[Senate Hearing 112-326]
[From the U.S. Government Publishing Office]
S. Hrg. 112-326
NOMINATIONS OF: ALAN B. KRUEGER, DAVID A. MONTOYA, AND CYRUS AMIR-MOKRI
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
NOMINATIONS OF:
Alan B. Krueger, of New Jersey, to be a Member of the Council of
Economic Advisers
__________
David A. Montoya, of Texas, to be Inspector General, Department of
Housing and Urban Development
__________
Cyrus Amir-Mokri, of New York, to be an Assistant Secretary of the
Treasury, Department of the Treasury
__________
SEPTEMBER 22, 2011
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Marc Jarsulic, Chief Economist
Laura Swanson, Policy Director
Glen Sears, Senior Policy Advisor
Brian Filipowich, Professional Staff Member
Andrew Olmem, Republican Chief Counsel
Beth Zorc, Republican Counsel
Mike Piwowar, Republican Senior Economist
Chad Davis, Professional Staff Member
Dawn Ratliff, Chief Clerk
Anu Kasarabada, Deputy Clerk
Riker Vermilye, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
THURSDAY, SEPTEMBER 22, 2011
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 2
WITNESSES
Alan B. Krueger, of New Jersey, to be a Member of the Council of
Economic Advisers.............................................. 4
Prepared statement........................................... 25
Response to written questions of:
Senator Shelby........................................... 29
Senator Vitter........................................... 31
David A. Montoya, of Texas, to be Inspector General, Department
of Housing and Urban Development............................... 6
Prepared statement........................................... 26
Cyrus Amir-Mokri, of New York, to be an Assistant Secretary of
the Treasury, Department of the Treasury....................... 7
Prepared statement........................................... 27
NOMINATIONS OF:
ALAN B. KRUEGER, OF NEW JERSEY,
TO BE A MEMBER,
COUNCIL OF ECONOMIC ADVISERS;
DAVID A. MONTOYA, OF TEXAS,
TO BE INSPECTOR GENERAL,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT;
CYRUS AMIR-MOKRI, OF NEW YORK,
TO BE AN ASSISTANT SECRETARY OF THE TREASURY,
DEPARTMENT OF THE TREASURY
----------
THURSDAY, SEPTEMBER 22, 2011
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:04 a.m. in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I call this hearing to
order. Thanks to all of our nominees for joining us here today.
I also extend a warm welcome to our witnesses' families and
friends who are here with us.
Today we consider three nominees to fill important roles in
the administration at the Council of Economic Advisers, the
Department of Housing and Urban Development, and the Treasury
Department.
The Council of Economic Advisers is an agency within the
executive branch charged with offering the President objective
economic advice and the formulation of both domestic and
international economic policy. At this point in the economic
recovery, the Administration's economic team must have all
hands on deck, so it is important that the Committee move in a
timely manner on the consideration of Dr. Alan Krueger for this
post.
David Montoya was nominated to serve as HUD's Inspector
General and fulfill the office's mission of providing
independent and objective reporting to the Secretary and the
Congress on HUD's operations. As with all executive agencies, a
confirmed Inspector General is crucial for the integrity,
efficiency, and effectiveness of HUD.
The Office of Financial Institutions within the Treasury
Department formulates policy on financial institutions, GSEs,
and financial education. I hope that the Committee can proceed
in the consideration of Mr. Cyrus Amir-Mokri as Assistant
Secretary so that this office can function at full capacity.
I now turn to Senator Shelby for any opening remarks he may
have. Senator Shelby.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman. I think this is a
very important hearing for these crucial nominees.
Dr. Alan Krueger, as you mentioned, has been nominated to
be the Chair of the Council of Economic Advisers. The CEA is an
agency within the Executive Office of the President that is
charged with providing the President economic advice, and there
is no more crucial time, Dr. Krueger.
Dr. Krueger is an accomplished labor economist. Given his
expertise in labor market dynamics, I would be interested in
hearing--we have met and talked--what policies he will advocate
at the White House. After more than 2 years of failed Keynesian
programs, I believe the President needs to be provided with
better advice, Dr. Krueger, that will help grow our economy,
not the size and scope of Government.
The Committee will also be considering today the nomination
of Mr. David Montoya to be the Inspector General of the U.S.
Department of Housing and Urban Development. That is also a
very important job. He has spent many years in law enforcement
as well as other Government oversight and supervisory roles,
and I would be interested here this morning in hearing how you
would apply your skills and your background in the
investigative, audit, and legal activities required of the
office. Inspectors General are tasked, as you well know, with
rooting out fraud and abuse as well as promoting transparency
and protecting the taxpayers.
For example, HUD's Office of Inspector General's most
recent semiannual report highlighted 500 convictions and 767
arrests related to fraud. That is a lot of stuff. In addition,
the Office of Inspector General determined that $768 million,
three-quarters of a billion dollars, of taxpayer funds should
have been put to better use at HUD during the 6-month period. I
believe you have your work cut out for you, but we want you to
do a super, super job.
Also here before us today--and I might struggle with the
name--is Cyrus Amir-Mokri. Did I get it right?
Mr. Amir-Mokri. Yes.
Senator Shelby. Thank you. He has been nominated to serve
as both the Assistant Secretary for Financial Institutions at
the Treasury Department and as a member of the Board of
Directors of the National Consumer Cooperative Bank. He has
recently served as senior counsel to the Chairman of the
Commodity Futures Trading Commission, where he also serves as
the Commission's deputy representative to the Financial
Stability Oversight Council. If confirmed, he will be
responsible for coordinating Treasury's efforts regarding
regulation and legislation affecting financial institutions. He
will also be responsible for coordinating Treasury's efforts on
financial education policy as well as overseeing the Terrorism
Risk Insurance Program and the Community Development Financial
Institutions Fund.
I thank all of the nominees for their willingness to serve
and to appear before the Committee, and I look forward to your
testimony.
Thank you, Mr. Chairman.
Chairman Johnson. Would any other Senators like to make a
statement?
[No response.]
Chairman Johnson. If not, I will now give brief
introductions of our three nominees.
The first nominee is the Honorable Alan Krueger, who has
been nominated as the Chairman of the Council of Economic
Advisers. Dr. Krueger is an eminent economist who is currently
the Bendheim Professor of Economics and Public Policy at
Princeton University and has published extensively. Dr. Krueger
also has a great record of public service. He served as
Assistant Secretary for Economic Policy in the Treasury
Department from 2009 to 2010 and as the Chief Economist of the
Department of Labor from 1994 to 1995.
Mr. David A. Montoya has been nominated to serve as the
Inspector General for the Department of Housing and Urban
Development. For the past 6 years, Mr. Montoya has been serving
as the executive special agent in charge of the U.S. Postal
Service Inspector General's Western Area field office. He has
over 24 years of great public service with the DEA, EPA, and
the Department of Interior.
Mr. Cyrus Amir-Mokri has been nominated to serve as
Assistant Secretary for Financial Institutions in the Treasury
Department. He most recently served as senior counsel to the
Chairman of the CFTC. In this role he also served as the CFTC's
deputy representative to the Financial Stability Oversight
Council. Prior to joining the CFTC, Mr. Amir-Mokri was a
partner at the law firm of Skadden Arps, where he focused on
complex securities and antitrust litigation.
I look forward to hearing the nominees' testimony.
Will the nominees please rise and raise your right hand? Do
you swear or affirm that the testimony that you are about to
give is the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. Krueger. I do.
Mr. Montoya. I do.
Mr. Amir-Mokri. I do.
Chairman Johnson. Do you agree to appear and testify before
any duly constituted Committee of the Senate?
Mr. Krueger. I do.
Mr. Montoya. I do.
Mr. Amir-Mokri. I do.
Chairman Johnson. Please be seated. Please be assured that
your written statement will be part of the record. Please also
note that Members of this Committee may submit written
questions to you for the record and you should respond to these
questions promptly in order for the Committee to proceed on
your nominations.
I invite all the witnesses to introduce your family and
friends in attendance before beginning your statement. Dr.
Krueger, please proceed.
STATEMENT OF ALAN B. KRUEGER, OF NEW JERSEY, TO BE A MEMBER OF
THE COUNCIL OF ECONOMIC ADVISERS
Mr. Krueger. Thank you very much. I would like to introduce
my wife, Lisa; my parents, Rhoda and Norman; and I see my
sister-in-law, Karen, and my niece--I am a little bit confused
on my niece because they are identical twins, but I see my
niece, Amy, and I am delighted that they are here.
Would you like me to proceed with my statement or----
Chairman Johnson. Please proceed.
Mr. Krueger. Chairman Johnson, Ranking Member Shelby, and
other distinguished Members of the Committee, I am honored to
have my nomination come before you today.
I am grateful to President Obama for asking me to serve as
a Member and Chairman of the Council of Economic Advisers at
this critical time for our Nation's economy.
I am also deeply grateful to my wife, Lisa, and to our
children for their support and willingness to allow me to
return to public service.
And I am grateful that my parents and wife could attend
this hearing today. Let me tell you a little bit more about
them. My mother worked as an elementary school teacher in East
Orange, New Jersey, and my father, an army veteran, had a long
career as a certified public accountant and small businessman.
From my father, I learned at an early age to respect the
entrepreneurs and small business owners who were his clients. I
have long appreciated that job growth is dependent on a vibrant
private sector. Government can only set the conditions for
private employers to prosper and grow. My father also
encouraged me to work as soon as I was legally able to do so in
order to save for my college education. My first job, when I
was in middle school, was working in a medical laboratory. In
high school, I worked at Baskin Robbins and later as an
assistant electrician. These early work experiences taught me
the importance of teamwork and that the actual labor market
does not always function the way that economic theory says it
should.
My wife is a math teacher at our local public high school,
which both of our children attended. I learned firsthand from
my mother and wife's tireless efforts how a quality education
can provide children with greater opportunities and a brighter
future.
I have been very fortunate in my own education. I graduated
from my local public high school in Livingston, New Jersey, a
year ahead of New Jersey Governor Chris Christie. I attended
Cornell's School of Industrial & Labor Relations. I then earned
a Ph.D. in economics from Harvard.
I subsequently have had the privilege of working as a
professor of economics and public policy at Princeton
University for the last 24 years, teaching and conducting
research.
I have conducted research on a range of topics, from job
growth and social insurance to terrorism and time use, from
bond markets to labor markets, from the economics of education
to the economics of Super Bowl tickets. I have tried not to be
tied to a particular doctrine of economic thought in my work
and instead have sought to develop the best evidence possible
to test economic theories and estimate key parameters.
This approach has often led me to collect original data and
use econometric methods to study natural experiments and policy
changes. Sometimes my findings have been contrary to what I
expected and contrary to the conventional wisdom among
economists. But, in every instance, I have tried to adhere to a
standard of reporting my findings objectively, regardless of
which school of thought they support.
I also recognize that the data and evidence that economists
and policymakers rely upon are not perfect. As a result, I have
strived to improve our data and statistical infrastructure.
