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


                                                        S. Hrg. 113-259
 
               THE ECONOMIC REPORT OF THE PRESIDENT 2014 

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 13, 2014

                               __________

          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               Bernard Sanders, Vermont
Erik Paulsen, Minnesota              Christopher Murphy, Connecticut
Richard L. Hanna, New York           Martin Heinrich, New Mexico
Carolyn B. Maloney, New York         Mark L. Pryor, Arkansas
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....     3

                                Witness

Hon. Jason Furman, Chairman, Council of Economic Advisers........     5

                       Submissions for the Record

Prepared statement of Hon. Kevin Brady...........................    20
Prepared statement of Hon. Jason Furman..........................    21


               THE ECONOMIC REPORT OF THE PRESIDENT 2014

                              ----------                              


                        THURSDAY, MARCH 13, 2014

                  House of Representatives,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 2:27 p.m., in Room 
1100, Longworth House Office Building, the Honorable Kevin 
Brady, Chairman, presiding.
    Representatives present: Brady of Texas, Paulsen, Carolyn 
B. Maloney, Cummings, and Delaney.
    Senators present: Klobuchar.

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

    Chairman Brady. Good afternoon, everyone.
    Today we will hear testimony from Dr. Jason Furman, the 
chairman of the Council of Economic Advisers. The Economic 
Report of the President was released on Monday.
    I thank Dr. Furman for testifying so promptly after the 
Report's release.
    Families on Main Streets across America are suffering from 
a disappointing economic recovery that still feels like a 
recession to them. Due to the alarming growth gap that 
describes the gap between the Obama recovery and other average 
recoveries of the past 50 years, America is missing 5.6 million 
private sector jobs and $1.3 trillion in real GDP from the 
economy. Using the latest economic buzzword from the 
President's report, job years, we are also missing over 18 
million private sector job years.
    Wall Street is roaring, thanks to White House policies, but 
middle class families are being left behind. The S&P 500 total 
return index adjusted for inflation is up 98 percent since the 
recession ended, but real disposable income per person has 
risen a mere 3.6 percent. To put it another way, under 
President Obama's economic leadership, for every new dollar of 
disposable income a person receives, Wall Street has gained $27 
in value.
    No wonder income inequality is a concern. Clearly, 
President Obama inherited an economic mess. The question before 
this committee is whether staying the course will close the 
alarming growth gap and provide real opportunity to middle 
class families and Main Street businesses left behind in this 
recovery. In both the President's budget presented to Congress 
last week and the Economic Report of the President, it is clear 
the White House is stubbornly adhering to the current slow 
growth policies that much of America has lost confidence in.
    For example, using a Keynesian analysis that focuses solely 
on aggregate demand, the Report asserts the American Recovery 
and Reinvestment Act added about two percent to real GDP 
between the fourth quarter of 2009 and the second quarter 2011. 
Many economists disagree. For example, John Taylor found the 
stimulus had little positive effect. The report praises 
infrastructure investment, which has bipartisan support, yet 
ignores the President's decision to block a major privately 
funded infrastructure project, the Keystone XL pipeline.
    The Report lauds the administration's success in promoting 
alternative energy, but ignores the shocking waste of precious 
taxpayer dollars to failed companies like Solyndra and others. 
Ironically, the Report claims credit for increasing oil and 
natural gas production, while ignoring the fact that this 
occurred on private and State lands, while the White House has 
further restricted access to public lands.
    Moreover, the Report fails to acknowledge the harmful 
effects from the White House's regulatory onslaught against 
American businesses, and does the same for President Obama's 
insistence at the end of last year on higher taxes on small 
businesses and successful Americans as a condition of renewing 
middle class tax relief. Not surprisingly, policy uncertainty 
remains unprecedentedly high four and a half years into this 
disappointing recovery.
    The Report makes a great effort to blame congressional 
Republicans for the fights over increasing the debt ceiling and 
the temporary government shutdown, which created more policy 
uncertainty, but ignores the even larger uncertainty the White 
House has created with its call for higher taxes, less 
American-made energy, burdensome regulation, and the 
President's Affordable Care Act.
    The Report observes that business fixed investment has been 
unusually weak, which this committee has been highlighting for 
some time. Indeed, real fixed business investment finally 
reached its fourth quarter of 2007 level in the most recent 
report on GDP.
    The Report asserts, ``The pace of growth of business fixed 
investment is puzzling because interest rates are low and 
internal funds available for investment are high.'' The reason 
for this weakness is staring the CEA in the face. Economic 
growth is a function of both supply and demand, yet the Report 
focuses on aggregate demand. Businesses don't make investment 
decisions based solely on their assessment of future demand. 
They also consider cost. Supply-side factors such as taxes and 
regulation are at least as important as demand-side factors.
    The administration has increased both the expected after-
tax costs of new business fixed investment and heightened 
uncertainty. It was entirely predictable that sluggish business 
fixed investment would produce a weak recovery. Is no one at 
the White House listening to local businesses? They have been 
telling you this for years, and continue today.
    I will conclude with this. While the Report identifies 
issues worth a thoughtful, bipartisan discussion, too much 
energy is again wasted attempting to shift the blame for this 
anemic recovery to anyone or anything other than the leadership 
of this White House and this President. The report impugns a 
variety of headwinds from droughts to the euro crisis. However, 
other Presidents, Presidents Kennedy, Reagan, and Clinton for 
starters, overcame the headwinds of their time and achieved 
superior economic results for American families and businesses.
    President Obama has the opportunity to do the same. I urge 
him to work with Congress to grow the economy in ways that have 
been shown to work. And with that, Chairman Furman, I look 
forward to your testimony. Thank you again for being here.
    And I would yield for an opening statement to the vice 
chair, Senator Klobuchar.
    [The prepared statement of Chairman Brady appears in the 
Submissions for the Record on page 20.]

