[Joint House and Senate Hearing, 113 Congress]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-121
 
                    THE WAY FORWARD FROM GOVERNMENT 
                SHUTDOWN AND DEBT-CEILING CONFRONTATION 
       TOWARD LONG-TERM FISCAL SUSTAINABILITY AND ECONOMIC GROWTH 

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 11, 2013

                               __________

          Printed for the use of the Joint Economic Committee

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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

HOUSE OF REPRESENTATIVES             SENATE
Kevin Brady, Texas, Chairman         Amy Klobuchar, Minnesota, Vice 
John Campbell, California                Chair
Sean P. Duffy, Wisconsin             Robert P. Casey, Jr., Pennsylvania
Justin Amash, Michigan               Mark R. Warner, Virginia
Erik Paulsen, Minnesota              Bernard Sanders, Vermont
Richard L. Hanna, New York           Christopher Murphy, Connecticut
Carolyn B. Maloney, New York         Martin Heinrich, New Mexico
Loretta Sanchez, California          Dan Coats, Indiana
Elijah E. Cummings, Maryland         Mike Lee, Utah
John Delaney, Maryland               Roger F. Wicker, Mississippi
                                     Pat Toomey, Pennsylvania

                 Robert P. O'Quinn, Executive Director
                 Niles Godes, Democratic Staff Director



                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Kevin Brady, Chairman, a U.S. Representative from Texas.....     1
Hon. Amy Klobuchar, Vice Chair, a U.S. Senator from Minnesota....     2

                               Witnesses

Dr. Kevin A. Hassett, John G. Searle Senior Fellow and Director 
  of Economic Policy Studies, American Enterprise Institute, 
  Washington, DC.................................................     3
Dr. Mark Zandi, Chief Economist, Moody's Analytics, West Chester, 
  PA.............................................................     5

                       Submissions for the Record

Prepared statement of Hon. Kevin Brady...........................    26
Prepared statement of Hon. Amy Klobuchar.........................    27
Prepared statement of Dr. Kevin A. Hassett.......................    29
Prepared statement of Dr. Mark Zandi.............................    35


                    THE WAY FORWARD FROM GOVERNMENT
    SHUTDOWN AND DEBT-CEILING CONFRONTATION TOWARD LONG-TERM FISCAL 
                   SUSTAINABILITY AND ECONOMIC GROWTH

                              ----------                              


                        FRIDAY, OCTOBER 11, 2013

                    United States Congress,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:03 a.m., in Room 
1100, Longworth House Office Building, Hon. Kevin Brady, 
Chairman, presiding.
    Representatives present: Brady of Texas, Campbell, Amash, 
Paulsen, Hanna, Carolyn B. Maloney, Sanchez, and Delaney.
    Senators present: Klobuchar, Casey, and Murphy.
    Staff present: Doug Branch, Gail Cohen, Christina Forsberg, 
Connie Foster, Niles Godes, Colleen Healy, J.D. Mateus, and 
Patrick Miller, Robert O'Quinn, and Sue Sweet.

    OPENING STATEMENT OF HON. KEVIN BRADY, CHAIRMAN, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Chairman Brady. Well, good morning, everyone. Welcome to 
the Joint Economic Committee hearing today, titled, ``The Way 
Forward from Government Shutdown and Debt-Ceiling Confrontation 
Toward Long-Term Fiscal Sustainability and Economic Growth.''
    And I want to welcome our witnesses and Members to a real 
committee hearing room, by the way.
    Vice Chair Klobuchar. It is nice.
    Chairman Brady. Had to kind of plug that in.
    I have a prepared statement, but today I am just going to 
submit that for the record. It seems to me, at this point in 
time, we need a lot less political posturing and talking points 
and a lot more meaningful discussion about how we go forward, 
both parties, on some rules and 21st-century approaches that 
really tackle the size of the government that we want, that 
will serve our country, that is sustainable and actually helps 
grow our economy.
    Vice Chairman Klobuchar and I have tried to set a nuts-and-
bolts approach on JEC hearings, sort of open, thoughtful, 
constructive dialogue. And I can't think of a more important 
time to be doing exactly that.
    So I will submit my remarks for the record, and I will turn 
to Vice Chair Klobuchar.
    [The prepared statement of Chairman Brady appears in the 
Submissions for the Record on page 26.]

  OPENING STATEMENT OF HON. AMY KLOBUCHAR, VICE CHAIR, A U.S. 
                     SENATOR FROM MINNESOTA

    Vice Chair Klobuchar. Well, thank you, Mr. Chairman. And 
thank you for having this at this gorgeous room. I feel honored 
to be here.
    And thank you for our witnesses for coming somewhat at the 
last minute here for this important hearing on the way forward, 
as we hope that the shutdown will end soon.
    Like the chairman, I will submit my remarks for the record. 
And I am hopeful. There are some discussions going on 
yesterday, today that we hope will resolve this soon so that we 
can work on those very important things that both of you have 
come and testified about in the past, which is bringing our 
debt down in a balanced way and doing it in a way that doesn't 
set us back, which I believe this shutdown and the potential 
default on our debt ceiling could do.
    So I appreciate that people are in discussions and that we 
may have some positive news down the road here.
    Thank you, Mr. Chairman.
    Chairman Brady. All right. Thank you.
    [The prepared statement of Vice Chair Klobuchar appears in 
the Submissions for the Record on page 27.]
    Chairman Brady. And Members may submit their remarks for 
the record.
    Let me introduce our guests today, who are well-known to 
this committee and to the economic world.
    Dr. Kevin Hassett is the John G. Searle senior fellow and 
director of economic policy studies at the American Enterprise 
Institute. He was a senior economist at the Board of Governors 
of the Federal Reserve System and a policy consultant of the 
Treasury Department during the George H.W. Bush and Clinton 
administrations. He has written several papers on fundamental 
tax reform and has coauthored a book with renowned economist 
Glenn Hubbard, entitled ``Tax Policy and Investment.'' He has a 
B.A. from Swarthmore College and a Ph.D. in economics from the 
University of Pennsylvania.
    Dr. Mark Zandi is the chief economist for Moody's 
Analytics. He has analyzed the economic impact of various tax 
and government spending policies and assessed the appropriate 
monetary policy response to bubbles in asset markets. He is 
well-known in this Congress and in, again, the economic world. 
Dr. Zandi earned his B.S. from the Wharton School of the 
University of Pennsylvania and his master's and Ph.D. at the 
University of Pennsylvania.
    I, on behalf of Vice Chairman Klobuchar, welcome you. I 
think the timing is exactly right for this discussion. Both of 
you bring to the table ideas on how we tackle the big issues.
    My fear has always been, in Washington, we step over 
dollars to get to dimes, when it comes to taking the real steps 
forward. Both of you are thinking more long-term to a day when 
we are not facing shutdowns and debt ceilings every other 
month.
    So, Dr. Hassett, with that, I will invite your testimony. 
Welcome.

STATEMENT OF DR. KEVIN A. HASSETT, JOHN G. SEARLE SENIOR FELLOW 
 AND DIRECTOR OF ECONOMIC POLICY STUDIES, AMERICAN ENTERPRISE 
                   INSTITUTE, WASHINGTON, DC