Princeton briefly served as the capital of the United
States, and the University is true to its motto, first coined
by Woodrow Wilson, ``Princeton in the Nation's service.'' As
part of this tradition, Princeton afforded me the opportunity
to take a public service leave, as Chairman Johnson mentioned,
to serve as Chief Economist of the U.S. Department of Labor and
then as Assistant Secretary and Chief Economist of the Treasury
Department.
After returning to Princeton in November of last year, I
taught a new course called ``The Great Recession: Causes,
Consequences, and Remedies.'' I do not need to tell this
Committee that that course is still a work in progress. The
United States is still struggling to recover from the effects
of the financial crisis that erupted in 2008. While time will
heal many of the wounds in the economy, applying the proper
medicine will help those wounds heal more quickly. I take
solace in the fact that the United States is a resilient Nation
with great resources, including our physical and human capital,
our constitutional system of Government, our tradition of
entrepreneurship, and our common-sense approach to solving
problems. I am convinced that we can meet the serious
challenges we face with the right mix of economic policies and
faith in American workers and businesses to adapt to change and
emerge a stronger country.
The Council of Economic Advisers is a unique and important
institution within the Government. The President relies on the
Council to provide the best available objective analysis of the
economy. I think an important role of the Chairman of the
Council is to present to the President a range of views from
leading schools of economic thought indicating the uncertainty
surrounding an issue and highlighting where others hold
different views from the Chairman. My background as a labor
economist, teacher, and researcher helped to prepare me to take
on these duties, if I am confirmed.
I am humbled and honored to have the possibility of serving
the Nation, should I be confirmed.
Thank you again for the time and opportunity to appear
before you today, and I look forward to answering your
questions.
Chairman Johnson. Thank you, Dr. Krueger.
Mr. Montoya, please proceed.
STATEMENT OF DAVID A. MONTOYA, OF TEXAS, TO BE INSPECTOR
GENERAL, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Montoya. Thank you. With me today, if I may, sir, is my
brother, Daniel Montoya.
Chairman Johnson, Senator Shelby, and Members of the
Committee thank you for the privilege and the opportunity to
discuss my nomination as Inspector General of the Department of
Housing and Urban Development. It is an honor to appear before
this distinguished Committee.
If you will permit me, I would like to acknowledge my wife,
Katherine, and children, Alyssa and Jonathan, both of whom are
students at Colorado State University. While they were unable
to attend with me today, I want to take a moment to publicly
thank them for all of their support, thoughts, and prayers. I
would also like to recognize my brother Daniel, who is here
with me today, and my sister, Deborah, who unfortunately could
not attend. I also want to acknowledge my parents who have
truly been an inspiration to me. They raised me and my siblings
with a strong work ethic, a dedication to public service, and
leadership.
Last but not least, I would like to also recognize and
thank Mr. David Williams, the Inspector General for the U.S.
Postal Service and the Council of Inspectors General for
Integrity and Efficiency, for staying with me through this
nomination process.
I am honored that President Obama has nominated me to the
position of Inspector General for the Department of Housing and
Urban Development. The Department's mission, as you know, ``is
to create strong, sustainable, inclusive communities and
quality affordable homes for all,'' and I believe that owning
your own home is truly a fundamental American dream. The
Inspector General for the Department of Housing and Urban
Development's mission promotes the integrity, efficiency, and
effectiveness of HUD programs and operations to assist the
Department in meeting its mission.
My career has prepared me for the challenges of this
position. I have spent the majority of my professional life
dedicated to public service in Federal law enforcement. Sixteen
of those years have been in oversight, supervisory, and
leadership positions, including 10 years in the Federal Senior
Executive Service and the Postal Career Executive Service.
As an executive special agent in charge for the Office of
Inspector General at the U.S. Postal Service, I direct the
largest field office overseeing 60 percent of the United States
and a Postal Area with just under $1 billion in contract
obligations. As Assistant Inspector General for Investigations
with the Office of Inspector General at the Department of the
Interior, I reorganized and directed a national law enforcement
program which helped to protect America's natural resources and
heritage.
As Deputy Director and Acting Director of the Environmental
Protection Agency's Criminal Investigation Division, I provided
leadership and direction to a national environmental crimes law
enforcement program that investigated and helped to prosecute
criminal conduct that threatened the health of our citizens and
our environment.
And, finally, as a special agent with the Drug Enforcement
Administration, I conducted criminal investigations of
individuals and organizations who threatened our country's
security with the importation of illicit drugs and the violence
that drug trafficking produces.
My professional career has been characterized by increasing
leadership roles and responsibilities with a commitment toward
accountability and high ethical standards. While I have spent a
career investigating violations of either criminal, civil, or
administrative laws and regulations, it has always troubled me
that these crimes and violations occur in the first place.
If confirmed as the Inspector General for the Department of
Housing and Urban Development, I will stress the need for
collaboration with Secretary Donovan and HUD staff to ensure
that HUD's resources are being effectively and efficiently
implemented. In addition, I will work to ensure early detection
of warning signs of fraud or abuse through the IG's audits,
evaluations, reviews, and investigations. Every IG employee
will focus on prevention, while ensuring that all funds lost
through fraud, abuse, or mismanagement are fully recovered.
A key priority, if I am confirmed, will be to maintain a
strong partnership with this Committee and the Congress. The
laws you write must be implemented in a manner that fulfills
your intent and the very real needs of the people for whom they
were written.
With the state of our economy and the limited financial
resources our Government faces, it has never been more
important to ensure that every dollar spent is spent well.
Given my background, I understand the responsibilities that
the position of Inspector General will require. I believe that
the knowledge and experience I have gained in nearly a quarter
century of public service in investigative and oversight roles
make me uniquely qualified and prepared for the new challenges
I will face, should I be confirmed.
If confirmed, I would look forward to the opportunity to
work with this Committee and other Members of Congress,
Secretary Donovan, and our State and local partners to be
accountable and transparent with the work of the Office of
Inspector General and the oversight of HUD's program
responsibilities.
Chairman Johnson, Senator Shelby, Members of the Committee
thank you for allowing me the distinct privilege to testify
here today. I would be pleased to answer any questions you may
have.
Thank you.
Chairman Johnson. Thank you, Mr. Montoya.
Mr. Amir-Mokri, please proceed.
STATEMENT OF CYRUS AMIR-MOKRI, OF NEW YORK, TO BE AN ASSISTANT
SECRETARY OF THE TREASURY, DEPARTMENT OF THE TREASURY
Mr. Amir-Mokri. Thank you, Mr. Chairman. With me today are
my parents, Mahvash and Ebrahim Amir-Mokri, sitting behind me,
and my sister, Mina Amir-Mokri.
Chairman Johnson, Ranking Member Shelby, and distinguished
Members of the Committee, I am honored to appear before you
today as the nominee for the position of Assistant Secretary of
Treasury for Financial Institutions.
I introduced my family. I just wanted to say that I would
not be here today without their love, support, and sacrifice. I
just want to take a moment right now to give special
recognition to my parents' sacrifice. They were at or about my
age today when, shortly after the Iranian revolution of 1979,
they sent their two children, then aged 16 and 13, abroad.
Physical separation between parents and children is difficult
under any circumstance, but this difficulty was even more
pronounced in those days because of the tensions that bedeviled
relations between the United States and Iran, particularly
during the hostage crisis and its aftermath. To give me and my
sister the support we needed to go through school and young
adulthood, my parents left behind everything that they had
worked for in their careers, and more, and joined us in the
United States to start a new life. And so we came to America in
search of truths that the Declaration of Independence holds to
be self-evident: that we are endowed by our Creator with the
unalienable rights of life, liberty, and the pursuit of
happiness. To our family, America has meant the realization of
that promise.
To all those around the world who wonder what America
offers and what it represents, I ask that they consider my
story. From the moment I arrived in 1981, I have known nothing
but kindness, warmth, respect, and encouragement, whether it be
in the idyllic town of Beaver Dam, Wisconsin, where I spent a
year finishing high school, or in the cosmopolitan metropolis
of New York City, which is now my permanent home. In America, I
have not been judged by the place of my birth, but by my
dedication, loyalty, and hard work. The fact that a first-
generation immigrant from Iran finds himself sitting before
this distinguished Committee today proves that America, indeed,
is a very special place.
I am truly humbled that, in these extraordinary times,
President Obama has nominated me to discharge the significant
responsibilities of the Assistant Secretary of the Treasury for
Financial Institutions and to serve as a Director of the
National Consumer Cooperative Bank. And I am extremely grateful
to Secretary Geithner for his confidence and support and for
recommending me for the President's consideration.
In these challenging times, it is my privilege to answer
the call to public service. As a first-generation immigrant, I
believe that I have a duty to give back to the country that has
given so much to me. I also believe that we are all custodians
of the idea of America, and we bear the solemn responsibility
of safeguarding this idea of America so that it may continue to
inspire people around the globe to seek a better life and to
build a better world.
Today we continue to recover from the most profound
financial crisis since the Great Depression. Congress enacted
landmark legislation to remedy flaws in our financial system.
It is critically important that financial regulators continue
carefully to implement the reform agenda embodied by that
legislation in a coordinated and measured fashion, consistent
with the intent of Congress. Our approach should strive to
achieve appropriate balances so that we establish and maintain
a healthy financial system while also continuing to encourage
efficiency and innovation. We must continue to build the
institutions designed for detecting and addressing systemic
risk so that we do not experience a recurrence of the financial
crisis of 2008. We must also work with regulators around the
globe to ensure that financial regulatory regimes are
consistent so that the playing field is not tilted to anyone's
unfair advantage. Mindful that much of America is served by our
community banks and that small businesses form a critical part
of our job-creating engine, we must work to facilitate the
means by which they can once again flourish. We must also work
to ensure that Americans have access to housing, but that our
financial system provides financing in a responsible manner. If
confirmed, I will look forward to working with Congress toward
these ends.
I believe that my professional background has prepared me
to accept this responsibility. Most recently, I was senior
counsel to the Chairman of the Commodity Futures Trading
Commission. I also served as the CFTC's deputy representative
to the Financial Stability Oversight Council. After passage of
the Dodd-Frank Act, I participated in the CFTC's implementation
efforts and oversaw coordination of the CFTC's work with
implementation by other financial regulatory agencies. And I
supervised the CFTC's efforts to harmonize its regulations with
the SEC.
Before joining the CFTC, I was a general commercial
litigation partner at Skadden Arps where, all told, I practiced
law for more than a dozen years. My principal focus was in
antitrust and securities litigation. I also served on the
Practicing Law Institute's annual Consumer Financial Services
Litigation program.
If confirmed, I look forward to working closely with you to
take the necessary steps to building and maintaining a
financial system that can reliably sustain a growing,
prosperous economy over the long term for all Americans.
Thank you.
Chairman Johnson. Thank you, Mr. Amir-Mokri.
