[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]








                     THE STIMULUS: TWO YEARS LATER

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

                                HEARING

                               before the

                  SUBCOMMITTEE ON REGULATORY AFFAIRS,
               STIMULUS OVERSIGHT AND GOVERNMENT SPENDING

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 16, 2011

                               __________

                            Serial No. 112-4

                               __________

Printed for the use of the Committee on Oversight and Government Reform








         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform

                  U.S. GOVERNMENT PRINTING OFFICE
67-173 PDF                WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001





              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

 Subcommittee on Regulatory Affairs, Stimulus Oversight and Government 
                                Spending

                       JIM JORDAN, Ohio, Chairman
ANN MARIE BUERKLE, New York, Vice    DENNIS J. KUCINICH, Ohio, Ranking 
    Chairwoman                           Minority Member
CONNIE MACK, Florida                 JIM COOPER, Tennessee
RAUL R. LABRADOR, Idaho              JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          BRUCE L. BRALEY, Iowa
FRANK C. GUINTA, New Hampshire
MIKE KELLY, Pennsylvania













                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 16, 2011................................     1
Statement of:
    Brill, Alex M., research fellow, American Enterprise 
      Institute; Andrew B. Busch, global currency and public 
      policy strategist, BMO Capital Markets' Investment Banking 
      Division; Chris Edwards, director, Tax Policy Studies, CATO 
      Institute; and Josh Bivens, economist, Economic Policy 
      Institute..................................................    49
        Bivens, Josh.............................................    85
        Brill, Alex M............................................    49
        Busch, Andrew B..........................................    60
        Edwards, Chris...........................................    67
    Taylor, John B., Ph.D., Mary and Robert Raymond professor of 
      economics at Stanford University and George P. Shultz 
      senior fellow in economics at Stanford University's Hoover 
      Institution; Russell Roberts, Ph.D., professor of 
      economics, George Mason University, J. Fish and Lillian F. 
      Smith distinguished scholar, Mercatus Center, research 
      fellow, Stanford University's Hoover Institution; and J.D. 
      Foster, Ph.D., Norman B. Ture senior fellow in the 
      economics of fiscal policy, the Heritage Foundation........     6
        Foster, J.D..............................................    23
        Roberts, Russell.........................................    18
        Taylor, John B...........................................     6
Letters, statements, etc., submitted for the record by:
    Bivens, Josh, economist, Economic Policy Institute, prepared 
      statement of...............................................    88
    Brill, Alex M., research fellow, American Enterprise 
      Institute, prepared statement of...........................    51
    Buerkle, Hon. Ann Marie, a Representative in Congress from 
      the State of New York, prepared statement of...............   103
    Busch, Andrew B., global currency and public policy 
      strategist, BMO Capital Markets' Investment Banking 
      Division, prepared statement of............................    62
    Edwards, Chris, director, Tax Policy Studies, CATO Institute, 
      prepared statement of......................................    69
    Foster, J.D., Ph.D., Norman B. Ture senior fellow in the 
      economics of fiscal policy, the Heritage Foundation, 
      prepared statement of......................................    25
    Roberts, Russell, Ph.D., professor of economics, George Mason 
      University, J. Fish and Lillian F. Smith distinguished 
      scholar, Mercatus Center, research fellow, Stanford 
      University's Hoover Institution, prepared statement of.....    20
    Taylor, John B., Ph.D., Mary and Robert Raymond professor of 
      economics at Stanford University and George P. Shultz 
      senior fellow in economics at Stanford University's Hoover 
      Institution, prepared statement of.........................     8

 
                     THE STIMULUS: TWO YEARS LATER

                              ----------                              


                      WEDNESDAY, FEBRUARY 16, 2011

                  House of Representatives,
      Subcommittee on Regulatory Affairs, Stimulus 
                 Oversight and Government Spending,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
HVC 210, Capitol Visitor Center, Hon. Jim Jordan (chairman of 
the committee) presiding.
    Present: Representatives Jordan, Buerkle, Labrador, 
Kucinich, and Cummings.
    Staff present: Chris Hixon, deputy chief counsel, 
oversight; Molly Boyl, parliamentarian; Tyler Grimm, 
professional staff member; Mark D. Marin, senior professional 
staff Member; Justin LoFranco, press assistant; Ben Cole, 
policy advisor and investigative analyst; Linda Good, chief 
clerk; Laura Rush; deputy chief clerk; Adam Fromm, director of 
Member liaison and floor operations; Jeff Wease, deputy CIO; 
Drew Colliatie, staff assistant; Mike Bebeau and Gwen 
D'Luzansky, assistant clerks; Carla Hultberg, minority chief 
clerk; Lucinda Lessley, minority policy director; Dave Rapallo, 
minority staff director; Suzanne Sachsman Grooms, minority 
chief counsel; Cecelia Thomas, minority deputy clerk; and Alex 
Wolf, minority professional staff Member.
    Mr. Jordan. The Subcommittee on Regulatory Affairs, 
Stimulus Oversight and Government Spending will come to order.
    I thought I would start today with the mission statement of 
the Oversight Committee, just to try to always remind us what 
our focus should be. We exist to secure two fundamental 
principles: first, Americans have a right to know that the 
money Washington takes from them is well spent; and second, 
Americans deserve an efficient, effective Government that works 
for them. Our duty on the Oversight and Government Reform 
Committee is to protect these rights. Our solemn responsibility 
is to hold Government accountable to taxpayers, because 
taxpayers have a right to know what they get from their 
Government. We will work in partnership with citizen watchdogs 
to deliver the facts to the American people and bring genuine 
reform to the Federal bureaucracy.
    Again, I want to welcome all the Republican members who are 
here this morning. It is great to have you as part of the 
committee, and we may introduce the rest of our team as they 
arrive. It is a busy day, as you all know, here on Capitol 
Hill.
    I am also pleased to have as our ranking member, Mr. 
Kucinich, a good friend of mine from the great Buckeye State, 
whom I have enjoyed working with on a number of issues over the 
past two Congresses. So it is great to have you, as well as the 
ranking member of the full committee who has joined us today, 
Mr. Cummings. We appreciate your presence as well.
    I will start with an opening statement, then we will have 
time for Mr. Kucinich's opening statement, then get right to 
our great panel. Unfortunately, as you can see, the two 
individuals we invited from the administration, former member 
of the administration and current member of the administration, 
have decided not to come. We think that is unfortunate, and we 
will talk about that a little bit later.
    Two years ago, the President signed the single most 
expensive piece of legislation in American history, more 
expensive than the entire Vietnam War or all the Apollo 
missions. An official report released in January 2009 by the 
Office of the President-Elect and the Vice-President-Elect made 
very specific promises for the stimulus. This record-breaking 
spending spree was supposed to keep unemployment under 8 
percent, and by today it was supposed to be at 7 percent. 
Instead, of course, the unemployment rate has been at or above 
9 percent for 21 consecutive months. In our State of Ohio it 
has been higher than that for that same time period.
    Thirteen point nine million Americans remain unemployed. 
But that doesn't tell the whole story. Over the same time 
period, almost 100,000 people have dropped out of the work 
force in our State of Ohio. We now know the disappointing 
truth: the stimulus failed. It failed to meet the 
administration's goals for job creation, it failed to meet the 
administration's goals for growth, it failed to meet every 
meaningful performance standard, every metric of economic 
activity, basically every single market test of prudent public 
policy.
    Two years ago, the administration sold the American people 
on a long-discredited Keynesian pipe dream: that the Federal 
Government could spend our way out of a recession. Today, 
taxpayers are left with a larger national debt, compounding 
interest, and nothing to show for it except the longest period 
of record unemployment since the Great Depression.
    Today we will hear from some of the world's foremost 
experts on fiscal policy, who will assess the collateral damage 
to the Nation's global reputation, our economic recovery and 
credibility gap between this administration's lofty promises 
and the real world consequences of failed economic policy.
    What we will not hear, however, is an explanation from the 
Obama administration, an administration, by the way, that 
promised unprecedented levels of oversight and accountability 
for this very bill. Unprecedented accountability, indeed. It is 
unconscionable that the administration has refused to provide 
any witness who can account for the goals set forth for the 
stimulus when it was conceived. This level of obstruction and 
defiance of the Congress does not reflect the values and vision 
for transparency and accountability the President promised on 
many occasions.
    When the stimulus was proposed to Congress, the halls of 
the Capitol were filled with administration officials, lobbying 
hard for its passage. The charts and graphs and projections 
were everywhere. Members of Congress were told that failure to 
pass the stimulus would result in prolonged recession, that 
passage would be a boon to the growth. The American people were 
told that the President had the best economic advisors, armed 
with the most reliable economic modeling, to get the country 
back on the right path.
    But now the White House refuses to answer for the failure 
of their experiment with the American people's money. We 
invited two of the architects of the economic rationale for the 
stimulus to testify here today, Dr. Christina Romer and Dr. 
Jared Bernstein. Both refused to appear. We have given the 
administration the opportunity to discuss the stimulus in the 
context of the policy's original goals, metrics and promises. 
Today there are two empty chairs where Dr. Romer and Dr. 
Bernstein should be sitting. When an opportunity comes to 
explain the administration's position on the design and goals 
of the stimulus, no voice will be heard.
    The oversight of the stimulus is not about extracting a 
pound of flesh or scoring political points. This subcommittee, 
however, has a duty to the American people to seek to 
understand how the stimulus was conceived and why it failed, so 
that taxpayers are not subject to this sort of economic 
misadventure again.
    The budget released by the President this week reaffirmed 
the need for hearings like the one we are having today. The 
budget revealed that the administration is unwilling to answer 
the mandate put forth by the American people last November, 
that they want Washington to stop wasting their tax dollars. 
The budget showed that spending would be higher than it was in 
2009 and 2010, when we were in the midst of the downturn. 
Federal spending this year will be $3.8 trillion and comprise 
an astonishing 25.3 percent of GDP and result in a deficit of 
$1.65 trillion, the highest since World War II.
    Call it investment, call it whatever you want, our economic 
position is extremely fragile, and we are in danger of losing 
the future. The longer it takes to get us on a pro-growth 
track, the worse off we will be. This hearing, in my mind, is 
the first step in understanding why the President's policies 
have failed, why doubling down with more spending and more 
borrowing will only result in more of the same poor results 
that have left our great Nation in its precarious economic 
situation.
    With that, I would yield time to our distinguished ranking 
member, the gentleman from Ohio, Mr. Kucinich.
    Mr. Kucinich. Mr. Chairman, it is good to be here today.
    I want to point out that in terms of the invitations, that 
your staff invited one private citizen and one public citizen 
who were unable to attend today's hearing. I have been informed 
that the administration offered to provide two other high-level 
administration officials, notably a deputy secretary of 
Commerce, and a deputy assistant secretary for transportation 
policy from the Department of Transportation. And I have been 
told that your staff declined and further said the 
administration didn't want to make anyone available to talk 
about the stimulus program.
    I just want to point out for the record that two top 
administration officials were ready and willing to come today. 
And I think it is appropriate that we review the stimulus. I 
have no problems with that whatsoever.
    My point of view, a little bit different, I think that the 
Recovery Act was too small. Our economy is still fragile, we 
have an unemployment rate of over 9 percent. The depth of the 
recession was greater than predicted. Those who argued that the 
stimulus package was too small accurately predicted the 
severity of the recession was much worse than any economist 
initially thought.
    The Blinder-Zandi report people, critical of the ARRA's 
effect on job creation, said ``Critics who argue that the ARRA 
failed because it did not keep unemployment below 8 percent 
ignore the fact that A, unemployment was already above 8 
percent when the Stimulus Act was passed, and B, most private 
forecasters, including Moody's Analytics, misjudged how serious 
the downturn would be. If anything, this forecasting error 
suggests that the stimulus package should have been even larger 
than it was.''
    The same report also notes: ``While the strength of the 
recovery has been disappointing, this speaks mainly to the 
severity of the downturn. Without the fiscal stimulus, the 
economy would arguably still be in recession, unemployment 
would be well into double digits and rising, and the Nation's 
budget deficit would be even larger and still rising.''
    So Americans need to get back to work, which means our 
Government is going to need to continue to spend in order to 
increase demand for goods and services. Public spending is 
necessary to get us out of this recession. We gave significant 
tax breaks to the private sector. If the private sector hasn't 
that to create jobs, if the money that went to Wall Street 
didn't cause the private sector to create jobs, then the public 
sector has a responsibility to create the jobs in order to get 
us out of this recession.
    Today, throughout the day, I will be pointing out that the 
Recovery Act succeeded in avoiding a recession that could have 
been worse, that there was an increase in GDP and job growth, 
that the stimulus impacted the recession quickly, and that 
according to Blinder and Zandi, there was a great depression 
averted.
    I want to point out that, and I am not the only one who has 
pointed this out, as a matter of fact, there is a book that has 
just been released recently called The Great American Stickup. 
It talks about how Republicans and Democrats enriched Wall 
Street while mugging Main Street. So we are both here trying to 
clean up a mess that has actually been created by people in 
both parties.
    And when you look at deregulation, deregulation was a 
failed policy. We have had a full committee hearing where we 
had people testify about the financial service industry was 
inadequately regulated for decades. And you have somebody in 
one of the publications today trying to still discount rules on 
derivatives, which sets the stage for another boom-bust cycle.
    And then you have to look at the war. CRS has a report that 
says the cost of the war for the last, since Iraq and 
Afghanistan have come into our awareness, has been about $1.2 
or $1.3 trillion. Now, this administration has actually 
accelerated spending in Afghanistan. And the Democrats, my 
party, accelerated spending in Iraq in 2007.
    Both parties have responsibilities here. But the cost of 
this, the wars are taking our ability to do a budget, they are 
just destroying it. And when you consider now that we have more 
information about the war in Iraq being based on untruths, when 
we have more information about the corruption of the Karzai 
administration and the total loss and waste of American 
taxpayers, we see that policy changes are called for, and both 
parties are going to have to come together and do something 
about it.
    One thing that I have confidence in is that Mr. Jordan and 
I do have the ability to work together. We may not agree on 
things, but we do have an ability to work together, and maybe 
this working relationship can create circumstances where we can 
come up with some common sense approaches that will enable our 
country to get back on good footing.
    So I am glad to be here with you. Let's go to the 
witnesses.
    Mr. Jordan. I thank the gentleman. I would just point out a 
couple of things about his comments. This administration has 
certainly increased spending on everything. That is true. And 
again, two deputy secretaries offered as witnesses by the 
administration I think just did not meet the test, when you 
think about this being the most expensive piece of legislation 
in American history. We wanted the architects, we wanted the 
people who put it together, who were the ones who understood 
the modeling and the reasons that they put the bill together. 
We wanted them here.
    Frankly, when you think about the mission of this 
committee, it seems very appropriate when we are talking about 
the amount of taxpayer money that was put into this 
legislation, to have the folks who put it together to come and 
testify.
    Mr. Kucinich. May I respond briefly?
    Mr. Jordan. Certainly.
    Mr. Kucinich. I agree with the gentleman, that the 
gentleman as chair has a right to ask anybody to testify. And I 
am disappointed that the two witnesses were not available. On 
the other hand, they did offer replacements. Now, the 
replacements may not have been to your liking, I can understand 
that.
    Mr. Jordan. If the gentleman would yield, I would think the 
witnesses offered by the administration would not be to 
anyone's liking. As the gentleman indicated, this should not be 
partisan. And in fact, as the gentleman highlighted some of the 
spending that was done in the past Congress, you and I both 
voted against the TARP bailout and some of the other things. We 
do agree one some issues.
    I would think Republicans and Democrats both would say, the 
witnesses offered by this administration were not appropriate 
for a piece of legislation of this magnitude.
    Mr. Kucinich. I want to say again, the gentleman is correct 
in having the right to ask anybody that you think is important 
to be able to get the answers from to appear before this 
committee. That is just unquestioning. I am just stating that 
someone was offered, and they were turned down.
    So thank you.
    Mr. Jordan. I thank the gentleman.
    Let's go now to our distinguished panel. Before that, 
Members have 7 days to submit opening statements for the 
record. We will now recognize our distinguished guests. We 
first have Professor John Taylor, Ph.D., the Mary and Robert 
Raymond professor of economics at Stanford University and the 
George P. Shultz senior fellow in economics at the Hoover 
Institution. I actually heard Mr. Taylor speak a few weeks ago 
out in California, and it is great to have you with us today.
    Professor Russell Roberts, Ph.D., is the J. Fish and 
Lillian F. Smith distinguished scholar at the Mercatus Center, 
and professor of economics at George Mason University.
    And Dr. J.D. Foster is the Norman B. Ture senior fellow in 
the economics of fiscal policy at the Heritage Foundation.
    It is the policy of the committee that all witnesses be 
sworn in before testifying. So if you would please rise and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Jordan. Let the record reflect that all witnesses 
answered in the affirmative. Thank you, and we will start with 
Mr. Taylor.

