    [House Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

                            THE INFLATION EQUATION:
                            CORPORATE PROFITEERING,
                           SUPPLY CHAIN BOTTLENECKS,
                                  AND COVID-19

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

                                 HYBRID HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 8, 2022

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 117-73

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                    __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    47-271 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     MAXINE WATERS, California, Chairwoman

    CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina,
    NYDIA M. VELAZQUEZ, New York             Ranking Member
    BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
    GREGORY W. MEEKS, New York           BILL POSEY, Florida
    DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
    AL GREEN, Texas                      BILL HUIZENGA, Michigan
    EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
    ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
    JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
    BILL FOSTER, Illinois                FRENCH HILL, Arkansas
    JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
    JUAN VARGAS, California              LEE M. ZELDIN, New York
    JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
    VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
    AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
    MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
    CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
    SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
    AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
    RITCHIE TORRES, New York             JOHN ROSE, Tennessee
    STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
    ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
    RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
    MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
    ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
    JESUS ``CHUY'' GARCIA, Illinois
    SYLVIA GARCIA, Texas
    NIKEMA WILLIAMS, Georgia
    JAKE AUCHINCLOSS, Massachusetts

                       Charla Ouertatani, Staff Director

                               C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        March 8, 2022................................................     1
    Appendix:
        March 8, 2022................................................    73

                                   WITNESSES
                             Tuesday, March 8, 2022

    Drummer, Demond, Managing Director, PolicyLink...................     4
    Goodspeed, Tyler, Kleinheinz Fellow, Hoover Institution..........    11
    Mabud, Rakeen, Chief Economist and Managing Director, Policy and
      Research, Groundwork Collaborative.............................     6
    Vaheesan, Sandeep, Legal Director, Open Markets Institute........     8
    Zandi, Mark, Chief Economist, Moody's Analytics..................     9

                                    APPENDIX

    Prepared statements:
        Drummer, Demond..............................................    74
        Goodspeed, Tyler.............................................    89
        Mabud, Rakeen................................................    94
        Vaheesan, Sandeep............................................   108
        Zandi, Mark..................................................   117

                  Additional Material Submitted for the Record

    Waters, Hon. Maxine:
        Written statement of the Merchants Payments Coalition........   127
        Letter regarding the State and Local Fiscal Recovery Funds
          (SLFRF)....................................................   131
    Gonzalez, Hon. Anthony:
        ``Inflation eroded pay by 1.7% over the past year,'' by Greg
          Iacurci....................................................   135
    McHenry, Hon. Patrick:
        Written statement of the U.S. Chamber of Commerce............   145
    Ocasio-Cortez, Hon. Alexandria:
        Letter correcting statements made during the hearing.........   148

                            THE INFLATION EQUATION:
                            CORPORATE PROFITEERING,
                           SUPPLY CHAIN BOTTLENECKS,
                                  AND COVID-19

                                  ----------

                             Tuesday, March 8, 2022

                 U.S. House of Representatives,
                       Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 10:04 a.m., in
    room 2128, Rayburn House Office Building, Hon. Maxine Waters
    [chairwoman of the committee] presiding.
        Members present: Representatives Waters, Sherman, Scott,
    Green, Cleaver, Himes, Foster, Beatty, Vargas, Gottheimer,
    Gonzalez of Texas, Lawson, San Nicolas, Axne, Casten, Pressley,
    Torres, Lynch, Adams, Tlaib, Dean, Ocasio-Cortez, Garcia of
    Illinois, Garcia of Texas, Williams of Georgia, Auchincloss;
    McHenry, Lucas, Posey, Luetkemeyer, Huizenga, Wagner, Barr,
    Williams of Texas, Hill, Emmer, Zeldin, Loudermilk, Mooney,
    Davidson, Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose,
    Steil, Gooden, Timmons, and Sessions.
        Chairwoman Waters. The Financial Services Committee will
    come to order.
        Without objection, the Chair is authorized to declare a
    recess of the committee at any time.
        I now recognize myself for 5 minutes to give an opening
    statement.
        Today, we will continue the discussion we began with
    Federal Reserve Chair Pro Tempore Powell last week about the
    economy and the causes of inflation and its impact on families
    across the country. Last Friday, we received another strong
    Jobs Report which showed that 678,000 jobs were added to the
    economy in the month of February. The record-setting job
    creation we saw during the first year of the Biden
    Administration continues, indeed thanks to the American Rescue
    Plan, signed into law by President Biden. The U.S. has had a
    stronger economic recovery than any other advanced economy
    worldwide. Wages and salaries for workers grew 4.5 percent in
    2021, which is the highest pay increase for workers since 1983.
    Importantly, these wage increases have been most significant
    for low-income workers.
        We are still in the midst of the COVID-19 pandemic and its
    effects, including higher prices at the grocery store and
    higher monthly rents that are taking a toll on household
    budgets. Today, I expect we will hear some of our colleagues
    attempt to pin inflation on the successful American Rescue
    Plan, a bill that helped attack this deadly virus and get
    millions of people vaccinated, supported 6 million small
    businesses, and helped fuel the economic growth, while
    resulting in the first reduction of Federal debt seen since the
    Obama Administration. But this oversimplified narrative has
    been debunked by experts, including by Chair Pro Tempore
    Powell, who explained at last week's hearing that supply chain
    bottlenecks caused by the pandemic are one of the main drivers
    of inflation, and every American knows, whether they rent or
    own their home, that housing is also a key driver of inflation.
        For too long, we have not addressed the shortfall in our
    housing supply. And this lack of supply is driving up costs. In
    2021, the national median rent for an apartment jumped by
    almost 18 percent, and home prices rose by almost 17 percent.
    Additionally, as giant corporations have grown larger in a wide
    range of sectors across our economy over the last several
    decades, they have exercised greater power to set prices. Right
    now, we are seeing big corporations take advantage of economic
    conditions and a lack of real competition to pass higher prices
    on to consumers, simply because they can. Moreover, Russia's
    unprovoked invasion of Ukraine and the related strong response
    the United States and our allies have taken to defend democracy
    and support Ukraine have already begun to have ramifications on
    gas and other prices.
        Congress has an important role to play in addressing the
    complex causes of inflation that is hurting consumers. The
    Senate can start by confirming President Biden's highly-
    qualified slate of nominees so that monetary policy decisions
    are made by public officials who are accountable to us.
    Congress has already enacted the bipartisan infrastructure bill
    that will improve the infrastructure we have, including at our
    nation's ports. They have addressed supply chain challenges,
    and Congress must finish the work of further bolstering supply
    chain resilience, supporting domestic manufacturing, reforming
    the shipping industry, and bringing down housing costs.
        The House has passed the Build Back Better Act, which
    addresses labor and housing supply shortages through
    significant investments in housing and child care, and also
    includes investments in supply chain resilience and other
    sectors. Many economists, including 17 Nobel laureates, have
    expressed their view that investments have basically been
    expressed in very significant ways. I look forward to hearing
    from this panel on how to bring about a robust and stable
    recovery for all.
        I now recognize the ranking member of the committee, the
    gentleman from North Carolina, Mr. McHenry, for 5 minutes.
        Mr. McHenry. Thank you, Madam Chairwoman, and thank you for
    having this hearing. If Democrats are looking to crack the code
    on the inflation equation, I would suggest a little self-
    reflection. Today's hearing title shows that Democrats want to
    blame high prices on everything--corporate greed, broken supply
    chains, even the COVID-19 virus--but here is where it gets
    rich. It left out the one thing that economists of all
    political stripes have pointed to as the leading cause of
    record price increases: the massive injection of Federal
    spending that occurred over the past year.
        The Biden Administration's American Rescue Plan plowed
    nearly $2 trillion into an already-strong economy, which caused
    consumer prices to rise more rapidly than the economy's
    productive capacity. This is basic economics. Widespread, out-
    of-control inflation is the natural consequence of dumping
    unnecessary cash into an economy already well into recovery
    from pandemic disruptions. And now, my constituents and yours
    are paying the full price for all of that free money. By the
    end of last year, the expenses for many working families
    exceeded their incomes, despite any wage gains. The outlook, at
    least in the short run, doesn't look any better. Until we have
    an honest conversation about the root cause of inflation, we
    are not going to get anywhere.
        My colleagues across the aisle want to talk about so-called
    corporate profiteering, so let's talk about that. Profit is not
    synonymous with greed. You don't have to take my word for it.
    Former Democrat Treasury Secretary Larry Summers, and Jason
    Furman, a top economist in the Obama Administration, have been
    openly critical of the attempts to blame corporations for
    inflation.
        According to Summers, ``Business bashing is terrible
    economics and not very good politics.'' I agree. Businesses
    have certain fixed operational costs, just like we do at home,
    and things that make the cost of running a business more
    expensive, like taxes and regulations, get included in the
    final prices customers have to pay. So as wages remain
    stagnant, American families are finding it harder and harder to
    keep up. You hear it around the kitchen table across the
    country. Housing costs more, food costs more, even baby
    formula, if you can find it, because we have a national crisis
    around the shortage of baby food, is more expensive.
        So, that leads me to the next so-called cause of inflation
    my Democrat colleagues talk about, and my friend just talked
    about: supply chain bottlenecks. Steve Rattner, who served as
    Counselor to the Treasury Secretary in the Obama Administration
    noted that, ``Blaming inflation on supply lines is like
    complaining about your sweater keeping you too warm after you
    have already added several logs to the fireplace. The bulk of
    our supply problems are the product of an over-stimulated
    economy, not the cause of it.''
        In short, Democrats' reckless fiscal agenda fueled a
    spending spree right at the moment our supply logistics were
    under the most strain.
        Supply issues are a product of excessive demand that
    happens by default after a huge government cash dump, like the
    American Rescue Plan. And then, there are the billions of
    dollars in new regulatory burdens and the ongoing impact of
    Democrats' mainstream shutdowns during the pandemic.
        The House Small Business Committee, with Ranking Member
    Luetkemeyer, calculated that the Biden Administration has
    produced 283 new regulatory rules, and is on the way to more,
    with an estimated cost to businesses of $201 billion. The
    private sector has been forced to jump through hoops to meet
    local, State, and Federal regulations in their attempt to solve
    supply chain issues, thereby raising the cost of doing business
    and raising the cost of things for the consumer. Meanwhile, the
    previous Administration's incredible efforts to cut
    duplicative, overly burdensome regulations and support private-
    sector endeavors have been scrapped out of political expediency
    or out of a political agenda.
        It is time to stop chasing what feels good politically and
    do what is right economically. We must restore fiscal
    discipline and promote policies that support energy
    independence and long-term economic prosperity. Until we do
    that, Democrats will keep throwing flimsy excuses at the wall
    to see what sticks politically, and Americans are, quite
    frankly, tired of cleaning up the mess.
        With that, thank you, Madam Chairwoman, for holding this
    hearing. Thank you for allowing us to discuss this important
    subject matter. I yield back.
        Chairwoman Waters. Thank you, Ranking Member McHenry.
        I want to welcome today's witnesses: Mr. Demond Drummer,
    the managing director for equitable economy at PolicyLink; Dr.
    Rakeen Mabud, the chief economist and managing director of
    policy and research with the Groundwork Collaborative; Mr.
    Sandeep Vaheesan, the legal director of the Open Markets
    Institute; Dr. Mark Zandi, the chief economist at Moody's
    Analytics; and Mr. Tyler Goodspeed, the Kleinheinz Fellow at
    the Hoover Institution.
        You will each have 5 minutes to summarize your testimony.
    You should be able to see a timer that will indicate how much
    time you have left. I would ask you to be mindful of the timer,
    and quickly wrap up your testimony when your time has expired.
        And without objection, your written statements will be made
    a part of the record.
        Mr. Drummer, you are now recognized for 5 minutes to
    present your oral testimony.

       STATEMENT OF DEMOND DRUMMER, MANAGING DIRECTOR, POLICYLINK

        Mr. Drummer. Thank you, Chairwoman Waters, Ranking Member
    McHenry, and members of the committee for the opportunity to
    offer testimony on inflation and its impact on the 100 million
    economically-insecure Americans. My name is Demond Drummer, and
    I am a managing director at PolicyLink, a national research and
    action institute which works to ensure that all people in
    America participate in a just society, live in a healthy
    community of opportunity, and prosper in an equitable economy.
        I would like to center my discussion of inflation on the
    nearly 100 million people in America living below 200 percent
    of the Federal poverty threshold.
        The impact of higher prices falls disproportionately on the
    100 million who must pay an even greater share of their income
    to meet their basic needs, but if we look closer, we see that
    inflation is not the problem. It is being made out to be,
    especially for that 100 million. The problem is an economy that
    suppresses wages and siphons wealth away from working people.
    In the time that remains, I will offer some perspectives on why
    the way we talk about inflation is simply wrong.
        Next, I will discuss how inflation pales in comparison to
    the broader affordability crisis afflicting the 100 million. I
    will conclude with policy recommendations that can begin to
    bring balance to our economy.
        So now, about inflation, the way we talk about inflation
    blames our government for price increases, but it is
    disingenuous to lay inflation solely or even primarily at the
    feet of Federal stimulus. There are many more factors at play,
    including the fragility of global supply chains, et cetera.
    Yes, our government stimulated demand. That was the point. It
    was absolutely necessary during the pandemic. The question is,
    who actually raised the prices? It was the companies choosing
    to take advantage of the pricing power that comes when buyers
    demand more goods than the companies have available to sell.
    These price increases were neither automatic nor inevitable.
    They were a conscious choice that disproportionately harmed the
    100 million people in America living in or near poverty.
        To be sure, there are exogenous factors that inform how
    companies set their price levels. War and weather can inform
    the price of inputs. However, if we are not clear that it is
    not government spending directly, but corporate pricing power
    that drives inflation, then we will always hesitate to make the
    necessary public investments to build a more sustainable and
    equitable economy in which the 100 million can truly prosper.
    This is the work of our time.
        An intense program of economic policy designed to suppress
    wages and siphon wealth is a much bigger threat than inflation.
    Here are the numbers. Nearly 100 million people live in
    households with incomes of less than 200 percent of the Federal
    poverty threshold. That is one-third of the U.S. population.
    Households below the Federal poverty line spend 18 percent of
    their income on energy, nearly 10 times the energy burden of
    higher-income households. While productivity grew by nearly 60
    percent over the last 4 decades, a typical worker's pay
    increased by less than 16 percent. Productivity grew 4 times
    faster than wages.
        In housing, between 2001 and 2020, home production in the
    U.S. fell short of demand by 5.5 million units. The twin forces
    of a housing shortage and uneven wage growth have converged to
    create a national crisis that was only further exacerbated by
    the economic impact of the pandemic. Before the pandemic, half
    of all renters in America were paying more than they could
    afford on housing: half. In 2021, rents increased by at least
    10 percent in 149 metropolitan areas. Today, 6 million renter
    households are currently behind on rent. That is double the
    pre-pandemic baseline. During the pandemic, meanwhile, the net
    worth of U.S. billionaires grew by $2.1 trillion, an increase
    of 70 percent.
        The solution we recommend is to enact a bold program of
    expansionary economic policy that does the following: supports
    wage growth for the lowest-income workers; expands the labor
    force; ensures that the benefits of productivity gains are
    shared equitably; invests in affordable housing infrastructure;
    supports alternative pathways to homeownership; accelerates
    adoption of low-cost renewable energy; and promotes the
    development of high-wage sustainable industries.
        This is our moment to enact practical policies and make
    public investments that will bring balance to our economy and
    deliver real results for the American people, especially the
    100 million who are economically-insecure.
        Thank you again for the opportunity to testify before you.
    It has been an honor.
        [The prepared statement of Mr. Drummer can be found on page
    74 of the appendix.]
        Chairwoman Waters. Thank you, Mr. Drummer.
        Dr. Mabud, you are now recognized for 5 minutes to present
    your oral testimony.

        STATEMENT OF RAKEEN MABUD, CHIEF ECONOMIST AND MANAGING
        DIRECTOR, POLICY AND RESEARCH, GROUNDWORK COLLABORATIVE

        Ms. Mabud. Chairwoman Waters, and Ranking Member McHenry,
    thank you for inviting me to testify today. My name is Rakeen
    Mabud, and I am the chief economist and managing director of
    policy and research at the Groundwork Collaborative. Groundwork
    is an economic policy think tank dedicated to advancing a
    coherent economic worldview that produces broadly-shared
    prosperity and abundance for all.
        My testimony today will focus on three key points. First,
    corporate profiteering is playing an important role in rising
    prices. Corporate executives and shareholders are enjoying the
    highest profit margins in 70 years, and consumers are paying
    the price.
        Second, Wall Street's presence in every corner of our
    economy suggests a profit-price spiral to significant risk. In
    contrast, there is no evidence that wages are driving prices
    up.
        Finally, today's price increases are the direct result of
    the outsized power that megacorporations hold over our supply
    chains and our economy more broadly.
        There are a range of factors driving inflation right now,
    including increased and shifting demand, as well as supply
    chain disruptions and the resulting shortages. However, the 70-
    year record high corporate profit margins demonstrates that
    mega-corporations are taking advantage of this crisis to pad
    their profits, accelerating price hikes for consumers.
        Groundwork has combed through hundreds of earnings calls to
    understand why profit margins are at a record high. In these
    calls, executives tell investors about the last quarter's
    performance and discuss what investors can expect going
    forward. Over and over, the message from corporate America is
    clear: CEOs are telling their investors that the current
    inflationary environment has created significant opportunities
    to extract more from consumers by raising prices and pocketing
    the extra profits.
        Take Constellation Brands, the parent company of popular
    beers, Modelo and Corona. On its earnings call in January,
    Constellation's CFO said, ``As you know, we have a consumer set
    that skews a bit more Hispanic than some of our competitors.
    And in times of economic downturn, they tend to get hit a
    little bit harder and they recover a little bit slower, so we
    want to make sure we are not leaving any pricing on the table.
    We want to take as much as we can.''
        Megacorporations are able to get away with this kind of
    aggressive and extractive pricing precisely because of the
    current inflationary environment. As Hostess' CEO said in an
    earning call this month, ``We are also seeing consumers
    experience a lot of disruptions. They are losing benefits. They
    are moving to a normalized COVID environment. They haven't
    fully recognized they were absorbing pricing, and inflation is
    a helpful cover for these price hikes.'' The same CEO said,
    ``Pricing by definition is a change model. It's temporary,
    consumers get used to it. When all prices goes up, it helps.''
        Wall Street's influence in every corner of our economy
    makes this period of inflation unique and puts us at risk for a
    profit-price spiral. As profits rise as a result of price
    hikes, so, too, does the investor demand for those profits,
    sending prices spiraling upwards.
        Take Walmart and Target, whose executives wanted to pursue
    a strategy of increasing market share by keeping prices low. As
    a result, both companies experienced brutal sell-offs. Simply
    put, investors weren't having it. Having seen how successful
    price hikes were across the retail industry, they punished
    anyone who was not pursuing the same strategy. Within 3 months,
    both companies have raised their prices.
        While investor demands for higher profits are sending
    prices up, there is no evidence that wages are playing a role.
    A recent analysis by the Economic Policy Institute looks at the
    relationship between price increases and wage increases across
    sectors. They find no correlation between these two factors
    since December 2020. In other words, there is absolutely no
    evidence to suggest that wage increases for workers are to
    blame for the price increases we are seeing today.
        Corporate America's ruthless pursuit of efficiency has
    contributed to today's high prices in two important ways.
    First, it hollowed out and nearly eliminated diversity in our
    supply chain, leaving us without any failsafes to withstand
    significant shifts in demand without supply shortages.
        Second, it has left us vulnerable to profiteering and price
    gouging. Without competition to undercut companies who are
    charging excess prices, or laws and regulations prohibiting
    this behavior, companies will continue unabated. Congress must
    do its part to bring down prices by taxing excess profits to
    encourage productive investment, and to encourage vigorous
    competition in key product markets and along the supply chain.
    It is also imperative that Congress makes long-overdue
    investments in our supply chain infrastructure and in sectors
    like housing, health care, and child care that have been
    putting strain on family budgets for decades.
        Importantly, interest rate hikes, which slow inflation by
    tamping down demand and making people poorer, will do nothing
    to make our markets more competitive, nothing to help spur
    overdue investments in housing and infrastructure, and nothing
    to address profiteering. We should no longer delay the
    important work of reorienting our economy towards the people
    who keep it going: consumers, workers, and small businesses.
        Thank you, and I look forward to your questions.
        [The prepared statement of Dr. Mabud can be found on page
    94 of the appendix.]
        Chairwoman Waters. Thank you, Dr. Mabud.
        Mr. Vaheesan, you are now recognized for 5 minutes to
    present your oral testimony.