    Dr. Hassett. Thank you very much, Chairman Brady and Vice 
Chair Klobuchar.
    The first part of my testimony, which I will summarize very 
briefly, looks into the impact of struggles like that that we 
are currently having on measures of policy uncertainty. And I 
discuss the academic literature that suggests that debt-limit 
showdowns and budget poker, like we are playing, historically 
has led to very high levels of policy uncertainty and that that 
has harmed the economy quite identifiably. And so I think that 
it is crucial that we think of a better way to do it, and 
perhaps now is a good time to have that conversation.
    My next observation in my testimony is that most developed 
countries around the world have significantly more advanced 
budgetary rules than we do in the U.S., often encoding specific 
targets that constrain the action of policymakers. And I know 
you are all really busy, but if you have time to look at 
anything in my testimony, the chart that says ``Percentage of 
OECD Countries with Fiscal Rules'' is something that I would 
actually commend to your attention.
    The IMF recently compiled a database of 87 countries and 
then compiled the fiscal rules that they use in each country. 
And it is actually a pretty astonishing chart, if you see that 
almost 90 percent of countries have either a budget-balance 
rule, which constrains their deficit as a share of GDP--have a 
budget-balance rule; a debt rule, where aggregate debt as a 
share of GDP is capped at some number. That is about 70 percent 
of the countries. And, increasingly, countries are relying on 
expenditure rules, as well, and even revenue rules, where they 
cap these at some point.
    To fast-forward to the conclusion of my testimony before I 
go into the details a little bit more, my recommendation to 
Congress would be to look seriously at the practices of other 
countries--there is a lot of experience, a lot of, you know, 
legal language in how to do this--and consider adopting a firm 
budget rule that could even be a cap as a way out of future 
messes like the one that we are in. So if we had a cap of 
spending to GDP--and I will talk about the nuances of how to do 
that in a bit--then, if we are below the cap, the continuing 
resolution and the debt limit could automatically increase. We 
could agree to do that when we adopt the cap. Of course, 
negotiating the cap would be a challenge, but it is a challenge 
that I think that we should try to step up to.
    The evidence from Europe shows that, in many cases, limits 
to budget deficits are probably ineffective. And I think that 
economists have studied this, and they have found that the 
problem is that it is easy to tinker with projections to appear 
to come into balance.
    Imagine if we said, well, our budget rule is going to be 
that the 10-year number needs to be this or that. Well, we 
can't have a deficit bigger than X, you know, 10 years from 
now, of GDP, that that would be easy to game and highly 
dependent on assumptions. It creates a situation where one side 
will favor lower taxes and also be focused on deficits. One 
side favors lower taxes and lower spending, for example, while 
the other side might favor higher taxes and higher spending. 
And each can point to their plan as meeting the deficit 
ceiling, when, in fact, I think the argument is ultimately 
going to be about the size of government. Because of that, my 
testimony suggests that what we ought to do is consider a rule 
that caps the size of government at some number that we all 
agree to.
    In order to help stimulate the thinking and debate about 
what that cap might look like, I have another chart that 
compares noninterest spending, which--a proposal of Mr. Brady's 
from a few years ago helped convince me that you shouldn't 
include interest spending if you are going to have a budget 
cap, because you don't really control the interest rate, 
certainly, at the long end--and it compares it to potential 
GDP, which is something that would kind of smooth out the 
cyclical ups and downs of such a cap.
    We wouldn't want to be in a situation where spending went 
up a little bit because of built-in stabilizers and GDP went 
down a little bit because we are in a recession, and then, all 
of a sudden, our spending-to-GDP goes above the cap and we are 
doing something harsh like sequestration.
    In order to think about what a rule might look like and to 
form your own opinion, I have another chart that shows U.S. 
noninterest spending as a percent of potential GDP, which, 
again, I think is a good measure to pin this to because it 
wouldn't have the problem of fluctuating with the economy. That 
was about 16 percent in 2001, climbed to a little above 22 
percent in 2009, and is projected to go back down to about 
18\1/2\ percent by the end of the budget window.
    I think that if you took a number in there and agreed to 
set that as the limit of spending to GDP, potential GDP, and 
then agreed that if we were below the limit then we 
automatically increase the debt limit and automatically had a 
continuing resolution, then we would accomplish two goals: We 
would have a constructive debate about the size of government, 
about the thing that really is in dispute, and we would exit 
the world that is described in my first chart, which shows how 
much policy uncertainty has been skyrocketing at times when we 
have debates like this.
    I think that, to conclude, countries around the world have 
increasingly relied upon budget rules to help constrain the 
growth of government but also to make government fiscal policy 
more transparent. People know, sort of, how bad it can possibly 
be. Although these rules have been ineffective, it seems like 
the data suggests that increasingly countries are relying on 
spending rules because that is the direct target that is really 
in the end the thing that you have to constrain if you are 
worried about the deficit.
    Thank you very much for your attention.
    [The prepared statement of Dr. Kevin A. Hassett appears in 
the Submissions for the Record on page 29.]
    Chairman Brady. Great. Thank you, Dr. Hassett.
    Chairman Brady. Dr. Zandi, welcome.

 STATEMENT OF MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS, 
                        WEST CHESTER, PA

