[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]



                 REEXAMINING THE ECONOMIC COSTS OF DEBT

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

          HEARING HELD IN WASHINGTON, D.C., NOVEMBER 20, 2019

                               __________

                           Serial No. 116-18

                               __________

           Printed for the use of the Committee on the Budget
           
           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]           


                       Available on the Internet:
                            www.govinfo.gov
                            
                            __________
                            
                    U.S. GOVERNMENT PUBLISHING OFFICE
40-261                       WASHINGTON : 2020                    
                          
                          
                        COMMITTEE ON THE BUDGET

                  JOHN A. YARMUTH, Kentucky, Chairman
SETH MOULTON, Massachusetts,         STEVE WOMACK, Arkansas,
  Vice Chairman                        Ranking Member
HAKEEM S. JEFFRIES, New York         ROB WOODALL, Georgia
BRIAN HIGGINS, New York              BILL JOHNSON, Ohio,
BRENDAN F. BOYLE, Pennsylvania         Vice Ranking Member
RO KHANNA, California                JASON SMITH, Missouri
ROSA L. DELAURO, Connecticut         BILL FLORES, Texas
LLOYD DOGGETT, Texas                 GEORGE HOLDING, North Carolina
DAVID E. PRICE, North Carolina       CHRIS STEWART, Utah
JANICE D. SCHAKOWSKY, Illinois       RALPH NORMAN, South Carolina
DANIEL T. KILDEE, Michigan           KEVIN HERN, Oklahoma
JIMMY PANETTA, California            CHIP ROY, Texas
JOSEPH D. MORELLE, New York          DANIEL MEUSER, Pennsylvania
STEVEN HORSFORD, Nevada              DAN CRENSHAW, Texas
ROBERT C. ``BOBBY'' SCOTT, Virginia  TIM BURCHETT, Tennessee
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
PRAMILA JAYAPAL, Washington
ILHAN OMAR, Minnesota
ALBIO SIRES, New Jersey
SCOTT H. PETERS, California
JIM COOPER, Tennessee

                           Professional Staff

                      Ellen Balis, Staff Director
                  Dan Keniry, Minority Staff Director
                               
                               CONTENTS

                                                                   Page
Hearing held in Washington D.C., November 20, 2019...............     1

    Hon. John A. Yarmuth, Chairman, Committee on the Budget......     1
        Prepared statement of....................................     4
    Hon. Steve Womack, Ranking Member, Committee on the Budget...     6
        Prepared statement of....................................     8
    Olivier Blanchard, Ph.D., Senior Fellow, Peterson Institute 
      For International Economics, and Professor of Economics 
      Emeritus, Mit..............................................    10
        Prepared statement of....................................    12
    L. Randall Wray, Ph.D., Professor of Economics, Bard College, 
      and Senior Scholar, Levy Economics Institute...............    16
        Prepared statement of....................................    21
    Jared Bernstein, Ph.D., Senior Fellow, Center on Budget and 
      Policy Priorities..........................................    43
        Prepared statement of....................................    45
    John Taylor, Ph.D., Professor of Economics, Stanford 
      University, and Senior Fellow, Hoover Institution..........    59
        Prepared statement of....................................    61
    Hon. Sheila Jackson Lee, Member, Committee on the Budget, 
      statement submitted for the record.........................   112
    Hon. Seth Moulton, Member, Committee on the Budget, questions 
      submitted for the record...................................   118
    Hon. Ilhan Omar, Member, Committee on the Budget, questions 
      submitted for the record...................................   119
    Answers to questions submitted for the record................   120

 
                            REEXAMINING THE
                         ECONOMIC COSTS OF DEBT

                              ----------                              


                      WEDNESDAY, NOVEMBER 20, 2019

                          House of Representatives,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:05 a.m., in 
Room 210, Cannon House Office Building, Hon. John A. Yarmuth 
[Chairman of the Committee] presiding.
    Present: Representatives Yarmuth, Moulton, Higgins, Khanna, 
Schakowsky, Panetta, Morelle, Horsford, Scott, Peters, Cooper; 
Womack, Woodall, Johnson, Smith, Norman, Roy, Meuser, Crenshaw, 
Hern, and Burchett.
    Chairman Yarmuth. This hearing will come to order. Good 
morning, and welcome to the Budget Committee's hearing on 
Reexamining the Economic Costs of Debt. I want to welcome our 
witnesses here with us today.
    This morning, we will be hearing from Dr. Olivier 
Blanchard, a senior fellow at the Peterson Institute for 
International Economics, and professor of economics emeritus at 
MIT; Dr. L. Randall Wray, professor of economics at Bard 
College, and senior scholar at Levy Economics Institute; Dr. 
Jared Bernstein, senior fellow at the Center on Budget and 
Policy Priorities; and Dr. John Taylor, professor of economics 
at Stanford University, and senior fellow at the Hoover 
Institution.
    Welcome to all of you. We look forward to your testimony. I 
will now yield myself five minutes for an opening statement.
    Once again, I would like to welcome our witnesses. We 
appreciate you coming here to help us discuss the changing 
economics of debt and its implications for fiscal policymaking. 
There is a wide array of views on this subject at the witness 
table, across the aisle, and even within our caucus, and within 
the Republican conference. So it is my hope that we can use 
this hearing as an opportunity to learn more about the 
different perspectives driving this important debate and hear 
from the experts on what Congress must evaluate when 
considering the real costs of debt in this new economic era.
    I say, ``new economic era,'' because today's economy defies 
many of the core principles of traditional economic theory. We 
have been operating under the long-held assumption that 
persistent budget deficits and rising government debt would 
increase interest rates and inflation, harming our economy over 
the long run.
    However, contrary to these predictions, we have seen 
interest rates and inflation fall to record lows, while debt 
has soared to its highest level since just after World War II. 
We are truly in a new era that has economists reassessing 
entire economic theories in light of these unexpected outcomes.
    If the Budget Committee is to promote effective and 
responsible fiscal policy, it is important that we learn more 
and participate in this growing debate.
    In our hearing last week, Federal Reserve Chair Powell made 
it clear that the fiscal challenge we face is a long-term one, 
not an immediate crisis. Our aging population and growing 
health care costs have put our debt on an unsustainable path. 
We will need to take steps to address this issue over the next 
several decades.
    But, in the meantime, persistently low interest rates have 
made reducing deficits in the near term less urgent, even 
counterproductive, given the risk to economic growth. It has 
also increased Congress's fiscal space, empowering lawmakers to 
make responsible investments now that will improve our future 
economic outlook.
    But that doesn't mean we should be spending like a drunken 
sailor, without thought or discretion. I apologize to any 
current or former sailors in the room. Deficits, and what they 
are used for, matter. Failing to tackle severe and persistent 
infrastructure, education, and health gaps is, arguably, more 
damaging to our economic and fiscal outlooks than the risk 
posed today by higher debt.
    Policies that support working Americans in an economic 
downturn, provide much-needed investments in our families, 
communities, and environment, and have a positive impact on our 
long-term fiscal health, are responsible uses of deficits.
    Every dollar invested in infrastructure increases near-term 
economic output by $1.50 and boosts our economy's productivity 
over time. A dollar for pre-disaster mitigation efforts saves 
$6 in future disaster costs. Investments in children's health 
care and preschool and college attainment pay for themselves 
over the long run. Housing programs that move children out of 
poverty can increase lifetime earnings by $300,000.
    Moreover, low interest rates will supercharge these 
investments. They will be cheaper to make today, and likely 
provide a bigger boost to the economy later.
    On the other hand, deficit-financed tax cuts for the 
wealthy and big corporations are clearly an irresponsible use 
of deficits. The Republicans' 2017 tax law is the poster child 
for wasteful deficit-financed policy. It has failed to provide 
any meaningful boost to the economy but increased our debt by 
at least 1.9 trillion and counting, worsening our already 
serious revenue problem. Skyrocketing the deficit for this 
purpose, while uninsured rates increase, air pollution worsens, 
and our children's reading scores decline is appalling.
    At the end of the day, carrying debt still carries risks. 
But by investing strategically in responsible policies that 
reflect our nation's values, and by having a more sober and 
evidenced-based understanding of the costs of debt, we can lay 
the groundwork for a productive and dynamic 21st century 
economy.
    I know we will hear different points of view as we examine 
this, which is the point of this hearing. But despite critical 
differences, both mainstream and alternative schools of thought 
increasingly agree that government debt appears to be less 
risky, less costly, and less urgent than traditional economic 
thought suggests. Today's hearing will provide a platform for 
experts and policymakers to share their ideas, whether 
practical, or aspirational, conventional, or controversial.
    Once again, I look forward to hearing from our witnesses 
about what they believe Congress can and should be doing in 
this new economic era, how we can invest responsibly in our 
future, and what fiscal policies best support American 
families.
    [The prepared statement of Chairman Yarmuth follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Yarmuth. With that I yield five minutes to the 
Ranking Member, Mr. Womack.
    Mr. Womack. I thank the Chairman for holding this hearing. 
I think it is an appropriate continuation of the conversation 
we began last week with the Federal Reserve Chairman.
    Last week I likened Chairman Powell's assessment of the 
economy to a checkup with your doctor. We received an 
encouraging bill of health. Our economy is strong. Forward 
momentum continues, thanks to the pro-growth policies enacted 
last Congress and under this Administration. Americans are 
confident, and rightly so.
    We should certainly celebrate this historic economic 
prosperity but cannot ignore the fact that we continue to face 
serious long-term fiscal challenges, particularly the ever-
increasing federal debt. Simply put, the debt is on a 
completely unsustainable trajectory. The national debt is $23-
plus trillion and is projected to grow more--to more than $34 
trillion within a decade. Soon thereafter, on our current path, 
the federal debt will reach the highest level in American 
history as a percentage of our economy.
    CBO also projects that by 2049 the federal debt will equal 
$248,000 per American, almost $1 million for each family of 
four. After that, it continues to grow. Interest payments will 
increasingly crowd out the other federal spending that is 
directed toward programs many Americans rely on. CBO projects 
interest payments on the debt will amount to $390 billion in 
fiscal 2020, an 11 percent amount of our federal tax revenue.
    Mr. Chairman, your hearing title provocatively asks us to 
reexamine the debt. And I suspect we will hear from some voices 
today that suggest we should not worry too much about it, or we 
will hear it is wrong--the wrong time to deal with it. Allow me 
to underscore just how irresponsible that thought process is.
    The way our government is operating is the same as an 
American family trying to make difficult financial decisions 
about mortgages, health insurance, and bills when they must 
first direct a significant portion of their family budget just 
toward paying the interest on a growing credit card balance. We 
call that the minimum payment due.
    Not only is this, the way we are doing business, fiscally 
irresponsible and unsustainable, CBO also found that a growing 
federal debt has a negative impact on business investment, 
productivity, and economic growth. It simply does not make 
sense to champion our present economic successes while ignoring 
the long-term challenge that is the debt.
    I hope we can have a realistic discussion today about the 
scenarios that are in front of us in the future. We could do 
nothing. We could try not to make things worse. We could spend 
even more and add new mandatory spending programs like we did 
yesterday on the CR, as many in this institution are proposing. 
Or we could work together and address the debt.
    What happens to the economy and the financial future of our 
children and grandchildren under each of these scenarios? I 
certainly don't want to--want my grandkids to see the crisis 
scenario, in which the interest rate on the debt will skyrocket 
abruptly because investors will no longer have confidence in 
our government's ability to pay its bills.
    That is why I am seriously concerned that it seems today as 
though many lawmakers have shifted from a willingness to 
address the debt with real bipartisan solutions, and instead 
are buying into this modern monetary theory, which tells us 
that the debt doesn't matter because we can, essentially, just 
print more money.
    This notion is absurd. We cannot simply wish our problems 
away. Last week, before this very Committee, Chairman Powell 
made the point himself that--when he said the idea that the 
debt doesn't matter is simply wrong. Yet our colleagues serving 
in the House used this theory to justify the costs of programs 
like the Green New Deal.
    So at this point I cannot help but wonder how many neutral 
outside experts Congress needs to hear from before we wake up 
and act. Congress must come together in a bipartisan, bicameral 
fashion to reduce the debt, deliver on our Article I 
responsibilities and make good on our responsibility to the 
American people who have to balance their own budgets each 
month.
    Finally, I would like to congratulate my friend, Mr. 
Burchett from Tennessee, the former mayor of Knox County, 
Tennessee, and Mr. Case from Hawaii, for working together to 
introduce a new bipartisan idea to address the national debt.
    I am often asked at home: when are you guys going to get 
together and do something, instead of fighting with each other? 
H.R. 5178 suggest creative approaches for how Congress could 
look at the debt in a bipartisan way, involving the House and 
the Senate. I am proud to support the bill authored by my 
friend, the mayor from Knox County, and his Democrat cosponsor, 
Mr. Case.
    Thank you, Mr. Chairman. I yield back the balance of my 
time, and I look forward to the Q&A.
    [The prepared statement of Steve Womack follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Yarmuth. I thank the Ranking Member for his 
opening statement.
    In the interest of time, if any other Member has an opening 
statement, you may submit those statements in writing for the 
record.
    Once again, I want to thank our witnesses for being here 
this morning. The Committee has received your written 
statements, and they will be made part of the formal hearing 
record.
    You each will have five minutes to give your oral remarks. 
Dr. Blanchard, you may begin when you are ready.
    You know that in Arkansas and Kentucky you would be 
Blanchard. And I don't know how many people on the Committee 
will butcher your name, so I apologize in advance for that.
    You are recognized for five minutes.

STATEMENT OF OLIVIER BLANCHARD, PH.D., SENIOR FELLOW, PETERSON 
    INSTITUTE FOR INTERNATIONAL ECONOMICS, AND PROFESSOR OF 
 ECONOMICS EMERITUS, MIT; L. RANDALL WRAY, PH.D., PROFESSOR OF 
  ECONOMICS, BARD COLLEGE, AND SENIOR SCHOLAR, LEVY ECONOMICS 
  INSTITUTE; JARED BERNSTEIN, PH.D., SENIOR FELLOW, CENTER ON 
BUDGET AND POLICY PRIORITIES; AND JOHN TAYLOR, PH.D., PROFESSOR 
 OF ECONOMICS, STANFORD UNIVERSITY, AND SENIOR FELLOW, HOOVER 
                          INSTITUTION

             STATEMENT OF OLIVIER BLANCHARD, PH.D.

    Dr. Blanchard. Thank you. I have accepted the fact that I 
am called Blanchard. The--Mr. Chairman, Members of the 
Committee, thank you very much for giving me the opportunity to 
testify on what I think is, really, indeed, a crucial topic.
    In my testimony today I would like to make five points. The 
first, nominal and real interest rates are likely to remain low 
for a long time to come. Indeed, nominal interest rates are 
forecast to be lower than the growth rate of nominal GDP for 
the next 20 years. Now, this being said, it is not an absolute 
certainty, and one should indeed be ready to act if the 
circumstances changed. That was the first point.
    The second point is that, as a matter of logic, low real 
rates have three implications for fiscal policy.
    Fiscal costs are lower. The cost of debt, inflation 
adjusted, is currently negative, slightly negative, more or 
less zero.
    Primary deficits, which are the deficits not including 
interest payments on the debt, must be offset by primary 
surpluses in the future, but smaller primary surpluses--in 
other words, lower taxes today require smaller increases in 
taxes in the future, just again, as a matter of arithmetic.
    Fiscal risks are also smaller. The probability that there 
is a market-induced debt crisis in the U.S. reflecting the 
inability of a government to pay its bills is smaller or, more 
or less non-existent, for the moment.
    So this is implications of lower rates for fiscal policy.
    My third point is about implications of low rates for 
monetary policy, and we are all familiar with what these 
implications are. The low nominal rates put sharp limits on the 
use of monetary policy, and the most that the Federal Reserve 
can do is--to stimulate the economy is to decrease nominal 
interest rates to zero, or very close to zero. Once at the 
lower bound, monetary policy cannot help. But fiscal policy 
can. That is, I think, a very central point.
    Fourth, as a result of my first three points, the 
implication is lower--on the one hand, lower fiscal cost and a 
higher potential benefits imply a larger role for fiscal policy 
as a macro stabilization tool. Put another way, the tradeoff 
between debt stabilization and output stabilization has shifted 
as a result of low rates in the direction of output 
stabilization, which would be relatively more concerned about 
output stabilization than debt stabilization.
    My fifth point is to try to translate these general 
principles into concrete conclusions about U.S. fiscal policy. 
And here I see two main implications.
    First, the deficits are running at a bit above 5 percent of 
GDP at this point, and they are very large. So, unless they are 
used to finance an ambitious and credible public investment 
plan, ambitious capital spending, they should be decreased. 
Decreasing them too fast, however, would be risky, because they 
might well reduce demand, and there is little room for the Fed 
to have set this decrease in demand for low interest rates.
    Therefore, the reduction in the deficit, which is highly 
desirable, should be contingent on the strength of private 
demand. This strategy might lead to further increases in the 
ratio of debt to GDP from the already fairly higher levels, but 
I believe that it is an acceptable risk, that maintaining 
output is very, very important.
    The second and final conclusion is that, if a recession 
materialized, monetary policy would be likely constrained. 
There is very little room for maneuver, making it essential to 
use fiscal policy. Automatic stabilizers, which is a fiscal 
instrument which has been used in the past, are too weak in the 
U.S. to do the job. Better ones focusing, for example, on 
larger payments to low income households should be designed 
soon. This is an urgent matter. Thank you.
    [The prepared statement of Olivier Blanchard follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Yarmuth. Thank you very much for your testimony. 
And now, Dr. Randall Wray, you have five minutes.

