[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 111-669
THE ECONOMIC OUTLOOK
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JULY 14, 2010
__________
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Carolyn B. Maloney, New York, Chair Charles E. Schumer, New York, Vice
Maurice D. Hinchey, New York Chairman
Baron P. Hill, Indiana Jeff Bingaman, New Mexico
Loretta Sanchez, California Amy Klobuchar, Minnesota
Elijah E. Cummings, Maryland Robert P. Casey, Jr., Pennsylvania
Vic Snyder, Arkansas Jim Webb, Virginia
Kevin Brady, Texas Mark R. Warner, Virginia
Ron Paul, Texas Sam Brownback, Kansas, Ranking
Michael C. Burgess, M.D., Texas Minority
John Campbell, California Jim DeMint, South Carolina
James E. Risch, Idaho
Robert F. Bennett, Utah
Andrea Camp, Executive Director
Jeff Schlagenhauf, Minority Staff Director
C O N T E N T S
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Members
Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New
York........................................................... 1
Hon. Kevin Brady, a U.S. Representative from Texas............... 3
Hon. Elijah E. Cummings, a U.S. Representative from Maryland..... 5
Hon. Michael C. Burgess, M.D., a U.S. Representative from Texas.. 7
Hon. Vic Snyder, a U.S. Representative from Arkansas............. 9
Hon. Ron Paul, a U.S. Representative from Texas.................. 9
Hon. Charles E. Schumer, Vice Chairman, a U.S. Senator from New
York........................................................... 11
Hon. Sam Brownback, Ranking Minority, a U.S. Senator from Kansas. 12
Witness
Hon. Christina D. Romer, Ph.D., Chair, Council of Economic
Advisers, Washington, DC....................................... 12
Submissions for the Record
Prepared statement of Representative Carolyn B. Maloney, Chair... 56
Chart titled ``Quarterly Change in Real GDP''................ 58
Chart titled ``Quarterly Change in Private Payrolls''........ 58
Prepared statement of Representative Kevin Brady................. 59
Chart titled ``Forecast vs. Reality, Unemployment Rate (%):
Actual vs. Stimulus Projections (2009-2014)''.............. 61
Chart titled ``Job Gains & Losses by Congressional Control''. 62
Chart titled ``Forecast vs. Reality, Change in Non-Farm
Payroll Jobs, February 2009 to June 2010''................. 63
Prepared statement of Representative Michael C. Burgess, M.D..... 64
Prepared statement of Dr. Christina D. Romer..................... 66
Council of Economic Advisers' report titled ``The Economic Impact
of the American Recovery and Reinvestment Act of 2009''........ 77
Submitted by Representative Burgess: Letter dated June 21, 2010
from Ivan G. Seidenberg and James W. Owens to Hon. Peter R.
Orszag followed by the Business Roundtable report ``Policy
Burdens Inhibiting Economic Growth''........................... 132
THE ECONOMIC OUTLOOK
----------
WEDNESDAY, JULY 14, 2010
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The committee met, pursuant to call, at 2:03 p.m. in Room
106 of the Dirksen Senate Office Building, The Honorable
Carolyn B. Maloney (Chair) presiding.
Representatives present: Maloney, Hinchey, Cummings,
Snyder, Brady, Paul, and Burgess.
Senators present: Schumer, Klobuchar, Brownback.
Staff present: Andrea Camp, Gail Cohen, Colleen Healy,
Jessica Knowles, Jane McCullough, Jeff Schlagenhauf, Robert
O'Quinn.
OPENING STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, CHAIR, A
U.S. REPRESENTATIVE FROM NEW YORK
Chair Maloney. We will call the meeting to order. We just
had votes, so we are a few seconds late, but I want to thank
everyone for coming, and particularly to welcome Dr. Christina
Romer, the Chair of the Council of Economic Advisers, and thank
her for her testimony today.
The Council of Economic Advisers and the Joint Economic
Committee were both created by the Employment Act of 1946 and
share an important history of providing the White House and
Congress with an analysis of economic conditions and economic
policy. I understand that you joined the Vice President this
morning with an announcement on your report, and we are so
thrilled you will be testifying today.
Our hearing is on the economic outlook, as well as the
impact of the Recovery Act, on the economy. In the first
quarter of 2009 when the current Administration took office,
the economy was facing the worst economic crisis since the
Great Depression: GDP fell by 6.4 percent, the fastest rate in
almost three decades; monthly employment losses were higher
than any seen since after World War II--in the first quarter of
2009, an average of 753,000 jobs were lost each month.
As you pointed out last fall, Dr. Romer, the shocks that we
felt during this recession were greater and more severe than
the Great Depression.
As a result of the Recovery Act and other targeted spending
programs passed in the 111th Congress, the economy has
recovered over the last year.
Private-sector jobs were created in every month of 2010,
for six straight months. And GDP grew for three straight
quarters, with forecasts of growth continuing for a fourth
quarter.
As the Chair of the JEC, I have learned how valuable charts
can be to present the story, and here we have it in red, white,
and blue--the quarterly change in real GDP. The red is the
former Administration, and you see the progress in the blue
here is this current Administration.
And the quarterly change in private payrolls, as you see,
in the last month are up. We are trending in the right
direction.
I am especially pleased that you are appearing before us
today before the JEC transmits its mandated response to the
Economic Report of the President (ERP). Your testimony here
today will inform us as we put the finishing touches on the
report that we are literally working on around the clock to
finish.
Since January, the JEC has been laser-focused on job
creation, holding numerous hearings and issuing a number of
reports on this topic. While the economy has expanded,
consistent with the ERP's predicted growth for the first half
of 2010, I worry that this recovery is still very, very
fragile.
It is clear that some of the differences between this
Recession and previous recessions might endanger this very
fragile recovery.
First, although the unemployment rate has been higher in
previous recessions, the long-term unemployment rate--that is,
workers looking for work for more than six months--is at
historically high levels.
Second, the median duration of unemployment is almost six
months, which means that the typical worker searches for six
months before finding a job or possibly giving up on his or her
job search.
Finally, state and local governments are experiencing
significant budget gaps as property and income tax revenues
have fallen while aid to unemployed families has spiked and
demand for public education has risen.
In order to spur the hiring process, it is clear that
additional measures must be taken to create enough jobs for the
nearly 15 million unemployed.
I am dismayed by my colleagues who are listening to the
political siren's call of short-term cuts to the deficit
instead of heeding the economic imperative of robust job
creation. Make no mistake: the national debt is a serious
challenge for our economy. We need to carefully craft a plan
that is smart, effective, and fair.
A long-term strategy on debt reduction is essential for a
strong economy for generations to come. And as Chairman of the
Board of the Federal Reserve System, Ben Bernanke told the JEC
earlier this year when he stressed the need for sustainable
fiscal balance, and I quote: ``. . .maintaining the confidence
of the public and financial markets requires that policymakers
move decisively to set the federal budget . . . toward a
sustainable fiscal balance.'' End quote.
However, efforts to translate this need into short-term
spending cuts--especially cuts in unemployment benefits--have
moved the deficit battle into the homes of the unemployed. This
is bad economics and bad public policy.
Dr. Romer, we want to thank you for once again coming
before us. We look forward to your important report, and to
your testimony today.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 56.]
[Chart titled ``Quarterly Change in Real GDP'' appears in
the Submissions for the Record on page 58.]
[Chart titled ``Quarterly Change in Private Payrolls''
appears in the Submissions for the Record on page 58.]
Chair Maloney. Thank you. And I now recognize for five
minutes Mr. Brady. He will be followed by Mr. Schumer for five
minutes, and other Members for three minutes.
Thank you.
OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A U.S.
REPRESENTATIVE FROM TEXAS
Representative Brady. Well, Madam Chairman, I am pleased to
join in welcoming the Chair of the President's Council of
Economic Advisers, Professor Christina Romer, before the
Committee this afternoon.
While I often disagree with her advice to the President, I
am always appreciative of how accessible you are to this
Committee.
On November 2nd, the American people will judge the
economic policies of President Obama and Congressional
Democrats, and may well direct a mid-course correction, much as
professors do with their students at mid-term.
President Obama took office under unfavorable economic
circumstances, but so did Franklin Roosevelt and Ronald Reagan.
The question is: Has the White House met its economic promises?
And are we positioned for long-term growth?
Economists, job creators in the private sector, and
families should question: Have President Obama and
Congressional Democrats spurred private investment in job
creation with their stimulus spending? Or have their policies
added costs and uncertainty that have weakened the recovery?
Have President Obama and Congressional Democrats met our
demographic challenges and improved our long-term economic
prospects? Or have they diminished them through an
ideologically driven expansion of the size and scope of the
Federal Government, higher taxes, burdensome new regulations,
and a reckless increase in federal debt?
To help answer these questions, let us examine the record
as measured by the standards that the White House has set for
itself and for the country.
In January 2009, Madam Chairman, you published an economic
analysis of President Obama's stimulus plan and forecasts that
if Congress were to pass this plan, one, the unemployment rate
would remain below 8 percent; two, nonfarm payroll employment
would increase to 137.6 million by the fourth quarter of this
year; and finally, 90 percent of the jobs created would be in
the private sector.
Obviously Congressional Democrats passed the stimulus bill
and the President signed it into law. Today we see the fourth
quarterly report of the stimulus bill, and I will in all
honesty nominate it as a Pulitzer in fiction, which would be
humorous but for 15 million American workers who face the harsh
reality of no jobs.
What's missing from this report are the benchmarks the
White House set for itself, which you can argue, Democrat and
Republican benchmarks, but let's look at what the White House
said the stimulus would do.
Instead of keeping the unemployment rate below 8 percent,
it's at 9.5 percent today and going higher. Nonfarm payroll
employment right now is 130.5 million, 7 million jobs short of
where the White House predicts it will be at the end of this
year. And then since February 2009, instead of 90 percent of
the jobs in the private sector being created, just the
opposite. The Federal Government payroll has increased by over
400,000. Private-sector, where the jobs in the recovery should
actually occur, has lost 3.3 million payroll jobs.
Clearly, the President's stimulus plan failed to work, as
was predicted. Instead, this recovery has been unusually weak
for one after a severe recession.
Turning to the long-term consequences of the Democrats'
economic policy, one sees higher taxes, heavy regulation,
gaping Federal budget deficits, and soaring Federal debt.
President Obama and our Congressional Democrats are
increasing taxes through legislation. Their failure to
legislate in BRAC creep in the non-index portion of the Tax
Code, including the Alternative Minimum Tax and Excise Tax on
so-called ``Cadillac health care plans.''
Individual income tax rates will increase at the end of
this year, and without a solution up to 27 million families
will become ensnared in the Alternative Minimum Tax for the
first time.
The top tax rate on capital gains will increase from 15
percent this year to 23.8 percent in 2013, while the top tax
rate on dividends will also skyrocket from 15 percent this year
to 43.4 percent in 2013.
Congress allowed the research and development tax credit to
expire. Moreover, Congress levied new excise taxes on private
health insurance plans, pharmaceutical and medical device
manufacturers, and tanning salons.
And if these tax increases are not enough to choke the
private sector, President Obama and the Congressional Democrats
are still scheming to pass new energy taxes through cap and
trade legislation and green jobs' legislation.
According to press reports, two Administration panels will
recommend levying a value-added tax once the mid-term elections
are over.
However, these massive tax increases are still not enough
to fund Obama's extravagant Federal spending. The Congressional
Budget Office predicts Federal outlays over the next decade
will be 24.1 percent of our economy, 4.6 percentage points
above the post-war average in this country.
Our long-term fiscal outlook is dire. If current policies
remain in place, the Congressional Budget Office projects that
publicly held Federal debt will soar to an incredible 947
percent of our GDP by the end of fiscal year 2084.
These are all drags on our economy. Madam Chair, I look
forward to discussing these issues with you. Yield back.
[The prepared statement of Representative Brady appears in
the Submissions for the Record on page 59.]
[Chart titled ``Forecast vs. Reality, Unemployment Rate
(%): Actual vs. Stimulus Projections (2009-2014)'' appears in
the Submissions for the Record on page 61.]
[Chart titled ``Job Gains & Losses by Congressional
Control'' appears in the Submissions for the Record on page
62.]
[Chart titled ``Forecast vs. Reality, Change in Non-Farm
Payroll Jobs, February 2009 to June 2010'' appears in the
Submissions for the Record on page 63.]
Chair Maloney. I want to thank my good friend and colleague
for his testimony, but there seems to be a lot of revisionist
statements in it.
As this chart shows, clearly the economy has improved under
President Obama not only in GDP but also in private payrolls.
And if you recall, the last month that our former president was
in office, this country lost 790,000 jobs.
The chart goes upwards, and we are gaining jobs. We gained
83,000 private-sector jobs in the last jobs report; 33,000
private-sector in the time before; and roughly 550,000 new jobs
in the past three jobs reports.
So we are trending in the right direction----
Representative Brady. Well Madam Chairman, since we're not
following regular order, let's look at the jobs standards since
Democrats took over control of Congress. Up until 2007, fully
Republican-controlled Congress added almost 6.7 million jobs.
Since Speaker Pelosi was handed the gavel, we've almost lost
every one of those jobs back. And the stimulus isn't creating
more--3.3 million jobs lost in the private sector since the
stimulus began.
Chair Maloney [continuing]. That's not the jobs report that
the economists have been talking about. We lost jobs under the
Bush Administration. We are gaining them now----
Representative Brady. Well we are----
Chair Maloney [continuing]. And as these charts show, we're
trending in the right direction.
Representative Brady [continuing]. Very slowly.
Chair Maloney. Mr. Cummings is recognized for five minutes.
OPENING STATEMENT OF THE HONORABLE ELIJAH E. CUMMINGS, A U.S.
REPRESENTATIVE FROM MARYLAND
Representative Cummings. Thank you very much, Madam Chair.
You know, I am sitting here and I am listening to this, and
we've got 53,500 people before the end of the day, Mr. Brady,
who will lose their unemployment benefits, who will not be able
to take care of their children, who will not be able to put
food on the table. And, you know, we can go back and forth, but
yesterday I was listening to Mr. Gregg, Senator Gregg--I think
it was on MSNBC--and he said something that was very
interesting. I almost had an accident. [Laughter.]
He said, Mr. Brady, he was asked a question. You know he is
no liberal. He is no flaming liberal, and he is a Republican.
And he was asked a question about early on when the Bush
Administration came asking the Congress for TARP money, he was
asked the question: Was it as bad as it seemed? He said it was
worse.
But he said something else. He said, if it were not for--he
was talking about TARP--but he said, if it were not for those
funds, the unemployment rate would now be around 15 or 16
percent. That's what Gregg said yesterday.
Now, you know, we are digging ourselves out of a deep
ditch. And I've said it over, and over, and over again. We all
know that 60 percent of the GDP is consumer consumption. We
know that. But yet and still, it seems as if there is an effort
to, whenever progress is being made--and Chairman Romer, watch
out, because it's coming--if you've got anything positive to
say, I promise you you will be told that the sky is still
falling, that this President had nothing to do with the
progress. There is no progress.
I don't care what happens, you will hear that. And at some
point we have to join in and root for the home team. I've said
that over and over and over again. If we want to constantly say
the sky is falling, the sky is falling, the sky is falling, the
sky is falling, guess what? The sky will fall.
There has been progress made, whether we like it or not.
Maybe it's not moving as fast as we would like. And, yes,
predictions were made. But the fact is that those predictions--
I mean, keep in mind, we are at 9.5. We could have been at 16,
as far as unemployment is concerned.
And so I am looking forward to the report of Chairwoman
Romer, but I want us to keep some things in mind. When this
President came in, we were losing 750,000-plus jobs a month.
That is no longer happening.
Now, you know, I'm not going to stand here and say it was
Bush's fault. I'm not going to say that the fact is, it was
happening. We were losing. You can blame anybody you want. The
fact is, we were losing 750,000-plus jobs every month. In
January, back in January when he came in. And now we are not
losing that. We are gaining jobs.
And so it is so easy to stand on the sidelines and talk
about this ain't happening, and that's not happening, and maybe
it's not happening as fast as we want it to, but when you are
in a deep ditch, sometimes you've got to climb up slowly
because it takes a lot to get out of that ditch to get to level
ground.
And so I would beg my colleagues to root for the home team.
America is a great country. We've dug ourselves out of ditches
before, and we will dig out of this one again. As I said to my
constituents over and over and over again, we will get past
this economic problem.
The question is not whether we will get past it. The
question is: Who will be living in their house? Who will have
their job? Will they have their health insurance? Will they
have gone through a period of unemployment like millions and
millions of Americans have gone through, over six months of
unemployment, a substantial number of unemployed have been
unemployed for over six months, but will they get through that
process still standing?
And I would submit that we need to join in with this
President. Join in with Chairwoman Romer who is doing
everything she can to make it possible so that when the storm
is over, when the storm is over, people will be still standing,
still moving forward, and will still be a part of the All
American Dream. And with that, I yield back.
Chair Maloney. Thank you. Senator Brownback has indicated
that he will be yielding his five minutes to Congressman
Burgess.
OPENING STATEMENT OF THE HONORABLE MICHAEL C. BURGESS, M.D., A
U.S. REPRESENTATIVE FROM TEXAS
Representative Burgess. Thank you, Chairwoman Maloney, and
Chairwoman Romer welcome to our Committee once again. We
appreciate as always your ability to share your time with us.
So we've got another month, another set of facts and
figures telling the American People what they already know;
that the stimulus is not working. Recent polling out suggests
that fully 60 percent of the American People do not believe
that the stimulus has worked.
