[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESS: THE KEY TO ECONOMIC GROWTH
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
APRIL 27, 2017
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-017
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________
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
DON BACON, Nebraska
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
VACANT
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Staff Director
Jan Oliver, Deputy Staff Director and Chief Counsel
Adam Minehardt, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Dave Brat................................................... 1
Hon. Dwight Evans................................................ 2
WITNESSES
Robert Barro, Ph.D., Paul M. Warburg Professor of Economics,
Harvard University, Cambridge, MA.............................. 4
Mr. Andrew Sherman, Partner, Seyfarth Shaw LLP, Washington, DC... 6
Mr. Stephen Moore, Distinguished Fellow, Project for Economic
Growth, Institute for Economic Freedom and Opportunity, The
Heritage Foundation, Washington, DC............................ 8
Chad Stone, Ph.D., Chief Economist, Center on Budget and Policy
Priorities, Washington, DC..................................... 11
APPENDIX
Prepared Statements:
Mr. Andrew Sherman, Partner, Seyfarth Shaw LLP, Washington,
DC......................................................... 24
Mr. Stephen Moore, Distinguished Fellow, Project for Economic
Growth, Institute for Economic Freedom and Opportunity, The
Heritage Foundation, Washington, DC........................ 32
Chad Stone, Ph.D., Chief Economist, Center on Budget and
Policy Priorities, Washington, DC.......................... 39
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
SMALL BUSINESS: THE KEY TO ECONOMIC GROWTH
----------
THURSDAY, APRIL 27, 2017
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth,
Tax, and Capital Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Dave Brat
[chairman of the Subcommittee] presiding.
Present: Representatives Brat, Knight, Kelly, Evans, and
Murphy.
Chairman BRAT. All right. Good morning, and welcome
everybody. And I will call this meeting to order. And we are
very excited for this panel on economic growth. I think it is
very important for our country right now.
No matter where you stand or what side of the aisle you are
on, I think everybody in this room hopes to help create and
sustain long-term economic growth. Achieving economic growth
can improve the health, wealth, well-being of every American
amongst every other variable under the sun. I think our panel
will probably get to that today. However, the best course to
achieve sustained economic growth is frequently debated here in
Washington. The United States has been stuck in a slow growth
period for a couple decades. While the growth in the United
States was about 3.5 percent from 1950 to 2000, the economy
grew at an anemic rate of 1.6 percent in 2016, and about 1.5
percent over the last 8 years.
However, when Commerce Secretary Wilbur Ross was asked this
week if the U.S. can return to 3 percent growth he responded,
``With all the initiatives that we are doing, regulatory
reform, trade reform, tax reform, and unleashing energy, there
is no reason why we should not be able to at least hit that
long-term average, if not beat it.''
This morning's distinguished panel will cite a variety of
reasons why the country has experienced slow growth, but one
overarching theme we will hear is that Washington can do more
to help America's businesses with the largest growth potential
small businesses. They represent 48 percent of the workers in
the private sector and make up an overwhelming amount of all
businesses. And yet, today's panel will examine that more can
be done to ensure their success.
With next week being National Small Business Week, today's
hearing is a timely opportunity to discuss the connection
between small businesses and economic growth. This Committee
and the Administration's prioritization of regulatory relief is
sure to greatly benefit small business in the coming years.
While small business owners painstakingly finished their
tax returns last week, simplifying and lowering tax burdens
would be a significant boost to both small businesses and
economic growth.
Access to capital is another issue that must be addressed
to ensure the success of small businesses. While Congress and
the Administration are committed to reviewing regulations that
inhibit access to capital, the Subcommittee is also concerned
that venture capital investment is largely concentrated in only
a few metropolitan areas.
As all of these suggestions point out, there is not a
simple fix to improve economic growth. There is no silver
bullet. However, through examining what creates economic growth
and promoting pro-growth policies, the Subcommittee hopes to
help the economy return to the historical average, and perhaps
beyond.
We look forward to hearing from our witnesses and thank
them very much for being with us today. We will certainly
benefit from their perspectives on how to improve economic
growth through fostering small businesses. And I now yield to
the ranking member for his opening statement.
Mr. EVANS. Good morning, and thank you, Mr. Chairman.
Ten years ago, our Nation was hit with the largest economic
disaster since 1929. During the fiscal crisis of 2007-2008, we
saw housing prices and unemployment skyrocket. By 2009,
unemployment had reached 10 percent nationally. Fortunately,
today, several years of steady and sustained growth have put
our economy on the right track. Unemployment has remained below
5 percent for well over a year. In fact, last November, the
employment rate dipped to 4.6 percent, the lowest it has been
since 2007.
We have seen considerable job growth. Over the course of
the Obama administration, America gained over 11 million new
jobs. His presidency saw 75 percent straight month job
creation, the largest continuous stretch of job growth in the
U.S. since 1939. Finally, median household income surged in
2015, rising by 5 percent for the first time since 2007. These
economic markers indicate that our Nation has made great
progress, yet we are still feeling the effects of the Great
Recession.
Access to capital remains a major challenge for small
businesses and business formation at an historic low. GDP,
growing at an average of just over 2 percent, and many
economists do not believe a significant increase is likely.
That is why it is so critical that we examine our current
economic situation and the policies that will boost economic
growth.
Unfortunately, as the Trump administration approaches its
100-day mark, policies that are likely to reverse these trends
are scant. The administration has offered proposals that rely
on failed economic theories that will help the wealthy at the
expense of the middle class. We have ill-responsibly slashed
regulations, proposed huge tax breaks for the wealthy, and
proposed major cuts to funding for education, health care, and
programs that small businesses rely upon, all while likely
raising the deficit.
In order to truly grow our economy, we need to invest in
our Nation's infrastructure, our human capital, and our small
businesses. Due to chronic underinvestment, America's
infrastructure is crumbling. The state of infrastructure has a
big impact on the economy's ability to function and grow.
Investing in infrastructure creates jobs. Increasing spending
by just 1 percent point of GDP would increase to 1.8 million
jobs with 1.3 million in the construction industry alone, one
of the industries that was worst hit by the financial crisis.
Small businesses have been called the ``backbone of the
American economy,'' and as we evaluate tax policies and the
effectiveness of regulations, we must ensure that small firms
have a seat at the table. By supporting small businesses and
entrepreneurs, we spur job creation and economic growth.
Finally, as we develop policies to spur economic growth, we
must ensure that all Americans can benefit from it. That means
ensuring economic opportunity for all individuals. Barriers to
economic opportunity can include a lack of access to quality
education, health care, employment, housing, and equal pay.
All of these issues directly impact our economy and small
businesses and they work for us. We must examine policies that
directly address these barriers to not only create a more equal
society, but a stronger one.
I look forward to today's hearing and thank the witnesses
for being here. I thank the chairman, and I yield back the
balance of the time. Thank you, Mr. Chairman.
Chairman BRAT. Thank you, Congressman. Thank you, Dwight.
If Committee members have an opening statement prepared, I
ask them be submitted for the record.
I would like to take a moment to explain the timing lights
for you. You will each have 5 minutes to deliver your
testimony. If you go over it is no big deal.
The light will start out as green. When you have 1 minute
remaining the light will turn. Finally, at the end of your 5
minutes it will turn red. Try to stay somewhere in that time
limit, but we do not have a full panel here and so I think we
are all going to take advantage of the expertise in front of us
today, and you are all on the cameras so do not make any
mistakes at all.
