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



 
    THE PATH TO JOB CREATION: THE STATE OF AMERICAN SMALL BUSINESSES 

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            FEBRUARY 1, 2012

                               __________

                   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 112-050
              Available via the GPO Website: www.fdsys.gov

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                      CHUCK FLEISCHMANN, Tennessee
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                     Barry Pineles, General Counsel
                  Michael Day, Minority Staff Director



                            C O N T E N T S

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                           OPENING STATEMENTS

                                                                   Page
Hon. Sam Graves..................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Dr. Dennis J. Jacobe, Chief Economist, Gallup, Washington, DC....     3
Mr. Peter Ferrara, Senior Fellow, Entitlement and Budget Policy, 
  The Heartland Institute, Chicago, IL...........................     5
Dr. Martin Neil Baily, The Brookings Institution, Director, 
  Initiative on Business and Public Policy Senior Fellow, 
  Economic Studies, Bernard L. Schwartz Chair in Economic Policy 
  Development, Washington DC.....................................     7
Dr. Michael J. Fredrich, President, Manitowoc Custom Molding, 
  Manitowoc, WI..................................................     9

                                APPENDIX

Prepared Statements:
    Dr. Dennis J. Jacobe, Chief Economist, Gallup, Washington, DC    36
    Mr. Peter Ferrara, Senior Fellow, Entitlement and Budget 
      Policy, The Heartland Institute, Chicago, IL...............    44
    Dr. Martin Neil Baily, The Brookings Institution, Director, 
      Initiative on Business and Public Policy Senior Fellow, 
      Economic Studies, Bernard L. Schwartz Chair in Economic 
      Policy Development, Washington DC..........................    67
    Dr. Michael J. Fredrich, President, Manitowoc Custom Molding, 
      Manitowoc, WI..............................................    80
Questions for the Record:
    Rep. Owens Questions for Dr. Jacobe..........................    86
Answers for the Record:
    Dr. Jacobe Answers for Rep. Owens............................    87
Additional Materials for the Record:
    CompTIA Statement for the Record.............................    88
    Marine Industries Association of South Florida Careers for 
      Veterans...................................................    96
    MCM Composites Letter........................................    98
    National Association for the Self-Employed Statement.........   100
    The Financial Services Roundtable Statement on Record for 
      House Small Business Committee Feb. 1, 2012................   101
    Credit Union National Association Letter for the Record......   103
    The Financial Services Roundtable Small Business White 
      Paper--Nov. 2011...........................................   105


    THE PATH TO JOB CREATION: THE STATE OF AMERICAN SMALL BUSINESSES

                              ----------                              


                      WEDNESDAY, FEBRUARY 1, 2012

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1 p.m., in room 
2360, Rayburn House Office Building. Hon. Sam Graves (chairman 
of the Committee) presiding.
    Present: Representatives Graves, Chabot, King, Mulvaney, 
West, Walsh, Schilling, Velazquez, Schrader, Clarke, Cicilline, 
Richmond, Hahn.
    Chairman Graves. Good morning. We will call this hearing to 
order. I want to thank everyone for joining us today to examine 
the state of small business economy. Some of our witnesses have 
traveled here from a pretty good distance and we appreciate you 
being here very much. Thank you.
    Being a small business owner in America is a tough job. No 
matter what your business is you must wear a lot of different 
hats. In addition to doing what you do when you went into 
business in the first place you probably have to tackle 
responsibilities like being a tax accountant, advertising 
executive, regulations expert, fund-raiser, and human resources 
expert as well. Yet throughout our history entrepreneurs in 
America have done all these things and a lot more.
    Recently, the business if being in business has gotten a 
whole lot more difficult. Last year, Gallup released a poll 
outlining the most significant concerns facing America's small 
businesses. Small business owners have a very simple message 
for Washington--get out of our way. Entrepreneurs in this poll 
pointed to excessive government regulation, lack of available 
capital, and low consumer confidence as the biggest hurdles 
small businesses have to overcome. And this poll mirrors 
numerous trade association, think tank, and national media 
polls that say the same thing. Small businesses want Washington 
to let them do what they do best.
    Earlier this year the U.S. Chamber of Commerce released a 
poll showing that the vast majority of small businesses believe 
that the national economy is on the wrong track. Nearly two out 
of every three do not plan to hire in the coming year due to 
regulations and the general uncertainty of the national 
economy. Seventy eight percent of small businesses surveyed 
reported that taxation, regulation, and legislation from 
Washington makes it harder for businesses to hire more 
employees. The uncertainty is coming at them from all sides and 
I think we need to be doing a better job of restoring 
confidence to entrepreneurs and consumers alike.
    Adding yet more doubt to the economy is the rising federal 
deficit and the financial crisis abroad. We see firsthand how 
out-of-control debt can destroy economies all over in Europe. 
This can impact our economy through decreased exports and 
exposure of American investments to losses overseas. Small 
businesses remain uncertain not only about the U.S. economy but 
about trouble in the world economy as well. This economic 
uncertainty disproportionately impacts small businesses more 
than larger businesses because larger businesses have the 
resources to deal with a rapidly changing economic environment.
    We have a real opportunity to enact changes that give small 
businesses the tools they need to lead an economic revival. 
Government does not create jobs to produce long-term economic 
growth; the private sector does. The faster Washington releases 
the reigns, the faster we will see Americans back on the job 
and put our nation back on the path of economic prosperity.
    And again, I want to thank all of our witnesses. I look 
forward to hearing your testimony. And now I will turn to 
Ranking Member Velazquez for her opening statement.
    Ms. Velazquez. Thank you, Chairman Graves.
    By almost any measure conditions for small firms are better 
today than any time since the recession ended in June of 2009. 
According to the Federal Reserve, banks losing credit 
restriction for small businesses every quarter in the last 
year. Similarly, the Thomson Reuters Small Business Lending 
Index showed an increase in borrowing by small firms for five 
straight months through the end of 2011. There has also been a 
steady decline in delinquency and defaults on small business 
loans for much of the past year. These conditions are a 
significant reason why the NFIB index of small business 
optimism registered the fourth straight monthly increase in 
December. Last month, 9 percent of small business owners 
reported plans to increase employment, the second strongest 
reading since 2008.
    Even with this progress a great deal of work remains to be 
done. Despite adding 1.6 million jobs to the economy in the 
last year, federal policies have not been sufficient to 
overcome job losses incurred in the recession. The unemployment 
rate which has fallen over the past year is only projected to 
reach the low 8 percent range by the end of 2012. Clearly, our 
optimism must be tempered by the reality that we still have a 
long road ahead of us with millions of Americans who are 
seeking jobs unable to find it. Members of this committee know 
better than most that small businesses will be critical for job 
growth. In particular, one group excels over others. Startup 
businesses grow faster, create more employment opportunities, 
and are more innovative than older, more established firms.
    While startups account for only 3 percent of U.S. 
employment, they are responsible for nearly one out of every 
five jobs created year over year. And according to the Kauffman 
Foundation, the net new jobs from startups can be credited for 
all the job growth in the U.S. over the stretch of roughly 30 
years. If we want to accelerate the recovery, steps should be 
taken not only to assist small businesses but also to target 
help to high growth startup firms. Unfortunately, this is one 
area where federal policy continues to lack. While general 
credit conditions have improved, lending to startups and early 
stage businesses remains tight. Last year the number of small 
loans to smaller firms, those of 250,000 or less in the SBA 
7(a) program fell by over 50 percent compared to pre-recession 
lessons.
    With that said, small businesses of all varieties remain 
critical to our economic health. Today I look forward to 
hearing both anecdotal accounts, as well as empirical evidence 
about the state of the economy. In doing so this committee can 
identify what is working as well as areas where we still face 
challenges.
    Let me thank all the witnesses who traveled here today for 
both your participation and insight into this important topic.
    I yield back. Thank you, Mr. Chairman.

STATEMENTS OF DENNIS J. JACOBE, CHIEF ECONOMIST, GALLUP; PETER 
FERRARA, SENIOR FELLOW, THE HEARTLAND INSTITUTE; MARTIN BAILY, 
SENIOR FELLOW, THE BROOKINGS INSTITUTION; MICHAEL J. FREDRICH, 
              PRESIDENT, MANITOWOC CUSTOM MOLDING

    Chairman Graves. All right. Our first witness today is Dr. 
Dennis Jacobe, who is the chief economist at Gallup with 20 
years of experience working with some of the world's best known 
financial firms. He leads several of Gallup's key economic 
tracking measures. Dr. Jacobe received a Ph.D. in economics 
from Virginia Tech with major areas of specialization in money 
and banking, public finance, and public choice. Thank you for 
being here today with us, Dr. Jacobe.

                 STATEMENT OF DENNIS J. JACOBE

    Mr. Jacobe. Thank you, Mr. Chairman. It is a pleasure to be 
here, Chairman Graves, and Ranking Member Velazquez.
    What I will do is just quickly go through some of the key 
points of my testimony. We have a lot of data moving very 
quickly. What I want to do is cover five quick points, the 
first being that I think we are at a critical juncture for the 
economy from our behavioral economics data and it provides us 
with an opportunity and also a risk, of course.
    Second, we just completed a poll with Wells Fargo Gallup 
Poll that we do quarterly every year and we found the highest 
optimism we have found since July of 2008. So that is a really 
good opportunity in that context. We found their hiring 
intentions to be the best they have been since January of 2008. 
So it is another kind of opportunity where people are looking 
forward to 2012 in a very optimistic way.
    We also found in our survey some key obstacles to their 
doing that hiring and to expanding, and then I have a 
suggestion for you from our sort of behavioral economics and 
polling analysis.
    So what we do is every night we ask about 1,000 Americans 
across the country their opinions on the economy. We ask a lot 
of other things but we are the only polling firm that goes and 
does that every night. We have done that consistently since 
January of 2008, so now we have a pretty good behavioral 
economics database. From that, for example, we create a 
consumer confidence index of our own we call Economic 
Confidence. And unlike what you heard from the conference 
board, our numbers show that consumer confidence remains as 
high as it was prior in May of last year. So it is not the 
downturn that you have heard recently, and we think our 
numbers, about 30,000 interviews a month, are pretty impressive 
in that kind of measurement process.
    In terms of job creation, we created something we call a 
Job Creation Index and we ask firms' employees whether they are 
hiring or firing. In that process we measure over time their 
intentions to hire. What we are finding is employees are saying 
that hiring intentions are the best they have been since 2008. 
Again, another surprising number. Actually, September of 2008.
    We also measure unemployment, and what will happen Friday I 
do not know because there is a lot of change taking place with 
what the BLS does on an annual basis. But our number comes out 
to be, as I have in my testimony, at mid-month it was 8.3 
percent, which is seasonally unadjusted. Just today our number 
comes in at 8.6 percent in terms of the unemployment rate. More 
important, if you see in my testimony on the first chart in 
there, I have 18.1 percent underemployed. Our underemployment 
measure takes the people who are unemployed and adds to the 
number of people who are working part-time but want to work 
full-time. That number just over the last two weeks has gone up 
to 18.6 percent. So again, a critical kind of junction and a 
big jump in a short period of time.
    If you look at our index, which is a couple charts further 
into my testimony, you see that huge jump in terms of small 
business optimism. That number, the 15, as I said, the highest 
since July of 2008, and on the next page I sort of outlined for 
you the gap in terms of hiring intentions, which again is good 
at January 2008.
    When we survey small business owners, which we do 
routinely, we ask them why they are not hiring. And I outline 
in my testimony a sequence of different questions as to why 
people are not hiring right now. And obviously, they always 
come back--small business owners come back they would like more 
revenue, they would like more cash flow, that kind of thing. 
But one of the key items that they continually repeat no matter 
how we ask the question is that they are concerned about 
government regulation. Whether that is true in reality or 
simply true in perception, they continually repeat that as one 
of the reasons why they are not hiring.
    So that leads me to sort of two quick conclusions. One is 
that I think that given the juncture of small business with 
their optimism right now, anything that you could do to help 
that optimism and that psychology would be beneficial, and 
simply a moratorium on regulations so you do not discuss what 
is good and what is bad but simply taking away that 
psychological constraint I think would give a boost to small 
business at this point in time.
    And then I also mentioned, and we are very concerned about 
the high level of unemployment and underemployment, so we think 
that we should consider something that helps get small 
businesses into the process of bringing in interns and those 
kind of works to learn because we are afraid that a lot of 
people are not getting the skills they need. And when we keep 
surveying small businesses they tell us that they need skilled 
workers.
    Thank you very much. I will be glad to answer any 
questions.
    Chairman Graves. Thank you, Dr. Jacobe.
    Our next witness is Peter Ferrara, the senior fellow for 
entitlement and budget policy at the Heartland Institute. He 
served in the White House Office of Policy Development under 
President Reagan and as associate deputy attorney general of 
the United States under the first president Bush. Mr. Ferrara 
is a graduate of Harvard and Harvard Law School. Welcome to the 
Small Business Committee.