      STATEMENT OF SANDEEP VAHEESAN, LEGAL DIRECTOR, OPEN MARKETS
                               INSTITUTE

        Mr. Vaheesan. Thank you, Chairwoman Waters, Ranking Member
    McHenry, and members of the committee for this opportunity to
    participate in the hearing. My name is Sandeep Vaheesan. I am
    the legal director at the Open Markets Institute, an anti-
    monopoly research and advocacy group that works to build a fair
    economy.
        Ongoing inflation in the United States is, in part, a story
    of corporate pricing power. In industries ranging from
    agricultural chemicals and seeds, to mattresses, to rental
    cars, and to restaurants, CEOs and CFOs have boasted that
    they've been able to raise prices and boost profit margins. The
    extraordinary pricing power of corporations in many sectors was
    not inevitable. It is a result of policy choices, most notably
    initiated by President Reagan's Administration in the 1980s
    that effectively reinterpreted and neutered the strong
    antitrust law that Congress enacted against corporate mergers.
    As the Supreme Court recognized in 1966, Congress decided to
    clamp down with vigor on mergers and arrest a trend toward
    concentration in its incipiency before that trend developed to
    the point that a market was left in the grip of a few big
    companies.
        The Reagan Administration ignored this policy judgment of
    Congress and substituted its own pro-merger judgment that
    granted extraordinary power to executives and investment
    bankers to roll up markets through consolidation. As two
    scholars wrote in 1988, the Reagan Administration's policy
    statements and dearth of anti-merger enforcement served as an
    invitation to corporate America to merge with anyone. Every
    subsequent Administration up through President Trump's followed
    the Reagan Administration's permissive approach to merger
    enforcement. Indeed, they've often further loosened
    restrictions on merger activity on the assumption that mergers
    produce efficiencies and benefit consumers.
        Democratic and Republican Administrations permitted
    consolidation despite the lack of evidence to support the twin
    assumptions that mergers resulted in efficiency and that
    powerful corporations willingly shared any of the benefits of
    efficiency with the public. If anything, the great bulk of
    evidence pointed in the opposite direction. As business school
    professor Melissa Schilling wrote, ``A considerable body of
    research concludes that most mergers do not create value for
    anyone, except perhaps the investment bankers who negotiated
    the deal.''
        With the green light for consolidation, corporations have
    engaged in hundreds of thousands of mergers over the past 4
    decades. Lax merger policies produce high levels of
    concentration in many markets. In such concentrated markets,
    corporations have more power to raise prices unilaterally and
    collude with rivals.
        For example, in meatpacking, processors appear to have used
    their individual and collective power to raise beef and chicken
    prices to consumers. Critically, inflation has given executives
    cover to exercise pricing power, which at other times might
    provoke strong reactions from customers and the public. A CFO
    of a supplier to food companies told The Wall Street Journal,
    ``Widespread inflation makes it easier to broach the topic of
    raising prices with customers.'' A permissive posture on
    mergers has also had deleterious effects on the productive
    capacity of the United States. Corporations often eliminate,
    ``redundant'' capacity following mergers, especially those
    involving competitors.
        Consider the effects of hospital consolidation on health
    care capacity. In metropolitan areas and counties across the
    country, hospitals in the past few decades have gone on a
    merger frenzy, concentrating local health care markets and
    obtaining extraordinary power over patients and payers. They've
    also closed hospitals and clinics that they deemed superfluous.
    Due in part to consolidation, the United States had 1.5 million
    hospital beds in 1975, but only 900,000 beds in 2017, even
    though the population of the country had increased by more than
    100 million during that time period. As a result, the nation
    was much less equipped to respond to the pandemic and the surge
    in Americans needing hospital care.
        Further, in many instances, corporations have opted to grow
    through mergers and acquisitions instead of the more socially-
    beneficial method of investment and hiring. Two economists
    captured this cost of lax merger policy, writing, ``Billions of
    dollars are spent on shuffling ownership shares are, and at the
    same time, billions of dollars are not being spent on
    productivity-enhancing plant equipment, and research and
    development.'' The millions of dollars absorbed in legal fees
    and investment banking commissions are, at the same time,
    millions of dollars not being plowed directly into the nation's
    industrial base. The opportunity costs of merger mania are
    real, and they bode ill for the reindustrialization of America.
        The net result is permissive anti-merger policies, and an
    economy in which many corporations wield exceptional pricing
    power and have less slack capacity to meet even modest
    increases in demand for goods and services. These are not the
    only political economic harms of corporate consolidation and
    concentration, which include lower wages for workers, but just
    the one relevant to today's hearing. The pandemic has merely
    exposed the underlying structural problems in the American
    economy.
        Thank you for the invitation to testify and participate in
    today's hearing. I look forward to your questions.
        [The prepared statement of Mr. Vaheesan can be found on
    page 108 of the appendix.]
        Chairwoman Waters. Thank you, Mr. Vaheesan.
        Dr. Zandi, you are now recognized for 5 minutes to present
    your oral testimony.

      STATEMENT OF MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS

        Mr. Zandi. Thank you, Chairwoman Waters, Ranking Member
    McHenry, and members of the committee for the opportunity to
    speak and participate in today's important hearing on
    inflation. My name is Mark Zandi. I am the chief economist at
    Moody's Analytics, but the views I express today are my own. I
    am also on the board of directors of MGIC, one of the nation's
    largest mortgage insurers, and I am the lead director of the
    Reinvestment Fund, a national Community Development Financial
    Institution (CDFI) that makes investments in underserved
    communities across the country. We are headquartered in
    Philadelphia. That is my hometown.
        I would like to make three points in my oral remarks. Point
    number one: clearly, Americans are feeling the acute financial
    pain of higher inflation for the first time in two generations,
    and they are rightly unhappy. The typical American household
    makes less than $70,000 a year, but the acceleration and
    inflation over the past year is costing an additional $3,300 a
    year to buy the same goods and services than it did a year ago,
    which is $275 a month in additional cost. Just to put that into
    some kind of context, the typical household spends about $200 a
    month on eating out, about $150 a month on their cell phones,
    and about $100 a month on clothes. Obviously, this is very
    frustrating, and it is undermining sentiment. Nothing is more
    disconcerting and debilitating than inflation on consumer
    business and investor psychology. And this is, I think at this
    point, a significant threat to the economic recovery. And the
    fate of the recovery does hinge on whether inflation will
    moderate meaningfully in the near future.
        Point number two: the high inflation, the painfully high
    inflation has been, in my view, because of a number of causes
    obviously, but at the top of the list is the pandemic that has
    badly disrupted global supply chains, particularly the Delta
    wave of the variant that hit last fall, which was a big
    surprise after the vaccines that we received in the spring. The
    pandemic has badly disrupted the labor market and demand-supply
    dynamics and lots of markets including, most importantly,
    perhaps, the energy market.
        And that gets us to Russia's invasion of Ukraine, which is
    obviously top of mind here, and it's causing prices, oil prices
    and other commodity prices to spike, which is exacerbating that
    already-high inflation. Let me just give you a sense of that.
    The increase in gasoline prices since the invasion began has
    added about $50 to the typical gasoline bill per month, so it
    just gives you a clear sense of how much damage that is.
        Now, I do expect the pandemic to fade. What I mean by that
    is that each new wave of the virus will be less disruptive than
    the previous one. And I do expect that the severe disruptions
    to supplies related to Russia and Ukraine will be short-lived,
    in terms of weeks, not months. And if that is the case, I do
    expect that inflation will begin to moderate, but clearly
    there's a lot of risk around that.
        And if the pandemic continues to intensify, if the Russian
    invasion of Ukraine is more disruptive, then I expect oil
    prices and other commodity prices to stay more elevated for
    longer and begin to infect inflation expectations. The Federal
    Reserve has a Hobson's choice, really no good choice: They will
    have to raise interest rates more aggressively and recession
    risks will rise very, very quickly. This is still a low-
    probability scenario, but it's a rising one and increasingly
    more uncomfortable.
        Finally, point number three, is that some blame the high
    inflation on governments fiscal policies during the pandemic
    that have shored up the finances of pandemic-stricken
    households, particularly lower- to middle-income households. I
    view that as a misdiagnosis of the problem. And they also call
    for government to stand down, and I think that would be a
    mistake.
        In my view, the policies put forward in the pandemic,
    beginning with the CARES Act, and continuing through the
    American Rescue Plan, were critical to the economic recovery,
    ensuring that the economy got back as quickly as it did to
    close to full employment, and we will be there, roughly, by the
    end of the year, which is quite an achievement. And now that
    the economy is back to full employment, I think it is very
    important for lawmakers to focus on how to address the rising
    cost of living, child care, elder care, health care, and
    educational services. And I will call out the cost of housing.
    I think this is a critical element to high inflation going
    forward. Rent costs are rising very rapidly, and will continue
    to do so, and lawmakers can help in this regard.
        So with that, I will stop and turn it back to you. I do
    want to thank you again for the opportunity to participate in
    today's hearing. Thank you.
        [The prepared statement of Dr. Zandi can be found on page
    117 of the appendix.]
        Chairwoman Waters. Thank you very much, Dr. Zandi.
        Mr. Goodspeed, you are now recognized for 5 minutes to
    present your oral testimony.