With that, I will start off with an introduction.
Start off by introducing someone very special to me, our
first witness is Dr. Robert Barro, the Paul M. Walberg
Professor of Economics at Harvard University. He is one of the
preeminent experts on macroeconomics and the determinants of
economic growth and has written extensively on both topics.
Over two decades ago, I did my Ph.D. up here at American
University on economic growth, and Dr. Barro was the leading
light in the Nation on growth. And so I read every paper. I
could not read fast enough to keep up with all the papers he
was writing at the time. But inspiring and leader at Harvard,
obviously, and for the country, and speaks for itself.
Other research interests for Dr. Barro include the impact
of rare disasters on asset markets and macroeconomic activity,
as well as the interplay between religion and the political
economy. He received his Ph.D. from Harvard University, his
bachelor's degree from California Institute of Technology.
Thank you very much for joining us here this morning, and you
are recognized for 5 minutes. And you may begin your testimony.
Thank you, Dr. Barro.
STATEMENTS OF ROBERT BARRO, PH.D., PAUL M. WARBURG PROFESSOR OF
ECONOMICS, HARVARD UNIVERSITY; ANDREW SHERMAN, PARTNER,
SEYFARTH SHAW LLP; STEPHEN MOORE, DISTINGUISHED FELLOW, PROJECT
FOR ECONOMIC GROWTH, INSTITUTE FOR ECONOMIC FREEDOM AND
OPPORTUNITY, THE HERITAGE FOUNDATION; CHAD STONE, CHIEF
ECONOMIST, CENTER ON BUDGET AND POLICY PRIORITIES
STATEMENT OF ROBERT BARRO
Mr. BARRO. Thanks very much for those kind words. I hope I
do not disappoint you given your Ph.D. thesis.
I wanted to make some general remarks about economic
growth, and I think sustained economic growth is certainly the
key to levels of standards of living in the United States and
in other countries. And so as some quick examples, in the
United States, the average growth of the real GDP per person
from 1869 to 2000 was about 2 percent per year, and that was
enough over that period of more than a century to increase the
level of per capita income by a factor of about 16. And
basically explains why today the GDP per person is more than
$50,000 in the United States. It is a little less clear whether
since 2000 this record of growth has been continued because it
appears to be more sluggish than it used to be.
A prominent example of the importance of growth is China,
which opened up considerably after the death of Mao in the mid-
1970s to market forces and to enterprise. They managed to grow
at a remarkable per capita rate of over 6 percent since the
early 1980s. This has moved several hundred people out of
poverty in China. I think it is probably the all-time greatest
experience with respect to improving human welfare.
India has moved since the mid-1980s and not quite the same,
but in some analogous ways and has done almost as well in terms
of growth since then and has similarly contributed to a vast
reduction in world poverty.
Another prominent example is the comparison between South
Korea and North Korea. The main difference since the end of the
Korean War in those two countries is the openness to markets,
to enterprise, to rule of law; also, democracy later on in
South Korea. And this experience explains why today the
difference in terms of levels of per capita income is a
remarkable 15 to 1 between the South and the North. By
comparison, at the end of the U.S. Civil War, the difference
between the North and the South was a factor of about 4 to 1,
and the difference in Germany between West and East Germany was
about 3 to 1. So the Korean situation is actually quite
unprecedented.
I have looked a lot at the determinants of economic growth
for a broad group of countries, so over 100 countries looked at
especially since 1960, and tried to assess what things matter
for economic growth. So things that seem to matter especially
are market orientation and the nature of regulations. Ease of
doing business is important, maintenance of rule of law. Human
capital is also important. Education and health, I think, are
central matters. International openness is an important factor,
so economics usually view that free trade is a plus for growth
I think is borne out by this kind of data. Saving behavior is
important. There is a list of forces that matter. As
Congressman Brat said, it is not just one silver bullet, but it
is an array of factors and policies that matter for economic
progress.
There is also a convergence process that shows up in these
cross-country data. One way to look at that is that poor places
can grow fast if they get the underlying conditions into the
right shape in terms of the nature of institutions, openness to
business, and so on, but that is a very difficult thing for
poor places to accomplish.
It is also implied that eventually countries will slow down
in terms of growth and approach something more like the world
average, and I think that is true currently for China. I do not
think it is going to continue growing at anything like 6
percent per year per capita, but more like 2 to 3 percent if
one looks into the future.
So if I say something more specifically about the U.S.
recent performance in terms of economic growth and
productivity, a striking fact since the end of the Great
Recession in 2009 is the nonrecovery of real GDP. The normal
pattern following the end of a big downturn is to have stronger
than usual growth for a while. That is the nature of a
recovery. So that has not happened. And if you cumulate that up
till today from 2010, you are basically missing about 10 to 15
percent in terms of the level of real per capita GDP that you
might have expected, so that is a fairly big deal.
And the surprising contrast, as Congressman Evans said, is
that the labor market has been pretty strong over this period.
So the unemployment rate has gone down a lot particularly over
the last few years. Employment growth has been pretty good in
terms of job creation. So you have to look at those two things
together. GDP growth has been anemic at the same time that the
labor market has been pretty good.
If you put those forces together, what it says is that
output per worker has been doing nothing. Productivity growth
has been zero since 2010. That is why we do not have as much
per capita income today as we normally would have expected. And
if you think about what policies would be a good idea, you have
to think about what policies would spur productivity growth.
So some of the issues that have been brought up I think are
relevant if you think about productivity. So I think regulatory
reform is something that can be very useful. If you look at the
World Bank's measures of ease of doing business, for example,
the U.S. has slipped from third or fourth place to eighth
place, and improving those kinds of measures would help to spur
economic growth, and regulatory reform is certainly relevant
there. I think an attractive fiscal package could spur economic
growth, and here I would look at things like the proposed cuts
in corporate income taxes and individual income tax rates as
being positive. I would like to see a 1986 Reagan-style package
of tax reform involving further base broadening. Perhaps
entitlement reform would be part of this. That would be a more
effective fiscal package.
I think infrastructure investment can be important. I think
the productivity of infrastructure capital in the U.S. at the
margin is pretty high, especially in terms of transportation-
type projects. An important issue is how you pay for that. I
think there is a good case for that kind of investment on a
large scale, but you have to pay for it in a way that does not
mess up the overall fiscal balance. Some privatization related
to roads, airports, ports, et cetera, can be relevant there.
The biggest concern I have in terms of prospective policies
from the administration is in terms of possible protectionism.
I would be very much opposed to curtailing international trade.
I would, as a related matter, not be in favor of curtailing
immigration. Those are the biggest concerns I have.
If I put the overall package together, and if you get
reasonable outcomes along the lines of policies that I sketched
and you do not have a move toward protectionism, then I think
it is quite reasonable to think of generating GDP growth in the
range of 3 to 4 percent per year, at least for a few years. I
do not think that is anything out of the realm of possibility
and that is what I would hope to see coming out of the
administration policies.
Chairman BRAT. All right. Thank you very much, Dr. Barro.
