    [Joint House and Senate Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                                                          S. Hrg. 114-279

                      THE ECONOMIC REPORT OF THE PRESIDENT

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

                                    HEARING

                                   before the

                            JOINT ECONOMIC COMMITTEE
                         CONGRESS OF THE UNITED STATES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 2, 2016

                                   __________

              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]

    SENATE                               HOUSE OF REPRESENTATIVES
    Daniel Coats, Indiana, Chairman      Patrick J. Tiberi, Ohio, Vice
    Mike Lee, Utah                           Chairman
    Tom Cotton, Arkansas                 Justin Amash, Michigan
    Ben Sasse, Nebraska                  Erik Paulsen, Minnesota
    Ted Cruz, Texas                      Richard L. Hanna, New York
    Bill Cassidy, M.D., Louisiana        David Schweikert, Arizona
    Amy Klobuchar, Minnesota             Glenn Grothman, Wisconsin
    Robert P. Casey, Jr., Pennsylvania   Carolyn B. Maloney, New York,
    Martin Heinrich, New Mexico              Ranking
    Gary C. Peters, Michigan             John Delaney, Maryland
                                         Alma S. Adams, Ph.D., North
                                             Carolina
                                         Donald S. Beyer, Jr., Virginia

                      Viraj M. Mirani, Executive Director
                     Harry Gural, Democratic Staff Director

                                C O N T E N T S

                                  ----------

                         Opening Statements of Members

    Hon. Daniel Coats, Chairman, a U.S. Senator from Indiana.........     1
    Hon. Carolyn B. Maloney, Ranking Member, a U.S. Representative
      from New York..................................................     2

                                    Witness

    Hon. Jason Furman, Chairman, Council of Economic Advisers........     4

                           Submissions for the Record

    Prepared statement of Hon. Daniel Coats, Chairman, a U.S. Senator
      from Indiana...................................................    34
    Prepared statement of Hon. Carolyn B. Maloney, Ranking Member, a
      U.S. Representative from New York..............................    34
        Chart titled ``Longest Streak of Private-Sector Job Growth
          Continues''................................................    42
        Chart titled ``U.S. Economy Has Grown in 24 of the Last 26
          Quarters''.................................................    43
    Prepared statement of Hon. Jason Furman, Chairman, Council of
      Economic Advisers..............................................    36
    Chart titled ``History of OMB Budget Projections of Real GDP
      Growth Rate vs. Actual, Other Forecasts'' submitted by Vice
      Chairman Tiberi................................................    44
    Chart titled ``Historical U.S. GHG Emissions, Non-Binding
      Reduction Pledges, and Long-Term `Pathway' '' submitted by Vice
      Chairman Tiberi................................................    45
    Questions for the record and responses:..........................
        Questions for Hon. Jason Furman submitted by Senator Martin
          Heinrich...................................................    46
        Questions for Hon. Jason Furman submitted by Senator Amy
          Klobuchar..................................................    51

                      THE ECONOMIC REPORT OF THE PRESIDENT

                                  ----------

                            WEDNESDAY, MARCH 2, 2016

                 Congress of the United States,
                              Joint Economic Committee,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 2:28 p.m., in Room
    216 of the Hart Senate Office Building, the Honorable Daniel
    Coats, Chairman, presiding.
        Representatives present: Tiberi, Paulsen, Hanna, Grothman,
    Maloney, Delaney, Beyer, and Schweikert.
        Senators present: Coats, Lee, Klobuchar, Casey, and Peters.
        Staff present: Breann Almos, Ted Boll, Doug Branch, Whitney
    Daffner, Barry Dexter, Connie Foster, Harry Gural, Colleen
    Healy, Matt Kaido, Jason Kanter, Christina King, Yana Mayayeva,
    Viraj Mirani, Brian Neale, Thomas Nicholas, Brian Phillips, Ken
    Scudder, and Phoebe Wong.

       OPENING STATEMENT OF HON. DANIEL COATS, CHAIRMAN, A U.S.
                          SENATOR FROM INDIANA

        Chairman Coats. As soon as I turn on the microphone, the
    Committee will come to order.
        Chairman Furman, welcome back. We very much appreciate your
    willingness to come and speak with us, following The Economic
    Report of the President. It is important for us to understand
    what is in this and get your take on it, and where we are
    going. It certainly helps us in terms of our policymaking
    decisions going forward. I want to welcome you here and thank
    you for your participation.
        Vice Chairman Tiberi, Ranking Member Maloney, and all of us
    welcome you and thank you for your willingness to continue this
    long-standing tradition that we have that the Chairman of the
    Council of Economic Advisers testifies before the Joint
    Economic Committee.
        This year marks the 70th anniversary of the Council of
    Economic Advisers and the Joint Economic Committee, both of
    which were created to advise our respective Branches of
    Government on a wide range of matters affecting the economy.
        We appreciate this annual opportunity to engage in
    dialogue, and look forward to discussing this year's economic
    report.
        Much has been learned over the course of this slow-growth
    recovery that we are in, and these lessons will only continue
    for the foreseeable future. The current recovery has been
    slower than previous recoveries, and subdued expectations about
    the economic, population, and labor force growth have placed
    additional pressures on federal budget constraints.
        However, I do not accept the often-mentioned assertion that
    we have entered a new normal of slower economic growth. Policy
    reforms seeking to create a better tax system, rein in
    spending, and loosen the regulatory shackles restricting our
    economy can alter this trajectory by removing some of the
    structural barriers American workers and businesses face today.
        In my opinion, a lot of the problems we would like to solve
    require us as policymakers to look in the mirror and see how
    current Federal Government policies are affecting our economy.
        In his final State of the Union Address this year,
    President Obama stated that he wanted, and I quote here, ``to
    focus on the next five years, the next ten years, and beyond.''
        However, he admitted one of the most important issues that
    America faces in the coming years, the financial obligations
    that will come due over those time frames, and particularly in
    the beyond.
        That was not mentioned once in his address, and how to
    achieve fiscal sustainability was not among the four questions
    the President argued that we as a country have to answer.
        I found this to be a glaring omission, given how our
    national debt has risen so sharply over the past seven years
    from $10.6 trillion when President Obama took office to now
    over $19 trillion dollars.
        This accumulation of such staggering levels of debt is
    nothing short of reckless, and the situation will only get
    worse the longer we wait to address it.
        According to a recently released report by the nonpartisan
    Congressional Budget Office, in just 10 years spending on
    mandatory spending programs and interest on the debt will
    consume nearly 99 percent of all federal revenues. Clearly this
    path is unsustainable.
        So if we do not work now to correct this disturbing
    trajectory, our ability to pay for essential government
    functions will be severely constrained. Our economy will
    suffer. And our national security will be at risk.
        The CEA's report we will discuss today devotes significant
    attention to inequality as a defining challenge of the 21st
    Century. However, I think it is important to recognize that
    intergenerational theft is also a form of inequality, a
    particularly severe one that our children and grandchildren are
    poised to inherit.
        Their ability to succeed in our future economy will depend
    largely on the decisions that we make today. For the American
    Dream to remain attainable for future generations, we must
    accept the reality of our fiscal situation and act responsibly
    by addressing it immediately.
        I look forward to discussing these issues in more depth
    with Chairman Furman, and I will now turn to our Ranking Member
    Maloney for her opening statement.
        [The prepared statement of Chairman Coats appears in the
    Submissions for the Record on page 34.]

    OPENING STATEMENT OF HON. CAROLYN B. MALONEY, RANKING MEMBER, A
                   U.S. REPRESENTATIVE FROM NEW YORK

        Representative Maloney. First of all, welcome, Dr. Furman,
    and thank you for planning this hearing, Mr. Chairman. And
    thank you, Dr. Furman, for appearing yet again before us today
    to answer questions about the current state of the U.S.
    economy.
        I share the overall assessment of the Economic Report of
    the President that under the leadership of President Obama the
    Nation's economy is back on track after what was the worst
    recession since the Great Depression.
        We have just completed the best two years of private-sector
    job growth since the 1990s. We have recorded the fastest two-
    year drop in the annual average unemployment rate in 30 years.
        The unemployment rate has been cut in half. As you can see
    in this chart, we are in the midst of the longest streak of
    private-sector job creation in history, with a record 71
    straight months of growth and the creation of 14 million
    private-sector jobs.
        [The chart titled ``Longest Streak of Private-Sector Job
    Growth Continues'' appears in the Submissions for the Record on
    page 42.]
        There are some who look lightly at these achievements,
    claiming that the Obama recovery pales in comparison to
    average, quote ``average'' recoveries, as if the economic
    meltdown during the last years of the Bush Administration was,
    quote, ``an average recession.''
        Is the loss of almost 9 million American jobs ``average''?
    Is the loss of homes for 9 million Americans ``average''? Let's
    remember, when George Bush left the Oval Office, the economy
    was in a death spiral.
        In the final quarter of 2008, GDP shrank at a staggering
    8.2 percent annual rate--the worst quarterly economic
    performance in more than 50 years.
        Housing prices were collapsing. U.S. households lost nearly
    $13 trillion.
        Dr. Furman, last year you told us that this recession was
    like an economic heart attack. You said the share of wealth
    lost in the early days of this recession was almost 5 times as
    large as the loss in wealth that triggered the Great
    Depression.
        Thanks to the bold action of President Obama, Democrats in
    Congress and the Federal Reserve, we have steadily climbed back
    from this recession. As you can see from this chart, the U.S.
    GDP has grown in 24 of the past 26 quarters. Real GDP has grown
    by over 14 percent since the start of the Obama Administration.
        [The chart titled ``U.S. Economy Has Grown in 24 of the
    Last 26 Quarters'' appears in the Submissions for the Record on
    page 43.]
        The auto industry, written off by some as dead, has already
    added nearly 640,000 new jobs since 2009, and it is now
    exporting more than 2 million units per year.
        Average housing prices have rebounded to 2007 levels, and
    household wealth is more than $17 trillion higher than before
    the recession.
        This recovery has occurred despite efforts by many
    Republicans in Congress. First, they opposed stimulating the
    economy. In fact, every single one of them in the House voted
    against the Recovery Act.
        They demanded budget cuts at exactly the time when economic
    theory says government should increase spending to boost
    demand.
        The Report notes that the economy faces long-term
    structural challenges.
        First of all, the Baby Boomers are retiring. That alone
    will decrease labor force participation and slow the growth of
    GDP.
        We also face the devastating effects of off-shoring of
    American jobs and job losses due to automation and technical
    changes. These challenges are not a surprise. They have been on
    economists' radar for years.
        So what should we do? I agree with your assessment that we
    need to rebuild the Nation's crumbling infrastructure, invest
    in early childhood education, implement paid leave, achieve
    equal pay for equal work, and make college more affordable.
        I want to close by looking at economic inequality, one of
    the central issues of our time, and the focus of the first and
    fourth chapters of the Economic Report of the President.
        The U.S. experience has diverged from other advanced
    countries. Since 1987, the share of income going to the top 1
    percent in the United States has been greater than in every
    other G-7 country every single year.
        We need to recommit ourselves to policies that expand
    opportunities and narrow inequality. These policies will pay
    dividends in the future, and help us create an economy that is
    even more robust, an economy where the benefits of growth are
    shared across the income spectrum.
        As you note, giving all people a fair shot will strengthen
    our economy by boosting productivity and accelerating growth.
        Dr. Furman, thank you once again for appearing before the
    Committee. I am eager to hear your testimony. And
    congratulations on an excellent report.
        [The prepared statement of Representative Maloney appears
    in the Submissions for the Record on page 34.]
        Chairman Coats. Thank you, Ranking Member Maloney. Now we
    turn to introducing our distinguished witness, Chairman Furman.
        Jason Furman is the Chairman of the Council of Economic
    Advisers. Previously he served as a 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 Institution.
        Dr. Furman earned his Ph.D. in Economics and a Masters of
    Arts in Government from Harvard University, and a Masters of
    Science in Economics from the London School of Economics.
        Thank you, Chairman Furman, for joining us. We look forward
    to hearing from your report.