                   STATEMENT OF PETER FERRARA

    Mr. Ferrara. Mr. Graves, Ms. Velazquez, members of the 
Committee, thank you for the opportunity to testify this 
morning--this afternoon, actually. I have sort of a macro view 
of the economy and as it affects small businesses and everyone 
else, actually.
    Even President Obama's budget projects that the federal 
government's gross federal debt will soar to 100 percent of GDP 
by 2020. The Bank for National Settlements estimates that this 
gross debt will accelerate even faster, hitting 200 percent of 
GDP by 2022, and 300 percent by 2030. Under current policy, CBO 
projects that even the smaller national debt held by the public 
would rocket to 185 percent of GDP by 2035 and to 200 percent 
by 2037, twice as large as our entire economy. This national 
debt would explode further to unprecedented levels of 233 
percent of GDP by 2040 and to 854 percent of GDP by 2080.
    What this means is that America is almost at the same 
disastrous level of debt as Greece, and on our current course 
we will soon be there. Indeed, in our current course we will 
rocket right through that level and well beyond. Now, most 
people do not know that soon after World War II, federal 
spending as a percent of GDP has been fairly stabilized and has 
remained stable at around 20 percent of GDP until recently. 
Official U.S. government projections have shown for some time 
now that over the next 30 to 40 years federal spending as a 
percent of GDP will double to 40 percent or more. Financing 
that will ultimately require at least doubling every federal 
tax. Adding continued state and local spending growing towards 
15 percent of GDP and government in American will consume more 
than half of the economy. In fact, it will be more than that 
because the economy will collapse under that burden and the 
percent of spending as a percent of GDP will be even higher. 
This would fundamentally transform America into a static, low 
growth, socialist European state. America's traditional world-
leading prosperity and opportunity, the American dream, would 
be gone. And of course, small businesses would be the first and 
chief victims of that economic future.
    But there is good news if we would open our minds and think 
anew. As I showed in detail in my recent book, America's 
Ticking Bankruptcy Bomb, by modernizing our old-fashioned tax 
and redistribution entitlement programs to rely instead on 21st 
century capital labor insurance markets, we can achieve all the 
social goals of these entitlement programs far more 
effectively, actually serving seniors and the poor far better 
at just a fraction of the current cost of these programs. Such 
reforms would involve powerful market incentives driving the 
programs to contribute further to boom the economic growth and 
prosperity rather than detracting from it. Ultimately, these 
reforms all together would reduce federal spending by half or 
more as a percent of GDP of what it would be otherwise solving 
the long-term fiscal problem. Yet, because these reforms would 
involve fundamental structural changes that actually serve the 
poor and seniors far better, rather than simple-minded benefit 
cuts they would be politically feasible. Modernizing the 
programs to the remarkable benefit of the populations they 
serve, which the book shows is possible by harnessing markets 
and incentives to achieve the social goals of the programs far 
more effectively is the political key to unlock the door to 
unnecessary entitlement reform.
    Exhibit A, the first example of this, would be the 1996 
Welfare Reform that reformed the old AFDC program. That program 
previously was based on a matching federal funding formula. The 
more the state spent, the more the federal government would 
send to the state, basically saying the state to spend more. 
That form was transformed into finite block grants. The federal 
funds for the states were fixed by a formula fixed finite 
amount. If the states spent more, the states had to spend it 
out of their own pocket. If the states reformed, the program 
spent less. They could keep the money.
    With those incentives we had remarkable results. Two-thirds 
got off the program within a couple years and went to work. 
They saved the taxpayers about 50 percent of what it would have 
cost otherwise after a period of about 10 years. Yet, the poor 
gained. Their incomes are documented to increase by 25 percent 
because so many more of them were working. There are nearly 200 
more federal means tests and welfare programs. This same reform 
could be extended to each one of those. They are estimated to 
cost $10 trillion over the next 10 years. I estimate that 
extending those same reforms would save $4.1 trillion. See, 
again, the poor gain; the taxpayers gain as well.
    Another key example, personal accounts for social security. 
You would shift the spending from its enormous reduction in 
federal spending. You shift the spending from the public sector 
to the private sector; yet the seniors in the future would gain 
higher benefits rather than lower benefits because the long-
term market investment returns are so much higher than what 
social security can even promise, let alone what it can pay, 
which is based on no savings and investment at all but just tax 
and redistribution. So again, seniors gain and taxpayers gain 
because the tax burden, eventually you could expand those 
personal accounts to displace the payroll tax entirely, 
financing all the benefits through that are financed by the 
payroll tax today through those personal accounts.
    So that is another example that modernized programs serve 
seniors far better and solve the long-term fiscal problem. The 
same would apply to Obamacare and I could go into that. Thank 
you very much.
    Ms. Velazquez. Yeah. It is my pleasure to welcome Mr. 
Martin Baily. He is a senior fellow in economic studies at the 
Brookings Institution. He is also a senior advisor to McKinsey 
and Company and an advisor to the Congressional Budget Office. 
Dr. Baily previously served on the Council of Economic 
Advisors, including as chairman from 1999 to 2001. Dr. Baily 
earned his Ph.D. in economics from MIT. He has taught at MIT, 
Yale, and the University of Maryland. Welcome.

                   STATEMENT OF MARTIN BAILY

    Mr. Baily. Thank you, Chairman Graves, Ranking Member 
Velazquez, and members of the Committee. It is a real privilege 
for me to be able to speak here today.
    Let me start on the overall economy. It is still fairly 
weak, although I think it is doing better than it was. I think 
we are going to see so much stronger growth in 2012 than we saw 
in 2011, and I think the report from Dr. Jacobe supports that. 
Optimism is beginning to rise both among consumers and among 
small business.
    Nevertheless, I would not expect to see more than about 2 
to 3 percent growth in 2012. Why are we having such a slow 
recovery? Housing, housing, housing. It has got an awful lot to 
do with the fact that we ended up in this housing bubble. We 
spent too much money thinking that we were richer than we were. 
We built too many houses, and as the bubble burst we lost a lot 
of household wealth and so we really are still experiencing the 
legacy of the housing bubble.
    Also, recessions develop their own kind of inner dynamic. 
You get a loss of jobs, a loss of income, then consumption is 
weak. That means that sales are weak so hiring and investment 
are weak because sales are weak. And so that goes around again 
and we end up in a fairly deep hole and it has taken a long 
time to get out of it. I think it would have been helpful 
actually if everyone, policymakers and economists, had realized 
just how long it was going to take to get out of this mess. It 
really was the most severe recession in a long, long time and 
that is just not solved very easily.
    I think there is an upside. I think we could get more than 
2 to 3 percent growth if confidence begins to build. This is 
about the time when you might expect to see the recovery really 
begin to break out on the upside, so I do have some confidence. 
On the other hand, we have some risks, too, including Europe. 
If Europe goes down, if we get a lot of financial failures in 
Europe, I think that will be very hard for the U.S. not to get 
dragged down. We have tensions in the mid-East. If oil prices 
were to jump that would be another serious problem.
    Turning to small business, as you know it has been very 
hard hit. I have some charts in my testimony. There were fewer 
startups and a lot of stress among existing businesses. Why are 
there fewer startups? Well, obviously when you go into 
recession it is just not as attractive to try to start up a new 
restaurant, a new drycleaner, whatever it is, a technology 
company. Those things have been much less attractive in these 
recession conditions that we have had.
    Another issue is the loss of homeowner equity. Of course, 
we have all experienced that but small businesses typically 
will take money out of their homes or they will pool together. 
A few partners will get together, get a loan against the value 
of their home to fund a startup. And so that money has not been 
available. Also, bank credit, which has been tightened and then 
loosened as Ms. Velazquez said but it is still more difficult 
to get funding if there is a lot of uncertainty if you are a 
small business. So lack of sales, lack of credit, those have 
been the things that have hurt on the startup side.
    Now, there are concerns about regulations, taxes and the 
deficit. I have concerns about all of those things, so those 
are important issues. Let me talk about the regulation issue. 
The one that has gotten the biggest hit has been the Affordable 
Care Act. And there is just tremendous opposition to that which 
seems out of proportion to the content of the act itself. There 
are no requirements on businesses with 50 or fewer employees to 
provide health insurance, nor are they required to pay a 
penalty if they do not. And that is actually most small 
businesses. So they are not really affected that much.
    Not only that, there was a report, which I had not seen 
when I wrote my testimony, by the Kaiser Family Foundation. Of 
the companies between 50 and 100 employees, 92 percent of them 
were already providing some kind of health insurance benefit. 
So we are not telling them, start anew and do something you are 
not doing. And many small businesses, those under 50, could get 
some subsidies and actually help them along. So the Urban 
Institute study, for example, argues that actually small 
business on balance might be helped by the Affordable Care Act.
    I understand why small businesses say, this is a problem. 
This is terrible. This is all this regulation. That is what 
they hear all the time. That is what everybody is saying.
    I am running out of time. Let me just say what could be 
done. Obviously, if we can improve the overall economy we will 
improve small business as well. So some modest continued 
stimulus. I think it was a good idea to do the payroll tax cut 
and we should extend that for the whole year, find a way to do 
that. I think on the credit side we should work with bank 
regulators. We do not want to give away money and have a lot of 
bad loans again. So let us not go back to that. But I think 
banks and regulators, there is some demand for credit from 
sound businesses and so more could be done in that area.
    I think the SBA has done a good job and I think we should 
think about maybe ways to get a little more money to the SBA to 
provide guarantees or to do some direct lending. I would also 
mention that the Startup Act of 2012 has been proposed in the 
Senate. It has got a number of different things, and I do not 
agree with everything in it, but it does suggest we should 
simplify and streamline some of the permissions and 
regulations, some of which happen at the state and local level. 
That is an area where maybe the federal government and state 
and local governments can cooperate. I think it would be good 
to get more visas for skilled people because I think they are 
job creators, and we need to do more to help the skills of the 
American population so that small businesses can find the 
people they need.
    Thank you. I will stop there.
    Chairman Graves. Thank you, Dr. Baily.
    Our next witness finishing up today is Mr. Mike Fredrich. 
He is president at Manitowoc Custom Molding. Did I say that 
right?
    Mr. Fredrich. No, but that is okay.
    Chairman Graves. Oh, I am sorry.
    Mr. Fredrich. Nobody says it correctly. It is Manitowoc.
    Chairman Graves. Manitowoc.
    Mr. Fredrich. Yes.
    Chairman Graves. Manitowoc. He is testifying on behalf of 
the Small Businesses and Entrepreneurship Council. Mr. Fredrich 
has owned MCM, a custom molder of precision thermoset plastic 
parts for 10 years. He received his degree in nuclear 
engineering and his MBA from the University of Wisconsin in 
Madison. Thank you for being here today.