        STATEMENT OF TYLER GOODSPEED, KLEINHEINZ FELLOW, HOOVER
                              INSTITUTION

        Mr. Goodpseed. Thank you, Chairwoman Waters, Ranking Member
    McHenry, and members of the committee for the opportunity to
    testify today on an issue of upmost importance and concern to
    the U.S. economy and U.S. households.
        We have in the past year observed inflation at levels that
    we simply haven't observed since the end of The Great Inflation
    of the late 1960s to the early 1980s. And that inflationary
    pressure is no longer isolated to a few sectors. In fact, if we
    look at all of the measures of core or underlying inflation, to
    which those who doubted that there was an inflation problem 10
    months ago pointed, those measures are actually now indicating
    an inflation problem as bad or worse than that implied by the
    headline numbers.
        Now, I submit to the committee that the primary cause of
    the inflationary pressure that we are observing cannot be one
    that is global in nature--supply chains, pandemic-related labor
    market disruptions, corporate profit seeking--because the
    increase in U.S. inflation has been so much greater than that
    observed in other advanced and major economies.
        In fact, of 46 advanced and major economies tracked by the
    Organization for Economic Cooperation and Development, the
    increase in average inflation in the United States in 2021,
    over 2019, was greater than in all but Brazil, Turkey, and the
    Kingdom of Saudi Arabia. And when we look at the timing of that
    divergence in U.S. inflation, it points unambiguously to March
    2021. In the 12 months through February 2021, inflation in the
    United States and the Euro area have been roughly the same, 1
    percent versus 1.1 percent.
        However, in March 2021, we saw a big divergence, such that
    by the end of 2021, the increase in the rate of inflation in
    the United States was approximately 3 times that in the Euro
    area. And if we extend that series to January 2022, it
    increases to about 5 times. What happened in the United States
    in March 2021 that didn't happen elsewhere? We had a fiscal
    expansion, a fiscal stimulus that was the largest during an
    economic expansion in post-war U.S. history, equal to
    approximately 10 percent of the U.S. economy. This consisted
    predominantly of demand stimulus through transfer payments to
    households, with the immediate effect that demand for goods in
    the month of March increased 10.7 percent month-over-month, or
    about 240 percent at an annualized rate.
        A stimulus of this magnitude likely raised aggregate demand
    in the United States to a level 5 percent above its pre-
    pandemic potential output. But that is not all of the story,
    because pre-pandemic estimates of the potential output of the
    U.S. economy are almost certainly overestimates of the
    potential of the U.S. economy in 2021. Because in the interim,
    we had had 1.5 million estimated early retirements. We still
    had in March 2021, 3.7 million Americans reporting that they
    didn't look for work in the past month because of the pandemic.
    We still had, by my estimations, a cumulative shortfall in
    business fixed investment of $1.8 trillion. Worse than that, in
    March 2021, the package pass likely exacerbated those existing
    supply side problems by raising implicit marginal tax rates on
    the return to work. And following that, we had throughout 2021
    the prospect of higher tax rates on corporate income after 2021
    that was unlikely to incentivize increased business investments
    in 2021, because it raises the option value of deferring that
    investment into 2022. So, we have a massive increase in demand,
    and impaired supply. That difference has to go into prices.
        Now, we've heard a lot about supply chains' import
    capacity. I have to say that the volume of imports handled by
    U.S. ports in 2021 was about 20 percent above pre-pandemic
    levels. Our supply chains and our ports did a remarkable job
    handling and processing an unprecedented volume of goods
    shipments in 2021. Usually, when we see quantity and price
    increasing, that means it's an increase in demand, not a
    decrease in supply.
        We have also heard a lot about market concentration and
    corporate power, to which I would ask the following questions.
    Why do we only observe this in 2021? Why only in the United
    States? If its concentration in some sectors, why are we
    observing general price inflation rather than relative price
    inflation? And finally, why are we observing an increase in the
    inflation rate and the inflation rate increasing at a faster
    and faster pace rather than a one-off increase in the price
    level?
        Thank you.
        [The prepared statement of Dr. Goodspeed can be found on
    page 89 of the appendix.]
        Chairwoman Waters. Thank you very much. I will now
    recognize myself for 5 minutes for questions.
        I would like to ask each of you to describe for me who will
    get hit the hardest if the Fed raises interest rates too
    quickly? How might this affect low-income workers, especially
    in communities of color that are finally seeing employers offer
    bigger paychecks? And to just share with you, I am a little bit
    surprised that everybody accepts increasing interest rates as a
    surefire way to contain inflation. I have questions about that.
    And I would like to ask each of you to respond to the question
    about the interest rates. Thank you.
        Mr. Drummer. Thank you, Chairwoman Waters. You raise a very
    important point. An increase in the interest rate is going to
    relax demand for workers. That will put downward pressure on
    workers' wages. So, what we are saying is we are going to
    manage inflation by lowering the wages of the lowest-wage
    workers who are already being hit by the structure of our
    economy. It is unjust, it is inappropriate, and, again, you are
    right: The interest rate increase is not a silver bullet. It is
    going to disproportionately harm the 100 million of our lowest
    earners in our economy.
        Chairwoman Waters. Thank you. Mr. Zandi, would you please
    respond to the question of, who will get hit the hardest if the
    Fed raises interest rates too quickly?
        Mr. Zandi. Thank you, Chairwoman Waters, for the question.
    I think the key thing for low- to middle-income households is
    to avoid recession, because if we go into recession, meaning
    the loss of jobs, higher unemployment, lower- to middle-income
    households would be hit much harder than higher-income
    households. So, that is the critical thing here. And to ensure
    that the economy continues to expand and avoid recession, I do
    think it is important to begin to normalize interest rates.
        Interest rates are at zero or effectively zero currently,
    and the economy is strong. We are creating a half million jobs
    every month. We have been doing that for over a year, in large
    part because of the fiscal policies. Unemployment is falling
    very rapidly across all demographic groups, and we are
    approaching full employment. So, we do need to raise interest
    rates, normalize rates to ensure that the economy doesn't
    actually overheat and go into recession. It is calibration, it
    is difficult. It is a difficult needle to thread. But I think
    at this point, we need some normalization rates in the near-
    term to ensure that the economy does not overheat, and to avoid
    that recession, which would be very hard on low- to middle-
    income households.
        Chairwoman Waters. Thank you very much. I would like to ask
    another one of our witnesses about this particular question,
    Dr. Rakeen Mabud. Thank you.
        Ms. Mabud. Thank you. Interest rate hikes slow inflation by
    tamping down demand and functionally making people poor. It
    does so by raising unemployment rates, by slowing down wage
    growth, and that is simply not the policy that we want to
    pursue right now, especially when we consider the plight of
    low-income people and communities of color who have been hit
    particularly hard by this period of inflation. The good news is
    that Congress has a lot of room to take on sort of the
    underlying conditions that are driving prices up, but Fed
    policy is really not the right tool right now.
        Chairwoman Waters. Thank you very much. At this point, I
    will yield to the ranking member, Dr. McHenry, for 5 minutes.
        Mr. McHenry. ``Dr. McHenry.'' Thank you, Madam Chairwoman.
        Chairwoman Waters. Everybody is a doctor today.
        Mr. McHenry. Dr. Goodspeed, thank you for being here today.
    I think you said it very well. What I said in my opening
    statement is that the Democrats blame everything but their own
    fiscal policy for the inflation we are seeing, so that is fine.
    Let's just accept that. That is fine. Their explanation is
    corporate greed. What is your response?
        Mr. Goodspeed. Thank you, Ranking Member McHenry, Dr.
    McHenry. My response is, as I noted in my opening remarks, that
    if the causal explanation is corporate profit seeking, why do
    we only observe this emerging in 2021? Why do we observe this
    emerging only in the United States, when market concentration
    by some measures have been rising globally? If it is a matter
    of concentration, market concentration, why are we observing a
    general increase in the price level rather than relative price
    increases in more concentrated sectors?
        Mr. McHenry. Okay. So along those lines, has there been an
    industry segment where you see collusion that has been driving
    the price of goods?
        Mr. Goodspeed. Not that I have observed, and when I look at
    the correlation between measures of market concentration and
    observed increases in the consumer price index in 2021, I see a
    negligible correlation.
        Mr. McHenry. Okay. And there is no evidence of significant
    consolidation in Calendar Year 2020 or 2021 that would indicate
    something different than pre-pandemic?
        Mr. Goodspeed. Not that I have seen.
        Mr. McHenry. Okay. So much for that scapegoat. Record
    prices get down to this general principle that we understand,
    which is too much money chasing too few things. And is that
    what is happening here?
        Mr. Goodspeed. Fundamentally, I think that is what is
    happening. And actually, when we look at the pattern of the
    increases in demand for goods, specifically in 2021, as I said,
    we had month-over-month a 10.7 percent increase in demand for
    goods in March 2021. That was a 240 percent annualized
    increase. Goods consumption had been already about 7 percent
    above trend heading into March. It then surged to 19 percent
    above trend, and ended 2021 at 22 percent above trend. As I
    said, our supply chains did a remarkable job handling that
    excess demand. I would not place the blame on the supply
    chains.
        Mr. McHenry. Okay. So, the supply chains are then a
    representation of the underlying economic facts, right? It is
    not the prime mover here. It is a secondary effect of the
    economic policy?
        Mr. Goodspeed. I would say it is predominantly a symptom
    rather than a cause.
        Mr. McHenry. Symptom rather than cause. Okay. So then, are
    we in a unique position compared to the rest of the world? How
    do we compare with the Europeans? COVID hit mainland Europe in
    a significant way, just like it did in the United States. How
    do we fare against the Europeans over the last year?
        Mr. Goodspeed. Right. As I noted in my opening remarks, the
    increase in the rate of inflation in the United States relative
    to the Euro area was about 3 times greater. If we try and
    extend the harmonized series into 2022, that rises to 5 times
    greater. As you noted, we were all exposed to some of the same
    global shocks in 2021. In the United States, in 2021, the
    magnitude of the increase in the demand stimulus was just
    orders of magnitude greater than in the rest of the advanced
    economy world. And at the same time, we engaged in active
    measures that further impaired some of those supply side
    constraints.
        Mr. McHenry. Okay. So, bad economics have driven this
    inflation question. Democrats control the House, the Senate,
    and the White House, sent a $2-trillion bill to juice the
    economy at the very time the economy is ripe to open, and that
    is why we have exacerbated the problems. You raised this
    question. You say to this, their actions, the Democrat policy
    actions of last year raised the implicit tax rate on returning
    to work. What does that mean? Can you simplify that for me?
    What does that mean for the average person? What do they
    experience as a result of these policies?
        Mr. Goodspeed. What that means is that when you have things
    like the extension of supplemental Federal unemployment
    insurance benefits into September, that is a year-and-a-half
    into the economic recovery, when you effectively eliminate work
    requirements for an expanded Child Tax Credit, that lowers the
    rate of return on working relative to not working.
        Mr. McHenry. And, therefore, we have a hangover effect from
    those bad policies.
        Mr. Goodspeed. That likely slowed the recovery in labor
    force participation in the United States in 2021.
        Mr. McHenry. Bad policy, bad economics, bad outcomes. I
    yield back.
        Chairwoman Waters. Thank you. The gentleman from
    California, Mr. Sherman, who is also the Chair of our
    Subcommittee on Investor Protection, Entrepreneurship, and
    Capital Markets, is now recognized for 5 minutes.
        Mr. Sherman. Inflation has been a worldwide problem since
    COVID. It is maybe a third larger here in the United States
    than in most of the developed world. We had a lot of fiscal
    stimulus. We should remember that most of it was bipartisan.
    Most of it was signed into law by President Trump. Yes, there
    is one bill for $2 trillion, the Rescue Bill, that was
    Democratic. There was also a $2-trillion tax cut bill that was
    exclusively Republican during the Trump Administration. So,
    both parties have been solely responsible for $2 trillion in
    fiscal stimulus.
        We kept people's incomes high during the COVID pandemic,
    but we closed down the bars, the restaurants, and all of the
    entertainment. People had money, but they couldn't spend it
    having fun at restaurants and bars, so they went shopping on
    Amazon. The ports in Los Angeles, as one of the witnesses
    pointed out, had a 20 percent increase in all-time volume, and,
    of course, there were delays. When it comes, those delays have
    led to more inflation. We have passed, pretty much with
    Democratic votes, an infrastructure bill. If we had passed it 5
    years ago, we wouldn't have had the delays, particularly in the
    ports in Los Angeles. We have had many hearings in this
    committee on the cost of housing, and clearly, local
    governmental decisions raise the cost of creating new,
    particularly apartment rental units.
        We are told, I believe, by Mr. Zandi, that this inflation
    is costing the average American family $275 a month. Keep in
    mind that under the American Rescue Plan, families were getting
    $250 per child, and $300 if the child was under 5-years-old.
    So, we insulated parents up until our failure to pass the Build
    Back Better bill. We have passed a Competitions bill to make
    sure that more of the chips are built here. Autos are a huge
    part of the inflation. I believe one-third is caused by auto
    costs, and that is a chip shortage.
        I have talked about ports, and finally I would like to talk
    about oil. Keep in mind that Democratic policies for
    conservation have virtually doubled miles-per-gallon. Imagine
    what the cost would be worldwide per barrel if Americans were
    still driving the kind of car I was driving when I got my first
    car, which got 9 miles to a gallon. We have alternative energy.
    We have efficiency. Oil production in the United States is
    higher today than it was when Biden took office, were stated
    for 2023 will be the all-time record in U.S. oil production.
        Mr. Zandi, what is the worldwide elasticity in the demand
    for oil? Will we see either here or in other countries, people
    using less oil because it is so expensive? And I will point out
    that I think there might be more elasticity of demand in other
    countries than here in the United States.
        Mr. Zandi. Yes, the elasticity of demand, the price
    elasticity of demand for oil is low compared to other products
    and services, obviously because it is a necessity; people need
    to get to work. But to give you a sense of it, before the
    Russian invasion of Ukraine and the run up in oil prices, oil
    was trading about $75 a barrel. We expect that global demand
    for oil this year to be about 6 million barrels a day.
        Just for context, there are 100 million barrels a day of
    demand roughly. Now, with prices, let's say they average closer
    to $100 a barrel. Now, obviously, they are a lot higher today,
    given all the things that are going on, but for the year, they
    average $100 a barrel, and hopefully it is no more than that.
    And global demand will be something like 5.5 million barrels a
    day, so that gives you kind of a sense of the price elasticity
    of demand. That also reflects weaker global economic activity.
    So, there is some impact on demand in the near-term. There is
    more impact in the longer-run, because then people can change
    behavior.
        Mr. Sherman. Okay. People can adjust.
        Mr. Zandi. Yes, it is relatively small.
        Mr. Sherman. If I can just point out that supplemental
    unemployment insurance ended in early September, and we have
    seen by its sunsetting that it was not having a major effect on
    the availability of labor and the number of people in the
    workforce. I yield back.
        Chairwoman Waters. The gentlewoman from Missouri, Mrs.
    Wagner, is now recognized for 5 minutes.
        Mrs. Wagner. Thank you, Madam Chairwoman. Dr. Goodspeed,
    the United States is experiencing, as we have all talked about
    here time and time and time again, record high inflation that
    is broad-based and hitting the wallets of my constituents in
    Missouri's 2nd Congressional District. Current prices are at
    levels not seen in 40 years. It is not just the gas prices that
    are 40 percent higher, but meat, poultry, and fish are all 12
    percent higher. Overall, groceries in general are up 7 percent.
    You have discussed the negative impact that the American Rescue
    Plan and its multi-trillion-dollar spending spree had on
    inflation and consumer prices. But could you explain how the
    Build Back Better Act, which is still discussed widely in this
    committee, and an expense of an additional $3.5 trillion, would
    impact our economy and rising inflation?
        Mr. Goodspeed. Thank you, Congresswoman. There are a number
    of provisions in the Build Back Better program that I believe
    would exacerbate some of the supply side challenges that we
    have talked about before. In particular, all of those new
    programs have income phase outs, which means, to use my
    previous term, they are going to raise implicit marginal tax
    rates on work as they phase out. And, furthermore, insofar as
    this is deficit finance, that is likely going to put upward
    pressure on interest rates, which is going to make borrowing
    costs greater for American households, and possibly necessitate
    further action on the part of--
        Mrs. Wagner. It doesn't pay for itself, does it, sir?
        Mr. Goodspeed. It certainly does not pay for itself.
        Mrs. Wagner. Dr. Goodspeed, I know that per usual, our
    colleagues across the aisle want to blame big corporations for
    inflation, particularly energy companies. But if we look back
    at history, it is global crises centered around energy that
    have driven up energy prices: the 1973 oil shortages; in 1979,
    the Iran hostage crisis; and in 1990, the Persian Gulf War. And
    now, it is the Biden Administration's refusal to reinstate
    America's energy independence by drilling in the Arctic
    National Wildlife Refuge (ANWR), opening up the Keystone
    Pipeline, ending the Federal freeze on all new oil and gas
    projects, and fast-tracking pending liquefied natural gas (LNG)
    export permits, to just name a few.
        Dr. Goodspeed, how has the Biden Administration's energy
    policies or lack thereof, allowing us energy independence,
    impacted the prices Americans are paying in terms of gas,
    electricity, heating oil for their homes?
        Mr. Goodspeed. To put some perspective and quantitative
    perspective on this issue, at the Council of Economic Advisors,
    we estimated that the lower cost of energy in the United
    States, thanks to the Shale Revolution, was saving the average
    American household $2,500 per year on the eve of the COVID
    pandemic. And insofar as actions, such as those you just
    described, limit the output potential of the U.S. energy
    sector, that is likely to chip into that $2,500 per household.
    Sorry to be technical, but the elasticity of output in the
    United States with respect to the price of oil is about 0.02
    percent, negative 0.02 percent. So, that means a 10-percent
    increase in the price of oil is going to decrease U.S. output
    by about two-tenths of a percent, and I think what we have seen
    in the past few months is something quite a bit larger than 10
    percent.
        Mrs. Wagner. And how does a strong energy policy help our
    economy by lower prices and job security, to protect our
    country?
        Mr. Goodspeed. I think that we are seeing this today with
    the difficulty on the part of many European capitals in terms
    of responding aggressively to the Russian Federation. Having
    domestic production capacity, in effect, serves as insurance in
    the event that foreign supply becomes unavailable. And one
    thing that we have seen is that different sources of energy are
    not perfect substitutes in the event of a crisis, because we
    can't simply ship LNG to Germany in the event that Russian gas
    and oil becomes unavailable.
        Mrs. Wagner. But, boy, if we could, it would sure be a lot
    cleaner than the LNG they are getting from Russia, wouldn't it,
    sir?
        Mr. Goodspeed. That is quite true.
        Mrs. Wagner. Yes, it sure would be. We are going to hear
    from the President of the United States here shortly; he may be
    on right now. And, finally, I think he is going to agree with
    the vast majority of American people, and, frankly, the rest of
    the world, that we should not be importing Putin's oil into the
    United States of America. We have the ability to be energy-
    independent on our own, and we don't need this butcher's blood
    on our hands. Hopefully, we can open up our own energy
    independence with the drilling in ANWR, with the Keystone
    Pipeline, with the fracking, with the shale, all of the things
    that you talked about, to allow us to move forward towards
    energy independence on our own in a cleaner and greener way.
    So, I thank you for your input, and I yield back.
        Mr. Goodspeed. Thank you.
        Chairwoman Waters. Thank you. The gentleman from Georgia,
    Mr. Scott, who is also the Chair of the House Agriculture
    Committee, is now recognized for 5 minutes.
        Mr. Scott. Thank you. Let me start with you, Mr. Drummer.
    You mentioned two things in your testimony that I have been
    fighting for ever since I have been in Congress: one, the need
    to raise wages for workers; and two, removing structural
    barriers to employment that have blocked many low-income
    Americans out of economic opportunities. So tell us, in your
    own words, how important is it for us and Congress to tackle
    these issues of income and equality and occupational
    segregation that we face today?
        Mr. Drummer. Thank you, Representative. It is absolutely
    fundamental for the 100 million who are economically-insecure.
    Again, that is one-third of America. Just 48 percent of those
    are White people, and 52 percent are people of color. This is
    America. It is vitally important that we do everything we can
    to raise the floor of wages for the lowest earners. Again, I
    mentioned in my testimony that wages have stagnated for about 4
    decades. Meanwhile, the productivity of workers has increased
    fourfold faster than the wages have increased. And the question
    is, why shouldn't the workers get the benefits of that
    increased productivity? Why should that increased productivity
    flow to the top earners and the top shareholders in our
    country?
        To restore balance in our economy, it is incumbent upon
    Congress to not just engage in expansionary fiscal policy, not
    just encourage and coax the Fed into doing expansionary
    monetary policy, but to have expansionary regulatory policy. We
    have to raise the floor. The minimum wage has been lagging
    behind normal inflation for decades.
        Mr. Scott. Right. Now, Dr. Zandi, let me go to you. This
    business going on in Russia and Ukraine right now has opened up
    so many areas that illustrate our nation's insufficiency, being
    so utterly dependent upon other nations for our energy and our
    growing need for food, that I raised in our last meeting. Can
    you tell us whether or not we need to move to do things like
    revisiting the Keystone Pipeline, for example? The reason I am
    saying that is it puts us, our nation, in a terrible position
    when we have to depend on Russia for our oil, or Iran, or Saudi
    Arabia, or Venezuela, these socialistic countries, several of
    whom are our worst enemies.
        Do you agree with the growing feeling among both Democrats
    and Republicans that we have plenty of oil right here? We have
    plenty of resources here. Why do we have to depend upon Russia,
    when it might make sense to revisit the Keystone Pipeline and
    other areas that we are blessed with the natural resources
    here? And I would like for you to comment on that and give us
    your opinion.
        Mr. Zandi. Thank you for that, Congressman. I think we are
    energy-independent. We produce 10 million barrels of oil a day.
    We consume 10 million barrels of oil a day. We do import some
    Russian oil just because of the economics of it, but we export
    oil and petroleum products as well. So, the net of all that is
    we are energy-independent.
        In terms of natural gas, similarly, we produce a lot of
    natural gas already. Natural gas prices remain low here because
    that is more of a local market. The problem with oil and oil
    prices is it is a global market, and so the issue is what is
    going on overseas. And Russia is a big producer. They produce
    10 million barrels of oil a day. They export 5 million, making
    them the second-largest exporter in the world. If you take that
    offline, which is completely understandable given the situation
    and what is going on in Ukraine, you must get it, but it is
    going to be difficult to adjust to that.
        So, I think we are there. We need to shepherd our
    resources, and we need to make sure that we can provide those
    resources in a cost-efficient way and evaluating pipelines and
    other things that are important. But at this point, I think we
    have done a pretty good job in terms of energy independence.
        Mr. Scott. Thank you.
        Chairwoman Waters. Thank you very much. The gentleman from
    Oklahoma, Mr. Lucas, is now recognized for 5 minutes.
        Mr. Lucas. Thank you, Madam Chairwoman. And, Dr. Goodspeed,
    being an old ag econ guy from Oklahoma State, I was very
    pleased to hear you discuss the unique concept of the
    elasticity of demand, because that is really difficult for a
    lot of people to get a grip on: the concept that you either
    have enough or you have too much, and that price dramatically
    shifts from one perspective to the other. But back to the to
    the core issue. The Fed's balance sheet sits at just under $9
    trillion, more than double the pre-pandemic amount. The total
    U.S. public debts increased nearly $7 trillion since late
    January of 2020. Dr. Goodspeed, can you discuss how this drives
    inflation and overstimulates the economy from a macroeconomic
    perspective?
        Mr. Goodspeed. Certainly. Thank you, Congressman Lucas.
    What we have observed in the past year is an almost
    unprecedented excess of demand over supply in the U.S. economy.
    And that has, to a large extent, been accommodated by the
    Federal Reserve. And if we look at a broad measure of the money
    supply in the United States, that has increased by about 40
    percent since the start of the pandemic.
        Mr. Lucas. So as we would say in my town meetings, if you
    have dramatically increased the amount of money chasing the
    same or fewer goods and services, then you drive up the price
    of the goods and services, correct?
        Mr. Goodspeed. That is correct.
        Mr. Lucas. Thank you. Farmers across the country are
    experiencing higher costs for chemicals, seeds, fertilizer,
    equipment, fuel, and labor, among other increased input costs.
    The squeeze and uncertainty felt by farmers and ranchers right
    now will be felt for years to come. This means that the higher
    food prices we see now may be with us for some time. Dr.
    Goodspeed, can you discuss how persistent inflation, is it
    simply a supply chain, logistics, or a pandemic recovery issue,
    but spreads much deeper into the economy?
        Mr. Goodspeed. That is right. Sometimes, we see relative
    price increases where prices are increasing in one sector or
    another. But what we have seen in the past year is broad-based
    inflation that crosses multiple sectors, and it hurts working
    people very much because they don't have the same bargaining
    power that other workers have. Things like rent, food, energy,
    and utilities are much bigger shares of their disposable
    personal income. And many lower-income households don't have
    hedges against inflation, namely, housing.
        Mr. Lucas. So the little guys, we would say in town
    meetings, don't have flexibility. They are locked into their
    situation, on their income with their expenses ever increasing.
    This month, the national debt topped $30 trillion and the
    Congressional Budget Office predicts that the debt-to-GDP
    ratio, I should say, will double over the next 30 years. How
    troubling is this for the long-term, and I mean the long-term
    health of the U.S. economy?
        Mr. Goodspeed. In the short-term, it means that every 25-
    basis-point increase in interest rates is going to raise the
    cost of servicing that debt by $75 billion. In the long term--
    if we look over history when the U.S. has had debt-to-GDP
    ratios of this level, the way we got out of it is not