 STATEMENTS OF JOHN B. TAYLOR, PH.D., MARY AND ROBERT RAYMOND 
  PROFESSOR OF ECONOMICS AT STANFORD UNIVERSITY AND GEORGE P. 
  SHULTZ SENIOR FELLOW IN ECONOMICS AT STANFORD UNIVERSITY'S 
   HOOVER INSTITUTION; RUSSELL ROBERTS, PH.D., PROFESSOR OF 
  ECONOMICS, GEORGE MASON UNIVERSITY, J. FISH AND LILLIAN F. 
SMITH DISTINGUISHED SCHOLAR, MERCATUS CENTER, RESEARCH FELLOW, 
  STANFORD UNIVERSITY'S HOOVER INSTITUTION; AND J.D. FOSTER, 
PH.D., NORMAN B. TURE SENIOR FELLOW IN THE ECONOMICS OF FISCAL 
                POLICY, THE HERITAGE FOUNDATION

               STATEMENT OF JOHN B. TAYLOR, PH.D.

    Mr. Taylor. Thank you, Mr. Chairman, Ranking Member 
Kucinich, for inviting me to speak today.
    My research on the Stimulus Act of 2009 shows that it had 
no significant positive impact on the economy that we can 
measure. And indeed, I think the legacy in terms of increased 
debt and uncertainty is harmful for the economy.
    In my view, this really shouldn't come as a surprise. 
Research on previous types of discretionary, counter-cyclical 
actions like this from the past, from the 1970's, even more 
recently than that, shows problematic results, if you like. 
What I have tried to do in my written testimony is provide 
facts, provide what actually happened, rather than trying to 
simulate models about which there is considerable disagreement.
    When you look at the facts of ARRA, you see according to 
the Department of Commerce, according to the Bureau of Economic 
Analysis, three main ways in which the money went out. It is 
important to trace the money. First, the Federal Government 
purchases goods and services, including infrastructure. Second, 
grants to the States with the intent that they would increase 
infrastructure spending. And third, temporary transfer payments 
to individuals such as a $250 check sent out last year, in 
2009, mainly.
    When you look at these carefully, you see some really 
striking facts. First of all, a very small amount of 
infrastructure spending came from the Federal level. It is 
amazing, only 0.04 percent of GDP went to infrastructure 
spending from the Federal level. This is by any measure 
immaterial and could not plausibly be a factor in the recovery 
that is sometimes mentioned. Economists sometimes debate the 
size of the multiplier. It is irrelevant when the thing the 
multiplier is multiplying is so teeny.
    When you look at the grants to the States, of course, these 
were substantial. But you also look at what the States actually 
did with the funds. They did not increase infrastructure 
spending. In fact, they didn't even increase purchases of goods 
and services as measured in the national income for all 
accounts. Instead, it looks like these funds were used to 
reduce the amount of borrowing and perhaps increase other kinds 
of transfer payments to individuals. Again, it just couldn't 
have had an effect based on what the data show.
    Then finally, the temporary transfer payments to 
individuals, which were substantial of magnitude, the purpose, 
of course, was to jump start consumption, people would spend 
this money. But when you look at what happened, they didn't 
spend the money. For the most part, it too was used, they have 
increased saving, draw down some of the debt and reduced the 
borrowing. This was not the way it was supposed to work.
    This in fact is what economics would tell you: temporary 
payments like this do not stimulate consumption in an 
appreciable magnitude. We have seen that in the past. We saw 
that even back as short ago as 2008. Again, this is what one 
would have predicted.
    When I look at the, if you like, cross-checks of these data 
to see, in the aggregate, how much Government purchases 
stimulated the economy, there is no correlation between that 
and the recovery. Instead, you see private investment, you see 
net exports driving whatever recovery we have had. So when I 
look at this overall, it seems to me, looking at the data, 
looking at the facts, tracing where the money went in the 
aggregate, using data provided by the Department of Commerce, 
you see a very small effect, I would say even immaterial.
    I would just conclude by saying, in addition to that, I 
think the legacy of the increased debt and in addition, the 
tendency that the stimulus packages themselves had to distract 
people from dealing with the longer-term debt and spending 
problems that we have to address was also detrimental. I would 
be happy to answer any questions you may have, Mr. Chairman and 
the members of the committee.
    [The prepared statement of Mr. Taylor follows:]




    
    Mr. Jordan. Thank you, Dr. Taylor.
    Dr. Roberts.

              STATEMENT OF RUSSELL ROBERTS, PH.D.

    Mr. Roberts. Thank you, Chairman Jordan, Ranking Member 
Kucinich, and distinguished members of the subcommittee.
    Over the last 2 years, the American Recovery and 
Reinvestment Act of 2009 has injected over half a trillion 
dollars into the U.S. economy in hopes of spurring recovery and 
creating jobs. The results have been deeply disappointing. Job 
growth has been anemic, while our deficit has grown, limiting 
our future policy options.
    Fourteen million workers are unemployed. The unemployment 
rate among African Americans is over 15 percent. This is an 
American tragedy.
    What went wrong? Why were the predictions so inaccurate? 
There have been two explanations. One is that the economy was 
in worse shape than we realized. The only evidence for this 
claim is circular, the standard Keynesian models under-
predicted unemployment. I prefer a simpler explanation. The 
models that justified the stimulus package were flawed. Those 
models were broadly based on the Keynesian notion that the road 
to recovery depends simply on spending. In the Keynesian world 
view, all spending stimulates, somehow subsidizing university 
budgets in the Midwest or paying teachers in West Virginia 
helps unemployed carpenters in Nevada. It may be good politics; 
it is lousy economics.
    This isn't the first time the Keynesian world view was 
wildly inaccurate in predicting the impact of changes in 
Government spending. Look at World War II. We frequently hear 
from Keynesians and others that the military spending in World 
War II ended the Great Depression. Certainly unemployment fell 
to zero because of the war.
    But did the work create prosperity or boom? There was a 
boom for the industries related to war. There was little 
prosperity for the rest of the country. The war was a time of 
austerity. Government spending didn't have a multiplier effect 
on private output, it came at the expense of private output.
    How about the end of the war, when Government spending 
plummeted? Paul Samuelson, a prominent Keynesian, warned in 
1943 that when the war ended, the decrease in spending, 
combined with the surge of returning soldiers to the labor 
force, would lead to ``the greatest period of unemployment and 
industrial dislocation which any economy has ever faced.'' He 
was not alone. Many economists predicted disaster.
    What happened? Government spending plunged from 40 percent 
of the economy to less than 15 percent, and prosperity returned 
to America. Unemployment stayed under 4 percent between 1945 
and 1948. There was a short and mild recession in 1945 while 
the war was still going on, but the economy boomed when 
Government spending shrank and price controls were removed.
    We are told that the failure of the current stimulus proves 
it simply wasn't big enough to get the job is done. It is 
equally plausible the opposite is true, that Government 
intervention in the economy prevented the recovery. The truth 
is, our knowledge of the complex system called an economy, as 
modern as the United States, is woefully inadequate and may 
always remain that way. We ask too much of economics. Even our 
best attempts to measure the job impact of the stimulus make 
this clear.
    In November 2010, a few months ago, the CBO estimated the 
stimulus had created between 1.4 and 3.6 million jobs, not a 
very precise estimate. But even this estimate was more of a 
guess than an estimate. The CBO estimates didn't use any actual 
employment data after the stimulus was passed. Instead, they 
based their estimates on pre-stimulus relationships between 
Government spending and employment, relationships that failed 
to predict the magnitude of our current problems.
    The CBO's results, and those of other forecasters using 
multi-equation models of the economy are not science. They are 
pseudo-science, what the economist F.A. Hayek called scientism, 
the use of the tools and language of science in unscientific 
ways.
    So where does that leave us? Let's get back to basics. When 
you are in a hole, stop digging. Stop running deficits of over 
$1\1/2\ trillion and counting. Act like grown-ups, get your 
fiscal house in order. Stop spending 25 percent of what we 
produce. Stop wasting my money and giving it to your friends. 
Stop passing legislation that makes it hard to figure out what 
the rules of the game are going to be. Get out of the way. Make 
Government smaller and give us a chance to do what comes 
naturally, seeking ways to make profit, avoid loss and work 
together. That is the only sustainable path to recovery and 
prosperity.
    Thank you very much.
    [The prepared statement of Dr. Roberts follows:]




    
    Mr. Jordan. Thank you, Dr. Roberts.
    Dr. Foster.

                STATEMENT OF J.D. FOSTER, PH.D.

    Mr. Foster. Thank you, Mr. Chairman, members of the 
committee. I appreciate the opportunity of testifying before 
you today.
    At best, economic stimulus efforts based on deficit 
spending and tax cuts with little or no incentive effects have 
done no harm, at best. It is possible to stimulate the economy 
during and after recession by improving incentives to work and 
produce, by reducing uncertainties regarding future policy, by 
expanding foreign markets for our goods and services. Recent 
efforts have been unsuccessful because they did none of these 
things. Regulations increased, uncertainty increased, tax 
distortions were left in place, and efforts toward free trade 
have been anemic.
    Stimulus can work, but has not worked, because the 
administration took the wrong approach, emphasizing incentive-
neutral tax relief and massive increases in deficit spending. 
As he often remarks, President Obama inherited a ballooning 
budget deficit. His response, to push the deficit higher. And 
with this most recent offering, he has reached new highs.
    Fortunately, recovery is underway. Uneven, stronger in some 
areas than others, but recovery nonetheless. The underlying 
strengths of our free market system are once again at work. But 
make no mistake, our economy is recovery despite, not because, 
of stimulus efforts.
    The heart of the administration's policy is the equivalent 
of fiscal alchemy. Alchemy is the art of transmuting metals, 
referring specifically to turning lead into gold. Fiscal 
alchemy is the attempt to turn Government deficit spending 
whenever and wherever and on whatever into jobs. Regarding 
near-term stimulus, it is not a matter of how wisely or how 
foolishly the money is spent, nor how quickly nor slowly, or 
whether some is saved or not, any more than the phase of the 
moon or adding a bit more wolf's bane enhances the prospect for 
lead to become gold.
    The basic theory of demand side stimulus is beguilingly 
simple. The economy is under-performing; demand is too low. 
Increase demand by deficit spending, and voila, the economy is 
stronger and employment is up. One wonders then why Government 
should not simply increase deficit spending much, much more and 
create instant, firm employment. Why indeed? The answer is that 
demand has shifted, but not increased, because Government must 
somehow fund this additional deficit spending and it does so by 
borrowing, reducing the resources available for the private 
sector.
    Suppose you take a dollar from your right pocket and put it 
in your left pocket. Do you have a new dollar to spend? Of 
course not. Deficit spending shifts demand from private to 
public sector. Or imagine the level of water in a bathtub 
represents the total level of demand in our economy. Now, 
suppose you pour a bucket of water into the bathtub. You would 
expect the level of water to rise. But where did the water in 
the bucket come from? It came from dipping the bucket in the 
bathtub in the first place. You may make a splash, as the 
President did with the stimulus, but when the water settles, in 
terms of the water level, total demand, nothing has changed.
    There are some telltale signs that it has intentionally or 
inadvertently fallen for demand side stimulus alchemy. One 
involves talk of multipliers. One must first believe deficit 
spending can boos total demand before investigating 
multipliers. One must first believe lead can become gold to 
investigate the advantages of incantations over potions.
    Another tell-tale sign is references to whether amounts are 
saved or spent. Whether deficit spending moneys are saved or 
spent matters not a whit to the immediate level of economic 
activity. If spent, then private demand falls by the amount 
borrowed to fund the spending. If saved, then all that has 
happened is a shifting of portfolios. Government debt is 
higher, private savings is higher, but total demand is again 
unmoved.
    Support for demand side theory often comes from observing 
that private saving might be parked in unproductive locations, 
and well it might. But unless saving is withdrawn entirely and 
held in cash, it remains part of the financial system. And 
banks and other financial institutions are lending those to 
somebody else to use. And if the saving is withdrawn and held 
in cash, out of a distrust of the financial system, then there 
is nothing about a government selling prodigious amounts of 
debt that is likely to reassure that fearful saver to put the 
savings back into the financial system for Government to 
borrow.
    Because the deficit today is so enormous, the Nation's 
policy options, aside from halting or reversing the regulatory 
onslaught, are severely limited, confined essentially to 
expanding free trade and cutting spending deeply to restore 
fiscal balance. Unfortunately, in his budget, the President 
punted, as the Washington Post, among others, opined. It is 
therefore up to the Congress to act. Near-term efforts to cut 
spending are essential, but must be seen as but the first step 
in a steady march against Government spending, including 
reforming the major entitlement programs to stabilize these 
programs and to restrain Government spending. The best fiscal 
policy now is to get the Nation's fiscal house in order by 
cutting spending repeatedly.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Foster follows:]