    Dr. Zandi. Thank you, Chairman Brady, Vice Chair Klobuchar, 
and the rest of the committee. I am an employee of the Moody's 
Corporation, but the opinions I express today are my own.
    I will make three points in my remarks.
    The first point is that the government shutdown and the 
brinkmanship over the debt limit are doing significant damage 
to the economy. Even if, let's say, the government reopened on 
Monday and the debt limit were increased, I think the damage 
done so far would shave about a half a percentage point from 
GDP growth in the fourth quarter. So that is, before all of 
this, I expected growth this quarter of about 2\1/2\ percent, 
and now I expect growth of closer to 2--still growth, but 
meaningfully lower.
    If the shutdown continues through the end of the month, 
even with an increase in the debt limit, let's say, to November 
22nd, I think that would result in a hit to GDP in the fourth 
quarter of about 1\1/2\ percentage points, 1\1/2\ percentage 
points. So it will still grow, but it will be a significant hit 
to growth.
    If the shutdown continues through to Thanksgiving, and, 
again, even assuming that the debt limit is increased to 
November 22nd, I think the economy will stall out, that we will 
basically go nowhere in Q4. And, obviously, at that point, the 
risks that we fall back into recession will begin to increase.
    Now, that is bad; not raising the debt limit is 
significantly worse. If we breach the debt limit and the 
Treasury misses a payment to somebody, a Social Security 
recipient or a bondholder, that would be the prescription for a 
very dark, deep recession.
    And I don't really think it matters whether the Treasury 
prioritizes interest payments or not. Even if they do, and they 
decide to not pay their other bills, I think investors would 
take that as a signal that we have big problems, and at the 
very least they would stop buying bonds. And just as a note, 
there is about $100 billion a week in Treasury bonds that roll 
over that need to be purchased. And I think they will start 
selling.
    So interest rates will spike, stock prices will fall, 
confidence--consumer business confidence, which is already 
weakening, will evaporate, and we will be in a deep recession. 
And there is no policy response to that. You know, I can't see 
what the Federal Reserve would do in that kind of situation. 
And, by definition, Congress and the administration would be 
doing nothing.
    So point number one is what we are doing now is doing 
damage. And this is going to mount day by day.
    Point number two: Stopgap, temporary measures to extend the 
debt limit, reopen the government for a brief period, are 
better than not doing that, but that also does damage to the 
economy.
    Kevin mentioned political uncertainty, policy uncertainty, 
and I think that is a very significant constraint on economic 
growth, and it has been over the past 5 years. I have done a 
little bit of my own work in this area, and based on my 
assessment, if we hadn't seen this increase in uncertainty, 
political uncertainty, over the past 5 years, GDP would be 
roughly $150 billion greater than it is today, we would have 
over 1.1 million more jobs, and the unemployment rate would be 
seven-tenths of a percentage point lower. Now, other folks are 
doing this work, as well, and they are finding similar kinds of 
estimates, even more significant impacts from this kind of 
political brinkmanship.
    So I think it is very important that policymakers figure 
out a way to get off the front pages. And I think if you do, we 
are off and running, that the private--a lot of good things 
going on in the private sector, and those good things will 
shine through if lawmakers can find a way to get rid of this 
brinkmanship for an extended period.
    Finally, point number three: I think it is entirely 
appropriate and reasonable for lawmakers, obviously, to address 
our long-term fiscal challenges. We have many. And I think it 
will require both entitlement reform and tax reform.
    I would make two recommendations in the current context. 
The first is, I think corporate tax reform is a good place to 
start. There is a fair amount of common ground here. And I 
think revenue-neutral corporate tax reform would go a long way 
to improving competitiveness and long-term economic growth.
    And I also would recommend that, once we have gotten 
through the current debate, extend the debt limit, reopen the 
government, that we should examine, as Dr. Hassett has said, 
implementing new budget rules. I am not entirely on board with 
the rule he has proposed, but I am entirely sympathetic with 
the intent of what he is trying to do.
    And I think that is an appropriate place for Congress to 
look, because we need to figure out a way. If we can't repeal 
the debt-limit law, which is very anachronistic and 
counterproductive, we have to figure out a way to make this 
less of an issue going forward.
    Thank you.
    [The prepared statement of Dr. Mark Zandi appears in the 
Submissions for the Record on page 35.]
    Chairman Brady. Thank you, Doctor.
    Let's begin with common ground.
    One, America is not going to default. We are going to raise 
its debt limit on time. The question is, can we come together 
to find a way to deal with government finances that are out of 
whack today, become more exacerbated over time, and just 
financially are unsustainable and also weigh, I think, on 
investors' view of the country today.
    Secondly, I think we can agree, sequester was not built to 
last, for a number of reasons. And it also ignores, you know, a 
large swath of the government spending, as well. And I think 
there is agreement there has to be a better way, there has to 
be a better way than what we are doing today.
    So, looking at the rules that doctor--one, I was amazed at 
the chart, to see the number of countries that have some of 
those different type of rules in place.
    For us, as we look at issues, from balanced budget, which, 
clearly, you know, a number of us support, to spending rules--
sequester would be an example of it--looking at debt to GDP, 
Dr. Hassett, your point is that the best measurement of 
government or the one we should focus on is the size of the 
government relative to the size of the economy. Can you tell us 
why?
    Dr. Hassett. Sure. It is actually--there are many reasons. 
It goes back to work that I did more than a decade ago, when I 
started to look at political opinions about the deficit and 
found that it is very often the party in opposition that cares 
the most about the deficit and becomes the deficit-hawk party 
because it is--you know, maybe it is hard to say ``I don't want 
that tax cut'' or ``I don't want that program to help 
children'' or whatever it is that one party might be proposing, 
but it is easy to say, ``Oh, the deficit is going to be really 
terrible.''
    And so I think that, really, in the end, my conclusion 
after studying a lot of American political history is that both 
parties, in equilibrium, have the same attitude toward the 
deficit, which is that they don't like reducing it, that if you 
give people a free lunch, then they are happier voters, and 
that they don't want it to be so big that it becomes a real 
problem, and that there is a space between, say, 2 percent of 
GDP and 6 percent of GDP where we have kind of wandered.
    And so I think that what parties disagree about is the size 
and the scope of government, and that if we are having a debate 
about something other than that, then we are not actually 
debating the true issue, is my view. That is the first reason 
why.
    The second thing is that I think that if we spend money, 
then we have to pay for it. And if you pay for it by paying all 
of it today or by borrowing from somebody and then paying, you 
know, 5 cents a year forever, that in present value it is the 
same. And so I think that, in the end, it is the spending that 
is the material thing that we need to address.
    And I would encourage Congress to think of this problem not 
as setting a goal for spending, which is a very controversial 
thing, but setting a cap, setting a cap. So, look, if spending 
gets above this percent of GDP, then we have to go back to the 
old world where we have to increase the debt limit and have 
showdowns like this, a world that we don't like to be in. If we 
are below that cap, then we function normally as a government.
    And I think that if you could get to that debate, then you 
could start something that could be very positive in the long 
run and might, you know, if we continue to avoid our problems 
on entitlements, then we might start to run into that cap and 
then really have to have an entitlement reform down the road.
    And so I think the very first order of business should be 
to say, let's get out of this world where we have to every year 
push these things forward, like the continuing resolutions and 
the debt limits, and let's just agree that we will continue 
along the lines of your MAP bill if we are below the cap.
    And so I think that the argument for that is pretty sound 
and convincing to me but maybe not to Mr. Zandi.
    Chairman Brady. Well, thank you, Doctor.
    Dr. Zandi, as we look at the size of government, the debt, 
the spending rules, all that we have just discussed, should we 
be looking at the bigger picture, not just discretionary but 
entitlement spending as well? Is looking at that as a share of 
the economy the right goal?
    We may disagree on what the size of that government is; you 
have to fill in those blanks in both parties. But is that a 
measurement, is that a goal that would direct Congress toward 
looking at the right areas, how you grow the economy and how 
you deal with all of spending, not just a portion of it? Or is 
there a better way?
    Dr. Zandi. Right. Well, as I said, I am very sympathetic to 
the idea that we should have budget rules, more comprehensive 
budget rules, that consider, as you said, all of government 
spending and also tax revenue and other revenue. I think that 
is important, particularly if we can use these new budget rules 
as a way to reduce the brinkmanship we have around the current 
process, the debt limit being the most notable example.
    This is obviously becoming very counterproductive, so we 
need to figure a way to mitigate the threat posed by the debt 
limit. And I think the budget rules--using budget rules to do 
that is a logical approach and could reap some benefit in terms 
of better fiscal outcomes in the longer run. So I am very 
sympathetic with that idea.
    I am less sympathetic to the idea that we should have only 
spending caps. And I will give you a couple, three reasons for 
that, and then I will give you a suggestion as to how I would 
approach it.
    One is that it doesn't account for--or it may, but it is 
difficult to see how it would account for changing demographics 
that are going to be quite significant. I will just give you a 
number. Today, 13 percent of the population is over the age of 
65. And if you are over the age of 65, you require a higher 
level of services than people that are of other ages. Over the 
next 25 years, that is going to rise to 21 to 22 percent of the 
population, according to the Bureau of Census. So that 
demographic fact is very important and significant and would 
affect how you would think about the size of government in 
terms of spending as a share of GDP. So that is something that 
needs to be considered in this context.
    The other thing I worry about is the economy goes up and 
down and all around, as we know. We need to have some 
flexibility both in terms of the automatic stabilizers in the 
budget and discretionary response to recessions. There is a lot 
of debate about discretionary fiscal stimulus, and I understand 
that. It is a legitimate, very appropriate debate. But I do 
think that it is important that we maintain flexibility. And, a 
spending rule with those kinds of caps, unless somehow it can 
be adjusted to account for this fact, would make me nervous, 
and uncomfortable.
    Chairman Brady. Well, I think Dr. Hassett's point about 
using potential GDP rather than GDP smooths those out, so you 
don't have government spending, you know, great in the boon 
times and then, you know, unsustainable cuts in the rough times 
when you actually need some of that spending to occur.
    I think your point was, look, let's sort of put the 
guardrails, you know, in there that provide that.
    Dr. Hassett. Or--and I think that Mr. Zandi, Dr. Zandi, 