              STATEMENT OF L. RANDALL WRAY, PH.D.

    Dr. Wray. Okay, thank you for the opportunity to speak 
here.
    In my statement I argue that federal deficits and debt are 
not so scary. Neither is on an unsustainable path. Rather, 
persistent deficits and rising debt are normal. They are not 
due to out-of-control spending now or in the future. They serve 
a useful public purpose. They are largely outside the control 
of Congress. And it is hard to imagine a scenario in which they 
create a financial crisis, lead to insolvency or high 
inflation, or trigger an attack by bond vigilantes.
    I want to focus on two graphs to back up these claims, and 
I don't know if these can be shown.
    Dr. Wray. Okay, there we go.
    Figure 7 shows sectoral balances. In the aggregate, 
spending equals income. One sector can run a surplus only if at 
least one other runs a deficit.
    [Slide].
    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
    
    The government sector is in red in this graph. And, except 
for the Clinton years, it is always in deficit below the line.
    The private sector is blue, including firms and households. 
It is almost always in surplus, except for the decade after 
1996, when the private sector spent more than its income.
    The foreign sector is green, and in surplus since the 
Reagan years. That is because we run a current account deficit 
reflected in our trade deficit. So the usual case is the 
government's deficit equals the sum of the private-sector 
surplus and the foreign surplus against us.
    This is an identity. You can't change one without changing 
at least one other balance. Those wanting to eliminate deficits 
have to tell us which of the other two balances will change to 
allow that to happen.
    Will they put the private sector in deficit? That is what 
happened in the dot.com and housing bubbles, leading to the 
global financial crisis.
    Or we will get foreigners to run trade deficits. How? We 
have had a current account deficit for 40 years.
    Understanding sectoral balances shows why the federal 
balance is not under the control of Congress, as it depends on 
the other two sectors.
    Finally, let's address the bond vigilantes and projections 
of exploding interest payments on the debt.
    Dr. Wray. Figure 11 shows debt service is driven by 
interest rates, not by the debt ratio, and interest rates are 
determined by monetary policy, not by the debt ratio, nor by 
bond vigilantes.
    [Slide].
    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
    
    So what do I recommend, going forward? I actually agree 
with a lot of the comments made.
    We don't need tax hikes or spending constraint now, when 
growth seems to be moderating, and there is no inflationary 
pressure. Indeed, doing that now might depress growth so that 
the deficit would actually increase, as it always does in 
recession. The time to rein in the deficit will be when growth 
booms and inflation threatens.
    I am not saying all deficits are good and created equal. I 
prefer well-targeted taxes and spending. The recent tax cuts 
were inefficient, because the main beneficiaries were high-
income earners. This raised the deficit without boosting 
growth. It makes sense to shift taxes away from low to moderate 
incomes, and onto high income and wealth. That raises 
consumption and encourages investment. Spending should be 
targeted to job creation and productivity increases.
    I don't take long-term projections very seriously. I 
remember when President Clinton projected budget surpluses for 
15 years, retiring all the debt. The dot.com crash wiped out 
the surplus, and we have had deficits ever since. We at the 
Levy Institute warned in 1997 that that would happen.
    Current CBO projections have the debt ratio rising 
continuously. This is based on the twin erroneous assumptions 
that debt raises interest rates and lowers investment and 
growth through crowding out. That ignores positive impacts of 
deficits on the private-sector surpluses. This doesn't crowd 
out spending, but it increases net wealth and encourages 
growth.
    Instead of worrying about long-term projections that will 
be wrong, we should focus on formulating good policy today. So 
I suggest three recommendations.
    First, strengthen the automatic stabilizers. Spending 
should be more counter-cyclical, while taxes should be pro-
cyclical. Policy changes weakened them over the past decades.
    Second, if discretionary policy is possible, raise taxes or 
cut spending only when the economy is overheating. There is no 
point adopting austerity today only because the deficit might 
be bigger in the distant future.
    And finally, increase efficiency of both spending and 
taxing. The goal should be sustainable growth, rising living 
standards, reduction of inequality, and not to achieve some 
arbitrary deficit or debt number. Thank you.
    [The prepared statement of L. Randall Wray follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Yarmuth. Thank you very much for your testimony. I 
now recognize Dr. Bernstein for five minutes.

              STATEMENT OF JARED BERNSTEIN, PH.D.

    Dr. Bernstein. Chairman Yarmuth, Ranking Member Womack, I 
thank you for the chance to speak to this evolving area, where 
economics intersects public finance.
    My testimony starts by noting that current deficits are 
unusually high for this stage of the economic recovery. And yet 
these deficits are not pushing up interest rates or inflation. 
If the increased flow of deficits and the resulting higher 
stock of debt are not having obvious negative economic 
consequences, does that mean deficits don't matter, and 
policymakers should blithely put all of their preferences on 
the national credit card?
    My answer is no. The evidence does not relieve policymakers 
of budget constraints. It does not negate the revenue-robbing 
impact of the 2017 tax cuts that, in my framing, are exhibit A 
in wasteful, inequitable debt accumulation.
    But the evidence provides a more nuanced, far less cramped 
understanding of the economic costs of budget deficits and the 
potential benefits from investing in people and places who have 
long needed the help.
    The coexistence of high deficits and debt amid low interest 
rates belies the traditional crowd-out arguments where public 
and private borrowing compete over a fixed lump of capital. In 
fact, our economy is large and open with deep liquid global 
credit markets, and our debt is considered among the world's 
safest to invest excess savings.
    The central bank is also in the mix. The Fed has kept its 
benchmark interest rate below 1 percent for most of the past 
decade, and convinced investors that inflation would remain low 
and stable.
    Other evidence suggests that deficits are not leading to 
faster inflation and higher rates because the U.S. economy has 
not been operating at full capacity. For either public or 
private spending to generate overheating conditions, aggregate 
demand must exceed supply such that any extra demand, save for 
more deficit spending, would generate not more jobs and higher 
real incomes, but just more inflation.
    Priors in this area of economics also require updating, 
most notably regarding the lowest unemployment rate thought to 
be consistent with stable prices. Thus, it is a serious mistake 
to assume that deficits will pressure interest rates, 
especially when there is economic slack, strong capital flows, 
excess savings over investment, and well-anchored inflation.
    Moreover, with the economy's growth rate outpacing the 
relevant interest rate, the fiscal cost of debt stabilization 
is diminished. These facts should push strongly against knee-
jerk, austere fiscal policy, but they should not obviate 
concerns about our persistent fiscal imbalances.
    First, interest rates could eventually rise that would be 
served--such that we would be servicing a much larger stock of 
debt, thus devoting a larger share of national income to debt 
payments. Prudent risk management does not assign a zero 
probability to higher future rates.
    Second, financing more of our public debt with foreign 
capital has led to an increasing share of our GDP leaking out 
through debt payments abroad. Back in 1970, public debt held by 
foreigners amounted to less than 2 percent of GDP. Most 
recently, that share was 30 percent.
    Third--and this is the concern that I find most worrisome--
is the lack of perceived versus actual fiscal space. When the 
next recession hits, the Federal Reserve will reduce the cost 
of credit. But because interest rates have been so low, the Fed 
is likely to have reduced monetary space, less room to lower 
their benchmark interest rate. Counter-cyclical fiscal policy 
does not face an analogous limit. However, were Congress to 
take insufficient action to offset a downturn, it would be a 
fateful mistake, one that would disproportionately harm those 
who are already economically vulnerable and who are, at least--
and who are least insulated from recessions.
    In closing, our evolving understanding of the role of 
fiscal debt provides us with both opportunities and risks. The 
former implies more leeway to use deficit spending to make 
necessary productive investments. The latter means avoiding 
adding to our already historically elevated debt for non-
productive or wasteful spending and/or tax cuts.
    It is, thus, essential to define good debt from bad debt. 
Good debt invests in people and places that need the help. Bad 
debt does not. Considering the set of unmet needs we observe in 
communities across the country, along with the threat from 
climate change, there exists a deep, rich set of good debt 
investment opportunities. Tens of millions remain under-
insured, in terms of health coverage. The impact of climate 
change is already being felt in volatile and costly weather 
patterns. The cost of colleges is a constraint to many families 
of moderate means. Much of our public infrastructure needs 
upgrading. Long-term wage stagnation has constrained the living 
standards of many working households, and there are significant 
swaths of people and places that have been left out of the 
current expansion.
    I am happy to elaborate on what I believe are good debt 
opportunities in those spaces during our future discussion. 
Thank you very much.
    [The prepared statement of Jared Bernstein follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Yarmuth. Thank you very much for your testimony.
    And now, finally, Dr. John Taylor, you have five minutes.

                STATEMENT OF JOHN TAYLOR, PH.D.