Our next witness is Andrew Sherman, partner at Seyfarth
Shaw here in Washington, D.C., where he focuses on issues
affecting business growth. He has also written several books on
aspects of how to grow a business and how all businesses can
cultivate innovation to succeed. He received his bachelor's
degree from University of Maryland, Baltimore County, and his
J.D. from American University. You are now recognized for 5
minutes as well, and if you go a hair over that is all right
with us. Thank you.
STATEMENT OF ANDREW SHERMAN
Mr. SHERMAN. Thank you, Chairman Brat. It is truly an honor
to be here, not only in front of all of you, but with this very
esteemed panel. It has the makings of a great joke, right, when
three prominent economists and a lawyer walk into a bar. We can
finish that joke after the hearing.
As you mentioned, I have devoted my life to being a legal
and strategic advisor to small and emerging companies. I have
had the honor of being outside general counsel to a group
called The Entrepreneurs Organization that started with 20
members back in 1987, and now has 12,000 members worldwide, and
have worked with many, many entrepreneurs over the years. My
passion for small business and entrepreneurship must be
contagious because my wife and daughter are both now small
business owners and entrepreneurs themselves.
This Committee, as you know, is the champion and guardian
of small business entrepreneurship, intrapreneurship,
innovation, and creativity in this country. You have a
fiduciary duty as guardian to make sure that this
entrepreneurial ecosystem that both Dr. Barro described, I will
be talking about, I am sure others will be talking about, is
preserved and protected. You hold much of our country's
economic growth in your hands as leaders and as legislators. It
is important that we look at that entrepreneurial ecosystem as
the crown jewel of our economy. A big component of that
entrepreneurial ecosystem is made up in some of the policies
that the Federal and State and local governments bring, as well
as universities, government labs, a number of resources that
we, the taxpayers, all support, and we trust you to do the
right things and make the right decisions.
As Dr. Barro mentioned, it is a delicate balance between
doing too much versus too little. In my written testimony I lay
out the 18 elements of this entrepreneurial ecosystem as I see
it, and those range everywhere from human capital issues, which
Dr. Barro mentioned, to the importance of strong government R&D
partnerships, access to university resources, which I will talk
more about. One of my big sticking points, I think as you know
in the background, is reliable and fair IP laws, things that we
can do to facilitate innovation once it has been created.
One of my big concerns I will get to in a moment is the
amount of innovation that we as a country are capable of
creating, but then never commercialize. And if you want GDP
growth, it is sitting like coins under the sofa cushion. We
just all have to get up, lift that cushion up, and distinguish
between what is a valuable coin and what may be some old
Cheerios.
We need to do better in that role, and I am going to focus
the rest of my commentary on three key buckets. In working with
entrepreneurs and small business, from a business and strategic
planning perspective, most economic growth and their business
plans for growth fall into one of three key buckets: the human
capital bucket, which has been mentioned; the innovation
capital bucket, which I will talk more about; and the financial
capital bucket.
I know that it is the work of this Committee to look at
access to capital, affordable capital. I think that great
progress was made with the passage of the JOBS Act, but as you
know, the JOBS Act so far, once the SEC got around to writing
the regulations, has been underutilized. We will see how that
plays out over time.
One thing that this Committee can focus on is still the
access to debt capital. We still have an issue mostly around
the nature of small business and entrepreneurs' collateral. If
they are not pledging personal assets, most of their assets
will be intangible assets, assets that banks are not ready to
deal with. I proposed a couple of ideas in the written
testimony about things we might be able to do to facilitate.
So the next issue, the issue I want to drill into for a
minute is this human capital issue. I recently wrote a book
called ``The Crisis of Disengagement.'' I read a Gallup study
called ``The State of the American Workforce.'' It came out
about 3 or 4 years ago. It was recently updated in December. We
have 4 percent of the American workforce; 4 percent that
describe themselves as highly engaged. That is a concern,
right? We have almost a third of the American workforce that
describes themselves as highly disengaged.
Now, the last time I checked, no American worker at a small
business or otherwise will be up at night thinking about ways
to improve customer service, to improve the product or service
of the company if they are highly disengaged in the workplace.
They will be up at night thinking about their next job or their
upcoming vacation. We need to examine that issue in greater
detail.
I called this issue a crisis in my book because I believe
in my heart it is a crisis. We cannot have economic growth
without an engaged workforce. I mean, that is a huge gap. We
have a human capital gap. It is an issue that I am happy to
drill into in future hearings, but this part of the human
capital gap must be improved.
I will briefly touch on the other two buckets and turn it
over to Mr. Moore.
On the intellectual capital gap, we have incredible
innovation waste in the country. Millions and millions of
dollars that you allocate through university research, through
government lab research, never finds its way into the hands of
entrepreneurs and small business owners. What can all of us do,
whether from a legislative perspective, a policy perspective, a
communication perspective, to close that gap? Entrepreneurs and
small businesses do not have the resources to create these
assets, but they have all of the knowledge and the channels and
the energy to bring those assets to the marketplace. So if we
can do a better job closing the gap between the two, I think
that we can spur economic growth in that fashion. Many
commentators from Baruch Lev up at NYU, to Ocean Tomo--to
others, have discussed how our economy has shifted.
In 1975, 85 percent of the overall value of the S&P 500 was
captured in tangible assets. That has shifted all the way to
the other side, and we now have an economy that is driven. I
mean, think about the Facebooks, the Googles, all of the great
growth stories. They are all made up. Primarily 95, 98 percent
driven by intangible assets. So we need to think about the role
that those assets play in the economy more effectively, and I
think that those two issues alone are capable of really moving
the needle on the GDP front.
Thank you. It has been an honor to provide this testimony,
and I will turn it over to Mr. Moore.
Chairman BRAT. Thank you very much,
Mr. SHERMAN. We appreciate your testimony and look forward
to asking questions.
Our third witness is also a personal friend over the years,
highly respected in the field of growth, Stephen Moore,
distinguished fellow with the Project for Economic Growth at
the Heritage Foundation. He is also a key contributor for the
Institute of Economic Freedom and Opportunity at Heritage where
he focuses on advancing policies that benefit economic growth
in the United States. He received his bachelor's from the
University of Illinois, Urbana-Champaign, his master's from
George Mason University. Thank you for coming to testify this
morning, and Steve, looking forward to your testimony. You may
begin. Thank you.
STATEMENT OF STEPHEN MOORE
Mr. MOORE. Thank you, Mr. Chairman. Thank you, Mr. Evans.
And I must say that I have agreed with everything I have heard
so far. And thank you for letting me talk about my favorite
subject, which is growth, growth, growth. And we do not have
enough of it. I think that is the central problem with the U.S.
today.
I agree with Professor Barro's assessment that there is
something that has happened over the last 15 years that has
slowed down growth. The latest forecast by the Congressional
Budget Office is forecasting with U.S. economy over the next
10, 20, and 30 years we will grow between 1.8 and 1.9 percent.
That is completely unacceptable. We cannot solve any of the
problems that we want to solve as a Nation, whether it is
lowering the debt, lowering the deficit, building the
infrastructure that Congressman Evans was talking about,
reducing poverty, improving schools, just about anything.
We need faster growth. And at one point, 9 percent growth,
we are going to see the United States in terms of our debt in
the next 25 years look like Greece and Puerto Rico, and that is
very troubling. But if we get faster growth, if we can work
together to find ways to just about the growth up to 3 percent,
which as Professor Barro said, that would actually be slightly
below what we normally had, 3 percent is not shooting for the
moon, we can start to see our debt curve slope downward.