would probably agree with this. If you look at countries that 
save for the rainy day--Sweden is an example--that, you know, 
their view is that maybe you want to have a stimulus if a 
recession strikes, and that is why you need to be, say, below 
the cap before.
    And that is why I said that what we ought to do is start by 
having a cap, not a target, because then we have to stay below 
the cap enough so that if a recession hits then we can do 
something.
    And the demographic point I could respond to, as well. It 
is just that that would affect your target, that as you think 
about--so, for example, some people say spending shouldn't be a 
higher percentage of GDP than it has been historically. But 
that is kind of unreasonable if you look at the aging of the 
population.
    Chairman Brady. Yeah.
    Dr. Hassett. You know, it is driving the increase in 
spending.
    Chairman Brady. As I turn it over to the vice chair, I 
noticed in the 20 years from 1981 to 2000, the size of the 
government went from 22 percent of GDP to 18 percent. 
Population was still growing, entitlements were still 
continuing to expand. But during that period, as we lowered the 
size of government relative to the economy, you know, jobs 
along Main Street exploded--37 million jobs, about a 50 percent 
increase.
    Clearly, we do have some demographic factors there, but 
there is a role there where we, I think, could have a good 
discussion about what size we want this government to be and 
then have those rules, the guardrails, to sort of keep us 
within that.
    Dr. Zandi. And I think this is a great discussion. We are 
down into the weeds and the mechanics of it. I mean, I think 
that is appropriate.
    And I do agree with you that using potential GDP mitigates 
some of my concern about the cyclicality. But if you do a 
little bit of a calculation, it would have significantly 
constrained our ability to respond to the great recession. And 
that is the kind of thing that I worry about.
    And I won't go on, but I will just say, in the same spirit, 
I think there are other approaches that I would take, or at 
least we could explore, that I think might mitigate some of 
these concerns and still address the issues that you have.
    Chairman Brady. All right. Thank you.
    Vice Chair Klobuchar.
    Vice Chair Klobuchar. Thank you very much, Mr. Chairman.
    Thank you. I feel like we are back again, ``Groundhog 
Day.'' We just had the hearing on brinksmanship, and I 
appreciated your testimony there. And at the time, we issued a 
report on our side about the cost of brinksmanship, and now we 
did a new one on the cost of shutdown.
    And I thought I would start, as we look at--the title of 
the hearing is ``The Way Forward From Government Shutdown and 
Debt-Ceiling Confrontation.'' And I guess our first order of 
business, then, is to get out of it, because we are still right 
now in a government shutdown.
    And I thought I would focus a little bit on that, Dr. 
Zandi. You talked about how we lost half a percent from GDP 
growth already, just from this 9, 10 days of a shutdown. And I 
think sometimes we have had some proposals to piecemeal-fund 
the government, to fund certain agencies.
    And I just want to make clear for the record that what I 
have been hearing from a lot of my businesses actually isn't 
even the agencies that are suggested to be funded, which I have 
heard from citizens about. These are things like mining 
companies that have to get some simple permits approved, and 
that is by the EPA. And that is an example.
    I have had a major manufacturer of planes come to me from 
our State. They can't get their planes approved for export 
because it has to go through a registry within the Commerce 
Department that is clearly shut down. And despite the good, 
good work of the Secretary, we can't change that right now, and 
it is millions and millions of dollars of inventory.
    And so I wondered if you could expand a little on why this 
is that we are seeing this decrease with the shutdown. And 
then, also, your second point, which was about how, because of 
the brinkmanship on both the debt ceiling and the shutdown, 
that we have already lost a million jobs that we could have had 
in this country.
    Dr. Zandi. Right. Well, the shutdown is increasingly 
disruptive with each passing day. The initial impact, rather 
modest, except for the poor folks that have been furloughed and 
aren't getting paid. But as the days pass, the examples that 
you provided and others are becoming quite significant.
    Let me just mention a couple of other ones that are 
important. The mortgage market is being disrupted. If you want 
to close a mortgage loan, you need to get IRS tax records, you 
need to get a Social Security number. Those agencies are not 
open. Now, Fannie Mae and Freddie Mac are working hard to try 
to get around this problem, but it is a problem. And it is 
slowing down mortgage originations, the ability of potential 
buyers to get a loan. And, of course, that is key to housing 
and the housing recovery. And, as we know, that is vital to the 
economic recovery.
    Small Business Administration--an increasing number of 
examples of small businesses that are unable to close loans. 
And, you know, for a day or two or a week or two, that may not 
be an issue, but now if it drags on into the second half of the 
month, then people can't open restaurants, they can't expand 
their operations. These are things that are going to really 
matter.
    And you mentioned trade. A very good example, a lot of 
exports and imports need permits. And if you can't get a 
permit, you can't trade. And if we can't trade, that is going 
to do increasingly a significant amount of damage to the 
economy.
    And just from my own parochial perspective as an economist, 
because I know folks that are sitting behind you worry about 
economic data, this is going to become a real problem pretty 
quickly, because it is this week that we collect the data to 
count the number of jobs in the month of October. And if we 
don't collect the data, then we won't even know what kind of 
damage we are doing to the economy very well.
    So this is becoming a very significant issue, and we can't 
let this drag on.
    Vice Chair Klobuchar. Right.
    And then the second point you made in your testimony was 
about how, over time, the brinkmanship on either of these 
issues, keeping the government open or the debt ceiling, has 
resulted in lost jobs. Simply, is that because businesses are 
just sort of holding back because they don't know what we are 
going to do next?
    Dr. Zandi. Yeah, exactly. You know, we have been put 
through an awful lot here. The last 5 years have been quite 
harrowing, and so people are really on edge. And so it doesn't 
take a lot to spook people in this current environment.
    And, of course, what is going on in Washington is a big 
deal for a lot of people. It is very scary to people when we 
are starting to talk about--even if we are not going to default 
on the debt, just talking about that makes people incredibly 
nervous.
    Now, it is not like people in businesses pull back in that 
environment, but what they do is stop doing what they normally 
do. And that mere fact alone causes the economy to start to 
seize up.
    Vice Chair Klobuchar. So one of your main points here is, 
as we move forward, that we can't keep doing this, basically.
    Dr. Zandi. We just----
    Vice Chair Klobuchar. And so--yes, go ahead.
    Dr. Zandi. Well, I just wanted to say, in my view, we have 
come a long way. The private sector is in really unbelievably 
good shape. Nonfinancial American businesses have restructured 
to reduce their cost structures; they are highly competitive. 
The only thing that is missing to a much stronger economic 
recovery is to get rid of this brinkmanship.
    Vice Chair Klobuchar. And would the caps that we were 
talking about earlier, that both you and Dr. Hassett talked 
about, would they solve the problem, the fact that we have been 
blocked from going to a conference committee on the budget on 
the Senate side? We have a budget, the House has a budget.
    Dr. Zandi. No, this is looking forward. You know, once we 
get beyond this, then we have to think about how we can't get 
back into this morass a year or two down the road. And these 
are the kinds of things I think you should be thinking about. 
But for the current point in time, we've got to get out of the 
mess.
    Vice Chair Klobuchar. Yes.
    And I want to hear--my last questions will just be your 
ideas, along the lines of what Dr. Hassett said, for these 
rules. But one of my points will be that we can put as many 
rules as we want in place, but if we don't approach things with 
the spirit of compromise, it is going to be very hard to do 
that kind of long-term debt reduction that--you and I have 
talked about this before--we believe we need to do based on the 
debt commission, a mixture of reform that the chairman 
mentioned and also looking at some of these spending cuts and 
trying to replace sequestration with something that makes more 
sense in terms of spending cuts.
    Dr. Zandi. Precisely.
    Vice Chair Klobuchar. Okay.
    Could you just quickly at the end here talk about what--you 
were tailing off here because your time was up--some of the 
rules you thought would work?
    Dr. Zandi. Sure. And this has to be thought through very, 
very carefully because there are a lot of moving parts. But, 
conceptually, I would be focused on as my threshold--Dr. 
Hassett has been focused on spending as a ratio to potential 
GDP. I think we should be focused on the structural budget 
deficit as a percent of GDP. If we do that, then we address 
some of the concerns I brought up in the context of the 
spending-to-potential GDP ratio.
    Vice Chair Klobuchar. So you would use that as your 
measure?
    Dr. Zandi. Yeah, I think that would be my preference.
    Vice Chair Klobuchar. And are there other countries that do 
that?
    Dr. Zandi. Yes. This has been increasingly used in European 
countries to address their fiscal issues. And since the crisis, 
they have been using that as a benchmark, and it has helped 
them to address their fiscal problems. So it has become more 
commonplace in countries that have significant fiscal problems.
    And, you know, it is not a panacea. I mean, ultimately, at 
the end of the day, lawmakers have to execute on any threshold 
or rule. But I think that addresses a lot of the concerns I 
have about the spending-GDP ratio that Dr. Hassett mentioned.
    Vice Chair Klobuchar. Dr. Hassett, do you want to respond 
to that idea?
    Dr. Hassett. Oh, sure. Dr. Zandi is right that most 
European countries have a target of 3 percent deficit or they 
have to be below a cap, and 60 percent debt-to-GDP. And the 
issue that motivated me to move toward spending is the 
realization that those caps haven't been very effective.
    And I think that if we look at the data, they are 
increasingly adopting hard spending caps. And I think it is in 
part because the deficit projections--because we are doing 
structural deficits and so on that have been kind of vague and 
easy to waive.
    And I agree that if we just have a rule and we agree to 
ignore it, then it won't accomplish anything.
    Vice Chair Klobuchar. Uh-huh.
    Dr. Hassett. If we want to get out of the world--I think, 
by the way, that Dr. Zandi is understating the economic damage 
from the uncertainty. I think Steve Davis' work, which is very 
similar but, you know, I mean, it has a slightly different 
approach, is about twice as much, his estimates.
    Dr. Zandi. Yeah. Yeah.
    Dr. Hassett. And so we have to think about, well, what can 
we do in the spirit of compromise to make sure that we get out 
of this world where that first chart with all those spikes that 
cause economic damage is no longer the chart that we are 
looking at, or that it looks like a bad EKG after----
    Vice Chair Klobuchar. Right.
    And, Dr. Zandi, your concern about short-term after short-
term is you just keep creating that uncertainty if we keep 
doing short-term deals.
    Dr. Zandi. Yeah. I mean, I think people have been on sort 
of a, every sixth month we kind of go down this path. And, you 
know, if we keep doing that, I don't think we are going to get 
out of the box we are in, in terms of economic growth.
    We are stuck in a 2-percent-growth world. And the only 
reason we are not growing 3 or 4 percent, in my view--there are 
other reasons, but the key reason is literally what is going on 
in Washington around these issues.