    especially encouraging. Some of it was from growth, but we do
    not have those growth tailwinds that we had in the aftermath of
    1945. A lot of the rest of it was inflation and what we call
    financial repression, which is basically capital controls and
    implicit pressure on banks to hold Federal Government debt.
    Those are not good recipes.
        Mr. Lucas. I started out farming in 1977 as we slid into
    the inflationary period of the Carter years, and we went
    through Mr. Volcker's dramatic tightening of the money supply,
    and we saw the old 1930s interest rate caps come off. I
    borrowed caffeine money at 17 percent in 1981, and was so happy
    to get it. But I also watched a generation of young farmers and
    ranchers come home from the Vietnam War, who were absolutely
    exposed economically, be destroyed, and the last of those
    sheriff's sales were still taking place in the 1980s. So, I
    carry a few scars from watching my neighbors. We need to try to
    avoid that, don't we?
        Mr. Goodspeed. I think that is right. And when one looks at
    past episodes of the Federal Reserve having to play catch-up
    with inflation, they have to respond even more aggressively
    than had they responded earlier in order to ring that
    inflationary pressure out of all sectors. And that was what we
    saw in the early 1980s.
        Mr. Lucas. The longer the binge, the harder the hangover?
        Mr. Goodspeed. Yes.
        Mr. Lucas. I yield back.
        Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
    Green, who is also the Chair of our Subcommittee on Oversight
    and Investigations, is now recognized for 5 minutes.
        Mr. Green. Thank you, Madam Chairwoman, and I thank you for
    holding this hearing. I think it is exceedingly important. I
    was at the State of the Union Address, and I thought the
    President gave an excellent speech. I was very proud of him, to
    be very honest with you. And one of the things he said that
    really caught my attention was that, ``Capitalism without
    competition is exploitation.'' My question to you, Mr. Zandi,
    is, who suffers most from the exploitation when you don't have
    the competition in a capitalistic society?
        Mr. Zandi. I think competition is a key element,
    Congressman, of a well-functioning capitalist system. Without
    that competition, we don't have innovation, we don't have
    entrepreneurs, and we don't have growth, and clearly, we will
    struggle with higher prices and inflation. So, it is a vital
    ingredient to a well-functioning economy.
        Mr. Green. And we talk about persons within the society.
    How would minority people be impacted as a result of this? We
    know that minority unemployment, especially Black unemployment
    is usually about twice that of White unemployment. By the way,
    I am a capitalist. If you don't have that competition, does it
    have a greater impact on African Americans?
        Mr. Zandi. Yes, I think that is fair to say. If competition
    is impaired, it will result in higher prices for the goods and
    services produced by that business in that industry. That is
    uncompetitive for lower- to middle-income households who don't
    have savings, who don't have wealth, who really are struggling
    just to pay their bills paycheck to paycheck, and that becomes
    an incredibly difficult hardship. Hard choices have to be made
    very quickly, and that is obviously what is happening right now
    with inflation as high as it is.
        People are having to make tough decisions about what they
    are spending their money on, because if they have to spend more
    to fill their gasoline tank, they are going to have less to
    spend on everything else. So, it is critical that we ensure
    that markets are competitive, that businesses are offering
    prices that are consistent with that competition, because if
    they don't, low- to middle-income households, African
    Americans, Hispanics, and Hispanic groups will be hurt more.
        Mr. Green. Thank you. Mr. Drummer, would you care to weigh
    in on this, please?
        Mr. Drummer. Yes. If you are talking about the structure of
    our economy in general, again, as I said in my testimony, it is
    about expansion. We are nowhere near the peak of what America
    can do. We are nowhere near the top of our productive capacity.
    And so, any claim that any investment into our economy will
    inherently be inflationary is just flawed.
        Mr. Green. Let me come back to you again, Mr. Zandi. I
    always enjoy conversing with you. Your commentary is excellent.
    Let's talk for just a moment about indexing. There is a belief
    that we should index wages to possibly the CPI or even to the
    poverty, such that if you work full time, you don't live below
    the poverty line, by indexing. Give me your thoughts on
    indexing, please, and you have about a minute to do it. Sorry
    about that.
        Mr. Zandi. No worries, and thank you for the kind words. I
    would not be a fan of that, Congressman. We had experience with
    that back in the 1970s and 1980s. The last time we suffered
    very high inflation in the indexing, the so-called cost-of-
    living adjustments built into contracts exacerbated the wage
    price dynamics and ultimately resulted in a very severe
    recession that hurt all Americans, particularly lower- to
    middle-income Americans. I think it is much better to focus
    policy on trying to address the wage inequities and to make
    sure that we provide the resources necessary so that people can
    get better jobs and get better pay.
        Obviously, this is happening, but very true. Education and
    training and helping with child care and elder care, things
    that allow people to go to work and get the skills that they
    need to get higher wages and to do better. And I think that
    would result in a more well-functioning economy. The indexing,
    I think, would be difficult, and clearly, I am not sure how
    lawmakers would be able to intervene or enter into that given
    that is a decision by private businesses.
        Mr. Green. Thank you. My time has expired. Thank you, Madam
    Chairwoman. I yield back.
        Chairwoman Waters. Thank you. The gentleman from Kentucky,
    Mr. Barr, is now recognized for 5 minutes.
        Mr. Barr. Dr. Goodspeed, as the title of this hearing
    suggests, my friends on the other side of the aisle want to
    blame higher prices on everything but their own policies. They
    blame it on supply chain bottlenecks, they blame it on COVID,
    and they even blame it on corporate greed, and I want to focus
    on that last narrative for a minute, corporate greed.
        Let me tell you how it works in the real world, and I will
    give you an example from my own district where businesses are
    struggling with the cost of higher inflation. The Suffoletta
    Family in Georgetown, Kentucky, has been in the retail home
    furnishings business since the late 1940s. In a conversation
    last week, they informed me that in the last 18 months, the
    cost of goods from their manufacturers has increased 30 to 40
    percent, and they are still receiving price increase letters
    every week. They are also experiencing price increases on sold
    orders that have not even been produced yet, but they aren't
    going back to their customers asking for more money than what
    they agreed to at the time of placing those orders. That is an
    important point.
        They are not sitting around the table trying to figure out
    how to exploit their customers. They are struggling because
    their profit margins are down, because the costs of their
    inputs are going up. Instead, the Suffolettas are choosing to
    absorb those additional costs, contrary to Mr. Drummer's
    narrative. They are choosing to absorb them, and like most
    small businesses, their cost of labor and overhead has gone up
    over 25 percent. So now, they are having to determine how to
    operate without passing all those costs on to the end consumer,
    and still have some profit at the end of the year. This idea of
    businesses trying to exploit this and profit here is offensive
    to most small firms in America today.
        Steven Rattner, a former Obama Treasury official, summed it
    up perfectly: ``Blaming inflation on supply lines is like
    complaining about your sweater keeping you too warm after you
    have added several logs to the fireplace.'' The original sin
    was the $1.9-trillion American Rescue Plan that passed in
    March. The bill was almost completely unfunded, and sought to
    counter the effects of the pandemic by focusing on demand side
    stimulus rather than on investment, and that has contributed
    materially to today's inflation levels.
        So, Dr. Goodspeed, you have focused on the increase in
    aggregate demand, but I want you to elaborate on your testimony
    about how the American Rescue Plan also constrained the supply
    side. Specifically talk about how the American Rescue Plan
    stifled the labor supply, which is contributing to the problem
    that the Suffoletta Family is having right now.
        Mr. Goodspeed. Thank you, Congressman. And to your
    observation about what you are hearing from businesses, we
    have, over the past year, seen the Producer Price Index
    outpaced by a considerable margin by the Consumer Price Index,
    which suggests or implies that firms have been taking that
    pressure out of margin rather than passing most of it on to
    prices. In terms of the supply side impacts that you mentioned,
    I have calculated that there has been a cumulative shortfall
    since the pandemic began in business investment of about $1.8
    trillion. Throughout 2021, with the Build Back Better agenda,
    there was the prospect of substantially higher taxation on
    corporate income after 2021, which was unlikely to help
    facilitate a recovery in business investment.
        Mr. Barr. So to the extent we have supply chain
    bottlenecks, part of that is because there has been less
    business investment?
        Mr. Goodspeed. That is correct.
        Mr. Barr. Because of uncertainty of the potential of tax
    increases.
        Mr. Goodspeed. That is correct.
        Mr. Barr. Then, explain how the American Rescue Plan
    discouraged labor supply?
        Mr. Goodspeed. It discouraged labor supply in two ways.
    One, the expansion of the Child Tax Credit, as designed under
    the American Rescue Plan, effectively eliminated work
    requirements. Relative to the 2017 expansion of the Child Tax
    Credit--remember, we doubled the Child Tax Credit in 2017.
    Relative to that expansion of the Child Tax Credit, we actually
    lowered the return on work. And in addition to that, we
    extended the $300-per-week supplemental Federal unemployment
    insurance benefit, which likely lowered employment by--
        Mr. Barr. So, in addition to increasing aggregate demand
    and creating excess demand in the economy, the agenda from the
    Administration constrained supply. Let's talk about another
    area of constrained supply coming from this Administration. Is
    it more likely that oil executives are sitting around their
    board table trying to figure out how to stick it to their
    consumers; or is it the Administration canceling drilling
    leases, closing pipelines, or limiting production; or is it
    uncertainty and unease among exploration and production
    companies that new environmental crackdowns will come; or is it
    the financial regulators that are attempting to limit access to
    capital, making it illogical to invest in new oil wells--which
    is more likely?
        Mr. Goodspeed. I would say the unresponsiveness of supply
    in response to onerous regulation and crackdowns on domestic
    energy production, because if we look at the historical
    relationship between the price of West Texas Intermediate and
    rig counts, that relationship broke down in 2021.
        Mr. Barr. Thanks. I yield back.
        Chairwoman Waters. Thank you. The gentleman from Missouri,
    Mr. Cleaver, who is also the Chair of our Subcommittee on
    Housing, Community Development, and Insurance, is now
    recognized for 5 minutes.
        Mr. Cleaver. Let me concentrate on Dr. Drummer and Dr.
    Mabud. I don't know if any of you drink Hint Water. It is
    advertised quite a bit on TV. Do either of you drink Hint--H-i-
    n-t--Water?
        Mr. Drummer. No, sir.
        Mr. Cleaver. Oh, man. It is necessary. It is the best thing
    that has come along. I love Hint Water. It has a hint of peach
    or a hint of berry, whatever it is, but it is water, with no
    calories, no nothing. It is water. And so, I love it. And I
    also love it because I could go to the dollar store and get
    Hint at $1 a bottle, because at the dollar store, everything in
    there is $1, at least until about 3 weeks ago. And I guess, in
    an attempt to avoid false advertising on the doors, they have
    something taped up that says all items are now $1.25. So, the
    dollar store is now the $1.25 store, which means that Hint goes
    up from $1 to $1.25. I am not happy about that. Life is going
    down here when Hint costs 25 cents more.
        So, Dr. Drummer and Dr. Mabud, do you agree with Dr. Zandi
    that no matter what happens to pricing across most goods,
    inflation will remain high as long as the cost of housing
    continues to rise? Do both of you or either of you agree with
    what Dr. Zandi has written?
        Mr. Drummer. Thank you, Representative. Based on her
    testimony, I would like to defer to Dr. Mabud.
        Ms. Mabud. Thank you. Thank you so much. I think the point
    that you are making is really critical, which is that low-
    income communities, particularly low-income communities of
    color, are dependent on these essentials like housing, and
    places to buy cheap goods, like the dollar store. And so,
    higher prices will inevitably disproportionately affect exactly
    those communities, especially when those prices are going up on
    essentials that people really need. If you need diapers, you
    need diapers. It doesn't matter if the box is $20 a box or $40
    a box. And we know that low-income communities are particularly
    likely to see rent as a bigger proportion of their budgets and
    see food and other essentials as a bigger proportion of their
    budgets.
        I think the other important thing to remember here is that
    these exact same workers and families are also more likely to
    face discrimination in the labor market because of occupational
    segregation and other barriers to entry into the labor market.
    Soc, low-income folks, particularly low-income folks of color,
    are really hit from all sides by these price hikes, with rising
    prices at the checkout line, and when they pay their rent, and
    have a harder time accessing good, well-paying jobs.
        Mr. Cleaver. Thank you very much. So, Hint goes up. Dr.
    Zandi, if you look at the cost of housing, the cost has
    increased a whopping 470 percent over the last 40 years. As
    long as that continues to rise like it is, is Hint Water going
    to come down?
        Mr. Zandi. Yes, that's a good point. Yes, we have a very
    severe shortage of housing, particularly for affordable
    housing, both on the rental side and on the homeownership side.
    This has been developing really since the housing bust in the
    wake of the financial crisis. Vacancy rates across the housing
    stock are at record lows, so this has resulted in surging
    housing values and surging rents. And rents, all in, account
    for one-third of the Consumer Price Index, and one-third of
    measured inflation is housing. So as long as we have this
    shortage, as long as we don't address the supply shortage--and
    here is where lawmakers can be critically important--rents are
    going to grow quickly. House prices are going to grow quickly,
    and the cost of living is going to continue to rise quickly.
        Mr. Cleaver. Thank you, Madam Chairwoman.
        Chairwoman Waters. You are welcome. The gentleman from
    Florida, Mr. Posey, is now recognized for 5 minutes.
        Mr. Posey. Thank you very much, Madam Chairwoman. Dr.
    Goodspeed, I feel like I have seen this movie before. To
    paraphrase a classic, we appear to be running up to usual
    scapegoats for inflation under the heading, ``primary causes of
    inflation trends, majority hitting nonetheless supply chain
    bottlenecks and shortages, lack of housing supply, lack of
    competition.'' There is no mention of the Majority's deficit
    spending and the monetization of those deficits to dramatically
    increase money supply.
        Last week, Chair Powell agreed that inflation is a monetary
    phenomenon. The way we ended up with this inflation is that the
    government dramatically increased the deficit in the Rescue Act
    and other legislation, and the Federal Reserve provided the
    lending to support the deficits at no charge and interest
    rates. The primary call to inflation is deficit spending
    financed by the Federal Reserve buying the debt and increasing
    the money supply.
        One price increase that stands out from the rest is the
    skyrocketing increase in energy costs that has been mentioned
    by almost everybody here today, especially the price of
    gasoline. Even before the Ukraine invasion, the price of
    unleaded regular was closing in on $4 a gallon. This is a steep
    relative price increase, and most analysts understand that this
    increase was a result of supply restrictions that followed on
    the Administration's assault on the domestic energy production.
        Please give us your assessment of how reversing the
    Administration's restrictions on domestic oil and gas would
    reduce gasoline prices, and how much would gas prices decline
    if we reset the clock back to January 19, 2021, and erased the
    Administration's impact on the domestic energy sector? Could we
    expect to restore energy independences as we had before?
        Mr. Goodspeed. Thank you, Congressman, and I think, as you
    noted, we have heard some of these stories before. In fact, in
    the 1960s and 1970s, there were a lot of allegations that the
    price pressures that we were observing were the result of
    oligopolistic or monopolistic competition, and, empirically,
    those claims were subsequently tested and rejected.
        I would expand upon a remark I made in response to
    questions from Congressman Barr, namely that if we look at the
    historical relationship between the price of West Texas
    Intermediate Crude and Oil Rig Counts in the United States,
    those two series typically track each other very closely,
    meaning the price of oil goes up, rig counts go up, we get more
    supply. That relationship completely broke down in 2021, and I
    think that was a result of the regulatory crackdown on domestic
    energy production, and the looming prospect of more crackdowns.
    Now, it is hard to say where domestic oil prices and gasoline
    prices would go in the coming months simply because of so much
    international geopolitical uncertainty.
        Mr. Posey. Thank you. One of the favorite boogeymen of our
    friends on the other side of the aisle is the evil price-
    gouging firms. They are one of the usual scapegoats for unsound
    fiscal and monetary policy. I believe we can expect that
    businesses will respond to market forces, including inflation,
    like any other economic player, but it is more than a little
    naive to habitually resort to the price-gouging monster to
    explain 7.5 percent inflation. Is there any solid, convincing,
    credible, and peer-reviewed evidence that businesses with
    disproportionate market power have been a major cause of
    inflation through price gouging?
        Mr. Goodspeed. I have seen no serious academic study to
    that effect. And I would add that most empirical studies and,
    for that matter, theoretical papers on this suggest that in the
    short run, the passthrough from cost to price is actually lower
    in less-competitive markets than in competitive markets. In the
    long run, competitive markets have lower average inflation
    rates, but in the short run, the passthrough is actually higher
    in competitive markets.
        Mr. Posey. Thank you. And while I believe the role that
    housing has played in inflation is far more subtle than the
    other side suggests in listing it as a major call to inflation,
    I do have serious concerns about the cost of building housing.
    And I believe that the costs of building new housing, whether
    single or multifamily, determines the prices of houses and
    rents at the margin to the market. Adding demand to a housing
    market, in which the cost of new housing is continually being
    pushed up by regulations and restrictions on innovative
    building techniques, really serves mostly to just drive up even
    further the price of rent and all housing.
        Do you agree that to make significant progress in providing
    affordable housing, we need to focus on bringing down the cost
    of building new housing?
        Mr. Goodspeed. I would say that we should be focused on
    increasing the supply of housing generally, and we have a
    problem in that it is very difficult to build, to construct new
    housing in the United States. And we should ask ourselves, why
    did the price of housing go up so much in 2021? Let's remember
    that housing and autos are the two most interest rate-sensitive
    sectors in the U.S. economy. Thank you.
        Mr. Posey. Thank you. Thank you, Madam Chairwoman.
        Chairwoman Waters. The gentleman from Illinois, Mr. Foster,
    who is also the Chair of our Task Force on Artificial
    Intelligence, is now recognized for 5 minutes.
        Mr. Foster. Thank you, Madam Chairwoman. One of the
    recurrent themes on both sides of the aisle here has been
    inadequate business investment, and now we are being caught in
    a number of ways. So, I would like to explore the extent to
    which sort of the short-termism and the incentives that
    encourage short-termism in so much of our industry. We are
    obviously seeing underinvestment in resilient supply chains.
    That is kind of obvious in a number of areas. We have also seen
    inadequate investment in inventory for rainy days. For years,
    the best management procedures have been claimed to be this
    just-in-time delivery of everything with essentially no
    inventory of anything. And now, manufacturers are panicking and
    sort of switching from just-in-time, to just-in-case inventory
    policies.
        So, there is a tremendous short-term spike in demand which
    leads to tremendous market inefficiency throughout. It is sort
    of reminiscent of the toilet paper shortage at the start of
    COVID, where, as far as people could tell, there was no
    increase in the rate of consumption of toilet paper, and yet,
    there was a huge shortage because of a malfunction of the
    market that I think we are seeing in many areas. We are also
    seeing the same thing in computer chips, where companies like
    Intel engaged in more than $100 billion in stock buybacks, lost
    the lead in advanced semiconductors, and now are asking the
    Federal taxpayer for a $50-billion bailout. And a similar thing
    in the airlines, where during the Obama expansion, they made
    very high profits but didn't leave enough resilience in their
    operations and had to ask again for the $50 billion,
    essentially a gift from the Federal taxpayer, not a loan like
    TARP, just a straight gift.
        And there are a number of potential reasons for this
    underinvestment, but I was wondering, Mr. Drummer and Mr.
    Vaheesan, could you say a little bit about how the CEO
    compensation structures might encourage the short-termism,
    where keeping small inventories make you profitable this
    quarter, but leaving you in trouble when the tide goes out. Mr.
    Drummer, do you want--
        Mr. Drummer. This is a very good question, Representative,
    because it is not just a question of law and policy. It is
    about the practices of some of the largest corporations. Yes,
    when CEOs are incentivized to make quarterly benchmark profits,
    they extract all the work they can from the lowest-paid
    workers. Let's compare Walmart and Costco, right? Costco pays
    double what Walmart or Sam's Club pays, but they make 7 times
    more per employee than Sam's Club. And so, the short-termism is
    cultural. And yes, we do need law and policy that forces and
    really pushes these companies to do the right thing, because it
    ought not be an option to treat your employees right.
        Mr. Foster. Yes.
        Mr. Vaheesan. Thank you, Congressman. You raise a really
    important point. We have seen changes in law and policy over
    the past 40 years that have encouraged short-termism. You noted
    that CEO compensation is tied to short-term movements and stock
    prices. We have also had changes to antitrust policy and
    securities laws that have encouraged firms to engage in
    practices like stock buybacks, and mergers and acquisitions in
    lieu of the more socially-beneficial undertaking of investment
    and innovation. I think the chip industry nicely illustrates
    that point. It used to be the envy of the world, but now
    companies like Intel have been so focused on generating short-
    term cash flow that they have been leapfrogged by foreign
    rivals like TSMC and Samsung.
        Mr. Foster. Go ahead. I will take a risk here and see what
    they are--
        Mr. Goodspeed. Sure. I would say that one of the reasons
    that we had weak investment throughout much of the expansion
    from 2009 to 2016 was that the relative cost of capital in the
    United States was much higher, so that the cost of domestic
    capital formation was quite considerably high. And that is why
    in the aftermath of tax reform in 2017, we actually saw the
    level of investment rise to about 10 percent above the pre-2017
    expansion trend. And I think one of the reasons that we saw a
    weak recovery in investment in 2021 was because there was the
    prospect of higher corporate income taxation in 2022, which
    means that the value of stock--
        Mr. Foster. Okay. I understand. There is never a bad time
    to lower taxes, no matter what it does to the national debt.
        Mr. Goodspeed. The value of--
        Mr. Foster. And in my 23 seconds, Dr. Zandi, there are some
    things the Federal Reserve is clearly going to do to unwind the
    balance sheet. Will that be stimulative or contractive in terms
    of the demand? Will it reduce or increase?
        Mr. Zandi. At this point, yes, I think, Congressman, the
    Fed needs to normalize policy. That includes interest rates,
    short-term interest rates, allowing them to go up to zero lower
    bound. And at some point, not right away, we have to see how
    things go but allow the balance sheet to start to wind down,
    which is what they did after the financial crisis, and I think
    that worked well. So at some point this year that seems like a
    good policy to pursue. Again, you don't want the economy to
    overheat and then ultimately go into recession because that
    hurts the very people that we want to help.
        Mr. Foster. So, they are doing the right thing. Thank you.
    And I yield back.
        Mr. Zandi. I think so. Yes, that would be--
        Chairwoman Waters. Thank you very much.
        The gentleman from Missouri, Mr. Luetkemeyer, is now
    recognized for 5 minutes.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman. Mr.
    Goodspeed, President Biden had one accomplishment last year,
    and that was the approximately 300 new regulations his
    Administration issued on businesses and workers. The cost of
    these regulations total about $201 billion. That is their cost,
    by the way, that they said they had. This is 3 times the
    regulatory cost imposed by the Obama Administration, and 40
    times the cost imposed by President Trump in their first year
    in office, respectively. My question, I guess, begins with, how
    do these regulatory burdens impact inflation and the price of
    goods, their business' ability to hire workers, and their
    ability to have more resources to actually focus on more
    businesses?
        Mr. Goodspeed. Thank you, Congressman. These regulatory
    changes, at the end of the day, increase costs. They increase
    compliance costs. Compliance costs incur opportunity costs
    because workers working on compliance aren't working on other
    more productive activities. There is also a deadweight loss
    insofar as it prevents transactions that would otherwise have
    occurred, and there are also spillovers into unregulated
    industries. And I would just add that over the long run, an
    increased regulatory burden tends to decrease the flow of new
    firms into the market and decrease the exit of incumbent firms,
    so it lowers competition. So, insofar as one's hypothesis that
    insufficient competition was a cause for the inflation that we
    have observed, the regulatory burdens that we have seen
    increase in the past year likely exacerbated rather than
    attenuated that.
        Mr. Luetkemeyer. You just sort of made the case that--I
    know of the other side constantly talks about them doing things
    when you are concerned about low- and middle-income folks, and
    yet they continue to produce legislation, more rules that do
    the very thing that they are saying they want to try and
    minimize. As you just indicated, the hammer comes down on the
    low- and moderate-income people in the spectrum with inflation,
    with all sorts of rules, costs, rules and regulations. Is that
    not correct?
        Mr. Goodspeed. That is correct.
        Mr. Luetkemeyer. I also am the ranking member on the House
    Small Business Committee, and we had an economist come in for a
    briefing the other day, and I asked him to break down
    inflation. And I said, basically, I think it is composed of
    excess money supply, rules, and regulations, energy costs, and
    the supply chain/jobs problem. Would you agree that is kind of
    the main four main drivers of our inflation we have today?
        Mr. Goodspeed. I would agree with that.
        Mr. Luetkemeyer. I asked him to break it down percentage
    wise, and he said about 40 percent money supply, 20 percent
    regulations, 20 percent energy, and 20 percent supply chain.
    Would that be in the ballpark, do you think, or is one of them
    little bit low, or one a bit high? What would you estimate?
        Mr. Goodspeed. I would lower the estimated probability for
    supply chains. I would substitute for the regulatory costs. I
    would just say, generally speaking, it is excess demand
    relative to supply.
        Mr. Luetkemeyer. Okay. Again, we had the Chairman of the
    Federal Reserve in here, Jerome Powell, last week, and I read
    this off to him. And he was talking about being able to
    manipulate the economy through interest rates and all sort of
    stuff. And I told him that unless you are going to go with 10
    percent, these type of costs, if you look at them, where do