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

    Vice Chair Klobuchar. Thank you very much, Mr. Chairman. 
Thank you for holding this hearing.
    And welcome, Dr. Furman. We are happy to have you here.
    I apologize in advance, we just had a vote called on the 
CIA counsel, so I am going to go back, and hopefully I can get 
back here to this lovely room.
    While we are still not where we would like to be, as you 
know, Dr. Furman, we have made real progress recovering from 
the recession. The economy has added jobs for 48 consecutive 
months, and has now regained 8.7 million of the 8.8 million 
private sector jobs lost during the recession. I bet you want 
that extra point.
    The national unemployment rate of 6.7 percent has dropped 
1.2 percentage points since the end of 2012, and has dropped 
more than three percentage points since the downturn. In my 
State, the unemployment rate is much better than the national 
average. It is at 4.7 percent. And we are having our own 
challenges when it comes to finding workers and worker training 
and other things. But they are good challenges to have.
    In 2009, there were nearly seven unemployed workers for 
every job opening. There are now 2.6 unemployed workers for 
each opening, almost back to the pre-recession ratio of two 
unemployed workers for every opening. GDP has grown for 11 
straight quarters, and the CEA projects stronger growth in 
2014. There are a number of bright spots in our economy that 
have contributed to the growth.
    Manufacturing is one exciting example. After being hit 
incredibly hard during the recession, U.S. manufacturing 
employment has increased by 612,000 jobs since February 2010. 
Manufacturing employs more than 12 million people, is 
responsible for nearly 70 percent of private sector R & D, and 
generates 90 percent of all patents. Increased energy 
production has also spurred economic growth. Greater production 
of natural gas, much of it is in my neighboring State of North 
Dakota, has kept prices low, which has strengthened 
manufacturing and created good-paying jobs.
    As the report highlights, imports of crude oil and refined 
petroleum products have fallen from more than 12 million 
barrels per day in 2005 to about 6.2 million per day in 2013. 
Starting in October of last year, domestic production of crude 
oil has exceeded imports for the first time since 1995.
    Another bright spot in our economy is exporting. One of the 
administration's goals I know is to double exports. And we are 
more than halfway toward achieving that goal. We need to 
continue to open new markets and ensure that American 
businesses can compete in the global marketplace. We have taken 
steps to put our country on a sound fiscal path. The deficit 
has been cut by more than half since the end of 2009. We passed 
the bipartisan Murray-Ryan budget agreement, which led to the 
passage of the omnibus spending bill. We raised the debt limit. 
And finally, we passed the farm bill, which saved $23 billion 
over the last bill, and is vital to many States in this 
country.
    I want to briefly highlight a few topics in the CEA report, 
including income inequality, technology and innovation, and the 
reviewing of efficiency of Federal regulations, something I 
used to do a lot of work in this area, I care a lot about it, 
and I always think we can make improvements. I was pleased to 
see the emphasis on reducing poverty and expanding economic 
opportunity, as this committee discussed at a hearing I chaired 
in January with former Labor Secretary Reich. Income inequality 
in the United States has grown for more than three decades. 
Secretary Reich testified that the richest 400 people in this 
country have more wealth than half of the American population 
combined. And a staggering 42 percent of kids born into poverty 
in the U.S. won't get out. I am pleased that you are looking at 
this. I know we will have questions for you about it.
    Technological advances have empowered much of our economic 
growth since World War II. Improved broadband access and 
adoption rates will strengthen U.S. competitiveness, as the 
report points out. A patent system is important. I know the 
House has done some good work on the patent reform issue. And 
as a member of the Judiciary Committee, I am a sponsor of 
Senator Leahy and Lee's bill, the Patent Transparency and 
Improvements Act. We will be having hearings in April. I think 
that is very important as we look at technology issues going 
forward.
    Finally, we need to ensure that rules and regulations 
deliver the outcomes we want. Right now, cost-benefit analysis 
of proposed regulations are done before the regulations are 
implemented and are rarely revisited. I introduced a bipartisan 
bill with Senator Susan Collins of Maine that requires the 
Congressional Budget Office to look back at rules and 
regulations to make sure they are meeting their goals by having 
an analysis done of their cost-benefit effectiveness five years 
after the bill takes effect. I think it is rather absurd that 
we only look at them before, and we don't look at them after 
and figure out what changes have to be made or which ones need 
to be eliminated.
    An immediate challenge, of course, is unemployment 
insurance. I know we are working very hard on a bipartisan 
agreement in the Senate. And I add the other immediate 
challenge is getting the immigration bill done. Very important 
to our economy. We had Grover Norquist testify here about how 
the Senate bill reduces the debt by $160 billion in 10 years, 
$700 billion in 20 years, and also of course will allow many 
entrepreneurs and engineers and doctors to come into this 
country.
    I would end by telling you I think it is incredibly silly, 
as much as I love hockey in Minnesota, that we have unlimited 
visas for hockey players, which we want to continue, half our 
team is Canadian, but we make it almost impossible to get a 
doctor into the Mayo Clinic.
    With that, thank you very much, Dr. Furman, and hopefully I 
will return to have some questions.
    Thank you.
    Chairman Brady. Thank you, vice chair.
    Jason Furman is the chairman of the Council of Economic 
Advisers. Previously, he served as the principal deputy 
director at the National Economic Council and senior vice 
president of the World Bank. He has also been a senior fellow 
in economic studies and director of the Hamilton Project at the 
Brookings Institute.
    Dr. Furman earned his Ph.D. in economics, and a master's in 
government from Harvard University, an MS in economics from the 
London School of Economics. Please welcome the distinguished 
chairman of the Council of Economic Advisers.
    Thank you for being here, Doctor.