    Vice Chair Klobuchar. Thank you very much.
    Chairman Brady. Thank you.
    Let's focus, because this committee is a little different 
than others, about the way forward and how we find some common 
ground on the bigger issues facing us.
    Dr.--Mr. Campbell.
    Representative Campbell. You promoted me to a doctor. Thank 
you very much, Mr. Chairman, but I don't belong down there.
    You know, as you have suggested, we have had a little 
trouble getting along up here on the dais and with the White 
House, as well. So in the next 4 minutes, I just want to see if 
we can get you guys to get along or to agree.
    Following up on Senator Klobuchar's things about talking 
with Dr. Hassett's spending cap and now Dr. Zandi's budget 
deficit or ratio to GDP--and, Dr. Hassett, you mentioned, just 
did in response to Dr. Zandi's proposal, that hasn't worked 
very well.
    Let me ask you both, any of these sorts of caps--I come 
from California, a State which has a balanced-budget 
constitutional amendment. Hasn't had a balanced budget in the 
last 14 years in spite of a balanced-budget constitutional 
amendment. I am also a CPA, so I observed all of the different 
things that are done in order to create a balanced budget when 
it is, in some cases, $20 billion, $30 billion, which is 20, 30 
percent, out of balance.
    How do you deal with that in either of these scenarios with 
any kind of cap, be it debt or deficit or be it spending?
    Dr. Zandi. Either of us?
    Go ahead, Kevin.
    Representative Campbell. Either, yeah.
    Dr. Hassett. Okay. I think that, first, Dr. Zandi and I 
have disagreed about a lot of stuff, but if he is here saying 
this current circumstance is causing economic harm and then I 
am saying it is probably twice as big as he says--and I think 
his team is more in favor of the economic-harm point right 
now--or the Democratic team, not necessarily your team--but if 
that is--we have to accept that we need to get out of that 
world.
    And I think that, you know, maybe one reason we are in that 
world is that people have recognized, some have recently 
written about this, that it seems like the minority party very 
often feels like the debt limit is one of the only times they 
have a chance to influence legislation. And it has been pretty 
common for that to happen. We need to get out of that world.
    And so, then, you know, if we adopt a rule, we adopt the 
rule because it is the cost or the price that we pay to get out 
of that world. And then, when we do that, we should all 
acknowledge that, well, if we don't obey the rule, then we are 
going to have to go back into that world that is so damaging. 
And it ought to be that everybody should agree that we don't 
want to do that. And I think that, absent that kind of almost 
economic patriotism, then of course the rule won't work.
    But I think the rules need to be adopted so that we get out 
of this world where--you know, I mean, Steve Davis' estimates 
were really astonishing, that GDP is probably about 3.2 percent 
lower and there are 2.3 million fewer jobs today because we 
have been playing these brinksmanship games.
    Representative Campbell. Okay. So are you----
    Dr. Hassett. And so we have to adopt a rule so that those 
2.3 million people would have a job.
    Representative Campbell. Are you okay, then, or not okay 
with the rule that Dr. Zandi suggested relative to debt and----
    Dr. Hassett. Sure. You know what? I would rather have a 
spending rule, but I think that if, you know, one side is 
really adamant it is a deficit rule, then you could accomplish 
the same thing. You could accomplish the same thing, you know, 
because it is very hard to increase taxes as a share of GDP.
    I think a spending rule is more targeted, is more precise, 
it is a better rule, but I would take virtually any rule over 
the circumstance that we have today.
    Representative Campbell. Dr. Zandi.
    Dr. Zandi. Yeah, let me just say a few things quickly.
    One is that, to your point, no rule solves our problems, 
right? At the end of the day, it takes political will to come 
together. So a rule is helpful, but it is not a solution.
    The second point is the current rule we have de facto is 
the debt limit, and that is a counterproductive rule given what 
we are seeing happening on a regular basis. It is not, as 
Chairman Bernanke has said, the way to run a railroad. So we 
have to get rid of that or at least neuter that as the way we 
are operating, because it is doing significant damage to us. 
And it seems to me that if we don't change that, it will 
continue to do so. And either party will do it to each other.
    Representative Campbell. Let me just, in the last 30 
seconds, do you agree with that point, Dr. Hassett?
    Dr. Hassett. Yeah.
    Representative Campbell. You do. Okay. Thank you.
    Dr. Zandi. And then I think this next question, well, what 
do we replace it with, how do we make this better, that is a 
very good debate. And Kevin and I and others should fully 
engage on this and exactly how we would do that, because we 
each have our concerns about how to do it.
    But, in my view, the structural deficit to potential GDP 
fundamentally is important in this way. And this may be where 
we disagree a little bit. In my view, our long-term fiscal 
issues are both a spending problem and a revenue problem. It is 
a revenue problem because of the demographic reason I just gave 
you. Right? Just the simple aging of the population. You don't 
want to say that we don't need more revenue to pay for the 
services to people just because they went over the age of 65 
and require more government services just by definition.
    So, in my view, it is a spending issue. I am on board with 
that. The cost of medical care is the key spending issue. But 
it is also a revenue issue because of the demographics. And we 
need a budget rule that is sensitive to both of those.
    Representative Campbell. Right.
    Chairman Brady. Thank you. The time has expired.
    Representative Sanchez.
    Representative Sanchez. Thank you, Mr. Chairman.
    Thank you, gentlemen, for being before us.
    You know, I represent a big manufacturing area, actually, 
out in Orange County, California. It is tied a lot to NASA and 
commercial air and defense industry. And I have a set of 
brothers, a pair of brothers, who went bankrupt in this 
recession, having a leasing company, because capital dried up. 
And now they are back at it, starting from nothing. And they 
have been at it for about 6 months, and they told me the other 
day that capital had finally started to flow, that banks are 
getting back into putting money out.
    It is a little bit more difficult for the very same triple 
A people they had before borrowing, in some cases for services 
like the trash cans that get picked up at our homes, but in a 
lot of cases big manufacturing equipment as with machine shops 
and things that are in my district. They are also, my brothers, 
located in my district.
    And so things had begun to loosen up a little bit. Triple A 
type of credit companies who had not been able to get anything 
in the last 3 or 4 years and had gone away were coming back and 
being able to make deals. They also work with SBA to get--you 
know, because it is about money for these companies so that 
they can expand and they can hire.
    And all of a sudden, in the last 2 weeks, everything shut 
down, everything shut down with respect to capital, because 
banks are afraid to loan, because people are afraid to sign on 
the line, because----
    Dr. Zandi. What do they lease?
    Representative Sanchez. They lease equipment.
    Dr. Zandi. Equipment, okay.
    Representative Sanchez. They lease equipment. So it can be 
anywhere from, like I said, trash cans----
    Dr. Zandi. Yeah.
    Representative Sanchez [continuing]. For the trash cans 
that sit on my driveway once a week, to big capital machinery.
    Dr. Zandi. Where in California?
    Representative Sanchez. Orange County, California, a very 
big manufacturing area for the aerospace and other industries.
    So all of a sudden, the brakes are on. And, actually, 
people are losing money, and some of them, as you know, are 
losing their homes, even if they have equity in them, because 
when you are a small business, you are putting everything you 
have on the line.
    And so I guess my question is, we keep seeing this every 
time that we play these games in Washington, DC. So if you had 
to pick one thing that maybe we do have a rule and hold 
constant to, would that be something like the debt limit? Would 
that be spending? Would that be caps? Would that be an 
aggregate amount on entitlement as a percentage of GDP?
    Is there any one thing that we should really consider to 
hold constant so that we stop doing what I see right now 
happening in my area?
    Dr. Hassett. Thank you for the question.
    And I think there is. I think that if we agreed 5 years ago 
that this is the range that we think is, you know, open to 
debate about what spending-to-potential GDP should be, and if 
we are outside of that range, then we will go back to the old 
world where we have these debt-limit struggles, but if we are 
inside of the range, then the debt limit automatically 
increases and there is none of this uncertainty and the 
government can't be shut down, that if we had done that 5 years 
ago, then about 2.3 million more Americans would be working 
today. That is the estimate. And Mark says about half of that, 
I think.
    Representative Sanchez. And my----
    Dr. Hassett. And so that we need to adopt a rule like that. 
And if it is a deficit rule or a spending rule, that is 
something we will have to flesh out. But I think either rule 
that made it so that we accomplished our budgetary objectives 
but did so in a way that moved away from the brinksmanship 
could have significant benefits.
    And I really appreciate the fact that you put a human face, 
really, on the negative economic consequences.
    Representative Sanchez. Yeah. And my fear is that if we put 
a rule, like we did sequester--which we are now all under and 
we know is kind of backfiring on us. I think most economists 
have agreed that it is probably about 1.8 percent of less 
growth happening because we are under sequester. And yet, at 
the same time, we are cutting down that, but we are doing it in 
very inefficient ways. And, again, I see it getting right back 
into, for example, defense manufacturing in my district.
    So how do we--Dr. Zandi, do you agree that it should be 
that spending issue? Or do you think something is even more 
important than that for us to try to rally around to stop this 
every-2-weeks thing going on?
    Dr. Zandi. Right. Well, you know, this is the first time I 
have heard that credit has stopped flowing. That is an 
interesting anecdote. I would like to explore that a little bit 
more because I hadn't heard that. So if that is the case and 
that is widespread across the country, that is a problem. So, 
interesting to hear that--sorry to hear that, but interesting 
to hear it.
    I think that, principle number one, to get to your issue 
about every couple of weeks, every few months, I think we 
really need to, again, rethink the debt limit. It is a very bad 
law. And it would be nice if we could repeal it and, if we 
could repeal it, replace it with something.
    And, in my view--and I am open, really I am, I am open to 
discussing and thinking about this more deeply with everybody. 
But at this point, my intuition is that you would want to do 
something like a cap related to the structural deficit to 
potential GDP.
    Structural deficit means abstracting from the impact of the 
ups and downs in the economy on the budget, right? And 
potential GDP means what can the economy produce in a normal 
state.
    If you do that, I think that is kind of a reasonable 
approach to addressing both our long-term spending issues and 
our long-term revenue issues, and it is a balance.
    But, again, at the end of the day, no rule will solve our 
issues unless we have the will to do it, to execute on it.
    Representative Sanchez. Thank you, Doctor.
    I am sorry, I have to----
    Chairman Brady. No, no. All time has expired.
    We have votes called, but there are only two. Should not be 
long. So I will recognize Senator Murphy, and then we will 
recess briefly after that and hopefully be right back at it.
    Senator Murphy. Thank you, Chairman Brady.
    Thank you to both of our panelists for being here today.
    There was obviously a ripple of optimism in the markets 