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

        Chairman Furman. Thank you, Chairman Coats, Vice Chairman
    Tiberi, Ranking Member Maloney, and members of the Committee.
    We are excited to be here today to talk about the 70th Annual
    Economic Report of the President, something that the CEA and
    this Committee have had a chance to do many, many times over
    the decades.
        This report's overall macroeconomic theme is that 2015 was
    a year of continued growth for the U.S. economy in the face of
    substantial headwinds from abroad.
        Ranking Member Maloney cited a number of the statistics:
    the strongest job growth in two years--in two years of job
    growth in a decade; the largest decline in the unemployment
    rate in 30 years; and the longest streak of private-sector job
    growth on record.
        The unemployment rate has consistently fallen well faster
    than what anyone would expect, falling to 4.9 percent, its
    lowest since February 2008, as compared to forecasts which as
    recently as 2014 had expected it to stay above 5 percent
    through 2020.
        At the same time, the labor force participation rate has
    been relatively stable over the past year, as improving
    economic conditions partially offset the drag on participation
    from the retirement of the Baby Boom Generation.
        And perhaps most importantly, over the past six months
    nominal hourly earnings for private-sector workers have grown
    at their fastest pace since the Great Recession, although more
    work remains to be done to boost wages.
        Our domestic progress is all the more notable in light of
    the substantial headwinds that the United States faces from the
    global economy.
        The International Monetary Fund estimates that global
    economic growth was 3.1 percent in 2015, the slowest since
    2009, and continuing a trend of falling below expectations.
        The United States had the highest growth rate of any major
    advanced economy, but slowing growth in a number of large
    emerging markets weighed heavily on the global economy in 2015.
        Weak growth abroad served as a drag on U.S. exports, with
    exports subtracting 0.1 percentage points from real GDP growth
    in 2015, a substantial shift from the half-point that experts
    had been adding to growth in 2013 and 2014. And we expect these
    headwinds to continue into the year 2016.
        Particularly in light of these adverse global developments,
    it is important that we work to strengthen domestic growth by
    boosting productivity and dynamism in the U.S. economy.
        It is also important that we work to ensure that the
    benefits of economic growth are shared broadly. And to this
    end, the 2016 Economic Report of The President lays out the
    President's agenda for inclusive growth.
        Despite progress since the Great Recession, the unequal
    distribution of income, wealth, and opportunity remains one of
    the greatest challenges facing our economy. It is not unique to
    the United States, but it is more severe here than in other
    countries around the world.
        Some of the increase we have seen is a natural consequence
    of competitive markets, a result of differences in productivity
    as technology evolves, but some of the increase may reflect the
    rising influence of what economists call economic rents: the
    income captured by companies and workers beyond what their
    productivity justifies.
        The apparent increase in rents in recent decades and their
    overall increasingly unequal distribution have contributed to
    overall inequality without boosting productivity, providing
    opportunities to improve both efficiency and equity in the U.S.
    economy.
        The President's agenda includes making competitive markets
    work better by increasing opportunity and combating the trend
    of rising unequally divided rents.
        Competition most effectively promotes economic growth when
    it is open to the widest pool of talent. So the President is
    promoting equality of opportunity by investing in education,
    supporting children in low-income families, and ensuring a fair
    criminal justice system.
        And the President also supports policies to make markets
    more competitive by reducing overall economic rents through
    promoting more open and competitive markets, balanced
    intellectual property rules, and a smarter approach to
    occupational licensing and regulation, among other policies.
        Now other sections of this year's report lay out additional
    steps we can and should take to ensure a strong domestic
    economy, including expanding trade, investing in technology,
    investing in infrastructure, and investing in children.
        And I would be more than happy to talk about these or any
    other topics that you're interested in.
        Thank you.
        [The prepared statement of Chairman Furman appears in the
    Submissions for the Record on page 36.]
        Chairman Coats. Mr. Chairman, thank you very much. I want
    to apologize for having to leave shortly. The Senate has called
    for four consecutive votes, which will take a considerable
    amount of time.
        I am going to ask my question to you, and then turn this
    over to Congressman Tiberi, our Vice Chairman, who will
    recognize Mrs. Maloney as Ranking Member. And then, in this
    somewhat byzantine order of who came first, and which chamber
    you are from, and what is your seniority, we will try to do a
    fair allocation of back and forth. And I have someone here who
    has studied fastidiously and is an expert on telling you, Vice
    Chairman, who is next. And, trust me, with people in and out
    and back and forth, it can get very complicated.
        Mr. Chairman, I came to office a long time ago. One of the
    very first critical votes I had to face was the decision as to
    whether or not we would raise our debt ceiling limit to over $1
    trillion.
        People say, wow, that must have been a hundred years ago.
    No, not quite. That was 1981. Today, we are at the $19 trillion
    mark.
        Look, let's take the politics out of this. We had three
    years of balanced budgets at the end of the 1900s before we
    came into this New Millennium. Under both Republican control
    and Democrat control, we have seen an ever-accelerating plunge
    into debt.
        We know that the Darth Vader of the future economy is
    lurking out there waiting to collect the bills. We know that
    from CBO the projections going forward are dramatic relative to
    the way discretionary spending shrinks as mandatory spending
    continues to grow.
        In fact, CBO said that in 10 years we will at the current
    trend be at 99 percent--that 99 percent of our budget will be
    consumed by mandatory spending and interest coverage.
        This obviously is unacceptable. We know the Baby Boom
    budget--Baby Boom era has been descending upon us. We have
    known this for decades. And so if we can take the politics out
    of this as to who to blame, and who is responsible, and simply
    say we now, whether you are a Republican or a Democrat, a
    conservative, liberal, or in between on that spectrum, we have
    a common challenge that has to be addressed.
        It has been pushed down the road over, and over, and over.
    It is becoming increasingly a hindrance to our economy and
    ability to grow, to provide for our national security, to pave
    roads, to build infrastructure, to provide for health care,
    research, and you name the functions that are necessary to be
    addressed.
        So I wonder if you would tell us, what is the next
    President, regardless of who that is, what is the next
    President and the next Congress, what do they need to do to
    finally stand up to this looming crisis to put in place a long-
    term solution that is feasible in terms of how we need to
    govern, but will put us on a path to more fiscal responsibility
    and avoid this coming wall that we are going to hit if we do
    not take action?
        I may not be able to be here to hear your final answer on
    that, but we would like it for the record. And I would
    appreciate it if you would address that. That is my only
    question, and then I will turn it over to Mr. Tiberi.
        Chairman Furman. So thank you very much for that question.
    And I think I agree with the premise of almost everything that
    you said. I think it is important to put this in context. Our
    deficit was nearly 10 percent of GDP when the President walked
    in the door. That was a consequence of a very severe Recession.
        The deficit has come down to 2.5 percent of GDP, which is
    below the average of the last 40 years----
        Chairman Coats. But we know it is going to spike shortly,
    right?
        Chairman Furman. Absolutely. And that is due to a
    combination of deficit reduction and also a strengthening
    economy. Doug Elmendorf, the former CBO Director, recently co-
    wrote a paper in which he argued that the fiscal outlook over
    the next 25 years is a challenge, as you said, but is less of a
    challenge than it looked a couple of years ago--in part because
    of the steps we have taken, and in part because of lower
    interest rates.
        But more does need to be done. The deficit will rise as a
    share of GDP. The debt will rise as a share of GDP, and our
    approach is a balanced combination of measures on the spending
    side, including to entitlements, and measures on the tax side
    which predominantly are not about raising rates but are about
    cutting back on tax benefits for high-income households, many
    of which are not economically efficient.
        The last thing I should say is that ultimately our goal is
    to see the debt-to-GDP ratio on a downward path and stabilized.
    One can accomplish that both by lowering debt, but also by
    raising GDP.
        So steps that strengthen our economy are a really important
    part of how we need to deal with our debt and deficit as well.
        Chairman Coats. Thank you. We finished 12 seconds ahead--
    whoops, 12 seconds behind my time. So I need to pass this on to
    Mr. Tiberi, and again apologize for having to leave, and
    hopefully to be back as quickly as I can.
        Chairman Furman. Thank you.
        Vice Chairman Tiberi [presiding]. Thank you, Mr. Chairman.
    I will recognize the Ranking Member, Mrs. Maloney, for five
    minutes.
        Representative Maloney. Thank you, very much.
        A major focus of The Economic Report of the President is
    widening economic inequality. And your report argues that
    extreme inequality can be a macroeconomic problem, a drag on
    productivity and growth.
        Please explain to even those who are not concerned about
    the growing gap between the haves and the have-nots, why we
    should be concerned about inequality, and why is vast
    inequality everybody's problem?
        Chairman Furman. Thanks for your question. And I think
    there are a number of reasons. One of the clearest is that if
    you have inequality of income, you are going to have inequality
    of opportunity. And if you have inequality of opportunity,
    there is talent that could be contributing to more of our
    economy but will not get the shot that it should get because of
    lacking educational and other opportunities.
        So we will miss out on the innovation and creativity we
    need to push us forward.
        Representative Maloney. Okay. As you noted in your
    testimony, the share of income going to the top 1 percent in
    the United States is much higher than in other G-7 countries.
        Why has the experience in the United States been so
    different from the other G-7 countries?
        Chairman Furman. All of our economies are facing similar
    forces in terms of technology and globalization, and those have
    played a role in rising equality across the advanced economies.
        One thing that has happened in the United States, though,
    is we have made less of an investment in education that would
    let our workers keep up with the skills that would complement
    the advances we have seen in technology, or to take advantage
    of globalization.
        So that is one reason why we have seen an increase in
    inequality.
        I think also institutional changes matter, the fact that
    the United States has a minimum wage that is very low by the
    standards of the G-7 has been eroded substantially by
    inflation, has also been a contributing factor to the increase
    in inequality.
        Representative Maloney. Many people understand that
    expanding economic opportunity for women in the workplace and
    paying them fairly is the right thing to do. Why is it also
    good for the broader economy?
        Chairman Furman. One of the challenges we face in our
    economy is a demographic challenge, that we are an increasingly
    aging society and that has slowed the growth of our labor
    force.
        One of the ways to increase the growth of our labor force
    would be to incorporate both more men and women in the
    workforce. And when you take steps like more flexible
    workplaces, more subsidies for child care, reducing the tax
    penalty on secondary earners, and other measures along those
    lines, paid leave, all of that helps bring more women into the
    workforce and helps us overcome some of the demographic
    challenges we have built into our age structure.
        Representative Maloney. And people understand that programs
    like Head Start, and universal pre-K are an effective tool for
    helping children succeed in life. What are the economic
    benefits for allowing all of our children to have this
    opportunity of pre-K?
        Chairman Furman. Recently economic research has been taking
    advantage of studies that follow children over a very long
    period of time after public policies. And they have found that
    high-quality preschool, for example, raises future earnings
    substantially, and raises them more than enough to justify the
    initial cost of the program.
        High-quality preschool also, by the way, helps women's
    labor force participation. So it helps today the family as a
    whole, and balancing work and family, and then it helps the
    children later on. That is true of a wide range of
    interventions--the Earned Income Tax Credit, Supplemental
    Nutritional Assistance Program, and Medicaid, all have been
    shown to have long-term benefits for children in terms of
    education, earnings, and health.
        Representative Maloney. When the United States Congress
