need to be concerned about that, but I think 
some kind of cautious reductions, especially phased in--there 
is a great policy opportunity to phase in a reduction in the 
corporate rate, because if the rate, say, went from 35 to 25 
over 10 years, then firms would have incentive to buy machines 
today and deduct them at 35 cents, and when they get profits in 
the future from the operation of the machine, it is a lower 
rate, so it is a double positive. So I think it would be very, 
very important to do something like that.
    With regard to the stimulus, the one thing I can say is 
that the thing that pains me looking back--and I agree with the 
chairman that anyone who says that it hurt last year, I think, 
doesn't have at least the literature to point to. Even Bob 
Barrow's piece in the Journal today talked about a positive 
effect last year of the stimulus. The thing that pains me is 
that we have all these broken policies, and we didn't use the 
money to fix any of them. And this corporate tax thing is 
something I care as much about as the jobs credit that we were 
talking about earlier, and we don't have the money to fix it.
    Mr. Bachus. Both of you agree that cutting the corporate 
tax rate, Democrat and Republican witness. My next question 
would be this, and called by the Republican and Democrats. What 
about the free trade agreements? Would those create jobs? There 
are four of them pending. Mr. Zandi or Mr. Hassett, just the 
two of you all, just to maybe--and how many jobs do you think?
    Mr. Zandi. You are stretching my limits of expertise. I 
don't know these agreements well enough to comment. Let me say 
this: I think we are a net benefactor of globalization, and one 
of the--
    The Chairman. Benefactor or beneficiary?
    Mr. Zandi. Beneficiary. Net beneficiary of globalization. 
One of the most amazing things, from my perspective, that came 
out of this global crisis is that we were able to globally 
coordinate and cooperate, and no one raised barriers in a 
significant way. We all had our Buy America provisions, but 
they were modest. And I think that is testimonial to the fact 
that at the end of the day, it is very important that we keep 
our--
    Mr. Bachus. Can Mr. Hassett respond?
    The Chairman. Briefly. Sure.
    Mr. Hassett. Really quickly, I think that the arguments 
against trade all have a great deal more purchase when our 
policies are so terrible that everybody wants to leave. And so 
the reason why we are worried about things like the jobs being 
located off-shore is that locating domestically is 
unattractive, and if we fix that problem, I think there would 
be very significant benefits from trade for sure.
    The Chairman. The gentleman from Georgia.
    Before that, don't start his clock yet, I ask unanimous 
consent that a package of statements from the National Council 
of La Raza be made part of this hearing. And without objection, 
they will be.
    The gentleman from Georgia.
    Mr. Bachus. Mr. Chairman, Mr. Stern and Mr. Mishel wanted 
to respond, too.
    The Chairman. The gentleman can't take other people's time.
    Mr. Bachus. I am sorry.
    The Chairman. Can we get unanimous consent? If there is 
unanimous consent for 45 seconds for Mr. Mishel, I think we can 
do that. That was a fair comment. Forty-five seconds unanimous 
consent.
    Mr. Mishel. On the free trade agreements, I find it 
remarkable that people claim that as something that is going to 
create a lot of jobs. Somehow they seem to think we get more 
exports, but don't take in more imports, and whatever estimate 
there is of the gain would be so small as to be almost 
unmeasurable.
    And I think what my colleagues were saying as a long-run 
stance that we are for globalization. But actually most 
economists don't think trade is about jobs; it is about 
increasing comparative advantage and increasing productivity 
and wealth, and it is not a job-creation measure. And in fact, 
all the trade agreements we have had in the past have led to 
severe net job losses, in my view.
    The Chairman. We have 15 seconds.
    How low would we have to get the corporate tax rate to be 
fully competitive with China?
    Mr. Mishel. I am not sure about that. I think our issues 
with moving to China have almost nothing to do with corporate 
tax rates.
    The Chairman. The gentleman from Georgia, finally, again.
    Mr. Scott. Thank you, Mr. Chairman.
    The Chairman. And a full 5 minutes, please, for the 
gentleman from Georgia.
    Mr. Scott. Thank you again.