yesterday that we were on the verge of getting at least a 
partial deal. We will see by the end of the day as to whether 
that optimism was merited.
    But what we also heard yesterday was that JPMorgan is 
pulling their investments in Treasuries out of their mutual 
funds that mature between October 16th and November 6th. And 
that is mirrored by a decision that Fidelity made, as well.
    That is a limited action because they are only pulling out 
from Treasuries that mature during, essentially, the next 30 
days, but I think it invites a conversation about whether we 
should be so optimistic that the United States is going to 
remain as the world's reserve currency if we continue to go 
through these series of manufactured crises. If you sort of 
look at the history of reserve currencies, they, you know, tend 
to last 100 to 200 years, they change. Now, we haven't gone 
through our 200-year cycle yet.
    But I wanted to ask two questions to both of you, I guess.
    Let me start with you, Dr. Zandi. A, are we at any risk of 
losing our position as the reserve currency of the world? Or is 
it just a matter of relativity, that as nervous as people are 
about the dollar these days, they are, frankly, more nervous 
about other currencies? And if that were to ever happen, what 
are the consequences to the United States of losing that 
position?
    Dr. Zandi. I think it is very unlikely in the current 
context that we would lose that position as the globe's reserve 
currency for the key--one of the key reasons you just 
articulated, and that is what would take the place of the U.S. 
There is no obvious answer to that.
    But having said that, we are doing damage to our 
credibility, and it is going to cost us, right? I mean, 
investors are going to demand a higher interest rate to 
compensate for any potential risk.
    And they are now putting a number to that risk. And even if 
it is one basis point, one-one-hundredth of a percentage point, 
that is a problem because we have $12 trillion in publicly 
traded debt. That is a big number. You multiply anything by 
that, that is a big number. And so that is deadweight lost to 
us as taxpayers.
    So we are doing real damage by going down this brinkmanship 
path. And each time we go down the brinkmanship path, the cost 
is going to rise.
    And one other thing I will say: So far, at least, lawmakers 
have been able to sign a piece of legislation before actually 
breaching the debt limit and not paying a bill. If we keep 
going down this path, at some point we could make a mistake. 
And if we make a mistake and not pay a bill--and, by the way, 
it doesn't really matter if we pay on the Treasury interest 
payments. If we don't pay somebody our obligation, that is 
going to cost us very, very dearly, and the rest of the world 
is going to be looking for options at that point.
    So, no, I don't think we are at significant risk of losing 
that reserve currency status, but we are certainly not making 
it easy for people to believe in us.
    Senator Murphy. Dr. Hassett.
    Dr. Hassett. Thanks for the question. It is a good one and 
one we should follow up on, too, because my knowledge of the 
literature is about 10 years old.
    But the question is that we are in a situation where we can 
print dollars that cost us nothing, really, to make and then 
give them to people, and they give us BMWs, say, and because 
they really want to hold the dollars, and that that is an 
advantageous position for us to be in.
    The last time I checked, the estimates of this sort of 
seigniorage benefits of being the reserve currency were pretty 
small in the end, that it wasn't a really big thing. And so, if 
we stop being the reserve currency, there is also potentially a 
benefit, which--some of my more left-wing friends actually wish 
we weren't the reserve currency, said this at dinner parties 
and so on. Because then, you know, if everybody wants to hold 
dollars, then it bids up the price of a dollar and it makes it 
harder for us to have manufacturing jobs and so on.
    So the costs and benefits of being the reserve currency 
are, I think, not obviously hugely positive, the last time I 
checked. But I would like to follow up with you on that.
    That said, I don't think that this episode is likely to 
change that calculus of what Mr. Brady said at the beginning of 
the hearing, that, look, there is no way that we are going to 
default or miss interest payments or miss payments. If that is 
true, then I don't think this episode would influence it.
    But even if we did, I kind of wonder if the Treasury market 
effect would be large, in the sense that, suppose that your 
interest payment didn't come on October 18th and you were 
holding a Treasury bill that was worth a dollar you thought, 
but then you were surprised by the fact that you didn't get the 
interest payment, at what price would you sell it to me for? 
Would you sell it to me for 90 cents? Like, in the end, I think 
you are probably going to believe that you are going to get 
that interest payment in the end, you are going to be made 
whole, and that you wouldn't really want to take that much of a 
discount.
    But I think, as Mr. Zandi said, even if it is a one-basis-
point change that we build into the system, that it could be a 
significant factor.
    Senator Murphy. I agree that we are likely safe in large 
part because there isn't any other place to go. That is a 
really bad strategy to rely on; that we will continue to be the 
reserve currency simply because every other country's currency 
or economic situation is more screwed up than ours. That is, 
frankly, a recipe for ultimate failure if that is essentially 
why you remain confident about your economy's role in the 
world.
    Dr. Hassett. If I may add one point, too, which is if you 
look at Angus Madison's data on world GDP back thousands of 
years, it has pretty much always been the case that China is 
about a third of world GDP, which we kind of peaked at about a 
little while ago. And China really messed things up starting in 
the 1850s. But my guess is that they are going to go back being 
about a third of the world GDP at some point in the next 50 to 
100 years. And at that point, we are no longer even the biggest 
game in town, and we probably wouldn't be the reserve currency 
any more.
    Dr. Zandi. Can I make just one quick point? You know, we do 
have----
    Senator Murphy. Vice Chairman Klobuchar has completely 
ignored the fact that I am over my time. So go ahead.
    Dr. Zandi. Well, Treasury did miss a payment back in 1979. 
It was an accident, and it was only to a few investors. And 
there has been some good academic research trying to assess 
what that meant in terms of the cost. And it was very costly. 
You know, investors were made whole very quickly. It was 
actually just a paper mistake. We didn't have computers. It was 
a paper mistake. And it is not--you know, it is billions and 
tens of billions of dollars. So that kind of gives you a sense 
of what a mistake could mean for us, particularly in the 
current context with, again, with $12 trillion in debt 
outstanding.
    The other thing I just want to say, the reserve currency 
status is a very important status. It gives us enormous 
economic benefit. You know, the seigniorage is just one little 
piece of it. But the fact that trade in the world is done in 
dollars is huge. It is a significant advantage to us in many, 
many ways. So I think it is very important for us to work hard 
to continue to preserve the faith in our financial stability so 
that we maintain that reserve status. It is very important.
    Senator Murphy. Thank you.
    Vice Chair Klobuchar [presiding]. Thank you very much, 
Senator Murphy.
    We are going to now take a recess until our House Members 
return. I personally am going to go back and look at the 
library back there. Thank you.
    [Recess.]
    Okay. We are back for the hearing. And Representative 
Delaney is here to ask questions. Thank you.
    Representative Delaney. I join my colleagues in thanking 
Dr. Zandi and Dr. Hassett for joining us here today. When I 
think about your testimony, which was very thoughtful, it seems 
to me that we have to think about this issue in the context of 
really what the realities are of the situation we face today 
and are likely to face for a very long time, because I think 
those do inform, to some extent, how we think about this issue.
    One reality, unfortunately, is that we have a very large 
current debt burden in this country, $17 trillion, right, which 
is obviously a very big and significant number. The second 
reality is that that number is likely to grow across time, 
unless we make fundamental reforms to our entitlement programs, 
based on the demographic analysis that you both alluded to in 
your comments.
    The third reality, at least in my judgment, is that we are 
under-investing in certain areas that actually have been proven 
and demonstrated to have a good economic payback: 
infrastructure, certain aspects of education, et cetera.
    So when you look at these facts, if you look at these kind 
of macro drivers of our fiscal situation over the next 20 or 30 
years, it is hard to come to a conclusion that we will have 
anything but a reasonably high level of debt in this country.
    And so I think, Dr. Zandi, you made a good point about what 
effects the shutdown and the debt ceiling brinksmanship, if you 
will, are having on the economy on a very current basis. I also 
worry that it would seem to me that if I was one of our foreign 
counterparties right now, because unlike other countries that 
have managed high debt levels, like Japan, which largely 
borrowed from itself, we are in a position where we borrow from 
foreign counterparties. And it would seem to me that these 
actions would somehow cause them to begin the process of slowly 
calibrating how they think about the United States as a 
counterparty, which will inevitably result on the margin and 
perhaps hard to measure in the short term, but on the margin, 
in higher debt levels or debt costs.
    And that is a particularly imprudent thing do if you 
acknowledge my first set of facts, that we will likely have 
high levels of debt for a very long time. And so I think we 
just have to have more of a conversation about the importance 
of these counterparties to us for a very long time, 
unfortunately, and think about our actions in that context, 
because if this was an enterprise other than government, you 
would be working very hard to instill confidence in your 
lenders so that they would lend you money at the lowest 
possible rate, as opposed to creating a situation of 
instability.
    But my question really goes to Dr. Hassett, because I think 
you framed very well the options we have around putting in 
place governors or mechanisms to deal with the fiscal situation 
of the country across the long term and again in the context of 
what we just discussed. And so it seems to me that there would 
be things you would want to do if this was an enterprise other 
than government. The first thing is you would want to have some 
current test to look at your current situation and say, is the 
fiscal--the current fiscal situation concerning? And that would 
be something along the lines of a current test of debt-to-GDP 
levels, et cetera. But you would also want that to somehow 
interrelate with a longer-term test, right? Because it is one 
thing to have low debt levels currently, but have an explosion 
occurring in 10 or 15 years, right? That is not a good 
situation. Similarly, if you have a high level of debt, but you 
are doing things across the long term that are going to bring 
it down, it may be more manageable. So how could we possibly 
come up with a framework for having effectively a current and a 
long-term measurement and having those interplay so that we 
could have a process for managing this somewhat inevitable 
fiscal situation we have as a country over the next 20, 30 
years, that is sensible, that is kind of ratio-based, as 
opposed to absolute-dollar-based? Because again, you would only 
come up with an absolute dollar test if you were truly trying 
to have a forcing function to create conflict, right, which 
some may think we need. But you would never come up with that. 
You would come up with a percentage, or ratio, et cetera, to 
GDP or other things. So how do we come up with something that 
is logical and sensible, because this is likely to be a 
reoccurring theme, and how do we come up with something that 
both measures current and long-term situation, and how would 
those possibly interplay?