    
    Mr. Jordan. Thank you. I thank the witnesses.
    Look, I think the American people are asking, when does 
this stop? I have been saying for months, if big Federal 
Government spending was going to get us out of this mess, well, 
for goodness sake's, we would have been out of it a long time 
ago, because that is all the Government has done for two plus 
years. And frankly, it did start even under the previous 
Republican administration. As Mr. Foster pointed out, it has 
been taken to new levels with this administration.
    So I think instinctively, the American people understand 
the stimulus didn't work, transfer payments, propping up 
States, bailing out, they know it didn't work. But I also think 
they are beginning to realize that not only did it not work, it 
caused harm, as evidenced by the record debt that we have in 
front of us.
    And frankly, I think as Dr. Foster pointed out, and maybe 
our others as well, I still remember the first principle they 
teach you in Economics class, this crowding out concept, or 
opportunity cost. When you take resources and devote them to 
one thing, by definition they can't be used somewhere else. 
Frankly, the more efficient private sector where they can't be 
used.
    So I think the American people get it. My question goes 
right to where Dr. Foster left off, so we'll start here and 
work backward. This budget, as I begin to look at it and delve 
into it, that the President unveiled on Monday, I think 
continues the same pattern. It is the same old, same old. It is 
big Government spending. It is now a record deficit on top of a 
record deficit on top of a record deficit.
    So give me your thoughts on this budget, and frankly, the 
tax increase and the spending contained in it, how harmful that 
is going to be as we again try to get below 10 percent 
unemployment, get back to a more normal economy, and frankly, a 
growing economy. We will start with Mr. Foster and work back.
    Mr. Foster. I think this budget, if it were enacted, would 
be extremely harmful to our economy for a number of reasons. 
One, it is an enormous increase in the national debt with the 
deficit projected at $1.6 trillion, finally breaching clearly 
the 10 percent of our economy level. This is creating more and 
more uncertainty as to----
    Mr. Jordan. Let me interrupt. I think this is common sense. 
You have to be at 3 percent of GDP or below, I would argue 
below that, frankly, just to have any type of sustainable 
deficit that you are carrying. Would you agree?
    Mr. Foster. Depending on the rate of interest, a normal 
long-term rate of interest something on the order of 2\1/2\ 
percent to 3 percent is sustainable. We are well beyond that.
    Mr. Jordan. Exactly.
    Mr. Foster. And oddly, we are in a situation where we are 
far more irresponsible, frankly, than all of our European 
friends, who recognize the situation they are in. The stimulus 
that deployed didn't work, either. And they are now embarking 
on a strenuous program, a painful program, of getting their 
spending under control and their deficits under control, 
because they realize that is the key to short-term and long-
term prosperity. Short-term because these deficits are creating 
uncertainty. Uncertainty is the enemy of prosperity.
    Mr. Jordan. Well said. Dr. Roberts.
    Mr. Roberts. The reason that uncertainty is the enemy of 
prosperity is we need investments, and investments require 
risk-taking. If the future is uncertain and people are nervous 
about the future and have anxiety about it, they are less 
likely to take risks. We have done a bunch of things in the 
last 3 years, 4 years, to reduce the incentives for risk-
taking. And worse, the risk-taking we have encouraged has been 
imprudent. We need prudent risk-taking.
    So we have the uncertainty about the deficit, the fact that 
future tax increases are coming. But we don't know the nature 
of that burden, how it is going to be financed. We have 
uncertainty about the stability of the system itself. We are 
financing out deficit right now, very short-term interest 
borrowing, which is great when interest rates are low. But when 
interest rates rise it could be very, very expensive. I am very 
concerned about that.
    There is regulatory uncertainty. We have passed massive 
regulation of the health care and financial sectors, two large 
parts of our economy. It would be one thing if we passed the 
legislation that was in place. But of course, the rules aren't 
written yet, so how do people know to go forward?
    And finally, we have done a bunch of bailouts that said, if 
you are bad at what you do, we are going to give you money 
anyway. So prudent risk-taking has been discouraged.
    Mr. Jordan. You made me think of one thing here. We will 
finish with Dr. Taylor, but if you can address this question, 
too. And this is one area where we may have some agreement with 
the President. Corporate tax rates. I am actually to the point 
where I think it is frankly unpatriotic not to be for lowering 
the corporate tax rate when you think about where we compare 
with our competitors around the globe. So I would like your 
thoughts on that, to, as you evaluate te budget, Dr. Taylor, in 
the last 30 seconds here.
    Mr. Taylor. I think the most sensible thing is to reverse 
this spending binge of the last 2, 3 years. I think that would 
be so beneficial to the economy, to show the courage of our 
Government to be able to do that, start reducing the debt. On 
the taxes, I agree, the corporate tax makes us uncompetitive.
    I would say the firmest thing to say to convince the 
American people is, we are not going to increase anybody's tax 
rate for the foreseeable future. That would provide certainty, 
remove a lot of the doubts and concerns people have about 
investment. And the only way you are going to get unemployment 
down is to encourage private investment. That is what the data 
shows, that is what history shows.
    Mr. Jordan. Well said, thank you.
    The gentleman from Ohio, Mr. Kucinich.
    Mr. Kucinich. I thank the gentleman.
    I have some questions for Professor Taylor, but before I 
begin, I just want to make some observations here. To have this 
discussion about the state of the economy without getting into 
the fact that the tax cuts that were sponsored by the Bush 
administration cost us $1.2 trillion, that the wars, which both 
parties have participated in, have cost us roughly about $1.2 
trillion, we have a trade deficit right now of $497.8 billion, 
according to the latest U.S. census. NAFTA, GATT, China trade. 
Millions of jobs have been lost. It has been the work of both 
parties.
    We have maybe close to 15 million people unemployed. And 
when you look at the boom-bust cycle that was created by the 
lack of regulation of over-the-counter derivatives, Warren 
Buffett himself in 2002 condemned these over-the-counter 
derivatives as financial weapons of mass destruction. This is 
as recounted in Bob Scheer's book, The Great American Stickup.
    When you look at the $700 billion bailout, which Mr. Jordan 
and I both voted against, when you consider that Wall Street is 
recovering and Main Street is not, that stock prices are going 
up, but the regulations that need to be in place to stop it are 
the boom-bust cycle, it is still pretty shaky as to whether we 
will be able to avoid that.
    I think that the testimony that we have here is very 
interesting. But maybe you don't even have enough time to get 
into this, but it is inevitably incomplete. We have to have a 
complete picture of how we got to where we are. And it has to 
be really not driven by partisanship, which I don't see my 
colleague here as a very partisan person, but it has to 
delivered, we have to focus on the fact.
    Now, Professor Taylor, your testimony concludes with these 
statements: ``Many evaluations of the impact of ARRA used 
economic models on which the answers are built-in.'' And you 
also say that ``approach makes less use of simulations of 
existing econometric models, although it uses general theories, 
such as the permanent income theory or similar theories of 
Government behavior.''
    Now, Professor Taylor, earlier this month, Dartmouth 
economists, writing for the National Bureau of Economic 
Research, published a paper, which I move to put into the 
record, without objection, that found a positive effect of the 
stimulus on a State by State basis. The authors acknowledge 
that their approach probably understated the effect, although 
it was nonetheless significant.
    [The information referred to follows:]
    [Note.--No insert/information provided.]
    Mr. Kucinich. Professor Taylor, is it your testimony today 
that the NBER analysis of the stimulus was erroneous, because 
as you said, many studies had the answers built in?
    Mr. Taylor. The NBER study you are referring to I do not 
know.
    Mr. Kucinich. Well, I want to have staff----
    Mr. Taylor. I can answer with respect to my own studies of 
this, and also NBER publications. They show, when you look at 
where the money went, it did not increase infrastructure 
spending at the States. So it is very clear in the data.
    Mr. Kucinich. Well, I can say that, as far as the 
infrastructure spending as a percentage of the ARRA that I 
would have preferred that it had all been for infrastructure. 
But it wasn't. However, this NBER paper is in fact critical of 
your work. And what the authors wrote were that other model-
based evaluations, such as Cogan, Taylor, I think they are 
referring to you, and Wieland, conclude that the Government 
spending multipliers are significantly smaller than those 
claimed by advocates.
    Again, their conclusions are based entirely from existing 
models and gain nothing from the actual data, I want to stress 
that, from the actual data on employment before and after the 
implementation of the ARRA. So isn't it true that much of your 
testimony here today would be subject to criticism from these 
authors, which in fact is the same criticism you make against 
others?
    Mr. Taylor. No.
    Mr. Kucinich. I just like to see economists arguing.
    Mr. Taylor. Well, I can answer no, it doesn't apply to what 
I testified about today. It applies to other work that I have 
done in the spirit of simulating models. My whole point of this 
testimony is to go beyond the disagreement about the models and 
look at what actually happened. That is what I am doing, and I 
think it is very clear, when you look at the data. I couldn't 
agree more than you have to go beyond the models.
    Mr. Kucinich. Well, let me ask you this. Would you have 
said, let's say, all $787 billion should have gone into 
infrastructure spending? Or would it be your position we 
shouldn't have spent anything in trying to stimulate the 
economy?
    Mr. Taylor. As a matter of what actually Government can do, 
why do you think such a small amount went to infrastructure at 
the Federal level? I think people were told, you just can't get 
the money out the door that fast. Instead, the idea was to send 
grants to the States. But they're not going to get the money 
out that fast, either. It is a matter of what is feasible and 
capable. And our experience, not just in this case, but in the 
1970's, we tried to do the same thing, send grants to the 
States, hoping that they would spend money on infrastructure. 
They didn't do that, they did exactly the same thing as here. 
We didn't look at those.
    Mr. Kucinich. Mr. Chairman, are we going to have another 
round?
    Mr. Jordan. Yes.
    Mr. Kucinich. Then I will get back to this question. Thank 
you, Dr. Taylor.
    Mr. Jordan. And if I could, Mr. Taylor, is it true that the 
actual data shows that unemployment has been at record levels 
for the last 21 months, when it was projected to be at 8 
percent?
    Mr. Taylor. Yes.
    Mr. Jordan. OK, thank you.
    The vice chairman of the subcommittee, the gentlelady from 
New York, Ms. Buerkle.
    Mr. Buerkle. Thank you, Chairman Jordan, and thank you all 
for being here this morning for this very important discussion. 
I always thought it was just a bit counter-intuitive that we 
would take a trillion dollars out of private sector and give it 
to the Government to redistribute back to the private sector 
with all sorts of strings attached, and hope that it would help 
our economy and job creation.
    My first question, I will just refer to something that the 
gentleman from Ohio mentioned regarding the tax rates, and 
continuing the tax rates, and what they add to the deficit. 
Because that is something we hear as an excuse or a reason not 
to extend the current, the tax rates from 2001-2003. I would 
like you to comment on that before we get into the stimulus a 
bit.
    Mr. Taylor. I think the agreement to extend the tax rates 
that are in the law currently is a very important stimulus to 
the economy. Economics tells us that more permanent changes 
like that, something that has been in the law for a while, is 
much more beneficial for people's spending decisions and 
investment decisions. I would like to see that extended even 
further. I think that would be quite beneficial and a good 
stimulus, more beneficial than the temporary types of changes 
being proposed.
    Ms. Buerkle. Thank you, Dr. Taylor. Dr. Roberts.
    Mr. Roberts. I think it is important to remember that we 
cut tax rates, and that had a stimulating effect, that 
Professor Taylor is talking about. But if you cut revenues and 
you don't cut spending, all you have done is substitute taxes 
tomorrow for taxes today. I think the single most important 
thing that Congress can do now is to cut spending, because that 
is an implicit tax on the private sector. We spend way too much 
money to the Government sector, we need to spend less.
    Ms. Buerkle. Thank you. Dr. Foster.
    Mr. Foster. I agree with Dr. Taylor that it is terribly 
important that we extend for a much longer period of time, if 
not make permanent, the tax relief that was enacted under 
President Bush. That uncertainty about the outcome of that 
policy had a major depressive effect on the economy last year. 
And those decisions will feed on into next year at reduced 
investment, which is going to be a driver of going forward.
    But it is also terribly important to get the spending down 
now. That is probably, at this stage, the most stimulative 
policy that we can enact, get spending under control, the 
deficit down, reassure credit markets that we do intend and 
will get our fiscal house in order.
    Ms. Buerkle. Thank you. My next question, and it is to all 
three of you again, do you think that the economy would have 
improved and would have recovered without the stimulus? Dr. 
Taylor.
    Mr. Taylor. Yes. I think that the beginnings of the 
recovery preceded the stimulus. When you look at the factors in 
the economy that drove the increase in growth, there are 
private investments, also net exports, not really the 
Government purchases. So very much so. I think that in fact, at 
this point in time, you can point to the stimulus and related 
reasons for the higher debt as holding back the strength of the 
recovery at this point. It has been disappointing, especially 
last year. We hope it is picking up. But I think it would have 
been better without this kind of a stimulus.
    Ms. Buerkle. Thank you. Dr. Roberts.
    Mr. Roberts. The only thing I would add to that is the 
funneling of money, Federal tax money to the States encourages 
their misbehavior. I think it is extremely important that 
people live within their means, learn to change their behavior. 
And we continue to enable that, and we just push off the day of 
reckoning down the road. I think that is irresponsible, and I 
think we ought to be changing those incentives.
    Ms. Buerkle. Thank you. Dr. Foster.
    Mr. Foster. As I testified, I believe we could have enacted 
stimulus that would have helped. But the President chose a 
different path. He chose a path that was not going to be 
effective, because you do not add money to the economy by first 
taking money out of the economy. That is the fundamental flaw 
of the theory. Thus I think on balance we would have been 
better off. At best, this policy did no harm, at best.
    Ms. Buerkle. Thank you. And I am sure we will get to this. 
My time is soon to expire. I would like to hear from all three 
of you regarding what your recommendations are to grow our 
economy and to really get at the root of this problem. What can 
we do as a Congress to help improve the economy of the United 
States?