    Mr. Hassett, let me go to you, if I may. First of all, let 
me commend you on the profoundness of your paper. You have 
nailed the core of the unemployment problem by willingness to 
address the disproportionate impact that this unemployment is 
having on African Americans. And until we deal with that, until 
we pull the covers off and say we have to go where the core of 
the problem is, just as surely as we went at where the core of 
the problem was on Wall Street, we targeted there, and I 
commend you for that.
    I want to call attention to a couple of points you made. 
First of all, you said it is astounding the extent to which 
Black Americans have borne the brunt of this recession. Then 
you go on to say it is important to look closer at the data for 
Blacks as this has received far too little attention. While 
White unemployment has been declining since November, 
unemployment among Blacks has steadily increased, which brings 
me to my point that the reason we are going up so high is 
because the African-American unemployment is going so high, 
while the White unemployment is going down. It is, sadly, a 
statistical regularity that unemployment has been far worse for 
Black Americans.
    And then you ask the profound question, why? Why are the 
effects of the recession exacerbated for Blacks? You point to 
the study. You bring your information from the study by the 
economists at the University of Connecticut and the University 
of California, and they say that Blacks are the last to be 
hired and the first to be fired. And you conclude that given 
the terrible state of the labor market, it is clear that more 
must be done. And you say, I would add that we should look 
especially to policies that are most likely to help Black 
Americans who have suffered the worst of the recession's job 
destruction. Thank you for stating that.
    Now, what must we do about it? I commend you on your job 
sharing, and I want to ask you, first of all, how is House 
Resolution 4135 going? Where are we on that? That is the job-
sharing bill. How can we help you move it forward, and what 
needs to be done to strengthen it, especially with the emphasis 
on the African American jobless situation?
    Mr. Hassett. I think the policy itself is really focused on 
helping those who are first to be laid off when those begin to 
occur. And so I don't think that it needs to be modified to 
increase its targeted nature. I think the concern is that the 
difference between the United States and many European nations 
that have had an astonishing success from job sharing is that 
fixed costs in the United States, like benefit costs, are a 
bigger share because, say, in Germany, the government would 
give you your health insurance. And so if you reduce somebody's 
hours 20 percent and their wages 20 percent, then the saving to 
the firm wouldn't be as much, because the lump of the health 
insurance is still there.
    And so I just think that to be--to get effectiveness along 
the lines of what we see in Europe, it needs to be a pretty 
darn generous program. And so I think that as ambitious as you 
could challenge your staff to be about making it generous, I 
think the returns from that would be large and perhaps 
necessary because of the share of fixed costs and overall labor 
compensation.
    Mr. Scott. We will find where that bill is. My staff is 
over there, and I will join you on that bill, sign on to that 
bill. I think that is a creative way to go.
    For those who might not be familiar with it, my 
understanding is that instead of firing a person, you kind of 
reduce the workload and be able to share that, and that saves 
the government because you fire them, they got to do 
unemployment, and there is a greater return on keeping him 
there so you don't have to go through your training and 
retraining of new employees when the economy gets better. It is 
great.
    Would you not also agree that any future stimulus--and some 
of you may answer this, too. Mr. Stern, good to see you here. 
And you are absolutely right about the health care bill. It 
will create more jobs.
    But here is the point and the problem. I am worried about 
more stimulus because I am concerned about it going to the 
States, particularly when you look at trying to engender 
employment. Most of the African Americans who are employed are 
concentrated in the cities, governments. And where we have 
found we have had greater impact is when we have been able to 
get that money away from the States, and many States, 
particularly like my own State of Georgia, let money sit there. 
And many of them are--unfortunately, they are Republicans, and 
they don't want the stimulus, no way, until it comes someplace, 
and then they will go and may take a photo op with it. So 
wouldn't it make sense for us if we do more stimulus to try to 
get it targeted into the cities and the counties?
    Mr. Green. [presiding] I am sorry. Your time is up. We will 
ask that your responses be in writing.
    I have instructions. Apparently, we will have votes in the 
near future, perhaps as early or as late as 4:20. I would like 
to at this time announce the order such that everyone will know 
that they will be heard in the order of arrival. We will have 
Representatives Ellison, Kosmas, Bean, and Sherman, and if time 
permits, we will go to this guy known as Al Green. With this 
said, we will go to Mr. Ellison. You are recognized for 5 
minutes.