                STATEMENT OF MICHAEL J. FREDRICH

    Mr. Fredrich. Thanks a lot. I am not a doctor, by the way. 
Just a regular guy.
    Chairman Graves. Mike is pointing that out to me. I 
apologize for that.
    Mr. Fredrich. Thanks a lot for having me here. It is an 
honor to come and speak before the Committee.
    As the chairman said, I have owned the company for 10 years 
and the company was started in 1983. It has had two owners. The 
guy who started it and I bought it from him in 2001. And none 
of our products show up in anything that you would ever notice 
because they are all products that go into somebody else's 
product. But we have a good diversity of industries that we 
sell to. We have in consumer products maybe 25 percent of our 
business; industrial, 35; aerospace, 20--that is growing; and 
defense, 15. And then we have some cats and dogs.
    So we have a pretty good view of how the general economy is 
doing. And I can tell you that last year, 2011, we had the best 
year we ever had. So you would think everything is rosy. I am 
happy. I am here to report to you that the psyche of small 
businesses is good and I just cannot say that. I have to say I 
have never been more concerned with our prospects as a company 
than I am right now. And I used to worry about all sorts of 
things that are related to the business--customers, serving 
customers, on-time performance, quality, things like that.
    But now I spend the majority of my time worrying about the 
country because we are here. And unlike multinationals we 
cannot diversify out of here and we are stuck and we have got 
some bad, bad things going on in this nation which will affect 
everybody, not just small businesses but everybody. But it will 
affect small businesses. So when asked to do this I highlighted 
some of them, some of the areas which are going to affect us.
    And, you know, regulation is an issue and you say, yeah, 
everybody is worried about regulation but here are some things 
that affect us. Dodd-Frank, for example. We deal with a bank in 
Green Bay. It is a privately held community bank. So I called 
the owner, who I know. I have known him for 20 years. I said, 
``Bob, how is this Dodd-Frank thing going to affect you?'' He 
said, ``You know, I do not know. They are still writing it.''
    The obvious question is what did everybody vote on? But it 
is not going to be good. They have one compliance officer for 
the entire bank and this is just more red tape compliance that 
will make it difficult for small businesses whose primary 
source of capital by the way are banks, commercial banks. And I 
like dealing with community banks because at least the people 
make the decision that you are talking to. So that is one area 
that I am worried about.
    Health care is another one. We just pre-priced our health 
care insurance and you are right. A lot of the small businesses 
between 50 and 100 people have insurance. We have a high 
deductible HSA plan and this year--it is hard to go out and 
replace these things and get quotes because you have to do a 
survey of everybody. But we did that this year because we 
wanted to try and get a better deal. So we went to five new 
companies that were not--that were new to us and asked them to 
quote on our business. Every one of them, all five quoted 85 
percent premium increase, which is the maximum they can quote. 
I do not know if that is a Wisconsin law but in Wisconsin they 
can quote 85 percent which means they did not want the 
business. The company carrying it right now raised the price 
14.5 percent for the premium and the maximum they can raise it 
according to state law is 15 percent. So they raised it the 
maximum.
    So what we have is a situation where we have no competition 
anymore from carriers, from insurance providers because they 
are just not going to quote. I think there is so much 
uncertainty with that that they are holding firm. And the 
people who are stuck with us, the one company, they can raise 
it 15 percent a year and that is probably what we are going to 
see. So that is a concern.
    The other issue I have is--I am running out of time--
inflation. And there has not been much but there is going to 
be. Has to be. If you look at what the Federal Reserve has 
done, they have created a bubble of money which eventually will 
flow into the system and create inflation. It will raise our 
prices of raw material. Our raw material is 45 percent of our 
cost and you can say, okay, well, just pass it on to your 
customer. It does not work that way. Sometimes we have 
contracts and they often have other opportunities to source 
that either domestically, change the material, or source it 
internationally which is more likely going to be the case. So I 
am worried about inflation.
    Dependency. We have a country that is becoming dependent on 
the federal government. I have seen this in our business and 
there is a new dependency class that I call the ``happily 
unemployed.'' Their job is to stay on unemployment. And I know 
this because every Friday they come into our place because they 
have to show that they are actively seeking work and what they 
are really actively doing is trying to stay on unemployment. 
And they are very happy there. You know, they work part-time. 
They work for cash. They get food stamps. Why work? And I know 
jobs are available in Manitowoc. Good jobs. Manufacturing jobs. 
Cannot fill them. Cannot fill them. They are $11, $12, $13 an 
hour jobs. Cannot fill them. No applicants. That is a problem.
    And finally, my biggest fear is the federal debt because 
that has the potential to get us all. Forget all the 
regulations. All the little nibbling around the edges. If you 
do not get a handle on federal spending and deficit spending we 
are all gone. We are past Greece. Do not use Greece as an 
example. We are past Greece. People will still lend us money. 
That is the only difference. But if you look at the statistics, 
we are worse than Greece.
    That concludes what I have to say. And thank you very much.
    Chairman Graves. We will start questions and we will start 
out with Ranking Member Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Baily, in your testimony you highlight the important 
role that startups play in driving economic growth. And 
according to SBA data, less than a third of SBA lending goes to 
startups. Are there ways to change this trend and encourage 
lenders to make more credit available for startup businesses?
    Mr. Baily. Yes, I think there is a case. Startups are 
really important because a lot of small businesses fail. There 
is a lot of turnover in small business. They create a lot of 
jobs but there are also those that do not succeed. So we need 
that flow of startups to keep employment growing.
    It is obviously difficult to get money if you are a startup 
because you do not have a track record. And as I mentioned 
earlier you used to be able to use real estate collateral and 
now it is more difficult to do. So I think if it is done 
through either loan guarantees or through the direct lending 
program, a small business bank would be a possibility, which 
would not take a lot of money but could provide much needed 
additional funding for potential growth companies that would 
help our economy.
    Ms. Velazquez. Yeah. You mentioned, Dr. Jacobe, that we 
have not seen the number of startups this time around during 
this last recession as we saw in the '80s, '70s, and '90s. And 
a lot has to do with access to capital. You mentioned in your 
testimony that real estate represents the single largest source 
of collateral for loans to startups. And the drop in real 
estate prices has significantly affected the availability of 
credit for these firms.
    So with housing prices unlikely to recover in the immediate 
future, what should be done to take the place of this asset in 
securing capital for startups?
    Mr. Jacobe. Well, that is a hard question. I do not know if 
we can operate on a very different model. I do think that there 
are many small businesses that provide a good opportunity for 
the private sector so I think private sector banks. I know some 
folks on Wall Street that are actually making money by 
packaging loans from small businesses. So we do have other 
resources, people willing to take risks on a small business if 
it is a good bet.
    Ms. Velazquez. Would you see--what we have seen and the 
senior survey of loan officers and the fed report that was just 
recently released show that credit standards have been eased 
and that more credit is flowing to mid-size and large firms.
    Mr. Jacobe. Right.
    Ms. Velazquez. The problem and the gap is on startups.
    Mr. Jacobe. On the smaller size.
    Ms. Velazquez. And they are the ones that really create the 
jobs in this country. So would you see a direct lending role 
for SBA?
    Mr. Jacobe. Yes, I would.
    Ms. Velazquez. Okay. Mr. Baily, according to a Kauffman 
Foundation survey, 40 percent of the respondents said that the 
biggest obstacle in the way of high growth companies is finding 
qualified people. Twenty-one percent said that managing fast 
growth; accessing capital 16 percent; and the sluggish economy, 
13 percent. They mentioned that those are all obstacles. 
Regulatory uncertainty and taxes were only 3 percent and 4 
percent, respectively. Why do you think there is such a 
disparity between this poll and the Gallup poll about the top 
conditions facing companies?
    Mr. Baily. I mentioned what I would point to as the main 
reason and that is that everybody is talking about regulation. 
We have a lot of discussion on regulation in this election 
year. I think there are things that one could do to improve the 
regulatory environment, so I am not saying I want to dismiss 
the potential for streamlining regulation and making it easier 
for small business to operate. We probably all support that. 
But I do think this regulatory issue has been blown out of 
proportion.
    I have done a lot of comparisons between the U.S. and other 
countries and the U.S. is still pretty high on the list of 
countries where it is relatively easy to start a new business. 
If you look at the World Bank data, it is much harder in China 
or places like that. So we are still a good place. I still have 
a lot of confidence in this country as a place to start a 
business and where enterprising people will be able to. And 
yes, we should do whatever we can to make sure that the 
regulatory environment is doing its job properly and not 
getting in the way of growth. But I think the reason it becomes 
such a football is because that is what people want to make it.
    Ms. Velazquez. Dr. Jacobe, will you care to comment?
    Mr. Jacobe. Well, polls will differ. And what we have done 
is we tried to ask a series of different questions over time 
since last year. And I think it is clear that there is a 
psychology that has developed. And you can argue about the 
reality. The psychology is that, and we have actually done some 
individual interviews with small businesses just recently on a 
sort of long-term, sort of long interview. And they come to 
this without urging. So whatever the psychology is, it seems a 
positive if that fear could be halted for some period of time. 
Normally, regulations do not play this big a role.
    The problem is that this sector is so threatened, so weak. 
We have been four years in this process and people are 
recovering but it is a slow recovery and small businesses are 
struggling. And so things that they normally would be able to 
go through and work their way through are much harder right now 
and I just think that has raised the issue.
    Ms. Velazquez. Thank you. And I do not know but maybe 
anyone who would like to answer this question, but again it 
might be the psychology explanation because people are saying 
that community banks--and your community bank, you just 
mentioned--do you know how much assets does it have? You are 
from United Bank?
    Mr. Fredrich. I do not. I consider it the largest 
commercial bank in Green Bay. I do not know how many millions. 
They have to be $300, $400 million. I am guessing though.
    Ms. Velazquez. So no more than $1 billion in assets?
    Mr. Fredrich. No. No. No.
    Ms. Velazquez. Right? So am a member of the Financial 
Services Committee. I was involved with a Dodd-Frank regulation 
and every place we go when you listen to bankers the first 
thing that they say if they are community banks is that it is 
having a negative impact in their lending practices because it 
is creating uncertainty. But the fact of the matter is that 
community banks for the most part are exempted from the 
regulations of Dodd-Frank. Those banks who have assets less 
than $10 billion are exempt. So community banks are the ones 
lending to small businesses. So when we hear that small 
businesses are not getting access to capital and we blame Dodd-
Frank, I want to invite people to really go to the law and 
review if those regulations will apply to those banks.
    And I yield back.
    Mr. Fredrich. It is not that----
    Chairman Graves. Go ahead.
    Mr. Fredrich. It is not just Dodd-Frank. I mean, I would 
not want to be in the banking business based on the amount of 
regulations and control that they have. And I will give you a 
good example of the same bank. They did not need to but they 
took some of that TARP money and they tried to pay it back. 
Would not let them. No. You cannot give it back. Your ratios 
were good. Did not have to take it. You cannot give it back.
    Ms. Velazquez. Well, the TARP money for those community 
banks was to provide access to capital to small businesses, not 
to pay back.
    Mr. Fredrich. They did not need it. They have plenty of 
access.
    I will give you another one. There used to be a publicly-
held bank and Sarbanes Oxley converted them from public to 
private which also restricts their access to capital which 
restricts their access to lending to small businesses.
    Mr. Ferrara. Can I address this since she asked if anybody 
could answer this? I do not think psychology has anything to do 
with it. You have got to create a booming economy and the 
psychology takes care of itself. But the recovery is--the 
problem is the recovery is long overdue and whatever signs of 
life in the economy there are it is too little too late.
    The National Bureau--the statistics show that since the 