So it begs the question that is asked over and over again,
and a question which I will ask you today: Chairwoman Romer,
where are the jobs?
Companies are not hiring at rates anywhere near where this
Administration claimed they would be. And indeed anywhere near
what is required simply to maintain a level state of
employment, let alone gain jobs in this economy.
Business and individuals who have the same outlook when it
comes to the President, what's it going to do--what is he going
to do next that may make it harder for us to move forward?
We hear a lot of talk about rooting for the home team. I
wish the White House sometimes would root for the home team. An
ill-advised and scientifically suspect drilling moratorium that
is already seeing jobs shipped overseas, has rigs pull up
anchor and sail to foreign ports, looming EPA regulations on
emissions that will have consumers seeing their pocket--their
energy bills skyrocket.
Financial regulatory reforms that will take years to
implement causing uncertainty in an already fragile market and
leading banks to be able to loan less and less money, and
really which do nothing, which do nothing to prevent a future
financial meltdown, because after all the two biggest problems
remain on the Federal ledger in the form of Fannie Mae and
Freddie Mac.
People not knowing what the future holds from this
Administration makes it very, very difficult for them to invest
their capital.
I asked Secretary Salazar in a letter whether the
Administration had done any economic analysis of what the
drilling moratorium would do to job outlooks in the Gulf
Region. To date, no response. I can only assume that this has
not been done, or that the Administration would know, as the
New Orleans Times-Picayune reported, that each job in energy
exploration supports an additional four jobs providing supplies
and services.
What a deal. You can kill five jobs for the price of one.
Now that is a statistic that the White House does not want us
to hear.
Sound economies need stability, and this President has
provided anything but. He can claim to be pro-business all he
wants, but continue to talk of card check and other pro-
unionizing regulations? Businesses know they can't afford to
take risks right now.
Congressional Democrats even inserted a provision in the
War Supplemental essentially forcing state and local fire and
police departments to unionize regardless of whether the
workers in those departments have expressed any interest in
that activity.
Actions speak louder than words. And the actions of this
Administration indicate one thing; this President and the
people that he has put in place throughout the government have
yet to see a rule or regulation that they aren't in favor of
passing, and each rule or regulation adds to the cost, adds to
the price of doing business, and each rule or regulation makes
it less likely that especially small- and medium-sized
businesses are going to add a new job.
The Business Roundtable recently sent a report to the White
House, a report of exactly what this President's policies are
doing to businesses around the country. In a letter to Peter
Orszag, Ivan Seidenberg, CEO of Verizon; James Owens of
Caterpillar, said business leaders are increasingly concerned
that political expediencies of the short term harm our ability
to partner with government and create policies that foster
growth.
The CEO of JPMorgan told the White House: Punishing whole
industries, whether they were reckless or not, just isn't the
way to do things. The CEO of Nucor Corporation told The Wall
Street Journal, there's this common concern that we're not
doing things right yet, and it is showing up in the jobs
numbers.
One reason this Administration is so likely disconnected
with the reality of what life is like in the private sector is
so few of the President's top advisors have ever worked in the
real world. It is difficult to find someone who has run a
lemonade stand or held a paper route.
Professors and academics, people who have spent the bulk of
their careers in government, that is who we have dictating to
the private sector how CEOs should be running their business.
And that is in large part why business overwhelmingly resents
and rejects the mandates being thrown at them by the
Administration and this Congress.
Maybe if the President started hiring more CEOs in his
cabinet, like past presidents of both parties, as they have
done for decades, he would start getting the kind of advice he
needs to allow the private sector to recover and grow.
It is further dismaying that the Council of Economic
Advisers' latest Economic Impact Report admits that any
analysis of job creation in each state in this report is, and I
quote, ``speculative and uncertain,'' closed quote.
After spending hundreds of billions of dollars to stimulate
the economy, a year and a half later we can still only
speculate on job growth? There either have or have not been
jobs created by the stimulus.
I don't need to speculate. All I have to do is look at the
unemployment numbers that have been so stagnant under this
President. The stimulus was a failure. I don't have to
speculate about that.
President Obama's philosophy in steering this economy seems
to be taken directly out of Alice In Wonderland. When I use a
word, it means just what I choose it to mean, neither more nor
less. And furthermore, if you don't care where you end up, it
doesn't really matter which road you take.
I'll yield back the balance of my time.
[The prepared statement of Representative Burgess appears
in the Submissions for the Record on page 64.]
Chair Maloney. I thank the gentleman. Congressman Snyder
for three minutes.
OPENING STATEMENT OF THE HONORABLE VIC SNYDER, A U.S.
REPRESENTATIVE FROM ARKANSAS
Representative Snyder. Thank you, Madam Chair.
Mr. Burgess, I had both a paper route and a lemonade stand.
I never did very well with the lemonade stand because I kept
drinking the product, but I hope that gives me some credibility
with you. [Laughter.]
I don't have a copy, a written statement, but when I hear
somebody say each regulation and rule inhibits job growth, that
is just not the nature of a market economy. We have to--I mean
the World Cup has referees. Football has referees. Baseball has
umpires. We have to have rules and regulations that are fair to
business, that are fair to consumers, that are fair to credit
markets, that are fair to government, that are fair to the
American People. Without them, we have chaos. That has been the
history of capitalism.
And so to just--and I don't have it in front of me, but
when I hear you say each rule and regulation decreases jobs, in
fact it gives people confidence that their investments will be
protected, that there will be transparency in their
investment--I mean, that is the whole point of the Wall Street
reform, the Financial Services Reform bill that is going to be
passed this week.
So I think there certainly can be too much regulation.
There can certainly be too little regulation. And it's like the
Three Bears and the porridge, you've got to find the right
blend.
Dr. Romer, it is great to have you here. I hope that our
discussion so far today does not sound more like we are
concerned about our jobs rather than the jobs of the American
People.
I think I will defer from this point on and wait for your
opening statement.
Chair Maloney. Thank you, and Congressman Paul for three
minutes.
OPENING STATEMENT OF THE HONORABLE RON PAUL, A U.S.
REPRESENTATIVE FROM TEXAS
Representative Paul. I thank you, Madam Chairman, and
welcome to Dr. Romer.
I am not very good at the partisan blame game, but I am
very interested in the business cycle and why we have
unemployment. And actually I am interested in the measurement
of our problems.
I think sometimes we deceive ourselves, because following
some free market web sites that measure unemployment somewhat
differently than our government, they come up with a figure of
22 percent unemployment. And also, even the way the Bureau of
Labor Statistics measures it, if they looked at all the people
who are not looking for work at the moment, that is 16 percent.
So things are not very good.
Also, the GDP is what we measure. If the GDP is going up,
everybody is supposed to feel good. But if we spend a billion
dollars on a missile and we blow it up, that's an increase in
the GDP. And it didn't give us a house. It didn't give us
health care or education. So there is a big difference.
And also the inflation rate is very important. If you go
back and use the old CPI measurement of inflation, we have 6
percent, not 2 percent. So there is a lot of deception. And the
people sense this. I think they would rather hear accurate
information than to try to be bamboozled into believing things
are just hunky dorey when they know there is a lot of inflation
out there.
The other thing that I have concern about, in measuring the
GDP if you looked at the GDP in a private way, if somebody had
a $200,000 job and he lost the job, and the family had $200,000
or $300,000 of debt, for them to be told that what they need is
a million dollar loan, and spend it, buy a house and buy a car
and live high, and their personal GDP goes up, but they never
measure the debt.
But when we go to the government, we say the government is
in debt; they're spending too much; what we need to do is
spend. We need to borrow. And the GDP goes up. But if you
measure the GDP that goes up because of borrowing, inflating,
and spending, and look at that with a better perspective, I
would say that maybe the real GDP isn't going up, and maybe
that is why we are not having real growth.
There is a big difference between people working hard and
paying their bills and actually saving some money. I think the
biggest fallacy that we have, because we don't have a
correction, is we don't understand how we got here.
We had too much debt and too much mal-investment. And we
have not dealt with that. And when you get too much of it, you
have to liquidate it. When you get in over your head and you
can't pay the bills, you either have to declare bankruptcy or
work hard or take a new job.
But we can see this as an individual or a company, but
evidently our economic theory now is that governments are
exempt from those kinds of economic rules.
I yield back the balance of my time.
Chair Maloney. I thank the gentleman for his statement, and
now I would like to introduce Dr. Christina Romer. She is the
Chair of the Council of Economic Advisers. Prior to joining the
Obama Administration, she was the Class of 1957 Garff B. Wilson
Professor of Economics at the University of California,
Berkeley. Before teaching at Berkeley, she taught economics and
public affairs at Princeton University. Until her nomination,
she was co-director of the program in Monetary Economics at the
National Bureau of Economic Research, and served as the Vice
President of the American Economic Association, where she was
also a member of the Executive Committee. Dr. Romer is known
for her research on the causes and recovery of the Great
Depression, and on the role that fiscal/monetary policy played
in the country's economic recovery. That was all valuable
experience for what we are confronting now.
Her most recent work, co-authored with her husband, David
Romer, also an economics professor, shows the impact of tax
policy on government and economic growth.
She is the recipient of the John Simon Guggenheim Memorial
Foundation Fellowship, an Alfred P. Sloan Research Fellowship,
the National Science Foundation Presidential Young Investigator
Award, and the Distinguished Teaching Award at Berkeley.
She received her Ph.D. from the Massachusetts Institute of
Technology. Thank you so much for coming, but we have been
joined by the Vice Chair, Senator Schumer. He is always on a
tight schedule, so I would like to call on the Senator very
quickly for his statement, and then we will go to Dr. Romer.
OPENING STATEMENT OF THE HONORABLE CHARLES E. SCHUMER, VICE
CHAIRMAN, A U.S. SENATOR FROM NEW YORK
Vice Chairman Schumer. Well thank you very much, Madam
Chairperson. I very much appreciate it. I am on a tight
schedule. I was supposed to come before you started, so I
apologize. I will make my brief statement here and first thank
you for the great job you are doing both here and in New York,
Madam Chairperson.
And I thank you, Chair Romer. The economy is on the
forefront of everybody's mind. The official unemployment rate
remains unacceptably high, 9.5 percent. But if you are one of
the 15 million Americans who are out of work, the unemployment
rate feels more like 100 percent.
Our economy is showing signs of life. As you know, GDP
growth is healthy. But we in the Congress need to do more to
spur job creation. And as you know, Madam Chair, back in
January I teamed up with Senator Hatch of Utah to author a
targeted, simple, and cost-effective tax incentive to encourage
businesses to hire unemployed workers.
The tax cut we proposed passed the Senate with 70 votes and
became law as part of the HIRE Act in March. Today, every
business in America is exempt from paying payroll taxes on
wages paid to previously unemployed workers. It's that simple.
Hire a person who has been unemployed for at least 60 days,
and you don't have to pay the 6.2 percent Social Security
payroll tax for that worker for the duration of 2010.
According to a recent report by the Treasury Department,
the tax cut has been a wild success. They estimate that 4.5
million unemployed Americans have been hired between February
and the end of May, and there is no question many of these
workers would have been hired anyway, but there is also no
question that many of them would not have been.
And each of those businesses that hired someone saw a tax
break. If these 4.5 million stay employed through the rest of
the year, businesses will see a total of 5.1 billion in tax
savings.
So I think there is no denying that the Schumer-Hatch Tax
cut is working. My question that I will ask you to answer after
your testimony is: In light of this success, do you support
extending the tax cut for an additional six months? What type
of impact would such an extension have on our Nation's long-
term economic outlook?
And so that is it. I yield back my time and very much
appreciate your letting me speak now, Madam Chairwoman.
Chair Maloney. Always a pleasure, Senator, and we have been
also joined by Senator Brownback, so I would also like give him
the courtesy of speaking.
OPENING STATEMENT OF THE HONORABLE SAM BROWNBACK, RANKING
MINORITY, A U.S. SENATOR FROM KANSAS
Senator Brownback. Thank you very much, Madam Chairman. I
apologize for being late. I had two subcommittees I needed to
attend.
Welcome, Chair Romer. I am happy to have you here. I am
really looking forward to your comments, because it seems like
the Administration holds the key to a lot of what is holding
back in the economy--uncertainty in regulation, and taxation is
certainly buzzing in the air, as businesses consider whether or
not they're going to invest, or they are going to hold back.
And we need people investing. We need people moving
forward. We need people creating jobs. We need job creation. We
need these things to move on forward. And yet that level of
uncertainty that is created in the tax and regulatory
environment in particular seems to be stymieing a lot of
people. And you are now hearing that being expressed in a very
open fashion.
So my hope is that you can address that level of
uncertainty, particularly on taxes and regulations from the
Administration's perspective. Because it is really needed for
the American public and the economic health of our country to
be able to move forward.
I was very concerned when I saw today's front page of The
Wall Street Journal that the Fed is citing slower growth rates.
We need faster, not slower growth rates taking place. The
consumer confidence is getting shaken, not moving in the right
directions. Seeing just a number of factors that have raised
concern, and I really hope you can address those issues,
particularly on taxes and regulation and overall debt and
fiscal policy that I think are contributing way too much to
that concern.
Chair, thanks very much for holding this hearing. I think
it is important that we do it, and important that we hear from
the Chair on this.
Chair Maloney. Thank you so much, and we now recognize
Chairwoman Romer.
STATEMENT OF THE HONORABLE CHRISTINA D. ROMER, PH.D., CHAIR,
COUNCIL OF ECONOMIC ADVISERS, WASHINGTON, DC
Chair Romer. Thank you so much, Chair Maloney, Vice Chair
Schumer, Ranking Member Brownback, Congressman Brady:
It is indeed a pleasure to be here today to discuss two
issues that are of interest to both the Joint Economic
Committee and the Council of Economic Advisers.
One is obviously the economic impact of the American
Recovery and Reinvestment Act of 2009. As part of the
unprecedented transparency and accountability provisions in the
Act, the CEA provides a report to Congress about the Act each
quarter.
In this Fourth Quarterly Report released this morning we
not only find that the Act has had a substantial effect on
output and employment, but that it is leveraging private
capital and making an important investment in the future of
productivity of the country.
The second topic I will discuss is the economic outlook.
The Recovery Act and other actions have helped to turn the
economy from free fall to recovery. But much work obviously
remains to do to return the economy to full health. And I will
discuss the role that the targeted actions currently being
discussed by Congress could play in counteracting some of the
headwinds to growth that have become more apparent in recent
weeks and, by doing so, accelerate the rate of recovery.
Let me begin by discussing what the CEA's new report finds
about the impact of the Recovery Act as of the second quarter
of 2010. With the Chair's permission, I would like to enter a
full copy of the report into the record.
You know, Congress designed the Recovery Act both to begin
spending out quickly and to provide crucial support to the
economy over a two-year period. It has met and is continuing to
meet those goals.
The state fiscal relief, the payments to seniors, the
emergency unemployment insurance benefits went out almost
immediately and started aiding the economy in the spring and
summer of 2009.
The tax cuts went into effect immediately as well, but it
was really during tax season--the first two quarters of this
year--that many Americans have seen concrete signs in the form
of reduced tax payments and increased tax refunds.
In previous CEA reports, we have highlighted the state
fiscal relief and the tax cuts and income support provisions of
the Act and found evidence of their effectiveness.
Well in today's Quarterly Report we highlight the public
investment spending in the Recovery Act. This is the project
spending that not only creates jobs in the short run, but
leaves us with an expanded and improved ability to create high-
paying jobs in the future.
The Recovery Act includes some $319 billion of public
investment on everything from basic infrastructure such as
roads, bridges, and airports, to 21st Century infrastructure
such as a smarter electrical grid and universal broadband. It
invests in community health centers, health information
technology, education, and job training to improve the health
and skills of our citizens--our human capital. And it makes
unprecedented investments in basic scientific research to
enhance innovation and help retain our competitive edge.
The public investment components of the Recovery Act were
always expected to spend out more gradually, because they
typically require planning, and they are often awarded through
a rigorous competitive process. But these outlays increased by
more than 50 percent between the first and second quarters of
this year, which explains why the Vice President has named this
summer the ``Summer of Recovery.''
In the area of transportation infrastructure alone, nearly
14,000 projects have been awarded as of the first quarter of
2010.
Now an innovative feature of the Recovery Act is its focus
on partnering private investment--or public investment with
private and other funds. Much of the Recovery Act investment
spending takes the form of matching grants, loan guarantees,
interest subsidies, and tax incentives that support and
encourage outside investment.
For example, the 48C Advanced Energy Manufacturing Credit
gives private firms that pass the Department of Energy's
competitive process a 30 percent tax credit for their
investments in factories to produce solar panels, wind
turbines, and other clean energy products.
The Broadband Initiatives Program provides grants and loans
to firms and regional authorities to bring Internet access to
rural communities. And the Build America Bond Program
subsidizes the interest cost of state and local government
borrowing for schools, transportation, and other vital projects
so that these entities are encouraged to invest in local
infrastructure.
Well the CEA's Report collected information from 15
agencies on the nature and the extent of the leverage
provisions in the Recovery Act. We find that roughly $100
billion of Recovery Act funds use leverage, and that these
provisions are encouraging co-investment in a wide range of
areas.
The greatest use of these innovative provisions are in the
areas of clean energy, economic development, and building
construction. We estimate that the $100 billion of Recovery Act
funds will partner with close to $300 billion of other funds,
the majority of which are from the private sector. That is, $1
of Recovery Act funds is matched by $3 of other funds. All
told, the $100 billion investment from the Recovery Act will
support more than $380 billion of total investment spending.