    Mr. Ellison. Thank you, Mr. Chairman, and let me thank all 
the panelists.
    Mr. Mishel, I join in commending Mr. Hassett for 
identifying the disparate impact of unemployment on African 
Americans. But weren't you saying this at a panel that I had 
you on back in September 2009?
    Mr. Mishel. I commend my friend Kevin for saying this. We, 
in fact, have a Web site at our institute, economytrack.org, 
which provides even further information.
    The underemployment rate for Blacks and Hispanics is both 
now at 25 percent. You can't find that in any other place. So, 
yes, there is disparate impact by minorities. But there is 
also--I must add we also had the highest unemployment rate 
among college graduates than we have ever had, among white-
collar workers. This is a disaster.
    Mr. Ellison. Let me also ask you this question. I think it 
was Mr. Stern had got to this issue a little earlier. Before 
this recession hit us, there was a general malaise among 
working-class people, stagnancy of wages, and so it is no doubt 
that we are--the bounce of this recession is not going to go as 
high because we started so low anyway. Do you want to elaborate 
on that?
    Mr. Mishel. I will comment on that. The last business cycle 
was pretty much the worst economic performance in the postwar 
period, and that was the one I have to reflect on, deep tax 
cuts with large deficits.
    The Chairman. Give the years of that.
    Mr. Mishel. The years of tax cuts, 2000 to 2007. It is the 
first time we had a business cycle where a typical working-
class family had less income at the end than they had at the 
beginning. It is the first time in a recovery, from 2002 to 
2007, where we had fast growth of productivity and the hourly 
compensation of either a high school graduate or a college 
graduate compensation, wages and benefits, didn't increase by 
one penny. And so we saw surveys back in way before we had a 
recession where the American population responded that they 
actually thought they were in a recession before we even had a 
recession.
    I would also add that the stimulus bill was passed in 
February and started affecting the economy pretty much in 
April. In March of that year, unemployment already happened to 
be, by the way, 8.6 percent, which has already exceeded what we 
had in the prior two recessions, and we had already lost a 
greater percentage of our jobs than we had in any recession 
since World War II.
    So I find some of the discussion here quite flabbergasting 
to me as if somehow those people who were in charge of the 
economy before the Recovery Act somehow are absent from our 
discussion, and it annoys me greatly.
    Mr. Ellison. Mr. Hassett, I do commend you for that very 
important observation. But I would like to turn and ask you 
about something else, and that is you have mentioned corporate 
taxation. And I think that we should look at things to find a 
way to improve the economy, but as you compare the United 
States with other economies that had a lower corporate tax rate 
than the United States, perhaps Germany, how do you factor in 
the fact that they do have universal health care, that German 
workers work about 300 hours a year less than American workers 
do?
    We may have a higher corporate tax rate. But the standard 
of living and wellbeing of the average German worker, I hate to 
say this, probably exceeds our own. Can you comment on that? I 
would love to hear what Mr. Stern has to say about that, too.
    Mr. Hassett. Thanks for the question. There are 56 seconds, 
so I will go quickly. I would add that I commend you for 
mentioning Larry's long work in this area and will even 
broadcast that Jared Bernstein and I also pursued a project 
jointly between our two institutes for many years on how to 
measure the welfare of those who are less well off.
    There is a big literature that looks at the impact of 
corporate taxes on the welfare of workers that finds that when 
you lower corporate taxes, that you make the workers better 
off. That is across many, many nations, with different rates.
    I think the big difference between today and back when 
President Clinton signed a 1 percent increase in the corporate 
rate is that when they did that, the average rate for our OECD 
trading partners was about 39 percent, and now it is about 24 
percent. So we have stayed 34, 35 percent for a long time, and 
the rest of the world has moved.
    Mr. Ellison. I didn't realize we were so short on time, so 
I have to ask this question. What about a bill for direct job 
creation for chronically unemployed people?
    Mr. Mishel. Yes. Well, I don't know about how unemployed, 
but we should have direct job creation in distressed 
communities.
    The Chairman. Mr. Hassett covered that in his testimony.
    Mr. Hassett. I also covered that.
    Mr. Zandi. I think for this summer and for this period in 
the next year or two, I think that would be quite therapeutic.
    Mr. Ellison. So I have a bill on that.