    Mr. Taylor. Three things, and this is before the stimulus. 
First is to make sure we are not going to increase tax rates. 
It is not necessary to do that to deal with the deficit, and it 
would be beneficial to growth.
    Second, lay out a plan to get the debt explosion over with. 
We have projections by CBO of debt just skyrocketing. Lay out a 
plan so they score it to come back down to reasonable levels. 
That will reduce uncertainty, if people get faith back in our 
Government.
    And third, I think it is important to address this spending 
binge we have had recently, spending going from 21 percent to 
25 percent of GDP, and not really coming down very much is 
something that should be addressed. That will stimulate the 
economy, because the jobs come from the private sector.
    Ms. Buerkle. Thank you. We can maybe continue those later?
    Mr. Jordan. Sure. We now turn to the distinguished ranking 
member, the gentleman from Maryland.
    Mr. Cummings. I want to thank the chairman for calling this 
hearing. And I want to thank our witness for doing an 
outstanding job.
    As a member of the Joint Economic Committee, we have had 
Mr. Zandi appear, Mark Zandi, who was the advisor to John 
McCain, Senator McCain, when he was running for President, come 
and testify before us. And he testified and acknowledged that 
the Recovery and Reinvestment Act had significant effect on the 
economy. He said something else that I found very interesting. 
He said that, a lot of people think Economics is a science 
where everybody is going to disagree. He said you are going to 
have some disagreement. But I find that I must tell you that it 
concerns me when I have a chorus of folks saying all the same 
things.
    So I just want to ask a few questions, and I would just 
like a yes or no answer. Dr. Taylor, you talked about the 
facts, just the facts. And I want to go to some of the facts 
and see what you all think of this, and the things that we do 
know, the things we know. And I just want a yes or no answer on 
these, and then if I have time, we can come back and you can 
explain.
    Over 75,000 total projects have been started across the 
country under the Recovery Act. Have they had any positive 
effect, yes or no? Yes or no, just yes or no, and I am going to 
come back.
    Mr. Taylor. I am sure some of them have a positive effect. 
But the question----
    Mr. Cummings. OK, I have seven questions. I will come back 
to you, I promise. Yes or no?
    Mr. Roberts. A little bit, yes. Surely.
    Mr. Cummings. OK. Dr. Foster.
    Mr. Foster. On net, no.
    Mr. Cummings. OK. More than 110 million, or 95 percent of 
working families, have been receiving a boost in their 
paychecks each week through the Making Work Pay tax credit. Has 
this had any positive effect on these families, yes or no?
    Mr. Taylor. Yes.
    Mr. Roberts. Yes.
    Mr. Foster. On the families, certainly.
    Mr. Cummings. Almost 70,000 small businesses have received 
nearly $30 billion in loan assistance through the stimulus. Has 
that had any positive effect on those businesses?
    Mr. Taylor. Yes.
    Mr. Roberts. Yes, on those businesses.
    Mr. Cummings. Keep your voices up, let's hear you nice and 
loud. Your testimony was loud. Come on, Dr. Foster?
    Mr. Foster. Yes, on those businesses.
    Mr. Cummings. All right. Under the Recovery Act, more than 
2,800 loans to farmers and ranchers were guaranteed. Has that 
had any effect on the farmers and the economy? Mr. Taylor.
    Mr. Taylor. I haven't studied that.
    Mr. Cummings. OK, you haven't studied that? Sir, I'm sorry, 
I didn't hear you.
    Mr. Taylor. No, I have not studied those particular----
    Mr. Cummings. I understand, you didn't study it. Dr. 
Roberts.
    Mr. Roberts. I am sure it was good for them.
    Mr. Cummings. All right, but not on the economy, right?
    Mr. Roberts. I don't know. I am not going to say yes or no 
to that.
    Mr. Cummings. OK, fine. And you, Dr. Foster?
    Mr. Foster. On those farmers, yes.
    Mr. Cummings. But not on the economy? No?
    Mr. Foster. That is correct.
    Mr. Cummings. All right. More than 300,000 families have 
made home improvements to reduce their energy use and cut their 
utility bills. Will those families be able to appreciate any 
results from the Recovery Act, and does that affect the 
economy, the fact that we are putting people to work to do 
those repairs, like in my district, and districts of almost 
every single, of every single Member of Congress, by the way? 
Mr. Taylor? Dr. Taylor, I am sorry.
    Mr. Taylor. On the overall economy, no. On the individuals, 
yes.
    Mr. Cummings. OK. Dr. Roberts.
    Mr. Roberts. Which projects are those, the home 
improvement?
    Mr. Cummings. Yes, the home improvement.
    Mr. Roberts. Is that the insulation and the weather-
proofing?
    Mr. Cummings. Weather-proofing, retrofitting.
    Mr. Roberts. Incredibly badly run program. Very 
ineffective.
    Mr. Cummings. So you are saying it had no effect on the 
economy?
    Mr. Roberts. Not a positive effect overall. Good for the 
people who worked doing it, but not for the rest of the 
economy.
    Mr. Cummings. People that, the 15 percent that you talked 
about, African American unemployment rate, as a matter of fact, 
it is higher in some instances in my district.
    Mr. Roberts. Yes, sir.
    Mr. Cummings. But there are people who I just witnessed 
doing those jobs, having a tremendous impact that would not 
have been working but for. You say no effect on the economy?
    Mr. Roberts. Perhaps they might have been working. It is 
hard to know.
    Mr. Cummings. No, they would not have been, believe me. I 
live there.
    Mr. Roberts. Well, I am glad for them, then. That is great.
    Mr. Cummings. Dr. Foster, how about you?
    Mr. Foster. On the economy, no effect. For those families, 
I can't judge their decisions. I presume they made wise 
decisions for themselves.
    Mr. Cummings. The Department of Housing and Urban 
Development has rehabilitated over 409,000 homes and built 
5,700 new homes. Will the families who reside in those homes 
experience any benefits from the Recovery Act, and does that 
affect the economy in a positive way?
    Mr. Taylor. The individuals who benefited from that are 
benefiting. The overall economy, no.
    Mr. Roberts. Ditto.
    Mr. Cummings. Are you going to ditto too?
    Mr. Foster. I am going to ditto, try to move it along.
    Mr. Cummings. We have a great chorus here.
    Mr. Foster. Trying to help you.
    Mr. Cummings. Under the Recovery Act, more than 4,000 
Department, and this is my last question, with the indulgence 
of the Chair, 4,000 Department of Defense construction and 
improvement projects have been started at over 350 military 
facilities. These include the construction or improvement of 
military hospitals and 25 child development centers. It also 
includes over 70 military family housing improvement and 
construction projects. Will these projects result in benefits 
for anyone? Do they affect the economy or did they affect the 
economy in a positive way? We will start with you, Dr. Foster.
    Mr. Foster. In the aggregate, no, sir.
    Mr. Cummings. Yes?
    Mr. Roberts. Don't know. Good for them. Who got the money? 
If you pay people to dig ditches and fill them back in and you 
give them a $200,000 a year salary, they will be better off.
    Mr. Cummings. And you, Dr. Taylor?
    Mr. Taylor. Those people benefited, the overall economy did 
not.
    Mr. Cummings. Thank you all very much.
    Mr. Jordan. I thank the gentleman.
    Let me just clear up one thing. And we will go quickly, we 
will have one more round, then we will get to our second panel. 
I wan to just clear up this issue. Some have suggested that 
allowing families and individuals to keep their money adds to 
the deficit. And I just fail to adopt that premise that 
reducing the tax burden on the American people somehow adds to 
the deficit. But I want to hear it from the experts. Are 
deficits and the buildup of our national debt, is that a result 
of letting people keep their money, or is it a result of 
politicians spending too much? Let's just answer this simple 
question first. Mr. Taylor.
    Mr. Taylor. The largest amount is the spending, going 
forward. It is just basically, you just look at projections of 
why the deficit is where it is, where it is going, why it is 
increased. It is on the spending side.
    Mr. Jordan. Mr. Roberts.
    Mr. Roberts. I just want to have the thrill of saying I 
agree with Mr. Kucinich a little bit. So while I agree that the 
stimulating effect of cutting tax rates has a positive 
incentive for economic activity, to cut taxes and increase 
spending at the same time is irresponsible.
    Mr. Jordan. I wondered, I heard your first comments.
    Mr. Roberts. You have to do both.
    Mr. Jordan. You would stay there?
    Mr. Roberts. You have to do both.
    Mr. Jordan. OK, let me go to Mr. Foster, and then I want to 
followup with another question for all of you.
    Mr. Foster. Well, obviously, as an arithmetic matter, the 
deficit is the difference between debt and revenues. But if you 
look at where we are spending as a share of our economy, which 
is a simple metric, compared to any historical norm, we are far 
above that, indicating that is the problem.
    Mr. Jordan. OK, now let me ask you this. I would argue the 
problem is so big, we are running record deficits, piling up 
$14 trillion in debt, so big that we have to get after the 
spending right away. But to ultimately deal with this thing, 
you have to have economic growth. There is no way you can get 
to a balanced budget, get this ship headed in the right 
direction, get to where we need to go if you do not have 
economic growth. And allowing the private sector, allowing 
families, small business owners, individuals to keep more of 
their money, I contend, is central to having economic growth. 
And I would argue lowering the corporate rate as well, and 
regulatory policy, I get all that.
    But I would argue, keeping those taxes low, allowing 
families to keep more of their money, is fundamental to getting 
the economic growth we are ultimately going to need to dig 
ourselves out of this mess. And I would like your thoughts.
    Mr. Taylor. My proposal and recommendation is to not 
increase tax rates and to deal with this deficit and debt 
problem by reversing the recent spending binge and getting 
spending back to where it was as a share of GDP.
    Mr. Jordan. OK, let me ask you this, then. Would you agree 
that where the continuing resolution is, would you agree this 
is a good first step in saving the taxpayers approximately $100 
billion over the rest of this fiscal year? Is it a good start?
    Mr. Taylor. Yes. Getting spending back to 2008 is an 
excellent first step.
    Mr. Jordan. Dr. Roberts.
    Mr. Roberts. But it is a baby step. You have to take a 
bigger step.
    Mr. Jordan. It is one fifteenth of the deficit.
    Mr. Roberts. It is a rounding error, it is a deck chair off 
the Titanic, I mean, it is just nothing.
    Mr. Jordan. I get it.
    Mr. Roberts. But I think again, if you want to cut taxes, 
the way you want to do that is cut spending. I agree with what 
Milton Friedman said. What is important isn't how we finance 
what Government does, what is important is what Government does 
and how much of it.
    Mr. Jordan. Because of the basic point, spending leads to 
borrowing which is just more taxes.
    Mr. Roberts. Which is more future taxes. So if you cut 
taxes, especially if you don't cut tax rates, you just give 
people money back and you continue to spend, you haven't 
encouraged economic activity. You have told people, we are 
going take money out of your hide later.
    Mr. Jordan. Well said. Mr. Foster.
    Mr. Foster. I think there is one area in which economists 
have a broad consensus at this point, whereas it is, and that 
is that economic growth is the driver for deficit reduction 
above all. The key to economic growth, as the President himself 
has said, is the private sector. And the way to get the private 
sector moving forward at this point, from a Washington 
perspective, is greater certainty. Don't raise taxes. Certainty 
about tax policy, suspend the regulatory onslaught and get 
spending under control, so they have some ability to forecast 
what Government is going to be doing.
    Mr. Jordan. Let me just finish with one last point with 
you. Earlier you said, Dr. Foster, that there was a stimulus 
package that could have been put together that you actually 
thought would make some sense. Describe that for me. Was it, as 
I suspect, was it the right kind of tax policy, right kinds of 
tax cuts and some infrastructure spending? Or was it something 
else that you had in mind?
    Mr. Foster. It certainly wasn't infrastructure spending. As 
Dr. Taylor pointed out, you can only push so much money out 
that pipeline. And in the end, it wouldn't have made any 
difference to the immediate economy.
    An effective policy, which would have been effectively no 
cost, would have simply been to say, at the beginning of 2009, 
we will not raise taxes. We will not raise taxes until the 
unemployment rate gets down to full employment, and we can have 
a debate about what the tax policy should be. If we had simply 
done that and eliminated the uncertainty about tax policy, our 
economy today would be a lot stronger.
    Mr. Jordan. So you argue that the best stimulus package at 
the time, early 2009, when we were in the midst of this 
problem, the best stimulus approach at the time would have been 
to establish certainty, in essence, do nothing.
    Mr. Foster. The best no-cost policy. If we were willing to 
use resources, the best policy would have been to take whatever 
we otherwise would have spent in the stimulus law and used it 
to reduce the corporate tax rate, which even the President now 
acknowledges must be done.
    Mr. Jordan. Great point. Thank you.
    We will go to the ranking member.
    Mr. Kucinich. It is really mystifying to hear witnesses 
extol taking the wraps off the private sector, when you 
consider that the reason why we went into the dumper was 
because you had the Financial Modernization Act passed, which 
permitted, which basically took down the Glass-Steagall 
firewalls, which separated commercial banking from investment 
banking, and permitted the avalanche of over-the-counter 
derivatives, the black box investing that went on, that created 
the crash that we had.
    And now we are saying, well, if only the private sector, 
read Wall Street, can have its way again, look, they already 
took the country over the cliff once. I think we ought to be in 
a position here where we at least recognize what happened, so 
that we don't let it happen again.
    I don't know if any of you gentlemen ever testified in 
favor of the Financial Modernization Act, or the Commodity 
Futures Trading Act. But if someone doesn't do any back 
analysis and understand that Glass-Steagall actually protected 
capitalism from itself, through having regulations, we have to 
be careful here advocating that we just take down regulatory 
structures. Because in the end, the taxpayers end up footing 
the bill.
    I was interested to hear, I think it was Dr. Foster, I was 
in a discussion with staff, but I think I heard you say if you 
cut tax and increase spending at the same time, it is not 
responsible. Did you say that?
    Mr. Foster. No, sir, I think that was Dr. Roberts.
    Mr. Kucinich. Thank you for pointing that out. So Dr. 
Roberts said that. I heard that, and I thought, well, I was 
thinking about the Bush tax cuts. And these tax cuts helped to 
dig the economy into a bigger hole. They took the tax burden 
off the shoulders of the rich, put the burden on the lower and 
middle classes. The rich won, the economy lost. In 2001, the 
tax cuts were enacted. CBO estimated that gradually rising 
Federal budget surplus, this is before the tax cuts were 
enacted, they estimated a gradually rising Federal budget 
surplus, and CBO forecast a surplus of 5.3 percent of the GDP 
in 2011. It was 10 years from the time they made the first 
analysis.
    The 10-year, $1 trillion price tag attached to the cuts 
played a direct role in making the forecast a pipe dream. The 
Bush tax cuts that were enacted in 2001 and 2003 resulted in 
$1.2 trillion revenue loss from the fiscal year 2001 to fiscal 
year 2010.
    So I would tend to agree that if you are cutting taxes and 
increasing spending at the same time, you are going to get in 
trouble. I would argue that the tax cuts set the stage for 