Now a detailed examination of the incentives for wind
energy production suggest that such leverage provisions can
have a significant impact on private sector investment
behavior. Thus, the Recovery Act appears to be stimulating
private investment and job creation at a time when the economy
needs it most.
Now in our Report we estimate the impact of the Recovery
Act on job creation in two ways.
One is a model-based approach similar to that used by the
Congressional Budget Office. This approach uses multiplier
estimates based on the historical record to estimate how the
Recovery Act tax cuts and outlays likely translate into
employment effects.
The second approach that we use to estimate the employment
impact of the Act does not depend on policy multipliers
estimated from past history. Instead, it uses statistical
procedures to project the likely path of employment based on
the information available through the end of the first quarter
of 2009, when the Recovery Act was passed, and then it compares
the actual path of employment with the forecasted baseline.
Now the model-based approach indicates that the Recovery
Act has raised employment relative to what it otherwise would
have been by 2.5 million jobs as of the second quarter of this
year.
Of these jobs saved or created, more than 800,000 are due
to the public investment outlays that have occurred so far. The
projection approach yields a substantially larger number: It
suggests that employment as of the second quarter is 3.6
million higher than it otherwise would have been. By that
estimate, the Recovery Act has met the President's goal of
saving or creating 3.5 million jobs--two quarters earlier than
anticipated.
Now our review of a wide range of other estimates of the
employment effects of the Act, coming from private forecasters
as well as the nonpartisan Congressional Budget Office, shows
that our model-based estimate is very similar to that of
outside experts. Our projection-based estimate is higher than
other estimates, though very similar to the Congressional
Budget Office's high-end estimate of 3.4 million.
There is obviously a great deal of uncertainty around any
jobs estimate, and I suspect that the true effects of the Act
will not be fully analyzed or fully appreciated for many years.
But our compendium of outside estimates shows that respected
analysts across the ideological spectrum, as well as the
Congressional Budget Office, agree that the Act has had
significant benefits on employment and output over the past
year.
Well let me turn to the second topic that I want to discuss
today, and that is the state of the U.S. economy and the
outlook for the future.
First, and most obviously, the economy is doing much better
today than it was when I last testified to the JEC in October
of 2009. At that point we were just beginning to see the first
signs of recovery. We now know that GDP began to grow in the
third quarter of 2009, and has been expanding at a moderate
pace since then.
In October of 2009 we were still losing jobs, although at a
much slower rate than in the depths of the crisis. Since the
beginning of 2010 we have been consistently adding jobs.
Private sector employment is up nearly 600,000 since the start
of the year. In October of 2009, the unemployment rate hit 10.1
percent. It has fallen six-tenths of a percentage point since
then to 9.5 percent in the most recent report.
While the conditions are much improved from last October,
and dramatically better than they were in the dark days of late
2008 and early 2009, the economy remains far from fully
recovered. The financial crisis and the ensuing recession
inflicted a terrible toll on American families and workers, and
much work remains to be done to repair the damage after the
storm.
Now some might see a conflict between my earlier discussion
of how useful the Recovery Act has been and the fact that
economic conditions are still very tough. But there is none.
The Recovery Act is doing what the Administration and other
analysts said it would do: It has increased employment greatly
relative to what it otherwise would have been. It has helped to
fill in some of the shortfall in demand, and has played a
fundamental role in the dramatic change in the trajectory of
the economy.
But because the deterioration of the economy was so severe
in late 2008 and early 2009, even with this essential aid the
economy remains troubled. It is surely little comfort to
families that are still struggling to hear that without the
Recovery Act, conditions would have been far worse. But it is,
nevertheless, true.
What can we expect for the economy in the months ahead? The
past few weeks have seen more mixed economic reports than we
saw in the spring. Following the troubles in Europe associated
with the Greek debt crisis, stock prices have declined
noticeably and financial markets have been subject to greater
volatility than we've seen for more than a year.
Perhaps related to this financial sector unease, some
measures of consumer confidence have fallen. Also, housing
sales and building permits took a decided drop in May,
suggesting that a self-sustaining recovery has not yet taken
hold in the housing sector.
Importantly, despite these troublesome developments, many
areas of the economy continue to show strength. The fact that
personal consumer expenditures grew in May suggests that
consumer spending, the largest source of aggregate demand, is
continuing at a solid pace.
The data on shipments of capital goods in May indicate that
business investment in equipment and software continues to grow
rapidly. And industrial production has expanded strongly,
particularly in the high tech-tech manufacturing sector, where
production is up 18 percent since May of 2009. Manufacturing
jobs are growing at their strongest pace since 1998.
Now as we look forward, it is clear that the economy
continues to face some strong headwinds. The dire situation of
state and local budgets means that without additional Federal
aid, state and local governments will continue to shed jobs and
act as a contractionary force on overall economic activity.
Though credit conditions have ceased tightening, both
recent statistics and reports from market participants suggest
that many borrowers, particularly small businesses, still find
it difficult to get loans. This obviously hinders small
business growth and job creation.
Finally, the housing bubble and bust has left many
homeowners over-indebted, and the U.S. economy with a
substantial over-supply of housing. As a result, the prospects
for a rapid growth in residential investment, as we have seen
in previous recoveries, are slim.
Because of these persistent headwinds and the recent spate
of mixed indicators, most private forecasters are predicting
continued growth and job creation, but at a somewhat more
subdued pace than the robust growth that looked possible a few
months ago. Without further aid, the economy will continue to
grow but the rate of recovery will likely continue to fall
short of the rapid expansion that is needed to bring the
unemployment rate down quickly.
For this reason, the additional targeted actions that the
President recommended last winter are even more important today
than when he first proposed them. Each of the actions is
designed to counteract some of the headwinds that we face, and
by doing so to increase the speed of recovery.
The most fundamental of these targeted actions is an
extension of emergency unemployment insurance benefits.
According to the Department of Labor, 2.1 million Americans
have already seen their unemployment insurance benefits stop
because of the failure to extend the program. That number will
rise to 3.2 million by the end of this month. It will be
devastating both to the families affected and the overall
economy if this support is not renewed.
At a time when the unemployment rate is 9.5 percent, there
can be little question that such support is deeply needed.
Support for small business lending is another essential
program to counteract the headwinds we face. This is an
exceptionally low-cost measure that promises to materially
increase the availability of credit to small firms currently
struggling.
Such credit support, together with the small business tax
cuts and bonus depreciation included in the bill, will be a
much needed shot in the arm for small businesses. Such support
will help them to expand and create jobs.
The third targeted measure that will help to ensure more
rapid recovery is additional aid to state and local
governments. There has been much discussion in the past week of
innovative ways to structure this aid so that it encourages
beneficial reforms or pays for itself over time. Many
variations have merit, and the Administration is anxious to
work with Congress to pass a sound plan. But some form of
meaningful state fiscal relief is necessary both to prevent
widespread layoffs of teachers, fire fighters, and police
officers, and to accelerate job growth throughout the economy.
Now we are all keenly aware of our large budget deficit and
the long-run fiscal challenges that we face. The President is
committed to meeting those challenges. That is why he has
worked with Congress to pass health care reform that will lower
the deficit by more than a trillion dollars over the next two
decades.
It is why his budget included a three-year freeze in
nonsecurity discretionary spending, and why he established a
bipartisan commission to forge the necessary consensus for
sensible, serious deficit reduction.
It is also why the Administration has pursued a wide range
of low-cost measures to spur job growth such as export
promotion and public-private partnerships that have proven so
successful in leveraging private investment through the
Recovery Act.
But not taking additional targeted actions, many of which
are fully paid for over the budget window, because of concern
about the deficit would be misguided. Allowing the unemployment
rate to remain severely elevated for an extended period runs
the risk of permanently lowering labor force participation and
worker skills. Such permanent damage would not only be terrible
for the workers involved, it would be terrible for our long-run
budget situation.
Our Report today contains the latest evidence that the
Recovery Act has been highly effective at helping to turn the
economy from free fall to growth. What we need now is to take
some targeted, fiscally responsible additional steps to speed
the recovery and finally return the economy to health after the
wrenching events of the past few years.
Now much of my discussion this afternoon is appropriately
focused on the recovery and the need to jump-start job
creation. Nothing is as important as getting Americans back to
work. But in closing let me take just a minute to look both
further back and further into the future.
Even before the financial crisis and the Recession that
followed, the United States was facing economic stress. As
documented in the Economic Report of the President from last
February, health care costs were rising rapidly, squeezing both
families and businesses. We were failing to invest as much as
we should in education and R&D. And our financial regulatory
structure had failed to keep up with the technological and
behavioral changes in the industry.
These developments were leading to stagnating incomes for
middle class families, less innovation, and excesses in our
financial system that set the stage for the crisis.
Over the past 18 months, the President and Congress have
not only taken unprecedented steps to deal with the Recession,
but have also made great progress in facing these longer run
challenges.
The Patient Protection and Affordable Care Act passed last
March will slow the growth rate of health care costs by
improving both the efficiency and the quality of our current
system.
The investments in education and basic scientific research
started in the Recovery Act and continued in other legislation
will build the skills and knowledge base essential for raising
standards of living and competing in world markets.
And the financial regulatory reform legislation on the
verge of completion will help prevent a repeat of the
terrifying meltdown of the financial system that we experienced
in the fall of 2008.
By working to both rescue the economy in the short run and
rebuild the fundamental sources of productivity and stability
in the long run, the President and Congress are charting a path
not only back to normal but to a better normal than we had
before. Thank you.
[The prepared statement of Dr. Christina D. Romer appears
in the Submissions for the Record on page 66.]
[The Council of Economic Advisers' report titled ``The
Economic Impact of the American Recovery and Reinvestment Act
of 2009'' appears in the Submissions for the Record on page
77.]
Chair Maloney. Thank you very, very much for your
testimony. In your testimony you explained how $100 billion in
Recovery Act investments use leverage to encourage private
sector investment, the result being that Federal dollars go
much further.
I was extremely struck by your statement that $100 billion
in Recovery Act dollars supports $380 billion in total
investments when we partner with the private sector, with each
$1 of investment enabling another $3 of activity.
I would like to ask a question about my home State of New
York. I saw in your report that you released today that the
Recovery Act has created an estimated 206,000 jobs in New York
State, and of course I am very pleased to see that. New Yorkers
need every single one of those jobs.
Along those lines, can you tell me how much private
investment in New York State has been spurred or sparked by the
$100 billion in Recovery Act investments?
Chair Romer. All right. Let me first say, since it came up
earlier about state employment numbers, one thing----
Chair Maloney. The microphone. They need to hear you
better.
Chair Romer [continuing]. I wanted to first say a word
about the state employment numbers. Because it was mentioned,
we do say those are inherently more uncertain than our overall
estimates. And it is important to realize we get direct reports
from only a small fraction of the recipient of funds. No one
fills out a form about the unemployment insurance, or the tax
cuts. It's only the direct projects. And that gives us one read
on employment by state.
What we try to do in our report is get some estimates about
all of the effects on employment. And that is where that larger
number that you mentioned comes from. And we do the best that
we can, but it is inherently harder when you are trying to do
it for 50 individual states.
In terms of how much of the leverage is happening in
particular states, we have not actually done that analysis. It
was hard enough to get the overall level of analysis, but that
is certainly something that I think we would very much like to
work on. I know that the Vice President's office is planning to
do a follow on to our work. We are really the first step in
evaluating these leverage provisions.
And so I think going--looking state by state would be very
interesting to the degree it is possible.
Chair Maloney. That would be helpful. But could you
elaborate on what sectors, or what areas, are benefiting from
this $100 billion in leverage? Is it clean energy? Or loans to
small businesses? Or manufacturing? Could you elaborate on what
areas are benefiting and possibly give us some examples of some
successes that have leveraged these dollars and helped
communities employ Americans?
Chair Romer. Absolutely. So in terms of areas, one of the
striking things is there are these leverage provisions over a
wide range of areas of investment. But the biggest ones are
clean energy, building construction, and economic development.
Just some examples of clean energy, the 48C Advanced
Manufacturing Tax Credit is one I mentioned in my testimony.
That is where people who want to build a factory set up a
company to make some of these new clean energy projects partner
and get some seed money from the government and do that.
The President is going to be in Holland, Michigan,
tomorrow--or later this week to talk about an advanced battery
manufacturing plant, which is getting a direct grant from the
government, being matched by private funds.
In terms of economic development, a lot of that is the
Small Business Administration. We have the loan guarantees that
were passed in the Recovery Act. They upped some of those. That
is partnering with a lot of loans to small businesses, creating
businesses throughout the country.
And then building construction. We know the Build America
Bonds that were included in the Recovery Act have been wildly
popular with a lot of state and local governments. They are
being used to fund everything from schools, to community
centers, to other kinds of infrastructure, and those are being
very, very widely used and quite successful.
Chair Maloney. Well thank you. My time has expired. Senator
Brownback.
Senator Brownback. I understand you are going to have a
vote shortly, so I will pass to Congressman Brady so he can go
to vote.
Representative Brady. Thank you, Madam Chairman.
I feel like the report, you cherry picked a lot of the
economic studies and I think almost made up some of the
comparative projections, but what is more disappointing is that
your own benchmarks are not included.
My question is: Why don't you have them in there? It was in
the first two Quarterly Reports. You can't say that the economy
was worse than imagined because the Republicans said your
projections were rosy to begin with, so is the White House
ducking accountability on the stimulus? Or simply hiding the
test so that we can't match it against the poor performance?
Chair Romer. So let me be very clear. First, on the numbers
that we compare ourselves to, we are looking at the same range
of estimates that we have looked at in all of the four
quarterly reports. So that we tie ourselves to the
Congressional Budget Office--a highly respected forecaster.
Representative Brady. But is there a reason yours are not
in here? I mean, you were very--you were front and center on
what the stimulus would do. It was widely reported. Members of
Congress debated it on the House Floor and in the Senate, as
well, but now they're missing.
Chair Romer. Can I say that, no, they're exactly--the main
goal that the President gave was that he thought that this Act
would save or create 3.5 million jobs. And that is absolutely
the marker that we are looking at and comparing ourselves to.
Representative Brady. So just to be clear, the White House
didn't say ever that unemployment would remain below 8 percent?
That you would create 137 nonfarm payroll jobs by the end of
the year. Or that 90 percent of the jobs would be created in
the private sector? You did--and the fact it was actually in
the first two Quarterly Reports when it shouldn't have been
there?
Chair Romer. It was not in the first two Quarterly Reports.
That was in the report that Jerry Bernstein and I put out
during the transition. And let me just address it right now,
because we did--the picture that you showed is one that has
even showed up on Jon Stewart. But let me explain what I think
is going on.
I think the most important thing to say: It has nothing to
do with the stimulus not working. Every study that comes out,
every test that we do says that the stimulus is doing what we
anticipated it would do. It's on track to save or create 3.5
million jobs.
Representative Brady. Sure. But I disagree with that, but
back to sort of hiding the benchmarks. Why?
Chair Romer. No one is hiding a benchmark. The fundamental
thing is about what I have control over, what you had control
over in designing the Act is what would the Act do? What none
of us has control over is what was happening in the economy,
what was going to happen without the Act. And the fundamental--
--
Representative Brady. Well actually you did estimate--you
did estimate originally what would happen without the Act in
comparing it against that----
Chair Romer [continuing]. Absolutely.
Representative Brady [continuing]. It is still a failure.
Chair Romer. Okay, so that----
Representative Brady. I guess, again, your benchmarks to me
mean something because they're not Republican or Democrat, they
come from the White House. They're no longer cited because
obviously the performance has failed to meet the----
Chair Romer [continuing]. No. I want to disagree
completely. Our benchmark had always been how many jobs would
this save or create. And that is what we are judging ourselves
against. That is what we estimate in every way possible. It is
what we contract--contact private investigators--private
analysts on Wall Street.
Let me come back to what changed between when we made that
prediction about what would happen to the unemployment rate is
the economy, the track it was on, net of the--without the
Recovery Act deteriorated. And I think it is important to
realize----
Representative Brady [continuing]. But we were telling you
that when you made that prediction.
Chair Romer [continuing]. You know, if you looked----
Representative Brady. We were telling you those were rosy
assumptions.
Chair Romer [continuing]. You know, if you go back and look
in the Economic Report of the President, which is before your
Committee, look in chapter two. Because we actually show you
what other forecasters, the blue chip consensus, right, the 50
top forecasters in the country, what they were predicting. I
think what you forget is, we were getting a tremendous amount
of information that first couple of months, and the economy was
turning in a way----
Representative Brady. But with all due respect, we haven't
forgot what your benchmarks are. And I don't know how, really,
you can claim success when you failed on those three key
features. Plus, predictions you would jump start the economy
didn't happen. That you'd restore consumer confidence--it is
low today, 90 percent of Americans believe the economy is in
bad shape, and 3 out of 4 don't believe it is getting better.
And how do you claim the stimulus worked when you've got
businesses holding on to $2 trillion of cash that they are not
rehiring people with. They're not hiring new workers with. They
are not making that investment or expansion decision. That is
proof positive that the stimulus has failed, because those
companies, eager to recover, simply face uncertainty, don't
want to be punished, reluctant to do it. How do you stimulate
by causing people to hold on, and businesses to hold on to
their own cash?
Chair Romer [continuing]. Congressman, I have to disagree
fundamentally with your statement that it hasn't had an
incredible impact on changing the trajectory of the economy.