 STATEMENT OF HON. JASON FURMAN, CHAIRMAN, COUNCIL OF ECONOMIC 
                            ADVISERS

    Dr. Furman. Chairman Brady, thank you very much for having 
me.
    I would thank Vice Chair Klobuchar in person if she hadn't 
gone to her vote, and members of the committee.
    The 2014 Economic Report of the President discusses the 
progress that has been made from recovering from the worst 
recession in our lifetimes, and President Obama's agenda to 
build on this progress by creating jobs and expanding economic 
opportunity. And I am grateful for the close reading that you 
have already done of that document.
    Last Friday, we learned that businesses added 162,000 jobs 
in February, so that over the last 48 consecutive months of job 
growth, private employment has risen by 8.7 million jobs. The 
unemployment rate ticked up one tenth of a percentage point in 
February, but it has still fallen by half a percentage point 
since October, with the entirety of that decline attributable 
to gains in employment. Nevertheless, essentially all of the 
remaining elevation in the unemployment rate is due to long 
term unemployment, which represents one of our most pressing 
economic challenges, and is one of the reasons that the 
President is focused on extending unemployment insurance.
    The economic recovery is well underway, but it remains 
incomplete, and much more work is left to be done, in large 
part because of the depth of the hole, out of which we are 
still digging. As discussed in this year's Economic Report of 
the President, recoveries from financial crises are challenging 
because heavy household debt burdens and tight credit 
conditions can linger for years, constraining spending and 
investment. However, among the 12 countries that experienced a 
systemic financial crisis in 2007 and 2008, the United States 
is one of just two in which output per working age person has 
returned to pre-crisis levels. The fact that the United States 
has been one of the best performing economies in the wake of 
the crisis supports the view that the full set of policy 
responses in the United States has made a major difference in 
averting a substantially worse outcome.
    This year's report provides an in-depth look at one major 
aspect of the policy response of the crisis, the Recovery Act, 
and more than a dozen subsequent pieces of fiscal legislation, 
including bipartisan measures like the payroll tax cut, small 
business tax cuts, incentives for business investment, and 
extended unemployment insurance. Our analysis finds that the 
effects of these steps were substantial.
    Specifically, the Recovery Act alone raised the level of 
GDP by between 2 and 2.5 percent from late 2009 through mid-
2011. Combining the effects of the Recovery Act and the 
additional fiscal measures that followed, the cumulative boost 
to GDP from 2009 through 2012 was the equivalent of 9.5 percent 
of fourth quarter 2008 GDP. Looking ahead, this year's report 
also identifies several key reasons why the administration, 
like other forecasters, expects growth to strengthen in the 
coming years.
    One key reason that growth is expected to pick up is that 
households have made substantial progress in deleveraging, 
putting them in a better position to increase spending going 
forward. Specifically, the average required minimum payment on 
household debt has fallen from a high of 13 percent of 
disposable income in the fourth quarter of 2007 to 10 percent 
in the third quarter of 2013, the lowest since we began 
collecting this data in 1980.
    It is important to note that these figures represent 
aggregates, and that many middle income households have seen 
less benefit from the recent stock market gains, and are still 
grappling with the implications of home prices that despite 
recent progress remain well below their previous highs. I would 
add that other reasons to expect stronger growth in 2014 
include diminished fiscal drag, recovering asset values, 
strengthening among some of our key international trading 
partners, and demographic forces that are expected to maintain 
upward pressure on housing starts.
    Although all of these positive factors need to be weighed 
against the uncertain risks that can adversely affect the 
economy, looking over a longer time horizon, the report 
identifies a number of emerging trends that can support a 
stronger economy on a sustained basis in the future, including 
improvements in the production and use of energy, a slowdown in 
the rise of health costs, and technological advances.
    The Administration is not sitting back and waiting for 
these trends to unfold, and the President has set out an 
ambitious agenda to capitalize on these opportunities. He would 
agree with you, Chairman Brady, that we need to worry both 
about the demand side, especially in the short run, of 
returning the economy to its potential, as well as the supply 
side, to expand the economy's potential and increase our growth 
over the medium and long term. And finally, taking steps to 
ensure that all Americans share in those benefits.
    This is just a brief overview of the economic outlook, and 
I am happy to talk more about that, the President's priorities, 
as well as the other topics that we covered in our report, 
including the slowdown in health costs, the role of technology 
in the economy, the lessons we have learned 50 years after the 
beginning of the war on poverty, and a discussion of the 
importance of Federal program evaluation.
    I look forward to your questions.
    [The prepared statement of Hon. Jason Furman appears in the 
Submissions for the Record on page 21.]
    Chairman Brady. Great. Thank you, Chairman.
    It is no secret, I think these are the wrong economic 
policies. I would like to see a change in course. But the 
purpose of this hearing is to talk about the Report, and we 
hope to shed some light onto some of the challenges we face.
    So, my question really is not a ``gotcha'' question, it 
really deals with labor force participation. You know, it has 
been troubling in the recovery that that data continues to stay 
extremely low. It really masks the accuracy of the unemployment 
rate. Some have tried to say the decline since 2007, or at 
least the lack of an increase, has come from demographic 
change.
    Chairman, I had our staff really go through and look sort 
of in each of the key age groups looking at the demographic 
shifts. We used 12-month moving average unadjusted data, took 
out seasonality, looked at the narrow age groups so we can try 
to figure out exactly what is going on. Using that metric, you 
know, the decline in the labor force participation, while most 
assume it is just seniors growing old and retiring, the numbers 
seem to show the only increases are in the upper age groups, 
and some of the more serious declines are in that 16- to 59-
year-old range. We have been looking at those factors as well 
to try to determine what is driving that.
    What would you attribute that to? What are some of the 
factors you think are impacting that? And what would you do--
you know, what are some of the perhaps solutions for that 
challenge?
    Dr. Furman. Right. Well, Mr. Chairman, I appreciate the 
question, and I appreciate your interest in this topic. I think 
understanding the dynamics of labor force participation really 
is one of the most important issues in understanding the 
performance of the labor market today.
    In our analysis of this question, I would divide the change 
in the labor force participation rate into four general areas.
    The first is the demographic trend. And our analysis, like 
a range of other analysts, would suggest that about half of the 
decline in the labor force participation rate is due to 
demography. And I think that is important, because sometimes if 
you are looking, for example, at changes in the employment 
population ratio over time, those can give you a misleading 
picture of the economy because they don't adjust for those 
demographic----
    Chairman Brady. I would agree with that.
    Dr. Furman [continuing]. Changes.
    The second set of factors are longer run trends that are 
not just the aging of the population, but represent other 