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the witnesses for appearing.
    I don't know the history of all of the witnesses, but I do 
know Mr. Stern's history, and it is one of doing an admirable 
job for workers, for persons who are many times the last hired 
and the first fired. I, too, would like to compliment you.
    And I compliment all of the other witnesses as well.
    Mr. Chairman, it seems to me, and this is by way of an 
observation, that it is beneficial to some to do nothing such 
that you will be in a position to criticize whatever is done. 
If we do a good job, you get to compare the good job to the 
perfect job. And when you compare the good to the perfect, 
there is always reason to find that the job done was not done 
well enough. And that is what we are having to cope with. No 
matter what we do, it will be compared to perfection.
    The only person in this Congress who can draft a perfect 
bill is speaking right now. Nobody else can draft a perfect 
bill. By the way, my 434 colleagues all are of the same 
opinion. So since we can't draft perfect legislation, we will 
continually subject ourselves, those of us who are willing to 
do the hard work of taking on the challenges, will continually 
subject ourselves to the criticisms of those who do nothing, 
yet criticize the perfect--excuse me, the good. They compare 
the good to the perfect.
    Now, to answer the question, where are the jobs, I will 
tell you how to find the answer: Ask your school 
superintendent, who has teachers who were not released because 
so-called stimulus dollars were there to help them. Ask your 
mayors, who have firefighters who were kept on because stimulus 
dollars were there to keep them on. Ask your mayors about the 
first responders who are police officers who were able to 
maintain their jobs because the stimulus dollars were there to 
keep them on. These jobs are important, too.
    It seems to me that some are of the opinion that keeping a 
person at work is somehow less than an honorable thing to do in 
a time of crisis. The money was well spent by keeping these 
people on their jobs. Education is important to this country. 
We are falling behind. We cannot afford to lose our teachers. 
First responders are important. There are always concerns that 
have to be met, and first responders meet these concerns. So 
keeping these people employed has been an absolute necessity, 
and it was the right thing to do. I back down from no one when 
it comes to defending my position.
    And I am just glad that Carlyle is right. No lie can live 
forever. And William Cullen Bryant is right: Truth crushed to 
Earth will rise again. And Dr. King is right: Although the arc 
of the moral universe is long, Mr. Stern, it bends toward 
justice. That means it bends toward those who were in a 
position to do and did, as opposed to did nothing and criticize 
those who have the courage to do.
    History will reveal, as they look through the vista of 
time, that those who took the hard votes to save this economy 
did the right thing. There is no question about it. We have to 
just move on and let history vindicate us.
    Now, having said that, let's talk about this create jobs 
directly caption that has been called to our attention by Mr. 
Hassett and others have agreed with. Let's talk about the teen 
unemployment this summer. Is there anyone who thinks that we 
should create jobs directly for these teenagers, many of whom, 
by the way, will be of African ancestry? Is there anyone who 
thinks we shouldn't do this?
    Mr. Mishel. I think it is one of the successful things that 
was done last summer and we should definitely be repeating 
summer--
    Mr. Green. We should repeat it. We should have direct jobs 
created for young people who are going to be in the job market. 
There is value in this.
    Can anyone believe that if we do it, that it won't be 
criticized? I absolutely assure you it will be criticized if we 
do it. Make no mistake. And the criticism will, again, come 
from those who would have us do nothing so that they can 
criticize us for doing nothing. If we don't get the job done, 
we get criticized. If we do the job, we get criticized. The 
thing to do is do it and let history vindicate us.
    I yield back. Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from Illinois.
    Ms. Bean. Thank you, Mr. Chairman.
    And thank you all for being here today and sharing your 
subject matter expertise with us on a topic that is of such 
great importance to our Nation's economy.
    The feedback that I have heard from employers in the 
Illinois district that I represent and really even outside of 
Illinois is that, typically, hiring decisions are made mostly 
based on the confidence they have in their own forecasts. And 
they like to see some repeated quarters of increase in trending 
before they have the confidence to move forward in making 
additional hires.
    Mr. Zandi stated that businesses aren't likely to give up 
productivity gains they have achieved in recent years. Mr. 
Hassett claims that firms maintain excess capacity in downturns 
and strive to increase output through the activities of workers 
already employed.