You can't look at the kind of pictures that the Chairwoman
showed that showed we were on a trajectory of losing 750,000
jobs a month.
Representative Brady. But last month not a single industry
in America statistically showed a significant increase in jobs.
Last week, a little less than a half a million people filed for
unemployment, and that was celebrated. How can these be signs
of success after a stimulus of breath-taking proportions?
Chair Romer. Can we cite the number that we added 600,000
private sector jobs since the beginning of this year? You're
not going to get any argument with me, things are still----
Representative Brady. But you've lost 3.3 million jobs
since the stimulus passed in that 16 months. We're going the
wrong-- it's gone the wrong direction. And the Federal
Government workers are the only ones so far that have had safe
paychecks.
Chair Romer [continuing]. I think you need to remember
again how severe this Recession has been, and how it got
dramatically worse before anyone passed any Stimulus Act.
If you want to know about our forecast errors, almost all
of them came from the fourth quarter of 2008, and the first
quarter of 2009. Before the stimulus could have done anything,
the economy deteriorated rapidly. That's the main source of why
we're not meeting that benchmark.
Can I also point out one other thing? Which is, while you
like to talk about how we've missed our unemployment forecast,
it actually turns out that our GDP forecast has turned out to
be remarkably accurate. And that in terms of what we said the
stimulus would do to GDP, even taking into account the
baseline--because part of what's happened is a breakdown in the
usual relationship between GDP and unemployment.
Chair Maloney. The gentleman's time has expired. I would
like to comment to my very good friend and colleague for whom I
have great respect: you say we haven't seen any evidence of a
recovery, that uncertainty is preventing businesses from
hiring, and that the Recovery Act did not help get the economy
back on track.
Of course I disagree with this, but I was also very
interested in reading the Republican Study Committee document.
This is from the Republican Caucus and their Committee of the
Budget. I would just like to read a few sentences in there, and
it seems to disagree with some of the statements from my
respected colleague, and it's from the newest global financial
risk sovereign area that they're writing about, and I quote:
The U.S. economy began to slowly recover in 2009 from
the effects of a long and deep recession and a
financial crisis. GDP growth turned positive. In the
latter half of this year, financial markets normalized
and major credit markets began to function smoothly,
after an extended period of paralysis and turmoil. For
most of 2010, economists have said a moderate recovery
was well underway.
That's just from the Republican document, and I would like
to give it to my good friend and colleague.
Representative Brady. Do they cite the stimulus for that?
Because I specifically know it doesn't. It cites $1.3 trillion
in federal----
Chair Maloney. ``The economy is improving,'' according to
the Republican Caucus Report. We have been called to vote, and
I would now like to turn it over to Senator Klobuchar and thank
her very much for chairing this committee while we run to vote.
Thank you for your testimony, and here is the Republican
document, which basically says the same thing you were saying,
Dr. Romer. Thank you for your hard work.
Senator Klobuchar [presiding]. Representative Cummings.
Representative Cummings. Thank you very much, Madam Chair.
I told you. I told you that they would say the sky is
falling, and that the progress that we have made, that the
President and your Administration had nothing to do with it. I
told you.
You said something that really intrigued me. You said a
lot, really, but you talked about small business lending and
how significant that would be, and I'm going back to some of
the things that Mr. Brady was talking about.
We had the Federal Reserve in my District about three weeks
ago, and we had business people come in. And one of the things
that they said is that if we could just get access to capital,
there are--I mean, one lady stood up and she said: I've got
opportunities at my fingertips. I just can't get the capital.
And so could you comment on that briefly?
And then I want to ask you about the whole idea--and this
is the major question, Dr. Romer--a lot of people think that
Democrats, some of us, are not concerned about the deficit. And
we are concerned about the deficit. I want you to just--you
talked about how it is important that we also create jobs and
do those things to spur jobs, and I need you to tell us about
the balance. That is, dealing with the deficit and also
creating jobs.
Because I've got people, and they are concerned about the
deficit, but let me tell you something. They are trying to
figure out how they are going to be alive. Although they are
concerned about the deficit, they are worrying about being
alive to see the effect of the deficit going down.
So can you answer those two questions for me?
Chair Romer. Absolutely. So first on the small business
capital, what you are hearing in your District is exactly what
we are hearing. Which is, as many parts of the financial system
have gotten more stable, it is easier for big firms to issue
bonds and get capital, we are still hearing that it is hard for
small firms.
And the idea that there are opportunities at our
fingertips, and you just can't get the loan to put them into
practice. And that was something that Chairman Bernanke also
talked about in a recent speech. And that is exactly why, for
several months we have had the proposal for a Small Business
Lending Fund that takes a small business--a small amount of
government money, gives it to--lends it out to community banks
that do most of the--small banks that do most of the lending to
small businesses at very favorable rates, and encourages them.
They get even more favorable rates if they do more small
business lending.
It's just a win--it's a very winning proposition. It's very
cost effective. But we think it will have a material impact on
getting more loans to small business.
Representative Cummings. Now talk about deficit versus--now
are you concerned about the deficit?
Chair Romer. Of course.
Representative Cummings. And you are a professional. You
have been doing this for years. I just don't want people to
think that Democrats and this President are not concerned about
the deficit. Can you kind of tell us about what you all are
trying to do?
I think you're trying to balance this thing out?
Chair Romer. Absolutely. I can tell you how many times we
have had meetings with the President. He is deeply concerned
about the deficit. He is concerned about the fact that it has
been a problem we have known about for a good 20 years, that
keeps getting kicked down the road, and that is why he set up
the bipartisan commission.
He was convinced it was such an important problem, he also
knows the only way we're going to solve it is if both parties
come together and figure out a solution that we can both live
with.
So you will get no argument from me that it is an
incredibly important problem. I do want to say that I think
that the health reform legislation was a major step in the
right direction. For all that we can talk about quality, and
efficiency, and expanding coverage, that bill was also a major
fiscal action. It was a consolidation that is truly going to
help to slow the growth rate of costs, and that is, any study
will tell you, the main source of big budget deficits in the
future.
So that was an important first step. We absolutely need to
do more.
Representative Cummings. Well if I say to you, don't, for
example, do unemployment benefits because I'm worried about the
deficit, I mean what's your answer to something like that? I'm
just curious.
Chair Romer. Well there are two things to say. One is, our
budget had a very serious plan. Which is, we knew that the
fiscal stimulus was going to be going off. We also in our
budget had--letting the tax cuts for the highest income earners
expire, as they're set to do at the end of this year. We mixed
that with a group of targeted actions like extending
unemployment insurance to have a sensible path, what Peter
Orszag has described as a ``glide path'' back down to a smaller
deficit. And so that was absolutely--it's important to have a
plan, and we had that in our budget.
The other thing is, and so it is important to realize we
are making important fiscal consolidation over this year and
next year precisely because the fiscal stimulus is going off.
And that is an important point.
But the other point that I made is, we do need to worry--
when unemployment stays high for an extended period of time,
what you worry about is some of those workers are permanently
scarred. They drop out of the labor force. They lose their
skills, and so are not as employable as they were before. And
one of the worst things that could happen is that some of this
high unemployment becomes permanent, or structural, because
that obviously is terrible for the people involved, and it's
terrible for the productivity of the country, but it's also
terrible for the deficit.
So I think it is in fact shortsighted to say we need to--
you know, we can't do anything today to get the unemployment
rate down because of the deficit, when by not taking those
actions today you could make the deficit worse in the future by
causing unemployment to be permanently higher.
Representative Cummings. Thank you very much. I see my time
has expired.
Senator Klobuchar. Representative Burgess.
Representative Burgess. Thank you. Thank you, Senator, for
yielding to me.
Chair Romer, are you familiar--the Business Roundtable and
the Business Council on June 21st sent to Peter Orszag a list
of things. The letter that accompanied it says it's a follow up
to your request, Mr. Orszag's request, to both the Business
Roundtable and the Business Council for examples of pending
legislation and regulations that could have a dampening effect
on economic growth and job creation. Surveyed our members to
get their views. Attached is an executive summary and a
detailed description of what they see as government initiatives
that will inhibit growth, paraphrasing there just a little bit.
Are you familiar with this document?
Chair Romer. I am indeed.
Representative Burgess. On page 10 of the document in the
detailed portion, about the middle of the page, there's a
paragraph devoted to Texas Title 5 permitting and new source
review. And this is a complicated subject, and I know it is not
really the subject of our discussion today, but let me use this
as an example of some of the things that are happening at the
level of the Administration that are having an inhibitory
effect on investment certainly in my home State of Texas.
On March 31 the EPA formally disapproved of revisions to
the Texas Qualified Facilities Exemption Rule that allowed
facilities to use certain types of control equipment to make
changes in their operations without going through permit review
as long as these changes did not result in a net increase in
emissions.
So we're not harming the environment anymore, but we were
asking--we had some flexibility in implementing new equipment
coming online in some plants like refineries that make refined
product for gasoline that people depend upon in this country
and need to have a stable and price secure source.
So it goes on to say: Continued EPA objections could delay
startup of certain projects already under construction or
extend the permitting process for major new projects. In
general, a flexible permit can provide a single emissions cap
for part of an entire facility in lieu of permitting each
individual unit built within the facility.
Here's the important part: Similar rules exist in other
states and have not been challenged by the EPA. Is Texas being
singled out here? Or are other states that work under flexible
permitting from the EPA, can they expect similar Draconian
policies to be enacted in New Jersey, Pennsylvania, other
states that do refining?
[Submitted by Representative Burgess: Letter dated June 21,
2010, from Ivan G. Seidenberg and James W. Owens to Hon Peter
R. Orszag followed by the Business Roundtable report ``Policy
Burdens Inhibiting Economic Growth'' appears in the Submissions
for the Record on page 132.]
Chair Romer. Well let me--I'm not going to try to get into
the specifics of that particular rule. Let me actually, though,
the general issue of regulation, certainly as I said we have
been talking to the Business Roundtable. I think probably the
most important thing in that letter was the first sentence that
said, ``as you requested, here's the work that we've done.''
I think what you're seeing is, there's been a lot of
business outreach. One of the things that I'm at lots of
meetings with are meetings with businesses----
Representative Burgess. I don't mean to interrupt, but I'm
going to run out of time. Can I--and maybe we can get back to
you in writing on this, but this is a terribly important point
back home. And the economy of Texas actually has done a little
bit better than some other state economies. We're not a basket
case yet, but we could be with this type of Federal burden
coming down on the state permitting process.
We want clean air in our State. There's no argument about
that. This does not increase the pollution burden in the State.
We are simply asking for flexibility. And right now you have
got the governor of my state, Governor Perry, in a pitched
battle with the EPA over this, and it does no one any good to
do that. And certainly it is doing nothing to foster job
growth, not even in my District. This is down in the Houston-
Beaumont area, but it is certainly going to affect the economy
of our State.
You talked about the health care bill, and I've just got to
ask you. I mean, you don't really believe that that health care
bill that was passed is actually going to lower the cost of
health care in this country?
Chair Romer. I absolutely believe it will slow the growth
rate of health care costs, absolutely.
Representative Burgess. It is a fantasy that really needs
to be stamped out and rejected. We're through with the bill.
The President got what he wanted. Let's be honest and admit
we've driven costs through the roof.
If you're really honest about what happened in that bill,
we didn't include the doc fix in that bill. We didn't include
it because it was $300 to $500 billion. When that bill comes
due, do you really believe that the health care law that is now
the law of the land is actually going to reduce the cost of
anything for anyone in regards to health care in this country?
We turn tons--tons of regulation over to the Federal
agencies. No one has any idea what those rules are going to
look like. Your Business Roundtable is concerned about the
effect on jobs and job creation of the result of those rules.
And if those rules become too onerous, employer-sponsored
insurance will indeed become a thing of the past. If you like
what you have, you can keep it will become a hollow promise.
And the Federal Government will then have the burden of all
of those health care costs that the private sector is now
unloading. It will be cheaper to pay the $2000 fine than it
will be to keep up with the rules and regulations that are
coming out of Health and Human Services and the Center for
Medicare and Medicaid Services.
Chair Romer. Congressman, I just have to recommend that you
read three wonderful studies done by the Council of Economic
Advisers where we went through the provisions of the bill, and
our analysis based on outside studies is that it will slow the
growth rate of costs by one percentage point per year.
The other thing I think we lose sight of the fact, the
reason it was as hard as it was to pass is precisely because it
included some very hard things that will help to slow the
growth rate of costs: the excise tax on high-priced plans is
something that health economists say can genuinely help to slow
the growth rate of costs.
The Independent Payment Advisory Board is something that we
think can----
Representative Burgess. It scares everyone to death.
Chair Romer [continuing]. We think it is something that can
help to slow the growth----
Representative Burgess. And again, my time is up, but I
just have to say one thing. Richard Foster, the actuary for
CMS, came up with a figure that was available before we voted
on the bill, but withheld from Congress, that said the cost of
this thing was going to be much greater than what was being
advertised.
I have sent letters to Secretary Sebelius. Let us see the
notes and e-mails and traffic back and forth of what went on
between the actuary and the head at HHS before we voted on this
bill. Why was Congress denied accurate cost information on this
bill? I have not gotten any answer from the Administration yet.
Chair Romer [continuing]. Can I say, you did get an answer
from the Congressional Budget Office, which is one of the
sources of high-quality information, and what they said, what
we based a lot of our analysis on, is that it would slow the
growth rate of costs and save a trillion dollars over 20 years.
Representative Burgess. To paraphrase, they said: Oops, we
goofed. I yield back.
Senator Klobuchar. Thank you very much, Dr. Romer, and
thank you for being here today.
I am someone, as a former prosecutor, who believes in
facts. And I have been hearing a lot of accusations that I
believe are not fact-based. And you seem to me like you are
someone who is pretty straightforward.
Just to get one fact completely straight, is it true that
we lost 3 million jobs in the last six months of the Bush
Administration?
Chair Romer. Yes.
Senator Klobuchar. And then is it true that so far this
year private-sector employment has increased by nearly 600,000
jobs?
Chair Romer. Yes.
Senator Klobuchar. Okay. Well I think I would rather be on
this trend, even though I will admit it is not exactly where we
want to be yet, I think everyone knows that, but when we were
back before we passed the stimulus package, before we passed
the Recovery Act, before we started doing a number of major
transportation projects in my State that I know were long
overdue, and I guess this question of predictions. At the
beginning of the year, I assume you had a counterpart under the
Bush Administration that headed up the Council of Economic
Advisers. Did they predict that year that the Administration
was going to lose 3 million jobs?
Chair Romer. No.
Senator Klobuchar. Did they predict that they would gain
jobs, actually?
Chair Romer. I believe they did.
Senator Klobuchar. Well we will have to look at that. I
think that is interesting. Because people seem to be making a
lot of hay out of things. When I look back at the time when we
were basically on the edge of a financial cliff, I remember
actually the country came together at that moment, good or bad,
with President Bush and with John McCain, and Barack Obama, and
made a decision that we needed to shore up the financial
system.
I believe we then continued with unemployment losses under
the Bush Administration. President Obama took over. My memory
of the facts is in the first month when he took over, while
Bush was still President, we lost more jobs in this country in
the month of January than the State of Vermont has people.
We then passed the stimulus package. We evened things out,
and we are now in what I consider a recovery that is taking too
long. I would like it to go quicker, like everyone else.
I will say that in my State the unemployment rate is better
than the rest of the country. It's in the low 7 percent. But as
Senator Schumer pointed out, when people are hurting in a
household, if in their household no one has a job, it is 100
percent unemployment.
But the things that I have found helpful in our State is,
first of all, the jump start of the stimulus, but then the
belief in the private sector economy and working with small
businesses. That is why I so badly want to get the Small
Business bill passed. As well as a belief in innovation and
American jobs, and America making things again and exporting
them to the world.
And I would like to see some shift in focus. I actually
spoke with people in the White House about this today. This is
a continuation of what the President talked about in the State
of the Union, doubling the exports in five years, getting that
R&D tax credit through Congress. A major focus on math and
science. ``Nation building in our own Nation'' is what
Minnesota native and New York Times columnist Tom Friedman
calls it.
So I would like you to shift a little bit and talk some
about where you see this going in terms of some of the other
initiatives outside of stimulus that the Administration is
working on that you think will be helpful, starting with the
export initiative.
Chair Romer. I would be delighted to, because that is the--
you know, one of the issues that we have talked a lot about is
the world is different. Before the Recession, we knew that we
were saving very little. Consumers had very low savings rates.
We were building a tremendous number of houses so that we
had an overbuilding in housing. When we think about what the
economy is going to look like as we come through, we are going
to need--you know, we don't think consumers will go back to
saving zero, and we anticipate that, you know, construction
will be a smaller fraction at least for awhile. So the whole
question is going to be: Where is the demand going to come from
for all of our goods and services so that we keep people
employed?
And one of the things that we have identified for the
President is, an obvious place where we can expand is exports,
right? That creates demand for American products and keeps us
employed here at home.
And so we are doing a range of things. A lot of them are
simple no-brainers. What we learned from the theoretical
economics literature is that often it is just small, fixed
costs that make it hard for a firm to get over that first hump
of starting to export.
And so just things like providing information through the
SBA for small businesses. Or some more credit through the
Import-Export Bank can make a big difference in getting firms
that first export experience and getting them used to
exporting. So we are taking a major initiative there.
Secretary Locke is working with a tremendous amount of
additional commercial diplomacy, taking people around the world
trying to showcase American products.