    you, in this group, have that much influence? And so, if you
    look at supply chain, look at energy production regulations,
    almost all of those are under the direct ability of the
    Administration to impact those, or is it not, would you not say
    that?
        Mr. Goodspeed. It is.
        Mr. Luetkemeyer. And a lot of it is, quite frankly, without
    Congress even being able to intervene. The President, in his
    first week in office, the first thing he did was to close down
    the pipeline. He can open that back up. There we go. That fixes
    that 20 percent.
        Supply chain--he can help with some of the threats of
    taxation. He can help the people get back into the workforce.
        Rules and regulations--that is obviously falling all on him
    and his Administration. And then, you come to money supply, and
    you look at, I don't know, I am guessing at 50-50 the Fed, by
    the way they manipulated, and 50 percent by us, the Congress,
    those guys putting more money into the system. So it would look
    to me like the Fed will only have like 2, 2.5 percent out of
    the 7.5 percent, at most. The Administration can fix this
    thing, and, to me, it all lies at their feet. Would that be a
    fair analogy?
        Mr. Goodspeed. I think that is a fair analogy. I would add
    that the two sectors over which the Fed has the most control
    with respect to inflation are housing and auto prices, and we
    have seen some big increases there in the past year.
        Mr. Luetkemeyer. Very good. Is inflation going to go away,
    and do you think we have a recession coming shortly?
        Mr. Goodspeed. When I look at the underlying inflation
    measures, when I look at the change in inflation expectations,
    I think that this is going to be very persistent, and it is
    going to take some very aggressive action on the part of the
    Fed, and hopefully Congress. And that is disconcerting because
    that could mean some economic pain.
        Mr. Luetkemeyer. Thank you very much, Dr. Goodspeed.
        Chairwoman Waters. Thank you. The gentleman from
    California, Mr. Vargas, is now recognized for 5 minutes.
        Mr. Vargas. Thank you very much, Madam Chairwoman, and Mr.
    Ranking Member. I appreciate it.
        It is interesting that when President Trump and the
    Republicans took office at the crest of the largest economic
    expansion in history, things were going well, and they were
    very happy about that. Then, of course, he presided over the
    worst labor market in the modern U.S. history, as did the
    Republicans. And the reality was, it was the pandemic. The
    truth of the matter is, you can't blame all those millions of
    job losses on Donald Trump and some of the crazy things he
    would say. It was the pandemic. But here, it is interesting,
    the Republicans blame everything except for the pandemic. It
    seems to me, Dr. Zandi, that you kind of nailed the thing down
    pretty well when you were talking about the pandemic. Am I
    wrong here? Is a lot of the inflation due to the pandemic?
        Mr. Zandi. Yes, Congressman, you are precisely right. It is
    the pandemic. And there is a long list of reasons for the high
    rates of inflation. At the very top is the supply disruptions
    created by the pandemic, particularly around the Delta wave. I
    will give you a poster child example. Chip plants in Malaysia
    shut down last August and September. They couldn't produce
    chips for U.S., and German, and Japanese vehicles. The F-150,
    the most popular vehicle in the United States, couldn't get the
    chips. They had to shut down. They couldn't produce,
    inventories collapsed, we had shortages, and prices have gone
    skyward. And roughly one-third of the acceleration and
    inflation that we have observed over the past year is simply
    related to that fact. That is directly related to supply
    chains. And I can give you other examples, but you are exactly
    right.
        Mr. Vargas. It seems to me--and again, I could be wrong--
    that is the case. Again, otherwise we can say, well, those damn
    Republicans, they lost millions and millions of jobs. What is
    wrong with Joe Biden? Their policies are so terrible. It was
    the pandemic. It is the pandemic here, and that is why I think
    we should work together to figure this thing out instead of
    yelling at each other about these things. But I am--
        Mr. Zandi. Can I point out that just because there is a lot
    of discussion around inflation overseas, what matters is the
    acceleration of inflation over the past year, and they are very
    comparable in every advanced economy, including in the United
    States. It is the increase in inflation, and if there is any
    differences, they are related to measurement differences. So
    precisely what is happening here is happening in Canada, and in
    the U.K., and in Germany, all across the advanced world. So, it
    is very, very similar, and goes back to the point that this is
    the pandemic, as the pandemic has affected everyone equally.
        Mr. Vargas. Yes, it has happened all over the world. It is
    a little bit like this, just to be frank, reminds me of the old
    tobacco hearings, and you would have a group come in and say,
    ``Oh no, those cigarettes are great. They are not unhealthy. Of
    course, not.'' And then, the other groups come in and say, ``Of
    course, they are not healthy; they cause cancer.''
        The truth of the matter here is that we see inflation all
    over the world. We see these problems all over because of the
    pandemic, and that is the big deal here. And it seems like the
    Republicans want to place blame on somebody, and they want to
    place blame on the Democrats. They don't want to take a look
    at, well, really the blame is on the pandemic and how do we
    work together. Now we have the problem with Russia. How do we
    work together?
        The two big things that I see are housing and cars, housing
    in particular. We do have to figure that out. In California,
    the prices have gone out of sight, and I don't see them coming
    back until we get more supply, and there are things that we
    need to do. But anyway, that is what I would like to say. I
    just want to say that sometimes it is kind of nutty listening
    to this stuff because, again, it is not realistic.
        Mr. Zandi. Can I say, Congressman, on housing, what was in
    Build Back Better around tax credits, light tax for low-income
    housing, neighborhood home tax credit for fixing,
    rehabilitating old housing stock and dilapidated parts of urban
    centers, the Housing Trust Fund, all of these things will go to
    quickly increase the supply of affordable housing, and goes
    directly to this very strong surge in rent growth and house
    prices that we are observing right now. So, there are things we
    can do, and what is in Build Back Better goes a long way to in
    fact doing that.
        Mr. Vargas. That is why I supported it. My time has ended.
    Thank you.
        Mr. Auchincloss. [presiding]. The gentleman yields back.
        The gentleman from Texas, Mr. Sessions, is now recognized
    for 5 minutes.
        Mr. Sessions. Mr. Chairman, thank you very much. To our
    colleagues who are watching this, please know that I think that
    there is an equal participation here today for us to tout. And
    I appreciate Mr. Vargas and his comments very much, my dear
    friend.
        I would like to go back to a statement that I believe Mr.
    Drummer made where he spoke directly about household incomes
    and how it has been flat when, in fact, if you go to the Bureau
    of Labor Statistics, you will see that household incomes rose 3
    times higher under Reagan and Trump policies than under Obama
    and Biden. And that is because I believe that what is occurring
    in particular right now that we can directly relate to is that
    we have problems getting people to go to work.
        As of this morning, the Office of Personnel Management
    (OPM) is still weighing their decision-making on whether we are
    going to have Federal workers go back to work. I know what that
    is like, because my office has been at work during this entire
    pandemic and we simply attempted to work with each other. But
    OPM still has people on what they call, ``maximum telework.''
    And if you have the Federal Government workers who are not
    reporting to work, if you have an Administration that is
    continuing with their onslaught at the free enterprise system,
    including workers of airlines, workers of transportation, how
    can people not go back to work when we have not encouraged it?
    We have to be leading-edge people to say as managers of our
    business, let us go back to work. If you have a reasonable
    reason, why not, then that flexibility should be given by OPM.
    But the way Republicans see it is that policy matters. In other
    words, elections matter. Policy matters. And in that
    circumstance, when you give people more take-home pay, when
    prices are reduced, when gasoline at the pump is a good deal
    rather than a jab deal, the free enterprise system really does
    really well by itself.
        Mr. Drummer made a number of comments which I tend to want
    to agree with, with equitable prosperity, but that is what the
    free enterprise system is. And that is why under the policies
    of Republicans--I don't have to say Donald Trump, but
    Republicans and Donald Trump--more people worked than ever,
    more African Americans, more men, more women, more minorities,
    and people were at work.
        And if you go back to an old book from the Dallas Fed, the
    myth of the rich and poor in America, the facts of the case are
    really simple. If you have a job, whether it be higher or lower
    pay, for 10 years, if you create a circumstance where you go to
    work, you will raise yourself from one segment, one, in
    essence, economic level to another. We need people back at
    work. We need our free enterprise system to work. We are a
    capitalist nation. Mr. Drummer, have I said anything that you
    want to help me with?
        Mr. Drummer. Thank you, Representative. You said many
    things that I want to help you with, and I would love to engage
    this conversation even beyond this hearing. One, it is also a
    fact that wages have not kept up with productivity, and we have
    to examine what kind of economy allows a situation for workers
    to be more productive. But the wage growth is pretty flat, not
    numerically flat, but it is extremely unimpressive, and for the
    last 40 years has been uncharacteristic in the course of the
    whole of American history. So, we have to examine that.
        Two, also in terms of the point of people wanting to go
    back to work, we don't have a shortage of people who want to
    work. We have a shortage of good jobs, and that is the problem.
    Listen, we don't have a benefit cliff. We have a wage--
        Mr. Sessions. I appreciate the gentleman. I have hauled
    hay. I have climbed poles. I have done a lot of things that I
    had to do to help myself out. And I am sorry you don't think
    there are enough good jobs. We have--
        Mr. Drummer. Good-paying jobs, Representative--
        Mr. Sessions. I will just accept that as your answer, and I
    appreciate the time and thank you, sir. And I yield back my
    time.
        Mr. Auchincloss. The gentleman yields back.
        The gentlewoman from Ohio, Mrs. Beatty, who is also the
    Chair of our Subcommittee on Diversity and Inclusion, is now
    recognized for 5 minutes.
        Mrs. Beatty. Thank you, Mr. Chairman. I would also like to
    thank all of our witnesses for being here today, and for
    providing testimony.
        I want to begin by acknowledging the pain and the
    frustration that Americans are feeling over this inflation. I
    don't think we can say stop. I have also said from the
    beginning of the pandemic that this is a global public health
    and economic crisis. And I know after 2 years of the shutdowns,
    looking at supply chains, and also the Omicron variant, this
    latest issue with inflation is the last thing that we want or
    that we need. Democrats in Congress and the Biden
    Administration are committed to doing everything we can to deal
    with the inflation and its impact on the lives of American
    families.
        Mr. Drummer, let me thank you, because I do concur with you
    in your last statement. Inflation has historically reinforced
    economic disparities among minorities and people in rural
    America. When inflation costs hit the average American, it hits
    harder for Americans who have already had economic challenges
    and been disadvantaged, because for every dollar increase in
    inflation, this could equate to $5 for someone who is
    financially unstable. Can you speak to the inflationary
    challenges these Americans face, whether it is purchasing food
    for their families or buying gas for their daily commute? Can
    you talk about that briefly?
        Mr. Drummer. We are in a bit of a quandary here, and I
    appreciate the question, Representative. The reality right now
    is that, yes, price increases disproportionately impact the
    household budgets of low-wage workers. That is a fact. But it
    is also a fact that a rate cut is going to do what? Depress
    demand for workers, and do what? Take money out of the pockets
    of these very same people. So, if we care so much about low-
    income households, I don't think the rate cut is our silver
    bullet to fix that situation. What we have to do is take a step
    back, and understand that inflation concerns is a red herring.
    There are larger structural problems that we have to address,
    and let us get to business and build this country and have an
    equitable economy where all can prosper and reach their full
    potential. And that is what we are here to talk about.
        Mrs. Beatty. Let me go to my next question, and thank you.
    Dr. Mabud, I am sure you are aware that the Federal Reserve Act
    mandates that the Federal Reserve must promote things like
    maximum employees, moderate long-term interest rates, and last,
    but not least, stable prices. I don't want this to be a quiz
    game, but do you know how many Governors that there are on the
    Federal Reserve Board? There are seven. And did you know there
    were three vacancies now? And I guess I am concerned about the
    vacancies because my Republican colleagues have literally
    walked out and not appointed these things. And I think the
    American people need to know that we are doing everything to
    help during these tough times.
        Do you have any comments on how some will say it doesn't
    affect inflation, but the reason for having seven is to bring
    diverse people. What do you think about not filling those
    Federal Reserve spots? I think there is a reason that they are
    on there, for us to hear all the differences as we look at the
    effect of inflation. Dr. Mabud?
        Ms. Mabud. Thank you for that question. Simply put, I think
    now is not the time for political games. As Mr. Drummer said,
    families are in crisis. So, now is really the time to have a
    full slate of folks on the Fed Board, and it is time for us to
    take on these issues.
        I do want to note that the Fed has a dual mandate, right?
    It has the mandate to keep stable prices, but it also has a
    mandate to ensure full employment. And there are huge swaths of
    this country who have never experienced full employment. Even
    now, in the midst of what is arguably an historic recovery, the
    Black unemployment rate is still double that of the White
    unemployment rate. So, I am really eager to see a Fed that is
    taking that full employment piece of their mandate seriously.
        Mrs. Beatty. Okay. Thank you, and I yield back.
        Mr. Auchincloss. The gentlewoman yields back.
        The gentleman from Texas, Mr. Williams, is now recognized
    for 5 minutes.
        Mr. Williams of Texas. Thank you, Mr. Chairman, and in full
    disclosure, I am a small business owner. I am a defender of
    profits. Profits are good. Profits mean jobs. I have been in
    the car business for over 50 years, and we are in one of the
    strangest markets I have ever seen. If I had gone on TV 3 years
    ago, for example, and said in a commercial that if you buy a
    car today, it will go up in value over the next 3 years, the
    Federal Trade Commission (FTC) would have fined me for false
    advertising. But this is exactly what is happening in the
    industry today. We simply cannot get our hands on enough new
    cars to satisfy consumers' demands. And this, in turn, has
    caused us to pay a very high premium to obtain used cars so
    that we have any inventory to sell at all. If we don't have
    inventory, we won't be able to sell anything, and we couldn't
    maintain a payroll, in my case of hundreds of employees.
        To put this into perspective, how much has changed because
    of the pandemic, we used to carry 800 units on the ground, and
    today, I called my daughter and I just checked in, and she said
    that we have 20 units on the ground. We talk about corporate
    greed, but corporate greed has not caused us to carry 90-
    percent less inventory. It is the result of strange supply
    chains, overspending, and the threat of taxes and minimum wage
    conversation.
        There is no mass conspiracy, I have news for everybody,
    between every business in America to squeeze the consumers to
    raise their profits. That doesn't happen. Corporate greed is a
    buzzword. It is a buzzword from people who have never run a
    business. While the price for a good might be higher from week-
    to-week, it does not mean that profit margins are also
    proportionally increasing. If you are looking at gross sales
    dollars, you are looking at the wrong figures. If an $100-
    million company grows to a $200-million company, it is highly
    unlikely that the profit margins were also able to double, and
    it doesn't happen. So, what should we be talking about is
    government greed, not corporate greed.
        We have seen many new regulations that are causing
    businesses to hire more compliance officers that are a net
    negative to their bottom line. We have heard many Democrats
    talking about companies paying their fair share, which means
    they see a profitable company as something that they can
    squeeze money from to fund their own pet projects. These public
    policy decisions are having a detrimental impact on prices,
    since businesses are having to dedicate more resources to
    comply and respond. It isn't this fake notion of corporate
    greed for companies that struggled through the pandemic
    creating higher prices; it is government greed.
        So, Dr. Goodspeed, can you talk about the effects of higher
    taxes and more regulations on the price of consumer goods?
        Mr. Goodspeed. Certainly, Congressman. And if I may, first,
    just as a point of fact for the record, I would like to point
    out that when I say that inflation in the United States has
    risen more than in other advanced economies, I mean that on the
    eve of the American Rescue Plan, inflation in the Euro area and
    in the United States was 1 percent. The increase in that
    inflation rate using a harmonized measure of consumer price
    inflation, so that we are comparing apples to apples, the
    increase in that inflation rate in the United States has been 3
    times that in the Euro area.
        In terms of taxes and regulation, I think that there are
    both supply- and demand-side factors here. In terms of price
    pressures, one of the things about the tax measures in 2017 is
    that it incentivized higher labor force participation and it
    incentivized greater investment in domestic capital formation.
    That tends to increase the productive capacity of the United
    States economy, which lowers inflationary pressure.
        Mr. Williams of Texas. And creates competing wages.
        Mr. Goodspeed. And creates competing wages. And to put
    numbers on that, during the first 3 years of the preceding
    Administration, real wages, inflation-adjusted wages, grew 9.8
    percent for the bottom 10th of the wage distribution. They grew
    4.8 percent for the top 10 percent of the wage distribution.
    Real wealth inequality declined, real income inequality
    declined, and labor share of income rose during the 3 years to
    2019.
        Mr. Williams of Texas. Yes, if you reduce regulations, you
    reduce taxes, you let Main Street compete, competition drives
    everything, everybody's saying about corporate greed.
        Mr. Goodspeed. Right.
        Mr. Williams of Texas. People get an even shot at rising
    and making good for their life.
        Mr. Goodspeed. Correct. And that is why we observed in
    2019, 1 year alone, that the median American household
    experienced real inflation-adjusted income gains of $4,400.
    That was more in 1 year than in the preceding 16 years
    combined.
        Mr. Williams of Texas. Okay. Thank you, and I yield back.
        Mr. Auchincloss. The gentleman yields back.
        The gentleman from Florida, Mr. Lawson, is now recognized
    for 5 minutes.
        Mr. Lawson. Thank you, Mr. Chairman, and I welcome all of
    the witnesses to the committee.
        One of the things that I wanted to have you all elaborate
    on is, Chairman Powell addressed the committee, maybe about a
    week ago, and he said that when the Fed seeks to bring
    inflation down, they raise interest rates, which puts
    restraints, raising overall borrowing costs for households,
    businesses, and consumers. If that is the case, and I think
    they probably know more about it than I do, what happens in
    inflation when interest rates are raised on houses and our
    cars, and everything else that you can think of, but the
    average consumer carries more credit card debt with higher
    interest rates than the interest rate that is going to probably
    be decided on by the Fed? How do you stabilize the interest
    rates that are being charged on credit card debt during this
    inflationary period as compared to trying to get the economy
    stable, because they are going to increase with more and more
    debt, with interest rates that exceed sometimes 30 percent?
    Would anyone care to talk about it on the panel?
        Mr. Drummer. Yes, Representative.
        Mr. Zandi. I will take a crack at it, Congressman.
        I think that there are a number of different channels
    through which higher interest rates will affect the economy.
    You mentioned one, through higher interest expense for
    households, particularly those that have debts and most
    specifically credit card debt, and home equity lines of credit.
        But it works through other ways as well--one of the
    quickest and most significant ways is through lowering asset
    prices. So, one of the reasons why stock prices are down--
    obviously, there are many reasons, including Russia's invasion
    of Ukraine and higher oil prices--is that investors are now
    discounting a normalization of interest rates, and that has
    brought down stock prices. Of course, that hurts high-income
    Americans, high-net-worth Americans. So all Americans are going
    to feel the financial result of these higher interest rates.
    But we do need to see, as the economy comes into full
    employment, as unemployment gets close to 3 percent, we do need
    to see the rates of growth in the labor market and the economy
    more broadly kind of get back to a level that is consistent
    with the growth in the labor force. And we need that moderation
    to occur.
        Zero interest rates, which is where we are today, is
    inconsistent with that outlook for where we are headed. So, we
    do need to see interest rates normalize. And all Americans from
    top to bottom are going to feel it. But obviously, middle-
    America Americans would desperately need to avoid going back
    into recession. And if we don't normalize rates, slow the
    economy as we come into full employment, the odds of that are
    going to rise and we are going to hurt the very same people we
    want to help.
        Mr. Lawson. Okay. And I am going to try to get in another
    question before my time runs out. The Administration puts forth
    a lot of funding for small and mid-sized corporate processes to
    assist with the processing capacity. Do you think we need to
    take the same approach for the timber industry, and invest in
    small and mid-sized timber processes? We know there have been a
    lot of processing issues with timber. Would it be beneficial to
    the housing supply market to invest in smaller processes to
    help increase the timber supply within housing? And that is for
    the whole panel.
        Mr. Goodspeed. Thank you, Congressman. I can't necessarily
    speak to the timber industry specifically, but what I can say
    is that it would certainly be good tax policy to expand the
    expensing for investment in new plants and equipment in the
    United States. That would include equipment of all sorts. And
    as I noted in some of my earlier remarks, one of the issues
    with the prospect of higher corporate income tax rates down the
    road is that it raises the incentive for firms, including firms
    in the timber industry, to defer investment in new equipment to
    2022 because the deduction for new equipment investment is much
    more valuable under a 28 percent rate than a 21 percent rate.
    So, that was unlikely to help equipment investment recover in
    2021.
        Mr. Zandi. Can I just push back on that, Congressman? I
    don't think there is any material evidence that the lower tax
    rates that were put into place back in 2017 have impacted
    investment in a meaningful way. And I don't think the
    discussion and debate around rolling back some of those tax
    cuts had any impact on business investments over the last year.
    In fact, I would say if we go look at business investment in
    equipment, it is much higher than it would have been without
    the pandemic. It has gone skyward. And that goes to supply
    chains, and that goes to trying to improve productivity growth.
    So, I don't think there is any--
        Mr. Auchincloss. The gentleman's time has expired.
        Mr. Zandi. The timber industry is a problem, but I don't
    think the solution is lower tax rates.
        Mr. Lawson. Okay. With that, Mr. Chairman, I yield back.
        Mr. Auchincloss. The gentleman from Georgia, Mr.
    Loudermilk, is now recognized for 5 minutes.
        Mr. Loudermilk. Thank you, Mr. Chairman.
        I am almost speechless--not entirely, I have plenty to
    say--that we are here doing this, because obviously, some of my
    colleagues haven't learned anything from history, especially
    recent history. I heard in testimony earlier that we expect the
    inflation to be short-lived; we will get out of it soon. Yes,
    if you really buy into a lot of what we heard here today, that
    it is the big corporations that are the problem and it is not
    the self-imposed destructive policies that have brought us to
    where we are right now.
        Let us turn the clock back to just a few months ago, where
    in the first quarter of last year, we heard, oh, there is no
    inflation, it is not really there, it is just temporary, caused
    by the pandemic, we will be out of it really soon. But many of
    us on this side of the aisle, me included, were saying no. And
    the direction that we are going with this wasteful spending,
    that it is not just the deficit spending that we are in, it is
    where we are spending the money. You are dumping money into the
    demand side, and then regulating the supply side. It is going
    to cause problems, and we have seen that. Then it went into,
    well, it is here, inflation is here, but it is not going to
    last long. Then we get into, well, finally, you are recognizing
    that we are in inflation, but we have to find somebody to blame
    it on because it can't be our bad policies.
        Quite frankly, my colleagues on the other side are again
    turning away from fact and embracing a more advantageous
    political science instead of real science, and scrambling to
    find a scapegoat for self-created problems that are affecting
    Americans across-the-board. And it is not just me saying this,
    former Democrat Treasury Secretary Larry Summers warned last
    year that excessive fiscal stimulus will cause the highest
    inflation in generations. Democrats dismissed these warnings,
    but it turned out he was right. Again, this is somebody from
    the other side of the aisle.
        And Federal Reserve Chairman Powell last week, in
    responding to one of my questions, admitted that the reckless
    stimulus spending is a significant driver of inflation. These
    are facts.
        Even the Washington Post has reported that Democrat
    pollsters recently advised the White House to find a villain to
    blame inflation on. This is the Washington Post. Because
    Republicans' criticism that the out-of-control spending as the
    cause of inflation is being effective. So, even the Washington
    Post is reporting that pollsters, political science, not
    natural science, is driving this entire narrative.
        Just a little while ago, President Biden finally announced
    that we were going to stop importing Russian oil, but then he
    continued on to blame U.S. oil producers as the reason that we
    are not producing oil, not his Executive Orders. And I also
    would suggest, let us look at some of the self-imposed policies
    like the influence that ESG has had on American producers by
    punishing investors and steering them away from fossil fuels
    and investing in petroleum companies in the U.S. but not in
    foreign entities. So, there is a lot of blame to go around in a
    lot of areas that we have self-imposed the problems that most
    Americans are facing today.
        The Democrats are now blaming the so-called greedy
    corporations for their self-created inflation problems. This is
    a baseless and completely unserious argument. This is simply to
    distract us from the real problem that they have brought upon
    this nation. And the American people are quite frankly not
    buying it. Polling shows that 70 percent of Americans
    disapprove of the way this Administration is handling
    inflation. It is because they are doing the same thing over
    again and expecting a different outcome. And I am not even sure
    they are expecting a different outcome. They are just hoping
    that the American people will finally buy into the narrative
    they are pushing out there, but they are not.
        In a piece titled, ``The White House once again offers a
    bizarre message on inflation,'' the left-wing Washington Post
    editorial board said, ``President Biden is facing mounting
    criticism for inflation's rise to its highest level since
    1982,'' which is right after the end of the Carter
    Administration. And I suggest if you go back and look at
    history, we are repeating the Carter Administration's years all
    over again, but on steroids. Unfortunately, the White House's