    Dr. Taylor. Chairman Yarmuth, Ranking Member Womack, 
Members of the Committee, thank you for inviting me to testify 
on this important topic, reexamining the economic costs of 
debt. At previous hearings of this Committee at which I 
testified, including the 19--including a 2015 meeting that was 
titled ``Why Congress Must Balance the Budget,'' in that 
hearing I showed that basic economic theory grounded in real-
world data implies that high federal government debt has a 
cost. It reduces real GDP and real income per household 
compared to what these would be with lower debt levels.
    A reexamination of the economic costs conducted for this 
hearing yields the same results. In work with John Cogan, 
Volker Wieland, and myself, we used modern economic models to 
estimate the effect of a decline in federal expenditures as a 
share of GDP. This fiscal consolidation plan led to an 
immediate and permanent increase in real GDP, according to the 
model calculations. Similar fiscal consolidation strategies 
were simulated in later years.
    Recently the Congressional Budget Office reported similar 
results. They compared their extended baseline in which--that 
goes to 144 percent of GDP--with an extended alternative fiscal 
scenario in which the federal debt goes up to 219 percent of 
GDP. This alternative scenario has the total deficit rising to 
15.5 percent, compared with 8.7 percent in their extended 
baseline.
    The CBO also finds that real GDP is 3.6 percent lower when 
the debt is higher. So clearly, according to these analyses, 
the higher debt has real economic costs.
    CBO also analyzed scenarios in which the debt is lower as a 
share of GDP, 42 percent and 78 percent. In the 42 percent 
scenario, real GDP would be 5.8 percent higher; in the 78 
percent scenario real GDP would be 3.7 percent higher.
    With the Congressional Budget Office's currently projected 
increase in the deficit and the federal debt in the United 
States, this reexamination implies the need for a credible 
fiscal consolidation strategy. Under such a strategy, spending 
still grows, but at a slower rate than GDP, at least for a 
while, thereby reducing both spending as a share of GDP and the 
debt as a share of GDP, compared with current projections.
    Such a fiscal strategy would greatly benefit the American 
economy. It would also reduce the risk of the debt spiraling up 
much faster than is currently projected by the CBO. I believe 
these conclusions are robust to different ways of thinking 
about the world.
    Professor Blanchard has emphasized that if the growth rate 
of the economy is greater than the relevant interest rate and 
the public debt, then there will be a tendency for the debt-to-
GDP ratio to decline over time. In many of the simulations 
reported by Professor Blanchard, the primary deficit is held to 
zero. However, any projection at this point has a primary 
deficit far, far above zero. And according to Congressional 
Budget Office, it is growing over time.
    Moreover, the economic costs reported here do not 
distinguish between the primary and the total deficit. It is 
the increase in the debt via the total deficit that creates 
economic costs. Of course, different views of the relative size 
of the growth rate and the interest rate are important, but 
they do not diminish the estimated costs of high debt.
    Another view of the economic costs of debt is related to 
what is sometimes called modern monetary theory. It is 
difficult to determine how this approach would work in the 
future, and it is frequently associated with large spending 
programs, and even wage and price controls. Model simulations 
would be useful, to be sure, but history can also be a valuable 
guide.
    In the 1970s the United States imposed wage and price 
controls, and the Federal Reserve helped finance the deficit by 
creating money. The result was a terrible economy, with 
unemployment and inflation both rising. This ended when money 
growth was reduced in the late 1970s and early 1980s. As 
explained in a new book by George Shultz and myself, it is an 
example where poor economic reasoning led to poor economic 
policy, which led to poor economic performance. It was only 
reversed when good economics again prevailed and policy 
changed. Thank you.
    [The prepared statement of John Taylor follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Yarmuth. Thank you for your testimony and, once 
again, thanks to all the witnesses. We will now begin our 
question-and-answer session.
    As a reminder, Members can submit written questions to be 
answered later in writing. Those questions, and the answers 
from our witnesses, will be made part of the formal hearing 
record. Any Members who wish to submit questions for the record 
may do so within seven days.
    The Ranking Member and I will defer our questions until the 
end. So I now yield five minutes to the gentleman from New 
York, Mr. Morelle.
    Mr. Morelle. Thank you very much, Mr. Chairman, for holding 
such an important hearing. I feel a little bit like being at a 
panel where I have just listened to the four leading 
cosmologists in the world talk about string theory, 
multiverses, blackholes, the origin of universe, and my first 
question is, like, how does gravity work? So I apologize, 
because this was a lot to process.
    But I did want to--just to go back to--and I think perhaps, 
Dr. Bernstein, you touched on this, as maybe--you all did, to 
some degree, but textbook economic theory, as I understand it, 
predicts that persistent budget deficits and rising government 
debt essentially raises interest rates, fuels inflation, crowds 
out, as you talked about, or depresses private investment, and 
triggers financial and fiscal difficulties.
    We are, obviously, not seeing that. The publicly held debt, 
I think, in the United States is roughly 80 percent of GDP. It 
has actually grown, which I think is unusual to grow as a 
percentage of GDP during an economic expansion, which we have 
seen over the last 10 or 11 years. The 10-year note is at lower 
interest rates than it was 20 years ago.
    So, since that was the sort of expectations, and it hasn't 
played out, is it that the assumptions that we made are 
incorrect? Or are we in sort of a unique period, or the 
circumstances have changed, where no longer those expected 
results are present? And what is the lesson that we, as 
policymakers, should take from that?
    Dr. Bernstein. I think it is more accurate to say that the 
assumptions were right at one point in time and they no longer 
are.
    So in my testimony I show a scatterplot between budget 
deficits and interest rates. And actually, if you go back a few 
decades, that lines up pretty negatively, much like the theory 
would predict.
    And, by the way, you comprehended everything that we were 
talking about perfectly well. So just being clear that you--we 
are on the same page here.
    But, as I stressed in my testimony, dynamics, global 
credit, the role of the Federal Reserve, anchored inflationary 
expectations, excess savings over global investment, all of 
those have contributed to fundamentally change the relationship 
such that the crowd-out hypothesis simply doesn't bind in the 
data.
    Now, I try to be very clear in my testimony that that 
doesn't mean that interest rates won't go up and create a 
serious problem for us. I think the way I put it was that, you 
know, it is not good risk management to assume, you know, a 
zero threat from that possibility. But it is really that the 
old assumptions no longer hold.
    Mr. Morelle. I would like to just shift. Last week we had 
the Fed Chair--Chairman Powell was here, talked about debt 
level sustainability. And I just want to read what he said. ``I 
would define sustainable as the debt is not growing faster than 
the economy. Our debt is growing faster than our economy now by 
a margin. And so, by definition, it makes it unsustainable. You 
have to have an economy that is growing faster than your debt, 
and you have to do that for 10 to 20 years. That is how you 
successfully handle this. If you don't do it, over time you 
will be crowding out private investment.''
    I am just curious, Dr. Bernstein, as a follow-up, would you 
agree with that, or do you think--would you dissent from that 
view?
    Dr. Bernstein. I would broadly dissent in the spirit that I 
just showed you. I think it is really an empirical question.
    However, John Taylor makes a fair point when he says that, 
you know, yes, it is true that growth rates surpass interest 
rates, but because the primary deficit, or the deficit net of 
interest payments has been large and growing, that is putting 
upward pressure on the debt. I don't think that means that 
crowd-out is around the corner, or at least in any perspective 
that I can see.
    I think what it does mean is that, to the extent that we do 
engage in deficit spending, it should be on the kinds of 
productive--I put it under the rubric of good debt.
    Mr. Morelle. Yes, and I did--I wanted to ask a question on 
the--something else, but--the automatic stabilizers, and 
perhaps someone else will ask about that.
    But while you are on the subject, could you just define 
perhaps a couple of examples of bad debt? You have mentioned 
some of good.
    Dr. Bernstein. I think the most--I think exhibit A is 
really in a debt that comes from tax cuts, and particularly tax 
cuts that are regressive. That is, that return far more 
benefits to those at the top of the wealth scale. To me, that 
is a classic example of both inequitable, revenue-robbing, bad 
debt.
    Mr. Morelle. Very good. Thank you, Mr. Chairman, I will 
yield back.
    Chairman Yarmuth. The gentleman yields back. I now 
recognize the gentleman from Missouri, Mr. Smith, for five 
minutes.
    Mr. Smith. Thank you, Mr. Chairman. As of today it has been 
219 days since the deadline has passed for us to propose a 
budget in this Committee.
    While this Committee might not realize it, there is several 
reasons why we go through the budget process. One, it gives 
guidelines to the appropriators; two, in a budget resolution, 
we also set the 302(a) number allocations, which establishes 
the overall spending numbers. Yesterday on the floor we saw a 
continuing resolution passed again, yet we still don't have the 
302(a) numbers.
    I am glad that this Committee hearing at least is moving 
more towards a hearing that a Budget Committee would have when 
you are talking about the national debt. So I think that at 
least that is a step in the right direction, even though we are 
219 days behind.
    Earlier this--I just want to make a comment in regards to 
what some of the witnesses had said earlier about good debt 
investing in people. Mr. Bernstein made that statement. I think 
a lot of times folks up here in the swamp get confused, and 
they think of government-funded, government spending, but it is 
not government-funded, it is not government spending, it is not 
government debt. It is taxpayer-spending, taxpayer funded, and 
taxpayer debt.
    So when we talk about debt, it is not government debt, it 
is taxpayer debt. It is every one of the 320-plus million 
Americans that have the debt. And let's not get blinded by a 
different entity, by saying ``government,'' because it all has 
to be paid for someday. And it is all the citizens of this 
country. It is the taxpayers. So remember the difference 
between government debt and taxpayer debt. It is taxpayer debt.
    I know the Tax Cut and Jobs Act was brought up a couple of 
times. I represent a congressional district that is one of the 
poorest in the nation. And I can tell you, under the Tax Cut 
and Jobs Act, where our median household income of a family of 
four is just right at $40,000 a year, the people of my district 
benefited greatly from the Tax Cut and Jobs Act. And a family 
of four with a median income household of 40,000 is not a lot. 
It is in the lowest bracket of median household incomes in the 
nation of 435 congressional districts.
    And I can tell you, by traveling the 30 counties of 
southeast and south central Missouri, how people have benefited 
from the Tax Cut and Jobs Act by the doubling of the standard 
deduction, by the doubling of the child tax credit. These were 
real numbers that helped drive the economy in a very rural, 
impoverished economy.
    So I do know that there was huge benefits, and there wasn't 
any robbing of the poor people in southeast Missouri. In fact, 
they benefited from the Tax Cut and Jobs Act, at least the 
people that I represent and the 30 counties that call 20,000 
square miles home in southeast Missouri.
    You know, the bootheel of Missouri used to be a swamp, by 
the way. And we drained it. And now it is some of the most 
fertile land in the country. And I think that is what President 
Trump is trying to do up here in Washington, D.C. And let's 
hope that it is working.
    Mr. Taylor, I have a question for you. CBO reports that an 
increasing public debt harms per-capita gross national product, 
whereas reducing the debt improves per-capita gross national 
product. Given the negative consequences of our nation's 
current fiscal path, if we were to actually legislate and put 
the federal budget on a sustainable course, what would be the 
positive economic effects?
    Dr. Taylor. I believe if the plan, if you like, the 
credible consolidation plan, budget deficit reduction plan, was 
somehow passed or agreed to--as multi-year would be best, to be 
sure, so it is credible--I think it would have a beneficial 
effect on the economy.
    So often the models that people use emphasize any reduction 
in government spending of any kind as contraction, and I don't 
believe that is the case. If it is credible, if it is 
understood, if it is planned, it has been beneficial. And that 
is what our models show. That is what our simulations show.
    I think it would be a benefit--and people have talked about 
this in the past--a strategy to reduce the debt-to-GDP over 
time. And it would be beneficial, according to models that I 
use, and I think other people have used. So I would very much 
hope that that would be the direction. I know it is not what 
you are focused on right now, but I wish there was more focus 
on that multi-year discussion, and what is going to happen.
    If you look at the expenditure growth, it is astounding, 
what is being projected. So I think that needs to be fixed.
    Mr. Smith. I see my time expired, Mr. Chairman.
    Chairman Yarmuth. Yes. Thank--the gentleman's time has 
expired. I now recognize the gentleman from Nevada, Mr. 
Horsford, for five minutes.
    Mr. Horsford. Thank you very much, Chairman Yarmuth, and to 
the Ranking Member.
    I know we are here today to reexamine how we view debt and 
deficits with respect to our economy. And my good friend, Mr. 
Smith from Missouri, he and I serve on the Ways and Means 
Committee, as well, we have had some good, lively debate in 
both this Committee and our other Committee.
    But what I find interesting sometimes is that the other 
side will view tax cuts for the very wealthy as investments. 
But when we talk about investing in resources and programs that 
we know will benefit our children and their future, somehow 
that is not something that is worth investing in.
    So I want to go directly to the numbers that impact my 
constituents. Mr. Smith talked about his.
    During the 2017-2018 school year, Nevada, which has 355 
Title I schools, over 200 thousand children in those schools--
Clark County is the fifth largest school district in the 
country, nearly half of the students are Latino students, 
limited English proficient students. Had we received the full 
allocation of funding, we would have been budgeted $379 million 
in Title I funding from the federal government.
    However, our schools received only $130 million. That is 
$250 million funding deficit for our students that need it the 
most. And I have been to these schools. I have seen what these 
teachers are dealing with, with overcrowded classrooms, with 
inadequate textbooks, with not having the after-school 
resources, early childhood investments that we know will 
improve the educational outcomes of young people and improve 
their quality of life.
    Mr. Horsford. Let me give you another example to turn to 
the chart. We have seen cuts to various skills training 
programs such as the Workforce Innovation Opportunity Act and 
the Perkins Career and Technical Education Act, as well as 
adult education. As you can see from this chart, WIOA was 
funded at $4.6 billion in fiscal year 2001. These are programs 
to train people for the 21st--skills of the future, but it only 
received $2.8 billion in funding for fiscal year 2019.
    [Chart].
    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
    