The State Department is taking a lot of the personnel we
already have abroad and saying, can you get better at helping,
you know, helping our firms sell their products and get used to
exporting? And we absolutely think this goal of doubling
exports is completely reasonable and something that will be
very good for the American economy.
Senator Klobuchar. Senator LeMieux and I have a bill that
actually--which we're trying to include in the Small Business
package. It's a bipartisan bill. As you know, he's a Republican
from Florida. It went through Commerce unanimously. To try to
beef up some of that work that the Commerce Department does
with small and medium sized businesses, because I have seen
huge success in our State along those lines.
I did have one question that Senator Schumer was going to
ask and then he had to leave early. He is introducing a bill to
extend the HIRE Act for six months. It includes a tax credit
for businesses that hire unemployed workers, 179 expensing that
allows businesses to deduct expenses in the year they are
purchased. By the way, that is something that I heard a lot
about when I was out there with our small businesses. And the
Build America Bonds.
Is that something you think would be helpful?
Chair Romer. You know, I will tell you that in the fall the
Council of Economic Advisers did a lot of research on a jobs
tax credit like the Schumer-Hatch tax credit that ended up in
the HIRE Act, and we were very enthusiastic. We thought it was
something that could have very good employment effects.
And as Senator Schumer mentioned at the beginning, there is
some evidence coming in about how many workers are eligible for
it, and suggesting that it could be quite effective. I think it
is an issue that we need to study to figure out, but what I can
tell you is we are very enthusiastic, as always, to work with
Congress on measures that will help to put people back to work.
So we----
Senator Klobuchar. So one last----
Chair Romer [continuing]. Look forward to talking with you.
Senator Klobuchar [continuing]. Clarification of a fact
question before I turn it over to Senator Brownback.
Representative Burgess was asking you about health care
expenses, and I thought you made a good case that over the long
term that this bill took on the difficult task of bringing down
health care costs, which have been going up and up and up at
the expense particularly of the self-employed and small
businesses in this country.
The CBO score of this, the nonpartisan CBO, which I know is
relied on from my colleagues on the other side during the Bush
Administration, that agency, to get accurate numbers, the CBO
score ten years--is it true that the CBO score of this bill is
saving $138 billion over 10 years?
Chair Romer. Yes, it is.
Senator Klobuchar. And for the health care bill, over 20
years the score was that it would save $1.2 trillion? Are those
the numbers you are talking about?
Chair Romer. Those are exactly the numbers I am talking
about.
Senator Klobuchar. Again, I believe in facts. Thank you
very much. I turn it over to my colleague, Senator Brownback.
Senator Brownback. And I believe the taxes kick in in year
one, and the benefits not to year four, Chair?
Chair Romer. The important thing is I believe at the end of
the ten-year window, it is still positive. So I think that's
actually--that's not what's getting you the good number.
Senator Brownback. Well I wonder what the next ten years
will bring, when you have ten years of spending and ten years
of taxes on that----
Chair Romer. That's when it saves a trillion dollars, or
$1.1 trillion.
Senator Brownback [continuing]. Good Lord, I hope you are
right.
Chair Romer. I hope the Congressional Budget Office is
right.
Senator Brownback. Well, I want to talk about the
uncertainty factor that's out there. Because surely you are
hearing that. I know the President called a number of business
leaders and they cited to him a series of uncertainties to
explain why they're not employing. And looking forward, which
hopefully you are, I'm sure you're saying look, how do we get
these guys to put money in the game, men and women that are
investing, creating jobs, trying to create an atmosphere for
growth.
One of the things that people look at, saying it is going
to drive up costs, is the cap and trade proposed legislation
that passed the House. In your Chapter 9 of the Economic
Report, the President supports cap and trade, carbon emissions,
to transform the energy sector.
CBO questions the premises for cap and trade, and asks how
policies reducing greenhouse gas emissions could affect
employment. In the May 5th report they say emission reduction
policies would decrease employment in energy-intensive
industries. Quote, ``Eventually the economy would return full
employment. Average wages would be lower than that that would
otherwise prevail because of the higher cost of energy would
reduce the productivity of the economy.''
That is a direct quote of the CBO report. Given the
uncertainty, given the difficulty we are having in the economy,
would the Administration now say it is not time to pass cap and
trade legislation?
Chair Romer. So let me first talk about the uncertainty,
because it is something that we hear a lot from business. And I
think the important thing to realize is, what have been the
major sources of uncertainty over the last 18 months?
It has been the financial crisis. It's been the terrible
Recession. That has been the number one thing we have worked
with the Congress to try to turn around, what the Federal
Reserve has been working on, what Secretary Geithner worked on
with the Financial Stability Plan. And I think that has been
incredibly important.
Also, on the regulatory side, I think as was made--the
statement was made very well, often----
Senator Brownback. I'm going to run out of time. Do you
have cap and trade--I just was asking you directly about cap
and trade, and its uncertainty factor.
Chair Romer [continuing]. What the President has said is he
actually thinks getting a sensible energy legislation, like
many other changes that we make, can help to resolve
uncertainty because people understand what the framework is.
And what we do know is we have a problem. We are dependent on
foreign oil----
Senator Brownback. Well even though CBO says this is going
to drive employment down and wages down, you are for cap and
trade at this point in time in our economy?
Chair Romer [continuing]. We are for a comprehensive
program that counteracts many of those things, by investing in
clean energy, by trying to jump start the clean energy economy.
We think a lot of--you know, that that can have very positive
employment----
Senator Brownback. Do you believe emission reduction
policies would decrease employment in energy-intensive
industries?
Chair Romer [continuing]. I think it's going to affect
different industries in different ways.
Senator Brownback. What about that industry?
Chair Romer. Like renewable energy, for example.
Senator Brownback. What about in an energy-intensive
industry?
Chair Romer. I think we are going to have to develop it
very well. That is something that the bills are being very
careful to try to make sure that we minimize any costs on some
industries----
Senator Brownback. You're an economist. You're an excellent
economist. You know this is going to drive down employment in
energy-intensive industry.
Chair Romer [continuing]. What it's going to do is to
change the nature of what we produce. We think that is
something we need to----
Senator Brownback. Will it drive down employment in energy-
intensive industry?
Chair Romer [continuing]. I think it is going to depend on
how we design it. I think that is going to be the basic thing
that has to happen.
Senator Brownback. So you honestly believe it might not
drive down employment in energy-intensive industry? It's what
the CBO has said. It's what every economist that I've read or
looked at----
Chair Romer. So we're going to need to--I would certainly
need to think more about the evidence. I think the other thing
is, the whole thing the President is trying to do is to invest
in new energy technologies, clean energy technologies----
Senator Brownback [continuing]. Create winners and losers?
Chair Romer [continuing]. Because that's the way you're
going to counteract any--you know, if you're making carbon
fuels more expensive, the way you can counteract that is come
up with alternative energy.
Senator Brownback. Will this make carbon fuels more
expensive?
Chair Romer. So certainly what a cap and trade system is
designed to do is to, as the President has described, is to put
a price on carbon.
Senator Brownback. And it will make carbon-intensive fuels
more expensive?
Chair Romer. The--most likely. And then what you have to do
is to think about how do you deal with those consequences. And
you have--you know, you have to remember why we're doing this.
No one would choose to do this----
Senator Brownback. Well I understand why we're doing this--
--
Chair Romer [continuing]. If there weren't a problem.
Senator Brownback [continuing]. And I also watch Europe,
what they're doing in backing away from some of these policies
now because their economy is in such difficulty.
And I'm thinking why shouldn't we be watching what is
taking place there, if that is the same sort of track that we
are looking at going down? And if they have already pursued
that very aggressively and now they are saying, wait a minute,
look at what it is costing us, and look at how difficult this
is, maybe we ought to just take a moment and say, well, let's
watch what happens here and let's look at this for a little
while and see that we don't hurt ourselves in the process.
And in an already soft economy, with all you have been
saying today I believe you think this is still a soft economy--
I'm not quite sure, but I believe that is what you think?
Chair Romer. It is still a soft economy. It is an economy
that is recovering and, as Ms. Klobuchar described, we want it
to be recovering faster.
Can I actually say, the President has been having a very
positive message here, which is: Let's be growing the
alternative energy sector----
Senator Brownback. I'm all for that.
Chair Romer [continuing]. And that's why he's been
investing----
Senator Brownback. I'm all for growing the positive end of
it. Just don't tax and kill the other end of it in the process.
That's why I always think you do these things by investment and
innovation, not by taxes and regulation.
So you grow it, and you push it. We've got a hydrogen fuel
cell locomotive we built in Topeka, Kansas. BNSF and the Army
has done it. It's a beautiful example. But it's an investment
in an innovation that isn't us telling the railroads you've got
to go to this type of a technology. And, that's how you move
through these.
But on the deficit reduction, because I know you've got to
be concerned about the deficit, you've said you're concerned
about the deficit, it's being added to at $55,000 a second
under the Obama Administration. We just had the Budget Director
leave office. The Financial Times reports, June 27th, that he
resigned, quote, ``frustration over his lack of success in
persuading the Administration to tackle the fiscal deficit more
aggressively.''
And we're looking at nearly trillion dollar deficits
throughout the next decade. I really hope you can tell us how
we are going to start getting away from this borrowing 40 cents
of every dollar we are spending right now and move in the
positive direction we need to.
Chair Romer [continuing]. All right, so I think we should
very much separate the current deficit, which to a very large
degree is being caused by the terrible Recession that we have
been through, and our long-run fiscal problem which I
absolutely agree is a serious problem and something that we
need to be dealing with.
I think if you talk to Director Orszag and you talk to the
President, what you will hear is they are both in complete
agreement about how important it is to deal with our deficit
over time. That's why our budget charts a path to get the
deficit down to 4 percent of GDP by 2015, and then sets up the
fiscal commission encouraging it to then have a goal of getting
it down to 3 percent of GDP, or even further.
So that is a very carefully worked out plan, and something
that absolutely is important. And it is going to take people
from both sides of the aisle. That's why the fiscal commission
is there. This is going to be a hard problem. No one side can
solve it by themselves. And we absolutely need to reach that
consensus.
Senator Brownback. Thank you.
Thank you, Madam Chairman. If you have a second round, I
would like to add another set of questions.
Senator Klobuchar. Wonderful. We will do that.
I just want to go back here, along with my theme of getting
to the facts. Senator Brownback was just asking about the Debt
Commission, which the President as you know had to basically
set up his own bipartisan Debt Commission with former
Republican Senator Simpson, Democrat Erskine Bowles of North
Carolina, and he had to do that because we were unable to get
seven of the Republicans in the Senate who were on the bill to
support the statutory Debt Commission.
I was one of the Democrats that held out my vote until we
made sure that we got that Debt Commission, held up my vote on
the budget. I think it is incredibly important.
My question on this is: What was the debt going in that the
President inherited from President Bush?
Chair Romer. Certainly the numbers are that before we ever
walked in the door. I believe the deficit was going to be over
a trillion dollars. So that was what we inherited. And
obviously the debt then accumulated.
Senator Klobuchar. And as the President has reported,
decisions were made to shore up the economy when it was
teetering on the financial cliff. And how much was added to
that, then, for the deficit?
Chair Romer. So in the short run obviously we spent the
money that we spent on the Recovery Act. I think an important
fact that we have in the Economic Report of the President, when
you look at our long-run deficit, all of the actions that we
take are about a quarter of one percent of that long-run
deficit number that is, as you know, enormous. And so that they
are a tiny, tiny fraction.
And that makes sense. It's a one-time expenditure taken in
an emergency, and that does not add to your long-run deficit.
The kind of things that add to your long-run deficit are rising
health care costs, which are an enormous part of the economy
and grow over time, as our population ages.
Senator Klobuchar. Very good. And I am very much looking
forward to the suggestions of this Commission. I think it is
incredibly important, as many of us do, to do something on this
long-term debt. But I think it is very important we get the
facts straight about the debt that the President inherited when
he got in.
Another fact clarification before I get to my questions.
You were asked about the benefits and the costs associated with
the health care bill. You and I went over the long-term cost
savings with the health care bill. But just to clarify what the
benefits are, if you are a senior you will--there was a
question. Are there benefits? I think someone had said you
won't get the benefits for four years. I thought it was very
important to clarify for the record.
In 2010, if you are a senior, are there in fact reductions
on the costs of brand name prescription drugs? And additional
help with closing the donut hole? Is that correct?
Chair Romer. Absolutely.
Senator Klobuchar. And is it true that the insurance
companies will also be barred from limiting the total benefits
Americans can use over the course of their lifetime, and that
affordable insurance coverage options will also be made
available through a high-risk pool for Americans? And that
these are short-term goals of this--short-term provisions that
will take effect immediately?
Chair Romer. Yes. And I'd love to actually also add, the
credits for small businesses are something that kicked in very
quickly to help them cover the cost of health insurance for
their workers.
Senator Klobuchar. That's right, because right now small
businesses are paying 20 percent more than big businesses for
their health care. And they are going to be eligible for tax
credits up to 35 percent, which I think a lot of small
businesses don't know yet, but that will start in 2011. And
then finally, that parents are able to keep their kids on their
insurance until they're 26 years old. Is that correct?
Chair Romer. That is correct.
Senator Klobuchar. All right. We were talking about some of
the long-term solutions here, and things that will be helpful
to the economy. One of the things I have been very focused on
is how we need to jump start and focus on our university
research.
It used to be that we had the Bell Labs, and AT&T Labs, and
those kinds of things that would generate ideas and new
products, and they would go right into the stream of commerce.
We have gotten away from that, obviously. But what I am
concerned about, I always think about the Beijing Olympics with
the 2000 perfectly synchronized drummers in the opening
ceremony. And I thought when I saw that, we're in trouble. And
those drum beats are getting louder and louder and louder. And
while they are building high-speed rail in Shanghai, we are
still debating transportation policy and unfortunately not
coming together as we need to as a country. And while Brazil is
producing more and more engineers and scientists, we are
falling behind.
And so that is my major focus here. And one of the parts of
this is how we generate more commercially focused university
research. And I mean that in the best of ways, so that that is
also focused on jobs, and that we use our universities and
great learning institutions as incubators for new ideas that
will become the next Google, or the next Medtronic in
Minnesota.
Could you comment on that, and how we can do that, and
maybe improve the requirements of the America COMPETES Act?
Chair Romer. I want to first agree with you completely on
how important this innovative research is. When you talk to
businesses, the thing that they say still gives us an edge in
international competition is precisely because the new ideas
are tremendously developed here. And so keeping that I think is
incredibly important.
If you go back to a speech the President gave very early
where he challenged both the government and the private sector
to make research and development of our GDP, to reach a number
that we have not seen in decades, I think that is an important
challenge. It is one that we started to meet through the
Recovery Act, and it is something that the President is
dedicated to continuing through our funding of things like the
National Institutes of Health, the National Science Foundation.
And I think your point about, as much as possible--you
know, a natural role for the government is of course in doing
what the private sector wouldn't naturally do, like the basic
scientific research. But as much as we can help to make the
innovations that we develop here then turn into industries here
is incredibly important.
And here I will just mention, one of the things that is not
particularly exciting to many people is reform of the Patent
Office, just making the way that we protect intellectual
property when we discover these things is something that we
think can help to make this process work better. And that is
something that certainly we have been working on that I think
is an important thing for us and Congress to work on together.
Senator Klobuchar. Very good. Maybe someone asked you about
this before. As you know, we have been struggling to pass the
extension of unemployment benefits here. I did a bunch of
events back in Minnesota for the week, everywhere from
Brainerd, Minnesota, to Lanesboro, Minnesota, and I was really
struck by the number of people that just came up to me. And
even though we have a lower unemployment rate, if they
weren't--didn't care about that. Maybe they had a neighbor that
did--how important it is to make sure we have a safety net in
place right now for those people who, through no fault of their
own, have lost their jobs.
Chair Romer. Absolutely. And the numbers that I gave in my
testimony, that by the end of this month 3.2 million people
will have exhausted their benefits because the program was not
extended. And that is 3.2 million people whose lives will be
devastated.
But it is also a drag on the economy. That is, when people
have unemployment insurance they spend it. And that is good for
local businesses. It's helping to support their communities and
help put other people back to work. So it is incredibly
important.
Both the Congressional Budget Office, private analysts like
Mark Zandi, identify unemployment insurance as one of the
stimulus things you can do that has the highest bang for the
buck. And I think that is incredibly important for us to keep
in mind.
Senator Klobuchar. And one last question before I go back
to Senator Brownback. One of the things I have noticed in our
State is, because of the recovery, there are businesses that
are actually still--are looking for workers, and they don't
always match up with the location of where the workers are.
I just want to make a pitch for three businesses that I
just visited in the last few weeks, one in the last few months.
Digi-Key, up in Thief River Falls, was literally hiring over a
hundred people. They make innards for computers. New French
Bakery in St. Paul, Minnesota, needed some people for their
night shift. They literally don't have enough people to produce
the bread. Monogram Meats in the very rural town of Chandler,
Minnesota, that I visited just a few weeks ago, was also
looking for some new employees.
So I end with that to say, I guess one of my last questions
will be, how do you deal with that when there are places that
are looking for workers and that's not where the workers are?
But secondly, to end with a positive note that there clearly
are some signs of recovery across this country.
Chair Romer. I think you are absolutely right that there
are signs of recovery everywhere. And I think that is so
important for us to keep in mind. But as we have said many
times, it needs to be stronger. And I think that is certainly
what we are focused on.