    instituted automatic spending cuts in 2013, did it help or hurt
    the economy?
        Chairman Furman. That hurt the economy. It created a fiscal
    headwind.
        Representative Maloney. Well my time has expired. Thank
    you.
        Vice Chairman Tiberi. Thank you, Ranking Member.
        Good afternoon, Chairman Furman. Thanks for joining us
    today. In his letter to Congress introducing the ERP, President
    Obama says, and I quote, ``I have never been more optimistic
    about America's future than I am today.''
        However, the chart that I have, hopefully on the screen
    here in a second, shows that past growth projections from the
    Administration have not lived up to expectations. They have
    failed.
        [The chart titled ``History of OMB Budget Projections of
    Real GDP Growth Rate vs. Actual, Other Forecasts'' appears in
    the Submissions for the Record on page 44.]
        And that now, by the Administration's own estimates, the
    long-term growth potential is meager, at best. So the red is
    OMB's forecast. The solid black line is actual. And the dotted
    black line is the new projection going forward. And then the
    blue, the various blue lines, are other nonpartisan
    organizations. And you can see the growth. GDP growth is
    between 2 and 2\1/2\ percent, which is below the historic
    averages.
        As you know, business investment is essential to economic
    growth, job creation, and rising living standards. It has
    slowed dramatically in the last two years.
        So you describe an optimistic and a pessimistic view of the
    future trend in business investment within your report. So are
    you optimistic, or pessimistic?
        Chairman Furman. Thank you so much for that question. Of
    course I am optimistic, and that optimism depends both on the
    inherent strengths of the U.S. economy and also the policy
    measures that we can take.
        Now if you look at the unemployment rate--and I had shown
    that chart in my initial presentation--that has consistently
    fallen faster than our forecasts. Interest rates have come in
    below our forecasts. And the goal of these forecasts is to
    forecast the budget deficit, which has also generally come in
    at less than what we had expected.
        So a number of things have come in better than
    expectations. I think you are right, though, on the business
    investment across all the advanced economies: the UK, the Euro
    Zone, Japan, has not been what we would like to see. And I
    think a lot of that is the consequence of the very deep
    Recession.
        The bright spot within business investment is research and
    development by private companies is the highest it has been as
    a share of GDP.
        Vice Chairman Tiberi. So you yourself mentioned the
    importance of GDP growth to the Chairman, Mr. Coats' question
    regarding our debt and our long-term debt. So Larry Summers,
    who you know, recently talked about secular stagnation. His
    hypothesis sees low capital investment, slow labor growth, and
    slow technological progress as lasting conditions long term.
        Is secular stagnation the same as the pessimistic view in
    the ERP? Or how do you explain it? And do you agree with it?
        Chairman Furman. I guess I interpret secular stagnation as
    a specific economic hypothesis about long-term equilibrium
    interest rates and the like. I think it has a number of
    problems in its application to the United States. I think it
    may help us understand places like Japan and the Euro Zone. I
    do not think it applies to the United States.
        That being said, I think the impetus that we need to take
    bold steps, like invest more in our infrastructure, are very
    much true and we would have a brighter future if we did that.
        Vice Chairman Tiberi. Okay, last question. I've got a chart
    up here. I was disappointed that the ERP does not address what
    I believe is the limiting effect on economic growth potential
    from a whole host of the Administration's actions and policies
    like increased spending, debt, failure to reform the tax code,
    and the regulatory burden through regulations.
        [The chart titled ``Historical U.S. GHG Emissions, Non-
    Binding Reduction Pledges, and Long-Term `Pathway' '' appears
    in the Submissions for the Record on page 45.]
        For example, on this chart it shows historic and projected
    greenhouse gas emissions, including the effects of the
    President's Clean Power Plan, and specifically the Paris
    Pledge. These policies and regulations are not even mentioned
    in the ERP, and the Administration has apparently turned away
    from the ``all of the above'' energy strategy that it was once
    in favor of as it now closes power plants and natural gas and
    nuclear power.
        So we have also seen this Administration pour on new
    financial, labor, and environmental regulations. Aren't those
    holding down economic growth? And aren't there not massive
    costs associated with such a decline in emissions, for
    instance, on this chart?
        And these policies, none of them which I just mentioned,
    are included in this Economic Report. Shouldn't the ERP discuss
    the most important issues impacting our economy, and explain
    that some government policies might constrain economic growth?
        Chairman Furman. I, you know, to some degree when you don't
    see something in the Report, it is just a matter of space. And
    we already imposed 430 pages on you. You mentioned taxes. Last
    year, for example, we had a long discussion of business tax
    reform, and I would hope you would find a lot to agree with in
    that discussion: the importance of lowering our rates, and
    making our international system more competitive.
        We just did not repeat that again this year, not because it
    is not important, just a matter of space. On regulations, I
    suspect we probably see it a little bit differently. And
    certainly our analysis of the determinants of investment growth
    in the economy finds a trajectory of investment growth we have
    seen is very well explained by a traditional model that does
    not take into account these regulatory changes.
        And the investment we have seen, performance in the U.S.
    economy has been very similar to other economies that have had
    very different regulatory trajectories. So I do not think they
    are a very important factor in explaining this macro
    phenomenon.
        Vice Chairman Tiberi. Thank you. My time has expired.
        Mr. Beyer is recognized for five minutes.
        Representative Beyer. Thank you, Mr. Chairman.
        Chairman Furman, the report notes that, quote, ``While
    investment has been low, the rate of payouts to shareholders by
    nonfinancial firms in the form of dividends or net share buy-
    backs has been rising. Nonfinancial corporations are now
    returning nearly half of the funds that could be used for
    investment to stockholders.''
        One possible explanation provided by the report is that,
    quote, ``The rise in payouts to shareholders may be related to
    the decline in the startup rate of young firms who are more
    likely to reinvest their cash flow than mature firms.''
        The report also notes that the lower investment growth in
    higher share of funds returned to shareholders suggest firms
    have had more cash than they thought they could profitably
    reinvest.
        However, the rise in share buy-backs predates current
    economic circumstances. Senator Baldwin, among others, has
    pointed to a 1982 SEC rule that provided for safe harbor from
    manipulation liability at the beginning of the explosion of
    stock buy-backs.
        Prior to 1982, buy-backs were a very limited use of
    corporate profits. And buy-backs, as we know, can make earnings
    reports look better and improve short-term executive
    compensation, and foster short-term thinking in the corporate
    governance.
        Can you comment on the impact of this and other regulatory
    changes have contributed to the current investment environment?
    And should we be seeking to limit buy-backs as a means of
    promoting private-sector investment?
        Chairman Furman. So thank you for your question. I have
    certainly seen the hypothesis put forward that that 1982
    regulation has played a role in the rise of buy-backs. And it
    is certainly the case that buy-backs have risen over time. It
    is not just a recent phenomenon.
        I have not seen--reviewed the research in terms of
    assessing that link, so I do not have an opinion on that. I
    would be happy to look into it a little bit more and get back
    to you.
        I think one of the most important questions for us to ask,
    though, is what can we do to make sure companies have good
    things to invest in, and make sure that we have a really
    dynamic system in which new businesses are being formed and
    coming into existence.
        And if you have a large, mature company that does not have
    great investment projects, I would rather that money go back to
    shareholders, and then the shareholders can allocate it to some
    other part of the economy that could be of higher efficiency.
        So I usually step back and look a little bit less at where
    the money is going, and a little bit more at what is shaping
    the business decisions and the business opportunities in terms
    of the real investment prospects they have.
        Representative Beyer. Great. Thank you, very much.
        The ERP contains a very interesting discussion of the
    impact of economic rents as a driver of inequality. And I like
    your simple definition, which was: Economic rents is income
    captured by companies and workers beyond that which their
    productivity justifies.
        Rents can also be created by market consolidation and
    regulations which favors specific business or sector of
    industry over its competitors.
        Can you recommend policy approaches to address the
    undeserved rents?
        Chairman Furman. Sure. One is something that Senator Lee
    and Senator Klobuchar held a hearing on a few weeks ago, which
    is occupational licensing. The fact that at the state level now
    25 percent of occupations you need a license to get that
    reduces our ability to move between jobs. If you are one of the
    lucky people with a license, it lets you command a premium.
        Land use restrictions that drive up the cost of living in
    certain areas also create rents, both literally and in the
    economic sense.
        Greater degree of competition is important in this regard.
    But the other thing I would say is, some rents are inevitable
    and it is a question of how they are divided. So a higher
    minimum wage, or expanding workers' voice, including labor
    unions, would help make sure that when you are dividing the pie
    it gets divided a little bit more towards the labor end.
        Representative Beyer. Thank you. You know, Mr. Chairman, we
    keep hearing about mandatory spending continuing to increase,
    and that at some point in our lifetime it will be 100 percent
    of federal revenues.
        Do we have a plan to address the long-term thinking about
    what we are going to do to maintain a meaningful discretionary
    part of our budget?
        Chairman Furman. We currently have much lower projected
    health care both level and growth rates going forward than the
    projections six or seven years ago. That is in part due to the
    Affordable Care Act, and in part due to a set of changes that
    were under way in our health system, and continuing to
    implement that which is most of the job of our Administration
    is really important.
        We could also take additional steps modeled on that to
    bring down the cost of health care, helping to reduce premiums,
    extend the life of Medicare, and reducing the pressure on
    discretionary spending that you cited in your question.
        Representative Beyer. Thank you, Mr. Chairman.
        Vice Chairman Tiberi. Mr. Paulsen is recognized for five
    minutes.
        Representative Paulsen. Thank you, Mr. Chairman, and thank
    you Dr. Furman for being here and following up on the report.
        It is interesting to me because some of the numbers you
    cited and that the others cite are often cites in terms of
    numbers, and the economy is back on track. We have had the
    fastest, we have had the best, and we have had records.
        Here is another number that I think is really critical: The
    U.S. Bureau of Labor Statistics announced that for all of 2015,
    all of last year, that we had U.S. productivity--labor
    productivity rose only 0.6 percent. So this is the fifth year
    in a row where that growth has been below 1 percent.
        So since the U.S. started collecting this data, going back
    all the way to 1947 up until now, there has never, ever been
    such a poor five-year stretch because we have had five years in
    a row where it has been below 1 percent.
        So knowing that is the case, this is really important, the
    link between increases in labor productivity and the average
    U.S. standard of living, one example now estimates for instance
    that because of the annual increases in labor productivity of 3
    percent, if you had 3 percent the average standard of living
    would double in just about 24 years here in the United States.
        But now if you compare it to the last five years we have
    had with low productivity growth, we have actually changed it
    where the average standard of living will not be doubled until
    every 139 years. So 139 years to double our standard of living.
        So these are numbers I think that are behind what many
    people feel, or sense that they feel it is the disappearing of
    the American Dream. And it is probably why 72 percent of the
    public feels we are in a recession right now, even though
    technically we are not.
        So I am not a doctor, but I think one of the rules we have
    in medicine is ``do no harm.'' So just in terms of that
    question, Mr. Furman, to what end do you or the Administration,
    what thoughts have you given? What analysis have you provided?
    Or do you acknowledge that the cumulative effect of a lot of
    regulations on small, on medium, on large businesses has had on
    a lack of productivity growth, and the effect that that is now
    having on a lower standard of living in the United States?
        Chairman Furman. Thank you for your question, and I think
    you are right to identify productivity as one of the biggest
    challenges our economy faces. An analysis by the San Francisco