    So Mr. Bernstein and Dr. Blanchard, do you think the long-
term economic and fiscal consequences of neglecting investments 
in critical areas such as education and skills training could 
be more damaging than the consequences of increasing our debt?
    Dr. Bernstein. I will start. I do worry about precisely 
that, and this is a good example of what I am talking about 
when I say good investment, in terms of deficit spending versus 
wasteful inequitable spending.
    And it is important to just broaden out your comments 
slightly, and I will get out of the way so Olivier can jump in. 
One force that is clearly not driving the debt ratio forecast 
that we have all been talking about is precisely this kind of 
spending. So this is non-defense, discretionary spending. It is 
expected to fall to historical lows as a share of GDP. It is--
precisely the area where we should be investing is where we are 
doing the least.
    Mr. Horsford. Dr. Blanchard?
    Dr. Blanchard. I very much agree. I think the deficits, as 
they are now, are not used for the right purposes. There is a 
number of programs, measures which could increase growth, 
decrease inequality. It would be a much better use of these 
deficits than is currently the case.
    Mr. Horsford. Thank you. So I just want to note, Mr. 
Chairman, that the President and my Republican colleagues again 
passed a $1.9 trillion tax cut, and they did so in 51 days 
without one hearing. They rammed through that job tax cut bill. 
That $1.9 trillion my Republican colleagues in the Trump 
Administration passed, that benefited only the top 1 percent. 
That could have been used to fully fund Title I in my state. It 
could have been to invest in some of these programs that we 
know people need in order to compete for American jobs.
    We are talking about getting ready to work on USMCA. Trade 
is important, but guess what? We also have to invest in our 
workers in order to have the skills to compete.
    So when we talk about competition in a global economy, it 
is trade, it is skills in our workforce, and it is having a 
competitive tax rate. My colleagues focused on only one of 
those areas. They did it in 51 days, and they did it without 
regard to the majority of the American people who would benefit 
the most. I yield back.
    Chairman Yarmuth. The gentleman's time has expired. And I, 
unfortunately, neglected to, while Mr. Smith was still in the 
room, to correct one thing he said for the record--and he may 
have misspoken.
    But there--we do have 302(a) numbers for next year. We 
don't have 302(b) yet. We are working on that. But anyway, I 
just wanted to correct that for the record.
    I now recognize the gentleman from South Carolina, Mr. 
Norman, for five minutes.
    Mr. Norman. Thank you so much. Thanks to each of you for 
being here.
    Let me just re-emphasize what Mr.--Congressman Smith said. 
You know, when you say government debt, that is taxpayers' 
debt. This thing we call government is made up of taxpayers. 
They are the ones who put the money in the coffers to make 
government work. So that is not some term that is--I think it 
is misunderstood or misused by the left.
    Secondly, I have heard several talk about tax cuts for the 
rich, tax cut for those at the top. Where did the bonuses come 
that President Trump--that we passed that President Trump has 
put into practice, where did the bonuses go? They went to 
people, people that make up the corporations.
    So it is interesting that, you know, we talk about this, we 
think of government in terms--as if it is not people. We talk 
about corporations, the rich. I think the people who have 
benefited the most are those that have a job now. I think the 
growth rates under the President Trump are real, as opposed to 
the obvious low growth rates under the previous Administration, 
which hovered over 1.2, 1.5 percent. There is a reason people 
have jobs. There is a reason the growth has occurred in this 
economy like never before.
    Mr. Wray, let me ask you, have you ever run a private 
business?
    Dr. Wray. No.
    Mr. Norman. Okay. So you have never had to hire--make a 
payroll, balance up--I guess, other than your household budget, 
you never had to balance, make a product, or use--make sure 
things--you are making a profit so that you can pay the police, 
you can pay our schools, you can pay our first responders. You 
have never done that.
    Dr. Wray. That is correct.
    Mr. Norman. Okay. Let me ask you about the modern monetary 
theory, which I think you buy into. And I think the basis of 
that--tell me if I am wrong--budget deficits can be financed by 
nations who control the currency.
    Dr. Wray. Yes.
    Mr. Norman. Okay. Are you familiar with the monetary policy 
of some Latin American economies, Chile?
    Dr. Wray. Some Latin American countries, yes.
    Mr. Norman. Okay. What about Peru?
    Dr. Wray. Not Peru, no.
    Mr. Norman. Okay. Are you familiar with some of the 
inflation rates? And I mentioned Chile. You--do you remember 
what that is, the inflation rate in Chile?
    Dr. Wray. No, I don't----
    Mr. Norman. It is 500 percent. Do you remember the 
inflation rate in Peru by just printing money? Seven thousand 
percent.
    What about Venezuela? How has that worked out? That was 
10,398 percent.
    So hyperinflation hurts the little man that you are talking 
about you protect.
    You know, in Venezuela today we are witnessing the effects 
of Socialism, a socialistic economy that doesn't work for the 
people that you say you protect. Those are the consequences of 
the very monetary policy that you say you promote.
    And I guess--let me ask each one of you. I have got a 
minute, 31. As you look at priorities in this country that we 
spend on, is--does the Green New Deal add up as the top 
priority?
    And I would start with--well, Mr. Wray, let me start with 
you.
    Dr. Wray. I do think that we face a very serious challenge 
that will require federal government involvement and federal 
government spending.
    Mr. Norman. What would it cost?
    Dr. Wray. It depends on what you include in the Green New 
Deal. Say----
    Mr. Norman. Pick a number.
    Dr. Wray. Well, say the complete package of greening 
programs could be as much as 5 percent of GDP for the next 10 
years.
    Mr. Norman. Which is? Give me a number. Just pick a number, 
because I have heard----
    Dr. Wray. Okay.
    Mr. Norman.----73 trillion, I have heard----
    Dr. Wray. No.
    Mr. Norman. Not that?
    Dr. Wray. No.
    Mr. Norman. But it is top of the list over national 
defense, over education----
    Dr. Wray. I don't think that we have to make a choice like 
that.
    Mr. Norman. Okay.
    Dr. Wray. If we are talking about adding 5 percent of GDP 
to total spending, we don't have to eliminate defense. That 
would bring government spending up to about 25 percent of GDP.
    Mr. Norman. Okay. Mr. Taylor?
    Dr. Taylor. I think the highest priority is to have a 
faster-growing economy which benefits large parts of this 
economy. And--as you have emphasized.
    Mr. Norman. Which is what the tax cuts have done. That is--
--
    Dr. Taylor. They have been effective.
    Mr. Norman. Right. That is--I am out of time. Thank you, 
Mr. Chairman.
    Chairman Yarmuth. Do either of the other two witnesses want 
to respond to the question? Dr. Blanchard?
    Dr. Blanchard. The Green New Deal is, indeed, a priority. 
Is it the top priority? There are many other things which need 
to be repaired in this country, from bridges to other 
infrastructure. Should it be financed by debt or by taxes? I 
think the answer is by a mix of the two.
    Dr. Bernstein. The only thing I will add is when you are 
contemplating the cost of the Green New Deal, or any other 
action against climate change, it is very important to factor 
in the costs of not doing anything about climate change. Those 
costs are becoming increasingly significant, and they must be 
netted out of whatever numbers we are throwing around.
    Chairman Yarmuth. Thank you. The gentleman's time has 
expired. I now recognize the gentleman from Tennessee, Mr. 
Cooper, for five minutes.
    Mr. Cooper. Thank you, Mr. Chairman. And I welcome such a 
distinguished panel of economists. I appreciate your patience, 
because you must know when you come there will be a lot of 
partisan sparring.
    I must admit, I actually watched the YouTube video of Mr. 
Blanchard's address, because when I saw the headline that he 
apparently said, according to the press, that deficits don't 
matter, I had to see for myself what, in fact, you had said. 
And I regret the distortions that were made of your, what, AEA 
speech that prompted some journalists to mischaracterize it.
    I worry, in general, that the nuance that is in all of your 
testimony largely escapes Members, so I worry that you end up 
looking like pinatas, hit by whatever is the opposing side. 
Because, as we well know, when the other side is in the 
majority, there will be three John Taylors on the panel, 
instead of the only one we have today. I am not suggesting you 
be cloned.
    But the real issue is whether we can get at the truth. And 
perhaps no hearing this year is going to be more important in 
helping us ferret out the truth, because, as we deal with 
short-term, medium-term, long-term tradeoffs, I worry that 
there is a certain learned behavior here, when we refuse to 
acknowledge nuance, when we refuse to try to get things right 
and look beyond the horizon, that we could be committing grave 
errors today.
    And literally, none of us really has skin in the game, 
because the average congressional tenure is six to eight years. 
We will be gone. Some of you have tenure. Even with that, you 
will be gone.
    So our real obligation is to our children and 
grandchildren, great-grandchildren. And it really matters, even 
though some of these issues are measured in small percentage 
points, whether we get it right. Because the difference between 
1 percent growth, 3 percent growth, 5 percent growth is 
monumental.
    I worry that, on behalf of your profession, there is not 
sufficient humility, because my guess is that none of you 
correctly predicted the 2008 recession, because hardly anyone 
did, and those who claim they did sometimes exaggerate their 
foresight.
    But I think John Maynard Keynes said that all economists 
should be humble, like dentists. And I am not saying, you know, 
from the profession, a dentist type humility or ability--
because at least dentists have to talk to their patients and 
try to make sure the patient understands brush your teeth every 
day, otherwise you will have cavities.
    So, if you could help me understand, because, to me, there 
is more commonality in the testimony than would appear on the 
surface, and yet you are being separated three to one, as if, 
you know, one side is good, one side is bad. Dr. Bernstein even 
characterizes good debt, bad debt. That is a pretty Manichean 
view of the world.
    You know, it all depends on what your favorite programs 
are. And both parties end up having similar sins. We both love 
spending if it is our sort of spending. We both decry debt if 
it is not our sort of debt. So I am worried we are really 
talking past each other here.
    So would any of you admit that there is really more 
commonality than first appears?
    Dr. Bernstein. I mean, I--first of all, let me just say 
that embedded in my testimony is more humility than perhaps I 
showed. And I totally agree with your point on that. And the 
idea is that we should be humble about our ability to predict 
the future, say the correlation between deficits, debt, and 
interest rates. And so I really emphasize the empirical 
relationship. And I think that is the important one.
    In terms of good debt and bad debt, I was just--that is 
sort of trying to be somewhat of a cute framing to suggest the 
debt that is incurred in the interest of productive investment 
is very different than debt that is incurred for what I would 
consider wasteful tax cuts.
    Now, we can have a good argument about that, but I just 
wanted to be clear about that point.
    Mr. Cooper. Dr. Blanchard?
    Dr. Blanchard. Thank you. I thought, listening to the three 
others, that there was, indeed, a lot of commonality, in the 
sense that I think we would all say that debt, per se, is not 
good in the long run, that it has--we can disagree about how 
bad it is, but nobody argued that it was good.
    There was some difference about the short run. I think a 
few of us believe that, if there was a sharp fiscal 
consolidation, this would lead to a decrease in demand and 
potentially a recession.
    John, I think, was more optimistic about the fact that 
animal spirits triggered by fiscal consolidation could undo the 
direct effects. I am very skeptical of this. But beyond this, I 
think there was agreement.
    The last point is I think there was agreement that if that 
is used for good stuff, public investment, R&D, growth-
enhancing measures, then there is some justification for using 
debt in that case, the same as would be true for a private 
firm.
    Mr. Cooper. I see that my time has expired, Mr. Chairman.
    Chairman Yarmuth. The gentleman yields back. I now 
recognize the other gentleman from Tennessee, Mr. Burchett, for 
five minutes.
    Mr. Burchett. Thank you, Mr. Chairman and Ranking Member. I 
want to thank you for your kind words. I think about my folks 
when somebody says something nice about me, and I hope, where 
they are, they can see that. I think they would be very 
pleased. And I thank you, brother, for that.
    My question today is for the entire panel. And I am always 
concerned about China. I guess it is almost genetic. My father, 
actually, after the Second World War, was in the Marine Corps 
actually went to China and fought the Communists for a short 
while, and was, I think, amazed at their abilities that they 
had, and just their view of totalitarianism, and very little 
regard for human lives. And I think that scared him.
    And with that, I would like to know--China, of course, 
holds the most of our debt, with $1.1 trillion. What are the 
economic impacts if these foreign countries decide to collect 
on that debt?
    I hear that a lot. Put it down on my level. I took first 
quarter economics for a good reason. I was asked to. So I--the 
second time around I was told to. So if you all could--I would 
appreciate every one of you all giving your response.
    Dr. Blanchard. I think we have to worry about China. As I 
mentioned, that particular one worries me less than some of the 
others, in the sense that, if they were to want to sell the 
large amount of treasury bills and bonds that they have, they 
would make a very large capital loss on their holdings. I think 
that is sufficient reason not to want to do it, from their own 
point of view. So I would not worry very much about the fact 
that China holds quite a large quantity of government, U.S. 
Government, bonds.
    Dr. Wray. Can I add? If you look at who are the holders of 
U.S. Government bonds abroad--and that is almost half of the 
debt we have been talking about--they are the exporters to the 
United States, plus offshore banking centers. The way that they 
get the bonds is by selling output to us. We use dollars to buy 
it. They accumulate dollar reserves at the Fed, and then they 
convert those into U.S. treasuries.
    So, as long as China and other exporting nations want to 
sell their goods to us, they are going to accumulate dollars, 
and they are going to very rationally convert those to U.S. 
treasuries. I think that any transition out of U.S. Government 
bonds is going to be very slow. China will eventually run a 
trade deficit. It is going to become too wealthy; its incomes 
are going to become too high to be the low-cost exporter in the 
world. Their population will buy more imports, and so that will 
reverse. But it is going to be very, very gradual.
    So I agree with Professor Blanchard, this is really not a 
worry.
    Dr. Bernstein. Since I agree with Blanchard, let me just 
briefly say that if you owe the bank $100, they own you. If you 
owe the bank $1 million, you own them. That is kind of what 
Olivier was saying, and I share that view.
    Dr. Taylor. Yes, I think we should be concerned because our 
debt is growing very rapidly. And many people are buying it. 
They won't always buy it. There is a risk. And that is not 
built into the usual forecast, but you can't ignore that. It 
could be a spiral up, and some people would say no, that is 
enough. So I think it is a risk.
    I think that China is much more than that. I think there--
they seem to be going back, away from some of the market 
principles that made debt economies so successful with Deng 
Xiaoping, originally.
    I think the U.S. needs to be concerned about its own 
economy, its growth, its tax system, et cetera, and continue to 
stress that philosophy that we have had for many years and has 
worked. China seems to be going in the wrong direction. That is 
bad for them, bad for the world, as well.
    Mr. Burchett. Thank you, Mr. Chairman. Thank you all very 
much for being here.
    Chairman Yarmuth. The gentleman yields back. I now 
recognize the gentleman from New York, Mr. Higgins, for five 
minutes.
    Mr. Higgins. And thank you, Mr. Chairman, and thank you, 
panelists, for being here. Let's just be clear about a couple 
of things.
    First of all, the job creators in the strongest economy in 
the history of the world, a $21 trillion economy which is 70 
percent consumption, are the American people. And with higher 
wages, you have higher demand. With higher demand you have 
higher growth. So fiscal policy and tax policy has a major, 
major impact.
    Some talk about bad debt, and, you know, debt does matter. 
What is absurd is the hypocrisy of Republican actions that 
created lots of bad debt that served the interests only of the 
hyper-rich, and not the general good.
    Two questions: Did the $1.5 trillion over 10 years 
corporate tax cut produce economic growth beyond that which was 
projected before the tax cut? It did not. And I would defy 
anybody to argue the contrary.
    Did every American household receive $4 to $9,000 increase 
in household income that the White House Council of Economic 
Advisors explicitly said would occur, and on a recurring basis, 
because of the tax cut? Absolutely, it did not.
    Here is who it benefitted, and this is why it is bad debt. 
In fiscal year 2017, FedEx owed more than $1.5 billion in 
taxes. The next year, after the full year that the tax cut went 
into effect, it owed nothing. FedEx's effective tax rate went 
from 34 percent in 2017 to less than zero, meaning that the 
federal government owes FedEx a rebate. FedEx spent $2 billion 
on stock buybacks and dividend increases in 2019, more than 
double the amount that FedEx paid for buy-backs and dividends 
in 2017, before the tax cut. The FedEx chief executive officer 
received $16 million in compensation in 2019, and the five top 
executives below him received compensation averaging $6.2 
million in compensation.
    So it seems to me that it is very, very clear after a very 
short period of time that this tax cut was bad debt. We spent 
$1.5 trillion and didn't get any measurable return accruing to 
the public good.
    Under President Trump, he has accumulated almost $4 
trillion in new debt. That will be by the end of the fiscal 
year 2020, the final year of his first term. The U.S. budget 
deficit grew to almost $1 trillion this year, and we project $1 
trillion deficits for the next several years, moving forward.
    Now, it would seem to me a company like FedEx would be 
promoting good debt for the general purpose. I mean that is a 
company, as I understand it, that is a logistics company. They 
move product by ship, by plane, but a lot by trucks. And my 
sense is that the better use of debt would have been $1.5 
trillion in infrastructure bill that would have produced 
economic growth and helped this economy, our $21 trillion 
economy, function much more efficiently.
    Dr. Bernstein, your thoughts?
    Dr. Bernstein. Yes, if you look from the first quarter of 
2018, which is when the tax law took effect--this is broadening 
out from the FedEx point, just to the broader business 
community--companies have spent almost three times as much on 
dividends and stock buy-backs than they have on increased 
investment. If you actually look at the investment record, it 
is exhibit A against the argument that the tax cut was going to 
have these trickle-down effects that would generate faster 
investment, faster productivity, and then faster income growth.
    In fact, in the prior two quarters business investment has 
been a negative on GDP, and it is widely agreed-upon that this 
is one of the most conspicuous failures.
    And that is what I mean when I talk about debt that I view 
as both wasteful, inequitable, and robbing the treasury of 
revenues it needs to make the kinds of investments that we have 
been talking about earlier.
    Mr. Higgins. Dr. Blanchard?
    Dr. Blanchard. Whatever the case for corporate tax rate 
reduction as boosting investment, I think the evidence so far 
is that it has not. And therefore, indeed, I think the money 
could have been spent much better, along the lines that you 
suggested.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from Georgia, Mr. Woodall, for five 
minutes.
    Mr. Woodall. Thank you, Mr. Chairman, and thank you for 
holding the hearing. If I have learned anything with you over 
these 11 months now, it is that we should stop passing bills 
that are only supported by one party or the other.
    When Mr. Womack was chairman, we spent much of our time 
debating the merits of the Affordable Care Act and the unmet 
promises that were there, and now we are debating the merits of 
the Tax Cut and Jobs Act. We are not debating the 1983 Social 
Security amendments that raised taxes and cut benefits and 
solved the system for a generation. We are not debating the 
1996 welfare bill, we are not debating the 1997 Medicare 
amendments, we are not debating the 2005 Medicare Part D, all 
of those things that we did in partnership.
    And against that backdrop I ask, here we are, with a three-
to-one ratio--and yes, if Mr. Womack was chairman, we would 
have a three-to-one ratio going the other way--I want to find 
what those things are we agree on, because the three of us had 
an opportunity to serve on a bipartisan, bicameral budget 
process reform committee last cycle, and I think we have heard 
that broad agreement, that we can't keep doing things the way 
we are doing them, that we can do better. Even if we can keep 
doing things the way we are doing them, we can do better.
    In your testimony, Dr. Bernstein, you point out that non-
defense discretionary spending isn't the problem. It 
absolutely, positively is not the problem. Now, we will spend 
more time in Congress this year debating those issues than we 
will any of the problem issues. But it is not the problem.
    Dr. Blanchard, you said unless they are used to finance 
ambitious, incredible public investment plans, deficits should 
be decreased. I serve on the Transportation and Infrastructure 
Committee. I promise you we were supposed to debate ambitious, 
incredible infrastructure development plans this year, and we 