factors. And I think you are picking up some of those in the 
chart you have here. For younger Americans, some people are, 
for example, staying in school longer, and that lowers their 
participation rate. There are older Americans now who are in 
the types of jobs that they are able to work in until older 
ages. So there has been a trend of people working longer at an 
older age. I think those trends that aren't related to aging 
roughly net out to zero in terms of the overall explanation, 
but they are very important for particular groups.
    Next, the third one, is the normal movements of the 
business cycle. And any time unemployment is elevated, some 
people are going to, for example, you know, take a little bit 
longer before they decide to return to the labor force and look 
for a job, or maybe even get discouraged and not want to look 
for a job. As the unemployment rate comes down, a lot of those 
people return to the labor force. And we have been seeing that, 
and we expect to continue seeing that.
    Finally, some of that reduction in participation is 
probably related to the increase in long term unemployment, and 
represents that people have been out of work for years. It has 
been a tough economy for years, it was a really deep crisis 
that we went through. And that can have, you know, some longer 
term effects on the economy.
    In terms of the policy implications, I will just be very 
brief. On demographics, you know, some of that is just 
inevitable. But through steps like immigration reform we can go 
against the headwind there and make progress on participation.
    In terms of the cyclical component, anything that 
strengthens aggregate demand brings the unemployment rate down 
more quickly, will help with that.
    And then finally that last component I talked about, which 
is probably related to long term unemployment, steps to help 
connect the long term unemployed with jobs will bring some of 
those people back into the labor force too.
    Chairman Brady. Two thoughts based on your views. I 
understand a cyclical business climate. But over the past four 
and a half years this participation rate, even as unemployment 
has come down from 10 percent, significantly, that hasn't 
budged. In a normal business cycle you would think it would 
begin to trend upward to some degree. And certainly among those 
age groups in their prime working years. How would you explain 
that?
    Dr. Furman. I think in aggregate, and then I will get to 
the age groups, you are seeing two trends going in opposite 
directions. One is that as you recover it brings people back 
into the labor force. But then you still have people aging and 
leaving the labor force.
    And in aggregate, those two effects have been roughly 
offsetting each other. And that is why you haven't seen the 
participation rate recovering. If you look at the Congressional 
Budget Office, for example, projects that the economy will 
recover, but that that recovery will not be enough to offset 
the demographic impact, and that over the medium and long run 
you will continue to see the participation rate fall for that 
reason.
    If you look at some particular age groups, I think it is 
partly that--I think there is another important factor, which 
is related, as I said, to just how deep the recession was, is 
long term unemployment, which remains very elevated, and the 
flip side of it, which is its impact on participation.
    Chairman Brady. And we need to wrap up time.
    Briefly, how do you view immigration reform as improving 
the labor participation rate?
    Dr. Furman. Well, first of all, by bringing more workers 
into the country it expands the labor force, and second of all, 
the age ratio of the people that come into the country are more 
working age people relative to older retired people. So it 
doesn't just improve the quantity of labor, it improves the 
ratios as well. And that is why the Congressional Budget Office 
and other analysts have said that it would raise the labor 
force participation rate.
    Chairman Brady. Okay. It seems counterintuitive. Thank you, 
chairman.
    Are you ready? Sorry about that.
    Vice Chair Klobuchar. No, I am all ready.
    Chairman Brady. I recognize Vice Chair Klobuchar.
    Vice Chair Klobuchar. I almost feel as fit as Dr. Furman 
looks running back from there. But here I am.
    Now, we continue to see positive signs in the economy, we 
both spoke about that. How would you characterize the current 
state of the economy? And what makes you more optimistic about 
the prospects of the future?
    Dr. Furman. I think you see an economy that continued to 
gather strength over the course of 2013. It started off the 
year having to overcome the expiration of the payroll tax cut, 
then the sequester going into effect, and then the government 
shutdown. And despite all of that, you saw considerably 
stronger growth in the second half of the year than in the 
first half of the year.
    In terms of 2014, you know, you certainly see volatility 
from quarter to quarter. Cold weather is adversely impacting 
the economy in the first quarter, but most analysts would 
expect a bounce back from that over the course of the rest of 
the year. And some of the forces I talked about in my 
testimony, including reduced fiscal drag, improved household 
deleveraging, and continued potential in the housing sector, 
all have the potential to strengthen the economy further this 
year.
    Vice Chair Klobuchar. The report focuses some on income 
inequality, and I talked about in my opening how we have seen 
this increase in income inequality over the last few decades. 
And how do you think we go about reversing the trend?
    Dr. Furman. Right. First of all, I think it is important to 
start with that fact. And there is a wide range of data sources 
and methods, but all of them show the same conclusion, which is 
that income inequality has risen.
    The biggest consequence of that is, that you don't have 
sufficient opportunities for advancement if you are born into 
the wrong family. And for many middle class families, they 
haven't seen their incomes rise. So to some degree we want to 
address those problems in terms of opportunities for 
advancement, by, for example, expanding preschool education.
    In terms of rising incomes, anything from raising the 
minimum wage, that directly helps incomes, to anything that 
helps enhance our economic growth, whether it is business tax 
reform or investment in infrastructure, will expand the pie and 
give us more resources to address the reasons we are ultimately 
concerned about inequality.
    Vice Chair Klobuchar. I chaired a hearing last year on long 
term unemployment. And while we are continuing to see 
improvement in the overall employment numbers, as you know, the 
long term unemployed, I think there are nearly four million 
Americans who have been out of work for over six months.
    Why do you think this rate is still so high, and in fact 
the recovery for the long term unemployed has been slower than 
it has been in other downturns.
    Dr. Furman. I think it is a measure of the severity of the 
downturn. The long term unemployment rate rose, you know, to 
above four percent at the depths of this recession, well above 
the level it has ever gotten to before. And some of those 
people can lose skills in terms of looking for jobs. And a lot 
of employers may discriminate against them in the hiring 
process.
    So it is a tough problem to reverse. We are making progress 
on it. It has come down from over four percent to 2.5 percent, 
but it is still more than twice as high as the long term 
unemployment rate has been historically.
    Vice Chair Klobuchar. Is that one of the reasons you favor 
continuing the unemployment compensation?
    Dr. Furman. Yes. Absolutely, Senator.
    Vice Chair Klobuchar. Okay.
    Productivity growth generally translates into higher wages 
for workers, but in the last 40 years the relationship between 
these productivity increases and wage growth has stagnated.
    As your report shows, by the end of September 2013, real 
output per hour was 107 percent higher than in 1972, but 
average hourly earnings had grown by only 31 percent. Do you 
think there are policies that can boost both productivity 