    Fed put the date at around 2004 when productivity growth
    started to slow.
        It is something we have seen, as I have said in other
    contexts, across a range of other countries. The United
    States--and one of the reasons I am optimistic about the United
    States--is over the last 10 years we have had the fastest
    productivity growth of any of the other G-7 economies. But we
    certainly have not had enough. As you said, that plays a big
    role in terms of what future we can expect for wage growth. And
    so I think the most important question is what steps can we
    take?
        I would suggest expanding markets abroad, through steps
    like TPP. Reforming our business tax system, lowering the rate
    and reforming the base. Investing more in infrastructure.
    Investing more in research and development. And bringing down
    our deficit to free up more private capital for investment.
        Those are five really important steps we could take to
    increase our productivity growth.
        Representative Paulsen. And I would agree. Tax reform.
    Expanded trade opportunities. Sell more American goods and
    services overseas. Get the money back home.
        But what about the regulatory environment? I mean, do you
    acknowledge, or have you done analysis just on the weight of
    regulations from a cumulative effect that that has actually
    had?
        I mean, it's a consistent message that I hear from my
    employers that I visit with in Minnesota all the time.
        Chairman Furman. I don't think the--I think it is very
    important to get regulations right. And one of our jobs at CEA
    is to participate in the process by which Executive Branch
    regulations are reviewed. And we take that responsibility very
    seriously and work hard to get the benefits as high relative to
    the costs as you possibly can.
        Often that means doing regulations in a way that is
    flexible, that uses market mechanisms. I think if you do that,
    it can be consistent with a stronger economy and strong
    productivity growth.
        Representative Paulsen. Thank you, Mr. Chairman.
        Vice Chairman Tiberi. Thank you. Congressman Delaney is
    recognized for five minutes.
        Representative Delaney. Thank you, Mr. Chairman. I also
    want to welcome Chairman Furman and thank you for your very
    intelligent report and testimony here today. It also has pretty
    significant throw weight associated with it, so it is a great
    work product, as usual.
        I was going to ask about economic rents, but my friend from
    Virginia already covered that, so I wanted to actually go back
    to a point that was raised by the Chairman about the Paris
    Accord, and thinking about this debate about economic growth as
    it relates to how we position the country around climate
    change.
        So when you think of two postures, one that is more forward
    leaning as it relates to climate change--in other words,
    setting goals like 50 percent clean electricity by 2030, or
    various goals that are achievable based on current technology
    but aspirational--you know, stretch goals--versus not taking
    these steps, and not putting the proper incentives in.
        How do you think about that as it relates, putting aside
    environmental stewardship, but just as a pure matter of
    economics, which posture will drive greater economic growth for
    the United States?
        Chairman Furman. I think acting as soon as possible to
    create as predictable a path for the future, and one that is,
    as you said, is achievable but a little bit of a stretch to
    make sure we are challenging ourselves, is the thing that makes
    the most economic sense, especially in a world where most every
    other country in the world is doing the same thing.
        And so some of the progress we have seen in solar energy,
    in wind, in conserving energy, all of that is helping to make
    sure jobs are located here in the United States.
        Representative Delaney. And when you think about job
    creation opportunity in carbon-intensive industries versus non-
    carbon-intensive industries, what does the data suggest in
    terms of both--what it is likely to do to our economic growth,
    but also this notion, and I may be wrong about this, but my
    sense is that the carbon-intensive industries have become much
    more automated and therefore are not actually driving labor,
    and in fact they're not, even as they produce the same amount
    of energy, they are not reducing their labor participation in
    these industries, versus the clean energy, green energy,
    whatever you want to call it, that actually tend to be more
    labor intensive. Do you have a view on that?
        Chairman Furman. Yes. So that is my understanding, as well,
    that a lot of the traditional carbon-intensive industries are
    very capital heavy. It is a continuum, though.
        So natural gas, for example, has carbon, but it has half as
    much carbon, beginning to end, as coal would have. And we have
    had substantial increases in natural gas production, and that
    has helped to create jobs in our country.
        And I think that is a good thing, and something that we
    would welcome and encourage. It is also something that is
    compatible with how we are trying to hit our goals for climate
    change. But then solar and wind, and a range of renewables, and
    the set of industries around those, as you said, are very labor
    intensive.
        Representative Delaney. And then when you think about
    economic risk, or threats to American prosperity, if you will,
    because as we have seen from the economic performance that this
    country has realized across the last seven years, particularly
    relative to our competitors--which this might be one of the
    greatest periods of time when we have outpaced the rest of the
    world in terms of how we have recovered from the financial
    crisis and how well our economy is doing relative to other
    places, and how less dependent we are on other parts of the
    world. And so things like what is happening in the developed
    world are affecting us less than anywhere else.
        But when we think about that threat, Mark Carney, the
    Chairman of the Bank of England, gave a speech about a year ago
    where he talked about one of the risks to financial markets
    that he saw was in fact climate change. Because, he said, there
    might be a point in time when people actually--it may not be
    when some of the catastrophic scenarios occur, but when people
    actually come to the view that it will be a reality, and there
    is a dramatic repricing of assets based on that.
        How do you think about that in terms of risk to our economy
    if we do not deal with it in a prudent way?
        Chairman Furman. Right. So----
        Representative Delaney. And do you have macro views as to
    how much climate change could hurt our economy?
        Chairman Furman. So we, the Administration has what is
    called ``the social cost of carbon.'' It is an estimate of how
    much each ton of carbon costs us economically. Our estimate is
    about $40 a ton that we use as an input into the rulemaking
    process.
        That estimate does not include the uncertainty in tail
    risks associated with climate change, and that is a lot of what
    Mark Carney was talking about in that speech you referred to.
    And that might even be a larger and more consequential cost
    than just this.
        And then at the other end, the sooner you deal with it, the
    cheaper and more efficient it is. If you waited 30 years, it
    would be quite costly to our economy to address.
        Representative Delaney. Great. Thank you, Chairman.
        Chairman Furman. Thank you.
        Vice Chairman Tiberi. Senator Lee is addressed--excuse me,
    is recognized for five minutes.
        Senator Lee. Thank you, Mr. Chairman.
        Thank you, Chairman Furman, for coming to testify today. I
    want to thank you also, once again, for coming to testify on
    occupational licensing just last month in the Judiciary
    Committee.
        I would like to speak with you about innovation and get
    your thoughts on a piece of your report that focused on the
    potential job market effects of robots.
        It seems that we might be nearing a really significant
    technological inflection point, one that could have profound
    implications for our economy. Boston Dynamics continues to
    release videos of robots with incredible mobility and
    coordination, while industrial applications involving machine
    learning and analytical algorithms that at some level simulate
    cognition continue to advance.
        Some observers have suggested that we may be on the edge of
    a new wave of innovation, and that this new wave of innovation
    might in some ways be similar to that which was spurred on by
    the invention of the internal combustion engine, for example,
    which of course effectively led to a really sharp and
    economically significant decline in the use of horses.
        First of all, as policymakers should we be thinking about
    automation as a discrete issue? Or is it better thought of as a
    piece of a larger challenge involving globalization, trade, and
    a number of other similar factors?
        I am referring in particular to the challenges facing lower
    skilled, lower income workers and their jobs.
        Chairman Furman. I think that is a great question, and it
    is something that I know I grapple with all the time. I think
    to some degree that is all one set of issues. But I think
    automation brings it to the fore in a very direct way.
        In theory, automation should not present any problem at
    all. We have had automation for thousands of years, and we
    always find more jobs for people. But in practice that can come
    at a cost, either in terms of inequality if you do not have the
    skills to benefit from it, or some people who get displaced do
    not find another job and you might call it transitional or
    temporary, but that could last for decades.
        Senator Lee. Right, right, which is part of why I raised
    the question here. This one could be different in some ways,
    and I was looking to try to stay ahead of the curve.
        Your report estimates a high likelihood that jobs today
    paying less than $20 per hour will eventually be automated.
    There does not seem to be a hard timetable for your projection,
    but is that accurate?
        Chairman Furman. That is accurate. And we were drawing on
    research that was done at Oxford in that regard. McKinsey has
    also done their own research that reaches similar conclusions
    to what is presented there.
        Senator Lee. The current Administration supports of course
    raising the minimum wage. And obviously every policy has
    tradeoffs. That is what we try to hash out in these debates.
    And one of the things we discuss in this Committee are the
    economic implications of policies like that one.
        But if low-paying jobs are the ones that are most
    threatened, most potentially threatened by automation, doesn't
    raising the minimum wage just raise the cost of low-skilled
    work and incentivize employers to accelerate the process of
    automating these jobs, the very jobs that we are perhaps most
    concerned about?
        Chairman Furman. I mean the evidence that I have seen for
    moderate increases in the minimum wage phased in over time,
    similar to the types of proposals that have been put forward in
    Congress, has found that they don't have adverse effects on
    employment.
        But certainly if you were to raise the minimum wage to $30
    an hour, you know, I would expect you would have a tradeoff.
        Senator Lee. At some point you are going to get there, to a
    tradeoff, and perhaps when you factor in the effects of
    automation that tradeoff could end up being significant.
        Chairman Furman. I think it is important as part of an
    overall strategy to make sure our workers have more skills and
    more productivity.
        Senator Lee. Got it. And I want to be clear. I am not
    trying to get you to disavow the President's policies here. I
    know that is not something that is going to happen, certainly
    not in this forum and not in your current position, but what I
    am asking is:
        If our goal as a society is that an honest day's work
    should earn an honest day's wage, and machines are going to
    make it harder, and in some cases perhaps impossible for low-
    skilled, entry-level Americans to find an honest day's work,
    doesn't the basic design of our social safety net have to
    perhaps look a lot different than it does today?
        Chairman Furman. I think it certainly has implications for
    how we design our social safety net, and I think that is an
    important conversation to have. I would not throw out the
    lessons of the last 50 years, and we are certain of what has
    worked and what has not, I think minimum wage has worked. I
    think Earned Income Tax Credit has worked. But I think we
    should be thinking hard about these questions going forward, as
    well.
        Senator Lee. Okay. Thank you very much, Mr. Furman. Thank
    you, Mr. Chairman.
        Vice Chairman Tiberi. Thank you. Senator Klobuchar is
    recognized for five minutes.
        Senator Klobuchar. Thank you very much, Mr. Chairman, and
    thank you. I am sorry that Senator Coats and I have had a
    number of votes going on here.
        I appreciate the words about the improvement of the
    economy. I think we have all seen that. Our State is down to
    3.7 percent unemployment. But we also know there are
    challenges. You raised one, Mr. Chairman, about income
    inequality. We have challenges for workers that are retired and
    have issues with their pensions.
        In fact, right behind you there, who I am going to meet
    with later, is Sherman Liimatainen who is from northern
    Minnesota, spent his whole life. Started as a janitor, was then
    a Teamster and a union delegate. He is working on a pension
    issue because of a decision that is inordinately affecting a
    lot of states in the Midwest that we are trying to work on.
        But another issue up in northern Minnesota that I know that
    you are well aware of is the current employment situation with
    the iron ore mining affected by the over-production in many
    countries, combined with illegal steel dumping that we know is
    going on. And I have really appreciated the recent moves of the
    Administration to try to be more aggressive in the enforcement,