Great Depression, recessions in America on average have lasted 
10 months. The longest previously was 16 months. Here we are 
more than 48 months after the recession started and there is 
still no real recovery. Moreover, you cannot say, well, it is 
because the recession was so bad. Historically, the worse the 
recession, the stronger the recovery. So based on these 
historical standards we should be nearing the second year--the 
end of the second year of a booming economy by now. And it is 
the fact that it has not--there has been no real recovery. That 
is what is destroying the psychology of small business. If you 
follow pro-growth economic policies you will get a booming 
economy and small business will have fabulous psychology.
    Ms. Velazquez. So, Mr. Ferrara, what you are saying is that 
this administration did not know how big a hole was dug by the 
previous administration. Right?
    Mr. Ferrara. No, that is not what I am saying.
    Ms. Velazquez. And the stimulus package that we put in 
place was too small to produce the kind of results that were 
needed given the big hole that was dug.
    Mr. Ferrara. No, that is not what I am saying. My estimate, 
well, no, I would never say that. My book, America's Ticking 
Bankruptcy Bomb shows just the opposite.
    Ms. Velazquez. I understand. I understand.
    Mr. Ferrara. I can tell you exactly how many jobs were 
created by the stimulus. It was 0.000 because if you take a 
trillion dollars out of the economy and spend a trillion 
dollars back into the economy, you have not done anything for 
the economy on net. It is old fashioned, outdated Keynesian 
economics which is a proven failure. In fact, it is probably a 
drag on the economy because the private sector will spend that 
trillion dollars more efficiently than the private sector.
    Chairman Graves. Mr. West.
    Mr. West. Well, thank you, Mr. Chairman. Thank you, Ranking 
Member. And thanks for the panel for being here.
    It is very interesting what I heard at the beginning and by 
the time we got to the end when we talk about psychology. You 
started out we are talking about optimism. By the time we got 
to the end we are talking about uncertainty and lack of 
confidence. So my question is, especially I have Christina 
Hebert here who is a chief operating officer of a small 
business as part of the marine industry of South Florida. She 
is also an executive director there. Let me read you a summary 
of a report that she just gave to me that follows up from the 
Fort Lauderdale Boat Show, which is the largest boat show in 
the world, as a matter of fact. ``The recreational marine 
industry needs assistance facilitating communications with all 
agencies whose regulations affect the industry.''
    Second summary point. ``The United States is unable to 
attract 90 percent of the large yacht economy to this country 
due to the onerous regulatory environment. Attracting this 
business to the United States would mean a massive influx of 
spending and jobs.''
    So I hear about optimism. I hear about lack of certainty. I 
mean, lack of confidence and uncertainty. What can we do up 
here in Washington, DC to bridge the gap between those two 
points?
    Mr. Jacobe. Well, what I was trying to say is that right 
now we have an opportunity and the optimism is very tenuous. 
That is why I think it is a very fragile kind of optimism. We 
had some of it a year ago and we need to do something to keep 
the momentum of that optimism going. And that is why I was 
saying just freeze regulations because whether you want to 
agree with it or not it is having a behavioral impact and in 
this sense perception is reality. And small business owners are 
very concerned about regulation. And I think anything we can do 
to help their psychology right now, we can start to overcome 
some of these kinds of things and the kind of thing you were 
just talking about.
    Mr. Baily. I would just say that I think those regulations 
about yachts have been in place for a long, long time. So I do 
not think this is something new. I do not think it is something 
that President Obama did.
    Mr. West. I did not say anything about administration.
    Mr. Baily. No, you did not.
    Mr. West. I will talk about fixes.
    Mr. Baily. I do not know enough about it. It may be we 
should be able to simplify that regulation and make it easier 
to build a yacht.
    Mr. West. What I am saying is not just specific for this 
industry. We are talking about an environment out there where 
people are saying it is an uber regulatory environment that is 
constraining the growth of our economy in this country. So what 
I am asking you real smart guys because I was just a 
paratrooper in the Army, what are the type of things that we 
need to be doing coming out of Washington, D.C. to turn this 
around? Because as Mr. Ferrara said, when you sit back and you 
look at pro-growth economic policies, I do not want to see us 
be like Japan and start down the path of 9 or 10 stimulus 
packages and we have a lost decade. So what should we be doing 
to go and build upon this optimism and get away from this lack 
of certainty?
    Mr. Ferrara. Can I address that?
    Mr. West. Sure.
    Mr. Ferrara. I discuss this in my book and I served on the 
White House Office of Policy Development under President 
Reagan. And I went back and looked at what did he do to address 
the enormous crisis we had at the end of the 1970s which was 
arguably even worse than this crisis. You ended up with double-
digit unemployment, double-digit interest rates, and double-
digit inflation. There were four components he campaigned on 
and implemented once elected. One is reduced tax rates to 
maximize the incentives for production. Two was reduce 
regulatory burdens to reduce the costs on production. Three was 
to reduce government spending to reduce the drain on the 
private sector. And four was a strong dollar monetary policy, 
which serves to enhance investment because investors are 
confident they will not lose the money because of a declining 
dollar or because of cycles of boom and bust due to unstable 
monetary policy.
    Those policies worked spectacularly. I call it the most 
successful economic experiment in world history. By 1982, the 
economy took off on a 25-year economic boom, what Art Laffer 
and Steve Moore called in their recent book ``the greatest 
period of wealth creation in the history of the planet.'' 
Twenty million new jobs were created in the first seven years 
alone. Fifty million jobs were created from 1980 to 2007. 
Recently that was reported in the Wall Street Journal. So if we 
would restore those pro-growth policies the economy would take 
off at another long-term boom within a year or so and that 
would be a way to solve the problem.
    Mr. Baily. We also had pretty good growth during the '90s 
during the Clinton years, let me remind you. In fact, maybe 
even slightly better growth. And President Reagan was a 
practical man. You know, he cut tax rates very heavily. He saw 
the big deficits that came about and he agreed to actually some 
very substantial tax increases that followed when he realized 
he had overdone it on the tax side and that is what we have to 
do now. Obviously, we need to control spending. Of course we 
do. But we cannot, I agree with you, we cannot run these huge 
budget deficits and we have got to attack that from both sides, 
the spending side and the revenue side as President Reagan did.
    Mr. Jacobe. And let me just add that there is an immediate 
situation and there is a longer term kind of situation. And 
what I was trying to say with a moratorium is that we really 
ought to take advantage of this opportunity with some 
increasing optimism out there and try and do something 
immediate. There are all kinds of other solutions, part of 
which is housing. But the immediate situation is we will lose 
it if we do not act quickly.
    Mr. West. Mr. Chairman, if I could ask one quick one. Could 
we have reinstated Glass-Steagall instead of going the 
direction of the Dodd-Frank?
    Chairman Graves. Yes.
    Mr. West. Thank you, Mr. Chairman. I yield back.
    Chairman Graves. Ms. Hahn.
    Ms. Hahn. Thank you for holding this important hearing. And 
I will tell you I am still sort of new around here. I was just 
elected to Congress last summer in a special election. But I 
love being on this Committee. I think the Small Business 
Committee is one of the more important committees back here in 
Congress because it really is critical, I believe, to the 
growth of our economy, getting things back on track in this 
country, creating more jobs. It is really about small 
businesses.
    And since I was elected last summer I have made a point of 
touring and meeting with small businesses in my district, 
probably close to 100 now individually, and talking to them 
about what I think we are trying to get at in this Committee 
and in this Congress, is what can the federal government do or 
not do to really encourage growth in our small businesses, 
encourage hiring, and really help them do what they do best. 
And you know, as you all know there is a difference in small 
businesses. I would like to ask Dr. Jacobe later in his polling 
did you differentiate between the large-small businesses and 
the small-small businesses because I do think they have a 
different perspective, particularly when it comes to 
regulations.
    And I think you are right. I think all of us want to find 
those regulations which may be burdensome, which may be out of 
whack, which might do better to be tweaked or not in place. But 
I for one am not interested in removing regulations that are 
there solely to protect the consumer or there to protect the 
health and safety of the worker. I am not interested in that. 
But if we can look at other things that might be beneficial I 
think we are all willing to do this.
    One of the things that I kept finding out when I talked to 
my small businesses, two things which your poll actually 
pointed to. The second and third one was lack of consumer 
confidence and lack of consumer demand which between the two of 
them is about 27 percent. So regulations was 22 percent. So to 
me that is really the bigger issue that we need to focus on. 
What can we do to bring back consumer confidence and consumer 
demand? I participated in the Small Business Saturday on 
November 26th, which I hope we make that a bigger deal this 
year. Every one of the businesses that I walked into, small 
businesses, they said, ``Congress member, we need more 
consumers. I want more people coming through my doors to buy my 
products. Because when that happens I can hire more people and 
I am willing to hire more people but I need people who have 
their jobs. I need people who are not losing their homes. I 
need people who are making decent wages. I want consumers. That 
is what is going to help my small business.''
    The other thing I found overwhelming was a lack of access 
to capital. That seemed to be really just a common theme with 
all my small businesses. They did not like the fact that we 
required way too much paperwork to even apply for a loan so I 
have introduced legislation which will cut down paperwork and 
expedite approval process for loans under $250,000. And credit 
unions. Community banks and credit unions. Credit unions, you 
know, under regulations are not allowed to lend more than a 
certain percentage of their capital. They would like to be more 
on par with banks. So I have also co-sponsored legislation that 
allow credit unions to loan more capital which I think will 
benefit small businesses and I think it brings back that in our 
community we know our community banks and our credit unions.
    But beyond that, Dr. Baily, you touched on it a little bit. 
I think it is the startup businesses. By the way, what we are 
finding in new statistics is that some of these people that got 
laid off through no fault of their own, they are now looking to 
be entrepreneurs and innovators and start up their businesses. 
I think it is terrific. But what else can we do to help these 
startup businesses survive, thrive, and being to hire people 
because we know that the biggest growth in hiring is going to 
come from our small businesses, not our large businesses. What 
else can we do specifically?
    Mr. Baily. I am not sure I have got a lot that is different 
from what we have already talked about and I think I would 
agree with the things that you have said is what is needed is 
access to capital and they need more consumers so we need to 
follow a sound policy for the economy overall so that we begin 
to get that overall growth and we get more people coming 
through the door. Those are the main things that we need to do.
    I said in answer to an earlier question, if we can get more 
money coming from our small community banks, which are not so 
affected by--not really affected by Dodd-Frank and I think the 
Small Business Administration. It is not huge but I think that 
is playing a useful role also.
    Ms. Hahn. And Dr. Jacobe, and I know regulations, we are 
tackling that issue in this Committee. I did not hear that from 
one of my businesses that I have talked to. They were really 
more about access to capital and more customers. Did you 
differentiate in your poll between the large small businesses 
and the small-small businesses in terms of the burdensome 
regulations? And besides health care, are there some specific 
regulations that you have uncovered in your polling that 
businesses are pointing to?
    Mr. Jacobe. Well, we did not really break out the 
regulations by size. We call it sample size limitations on some 
of those kinds of questions. What we know is that business 
that, say, have more than $2 million in revenues or assets are 
more optimistic and tend to be more optimistic about credit 
than the ones that are smaller than that. The others tended to 
be dependent on housing finance as part of their sort of 
capital source and entrepreneurship and all that kind of stuff. 
And taking the housing finance system as it stands now has 
really hurt small business. Some kind of change to the housing 
finance system would help a lot. We will look at that but 
again, as I said, it is a sample size kind of problem and it is 
not unusual that they would not necessarily mention regulations 
because they have a whole lot of things on their mind when they 
are talking to you.