On the mismatch, we have heard some. There have been some
stories about mismatch in skills. You were describing people
aren't where the jobs are. One of the great strengths of the
American economy is its flexibility of its workforce.
I would anticipate that when you tell people there are jobs
in these areas, I can imagine many people very anxious to get
there.
In terms of skills----
Senator Klobuchar. That's why I tried to do it, for the
benefit of the C-SPAN viewers.
Chair Romer [continuing]. Excellent.
Senator Klobuchar. Like beef jerky. All right.
Chair Romer. But there's also--you know, within the
Recovery Act and certainly there's other legislation, improving
our educational system and our job training, making sure that
the skills that our children and our existing workers are
developing are the skills that are going to be necessary in the
21st Century, is a never-ending challenge. It is what every
economy needs to do. We need to constantly be growing and
changing, and that is something that we are very much committed
to.
And again, working with Congress to make sure that we're
spending that money as effectively as possible.
Senator Klobuchar. Thank you very much.
Senator Brownback.
Senator Brownback. Thanks, Madam Chairman.
To start off with a softball for you, I am very pleased
that the President set the November timeframe to address
outstanding issues on the U.S.-South Korean Free Trade
Agreement. I think that is where we can have a broad base of
agreement. This is a positive for the economy.
There are issues outstanding still related to autos and
beef. It is my hope that those can be resolved. You can submit
and aggressively push that before Congress. I would hope, as
well, you would push the trade agreements with Colombia and
Panama, as job creators as well, and that you would push those
aggressively with the Congress. That would be my hope.
Chair Romer. The President certainly in his State of the
Union mentioned those, and he has singled out Korea at the G-
20. But I think you point out an important point, which is as
we want to increase exports, opening up world markets through
trade agreements is an important way to do that, and that is
ultimately good for America and for our workers.
Senator Brownback. And I think you can get some broad base
of support.
Madam Chairman, you are a noted economist. Is this a good
time to pass cap and trade legislation?
Chair Romer. With the--so, I mean the President has said
that he thinks this is an issue that we need to face, and that
is absolutely correct. So what is true is----
Senator Brownback. So this is a good time to pass cap and
trade legislation?
Chair Romer [continuing]. We need to deal with our energy
situation. We have--we are dependent on foreign oil. We have a
problem of climate change. And there's the opportunities in
alternative energy. Now is a propitious time to make sure that
we----
Senator Brownback. And it will drive energy costs up.
Kansas City, Kansas, Board of Public Utilities projects that it
is going to drive up their energy costs 25 percent to their
customers over a near-term basis. That's over the next three
years. Is that a good thing?
Chair Romer [continuing]. Okay, so let's go back to say the
legislation that was passed by the House, the Waxman-Markey
legislation, the whole idea of making it a package is that you
deal with any consequences in terms of industries, in terms of
consumers, by----
Senator Brownback. Fair enough.
Chair Romer [continuing]. By dealing with it.
Senator Brownback. How is Kansas City, Kansas, going to
benefit from this?
Chair Romer. So every American is going to benefit by jump
starting clean energy, by breaking our dependence on foreign
oil, and by not warming the planet to the point of catastrophe.
All those are things that need to be dealt with.
Senator Brownback. And my Kansas City, Kansas, their
utility bills go up 25 percent. Their cost of gasoline in their
car goes up to them on a near-term basis. And maybe some of
them see a job opportunity. So by and large they are going to
benefit from this in the near term in a soft economy?
Chair Romer. So the key thing has been, right, how do you
protect consumers? And so the original legislation had things
like a rebate to the energy--you know, to the service providers
to insulate consumers.
We can have long discussions on how you design this thing
to minimize impact on consumers, to get the benefit through
clean energy, you know, preventing climate change, breaking our
dependence on foreign oil, and deal with consequences. I would
love to talk with you in detail about how do you design that in
the best way possible. The President has said we need to do it.
Senator Brownback. I would prefer you would talk to the
American citizens that are looking at prices going up because
of this. And my point to you is that, we need to talk about
uncertainty, talk about why we're not creating the jobs we need
to at this point in time. There's a positive. We can look at
trade issues. I think there's a positive we can look at Chinese
currency issues. I think that would be a helpful thing if the
Administration would really push on China to float its
currency. I'm with Senator Schumer on that. I believe the
Administration is generally supportive of that policy. I think
those are good bipartisan things.
Cap and trade--even if you support the idea this is a bad
time for it. That's when you get people keeping their
investment on the sideline. Or you get people saying I'm not
sure about whether or not to move this on forward.
And it would be wiser, I would submit to you, let's invest
in renewables. Let's do more ethanol. Let's do things that
support wind energy. But not cap and trade that drives up your
costs at a time when you have such a weak economy.
I would really--I am not going to convince you to do that--
--
Chair Romer. You have convinced me that we should talk
more.
Senator Brownback [continuing]. We will be happy to talk
with you.
Let me, because I'm going to run out of time, on the
Council of Economic Advisers web site you talk about using the
best data available.
Chair Romer. Um-hmm.
Senator Brownback. You have created this term ``jobs
saved.'' ``Jobs created and saved.'' Now you've got well
respected economists that believe this is a nonmeasurable
number. I'm sure you're familiar with this.
Chair Romer. Um-hmm.
Senator Brownback. Harvard University Professor Greg Mankiw
wrote on a blog: The expression ``created or saved'' which has
been used regularly by the President's economic team is an act
of political genius. You can measure how many jobs are created
between two points in time, but there is no way to measure how
many jobs are saved.
Professor Allan Meltzer, critical in an op ed recently
says: The Council of Economic Advisers shamefully embedded a
number called ``jobs saved'' that has never been seen before
and has no agreed meaning, and no academic standing.
Now I am certain you are familiar with academic standing on
numbers and terms. And I don't want to really dispute with you
about the nature of the state of the economy today, but I think
we should be on measurables that have been generally agreed to
by the profession. And this one is not.
Chair Romer. Actually I disagree fundamentally. Actually,
both of those distinguished economists I'm sure actually
understand the fundamental notion that any policy has to be
judged relative to what otherwise would have happened.
Allan Meltzer is a distinguished economic historian, and
everything that we do is about counterfactuals. And in terms of
how do you measure it, that is exactly what our report is
about. We go through pages and pages of saying, how do we
identify what would have happened otherwise? And therefore, how
do you say what we think the contribution of the Recovery Act
is?
It is hard. It is not an easy thing to do. That is why we
spend weeks writing these reports. It is why the CBO spends
weeks. It is why the Federal Reserve is looking at this. It is
why Mark Zandi looks at this. Everybody--I mean, it is a well-
defined concept. It's just hard. And it doesn't mean that you
don't do it. Somebody has to say what's the effect of this
policy? And it's just simply not possible to say, well, look at
this point, look at that point. This is what the policy did.
You need to know. You need to have some way of estimating
what would have happened in its absence. It's the fundamental
issue in any economic analysis of a policy measure.
Senator Brownback. Of ``jobs saved''? But let me ask you
quickly, on the G-20. They recently met and was strongly
focused on government deficit spending. And it appeared to be
saying that we are all concerned about it, but it did not
appear that the Obama Administration was, of what came out of
that meeting. And they are saying we need to get deficits under
control.
I would hope that the Administration would look at those
push--that push by European governments, particularly that they
faced in this recent debt crisis, that for most Americans saw
that as a shot, a warning shot to us on the track that we are
on. And, that you would put more emphasis--I understand your
concern about the deficit, but a lot more emphasis.
We just recently pushed the idea of doing a freeze on
spending for this next year in the Republican appropriations,
and trying to get the rest of our colleagues to go along with
that as a way to get focused on this deficit. And I would hope
the Administration----
Chair Maloney [presiding]. Would the gentleman sum up? He
is way over time.
Senator Brownback. We did about ten minutes on Senator
Klobuchar while you were gone----
Chair Maloney. Oh, okay. Okay. All right.
Senator Brownback [continuing]. So I was just saying, well,
okay, I will do about ten. And I will sum up here. But my point
being, that the G-20 is deeply concerned.
They have confronted this debt crisis that is a crisis of
confidence as much as anything. And we cannot let that come to
the United States, have that crisis of confidence in the fiscal
house in the United States. And I would really hope that if you
were more aggressive on dealing with that, we would not
confront that crisis of confidence moving on forward. And I am
afraid it could come this way.
Chair Romer. All right, so let me first respond by saying,
you know, in our budget we talked about a nonsecurity spending
freeze, because the President agrees that he thought that was a
sensible strategy.
On the G-20, there is no disagreement on the notion that
our budget deficit needs to be brought down over time. We agree
completely with the other countries of the world that that is
an issue that we all face. And I have said before, I think one
of the great, you know, lessons from this crisis is don't--you
know, get your fiscal house in order in good times because you
never know when you may need the ability to take care of an
economy that is in trouble.
But I think a fundamental issue that came up at the G-20 is
the rate of exit. Because we do know that fiscal stimulus is
having an important effect on the economy. And those
distinguished economists that you mentioned, I can tell you
from their textbooks, for example, Greg Mankiw's textbooks, he
believes that government spending and tax cuts have an effect
on the economy.
And if you take away all of that too quickly, what you run
the risk of is pushing the world economy back down into
recession. So very much what Secretary Geithner and the
President were talking about is, as we move toward fiscal
consolidation, take into account what is happening in our own
country, and what is the appropriate rate of moving in that
direction.
That was the only level on which there was any discussion.
The overarching goal of getting our deficit under control, I am
exactly with you. The President is with you. Director Orszag,
Secretary Geithner, we are unified in the importance of getting
that under control. That is why we strongly supported the
bipartisan commission.
Chair Maloney. Thank you very much. Congressman Snyder.
Representative Snyder. Thank you, Madam Chair.
Dr. Romer, thank you for your patience today. We have been
running back and forth for votes. One quick question, if I
might, and Mr. Brady is not here, but I am reading from his
opening statement when he was talking about things that he
considered bad things that President Obama and Congressional
Democrats--of which I am one--have done.
One of them is, he states, quote, ``The top tax rate on
capital gains will increase from 15 percent this year to 23.8
percent in 2013; while the top tax rate on dividends will
skyrocket from 15 percent this year to 43.4 percent in 2013''.
End of quote.
I don't recall you recommending to President Obama that he
sign that bill. I don't recall voting for that bill. In fact,
that was President Bush's April 2001 Economic Plan that was
adopted by the Republican Congress and signed into law by
President Bush.
Isn't that correct?
Chair Romer. That is correct.
Representative Snyder. Which Mr. Brady voted for. So when
he talks about, and Republicans talk about this ``skyrocketing
soon-to-come skyrocketing tax increase,'' it is a plan that
they voted for.
And one of the great weaknesses of that plan was that the
numbers were gamed so that the 10-year and 20-year numbers
would look better because it did come to an abrupt end. They,
in my view, did not have the nerve to actually carry it out
indefinitely.
And so that is a plan that they voted for. They voted for
skyrocketing tax rates, in their words, in 2013, not
Congressional Democrats, and certainly not signed by President
Obama, and certainly not recommended by Dr. Christina Romer.
Chair Romer. Absolutely. And by structuring it the way that
they did, it allowed them to hide the impact that it was going
to have on the deficit.
Representative Snyder. That was the big reason for it, yes,
to frankly fool the American people.
I want to get into this thing. We have used the word
``stimulus'' and we have kind of ignored the word
``countercyclical,'' but I want to play that I'm a teacher, if
I might, which is probably not going to work, but maybe I will
be a better teacher than a lemonade salesman, for Mr. Burgess.
If this [illustrating with water bottles] was the
consumption by state government before the recession, jobs drop
off, that's what they're buying out of the economy now in state
government.
If this was the consumption by local government before the
recession, and this glass is what they drop off. If this is the
consumption by private corporations, and small business firms,
and this is it after the recession begins. If this is
consumption by individuals in the economy like myself who is
about to borrow some money to have some work done on my house,
and this is our consumption after the recession began. This
illustrates the problem, I think, which is economy is about
demand for product.
And in all these components of the economy, demand has
dropped. I can add on another one, which is international
buyers. The same thing has happened there. That is demand for
U.S. products before. That has dropped off.
Now the only one we have tried to maintain, or even do a
little better, is the Federal Government to be a counterweight
to all this dropoff. And I want to make one point, and then one
question.
My point is, I don't understand what is wrong in the times
of a downturn in the economy, why it has become so bad to talk
about or advocate for something countercyclical to be a
counterweight to this.
My friends on the other side, they were fine to deficit
spend to do a military runway in Iraq or Afghanistan, but
somehow that money that goes to the Iraq air force base, which
it did, to do repairs on the air base, but that's bad and not a
good investment in national security. Or $50 million for clean
water projects in Arkansas under the stimulus bill is bad, but
to deficit spend for clean water projects in Iraq or
Afghanistan is good.
I don't get it, when you've got this kind of a situation.
But here's my question. And somehow I got, I'd better give them
credit, I got put on a Goldman Sachs mailer years ago, and I'm
afraid to mention it because they'll probably pull me off, but
is there something inherently different now about these
components that's making them difficult, making it more
difficult, or by choice they are not buying more product to get
that up, back to the normal level? It's taking them longer.
Are they making decisions, a deliberate decision, we're
going to work on keeping our debt load lower this time around,
because we've got some uncertainty out there? And so we're not
coming back as fast? Whether you're local government, state
government, a corporate entity, big or small, or an individual,
and international?
Is there something inherently different about this
recovery, using my bottle now?
Chair Romer. You are doing very well at your teaching.
Representative Snyder. And now I am hidden behind bottles.
[Laughter.]
Chair Romer. So you make a couple of excellent points. One
is just what's the notion of countercyclical policy? And it's
precisely what the President has always said. At a time when
the private sector is not buying things, the government has a
very legitimate, essential role in counteracting some of that.
And that is exactly what the Recovery Act was designed to do.
The one thing I would say, though, is one of the key ways
it was designed to do it is not just all the government
spending, right? We gave very large tax cuts to consumers so
that they would go out and buy. We gave unemployment insurance
to consumers so they would go out to buy.
We gave the 48C tax credits to businesses so they do more
investment. So a whole bunch of that is in fact not in that
cup, it is in all of your bottles. And the other thing you were
mentioning that I mentioned when you were going is that the
world is different coming out of this.
We have a lot of consumers who are over indebted, and so
that they may not go back--and we probably do not think they
should go back to perhaps the very high spending ways from
before the crisis. If consumers are never going to be all the
way up to the bottle, you have to ask, well what's going to
make sure demand equals? And that is why we talked a lot about
exports. That's another source of demand.
I have talked a lot in the economic report about
investment. If we can get firms to do more investment, that is
going to be something that holds up demand but it is good for
our long-run productivity. That is why things like the Small
Business Lending Fund, the Bonus Depreciation, the Zero Capital
Gains for Small Businesses, that's going to encourage them to
invest and be a source of demand for the economy.
So you are absolutely right. We need to get demand up to
the level of all those bottles, but I think the composition may
be different as we come out of this crisis, and we need to be
adjusting policies to try to support that every healthy what we
call in the economic report, a rebalancing.
Representative Snyder. Thank you, Madam Chair.
Chair Maloney. Thank you very much.
Dr. Romer, the long-term unemployment rate during this
Recession is at an historic high. In your report, you mentioned
that the historical relationship between unemployment rate
increases and output declines did not hold during this
Recession, and that the unemployment rate rose much more than
expected given the decline in output.
Do you still believe that this rule-of-thumb known as
Okun's Law is holding?
Chair Romer. That's an excellent question. It does go back
to how did some of our forecasts not come to be. Part of it was
what we discussed at length with Mr. Brady about the
deterioration in the economy which was much faster than we or
any private sector forecasters were calling for.
But the other piece of that was an unusually bad behavior
of unemployment. That given what has happened to GDP, the
unemployment rate has risen more than would have been expected.
And in the economic report we say it is probably about a point
to a point-and-a-half higher than you would normally expect
from that famous relationship called Okun's Law.
I can't help but note it is named after a previous Chair of
the Council of Economic Advisers, Arthur Okun. But anyway, this
is certainly part of why the unemployment rate is so high, and
higher than people had been expecting, is the breakdown in that
relationship.
The question is what is going to happen on the other side.
So what we have been seeing in the last several months is GDP
has started to grow again. The unemployment rate has come down.
And I think that relationship is pretty much following the
usual Okun's Law relationship.
I think the one thing we of course all hope for is
anything, sort of the bad residual that we got in the Recession
at some point do we see firms suddenly hiring more, bringing
the unemployment rate down more quickly for a given behavior of
GDP. I think that is something that is hard to know, but that
is certainly a hope that we can have that when this thing
really gets going strongly, do you get some of that Okun's Law
residual, if you want, back in the recovery phase.
Chair Maloney. Well, many people have noted that during
this Great Recession we have been very fortunate to have you
and Ben Bernanke, two noted Depression scholars, working in the
government and advising us.
A hearing that we talked about that would be interesting,
would be a hearing with you and Ben Bernanke on the Great
Depression and the lessons that you learned from it.
Some of my colleagues are arguing that we should look to
Greece as a cautionary tale of sovereign overspending. Others
are arguing that, given a low inflation rate, we are much more
likely to end up with a lost decade like Japan faced. Some look
at the tight monetary policies put into place during the Great
Depression, which many believe prolonged the misery by
preventing the flow of credit.
What is the most appropriate lesson for us now? Is monetary
policy too tight? What are the lessons that you feel we should
be studying and listening to the most?