Dr. Krueger, I want to start by following up on something
we talked about when we met last week. The unemployment rate is
currently 9.1 percent. Do you think that most of the rise in
unemployment has been structural or cyclical?
Mr. Krueger. Thank you, Chairman Johnson. Since 2007, most
of the rise in unemployment, in my view, has been cyclical. A
concern I have, however, with the particularly sharp rise in
long-term unemployment is that some of the cyclical
unemployment may become structural. And I would also mention
that even before the recession, the United States was having
difficulty with job growth. The fraction of the population
employed never recovered between 2000 and 2007 to its previous
peak, so there are trends underlying the economy which are
slowing down job growth, which may indeed be related to some
structural forces.
Chairman Johnson. Dr. Krueger, you supported a new job tax
credit for employers when we had slow growth back in the early
2000s, and now the President has proposed a measure along these
lines. How do you think this policy will work now?
Mr. Krueger. Well, I think the President's proposal in the
American Jobs Act to eliminate the payroll tax on additional
payroll that employers add is a measure which will have a lot
of bang for the buck in terms of job creation. The CBO analyzed
a variety of programs and found that a form of the new job tax
credit, which the President's proposal is, has very high bang
for the buck. I think it is focused on a dimension of the job
market that is particularly weak, which is hiring. And I think
it is also important to note that eliminating the 6.2 percent
payroll tax for additions to payroll and cutting it in half for
other employees in the President's proposal is focused on small
employers because of the caps on the amount that employers can
receive in this tax credit. And I think that is also
particularly timely because small employers have been
struggling in the recovery, and this will help their cash-flow,
and small employers depend a lot on their cash-flow for their
investment and hiring.
Chairman Johnson. Dr. Krueger, the economic performance of
the small business sector is a continuing concern. I think you
had a hand in proving statistical data to track small business
performance to help inform our policymaking. So what can you
tell us about how small business is faring now?
Mr. Krueger. Yes, that is right. One of the problems with
tracking the performance of small businesses is that the data
that we get are only available with a lag, and the Bureau of
Labor Statistics had an ongoing survey called the Job Opening
and Labor Turnover Survey, which began about 10 years ago, and
this survey has information on establishment size, but they
were not being produced on a regular basis. So I talked to the
Bureau of Labor Statistics and asked if it might be possible to
produce a new series, and indeed, what this data set shows,
which is the most current, most authoritative current data that
we have on small business job growth, is that small employers
have been having much more difficulty than large employers.
There are several research studies which find that that is
not so unusual in the aftermath of a financial crisis. Small
businesses are more dependent on bank financing than large
companies that can go out and issue corporate debt. Given that
the financial crisis led to an increase in credit tightening,
that has been hurting small businesses, which is one of the
reasons why I think helping their cash-flow can also help to
support their additional hiring.
Chairman Johnson. Mr. Montoya, as you know, this is a
difficult time for too many Americans in need of affordable
housing. What steps will you take to ensure that your office
examines and works with HUD to improve the administration of
their programs that millions of Americans count on?
Mr. Montoya. Yes, sir, thank you. Well, clearly, I think
through our audits, evaluations, and review process and working
with the Department program managers, not only HUD's but
obviously our State and local partners to figure out just
exactly what is working well within these programs and what is
not. Clearly, those have to take a priority. I think much like
Senator Shelby mentioned, the arrests in the last couple of
years have been very high. That tells me there is a problem.
Something is obviously broken if that many arrests can happen
with regards to fraud in these programs. So, clearly, an
oversight role, making recommendations not only to HUD but to
this Committee on concerns that we have and areas of weakness
that we think could be tightened up to keep these monies going
to those that need it the most, sir.
Chairman Johnson. Mr. Amir-Mokri, if confirmed, what role
do you think the Office of Financial Institutions can play to
aid in our Nation's economic recovery? What would be your
approach?
Mr. Amir-Mokri. Thank you, Mr. Chairman. The portfolio of
the position, Mr. Chairman, as Ranking Member Shelby was
indicating, consists of financial institutions, other areas
including housing and focus on small business issues. So it
cuts across a number of very important and central matters that
we are concerned with in the economy. And I certainly would
feel that that office would play an integral role in supporting
the efforts to better our economy.
In terms of the approach that I would take, I would kind of
go back to the experiences of my life and how I have served in
my various professional capacities. I have been an adviser,
whether in private practice of law or serving as an adviser to
the Chairman of the Federal regulatory agency, what I would do
is try to look at every side of an issue, be inclusive of all
viewpoints. I am a firm believer in Justice Holmes' idea of a
marketplace of ideas. You look for the best ideas. Extensive
consultation working with the Members of Congress. I would
also--in my approach I also believe in coordination of many
different interests and interested stakeholders and agencies,
whether it was in private litigation working on complex cases
or in my role as--my coordinating role at the CFTC with other
Federal regulatory agencies. I would certainly bring that
approach.
And, finally, I think what I would try to do is, given my
private sector background, to be sensitive to issues that are
of concern to the private sector. For years I advised companies
on the impact of Government action and worked with them on
their compliance with Government regulations. So I certainly
would like to bring that sensitivity as well, but mindful of
the deep financial crisis that we have been through and the
important reforms that Congress has enacted.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
I do not speak Farsi, so I probably will not pronounce your
name right again. You have a beautiful education. You had a
beautiful story of coming here, and your family. Amir-Mokri is
that close or not?
Mr. Amir-Mokri. That is very close, Senator. Mokri.
Senator Shelby. Doctor. He is a doctor. He has a Ph.D. and
a J.D., so we can call him that, although he does not purport
to teach right now.
According to a piece in today's Financial Times--you may
have read it and you may not, but probably you have--Spain's
economic problems are likely to spark, according to the
article, a Spanish banking crisis, which nobody wants. It is
very possible that a banking crisis in Spain could quickly
spread to other European countries. We have been worried about
Greece, and we still are. We have been worried about Portugal,
and we still are. Ireland is not out of the woods yet. Italy
has been in the news.
What is your assessment of the impact that a European
financial crisis--and its dark clouds hanging right now, as you
know--would have on our banking system? Chairman Bernanke has
already said and we know that there are some interrelated deals
here. Candidly, for this Committee.
Mr. Amir-Mokri. Right. Thank you, Senator Shelby. I think
that is obviously a very, very important subject. I have not
seen that particular Financial Times report, but----
Senator Shelby. Would you pull your microphone up just a
little bit?
Mr. Amir-Mokri. Certainly. I have not seen that particular
Financial Times story, but Europe----
Senator Shelby. But you understand the problem.
Mr. Amir-Mokri. Absolutely. Europe has been an issue that
has been of concern for a long time.
Senator Shelby. It is an issue not going away soon, it does
not look like.
Mr. Amir-Mokri. In response to your question, specifically
what impact it is going to have, just to be clear, because I
have been away from the Federal regulatory agencies since early
March, so----
Senator Shelby. But you bring a lot of experience and
knowledge to this table.
Mr. Amir-Mokri. Exactly. So here is how I would think about
it. We have to make sure that we understand what our exposures
are. We have to make sure that we are prepared in terms of--in
light of what exposures we have.
Senator Shelby. What do you mean by being prepared? What do
you mean? Prepared for the inevitable? Prepared for some bad
news, or what?
Mr. Amir-Mokri. I think that--any circumstance that may
come up. I think that it is, you know, sitting here today, it
is--I do not want to prejudge anything. I do not want to
suggest that anything is going to happen or not going to
happen. So I just think that we should be prepared for any
eventuality.
And, finally, the one principle that I think should always
drive how we think about this is protection of the U.S.
taxpayers. So that is kind of how I would----
Senator Shelby. Can we disengage ourselves from Europe, or
are we so intertwined in the financial area that there is no
way to do it short of a financial catastrophe?
Mr. Amir-Mokri. That is one of the very important
questions, Senator. Again, it is such a moment and fact and
circumstance, and, you know, having all the information at your
fingertips question that I--what I would do is I--I am very
mindful of that question, and, you know, there is information
gathering and consultation and all that that has to occur
between agencies and, you know, foreign authorities.
Senator Shelby. Would you agree that it is going to be hard
to paper over, you know, just broad brush, the deep financial
problems that Europe and European banks have today that we know
about? It is not going to just go away like a Band-aid over it.
Mr. Amir-Mokri. Well, Senator, again, I do not want to
prejudge anything. I think the Europeans are--my understanding
is that they are trying to deal with their issues. You know, we
certainly have to give them a chance to resolve their own
issues, and----
Senator Shelby. Dr. Krueger, do you want to comment on
this? What is your assessment of Europe right now as we talk?
You are going to be at the White House, assuming you are
confirmed--and I believe you will be--and you are going to be
giving advice to the President. You will be interacting with
Treasury and everything else. You will be interacting with this
Committee and, of course, the House Committee on Financial
Services. We have deep problems. Europe probably has got deeper
problems. What is your observation there, candidly?
Mr. Krueger. Thank you for the question. I would make a few
observations.
First of all, there is tremendous heterogeneity in Europe.
Much of Europe is in strong fiscal health, and then there are
some countries----
Senator Shelby. Say that again, now.
Mr. Krueger. Much of Europe--Germany, France are in strong
fiscal health.
Senator Shelby. You are saying France is in strong fiscal--
--
Mr. Krueger. Fiscal health, government--the fiscal
positions of their government.
Senator Shelby. I know Germany is, or has been.
Mr. Krueger. In Germany, for example. So I just want to
highlight that there are differences across Europe, as you
certainly understand. And when problems arise in Europe, as you
mentioned, we are not insulated from them. The financial
markets are integrated, and also our exports are affected. And
one of the drags that has occurred in our recovery comes from
both of those channels. Volatility in our financial markets is
higher. Our exports are being held back because of weaknesses
in Europe.
One way of insulating against that is to try to increase
demand for our products domestically. Components of the
American Jobs Act would do that, for example, the payroll tax
cut for employees.
Senator Shelby. You are talking about the proposal the
President has made lately?
Mr. Krueger. The President's proposal would help insulate
us if we see a drop in exports.
Senator Shelby. Do you believe that is going to be passed
in this Congress? Do you think that has got any life or legs to
it?
Mr. Krueger. You know, Senator, I try to analyze the
economics of the proposals. I leave the politics to those who
work on the politics.
Senator Shelby. But isn't this proposal, as some people
would say, a ``on of the stimulus bill,'' a smaller stimulus
bill? You indicated that to me in our conversation. Maybe not
in those words.
Mr. Krueger. Well, I think it is focused on the problems
and the weakness that we have in the economy, and I think it
will strengthen aggregate demand, which is what we need to do.
And I would also just add, as you alluded, our banking system
is a lot stronger today than it was a few years ago. The
increased capital that our banks have raised helped to provide
a buffer against those shocks.
Senator Shelby. Thank you, Mr. Chairman. Are we going to
have another round?
Chairman Johnson. Yes.
Senator Shelby. OK.