    Ms. Hahn. Thank you.
    Chairman Graves. Mr. Schilling.
    Mr. Schilling. Thank you, Chairman.
    I guess being a small business owner and actually currently 
still having my family run the small business I have got to 
disagree with the statements about regulations are not 
affecting our businesses because I truly believe they are. And 
just like the gal before me, the congresswoman, I just had a 
small business meeting just this past Monday. And I had a small 
business with 33 employees that they are in the process of 
going under. They have had no deaths, no major accidents, the 
business has been in place for I think 35 years. They do about 
$3 million a year in business and OSHA has come out and fined 
them left and right. The first one they had was taking their 
forklift trucks and forcing them to switch from LP gas over to 
electric.
    But, you know, just to give you an idea. This is coming 
from the real world. These are real numbers that I am going to 
be telling you about and these are factual numbers coming 
directly from my business. Back in January of 2009, I own a 
pizzeria store and cheese has gone up 40 percent. Back in 2009, 
mushrooms, from 2009 till today have gone up 44 percent. Pork 
has gone up 32 percent. You know, the problem is that I cannot 
in a downturn economy, I cannot turn that over to my customer. 
And yet we have gas prices that are sitting at $3.50 to $4.00 
per gallon and yet we will not allow for the Keystone pipeline 
to be brought into the United States of America. We are going 
to send that over to China.
    But I guess the thing that I wanted to get at is with the 
Affordable Health Care Act--some call it Obamacare, call it 
what you will--but you indicated that a lot of the customers, 
folks out there have less than 50 employees and they really do 
not need to worry about being forced upon the plan. But my 
concern is the fact that the people with 53 to 60 to 62, the 
people that I have talked to have said, look, you know what? We 
are just over the threshold. Guess what they are going to do? 
They are letting people go. They are going to get under the 
part that is going to force them to be on the plan. So I think 
that we have got to take all that into consideration.
    When we talk about the jobs created under the 
administration, you know, the fact of the matter is under the 
administration we have actually lost 1.6 million jobs since 
this administration has taken over. You know, if you have a 
dollar and you lose all of it and then you find a dime, well, 
you have a 10 percent increase in what you had so we have got 
to be really real. And I was happy to see that you, Mr. Jacobe, 
that you were talking about the people that have quit looking 
for work because that is important because we are closer to 20 
percent. We can all point fingers back here and there but I 
think something else that we have got to do is we have got a 
bunch of bills that are bipartisan bills that are sitting over 
in the Senate right now. And what we have got to do is all of 
us take our democrat and republican, you know, we are here as 
U.S. members of Congress and what we have got to do is we have 
got to come for some solutions for the American people. And I 
hate to go on a rant but this is--when I am hearing some of 
this stuff, being right in what I call the final three feet of 
the business and I hear people over here telling us that the 
regulations are not adversely affecting small businesses in the 
United States of America, I cannot disagree with that more than 
anyone.
    And another thing we talked about a little bit is the fact 
that we have access to capital. You cannot have small 
businesses if you do not have that access. I had a gentleman 
this week that I talked to that basically what is happening is 
they want him--he wants to start up a restaurant. They want 50 
percent down. He does not have 50 percent down. So we have got 
to figure out a way to find some solutions. We all know there 
is a problem and I do not believe it is more stimulus. I am 
sorry. You know, the administration told us that it was 
spending $787 billion that we were going to keep unemployment 
rates under 8 percent. They also told us if we did nothing that 
today we would be sitting at 6.5 percent. So it is not working 
and throwing more of my kids' and my grandkids' money to just 
continue to spend it away I do not believe. What we have got to 
do is what our job is is not to spend the taxpayer money. I 
believe it definitely is to create certainty. And that is to 
get all the ridiculous regulations. And we all want clean air, 
clean water, and all that stuff, but what we have to do is when 
they are coming out to regulate our farmers, the dust that they 
are putting up in the air, we have got to say, hey, wait a 
minute. Come on. Where are we going with this?
    But I think the key here is to find solutions to the 
problems and things that are going to really definitely help to 
fix the United States of American and keep jobs here rather 
than giving incentives for them to move jobs outside of the 
U.S. So I do not really have a question but I had to kind of 
speak my mind on that. And that is coming from a small business 
perspective. So thank you and I yield back my time.
    Chairman Graves. Mr. Schrader.
    Mr. Schrader. Thank you, Mr. Chairman. The Small Business 
Committee usually is a bipartisan committee or historically has 
been and I am sure we will get back to that. Thank you all for 
being here. I am sure you do not want to hear my political 
talking points so I will just ask a few questions and take 
advantage of the fact you all are here.
    Mr. Jacobe, if you could go--your graphs are very 
illuminating and I think very helpful to give us a perspective. 
Do you have access to data that goes back further to get a more 
historical? Because it looks like we are seeing the run-up. I 
would like to see as we recover where we are getting back to 
the historical norm because as you all have pointed out I think 
perception becomes reality. Certainly it is in our business and 
it is now becoming true for small and large businesses in this 
country. Do you go back further in your data?
    Mr. Jacobe. We have a lot of different data sources but the 
daily measurement only goes back to January 2008. So my 
reference is to 2008, the time just before or as the recession 
started.
    Mr. Schrader. That is kind of an unrealistic era and 
obviously led to the crash. So I was just trying to get 
perspective.
    Dr. Baily, with regard to--you co-authored a Brookings deal 
last year, I believe, or two years ago in 2010, and talked 
about economic additions and not being precedent or conducive 
to businesses being able to get back on their feet or start up. 
Given this Committee and its area of expertise, what should be 
we doing do you think with the SBA and some of these policies 
and programs to really get things going?
    You have to push your button, sir.
    Mr. Baily. I have to push my button. Thank you.
    Mr. Schrader. We are pushing yours but you might push ours 
once in a while.
    Mr. Baily. Oh, do not worry about my buttons. I am used to 
having them pushed.
    Mr. Schrader. All right.
    Mr. Baily. With regard to the earlier questions, it is 
important to take a hard look at the regulatory environment for 
small business and make sure that we are not putting in place 
or we do not have in place regulations that are really going to 
discourage growth. So I think everybody can get onboard with 
that. That is a bipartisan thing. I think it is part of the 
startup act that I mentioned that is being sponsored in the 
Senate and there are other bills being sponsored in the Senate. 
So it is not like I am sitting here saying, oh, you know, 
regulation is always just great. I think we can improve 
regulations.
    Mr. Schrader. How about my question, Mr. Baily?
    Mr. Baily. I apologize.
    Mr. Schrader. I have limited time.
    Mr. Baily. You have limited time.
    I think the things that we need to do right now are do the 
best we can to get the overall economy going because that is 
eventually what is going to help small business. So that means 
dealing with the budget crisis and getting some modest stimulus 
in 2012. I think for small business specifically we have talked 
about access to capital. That, I think we are all agreed, is a 
key item and that has to come from private banks and make sure 
that they are doing what they need to do to provide capital to 
small business and the money coming from SBA is adequate to 
provide a supplement to that.
    I think that if we could--I think there is more that could 
be done to get more worker skills in place and I think we are 
not doing a good job right now with the folks that do not go to 
college. And there are some technological advances were we 
looking for a quick fix. It is not a quick fix but there are 
new ways of providing skills to workers. The Army is doing it, 
for example. They are providing skills to some of their 
recruits. I think businesses could learn a lot from that and 
the government could act as a facilitator to get people 
together and say let us find out how we can train these 
workers, give them the skills that they need so that they can 
perform the jobs that small business, and indeed, larger 
businesses are looking for. Because skill shortage really is a 
problem. I mean, we hear reports there are three million jobs 
out there that are not being filled because the skills are not 
available.
    Mr. Schrader. Good. Those are very concrete. I appreciate 
that.
    Real quick answer if I can from each of the panel talking 
about everyone has referenced the huge debt and deficits we 
face when they argue over the causes and effects of those. 
There are several different proposals out there to deal with 
that and I happen to believe, and I am curious if you do, that 
with all the money sitting on the sidelines not invested people 
are concerned about where the country is going. Are we going to 
end up like Greece? I think we are already there. I agree with 
those statements, frankly.
    The Bowles-Simpson plan has had a lot of bipartisan 
support. Did not quite make the grade with supermajorities but 
we have done a pretty good job bipartisanly in cutting 
discretionary spending. We may not like the heavy hand approach 
on the second cut here but discretionary spending is on a 
course downward. Maybe not as far as some of us would like but 
certainly more than others. But the big dogs are revenue and 
entitlements. Do you agree that revenues in some form or 
another have to go up a little bit and entitlements need to be 
cut significantly to get our country back on track? Just a yes-
no from you guys if that is possible.
    Mr. Fredrich. I think revenue is absolutely important. And 
if you wanted to raise revenue you would lower taxes. It works 
every time.
    Mr. Schrader. Like their tax reform proposal? Talk about--
--
    Mr. Fredrich. I do not know what it is but I will tell you 
if you lower taxes at the margin, which is where it counts, you 
would raise revenue. If you are worried about small business 
startups and capital you would make the capital gains tax zero. 
But I do not think there is any incentive to do that.
    Mr. Schrader. If you could look at that report I sure--
because you are a good small business guy. I would really love 
to get your opinion on their tax reform piece. If you could do 
that for me at some point.
    Mr. Fredrich. I would be happy to.
    Mr. Schrader. If you do not mind. Big request, I am sorry, 
but if you could it would be cool.
    Mr. Fredrich. Sure.
    Mr. Baily. I like the Bowles-Simpson proposal. Some of them 
were not as specific as they might have been but I think it 
would have been a great framework to deal with the budget. And 
it proposes higher revenues and controlling the growth of 
spending. And I think that is what we absolutely have to do.
    I think they do propose lower tax rates, so lower marginal 
rates. But in return for that you have to give up something 
because that does not give you more revenue. You have got to 
give up some of the special tax breaks or something like that 
if you want the lower rates. And I think that would be a great 
thing to do.
    I also would say that there is a proposal by Domenici and 
Rivlin, which I think in some ways I like even better than 
Bowles-Simpson. But either one of those I would take as a basis 
for dealing with this problem.
    Mr. Ferrara. I think the Simpson-Bowles points in exactly 
the right direction. The only way you can raise revenues in 
this economy is by lowering the rates and stimulating, creating 
incentives for economic growth. And I agree that you can go 
along with that and reduce some loopholes and some of the--
because when you lower the rates, a lot of those loopholes 
become completely unnecessary and can be eliminated. So that 
does point us in the right direction but I think that I like 
what Congressman Paul Ryan has been proposing in his budgets. 
He has a tax reform. Ten percent for families below 100,000. 
Twenty-five percent for families above that. And so I think 
that that is a stronger measure but it goes further in that 
direction. I think that is the right direction to go.
    My entire testimony addresses entitlement reform and the 
whole point of the testimony in the book is that entitlement 
reform can be done in a positive way, that it does not have to 
involve how much are we going to take away now from seniors and 
the poor. That, in fact, if you do structural systemic reforms, 
change the way these programs operate, they are so old. They 
are so based on ideas from 100 years that you can produce 
programs that actually serve seniors and the poor far better 
but cost just a fraction of what the current approaches do. And 
those reforms can involve pro-growth incentives that would 
contribute to the economy as well. And we discuss that in 
detail in the book and some in my testimony as well.
    Mr. Schrader. Thank you.
    Mr. Jacobe. I think the real solution is a very rapidly 
growing economy. I think there is potential there and I know I 
am not necessarily in sync with a lot of people on that. But we 
have not recovered as we said earlier from the downturn in any 
way like we should have. And that will change everybody's 
perspective if we really start going like we did after the 