    Given these premises, and even Mr. Mishel's comments that 
over the last decade we have seen GDP growth without the wage 
correlation, and so there has been growth without wages. And 
where they have typically tracked historically, they haven't 
been tracking in these recent years, and that is the struggle 
that so many families are facing. And given that the economy is 
driven 70 percent by consumer spending, should we consider--
would the likelihood of some of the payroll subsidies or cuts 
being proposed be as effective as what has also been suggested 
by some, including the President, that we look at incentives 
for wage increases for companies that are profitable and are 
essentially doing non-executive profit sharing?
    Would that be potentially more stimulative so that the 
consumer spending goes up, the forecasting goes up, and the 
hiring would then follow? I would be curious. Can I start on 
this side and go this way? Can I start with Mr. Zandi?
    Mr. Zandi. I am sorry; I am not familiar with the proposals 
you are referring to.
    Ms. Bean. There haven't been hard proposals, but some 
suggestions for increasing overall wages within firms, small 
businesses specifically, to drive consumer spending, which 
would then in turn build the demand side of consumer spending, 
which will help drive jobs.
    Mr. Zandi. What policy proposal?
    Ms. Bean. The President recently talked about it as 
something to consider. He didn't detail it.
    Mr. Zandi. I am not familiar with this.
    Mr. Mishel. Well, the proposal that the Obama 
Administration has talked about as well as the one that we have 
offered that has been introduced by Senator Casey rewards firms 
for both--new hires. If your payroll taxes go up, and they can 
go up because you have hired someone, you have increased hours 
of work, or you have given wage increases.
    Mr. Zandi. Are you talking about the jobs tax credit?
    Ms. Bean. I am actually in general saying it is one thing 
to try to get to people to hire new people based on saying we 
are not going to make you pay payroll tax; it is another thing 
to say overall wage increases go up reflecting the 
profitability in your firm. So it is a slightly different 
approach. And I am asking for a comparative from you, just your 
opinions.
    Mr. Mishel. Well, let me say this about that, because I 
think in moving forward to get the economy that we want, to get 
robust economic growth will require addressing this problem of 
the disconnect between wages and productivity, in my view, 
because we have grown over the last 30 years based on people 
borrowing or based on consumption tied to asset bubbles. Those 
are neither desirable nor can we return to that. If we are not 
going to return to that, then we have to find a way to do it 
based on the creation of good jobs and wages that grow with 
productivity, or else we are not going to get robust growth. So 
I view that as an essential thing that we start doing.
    I would add that the idea of a higher minimum wage, 50 
percent of the average wage, that we provide the people the 
right to have unions, that we have labor standards that are 
worth something and enforced, these are essential core items to 
reestablish a connection between wages an productivity.
    Mr. Zandi. I think the key here is to get unemployment 
down, because unless we are back at full employment, labor is 
not going to be on the same playing field with business in 
terms of their negotiation about compensation and wages.
    Ms. Bean. But many have suggested that just because you are 
going to cover payroll, I am not going to go out and hire 
people because of that. I am going to hire when I see my demand 
increase. That is the question, would it be a better return if 
essentially we were to provide that incentive, and they don't 
hire because of it, that that is not going to be our best 
policy initiative. So I am asking if you have some other 
suggestion.
    Mr. Zandi. I think those policies that incent businesses to 
hire and hire as quickly as possible to bring that unemployment 
rate down will get us back to where we need to be with the 
compensation growth. So things that support demand, UI and 
State government aid, things that support credit, SBA lending 
and things that lower the cost of labor, at least temporarily, 
get them hiring again, like a job tax credit, would be helpful.
    Ms. Bean. Mr. Hassett?
    Mr. Hassett. I just think that Mark's proposals are kind of 
indirect, and you could just directly do it by increasing the 
share of profits that a firm gets to keep if they make some 
money.
    The Chairman. The gentlewoman's time has expired.
    The gentleman from California, Mr. Sherman.
    Mr. Sherman. Thank you.
    A couple of preliminary comments. Mr. Hassett talks about 
tax rates. As an economist who used to be a tax lawyer, you are 
working with phony numbers because you are looking at the tax 
rate without looking at the way the base can be hidden through 
the phony use of tax havens, which we in Congress have not 
plugged those loopholes for so long that the corporate taxes 
are far less than you can determine without cracking down on 
the tax savings.