    Dr. Hassett. I will go first.
    Mr. Delaney, I think that your question actually is 
probably motivated from looking at the chart and figuring out 
something, which is that the only way that you get sort of 80, 
90 percent of the people having both budget balance rules and 
debt rules is that a lot of people have both. A lot of 
countries have both. And so I think that having more than one 
rule is one way that countries have processed your thought, 
which is, let's try to have a rule that looks at, say, debt. 
And ideally, if we were going to construct a perfect measure we 
would include implicit liabilities in that. And then we will 
have a rule, a second rule that requires that our deficit not 
be bigger, our structural deficit not be bigger than 3 percent. 
So they have these multiple rules precisely because they want 
to keep their eye both on short-term violations of prudence and 
long term.
    Representative Delaney. And how do those rules interrelate? 
Can you violate the short-term rule provided you are on target 
in the long term? Do they have those kind of dynamics, or are 
they both viewed as kind of uncompromising standards that you 
can never violate? How does it work typically?
    Dr. Hassett. Yes, typically they are stand alone, 
independent rules, and you have to obey them all. It is kind of 
like when you tell a teenager, no drinking and be home by 11. 
So the rules are independent rules, and they have to obey them 
all.
    Representative Delaney. But therefore, you probably build 
more tolerance into each of them. So since you have two steps 
or two tests, theoretically, you would build in more tolerance 
in each of them because either of them--so I would just be 
interested in any thoughts you have as to what specific rules 
we put in place. I think that is my time.
    Dr. Hassett. I could follow up on that.
    Representative Delaney. Thank you, Doctor.
    Chairman Brady [presiding]. Thank you.
    One, before I recognize Representative Paulsen, I want to 
take this opportunity to thank the vice chairman for setting a 
great tone, bipartisan tone on this issue and others throughout 
the Joint Economic Committee. It really is a delight to work 
with you on these issues. They are all big picture issues. We 
need to find those solutions. And couldn't find a better 
partner in doing it.
    Vice Chair Klobuchar. Thank you, Mr. Chairman.
    I really like the tone we have had in this committee. And 
this hearing is another example of it. Thank you.
    Chairman Brady. Now if Minnesota just would quit dominating 
this committee, I would feel so much better.
    Speaking of that, Representative Paulsen.
    Representative Paulsen. Thank you, Mr. Chairman.
    And let me just first echo the comments you made about 
working with Senator Klobuchar. This is a timely hearing. It is 
a timely hearing because this is a committee that includes both 
House Members and Senate Members, and looking at what is the 
way forward on some very significant issues. And it is an 
opportunity to find some solutions, so we don't move from 
manufactured crisis, from one to the next, actually look at 
some long-term framework discussions to get spending under 
control, to rein in deficits, and ultimately to lower our debt 
pattern.
    Let me just start here. The International Monetary Fund 
recently lowered the global outlook forecast this week, and it 
factored in, of course, the current U.S. Government shutdown, 
the impending approaching debt limit deadline that's coming up. 
And compared to July, the IMF cut the U.S. forecast growth rate 
and shaved it down to 1.6 percent this year and then shaved it 
down to 2.6 percent next year. And so I remember when this 
debate was going on 2 years ago, of course, the ratings 
agencies were all giving their warnings at that time about if 
long-term liabilities aren't addressed, don't be surprised if 
the outlook down the road is downgraded or you get a little 
nick on that from our bond rating, et cetera.
    So if the debt ceiling is raised without any plan nor 
sustainable government spending down the road, what signals 
would that send to the markets or to foreign investors down the 
road? So is it prudent now, would it not be prudent to make 
spending reductions part of the discussion for a way forward, 
if you will, as part of the debt ceiling? Does that make sense?
    Dr. Hassett.
    Dr. Hassett. Mr. Paulsen, in the piece I wrote on this 
topic in the Wall Street Journal last week, I stated what I 
think about this, which I think is kind of the correct fact, 
which is that we have got this strange debt limit rule that has 
led to a lot of brinksmanship over time. And it has been pretty 
common, 27 out of 53 times the debt limit was passed with some 
extra legislation, to include other stuff. And that a full 
assessment of whether this has had a complete negative effect 
would involve estimating the positive impact of the things that 
were attached over the years by often the opposition party to 
the debt limit increase. And then we would have to evaluate 
whether, well, could they have happened without the debt limit 
shenanigans? And I think there are a lot of unknowables there.
    But I think that you are correct that as we think about 
legislative accomplishments historically, you know, we have to 
recognize that because the debt limit is something that has to 
happen, that gives the minority power some leverage, then it 
has allowed legislation to pass that may have had a positive 
impact, even on net if you go back and tally it all up. But it 
is not completely knowable because there are so many different 
policies.
    And so I think that it is absolutely important to get 
spending under control. And that is why, so if it were me, I 
would take the deal, let's adopt a spending cap and agree never 
to go down this road again, and then I will give you all the 
debt limit increase that you want. And that is a trade that I 
would make right now.
    Representative Paulsen. Okay. And Dr. Zandi, you mentioned 
earlier about the revenue problem with demographics being the 
way they are and support for corporate tax reform, revenue 
neutral, to kind of drive the economy. I mean, I tend to agree 
we need pro-growth policies in particular to bring in more 
revenue. Can you give us some other comments regarding the 
opportunity to have pro-growth tax reform, long term horizon, 
that can be a component of some of these discussions?
    Dr. Zandi. Well, I think tax reform broadly would be 
obviously ideal. But corporate tax reform feels doable to me in 
the current context.
    There is a general view that, and I think appropriately so, 
that if we can make the corporate tax code obviously more 
efficient, fewer loopholes and deductions, and use that extra 
revenue to bring down marginal rates for businesses, that that 
would be very important to improving the competitiveness of 
U.S. companies. So I think that is a very good place to focus. 
And I think there could bear some fruit.
    You know, it is one of those things that isn't going to 
matter a lot to the economy in any given year, but when you 
look back over a period of a decade or a generation, it could 
add up to significant benefit to the economy and ultimately 
help alleviate some of our long-term fiscal issues.
    Can I say, one thing, though, in response to your first 
point?
    Representative Paulsen. Yes.
    Dr. Zandi. Under current law, if you lawmakers do nothing, 
then under reasonable economic assumptions, they are CBO 
assumptions and they are pretty consensus-oriented, the 
deficits will continue to decline to a point where the Nation's 
debt-to-GDP ratio will stabilize. And this is the case through 
the end of the decade, through 2020.
    So I think that the most important thing would be for us to 
just get beyond the brinksmanship. And I think it is less 
important to get those spending cuts in the near term if what 
it means is that we can just get moving forward and let the 
private economy start to shine through. I think that is the 
most important thing we need to do right now.
    Representative Paulsen. Thank you, Mr. Chairman.
    Chairman Brady. Thank you.
    Former Chairman Maloney will be here in just a moment.
    You know, as we work through this, Dr. Zandi, Dr. Hassett, 
what is the most important takeaway for us at this moment in 
time as we move forward from short-term brinksmanship to long-
term solutions? What is the most important thing for us to keep 
in mind?
    Dr. Zandi. In my view, that what Congress and the 
administration are doing now, what Washington is doing right 
now is incredibly counterproductive.
    Chairman Brady. I agree.
    Dr. Zandi. Just simply get out of the way, do nothing, and 
we will be okay. The economy will engage. We will get a lot 
more jobs and growth. Unemployment will decline. And our long-
term fiscal issues won't be solved, but they will look a lot 
better.
    Chairman Brady. Dr. Hassett.
    Dr. Hassett. You know, I think that when I am thinking 
about the costs of things like what we are doing today, I often 
like to do the thought experiment, well, what if we had done 
the right thing in the past? And I would circle back to my 
earlier comment that if 5 years ago, we had sat down and 
adopted two rules, maybe a deficit rule and a spending rule, or 
something like that, and then agreed not to introduce these 
pockets of high uncertainty, then there might be 2.3 more 
million Americans working today and a lot fewer long-term 
unemployed. So when we don't address these big policy problems, 
and we let them just sit there and fester, then we do really, 
really lasting damage to the economy. And it seems sometimes 
like it is easy to ignore the damage politically, but it really 
is true that if 5 years ago, we had done the right there thing 
there would be a couple million more people working today who 
really need jobs. And so the costs of ignoring this problem are 
enormous. And we need to do something so that we can get out of 
this brinksmanship game.
    Chairman Brady. That uncertainty chart, which is pretty 
compelling, I think certainly reinforced back home.
    Are there other elements that contribute to this 
uncertainty? Fiscal issues, some regulatory issues, tax. I do 
think the Affordable Care Act has introduced uncertainty both 
in the health care world and along Main Street. Monetary policy 
is a question we deal with each day. Are there these other 
elements that we ought to be addressing as well?
    Dr. Zandi. Yeah. It goes beyond the brinksmanship, 
certainly. And I am not making any comment on the merits of 
financial regulatory reform or health care reform. In my view, 
in terms of health care reform, there are negatives from a 
macroeconomic perspective and there are positives from a 
macroeconomic perspective, and they wash out. I don't know a 
professional economist who does this for a living that changed 
their economic forecast long run because of the passage of 
health care reform. But having said that----
    Chairman Brady. Reference the uncertainty issue.
    Dr. Zandi. There are adjustment costs from moving from here 
to there. And that is what we are feeling right now. And that 
does create uncertainty. And it makes people nervous in the 
context of all the other things that are going on.
    But the political brinksmanship is at this point in time 
now the key factor driving this angst, this uncertainty. But 
you are right, there are other things going on.
    Dr. Hassett. And Mr. Brady, I could follow up with your 
staff that Steve Davis at the University of Chicago, his 
measure of uncertainty can be decomposed into submeasures, I 
think there might be about 10 of them, that measure the other 
kinds of uncertainty and the different types, like fiscal 
policy versus monetary policy uncertainty, the different types 
of policy uncertainty that contribute to the overall index. And 
you can watch how that evolves over time. And we can present a 
chart to you.
    Chairman Brady. It seems like that index is in inverse 
proportion to our popularity ratings in Congress. As the 
uncertainty goes up, the other one seems to go down.
    I don't know if Representative Maloney will make it here 
today. Unless other Members wish to inquire, I would like to 
thank you both for being here today. Hugely helpful 
information. We would like to keep this discussion in a 
bipartisan manner going forward.
    With that, the hearing is adjourned.
    (Whereupon, at 11:20 a.m., the committee was adjourned.)
                       SUBMISSIONS FOR THE RECORD