    latest response is to blame greedy business. And economists
    across the political spectrum are rightly calling out the White
    House for this foolishness.
        I can go through a litany of things that have caused this
    problem, but I am running out of time. So, Mr. Goodspeed, in
    your testimony you said the American Rescue Plan artificially
    increased demand as much as 5 percent above pre-pandemic
    forecasts. Can you explain briefly how that is the case?
        Mr. Goodspeed. Thank you, Congressman.
        Briefly, that means that with a fiscal stimulus of that
    magnitude, it increased aggregate demand in the United States
    economy at the same, relative to the potential output of the
    U.S. economy. That 5 percent is probably an underestimate,
    because as I noted in my testimony, the supply-side potential
    of the United States economy was probably depressed in 2021.
        Mr. Auchincloss. The gentleman's time has expired.
        Mr. Loudermilk. Mr. Chairman, I yield back.
        Mr. Auchincloss. The gentlewoman from Iowa, Mrs. Axne, who
    is also the Vice Chair of our Subcommittee on Housing,
    Community Development, and Insurance, is now recognized for 5
    minutes.
        Mrs. Axne. Thank you, Mr. Chairman. And thank you to the
    witnesses for being here. I think we all know how much price
    increases are on the minds of our constituents, as we are
    talking here in Congress. And the war in Ukraine has far more
    severe consequences for their people than higher gas prices.
    But since we are here to talk about inflation, let us focus on
    that to start.
        Right now, gas prices are up $0.55 nationally in the last
    week, following oil prices higher after the invasion, of
    course. Those prices may rise further now that we are blocking
    imports of Russian oil, and I support that move. But since
    Russian imports make up only 3 percent of our consumption, that
    is not all that is going on here. Even before this invasion,
    gas prices were up about $1 over last year, and oil was trading
    at $90 a barrel.
        Dr. Zandi, it's good to see you. Do you have an estimate of
    the price where U.S. shale oil production becomes profitable?
        Mr. Zandi. That price is somewhere between $65 and $70 per
    barrel. Obviously, I am painting with a broad brush. There are
    big differences across the fracking fields of North America.
    But that is the marginal cost of producing and transporting
    that oil to the global marketplace, so, about $65, $70 a
    barrel.
        Mrs. Axne. Thank you. Okay. So, about $65 to $70 a barrel
    is becoming profitable. And again, oil was trading at $90 a
    barrel when last we talked. So, pre-pandemic oil was around $60
    a barrel, and domestic production here was around 13 million
    barrels a day. Since the pandemic, though, production is down
    10 percent, which is about 1.3 million barrels a day. Now, I
    understand companies can't turn this on overnight, but oil has
    been over $60 for a year now.
        Dr. Mabud, do you have any explanation for why production
    is still so far below where it was?
        Ms. Mabud. Thank you for that question. The fossil fuel
    industry is not immune to the type of profiteering that I spoke
    about in my testimony. And this moment when things are in flux,
    when there are a lot of geopolitical factors happening, is an
    opportunity to exploit those headlines in chaos and use their
    grip on the market to raise prices. In fact, just 5 oil and gas
    companies raked in over $75 billion in profits last year, which
    is the highest increase in profits in 7 years. Look, the only
    thing more lucrative than pandemic profiteering is war
    profiteering. And sadly, we are probably going to be seeing
    both. And major oil companies, including household names like
    Exxon Mobil, Shell, and Chevron, are set to return record
    buybacks to their shareholders in 2022. Analysts are estimating
    that these buybacks could range anywhere between $38 billion
    and $41 billion, which is nearly double the buybacks in 2014,
    the last time that oil traded above $100 a barrel, so this is
    just corporate profiteering. And this sector is not immune to
    that.
        Mrs. Axne. That is incredibly unfortunate. I certainly hear
    a lot of calls lately for increased U.S. production directed
    right here at Washington, D.C. But the truth is, we are not the
    ones that are stopping it from happening. The companies are
    just choosing not to produce what we need right now. Here are a
    couple of quotes from some oil CEOs just in this last month.
    ``Our plan now for 2022 is to just keep our volumes flat.''
    Another quote, ``Whether it is $150 oil or $200 oil, we are not
    going to change our growth plans.'' Maybe my economics is a
    little rusty, but I know yours certainly isn't, Dr. Zandi. Is
    that how supply and demand is supposed to work?
        Mr. Zandi. No. I do think though, Congresswoman, we are
    starting to see the economic incentives starting to work. If
    you look at Rig Counts, they are double what they were at the
    pre-pandemic low. And in the last 6 to 8 weeks, they have
    picked up sharply. And I suspect now that we are in $120 oil,
    we will see the oil rigs really ramp up.
        I don't have a perspective on the industry and how
    competitive it is. It has been slow to respond to the higher
    prices, that's for sure. But it feels like it is kicking into
    gear now. And thank goodness for that, because we will need
    that oil.
        Mrs. Axne. I am glad to hear that it is turning around and
    that they are actually going to start doing some production for
    us because we need it. A couple of other things that the CEOs
    have been saying, ``The capital that historically we would
    spend in growing, now we are redeploying in the form of share
    repurchases.'' Another quote, ``We have to do what Wall Street
    wants, or else your stock craters.'' This is my big concern,
    that Americans, working Americans are suffering as more money
    is being put in shareholder pockets. And so, this is why
    company after company is reporting record-free cash flows.
    Those calls for more oil production shouldn't be coming to
    Washington. They absolutely need to be going to Wall Street
    because that is who is really demanding that oil companies not
    increase their production. So, thank you so much for your
    testimony here today.
        I yield back.
        Mr. Auchincloss. The gentleman from Tennessee, Mr. Kustoff,
    is now recognized for 5 minutes.
        Mr. Kustoff. Thank you, Mr. Chairman. And thank you to the
    witnesses for appearing today.
        Dr. Goodspeed, the Consumer Price Index has gotten a lot of
    attention. Of course, we saw the numbers last month that
    registered in at 7.5 percent, which was higher than I think a
    number of economists were thinking. The number that I have
    seen, that is expected when the CPI number comes out later this
    week, is 7.9 percent. In historical terms, can you reference
    that? We know that when the number came out last month, that
    was the highest number that we have seen in 40 years. Where
    does 7.9 register? What does that mean for the average American
    and consumer?
        Mr. Goodspeed. Thank you, Congressman. That frankly is a
    level of inflation that we have not observed since the late
    stages of the great inflation of the 1960s to the early 1980s.
    And I would add that it might very well be higher than that if
    we calculated CPI the way we did before 1983. The 1983 was
    improvement, but prior to 1983, home prices directly entered
    into the calculation of CPI. And I suspect that if they did
    again, then we would have actually seen even higher inflation
    than 7.5 percent.
        Mr. Kustoff. And in your opinion, what would 7.9 percent,
    if that number is real, and it projects that way when it comes
    out later this week, what would that mean for the average
    American? What does that reflect?
        Mr. Goodspeed. I think that reflects a substantial decline
    in purchasing power even greater than that which we observed in
    2021 when, in inflation-adjusted terms, wages actually declined
    in 2021. And they declined by various measures between 2 and 3
    percent, because even though wages went up, they did not go up
    by enough to keep pace with the surge in inflation.
        Mr. Kustoff. The markets, as anybody who opens up their
    brokerage statement or logs online and looks at it knows, have
    been tumultuous, certainly over the last several weeks. Do you
    have an opinion of how the markets feel about government
    spending and increased government spending?
        Mr. Goodspeed. I think markets are reflecting a great deal
    of factors, geopolitical uncertainty included, concerns about
    fiscal excess necessitating tightening by the Federal Reserve.
    I would add that when we are talking about asset classes, one
    of the ways in which inflation really hurts lower- and middle-
    income households is through the fact that they don't have the
    same hedges against inflation that higher-income households
    have. Higher-income households are more exposed to equity
    markets, higher-income households tend to own their own homes.
    So, they are better-hedged against inflation than lower-income
    households.
        Mr. Kustoff. Thank you, Dr. Goodspeed.
        Mr. Zandi, I would like to talk to you about the travel and
    the airline industry for a moment. I know during this hearing,
    there have been a lot of questions about high energy prices.
    The airline and travel industry, as we know, has been through a
    roller coaster with the pandemic. We all fly. We have seen
    increased capacity, although I am not sure that the business
    traveler has returned to his or her pre-pandemic level. But
    with high energy prices, at what point do the airlines look at
    the price of a barrel of oil and decide that it is not
    profitable and start parking airplanes?
        Mr. Zandi. Oh, I think we are a long way from that.
    Although, you make a great point that the airline industry is
    obviously very energy-intensive, and as prices rise, fuel costs
    rise, it is going to make it very difficult for them to earn
    money. Their profitability is going to be under extreme
    pressure. At least, that has been the case historically. And I
    would be surprised if that isn't the case here as well. They
    may pull back on expansion plans, they may pull back on
    particularly unprofitable routes, but I don't think they will
    do this in a widespread way. Because the other thing that is
    going to happen is I do think demand is picking up, business
    travel, as you point out, has been very depressed. But now that
    we are on the other side of Omicron, offices are reopening,
    particularly in the big urban centers that are globalized, and
    we are going to see more business travel. So I would be
    surprised, Congressman, if we saw the airline industry actually
    park planes on tarmacs.
        Mr. Kustoff. To make up for their margins, if oil continues
    to increase, they would have to raise their prices, wouldn't
    they?
        Mr. Zandi. Yes, sure. And I am sure that they will try to
    compensate for that.
        Mr. Kustoff. Thank you. I yield back.
        Mr. Auchincloss. The gentleman from Illinois, Mr. Casten,
    who is also the Vice Chair of our Subcommittee on Investor
    Protection, Entrepreneurship, and Capital Markets, is now
    recognized for 5 minutes.
        Mr. Casten. Thank you, Mr. Chairman. Our memories are short
    in this town, but I want to remind everybody that 2 years ago
    this month, we were looking at the biggest-ever collapse in GDP
    in our history, and the biggest-ever spike in unemployment in
    our history. And if I would have told you then, don't worry
    about it, 2 years from now we are going to have 300 million
    Americans vaccinated, we are going to have employers creating
    jobs at a faster rate than the workforce is growing, and we are
    going to have Republicans and Democrats united across the aisle
    to support NATO to provide defensive weapons to Ukraine and
    stand up to Vladimir Putin, you would have told me I was
    smoking some funny cigarettes. But here we are.
        And I do not mean to make light of the challenges Americans
    face today, but I think I speak for all Americans when I say I
    am a lot happier to be here than where we were just 2 years
    ago. That rate of change is extremely disorienting. It is hard
    to understand. It is hard to process. And so, I want to start
    with just some really simple questions.
        Dr. Goodspeed, if I gave you a 9.2 percent raise in your
    income, and your expenses went up by 5.6 percent, would you
    have more or less money in your wallet at the end of the year?
        Mr. Goodspeed. [Inaudible.]
        Mr. Casten. You would have less money if your income went
    up at 9.2 percent in your--
        Mr. Goodspeed. [Inaudible.]
        Mr. Casten. No, a 9.2 percent raise and a 5.6 percent
    increase in your expenses.
        Mr. Goodspeed. [Inaudible.]
        Mr. Casten. Okay. I just described the 2021 wage growth in
    the United States and core inflation. And when we only talk
    about income growth, or we only talk about expense growth, it
    is a one-hand-clapping conversation. What matters to Americans
    is how much money is left in their bank, not what is the end,
    and, indeed, we have seen a $2 trillion increase in savings in
    the last year. You also mentioned, Dr. Goodspeed, that the U.S.
    inflation rate, I think, if I understood you, is the 5th-
    highest among the G20 countries. Where is our wage growth among
    G20 countries?
        Mr. Goodspeed. I noted that among 46 economies tracked by
    the Organisation for Economic Co-operation and Development
    (OECD), the increase in average inflation in 2021 relative to
    pre-pandemic was the 4th highest in the United States.
        Mr. Casten. Okay. Close. I am just saying that among G20
    countries, what is our rate of wage growth, because I want to
    make sure we focus on not one-hand-clapping.
        Mr. Goodspeed. I do not, off the top of my head, know--
        Mr. Casten. I will help you out. It is the second-fastest
    rate, and, in fact, the third spot is the U.K., which is just
    half of our rate. So, it is a long drop from the silver-medal
    podium to the bronze-medal podium. How does our GDP growth
    compare over the last year to the rest of the G20?
        Mr. Goodspeed. Our GDP growth over the past year has
    outpaced most of, if not all of the rest of the G20.
        Mr. Casten. Yes, I think we are the 8th-fastest,
    interestingly enough, but the number one through three spots
    are Argentina, Turkey, and Saudi Arabia. I think it is safe to
    say that none of us want to emulate their economic policies,
    but they are seeing rapid GDP growth.
        It seems to me that, yes, we have had rapid inflation
    growth, but we have also been at the top of the league tables,
    thanks to a lot of what we did, we would not be there but for
    those changes. So, Mr. Drummer, I would like to start with you.
    I am under no illusions that that 9.2 percent wage growth has
    accrued to every single American. Can you take a minute and
    tell us what you see that we have done from a policy
    perspective to drive that wage growth? And what we can do to
    make sure that those gains are shared by all Americans going
    forward?
        Mr. Drummer. Thank you, Representative. That's an excellent
    question. So, average wages for U.S. workers grew by 4.7
    percent. It was the highest growth in 2 decades. However,
    inflation also grew by 7 percent during the same time, meaning
    that even with--
        Mr. Casten. I'm sorry; let me just interrupt you there,
    because the Bureau of Economic Analysis had 9.2 percent average
    wage growth in 2021. I just want to make sure I am not--
        Mr. Goodspeed. To my knowledge, the Bureau of Economic
    Analysis doesn't report average wage growth. The average wage
    growth would be from the Bureau of Labor Statistics.
        Mr. Casten. I'm sorry but the data says 9.2--
        Mr. Zandi. I think that is wage and salary growth; I am
    pretty confident that is wage and salary growth.
        Mr. Casten. Okay. I am sorry to interrupt Mr. Drummer, but
    I just want to make sure that we are--
        Mr. Drummer. Okay. But to your point, we can get to the
    point here that the wage growth is a reflection of what happens
    when we have expansionary monetary fiscal policy. We don't get
    growth in our economy without stimulating our economy. And that
    is pretty much what it comes down to. Now, unfortunately, we do
    see that the fastest wage growth did happen for the lower
    quartile. But they were coming up from a pretty low number, and
    that wage growth still isn't enough. And this is why the rate
    increase is so dangerous. We are about to claw back those gains
    that they just had after decades of relative stagnation.
        Mr. Casten. Dr. Zandi, with the time left, anything you
    want to add as far as what we have done from a policy
    perspective to make sure that we are at the top of those league
    tables on GDP growth and wage growth, and what should we be
    doing going forward to make sure we maintain those gains?
        Mr. Zandi. I thought the policy response, the fiscal policy
    response in particular, and the American Rescue Plan, more
    specifically, was a slam dunk positive for the economy. And I
    think it is critical to getting the economy back to full
    employment as quickly as it has faster than almost any other
    economic recovery.
        Mr. Auchincloss. The gentleman's time has expired.
        Mr. Zandi. And I don't believe that it contributed in any
    meaningful way to inflation.
        Mr. Auchincloss. The gentleman's time has expired.
        Mr. Casten. I yield back.
        Mr. Auchincloss. The gentleman from Ohio, Mr. Gonzalez, is
    now recognized for 5 minutes.
        Mr. Gonzalez of Ohio. Thank you, Mr. Chairman. First, I
    want to submit for the record a CNBC article entitled,
    ``Inflation eroded pay by 1.7 percent over the past year,'' by
    Greg Iacurci.
        Mr. Auchincloss. Without objection, it is so ordered.
        Mr. Gonzalez of Ohio. Thank you. There is a bit of debate
    as to whether the real inflation rate or, I'm sorry, the real
    wage growth was negative. And I think that hopefully helps put
    it in context. So we are talking about historic inflation here.
    And for the 2012 to 2020 period, prices were relatively stable
    and much of the prior period. And so, the question is always
    what changed, what actually changed? If you listen to the Chair
    and some of the witnesses today, it seems to suggest that the
    idea is we should be spending more and we should keep rates
    low, and that will somehow correct inflation.
        I want to start with Dr. Goodspeed. Do you have any reason
    to believe that corporations are greedier today than they were
    4 years ago?
        Mr. Goodspeed. I have no evidence, nor I have seen any
    academic study to that effect, no.
        Mr. Gonzalez of Ohio. So, this notion that greedy
    corporations are somehow driving inflation--I would argue that
    relative greed amongst corporations is pretty stable over time.
    It is sort of silly as an explanation for inflation.
        And it is notable that Chairman Powell, when he was before
    our committee last week, disputed that. And Treasury Secretary
    Yellen rejects that explanation as well. And she didn't mention
    it a single time when she was before our committee. So, I think
    it is disingenuous, to say the least.
        Another thing I am hearing is that we should keep rates
    low, while also complaining about housing prices, which housing
    prices are high.
        Dr. Goodspeed, again, what impact do zero percent interest
    rates have on the price of housing?
        Mr. Goodspeed. They have a very substantial impact on the
    price of housing because you are discounting the future flow of
    housing services at a much lower rate. And that tends to
    increase demand for housing and increase the price of housing.
        Mr. Gonzalez of Ohio. So when the Fed lowered rates to zero
    at the pandemic onset, it's not surprising that we saw demand
    increase, and therefore, prices increase? We saw it in housing,
    but we saw it in most markets. Fair?
        Mr. Goodspeed. That is fair.
        Mr. Gonzalez of Ohio. Okay. And so, this idea that we
    should keep rates low and that is going to somehow solve the
    housing problem, boy, somebody's going to have to explain that
    one to me.
        Now, we are going to talk about another thing that changed,
    which is in the summer of 2020, the Federal Reserve updated its
    statement on longer run goals and monetary policy strategy to
    state that the Fed would seek to achieve inflation above 2
    percent for some time, after periods of low inflation. That is
    a significant change.
        Given the persistent increase in inflation over the last
    year, do you believe that this policy hindered the Fed's
    ability to act sooner to address rising inflation or could you
    see where it might have?
        Mr. Goodspeed. I don't think that the policy change should
    have hindered--they still could have responded earlier. And I
    think they should have responded earlier. I fear that they may
    have overemphasized the, ``flexible'' part of flexible average
    inflation targeting.
        Mr. Gonzalez of Ohio. Thank you. And I wish that this chart
    were easier to see. I know these are hard to see, but
    basically, this is personal goods expenditure from pre-COVID
    levels. If you look before the recession, more or less demand
    is fairly stable over time.
        Here, you see massive jumps in durable goods. Here, here
    and here, where these arrows are all correlated almost
    perfectly with the fiscal stimulus, the Cares Act, March 27,
    2020, you saw a massive increase in demand on durable goods.
    Bipartisan COVID Relief Bill December 21st, again, you see a
    massive increase in the demand for durable goods. American
    Rescue Plan, March 11, 2021, massive increase in demand for
    durable goods.
        These are all things that have changed. And so, when you
    think about what is driving inflation, I think it is fairly
    obvious. We have rates that are at zero. We had a pandemic, and
    we responded. I voted for most of that stuff, frankly. I didn't
    vote for the American Rescue Plan. Massive fiscal stimulus and
    so, you have seen a shift in the demand dynamics.
        What you have not seen is what the chairwoman and some of
    our witnesses seem to suggest, which is that there is evidence
    that corporations are somehow greedier today than they were 5
    years ago. I don't think anybody would make that claim. But it
    seems to be the one that we are hearing. With that, I yield
    back.
        Mr. Auchincloss. The gentlewoman from Massachusetts, Ms.
    Pressley, who is also the Vice Chair of our Subcommittee on
    Consumer Protection and Financial Institutions, is now
    recognized for 5 minutes.
        Ms. Pressley. Thank you, Mr. Chairman. Workers, families,
    and small businesses in my District, the Massachusetts 7th
    District, and around the country, are feeling the impact of
    higher prices, everything from groceries to diapers to
    medication, and other essential necessities. Corporations are
    claiming that they have no choice, but to pass costs on to
    consumers due to inflation, and supply chain bottlenecks, but
    their profits are telling a different story.
        Mr. Vaheesan, isn't it true that most large corporations
    reported greater profits in 2021 than prior to the pandemic?
        Mr. Vaheesan. That is correct, Congresswoman. Corporate
    profit margins were at a 12-year high in 2021. And,
    importantly, markets across the economy were already highly
    concentrated, but inflation has given many corporations cover
    to exercise their pricing power. And CEOs and CFOs have gone on
    record to say that they can exercise pricing power that they
    couldn't before.
        Ms. Pressley. Two out of three of the largest publicly
    traded companies reported more profits in 2021 than they did in
    2019, at a time of a global pandemic, and a pandemic-induced
    recession, when people are struggling to make ends meet.
    Corporations like Amazon, Kroger, and Starbucks are not only
    hauling in massive profits, but they are also still raising
    prices. That doesn't sound like they are simply, ``passing
    costs on to consumers.'' That sounds like corporate price
    gouging.
        Mr. Vaheesan, for those following from home who hear this
    term but don't exactly know what it means--and they are feeling
    the impact of it every day--can you briefly describe what price
    gouging is, and how it impacts consumers?
        Mr. Vaheesan. This price gouging really comes in two forms.
    The first is when a firm exercises monopoly or oligopoly power
    to unilaterally raise prices far in excess of costs. And that
    seems to be in action in industries such as beef, where
    processors are raising prices to consumers while keeping prices
    down to ranchers.
        The second phenomenon is collusion, where a group of firms
    come together to jointly raise prices, foreign excess of costs.
    And that seems to be happening in poultry processing. In fact,
    a number of processors have been indicted and face private
    lawsuits over collusive activity. So those are the two types of
    price gouging that commonly happen in the economy.
        Ms. Pressley. Thank you. And I'll give another sort of
    real-time example that I certainly hear from constituents every
    day. Take Procter and Gamble, for example. They have repeatedly
    raised prices on their products during the pandemic, including
    diapers, while increasing their CEO pay, stock buybacks and
    dividends and raking in $21 billion in sales last year. So,
    these price hikes are rooted in corporate greed, plain and
    simple, and low-income families will continue to pay the
    highest price.
        Dr. Mabud, are we seeing price gouging occur in just one or
    two sectors of the economy or would you say it is more of a
    broader problem?
        Ms. Mabud. Thank you for that question. My organizationz,
    the Groundwork Collaborative, has combed through hundreds and
    hundreds of earnings calls over the last 3 quarters, and what
    we see is in sector after sector, this type of pandemic
    profiteering is really, really rampant. And part of the reason
    we are seeing such widespread profiteering is because these
    CEOs and corporate executives are being egged on by their
    shareholders. Because when prices go up, and there are higher
    profit margins like we have been seeing, record profit margins,
    the demand from investors is yes, keep doing that play, push
    the prices up even more, so we can push profits up even more.
    And the concern here is that investor scaffolding that
    undergirds our entire economy will keep prices elevated for a
    longer period of time and allow these huge companies to get
    rich while all of us pay the price.
        Ms. Pressley. Thank you. And this isn't just about the
    exploitive nature of price gouging by large corporations. It is
    also about investigating how and why, and do they have the
    power to do so?
        Ms. Mabud. Absolutely. In many ways, pandemic profiteering
    is like that little blinking red light that says the whole
    switchboard is going down, right? And what we essentially have
    is 50 years of policy decisions that have led to a brittle
    supply chain and megacorporations really shaping a system that
    works for them and not for others. And as a result, when we
    have a moment of inflation and we are hearing this on the
    earnings calls, executives are saying, inflation is helping us
    with some cover to raise prices, and by the way, we can raise
    prices without losing market share because we are so big that
    our consumers have nowhere else to go.
        Ms. Pressley. Thank you.
        Mr. Auchincloss. The gentlewoman yields back.
        The gentleman from Michigan, Mr. Huizenga, is now
    recognized for 5 minutes.
        Mr. Huizenga. Thank you, Mr. Chairman. I am about to attend
    a funeral of one of our colleagues, Jim Hagedorn.
        Mr. Auchincloss. Mr. Huizenga, you are--
        Mr. Huizenga. --sure all of my colleagues--
        Mr. Auchincloss. Mr. Huizenga, you have come in with some
    buffering issues. Do you want to start over?
        Mr. Huizenga. Sure. I apologize for that. I am on my way to
    the funeral of one of our colleagues, Jim Hagedorn, and I know
    all of my colleagues are thinking of his family today. So, I
    apologize as I am in the vehicle doing this.
        Some pretty amazing statements are being made today. For
    example, the prices are up because of corporate greed, so I
    must assume that gas prices were low because the same
    corporations were not greedy. A year ago, Amazon had record
    profits because they are greedy, not because people are using
    them more, and trust me, I am no fan of Amazon per se. But
    there is another statement that ruthless efficiency has brought
    higher prices. The views on how the economy works are clearly
    very, very disjointed here within the committee.
        I do want to ask Mr. Goodspeed to explain why inflation is
    hurting those middle- and lower-income families that I
    represent. I have the second-poorest county in the State of
    Michigan. It is one of the top 100 poorest counties in the
    nation. It is very rural. It has a significant minority
    population, and I am worried about them. Not the top quartile,
    I am worried about the bottom, and the second, and the third
    quartile of income earners. If you could address that, Mr.
    Goodspeed?
        Mr. Goodspeed. Thank you, Congressman. And on the subject
    of workers and how inflation is impacting them, I would just
    like to note for the record that I am not familiar with the 9.2
    percent figures cited by the Congressman from Illinois. Insofar
    as I can tell, he is referencing nominal, aggregate wage and
    salary income, as reported by the Bureau of Economic Analysis,
    which is economy-wide. That is something very different from
    average wage growth as measured either by average hourly
    warning earnings or average weekly earnings or the employment
    cost index. So, I would just like to note that for the record.
        In terms of your question, Congressman, yes, the inflation
    can be particularly difficult for middle- and lower-income
    Americans because they tend to have lower bargaining power. It
    is more difficult for their wages to keep pace with inflation.
    Second, things like rent, gas, groceries, and utilities tend to
    account for a higher share of their disposable personal income.
    And finally, as I have noted in my testimony, they tend to be