If you look at the last, let us see, where is this chart in
my testimony? I think it is worth looking at. It is on about
the fifth page, the power of expanding the economy, you can see
with the red line it is showing what happens to the debt if we
stay on the course the Congressional Budget Office is
predicting. If we can get to 3 percent growth, look at that,
the debt actually does not grow. It does not go to 150 percent;
it falls to 50 percent. So growth is everything when it comes
to dealing with this budget. Of course, we have to make some
tough decisions on the budget, which you have really devoted
your time here in Congress, Chairman Brat, but that is
important.
Second of all, growth is not just about improving people's
living standards. A lot of people say, well, yeah, you know,
you can have a lot of growth, but what about income inequality?
What about the health? What about the environment that we live
in? And if you look at some of these other charts in my
testimony, you can see that growth is highly associated with
improvements in everything.
So, for example, if you look on the fourth page of my
testimony, chart 1, you can see what Professor Barro was
talking about, the big increase in living standards, especially
in countries like China and India, and you can see the dramatic
increase in growth. And look what happened to poverty. So as
growth goes up, poverty goes down, which means that a rising
tide in most cases really does lift all boats. It makes
everybody better off.
But then if you turn to the next page you can see that
growth is actually highly associated with these other measures.
So life expectancy is highly associated with growth.
Professor Barro talked about the situation in North Korea.
Not only is their growth horrendous, but North Korea has one of
the lowest life expectancies of any country in the world. Their
life expectancy is less than 50, and South Korea, I do not know
their exact number. They are probably at about 75. I mean, that
is a gigantic difference, 25 years. And that is associated with
lower growth, lower nutrition, and so on.
And even environmental protection, by the way, is highly
associated with growth. Countries that are prosperous, like the
United States, have cleaner air, cleaner water, than nations
that do not.
So how do we get there? I would just suggest a couple of
things. Number one, this idea that there is secular stagnation
and that the U.S. economy can only grow at 2 percent, I think
we all need to reject that. Congress needs to reject that idea
and say, no, 2 percent is insufficient. How do we get to 3 and
3.5? Well, as Professor Barro mentioned, there are two ways to
do that. You grow the labor force, number one, and number two,
you make the labor force more productive.
I want to just in my last minute and a half discuss this
issue about growing the labor force. I think there is no reason
we cannot see a lot more people working in this country. You
all know these figures; the last 15 years or so we have seen a
steady decline in the labor force participation rate. By the
way, that is not only because people are retiring. It is
partially because of that because there are 10,000 baby boomers
retiring every day, but that is only part of the story. The
more troubling part is that younger people are participating in
the labor force at a later age.
You know, when I was at the Wall Street Journal, every week
we met incredible captains of industry in finance, sports,
medicine. People were great in whatever field it was. And what
struck me so much was I would always ask these people, where
did you come from? So many of them even grew up on farms. They
started working when they were 8, 9, 10 years old, and they
developed a work ethic. We have got to get that back.
We spend a trillion dollars a year paying people not to
work at the Federal level through welfare programs. Every
Federal welfare program, we are a generous, compassionate
country, but every single welfare program should have a work
component for able-bodied people to get them in the workforce
because you cannot escape poverty, Mr. Chairman, if you are not
working. It is that simple.
And finally, we need more immigration. I agree with
Professor Barro on this. Because of the aging of the baby
boomers, we are going to need more legal immigration, not less.
And the idea of capping things like the H1B visas at this low
level I think is lunatic. I think there is no question that the
more skilled and talented and entrepreneurial people we bring
into this country actually adds to the number of jobs in this
country; it does not subtract from them. So we can do this. We
can do it with the right set of policies.
The final thing I will say in the last 10 seconds is that I
do think that the tax cuts that Donald Trump introduces
tomorrow could have a positive effect on productivity and on
labor force. If you reduce the tax on working, you are going to
get more work. It is not that complicated. If we can reduce
those tax rates on businesses and individuals and increase the
reward for working, the after-tax income that people make, you
are going to get more people working and that will have a
positive impact as well.
Thank you, Mr. Chairman.
Chairman BRAT. Thank you very much, Mr. Moore, for your
testimony.
And I will yield now to the ranking member to introduce Dr.
Chad Stone.
Mr. EVANS. Thank you again, Mr. Chairman.
I am pleased to introduce Dr. Chad Stone. Since 2007, Dr.
Stone has been the chief economist at the Center on Budget and
Policy Priorities, a nonpartisan research and policy
institution in Washington, D.C. Dr. Stone has also served as an
economist of several government organizations, including the
Joint Economic Committee, the President's Council of Economic
Advisors, the Senate Budget Committee, the Office of Management
and Budget, and the Federal Trade and Communication Commission.
Outside of government, he has worked at the Urban Institute
and taught economics at Wayne State and Swarthmore College. Dr.
Stone has a B.A. from Swarthmore and a Ph.D. from Yale.
Welcome, Dr. Stone.
STATEMENT OF CHAD STONE
Mr. STONE. Thank you. Chairman Brat, Ranking Member Evans,
and other members of the Committee, thank you for this
opportunity to testify today about the causes, benefits, and
current limits on economic growth. These are important topics
to understand better if we are to evaluate properly President
Trump's bold claim that his policies will supercharge the
economy and return us to the higher rates of growth we enjoyed
in an earlier era.
I make four broad points in my written testimony. I agree,
growth matters, for raising living standards and for fiscal
stability.
Second, economic growth over the next decade is likely to
be much closer to the 2 percent that CBO is looking for than
the 3 percent that the Trump administration is promising. That
is looking at the constraints on growth. Policy can nudge that,
but policy, I do not think, can make such huge increases in
growth.
Third, large tax cuts. They are far from a sure fire way to
spur growth, higher taxes do not preclude growth and tax cuts
can harm growth if they add to the budget deficit or are paired
with cuts to productive public investments.
Finally, small businesses are important pieces of the
American economy, but in evaluating sources of growth, it is
important to know that it is new businesses, entrepreneurial
businesses, rather than small businesses, per se, that are the
real thing that matters.
So growth matters for our standard of living and our fiscal
health. A growing and increasingly productive economy has the
potential to make all our lives better if the fruits of that
growth are broadly shared as they were in the generation from
1948 to 1973, when strong productivity growth doubled living
standards up and down the income distribution. Strong growth
also contributed to a sharp decline in public debt as a share
of GDP during that period, even though we ran budget deficits
almost every year.
Growth since then has been more uneven and inequality has
widened. The economy's capacity to supply goods and services,
which is really the ultimate limit on growth--economists call
it potential GDP--grew more rapidly in that earlier period than
it has on a sustained basis anytime since, and it is likely to
slow further going forward.
I refer you to figure 1 in my testimony which shows CBO's
estimates of the past and projections for the future of the
contributions to potential GDP growth of growth in the
potential labor force and growth in productivity, which we all
agree are the things that we want to focus on for where growth
comes from.
So CBO, as Steve said, projects, and as others have said,
projects that the economy will only grow 2 percent over the
coming decade, and that is below the 3.2 percent growth in
potential that we achieved in the period from 1950 to 2016. And
it is slower prospects for growth in potential that CBO focuses
on. So President Trump has claimed that growth could be 3.5 or
even 4 percent. Treasury Secretary Mnuchin more recently said 3
percent or higher. This gap between CBO and the administration
is historically large in the history of such forecasts.