putting us in a position where it limited our ability to spend, 
within the construct of the current way that we handle our 
money.
    Now, I want to throw one other thing into this discussion, 
Mr. Chairman. Article One, Section A of the Constitution of the 
United States puts the power to coin money solely in the hands 
of the Congress. We basically gave that away in the 1913 
Federal Reserve Act. You have the Federal Reserve with the 
power, through quantitative easing, to just print money. 
Somebody here talked about alchemy, which basically you are 
talking about creating something of value basically out of 
nothing. All the money the Fed creates is backed by the full 
faith and credit of the United States of America. Congress is 
basically cut out of that deal, limited if any oversight. We 
can't even have transparency and find out what they are doing.
    So I am thinking that when we start to address issues like 
the economy, and when we start to attack the ARRA as being 
somehow at the epicenter of this whole thing, please. It is 
almost laughable. Because you have to talk about tax cuts, the 
impact, you have to talk about the war. You must talk about the 
trade deficit. And if we are really going, and to look at it 
from what happened under both parties, to be able to really get 
to the bottom of what is going on in our economy.
    So I would say, I have seen your testimony and I say to all 
of you, you have something to contribute to this. But there 
aren't any high priests or priestesses when it comes to the 
economy. I remember sitting in a committee with Alan Greenspan, 
who is the final arbiter or had been on the economy. And here 
is what he said: ``I made a mistake in presuming that the self-
interest of organizations, specifically banks and others, were 
such that they were capable of protecting their own 
shareholders and their equity in the firms.''
    Now, if the best of the best gets mystified in this town, 
who are we? I just say, let's look at some facts here, and Mr. 
Chairman, I want to thank you for holding this hearing, because 
it is the beginning of what needs to be a long and serious 
discussion about not only how we got here, but where are we 
going and how can we get people back to work.
    Without objection, I would like to put in How The Great 
Recession Was Brought to an End, by Zandi and Blinder.
    Mr. Jordan. Without objection.
    [The information referred to follows:]
    [Note.--No insert/information provided.]
    Mr. Jordan. It is an amazing day. We got Dr. Roberts who 
agreed with Mr. Kucinich, we got Mr. Kucinich coming full 
circle agreeing with Ron Paul right here in front of all of us. 
[Laughter.]
    Mr. Kucinich. My buddy.
    Mr. Jordan. It is an amazing day.
    Did you want to say something?
    Mr. Roberts. I just want to say two quick things. When Alan 
Greenspan said he made a mistake, I think he was right. But the 
mistake he made was helping Wall Street socialize its losses of 
my money. And I am in favor of the private sector leading the 
recovery, and that would rule out Wall Street, which has been 
cushioned by Federal welfare from the chair of the Federal 
Reserves and the Congress going back to 1984. So the single 
most important thing I think we need to do to get that 
straightened out is to stop bailing out losers on Wall Street, 
which we have done systematically, and it is a huge problem.
    Mr. Jordan. Well said.
    Mr. Kucinich. This is our witness? [Laughter.]
    Mr. Jordan. We are both in agreement with that statement, 
Mr. Ranking Member.
    I yield to the gentleman from Idaho, Mr. Labrador.
    Mr. Labrador. Thank you, Mr. Chairman.
    Gentlemen, thanks for being here. I think to go full 
circle, I am actually going to say that I agree with the 
ranking member on one thing that he has said, and that is that 
both parties have brought us to this brink of catastrophe that 
we are at. It is one of the reasons that I ran for Congress, is 
because I don't think this is a Republican problem or a 
Democratic problem, it is an American problem. We have had 
complacency and irresponsibility here in Congress for far too 
long.
    Now, where I do disagree, I think what happens is that when 
you have what I used to call in my legislature the wingtip, or 
some people call it the wingnut coalition, where the left and 
the right, where they end up meeting at the same time, what 
ends up happening is that we reach a different conclusion.
    We both agree on the problem. We agree that we have been 
irresponsible, but we reach a different conclusion. I think all 
of you said that it is irresponsible to lower taxes and 
increase spending. But it seems that some people on the other 
side say then the conclusion is that we should increase taxes 
and increase spending. I think that is extremely irresponsible. 
I think what we should be doing is decreasing spending, 
decreasing taxes.
    But I have a question. The Tax Foundation has found, and 
they are talking about State levels, I have studied their State 
information. At the Federal level, would it be smart for us to 
look at some of the exemptions that are out there? Because I do 
think we need to reduce the corporate tax. In fact, I would 
like to just zero it out. But at the same time, there are a lot 
of exemptions that are out there that are pretty much picking 
winners and losers in the economy. I don't think the Government 
is very good at that.
    What would be your take, if we start, yes, reducing 
corporate tax rates, but at the same time, looking at some of 
the corporate exemptions that are out there?
    Mr. Taylor. I think tax reform of that kind makes a lot of 
sense. Reducing rates, if you like, and broadening the base by 
looking at exemptions and loopholes. I would, though, at this 
point in time, say to me, the problem is really on the spending 
side. And if you could get some kind of a consensus just to 
leave tax rates where they are for the time being, that would 
create certainty and then remove a cloud that people think 
taxes are going up rather than down.
    So I would focus on what is feasible at this point, 
although it would be better to do the kind of reform you are 
talking about. I would be very happy to just leave rates where 
they are, and work on this terrible spending problem that we 
have.
    Mr. Labrador. So even not reducing the corporate tax rate?
    Mr. Taylor. Well, I would like to do that. But you have to 
get something through this system here. And it seems to me that 
spending is--if that can help you on the spending side, if 
there is a tax reform like that can help, and that may indeed 
be the case. But I would say that, to me, the year 2000 
spending as a share of GDP by the Federal Government was 18.2 
percent. It is now 25 or so. That is a gigantic, gigantic gap 
to get fixed. Tax revenues, when we get back to normal, will 
not be that much different.
    Mr. Labrador. If I could get an answer from the others.
    Mr. Roberts. Well, the big issue here is the corporate 
income tax should be zero. Most economists would agree that it 
should be zero. And the reason isn't because we should give 
money to corporations, it is because corporations don't pay the 
corporate income tax, consumers do. It is a hidden tax, and it 
discourages investment and risk-taking.
    So tax simplification is a good idea. Broadening the base 
is a good idea. But the big problem you have is that giving 
away money is more fun that not giving it away. And that 
political challenge is what you have to face.
    Mr. Foster. I think it would be wonderful if we could 
reduce the corporate tax rate, but with budget deficits as 
large as they are, that is problematic. The President has 
called for revenue-neutral tax reform, which philosophically I 
agree with. It is very difficult to figure out exactly what 
loopholes you ought to get rid of, and which are intrinsic to a 
corporate income tax base. But that is an important discussion.
    Where we are today, however, is an economy that is 
struggling to recover. And if we start on a road of corporate 
tax reform, that means businesses don't know what tax system 
they are going to be operating under. We just managed to create 
yet another source of uncertainty. In this case, a source of 
uncertainty intending to do something good. But we have to 
understand that this new source of uncertainty will have a 
depressive effect, even while we sort through the process of 
corporate tax reform.
    Mr. Labrador. Thank you.
    I have one more question. And I apologize that I went out 
of the meeting, maybe you already answered this question. But I 
think it was Dr. Taylor who said that we didn't spend enough 
money on infrastructure, or there was just a little bit of 
money of GDP spent on infrastructure. If we would have spent 
the entire amount on infrastructure, would it have made a 
difference? Because it seems that is what I keep hearing from 
the other side, is that we just didn't spend enough.
    Mr. Taylor. Of this, I think, incredibly large package, 862 
or however you want to measure it, a very small fraction went 
to infrastructure. Remember it was advertised as spending, 
create jobs in infrastructure? So such a small amount went to 
it. I think that is the reality of these packages. That is what 
we found in the 1970's when we tried this. You can't get money 
out the door that fast. You can maybe accelerate spending that 
is already there, the permit is already approved. That is what 
I would have done, just focus on accelerating some of that 
spending. But it is just not feasible.
    So that is really why these packages, one of the reasons 
why these packages fail.
    Mr. Labrador. Thank you.
    Mr. Jordan. I thank the gentleman.
    The gentlelady from New York is recognized.
    Ms. Buerkle. Thank you, Mr. Chairman.
    The gentleman from Maryland, who has since departed, talked 
about a chorus here this morning. Indeed, it is a chorus, but 
it could be, we could have the sopranos here if the 
administration had agreed to show up. Unfortunately, we are 
only getting one side of the argument.
    I would like to just briefly, before I get into this pro-
growth that we have talked about, what we can do to help the 
economy, can you tel me, either one of the three of you, the 
approximate number of Americans who have lost jobs since the 
stimulus plan was passed?
    Mr. Taylor. It is approximately 6 million extra unemployed 
workers, not because of this but that has occurred since the 
depths of the recession.
    Ms. Buerkle. Thank you. We talked about reducing spending, 
and the need for this Congress to really pay attention and as 
you mentioned, start with the $100 billion in the CR that cut. 
What about, we have heard the other side talking about tax 
rates and the need to increase taxes because of what they do to 
the deficit. You all said that is not so, if we can keep tax 
rates permanent, hopefully extend those rates permanently, what 
a good effect that would have.
    What about if we reduced those tax rates? What if we did 
what Ronald Reagan did and got those tax rates down for 
Americans? What do you see, what effect do you see that having 
in terms of a pro-growth approach to how we are going to get 
this economy turned around?
    Mr. Taylor. I would say very briefly, if you are able to 
reduce marginal tax rates, stimulate entrepreneurial activity, 
stimulate creation of jobs that way, that is beneficial to 
economic growth. You do, at that point, have to think about 
spending, however. And as my colleague Russ Roberts indicated, 
I would say that what a goal would be, and it seems to me 
feasible, and the American people would like it if they 
understood it, would be just to return spending to where it was 
in the year 2000 as a share of GDP. That is less than 19 
percent.
    So that gives you lots of opportunities to, I think, reduce 
tax rates the way you are asking about. But you really have to 
be sure that you are able to bring some kind of a consensus 
around it. It is not going to happen right away, to bring 
spending down to those levels. It was fine at that point in 
time. What was so bad about spending levels at 2000 levels?
    So that would be the way I would look at this, focus on the 
spending.
    Mr. Roberts. I would just make the point, as John pointed 
out, tax revenue right now is about 14 something percent of the 
economy, tax revenue, and we are spending 25 percent of the 
economy through the Government. Now, which is the tax rate? Is 
it 14 or is it 25? It is 25. It is 14 today and 11 tomorrow, 
down the road. So it is a dead horse, but you have to get this 
horse to life. If you want to encourage incentives and risk-
taking and investment, you have to get the Government having a 
smaller role in the economy and give some oxygen in the room 
for the private risk-takers.
    Ms. Buerkle. And when you say that, and you talk about, and 
Dr. Foster mentioned it as well, creating certainty for 
businesses, and we heard that, no matter who you talk to, 
especially small business owners. We don't know what is going 
to happen with the health care bill, we don't know what is 
going to happen with the financial regs, we don't know cap-and-
trade, fortunately that is stalled in Congress. So those kinds 
of things create uncertainty.
    What can we do in addition to extending the tax rates 
permanently to create certainty that sends a message out to the 
private sector, we want to help you, we don't want to get in 
your way, we don't want to impeded your success?
    Mr. Roberts. You don't just need certainty, you need 
confidence in the future. That is why I think responsible 
budget-cutting signals to the world and to the entrepreneurs 
here in America that we can act like grownups, that when we 
want more of something, whether it is the war in Afghanistan, 
or some other program, we are going to cut something else back. 
That is what families do. When we act irresponsibly, we tell 
the world we are not acting like grownups.
    Ms. Buerkle. Thank you. Dr. Foster, do you have a comment?
    Mr. Foster. Yes. Implicit in the massive budget deficit 
that we have today is the uncertainty about what Congress is 
going to do about it, what taxes are they going to raise, if 
any, to close that budget deficit? What spending are they going 
to cut instead? If we don't know which they are going to do, 
they don't have certainty about the outcome of that policy.
    So the budget deficit and reducing the budget deficit is 
part of creating the certainty that we need. That is an 
activist policy toward certainty that will be very helpful to 
the economy. We haven't mentioned it today, but another area of 
tremendous uncertainty that has been created that is going to 
unfold in the coming years is Obamacare. Now, we can have 
health care debates until the cows come home, but the simple 
fact is, from a business's standpoint, not knowing what the 
regulations are going to be, that they are going to be 
fundamental in changing that marketplace, you can't make 
investments, you can't hire. Because you don't know what your 
circumstances are going to be.
    This creates a regulatory freeze on businesses. We can 
debate whether it was a good policy or not, but one thing is 
certain: this was not a good time to be imposing this kind of 
uncertainty, when businesses are being asked to invest because 
they are confident in the future.
    Ms. Buerkle. Thank you.
    Mr. Jordan. Thank you.
    I want to thank our distinguished panel for your time, and 
for staying for a second round. We really appreciate your being 
here today. You have been very helpful.
    We are going to move right to our second panel and hear 
testimony. So if the staff could get that set up for them, we 
will go as quickly as possible, listen to testimony, have one 
quick round of questioning for the second panel.
    Mr. Andrew Busch is the global currency and public policy 
strategist for BMO Capital Markets' Investment Banking 
Division. Mr. Alex Brill is research fellow at the American 
Enterprise Institute for Public Policy Research. Mr. Chris 
Edwards is director of tax policy studies at the Cato 
Institute. And Dr. Josh Bivens is an economist at the Economic 
Policy Institute.
    It is the policy of the committee to swear witnesses in, so 
we will do this again quickly, gentlemen, if we can. Raise your 
right hands.
    [Witnesses sworn.]
    Mr. Jordan. Let the record show the witnesses answered in 
the affirmative. We will start with Mr. Brill, we will just 
move down the line.