Chair Romer. Well certainly I think many of the lessons
from the Great Depression are actually things that we have put
into practice in this Recession. I think it is no accident that
Chairman Bernanke and the Federal Reserve took such
extraordinary actions and were very creative in thinking about
how do we deal with the freezing up of our credit markets,
precisely because Chairman Bernanke had studied how devastating
the evaporation of credit in the 1930s was.
Likewise, what we learned in the 1930s is that a collapse
of aggregate demand does indeed cause the economy to go into a
tailspin. And exactly what we have tried to counteract through
our policies is that decline in aggregate demand. That is where
the motivation for the Recovery Act came from, and it is where
the motivation from the expansionary monetary policies have
come from.
I think if I would take one lesson--it is actually a short
note that I wrote last year--is actually from later in the
Great Depression, from the experience of 1937. Because I think
what we saw then is the economy was recovering, it was on
track, and there was a desire to have both monetary and fiscal
contraction, to basically get back to normal as fast as we can
on the policy side.
And exactly what we saw is another terrible recession in
the middle of the Great Depression in 1938. So I think one of
the things that we do need to be cautious of, it goes back to
what we were talking about about the G-20, is everyone agrees
policy has to go back to normal. We have to get our deficit
under control.
It is a question about when can the economy manage that.
What is the right trajectory? Do you have a glide path? Or do
you have a very quick adjustment? I think that is the lesson
that I am certainly very aware of and thinking about as we go
forward.
Chair Maloney. Well actually the Senator and I had a
personal conversation once that this would be a fascinating
hearing. So I would like to welcome him to ask some questions
on the Great Depression, the lessons we have learned, and have
a little discussion about it, since we probably will not be
having a hearing on it. Here is our opportunity.
This was one of your requests for a hearing.
Senator Brownback. Yes, and thank you. And you have been
very kind to accommodate some of those.
There is another school of thought that thinks that a lot
of the requirements put in by the Administration during the
Great Depression also added to the uncertainty of the
environment during that period of time. And that is what I keep
hearkening back to you on, because that is what I am hearing
people say.
Now I don't base that--I don't have a poll number to base
that on. I don't have something else. But that you create that
uncertainty out there. That's why I've been harping at you on
cap and trade at this point in time, why you would push for
something like that.
That is one of the other lessons. Now I would appreciate
your thoughts about when you read economists right about that
point within the Great Depression. You must not think that was
a particular problem during that era?
Chair Romer. I feel very strongly that the main thing that
went on in the Great Depression was a collapse in aggregate
demand, and that is what caused the high unemployment. And the
arguments that the regulatory regime was important I think are
greatly overblown and actually not a very big part of the story
at all.
Let me come back--I mean the issues of uncertainty, you act
as though not dealing with climate change, with our dependence
on foreign oil, somehow resolves uncertainty. And in fact those
are problems that we have to face. And many times by dealing
with the problems you actually resolve the uncertainty.
And I will give the example of our CAR rule, right? There
was a lot of question about how were we going to enforce
emission standards? California doing one thing. And it was
actually industry that said: Can you just come together? We're
happy to have a rule, but we need the certainty of that rule.
And after we passed it, what you found was the truck
manufacturers came and said we want one of those, too. So that
oftentimes getting the legislation, getting things--actually
setting down the rules of the road can help to resolve
uncertainty. And that is the same with a comprehensive energy
plan. We know----
Senator Brownback. I will guarantee you----
Chair Romer [continuing]. We're going to have to deal with
it----
Senator Brownback [continuing]. That if you put cap and
trade in, you're going to get a big fight here. You're going to
get a big fight in the country anyway. And you're not going to
get the investment that you could get in renewables on an easy
basis if you don't put cap and trade in.
I'll give you an easy one. Why don't you raise the ethanol
limit up to E15, instead of 10 percent ethanol? Domestic
produced. Looks like it works pretty well. You open up to a
renewable industry. You get bipartisan support for it. Why not
pick those pieces like that that you can look at and you can
say, now we could do something like that?
Chair Romer [continuing]. But what the President has
described is one of the ways--again, let me come back to by----
Senator Brownback. You're not going to go with 15 percent
ethanol?
Chair Romer [continuing]. We are always happy to discuss
things, and I'm sure Secretary Vilsack would be delighted to
talk to you, as well.
Senator Brownback. Well I would like for you to look at it.
Chair Romer. We will certainly do that. But I do think
the--pointing out what everyone knows, which is that we are
on--again, it's like the budget deficit--on an unsustainable
path in terms of our foreign consumption, or consumption of
foreign oil, in terms of emissions. We're going to need to deal
with it. By dealing with it, we actually get certainty. By
putting a price on carbon, then people know how to make their
investment.
That can actually be very good for investment, because
people know what they need to do. And it is in fact--you know,
if you are worried about uncertainty, actually dealing with
this, dealing with this problem that is not going to go away,
can very much help to deal with it.
Chair Maloney. I would say that finally acting on financial
regulatory reform in many ways is making the economy more
stable, as people now know the rules of the game to move
forward.
I would like to ask the question that I hear from my
constituents, which is about a lack of access to credit, a lack
of access to capital. We did pass a $30 billion loan pool that
the Administration supported, which I think is important, but
we are also reading that banks are holding onto excess
reserves.
Why are banks holding onto these excess reserves that they
have and not lending? Why do you think that's happening? And is
that what happened during the Great Depression? What happened
after they recovered somewhat?
Chair Romer. This is fun. This is--so one of the things
that happened actually in 1937 was there were a lot of excess
reserves, and what the Federal Reserve did was to change the
reserve requirements and just declared that those were now
required reserves.
And what we discovered was, banks said, no, no, no, we
wanted to be holding excess reserves. We've just been through
the Great Depression. They were very nervous. And we actually
saw them gathering more excess reserves around the new--above
the new higher limit.
So we do I think have to be careful about figuring out sort
of what is driving bank behavior. I know Chairman Bernanke was
also talking about what regulators were doing on the ground,
and how the Fed was trying to talk to them about, you know,
making credit-worthy loans when they were, you know--when there
were possibilities to do so.
So I do think that we do need to be careful as we go
forward. But there is a certain amount of remembering what a
terrible crisis we've been through, and how it was a searing
experience, not just for American citizens but often for some
of these small banks. That was a very frightening time for them
as well.
So you can imagine some of their behavior. I think what
we're trying to do through the Small Business Lending Fund is
exactly to make the banks have access to capital provided by
the government at a good price, if they are willing to do
lending as a way of making them feel more confident about doing
lending. And we think that is a very sensible strategy.
Chair Maloney. That is a strong argument for that. We could
use some help in passing that bill in the Senate, Senator. I
hope you would take a good look at it.
Senator Brownback.
Senator Brownback. I've taken a lot of good looks at that
bill. The numbers I am seeing is it is going to drive down
employment and drive up costs. But I understand we have a
difference of perspective on that.
I just want to thank the Chair for being here. I do hope
you get a lot more aggressive on looking at this deficit. I
don't want to see this crisis of confidence come to these
shores. And your stance and your view on that would be very
helpful to be aggressive on that so we don't see that.
Chair, thank you for having such an open hearing. I
appreciate that, and I appreciate your willingness to discuss.
Chair Maloney. I am just going to keep talking about the
lessons from the Great Depression, if it's all right with you,
Senator.
Do you think the Fed is favoring keeping prices stable over
full employment?
Chair Romer. So at this point, Madam Chair, I think it is
very important to remember that the Federal Reserve is an
independent agency, and I think one of the rules that we in the
Administration follow is to not comment on Federal Reserve
policy.
Chair Maloney. Okay, well let me ask it a different way.
Isn't the inflation rate well below the targeted level?
Chair Romer. So that I think, I mean I think we can have a
very interesting discussion on inflation. Because what is
certainly true is the usual relationship is that when the
economy has high unemployment the inflation rate comes down.
We have absolutely been seeing that happen in this
Recession. And certainly in the last few months, both the level
of inflation and expectations about inflation are continuing to
come down, and are getting to quite low levels.
Chair Maloney. Is deflation a risk?
Chair Romer. It is certainly, as the unemployment rate
stays high that puts continued pressure on inflation. So, yes,
it is a risk.
Chair Maloney. Since the Fed can't lower the targeted
federal funds rate--they've already lowered it to between zero
and 25 basis points--to influence short-term interest rates,
what other tools do they have in their arsenal to spur
employment?
Chair Romer. Well here I would mainly again I think the
most appropriate thing would be for you to bring Chairman
Bernanke in. I think certainly there have been reports in the
press of various things that other countries have done. For
example, we hear about quantitative easing, which is things
like the Fed did last year when they bought a lot of mortgage-
backed securities and pushed down mortgage interest rates. So
that is something that other countries have certainly been
doing. That is an obvious additional tool that the Fed has
certainly used in the past.
Chair Maloney. Senator Schumer asked me to ask this
question. He is introducing a bill that we passed in the House
and the Senate called the HIRE Act that gave tax credits to
employers to hire unemployed people, and he is putting a bill
in to extend it for another six months.
Do you believe this has had a positive impact on employing
unemployed Americans? And do you believe the Administration
might support such an endeavor?
Chair Romer. So, Senator Klobuchar actually asked the
same----
Chair Maloney. Oh, she already asked it?
Chair Romer [continuing]. Question. Certainly the answer
that I had given then is that we were very big fans of the
Schumer- Hatch, the HIRE Act, and that we thought that a jobs
tax credit was something with very good job bang for the bucks
that are on the line.
And so it is something that we are going to be monitoring.
Treasury just did a study on the number of workers that are
eligible. I think it is something that we certainly are anxious
to talk to Senator Schumer about and see what he has in mind,
and to pull together the evidence.
Chair Maloney. Many of my constituents ask me and others
about whether or not we might be seeing a double-dip recession.
What is your forecast for the economy? Will growth and
employment gains in the second half of 2010 be better or worse
than the first half? I am asked this question all the time, and
I'm sure you are too.
Chair Romer. The first thing to say that's important is I
do not foresee a double-dip.
Chair Maloney. Great.
Chair Romer. I think what most of the private forecasters
are saying is we have gone through a period of turbulence. The
troubles in Greece that we talked about and slower growth in
Europe are something that has certainly unnerved financial
markets and caused some certainly lower growth abroad.
I think what most people are thinking is that, like the
Blue Chip Consensus lowered their forecast just a very small
amount, but it's still basically steady. I should say that the
Administration twice a year does an official forecast that
comes out first with the budget, and then with the mid-session
review that's going to be coming out certainly before the end
of this month, and I would rather not get ahead of the
Administration's forecast. But we will be coming out with our
updated forecast.
Chair Maloney. Thank you. I am hearing in my District, and
I believe probably Senator Brownback is also hearing, the
struggles of small businesses' access to capital. I am
astounded at how many respected firms that have been in
business for many, many years, who have always paid their bills
and been outstanding businesses, tell me they can't find or get
access to capital to hire and move forward. And it is a huge
challenge. I am hearing it in the Democratic Caucus. I believe
it is a problem all across the country.
Could you tell us what the Administration is doing to ease
that? Could you comment further on the Small Business Loan
Guarantee Program? Are there any other initiatives or actions
that we could take to help small businesses have greater
liquidity so that they can move into the future with more
confidence?
Chair Romer. So I hear exactly the same things that you are
hearing. And again, Chairman Bernanke gave a speech earlier
this week talking about what they were seeing in their data;
that, yes, small businesses are having trouble getting credit.
And that is something that is impeding their growth and job
creation.
It is absolutely one of the headwinds that we face, and
should be dealing with. When we did a very comprehensive review
of this, what we thought was the best way forward was exactly
the Small Business Lending Fund that is in the legislation. We
thought cutting small business taxes, by having zero capital
gains on equity that small business owners put in, we think
that's a very sensible strategy.
We proposed some small changes to the Small Business
Administration Loan Program so that they could have bigger loan
amounts. All of those we think are, from talking to small
businesses, things that are likely to work. They are what we
thought was the best shot we could take at dealing with this
problem.
So our main plea is to get it through the Congress, because
we think it would be very helpful.
Chair Maloney. Another area of concern--if you could
comment on the economics of the unemployment benefits. Many
economists have testified before us that all of this money is
plowed back into the economy. It is not only the humane action
to take care of unemployed workers, but it also has the effect
of keeping them working, or looking for a job, instead of going
on welfare and Social Security Disability, which is very costly
to the country and certainly it's better for us to have them
working to get employed. And every one of these dollars goes
back into the economy.
I believe we have 15 million unemployed Americans at this
point. We have passed unemployment benefits in the House. We
are hopeful that the Senate will pass it. And if you could,
please comment on the economics of the unemployment benefits.
This Committee did a study, because some of my colleagues on
the other side of the aisle were saying that giving the
unemployment benefits would in some way discourage workers from
looking for a job, and our report showed just the opposite.
They very much want a job, and they are frantic to find a job.
So your comments on the importance of extending the
unemployment insurance?
Chair Romer. Absolutely. I think what your report found is
I think very much what the economics literature finds.
Especially to the degree that there are incentive, or
disincentive effects from high unemployment insurance benefits,
those are issues that apply in normal times when the
unemployment rate is much lower at more normal levels.
At a time when there is a lack of jobs, the main effect
that it has is keeping people attached to the labor force. And
I can't think of anything we want more, exactly what we're
worried about is workers becoming discouraged, dropping off,
losing their skills, and not looking for work.
The other point that you made about its stimulus impact is
again very much supported by the economics literature. I cited,
while you were away, a study by the Congressional Budget Office
that said that this was a very cost effective form of stimulus.
I know Mark Zandi, it's at the very top of his list in
terms of what he thinks has the best bang for the buck. And I
think that is an important point to keep in mind. It is a
program that is both humane to the people involved, but good
for the overall economy, good for the people in the community
that get the jobs producing the things that unemployed workers
buy with their unemployment insurance.
Chair Maloney. Well, my colleague has raised the concern
that many of us share on the deficit and the debt, but can you
put it in perspective, how much of this deficit problem is
related to the Recession?
Chair Romer. So I think an important thing is, in the
short-run deficit, a very large fraction, or probably about
half, is due to the Recession and half to the policies that we
inherited from the past. And it makes sense. When you have a
terrible Recession, tax revenues go down. Your expenditures for
things like unemployment insurance go up. And that naturally
tends to swell the deficit.
In terms of our long-run deficit, however, it is a very
small part of the long-run problem. The one-time actions that
we take to deal with this emergency add just a tiny bit to your
deficit over time. The much bigger determinant of the long-run
deficit are things like health care costs, the aging of the
population, things like that.
Chair Maloney. Does my colleague have another question?
Senator Brownback. I do. Because the unemployment insurance
issue has come up here so much, wouldn't it be best if that
were paid for?
Chair Romer. No, is the simple answer.
Senator Brownback. It's not best if it was paid for by the
Federal Government?
Chair Romer. What I would certainly say, the way we set up
our paygo rules and the whole idea, we had our long discussion
of countercyclical policy, I think if anything counts as an
emergency it is unemployment of 9.5 percent. You will get no
argument from me, we should pay for many things. We should deal
with our deficit over time.
I would not get held up over paying for a temporary one-
time extension of unemployment insurance.
Senator Brownback. What if that is what is holding it up
from passing? What if it would pass but for being paid for?
Would you then still argue it should not be paid for?
Chair Romer. I think the important thing is figuring out
how it is paid for. Because--so that if you cut expenditures
that would be aiding the recovery at the same time that you are
doing the expenditures for UI, in terms of the over--you may
help the particular people that are getting the funds, but in
terms of the overall health of the economy you wouldn't have
accomplished very much.
Senator Brownback. So you would prefer it not pass if you
have to pay for it? Is that--because that's the whole-- if I
could, Chairman, that's the whole issue in the Senate. We did
the doc fix after it was paid for. We did the homebuyer tax
credit, after it was paid for. Those passed with unanimous
consent. That means everybody agreed to it.
This sits there ready to go, if it's paid for. And you
would argue it would be better not to pay for it and it not
pass?
Chair Romer. There are certainly other ways to pay for it.
And our budget had listed various things that could be used to
pay for various priorities. And I think, you know, so obviously
I think the important thing is, you know, we need to work to do
this because we all agree this absolutely has to be done.
And figuring out what we can do that will get this
necessary insurance in a way that is good for the economy is I
think something we can work on. And I am happy to work on the
details with you.
Senator Brownback. So you do support paying for it?
Chair Romer. I support passing it. And that is certainly
important, and I would love to work with you and talk with you
about what's the best way to do that.
Senator Brownback. Well I never seem to get a straight
answer out of you. You're not opposed to not paying for it? Can
I put it that way, and that's accurate?
Chair Romer. No. You're putting words in my mouth. We're
having a very sensible discussion----
Chair Maloney. She wants it passed, and she thinks it's
economically important.
Senator Brownback. I agree with that.
Chair Maloney. If you can find a pay-for, go find it.
Senator Brownback. We found a pay-for. And you'd support
that if we can find a pay-for?
Chair Romer [continuing]. So at this point I don't know
what we're saying, but what I do know is we absolutely need
this extension----
Senator Brownback. I agree with that.
Chair Romer [continuing]. We absolutely--you know, I think
there are many things that absolutely need to be paid for. An
emergency extension of unemployment insurance is typically not
paid for. The whole point is that it's an emergency, and that
you actually need the stimulus that it provides.
And if you wish to pay for it, and you think that's
important, let's think about what's the best way to do that in
a way that is economically sensible and doesn't counteract any
of the way in which it is helping the economy. And that is what
I stand for, and would love to talk with you more.