haven't. We have been focused on other, smaller issues.
    So what is the big picture item that, across this panel, we 
can agree on?
    And the plug I would put in would be a debt-to-GDP target 
that had enforceable mechanisms. It has to be revenue; it has 
to be dealing with mandatory spending growth. But that--to 
bring people together, I have got to have a common set of rules 
and goals. If we all agree we can do better, tell me what that 
proposal is you would make. Dr. Bernstein?
    Dr. Bernstein. Well, I think you said it. I am not going to 
give you a number or a debt rule. What I am going to say is 
that I think both sides agree that our infrastructure, our 
public infrastructure, is really in trouble. And I must say I 
don't understand, especially given how low interest rates are, 
why we are not doing more investment in that. Maybe you can 
help me understand that. But that would seem to be an area of 
bipartisan agreement.
    Mr. Woodall. Now, given that everyone testified that they 
thought interest rates would remain low for some time to come, 
I thought we had a sense of urgency to get to work on taking 
advantage of low interest rates. I feel less of that sense of 
urgency, listening to you all. I sometimes think we need that 
sense of urgency. If interest rates were 5, 6, 7 percent on 
federal debt, I promise you we wouldn't be having the debt 
conversation we are having now. We have made it too easy.
    Dr. Wray, you have been the target of a lot of conservative 
attention. But that also makes you someone who could help me 
bring my colleagues with me to the center. What is your 
counsel?
    Dr. Wray. Well, we have to remember that the debt ratio is 
a compound term. And if we increase GDP, and if we get growth 
going, the debt ratio will come down in two ways. High growth 
increases tax revenue tremendously. It reduces some kinds of 
transfer payments. So total spending goes down. And second--so 
the debt is smaller. And second, we are increasing the 
denominator. GDP is higher. And that is the best way to reduce 
the debt ratio.
    And that is typically what has happened in the past. Our 
debt ratio was 100 percent in World War II. And then it 
declined over the whole post-war period until relatively 
recently, when it started going back up again to 80 percent.
    Mr. Woodall. I was looking through each of your written 
testimonies, looking for that dramatic change in productivity, 
women entering the workforce, all of those dramatic factors 
that led to economic growth over the past 50 years. I didn't 
see any of those transformative things, which had me worried 
about repeating that.
    Even at these high consumption--our debt is not fueling the 
investment we have talked about. It is fueling consumption. It 
is fueling transfer payments. Even at these levels that--you 
believe that we can only deal with one side of the equation, 
which is growing GDP? I love to grow GDP; I just don't think it 
is--I don't think--I am a growth guy. I can't do it by growth 
alone, I have got to have revenue, I have got to have 
reductions in spending.
    Do you disagree with that, fundamentally?
    Dr. Wray. I don't think we need reductions of spending, no.
    Mr. Woodall. Thank you, Mr. Chairman.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from Virginia, Mr. Scott, for five 
minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Dr. Bernstein, you mentioned the offsetting costs of 
climate change. What did you mean by that?
    Dr. Bernstein. I could cite various studies that project 
the costs of climate change, in terms of destruction of 
property, destruction of businesses, destruction of homes. But 
I don't have to cite studies. You can just open the newspaper. 
We see much more volatile weather that scientists tell you is 
related to climate change; droughts; fires. That is what I was 
referring to.
    If we are going to contemplate the cost of doing something 
about that on the budget side, we must net out the cost of not 
doing something about it, which are in the hundreds of 
billions, according to estimates I have seen.
    Mr. Scott. Thank you. In terms of fiscal responsibility, 
they say we should run the budget--run the federal budget like 
families run their budgets. Isn't it true that a fiscally 
responsible family will routinely go into debt buying a house, 
buying a car, and sending children to college? What are 
comparable good debt on the government's behalf?
    Dr. Bernstein. I think the analogy that the government is 
like a family is extremely misguided in this regard. In fact, 
it goes the other way. When families are tightening their 
belts, say in a downturn, the federal government, which has the 
ability to borrow--and, again, at particularly low rates--
should be loosening their belts.
    So the idea that the federal government would contract when 
the private sector is contracting is a recipe for austerity, 
more specifically, for--more pain for the people least 
insulated from the pain, the most economically vulnerable 
families.
    Mr. Scott. But families do go into debt for houses. That is 
not considered fiscally irresponsible.
    Dr. Bernstein. No. I mean I think that is a good example of 
the kinds of debt distinctions that I am making.
    I mean people will go into debt for a college education, 
for a housing--it--you know, it really gets back to this idea 
that growth rate versus the interest rate--and that applies to 
families, too.
    Why does a college education often make sense to people? 
Because--a college loan often make sense to people? Because you 
are becoming indebted in the interest of improving your earning 
power. And so that is the kind of calculation that I think 
families make, and governments ought to, as well.
    Mr. Scott. Now, it has been pointed out that there is no 
noticeable difference in trajectory in unemployment rate and 
jobs created after the $1.5 trillion tax cut, an economic plan 
about twice as expensive as the Obama stimulus package, which 
had a profound change in trajectory in terms of jobs and 
unemployment rate.
    Why did the Trump--why was the Trump initiative so 
ineffective?
    Dr. Bernstein. Well, first of all, I have noticed many 
Members citing $1.5 trillion cost of the--the CBO says $1.9, 
and that, I think, is more accurate.
    Mr. Scott. I think it is a question of whether you add the 
interest in, I think, is the question.
    Dr. Bernstein. The answer--my answer to your question 
actually comes to predictions that not just myself, but were 
widely made before the Trump tax cuts, that it would not have 
anything like the investment effects that were projected. And 
the reason why many of us thought that was because the cost of 
capital was already so low, and that firms were sitting on 
large piles of retained earnings.
    So there was no reason to think that, as an economist would 
say, there was a large elasticity to tap there. That is, firms 
had access to all the investment capital they needed, we made 
it a bunch cheaper by cutting taxes, and, guess what, they 
didn't respond on the investment side. Once again, supply side, 
trickle-down fairy dust didn't work.
    Mr. Scott. You mentioned debt held--foreign-held debt went 
from 2 percent to 30 percent of GDP. What is the problem with 
that?
    Dr. Bernstein. Well, the problem with that is that more of 
our national income leaks out to lenders from abroad. So if you 
are concerned about one of the costs of increasing debt, 
meaning that income that we produce in this country ends up in 
the pockets of lenders from other countries, you know, that is 
a germane concern at 30 percent, not so much at 2 percent.
    Mr. Scott. And interest rates are set on--we talk about 
crowd-out, and we used to be concerned about the federal 
deficit. Is our interest rate set on a domestic basis or an 
international basis?
    Dr. Bernstein. I would say very much on an international 
basis. But I would also stress that the Federal Reserve, or the 
central bank--and not just our Central Bank--are very much in 
the mix. And, as I point out in my testimony, if you average 
out over the last decade, the central bank's interest rate has 
been .6 percent, on average. So they are in the mix, as well.
    Mr. Scott. And if the international rate went up, an 
international rate over which we have very little control, what 
would happen?
    Dr. Bernstein. Well, that is one of the reasons why I argue 
deficits matter, because we are exposed with a larger stock of 
debt to that kind of problem.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from Oklahoma, Mr. Hern, for five 
minutes.
    Mr. Hern. Thank you, Mr. Chairman. I am thankful today in 
the House Budget Committee that we are actually talking about 
taxpayer debt for the first time. I have been here a little--
one year, and it is the first time we have talked about it. It 
is encouraging.
    But I am also discouraged to hear that, you know, that we 
don't think deficits and debts matter when we talk about the 
monetary theory, and that countries that can print their own 
money can just take care of their issues, and we don't really 
have a responsibility.
    Last week we had the opportunity to talk to the Fed 
Chairman, Jerome Powell, sitting in your seat. And I asked him 
specifically about the modern monetary theory. And his--he 
stated, ``The idea that countries that borrow in their own 
currency can't get into trouble is just wrong. And the idea 
that debt does not matter is also wrong.''
    Additionally, we have--more than 40 leading economists were 
asked whether they agree with the underlying tenets of modern 
monetary theory by the University of Chicago's Booth School of 
Business. One hundred percent of the respondents disagreed or 
strongly disagreed with the economic principle.
    I don't believe that Members of Congress are naive enough 
to believe in MMT as a way of servicing our debt. I believe 
that this is just a way to justify their multi-trillion-dollar 
wish list. They simply cannot face up to the reality that their 
free proposals like the Green New Deal, Medicare for All, the 
Green Housing Deal are not at all free.
    When asked about how to pay for these programs, they can't 
get a straight answer. Some just argue that ``We will.'' Some 
settle on the convenient MMT. This is not realistic. The Green 
New Deal, Medicare for All, and the Green Housing Deal are not 
realistic, and our kids and grandkids will pay the price tag. 
By pretending that we can afford these outrageous proposals, we 
are indebting our future generations to pay for them all.
    We have all talked about the 2017 Tax Cut and Jobs Act of 
being just so destroying of our economy. Would you all agree 
that we are--this year we will have the highest revenues in the 
history of this country?
    Dr. Bernstein. Not nearly as a share of GDP, which, in my 
view, is the right way to----
    Mr. Hern. But we will--from a pure dollar standpoint, we 
will have the highest revenues ever in the history of this 
country. Is that correct?
    It is yes or no. I mean it is not hard. You guys are 
economists, all doctorates, the last time I checked.
    Dr. Bernstein. That statement is probably true every 
quarter in our history, except when we are in recession.
    The relevant measure is as a share of GDP. I mean this is 
a--this is not a partisan statement. This is a CBO view. And as 
a share of GDP, we are collecting 16.3 percent of revenues in 
fiscal year 2019. That is a historical low point.
    Mr. Hern. So, you know what? I have been here one year. I 
will tell you that, no matter what the revenue is, that we will 
figure out how to spend it. I mean would you agree with that, 
as well?
    Dr. Bernstein. Yes.
    Mr. Hern. Okay, good. We got a yes-or-no on that one, for 
sure. Yes, we will figure out how to spend it. There is no 
sense of fiscal accountability in this House.
    And so, to say that it is wrong to put a little bit of 
money back in the people's pocket--because I will tell you, 
back in the hinterland, when you get out of the beltway, they 
don't believe we can control any kind of spending. And to put 
money back in their pocket is not wrong, because they don't 
just go bury it in their backyard, contrary to what you would 
like to make everybody believe. They go spend it in their 
economies, their local economies, which pay taxes to fund their 
schools, to fund their roads, to fund everything else in their 
area not dependent upon the federal government.
    Those are just facts. You can agree or disagree, but those 
are facts.
    You know, as we go forward here, I like what you said, Mr. 
Bernstein, about we have good debt and bad debt. In fact, I 
introduced a pro-growth budgeting act two weeks ago. It will 
never see the light of day, because, contrary to popular 
belief, most people here don't believe that you actually invest 
using debt.
    And when we talk to the ordinary people in the world, the 
people that are not in this room--except for our guests, I 
appreciate our guests being here--but those of us that are here 
talking at each other, when you talk about debt you have some 
reasonable expectation of paying it back. That does not occur 
in Congress. You borrow money and you never pay it back. It has 
only been paid back four times in--four years in a row, 1997, 
1998, 1999, and 2000--and 2001, a little bit. But since then we 
have been running deficits every year, which means we are not 
paying down any debt.
    So we have a different definition of debt in this world up 
here. So I would encourage you to look at that and give me your 
thoughts because it says if we spend $1 or borrow $1, it is 
being borrowed and spent to actually grow the economy. I would 
encourage you to look at it. It has got a lot of reviews, a lot 
of people signed onto it. Not Members of Congress, but a lot of 
people signed onto it. So, anyway, I would like you to take a 
look at that.
    You know, as we go forward here, I would like to talk about 
the Green New Deal, Mr. Wray. If it is not $93 trillion or $83 
trillion, what is the number that we are talking about? Because 
it is getting used a lot around here. I know you guys, you see 
this, and you hear about it, and it is in the press. But in our 
hearings, every hearing, every committee, 22 committees, has 
some component of a conversation of Green New Deal. Can you 
give me just your best guesstimate of what that is going to 
cost?
    Net, net. I get it, you know, you are going to save money 
and all that stuff, Mr. Taylor and others. But what is that 
number?
    Dr. Wray. As I said, it depends on what you include in the 
Green New Deal, and it could be about 5 percent of GDP.
    Mr. Hern. So only $100 billion a year? Is that what you are 
saying? Is that roughly--wow. Trillion? Trillion dollars a 
year. So a trillion versus $9 trillion?
    Dr. Wray. Yes.
    Mr. Hern. That is a big difference, I mean----
    Dr. Wray. Sure.
    Mr. Hern.--because up until now I have not really heard 
many people argue the $9.3 trillion a year number that----
    Dr. Wray. Yes.
    Mr. Hern. So----
    Dr. Wray. I have looked at the $93 trillion number, which 
is an outlier. And they don't count reduction of spending on, 
say, the destructive activities.
    Mr. Hern. So you are saying the $8.3 trillion is what we 
would save, versus spending on net trillion. That is--man, I 
don't know. That is a pretty good return.
    Dr. Wray. Well, as I said, that was an outlier.
    Mr. Hern. Yes.
    Dr. Wray. Other estimates are nowhere near that number.
    Mr. Hern. Obviously, we don't have 20 minutes to ask 
questions. But Chairman, I thank you for your indulgence.
    Chairman Yarmuth. I always enjoy giving you more time.
    Mr. Hern. No, thank you, Mr. Chairman. I really appreciate 
it. I thank the witnesses for being here.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from California, Mr. Khanna, for five 
minutes.
    Mr. Khanna. Thank you, Mr. Chairman. Thank you to the 
distinguished panel. I want to welcome Professor Taylor, who is 
from the Bay Area. I taught as a lecturer in economics at 
Stanford for four years. And while I am more with Professor 
Krugman than I am with you, Professor Taylor, I will say that I 
had students in my class who wore a tee shirt with your face on 
it, and the Taylor Rule. So you certainly were a popular 
professor.
    I want to ask the panel about our strategy that allowed us 
to win the Cold War. I think we forget that, post-Sputnik, our 
government did great things. We created satellites. We remain 
the only country that has ever sent someone to the moon. We 
invented the Internet. We invented navigation systems.
    And I would argue that there were two comparative 
advantages to American policy: one, we had a policy of talent 
acquisition from around the world. If you were creative, smart, 
entrepreneurial, we wanted you here; and two, we had almost 3 
percent of our GDP in fundamental science and technology 
investment.
    And so I would like to ask the panel, putting aside 
partisanship, if we want to lead the 21st century against 
China, would you recommend, as a growth strategy, that we 
invest in smart infrastructure, smart broadband, smart new 
technologies, quantum computing, artificial intelligence, new 
fields of biology? And would you recommend that we have a 
policy of talent acquisition? Dr. Bernstein or Dr. Taylor, 
either.
    Dr. Taylor. So, thank you, fellow professor.
    Mr. Khanna. Lecturer. I never would be tenured at Stanford.
    Dr. Taylor. So I think you are correct, that what we did 
is--in technology is amazing. The Apollo 11 movie, it is a 
fantastic thing to watch. I encourage everybody to do that. It 
is the private-sector, public sector working together, and I 
think that is admirable.
    I think we need to find out more ways to do that. I think 
it is partly working with the private sector. It has encouraged 
them. You know the private sector very well, and it is not 
bashing them, it is encouraging them, because it is very much 
part of our society and why we are successful.
    I do think the question of crowding out of discretionary 
spending, what you are talking about, is other kinds of 
spending. I could see these projections of spending as a shared 
GDP, they are just going through the roof. And that means that 
other things, which haven't even come up yet in this hearing, 
are growing very rapidly, because we know that funding for the 
things you are talking about are not going.
    So I think the focus should be what are you going to do to 
control the growth of those items, because they are crowding 
out the things that you want and we want. That is what is 
happening. And it is not really benefitting people very much.
    So that is where I would look. What is--why is that 
spending path exploding? It is exploding. What can you do about 
that, and what can this Budget Committee do about it?
    It is probably the targets that Mr. Woodall suggested. What 
should the--maybe 42 percent of GDP, like we had averaged over 
50 years is okay. What is wrong with that? And have a 
deliberative process of how do you get to that.
    So I would suggest having an overall view would be very 
important.
    Mr. Khanna. Dr. Bernstein, do you want to----
    Dr. Bernstein. Very quickly, I would say that I wouldn't 
characterize our spending in the areas that John did as 
exploding. I would characterize them as completely predictable, 
given pressures from demographics and health care costs. And I 
do think there are savings to be had there in health care 
reform.
    To answer your--let me just give you one granular answer to 
your question. And I know, Congressman, this is--I think this 
will appeal to you, because I know that you think about this in 
a granular way.
    So green technology wasn't on your list, but I am sure it 
was implicit. And think about battery storage. Now, I happen to 
know that--I pay attention to this--countries are now trying to 
figure out--kind of competing, fighting for who is going to 
dominate the global market when it comes to storing energy in 
battery technology. And that is a fight that we are not even 
in, and I think it is extremely consistent with your view.
    Mr. Khanna. If I could ask one more quick question to the 
panel, putting aside your view on the wealth tax, I ran 
around--across a statistic that 87 percent of American wealth 
is in the United States, 87 percent. Only 2 percent is in the 
Cayman Islands, 1.5 percent in Britain, 13 percent overseas.
    And so people who say, okay, if you have a tax on wealth 
people are going to leave, remind me of my friends who said if 
Donald Trump was going to win the presidency, they would leave 
America. They didn't, because this is the best place to live in 
the world. And don't you think this is the best place, still, 
to invest in the world?
    Dr. Bernstein. That is a rhetorical question. Yes.
    [Laughter.]
    Yes, I do, and I think you make an interesting point that 
hasn't really been brought to bear on the wealth--I mean I 
think it is true that, given the mobility of wealth, and 
proclivities for avoidance and evasion, we do need a structure 
that holds hands with other countries to monitor that. But your 
point is well taken.
    Chairman Yarmuth. The gentleman yields back. I now 
recognize the gentleman from Pennsylvania, Mr. Meuser, for five 
minutes.
    Mr. Meuser. Thank you, Mr. Chairman. Thank you all for 
being here with us.
    So the federal government does have a serious spending 
problem, as do state governments, truly trying to be all things 
to all people. Even just hearing today, it sounds like he wants 
the government to get into the battery business.
    We don't so much have a revenue problem. According to CBO 
projections, the federal government's revenue will total $46 
trillion over the next 10 years. Revenues will grow by 63 
percent, about a 6 percent range. Very healthy. That is--and 
last year our revenues grew about 7 percent, and that is after 
the Tax Act, which had extraordinary results.
    So--but, however, mandatory spending over the next 10 years 
is projected to increase by $3.1 trillion to $5.3 trillion, a 
total of $36.5 trillion over a 10-year period, almost as much 
as it will be--total as much as revenues. So without even 
discretionary, which will grow by $14 trillion, we have already 
used up, just in mandatory spending, all the revenue growth.
    So clearly, we have a spending problem. And that would put 
us in the neighborhood of a $10 trillion--you know, 36 plus 
14--deficit, or debt, in addition to where we currently are. 
So--and this would lead to 79 percent of GDP today to 144 
percent in--within a 10-year period.
    So the way I look at it is we have two budgets, we have 
discretionary and we have mandatory budgets. Discretionary 
spending is up $70 billion in 2018. Revenues, however, are also 
up $70 billion. So just looking at that one budget, we have a 
balanced budget. Our problem is, as stated, with mandatory 
spending.
    So what we have, though, is many proposals to add to our 
mandatory spending, such as Medicare for All, which has a $32 
trillion estimate cost over the next 10 years.
    So, Dr. Taylor, I will ask you, I will start with you. In 
your opinion, how do you think the government would have to 
finance this program? And how high would taxes have to be 
