[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
PROSPECTS FOR EMPLOYMENT GROWTH:
IS ADDITIONAL STIMULUS NEEDED?
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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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Washington, DC 20402-0001
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
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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?
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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.]
A P P E N D I X
February 23, 2010
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