Chairman Johnson. Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
Let me add my welcome to the witnesses who are here today
and also your families who are here to support you and even
friends.
Dr. Krueger, we are in the middle of an unprecedented
battle of our budget and deficits. It is as much a political
debate as it is a policy and Government debate. As Council for
Economic Advisers Chair, you will have a critical role in
providing recommendations on economic policy based on objective
economic research and data. How do you view your role in
providing advice to the President, and hearing your economic
background and the background you have had, it brings with you
an interesting wealth of knowledge that you can apply.
So my question is, is there an intersection between
political considerations and factual data-based considerations
that you would use?
Mr. Krueger. Thank you very much for your question,
Senator. The President said when he announced my nomination
that he relies on the Council of Economic Advisers to provide
him unvarnished objective economic analysis, and that is what I
intend to do if I am confirmed for the position.
How would I go about that? Well, the Council has an
excellent staff. I saw at least one of the Members here
earlier. I see both of the Members, who the Committee knows,
Carl Shapiro and Katharine Abraham, both outstanding economists
who I have worked with for over 20 years in my capacity as an
academic. Together with our staff, we will gather evidence. We
will look at the relevant theory. We search the literature. We
talk to people involved in the policy, people in business, to
learn more about what is going on on the ground. We monitor
trends, monitor trends in Europe, for example. And then wading
through this information present to the President the pros and
cons of various options, the risks that we face, and, as I
said, try to do this and let others make the political
judgments. We provide the best economic input that we can.
Senator Akaka. Thank you. We are in the middle of this
crisis, but you were the Chief Economist at the National
Council of Economic Education for several years and a senior
official at Treasury. Based on these experiences, do you see a
value to investing in financial literacy initiatives during
these difficult economic times?
Mr. Krueger. Well, thank you for asking about that and for
noticing my work for the National Council on Economic
Education, which subsequently changed its name to the Council
for Economic Education. I believe that economic and financial
literacy is critical. I think a better informed population
makes better economic decisions and that strengthens our
society, it strengthens our economy, and I have worked together
with the NCEE. I have actually devoted several years to writing
a high school economics textbook. Two million students take
economics in high school, more than take it in college, and I
think it is critical to reach people at an early age to teach
them about making economic decisions and personal finance
decisions.
When I was at Treasury, I worked together with Michael
Barr, who had financial literacy in his shop, the same position
that Cyrus Amir-Mokri--I do not know if I pronounced it
correctly, either--has been nominated for, and we worked very
well together and I think there are many opportunities to try
to further economic and financial literacy.
Senator Akaka. Thank you.
Dr. Krueger, the Census report that was released last week
showed an increase of poverty in 2010. This includes an
increase in children living in poverty. The report also showed
that the level of hardship would have been much worse without
unemployment insurance and the EITC, Food Stamps, and Medicaid.
Some experts claim that we can reduce the deficit without
sacrificing these low-income assistance and safety net
programs. What do you think? What are the key programs to keep
poverty levels from rising even higher? What data could you
point to that could convince our colleagues to preserve these
programs?
Mr. Krueger. Thank you for the question. I think you
highlighted the key programs in your question. All of those are
key. I would mention, particularly with long-term unemployment,
with over 40 percent of he unemployed spending 6 months or
longer unemployed, unemployment insurance is now more of a
bulwark against poverty. The programs you mentioned function as
automatic stabilizers. They provide support for families to
maintain their consumption, to pay for their mortgage, and so
on, when the economy is weak. That helps the macro economy.
And then the last thing I would mention, the best anti-
poverty program would be sustaining the recovery, strengthening
job growth. I think ways that we have seen poverty decline in
the past, in addition to the programs you cited, is a stronger
economy and stronger job growth, so I would mention that, as
well.
Senator Akaka. Thank you very much for your comments.
Chairman Johnson. Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman.
Gentlemen, thank you for your willingness to serve and also
the support your families will give you in that great service.
Let me start with Professor Krueger. You are not only a
noted economist, but you have also served previously in
Government, so you bring many talents to bear. One program that
we had a chance to speak about in my office is the Work Share
Program, which is part of the President's proposal. It is
working very well in Rhode Island, and for my colleagues'
benefit, essentially, it allows the employer to basically
furlough a worker for 2 days. They can collect unemployment,
pro rate unemployment benefits. The employer maintains other
benefits.
But it has been extraordinarily successful in Rhode Island.
I visited a machine tool company that has used it several times
in the last year. Now, everyone is back at work. They are doing
well. And instead of sort of casting people away and losing
them forever, their talents, they have maintained the integrity
of their operation.
So I wonder if you might comment on that, Professor
Krueger, how important it is, and it is something I hope we can
get through.
Mr. Krueger. Well, thanks very much for raising that issue.
I think work sharing has been an important component in
softening the effects of the recession in other countries and
in speeding the recovery. Some States, as you mentioned, Rhode
Island in particular, have had effective work sharing programs
as part of their unemployment insurance program.
In the President's proposals in the American Jobs Act, the
President had several ways of reforming unemployment insurance,
and I think we may be at a unique moment where we could take a
75-year-old program and allow the States to do more
experimentation with work sharing or wage loss insurance for
older workers. I think we are in a situation where we might be
able to learn from those--I hesitate to use the word
``experiments,'' because it is not quite an experiment, but
learn from those new programs and strengthen unemployment
insurance going forward, and if I am confirmed, I would very
much welcome an opportunity to work with you on those issues.
Senator Reed. Thank you, Professor.
I notice, and some of my colleagues might have noticed,
there is an op-ed piece in the New York Times that referred to
a new book by the head of the Gallup polling organization, and
basically his conclusion looking at data worldwide is that the
next 30 years is going to be dominated by trying to create jobs
everywhere, and the suspicion, at least one comment was that
there might be an at least temporary finite limit so that we
are in a very rough race against tough competitors. But job
creation, that seems to me should be central to all policies,
because in your view, it looks like it is central to policies
of our other economy at this time, and if we neglect it, then
we will be poorer for it. Is that fair?
Mr. Krueger. It is interesting that you raise that because
I just received a copy of that book from Jim Clifton, the
author. I should also acknowledge I have been a senior
scientist for the Gallup Organization. I have worked on the
world poll, which is the data set he analyzes for that book.
One of the findings I found striking is the role of
entrepreneurship and formal jobs. When we look across countries
in the world, the countries which have the larger formal
employment sector are the ones that have stronger GDP. And I
think of this very much as how do we strengthen
entrepreneurship. How do we maintain a formal employment
sector. We do not want jobs under the table. I have not
finished digesting the book, I have to say. I read chunks of it
on the train on the way down here for this trip. But I think he
raises a number of important issues in the book.
Senator Reed. Thank you very much.
Mr. Montoya, good luck with your important work, and just a
quick question. The IGs usually come in after the explosion and
try to sift through the rubble. Are you going to take, or try
to take the view that you can also be helpful before these
problems occur by looking sort of generally at the Department
and offering advice and suggestions to the Secretary?
Mr. Montoya. Thank you for the question, Senator Reed.
Absolutely. I am coming in with the frame of mind that it is
probably more important for me to look at preventative
measures, measures that we are going to stress the economy, the
efficiency and the effectiveness of these programs, well before
we get into any investigative work. As I said earlier, once we
get to that investigative stage, it is too late. We are chasing
after people we do not know and looking for money we probably
will never get back.
So for me, critically important will be to work with the
Department and our stakeholders, State and local stakeholders,
to ensure that these programs are running the way they are
supposed to so these monies get to the people who need it most,
sir.
Senator Reed. All right. Good luck with your efforts. My
time has expired, but we had an opportunity, I think, to talk
frankly and about important issues. I appreciate your
commitment and I would look forward to supporting you as you go
forward. Thank you, gentlemen.
Mr. Krueger. Thank you, Senator.
Chairman Johnson. Senator Menendez?
Senator Menendez. Well, thank you, Mr. Chairman.
Congratulations to all of you on your nominations and your
families who are here, and I specifically want to recognize Dr.
Krueger, who is a New Jersey native, grew up in Livingston, a
professor at Princeton, has had an extraordinary career. In my
view, by the President's nomination of you, it is a very strong
statement, as one of the Nation's foremost job experts, that
job creation is number one on his economic priority efforts, so
I appreciate that and I appreciate your service.
I want to start off by asking you, I know there is a chorus
of voices who believe that maybe we should do nothing and that
nothing will somehow create jobs in America. Can you give me a
sense, if we do nothing from a governmental macro sense, what
would we expect on the job market?
Mr. Krueger. Thank you, Senator, and thanks for mentioning
my past service. Let me just say that, having worked at the
Treasury, having had the opportunity to go to some meetings
together with the President, I do not think the President is
satisfied with the pace of the recovery. I have seen him try to
lead, every meeting I went to, looking for ideas for
strengthening the economy. And the reason why, when he asked me
to come back, I agreed, is because I think there are more
things that we can do to strengthen the economy.
The risks that we face of doing nothing are that the
economy is facing several headwinds. One of those headwinds is
the aftermath of the financial crisis. Families are
deleveraging. They are reducing their debt. That is cutting
back on their consumption. And also----
Senator Menendez. The financial crisis that came to a peak
in September of 2008.
Mr. Krueger. That is correct.
Senator Menendez. All right.
Mr. Krueger. But the problems that caused the crisis took a
long time to buildup, including excess debt, and families are
working their way down through that debt. The financial crisis
itself has a lingering effect because the appetite for risk has
been reduced. Investors tend to swing after an event like we
saw in 2008.
On top of that, the support that has been provided for the
economy is phasing down. The Recovery Act was, for the most
part, temporary. Those programs are phasing out. That has been
a drag on the economy, and I think you can see that effect,
particularly in State and local governments which received
support to retain teachers and first responders, and as that
support has been cut back, we are seeing a lot more layoffs at
the State and local level.
And then, finally, as Senator Shelby mentioned, we have the
volatility, uncertainty from what is going on in Europe.
So I do not think this is a moment to say we do not want to
try to do more to strengthen the economy, to try to speed the
rate of job growth. For me, it is, if I am confirmed, a
tremendous opportunity to go back with the people who I worked
with, Secretary Geithner, who is the most dedicated, loyal
public servant I have ever had the opportunity to work with,
the rest of the economics team, and under the leadership of the
President, who has encouraged me and the whole team to look for
new solutions, solutions that have very high bang for the buck,
and that not only strengthen the economy in the short run, but
also put us in a better position in the long run by investing
in the future, by trying to raise productivity in the future--
--
Senator Menendez. Let me----
Mr. Krueger.----and----
Senator Menendez. Unfortunately, I do not have the same
time that you have in your classroom at Princeton----
[Laughter.]
Senator Menendez.----so let me try to get you to be a
little more succinct. I do appreciate your answer, but I want
to get specifically what do you believe are--there are many
elements into job creation, but what do you think are some of
the most important ones, and as a corollary to that, I read the
General Electric CEO is talking about the fundamentals of the
economy are actually stronger than you would think compared to
the negative outlooks that many people have. How do we change
that dynamic?