    less exposed to classic inflation hedges like equity markets,
    and like owner-occupied real estate.
        Mr. Huizenga. And how would you respond to these calls for
    more Federal spending, that we haven't been spending enough and
    that more stimulus is going to help those families that you
    were just talking about?
        Mr. Goodspeed. I think that more Federal spending is likely
    to continue to put upward pressure on interest rates and that
    is not good for most households. I think more Federal spending
    is likely to exacerbate a lot of the inflationary pressure. And
    in the long run, I don't think it is sustainable, so that
    implies a higher future tax liability for ordinary Americans.
        Mr. Huizenga. In a previous hearing, I took the adage, when
    you are a hammer, everything looks like a nail, and converted
    it to, when you are a modern monetary theorist or a neo-
    Keynesian, everything looks like a spending opportunity. And I
    think that is exactly what the debate is here today, whether we
    are going to pour more fuel on the inflationary fire that we
    have here. And maybe I'll finish with this, Mr. Goodspeed. How
    does fiscal discipline regulatory right sizing and private
    sector investment rather than government sector investment help
    families like those in my district?
        Mr. Goodspeed. I think we ran that experiment, Congressman,
    in 2017, 2018, and 2019, and the result was, as I noted
    earlier, real wage growth for the bottom 10 percent of the wage
    distribution of 9.8 percent versus real wage growth for the top
    10 percent of 4.8 percent. We saw declining wealth inequality,
    and declining income inequality. And we saw real median
    household income grow by $4,400, which was more in one year
    than in the preceding 2016, combined. I think that is the
    result of this sort of policy mix to which you referred.
        Mr. Huizenga. I appreciate that. And with that, I will
    yield back.
        Mr. Auchincloss. The gentlewoman from Pennsylvania, Ms.
    Dean, is now recognized for 5 minutes.
        Ms. Dean. Thank you to the chairman, and I thank all of our
    witnesses for your time and testimony and expertise today.
        I want to follow up on a question that I asked Federal
    Reserve Chair Powell just last week, at our hearing. I have
    voiced my concerns about increasing market concentration and
    the role it has played in contributing to the fragility of our
    supply chain. I am thinking and some of you have spoken to it
    in the beef and poultry industry, for example and its
    connection to inflation. In response to my question, Mr. Powell
    downplayed the role of market concentration, noting that it is
    not a settled question, and he defers to the competition
    authorities. Many of you on this panel see it differently.
        So maybe, I'll start with Dr. Mabud and Mr. Vaheesan. Can
    you please speak more to the market concentration and its
    impact on inflation?
        Ms. Mabud. Sure. Thank you for that question. Corporate
    consolidation and its large size in our economy has really
    helped facilitated the price hikes that we are seeing today.
    With control and dominance over these markets, these massive
    corporations can raise prices and pass along costs to consumers
    who have nowhere else to turn. Think about families again, who
    need diapers, and all of the diaper brands that we are all
    familiar with are made by two diaper companies, and the prices
    are going up.
        Those companies know that they can get away with it because
    families are not going to go without diapers. Pandemic
    profiteering is really just one symptom of an economy that
    prioritizes profits, all while decimating the economic security
    of millions around the country, and faced a broken economy for
    decades. It is kind of the tip of the iceberg in many ways, and
    I am happy to speak more to the supply chain aspect of this
    too, but we'll let my colleague on the panel, go next.
        Ms. Dean. Mr. Vaheesan?
        Mr. Vaheesan. Yes, that is exactly right. First, corporate
    concentration has contributed to higher unilateral pricing
    power on the part of businesses, so they can raise prices,
    raise profit margins without losing large volume of sales.
        Second, in concentrated markets, it is easier for companies
    to come together and collude, and as a number of Members noted
    today, markets were very concentrated before the pandemic. That
    is certainly true. But inflation of an excess of 7 percent has
    given powerful corporations the freedom to approach their
    purchasers, whether they are wholesalers or retailers and say,
    look, inflation is up. We want to raise prices, and they didn't
    have that cover before. So it is easier to broach the topic of
    price increases without jeopardizing their relationship with
    purchasers.
        And I think I would add that 40 years of mergers and
    acquisitions have meant that companies have plowed money into
    buying other companies instead of investing in new capacity.
    And the pandemic has really exposed the fragile nature of many
    of our supply chains and the lack of economic resiliency.
        Ms. Dean. Thank you very much, both of you.
        Dr. Zandi, it is good to see you, my fellow Philadelphian,
    Pennsylvanian. I want to thank you.
        Mr. Zandi. It's good to see you.
        Ms. Dean. Maybe tacking on to this question about
    concentrations in the market and inflation, what are some
    solutions that Congress can apply? And then, I have another
    question for you after that.
        Mr. Zandi. Sure. I do think it is very important that you
    have hearings like this to shine a bright light on these
    practices. In fact, you may want to dig deeper into each of
    these industries where concerns are raised about competition in
    the meatpacking industry or the energy industry. I think that
    is a very fundamental role of government, to make sure that
    everyone is playing by the rules, particularly in a time of
    crisis. And we are deeply in crisis. So, I think that is very
    key.
        And then, making sure that the antitrust laws are in the
    shape they need to be in, and I know there has been a lot of
    work, both in the Senate and in the House, around taking a good
    hard look at our antitrust laws and making sure they are up to
    the challenges that exist today. So, I think those are very
    important things to do, just to make sure that businesses are
    playing by the rules in these markets in a time of stress.
        Ms. Dean. And following up on the American Rescue Plan that
    I was very proud to be a small part of with a yes vote about a
    year ago, sadly, some of my friends on the other side of the
    aisle have been spinning about the American Rescue Plan and
    inflation as though it were entirely to blame for the inflation
    that we are seeing in this country, and we all know that it is
    a global phenomenon. Can you speak to that set of myths?
        Mr. Zandi. Yes, the American Rescue Plan did help demand,
    but that was a year ago and that coincided with the
    vaccinations in the reopening of the economy, so inflation
    picked up. But that was deemed to be okay because we have been
    through a decade or more of low inflation, suboptimal
    inflation. The really difficult inflation came well after the
    American Rescue Plan and its impact on demand waned, and that
    was due to the pandemic and the Delta wave and disruption to
    supply chains and--
        Mr. Auchincloss. The gentlewoman's time has expired.
        Mr. Zandi. --the complicated question we are experiencing
    now is not due to the American Rescue Plan.
        Mr. Auchincloss. The gentlewoman's time has expired.
        Ms. Dean. Thank you for that clarity, and I yield back.
        Mr. Auchincloss. The gentleman from South Carolina, Mr.
    Timmons, is now recognized for 5 minutes.
        Mr. Timmons. Thanks, Mr. Chairman. I have to say the
    evolution of the so-called experts and the leftist politicians
    on inflation over the last year has been absolutely incredible
    to behold. When Republicans warned of inflation last year while
    Democrats were spending like drunken sailors, we were shooed
    away and told that was crazy talk. Inflation was a thing of the
    past, et cetera. My, how their tune has changed, after calling
    it crazy, then it was transitory. And then, it was only used
    cars, lumber, and gas. And then it was, and this is my
    favorite, a first-class problem. The White House chief of staff
    literally described inflation as a first-class problem, but
    nothing could be further from the truth. And we aren't done
    yet. That wasn't the end of the evolution.
        Once my colleagues across the aisle started polling the
    issue and realized what we have been saying all along, that
    inflation functions as a tax, a regressive tax, primarily
    hurting folks living paycheck to paycheck on fixed incomes, who
    are just trying to make it until payday. Once they realized
    they could not wish away this problem, they had to start
    blaming it on something. There has been no introspection to
    speak of friends across the aisle. Instead, they are blaming
    their tried-and-true boogeyman, corporate America. Never mind
    the easy money policies of the Federal Reserve over the last 2
    years. Never mind trillions of dollars of unneeded Federal
    deficit spending poured into an otherwise healthy economy that
    was emerging from the pandemic.
        Last year, Democrats ignored Larry Summers when he joined
    Republicans and warned of the risk of inflation that the so-
    called American Rescue Plan posed. So what is our friend, Mr.
    Summers, former Treasury Secretary to President Clinton, and
    Director of the National Economic Council to President Obama,
    saying about the Democrats new plan to, ``break up the evil and
    greedy corporate overlords inflation.'' ``The emerging claim
    that any trust can combat inflation reflects science denial.
    There are many areas like transitory inflation, where serious
    economists defer any trust as an anti-inflation strategy is not
    one of them.''
        One of the last favorite boogeyman is the meatpacking
    industry. What does Larry Summers have to say about that?
    ``Breaking up meat packing would in the short run lead to
    reduced supply, which would further increase prices. In
    general, when government goes to war with industries, that
    discourages investment in subsequent capacity.'' I am going to
    say that again. ``When government goes to war with industries,
    it discourages investment in subsequent capacity.'' So in plain
    English, what my friends on the other side of the aisle were
    proposing as a solution would only make things worse.
        Subsequently, making goods and services even more expensive
    for the American consumer, they ignored so much once. They will
    be wise not to ignore him again. So, where do we go from here?
    Obviously, the Fed is the government's institution with the
    greatest ability to curb inflationary pressures across the
    economy. And I am glad to see that they are finally beginning
    to use their tools to address rising prices. Better late than
    never, I guess.
        Dr. Goodspeed, obviously in the energy sector, there are
    many steps Congress can take to address runaway inflation,
    namely increased production here at home. But looking at the
    big picture, besides immediately halting wasteful spending,
    what can Congress do to address this problem and provide relief
    to the American people? It is the least we could do given
    actions of my colleagues across the aisle this last year.
        Mr. Goodspeed. Thank you, Congressman Timmons. I think
    three important things would be not only slowing the growth of
    Federal spending, but also providing some certainty on the
    future direction of both personal and corporate income tax
    rates so that we can incentivize increased labor force
    participation, particularly among those of retirement age or
    near retirement age, 1.5 million of whom have exited employment
    early. And also by giving some certainty on the business tax
    side to incentivize increased business investment to increase
    capacity.
        And if I may, a policy situation that seemed eerily
    familiar to me to the last time that we saw demand excess from
    fiscal policy and a constrained labor force, and this is from
    Alan Meltzer, writing about the origins of the great inflation
    in the 1960s: ``Policymakers denied for several years that
    inflation had either begun or increased, they did not deny the
    numbers they saw, but like Jeff Gardner, the chairman of
    Janssen, they gave special explanations.''
        Mr. Timmons. Thank you, Dr. Goodspeed. Thank you, Mr.
    Chairman. I yield back.
        Mr. Auchincloss. The gentlewoman from Texas, Ms. Garcia,
    who is also the Vice Chair of our Subcommittee on Diversity and
    Inclusion, is now recognized for 5 minutes.
        Ms. Garcia of Texas. Thank you, Mr. Chairman, and thank you
    to all the speakers who are here today to join us in a
    discussion of such a very important topic.
        It is important that we address the issue of inflation. But
    first, we must identify the issues correctly. We cannot produce
    targeted strategic solutions without identifying the problems
    and where they are coming from. I know it is fun for some to
    blame the Biden Administration for economic problems, but these
    problems, as you know, are global and far-reaching. We must dig
    deeper to understand some of the fundamentals, the economic
    structures we operate that rigged the game against lower- and
    middle-class Americans.
        My colleagues across the aisle have talked about upgrading
    America's aging infrastructure for years, with no action.
    Instead of fixing and investing the American infrastructure,
    they spent $1.9 trillion in tax cuts to the wealthy, but while
    the previous Administration only talked about infrastructure,
    we did it. Under the Biden Administration, we have invested
    $550 billion in new infrastructure development, including $17
    billion for ports and waterways, bringing it home. I have
    always been a vocal supporter of the strategic significance my
    city places and why I fought for us to invest in widening,
    deepening, and dredging our port, the Port of Houston, so you
    can expeditiously move goods, keeping up with shipping
    containers becoming larger and heavier, and shipping activity
    moving more frequently. That is critical American
    infrastructure work.
        Dr. Zandi, in your testimony, you referenced the supply
    chain bottlenecks as a major factor in contributing to the
    shortage of goods, thus causing prices to rise. Do you agree
    that it is important that we invest in American ports and
    waterways, and how are the projects funded by the
    infrastructure law reducing supply chain backlog?
        Mr. Zandi. Thank you for the question, Congresswoman.
    Absolutely, I think that infrastructure legislation was a
    critical piece of legislation, both in terms of addressing near
    term inflationary issues related to supply chain disruptions,
    and that is roads and bridges, seaports, and airports. There
    are significant amounts of new funding for all of those things
    in that infrastructure legislation. I also think it is very
    important for long-term economic growth because I do think it
    lowers the cost of doing business, makes U.S. businesses more
    competitive globally, and will lift overall productivity
    growth, which raises the standard of living for all Americans
    and it lowers inflationary pressures going forward.
        The only criticism I would have is it is too small. We have
    been underinvesting in our infrastructure, in everything from
    water systems, to broadband to, you name it. We have been
    underinvesting for a decade, and there is a big shortfall, and
    we need to invest even more. And I think the benefits of that
    are very obvious.
        Ms. Garcia of Texas. Dr. Mabud, from auto companies, to
    hotels, to restaurants, to retailers, earnings calls show that
    many corporations are looking to their competitors and taking
    advantage of unusual pandemic conditions and supply chain
    challenges to pass on the higher prices. Some speakers before
    me mentioned that last year, Kroger's CEO said, and this is a
    direct quote, ``A little bit of inflation is always good in our
    business, pass off costs to consumers when it makes sense to do
    so.'' Can you share examples from these earnings calls or price
    gouging or profiteering?
        Ms. Mabud. Yes, thank you for that question. Johnson &
    Johnson is actually a great example. The company expects to
    make more than $3 billion from its COVID-19 vaccine in 2022,
    which I think is worth noting is the result of more than $1
    billion of Federal funding for research and development. And
    these vaccine profits are on top of the price increases it has
    set for 29 other prescription drugs in this year alone. And on
    these earnings calls, Johnson & Johnson's CEO is really candid
    about the company's potential to profit from future human
    suffering. He noted, ``We remain optimistic on the fact that
    strong underlying demand for health care is there. And there is
    still a lot to do in multiple diseases in order to address
    suffering and death. In other words, future opportunities to
    profiteer from public health crises.'' And as I have testified,
    this is not something that is limited just to the grocery
    sector or the health care sector. These are really widespread
    issues.
        Ms. Garcia of Texas. Thank you. Back to Dr. Zandi, our
    colleagues on the other side of the aisle here really focused
    on Federal spending as the biggest driver of inflation.
    However, they seem to forget the deficits went up every single
    year under the Trump Administration, as they passed multi-
    trillion-dollar tax breaks for corporations and the wealthy. Do
    you feel that the American Rescue Plan of 2021 raised or
    lowered deficits in this last year?
        Mr. Auchincloss. The gentlewoman's time has expired. Please
    be brief, Dr. Zandi.
        Mr. Zandi. Initially, it raised deficits because it was
    deficit finance, but without it, the economy would have been
    significantly diminished. And if you look out towards the
    middle to the end part of the decade, it would actually have
    resulted in the same deficits in debt, if we had not done the
    American Rescue Plan.
        Mr. Auchincloss. The gentlewoman's time has expired.
        Mr. Zandi. I don't think there was a choice here.
        Ms. Garcia of Texas. Thank you. I'll yield back, Mr.
    Chairman.
        Mr. Auchincloss. The gentleman from Arkansas, Mr. Hill, is
    now recognized for 5 minutes.
        Mr. Hill. Thank you, Mr. Chairman. I appreciate our panel
    bringing your expertise to the committee. Rising prices and
    ongoing labor shortages are leading to substantial wage growth
    across many industries. The latest data shows that average
    hourly wages grew at 4.5 percent in the 12 months ending in
    December.
        Of course, this is not real wage growth, which is at a loss
    since inflation is running at 7.9 percent. While wage growth
    alone can be positive, it can lead to a vicious wage price
    spiral, like we saw when I began my career in the 1970s.
    Particularly, if higher prices and pay in excessive
    productivity feed into each other, drive up inflationary
    expectations, and lead to persistent inflation, even after this
    supply chain issues abate. Further, these wage gains have been
    outpaced, as I noted, by the rising cost of everything from
    groceries to housing, meaning real wages were negative, and in
    fact, Mr. Chairman, real wages were negative in 8 of the last
    12 months.
        Dr. Zandi, in your testimony, you talk about inflation
    expectations, of which this is a key component. You described
    them as appearing fragile, and said that they bear close
    watching. You suggest that it is hard to see how the Fed can
    tolerate this for long, knowing that, based on the experience
    of the 1970s and 1980s, that the economic cost of waiting too
    long to short-circuit wage price spirals is extraordinary high.
        What do you expect the inflation number to be, the CPI on
    Thursday, ballpark? Let me ask you, if you don't want to give
    an answer, what are analysts suggesting is the range for CPI
    for Thursday?
        Mr. Zandi. It is somewhere between 7.5 percent, and 8
    percent, year-over-year, Congressman.
        Mr. Hill. Right. Thank you, Dr. Zandi. And I am concerned
    that when you see this kind of issue, when I talk to HR
    directors and chief financial officers and company presidents
    all over the country, you are really getting this inflation
    embedded into their infrastructure, not just through costs, but
    through labor shortages.
        And let me ask you, Dr. Goodspeed, if we make it harder to
    hire people through additional regulatory burdens on small
    businesses, vaccine mandates, getting into an argument about
    how old you have to be to drive a truck, and all these kinds of
    things and how many others, does this drive up wages when you
    have these kinds of severe shortages?
        Mr. Goodspeed. Thank you, Congressman. I think what it
    means is that for any given level of unemployment, there is
    going to be a greater degree of inflationary pressure. When we
    look at the efficiency of labor market matching in the United
    States, the efficiency with which unemployed workers are
    matched to vacant jobs, the U.S. labor market has not been
    performing this poorly since the late 1970s. This is the
    beverage curve relationship.
        Mr. Hill. Yes. And that is very concerning to me and to my
    colleagues who keep trying to rewrite history. Deficit spending
    during the CARES Act was bipartisan. There is no doubt about
    that. We didn't know what was going to happen in 2020. And we
    spent $6 trillion in addition to the money that we also spent
    by way of the Federal Reserve. And so, the logic I think Larry
    Summers laid out was, ``Don't spend more,'' and that is the
    American Rescue Plan argument. You have already stimulated the
    economy way too much, plus the monetary policy issue.
        Dr. Goodspeed, let me turn to you now about the components
    of CPI. I am very pessimistic that somehow we are going to get
    a break and that number is going to go down. And I want to ask
    you specifically about the housing component. Housing is 30
    percent of CPI, and about 40 percent of core CPI, but the
    method of calculating housing, both rental and single-family
    ownership, in my view, understates the real experienced
    inflationary cost in the economy. Is that how you understand
    the CPI calculation?
        Mr. Goodspeed. The CPI calculation does understates the
    inflation in housing that I think ordinary Americans feel,
    because for the rental component, it only measures continuing
    leases.
        Mr. Hill. Yes.
        Mr. Goodspeed. Whereas, it is in new leases that we have
    seen double-digit increases in rent, right?
        Mr. Hill. Yes, correct. So with that understanding, I think
    my colleagues need to understand we are going to have higher
    CPI numbers coming as a result of this increase in demand and
    wage pressure. For example, house price inflation--the CPI from
    December 2020 to 2021 was stated at 5 percent. But when you
    look at the new home price index, it was up 18 percent, and
    when you look at single-family rent prices on this point of
    new, it was up 12 percent. So, I think we are going to continue
    to see inflation. And I think it is driven, just as Milton
    Friedman promised us, as a monetary phenomenon, and we have
    overstimulated the economy and fiscal policy, and we have
    mishandled our monetary policy. And I yield back.
        Mr. Auchincloss. The gentleman from Guam, Mr. San Nicolas,
    is now recognized for 5 minutes.
        Mr. San Nicolas. Thank you, Mr. Chairman. I want to begin
    by clearly acknowledging that the inflation that is devastating
    this country and everyday hardworking Americans is just
    terrible. It is terrible. And the circumstances that we are all
    dealing with here today is something with which we all need to
    grapple.
        I wanted to first open, however, Mr. Chairman, with a
    question to Dr. Zandi. We are dealing with inflation today, but
    isn't it true that the actions we took with respect to the
    fiscal policy that we initiated actually prevented a worse
    circumstance happening, which is stagflation; would you agree?
        Mr. Zandi. Yes, I think the odds that we would get into a
    stagflationary environment, which just for everyone's
    edification is very weak growth and high inflation, would be
    much higher. Right now, we have high inflation, but we have
    very, very strong growth, with lots of jobs, and we are getting
    back to form very quickly. So, I would agree with that.
        Mr. San Nicolas. And just to clarify, from an economist
    perspective, stagflation's impact on society would be
    materially worse than inflation, is that correct?
        Mr. Zandi. Yes, because that means both higher inflation
    and higher unemployment. Right now, obviously, the high
    inflation, as you point out, is very painful for Americans, but
    fortunately, we have a low unemployment rate that is falling
    very rapidly and that is good for all Americans. But in a
    stagflation environment, you have both rising inflation and
    rising unemployment, and there's nothing worse than that; that
    is what we had in the 1970s and 1980s, and that is what we need
    to avoid.
        Mr. San Nicolas. And just to really put into context the
    circumstances we are dealing with, the Fed rate was at or near
    zero when the pandemic hit. And so, the monetary policy options
    that we had were very limited with respect to its comparative
    alternative, which was a fiscal policy that we initiated here
    in the Congress.
        Would you agree that the fiscal policy initiative that we
    undertook to really fund us out of this pandemic was materially
    responsible for preventing us from entering into a
    stagflationary scenario?
        Mr. Zandi. Yes. I think that is fair to say. I think the
    very aggressive fiscal policy response beginning with the CARES
    Act 2 years ago in March of 2020, and there were a number of
    other pieces of legislation: a piece of legislation that was
    deficit-financed in December of 2020; and then, the American
    Rescue Plan, which was in March of 2021; and all of that
    together was critical to ensuring that this economy has been
    able to recover as fast as it has.
        And just to give you a sense of that, we are going to be at
    full employment 3 years after the pandemic hit us. And
    obviously, remembering back, that was a harrowing period, and
    we have made our way back in 3 years, typically coming out of
    recessions, since World War II, it takes double that, more than
    6 years. And of course, after the financial crisis, which hit
    us over a decade ago, it took us 10 years to move on.
        So from that prism, because of the fiscal policy response
    and including the American Rescue Plan, we have recovered very,
    very dramatically. There is nothing but good news as a result
    of that.
        Mr. San Nicolas. Thank you. Thank you for that. There is
    bad news, and the bad news is we are still dealing with
    inflation. I think that the American people demand that we
    tackle that, and I very much agree. The inflation that we are
    dealing with, we have been arguing back and forth about all the
    different component parts, and one of the really main points
    that has been brought up over and over again is the indication
    that the increase in profits that is being realized by
    corporations is a sign that corporate profiteering is
    contributing to the inflationary calculation.
        I want to contextualize it more specifically, though,
    because profits could be as a result of market share
    accumulation due to pandemic circumstances. I think the more
    important question is, have margins increased? Have the margins
    of these corporations increased dramatically pre-pandemic,
    pandemic, and post-pandemic, as we get into post-pandemic?
        And so, I wanted to pose that question to Dr. Mabud. Are we
    seeing significant margin increases, because that would be
    indicative of profiteering, because then the input prices,
    although they may be increasing due to supply constraints, they
    are actually not translating on a dollar-for-dollar basis onto
    the actual price points. Would you be able to comment on that,
    Dr. Mabud?
        Ms. Mabud. Yes. That is spot on. In the past two quarters,
    U.S. corporations outside of the financial industry posted
    their fattest profit margins in 70 years. And when we
    contextualized that within 2 years-plus of a global pandemic,
    when so many people are suffering around the country, it really
    points to the fact that we have way too much corporate power,
    and they are able to--as the CEO from Kroger said, `` A little
    bit of inflation is good for business,'' and they are taking
    advantage of that.
        Mr. Auchincloss. The gentleman's time has expired. The
    gentleman from Wisconsin, Mr. Steil, is now recognized for 5
    minutes.
        Mr. Steil. Thank you very much, Mr. Chairman. I appreciate
    you holding today's hearing. People are getting clobbered with
    inflation. When I am home in Wisconsin, people are going to the
    gas pump, and they are feeling it. People go to the grocery
    store, and they are feeling it. People are getting clobbered
    day in and day out. And inflation impacts everybody, but it
    really clobbers seniors on fixed-incomes and low-income
    workers.
        And low-income workers are taking it on the chin right now.
    It was suggested by one of my Democratic colleagues that
    Republicans were having fun blaming Biden. This isn't fun at
    all. People are getting clobbered by higher prices. They are
    getting clobbered by higher prices, and we have to get to the
    answer of the policies that are driving it.
        And I think it is very interesting. We have heard about
    corporate concentration. I am guessing that polls pretty well.
    Do you think that polls pretty well, Mr. Goodspeed, to blame it
    on corporate concentration and corporate greed?
        Mr. Goodspeed. The polling and politics are outside my area
    of expertise. I would imagine if the claim is being made, then
    presumably someone sees some--
        Mr. Steil. Yes. That would be my guess. It was interesting.
    I was looking at your presentation in following along kind of
    the Eurozone against the United States, inflation between the
    Eurozone and the United States tracked pretty closely over the
    past 15, 20 years. Is that accurate?