Reagan recession. And to be direct, I do not agree with any 
kind of tax increases.
    Chairman Graves. Mr. Wall.
    Mr. Walsh. Thank you. Thank you, Mr. Chairman.
    If there is anybody on the panel that disagrees with me say 
something. Are any of you four gentlemen at all satisfied with 
where we are at with this economic recovery? Is anybody 
satisfied with how this recovery is going?
    Mr. Ferrara. Absolutely not. It is the worst economic 
recovery since the Great Depression. I have written on that 
recently at Forbes.com.
    Mr. Walsh. Dr. Baily, are you satisfied with where we are 
at?
    Mr. Baily. I am not satisfied but I would say that the 
administration, the Obama administration should get a lot of 
credit for having turned things around. The banking system, the 
financial system did not fail. It was sustained.
    Mr. Walsh. Are you, Dr. Baily, are you----
    Mr. Baily. The economy stopped falling. It fell like a 
stone.
    Mr. Walsh. I will give you a chance. Are you satisfied with 
where this recovery is at? Yes or no?
    Mr. Baily. No, I am not satisfied. It is still too weak.
    Mr. Walsh. Dr. Jacobe.
    Mr. Jacobe. No.
    Mr. Walsh. Mr. Fredrich.
    Mr. Fredrich. I do not think we have had a recovery. So no. 
And that is a common perception.
    Mr. Walsh. And as Mr. Ferrara pointed out, historically the 
more severe the recession the quicker and the more potent the 
recovery. And again, I think it is fairly safe to say that when 
it comes to economic growth and job growth, this is easily the 
most anemic recovery we have had since the Great Depression. 
And so what I want to figure out is why is that? What has this 
administration done or not done enough of or done too much of, 
we are all not satisfied with the varying levels of degree here 
with where we are at. Be as concise as each of you can be why 
do we sit here in the midst of a historically weak recovery if 
you, in fact, want to call it a recovery? Why are we where we 
are at? Try to be as concise as each of you can be. Let us 
start down at that end.
    Mr. Fredrich. I think we are actually living the 1930s all 
over again because it was a recession that was extended through 
government action. And there were just asinine programs started 
during that time period that kept this country in a recession 
until after World War II when there was a change in the 
Congress.
    Mr. Walsh. So to paraphrase, too much government?
    Mr. Fredrich. Absolutely.
    Mr. Walsh. Dr. Baily, why are we--what have we not done 
enough of? What have we done too much of? Why are we where we 
are at right now?
    Mr. Baily. I think we are where we are at because this 
recession is very different from the earlier ones in the post-
war period because it had this incredible housing bubble and 
housing prices have dropped 30 percent. We lost $14-$15 
trillion worth of household wealth. We do not have residential 
construction as a lift to the economy. Consumers do not have 
the value in their homes which allows them to feel more 
confident and spend more. And so I think the only thing that 
could have been done more was more emphasis on trying to turn 
around the housing market, while the truth of the matter is 
that is a very hard thing to do. And so inevitably we were 
going to get a long recession.
    The other thing was that if we had not had deficits coming 
into this recession, in other words, when I was chairman of the 
Council of Economic Advisors we had a 2 percent of GDP surplus 
in the budget. And if that had not been squandered in two large 
tax cuts we would have come in with more ammunition to deal 
with this downturn.
    Mr. Walsh. Mr. Ferrara.
    Mr. Ferrara. I discussed in my testimony each of the four 
components of Reaganonimcs. And the reason we have no recovery 
is that Obamanomics is following the opposite of every one of 
those four components of Reaganomics. I talked about Reagan 
reduced the tax rates. Next year you have already scheduled in 
current law increases in the top tax rates of virtually every 
major federal tax. The only one left out is the corporate 
income tax which is already virtually the highest in the 
industrialized world and is already too high. Instead of 
reducing regulatory burdens we have increases in regulatory 
burdens. Instead of reducing government spending we have 
massive increases in government spending. Instead of a strong 
dollar monetary policy we have a weak dollar monetary policy. 
So that is why we have no recovery.
    Mr. Walsh. Dr. Jacobe.
    Mr. Jacobe. The recessions since World War II and since the 
Great Depression have had a housing cycle embedded in it. This 
time we had a financial crisis. I do not think people have 
adequately assessed the financial crisis and therefore have not 
adequately assessed what needs to be done to change that. But 
the big problem is the finance system is not working the way we 
want, particularly in housing. I think that is the key to the 
problem.
    Mr. Walsh. Mr. Ferrara, one final quick question for you. 
Dr. Baily testified that Obamacare will actually help small 
businesses and will not increase their costs which I find 
mindboggling. Would you care to comment?
    Mr. Baily. Yeah, I think Obamacare is very detrimental to 
small businesses, already increasing health costs. In addition 
to the point that was made about companies just above the 
threshold, there is also a negative impact on companies just 
below the threshold that do not want to grow up to 50 and 
above. And so it is reducing job growth in that way as well. 
And what you have seen is instead of increases moderating they 
seem to be accelerating which is what I predicted in my book.
    Mr. Walsh. Thank you. Thank you, Mr. Chairman.
    Chairman Graves. Mr. Mulvaney.
    Mr. Mulvaney. Thank you, Mr. Chairman. I want to go back to 
something that Dr. Baily talked about a few minutes ago and 
that Dr. Jacobe also mentioned which is housing. I used to 
build houses. One of the reasons I am here is that I used to 
build houses.
    I have heard a lot of different ideas. We have had half a 
dozen or so federal programs designed to try and help the 
housing industry. I agree with you, Dr. Baily, that this is a 
crisis within this industry that we have not seen certainly in 
my lifetime or my dad's lifetime. I come from three generations 
of homebuilders.
    So I guess since I have got fairly smart people on the 
panel, some of whom I might agree with philosophically and 
disagree with philosophically, I will ask you all the 
questions. We will start with Dr. Baily and then anybody else 
come in. What would you do? I am open-minded to ideas on how to 
fix the housing industry and maybe a corollary to that if you 
do not have any ideas of what to do is what should we not be 
doing? But I will start with Dr. Baily and we will just take it 
from there.
    Mr. Baily. I wish I had a better answer to give you. There 
have been a number of programs that have been tried, starting 
with the Bush administration. And I think those were generally 
good programs. The Obama administration has tried a number. 
There is a new one that is being announced today. I support 
many of those programs. I think they are trying to, I mean, the 
problem is we have very low interest rates but people cannot 
refinance their loans or they are underwater from it. So you 
have either got to wait this thing out for another year until 
the housing market really comes back or you have got to start 
paying off the people who are underwater. And I think there is 
a lot of, you know, a lot of reasons to be nervous about that. 
You would end up paying--nearly a quarter of the money would go 
to California since that is where a lot of the underwater 
mortgages are. So I do not know that there are easy solutions. 
I think the programs that have been tried are helping but they 
can only do a limited amount. And unfortunately, we have got to 
wait this thing through to some extent.
    By the way, I agree with Dr. Jacobe that the financial 
crisis also contributed to where we are now.
    Mr. Mulvaney. Let me press you on that because I think that 
may be where we are right now which is where the financial 
situation is also hampering recovery in the housing market 
specifically. You mentioned low interest rates. There have been 
low interest rates now for the last two or three years. Folks 
are not able to refinance in large part because of the 
regulations that exist on banks and what limits they can do on 
lending. So I hear what you are saying about waiting it out but 
unless we allow banks to flush these products through the 
system, allow housing to actually find a bottom, are we really 
ever going to get to the end of it?
    Mr. Baily. I agree we have to do that.
    Mr. Jacobe. The housing finance system, it is a long 
discussion. I go back to the days of the thrift lenders and the 
community lenders and that kind of thing. And a lot of what has 
happened had to do with the whole secondary market and the 
disconnect between finance and the actual borrower in the 
marketplace. And my solution is to tie those two together 
again. I think you need to create some kind of active community 
lending where it is profitable for a small bank or a credit 
union or a thrift to actually make a home loan, deal with the 
borrower, not have to send it off to some investor and all of 
these different processes that go through that have created a 
major disconnect in the housing finance system. And I do not 
think you can do that with the current housing finance 
structure which is with Fannie Mae and Freddie Mac. So 
something has to be rebuilt in the private sector that will 
allow homeowners and people to actually take some risk in the 
housing market for some period of time.
    What we have done is we have created a situation where 
nobody profits from making a home loan. And that----
    Mr. Mulvaney. Until you collateralize it, securitize it, 
package it and sell it off.
    Mr. Jacobe. Well, and you get a fee in that process. And if 
you can do a lot of them you get a lot of fees perhaps and 
refinance fees. But it is just a very difficult thing. You need 
to have community lenders who are invested in the community and 
who have an interest in making sure that you pay that mortgage 
loan off and that you start the process over again because we 
did that for many years and we destroyed it over the last 20 
years or so.
    Mr. Mulvaney. Mr. Ferrara.
    Mr. Ferrara. What I would like to say is that if you try to 
focus on just the housing sector then I think there are no good 
answers. What government inventions will help the housing 
sector, I think there is no good answer. What I want to urge 
you to do is to focus on the general economy. If you create a 
booming economy by following pro-growth measures then the 
housing will take care of itself. So I think that is the basis 
of the solution. And the bottom-line on that is to focus on 
incentives for production. Incentives to maximize investment of 
production.
    Mr. Mulvaney. Mr. Ferrara, I do not want to cut you off. I 
only have 19 seconds and believe me, you are one of the ones 
that I would typically agree with philosophically. And I am 
wondering if we are in a situation here where it is a unique 
circumstance whereas, and I posit this just for sake of 
discussion, that our ability to create this environment that 
would lead to the economy that you have just stated, which is 
what everybody up here wants--it is a question of how we want 
to get to that--is severely hampered by the inability of labor 
to move to where the jobs are. And the housing market is 
saddling and anchoring this economic growth that we might be 
able to find. And unless we are able to allow, to find a way to 
allow capital markets to function again, to allow labor markets 
to function again, that we are not going to get to that point. 
I am not for government intervention for the sake of government 
intervention. I am just wondering if there is something that we 
could do to allow the natural force of the economy to do what 
you have just described.
    Mr. Ferrara. Well, you focus on--see, the four principles 
of Reaganomics are based on fundamental economics. And that has 
not changed. And so the key is to focus on the incentives--
taxes, regulations, monetary policy. What incentives are they 
creating? And how does that affect the overall economy? The 
fundamentals of economics remain. Businesses still start and 
exist to make a profit, to act in their self-interest. And so 
just take advantage of the fundamentals of economics and you 
would create another economic boom if you did.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    Chairman Graves. Ms. Clarke.
    Ms. Clarke. Thank you, Mr. Chairman. And thank you, Ranking 
Member Velazquez. And I would also like to thank the panelists 
for their testimony today.
    You know, must today the America's Sustainable Business 
Council in conjunction with the Main Street Alliance and Small 
Business Majority released a poll indicating that consumer 
behavior is the number one concern by far with 34 percent of 
respondents pointing out that this is the biggest obstacle they 
face. Government regulations were a distant third at 14 
percent.
    This coincides with what my constituent small business 
owners tell me is their number one concern along with access to 
capital. This meshes with the basic economic fundamentals. If 
consumer confidence is low, industry has no incentive to add 
fixed cost, which in this case would be adding jobs, which is 
why I am having a little difficulty reconciling in the somewhat 
vacuum-like argument being made today that government 
regulations are hindering small business from hiring.
    So I have two questions. My first question is to the entire 
panel. Would you help me better connect the dots that point to 
government regulations as a bigger detriment to the viability 
of small business that would be stagnant or further dips in 
consumer confidence? And then to Dr. Jacobe, can you explain to 
me the difference between consumer confidence and a lack of 
consumer spending as concerns for small business owners? And I 
ask because if you add the two percentages, the sum of the 
consumer behavior makes it the number one obstacle facing small 
business owners in the Gallup poll.
    Mr. Jacobe. Should I begin? A couple things. I think it is 