Mr. Krueger. Well, as I alluded in my opening statement,
there are certainly strengths in our economy. The corporate
sector is very strong. Corporate balance sheets are much
stronger now than they have been in the past. So when they do
see a pick-up in things, it is possible, and indeed, I would
say likely, that we will see a more rapid turnaround.
I think the fundamental problem that the U.S. economy is
facing right now is weak aggregate demand. I think this is
fundamentally a result of the excess borrowing that took place.
The savings rate has been rising. So increasing aggregate
demand, such as by cutting the payroll tax or supporting the
unemployed, who have a very high marginal propensity to
consume, I think have a lot of bang for the buck.
And then I would just last add working on the hiring
margin, making it less expensive for employers to hire through
cutting the payroll tax for companies that expand their
payroll.
Senator Menendez. Mr. Montoya, you and I had a good
discussion in my office. I do not have any questions for you. I
appreciate your view about being proactive instead of just
reactive as the Inspector General, and I look forward to, as
the Subcommittee chair on housing, working with you in that
regard. So I look forward to supporting your nomination.
Finally, Mr. Amir-Mokri, your role is a very important one
in Treasury and I would like to get a sense of--I read your
statement, but I would like to get a sense of how you are going
to approach the Treasury Department's interaction with the
financial institutions that we dealt with in 2008 as a result
of the crisis that Chairman Bernanke outlined would create
systemic risk to the entire country's economy and the verge of
a new depression. How are you going to view the implementation
of Dodd-Frank in your role, but also how are you going to
balance that implementation in a way that we get the right
messages on responsible lending to take place, because we see
this incredible freeze that has taken place in access to
capital, which is part of growth at the end of the day. I would
like to just get a sense from you of how you are going to
approach that.
Mr. Amir-Mokri. Absolutely, Senator. Thank you. Those are
extremely, extremely important issues. Starting with the--I
will probably take the first two together, the Dodd-Frank
implementation and the large financial institutions. As you
know, Treasury is part of the Financial Stability Oversight
Council and it also--many of the regulations that were enacted
in Dodd-Frank, the responsibility for actually drafting them is
with independent regulatory agencies. Nevertheless, in some
instances, the Treasury does play a coordinating role, and
certainly as a member of the Financial Stability Oversight
Council, the Treasury does have a role in the consultations and
some of the decisions that are specific to the Financial
Stability Oversight Council which relate to the large
institutions that you were referring to. So taking the
structure of the Dodd-Frank legislation into account, there is
certainly going to be a role for my office in advising the--if
confirmed, I would be advising the Secretary on these issues.
And just to add a couple of points to that, I think the
intent of the Dodd-Frank legislation was to make sure that the
large institutions do not any longer pose the same risks or
concentrate the same risks that they did that led to the 2008
financial crisis, so we have to be very mindful of that and
make sure that the prudential reforms and the heightened
standards are implemented sensibly, but consistent with the
intent of Congress.
So, overall, with respect to your first two points, I think
that I would just say implementing the Dodd-Frank legislation
to make sure that we address the large financial institution
issues that the legislation addresses and playing the role that
has been outlined for Treasury in the legislation.
The second--and more specifically on that, second, having
had experience in coordinating activities between the CFTC and
the SEC, I would hope personally to bring some of those skills
to bear to make sure that regulations are consistent, that they
are sensible as much as I can.
With respect to the impact on jobs, I think the reason for
the legislation was to build a financial system on which you
can have job growth. When you have a stable financial system,
when people are not worried about their sources of funding,
then you can have more confidence with the banks to go ahead
and lend and to get the economy going. So we have to work
toward implementing the reforms to bring back the confidence to
the financial system so that normal activity can resume.
Senator Menendez. Well, CDFIs will be under your
jurisdiction, as well, and we had a major initiative signed
into law that is unfolding and we think that is a great
economic driver, as well, and we look forward to working with
you on that.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
I would like to direct this to the Treasury nominee. For
the past 2 years, you have worked with Chairman Gensler over at
the Commodities Futures Trading Commission. During that time,
Gensler has sought to impose a record number of new
regulations, as we are all familiar with. There has been
widespread criticism of a lot of those rules on grounds that
they will undermine the competitiveness of the U.S. financial
system without making it any safer.
Do you disagree with this assessment, and if so, why? I
would like to have your view.
Mr. Amir-Mokri. Thank you, Senator. What I am aware of----
Senator Shelby. Excuse me just a minute. I did not mean
to--or do you disagree with any of Gensler's proposals? I know
you worked with him and you have to do that. You are going to
be a free man. You do not work there. I am sure you will be
confirmed at Treasury. But there is widespread criticism there
of a lot of those rules--not all, but a lot.
Mr. Amir-Mokri. Senator, what I can say is I was there
until about March 4 and that was at or about the time that we
had gotten substantially all of the proposed rules out. You
know, in any regulatory effort, there, as you well know, there
are going to be folks who disagree with what you do and some
folks who agree with what you do.
More specifically with respect to how I saw it, and I am
commenting on the proposed rules, what we tried to do was to--
you know, this is a very challenging area. The derivatives
title poses a lot of complicated----
Senator Shelby. Very complex, is it not?
Mr. Amir-Mokri. Very complex. Very complex. And it is the
first time that this area is, per the direction of Congress,
being regulated. So what we tried to do when I was there, and
this was, I believe, reflected in the proposed rules, was to
make a proposal, which was subject to Commission review, and to
ask robust questions in the proposals, to subject it to the
administrative process, which depends on commentary from all
interested stakeholders, and to hopefully get the best answer
and to come up with the right result.
And in that connection, I will just mention that I felt
that we had a very robust outreach process with both all
interested stakeholders and consultation with other regulatory
agencies. As you know, Title VII has provisions on coordination
and consultation with not only the Securities and Exchange
Commission, but also the Federal Reserve. But we went above and
beyond that to consult with many--any regulatory agency that
had a stake in the rules that we were working on. So----
Senator Shelby. But you are plowing new ground, are you
not, in a sense, trying to regulate, or hopefully regulate,
without taking risk out of the market, out of the derivatives?
I think the derivatives, myself, play an important role in the
international economy. Do you agree with that?
Mr. Amir-Mokri. Senator, in terms of plowing new ground,
the legislation, I feel for very right reasons--I mean, you
remember the financial crisis. You were seeing it very up close
and derivatives certainly played a role in that, so I think
Congress was right to----
Senator Shelby. Do you believe that derivatives, as we
speak, play, overall, a positive role in the international
economy?
Mr. Amir-Mokri. Senator, risk management is critical. Risk
management----
Senator Shelby. Critical to a market economy, is it not?
Mr. Amir-Mokri. Whether it is trading futures or entering
into derivatives contracts, businesses run on risk management.
Senator Shelby. Did it ever occur to you or Chairman
Gensler I know he is not up here, but you will be up here from
time to time--that you could possibly overregulate an economy
or the derivatives market? I am not saying you have. I am
saying a lot of people think you have. Do you consider that
when you are making regulations----
Mr. Amir-Mokri. Senator Shelby----
Senator Shelby.----the possibility to overregulate the
market?
Mr. Amir-Mokri. Senator Shelby, that is absolutely always a
concern. I think the issue with regulations, I alluded to
before, I advised private clients on complying with
regulations, so I fully understand what it means to--the impact
of Government action on private business. So I would just make
a couple of points.
One is you always have to find the right balance, and as I
was mentioning before, when we put those rules together, we
were mindful of asking robust questions so that we would, in
fact, at the end of the day find the right balance.
But, second, we also have to remember that we are emerging
from a significant financial crisis and Congress's reforms are
very important. So you are absolutely right to be concerned
with issues of overregulation. I think it is always a matter of
finding the right calibration.
Senator Shelby. Dr. Krueger, the stimulus programs. A
recent academy paper by two economists at the University of
Chicago and the University of California at Berkeley found that
the so-called Cash for Clunkers stimulus program had no long-
run effect on auto purchases. They also found no evidence that
it positively affected employment, house prices, or household
default rates in the cities with high exposure to the program.
Do you still believe that these stimulus programs work, and
if you do, why?
Mr. Krueger. Thank you for the question. Yes, I do believe
that the Recovery Act did work, and I will explain why.
Senator Shelby. You are talking about the big stimulus
program?
Mr. Krueger. I will talk about both. First----
Senator Shelby. OK. You think they both worked?
Mr. Krueger. Yes.
Senator Shelby. You would be in the minority in this
country.
Mr. Krueger. Well, I think the way an economist views----
Senator Shelby. OK.
Mr. Krueger.----the question that you raised is to compare
it to a counterfactual. What would the world have been like
without the Recovery Act? And one of the things that we have
learned recently is that the economy was contracting much more
rapidly than anyone had appreciated back in the end of 2008.
GDP fell by 8.9 percent at an annual rate in the last quarter
of 2008. When the Recovery Act took effect, we seem to have
broken the back of the recession. So I think the Recovery Act
needs to be compared to what the world would have been like
without it. Now, I do not question that there was a lot of
damage inflicted by the recession and that we are still digging
our way past that damage.
If you would like, I can also respond to the Cash for
Clunkers question.
Senator Shelby. Go ahead.
Mr. Krueger. So the study that you mentioned, which I think
is a very nice attempt to address the question, divides areas
up by looking at those where there were more clunkers, where
more cars were eligible for the program. But I am not convinced
that that is the best methodology in this particular instance
because even in an area where there were relatively few
Clunkers, the program was pretty well subscribed. This was a
program--actually, I asked my father if he cashed in one of his
cars--where it went so quickly that I do not think we were
bumping up against the constraints that they were using in
their analysis.
And there is one other piece of evidence which I think is
relevant. Of course, the goal of the Cash for Clunkers program
was to move up consumption.
Senator Shelby. Sure.
Mr. Krueger. And a survey that the Department of
Transportation has done found that the average person who
traded in a car under the program said that they were not
planning to buy another car for two-plus years. So it seems to
have attracted a lot of people who were kind of frugal. They
were not planning to buy a car right away.
I think this is an area of active research----
Senator Shelby. Did you factor in the cost of this program?
Mr. Krueger. Oh, well, I think one has to look at the cost,
no question. I think one also needs to look at the benefits
fairly broadly. So, for example, when the program started, I
think there was a boost in consumer confidence. There was a lot
of advertising that took place. So I think there could have
been some spillover more generally to consumption elsewhere.
Senator Shelby. The Chairman has been generous with his
time here with me. I would like to ask you one more question.
You are going down to the White House. You are going to be
advising the President on economics. We know the chances--there
is conventional wisdom out there that the economy--the
unemployment is probably going to tick up some. Some of the
economists testified here that the real unemployment, that is
people who have given up getting jobs and so forth, is around
15 percent in this country, you know, if we look at it.