     STATEMENT OF ALEX M. BRILL, RESEARCH FELLOW, AMERICAN 
  ENTERPRISE INSTITUTE; ANDREW B. BUSCH, GLOBAL CURRENCY AND 
   PUBLIC POLICY STRATEGIST, BMO CAPITAL MARKETS' INVESTMENT 
BANKING DIVISION; CHRIS EDWARDS, DIRECTOR, TAX POLICY STUDIES, 
  CATO INSTITUTE; AND JOSH BIVENS, ECONOMIST, ECONOMIC POLICY 
                           INSTITUTE

                   STATEMENT OF ALEX M. BRILL

    Mr. Brill. Thank you, Chairman Jordan and Congressman 
Kucinich and other members of the subcommittee, for the 
opportunity to appear before you this morning to speak on the 
stimulus bill.
    Its 2-year anniversary presents an appropriate time to 
evaluate the legislation's effectiveness. There are many 
metrics by which one could assess this massive Federal policy. 
But in my testimony today, I will focus on just two: overall 
cost and ``shovel-readiness.''
    For better or worse, the ARRA was enacted because 
majorities in the House and Senate believed that a large fiscal 
stimulus could make a positive contribution to the economy by 
stimulating aggregate demand. Under that premise and the 
assumption that the stimulus bill spending was not completely 
offset by a decline in private activity, the effectiveness of 
the legislation depends, quite simply, on the stimulus spending 
occurring in a timely fashion. In my testimony this morning, I 
would like to emphasize three points.
    First, we should recognize that the bill was rushed through 
Congress at a blazing speed. H.R. 1 was introduced on January 
28, 2009, and signed into law on February 17th. A hodge-podge 
of policies, ranging from high speed rail to health information 
technology to home weatherization, hundreds of pages and 
thousands of projects.
    Second, the official cost estimate of the stimulus bill has 
varied over time, but always under-estimates the true cost. The 
key to securing votes for final passage of the bill in the 
Senate was to reduce the final cost to $787 billion. Since that 
time, CBO has re-estimated the cost of the bill, once as high 
as $862 billion, and currently to be a cost of $821 billion.
    But all of these estimates fail to include the additional 
costs, already in excess of $60 billion, incurred when Congress 
extended certain portions of the bill. In fact, I would note 
that President Obama's fiscal 2010 budget included items to 
make over one-third of the stimulus bill permanent.
    Third, and most importantly, the stimulus bill has done an 
extremely poor job at actually spending money in a timely way. 
Regardless of your view about the multiplier effect, the 
economic factor by which an injection of fiscal stimulus could, 
at least in theory, result in more activity down the line, the 
bill could not possibly be effective or cost-effective if the 
money is not spent in a timely fashion.
    While certain activities did occur quickly, such as 
additional checks to Social Security recipients or unemployment 
benefits and transfers to the States, none of these policies 
constitute the much touted ``shovel-ready'' activity and the 
``reinvestment'' that was the heart of this legislation. For 
example, the Department of Energy should never have been 
awarded a single dollar in stimulus funding. At the end of 
calendar year 2009, they had spent only 5 percent of their 
allocated funds. At the end of 2010, two-thirds of the 
Department of Energy's funds remained unspent, roughly $22\1/2\ 
billion. The Department of State, FCC, NEA, NSF, USAID, and the 
Corporation for National Community Services have collectively 
spent only 37 percent of their funds as of last December. At 
the end of 2009, they had spent collectively only 8 percent of 
their funds.
    Even the Department of Transportation, which was supposed 
to ground zero for shovel-ready projects, had at the end of 
2010 spent 56 percent and had nearly $20 billion left to spend. 
Billions more from other departments.
    In my written testimony, I detail examples of programs that 
have, 2 years after enactment, spent only 2, 3, 4, 9 and 10 
percent of their available funds.
    In conclusion, while labor markets in the U.S. economy 
remain weak, and a robust economy has yet to materialize, the 
worst of the recession is long over. If the stimulus bill was 
ever appropriate, and I think it was never appropriate, it was 
in 2009, not in 2011, and certainly not in 2012 and beyond. I 
urge the committee, given its jurisdictional responsibility, to 
continue to investigate carefully the causes that have resulted 
in this bill, which was intended to be timely, targeted and 
temporary, to be implemented so slowly.
    Too much money was put into this bill in the first place. 
Too little of it was spent at the time the economy was the 
weakest. Clearly, Government is not good at fiscal policy to 
turn the economy. And I hope the committee's work will help 
dissuade future Congresses from repeating these same mistakes.
    I will be happy to answer any questions.
    [The prepared statement of Mr. Brill follows:]




    
    Mr. Jordan. Thank you, Mr. Brill.
    Mr. Busch.

                  STATEMENT OF ANDREW B. BUSCH

    Mr. Busch. Thank you, Subcommittee Chairman Jordan and 
Ranking Member Kucinich. I want to thank you for the 
opportunity to appear today.
    I was born in Ohio, I just was there recently and 
frequently speak, I was at the city of Galena, they had an 
economist briefing there recently. So it is always great, 
always great to be in front of fellow Ohioans.
    I just want to share my views regarding the American 
Recovery and Reinvestment Act of 2009, specifically the results 
2 years after enactment on the economy and the financial 
markets. As you may know, I am the Bank of Montreal's global 
currency and public policy strategist. I have worked in the 
financial markets since 1984.
    So my role is to analyze factors influencing the financial 
markets and provide guidance to our clients on the potential 
outcomes of policy. I have had the distinct pleasure of writing 
commentary on a daily basis since 1999, and wrote throughout 
the financial crisis of 2008.
    So reform and oversight of our Nation's programs to create 
economic growth and financial stability are critically 
important, obviously. Bank of Montreal thanks you, Mr. 
Chairman, and all the members of the committee for their 
upcoming work on these topics over the next 2 years.
    To reclaim its position of financial and economic 
leadership, the United States needs to understand the short-
term and long-term impacts of the American Recovery and 
Reinvestment Act of 2009. So for the financial markets, the 
ARRA Act was at best an economic disappointment; at worst a 
potential fiscal disaster.
    In the fall of 2008, the economy and the financial markets 
were in the midst of turmoil, generating from the failure of 
Lehman Brothers, the Federal Government takeover of Fannie Mae 
and Freddie Mac and the collapse of the subprime loan markets. 
This created an environment of fear and uncertainty in the 
financial markets that led investors pulling out of their funds 
in risky assets and placing them into the safe havens of U.S. 
Treasury securities.
    By the end of 2008, both the Dow Jones industrial average 
and the yield on the U.S. 10-year note fell by nearly 50 
percent. This extreme panic led to spreads between U.S. 
Treasury securities and other market securities, such as high 
yield, investment grade debt and large bank debt, to widen 
significantly and rapidly. As an example of the panic, the 
commercial paper market nearly froze completely when the 
primary reserve fund broke the $1 barrier. At this time, many 
large corporations lost the ability to fund themselves using 
this critical market. The entire financial system appeared to 
be at risk of seizing up, and was in need of stabilization. The 
economy was deteriorating rapidly, as businesses were unable to 
either receive credit from their bank or tap the debt markets 
for funding.
    One of the key questions before President-Elect Obama and 
the incoming Congress was how to stimulate the economy in the 
most efficient and timely way. In late December 2008, the 
financial markets reacted positively upon hearing the news that 
a large stimulus package was being discussed and debated in 
Washington, DC. At that time, the news flow varied from a 
package between $500 billion to $700 billion, which included 
tax cuts and new spending programs.
    Contributing to the market optimism was the description of 
the package by then-Chair nominee designate, Council of 
Economic Advisor Christine Romer and office of the Vice-
President Elect Jared Bernstein. This is the Job Impact of the 
American Recovery and Reinvestment Plan. So in the report of 
January 10, 2009, Romer and Bernstein laid out their findings 
and expectations for economic growth for a $775 billion 
program.
    It is critical to understand that the market's expectations 
for economic and employment growth from the plan were raised 
due to these findings. They estimated that the aggregate effect 
of the recovery package on Q4 2010 GDP would be to increase it 
from $11,770 odd trillion to $12 trillion, $2.2 trillion. They 
stated the effect of the package would increase GDP by 3.7 
percent and increase jobs by nearly 3.7 million.
    They went on further to predict that the plan would make 
the unemployment rate 7 percent by Q4 2010 from the 8.8 percent 
that would result in the absence of the plan. The authors 
predicted a 678,000 increase in construction jobs, using 
calculations and estimates of effects on industry by economic 
Mark Zandi. His report was The Economic Impact of a $600 
Billion Fiscal Stimulus Package, Moodys.com, obviously, in 
November 2008.
    Since the housing sector was a key variable in the 
financial crisis, the return of jobs to this sector was 
particularly optimistic and appealing to the markets. At that 
time, there were many factors influencing the financial 
markets. However, this outlook was a contributing factor toward 
the rally in the U.S. stock markets that took the Dow up almost 
13 percent in December. Subsequently, the markets became 
skeptical of the predicted outcomes by Romer and Bernstein, as 
newspapers, bloggers, research began to break down the sections 
of the plan, the costs of the plan, and the potential increase 
in the fiscal deficits.
    The sovereign U.S. credit default swap price rose from 20 
in October to 59.7, a stunning 300 percent increase. So the 
honeymoon for the stock markets was over, and they slid until 
March, when the Federal Reserve chairman appeared on 60 Minutes 
and stated that no major financial institution would fail.
    I will just submit the rest, and move on.
    [The prepared statement of Mr. Busch follows:]




    Mr. Jordan. I appreciate that testimony, Mr. Busch. You can 
finish up when we get to questions.
    Mr. Edwards.

                   STATEMENT OF CHRIS EDWARDS

    Mr. Edwards. Thank you, Mr. Chairman and ranking member, 
for allowing me to testify today on the stimulus and Federal 
spending.
    There has been a huge increase in Federal spending over the 
last decade, under President Clinton from 18 percent to 25 
percent today. Part of that, of course, was the $800 billion 
stimulus, which sadly, I believe, was a very costly, Keynesian 
policy failure.
    I note that the amount of Keynesian stimulus in the economy 
in recent years wasn't just the $800 billion. It was the total 
amount of deficit spending in recent years: half a trillion in 
2008, and about one a half trillion for the three subsequent 
years. So that is about $5 trillion of so-called Keynesian 
stimulus and yet we still have very high unemployment and a 
recovery that is more sluggish than in previous recoveries.
    Now, economists continue to debate how much of a sort of a 
sugar high you can get from this sort of Keynesian stimulus in 
the short term. There is no doubt in the long term that this 
will damage the economy. Why? Because all that Government 
spending reduces private spending.
    And there are two basic causes of damaged caused by the 
spending. One, you are transferring resources from the more 
productive private economy to the less productive Government 
sector of the economy. There is all kinds of evidence for that. 
We have a Web site at Cato, downsizinggoverment.org. We go 
through every Department, we talk about the various failures of 
all the programs.
    But second, transferring money from the private to the 
public is not cost-less. It causes what economists have called 
deadweight losses, the extraction, the forcible extraction of 
the funds from the private sector through taxation causes these 
deadweight losses. So for example, President Obama, let's say 
he wants to spend $10 billion more on high speed rail, the cost 
to the economy is not $10 billion, it is $15 billion or $20 
billion. Martin Feldstein says that every dollar the Government 
spends causes $2 of private sector damage.
    The sad reality is, the United States is not a small 
Government country any more. OECD data shows us a total 
Federal-State-local spending now at 42 percent of GDP. In my 
testimony, I show that ratio over the last couple of decades. 
The United States used to be substantially lower than other 
OECD countries. The gap has been closing. And I fear that we 
are just going to become another sort of stagnant European 
welfare state if we keep all this spending going.
    Let me jump quickly to State and local spending, because a 
big stated cost for the stimulus package was to help State and 
local governments who were struggling with the recession. We 
have been bombarded with news stories in the last couple of 
years about how State budgets have been supposedly devastated 
and radically slashed. The reality is really different, and I 
have Department of Commerce data in my testimony that shows 
total State and local spending has not been cut at all through 
the whole recession. It rose rapidly from 2000 to 2008, it was 
exactly flat in 2009, started rising again in 2010. Total 
State-local spending was, as a share of the economy, was 
actually up over the last decade.
    So despite two recessions this last decade, State and local 
spending is actually higher than it has ever been.
    So there is a real State budget crisis, and that is ahead, 
as you know. The bond debt has been growing rapidly in the 
States, they have huge pension and unfunded health care 
obligations.
    But here is a key point, I think, from a Federal 
policymaker's perspective. The States are in radically 
different positions with regard to their budget gaps, with 
regard to their bond debt. Some States, like Nebraska, have 
virtually no borrowing, no bonds. Other States, like 
Massachusetts, have huge amount of borrowing.
    Pension obligations, some States, like Ohio, are very high 
unfunded pension obligations. Other States, it is quite low. So 
the States are in radically different positions here. I think 
this is one of the problems with Federal bailouts and Federal 
aid, is that it is very unfair, and I think bad economics, to 
punish the well-managed frugal States for the benefit of the 
poorly run and spendthrift States.
    So on the one hand, I am not for Federal bailouts. But as a 
last point, the Federal Government has and continues to impose 
lots of costs on State governments, most recently with the 
health care plan, before that with the No Child Left Behind 
law. All those regulations and costs are poured down on the 
State governments, which I think is bad Economics and also 
unfair.
    That is the end of my comments, and thank you.
    [The prepared statement of Mr. Edwards follows:]




    
    Mr. Jordan. Thank you, Mr. Edwards.
    Dr. Bivens.