Prepared Statement of Hon. Kevin Brady, Chair, Joint Economic Committee
    Vice Chair Klobuchar, distinguished witnesses, and my fellow 
Americans.
    Today, the federal government remains partially shut down, and the 
Treasury estimates that it will hit the debt ceiling on Thursday, 
October 17th. If President Obama and Congress cannot reach an agreement 
to increase the debt ceiling by the middle of next week, the United 
States could default on its obligations, the economic consequences of 
which are too grim to contemplate.
    Time is too short for the Washington ``blame game.'' America will 
not default on our debt. Nor will the debt ceiling be lifted without 
addressing the unsustainability of the government's finances. Given our 
divided government, any solution therefore must be bipartisan.
    In the past, Democrats and Republicans have used the debt ceiling 
as a responsible means to shore-up America's financial house--the 
Omnibus Budget Reconciliation Act of 1990 came about through debt 
ceiling and sequester negotiations between congressional Democrats and 
President Bush, and the Budget Control Act of 2011 came about through 
debt ceiling negotiations between House Republicans and President 
Obama.
    Negotiations over the debt ceiling provide both parties with an 
opportunity to enact a 21st century strategy to put America's finances 
in order for the long haul. Therefore, I'm proposing a way forward for 
President Obama, Leader Reid, and Speaker Boehner to reach a bipartisan 
solution.
    To build an office building, you start with the foundation, erect 
the steel skeleton, and then build out the specific offices. In past 
fiscal battles, however, Washington has often gotten the order wrong. 
Budget negotiations have often failed because we began by arguing over 
specific tax changes or spending cuts before we agreed on a goal and 
how to measure the progress toward the goal.
    As Nobel laureate Milton Friedman taught, the best single measure 
of Washington's burden on Main Street is federal spending as a share of 
the economy. In the near term, the Budget Control Act of 2011 has 
helped to restrain runaway federal spending, producing the first back-
to-back decline in federal spending in a half century. Yet, the Act 
wasn't built to last, capping only discretionary spending. Indeed, the 
Congressional Budget Office (CBO) projects that the explosive growth of 
entitlements will cause federal spending to balloon to 26% of GDP over 
the next 25 years. That's a long-term problem both parties agree we 
cannot ignore.
    Therefore, the first objective of any negotiations over the debt 
ceiling should be to set a reasonable limit for federal spending in 
comparison to the size of America's economy. Then the negotiations 
should establish a glide path to bring federal spending within the 
limit over time and guardrails to keep future Congresses and Presidents 
within those limits. How you set those limits matter.
    A smart, bipartisan spending limit would restrain the spending that 
Congress can control--program and entitlement spending--while 
acknowledging the spending Congress cannot control--interest payments 
on the federal debt.
    So how best to tie controllable federal spending to the size of the 
economy? GDP as a measurement is revised looking backward and 
fluctuates with the business cycle, allowing unsustainable spending 
blowouts in boom years, but then requiring politically unsustainable, 
economically unwise reductions during recessions. A far more stable 
denominator for any sustainable spending limit would be potential GDP. 
This is a long standing economic metric that reflects what GDP would be 
at full employment with no inflation. The Congressional Budget Office 
already calculates potential GDP in its annual Budget and Economic 
Outlook. Its projections of GDP in years 6 through 10 are considered 
potential GDP. By using this metric as the denominator, we can 
eliminate the boom-and-bust problems associated with GDP and create a 
more solid foundation for lawmakers to build upon.
    What should be the target level of a spending cap? The prosperous 
1990s can serve as a model. From 1981 to 2001, total federal spending 
declined from nearly 23% of GDP to under 18% while the population 
soared and entitlements grew. The economy, far from suffering, 
generated more than 35 million new jobs along Main Street--an increase 
of nearly 50%.
    That's why I would recommend a steady glide path that would lower 
controllable spending over 10 years to 16.5% of potential GDP, bringing 
the size of the federal government back to a long-term sustainable 
level close to its average in the second Clinton term. President Obama 
and congressional Democrats might prefer a higher spending cap. But 
once we agree on the metrics--the foundation of a modern, enforceable 
spending cap--we can negotiate on the appropriate level to right-size 
America's government for the 21st century.
    Budget innovations should also change Washington's thinking. Under 
this new foundation, to increase federal spending lawmakers would have 
to increase the nation's economic output potential. That requires 
growing the labor force at a faster pace--a good thing--and increasing 
productivity, also a good thing. Savings can get us halfway back to 
sustainable fiscal ground, but economic growth is needed to finish the 
job.
    This would also create a strong incentive for the President and 
Congress to tackle tax reform and entitlement reform. Dave Camp, 
Chairman of the House Ways & Means Committee, has proposed establishing 
a firm timetable for each chamber in Congress to consider and pass 
their best idea of a simpler, fairer, flatter tax code. Lawmakers in 
both parties, non-partisan commissions, and the White House have 
proposed ideas to extend the life of Social Security and Medicare. 
Along with establishing smart, bipartisan spending guardrails, these 
are long-term approaches that could directly correlate with meaningful 
extensions of the debt ceiling.
    Now is the time to enact a 21st century solution to ensure 
America's fiscal future. I look forward to the testimony of today's 
witnesses.
                               __________
 Prepared Statement of Hon. Amy Klobuchar, Vice Chair, Joint Economic 
                               Committee
    I would like to thank Chairman Brady for holding today's hearing 
and thank our distinguished witnesses for being here this morning.
    I think the way forward is clear: we need to end the shutdown and 
pay our bills.
    The first order of business is for the House to approve the 
straightforward bill the Senate passed on September 27 that would have 
prevented the shutdown in the first place. The government has now been 
shut down for more than a week and a half, and the costs are mounting.
    I released a report this week that lays out 10 ways the shutdown is 
hurting the economy. Here are just a few examples.
    First, the shutdown is harming consumers and slowing economic 
growth. Our witness today, Mark Zandi, warned this Committee last month 
that shuttering the government for three or four weeks would do 
significant economic damage, reducing real gross domestic product by 
1.4 percentage points in the 4th quarter.
    Housing is another area that is being hurt . . . and it has been a 
bright spot of the economic recovery. But now the Federal Housing 
Administration and the Department of Veterans Affairs are facing delays 
in insuring new home loans, likely holding up home purchases. More than 
22 percent of all mortgages are backed by one of those agencies.
    The Small Business Administration is not processing new 
applications for loan programs, preventing small firms from accessing 
the capital they need.
    Our national parks are shuttered, harming surrounding communities 
that depend on the economic activity generated by the parks. In 2011, 
visitors spent nearly $13 billion in local communities around the 
parks.
    There are public health implications, too. Cancer patients are 
being denied access to new clinical trials at the National Institutes 
of Health. The Centers for Disease Control and Prevention is unable to 
track flu outbreaks, just as flu season is ramping up. A typical flu 
season costs employers over $10 billion per year.
    Countless companies from aircraft manufacturers to mining companies 
to agricultural businesses have come to me reporting major delays 
because products cannot get approved and permits cannot get issued. 
Piecemeal funding of the government will not solve this since the 
delayed approvals reported to me cover every agency from the Food and 
Drug Administration to the Department of Commerce to the EPA.
    The federal agencies that are supposed to be gathering economic 
statistics aren't doing so. That means that the Federal Reserve, 
businesses and investors are flying in the dark.
    This simply can't go on. We need to open NIH so that cancer 
patients can get access to clinical trials . . . let the SBA guarantee 
affordable loans to small businesses again . . . let the FHA and VA 
insure loans so that people can get mortgages.
    Those are just a few examples of many we could give. We need to re-
open all of the federal government, and we need to do it now.
    That's the first hurdle. We also need to deal with the next 
critical deadline, the deadline for paying our bills--or face default. 
According to the Treasury Department, on Thursday, October 17, our 
country will hit its legal borrowing limit. Congress is being asked to 
do what it has routinely done 70 times over the past 50 years, and 
that's pay our country's bills.
    Let me be clear, this is about making good on commitments we've 
already made. This is about doing what regular Americans do every month 
when they pay their credit card bills.
    Let's look back to 2011 and see what happens when we flirt with 
disaster by waiting until the last minute.
    Treasury Secretary Tim Geithner sent a series of letters to 
Congress about the looming debt ceiling in 2011, starting on January 6 
of that year. On May 2nd, he announced that the debt limit would be 
reached on August 2nd.
    On July 14, 2011, Standard and Poor's warned it may downgrade the 
U.S. credit rating. They followed through on that and downgraded our 
credit rating on August 5th--the first time in history.
    The results of the game of chicken Congress played were ugly: the 
Dow Jones dropped more than 2,000 points in late July and early August 
of that year. Consumer confidence plummeted. $2.4 trillion in household 
wealth was lost.
    The delay in reaching an agreement to pay our bills, and the 
resulting uncertainty, meant that the Treasury had to pay higher yields 
than otherwise would have been necessary, costing taxpayers $1.3 
billion for fiscal year 2011 alone.
    All of this harm occurred before we reached the debt limit. We 
can't let that happen again.
    Despite the lessons of history, we've been hearing from a number of 
people who seem to think this is no big deal. Congressman Joe Barton 
said ``We are not going to default on the public debt. That doesn't 
mean that we have to pay every bill the day it comes in.''
    At last month's JEC hearing on the debt ceiling, Dan Mitchell of 
the conservative Cato Institute said, ``There's no need to fret about a 
default.''
    No need to fret? That's not what history teaches us.
    Make no mistake; this brinksmanship has consequences for our 
economy. We cannot afford to go down this path again, because this time 
around the fall could be much harder.
    And what if Congress doesn't act by next week and our nation 
defaults? According to Fed Chairman Ben Bernanke, the results would be 
``catastrophic.''
    A default would disrupt financial markets, limit access to credit 
and raise fiancing costs. It would trigger a run on money market funds 
and force the federal government to renege on commitments to 
individuals, businesses and governments.
    For consumers, higher credit costs would mean less borrowing for 
purchases of homes, cars or other durable goods. Businesses could face 
difficulties accessing short-term debt to finance payrolls.
    As Warren Buffett said when talking about the threat of a default, 
``it ought to be banned as a weapon. It should be like nuclear bombs, 
basically too horrible to use.''
    I agree with Chairman Brady that we need to move forward on a long-
term deficit reduction plan that addresses both revenue and spending. I 
have long advocated for a smart and balanced plan that puts our nation 
on a sustainable fiscal path.
    I have supported the Gang of Six, the Gang of Eight and the work of 
the Debt Commission.
    While Congress has already made significant progress--achieving 
$2.4 trillion in deficit reduction over 10 years--we all agree that 
more needs to be done to get our fiscal house in order. But our first 
order of business must be to open the government and raise the debt 
ceiling. We cannot negotiate long-term fiscal responsibility with the 
threat of economic chaos over the heads of the American people.
    Our country cannot afford to keep lurching from crisis to crisis. I 
hope today's hearing will help make it clear that we need to end this 
current crisis. After we do that, both parties and both chambers will 
have a real opportunity for a bipartisan effort to reach a long-term 
deficit reduction strategy.

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