growth and wages?
    Dr. Furman. Yeah. I think technology expands the pie. I 
think it has the potential to expand it for everyone if it is 
done the right way. And just to give one example of an 
initiative the President has undertaken is something called 
ConnectED.
    And that is about putting faster broadband in schools and 
libraries, as well as giving teachers the training to use it 
and students the equipment they need to use it. And that is a 
good way in which you could use technology to bring people up 
and make sure that they share in that growth.
    Vice Chair Klobuchar. Last question, just immigration 
reform, it is stalled out right now. And I want to know how you 
see the economic impact of immigration reform.
    Dr. Furman. I think immigration reform is the closest thing 
to a win-win-win that we have identified in economics. You can 
expand economic growth, and it doesn't just increase the level 
of output because you have more workers producing it, it 
actually expands the productive capacity of the economy.
    It increases what economists call total factor productivity 
growth, because immigrants are very innovative, very 
entrepreneurial. Taking 12 million people and letting them move 
out of the shadows gives them the certainty they need to make 
investments, whether in education or business that would also 
contribute to our growth. So it helps our economic growth.
    It reduces our budget deficit. It does that, as you said in 
your opening, over the next decade, and it does it even more 
over the second decade. So it is an important part of 
addressing our medium and long run fiscal challenges.
    And finally, it can be done in a way that makes America 
safer and more secure by investing in protection of our 
borders.
    Vice Chair Klobuchar. And just one last question about 
energy production. I talked in my opening about what we have 
seen there, and I think the decrease from dependency on foreign 
oil from more than 60 percent to less than 50 percent or 
somewhere in that neighborhood. Could you talk about how the 
expansion of energy production here at home has helped our 
economy, particularly manufacturing?
    Dr. Furman. Yeah. If you look in 2008, I think we were 
producing five million barrels of oil a day. Now it is about 
8.5 million barrels of oil per day. The difference between 
those is the equivalent of Iraq. It is basically like you 
discovered another Iraqi set of oil wells here in the United 
States and were able to use those.
    And that is good for our economy, good for our national 
security. And it has been combined at the same time with a 
reduction in use of oil through having the most fuel efficient 
vehicle fleet in our country's history on the roads today. So 
the combination of those two is what has reduced our imports so 
dramatically as you described in your opening.
    Vice Chair Klobuchar. And how do you see natural gas 
fitting in?
    Dr. Furman. In a complementary way with two other 
advantages. The projections are that that natural gas boom will 
last for decades. Oil may not be as sustained as natural gas. 
And second of all, that natural gas has facilitated a shift to 
using that for power generation. That also helps address our 
climate problems.
    Vice Chair Klobuchar. Thank you very much.
    Chairman Brady. Thank you.
    Mr. Paulsen.
    Representative Paulsen. Thank you, Mr. Chairman.
    Dr. Furman, last year's Economic Report of the President 
had an entire chapter that was devoted to international trade 
and competitiveness. That chapter highlighted the President's 
National Export Initiative, which Senator Klobuchar mentioned. 
That is a five-year goal, of course, of doubling exports by the 
end 2014 in order to support two million jobs.
    Now this year's report actually relegated international 
trade to a small subsection within chapter two. It didn't 
mention the National Export Initiative at all, actually. I am 
curious, why was the National Export Initiative left out of 
this year's report?
    Dr. Furman. Not by design. It is very important, and we 
certainly talk throughout the report about the importance of 
exports and trade agreements. But I guess we didn't use that 
term.
    Representative Paulsen. Okay. Do you feel like we are on 
track right now? I know that total yearly exports at the end of 
2013 were at $2.27 trillion, which is short of the $3.14 
trillion needed by the end of 2014 to meet the export goal.
    But does the administration think we are on track to the 
goal of doubling exports?
    Dr. Furman. I think there has been a substantial increase 
in exports since we set the goal. We have done everything we 
can to, through policy, facilitate that increase in exports. 
There also was a very large contraction in the global economy 
following the President's setting that goal. And that has gone 
in the other direction.
    So 2012, for example, you saw very little increase in our 
exports. And that had everything to do with the global economy, 
not what was going on here.
    Representative Paulsen. I think you know there is strong 
bipartisan support for these trade initiatives that are on the 
horizon. And to be honest, I don't think the administration or 
the President wants to claim enough credit for moving these 
forward, or claim bipartisan credit where it is due.
    What is the Administration doing right now to help garner 
support for moving forward on TTIP, on TPP, and Trade Promotion 
Authority to make sure that these agreements actually come to 
fruition?
    Dr. Furman. Congressman, I absolutely agree with you on the 
importance of those, and can I tell you that the Council of 
Economic Advisers, and me personally, plan to do continued--
increase the amount of work we are doing on those trade 
agreements, and documenting the important role that they play 
in our economy. So I will make sure we call to your attention 
as we do that in the future. If terms of this report, we didn't 
have a chapter on it in part because we looked at previous 
years and said we covered a lot of this topic, let's try to 
vary it and make sure we are covering the full waterfront 
rather than just repeating the same topics from year to year.
    But you have recently seen the Vice President write an op-
ed on this topic. You have seen USTR, Ambassador Froman, give a 
major speech on this topic. And most importantly is the actual 
work we are doing to try to bring TTP to a successful 
conclusion.
    Because we think it will be easier to explain the benefits 
when you can show people just how much we are able to open 
foreign markets to American goods, both in terms of the variety 
of barriers that our companies face around the world. And we 
are working to get something that we can, you know, that we can 
show to people.
    Representative Paulsen. I know the benefits are there.
    Let me ask you this, though, because I know you do believe 
that the trade agreements are in our best interest. USTR has 
done a really good job of being up on the Hill and spending 
time with Members.
    So I guess my question is, do you believe Trade Promotion 
Authority, from the White House's perspective, or the 
Administration's perspective, is equally important? And do they 
plan to actually weigh in a little bit more heavily and get 
engaged, as USTR has?
    Dr. Furman. Absolutely, Congressman. And the President in 
his State of the Union address talked about the importance of 
having the authority to have, you know, votes on those trade 
agreements. But, you know, what we are doing is negotiating and 
trying to get the best possible agreement so we can show all of 
you why that authority is so important to us.
    Representative Paulsen. Okay.
    I know we are going to need that help and assistance, 
because in the Senate, leadership threw some cold water on 
moving forward on trade promotion authority before year end. 
But I would agree it is in our interest to have these export 
markets open and available, with the U.S. back on the playing 
field and leading these trade agreements. Thank you.
    I yield back, Mr. Chairman.
    Chairman Brady. Thank you.
    Mr. Delaney.
    Representative Delaney. Thank you, Mr. Chairman.
    Thank you, Dr. Furman. I am always incredibly impressed 