                    STATEMENT OF JOSH BIVENS

    Mr. Bivens. I would like to thank the chairman and the 
members of the committee for inviting me today.
    I am going to start with a quick overview of the origins of 
what we now call the Great Recession and the rationale for the 
Recovery Act, and then just provide a little bit of overview of 
my assessment of it.
    Sometimes the origins of recessions are hard to see. Not so 
with what we call the Great Recession. Between 1997 and 2006, 
the real price of homes roughly doubled. They had been roughly 
stable for almost 100 years before. Because the stock of 
housing in the United States is enormous, this added greatly to 
the wealth of American households, and housing wealth and the 
debt associated with it, as well as huge activity in the 
homebuilding sector, was the foundation for the 2000's business 
cycle.
    This was obviously unsustainable. Home prices fell by about 
30 percent between 2006 and 2009. This erased about $7 trillion 
to $8 trillion in wealth from American households' balance 
sheets, and consumer spending, just as predicted by a long 
range of economic theory and evidence, collapsed. Homebuilding 
collapsed, residential investment took about 3 percentage 
points off GDP, as homebuilders realized they had built too 
much during the 2000's.
    These initial shocks to spending then cascaded throughout 
the economy. Businesses stopped investing because customers 
were not coming through the door. Why would you build another 
factory when the factory you have is producing output that is 
not selling?
    So essentially, the economy suffered a shock to aggregate 
demand. To deny this, to say that was not the essential 
problem, you have to answer the question, then, why did almost 
9 million people lose their jobs in a 2-year period. American 
workers didn't wake up January 2008 with no skills. American 
factories didn't become obsolete in a month. American managers 
didn't forget how to organize production. We didn't suffer from 
an inability to supply goods and services, we suffered from an 
inability to demand them. And to be clear, I am using demand in 
an economist's way, desire backed by purchasing power. 
Purchasing power was gone. It was erased by the housing bubble.
    So by most measures, the shock to private sector spending 
caused by the bursting housing bubble was bigger than the one 
that led to the Great Depression. We didn't have a Great 
Depression mostly because we now have a central bank that leans 
much more aggressively against private sector spending shocks, 
and we allow budget deficits to rise to finance public spending 
to stem the gap caused by retreating private spending, when you 
are in a recession. So that was a big reason why we did not see 
the economy spiral into a depression.
    ARRA was part of that, pushing back against the shock to 
private sector spending. In my judgment, it worked largely as 
advertised. We have a gross domestic product that is probably 
about $500 billion higher today than it would have been if we 
had not passed it. We probably have about 5 million full-time 
equivalent jobs that we would not have had at ARRA not passed.
    And this judgment is based on three considerations. First, 
virtually all private sector forecasting firms, people whose 
money depends on being more correct about short-term economic 
trends, say that ARRA added a lot to output and employment.
    Second, these effects are in line with what research says 
you should expect from doing something like ARRA in an economic 
environment like we have seen for the past couple of years, 
very high unemployment, very low interest rates, very low 
inflation. When one looks at research that says fiscal support 
cannot help the economy, it invariably is looking at the wrong 
episodes. Like the previous panel talked about looking at the 
1970's and World War II, Government spending didn't help.
    Well, it wasn't supposed to help in those episodes. You did 
not have very high unemployment along with very low inflation 
and very low interest rates in those episodes. When you look at 
episodes like what we have seen for the past 2 years, fiscal 
support works.
    Third, the timing was right. Basically GDP contracted at 
about a 5 percent annual rate in the 9-months before the act 
was passed. It grew at roughly 2 percent--I am sorry, 
contracted at 5 percent before it was passed, grew by 2 percent 
in the 9-months after it. Same thing for employment growth.
    And then also contrary to a lot of what has been written, 
it helped arrest the decline in consumer spending. That is 
exactly what you would expect, given that two-thirds of the act 
was tax cuts and transfer payments to individuals.
    Last, just a couple of words on the really easy debating 
point deployed against ARRA, the sort of ritual trotting out of 
the Romer-Bernstein forecast. An earlier panel said that people 
who say that the Romer-Bernstein forecast was wrong just 
because they underestimated how bad the economic shock was 
said, there is no evidence for that, you can't prove it. Of 
course you can prove it. You can look at what economic 
forecasters were saying at the time.
    And I actually had a figure, I am not sure if we are able 
to blow it up or not, it is in my testimony, it shows the 
consensus blue chip forecast for what was going to happen in 
that sort of 6 month period in late 2008, early 2009. The blue 
chip consensus was GDP would contract by 1\1/2\ percent. It 
actually contracted by closer to 5 percent. That gap between 
the blue chip forecast of what was going to happen and what 
actually happened equals about 2 percentage points of 
unemployment. In short, the difference in the forecast in 
Romer-Bernstein for what actually happened versus what they 
forecast to happen with ARRA is because they followed the 
consensus forecast about the underlying health of the economy. 
It does not affect their estimate of how effective ARRA was.
    We would have about 3 to 4 million fewer jobs, had we not 
passed ARRA. And the fact that they underestimated the degree 
of the private sector spending shock that was hitting the 
economy in real time doesn't affect that.
    So essentially, I think the Recovery Act worked largely as 
advertised. I think the biggest problem with it, its boost to 
the economy is gone. By the first quarter of 2011, it is adding 
zero to economic growth, and yet we still have 9 percent 
unemployment.
    Thank you. I would be happy to answer any questions.
    [The prepared statement of Mr. Bivens follows:]