raised to meet such a large level of additional mandatory 
spending?
    Dr. Taylor. I think, if it is just in addition, it is not 
going to work. You have to go the other direction.
    The simulations, the calculations, as you say, there is--
mandatory spending is going very rapidly. It has got to be 
controlled. You don't have to reduce it, you have to slow the 
growth, compared to growth of GDP. There is proposals out to do 
that.
    I think there would be--more discussion of those proposals 
would be very worthwhile. Much of the discussion is going to 
the opposite direction, the Green New Deal, et cetera, Medicare 
for All. I haven't seen those where they are really saving 
money. I know there are some people that argue that it would 
be.
    But there really has to be some attention given to this--I 
would--because the projections, at least, are explosions of 
spending, and it is largely because of the so-called 
entitlement problem.
    Mr. Meuser. All right. Has there ever been a country that 
you can think of in history that has spent its way into 
prosperity, and increased taxes in order to pay for more 
government-run programs?
    Dr. Taylor. I think the history is quite clear, that a 
solid fiscal policy, where you are balancing the budget as 
close as possible over the cycle, you have deficits and 
recessions and slumps, you have even surpluses sometimes and 
sometimes it works pretty well. It has worked well for the 
United States. When we got off of that, it has not worked very 
well.
    So that should be the goal. We are a long way from that 
now. But some of the reforms that would go in that direction--I 
would actually encourage you to use CBO. Why doesn't CBO have a 
model that answers the questions about the short run and the 
long run?
    Much of the debates and the focus is, oh, you can't even 
reduce the growth of spending, because it is going to be a hit 
to the economy. I don't believe that is the case. I think you 
can. And reasonable calculations, the models show that it is a 
benefit.
    So I would encourage that part. Maybe it deals with some of 
the partisanship that we are seeing already.
    Mr. Meuser. Yes, agreed. I want to ask you this, then. The 
tax cuts that took place, they are being debated, they are 
saying they were not helpful. And clearly, we have an 
unbelievably booming economy. And they are being compared to 
the shovel-ready stimulus program from 10 years ago, which 
was--the data shows was relatively useless, and waste.
    Can you just comment on the historical results that come 
from tax cuts, putting money in people's pockets, and gaining 
the multiplier effect, versus the federal government thinks it 
knows best what people's money--and on projects that are so-
called shovel-ready and are presented based upon, very often, 
who knows who, and--which is also a symptom of a Socialist 
government?
    Dr. Taylor. Thank you very much. I have written a lot on 
the stimulus packages, both in 2008 and later, the stimulus 
packages of President Obama. I don't think they had the impact 
that some people do. I think it actually was negative, in many 
respects. The states didn't spend the money as they thought 
they would, they pocketed the money. A lot of it was transfers. 
It really didn't work very well, and I have lots of studies 
that show that is the case.
    I also am on the record for showing and arguing that the 
2017 tax reduction reform was beneficial, and is not just the 
35 to 21 percent, it is a lower rate on small businesses, it is 
expensing of investment. It is the kind of things that we know, 
at least in our theories--and I think it is true in reality--
that more investment, more tools, better tools, better things 
that workers have to work with, they are going to be more 
productive, and their wages will go--that is the idea, and that 
is what is built into the CBO long-term calculations that I 
referred to before.
    So I don't think economics has changed. I think it is 
basically working quite well. We can see anomalies, like the 
low interest rates that we have seen. But--negative interest 
rates around the world. But basic economic forces are still 
working very well, and I think we need to emphasize those more.
    Mr. Meuser. I apologize for going over my time, Mr. 
Chairman. I yield.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from California, Mr. Peters, for five 
minutes.
    Mr. Peters. Thank you very much, Mr. Chairman, and thank 
you to the witnesses for being here.
    I want to--I keep hearing about the Green New Deal. It is a 
straw man. Fewer than half the Democrats have sponsored it. It 
has already been killed in the Senate. So I don't think we 
should spend a lot of time talking about it. I mean there are 
component parts of it that have to deal with climate that I 
certainly think would be worth talking about, but it has become 
just this straw man, and it seems to end the discussion and not 
lead to much nuance.
    The--with respect to nuance, I get the sense that there is 
kind of a consensus that it might be appropriate to debt-
finance the kinds of things that would generate a return. So 
that might be infrastructure, a training investment in 
education for people who could add to their earning potential, 
basic research.
    Of course, we did not develop GPS through the government, 
we did not develop the Internet, but we led the research that 
allowed the private sector to invest in those things, and I 
think, you know, it certainly was good for the country and good 
for the United States to be the locus of that, I think, as 
well, as I think your other statement implied.
    But I do want to talk a little bit about bad debt. And I 
suspect that bad debt--and maybe, Mr. Bernstein, you could 
answer this--might be financing or borrowing money to pay your 
ongoing expenses, whether it is--particularly the ones that are 
non-cyclical.
    So, if you think about the social benefit programs, I mean, 
is this something that we should be concerned about? Is it 
appropriate? Is that what you mean by bad debt?
    Dr. Bernstein. You know, it isn't. And the reason----
    Mr. Peters. What is an example of bad debt, then?
    Dr. Bernstein. Well, I think that--so I keep raising the 
tax cuts from my perspective. We don't have to rehearse that.
    There is another one, though, that I haven't had a chance 
to talk about, and it gets to something you were just raising, 
which is, you know, the fact that other countries ensure their 
full populations for about 10 or 12 percent of their GDP, and 
we do so for 18 percent of our GDP. So call that 6 to 8 percent 
of GDP that is, you know, basically waste in the delivery 
system of the way we provide health care. So I think we could 
slow the cost of health care growth.
    Getting back to your first question, though, I would want 
to do so in a way that protects vulnerable people.
    Mr. Peters. Okay, but--so you really--so would you think it 
is appropriate for us to debt-finance the cost of health care?
    Dr. Bernstein. Oh, well, we very much do so, of course, and 
yes, I think these are--I mean, whether it is health care or 
retirement security through Social Security, I mean, these are 
clearly essential public goods. And we are not raising enough 
revenue to pay for them. So yes, I consider that to be 
reasonable debt in this climate.
    Mr. Peters. Okay. I haven't found an answer yet, I don't 
think, but I will ask Mr. Taylor.
    You advocate for the 2017 tax cut. Should we be cutting 
taxes more?
    Dr. Taylor. I think we should be looking for tax reform 
that promotes more economic growth.
    Mr. Peters. So the----
    Dr. Taylor. It also deals with other problems, but I think 
it is still an important issue for the United States.
    Mr. Peters. The knock on that bill was that--not that it 
didn't help some people, but that it helped a lot of people who 
didn't need help, and that by--if you give money back to people 
who already have swollen bank accounts and have a lot of 
savings, that is not going to generate the kind of economic 
activity.
    And, in fact, all the economists surveyed by the University 
of Chicago--I think 38 of them--agreed that it wouldn't pay for 
itself. And I think even Mr. McConnell said--admitted we had to 
generate 4 percent growth in the economy to pay for those tax 
cuts.
    So my question--and I guess it is rhetorical--is where does 
this end? And if our revenues are at a low point compared to 
GDP, isn't it really time to think about how to get more 
revenue in? And maybe should wealthy people pay more, the ones 
who have plenty of earnings to part with?
    Dr. Taylor. I think it is time to--if there is something--
--
    Mr. Peters. More directly, what would you do, as--for 
American tax policy? What would be your next step to make 
sure----
    Dr. Taylor. I would consider more ways to reform. There was 
very little done on the personal side. There could be done more 
on that [sic]. There is--the tax cuts are not permanent, 
anyway. They are going to disappear.
    They--again, based on the basic economic theory, you want 
to have more encouragement of investment, because that is where 
more productivity comes from.
    Mr. Peters. Right.
    Dr. Taylor. More productivity leads to higher wages and 
higher incomes. It is just sort of the most basic thing in 
economics. You don't want to discourage businesses from 
investing. You don't--you want to encourage them, because that 
will make their workers more productive in the system, as it 
has for many, many years. Another----
    Mr. Peters. We should tax people at some level. How would 
I----
    Dr. Taylor. Yes, of course.
    Mr. Peters.----as a policymaker, determine what that level 
should be?
    Dr. Taylor. I think the first thing is what do you want 
your spending level to be. And there is not a discussion about 
that. And then you have a way to finance that. I think there is 
reasons that sometimes you have a deficit----
    Mr. Peters. Assume I wanted my spending level to be what it 
is today, which is $1 trillion more than we are taking in. What 
would I do to raise that----
    Dr. Taylor. I think the projections of spending are that it 
is--I don't know, 28 percent of GDP is the projections.
    Mr. Peters. Well, I----
    Dr. Taylor. So that is not going to work. So you have to--
--
    Mr. Peters. Assume it is 20 percent, and right now I am 
taking in 16 percent. What should I do to tax policy to raise 
that money?
    Dr. Taylor. I think the tax cut that is in place will raise 
more. This notion that it is not paying for itself is not 
really true, if you look over the long term. It is true over 
maybe a couple years, or three years, but it is not true over 
the longer term. Growth increases. You don't have to be----
    Mr. Peters. I am out of time. But maybe I would ask you in 
writing.
    Like, if I say 20 percent is a historical level at which we 
spend, invest, and we are taxing at 16 percent----
    Dr. Taylor. Well, you--I think the Budget Committee of the 
Congress has to decide what is the right level. There is----
    Mr. Peters. I am not a professor at Stanford. That is why I 
ask you a question about how I would answer that question.
    I mean we all would--we are all people of good faith who 
want to figure out what the right answer is. But, you know, 
all--I never hear from people, you know, what the appropriate 
way to set that number is. And it strikes me that some people 
are being under-taxed, and they are not the people who are 
paying payroll taxes.
    So I guess we will have to continue this discussion later. 
But I would really like to know the answer to that question.
    Dr. Bernstein. Can I submit a memo on that to you?
    Chairman Yarmuth. Absolutely, you may.
    The gentleman's time has expired. I now recognize the 
gentleman from Texas, Mr. Crenshaw, for five minutes. Oh, 
sorry, no, the gentleman from Ohio, Mr. Johnson, for five 
minutes.
    Mr. Johnson. Thank you, Mr. Chairman. And I am really 
enjoying these--thanks to the witnesses, by the way, for being 
here. I am enjoying these conversations today. You know, we are 
talking about the un-sustainability of the federal debt. And 
yet this Committee, that is responsible for producing a budget 
to address our spending, has not done one.
    So, Mr. Chairman, I am going to submit to you that we got 
to get back on track on this Committee and produce a budget. 
That is our primary responsibility.
    You know, the federal debt is an unsustainable trajectory. 
We all know that. The current debt burden on every American is 
$70,000. Within three decades CBO says that it is going to be 
around $248,000 per American, or almost $1 million for a family 
of four.
    So mandatory spending, including interest payments on the 
debt, is projected to increase from $3.1 trillion in fiscal 
year 2019, to $5.3 trillion in fiscal year 2029. This is a $2.2 
trillion--or 71 percent--increase.
    So, Mr. Taylor, do you believe we should be focused on 
stabilizing current important programs, such as Social Security 
and Medicare, which--we know those are part of the mandatory 
spending that is driving the debt, right--so that we can make 
sure that they are preserved and strengthened? Or should we 
focus on expanding these programs and creating a bunch of new 
programs on top of them?
    Dr. Taylor. I think the most important thing is to 
stabilize, in the sense of have them not growing faster than 
GDP. And that requires reform. And that requires projections. 
And I think they will work better in that case.
    I think there could be more focus on this Committee, the 
other Committees of Congress, on finding ways to reform those 
programs. That is what I would focus on. They are crowding out 
other things that have been mentioned already in this room.
    And then, once that is determined--that is the job of our 
society, our democracy, to determine that--then figure out 
about the financing.
    And there are reasons why sometimes you have deficits and 
sometimes you have surpluses. Economists wrote about that all 
the time.
    But I think the main thing is what should be the spending 
priorities, and I believe, now that it is--the so-called 
entitlements are growing too rapidly, many people have thought 
that--the same, so figure out a way to reform that. There are 
proposals out there. And that is the way I would go about it.
    Mr. Johnson. Yes, and you used that ugly word, 
``entitlements,'' because I can tell you the people where I 
live, where I represent, my 80-something-year-old mother, 
before she passed away, they hate that word, ``entitlements,'' 
because they invested in those programs. They view those 
programs as responsibilities of the federal government.
    Dr. Taylor. Absolutely.
    Mr. Johnson. And we have let them down by not doing 
budgets, by not managing the spending so that we protect those 
programs.
    You know, interest payments on the debt are already high, 
and are projected to grow. This year interest on the debt is 
projected to be $390 billion. By 2029 it will more than double 
to $807 billion. Under CBO's longer-range forecast, interest on 
the debt will rise to 29 percent of federal revenue by 2049.
    So, again, Mr. Taylor, are you concerned that an ever-
rising federal debt and its associated interest payments will 
crowd out other important federal spending priorities such as 
defense, research, health care, and meeting our obligations 
that American people have paid into?
    Dr. Taylor. Absolutely. I am concerned. That is why I 
focused in my testimony on the cost of doing that. I think it 
is the cost of the economy. It is--CBO agrees it is a long-term 
cost. I think it is also a short-term cost and would encourage 
CBO to adjust their analysis to capture that, as well.
    But it is fundamental. It is really the most important 
thing that--I look at the budget. I don't know why it is going 
in the direction it is going. We need to change it, need to 
make it more--more sense, from an economic perspective.
    Mr. Johnson. Okay. In my last 30 seconds, you know, some 
would say that modern monetary theory simply says that 
Americans shouldn't worry about how much we spend, because the 
dollar is the currency of the world, and because America owns 
the dollar, we just print it when we want it.
    So my question to you is do you worry that implementing 
this kind of philosophy, the MMT, could cause a loss of 
confidence in U.S. financial markets?
    Dr. Taylor. Yes, I have have worried about it for a number 
of reasons. It is really going back to policies that we know 
hasn't--haven't worked in the U.S. I gave my example of the 
1970s, but it is going back to countries which have not been 
successful. It is high inflation.
    I would like to see, at least, somebody run through 
particular proposals that are along these lines with some 
models, with the CBO model, so there can be some, at least, 
discussion about it. But right now it seems to me it is going 
back to policies which we know in history have not worked.
    Mr. Johnson. Okay. Thank you, Mr. Chairman. I yield back.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentlewoman from Illinois, Ms. Schakowsky, for 
five minutes.
    Ms. Schakowsky. Thank you so much. I wanted to go back to 
climate for a minute. I think it is, perhaps, the greatest 
challenge facing the 21st century.
    We have just estimated 11 years to cut emissions by 45 
percent. We have to achieve carbon neutrality by 2050 to stop 
temperatures from rising above 1.5 degrees centigrade. But 
creating a clean--but I see--but creating a clean economy will 
require sustained government investment. We have heard you talk 
about that.
    In a Roosevelt Institute report economists Jay W. Mason and 
Mark Parke argue that the government can afford to finance de-
carbonization plans of at least 5 percent of GDP, as you 
mentioned, Dr. Wray, without causing substantial economic 
disruption.
    So Mr. Bernstein and whoever else wants to comment on this, 
given our current economic conditions of persistently low 
interest rates, as you had mentioned before, and low inflation 
rates, would you agree that it is sound fiscal policy for the 
government to invest in a clean economy?
    And let me also ask would you also agree that the economic 
and social cost of not addressing climate change is--climate 
change are far greater than any risk to incurring additional 
debt?
    Dr. Bernstein. I will be brief. I would like to hear my 
other panelists comment on this.
    Ms. Schakowsky. Sure, thank you.
    Dr. Bernstein. Yes. As I have stated throughout the hearing 
today, we can't make this a one-sided equation. As you 
correctly pointed out, Congresswoman, we have to factor in the 
cost of the environmental damage from doing nothing. And if you 
simply look at your front page, those costs seem to be growing 
by the month.
    And I guess my argument would be we can't afford not to do 
this. And to talk about this purely as an expense on businesses 
or something like that is to miss both the opportunity for 
game-changing investments, where, I believe, our country should 
play a role, and again, the costs of not doing enough.
    Ms. Schakowsky. Yes, Dr. Blanchard?
    Dr. Blanchard. There is a marvelous cartoon. It takes place 
in 2050. The world has become uninhabitable. But there is an 
old man who talks to a young man and he says, ``Yes, it is 
uninhabitable, but look, we have reduced the debt.''
    I think that is a very deep cartoon. It is clear that we 
need to do something about global warming, that the cost will 
be high. The question, I think, is not whether it should be 
done. It should be done. The question is how much should be 
financed with taxation, additional taxation, and how much 
should be financed by debt.
    I don't think there is a simple answer to that. Some of it 
can be financed by debt, but to a large extent what we do to 
fight global warming has very large social returns and very low 
financial returns to a state. And, therefore, if it is all 
financed by debt, it will complicate life later. So I think it 
is a mix.
    There is no question that we should be doing it, and partly 
finance it by tax and partly financing by debt. The part which 
would be financed by debt would be called, I think by Jared, 
good debt. This is debt to improve the future.
    Ms. Schakowsky. Dr. Wray?
    Dr. Wray. Yes. Can I add? Look, according to the 
scientists--and I am not one of those--we have the technical 
know-how, okay?
    So the question is can we release the resources from 
current uses, plus put unemployed resources to work to tackle 
climate change? And I think the answer is, clearly, yes.
    If it is 5 percent of GDP and use that as a measure of the 
resources we need, this is absolutely doable. Think about what 
we did in World War II. We had to move 50 percent of the 
nation's production to fight the war. We did it. The debt ratio 
went to 100 percent. The deficit reached as high as 25 percent. 
We managed to keep inflation below 10 percent at the peak. And 
most of the years much below that.
    We can, if necessary--I completely agree with Professor 
Blanchard--we may find we are going to need a tax increase. Or 
we may find that we need to postpone some consumption, to ask 
the workers to make a sacrifice for 10 years in order to enact 
what we need to do to turn around this trajectory of 
annihilation. And we will reward you later.
    That is what we did in World War II. We gave benefits, 
Social Security, retirement, health care. All those things were 
promised at the end of the war. Workers got them. How did we 
come out of that experience with 100 debt ratio? The golden age 
of U.S. capitalism. That is what we got from that.
    Ms. Schakowsky. Thank you. I yield back.
    Chairman Yarmuth. The gentlewoman's time is expired. I now 
recognize the gentleman from Texas, Mr. Crenshaw, for five 
minutes.
    Mr. Crenshaw. Thank you, Mr. Chairman. Thank you, everyone, 
for being here. I want to clarify some things, because there 
has been some creative use of semantics about the debt.
    So, over and over again we hear that we aren't taking 
enough money from the American people, and the businesses that 
they create. If we let them keep their money, it is apparently 
classified as bad debt for the government, which is quite the 
take.
    Dr. Bernstein, as you stated, apparently Americans spending 
more of their money because of the tax cuts is not useful 
investment, never mind that GDP growth rates have increased 
since the tax cuts and, according to the Fed and CBO, it has 
been largely due to consumer spending and some business 
investment. But I guess that isn't useful, because there is 
this belief--and it is a belief--that only the government can 
possibly make smart investments.
    This is an odd thought, this notion that our debt is a 
result of not taking enough of our constituents' money, as 
opposed to us spending it on unsustainable entitlement 
programs, which, by the way, as a share of GDP, is the only 
category that is changing radically.
    So federal revenue, in absolute terms, has continued to 
increase, increase by 4 percent last year. And as a share of 
GDP, it dropped, as Dr. Bernstein has noted, only slightly 
recently. But it is on track, as this graph notes.
    [Graph].
    [GRAPHIC] [TIFF OMITTED] T0261.063
    