Chair Maloney. Another important part of the economy is the
housing. Housing is always a large part. In some ways it is as
much as 25 percent. Do you think that the rebound in the
housing was due to the the Homeowners' Tax Credit? Do you
believe the Homeowners' Tax Credit was responsible for the
movement that we saw in our economy in that area?
Chair Romer. So what we certainly--I mean, what the
Homeowners Tax Credit is it's like the Cash For Clunkers
Program. It gives you an incentive to do the activity while
it's in place.
And what we found with Cash For Clunkers is, what that did
is to bring demand for new cars, not just from a few months in
the future, but it seems to be probably from very far in the
future because we've seen car sales continue at a higher level
than they were before the program.
I think we don't know yet about the first-time homebuyers
credit. It certainly seemed to--you know, we do see that people
hurried up and bought their homes before it expired. I think
what we don't know is from how far in the future they brought
it forward.
The big drop off in May says well maybe it didn't move it
all that much from the future. So I think that is going to be
the issue, and it is a hard one.
Chair Maloney. And also we are facing the issue with the
local and state governments, with the FMAP that many of us are
supporting. Many economists are concerned that the budgetary
shortfalls for our state and local governments will result in
additional layoffs and service cuts at a time when our economy
is very, very fragile.
Was aid to the states a cost-effective and efficient form
of stimulus? Did it work? We certainly appreciated it in New
York State, but I'd like an overall statement.
Chair Romer. You will absolutely get one from me. I think
it is one where we had not had that much experience with that
form of stimulus, so we did not have that much evidence to go
on when we passed it. But certainly the conditions were dire
and it was worth a try.
I think all of the evidence since then is that it has been
particularly effective. And I will actually cite our first
quarterly report on the Recovery Act, because we highlighted
the state fiscal relief, and actually did I think a very
innovative study trying to really pin down causation. And what
the results of that showed is that it was very effective. And
looking state by state, we saw a very big impact.
Chair Maloney. How does it compare to other components that
were in the Recovery Act such as tax cuts? What was more
stimulating? What was more effective in getting the economy
churning again?
Chair Romer. So I think we would put the state fiscal
relief as one of the highest ones. I think when you look at
conventional macro-economic models, typically tax cuts have
less stimulative impact than direct government expenditures.
And we would put state fiscal relief closer to the direct
government expenditures.
Chair Maloney. Do you think that additional state aid is
warranted now in our financial recovery?
Chair Romer. I do indeed. The numbers that you get from
various sources will tell you that state and local governments
have a--still have a budget deficit of about 1 percent of GDP.
If they deal with that by cutting spending, raising taxes, that
is going to be a contractionary force on the economy.
And so it is something I think we can very sensibly--I
think it would be money very well spent. It would help keep our
teachers in the classroom, and our policemen on the beat.
Chair Maloney. We passed a stimulus of $10 billion for
teachers in a supplemental budget in the House, and we hope the
Senate will act on that, too.
One of the good news items that you had in your report was
manufacturing, where we are gaining jobs. What do we need to do
to sustain the current gain in manufacturing, the current
manufacturing trend that is very positive? What do we need to
do to keep this going?
Chair Romer. You are exactly right, that manufacturing is
one of the areas that we have seen coming back in the recovery.
I think the numbers are we have added some 126,000 jobs in
manufacturing. Industrial production is up something like 8.2
percent in the last 11 months, and that is certainly a trend
that we are very encouraged by and want to see continuing.
What is one of the things that the President has talked
about is how important it is to make sure that we--that our
manufacturing continues to grow and evolve. He has identified
clean energy technologies as an industry of the future, and one
that we know China is working very hard on, Korea, many other
countries, Germany, and he doesn't want to get left out. And
that is part of what is I think so innovative about the
Recovery Act.
In our second Quarterly Report we actually talked about how
about $90 billion of the overall Act went into the area of
clean energy, broadly defined. And a lot of that was designed
to help jump start this, to help make our transition to clean
energy work better. And I think that is going to be something
that is very important.
Those public/private partnerships that we have been talking
about in our report, and that the President will be
highlighting later this week in Michigan, are--I think--an
important step towards helping that sector come back very
strongly.
Chair Maloney. Well, I could listen to you all day, but I
am supposed to be voting in another committee, and I am sure
the Senator has other demands. But it was really fascinating.
It is always a really wonderful opportunity to hear your
report.
We are honored that you discussed the economic outlook and
your fourth CEA report on the Recovery Act before our
Committee. We are deeply grateful. I look forward to your
future reports on the leveraging between the private/public
sector job creation projects. I found that very interesting and
certainly support your desire to move forward with special
reports on how they are affecting the various states. It is
very clear that we need to expand every tax dollar we have and
have each go further and further to help spur jobs. And the
fact that you have been able to document that is very, very
good news.
I thank you for documenting that the Recovery Act is
trending, moving this country in the right direction, and I
would like to continue working hard in Congress to try to help
move these proposals to have access to credit, and help create
jobs in our country. And believe me, I do not think either one
of us will stop until every American who wants a job has a job
and our economy is strong enough to support their desires.
I want to thank my colleague and good friend, Senator
Brownback, for being here today, and all our colleagues. I
thank especially you, Chairman Romer, for your outstanding
report today and for your public service. Thank you so much for
being here. We look forward to the next time. We hope we hear
again from you soon. Maybe you can come back when you have your
states reports and tell us what states have innovative ideas
that are really working and helping us employ Americans.
Thank you so much. This meeting is adjourned.
[Whereupon, 4:40 p.m., Wednesday, July 14, 2010, the
hearing was adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared Statement of Carolyn Maloney, Chair, Joint Economic Committee
I want to welcome Dr. Christina Romer, the Chair of the Council of
Economic Advisers, and thank her for her testimony here today.
The Council of Economic Advisers and the Joint Economic Committee
were both created by the Employment Act of 1946 and share an important
history of providing the White House and Congress with analysis of
economic conditions and economic policy.
Our hearing today is on the economic outlook as well as the impact
of the Recovery Act on the economy.
In the first quarter of 2009, when the current Administration took
office, the economy was facing the worst economic crisis since the
Great Depression:
GDP fell by 6.4 percent, the fastest rate in almost three
decades.
Monthly employment losses were higher than any seen since
after World War II--in the first quarter of 2009, an average of 753,000
jobs were lost each month.
As you pointed out last fall, the shocks that hit the economy in
the Fall of 2008 were larger than those that caused the Great
Depression.
As a result of the Recovery Act and other targeted spending
programs passed in the 111th Congress, the economy has recovered over
the last year:
Private sector jobs were created in every month of 2010;
and
GDP grew for 3 straight quarters with forecasts of growth
continuing for a fourth quarter.
As the Chair of the JEC I have learned how valuable charts can be
to present the story of the economy. This chart clearly shows that the
Recovery Act had a clear impact on the economy's upward trend.
I am especially pleased that you are appearing before us just
before the JEC transmits its mandated response to the Economic Report
of the President.
Your testimony here today will inform us as we put the finishing
touches on that report.
Since January, the JEC has been laser focused on job creation,
holding numerous hearings and issuing a number of reports on this
topic.
While the economy has expanded, consistent with the ERP's predicted
growth for the first half of 2010, I worry that this recovery is still
very fragile.
It is clear that some of the differences between this recession and
previous recessions might endanger this fragile recovery:
First, although the unemployment rate has been higher in
previous recessions, the long term unemployment rate (that is for
workers looking for work for more than 6 months) is at historically
high levels.
Second, the median duration of unemployment is almost 6
months--which means that the typical worker searches for six months
before finding employment or possibly dropping out of the labor force.
Finally, state and local governments are experiencing
significant budget gaps as property and income tax revenues have
plummeted while aid to unemployed families has spiked and demand for
public education has risen.
In order to spur the hiring process, it is clear that additional
measures must be taken to create enough jobs for the nearly 15 million
unemployed.
I am dismayed by my colleagues who are listening to the political
siren's call of short term cuts to the deficit instead of heeding the
economic imperative of robust job creation. Make no mistake. The
national debt is a serious challenge for our economy.
We need to carefully craft a plan that is smart, effective and
fair.
A long-term strategy on debt reduction is essential for a strong
economy for generations to come.
As Fed Chairman Ben Bernanke told the JEC earlier this year, ``. .
. maintaining the confidence of the public and financial markets
requires that policymakers move decisively to set the federal budget on
a trajectory toward sustainable fiscal balance.''
However, efforts to translate this need into short-term spending
cuts--especially cuts in unemployment benefits--have moved the deficit
battle into the homes of the unemployed.
This is bad economics and bad public policy.
Dr. Romer, we thank you for your testimony and I look forward to
working with you as the committee continues our focus on fixing the
economy, helping struggling families, and, above all, putting people
back to work.
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Prepared Statement of Representative Kevin Brady
I am pleased to join in welcoming the Chair of the President's
Council of Economic Advisers, Professor Christina Romer, before the
Committee this afternoon.
On November 2, 2010, the American people will judge the economic
policies of President Obama and Congressional Democrats and may direct
a midcourse correction, much as professors do with their students at
midterm.
President Obama took office under unfavorable economic
circumstances, but so did Franklin D. Roosevelt and Ronald Reagan. The
question is, has the White House met its economic promises, and are we
positioned for long-term growth? Economists, job creators in the
private sector and families should question:
Have President Obama and Congressional Democrats spurred
private investment and job creation with their ``stimulus'' spending,
or have their policies added costs and uncertainty that have weakened
the recovery?
Have President Obama and Congressional Democrats met our
demographic challenges and improved our long-term economic prospects,
or have they diminished them through an ideologically driven expansion
of the size and scope of the federal government, higher taxes,
burdensome new regulations, and a reckless increase in federal debt?
To help answer these questions, let us examine the record as
measured by the standards that you set for yourself. In January 2009,
you published an economic analysis of Obama's stimulus $787 billion
plan and forecast that if Congress were to pass this plan:
1. The unemployment rate would remain below 8.0 percent
2. Non-farm payroll employment would increase to 137.6 million
by the fourth quarter of 2010.
3. Ninety percent of the jobs created would be in the private
sector.
Congressional Democrats passed the stimulus bill, and President
Obama signed it into law on February 17, 2009. Now let us compare your
promises with reality.
1. Since the stimulus was enacted, the unemployment rate has
never been below 8.0 percent. It has been as high as 10.1
percent and was 9.5 percent last month.
2. In June 2010, non-farm payroll employment was 130.5 million,
7.1 million payroll jobs short of your forecast.
3. Since February 2009, only the federal government has added
payroll jobs. The private sector has actually lost 3.3 million
payroll jobs.
Clearly, Obama's stimulus plan failed to work as you predicted.
Instead, this recovery has been unusually weak for one after a severe
recession. Average real GDP growth was 7.5 percent in first three
quarters after the 1981-82 recession under Reagan compared with 3.5
percent in first three quarters after the 2007-09 recession under
Obama. In the first twelve months of recovery, the United Stated added
3.1 million payroll jobs under Reagan, compared with a loss of 170,000
payroll jobs under Obama. Similarly, the unemployment rate fell by 2.3
percentage points under Reagan, while it increased by \1/10\th of a
percentage point under Obama.
Turning to the long-term consequences of the Democrats' economic
policies, one sees higher taxes, heavy regulation, gaping federal
budget deficits, and soaring federal debt.
President Obama and Congressional Democrats are increasing taxes
through legislation, their failure to legislate, and ``bracket creep''
in the non-indexed portions of the tax code, including the alternative
minimum tax and excise tax on so-called ``Cadillac'' health care plans.
Individual income tax rates will increase at the end of this year.
Without a fix, up to 27 million families will become ensnared in the
AMT.
The top tax rate on capital gains will increase from 15 percent
this year to 23.8 percent in 2013, while the top tax rate on dividends
will skyrocket from 15 percent this year to 43.4 percent in 2013.
Congress allowed the research and development tax credit to expire.
Moreover, Congress levied new excise taxes on private health insurance
plans, pharmaceutical and medical device manufacturers, and tanning
salons.
If these tax increases aren't enough to choke the private sector,
President Obama and Congressional Democrats are still scheming to pass
new energy taxes through ``cap and trade'' legislation. According to
press reports, two Administration panels will recommend levying a
value-added tax once the midterm elections are over.
However, these massive tax increases are still not enough to fund
Obama's extravagant federal spending. Based on Obama's Budget, the
Congressional Budget Office projects that average federal outlays over
the next decade will be 24.1 percent of GDP, 4.6 percentage points
above the post-war average of 19.5 percent of GDP. The federal budget
deficit will never be less than 4.1 percent of GDP. And publicly held
federal debt will climb from 53 percent of GDP at the end of fiscal
year 2009 to 90 percent of GDP at the end of fiscal year 2020.
Our long-term fiscal outlook is dire. If current policies remain in
place, the Congressional Budget Office projects that publicly held
federal debt will soar to an incredible 947 percent of GDP by the end
of fiscal year 2084.
I look forward to discussing these issues with you.
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Prepared statement of Representative Michael C. Burgess, M.D.
Thank you, Madam Chairwoman.
Here we go again. Another month, another set of facts and figures
that are telling the American people what they already know--the so-
called Stimulus isn't working. WHERE ARE THE JOBS??? Companies aren't
hiring at rates anywhere near where this Administration claimed they
would be at this time. Businesses and individuals have the same outlook
when it comes to this President--what's he going to do next to make it
harder for us to move forward?
An ill-advised and scientifically suspect drilling moratorium that
is already seeing jobs shipped overseas, as rigs pull up anchor and
sail to foreign seas. Looming EPA regulations on emissions that will
have consumers seeing their energy bills skyrocket. Financial
regulatory reforms that will take years to implement, causing
uncertainty in an already fragile market and leading banks to be less
likely to loan money, not knowing what future things this
Administration will do to harm their capital outlooks.
I asked Secretary Salazar whether the Administration had done any
economic analysis of what this drilling moratorium would do to job
outlook in the Gulf region. To date, we have gotten no response. I can
only assume that this hasn't been done, or the Administration would
know, as the New Orleans Times Picayune reported, that each job in
energy exploration supports an additional 4 jobs providing supplies and
services. Kill 5 jobs for the price of 1--there's a statistic you don't
hear coming out of the White House.
Sound economies need stability, and this President has provided
anything but. He can claim to be ``pro-business'' all he wants, but
with continued talk of Card Check and other pro-unionizing regulations,
businesses know they can't afford to take any risks right now.
Congressional Democrats even inserted a provision in the War
Supplemental essentially forcing state and local fire and police
departments to unionize--regardless of whether workers in those
departments have expressed any interest. Actions speak louder than
words, and the actions of this Administration indicate one thing--this
President and the people he has put in place throughout the government
have yet to see a rule or regulation that they aren't in favor of
passing, and each rule and each regulation adds cost to the price of
doing business.
The Business Roundtable recently sent the White House a report of
exactly what this President's policies are doing to businesses around
the country. In a letter to Peter Orszag, Ivan Seidenberg, CEO of
Verizon, and James Owens, CEO of Caterpillar Inc., said business
leaders are ``increasingly concerned that political expediencies of the
short-term harm our ability to partner with government to create
policies that foster growth.'' Jamie Dimon, CEO of JPMorgan told the
White House ``Punishing whole industries, whether you were reckless or
not, just isn't the way to do things.'' And Dan DiMicco, CEO of Nucor
Corp., told The Wall Street Journal, ``There's this common concern . .
. that we're not doing the right things yet, and it's showing up in the
jobs numbers.''
One reason this Administration is likely so disconnected with the
reality of the private sector is that so few of the President's top
advisors have any real-world experience. Professors and Academics,
people who've spent the bulk of their careers in government--that is
who we have dictating to the private sector how CEOs should be running
their businesses, and that is a large part of why businesses
overwhelmingly resent the mandates being thrown at them by this
Administration. Maybe if the President started hiring more CEOs in his
cabinet like past Presidents from both parties have done for decades,
he would start getting the kind of advice needed to allow the private
sector to finally grow.
Further cause for dismay is the Council of Economic Advisers'
latest Economic Impact report admits that any analysis of job creation
in each state in this report is ``speculative and uncertain.'' After
spending hundreds of billions of dollars to ``stimulate'' the economy,
a year and a half later we can still only ``speculate'' on job growth.
There either have been or have not been jobs created by the stimulus. I
don't need to speculate, all I have to do is look at the unemployment
numbers that have been stagnant under this President. The Stimulus was
a failure. I don't have to speculate about it.
President Obama's philosophy in steering this economy seems to be
taken directly from Lewis Carroll's Alice in Wonderland. When talking
to Alice, Humpty Dumpty tells her ``"When I use a word, it means just
what I choose it to mean--neither more nor less.'' Further, the
Cheshire Cat might provide some insight into the game plan for this
Administration's policies:
``Would you tell me, please, which way I ought to go from
here?''
``That depends a good deal on where you want to get to,'' said
the Cat.
``I don't much care where--'' said Alice.
``Then it doesn't matter which way you go,'' said the Cat.
``--so long as I get SOMEWHERE,'' Alice added as an
explanation.
``Oh, you're sure to do that,'' said the Cat, ``if you only
walk long enough.'' (Alice in Wonderland, Chapter Six)
This Administration has been playing fast and loose with words,
facts and figures in relation to the economic outlook of this country
since it came into office 18 months ago. The American people are
catching on. The rhetoric needs to stop.
With that, I yield back.
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