arguable to say that major concerns on the part of small 
businesses are a lack of revenue, lack of consumers, lack of 
consumer confidence. And as I mentioned, we went through 
several different kinds of questions trying to get at that. I 
think it matters how you ask the question and it also matters 
what the environment is, what people are talking about and all 
those kind of things.
    I think, however, that however we ask the question that 
that comes up and that is something that, for example, you can 
do something about, whereas I do not think you can do a lot 
about some of those other factors that are affecting small 
business. It is very hard for you to drive revenue to a small 
business. However, all I am saying is that whether it is true 
or not, whether people want to make factual arguments or not, 
there is this perception that exists out there and in a 
behavioral economics context I am just arguing if you can help 
that perception, if you can help change that perception even 
for a period of time until the economy gets going better, until 
the small businesses are doing better, I think it is a plus.
    Mr. Ferrara. Businesses look to the future, what is coming 
down the pike. And you have, for example, a very activist EPA 
that is on a regulatory crusade that is eventually going to 
reach down to all businesses across the board. If they are 
going to achieve what they say they are going to achieve, 
sooner or later they are going to walk in the door and they are 
going to say you cannot do what you are doing. And they do not 
want to, you know, an investor does not want to put a million 
dollars on the line or sign for a loan for a million dollars 
you are supposed to pay back if they do not know what is going 
to happen when it comes to----
    Ms. Clarke. That begs the question why small business 
owners did not just say EPA regulation. They said consumer 
confidence, consumer spending. This is what they said. We are 
not, you know, and I have yet to hear anyone in my district--
and I have a small business-laden--we are talking mom and pops, 
who have said to me, ``I am so scared that the EPA is going to 
come down.'' They are concerned about who is coming through 
their doors each and every day.
    Mr. Ferrara. Well, in your district they may not know about 
that yet but it is affecting other businesses and that is my 
opinion that you asked for.
    Ms. Clarke. Okay.
    Mr. Ferrara. There is also the employer mandates negatively 
affecting businesses. We have discussed that before which it is 
not only the requirement to buy insurance but it is like what 
is coming down the pike and what is that insurance going to 
have to be to satisfy what HHS is going to demand to satisfy 
the mandate? And so that is a threat to even companies already 
providing insurance. Is this going to raise my costs?
    Ms. Clarke. Mr. Ferrara, I got your point but my time is 
limited. I do want to hear from Dr. Baily.
    Mr. Baily. Well, I think your sentiments are right. I 
basically agree with what you are saying, that it is really 
getting the customers in the door that is the biggest problem 
for small business and I think that is what they say. Yes, they 
have gotten concerned about the health care but actually 
existing plans are basically grandfathered in. So I think you 
should be reassuring your small business friends that they are 
not necessarily going to face a big change as a result of the 
ACA and they may even get some benefits. But basically, 
consumer confidence, consumer spending. We look at what 
consumers do and if we can get them spending, then small 
businesses are going to feel better.
    There is a chart in my testimony which shows--it is from 
the NFIB, and NFIB is not a big fan of regulation or the ACA. 
But if you look back at their chart, the level of concern about 
regulation was high when the economy was weak in the early '90s 
and it is high again now so I think if we can get the economy 
going that concern is going to fade off. It is not going to 
disappear but it is going to go down again.
    Mr. Fredrich. I think you have to divide the types of 
businesses. I think most of what you were talking about are 
retail businesses.
    Ms. Clarke. It is a blend.
    Mr. Fredrich. It is a blend. But when you think about it, 
for small businesses, especially retail ones, for people to 
come in their doors and buy something, those people have to 
have jobs. So the way I would look at it is how can I create an 
environment in this country where it is not so expensive to 
employ people vis-a-vis the rest of the world? And we are on 
the high end of what it costs to employ people. If you look at 
countries that we compete with, like China, Vietnam----
    Ms. Clarke. Not for long.
    Mr. Fredrich. There will be one right behind them. I mean, 
Bangladesh, India, there are lots of poverty in the world. So 
that is what you have to look at. You have to look at how could 
I allow our people in this country, our employers, to employ 
people? And let us reduce their costs. I am not talking about 
wages.
    Ms. Clarke. I was going to say you just implied that we 
should be competing with the wages of like Bangladesh or India 
which I do not think the average American could go for.
    Mr. Fredrich. No, we do not have to do that because we have 
an infrastructure here and we are much more efficient and 
productive than any other part of the world. So we do not have 
to compete on wages. We do not and we should not. But what you 
do is the regulatory burden is cumulative. It just makes it so 
expensive to employ somebody that it goes elsewhere.
    I just bought the new iPod and I thought this thing is 
really cool. It was developed here. It is the neatest product I 
have seen. It is made in China. It was never made here. It went 
right there. We did all the brainwork on it to develop and we 
produce it in China.
    Ms. Clarke. Thank you, Mr. Chairman.
    Chairman Graves. Mr. King.
    Mr. King. Thank you, Mr. Chairman. You know, at first as I 
open this up I regret the gentleman from Oregon is not here. I 
hope someone passes him along the message. He seems to be 
pretty thin-skinned about partisanship. I was listening to the 
gentleman from Illinois' statement about running the pizza 
place and even though I am kind of happy that pork rice is 
going up 30 percent, I did not hear anything partisan in there 
except the phrase Obamacare. And I point out to the panel that 
to my recollection, and I think it could be easily referenced 
that that phrase was given life and momentum and perhaps coined 
by the president himself on February 25, 2009 at the Blair 
House. Remember that health care summit that is there.
    And so when I am looking through the polling results, the 
Gallup poll results, I am actually surprised at these results, 
Dr. Jacobe, in that I started a small business in 1975 and made 
payroll for over 1,440 consecutive weeks. I sold that business 
to my oldest son and it and a spinoff of it go on today dealing 
with all these government regulations. I am pretty sure if I 
asked two of my sons that are in that business now what the 
number one issue was, we would have probably gotten Obamacare 
as the biggest load that they would be facing. And I see that 
down there. Well, wait a minute. It is the new health care 
policy at 5 percent. Now, I am wondering if some of the people 
that said complying with government regulations at 22 percent 
are not also thinking of Obamacare at least as a comment of 
that. But I would ask you to speculate. If that had been 
phrased differently the way Mr. Schilling phrases it and I 
phrase it, what kind of a response do you think there would be 
a change up or down in that number of 5 percent on the new 
health care policy concern?
    Mr. Jacobe. Well, it is not real good to speculate on 
question design and responses. My guess is there is some mixing 
in that area. If you look on the testimony after those two 
tables, I have a part that talks about the worries and when we 
asked people why they were not hiring. And if you look down 
that list you see that potential cost of health care is the 48 
percent and then government regulations at 46 percent in terms 
of where we allowed them to have multiple answers. Now, those 
answers come after statements about revenues and cash flows as 
major concerns of small business. But they are all there in the 
top five.
    Mr. King. Thank you, Dr. Jacobe. And I think you have added 
quite already to this. Just a quick read of the poll does not 
go as deep as what you have. And I would add to our background 
on this the special election in Ohio that took place a month 
and a half or so ago and was for the purposes of repealing the 
collective bargaining legislation that was passed there and 
signed by Governor Kasich. So I mean, we know that there were 
tens of millions spent to get people to the polls. It was a 
union-heavy turnout. Sixty-one percent rejected the collective 
bargaining language and initiative No. 3, right behind the 
initiative No. 2, which I have mentioned, was two exempt 
Ohioans by amending their constitution to the individual health 
care mandate. And that passed and they amended their 
constitution with 66 percent. So I thought that was a pretty 
powerful poll on the public's acceptance of Obamacare. Would 
you care to comment on that, Dr. Jacobe?
    Mr. Jacobe. I think that the way we phrased it in our 
question was the cost of health care. And the way most 
Americans and small businesses I think are perceiving whatever 
you say about Obamacare is in the cost of health care to the 
premiums.
    Mr. King. What is the average size of the businesses that 
were polled?
    Mr. Jacobe. Businesses that have less than $20 million in 
revenues or sales. Most of them are under a million.
    Mr. King. The numbers of their employees, do you have that?
    Mr. Jacobe. No. I can give that to you but it is relatively 
small.
    Mr. King. Thank you. And I turn then to Dr. Baily and ask 
what would in your estimation be the grandest Keynesian 
experiment in the history of the world? The largest, most 
expansive, grandest Keynesian experiment?
    Mr. Baily. World War II.
    Mr. King. I did not expect that answer because I thought we 
were fighting to defend liberty and freedom and it was not a 
Keynesian experiment at all. And I have never heard it 
expressed as a means for our economy to recover.
    Mr. Baily. But it did.
    Mr. King. It did. We got very large government spending. 
That would be the president's theory as well.
    How about we go with multiple choice here because that 
Keynesian experiment did not begin at World War II. We know 
that. It began with the initiatives of perhaps the Iowa 
president and then certainly with the New Deal of FDR. There 
was a follow-through of that under the same president all the 
way through. And then I will ask you this. Do you know when the 
stock market recovered from its peak in October 1929 when it 
finally got back to that level?
    Mr. Baily. No, I do not.
    Mr. King. Does anyone on the panel know that answer?
    Mr. Ferrara. I think it was after World War II, I think. 
Yes.
    Mr. King. Mr. Fredrich.
    Mr. Fredrich. Well, I was just going to say 1946.
    Mr. King. 1954.
    Mr. Fredrich. Oh.
    Mr. King. FDR had been dead for nine years by the time the 
Grand Keynesian experiment came back ground to breaking even. 
And so that is a depressing thing to think about the Great 
Depression, how long it took to come back from the Great 
Depressions.
    Mr. Baily. If you give me a second crack at that I would 
say Europe is providing a very good Keynesian experiment. They 
are all trying to reduce spending and raise taxes and they are 
all finding they are going into recession as a result. So that 
is the other side of the Keynesian coin.
    Mr. King. Well, the Germans are doing pretty well and have 
all throughout.
    Mr. Baily. Yeah, but they did not do any contraction.
    Mr. King. That is true because they did not experiment in 
the Keynesian fashion that the rest of Europe did because they 
fear inflation and they fear interest rates.
    But Mr. Ferrara, I wanted to ask you what--if we were to, 
as a former Massachusetts governor has advocated, repealed 
Dodd-Frank, the Community Reinvestment Act, privatized Fannie 
Mae and Freddie Mac, and repealed Sarbanes-Oxley, what do you 
think would become of our recovery?
    Mr. Ferrara. That would be a very good component on the 
deregulation component of the four points of Reaganomics that I 
mentioned.
    I just want to say on the Grand Keynesian experiment, World 
War II, check out the trends in consumer spending during World 
War II to see if that really was a Keynesian experiment. I 
think you will find that it was not having any kind of 
Keynesian effect and that is why the recovery did not really 
come until later.
    Mr. King. And just in conclusion as my time is wearing down 
here, does anyone have the answer to where are the unemployment 
numbers. How many no longer are qualified to meet the category 
of unemployment? Does anyone have the answer on how many 
Americans are of working age who are simply not in the 
workforce?
    Mr. Baily. I think that is one up recently. I think that 
has been going up.
    Mr. King. Let me just respond to my own question then and 
that is I have tracked this for six or seven years and there 
are different ways to define it. So you say Americans of 
working age not in the workforce. That number, roughly not 
quite 14 million unemployed added to those from off the 
Department of Labor's website, I started at 16 and I went to 
where unemployment is no longer paid and where Walmart does not 
hire. That is 74. Over 100 million Americans of working age 
simply not in the workforce. I just think that is an 
astonishing figure and worthy of consideration. I think your 
book is worth reading, too.
    Thank you very much. And I yield back.
    Chairman Graves. Mr. Richmond.
    Mr. Richmond. Thank you, Mr. Chairman. Thank you, Ranking 
Member.
    I do not want to oversimplify this but most of our 
decisions and opinions are based on real life experiences. In 
watched my parents operate a number of small businesses, one of 
which was an electrical contracting company, if no one was 
building they were not hiring. If people were not building 
homes, they were not doing any electrical work. If government 