    Mr. Crenshaw. It is on track to be back at historical 
levels within just a couple of years.
    So if we don't cherry-pick the data, we see that we aren't 
that far from average federal revenue.
    What has happened in the last couple of years? The fastest-
growing wages have been in the bottom quintile of earners. And 
it is not even close--child tax credits have doubled, which 
matters to low-income earners. Businesses are hiring, which 
matters to all people, not just the 1 percent. Eighty percent 
of taxpayers are paying less this year, and we all know that it 
is the wealthy earners in high-tax states who ended up paying 
more. Let's stop pretending otherwise.
    And this notion that we are regressive is interesting.
    Dr. Bernstein, how does our country compare to others as it 
pertains--others in the OECD--as it pertains to progressivity 
of the tax code? Where does America stand?
    Dr. Bernstein. Pretty low, not only in terms of 
progressivity, but also in terms of the amount of tax 
collection of the federal government.
    Mr. Crenshaw. Yes, well, the OECD data completely 
disagrees. In fact, they have us at number one.
    Dr. Bernstein. Okay. So that is including state and local. 
You can't do anything about----
    Mr. Crenshaw. It includes all taxes?
    Dr. Bernstein. Yes. You can't do anything about state and 
local----
    Mr. Crenshaw. So number one. I mean----
    Dr. Bernstein. Federal taxes were made far more regressive 
by the tax cut. I mean that is not a debatable----
    Mr. Crenshaw. But, as a country, we are number one. And it 
is not even close. Ireland is second, and it is not even 
close----
    Dr. Bernstein. Number one in what?
    Mr. Crenshaw. Progressivity of the tax code. Okay.
    Dr. Taylor, you said the tax cuts have been effective.
    And I will give you this data, Dr. Bernstein, if you would 
like, to add context to the discussion.
    Dr. Taylor, you said the tax cuts have been effective. A 
lot of others disagree with you. But how so? How have they been 
effective?
    Dr. Taylor. Well, first of all, they have had increase in 
growth since they were passed. Growth has been higher in 2017 
and 2018. Towards the end of 2017 it was passed. It was passed 
relatively quickly. Nobody think it would happen [sic]. But I 
think it has been a beneficial thing.
    I think, long run, you will see more effects. There is a 
slow-down now in the economy. It could be due to other things; 
it could be due to this growing debt. But I think, ultimately, 
it is beneficial, and that is what theories show, the models 
show, the data show.
    Mr. Crenshaw. Thank you. And look, it doesn't actually seem 
like any of you are advocating for unlimited spending. That is 
not the--that is not what I am taking here.
    And I do believe, Dr. Bernstein, you said in your statement 
that we would be better off, actually, decreasing our deficit 
somewhat, not zeroing them out--that would be radical, 
according to you--but you want to get them on a more 
sustainable path. That is what I remember reading from your 
statement.
    And so, Dr. Bernstein, what--here is what I want to ask 
you. What is the main driver of debt, okay? You, obviously--you 
do not want to touch discretionary spending, perhaps even 
increase it. But even if you had your way and you eliminated 
the recent tax cuts, it still wouldn't pay for the vast growth 
in entitlement programs.
    So I want to know. Can we agree on this? Do we agree that 
Social Security and Medicare programs need to be addressed?
    And do we have solutions for that that don't involve over-
taxing my generation in order to increase benefits for your 
generation?
    Dr. Bernstein. Yes, I think we probably get----
    Mr. Crenshaw. And, Dr. Taylor, if you could also answer 
this after Dr. Bernstein.
    Dr. Bernstein. No, I think there is some agreement there.
    I think the--where we disagree is on the revenue side. So 
you and your colleagues keep citing the--you know, these 
highest revenue collections ever, because you are talking 
billions and trillions. As I point out in my testimony----
    Mr. Crenshaw. Okay, I understand we disagree on that. But I 
really----
    Dr. Bernstein. Yes.
    Mr. Crenshaw. The main driver of debt, we do agree, is 
entitlements, right? We do agree on that.
    Dr. Bernstein. Yes, yes.
    Mr. Crenshaw. So I want to get a solution for that. I 
want----
    Dr. Bernstein. So the----
    Mr. Crenshaw. Drive the discussion towards that.
    Dr. Bernstein. So the--I have tried--so there is two 
solutions to that. One is we need to collect more revenues and 
do some more progressively. And two, we need to slow the growth 
of health care spending.
    Mr. Crenshaw. Okay. And, Doctor, if the chairman would 
allow it, if Dr. Taylor would like to answer that, as well?
    Dr. Taylor. No, I think it is clear that the driver is 
the--you used the word ``entitlement spending,'' that is okay 
with me--is this growth, which is quite rapid, and a reform of 
those programs, a reform, I think, which will make them work 
better is what we need. And it is going to slow their growth, 
and that is what is key.
    Mr. Crenshaw. I would love to talk about that for hours, 
but only if the chairman would indulge me.
    Thank you, Mr. Chairman.
    Chairman Yarmuth. We would all love to do that. The 
gentleman's time has expired. I now recognize the gentleman 
from California, Mr. Panetta, for five minutes.
    Mr. Panetta. Thank you, Mr. Chairman.
    Gentlemen, thank you very much for being here today, as 
well as your expertise on this very, very important crucial 
subject I believe that you have testified to. I apologize for 
not being here earlier, and so I probably will ask some 
questions that have already been asked. So let me just make 
that clear. But thank you very much for being here.
    You know, we are here, as you know, to reexamine the 
economic costs of our debt. And obviously, we won't--before we 
do that, though, we want to take the stock level of debt we 
have and the trajectory of our deficits and our debt. As you 
know, we got $16 trillion in publicly held debt and $6 trillion 
in inter-governmental debt, basically close to--we just 
passed--the debt surpassed $23 trillion. And it is growing 
faster than our GDP.
    And Dr. Blanchard, you testified that deficits running at 5 
percent of GDP are a cause for concern.
    Debt, as a share of GDP, is projected to rise from 79 
percent in fiscal year 2019 to 95 percent by fiscal year 2029. 
And if we keep on going at this rate, it is going to be 144 
percent by 2049.
    Now, last week, in the very same--at the very same table 
that you gentlemen are sitting at, Federal Reserve Chairman--
the Federal Reserve Chairman said that the level of debt that 
we currently are going at is just completely unsustainable. And 
I believe he is right.
    But regardless of that level, and which level is healthy, 
there are clear dangers, I think we understand, of allowing our 
debt to continue to grow at this rate. And so, clearly, your 
testimony today is very important, not just to examine those 
risks, but to also look forward to some sort of solutions to 
responsible and smart budgeting.
    If I may, Dr. Blanchard--you are closest to me--do you have 
an opinion as to what a healthy debt-to-GDP ratio is, and does 
100 percent concern you? If not what about that 144 percent 
number I threw out there?
    Dr. Blanchard. I believe that there is no magic number that 
could increase to a much higher level before starting or 
triggering a crisis in the markets.
    This being said, there is no particular reason to want to 
do it because it can be done. And therefore, all things equal, 
I think that lower levels of debt than the ones we have are 
desirable, and that if we can get there without creating 
problems with the economy itself by slowing down public demand, 
I think we should try to get there.
    Mr. Panetta. Understood. Understood. Now, I wasn't here for 
your testimony, but I read your testimony. And you said that 
the deficit shouldn't keep us from making smart investments, 
clearly. But if we run deficits without considering the debt at 
all, we clearly run some risk, correct?
    Dr. Blanchard. Yes, when you--you want to issue debt only 
for good reasons. One may be to sustain, basically, the demand 
and maintain output at full employment. Or for public 
investment, which makes sense. If you don't do this, neither of 
the two, then you should definitely worry about that. If you do 
this, I worry less about that increase in debt if I can justify 
it on the basis of your macro considerations or public 
investment.
    Mr. Panetta. Understood, okay. Thank you. Thank you.
    And Dr. Bernstein, you were--in your testimony that I read 
you talked about the 2017 tax bill, obviously, and the drain 
that it had on revenue. Is there anywhere else that you would 
suggest we look to to increase revenue?
    Dr. Bernstein. Yes. I think it is an important question. 
Because so much of market income and market wealth has 
accumulated at the top of the scale, I think that some of the 
current debates about taxing wealth are relevant and worth 
thinking more about.
    Now, whether we are actually talking about a wealth tax is 
a different question. So closing the step-up basis loophole 
would make a lot of sense to me.
    Mr. Panetta. Could you explain that, briefly?
    Dr. Bernstein. Sure. So when a wealthy person transfers a 
capital gain to an heir, the value or the basis of that capital 
is stepped up, meaning it is raised to the current market rate. 
And that gain is completely untaxed. So this is a way in which 
asset accumulation is--goes untaxed. And the more you put 
wealth or income or any sort of accumulation in a tax category 
that goes untaxed, the more people are going to figure out that 
is precisely the kind of income they have a lot of.
    So I am not necessarily endorsing some of the more far-out 
ideas about new wealth taxes. I am saying we should tighten up 
what we have. We should bring capital gains rate closer to 
income rates. We should give the estate tax some bite. And we 
should definitely fund the IRS to close some of the tax 
avoidance gap that has cost us, literally, hundreds of billions 
per year.
    Mr. Panetta. Great, thank you. I yield back my time. Thanks 
again, gentlemen.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the Ranking Member for 10 minutes.
    Mr. Womack. And we are into the lunch hour, which is never 
a good thing for the two of us, who have a few minutes of 
questions.
    First of all, thanks to the witnesses here today. I am 
going to come full circle and just ask each of you--we kind of 
started this way. I want to go back, because there has been a 
lot said. Does debt matter?
    From the perspective of the United States taxpayer who may 
be watching this hearing, or hearing about it, to each of my 
panelists today, does the federal debt matter? Dr. Blanchard?
    Dr. Blanchard. Debt absolutely matters----
    Mr. Womack. Dr. Wray?
    Dr. Blanchard. That was a ``but,'' but I didn't--you didn't 
give me time.
    Mr. Womack. We may come back to the ``but,'' but----
    Dr. Wray. Yes, but probably not in the way you are 
implying.
    Mr. Womack. You said ``but'' and kept going, and I wouldn't 
let Dr. Blanchard do it.
    Dr. Bernstein. Yes.
    Dr. Taylor. Yes.
    Mr. Womack. Okay. Well, I am glad to hear that. My dad 
always said, ``Don't go into debt''--he is a very successful 
businessman--``Don't go into debt for things that are not an 
appreciating asset.'' Pretty sage advice, don't you think?
    Dr. Bernstein. Yes.
    Mr. Womack. Do I get any pushback from the----
    Dr. Blanchard. No, you said my ``but.''
    [Laughter.]
    Mr. Womack. Okay. And I think he is right. By the way, he 
operates a business today and has no debt, and has an extremely 
healthy business.
    There have been some discussions here today about whether 
the family household budget that most of our constituents have 
a context on versus the federal budget, and whether they should 
operate similarly when it regards debt.
    Now, the household budget does not have to provide for the 
national defense. It is not in their constitution; it is in 
our--it is in the Constitution that we are responsible for up 
here.
    But in terms of going into debt for purposes of investment, 
growth in the economy, those kinds of things, the principles, 
though, between the household and the federal budget are still 
similar in nature. Would you not agree?
    Dr. Blanchard. I would not agree. The public debt, the 
government debt, plays a macro stabilization role that 
individual debt does not. So when the government decreases its 
debt or has a large surplus, this has an adverse effect on the 
economy, which it has to take into account. This is irrelevant 
to you or me or any household.
    Mr. Womack. Dr. Wray, I saw a negative response from you.
    Dr. Wray. Right, because when you are looking at it from 
the point of view of the individual in the private sector, 
whether household or firm, at some point, yes, they need to 
repay their debt. The private sector, taken as a whole, never 
repays all of the debt. It grows over time, in the same way 
that the federal government's debt grows over time. It has been 
growing since 1791. It has been growing as--relative to GDP 
since 1791. It will continue to grow. So will the private 
sector's total debt.
    So you can't look at it from the point of view of the 
individual in the private sector. Look at the private sector as 
a whole; their debt grows over time, too.
    Mr. Womack. All right. Dr. Bernstein?
    Dr. Bernstein. Just as I said earlier, I think this idea 
that when the household is tightening their belt, the 
government actually needs to go in the other direction. So I am 
afraid I disagree, as well.
    Mr. Womack. Dr. Taylor?
    Dr. Taylor. I think the so-called automatic stabilizers are 
good when the economy is in a boom, revenues increase and 
spending increases. And I think, in a slump, it goes the other 
way.
    Mr. Womack. Well, I guess here is where I am going with it, 
and that is that, unlike the federal government, for the 
American household there are consequences for going into too 
much debt, to the extent where you do not have the capacity to 
repay. And there are many examples of that. Student loan debt, 
I think, is a real good poster child for it, because there is a 
lot of people that went into student loan debt with a purpose 
of improving their earnings potential when, in fact, they 
didn't improve their earnings potential.
    In fact, a quarter of that student loan debt is not even--
did not even lead to a college degree. So I think it was 
purpose-defeating in that regard.
    But there are consequences for my constituents for going 
into too much debt and not having the capacity to repay, as 
opposed to the U.S. Government, which leads me to this 
question.
    If we agree that debt does matter, and it is just a 
discussion about the type of debt--bad debt versus good debt--
and if the premise that the government should have the capacity 
to repay--and I am not talking about just minimum payment due, 
just the net interest on the debt, but, I mean, start whacking 
away at the long-term structural challenges--if that is true, 
then this--the lack of the congressional process that this guy 
and I worked on, in addition to Mr. Woodall, to develop a 
budget of the United States Government, and to be able to put 
before the American people what our fiscal condition is, and to 
begin to make those prioritized decisions, discretionary versus 
non-discretionary, and--or the mandatory side--and remember, 
those mandatory programs are on auto-pilot, so unless the 
Congress acts, they continue to go completely unchecked, and it 
becomes a demographic challenge for the country, that our 
moving those costs higher, higher, in addition to health care 
spending that, Dr. Bernstein, you talked about.
    So do you--would you agree with me that part of the problem 
that Congress has is it is not honoring the process that is 
designed to be able to put the spotlight on the fiscal 
condition of our country in such a way that we can begin to 
make those established priorities?
    And again, not to--at the risk of using the word ``poster 
child'' again, let me remind you yesterday we passed a 
continuing resolution. We are seven, almost eight weeks into 
the fiscal year, we don't have a budget, and we pushed the 
spending of the country again to the 20th of December, to 
Christmas, and we will probably do it again, and maybe two or 
three more times.
    Is the lack of the execution of our process, or a better 
process, contributing to the problems that we are facing today, 
Dr. Blanchard?
    Dr. Blanchard. I would not think of myself as an expert on 
these issues. But yes, from where I stand, at the distance, it 
looks like the congressional budget process it not ideal and 
could be substantially improved.
    Mr. Womack. Dr. Wray? Or does the process matter?
    Dr. Wray. Look, capacity to repay, I am not sure what that 
would mean for a federal government that is an ongoing concern 
that has only repaid its debt one time, 1837, followed by our 
first depression.
    We do not have to repay the debt. What we have to do is 
make the interest payments. That is what we need to do.
    Mr. Womack. Okay. All right. Well--all right. So let me hit 
pause here a minute, and just focus on interest payments for 
just a moment.
    Today, as evidenced by one of the--a couple of our Members 
have indicated that the net interest on the debt this year, 
with very low interest rates, is going to be somewhere in the 
neighborhood of $400 billion, which is more than half of what 
we spend on our constitutional challenge to provide for the 
common defense of the country.
    And there has been the term ``crowding out'' used many 
times here today. We are crowding out the investments that you 
gentlemen are suggesting that we continue to make to grow our 
economy, help vulnerable Americans, the things that we would 
normally spend that money on we are spending on the net 
interest on the debt. That is money that could be spent 
elsewhere, which I think makes my point that deficits and debt 
do matter, because it is crowding out the available money that 
we have to be able to effectively fund the discretionary budget 
of the U.S. Government.
    Dr. Wray. Well, I mean, you put that constraint on 
yourselves. And I understand your political dilemma here. 
Interest payments, I think all three of us agree, are a very 
inefficient kind of spending. The first half of it is going 
abroad, and the other half is going into the United States. But 
it doesn't tend to go where you want it to go. It doesn't tend 
to lead to economic growth.
    So I am not advocating trying to ramp up interest payments. 
Crowding out theory, there are two approaches, one loanable 
funds, the other is IS-LM. The evidence just does not show that 
there is crowding out. Now, it may crowd out your spending 
because you put constraints on the budgeting process. It 
doesn't crowd out in the real world by raising interest rates 
and reducing investment. All that government spending goes 
somewhere into the economy, and it creates net income for the 
private sector, which should encourage investment, rather than 