    
    Mr. Jordan. I thank the gentlemen for their testimony.
    Let me start with Mr. Brill. I was intrigued by your 
comment that, whether you embrace the multiplier effect 
doctrine or not, it seemed to me your testimony's conclusion 
was, it really doesn't matter, because the bureaucracy was so 
inefficient at actually allocating the dollars, moving the 
dollars out, that was a problem as well with this stimulus 
bill. Am I correct, and can you elaborate?
    Mr. Brill. That is correct. Admittedly, some dollars did 
move quickly. Things were you simply needed to print a check or 
transfer funds, those payments did occur relatively quickly, 
and it is noted in my testimony.
    However, an enormous percentage of the dollars, and when we 
think about enacting legislation and the cost-effectiveness of 
that bill, that legislation, an enormous amount of the money 
was delayed. It was delayed because, quite simply, the 
Government, while it is good at spending money, turns out not 
to be very good at spending it very quickly. So there are 
numerous departments that have engaged in large, complex 
projects that require permitting, consideration, architectural 
designs and other things. To get those dollars spent will take 
years.
    Some of that was understood at the beginning. That doesn't 
make it OK. Of course, CBO did note that this bill will have 
budgetary effects throughout the decade. But what we see at 
this point is how many programs have really yet to even begin.
    Mr. Jordan. And frankly, there is a continuation of them in 
the budget proposal that we got Monday from the President. I 
think of one example that jumps out in my mind is the so-called 
high speed rail, which I think is just not effective, not where 
we need to go. But there is a continuation of this in the 
current budget.
    Mr. Brill. Absolutely. A number of policies, I am less 
specific with a specific review in the current budget, although 
high speed rail is a perfect example. From the budget that came 
out in conjunction with the stimulus bill, over a third of 
those policies that the President asked to make permanent, in 
other words, he was seeding in the bill long-term permanent 
spending policies.
    Mr. Jordan. Thank you, Mr. Brill.
    Mr. Edwards, I was intrigued by your testimony, when you 
got into the States and the different situations they face. I 
was wondering if you could elaborate. When I look at what some 
States are doing versus the choices made by others, the most 
obvious example to me right now is New Jersey versus Illinois. 
New Jersey where the Governor came in and said, we are not 
going to raise taxes, we are going to reduce spending and we 
are going to try to create a climate which I would argue is 
conducive to economic growth, versus what they are doing in 
Illinois, which is raising taxes significantly.
    Can you elaborate on the choices being made there and those 
two models, or those two decisions by Governors and the 
legislatures in those States?
    Mr. Edwards. Right. I mean, we do have a Federal system, 
the States should be allowed to go in their own direction, that 
is great. That is one reason why I don't like the Federal 
intervention downwards, either spending or regulation. Because 
I think it stifles good diversity in the States. We want the 
States to try different things, with their education systems 
and investment and all kinds of stuff, so that hopefully, if 
New Jersey is moving ahead with public sector union reforms, 
that is great. That can provide a good model for other States. 
So I like that diversity.
    But it is also true that the Federal Government imposes a 
lot of these costs, like with the health care law and the No 
Child Left Behind Law that I think are really damaging.
    Mr. Jordan. Mr. Bivens, I want to give you a chance to 
participate here as well. If I understood your testimony, 
basically it would have been worse had we not done what was 
done in 2009. Obviously I disagree, and I think much of the 
panel disagrees. And I would argue, just based on the stated 
goals of the authors of the policy, who again failed to be with 
us this morning, we didn't meet the goals they said. I 
understand your comments and your testimony, well, they were 
using faulty data or data that wasn't up to speed at the time 
they made the decision.
    But the idea that we are going to spend $800 billion of 
taxpayer money and the promise was to keep unemployment at a 
certain rate and it would be even lower today, I still am 
struck by, I guess I still reach the same conclusion that I 
think frankly most Americans have reached, which is the only 
thing we got from the stimulus was 3 years of record deficits 
and the highest level of national debt we have ever 
experienced.
    Mr. Bivens. I would say what the real promise of the Romer-
Bernstein report was that we would have 3 to 4 million more 
jobs than the economy would have produced had we not done it. 
In that one, I think their judgment is right and it is 
supported by the CBO and other forecasters.
    And just one other point, too, just between December 2008 
when they wrote that report and March 2009, the month after 
ARRA was passed, the economy lost 3 million jobs in those 3 
months. That is essentially that 2 percentage point 
unemployment gap between what they predicted and what happened 
right there. The fact that they did not realize that they were 
sitting on sort of an exploding private sector economy around 
them, I think it doesn't speak greatly of their economic 
forecasting ability, but nobody got that in real terms.
    But that does not change the effectiveness of the policy, 
or their evaluation of it.
    Mr. Jordan. And that is my point. They were pretty darned 
specific in the number of jobs that would be, well, I will say 
it this way, where employment would be. They were specific down 
to 137.6 million. They were specific. So at least you would be 
critical of the fact that they made these specific projections, 
at a minimum, you would be critical of that?
    Mr. Bivens. That is right. I would be more critical that 
they took the blue chip consensus as a given and as a good 
forecast, when it clearly wasn't. I don't think they were 
trying to break any new ground in forecasting, I think they 
were just trying to take off the shelf, these are reasonable 
things people will not argue with this forecast. And the thing 
they grabbed that people would not argue with turned out to be 
very wrong. Because frankly, most of the profession was caught 
very flat-footed by how bad the recession was.
    Mr. Jordan. Let me give you one quick question on that, Mr. 
Bivens. As an economist who supports the stimulus, if you were 
involved in putting this together, don't you think, wouldn't 
you want to come in front of a panel in Congress looking at 
your work product and defend it?
    Mr. Bivens. Sure, yes. Obviously the stakes for me are a 
lot lower, so I don't know how it would have turned out if I 
had been an architect of it. But yes, I think there is ample 
reason to defend the stimulus package on its merits, and I 
think it should be done.
    Mr. Jordan. Mr. Edwards, then I will move to Mr. Kucinich.
    Mr. Edwards. Mr. John Taylor had a very good paragraph in 
his written testimony where he basically said, the problem with 
a lot of these macro models is that they assume the results 
that, the results are assumed, they are programmed in. So if 
you have a Keynesian macro model and you have a big increase in 
Government spending, the result is already baked in the cake 
that you are going to get GDP larger. And he says this is true 
with both the CBO model and Mark Zandi's model and other sorts 
of models.
    I agree with Russ Roberts that we should be very suspicious 
of all these macro models, frankly. They are wrong, time and 
time again.
    Mr. Jordan. And the model to look at, frankly, is what 
happened. The best evidence is what actually took place, is 
look at the facts. Thank you.
    We will go now to 5 minutes for the ranking member, Mr. 
Kucinich.
    Mr. Kucinich. Just building on what Mr. Edwards said about 
the macro models, Mr. Chairman, the Romer-Bernstein report was 
released a month before the Recovery Act was signed into law. 
What is interesting is that they had a qualification in this 
report, ``It should be understood that all of the estimates 
presented in this memo are subject to significant margins of 
error. The uncertainty is surely higher than normal now, 
because the current recession is unusual, both in its 
fundamental causes and its severity.''
    So they qualified what they were saying. I think it is 
important that we know that, since we are focusing on that 
report.
    I also want to say in relationship to what Mr. Brill said 
about high speed rail, I think it would be important for this 
committee to look into the relationship between commerce and 
transportation's role in increasing the efficiency of commerce 
or not. I think it is very important that we get into that, so 
we don't just reject out of hand certain approaches that could 
actually end up helping the economy. I think high speed rail is 
one of those discussions we ought to have.
    Now, Dr. Bivens, in your written testimony----
    Mr. Brill. Could I comment on that?
    Mr. Kucinich. I have to get this question to Dr. Bivens, 
but thank you. Dr. Bivens, in your written testimony you state 
that ``private sector macroeconomic forecasters are in near-
universal agreement'' about the positive impacts the ARRA has 
had on gross domestic product growth and on unemployment. We 
know that the non-partisan Congressional Budget Office agrees. 
We know that private economists like Mark Zandi agree. We know 
that organizations like the Center on Budget and Policy 
Priorities, as well as your organization, the EPI, agree.
    Can you explain why so many forecasters agree about the 
positive results of the stimulus?
    Mr. Bivens. Yes, like I said quickly in my testimony, it is 
in line with a long line of research that looks at the efficacy 
of fiscal support provided to economies that look like the U.S. 
economy today, characterized by very high unemployment, very 
low rates of inflation, very low interest rates. When you 
provide fiscal support in an environment like that, the 
research shows that it works very well.
    And I will say one thing, this idea that the results are 
baked into all these models, that is actually not true. These 
multipliers are not taken from the air, these multipliers come 
out of the data, when people look at the effect of fiscal 
support done in environments like we have today. They look at 
the historical record, they say, when you provided this fiscal 
support when unemployment was high and inflation and interest 
rates were low, what happened? And you use those multipliers 
estimated from real data. They are not plucked from the air.
    Mr. Kucinich. You characterized the Recovery Act as small, 
relative to the economic shock it was meant to absorb. If the 
stimulus was larger, do you think the unemployment rate would 
be lower than it actually is today?
    Mr. Bivens. Absolutely.
    Mr. Kucinich. What step does Congress need to take, in your 
opinion, to get more Americans back to work?
    Mr. Bivens. I think it needs to look at those parts of the 
Recovery Act that worked very well and continue or expand them.
    Mr. Kucinich. For example?
    Mr. Bivens. Unemployment insurance. The fact that has been 
extended for another 13 months as part of the deal, that is a 
very good thing. It is going to support a lot of jobs. I would 
look at some of the other safety net programs, food stamps are 
very good, economic stimulus, let alone.
    Mr. Kucinich. Explain why that is.
    Mr. Bivens. Essentially, the goal of economic stimulus is 
to get money spending quickly throughout the economy. And 
people who get food stamps and people who receive unemployment 
insurance are by definition people who are cash-strapped, they 
are not going to sock it away in savings, they need to spend it 
on necessities in the here and now. So the money circulates 
through the economy very quickly.
    I would also say I think the infrastructure spending, which 
has taken a big longer to get online, that is actually a good 
thing. We have 9 percent unemployment today. The idea that we 
have missed the boat on infrastructure spending, helping the 
economy if a project rolls out next month, we haven't missed 
the boat. We are going to have very high unemployment for a 
very long time. The CBO says we don't get back to pre-recession 
unemployment until 2016. So the idea that some of these 
projects are still coming online I think is a very good thing.
    Mr. Kucinich. And in line with that, where Mr. Brill talked 
about how it takes a while for Government spending to actually 
get into the system, would you say that if the Government were 
to plan a massive rebuilding of America's infrastructure, 
beginning, let's say, this year, with the aim at putting 
Americans back to work, would you think that kind of an 
approach, which would parallel what happened during the New 
Deal with the WPA, that kind of an approach would benefit the 
economy, would stimulate the economy, would prime the pump of 
the economy and enable people to get back to work?
    Mr. Bivens. Yes. I think it would be very good in the short 
term, and I think it would add to productivity growth, even in 
the long term, and make us grow faster even when the recession 
is over.
    Mr. Kucinich. Thank you, Mr. Chairman. I think one of the 
things that we can do in our collaboration on this subcommittee 
is to bring people together to find out how we can create jobs 
to get America back to work. I look forward to working with you 
in that. I thank the witnesses.
    Mr. Jordan. I thank the gentleman.
    I now yield to the gentlelady from New York, Ms. Buerkle.
    Ms. Buerkle. Thank you, Mr. Chairman.
    Thank you all for being here this morning. A couple of 
questions, sort of out of context. First of all, Mr. Brill, you 
talked about the slowness at which the money was spent. I 
wondered if you had any ideas as to why it happened that way.
    And then beyond that, and this is to anyone on the panel, 
is there a way to know how much stimulus money remains unspent 
at this time?
    Mr. Brill. Thank you. I think that there are a number of 
reasons that large amounts of the money remain unspent. Just as 
a point of reference, the CBO estimated last month that in the 
current fiscal year, fiscal year 2011, there will be $148 
billion in stimulus funding, and over the remaining years of 
the budget window, there will be another $148 billion in fiscal 
stimulus spending.
    The reasons for the delays I think are numerous. It depends 
likely agency by agency or department by Department. Many of 
these programs are large, complex building projects, where 
simply, to get the project designed and approved, put online, 
permitting requirements that were necessary, environmental 
assessments that were necessary in order for certain 
construction projects to begin, takes a lot of time. There are 
some projects that are in the midst of being completed, bridges 
half built. And there are certainly billions of dollars in 
other projects that have not yet even begun.
    Ms. Buerkle. So your estimate for the amount right now that 
is unspent of the stimulus money?
    Mr. Brill. Beyond the current fiscal year, is $148 billion 
and to be spent in this current year, an additional $148 
billion. So some of that $148 billion is, we are midway into 
the fiscal year, so I would ballpark it at about $200 billion 
in unspent dollars.
    Ms. Buerkle. Thank you.
    Does anyone else have a comment regarding any estimate, 
unspent stimulus moneys?
    Dr. Bivens, my question to you, we have heard several times 
throughout the course of the morning that perhaps the stimulus, 
the amount of the stimulus wasn't enough, and that was the 
reason why we did not see the robust economic recovery that we 
had hoped for. My question to you is, if the intention was to 
keep unemployment, say, at 6 or 7 percent, what would that 
amount, what should the amount of the stimulus have been? What 
could we have spent to achieve that rate of unemployment?
    Mr. Bivens. To achieve that rate of unemployment, it may 
have been impossible to ever keep unemployment going above 7 
percent, given the quickness and the severity of the shock from 
the housing bubble. That said, I think the economy could have 
easily absorbed a stimulus package almost twice as big, say, 
$1\1/2\ trillion, without running into the remotest risk of, 
say, overheating the economy or providing too much support or 
doing anything like sparking higher inflation or high interest 
rates, which is supposed to be the downside of doing too much 
fiscal support. We could have had a stimulus package twice as 
big and not even flirted with any of those troubles.
    Mr. Edwards. Can I make a comment on that? One of the 
problems I see with this sort of Keynesian stimulus approach is 
that economists like Mark Zandi and others, they say, oh, we 
supported this big stimulus and it has gotten the Government 
much deeper into debt, which is going to create this giant 
burden in the future on young people. At the same time, people 
like Mr. Zandi are saying, oh, we need a plan to reduce 
spending and get these deficits under control, we need a 
credible plan to reduce these deficits.
    If you are a Keynesian economist, you can never have a 
credible plan to reduce deficits, because we might have a 
recession again in 2013 or 2014, and what would Mr. Zandi want? 
He would want another trillion dollar stimulus. You can go on 
this endless cycle, stimulus, stimulus, stimulus. I think it is 
a complete dead end. I think there is a giant moral judgment 
being made that for some reason, Congress thought that goosing 
people's income and consumption now during this recession was a 
lot more valuable than the damage and harm that is going to be 
done by young people with this heavy burden of taxes and 
deadweight losses and interest payments that they are going to 
have to bear.
    So a short-term goose for long-term pain, I don't think 
that Congress should be in the business of making that sort of 
value judgment.
    Ms. Buerkle. Thank you very much. I yield back.
    Mr. Jordan. I Thank the gentlelady.
    The gentleman from Idaho, Mr. Labrador, is recognized.
    Mr. Labrador. Mr. Busch, we keep hearing about this 
consensus among the forecasters. Do you agree with Dr. Bivens 
that there is a consensus amongst the forecasters that the 
stimulus had a net positive effect? In your opinion, were 
financial markets aided by the stimulus?
    Mr. Busch. Right, I think there is a consensus among 
Keynesian economists that it had an effect. One of the things I 
wanted to point out, and I am sorry I screwed up my testimony, 
but one of the things I would like to see, if we are to believe 
Romer's model and the way that they formulated it, why don't we 
extend it further and look at her research that she did on 
taxes? Because if you look at the stimulus bill and you say, 
well, we spent $800 billion, that is great, it does this and 
this and this, but you don't tell the whole story. That money 
has to come from some place.
    If we use Romer's research and let's say, the United States 
borrows 40 cents on every dollar. So that means of $800 
billion, you are looking at the borrowing of $280 billion. And 
if it is a negative three to one, you are back to $600 billion, 
and you are only going to use $200 billion of the $800 billion 
as any kind of stimulus.
    I would love to see that in bills put forward into 
Congress. Any time you are looking at spending, have the effect 
of how much you are going to borrow to pay for this and what 
the downside in taxes is going to be. Because I think that 
would really focus and clarify for a lot of the members the 
impacts.
    So I would disagree, again, with the Keynesians, that is 
what they argue, they only fail because we didn't spend enough. 
The financial markets looked at it this way, that way more than 
what Congress did, there were beneficial effects from what the 
Federal Reserve did on a short-term basis. But both what 
Congress has done and what the Federal Reserve has done come 
with costs. Congress obviously has to find a way to pay for 
what they did. The Federal Reserve will find a cost in 
inflation very soon, if not already, by what they are doing.
    Mr. Labrador. Mr. Brill, do you have any comments about 
that?
    Mr. Brill. I would just add the fact that the argument that 
was put forth in the but-for case is a tricky one. It is 
actually a tricky one on both sides. I think that we shouldn't 
have too high expectations for economists to be good fortune 
tellers, especially at turning points in the economy. But the 
lesson from that, I think, is that Congress needs to be wary. 
We live in a world where there are business cycles, and there 
will be a recovery and there will be a future recession. When 
we come to the next point where economists are concerned about 
the economy, and it seems that we are in recession, there will 
be calls again for fiscal stimulus.
    We should keep in mind that it is difficult to predict what 
the future course of the economy is going to be. Therefore, it 
is difficult for Congress to craft policies, both to envision 
the right policy as well as for the executive branch to execute 
on those policies. As was discussed in the previous panel, 
stable fiscal policy, policies that have low tax rates, low 
marginal tax rates, and stable low spending rates, not policies 
that have huge, ballooning deficits like the ones we face, are 
the ones that are likely to minimize the business cycle risks 
that we face.
    Mr. Labrador. Dr. Bivens, is there a moment where we are 
spending too much? You are saying, I was really surprised to 
hear that unemployment insurance and food stamps actually 
creates jobs. That to me was pretty incredible to hear. Is 
there a moment that we spend too much money on these things? 
Because I think if we are spending $100 billion, if we create 
so many jobs, why not spent $1 trillion? Why not spend $5 
trillion? If spending Government money is creating jobs, then 
let's spend it all.
    Mr. Bivens. That is pretty easy. You reach the limit when 
you run the risk of overheating the economy by sparking 
inflation or high interest rates. That is the textbook case for 
macroeconomics, you provide fiscal support until you run the 
risk of overheating the economy in that way. And we are in no 
danger of doing that. Core rates of inflation are at 60-year 
lows. Interest rates are at 60-year lows. We are just running 
into none of the danger signs of having done anything like too 
much.
    So $5 trillion, yes, I think that would be too much. I 
think in terms of the current political debate, we are in 
absolutely zero danger of doing too much and overheating the 
economy through too much fiscal support.
    Mr. Busch. Could I just make one quick comment on that?
    Mr. Jordan. Sure.
    Mr. Busch. Greece felt the same way at some point. And I 
think that is really the issue. At some point, the financial 
markets are not going to allow the United States to borrow 
indefinitely at the rates that they are. So if you try to 
expand and again, expand budget deficits, at some point they 
are going to turn on you. And again, the United States is 
borrowing at exceptionally low interest rates. That could 
change, as we have seen since November when interest rates have 
gone up 100 basis points.
    Mr. Jordan. And if you question the Federal Reserve 
chairman, he would indicate that they can pull back at the 
appropriate time. I think that is a big if. But that is the 
argument that you hear, and I would assume Dr. Bivens would say 
that.
    But again, I think that is scary, when you are looking at a 
handful of people who think they can out-guess and out-perform 
and guess and have the right timing and beat the market and 
figure out ahead of the--I just think that is a scary place to 
go.
    One last thing, if I could. Mr. Brill, you gave a $200 and 
some billion figure. The facts that we are getting, or the 
numbers we are getting on stimulus dollars that have not been 
spent are much less than that. We are hearing 92 percent of the 
stimulus dollars are out the door.
    So I assume some of those moneys are already-obligated 
dollars, but haven't been out the door, but they are already in 
contract? Tell me, if you would, where you are getting that 
number, real quickly.
    Mr. Brill. Sure, exactly, the difference being the 
allocated funds versus dollars spent. So the Government has 
successfully decided what to do with most of the money, 2 years 
after enactment.
    Mr. Jordan. But hasn't written a check?
    Mr. Brill. But hasn't actually written the check.
    Mr. Jordan. Thank you.
    I want to thank the witnesses for your insight, and 
appreciate your spending some time with us.
    We are adjourned.
    [Whereupon, at 12:05 p.m., the committee was adjourned.]
    [The prepared statement of Hon. Ann Marie Buerkle follows:]





                                 