Economist Edward Lazear, who was president of George W.
Bush's Council of Economic Advisors, is sympathetic to the
Trump policy goals and cites 3.2 percent growth as a target,
nevertheless concluded in his op-ed about this that achieving
such a high rate of growth is ``unlikely'' with respect to the
budget.
CBO and OMB calculations suggest that faster economic
growth would improve the fiscal outlook. Their evidence
suggests that a 1 percentage point increase in annual growth
would reduce deficits by roughly $3 trillion over a decade. Of
course, that only happens if the growth actually materializes.
Basing one's budget forecast on an overly optimistic economic
forecast as a way to offset the cost of one's policies will
understate the adverse impact, perhaps substantially, of those
policies on actual future deficits.
Exaggerated claims for economic growth benefits of large
tax cuts have been around since the emergence of supply-side
economics in the late 1970s and persist to this day, but there
is scant evidence that tax cuts have such large effects, or
that tax increases preclude economic growth.
I have just an illustration that growth need not be impeded
by tax cuts in figure 2 of my testimony, which looks at growth
and job creation following the 1993 Clinton tax increases on
high-income folks and the 2001 Bush tax cuts. It is anecdotal
evidence; it is not a controlled scientific experiment, but it
illustrates that conclusion.
Let me just tick off a list of the other things I discuss
in my testimony. First, I discuss Kansas's experience with
large tax cuts as a notable recent supply-side failure that has
wreaked havoc on the State's budget.
Second, I discuss how tax cuts are likely to hurt growth if
they increase deficits or if they cut investments in
infrastructure, or antipoverty programs. There is research
showing that antipoverty programs actually have a significant
positive effect on life outcomes of poor children farther on,
going to college, succeeding at work.
Now, today, even the Tax Foundation, which produces the
most aggressive dynamic scoring estimates of tax cuts, rejects
the claim that Trump tax policy is going to produce enough
economic growth to pay for its tax cuts. Now, that is the most
extreme of supply-side claims, but even the Tax Foundation says
that their model, their aggressive model, does not find that.
Finally, I discuss how a Trump plan to cut rates on so
called ``pass-through income'' encourages tax avoidance,
provides almost all of its benefits to very high-income
individuals, and does almost nothing for most small businesses,
true small businesses, who already pay the lowest rate and
would not get any cut from proposals to cut the rate on pass-
through income. Figure 3 in my testimony illustrates that.
Finally, with respect to small businesses, I liked Mr.
Sherman's testimony and I will add that one of the experts in
changing our view about small businesses per se being the main
engine of growth to the view that it is new and entrepreneurial
businesses that are the engine of growth. And that is John
Haltiwanger at the University of Maryland. What he says is that
most entrants fail. Most surviving young businesses do not
grow. But a small fraction of surviving young businesses
contribute enormously to job growth. A challenge of modern
economies is having an environment that allows such dynamic,
high-growth businesses to succeed. That is your challenge on
your Committee. Thank you.
Chairman BRAT. Thank you very much.
All right. I think I will start off questioning. I was
going to start off on regulatory with Dr. Barro, but I think we
will go back and forth on tax cuts for a minute. And so Steve,
if you could address in a couple minutes, tough to do, but
number one, the supply-side term. I am not exactly sure what
that means, right? If you gave a tax cut, you can do it on the
consumer side to people, right, and that puts money back in
people's wallet. But if you are going to enhance productivity,
that almost by definition is on the supply side. That is
business.
And so the pejorative supply side as a reference to
business, I do not understand. But Steven, if you want to take
it from there and we are going to try to broadcast some of the
proceedings to the public as an educational opportunity. So can
you explain just in laymen terms how tax cuts do lead and can
pay for themselves, or at least partially pay for themselves in
a minute or two?
Mr. MOORE. Look at the Trump plan because that is right
smack in front of us right now. We have very, very high
business tax rates, virtually the highest in the world.
If you look at the chart on the last page of my testimony,
it is instructive. What you can see is that we are living in a
globally competitive world today. Do you have the testimony, by
the way? It is this chart here with a yellow background.
We are living in a global economy. There is no putting the
genie back in that bottle, no matter how big you try to build a
wall or a fence around the country. So what has happened over
the last 30 years is the rest of the world is, if you see these
red pillars falling, these are the reductions in the tax rates
of all the countries that we compete with: Germany, Spain,
Italy, Ireland, Australia, Canada, and on and on.
So what has happened is we used to have a competitive
business tax. If you look back in the '80s and '90s, our
corporate rate was actually lower than the rest of the world.
The rest of the world has been very aggressive in cutting the
rates. They are effectively engaging in Reaganomics. They are
cutting their tax rates in large part to steal businesses from
the United States. I mean, they are looking at the U.S.
I was just not long ago in Ireland, in Dublin. It is
amazing. You know, Ireland does a 12.5 corporate rate. An
amazing number of American companies are located there right
now.
Well, Chairman Brat, you cut me, I bleed red, white, and
blue. I do not want American jobs in Ireland. I want American
jobs here in Michigan and Ohio and my home State of Illinois,
and so on. This cannot work anymore. We are 15 to 20 percentage
points above the average. It is almost unpatriotic to support a
system like this where we are putting every American
corporation, whether it is Google or Microsoft or Boeing and so
on, at, you know, I call this like a Head Start program for
every country that we compete with. And it is costing us jobs.
So do I believe that if we bring this rate down from way up
here to maybe at or below the international average, that is
going to bring jobs and growth back to the United States? Hell,
yes, I do. I do not think there is any question about it you
are going to see more jobs created. Now, whether or not that is
going to pay for itself or not, I do not know. Maybe it could,
maybe it could not. Probably not. My only point is that if you
can bump up growth by even 0.2, 0.3 percentage points, do it.
Do it. I do not even care what it costs. Do it because the
long-term benefits and living standards--by the way, we measure
these things in 10 years.
The reason my chart is looking at the 30-year impact of
these things, is that, you know, there is an old saying that
the most powerful force in the universe is compound interest.
If you get the compounded effect of even 0.5 percent growth
over not 10 years but 20, 30, 40 years, you are talking about
major, major increases, not just in growth, but in revenues to
the government. And I would say that is a good deal to have.
Chairman BRAT. Dr. Barro, you emphasized the regulatory
burden and how we can enhance productivity by dealing with
regulations. If you can just go into a little more detail on
what you have in mind. Americans, if you could knock door to
door like politicians do, if you ask the average family do you
want more or less regulation, they will say more, surprising.
And so, but at the same time, we have $2.5 trillion of
regulatory burden. And so if you are explaining to the average
American, how do you differentiate between regulation that is
good for the consumer versus that which inhibits economic
growth?
Mr. BARRO. If I could respond briefly first to what Steve
just said. So I agree what he said on the corporate tax rate.
So we have been trying to estimate that in detail for a broad
group of countries where we have been trying to measure
corporate income tax rates. So preliminary finding there is if
you cut the corporate tax rate by 10 percentage points, the
proposal now in the U.S. is for even more than that, that that
boosts the rate of economic growth on a sustained basis by
about 0.3 percent per year. So that is a substantial
contribution to growth if that estimate is right in terms of
the proposals that are being floated with regard to U.S.
corporate taxation.