with your analytics and insights. It is nice to have you here 
today.
    So I wanted to talk a little bit about the future in terms 
of how we think about some of the challenges we see in today's 
jobs market, and how that is likely to play out in the future. 
Because I think the data you present is very clear that by any 
measure our country's ability to respond to this deep 
recession, that probably as a practical matter really would 
have started much sooner but for some of the things that were 
going on in the credit markets.
    But our country's ability to respond to that, I think in 
part due to the President's policies, clearly has outpaced any 
other Nation's. And so as you highlighted in your testimony, we 
have a very significant problem around people who are long term 
unemployed. And we see a lot of disruption in the employment 
markets based on technology and globalization, which seem to me 
are creating a much more specialized economy in our country.
    And the degree that our economy becomes specialized is 
growing over time. And a specialized economy benefits people 
with really great educations and access to capital and things 
like that. And it is generally negative for people who don't 
have those benefits. It takes time for those benefits to spread 
out to the larger percentage of the workforce. And I think some 
of the President's policies, which I agree with in terms of 
greater investments in infrastructure, in basic medical 
research, obviously reforming immigration, reforms in 
investments in education, are clearly important in terms of 
making our country more competitive and making sure we have a 
workforce that is equipped to hopefully get those jobs.
    But I tend to think that we discuss those policies as it 
relates to the 6.7 percent of the population that is 
unemployed. What really worries me is what will happen to the 
other 93.3 percent of the population across the next 20 years. 
Because what concerns me greatly is that this trend in our 
country towards a more specialized economy, which is based on 
the fact that technological innovation is accelerating and the 
world is becoming more connected and more global, that that 
will disrupt a huge number of jobs.
    I don't know what the percentages are. You hear different 
estimates. You hear some as low as 20 or 30 to as high as 50 
percent of the jobs that exist in this country will somehow be 
disrupted and affected in the next 20 years.
    How big of a concern is that? And should we be talking 
about these policies really in that context? Because it is one 
thing to talk about how we have to help the 6.7 percent of the 
country that is unemployed, which is a tragedy, and we should 
be doing everything possible. But I worry that even as we have 
continued economic growth, the sheer number of human beings who 
are going to be affected by these trends is massive.
    And there could be other shoes to drop in the employment 
market even as our economy does well. So I would be interested 
in your thoughts on that.
    Dr. Furman. I think that is one of the profound somewhere 
between a challenge and open question facing our economy today. 
And, you know, we have seen it for a while that tasks that are 
repetitive, that don't require certain types of complex pattern 
recognition, you know, that machines can do them rather than 
people, and that to some degree has led to a polarization of 
the workforce.
    That there are certain very manual jobs that actually can't 
be easily replaced by a machine, and you still have those, and 
certain higher level jobs that also can't be, and a bunch in 
the middle have been hollowed out. And the answer to that is 
not less technological change, even if we knew how to bring 
about less technological change. A lot of that has to be on the 
human side and what you are doing in terms of equipping people 
with the types of skills so that their skills are complementing 
those machines and technological innovations.
    In which case their productivity rises and their wages go 
up with those technological changes rather than, you know, 
those machines and innovation substitute for them, in which 
case their wages go down.
    Representative Delaney. And not to interrupt you, but just 
to put what you are talking about in perspective, what 
percentage of the population of the working Americans--not a 
precise number, but an estimate----
    Dr. Furman. Right.
    Representative Delaney [continuing]. Do you think will face 
kind of headwinds as it relates to the viability of the job 
they have today, whether it is them or someone else having it, 
across the next 20 years?
    Dr. Furman. I have seen some of the estimates you referred 
to.
    Representative Delaney. Yes.
    Dr. Furman. I don't have a particular number I associate 
with it. And I do think the main way it manifests itself is not 
in somebody losing their job because their job was replaced, 
but their wage going down. And we have seen some of that in the 
last decade.
    And there is certainly potential for more of that if we 
don't harness technological change and use it, you know, to 
benefit and bring people up.
    Representative Delaney. Right. And, you know, because I 
just think so many of the policies that the President talks 
about, that I hear you talk about often, so many of us talk 
about, really are incredibly relevant for this challenge, and 
are almost unfairly framed in the limited context of trying to 
help the 6.7 percent that are unemployed. They will clearly 
help those people.
    But I think the magnitude of this challenge for the 
American workforce is staggering, and we should be talking 
about some of these policies as it relates to people who 
already have jobs as well.
    So thank you.
    Chairman Brady. Thank you.
    Mr. Cummings.
    Representative Cummings. Thank you very much, Mr. Chairman.
    It is good to see you again, Mr. Furman. One of the things 
that concerns me is income insecurity for people going into 
retirement. We have got 401(k)s today that aren't worth very 
much, I mean if you look at the stats. You see what is 
happening in the pensions. They are going down. You got a lot 
of people who are unemployed now. So that may affect them in 
some way. They don't have any savings because they are trying 
to help their kids, or trying to help a relative that doesn't 
have money. And so I was glad to see the President back off of 
that chained CPI.
    But, are we looking down the road? Because it seems like 
there are going to be a lot of people who are going to fall off 
a cliff with all the cutbacks. And I am just curious, what do 
you see there; and what are we doing to kind of help people 
have a soft landing when they get there?
    Dr. Furman. So I very much agree, Congressman, with your 
diagnosis of the problem. And in terms of the solution, partly 
it is to make sure more Americans have opportunities to save 
for retirement.
    The President took a step administratively in directing his 
Treasury to establish accounts called myRAs that would be a 
starter savings account that would be very safe, it would have 
very low fees. For people that don't have accounts at work, a 
way for them to be introduced to savings.
    Legislatively, he has a proposal that was originally 
developed by the Brookings Institution and the Heritage 
Institute to have automatic workplace pensions, so everyone 
would have a pension at their workplace. There would be 
essentially no net cost for businesses to do that because they 
would be reimbursed for that cost, and it would give families 
the opportunity to save.
    Beyond that, though, I think we need to be continuing to 
look at this issue.
    Representative Cummings. On another subject, some have 
suggested that States should not participate in the Medicaid 
expansion that is part of the Affordable Care Act because the 
expansion will eventually result in some unfunded liability for 
the States when the Federal share of the costs of the expanded 
program is reduced.
    Can you explain why this is not true? And can you explain 
the benefits to a State of participating in the expanded 
Medicaid program?
    Dr. Furman. Sure.
    So for the next three years, Congressman, as you know, 