    As for free trade, it would create jobs if life followed 
theory. The economic theorists tell us that anybody who 
actually looks at the facts and sees that we have not free 
trade but malignantly disproportionate trade, anybody who looks 
at those facts is just too dumb to understand the theory.
    Mr. Zandi, we get a crack at Mr. Bernanke tomorrow, he is 
very slightly less than pedal to the metal in the use of 
monetary policy to expand our economy. Lowering the discount 
window, some hints on other things. Fiscal stimulus, which I 
support, does increase the deficit, at least short term. 
Monetary policy does not involve the use of Federal 
expenditures and, in fact, usually reduces the deficit because 
it reduces borrowing costs. Should we be making sure that the 
Fed continues and goes all the way, pedal to the metal on 
monetary policy and stays there before we look at fiscal policy 
as a way to expand the economy?
    Mr. Zandi. I don't think they are mutually exclusive. I 
think it is important to keep monetary policy pedal to the 
metal, as you put it, with fiscal stimulus this year.
    Mr. Sherman. So push him to go pedal to the metal and 
continue--
    Mr. Zandi. I don't think you have to push him too hard. I 
don't think the Federal Reserve will raise interest rates, the 
interest rate on reserves or the funds rate, until employment 
rate is definitively moving lower, and I don't see that until 
this time next year.
    Mr. Sherman. Now there is this proposal for giving a tax 
credit or tax holiday or tax relief for those who hire new 
employees. Imagine a restaurant that used to have 50 employees; 
now they are down to 48, and they are struggling to hold on to 
48. Somebody is planning to put a restaurant across the street 
with 40 new employees. Does it make sense for the new 
restaurant to get a huge tax incentive that will allow them to 
out-compete the struggling existing restaurant across the 
street? How do we design a new jobs tax credit that doesn't 
just put more pressure on those enterprises that aren't hiring 
new employees but are struggling to hold on to the old ones?
    Mr. Mishel. I think you have identified the downside of 
this policy. But it is something that would be for a year or 
two. I am hostile to a permanent jobs tax credit. This is 
temporary, to advance the hiring. And there would be special 
rules for new startups where they would get less than a firm 
that is just expanding. But that is a problem.
    Mr. Sherman. And I will point out, hiring a new employee 
involves an awful lot of costs, which are just partially offset 
by the credits that are being proposed.
    So, Mr. Stern, it is pretty well accepted that we are going 
to need stimulus for the next 12 or 18 months. I hope we are 
not in a position where we need a stimulus 2, 3, or 4 years 
from now. So the emphasis is on finding shovel-ready projects. 
Even if you turn dirt today, you may still be building the 
bridge 3 or 4 years from now. Is there anything as shovel-ready 
as not firing a school employee or not firing someone in law 
enforcement?
    Mr. Stern. Clearly, when we are threatened with losing 
900,000 jobs in State and local government who are teachers and 
firefighters, as many people said, if we are just going to 
write that off and then start looking for a payroll tax to hire 
someone else back at the restaurant across the street, it 
doesn't seem like a very responsible policy. So I would say no.
    Two, there are a whole series of jobs--child care, home 
care--that are in desperate need of people to go to work 
immediately. It is just that budgets in States have restricted 
even the job growth, forget even retaining the people. It seems 
to me there are things that are job-ready, may not be shovel-
ready, but are job-ready, and citizens can use those services, 
particularly at this moment in history.
    Mr. Sherman. Coming from California, I don't dream of new 
hires to meet needs that have not been met during the good 
times. I will settle for not firing people.
    I yield back.
    The Chairman. I thank the gentleman.
    I would say for people who want to continue the discussion 
of pedal to the metal, the Toyota hearing is in Government 
Affairs just around the corner. So if you haven't gotten enough 
of that, feel free.
    I thank the witnesses. It has been a very useful thing. We 
did it at a time when the House was not fully engaged, and so I 
think it was interesting. Thank you all for a very thoughtful 
discussion. The hearing is adjourned.
    [Whereupon, at 4:19 p.m., the hearing was adjourned.]
















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                           February 23, 2010

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