    including adding nearly 38 new Commerce Department employees to
    focus on trade enforcement from the budget money we got last
    year, as well as working on the enforcement actions, including
    some new tariffs today.
        Could you talk about that industry, and what is going on,
    and what you think the future is?
        Chairman Furman. Yes. Thank you. And this is an issue we do
    pay a lot of attention to, Senator.
        The backdrop for this is the substantial global over-
    capacity in steel. And that steel capacity is 70 percent
    outside of the OECD economies, much of it in economies that
    have made very heavy state investments in supporting their
    steel industries.
        This overcapacity has collided with a collapse in worldwide
    demand for a range of commodities and products, including
    steel, and the result has been a 35 percent decline in steel
    prices in 2015, which is having a significant impact on our
    industry and in your State, among others.
        We have, as you said, taken 149 antidumping and
    countervailing duty actions, 40 of them in 2015 alone. It is
    the highest rate of actions in at least 14 years. That has
    contributed to the fact that steel imports are down 13 months--
    13 percent over the last year. And we are going to continue to
    rigorously enforce our trade laws, including taking advantage
    of some of the new tools that Congress gave us with the Customs
    Enforcement bill that the President signed I believe last week.
        It is important to understand that it can't--that domestic
    trade enforcement is an important part of the answer, but
    international coordination is also critical. U.S. imports
    represent only 10 percent of global exports, and we need to be
    working together with other countries, both steel importing
    countries who are dealing with many of the same issues our
    economy is, as well as steel exporting countries like China to
    push on their overcapacity.
        Senator Klobuchar. Very good. Well as I said, the
    President's Chief of Staff came up to Minnesota. We have had
    thousands of layoffs, and it was really helpful to have him
    there.
        I am going to ask you more questions about this pension
    issue in writing. But could you just talk in general about the
    importance in a volatile economy where you have on the one hand
    the Millenials dealing with the Gig economy, and having trouble
    saving because they do not have that kind of structure in place
    that we once had.
        And then you have some seniors who have retired but things
    change with their pensions and it makes it very difficult for
    them.
        So could you talk about just this importance in general of
    retirement?
        Chairman Furman. Retirement security is very important. A
    lot of people are not prepared for retirement, and retirement
    security is enhanced when you are depending on multiple
    sources, Social Security of course being one, private savings
    being another, and pensions.
        Pensions include both defined contribution and defined
    benefit. Defined benefit have faced a number of challenges in
    our economy, especially in the multi-employer segment. And that
    is an important issue. And the Pension Benefit Guaranty
    Corporation plays an important role in helping to make sure
    that those pensions function as well as they can.
        Senator Klobuchar. Okay. And you know this issue with the
    Central States Pension Plan, which we can talk about more in
    the future, is affecting two-thirds of the nearly 400,000
    participants who are going to have their pensions reduced as
    high as 70 percent. And so it is a real, big concern in
    northern Minnesota, which is the same place where all the
    layoffs of iron ore miners are occurring especially.
        So, thank you.
        Chairman Furman. Okay. Thank you.
        Vice Chairman Tiberi. Congressman Grothman is recognized
    for five minutes.
        Representative Grothman. Thanks for calling on me, and
    Chairman Furman I am honored to have a chance to be on a
    committee that you are testifying before.
        One of the things I think we can all agree about is the
    labor participation rate now is a little bit disappointing. And
    when I get around my District, one of the big complaints
    employers have is they have a hard time finding employees.
        Okay? On the other hand, they also feel that their major
    competition for those employees is the government itself
    because of all the government benefits that you get if you
    don't work, or don't work as hard as you can.
        You mentioned that the unemployment rate has dropped during
    the Obama Administration, which it has, but at the same time
    the unemployment has dropped SNAP enrollment has gone up by 12
    million, okay?
        So it seems as though we are paying people either not to
    work at all, or not to work to their abilities. Could you
    comment on whether or not you feel all of the benefits out
    there that are available to you if you are making less money
    are contributing to the low labor participation rate, or
    contributing to people not achieving their full potential?
        Chairman Furman. Right. So thank you for your question.
        For men between the age of 25 and 54, their labor force
    participation rate has fallen nearly every year since the
    1950s. So this is a very long-standing phenomenon.
        For women since the late 1990s, this happened even though
    we changed our social assistance system to be much less
    something that you would get regardless of whether or not you
    were working to something that you pretty much in most cases
    really requires you to work to get. In fact, many elements of
    our social assistance system----
        Representative Grothman. I am okay to a certain extent you
    are talking about Earned Income Tax Credit there, which
    requires you to work a little, but as soon as you work more
    than a little they begin to take it away. But go ahead.
        Chairman Furman. I was going to say the evidence on the
    Earned Income Tax Credit is that it does increase labor force
    participation because people deciding whether to work or not
    work, it's a several thousand dollar difference, and then you
    are right, there is a phase-in range, and a phase-out range,
    and those could have effects as well. But those appear to be
    dominated by the large amount of money that you get as an
    additional bonus for working.
        Representative Grothman. I am going to disagree with you,
    but I am going to mention another problem we have.
        Economists have found there is a positive correlation
    between stable two-parent households and better outcomes for
    families. Now it is not very difficult to come up with
    hypotheticals in which people are losing over $30,000--a single
    parent could lose over $30,000 a year by getting married.
        Do you view--and I am hearing exact examples of that in my
    District. You know, parents saying my son can't get married and
    lose the benefits. That sort of thing.
        Can you think of anything to do in the remaining time in
    this Administration, or any plans for the future that you could
    suggest for future administrations to do something about this
    huge marriage penalty we have right now?
        Chairman Furman. Thanks for your question. President Bush
    passed some meaningful marriage penalty relief for many middle
    class families which President Obama signed into law on a
    permanent basis.
        There is a substantial marriage penalty in the Earned
    Income Tax Credit that was reduced in 2009, that we just made
    permanent on a bipartisan basis this past December.
        And then one of the proposals in the President's budget
    which I alluded to in response to a question from Ranking
    Member Maloney gets at the fact that secondary earners often
    face higher tax rates in the United States than in many other
    countries, and it can discourage them from working.
        And so we have a tax benefit for secondary earners that we
    have proposed.
        Representative Grothman. Would you agree, though, that we
    still have over a $30,000 penalty say for a single parent
    making, with a couple of kids, making $10,000 to $15,000 a
    year, if they do marry somebody making $40,000 or $50,000 a
    year? Would you agree with those figures?
        Chairman Furman. I think for most middle class families we
    do not have a marriage penalty in the tax code anymore because
    of the steps taken----
        Representative Grothman. I am not talking the tax code. I
    am taking all the benefits, the Earned Income Tax, the SNAP
    program, the----
        Chairman Furman. That is higher than I would have put the
    number at, and in part because we have taken a number of steps.
    But there is certainly more we can do.
        Representative Grothman. Yes, I will have to get you those
    figures. I will give you one more question. Before you talked
    about the fact that you felt we cut spending too much in,
    whatever, 2011, 2010, and it would have been better not to.
    Okay, so I take it you are a Keynesian economist, you kind of
    believe that deficit spending improves the economy.
        In the budget that President Obama has recently submitted
    to Congress, you also have a larger deficit. It always kind of
    makes me wonder about you folks--and I love all people--but if
    the time to run a deficit is when the economy is weak as it was
    in 2010-2011, and now that we have had such a long period of
    time of lower employment, though our incomes are not where we
    want, and you are still running a large deficit, is there ever
    a time that economists such as yourself would suggest running a
    surplus?
        Chairman Furman. The goal that we have in mind is having
    the debt on a declining path relative to the size of the
    economy, so that you are shrinking it relative to the economy.
    That is not something that under current law we would achieve.
    It is something that additional steps, including greater
    spending reduction and reducing tax benefits, especially for
    high income households, would help us achieve.
        Vice Chairman Tiberi. The gentleman's time has expired.
        Senator Casey is recognized for five minutes.
        Senator Casey. Thanks very much.
        Mr. Chairman, thank you for being here, and we have a day
    when folks were voting. In the Senate we are voting. So I will
    probably have just one question, but I think it is a critically
    important topic.
        We could spend hours on this one topic, and I am glad that
    you have in your work and in the report and the work of the
    Administration, focused on what we sometimes call early care
    and learning. Early care meaning quality, affordable child
    care; and learning, of course, pre-kindergarten education.
        But I noted--and I think they are both essential. And I see
    there is a relationship between the two. I noted on page 4 of
    your testimony you said, and I quote, that one of the chapters
    focuses on, quote, ``disparities in opportunity that appear at
    an early age in the long run benefits of investments in the
    education, health, and well being of children.'' Then you go on
    to talk about the gaps in the early health and cognitive skills
    of children.
        And then you conclude by saying, quote, ``Research
    demonstrates that direct investments in children can help close
    gaps in these important outcomes and can have lasting positive
    effects.'' Unquote. Then you have a chart there about cognitive
    skills, kindergarten versus fifth grade.
        I have been working on these issues for years. And I think
    the connection between learning and earning is not only
    demonstrated but is something we should bear in mind: that if
    kids learn more now, meaning when they are in those early
    years, they will literally earn more later. And, frankly, we
    are all better off with that investment.
        So I guess I wanted to ask you, number one, can you walk
    through some of the benefits that you see, maybe purely from an
    economic or workforce perspective, on making those investments
    in children in the dawn of their life?
        Chairman Furman. Yes. Thank you so much for that question
    and bringing up that issue, because I think that is a really
    important chapter of the report and a really important example
    of how we can both promote productivity growth which we have
    been talking about in this hearing, and make sure that that
    productivity growth is shared more widely.
        When you do an economic analysis of these types of early
    care programs and early education programs you find that it has
    two sets of benefits. One is actually an immediate benefit
    because it enables the parents, more often than not the mother,
    to work more if she chooses to do so. And it facilitates
    greater income for that family which itself is important for a
    learning environment for that child.
        And then the second set of benefits, the ones you have
    talked about, are a robust connection between education as
    young as 3, 4, 5, and how much you earn in that 25, 30, 35
    years of age. And when you look at for example just the extra
    tax revenue collected on those future earnings, that is enough
    to repay a substantial portion if not all of the initial cost
    of these programs.
        I am not suggesting that we take that into account in the
    budgetary treatment of them, but in evaluating whether or not
    it is a good idea to undertake those programs that is certainly
    relevant.
        Senator Casey. Yes. I know there are a number of studies
    that show the return on investment, which is really
    extraordinary. Sometimes it is you spend a buck on high-quality
    early learning and you get back multiples of that, sometimes
    into the teens.
        Chairman Furman. Yes.
        Senator Casey. So it is significant. I will, in the
    interests of time because I have to run to vote, I will yield
    back one minute and seven seconds.
        Vice Chairman Tiberi. Thank you. We appreciate it. Mr.
    Hanna is recognized for five minutes.
        Representative Hanna. Thank you very much. Thank you, Mr.
    Chairman. I want to say that I could not agree more with
    Senator Casey. The Arne Duncan Strong Start For Children Act,
    our past Secretary, I supported that and am pleased to be the
    lead of that in the House. And every possible matrix suggests
    that universal pre-K, or as near as we can get to it, is one of