discouraging investment.
    Mr. Womack. So the constraints that you suggest that we put 
on ourselves, they are only there for one reason, and that is 
not to explode this deficit and debt situation, even further 
exacerbate the situation as we currently have, which most 
people would agree is already beyond any capacity for us to be 
able to repay, and it is just going to lead to further 
complications in taxes for future generations.
    Dr. Bernstein, real quickly, a thought from you, and then--
--
    Dr. Bernstein. Well, just on the process point, because I--
what you said resonates with me. I am going to be straight with 
you about that, about the broken process.
    But the--I immediately went back to--I believe it was 2011, 
and the balanced budget agreement that, you know, created this 
so-called super-committee, I view that as being, you know, just 
a huge process failure. So I----
    Mr. Womack. That was 2011.
    Dr. Bernstein. Yes, 2011.
    Mr. Womack. It was not our Joint Select Committee----
    Dr. Bernstein. No, no, no. I am just saying----
    [Laughter.]
    I said that I think the problems go deeper than process. I 
agree with you the process is broken, but I think there are 
fundamental differences about the kinds of investments that we 
are arguing about today, good versus bad, about the amount of 
revenues that we need to collect. And I feel like, before we 
can have a reasonable process, we probably have to talk more 
about those differences.
    Mr. Womack. Dr. Taylor?
    Dr. Taylor. So I think going back to regular order would be 
a tremendous--budgets come from the President, the Budget 
Committees go through it, the appropriations, and you got a 
budget by October 1st. It would just be so clear to people, 
compared to what is happening now. No one--this is a democracy; 
people are supposed to be somewhat informed. It would improve 
the process greatly. I would encourage you to try to do that.
    Mr. Womack. Okay. And I have just got one final question, 
and it is related to our process, because our Committee--which 
I think did extraordinary work, we came up a little bit short, 
but not because we didn't really work hard at it, because we 
spent a year doing it.
    But the one thing that I think we kind of rallied behind 
was, regarding debt, is some kind of a target. We have talked 
about it already today, debt-to-GDP, which I believe--I have 
given up hope that we are going to balance the books of the 
federal government. It is certainly not in the timeframe I am 
going to be here. But at some point in time should this country 
not have a reasonable target of debt-to-GDP? Pick the number.
    I don't know if it is 42, the historical average, or if it 
is 65, or you--whatever that number is. But some kind of a 
target, so that we can at least begin to somewhat conduct 
ourselves as people who can constrain the absolutely growth of 
federal government, which can go out of sight if you don't.
    Real quickly, from left to right.
    Dr. Blanchard. I think that the issue is that we really do 
not have a good sense of what the debt target is. And choosing 
a number comes with dangers of trying to do something which may 
not be quite the right thing. So I am with you in spirit. I 
would have a very hard time deciding what the number should be.
    Mr. Womack. Dr. Wray?
    Dr. Wray. I absolutely agree. I can't see any--I think you 
should focus on the things that are important: employment, 
rising income, economic growth, rising productivity, meeting 
the challenges that face us in the future.
    Mr. Womack. Dr. Bernstein?
    Dr. Blanchard. Yes, I would urge you to think about that 
much more dynamically. Imagine we had a debt target in World 
War II, and we didn't gear up to fight that existential battle. 
I am sure you would be opposed to that. So I don't think 
targets are a good idea.
    Mr. Womack. Okay. Dr. Taylor?
    Dr. Taylor. I think targets are a good idea with emergency 
clauses to deal with this.
    Mr. Womack. Amen. I yield back my time. Thanks for allowing 
me to go over.
    Chairman Yarmuth. Absolutely.
    Mr. Womack. And congratulations on Louisville--number two, 
by the way.
    Chairman Yarmuth. Thank you. We are loaded. People need to 
look out for us.
    Well, I yield myself 10 minutes. Thanks again to all the 
witnesses for being here, and I think it has been a valuable 
discussion. I didn't have much economics education on my way 
through school, so I am using my chairmanship to become 
educated, and this hearing helped.
    When Mr. Cooper earlier talked about nuances in some of 
these issues--and I fully agree--most everything we do up here 
has significant nuance. And we don't recognize that.
    So I am interested--and we talked about the 2017 tax cut. 
When people say it is a $1.9 trillion tax cut, it actually 
wasn't. It was a $5 trillion tax cut, just that we are 
offsetting revenues that made it a $1.9 trillion net tax cut.
    So--and one of the biggest factors on the revenue side was 
the SALT taxes, eliminating the state and local tax deduction. 
There were many others.
    And so, in terms of thinking about if we were to review the 
tax cut with an aim of keeping the parts that did benefit 
people and doing away with the part that had no societal 
benefit, I think that is an important thing, distinction, to 
make.
    When Mr. Smith talks about his residents, yes, if you get a 
$100 tax cut and you are making $40,000 a year, or something 
less than that, that is a significant amount. When you are my 
classmate in college, Stephen Schwarzman, and you talk about 
cutting his tax rate by 2.6 percent at the top, that doesn't 
seem to serve any great societal benefit. So I think we often 
have to think about taxes like that.
    And I also think about, when we talk about cutting 
mandatory spending, whatever we spend on Social Security, 
whatever--every Social Security benefit check that goes out 
every month, how much of that do you estimate goes back into 
the economy?
    Dr. Bernstein. The vast majority.
    Chairman Yarmuth. Virtually all of it, right? And whatever 
you spend on Medicare and Medicaid goes back into the economy. 
So our $4.--whatever it is, $4.5 trillion spending at the 
federal level, with the exception of probably some of the 
defense budget and the interest on the debt, all of it is part 
of GDP.
    So when we are talking about cutting federal spending, we 
are cutting GDP at the same time. And I think we lose sight of 
that sometimes, like all of a sudden, we just cut this, and the 
economy keeps roaring on. That is not necessarily the case.
    Humana is based in my district. Humana is about a--right 
now, about a $60 billion-a-year company. Eighty percent of 
their revenue is managing government health care programs. So 
you cut health care there, you are cutting a huge part of my 
economy in my district. And so, again, these things are all 
very nuanced.
    Is there any difference, in your opinion--anybody can 
answer this--a tax cut that goes to a middle-income individual 
versus their Social Security check, in terms of macro-economic 
impact? Is there any difference?
    Dr. Bernstein. No, I think the likelihood is that they will 
both be spent.
    Chairman Yarmuth. Right. So in one case you are dropping 
federal revenues, the other one you are writing a check. But 
they have the same impact on the economy.
    And one of the things that I love about your statement, and 
it came up when Dr. Taylor talked about looking at models from 
CBO, and I saw a little smirk on your face. I may have misread 
it. But when you talk about empirical economics--and that is 
where I have--since I have been on this Committee, which is 
now--this is my 11th year--something that I have always been 
very interested in.
    I remember several years ago when Tim Geithner was 
Secretary of the Treasury and came before the Committee, and at 
the time Paul Ryan was Chairman of the Committee. And he put up 
these charts showing spending on--mandatory spending, and so 
forth, and the debt going out 50 years. So I asked Secretary 
Geithner, ``How realistic do you think projections going over 
50 years are?''
    And he said, ``I don't think going--anything longer than 
five years is reliable.'' And that is one of the things that I 
have been obsessed with, is that we live in a world that is 
changing more rapidly than anyone can possibly have forecast.
    And making projections as to what is going to happen in the 
economy--I saw this morning there was a release of a story that 
some--a company that Bill Gates funded has come up with a 
process using artificial intelligence and solar panels that 
will increase--allows you to create heat at levels sufficient 
to do concrete and so forth, which is responsible for about 7 
percent of global carbon emissions.
    So it seems to me that the possibilities of technology and 
innovation change--radically changing some of our future needs, 
and maybe changing either--maybe increasing some of our needs 
is something that--it is going to be hard for us to project.
    We say Congress's optimum efficiency moves at 10 miles an 
hour. This year it is two miles an hour. But the world is 
moving at 100, and I don't know how we make policy to 
accommodate that.
    But one of the things, Dr. Blanchard, that I have been 
obsessed with is artificial intelligence. And we know 
artificial intelligence is going to have its productive uses, 
as it apparently has with this company, but it is also going to 
have disruptive uses in the economy. For instance, eliminating 
an awful lot of jobs. I heard one estimate that--this came from 
one of the top people at IBM, who said that, within the next 
three years alone, artificial intelligence would either 
eliminate or significantly change 120 million jobs around the 
world, and that is going to increase.
    So given that, we know--we don't know the extent of 
disruption that is going to happen, but we know there is going 
to be a lot of disruption happening. What would you say that 
means for our priorities of spending in order to try to 
accommodate the changes we know will come, but we don't know to 
what extent?
    Dr. Blanchard. I think, you know, AI has all kinds of 
implications. One of them is that the low productivity growth 
that we have might increase over time because we are 
rediscovering ways of doing things differently, in which case 
it would be good news for the economy. It would probably 
increase interest rates. But that is fine.
    The--I think the other dimension, which is worrying people 
very much, is that there might not be enough jobs. And, as you 
know, this is an issue which has come with technological 
progress for at least two centuries. In the past it has always 
worked out okay in the sense that new jobs are being created. I 
think this time we are less sure. It may not, in which case we 
really have to think about everything we can do to help the 
people who may lose their jobs and not find one, which leads to 
issues of universal basic income--basically, money given to 
people who really cannot find jobs.
    It means thinking again about the earned income tax credit 
and making it much more generous than it is.
    I think we have to be ready for these contingencies. They 
may cost money.
    Chairman Yarmuth. I am going to not ask any more questions. 
But you all have sat here a long time and listened to a lot, so 
I would like to give each of you a minute to respond to 
anything you heard, if you--if there is something you would 
like to comment on that you heard that you would like to either 
defend yourself or to make another point.
    Dr. Taylor, do you want to start?
    Dr. Taylor. So I think three things. Tax reform, if 
possible, should be revenue-neutral. So that is the idea of 
this SALT changes. You add restrictions on the state and local 
tax, and you had a reduction in the rate. So maybe that went 
too far for California and some states, but that is the 
concept, as useful.
    I think it is not correct to say that every reduction in 
government purchases reduces GDP. If it is planned, if it is 
understood, if it is--the context is there, if there is a 
social safety net which is reasonable, I think it can benefit. 
And that is what my simulations tried to show. You can actually 
have a higher GDP growth.
    And finally, the impact of artificial intelligence on jobs, 
I think the main lesson is let the private economy work. It is 
amazing, what it can do, and that is why the history that 
Olivier Blanchard referred to is so promising.
    And the worst thing we can do is get in the way of what the 
market will do. Of course, you need to have a social safety 
net, which is working, but don't really make a mess of what 
otherwise could be a tremendous boon to productivity, not only 
in the United States, but globally.
    Chairman Yarmuth. Thank you. Dr. Bernstein?
    Dr. Bernstein. I guess two points. One is--or maybe a point 
and a question. One is that we really do have a revenue 
problem. And I am--I guess the one thing I would argue is that 
it really doesn't make sense to cite revenue collections in the 
billions and hundreds of billions and argue that we are in some 
uniquely favorable space.
    As a percentage of GDP--and I go through this in my 
testimony, if you can bear reading through it, I tried to do a 
careful job--the 2017 tax cut really broke down connective 
tissue between a growing economy and ample revenues. And I 
believe that it is essential that we fix that if we are going 
to address this problem.
    I guess the question I have is, often when I come up here 
and talk about these issues, I hear much more reasonable 
conversation, much more agreement, much more fundamental 
understanding of the importance of key investments in public 
goods, and yet, at the other end of the process, we just don't 
see it.
    And I have been a creature of the swamp here for decades, 
and I am still scratching my head as to why well-intentioned 
people--not everybody is well-intentioned, but a lot of people 
I heard from today on both sides are--can't get together, 
especially given the favorable rates that we have all been 
stressing, and make some of these investments.
    Chairman Yarmuth. Well----
    Mr. Womack. I want to respond to that, because if you just 
let Yarmuth and me fix all this, give us 30 minutes and a 
sandwich----
    Dr. Bernstein. Are you announcing that you are running 
for----
    [Laughter.]
    Mr. Womack. No, no, but we have had this conversation a 
lot.
    Chairman Yarmuth. Right.
    Dr. Wray. I just want to say--so there were several 
references to MMT, and they all seemed to equate it to printing 
money. That is not MMT. We described the way the government 
actually spends.
    I think what they have in mind is something much closer to 
quantitative easing, in which the Fed spent $3 or $4 trillion 
buying assets, essentially, by crediting bank accounts with the 
reserves. That is nothing like what MMT is recommending.
    We are asking you to look at government debt, deficits in a 
different way, to take account of sectoral balances. If you are 
going to reduce the budget deficit, we need to know which one 
of those other two sectoral balances is going to change.
    Are we going to be reducing the private sector's surplus? 
Are we going to make the private sector run deficits? Are we 
going to somehow get the trading partners to decide not to sell 
stuff to the United States? Something has to happen. You can't 
just raise the tax rate and think that you are going to balance 
the budget or reduce government spending and think you are 
going to balance the budget, because one of those other two 
sectors, or both of them, has to change what they are doing.
    Let me just--and cutting health costs is cutting GDP. 
Cutting government spending is reducing the injection of 
government spending into the economy. Reducing the amount of 
debt that is issued is also reducing the net financial assets 
that are being accumulated by the private sector. That is going 
to have some kind of consequences for the private sector.
    So we need to look at both sides of the equation of 
government spending, but also of government debt, which is held 
as an asset, the safest asset in the world. The world wants 
more of it, you know. So why are we so worried about giving the 
world what they want.
    The last thing on the robots taking away all our jobs, as 
Professor Blanchard said. That has been going on for 200 years. 
It is usually a good thing. I think it probably will continue 
to be a good thing.
    But what should the government do about this? We do need 
training. We do need education, because robots are pretty good 
at taking away the jobs of the lower skilled and lower-educated 
workers. They are some way off from taking away our jobs. Maybe 
someday that will happen, but we need to worry about the people 
at the bottom end that will be replaced probably pretty 
quickly. We need to educate them.
    I don't like the idea of basic income guarantee, or just 
telling people, ``Look, sorry. In the modern economy there is 
nothing you can do.'' No, we have to find jobs for these 
people, and we need to train them for jobs.
    Chairman Yarmuth. I thank you for that. And I--well, I was 
going to Dr. Blanchard, first.
    Dr. Blanchard. I was looking at my notes. I have two 
points.
    The first one is a nerdy one, which is that if you look at 
the interest rates and debt, it is true that interest rates 
have decreased while debt was increasing. To conclude from this 
that, therefore, there is no effect of debt on interest rates 
would be wrong. This would be mixing correlation and causality.
    I think what has happened is many other factors have led to 
a decrease in interest rates, which have nothing to do with 
debt. It may well be that debt has a positive effect on rates, 
it just is hard to see because of all the other things which 
have happened.
    So I think we have to continue to assume that debt, in the 
long run, has some effect on interest rates. I think it would 
be dangerous to do something else.
    The other is more general and related to a number of 
discussions which took place, which is I do not think that 
mandatory spending can be decreased substantially. I think 
there are some savings to be made, but there are also more 
demands, because of aging and dimensions have changed.
    I suspect--I very strongly suspect that the way to take 
care of deficits and reduce them over time is for increasing 
taxes. I have no doubt that this is the case.
    Chairman Yarmuth. Thank you. Just one comment. Watson 
apparently--IBM's Watson can now apparently do 70 percent of 
what lawyers do with greater reliability, and they can read CAT 
scans and MRIs more accurately than radiologists.
    And when I was talking to my accountant, my Kentucky CPAs, 
when they were in town not too long ago, they said that is the 
number-one thing they talk about, the existential threat that 
artificial intelligence is to CPAs. So it is not just truck 
drivers.
    Anyway, thank you all very much. Once again, it has been a 
stimulating discussion. And we appreciate your contributions 
very much.
    With no further business, this hearing is adjourned.
    [Whereupon, at 12:36 p.m., the Committee was adjourned.]
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