I have spent more time myself looking at the individual
income tax in the U.S. and how it impacts the macro economy. So
I found that reducing the average marginal income tax rate in
the U.S. system, if you do that by 2 percentage points, the
growth effect over a 2-year period is about 0.5 percent per
year. It is fairly substantial.
In terms of U.S. history that matters there, the biggest
cuts by far are the Reagan cuts in two phases in the 1980s
accumulating to 8 percentage point cuts. So that is very
dramatic. In contrast, the Clinton episode that was mentioned
before was actually an increase by 1 percentage point. It was
basically trivial. It was a tax increase, but very small. And I
certainly agree the economy grew very well in the 1990s despite
that. But it does not really contradict the evidence about tax
effects.
The other tax change that was particularly important in the
sample is in the Kennedy-Johnson tax cuts of the mid-1960s,
which is also fairly substantial and seemed to promote economic
growth.
So what you asked about regulations, we have been
particularly trying to measure that better using the World Bank
indicators about ease of doing business, which has 10 different
components, such as cost of starting a business, cost of ending
a business, in particular, what do you have to do to go
bankrupt, basically. Cost of getting electricity, cost of
getting credit, it is a very impressive research effort that
the World Bank has been carrying out in this manner since 2004.
And it does turn out to be true in this context of this cross-
country economic growth experience that better regulation
measured in that way has a noticeable effect. So that is an
impact that you think about the likely change you could do
today in the U.S. that might spur growth by about 0.3 percent
per year. That is sort of part of the administration package
that one might think about.
So basically, I put together a number of those components.
That is what gives the prediction that growth could be higher,
in the 3 to 4 percent range over some interval. Infrastructure
investment I think could contribute there, but I do not really
have good estimates as to exactly by how much, but I think that
that could also be positive.
Chairman BRAT. All right. Thank you very much, Dr. Barro.
My time has expired.
I would now like to yield to the ranking member, the very
patient and kind ranking member, Mr. Evans, for at least 5
minutes or as long as you would like to go. Thank you.
Mr. EVANS. No problem. Thank you, Mr. Chair.
I really want to follow up on the chairman's question and
give Dr. Stone and Mr. Sherman an opportunity from your
perspective because you were showing a lot of body language,
Dr. Stone, when Mr. Moore was commenting. So you get your
chance to give your comment there, Mr. Sherman.
Mr. SHERMAN. Well, first of all, Chairman Brat, when I say
``supply-side policies,'' I am talking about anything that
increases potential GDP as opposed to short-term economic
demand stimulus. And I think that we are very close to full
employment now and supply side policies can, if properly well-
constructed, supply side policies can boost economic growth to
a certain degree, that includes all the things we have talked
about. It is just the estimates that Steve likes about how
large those estimates are really, that is my complaint. Not
that you cannot nudge it a couple of tenths.
Now, Professor Barro and I could have a conversation about
whether all those things and adding them all up based on cross-
country comparisons is where the United States is going right
now, but we all agree on what the sources of growth are. Our
question is, what is the magnitude of the supply side? And if
you have tax cuts that contribute to the deficit, make the
deficit worse, then you are creating a drag from the deficits
and that is harmful to growth. Notwithstanding Professor
Barro's views, very interesting insights onto long-term savings
behavior.
Mr. EVANS. Mr. Sherman?
Mr. SHERMAN. Mr. Evans, thank you for giving the lawyer the
last word on this. It is always much appreciated.
Rather than debate, I want to augment two important points.
Number one, look, I think everyone in this room would like a
tax cut of some sort. Who does not want a few more dollars in
their pocket? But let us not talk about tax cuts. Let us also
talk about tax incentives.
For 100 years, we have used the tax code to foster and
reward behaviors that we want businesses or individuals to
make, and I think that as important as the tax cuts are, and I
am all in favor of them, I also would like to see a package of
tax incentives. The issue is not unemployment anymore, but it
is underemployment. We still have a crisis of underemployment
in this country. People have jobs, but they are not the jobs
that they are capable of doing.
I would love to see a package of tax incentives that would
close the gap in the underemployment crisis, reward training
and education, reward mentoring and coaching. Reward giving
people the kinds of skills within companies that they can be
doing what they were educated to do, and I think you will see
the ripple effect of that being economic growth. So that would
be kind of point one.
I think the other thing is to really, you know, address the
issue of how we are going to allocate these resources. Will
people, if we give them the tax cuts, you know, put the money
into places that will truly stimulate economic growth, and can
there be additional rewards or policies that will do that?
There is a finite number of dollars in the country and it is
about allocating those dollars in the right places to do the
right things that will foster economic growth, whether that is
in the area of fostering innovation and rewarding innovation or
whether it is on the human capital side in closing this
underemployment gap that I think exists in this country.
Mr. EVANS. Dr. Barro, you stated poor places can grow fast
if the right underlining factors are in place. What are some of
those underlining factors?
Mr. BARRO. So those are some of the variables that I
mentioned before. The underlining institutional framework, I
think is quite important. I think about maintenance of rule of
law and market orientation, the nature of the regulatory system
that particularly allows businesses to operate effectively. I
think policies related to human capital are important, and I
mentioned education and health as being important aspects of
that. International openness is an issue.
So if you look at a typical poor country, which today the
biggest concentration is actually sub-Saharan Africa. It would
have been different if you looked earlier you would have found
more Asian countries, and you asked, well, why can they not
grow rapidly and converge to the richer places?
So I think it is systematically the case that countries
that are impoverished are unable to maintain the kinds of
institutions human capital policies, other policies that are
conducive to economic growth. That is why if you look across a
broad group of countries and you ask do the poor grow faster
than the rich, the answer was no. But if you look in a
conditional sense and you ask if you are a poor place and you
get things reasonably in place, like China did starting in the
mid-1970s, can you grow fast, and the answer is yes. So it is
sort of good and bad news in that respect.
Mr. EVANS. Mr. Moore, during your appearance on CNN
Tuesday, you said that the U.S. has the dumbest corporate tax
system. What would you suggest to the Trump administration to
fix the system? And what is your take on the decision by the
current administration to abandon the TPP and the impending
decision to do away with the North American Free Trade
Agreement? I do not know if the language would be that they
said do away with it or renegotiate it. So you now have that
chance, you are the Treasury Secretary or you are the senior
advisor, which you did say the dumbest corporate tax system.
Did you say that?
Mr. MOORE. It is pretty dumb. You could not come up with
anything much dumber than what we have.
Mr. EVANS. You did say that. I just want to make sure we
got your quote right.
Mr. MOORE. I would bring the rate down. I would get rid of
a lot of the exemptions. And one of the things that is really
interesting about our corporate tax is that you actually do
have a lot of companies that are paying this 40 percent rate,
but you have others that are paying almost nothing. The wind
industry pays negative income tax. We pay them to produce. So
the inequities of the system are also not very efficient for
the economy.
So I would try to lower the rate. I would try to get rid of
the loopholes in the system. You know, just as the individual
system has a lot of loopholes and special interest carve outs,
so does the corporate system.
And by the way, I just want to make this point very clear.
I am not saying that taxes are everything, by any means. I
mean, you know, we have heard testimony today about 100 factors
that affect growth and they are all right. I am just saying
taxes are one of the factors, and I think we could have a much
more efficient corporate tax.