    the best investments a society can make.
        But on another matter, you talked about corporate
    inversions, and our high corporate tax rate vis-a-vis other
    countries, and mentioned that you believe it is an issue. How
    would you correct it? Because the issue has been demagogued I
    think by both sides in ways that are not helpful.
        You know, certainly I have my opinion about it, but what
    would you like to see happen, Doctor?
        Chairman Furman. Sure. I think there is a good way to
    address it, and there is an even better way to address it. The
    good way to address it would be to take a simple step of
    banning the practice of merging with a smaller foreign company
    and changing your tax domicile overseas, and thus claiming the
    set of benefits associated with being an overseas corporation.
    That is a step we could take today and it would reduce
    inversions.
        The even better way to deal with it would be to do that at
    the same time that we make it more attractive to invest in the
    United States by reforming our business tax system, lowering
    the tax base----
        Representative Hanna. Ultimately, though, one is not
    effective if you do not do the other.
        Chairman Furman. I think we could do--I think it would be--
    the inversions are happening so quickly that I do not think we
    can afford to wait. And if it is going to take a long time to
    reform the tax code as a whole, then I would just deal with the
    inversions issue by itself. I think that would be the
    economically prudent thing to do.
        The even better thing would be to reform the business tax
    system as a whole to make it more attractive to be here at the
    same time you're making it harder to invert.
        Representative Hanna. Ultimately, I mean we are talking
    about larger businesses being co-opted by smaller ones.
        Chairman Furman. Exactly.
        Representative Hanna. But you also cannot stop the reverse.
    And the idea of building an environment that makes it
    fundamentally attractive to be here, which Chairman Brady
    supports I think, is really what we should be considering. And
    the fact that we have the highest corporate tax rates are among
    them.
        And the world is a fundamental problem when you look at
    companies like Pfizer and Johnson Controls, and others, and
    Apple, and the conversation that ensues.
        I want to ask you, though, about something that I am
    disappointed that I am afraid that we are not going to be
    addressing this year. And that is the Trans-Pacific
    Partnership. And I would like to give you an opportunity to
    talk about it in any way you would like, without rendering an
    opinion if you do not want to, but the idea that we are not
    taking up this conversation is deeply disturbing to me,
    regardless of where it goes.
        Chairman Furman. Thanks for that.
        As I said in my opening statement, one of the challenges
    facing the U.S. economy is that it is hard to export--increase
    your exports to a world where growth in the rest of the world
    is slower. In that environment, one of the steps we could take
    that could help make it easier for us would be to reduce or
    eliminate 18,000 taxes that our exporters face when they try to
    export to abroad. The tariffs that these 11 other countries in
    the TPP have.
        One study found not just that there would be substantial
    benefits from doing TPP, it also found that if you wait a year
    to do it you lose $94 billion. You would lose more than $600 or
    $700 per household in our economy.
        So I think it is not just important to do, it is important
    to do it as expeditiously as possible.
        Representative Hanna. So you have heard the conversation on
    the street that unions are deeply against it, yet I find that
    most people are very much uninformed or misinformed. What do
    you say to those people, Doctor?
        Chairman Furman. I say the United States is already a very
    open economy. It is very easy for other countries to sell here.
    What we are trying to do is break down the barriers that our
    companies face to countries around the world.
        We also have very high standards in our country--labor,
    environment. This would ensure that other countries are raising
    their standards and put us in a better position to compete on a
    level playing field.
        Representative Hanna. So that the net is a big benefit.
        Chairman Furman. The net is a big benefit for workers, a
    big benefit for productivity, a big benefit for our economy
    overall.
        Representative Hanna. How can we get that message out? I
    mean, it just does not seem to be getting any traction?
        Chairman Furman. It is certainly something we have been
    trying to communicate and really make it tangible, that these
    are about cutting taxes on American exporters, and American
    exporters support higher-paid jobs.
        Representative Hanna. Thank you, Doctor, my time has
    expired.
        Chairman Coats [presiding]. Doctor, thank you. It is my
    understanding that Congressman Beyer has some questions, and
    feel free to take whatever time you need, and you're on.
        Representative Beyer. Thank you, Mr. Chairman, very much.
        Just two questions. Chairman Furman, on this Committee we
    have often focused on the lost economic gap between a perceived
    or a titular 4 percent growth rate versus the 1, 2, 2.5 that we
    have. And we look back over the last most of our lifetimes when
    we have higher rates of growth.
        But I keep reading in various newspapers and magazines that
    absent some dramatic new disruptive technology, the
    agricultural revolution, the manufacturing revolution, the IT
    revolution, that we are destined to long-term growth rates of
    between 1 and 2 percent.
        Your perspective?
        Chairman Furman. Growth rates are a function of two things.
    One, how much is labor growing? And the second is how much is
    productivity growing?
        Labor is growing more slowly now than in the past, for
    demographic reasons. If you look during the 1980s, for example,
    and you look at the growth of the population between age 25 to
    54--this is the group of people most likely to be working--that
    was 2.3 percent annually.
        Now the growth of the population in that age bracket is
    negative zero point one percent annually. This is a pure
    demographic fact. I am not talking about who is working or not
    working. It is just who is alive in that age range.
        And so the Baby Boom really helped propel our growth
    forward. That is turning into a retirement boom. And for that
    reason, the labor component of growth is lower today and is
    going to be lower in the future.
        The second component of growth is productivity. And there
    is a big debate that you alluded to in the economics profession
    about what the outlook for productivity growth is. I think, you
    know, no one really knows. And it depends on what inventions
    people have in the future. And if I knew what inventions people
    would have in the future, I would go out and invent them myself
    and probably not be before your Committee today.
        [Laughter.]
        I think there are a lot of reason to think we have a lot of
    potential. There is a lot of exciting technological
    developments in our economy, a lot of questions about how to
    apply them and make sure we are using them as well as possible.
    But I certainly would feel better if we were investing more in
    research, infrastructure, trade, business tax, all the
    different steps that we should be taking--lower deficit, all
    the different steps.
        Representative Beyer. Thank you. One more question. China
    has lost about $800 billion in currency reserves over the last
    12 months. What are your views on the drivers of this capital
    outflow? Do you expect them to continue? And how about China's
    reserve adequacy? And, really, what is its impact on our
    economy?
        Chairman Furman. That is certainly a really important
    question. And China has suffered from not always communicating
    its policies as clearly and as transparently as we would like
    to see them do, and as the market would like to see them do.
        And one consequence, when you do not have transparent
    market-oriented policies that are communicated clearly, is that
    you can see various abrupt changes in financial markets.
        So I think that is part of what is going on with China.
    China still has very substantial reserves. They have I think
    more than enough wherewithal to deal with the economic
    challenges that they face. The question is: Are they going to
    make sure that they are doing the right reforms, the right
    transparent policies, communicating them in the right way such
    that they are taking advantage of those resources to address
    the challenges they have.
        Representative Beyer. Thank you, Mr. Chairman. Mr.
    Chairman, I yield back.
        Chairman Coats. Thank you.
        Congressman Grothman.
        Representative Grothman. Yeah, I am kind of going a little
    different from the way Congressman Hanna went here. I know
    there are countries around the world that want to get the kids
    as soon as possible in the loving arms of school and away from
    their parents. In your report you emphasize that Head Start is
    a good way to improve economic success in children.
        Your own HHS has found that Head Start has little or no
    impact in the long run across 22 different measures, and that
    actually 3-year-olds who attended Head Start were doing worse
    in math than their peers.
        Now I know awhile before that the Brookings Institution,
    which were you affiliated with.
        Chairman Furman. At one time, yes.
        Representative Grothman. Themselves came out with the idea
    that Head Start really was not up to snuff.
        Given that these studies that show that, you know, Head
    Start is not that great, that it is better to leave the kids
    with their parents--and Head Start of course it seems that they
    are the poorer kids, not kids across the board--why do you keep
    pushing this daycare stuff to get the kids away from their
    parents?
        Chairman Furman. In the report we review several dozen
    studies conducted over a few decades. Any given study is going
    to have a different finding. We show that in broad terms they
    consistently find positive results.
        A number of these studies were authored by Nobel Prize
    winning economist Jim Heckman from the University of Chicago,
    who happens to be a Republican as well--which is not relevant
    for evaluating his research--but I think this is a widely
    accepted finding in the economics profession.
        Certainly high quality is important. You do not want to
    just do--you want to pay attention to the quality of what you
    are doing, not just anything.
        Representative Grothman. You are familiar with the
    Brookings deal, too, right?
        Chairman Furman. Yes.
        Representative Grothman. Alright, so there are studies out
    there, HHS Brookings that it does not work out that well.
        I will give you one more question. I am alarmed about the
    growing income gap in this country. And one of the things that
    I think contributed to it was the quantitative easing by the
    Federal Reserve, which as far as I can see is pushing money
    towards the, almost the most obscenely wealthy Americans, and
    kind of feeling that you are going to grow the economy that
    way.
        I realize you do not have direct control over the Fed, but
    could you comment? Do you think it was a mistake in trying to
    juice the economy for the Fed in essence to financially benefit
    some of the wealthiest, or I guess wealthiest Americans?
        I guess their idea was they thought it would trickle down,
    but do you think that was a mistake? Or is there a moral
    problem with that? Wouldn't you have thought it would have been
    better off if we had kind of debased the currency to at least
    give money more to the working stiff?
        Chairman Furman. I do not comment on policy actions of the
    Federal Reserve. We think it is better for them to undertake
    those independently. But Congress granted the Federal Reserve a
    dual mandate in terms of employment and inflation, and I think
    any steps they take consistent with that mandate are ones that
    I would agree are in the best interests of our country.
        Representative Grothman. So you agree with--am I wrong in
    thinking that quantitative easing, insofar as it gives an
    immediate benefit to somebody, gives an immediate benefit to
    the big Wall Street banks?
        Chairman Furman. There is a large economic literature on
    the sources of inequality, and I do not think any major
    economic research thinks that monetary policy one way or the
    other is an important part of the explanation for changes in
    inequality.
        Representative Grothman. Okay. Thank you for the additional
    time, Mr. Chairman.
        Chairman Coats. Congressman Tiberi.
        Vice Chairman Tiberi. Thank you, Chairman.
        Thank you, Chairman Furman, for being here today and your
    sincerity on this difficult topic. I want to associate myself,
    just to keep in the back of your mind, with what Senator Lee
    said. I look at my own experience. I worked at McDonalds my
    first job, and I was really excited about six months in when I
    got a minimum wage increase. I got an increase in my pay, which
    was not very much, but the impact, good for me, was not so good
    on the two guys that got hired after me because they lost their
    jobs.
        And I think that was what Senator Lee was talking about.
    But let me give you a better example of what I was thinking
    about when he was talking.
        My next job in high school was pumping gas at a gas
    station. I am dating myself here. You cannot get anyone to pump
    gas anymore at a gas station. You do it yourself. And I
    remember the owner, a small businessman, telling us, most of us
    in high school and college, that the biggest cost driver of his
    business was us. And so we better perform.
        And I did not have any skills in high school, but I learned
    how to pump gas. Well today that job is gone. In many service
    areas we find in our economy employers trying to figure out
    ways to reduce cost. And one of the few areas through
    technology that they can reduce cost impacts those high school