States have to pay nothing for their expansion populations in 
Medicaid. That would eventually rise to 10 percent. A 10 
percent State match is considerably smaller than the match for 
most Federal-State programs, including what Medicaid has been 
for decades now.
    And, there is also a set of benefits, above and beyond your 
population being covered in terms of helping your overall 
health system reducing some uncompensated care costs for your 
State. And the Counsel of Economic Advisers did an analysis in 
2009 that found in the case of many States, those other 
benefits would well more than outweigh just even the purely 
fiscal costs to their State, not even counting the benefits of 
the extra people that were covered.
    Representative Cummings. So you got people who are sick, 
and there is money available, they cannot take advantage of it 
because they can't--some governors won't allow that to happen, 
the Medicaid piece. And so there are jobs associated with that 
too. Is that what you are saying?
    Dr. Furman. Yes.
    Representative Cummings. Lots of jobs. To me I find it 
simply incredible. In our State, we have something called 
Health Care for the Homeless. And before they would depend on 
charitable donations completely.
    I am talking about Maryland. So then once this happened, 
and they started enrolling people in Medicaid, then they had a 
way of helping these people, and they can do even more. 
Throughout the country, I understand that there are some 
hospitals that are literally having to shut down some units, 
particularly charity-type care, uncompensated care units 
because they don't have enough money to keep them going.
    Although the money is sitting right there in the Affordable 
Care Act, and so when you get past that three years what 
happens? You said three years is 100 percent?
    Dr. Furman. Yeah.
    When you get past that, as I said, States will--it phases 
in, but will ultimately have to pay 10 percent of the costs. 
But in exchange for that, you get not just a substantial 
increase in coverage, but you get lower costs imposed on your 
health system by the uninsured people that you are covering, 
and you know, potentially get additional fiscal benefits from 
that, as well as the benefits for the millions of people that 
would be covered.
    Representative Cummings. Thank you, Mr. Chairman.
    Chairman Brady. Thank you.
    Former Chair Maloney.
    Representative Maloney. Thank you, Mr. Chairman. And it is 
a pleasure to welcome Chairman Furman.
    Dr. Furman, in your report you are showing us that we have 
had 48 consecutive months of job growth. And private employment 
has risen by 8.7 million. And I couldn't help but see your 
chart that when Obama was sworn-in in 2009, our economy was 
losing roughly 700,000, 800,000 jobs a month. So it has been a 
difficult time, but it is good to see that we are now growing 
jobs, not shedding jobs. So I congratulate you for that. But 
there is still much more that needs to be done.
    In the February payroll survey, you note there is roughly 
162,000 total nonfarm jobs were added. Yet if you look at the 
household survey during that period, although they are not 
completely the same, but 111,000 multiple job holders 
increased. It increased by 111,000. Does that mean that 111,000 
of the 175,000 are people that are now taking on two, three 
jobs?
    Dr. Furman. That would literally be what it means. That 
household survey that you just referred to is very volatile 
from month to month. So I wouldn't personally place a lot of 
weight on one month's data in it. But that is what it would 
literally mean.
    Representative Maloney. So that 111,000 of the 162,000 are 
people taking on two or three jobs. That certainly shows the 
need for raising the minimum wage, for goodness sakes, that you 
have to take two or three jobs to make ends meet. And one of 
the things in the surveys that were somewhat troubling to me is 
that a quarter to a third of them, the job gains that we were 
getting were in the two lowest paying areas, retail and leisure 
and hospitality.
    So my question is does that disturb you that the job gains 
are in the lowest paying categories? What kind of policies 
could address this?
    Dr. Furman. Right. Well, I think we would like both more 
better paying jobs--but we also are going to have a range of 
jobs in our economy, and we would like to see the wages for all 
of those rising.
    So something like the minimum wage, which you just cited, 
is a good way to take a lot of people who are going to work in 
those sectors, and that is a great job for a lot of people, but 
there is no reason they should be in that job making $14,000 a 
year if they could be in those jobs making $20,000 a year or 
more. And that is why we would like to raise the minimum wage.
    Representative Maloney. Now, also of concern to me is the 
work week. Now, the work week is behind where it was when the 
recession began, and we are now on the average of 34.4 hours in 
a week. And when you look at a 34.4-hour week as opposed to a 
40-hour week, in a sense you are looking at the same thing as 
cutting jobs.
    So what in the world can be done about that? That is not a 
good trend that the work week is getting less and less and 
less. And is that a consistent trend? How long has it been that 
we--actually, it is behind when the recession began. So that 
has been since 2008 that we were getting a shrinking work week. 
Could you comment and elaborate on that?
    Dr. Furman. Yeah, you see a very similar pattern in the 
work week that you see in the unemployment rate, which is--
well, the inverse, a really large decline in the work week in 
the wake of the recession, and then it coming back up, but not 
having fully recovered.
    So anything that helps our economy fully recover, whether 
it is the President's growth, opportunity, and security 
initiative that is in his budget, extending unemployment 
insurance, or measures like that would help bring the 
unemployment rate down and the work week up.
    Representative Maloney. Well, I can't help but reminisce 
that the first time I met you, and I was thinking about it, you 
were testifying before the Financial Services Committee on 
Social Security, and your testimony was opposed to 
privatization, that this was not an investment scheme, this was 
a safety net.
    In this hearing, I will never forget it, Ranking Member 
Klobuchar, it went on for about eight hours, maybe nine hours. 
It started in the morning and went into the night. It was just 
ferocious, ferocious hearing. And we won, basically, the 
Democrats won in that we preserved Social Security as a safety 
net. It was not privatized. At that time of that hearing, our 
economy was roaring. Many people were arguing we should 
privatize it, this will be good for the elderly and for those 
that need the social safety net.
    I would just like to, as an economist, what would have 
happened if we had privatized Social Security and then had that 
huge economic downturn in 2008? What would have been the impact 
on the economy and on individuals?
    Dr. Furman. One of two things would have happened. Either 
there would have been a large reduction in benefits for 
households or there would have been a large outcry, and 
Congress would have reversed it, in which case there would be a 
large cost shifted to taxpayers.
    Representative Maloney. My time has expired. Thank you for 
your testimony.
    Chairman Brady. Thank you.
    Thank you, former chairman. I can't tell you how much I 
disagree with that whole description of that process. And there 
are serious disagreements about what the best way forward is to 
get this economy back to where both parties want it.
    Nonetheless, I am really pleased, Chairman, that you were 
here today and were willing to meet with us very promptly. 
Usually not in our normal meeting location or time necessarily, 
which reflects some of the attendance today.
    But again, thank you for being here. This is an important 
discussion for the economy. Look forward to working with you 
further.
    With that, the meeting is adjourned.
    [Whereupon, at 3:24 p.m., the committee was adjourned.]
                       SUBMISSIONS FOR THE RECORD