buildings were not being built or retrofitted, they were not 
hiring. So I understand the question about government 
regulations and those concerns but are we overplaying the role 
of regulations compared to opportunity and demand? And if you 
can give a short answer to that I have another one also.
    Mr. Ferrara. Well, you know, the thing is that if you get a 
booming economy then the prices of the homes go up. People want 
to buy homes. There is more demand for homes. And so the focus 
needs to be--the regulation is just one component of a broader 
array. It is one real component but it is a broader array. And 
so the real focus needs to be get the economy overall booming 
and you will solve the housing crisis. You will solve the 
consumer confidence crisis. And that is the best way to solve 
the fiscal crisis, too. You have got to have economic growth or 
you are never going to deal with the deficit. You are not going 
to be able to deal with the deficit until you get the economy 
booming again.
    Mr. Jacobe. Let me just mention one number. According to 
our surveys, 29 percent of small businesses are hiring fewer 
people than they think they need. They are holding back. And 
there is a reason for all that caution. And what I am looking 
for is anything that can ease that caution, at least 
temporarily. Once they get more optimistic then I think what 
you said has a lot more power to it.
    Mr. Richmond. Now, since you brought up optimism, does a 
dysfunctional Congress add or subtract to consumer confidence 
in this country?
    Mr. Jacobe. It clearly hurts consumer confidence. Our 
numbers from last year as to what happened in August when we 
almost talked ourselves into a double dip, clearly Congress can 
have an impact on the economy directly.
    Mr. Richmond. Mr. Fredrich. Did I pronounce it right?
    Mr. Fredrich. You did.
    Mr. Richmond. Quick question. I read some of your bio in 
that you took a leap of faith after 9/11 to start your own 
business. It reminds me of what my parents did. So my question 
to you would be as you were purchasing that company was the 
number of rules and regulations and the regulatory environment, 
was that a part of your analysis when you looked at it? Or did 
you look at balance sheet, the assets, the income, the debt, 
and the revenue?
    Mr. Fredrich. I did not look at the regulations. I can tell 
you that. I should have but, you know, when you are not in the 
business it is amazing what you do not know. And there are lots 
of things. But it has gotten worse and it has accelerated.
    But can I answer your first question?
    Mr. Richmond. Absolutely.
    Mr. Fredrich. About your parents and their business. The 
amount of regulation that goes into building a new building is 
just unbelievable. Not so much at the federal level but at 
local levels, too. And it raises the cost of building to a 
point where people do not build.
    And the second point I would make is you should sponsor the 
repeal of the Davis-Bacon Act which forces people to employ 
union labor when I do not know if your parents, did they run a 
union shop or a non-union shop?
    Mr. Richmond. They ran a non-union shop and then they had 
jobs that were also prevailing wage.
    Mr. Fredrich. See, they got discriminated against because 
they could have gone in at a lower price and said, look, we can 
do the same darn thing at a lesser rate. Oh, sorry. Sorry.
    Mr. Richmond. Well, you mentioned the regulations for 
building. And I will just tell you as dreadful as 9/11 was and 
it highlighted our policies on terrorism and inadequate 
security at airports, being a survivor of Katrina highlighted 
the fact that you need real building codes. And you need to 
make sure that levies can withstand water and that we have some 
very basic standards. Do I think we can simplify the language 
we use in writing every document in this government? 
Absolutely. And I think that that should be how we categorize 
the conversation which is to simplify things as opposed to just 
say overregulating. But we need to make sure that we build safe 
homes that can withstand 100 mile per hour winds and things of 
that nature. And I think government does have to play a role in 
making sure that that does not happen so that we will have 
homes that survive earthquakes and we, God forbid, would ever 
have anything like Haiti. But building codes and those things 
make a difference. But I think the conversation and what would 
increase consumer demand and consumer confidence in this 
country is if we could get together and have a conversation 
about how we simplify stuff. How we make people really 
understand why is the tax code bigger than the Bible. Those are 
real conversations we should have. And I think we owe it to the 
American people to do it because we talk a completely different 
language than people every day just trying to figure out how to 
build a home, how to pay for it, how to go for work and save 
money.
    So that would just be my two cents. And if you all wanted 
to reply you can but I am out of time. And Mr. Chairman, thank 
you for allowing me to go.
    Chairman Graves. If anybody wants to reply they can.
    Mr. Baily. I agree.
    Chairman Graves. Mr. Chabot.
    Mr. Chabot. Thank you, Mr. Chairman, for holding this 
hearing. I do not want to repeat what a lot of others have 
already said so let me come at it a little bit differently. But 
I am sure some of it has already been mentioned.
    The president during his State of the Union address last 
week called for regulatory reform. I would argue if you look at 
the actions from this administration, however, any involvement 
that they have had relative to regulations has been anything 
but reform. It has been more and more regulations. And in fact, 
last year the Obama administration proposed over $230 billion 
in new regulatory proposals which would have--one survey showed 
that it would have meant another 133 million paperwork hours on 
businesses. And with that amount of paperwork it would have 
taken close to 66,730 additional employees just to comply with 
the law. And I guess you could argue there are jobs there but I 
think clearly those are not the type of jobs that are going to 
make this a more efficient economy and make us more competitive 
around the world. So I think it is clear that these burdensome 
regulations really remain a thorn in the side of this economy 
and one of the reasons, only one that we have not seen in the 
recovery that I think we would have expected.
    Dr. Jacobe, in your poll it indicated that government 
regulation remains the number one concern for small businesses 
and I know one of my colleagues on the other side had another 
poll that indicated something different. I know I have talked 
to an awful lot of small businesses in my community and I hear 
over and over and over again that government regulations is a 
big deal.
    And another one of my colleagues on the other side 
mentioned a dysfunctional government and it clearly is that but 
I would argue that dysfunction is in the Senate and not in the 
House. When you look at regulatory reform and getting rid of 
burdensome regulations, the House has passed something like 30 
bills which are sitting over in the other body and absolutely 
nothing is happening over there on these things. Or much of 
anything else. As of last week they had not passed a budget in 
a thousand days, which is almost three years despite the fact 
we are supposed to pass the budget every year and the House 
has. But once again not the Senate. But I think the dysfunction 
is over in the other body.
    Dr. Jacobe, if the Senate and this president perhaps would 
push the Senate into actually passing some of those 27 to 30 
bills--and I have got copies and could name what they all are 
but I do not want to bore you with all those things--if we 
actually passed some of this deregulation, getting the 
government the heck off the backs of these small businesses 
would that arguably have a significant effect on small business 
creation in this country?
    Mr. Jacobe. There are a couple of different factors 
obviously in that process. What I was trying to talk about was 
just a freeze because that to my mind would actually have a 
positive effect immediately. I think when you talk about the 
others it is a matter of what is being deregulated and all 
those details that you talk about. It certainly should have a 
positive impact. The question is how much depends on, you know, 
everybody has used deregulation differently or regulation 
differently.
    Mr. Chabot. Okay. And also one of my colleagues indicated 
the tax code being, you know, more than a Bible. And it is. It 
is actually eight Bibles stacked on top of each other is how 
complicated the tax code that both individuals and small 
businesses have to deal with in this country. What a waste of 
time that could be more profitably used to better run that 
business and may actually hire some folks.
    The other thing that I heard over and over again from my 
small business folks was how tough it is to get access to 
capital. And one of the things that that is attributed to among 
other things is the Dodd-Frank legislation. What I have been 
told is, you know, the banks and folks that would lend the 
money are now--they have the regulators looking over their 
shoulders even more and it makes it tougher for them to lend 
out money. And so the businesses are not growing. Would anyone 
want to comment on that? Any of the panel members? Yes, sir.
    Mr. Fredrich. When I spoke, and I understand that maybe he 
is not subject to Dodd-Frank, but in general what it does is it 
makes it more of a process than a relationship in lending. And 
ratios and statistics do not pay loans back. People, 
individuals pay loans back. And it is a matter of honor that 
you do it. And he thought that regulation, the Dodd-Frank 
regulation was changing that dynamic. It was changing it more 
from a relationship business, which it is, to just a numbers 
business where, oh, you fell out of our statistical 
acceptability range so you have got to go. We are recalling 
your loan. We would have been long gone. Our company, long gone 
early on in our lifetime. I would have lost everything. I would 
have lost my house, lost everything. I personally guarantee the 
debt and I still do. So I think it moves that. And if we did 
not have a relationship I would not be here today talking about 
it. So.
    Mr. Chabot. Thank you.
    Mr. Baily. If you look back to the period of the boom I 
think we did not have effective regulation of the financial 
system and that contributed to the crisis that we got into and 
contributed heavily to the recession and the unemployment we 
have now. So I think it was necessary to revisit the regulation 
of the financial system. I think that Dodd-Frank could have and 
should have been a bipartisan bill. I think it came very close 
to being a bipartisan bill but there was a decision at the end 
of the day to say no. We are not going to go along with that. 
Maybe it would have been a better bill if it had been a 
bipartisan bill. So I think that is an example of a 
dysfunctional Congress that we did not have a bipartisan bill 
on that.
    I do think that regulators now are looking over the 
shoulders of the banks and probably being a little bit too 
cautious. I think that would have happened with or without 
Dodd-Frank because, you know, they were on the beach back in 
2005 when a lot of these crazy loans were being made.
    Mr. Chabot. Mr. Ferrara.
    Mr. Ferrara. Well, I think the answer to your question is 
yes. I think the Dodd-Frank is one of the components that is 
perpetuating the lack of any recovery. And I think a 
fundamental factor, too, in the credit market is incentives as 
well. You know, venture capitalists, for example, they are very 
sensitive to all these tax burdens, the tax rates, and they do 
look down the line. So it is hard for companies to get venture 
capital. If they think the capital gains rate is going to go 
up, historically that has proven to be a very powerful factor 
affecting venture capital.
    And the point about the dysfunctional Congress, I want to 
note that one very good measure that the House passed is the 
Reams Act which would reestablish constitutional control over 
regulations and it is something that the other body really 
needs to move on.
    Mr. Chabot. Thank you very much. I yield back, Mr. 
Chairman. Thank you for holding this hearing.
    Chairman Graves. Ms. Velazquez, do you have any more 
questions?
    Ms. Velazquez. Well, I do not know if my colleague was 
referring to impacting access to capital for small businesses 
as a result of Dodd-Frank. Were you referring the lack of 
access to credit to capital to small businesses as a result of 
Dodd-Frank?
    Mr. Chabot. Yes.
    Ms. Velazquez. And my argument before to that assertion is 
the fact that Dodd-Frank exempt community banks who have assets 
less than $10 billion. And for the most part those financial 
institutions that are providing capital to small businesses are 
those community banks that are exempted from the Dodd-Frank.
    And here we have a chart from the Thomson Reuters/PayNet 
Small Business Lending that shows clearly since Dodd-Frank was 
enacted credit has been going up. So, you know, there is this 
perception that is not based on the facts.
    Thank you. And I yield back.
    Chairman Graves. Well, I want to thank all of our witnesses 
for being here. Obviously, small businesses are plagued by a 
number of things--that lack of available credit that has been 
there. Obviously, regulation that is hanging out over them. The 
idea that they have got a tax increase that is coming very, 
very quickly if something is not done about that. I think that 
is having a huge effect. And when 7 out of every 10 jobs in 
this country are created by small businesses that is where our 
problem is with economic growth.
    But I want to thank all of our witnesses for being here. I 
appreciate all of your testimony and this hearing is not quite 
adjourned.
    I do ask unanimous consent that all members have five 
legislative business days to submit statements and supporting 
materials for the record. Without objection, so ordered.
    With that the hearing is adjourned.
    [Whereupon, at 2:54 p.m., the Committee hearing was 
adjourned.]

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