    kids that do not have those skills that they have yet to learn.
        And we have in our State of Ohio, which is reflected really
    in many other states, more and more individuals with a lack of
    skills not being able to find those service jobs that once were
    plentiful when I was a kid.
        In urban areas, it is even more tragic, where unemployment
    among Blacks and Hispanics are double-digits. So it is not a
    question, just to put in the back of your mind, I worry as we
    have meaningful, well intended, regulations from the Federal
    Government that sometimes they have just the opposite effect,
    which I think was Senator Lee's point, of trying to allow for
    those who have the skill set maybe that I had when I was 16 and
    had not yet developed, are being left behind. So, just a
    thought. And thanks for your sincerity again.
        Chairman Furman. Okay. Thank you.
        Chairman Coats. Well, Congressman, if you think you are
    dating yourself on your first job, wait until I tell you what
    my first job was.
        [Laughter.]
        I see Senator Peters has arrived. Senator, just in the nick
    of time. You are on.
        Senator Peters. Well thank you, Mr. Chairman.
        Chairman Coats. You have not come to a committee meeting in
    a long time where you walk in, sit down, and the chairman says
    you're on.
        Senator Peters. I need to do this more often. This is
    great. So thank you for that.
        And, Chairman Furman, thank you so much for being here as
    well to talk about how issues related to the economy and the
    future. I have a question regarding some of the long-term
    structural changes that seem to be occurring in our economy
    that I think are going to pose some potentially very
    significant challenges for us in the decades ahead.
        I enjoyed reading The Economic Report of The President,
    which I am sure most people enjoyed reading and spending some
    time with it, but some very interesting discussion about
    growing income inequality, and job dislocations, job creation
    dynamism, et cetera.
        But one issue that is addressed in here, and I think you
    have done some studies related to it as well, deals with the
    pace of technological change and the impact that that is having
    on the job market. And I think I heard some of that as I walked
    in here today.
        It has always been that folks have always feared that
    technology would disrupt jobs, jobs would be destroyed, and we
    would have a much higher unemployment as a result of that. But
    it has never materialized, as jobs have--or as technology has
    destroyed jobs, which it has, it has always created even more
    jobs. They tend to be better jobs. They tend to be higher
    paying jobs. And a lot of the routine jobs have been displaced
    by ones that require higher education and skill training.
        But it seems as if there are a lot of folks who think that
    we may be getting to an inflection point where the technology
    is advancing to the point to where even those high-knowledge
    jobs, creative jobs, also can be done with the technology; that
    you will have jobs physicians, for example, when you look at
    Watson and the medical breakthroughs that are being done with
    Watson that can diagnose disease perhaps better than most
    physicians can do it.
        We know that for radiologists, there are machines that can
    do the job probably better than a lot of radiologists can. That
    we may be getting to the point, especially with artificial
    intelligence, that can radically transform the job market.
        In fact I know there was a recent study that I was looking
    at that thought that in the matter of the next decade or two 50
    percent of the job classifications in this country could
    probably be done better with some sort of technology than a
    human can do it, which is disturbing but it is a challenge.
        What are your thoughts on that? And if that is indeed
    something we need to be concerned about, what sort of policies
    should we be thinking about right now?
        Chairman Furman. So thank you for that. And I think this
    bears a lot of thought, and I do not think it is a particularly
    partisan issue. I do not think we have all the answers. I think
    it is something we all should be grappling with together.
        To a first approximation, I think one hypothesis you stated
    is right. For thousands of years we have invented new machines.
    They have replaced things people used to do. Most of what
    people did in the 19th Century they are not doing today, and we
    are much better off as a country for it.
        The problem is when that happens really abruptly, and when
    you are not prepared for it the consequence of that can be one
    of two things.
        One is inequality. And the 50 percent figure, if you break
    it down by income, it is higher than that if your income is
    lower, and it is lower--well lower than 50 percent if your
    income is higher. And if you see a lot of lower wage jobs
    replaced, that is reducing the demand for those types of
    workers. That lowers their wages. That raises inequality. So
    one bad side effect is inequality.
        The second is I certainly believe that over time if you
    lose a job you will be able to find another job, and hopefully
    a better job. But if a lot of people lose a job at once,
    though, that process can be long and painful. And we don't
    always make it as easy as we should.
        What we should be doing in this regard is making sure
    people have more skills to take advantage of so that they are
    complementing the innovations and benefitting more from them.
    Making sure we have a labor market that is better at moving
    people from job to job.
        The President had proposed a wage insurance program that
    would help get people back on their feet by insuring them
    against some of the wage losses associated with a job, as they
    move into a new job. And there is probably a lot more than that
    that we need to do, as well, that we need to keep thinking
    about.
        Senator Peters. Well, and that is I guess the challenge
    with the training, as well as technology, particularly with
    artificial intelligence and what the promise of that is. With
    that promise there are some significant challenges, but it may
    be difficult to train folks as well in that area.
        Now these are not things that I am worrying about happening
    in the next or five years, or perhaps 10, but at least from
    some of my reading it is something we should be very concerned
    about looking out beyond that.
        For example, I have done a lot of work with autonomous
    vehicles, and I think you have talked about autonomous
    vehicles, something we are passionate about in Detroit, which
    will have incredible applications and, most importantly, will
    save tens of thousands of lives with the types of technology
    that will make cars safer, eventually leading to autonomous
    vehicles.
        But autonomous vehicles can also have great promise for the
    economy. Would you talk a little bit about what you see
    happening with autonomous vehicles in transforming the economy
    and some of the investments that may be necessary from the
    Federal Government to make that happen?
        Chairman Furman. Yes. I think that is an important
    question. And, you know, autonomous vehicles, everyone is
    interested in them in the world right now. U.S. car makers are
    making significant investments. German car makers are. Japanese
    car makers are. Israeli technology, and the like. And I think
    that is one reason why it is really important to make sure that
    a lot of it is happening here.
        Some of that is a set of state regulations that allow
    experimentational out-testing. You know, we already let cars
    with drivers on the road. That is already quite dangerous. It
    is often safer to let these cars on the road, and to make sure
    you are not letting your fears get in the way of being able to
    undertake that type of experimentation.
        Basic research that we fund here in Washington is an
    important complement to the more applied research that is
    undertaken by the companies that are doing that. Investments in
    an infrastructure that supports both autonomous vehicles as
    well as, for example, electric cars and other types. There can
    often be a chicken-and-egg problem of if the infrastructure is
    not there they will not be there. If they are not there, the
    infrastructure will not be there.
        Well, the government can play a role with public policy in
    overcoming those types of chicken-and-egg, or network
    externality obstacles to the adoption of a technology. So I
    think there are a number of different steps that we are
    thinking about and we need to keep thinking about.
        Senator Peters. Great. Thank you so much. Appreciate it.
        Chairman Coats. Chairman, thank you so much. I want to just
    follow up with one last thing while I have you here. If you
    could take yourself out of your current job, and let's say
    you're back at Brookings, or teaching at Harvard, or whatever,
    and I came to you and I said: You know, we talked about this
    runaway mandatory spending. A lot of it related to the aging of
    the population, the bulge that existed in the Baby Boom
    generation. We have done a number of things to address that. We
    have had sequestration. We have had the tax, the revenue
    increase that raised income taxes on the highest category.
        We have, you know, economic growth will help us address
    that problem, but we still have the impact of this bulge of
    Baby Boom generation, and it is going to be with us for several
    years, and particularly effecting Social Security and Medicare,
    you know the numbers and so forth. If we were able to summon
    the will to bring together a bipartisan, bicameral Executive
    Branch working together [microphone interference]--I do not
    know why this is doing this, maybe my time is up----
        [Laughter.]
        But what would you recommend in terms of what we do now? Or
    what a next Administration, a next Congress should be thinking
    about in terms of addressing the challenge of the long-term
    problem that we have here, and doing it in a way to preserve
    the programs to assure the American people that the retirement
    benefits are going to be available to them. They are not at
    risk. Their health care entitlements are going to be available
    to them so they do not have that concern. What would you
    recommend, if that will was there and they said we want to go
    forward? What kind of formula do we have to put in place,
    particularly given what we have already done, but now what we
    clearly know that we need to do, and do it in a way that is not
    disruptive to the economy or the retirement capabilities and
    necessities of that generation?
        Chairman Furman. So thank you for that. I think if it was a
    year from now and I was not in the government, I would tell you
    look back at President Obama's last budget. It had lots of
    great ideas.
        One of them is Medicare Advantage, having competitive
    bidding that would set the reimbursement rates, rather than
    setting them the way we do now, which often results in rates
    that are too high.
        On drugs, using the same way to purchase drugs for people
    who are dually eligible for Medicare and Medicaid, as we do for
    people in Medicaid.
        Reforming the benefit structure in Medicare so that in
    appropriate ways there is more cost sharing in areas like Part
    B Home Health. Reduce the ability of Medigap to blunt some of
    that cost saving and have more income-related premiums.
        Those are some of the types of steps we could take in
    Medicare.
        What I would say is in health I would think, though,
    broader than just Medicare. I would think of the health system
    as a whole, both private and public. And the so-called Cadillac
    tax, or the tax on high-cost employer-sponsored insurance is I
    think one of the most important steps that we have to slow the
    growth of private health care. And it also results in
    additional revenue, and it is based on the idea that has been
    supported by--widely supported by both Democratic and
    Republican economists.
        I would say, more broadly, that you want to think of
    elements of the tax code. If you look at tax benefits, tax
    preferences, those are technically termed ``tax expenditures.''
    And my predecessors like Marty Feldstein, Greg Mankiw, and
    Glenn Hubbard who served under President Reagan and President
    Bush, have all said that we should be looking at those because
    they are also on autopilot. They are also not an efficient way
    of accomplishing the goals, and not a particularly fair way,
    either.
        So I would bring that into it, and curb some of those tax
    expenditures for high-income households like the incentives we
    have for health, housing, and pensions.
        Chairman Coats. Well thanks for that. I hope we can get to
    that point without getting there by crisis. I was around in
    1983 when Social Security was about ready to go belly-up.
    President Reagan reached out to then Speaker of the House, Tip
    O'Neill. They took it out of politics. They secured about 30
    years, 30, 35 years of solvency for Social Security. So it has
    been done. It can be done. But the question is, do you have to
    have the pistol at the temple of the politician in order to get
    it done? And oftentimes mistakes can be made when you are doing
    this in crisis form rather than just laying it out and doing it
    in a logical way, which does not end up making mistakes and
    putting people at risk.
        So I think that is--I appreciate your giving us that
    template. Hopefully we can reach that point without getting to
    a crisis. I really appreciate you coming and being with us
    today, and your continuing availability to the Congress.
    Working together is the only way we are going to solve this,
    and you make it easy for us to do. We appreciate you being
    here.
        And with that--well, let me just do a couple of
    housekeeping things here. We are going to keep the record open
    for five business days so that Members can submit anything else
    that they want to submit. And that would be for you, also, if
    you so desire.
        And with that, the hearing, with thanks again to you, is
    adjourned.
        (Whereupon, at 4:04 p.m., Wednesday, March 2, 2016, the
    hearing was adjourned.)