On trade, I am not an expert on trade, but I would simply
say this, that I believe in international trade. I agree with
what Professor Barro said. There is good news today that Donald
Trump announced that we are not going to withdraw from NAFTA,
which I think is a smart decision.
On TPP, I have to say I am going to pass on that just
because I do not know enough about it. I am for trade with Asia
for sure. I just do not know enough about the specifics of that
trade agreement to know if there are things on that agreement
that were not in America's interest. But on balance, we should
absolutely have free and open trade with Asia.
Mr. EVANS. Thank you, Mr. Chairman.
Chairman BRAT. With that, I would like to recognize the
gentleman from Mississippi, the very patient Mr. Trent Kelly,
my good friend, for 5 minutes at least. Thank you, Trent.
Mr. KELLY. All right, guys. I am a military guy, so let us
finish up in 5 minutes and leave some time back to the
chairman.
I think one of the greatest things, whether it is tax cuts
or we are talking about economic policy or whether we are
talking about the stock market is consumer confidence or the
confidence of the American people. And I do not think you can
measure that. But I can tell you just last week I was meeting
with a business from another country that is talking about
moving another manufacturer to Mississippi because they like
what the President says about the corporate tax rate. Well, to
me, I do not know how much money we will get out of the
corporate tax rate, but all those individual income tax rates
that we have.
The other thing that really concerns me is how we talk
about the employment rate in this Nation. We are not almost at
full employment. We have people who have given up on getting
good jobs. We have people who are overqualified for jobs
because of college educations when they should be trained in
something that has earning power as opposed to a lot of fun at
college. And so I think our workforce is very, very important.
But I disagree that we are at the lowest unemployment rate
that we have ever been. We may be by that number and that
standard, but I know in Mississippi, when someone gets on
government assistance of some sort, 88 percent never get off.
And most of those people are not people who cannot do jobs. So
I think we have got to get folks to working and everybody have
a great opportunity to work.
What is the best way to make sure that we are getting
people trained? I think the workforce skilled workers who can
make a great wage as opposed to thinking going and getting a
liberal arts degree from wherever is going to make them
employable. How do we do that as a Nation to make a workforce
that is second to none? And, I guess, yes, Mr. Sherman?
Mr. SHERMAN. Corporate treasuries in this country have
reached record levels of cash. I mean, multiple articles have
been written. The latest trend in CFOs after deploying some
cash towards M&A and some other initiatives, not enough towards
innovation in my opinion, are now stockpiling again. We talked
about tying perhaps a tax incentive of some sort. I would love
to see, you know, most large companies have all kinds of
private universities that exist within their companies, private
education and training initiatives.
I agree with everything you have said. You know, we have a
workforce that is hungry for better jobs, to earn more. Those
will easily have a ripple effect on GDP by any of our panel of
standards. You know, is there something we can do to either
lightly or not so lightly encourage the deployment of that cash
and the deployment of those resources to get a better trained
workforce.
I agree with Mr. Moore, our workforce is not competitive
globally. Closing our borders is not going to help that at all.
It is going to hurt it. And there has got to be some things
that we can do, either create tax or nontax incentives to
reward companies for deploying just a sliver of those cash
stockpiles and those intangible resources they have to put the
people of Mississippi and the other 49 States as well to work.
So it is all there. All of the pieces that we need for 4,
5, 6 percent GDP growth, if I could be that bold, are sitting
like coins under the sofa cushion. I ask this Committee, and I
ask the leaders of our country to lift up those sofa cushions
and start picking at those quarters and half dollars because
they are all there. We have the resources to be competitive.
Mr. KELLY. Okay. And very quickly, Mr. Moore, I want to ask
you this. What can we tax-wise or capital access-wise do for
small businesses that help us to create that workforce that
sustains those small businesses? I mean, it could be
regulations. It could be some type of tax benefits. But how do
we incentive our businesses, our small businesses,
specifically, to get a workforce that works for them?
Mr. MOORE. Well, I was struck by the last comment you made
in your testimony, that quote from the professor about the
different types of companies that are leading to growth, and it
is these innovative companies that just take off. You know,
trying to find the next Google, trying to find the next
Microsoft, and so on. That is hard to do, you never know, and
it is true that two out of three companies fail small
businesses. So what you need to do is try to find the capital
for these companies so that they do not--there are too many
examples of companies that actually have a great idea and they
run out of money. And before they can launch the thing and
really get it to the next level, they run out of money and they
go out of business. That happens with drug firms. So finding
ways that we can get capital into companies, investment
capital, I think would be crucial.
I will make one other quick point. I agree with you on this
issue of the labor force, that we can have a lot more people in
the labor force. I just did the statistics about a month ago.
Looking at the age-adjusted change in the labor force, because
it is true, one of the reasons the labor force participation
rate has fallen is because so many more people are over the age
of 65.
But if you just look at people in a prime 18 to 65 year, so
take out the people who are retiring, if we had the same labor
force participation rate today that we did, say, in 2000, there
would be 7 million more Americans in the workforce.
So I do not buy this idea that we are falling. I hear that
all the time. I am like, what are you talking about? We are not
near full employment. It is just the unemployment rate number
has become really kind of a meaningless--we should really
probably report the U6 number because the headline unemployment
rate to me has become highly misleading.
Mr. KELLY. And Mr. Chairman, if you will indulge me. And I
think the key is most of those people who are not--they are not
in the unemployment rate, but they want to work. They want to
do a job and they want to be productive for this Nation.
Unfortunately, we have got to figure out how to give them
businesses where they can work and they are back in the
workforce. Thank you.
Mr. MOORE. Can I just suggest one other quick thing because
you mentioned this? What could we do to get people better ready
for the labor force? I agree with you. The idea of spending
$200,000 to go to a 4-year university in a lot of cases in my
opinion has become a waste of time. Why not allow people
apprenticeships?
You know, when I talk to employers, it is interesting, a
lot of them say the biggest problem I have is finding the
workers that have the skills we need. I mean, 90 percent of
them say that is their biggest problem even when we have tens
of millions of people outside the workforce. Why not have a
program where you have apprenticeships for somebody who wants
to become a carpenter, somebody who wants to become a mechanic,
or something like that? And if they get that apprenticeship
they have the equivalent of a college degree. Because you know
what? That apprenticeship might be better for them than getting
a degree in sociology.
Mr. KELLY. I yield back, Mr. Chair.
Chairman BRAT. Thank you all. I think we are verging in at
the end. This is a very good conversation and for me it is
always kind of interesting because I taught college for 20
years and we all say human capital and everyone talks about
policy and politics up here in D.C. But maybe just in closing,
if each of you could just give a minute, I am interested in
kind of the intersection between policy and culture. And so we
all know in K-12 education right now, the teachers are being
asked to do the impossible. They have to teach the subjects.
They have to teach to the test. They have to do discipline.
They have to do gym class. They have to do everything. It is
not happening, right?
So I think there is pretty broad agreement on this. Labor
force, you know, the unemployment rate, and that all gets into
politics as to who is doing good and who is not. And I think we
are kind of getting by that.
But there is a cultural issue, and Dr. Barro talked about
convergence. Right after you reach high incomes, some of it is
just cultural at the high end. You say, hey, I do not need to
work as many hours, right? I am going to take vacation. I am
going to take a little break from the workforce. But for the
lower income folks that is not an option, right? And so we
always get into the politics of the haves versus the have nots,
and so if the panel, if you want to just comment.