Do you see, Dr. Krueger, a real turn-around in this economy
without us, one, absorbing all the excess in housing, not just
in California, Florida, Nevada, and others, but everywhere? How
are we going to put people back to work? I do not mean
marginally, but how is this economy going to really take off
again until we absorb the excess out there? Do you have any--I
do not think you can do it by stimulus programs, because if you
could have, we spent nearly a trillion dollars. Of course, we
could argue all day about that, but look at the economy today.
Go ahead, sir. It is your forum.
Mr. Krueger. Thank you very much, sir. As I said, the scale
of the problem was much deeper than I think people had
appreciated, and that shows up in the revisions to the GDP data
back in 2008 and early 2009.
The proposals that the President made in the American Jobs
Act have high bang for the buck. Private forecasters, such as
Mark Zandi, have forecast that the program would raise
employment by roughly 1.9 million jobs. It could lower the
unemployment rate by a percentage point. It could raise GDP
growth by 2 percent.
But I think what we need to do is to continue looking for
these types of solutions. I think the proposal the President
made selected the types of programs that independent analysts
think have the biggest bang for the buck. But we need to do
many things at once.
I think we face three great economic challenges. The first
is to sustain the recovery and strengthen job growth, as I
mentioned.
Second is to invest in the future, to continue educating
and innovating and investing in infrastructure, which would
also help right now in terms of putting people back to work.
And then, third, as we discussed in your office, we need to
get on a sustainable fiscal path. We need to do all of that----
Senator Shelby. And that includes entitlements, does it
not, whether we like to talk about it--none of us want to talk
about it, but does it not include--a real, sustainable economic
plan in any trajectory, we have got to deal with entitlements.
I think the President has even alluded to it. I do not think he
is on board, but he talks about it.
Mr. Krueger. Well, I think what you said is exactly right.
We need to look at the whole budget, including entitlements.
The very fast growth is in Medicare and Medicaid costs.
Senator Shelby. Mm-hmm.
Mr. Krueger. The President put out a proposal which brings
down the deficit relative to GDP, or debt relative to GDP over
the next 10 years substantially, and if that were enacted, I
think that would put us on much more solid footing in terms of
sustainability over the next decade.
Senator Shelby. Thank you. Thank you, Mr. Chairman.
Chairman Johnson. Dr. Krueger, we have talked about a
variety of important economic issues this morning. How would
you summarize the economic policy challenges that we face?
Mr. Krueger. Well, fundamentally, we face weak demand.
Consumption has been growing at a modest pace. We have a lot
more capacity to produce than people and businesses are willing
to buy right now. That slack capacity shows up in the
unemployment numbers that Senator Shelby mentioned. It shows up
in the capacity utilization numbers.
So, fundamentally, I think we need to strengthen demand.
Some of that can come about by people becoming more confident
that their jobs are secure, that they can go out and buy
purchases that they put off. Some of it can come about by
focusing our measures on raising job growth so people have more
income. But the diagnosis that I have of the economy, the
number one problem has been weak demand.
Chairman Johnson. I thank the witnesses for your testimony
and for your willingness to serve our Nation.
I ask all Members of this Committee to submit questions for
the record by close of business on Tuesday, September 27, and I
request that the witnesses submit your answers to us in a
timely manner so that we can move your nominations forward as
quickly as possible.
This hearing is adjourned.
[Whereupon, at 11:23 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF ALAN B. KRUEGER
Nominee for Member of the Council of Economic Advisers
September 22, 2011
Chairman Johnson, Ranking Member Shelby, and other distinguished
Members of the Committee, I am honored to have my nomination come
before you today.
I am grateful to President Obama for asking me to serve as a Member
and Chairman of the Council of Economic Advisers at this critical time
for our Nation's economy.
I am also deeply grateful to my wife, Lisa, and to our children,
Ben and Sydney, for their support and willingness to allow me to return
to public service.
And I am grateful that my parents and wife could attend this
hearing today. My mother worked as an elementary school teacher in East
Orange, New Jersey, and my father, an army veteran, had a long career
as a certified public accountant and small businessman.
From my father, I learned at an early age to respect the
entrepreneurs and small business owners who were his clients. I have
long appreciated that job growth is dependent on a vibrant private
sector and that Government can only set the conditions for private
employers to prosper and grow. My father also encouraged me to work as
soon as I was legally able to do so in order to save for my college
education. My first job, when I was in middle school, was working in a
medical laboratory, where I cleaned test tubes and retrieved lunch; I
was promoted to a position where I stained slides that were screened
for cancer. In high school, I worked at Baskin Robbins and later as an
assistant electrician, laying cables and installing equipment. These
early work experiences were important to me because they taught me the
importance of teamwork and that the actual labor market does not always
function the way that economic theory says it should.
My wife is a math teacher at our local public high school, which
both of our children attended. I learned firsthand from my mother and
wife's tireless efforts how a quality education can provide children
with greater opportunities and a brighter future.
I have been very fortunate in my own education. I graduated from my
local public high school in Livingston, New Jersey, a year ahead of New
Jersey Governor Chris Christie. I attended Cornell's School of
Industrial & Labor Relations with the idea of becoming a lawyer, but
quickly became fascinated by the power of economics and statistics for
improving people's lives. I then earned a Ph.D. in economics from
Harvard University in 1987.
I subsequently have had the great privilege of working as a
professor of economics and public policy at Princeton University for
the last 24 years, teaching undergraduate and graduate students and
conducting research. My teaching has primarily been in the areas of
labor economics, statistics, public finance and the economics of
education.
I have conducted research on a range of topics, from job growth and
social insurance to terrorism and time use, from bond markets to labor
markets, from the economics of education to the economics of Super Bowl
and concert tickets. I have tried not to be tied to a particular
doctrine of economic thought in my work, and instead have sought to
develop the best evidence possible to test economic theories and
estimate key economic parameters.
This approach often has led me to collect original data and use
econometric methods to study natural experiments and policy changes.
Sometimes my findings have been contrary to what I expected and
contrary to the conventional wisdom among economists. But, in every
instance, I have tried to adhere to a standard of reporting my findings
objectively, regardless of which school of thought they support.
I also recognize that the data and evidence that economists and
policymakers rely upon are not perfect. As a result, I have strived to
improve our data and statistical infrastructure. In 1993, I started the
Princeton Survey Research Center to facilitate innovative methods of
data collection. More recently, I launched the Princeton Data
Improvement Initiative. This effort enlisted business and academic
economists and Government statisticians to try to evaluate existing
economic indicators and to develop informative new measures.
Princeton briefly served as the capital of the United States, and
the University is true to its motto, first coined by Woodrow Wilson,
``Princeton in the Nation's service.'' As part of this tradition,
Princeton afforded me the opportunity to take a public service leave
and serve first as Chief Economist of the U.S. Department of Labor in
the mid-1990s and then as Assistant Secretary and Chief Economist of
the Treasury Department in 2009-10.
After returning to Princeton in November 2010, I taught a new
course called, ``The Great Recession: Causes, Consequences and
Remedies''. I do not need to tell this Committee that that course is
still a work in progress. The United States is still struggling to
recover from the effects of the financial crisis that erupted in 2008.
While time will heal many of the wounds in the economy, applying the
proper medicine will help those wounds heal more quickly. I take solace
in the fact that the United States is a resilient Nation with great
resources, including our physical and human capital, our Constitutional
system of government, our tradition of entrepreneurship, and our common
sense approach to solving problems. I am convinced we can meet the
serious challenges we face with the right mix of economic policies and
faith in American workers and businesses to adapt to change, and emerge
a stronger country.
The Council of Economic Advisers is a unique and important
institution within the Government. The President relies on the Council
to provide the best available objective economic analysis. The Council
is responsible for preparing the Economic Report of the President,
monitoring economic trends, and developing and recommending to the
President economic policies to promote competitive enterprise and to
avoid and diminish the effects of economic fluctuations.
My background as a labor economist, teacher and researcher will
help me take on these duties, if I am confirmed. My work on improving
economic indicators would provide useful background in interpreting
economic trends. My work as a researcher would help to appraise the
success or failure of various programs. My experience as an editor of
one of the American Economic Association's main journals will help me
to present a wide variety of views and relevant evidence to the
President, not just my own personal views but also those of the other
Members and others in the economics profession. Indeed, I think an
important role of the Chairman of the Council of Economic Advisers is
to present the President with a range of views from leading schools of
economic thought, indicating the uncertainty surrounding an issue, and
highlighting where others hold different views of the merits and
demerits of various policies than the Chairman.
I am humbled and honored to have the possibility of serving the
Nation, should I be confirmed. If you and your colleagues in the Senate
give me the opportunity to serve as a Member and Chairman of the
President's Council of Economic Advisers, I promise to apply my human
capital to the best of my ability to justify your trust and confidence.
Thank you again for the time and opportunity to appear before you
today, and I look forward to answering your questions.
______
PREPARED STATEMENT OF DAVID A. MONTOYA
Nominee for Inspector General, Department of Housing and
Urban Development
September 22, 2011
Chairman Johnson, Senator Shelby, and Members of the Committee
thank you for the privilege and opportunity to discuss my nomination as
Inspector General of the Department of Housing and Urban Development.
It is an honor to appear before this distinguished Committee.
If you will permit me, I would like to acknowledge my wife,
Katherine and children, Alyssa and Jonathan, both of whom are students
at Colorado State University. While they were unable to be here with me
today, I want to take a moment to publicly thank them for all of their
support, thoughts and prayers. I would also like to recognize and thank
my brother Daniel, who is here with me today and my sister Deborah who
was unable to attend. Finally, I want to acknowledge and thank my
parents who have truly been an inspiration to me. They raised me and my
siblings with a strong work ethic, dedication to public service and
leadership.
I am honored that President Obama has nominated me to the position
of Inspector General for the Department of Housing and Urban
Development. The Department's mission ``is to create strong,
sustainable, inclusive communities and quality affordable homes for
all'' and I believe that owning your own home is truly a fundamental
American dream. The Inspector General for the Department of Housing and
Urban Development's mission promotes the integrity, efficiency, and
effectiveness of HUD programs and operations to assist the Department
in meeting its mission.
My career has prepared me for the challenges of this position. I
have spent the majority of my professional life dedicated to public
service in Federal law enforcement. Sixteen of those years have been in
oversight, supervisory and leadership positions, including 10 years in
the Federal Senior Executive Service and the Postal Career Executive
Service.
As an Executive Special Agent in Charge, for the Office of
Inspector General at the U.S. Postal Service, I direct the largest
field office overseeing 60 percent of the United States and a Postal
Area with just under one billion dollars in contract obligations.
As Assistant Inspector General for Investigations with the Office
of Inspector General, at the Department of the Interior, I reorganized
and directed a national law enforcement program which helped to protect
America's natural resources and heritage.
As Deputy Director and Acting Director of the Environmental
Protection Agency's Criminal Investigation Division, I provided
leadership and direction to a national environmental crimes law
enforcement program that investigated and helped to prosecute criminal
conduct that threatened the health of our citizens and our environment.