                           SUBMISSIONS FOR THE RECORD

       Prepared Statement of Hon. Daniel Coats, Chairman, Joint Economic
                                   Committee
        Chairman Furman, welcome. Vice Chairman Tiberi, Ranking Member
    Maloney, and I appreciate your willingness to once more continue the
    longstanding tradition of the Chairman of the Council of Economic
    Advisers testifying before the Joint Economic Committee.
        This year marks the 70th anniversary of both the Council of
    Economic Advisers and the Joint Economic Committee, both of which were
    created to advise our respective branches of government on a wide range
    of matters affecting the economy. We appreciate this annual opportunity
    to engage in dialogue with you and look forward to discussing this
    year's Economic Report of the President.
        Much has been learned over the course of this slow-growth recovery,
    and these lessons will only continue for the foreseeable future. The
    current recovery has seen far slower growth than previous recoveries,
    and subdued expectations about economic, population, and labor force
    growth have placed additional pressures on federal budget constraints.
        However, I don't accept the often mentioned assertion that we have
    entered a ``new normal'' of slower economic growth. Policy reforms
    seeking to create a better tax system, rein in spending, and loosen the
    regulatory shackles restricting our economy can alter this trajectory
    by removing some of the structural barriers American workers and
    businesses face today.
        In my opinion, a lot of the problems we'd like to solve require us,
    as policymakers, to look in the mirror and see how current Federal
    Government policies are affecting the economy.
        In his final State of the Union address this year, President Obama
    stated that he wanted ``to focus on the next five years, the next 10
    years, and beyond.'' However, he omitted one of the most important
    issues that America faces in the coming years: the financial
    obligations that will come due over those time frames, and particularly
    in the ``beyond.''
        Debt was not mentioned once in his address, and how to achieve
    fiscal sustainability was not among the four questions the President
    argued that ``we as a country have to answer.'' I found this to be a
    glaring omission, given how our national debt has risen so sharply over
    the past seven years, from 10.6 trillion dollars when President Obama
    took office to now over 19 trillion dollars.
        This accumulation of such staggering levels of debt is nothing
    short of reckless, and the situation will only get worse the longer we
    wait to address it. According to a recently released report by the non-
    partisan Congressional Budget Office, in just 10 years, spending on
    mandatory spending programs and interest on the debt will consume
    nearly 99 percent of all federal revenues. Clearly this path is
    unsustainable.
        If we do not work to correct this disturbing trajectory, our
    ability to pay for essential government functions will be severely
    constrained, our economy will suffer, and our national security will be
    at risk.
        The CEA's Report we will discuss today devotes significant
    attention to inequality as a defining challenge of the 21st century.
    However, I think it's important to recognize that intergenerational
    theft is also a form of inequality--a particularly severe one that our
    kids and grandkids are poised to inherit.
        Their ability to succeed in our future economy will depend largely
    on the decisions we make today. For the American Dream to remain
    attainable for future generations, we must accept the reality of our
    fiscal situation and act responsibly by addressing it immediately.
        I look forward to discussing these issues in more depth with
    Chairman Furman.
                                   __________
       Prepared Statement of Carolyn B. Maloney, Ranking Democrat, Joint
                               Economic Committee
        Thank you, Mr. Chairman, for calling today's hearing.
        Dr. Furman, thank you for appearing before the Committee today to
    answer questions about the current state of the U.S. economy.
        I share the overall assessment of the Economic Report of the
    President, that under the leadership of President Obama the nation's
    economy is back on track after what was the worst recession in our
    history.
        We have just completed the best two years of private-sector job
    growth since the 1990s. We have recorded the fastest two-year drop in
    the annual average unemployment rate in 30 years.
        The unemployment rate has been cut in half. We're in the midst of
    the longest streak of private sector job creation in history, with a
    record 71 straight months of growth and the creation of 14 million
    jobs.
        There are some who disparage these achievements, claiming that the
    Obama recovery pales in comparison to ``average'' recoveries--as if the
    economic meltdown during the last years of the Bush Administration was
    an ``average'' recession.
        Is there anyone who is willing to say openly to the 8.7 million
    Americans who lost their jobs that the Great Recession was an
    ``average'' event?
        Is there anyone willing to tell the 9 million Americans who lost
    their homes that this was a run-of-the-mill recession?
        Some prefer that we forget the past. I say we should learn from it.
        When George Bush left the oval office, the economy was in a death
    spiral.

          In the final quarter of 2008, GDP shrunk at a staggering
    8.2 percent annual rate, the worst quarterly economic performance in
    more than 50 years.
          Housing prices were collapsing. They fell by 20 percent
    nationally between 2007 and 2011. Some parts of the country saw
    declines twice that large.
          U.S households lost nearly $13 trillion during the last
    seven quarters of the Bush presidency.

        Dr. Furman, when I asked you last year at this time whether this
    recession was like a ``common cold.'' You said--rightly--that it was
    more like an economic heart attack. You said the loss in wealth as a
    share of the economy that precipitated the recent recession was about
    five times as large as the loss that triggered the Great Depression.
        Thanks to the bold action of President Obama, Democrats in Congress
    and the Federal Reserve, we have steadily climbed back from this
    recession.

          [As you can see in this chart,] U.S. GDP has grown in 24
    of the past 26 quarters. Real GDP has grown by 14.5 percent since the
    start of the Obama Administration.
          The auto industry--written off for dead by some--has
    added nearly 640,000 jobs since 2009. U.S. auto exports topped 2
    million units for the first time ever in 2014. Last year, they topped 2
    million again.
          Average housing prices have rebounded to around their
    2007 levels.
          And household wealth is more than $17 trillion higher
    than before the recession.

        This recovery has occurred despite efforts by many Republicans in
    Congress. First, they opposed stimulating the economy via the Recovery
    Act. They demanded budget cuts at exactly the time when economic theory
    says government should increase spending to boost demand.
        I hope that those who took action to slow the pace of the Obama
    recovery will stop complaining about it.
        The Report notes that the economy faces long-term structural
    challenges--first of all that the U.S. population is aging. That alone
    will decrease labor force participation and slow the growth of GDP. We
    also face the devastating effects of offshoring of American jobs and
    job losses due to automation and technological change.
        These challenges are not a surprise. They have been on economists'
    radar for years.
        So, what should we do? I agree with your assessment that we need to
    rebuild the nation's crumbling infrastructure, invest in early
    childhood education, implement paid leave, achieve equal pay for equal
    work and make college more affordable.
        I want to close by looking at economic inequality, one of the
    central issues of our time, and the focus of the first and fourth
    chapters of the Economic Report of the President.
        The U.S. experience has diverged from other advanced countries, as
    you note in your testimony, Dr. Furman. Since 1987, the share of income
    going to the top 1 percent in the United States has been greater than
    in every other G-7 country--every single year.
        We need to recommit ourselves to policies that expand opportunities
    and narrow inequality. These policies will pay dividends in the future
    and help us create an economy that is even more robust--an economy
    where the benefits of growth are shared across the income spectrum.
        As you note, giving all people a fair shot will strengthen our
    economy by boosting productivity and accelerating growth.
        Dr. Furman, thank you again for appearing before the Committee
    today. I am eager to hear your perspective on the economic challenges
    and opportunities ahead.

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