So we wanted to get the right tax policy, but this stuff
has to pass bipartisan. So what is a compromise? How do you
think about a compromise across the aisle where we get it right
for the poor in the inner cities, in the K-12 that is broken?
And at the same time, I mean, I do think tax cuts, especially
on the corporate side, we have got to get the economy rolling,
just the psychological energy there.
But any comments, and let us just start, Dr. Stone, if you
just want to kind of close and give us any ideas you have on
kind of bipartisan, what can we do to get some agreement going?
Mr. STONE. It is a tough environment for bipartisanship, as
you well know.
So first, I would like to respond to the notion--I agree
that the Great Recession produced a whole lot of people who
were out of the labor force, and that has come way down. U6 is
pretty far down. Part-time jobs is a bigger problem than people
outside the labor force--too many people still have part-time
jobs when they want full-time jobs.
But this argument that so many people on assistance are not
working, that is just not what the evidence shows. Large
numbers of people on SNAP, on TANF, in fact, work. The lower
income population is moving in and out of the labor force. Many
times when they are receiving assistance they are still
working. The idea that we need work requirements because people
are not working is, I think, misplaced.
I think we would do better to look at the evidence on how
much people actually are working, and we need a strong economy.
If you are going to have work requirements, you need a strong
economy where people can actually find jobs. And part of that
is increasing the overall growth rate, but part of it is making
sure that money is in the places where communities need it.
Chairman BRAT. And so in your view, the kids on SNAP, do
you think they have expectations of achieving greatness in
their life? I mean, it is always interesting, we talk about vo-
tech and technical education, all these kinds of things after
college. We are paying $14,000 per year per kid for 13 years,
right? I taught economics. Kids do not know what a price is
from a cost from a profit after they graduate from high school,
and half will not go to college. And so that is what I am
getting at. I mean, where do we give this psychological boost
that every kids needs to have regardless? Because I do not see
it there.
I mean, I taught kids at the higher end. And even they,
right, I mean, what are you going to do after you graduate,
Johnny? I am going to go ski in Colorado for half a year or
something. I am like, okay. They are not pumped up to get to
work.
Mr. STONE. I mean, you do not want to hear about more
resources, but resources matter, especially in disadvantaged
communities in the school system. But also, I will echo what
Steve said about apprenticeships or community colleges. That is
a place where people who come lately to the idea about success
can get education. So if we have useful support for those,
encouragement, that is something.
Chairman BRAT. And that is coalescing up here in the
Committees. There is broad agreement we have got to go in that.
If you want to close, Mr. Sherman, with a minute or so.
Mr. SHERMAN. Yeah, I apologize. I do need to run. But I
think that we are getting to the heart of what could be a
bipartisan solution and that is around this issue of training
education, whether it is apprenticeships, internships, more
corporate participation at all levels of education, more
engagement in the classroom. This crisis of this engagement is
affecting teachers and students and drawing a bigger gap
between ability to learn. Relooking at curriculum, you know, we
are still teaching big clumps of information that may not be
very useful.
You know, I heard a statistic the other day that the
average middle school student, 50 percent of the jobs that they
will have when they are in their twenties or thirties do not
even exist today. How do we look forward in time and adjust our
teaching curriculums around the jobs that will be available and
impacted by artificial intelligence, robotics, automation?
I am afraid that we are spending all this money on
education, we are not getting the results that we want.
Teachers and students are disengaged and we are not teaching
the skills that they are going to really need to be competitive
and that we are going to need to be competitive in a global
workforce.
Chairman BRAT. Thank you very much. I invited the Education
members. The members are just slammed right now with all the
issues flying around here, but I knew this panel was going to
coalesce around those issues and they have an interest, so we
are going to start trying to work across Committees on some of
this.
Steve, closing remarks?
Mr. MOORE. There is virtue and work. You know, work, work,
work. You mentioned the word ``culture.'' I mean, there is a
culture now that somehow working with your hands is a bad
thing. It is amazing. If you are a mechanic, a pipefitter, a
welder, you know, you can make $60,000, $70,000 a year, maybe
you start your own business, you can make $100,000 a year. So
this idea that everyone has to go to college I think is silly.
And I think it is actually even counterproductive.
I am friends with a guy named Bob Funk. He is the single,
biggest employer in the United States. He runs a temporary
employment agency. He puts 800,000 people a year in jobs. And
he always tells me, Steve, I can find a job for anybody in 72
hours as long as they do not have a degree in sociology,
history, or political science. You know, it is kind of an
interesting dynamic.
And in terms of a compromise or something we could do,
look, the point of my testimony is we cannot stay on the track
we are on. We have got to do something differently.
And you talked, Congressman Evans, about the
infrastructure. We have been talking on our side about tax
cuts. I mean, why not a deal where we have a big infrastructure
program. Let us make sure that money is spent wisely, and then
compare that with some tax reductions that could help spur
growth. I cannot remember the last time we had a bipartisan
bill in Congress. I would love to see that. I would love to see
you two work together to come up with something. I mean, truly,
it would be a real breakthrough.
Chairman BRAT. Great. Dr. Barro?
Mr. BARRO. Just one comment on the standard unemployment
rate. It is actually surprising how good that indicator is for
gauging the tightness of the labor market, sort of the nature
of the business cycle situation, whether the market is sort of
amenable to kind of standard aggregate demand management. And
the standard unemployment rate being close to 4.5 percent is, I
think, indicative that in that sense we are close to full
employment and do not want to have that kind of demand
stimulus.
At the same time, I agree that labor force participation is
surprisingly down, particularly in certain parts of the
population, so I would emphasize that along with productivity
changes in terms of what you can do to spur growth. So I also
agree with that commentary.
I certainly think education is the most important factor in
terms of underlying productivity and throughout that
influencing economic growth. That does not mean that I want a
bigger role for the Federal Government in terms of promoting
education. I really think typically it is better for public
schooling to be at the local level, local and State level, and
I would like to see a bigger private role in terms of K-12
education.
So I certainly think that education is very important, but
that is not the same as saying I want the Federal Government to
do more in that area. That is a conflict between those two
conclusions.
Chairman BRAT. Dwight, any closing?
Mr. EVANS. I want to thank you, all three of you, four of
you, Mr. Sherman left there, really for this conversation and
dialogue. I think it has been, I know for me at least,
personally, very helpful. And I thank the chairman for allowing
the flexibility. I did not think that happened here. I come out
of a legislature where we did not have this like 5 minutes. If
you were getting on a roll, you got on the roll. And if the
chairman was raising something, you raised a little question, I
think that is the only way we are going to get some substantive
discussion. So I thank you, Mr. Chairman.
Chairman BRAT. Well, I think we will close on that nice set
of remarks right there. You can hear the tone. There is a lot
of chatter up here that we do not get along across the aisle
and it is just baloney. We all work out in the gym in the
mornings and like each other, so I feel some good stuff is
coming.
This is the best panel I have ever seen in Congress, just
to congratulate you all. I listened to every word, which is
very rare. And so this was tremendous. You all did a tremendous
job preparing and shared your personalities along with it. And
we had differences, but in a good spirit.
So thank you all very much for sharing and that is it.
Thank you.
[Whereupon, at 11:20 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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