As a Special Agent with the Drug Enforcement Administration I
conducted criminal investigations of individuals and organizations who
threatened our country's security with the importation of illicit drugs
and the violence that drug trafficking produces.
My professional career has been characterized by increasing
leadership roles and responsibilities with a commitment toward
accountability and high ethical standards. While I have spent a career
investigating violations of either criminal, civil or administrative
laws and regulations, it has always troubled me that these crimes and
violations occur in the first place.
If confirmed as the Inspector General for the Department of Housing
and Urban Development, I will stress the need for collaboration with
Secretary Donovan and HUD staff to ensure that HUD's resources are
being effectively and efficiently implemented. In addition, I will work
to ensure early detection of warning signs of fraud or abuse through
the IG's audits, evaluations, reviews and investigations. Every IG
employee will focus on prevention, while ensuring that all funds lost
through fraud, abuse or mismanagement is fully recovered.
A key priority, if I am confirmed, will be to maintain a strong
partnership with this Committee and the Congress. The laws you write
must be implemented in a manner that fulfills your intent and the very
real needs of the people for whom they were written.
With the state of our economy and the limited financial resources
our Government faces it has never been more important to ensure that
every dollar spent is spent well.
Given my background, I understand the responsibilities that the
position of Inspector General will require. I believe that the
knowledge and experience I have gained in nearly a quarter century of
public service in investigative and oversight roles make me uniquely
qualified and prepared for the new challenges I will face, should I be
confirmed.
If confirmed, I would look forward to the opportunity to work with
this Committee and other Members of Congress, Secretary Donovan, and
our State and local partners to be accountable and transparent with the
work of the Office of Inspector General and the oversight of HUD's
program responsibilities.
Chairman Johnson, Senator Shelby, Members of the Committee thank
you for allowing me the distinct privilege to testify here today. I
would be pleased to answer any questions you may have.
______
PREPARED STATEMENT OF CYRUS AMIR-MOKRI
Nominee for an Assistant Secretary of the Treasury, Department of the
Treasury
September 22, 2011
Chairman Johnson, Ranking Member Shelby, and distinguished Members
of the Committee, I am honored to appear before you today as the
nominee for the position of Assistant Secretary of the Treasury for
Financial Institutions.
With me today are my parents, Mahvash and Ebrahim Amir-Mokri, and
my sister Mina Amir-Mokri. I would not be here before you today without
their love, support, and sacrifice. I would like to take a moment to
give special recognition to my parents' sacrifice. They were at or
about my age today when, shortly after the Iranian revolution of 1979,
they sent their two children, then aged 16 and 13, abroad. Physical
separation between parents and children is difficult under any
circumstance, but this difficulty was even more pronounced because of
the tensions that bedeviled relations between the United States and
Iran during the hostage crisis and its immediate aftermath. To give me
and my sister the support we needed to go through school and young
adulthood, my parents left behind everything that they had worked for
in their careers, and more, and joined us in the United States to start
a new life. And so we came to America in search of truths that the
Declaration of Independence holds to be self-evident: that we are
endowed by our Creator with the unalienable rights of life, liberty,
and the pursuit of happiness. To our family, America has meant the
realization of that promise.
To all those around the world who wonder what America offers and
what it represents, I ask that they consider my story. From the moment
I arrived in 1981, I have known nothing but kindness, warmth, respect,
and encouragement, whether it be in the idyllic town of Beaver Dam,
Wisconsin, where I spent a year finishing high school or in the
cosmopolitan metropolis of New York City, which is now my permanent
home. In America, I have not been judged by the place of my birth, but
by my dedication, loyalty, and hard work. The fact that a first
generation immigrant from Iran finds himself sitting before this
distinguished Committee today proves that America, indeed, is a very
special place.
I am truly humbled that, in these extraordinary times, President
Obama has nominated me to discharge the significant responsibilities of
the Assistant Secretary of the Treasury for Financial Institutions and
to serve as a Director of the National Consumer Cooperative Bank. I am
extremely grateful to Secretary Geithner for his confidence and
support, and for recommending me for the President's consideration.
In these challenging times, it is my privilege to answer the call
to public service. As a first generation immigrant, I believe that I
have a duty to give back to the country that has given so much to me. I
also believe that we are all custodians of the idea of America, and we
bear the solemn responsibility of safeguarding the idea of America so
that it may continue to inspire people around the globe to seek a
better life and to build a better world.
Today, we continue to recover from the most profound financial
crisis since the Great Depression. Congress enacted landmark
legislation to remedy flaws in our financial system. It is critically
important that financial regulators continue carefully to implement the
reform agenda embodied by that legislation in a coordinated and
measured fashion, consistent with the intent of Congress. Our approach
should strive to achieve appropriate balances so that we establish and
maintain a healthy financial system while also continuing to encourage
efficiency and innovation. We must continue to build the institutions
designed for detecting and addressing systemic risk so that we do not
experience a recurrence of the financial crisis of 2008. We must also
work with regulators around the globe to ensure that financial
regulatory regimes are consistent so that the playing field is not
tilted to anyone's unfair advantage. Mindful that much of America is
served by our community banks and that small businesses form a critical
part of our job-creating engine, we must work to facilitate the means
by which they can once again flourish. We must also work to ensure that
Americans have access to housing, but that our financial system
provides financing in a responsible manner. If confirmed, I will look
forward to working with Congress toward these ends.
I believe that my professional background has prepared me to accept
this responsibility. Most recently, I was Senior Counsel to the
Chairman of the Commodity Futures Trading Commission. In my role as
Senior Counsel, I advised the Chairman of the CFTC on legal and policy
matters. I also served as the CFTC's deputy representative to the
Financial Stability Oversight Council and was responsible for assisting
the Chairman in matters regarding the President's Working Group on
Financial Markets. After passage of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, I participated in the CFTC's
implementation efforts and oversaw coordination of the CFTC's work with
implementation by other financial regulatory agencies. Additionally, I
supervised the CFTC's efforts to harmonize its regulations with those
of the Securities Exchange Commission and coordinated other joint CFTC-
SEC projects.
Before joining the CFTC, I was a general commercial litigation
partner at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP,
where, all told, I practiced law for more than a dozen years. My
principal focus was in antitrust and securities litigation. In addition
to my law practice, I served as a faculty member for the Practicing Law
Institute's annual Consumer Financial Services Litigation program.
If confirmed, I look forward to working closely with you to take
the necessary steps to building and maintaining a financial system that
can reliably sustain a growing, prosperous economy over the long term
for all Americans.
Thank you.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM ALAN B.
KRUEGER
Q.1. To build support for the Obama administration's stimulus
bill, the CEA created an estimate of the number of ``jobs
saved'' by the bill. A number of well-respected economists have
criticized the ``jobs saved'' estimate as being non-measurable.
For example, Dr. Allan Meltzer said ``The Council of Economic
Advisers . . . shamefully invented a number called `jobs saved'
that has never been seen before, has no agreed meaning, and no
academic standing.'' What is your professional opinion about
the accuracy and validity of the CEA's ``jobs saved'' estimate?
Do you believe that it is appropriate for the CEA to create
highly speculative statistics designed solely to support the
Obama administration's political agenda?
A.1. In my view, the role of the CEA is to provide the best
objective evidence available based on relevant economic theory
and data, and to present the President with a range of views.
The CEA should attempt to quantify only that which can be
reasonably quantified, based on existing, commonly accepted
methods and data. That said, there are a range of questions and
issues that CEA addresses, and economists have more confidence
in the precision of some estimates than others, by the nature
of the issue addressed and underlying data and models.
Measuring the impact of fiscal policies on growth and
employment is inherently difficult because one typically cannot
directly observe economic activity in the absence of the
policy. It is my understanding that CEA's estimates of the
employment effects of ARRA were similar to those of a range of
other analysts, including the Congressional Budget Office (CBO)
and Macroeconomic Advisers, who used similar forecasting
methods. However, forecasts can be inaccurate because of the
inaccuracy of the underlying data, as well as for other
reasons. In the forecast to which the question referred, the
revisions to the initial Bureau of Economic Analysis (BEA) GDP
growth data showed that the economy was contracting at a much
greater rate than had been appreciated at the end of 2008,
which affected the accuracy of many analysts' estimates.
If confirmed, I intend to hold to a standard of only
releasing estimates that rely on mainstream economic methods
and reliable data.
Q.2. Do you think that higher energy prices in the short term
would be good for spurring the development of clean energy?
A.2. Mainstream economic principles would suggest that, all
else being equal, if higher short-term energy prices are
expected to last only for a short period of time, they would be
expected to have relatively little impact on investments in all
forms of energy production, including alternative energy
development.
Q.3. In December 2009, you testified before the Finance
Committee about the Obama administration's views on energy
policy. In your testimony, you endorsed an excise tax on
offshore oil and gas development, higher tax rates for the
industry, and an economy-wide cap-and-trade regime. Is that
still the energy policy that you think the United States should
pursue?
A.3. The President's FY 2010 Budget stated that the
Administration was developing a proposal to impose an excise
tax on certain oil and gas produced offshore. That budget also
proposed a cap-and-trade program that would provide incentives
for firms to reduce greenhouse gas emissions. It is my
understanding that these particular proposals have not been
included in the Administration's FY 2012 Budget. From an
economic perspective, sound energy policy is supported by a
balancing of the benefits and costs of energy production and
use, within the context of its broader macroeconomic,
environmental, and international and security consequences.
Affordable, secure and reliable energy supplies are critical
for our economic performance, and I believe that policies that
are consistent with these objectives should be pursued.
Q.4. In December 2009, you testified before the Finance
Committee about the Obama administration's proposals for higher
taxes on the oil and gas industry. You repeatedly justified
higher tax rates by saying that:
To the extent that current tax subsidies for the oil and gas
industry encourage the overproduction of oil and natural gas,
they divert resources from other, potentially more efficient
investments and they are inconsistent with the Obama
administration's goals to reduce GHG emissions and build a new,
clean energy economy.
You qualified that statement in a number of ways, but you
clearly suggest that our current tax structure leads to at
least some overproduction of those resources. On a net basis,
however, our Nation imports about 9.2 million barrels of oil
per day right now. Do you believe the United States
overproduces oil and gas?
A.4. I testified in December 2009 as Assistant Secretary for
Economic Policy and Chief Economist of the Treasury on certain
provisions in the Administration's FY 2010 Budget relating to
the oil and gas industry. This is not an area in which I have
conducted original research as an academic economist. I tried
to focus on economic aspects of the Administration's proposals
in my testimony. As I noted in my testimony, my aim was to
evaluate, from an economist's perspective, the Administration's
budget proposals relating to oil and gas with regards to
standard economic principles of tax policy.