Prepared Statement of Hon. Kevin Brady, Chair, Joint Economic Committee
    Today we will hear testimony from Dr. Jason Furman, the Chairman of 
the Council of Economic Advisers, on the Economic Report of the 
President that was released on Monday. I thank Dr. Furman for 
testifying so promptly after the Report's release.
    Families on Main Streets across America are suffering from a 
disappointing economic recovery that still feels like a recession to 
them. Due to the alarming ``Growth Gap'' that describes the gap between 
the Obama recovery and other average recoveries of the past 50 years, 
America is missing 5.6 million private sector jobs and $1.3 trillion in 
real GDP from the economy.
    Using the latest economic buzzword from the President's report, 
``job years,'' we are also missing over 18 million private sector job 
years.
    Wall Street is roaring, thanks to White House policies, but middle 
class families are being left behind. The S&P 500 total return index 
adjusted for inflation is up 98% since the recession ended but real 
disposable income per person has risen a mere 3.6%. To put it another 
way, under President Obama's economic leadership, for every new dollar 
of disposable income a person receives, Wall Street has gained $27 
dollars in value.
    No wonder income inequality is a concern.
    Clearly President Obama inherited an economic mess. The question 
before this Committee is whether ``staying the course'' will close the 
alarming growth gap and provide real opportunity for middle class 
families and Main Street businesses left behind in this recovery.
    In both the President's budget presented to Congress last week and 
the Economic Report of the President, it's clear the White House is 
stubbornly adhering to the current ``slow growth'' policies that much 
of America has lost confidence in.
    For example, using a Keynesian analysis that focuses solely on 
aggregate demand, the Report asserts that the American Recovery and 
Reinvestment Act added about two percent to real GDP between the fourth 
quarter of 2009 and the second quarter of 2011. Many economists 
disagree. For example, John Taylor found that the stimulus had little 
positive effect.
    The Report praises infrastructure investment--which has bipartisan 
support--yet ignores the President's decision to block a major, 
privately funded infrastructure project--the Keystone XL pipeline.
    The Report lauds the Administration's success in promoting 
alternative energy but ignores the shocking waste of precious taxpayer 
money to failed companies like Solyndra and others.
    Ironically the Report claims credit for increasing oil and natural 
gas production while ignoring the fact that this occurred on private 
and state lands while the White House has further restricted access to 
public lands.
    Moreover, the Report fails to acknowledge the harmful effects from 
the White House's regulatory onslaught against American business--and 
does the same for President Obama's insistence at the end of 2012 on 
higher taxes on small businesses and successful Americans as a 
condition of renewing middle-class tax relief.
    Not surprisingly, policy uncertainty remains unprecedentedly high 
four and a half years into this disappointing recovery.
    The Report makes a great effort to blame congressional Republicans 
for the fights over increasing the debt ceiling and the temporary 
government shutdown which created more policy uncertainty, but ignores 
the even larger uncertainty the White House has created with the call 
for higher taxes, less American-made energy, burdensome regulation, and 
the President's Affordable Care Act.
    The Report observes that business fixed investment has been 
unusually weak--which this committee has been highlighting for some 
time. Indeed, real fixed business investment finally reached its fourth 
quarter 2007 level in the most recent report on GDP.
    The Report asserts, ``The pace of growth of business fixed 
investment is puzzling because interest rates are low and internal 
funds available for investment are high.''
    The reason for this weakness is staring the CEA (Council of 
Economic Advisers) in the face. Economic growth is a function of both 
supply and demand, yet the Report focuses on aggregate demand.
    Businesses don't make investment decisions based solely on their 
assessment of future demand. They also consider cost. Supply-side 
factors such as taxes and regulations are at least as important as 
demand-side factors.
    This Administration has increased both the expected after-tax cost 
of new business fixed investment and heightened uncertainty. It was 
entirely predictable that sluggish business fixed investment would 
produce a weak recovery. Is no one at the White House listening to 
local businesses? They've been telling you this for years--and continue 
today.
    I'll conclude with this. While the Report identifies issues worth a 
thoughtful, bipartisan discussion, too much energy is again wasted 
attempting to shift the blame for this anemic recovery to anyone or 
anything other than the leadership of this White House and this 
President.
    The Report impugns a variety of headwinds from droughts to the 
Euro-crisis. However, other Presidents--Kennedy, Reagan, and Clinton 
for starters--overcame the headwinds of their time and achieved 
superior economic results for American families and businesses.
    President Obama has an opportunity to do the same. I urge him to 
work with Congress to grow the economy in ways that have been shown to 
work.
    Chairman Furman, I look forward to your testimony.
                               __________
   Prepared Statement of Jason Furman, Chairman, Council of Economic 
                                Advisers
    Chairman Brady, Vice Chair Klobuchar, and Members of the 
Committee--thank you for the chance to appear here today. The 2014 
Economic Report of the President discusses the progress that has been 
made in recovering from the worst recession of our lifetimes, and 
President Obama's agenda to build on this progress by creating jobs and 
expanding economic opportunity.
    Last Friday, we learned that businesses added 162,000 jobs in 
February, so that over the last 48 consecutive months of job growth, 
private employment has risen by 8.7 million (Figure 1). The 
unemployment rate ticked up one-tenth of a percentage point in 
February, but it has still fallen half a percentage point on balance 
since October, with the entirety of that decline attributable to gains 
in employment. Nevertheless, essentially all the remaining elevation in 
the unemployment rate is due to long-term unemployment, which 
represents one of our most pressing economic challenges (Figure 2). In 
January, the President hosted a summit at the White House and announced 
some important new steps to help the long-term unemployed, and we still 
hope Congress will join us in this continued effort by reinstating 
extended unemployment insurance for the more than 2 million job-seekers 
that have lost a vital lifeline since the end of last year.
    The economic recovery is well underway, but it remains incomplete, 
and much more work is left to be done, in large part because of the 
depth of the hole out of which we are still digging. As discussed in 
this year's Economic Report of the President, recoveries from financial 
crises are challenging because heavy household debt burdens and tight 
credit conditions can linger for years, constraining spending and 
investment. However, among the 12 countries that experienced a systemic 
financial crisis in 2007 and 2008, the United States is one of just two 
in which output per working-age person has returned to pre-crisis 
levels (Figure 3). The fact that the United States has been one of the 
best performing economies in the wake of the crisis supports the view 
that the full set of policy responses in the United States made a major 
difference in averting a substantially worse outcome--although, as I 
said, more work remains to be done.
    This year's Report provides an in-depth look at one major aspect of 
the policy response to the crisis: the Recovery Act and more than a 
dozen subsequent pieces of fiscal legislation, including the payroll 
tax cut, small business tax cuts, incentives for business investment, 
and extended unemployment insurance. Our analysis finds that the 
effects of these steps were substantial. Specifically, the Recovery Act 
alone raised the level of GDP by between 2 and 2.5 percent from late 
2009 through mid-2011. Combining the effects of the Recovery Act and 
the additional fiscal measures that followed, the cumulative boost to 
GDP from 2009 through 2012 is equivalent to 9.5 percent of fourth 
quarter 2008 GDP (Figure 4). The Report also demonstrates that the 
Recovery Act's support for household incomes prevented millions from 
slipping into poverty over the last few years, a continuation of a 
longer-running trend in which essentially all of the progress we have 
made in the War on Poverty has come as a consequence of policies like 
tax credits, Social Security, unemployment insurance, and nutrition 
assistance.
    Looking ahead, this year's Report also identifies several key 
reasons that the Administration, like other forecasters, expects growth 
to strengthen in the coming years. One key reason that growth is 
expected to pick up is that households have made substantial progress 
in deleveraging, putting them in a better position to increase spending 
going forward. Specifically, household debt has fallen from a peak of 
about 1.4 times annual disposable income in the fourth quarter of 2007 
to 1.1 times annual disposable income in the fourth quarter of 2013. 
Similarly, the average required minimum payment on household debt has 
fallen from a high of 13 percent of disposable income in the fourth 
quarter of 2007 to 10 percent in the third quarter of 2013, the lowest 
since the data begin in 1980 (Figure 5).
    It is important to note that while these figures paint a picture of 
improvement in the aggregate, many middle-income households have seen 
little benefit from recent stock market gains and are still grappling 
with the implications of home prices that, despite recent progress, 
remain well below their previous highs. I'll return to say a bit more 
about steps the Administration is taking to expand economic opportunity 
for these households in a moment.
    Staying on the near-term outlook, I would add that other reasons to 
expect stronger growth in 2014 include diminished fiscal drag, a 
recovery in asset values, strengthening among some of our key 
international trading partners, and demographic forces that are 
expected to maintain upward pressure on housing starts--although all of 
these factors need to be balanced against the uncertain risks that can 
always adversely affect the economy.
    Looking over a longer time horizon, the Report identifies a number 
of emerging trends that can support a stronger economy on a sustained 
basis into the future, including improvements in the production and use 
of energy, the slowdown in the rise of health care costs, and 
technological advances.
    The Administration is not sitting back waiting for these trends to 
unfold, and the President has set out an ambitious agenda to capitalize 
on these opportunities and make further progress. Specifically, the 
President's agenda is designed to address three key imperatives: first, 
it continues to restore the economy to full potential; second, it 
expands the economy's potential over the long run; and third, it helps 
ensure that all Americans have the opportunity to realize their full 
individual potential.
    To return the economy to its full potential more quickly, the 
President's budget includes an Opportunity, Growth, and Security 
initiative, which will finance additional discretionary investments in 
areas such as education, research, infrastructure, and national 
security. The initiative is evenly split between defense and non-
defense and is fully paid for with mandatory spending reforms and tax 
loophole closers. The President has also called for steps to couple 
business tax reform with a major effort to upgrade our Nation's 
infrastructure.
    These steps will not just help speed the economy's return to full 
potential in the near term, but will expand that potential over the 
long run by making critical investments in infrastructure and the 
skills of American workers, and by reducing distortions in the business 
tax code. Another key step to grow the economy's long-run potential is 
immigration reform, which would help attract a new wave of inventors 
and entrepreneurs to American soil. The President is also looking for 
ways to support the historic gains in the domestic energy sector that 
we have seen in recent years. Finally, innovation is key to long-run 
growth and should be supported with everything from tax incentives for 
R&D to investments in basic research to policies like patent reform and 
freeing up spectrum for mobile broadband.
    The final areas of policy would help ensure that every American has 
the opportunity to realize their full individual potential. Since the 
late 1970s, income inequality has risen dramatically, and at the same 
time, intergenerational mobility has remained relatively low. The 
President has said that restoring a greater measure of economic 
opportunity in the face of these long-standing trends is ``the defining 
challenge of our time.''
    The President's opportunity agenda includes an increase in the 
minimum wage and an expansion of the Earned Income Tax Credit, which 
would lift millions out of poverty. The Opportunity, Growth, and 
Security initiative would help provide funding for every American child 
to attend high-quality pre-school, because investments in early 
childhood development are among the best investments we as a society 
can make. Implementation of the Affordable Care Act is another critical 
step in this direction, as it is helping to provide financial security 
for more American families and to slow the growth in health care costs 
that cut into workers' take-home pay.
    This is just a brief overview of the economic outlook and some of 
the President's priorities as described in our new Report. The Report 
also contains analysis and discussion of the Recovery Act and 
subsequent jobs legislation, the causes and consequences of the 
slowdown in health costs, the role of technology in the economy, the 
lessons we have learned 50 years after the beginning of the War on 
Poverty, and a discussion of the importance of Federal program 
evaluation. I would be happy to take your questions on these or any 
other economic topics.

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