My testimony was intended to be in the narrow confines of
tax policy, and, in particular, an economic evaluation of
specific tax provisions. The question of determining the
optimal amount of U.S. oil and gas production is a much broader
and more complicated issue. On the one hand, in the absence of
other factors, certain provisions of the tax code could lead to
higher production than would otherwise be the case. On the
other hand, many factors other than the tax code also influence
domestic energy production, including policies governing
development and production of State and Federal lands, energy
infrastructure siting, and permitting. Because of the ambiguity
inherent in these issues, I included many qualifications and
caveats in my testimony, as the question noted.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER FROM ALAN B.
KRUEGER
Q.1. In the Treasury Department's Green Books (2010 and 2011),
you make repeated references to oil and gas industry ``tax
preferences'' and ``tax subsidies,'' yet the oil and gas sector
pays a significantly higher effective tax rate than most other
industries (41.1 percent vs. 26.5 percent for the rest of the
S&P industrials). How can a sector that pays a higher effective
tax rate be receiving ``preferences?''
A.1. In my role as Assistant Secretary for Economic Policy and
Chief Economist at the Treasury Department, I did not
participate in drafting the Greenbook. The Greenbook is
produced by the Office of Tax Policy in the Treasury
Department.
However, my understanding is that tax preferences or
subsidies are commonly defined as provisions of the tax laws
that allow a special exclusion, exemption, or deduction from
gross income, or that provide a special credit, a preferential
rate of tax, or a deferral of liability. It is my further
understanding that this is in keeping with the Administration's
definition of tax expenditures.
Q.2. The President has called for all sectors of the economy to
``pay their fair share.'' Do you believe it is ``fair'' to
raise taxes on a sector that is already paying a significantly
higher tax rate than others?
A.2. Given the budget situation, very difficult choices have to
be made regarding spending and revenues. As an economist, I
look at these questions through the lens of tax principles in
the field of public finance, and, in particular, the concepts
of vertical and horizontal equity. The President has emphasized
the need for comprehensive reform of the tax code. The
principles that he has proposed are reforms that: 1) lower tax
rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the
deficit by $1.5 trillion; 4) boost job creation and growth; and
5) comport with the ``Buffett Rule'' that people making more
than $1 million a year should not pay a smaller share of their
income in taxes than middle-class families pay. These
principles strike me as consistent with principles of taxation
that are standard in the economics field of public finance,
and, in particular horizontal and vertical equity.
Q.3. How can you reconcile the Nation's energy security goals
with your contention that the current tax code encourages
``overproduction'' of domestic oil resources? With no
alternatives readily apparent, how could your policy
recommendations not result in greater reliance on foreign
energy sources?
A.3. In December 2009 I testified, as Assistant Secretary for
Economic Policy and Chief Economist of the Treasury, on certain
provisions in the Administration's Budget relating to the oil
and gas industry. This is not an area in which I have conducted
original research as an academic economist. I tried to focus on
economic aspects of the Administration's proposals in my
testimony. As I noted in my testimony, my aim was to evaluate,
from an economist's perspective, the Administration's budget
proposals relating to oil and gas with regards to standard
economic principles of tax policy.
My testimony was intended to be in the narrow confines of
tax policy, and, in particular, of specific tax provisions. The
question of whether the United States overproduces oil and gas
is a much broader and more complicated issue. On the one hand,
in the absence of other factors, certain provisions of the tax
code could lead to higher production than would otherwise be
the case. On the other hand, many factors other than the tax
code influence domestic energy production, including policies
governing development and production of State and Federal
lands, energy infrastructure siting, and permitting. Because of
the ambiguity inherent in the issue, I included many
qualifications and caveats in my testimony.
As part of the Administration's plan for a secure energy
future, President Obama has set a goal of reducing U.S. oil
imports by one-third by 2025 relative to 2008. As part of its
strategy to achieve this goal, the Administration is committed
to increasing safe and responsible development of domestic oil
and gas resources. I think about energy security in terms of
both supply and demand. On the supply side, over the past 2
years, domestic oil and gas production has increased, thanks in
part to recent technological advances such as hydraulic
fracturing to extract energy resources from shale formations.
On the demand side, I agree with President Obama that we also
need to enhance our energy efficiency to reduce our economy's
reliance on imported oil, improve our energy security, and
protect consumers and the economy from the adverse impacts of
volatile oil prices.
As an economist, I am convinced that having secure,
reliable, and affordable energy supplies is critical for the
economy. I also believe that the oil and gas industry, as well
as other sectors of the energy industry, provide a great many
American workers with well paying, high quality jobs.
Q.4. Most Americans would agree that we need to reduce our
dependence on foreign oil. One of the easiest ways to do so
would be to increase domestic production. The net effect would
be increased jobs, increased production and supply, and
accordingly a lower price for the cost of fuels as a result of
increased supply. Please indicate if and why you disagree.
A.4. I agree we need to reduce our dependence on foreign oil.
Among other things, reducing our dependence on foreign oil
would improve our energy security and insulate our economy from
fluctuations in the price and supply of oil. There are a
variety of ways to accomplish these goals. As an economist, I
think in terms of supply and demand. Increasing supply of
domestic energy production and increasing energy efficiency
will help achieve these goals.
Q.5. The 2010 Green Book opines that oil and gas industry tax
credits divert funds from ``more efficient'' investments in the
economy. As the Administration has demonstrated, through your
time in Treasury and beyond, a steadfast preference for
renewable energy Government investments, explain how these less
cost-effective renewable investments are ``more efficient''
than oil and gas. Please also describe the success of each
program over the last 3 years, both in tax revenue and job
creation terms. Please also indicate the average amount of
Federal taxpayer dollars that was required to create each full-
time renewable energy job now in existence as a result of
programs under the Obama administration.
A.5. As the Assistant Secretary for Economic Policy and Chief
Economist at the Department of the Treasury, I did not draft
the Greenbook.
As a general matter, however, economic theory implies that
private market decisions can be inefficient when market prices
do not reflect the full cost to society of market transactions.
This would occur, for example, if the price of a good does not
reflect the potential environmental effects associated with
consumption of the good, or if it does not reflect potential
security risks associated with the foreign supply of the good.
Standard economic principles imply that policies that are
designed to correct positive or negative externalities, such as
these, can require subsidies or taxes as a way of increasing
the efficiency of the economy.
Q.6. In 2009 you testified before Congress that the earth would
heat by 7 degrees by the end of the century without action such
as cap and trade. Now that cap and trade has failed, and given
China and other growing economies increase in greenhouse gas
emissions, what is your new estimate of global average
temperature rise over the next 10, 20, 30, 50, and 100 years?
A.6. I should first note that I am not a climate scientist, and
have neither the background nor the training to make my own
climate predictions. When I testified as an economist on the
Administration's Budget in 2009, I was not citing my own
personal view, but rather referring to an estimate provided by
the Intergovernmental Panel on Climate Change (IPCC), which at
the time was their most current estimate available.
Q.7. Please discuss generally how Spain's renewable energy
programs have both succeeded and failed.
A.7. As a CEA nominee, my expertise is mainly in the areas of
unemployment and jobs, and general principles of
microeconomics, macroeconomics, and econometrics. I am not
familiar with Spain's renewable energy programs. However, I
have been informed that this is an area of recent policy
activity in Spain. I am not in a position to render judgment on
the successes or failures of particular policies adopted by
Spain, given the variety of economic, political, and other
factors that are pertinent to evaluating whether a specific
policy is successful or not, and given my lack of familiarity
with relevant Spanish data and experiences.
However, given the varied approaches to promoting renewable
energy that have been adopted both within the United States and
abroad, I am of the opinion that policymakers would want to
examine these experiences to look for lessons that might be
applicable to the development of any Federal policies, with
consideration of any specific factors and circumstances present
in Federal policy that may or may not be present in State or
foreign policy.
Q.8. Please discuss generally how California's renewable energy
programs have both succeeded and failed.
A.8. As mentioned in my response to the previous question, as a
CEA nominee, my expertise is mainly in the areas of
unemployment and jobs, and general principles of
microeconomics, macroeconomics, and econometrics. I am not
familiar with the details of California's renewable energy
programs and I am not in a position to render judgment on the
successes or failures of these programs.
Q.9. As you are aware, there exists no Federal programs for
grants, loan guarantees or other financing for hydraulic
fracturing similar to what we do for renewable energy. Please
discuss the net economic effects on the U.S. economy as a
result of hydraulic fracturing over the last 5 years. Please
identify all known shale resources and generally the cumulative
known shale resource base in the United States. As well, please
discuss generally the jobs, salaries and revenue to local,
State, and Federal treasuries that has been generated over the
last 5 years as a result of hydraulic fracturing.
A.9. Consistent with the Administration's Blueprint for a
Secure Energy Future, I believe that we need to deploy American
assets, innovation, and technology so that we can safely and
responsibly develop more energy here at home and be a leader in
the global energy economy. Over the last 2 years, domestic oil
and natural gas production has increased. In 2010, American oil
production reached its highest level since 2003, and total U.S.
natural gas production reached its highest level in more than
30 years. Much of this increase has been the result of growing
natural gas and oil production from shale formations as a
result of recent technological advances utilizing hydraulic
fracturing. Although I do not know where all U.S. shale
resources are located, these resources, when combined with
appropriate safeguards to protect public health and the
environment, have played--and will continue to play--a critical
role in enhancing domestic energy production in the coming
decades.
Hydraulic fracturing has led to particularly significant
increases in domestic natural gas production. Production of
natural gas from shale formations has gone from a negligible
amount just a few years ago to being almost 30 percent of total
U.S. natural gas production, and this share is expected to
continue to rise in the coming decades. This increase in
domestic production conveys significant economic benefits.
First, increased domestic production has led to increased
employment; the Secretary of Energy's Advisory Board recently
concluded that ``well over 200,000 jobs (direct, indirect, and
induced) have been created over the last several years by the
development of domestic production of shale gas, and tens of
thousands more will be created in the future.'' Second, the
price of natural gas has dropped by roughly half since 2008,
lowering electricity and heating costs for consumers and
businesses, and supporting job growth and general economic
activity. Third, the low price of natural gas in the United
States has also benefited U.S. firms that use natural gas as an
input in production, notably petrochemicals, which have
recently increased investments in the United States
significantly. Fourth, reducing our reliance on imported
natural gas improves our net energy trade balance, and there
may also be potential export opportunities for U.S. shale
production technology and services.
The development of hydraulic fracturing technology is an
example of the type of technological innovation, combining
private entrepreneurial ingenuity and risk taking and
Government investment in basic research (e.g., Department of
Energy investments), that will likely be required for the
United States to have strong economic growth going forward.
Q.10. Do you believe the proposed new ozone standards, that
were recently withdrawn by the President and EPA, would have
created jobs and been a net positive for our economy? If so,
please fully discuss the economic theories by which the new
standards would have created jobs and been a net positive for
the U.S. economy?
A.10. I was not part of the Administration at the time that the
ozone standards were being considered, and have not studied
this particular issue. Therefore, I am not in a position to
render an opinion on this particular regulation.