        Mr. Goodspeed. That is accurate.
        Mr. Steil. And then all of a sudden there was this massive
    deviation between the Eurozone and the United States. Is that
    accurate?
        Mr. Goodspeed. Correct.
        Mr. Steil. Roughly when did that break start to occur?
        Mr. Goodspeed. In March 2021.
        Mr. Steil. In March 2021. So then the question becomes,
    what occurred roughly around March of 2021 that might have
    driven this? The proposal that I have been hearing earlier is
    that all of a sudden, corporate greed in the United States took
    off. But interestingly, the data might suggest that it didn't
    take off in the Eurozone. Would that be a reasonable inference,
    Mr. Goodspeed?
        Mr. Goodspeed. Yes, it would.
        Mr. Steil. Interesting. What would be the Biden
    Administration's policy that was allowing corporate greed in
    the United States, that wasn't taking place in the Eurozone at
    this time? Because previously, inflation between the United
    States and the Eurozone was tracking pretty consistently, then
    we have a break, a huge deviation, triple the inflation in the
    United States than the Eurozone has been experiencing. Is that
    correct?
        Mr. Goodspeed. That is correct.
        Mr. Steil. Then, the logic would say, okay, if corporate
    greed and concentration is driving this in the United States,
    why did the corporations, all of a sudden decide once the Biden
    Administration came in, the Biden Department of Justice--do you
    think these corporations sat down and said, ``We have a Biden
    Department of Justice. We have one-party Democratic rule in
    Washington, D.C. Now's the time to go and drive greedy profits
    up.'' Do you think that occurred?
        Mr. Goodspeed. I have seen no evidence to suggest it
    occurred.
        Mr. Steil. Were there any policies that shifted in the
    Biden Administration or under one-party Democratic rule
    specifically as it relates to corporate greed in profits that
    would have driven these corporations to drive up profits?
        Mr. Goodspeed. No.
        Mr. Steil. Did they say, we are going to stop enforcing
    some certain policy, that they are going to have a massive
    change on anti-trust regulation that would have meant these
    corporations would have said, boom, now's the time to go?
        Mr. Goodspeed. None that I am aware of.
        Mr. Steil. Yes. And the data shows that consistency in the
    Obama Administration, and the Trump Administration, and then
    all of a sudden, this massive deviation--you'd almost think
    that spending suddenly took off in Washington D.C., this year.
        Mr. Goodspeed. I think that is the $1.9-trillion elephant
    in the room.
        Mr. Steil. Did the Eurozone have a massive ginormous
    increase in spending that paralleled the United States?
        Mr. Goodspeed. Neither of the same magnitude in 2020, nor
    anywhere close to the same magnitude in 2021.
        Mr. Steil. Interesting. So, we have this massive deviation
    that occurs. You have not identified any policies that would
    have allowed corporate greed to take off uniquely under the
    Biden Administration. We have problems with corporate greed on
    occasions, right? And we should dig into that. We don't want
    that to occur. But you haven't identified any unique policies
    in the Biden Administration that are uniquely weak, as it
    relates to corporate greed or enforcement?
        Mr. Goodspeed. I have no idea.
        Mr. Steil. And I haven't heard any of my colleagues suggest
    a specific policy of weakness in the Biden Administration on
    that, that we need to dive into. But we have noted all of a
    sudden a massive, fiscal policy change once we had Democratic
    one-party rule here in Washington, D.C., driving huge demand
    increases, more money chasing the same number of products can
    lead to inflation. And at the same time, we have had a monetary
    policy that has been pushing easy money. The balance sheet at
    the Fed has increased over $4 trillion over the last 2 years.
    The Fed's balance sheet continues to increase.
        So, we have easy money policy rather than sound money
    policy. We have massive fiscal spending, and I think we have
    identified the problem that is occurring, that is clobbering
    people in the pocketbooks in Washington, and I think we should
    wake up and change the policies here in Washington.
        Thank you very much. Mr. Chairman, I yield back.
        Mr. Auchincloss. The Chair now recognizes himself for 5
    minutes.
        Dr. Mabud, Dr. Goodspeed, Dr. Zandi, in that order, I have
    an energy question for you. This morning, President Biden
    announced a U.S. ban on Russian oil imports. This is a welcome
    step in ratcheting up pressure on the Kremlin, as I have been
    saying for weeks, although to be effective, this action must be
    global. Working with our allies in NATO and beyond, the United
    States must cut off Russia from the world's oil market. The
    fossil fuel industry is not going to lead the free world;
    Americans need to. This ban will deprive the Kremlin of vital
    hard currency to sustain the Rubal and fund its military and
    government. It will also remove up to 5 million barrels a day
    from energy markets that are already surging in price; a
    primary driver of inflation here in the United States.
        To backfill these 5 million barrels in the short term as we
    transition into a long-term clean-energy economy, the
    Organization of the Petroleum Exporting Countries (OPEC) could
    expand production by up to 2 million barrels, America by 1
    million barrels, Canada, Brazil, and other smaller producers
    buy up to 1 million barrels, and should a deal be reached, even
    Iran by up to 1 million barrels. It is also likely that some
    portion of the 5 million Russian barrels will end up on the
    market, sold to buyers not complying with sanctions, although
    at a significantly discounted price. And finally, of course,
    the Biden Administration and its allies can continue to use
    their strategic petroleum reserves to smooth out supply.
    Although that is only 60 million barrels in a market that
    consumes 100 million daily, that is going to have a marginal
    impact.
        As I said, starting with you Dr. Mabud, then Dr. Goodspeed,
    and then, Dr. Zandi, if there were a global embargo on Russian
    oil, that was accompanied by the supply response that I have
    just outlined, would you expect that gasoline prices in the
    United States would rise beyond the highs they have hit in
    January?
        Ms. Mabud. Thank you for that question. Any hits to supply
    are going to raise prices. But I think what is really critical
    to remember is that our dependence on fossil fuels is keeping
    us tied to volatility. And so, yes, it is going to take a long
    time, but transitioning to and investing in a green economy is
    not only important for people and maintaining low energy prices
    for folks around the country, but also in ensuring that we have
    a planet that works for our economy.
        And I'll also harken back to what I said earlier, which is
    that we know that oil company executives are not immune from
    the type of profiteering that we have been talking about across
    the course of this call. First, they use pandemic disruptions
    to massively boost their profits, and unfortunately, now the
    conflict in Eastern Europe is providing another opportunity to
    pad their bottom lines. So again, going after profiteering in
    the fossil fuel industry is an important short-term imperative.
    And over the long term, we must not delay in making the long-
    overdue investments in a clean-energy economy.
        Mr. Auchincloss. Dr. Goodspeed?
        Mr. Goodspeed. I was keeping track, in my head, the
    specific barrel amounts to which you referred. But I will say
    that roughly 12 percent of global oil production is from the
    Russian Federation, and about 17 percent of gas production. I
    think even if in theory, we increased production from the
    United States, increased production from the kingdom of Saudi
    Arabia and other OPEC members can compensate that, I think that
    there is going to be an adjustment period.
        Mr. Auchincloss. Right.
        Mr. Goodspeed. And production, because production of
    different types of oil in different regions of the world is not
    immediately substitutable; the infrastructure just isn't the
    same.
        Mr. Auchincloss. Have the markets priced in those 2022
    disruptions into the January price, or would you predict
    further inflation in gas prices?
        Mr. Goodspeed. I think, as of a few weeks ago, even perhaps
    as recently as a week ago, markets were probably underpricing
    the risk, the upside risk. I haven't checked today what they
    are doing, but I would imagine that they are substantially
    revising their price expectations.
        Mr. Auchincloss. So you would expect that the January
    prices would reflect, would have internalized much of the
    disruption risk of 2022 and also the potential to backfill?
        Mr. Goodspeed. I think throughout January into February
    markets, we are substantially underpricing the risk of conflict
    and conflict escalation, including the oil market implications.
        Mr. Auchincloss. And Dr. Zandi?
        Mr. Zandi. I don't think markets are fully discounting what
    we are talking about. If there are broad-based sanctions on
    Russian oil, and the U.S. stops buying, and Europe stops
    buying, and other advanced economies stop buying, I think we'd
    see prices closer to $150 per barrel, which means the cost of a
    gallon of regular unleaded is going to $5. If, however, it is
    just the U.S., and the Europeans don't go along, and there is a
    lot of discussion about that, then $125 is probably where we
    are going to land. And that would mean that we are going to see
    gasoline prices of $4.50, or $4.75 nationwide.
        Mr. Auchincloss. But Dr. Zandi, are you incorporating the
    supply response that I outlined where there is coordination to
    backfill?
        Mr. Zandi. Yes.
        Mr. Auchincloss. You are? Okay.
        Mr. Zandi. Yes, because that is going to take time.
        Mr. Auchincloss. Yes.
        Mr. Zandi. That will not happen immediately.
        Mr. Auchincloss. Dr. Mabud, as a final request, would you
    be willing to offer into the record at a later date the short-
    term proposals that you have alluded to, to crack down on any
    war profiteering by big oil? I would be interested in any of
    the specifics you have there.
        Ms. Mabud. I can follow up. Thank you.
        Mr. Auchincloss. The Chair now recognizes the gentleman
    from North Carolina, Mr. Budd, for 5 minutes.
        Mr. Budd. I thank the Chair, and I want to continue on with
    this theme. Dr. Goodspeed, again, thank you, and I thank the
    whole panel for being here.
        I have heard a lot of my colleagues across the aisle claim
    that the 40-year high inflation spike that we are currently
    experiencing is a result of corporate profiteering. Now, you
    would think that the nearly $2 trillion that the Democrats
    injected into the economy would be more of a culprit. The
    economist, Milton Friedman, would say, ``There are just too
    many dollars chasing too few goods.'' Businesses are forced to
    accommodate the increased cost of production to meet demand
    needs, which is simply Econ 101. I think some of my colleagues
    should reeducate themselves on how basic supply and demand
    works.
        I have a bill, H.R. 5968, that addresses this. It would
    require certain White House employees to receive training on
    economic literacy, and it is clear that they badly need it. I
    am even thinking about expanding the bill to include Members of
    Congress.
        So, Dr. Goodspeed, is there any compelling evidence to
    suggest that inflation has hit this 40-year high because
    businesses are conducting so-called profiteering?
        Mr. Goodspeed. Thank you, Congressman. I have seen no
    evidence as to why corporate profiteering would have increased
    in 2021 relative to previous years, and why corporate
    profiteering would have increased in the United States versus
    Europe. I have seen no evidence as to why we should observe not
    just an increase in prices, but an increase in the rate of
    change in prices. And I have also not seen any evidence for why
    we should see general price inflation rather than simply
    relative price inflation in sectors with greater concentration.
        Mr. Budd. Thank you. Both the Obama and the Biden
    Administrations blocked the development of the Keystone
    Pipeline. President Biden has also established a policy of
    opposing funding of oil and upstream natural gas projects
    through Multilateral Development Banks (MDBs). Oil prices are
    currently sitting at a 7-year high. The unjust invasion of
    Ukraine by Russia has also led to additional impacts on oil
    prices. And the New York Fed has been working on developing
    climate stress testing.
        Are there any concerns that additional regulations and
    stress testing that is hyper-focused on oil in particular can
    make the price concerns that we are currently seeing even
    worse? I'll just leave it at that. Do you think that what the
    Biden Administration is doing, and the Obama Administration has
    done, could make things worse?
        Mr. Goodspeed. As I noted in some of my earlier remarks,
    one very striking aspect of 2021 was the breakdown in the
    historic relationship between the price of oil and Oil Rig
    Counts in the United States. As Dr. Zandi pointed out, we might
    expect that to recover in 2021, given the considerable upward
    pressure on oil prices. But that relationship broke down and I
    think that has something to do with the increased regulatory
    burden on the domestic energy industry and possibly some
    effects on capital allocation.
        Mr. Budd. Continuing on, doesn't restricting the supply of
    oil and natural gas internationally increase the risk of
    inflation even further?
        Mr. Goodspeed. Yes.
        Mr. Budd. I yield back. Thank you.
        Chairwoman Waters. The gentleman yields back.
        The gentleman from New York, Mr. Torres is now recognized
    for 5 minutes.
        Mr. Torres. Thank you, Madam Chairwoman. Inflation is
    deeply regressive, imposing a disproportionate burden on the
    poorest families. The families who are hit hardest by inflation
    are the same families who would benefit the most from an
    expanded Child Tax Credit. The regressive impact of inflation
    underscores the need to restore a progressive Child Tax Credit.
        Mr. Drummer, do you believe, as I do, that the Child Tax
    Credit could be a tool for mitigating the impact of inflation?
        Mr. Drummer. In short, absolutely. These investments in our
    economy are what saved our country from falling into a
    depression, and they lifted millions of children out of
    poverty. Absolutely.
        Mr. Torres. And as you know, inflation is not equally
    distributed across the economy, some sectors of the economy are
    more inflationary than others. And according to an analysis by
    the Center for Budget and Policy Priorities, the CTC monthly
    payments were most commonly spent on food, utilities, and
    housing. Food, utilities, and housing are among the most
    inflationary goods and services in the U.S. economy. Is that
    correct, Mr. Drummer?
        Mr. Drummer. That is right. And energy is particularly
    volatile.
        Mr. Torres. And so, the Child Tax Credit would essentially
    enable the families most affected by inflation to afford the
    life necessities of food, utilities, and housing?
        Mr. Drummer. That is right. The more money they have, the
    more they can absorb these fluctuations.
        Mr. Torres. Mr. Zandi, in March of 2021, you coauthored a
    report entitled, ``Overcoming The Nation's Daunting Housing
    Supply Shortage.'' The report, as I understand it, found that
    the annual demand for housing exceeds the annual supply of
    housing by 100,000 units, representing the largest shortfall in
    nearly half a century. The report also found that over a 10-
    year budget horizon, an annual investment of $50 billion in
    affordable housing could boost affordable housing construction
    by 275,000 units per year. It is a common refrain among
    Republicans that government is not the solution; government is
    the problem. But in your professional opinion, as an economist,
    can we even come close to solving the housing supply problem in
    America without government investments like the Build Back
    Better Act?
        Mr. Zandi. Not anytime soon, Congressman. It is a very
    pernicious problem that has developed over a period of more
    than a decade, since the financial crisis. And the root causes
    of that are very, very pernicious and difficult to address
    around zoning, permitting, global supply chain issues, building
    materials and labor supply issues, and construction land, and
    development lending, very complex issues. I think markets are
    starting to work, home builders can make a return and they are
    now starting to build homes that are more affordable at lower
    price points.
        The way it is going, it is going to take a long, long time,
    and inflationary pressures are going to continue to develop
    because again, housing is such a key component of overall
    inflation.
        I would strongly recommend that lawmakers take this up. And
    I think there are a lot of good proposals that are bipartisan
    that can help to lower the cost of construction, particularly
    for affordable housing around light tech, neighborhood home tax
    credits, new market tax credits, HOME, and the Housing Trust
    Fund. These are things that could go a long way to quickly
    addressing this housing shortage and addressing one of the most
    significant contributors to inflation beyond the current
    period.
        Mr. Torres. And as you know, when it comes to housing,
    there is one sense in which government is indeed a problem:
    zoning. Local zoning codes have essentially made it illegal to
    build affordable housing, multi-family housing in much of the
    country. And so, the housing affordability crisis must be
    solved, not only with greater investment from the Federal
    Government, but also greater land use reform from State and
    local governments.
        I have a question about the American Rescue Plan. Among the
    wealthiest countries, the U.S. has seen the strongest economic
    recovery from COVID-19. The U.S. has seen historic highs in job
    creation, economic growth, and wage growth.
        Mr. Zandi, to what extent can the exceptionalism of
    America's recovery be attributed to the American Rescue Plan?
        Mr. Zandi. I think it is a very significant contributor. If
    you are interested, I just wrote a paper that I published last
    week. Just Google, ``Zandi and the macroeconomic consequences
    of global fiscal policy.'' I go through the contribution that
    the American Rescue Plan has made to our economic recovery and
    our economic success compared to other parts of the world. And
    again, just to reiterate, I think it is clearly why we are back
    getting back to full employment very rapidly, much more quickly
    than the rest of the world, and much more quickly than we have
    historically coming out of recessions. And again, I do not
    think you could connect the dots between the uncomfortably
    high, painfully high inflation we are suffering right now, back
    to the American Rescue Plan is related to the pandemic and now
    of course related to Russia and Ukraine.
        Ms. Garcia of Texas. [presiding]. The gentlewoman from
    North Carolina, Ms. Adams, is now recognized for 5 minutes
        Ms. Adams. Thank you very much. And thank you very much to
    Chairwoman Waters and Ranking Member McHenry, and thank you to
    our witnesses for your testimony. Let me drill down on
    [inaudible] opponents of the phase [inaudible] that we are
    currently experiencing, the housing shortage. You don't need to
    take my word for it; economists across the nation are saying
    the same thing. We need to increase our housing supply of new
    units, of affordable units, of all kinds of units, and we need
    to do so immediately. I am proud that under Chairwoman Waters'
    leadership, this committee has advocated for the most-robust
    investment in public and affordable housing in our nation's
    history.
        So Dr. Zandi, in my district, research by the University of
    North Carolina, Charlotte [inaudible] 11,000 family homes are
    now owned by private equity firms, or other Wall Street-backed
    entities. So, with 4 percent of the single--
        Ms. Garcia of Texas. Ms. Adams, if you could raise the
    volume. You are a little low.
        Ms. Adams. Okay. Dr. Zandi, to what extent has the current
    housing supply crunch been exacerbated by the excess of Wall
    Street and private equity firms?
        Mr. Zandi. Private equity firms and investors broadly
    including institutional investors and mom-and-pop investors--
    Americans buying homes for investments has risen quite
    significantly, particularly over the last year. So, almost a
    little over one-fourth of the home sales at the end of last
    year were to investors, which is up about 10 percentage points
    from the year before. They are all playing a more active role
    in the housing market, particularly in different parts of the
    country, the South and the West come to mind relatively
    quickly. They are having an impact on house prices, on
    affordability, and on homeownership. And it's really having a
    meaningful impact on the dynamics of the housing market, and
    just making it more difficult for low-income Americans, and
    first-time homebuyers to afford their first home.
        I do think this goes back to supply. I think we need to
    encourage investors to work to increase the supply of housing.
    For example, going back to investors, one thing they are doing
    now is they are buying homes and then renting them. We can
    design policies to incent them to build homes, to rent them, or
    for homeownership. And if we can do that, then we can address
    this problem, but it is increasingly an issue that is beginning
    to affect more and more housing markets across the country.
        Ms. Adams. Okay. Another aspect has to do the across the
    nation [Audio malfunction.] is feeling the crunch? So do you
    believe that Congress should enact [inaudible] State and
    localities to tap into the State and Local Fiscal Recovery
    Funds (SLFRF) dollars to help shore up affordable housing
    developments that are currently in the pipeline?
        Mr. Zandi. I am having a hard time hearing you. I think you
    are referring to the money in the American Rescue Plan (ARP).
    It has gone to State and local governments in helping
    facilitate the direction of that funding to housing. I think
    that is what you were saying.
        Ms. Adams. I said--
        Mr. Zandi. Yes, absolutely. I keep mentioning the Low-
    Income Housing Tax Credit (LIHTC), which is an incredibly
    effective way of increasing the supply of affordable rental
    housing in communities across the country. It is a tried-and-
    true program and we know how it works. And all we have to do is
    turn the dials here a little bit. I think we can really juice
    that up and get a lot more supply into the housing market. It
    is not going to be next month or next quarter, but by this time
    next year, going into 2024, it will be very significant. And
    taking some of that State and local relief funding that was
    part of ARP, that is sitting out there, and directing that,
    changing the rules a little bit to direct it towards juicing up
    LIHTC and other forms of funding for housing, I think would be
    highly effective.
        Ms. Adams. Thank you very much, ma'am. I yield back.
        Ms. Garcia of Texas. Thank you. The gentlewoman yields
    back.
        Mr. Goodspeed. I think there is an important point here on
    this. There are two things that really substantially contribute
    to housing prices in the United States. One is the State and
    Local Tax (SALT) deduction, and the other is the mortgage
    interest deduction, both of which tend to be fully capitalized
    into housing prices, particularly.
        Ms. Garcia of Texas. Sir, you are out of order. I don't
    think anyone addressed a question to you, sir.
        Ms. Adams. Thank you very much, Madam Chairwoman. I yield
    back.
        Ms. Garcia of Texas. The gentlelady yields back.
        The gentlewoman from Michigan, Ms. Tlaib, is now recognized
    for 5 minutes.
        Ms. Tlaib. Thank you so much, Madam Chairwoman. And thank
    you for this critically important hearing. As you know, the
    pandemic has been great for the richest Americans, who have
    lined their pockets and doubled their wealth during the
    pandemic. As we all know, corporations have the nerve to blame
    inflation, while consolidating their market power and raising
    the price of essential goods and services, while working people
    foot the bill. For me, this is not inflation, it is extortion.
    Meanwhile, the same corporations who are gouging prices on
    consumers, on our neighbors, have been engaging in what we call
    major stock buybacks. When corporations funnel record earnings
    into stock buybacks, Madam Chairwoman, that is money that they
    are not allocating towards capital investment in research and
    development.
        Dr. Mabud, just listening to your testimony has been really
    interesting, to understand some of these trends. One of the
    things that I think we haven't looked at, and I would love your
    opinion on is, what trends have we seen with regards to the
    major corporations and stock buybacks, particularly since the
    Trump tax cuts were enacted?
        Ms. Mabud. Thank you for that question. We are in a period
    where we are seeing record stock buybacks, and that is really
    important because that is money that is going out to
    shareholders, and all ofour prices are going up. And these
    companies are not making productive investments in their firms.
    They are not investing in making the company work better. They
    are just grabbing as much profit as they can and sharing out
    the shares to their shareholders. And tax policy is critical to
    this, because if raising corporate tax rates, or taxing excess
    profits is a real way to curb the amount of money that flows to
    shareholders and executives over productive investments in our
    economy.
        Ms. Tlaib. Thank you so much.
        Dr. Zandi, are stock buybacks making our supply chains more
    resilient, or bringing down prices for consumers in any way?
        Mr. Zandi. It is hard to connect the dots, I think, between
    stock repurchases and what is going on with supply chains and
    inflation.
        Ms. Tlaib. But we have a record number of stock buybacks.
        Mr. Zandi. But that money does go to investors that
    reinvest. I think that is a very tenuous kind of blanket, in my
    view.
        Ms. Tlaib. Okay. One of the things I always say is, we
    obviously didn't predict the pandemic would be around the
    corner in 2019. But today, we all know that the next crisis
    that will pose an existential threat to our economy is our
    planet. If our planet warms 2 degrees Celsius, the damage will
    be irreparable. Extreme weather events will be the new normal,
    our communities will flood, and our economy will be underwater.
    And these are real facts for many scientists across the world.
        Dr. Zandi, we know extreme weather events like floods,
    wildfires, and droughts are occurring with alarming frequency
    due to the climate change. Can you explain the impact climate
    change will have on our supply chains and on prices, for
    example, in the energy and food sectors?
        Mr. Zandi. Yes, it already has, Congresswoman. For example,
    we talked about lumber. One of the reasons for the severe
    problems we are having in that industry is because of
    extraordinary weather events in the Pacific Northwest,
    particularly in British Columbia, where a lot of the timber
    that is produced goes into U.S. homes. So, it is already having
    a major effect, and it is affecting timber supplies, where
    forests are growing, and where they are not growing. It is a
    major adjustment that is adding to our costs and contributing
    to our global supply chain issues. It is not one of those
    things that matters a lot in any given year, but when we look
    back a decade from now, certainly.
        Ms. Tlaib. Yes, when they do nothing now, of course, the
    impact will be there later. Look at the lack of safety nets
    before the pandemic: we didn't have child care; and we have a
    preexisting condition because of environmental racism. So, I
    totally hear you. But I think much of what is happening, and
    the fact that we weren't able to save more lives during this
    pandemic, is because of some of these broken systems and not
    thinking forward. Last year, a handful of dominant shipping
    container firms reaped record profits, while passing those
    costs directly on to the consumer; raising prices here by 1
    percent, according to Kansas City Fed and the European Central
    Bank. Based on this evidence, I am credibly concerned that big
    corporations will simply look at the climate crisis in the same
    way they viewed the pandemic, as just another chance to make a
    quick buck.
        Dr. Mabud, are we doing enough to address our supply chain,
    for fragility and exposure to climate risk? If not, what sorts
    of investments should our country, our Federal Government be
    looking at?
        Ms. Mabud. That is absolutely critical, because every new
    climate shock across the--a storm halfway across the world,
    when we have such a brittle supply chain, can bring the whole
    system crashing down. So, it is really critical that we check
    our corporate power by using tax policy--
        Ms. Garcia of Texas. The gentlewoman's time has expired.
        Ms. Tlaib. Thank you, Madam Chairwoman. I yield back.
        Ms. Garcia of Texas. The gentlewoman from New York, Ms.
    Ocasio-Cortez, is now recognized for 5 minutes.
        Ms. Ocasio-Cortez. Thank you so much. Thank you, Madam
    Chairwoman, and thank you to all of our witnesses for being
    here today. I want to explore a little bit about the role of
    corporate profiteering and its contributions to inflation as we
    have kind of been discussing today, particularly in two areas:
    rent and groceries.
        Now, in terms of housing, big corporations are exacerbating
    what is already a major housing supply crisis in the United
    States. We have these major, often private equity-backed
    companies that are gobbling up homes in our housing market,
    which is already creating excess scarcity on top of the housing
    scarcity that already exists. And then by constricting that
    supply, we are also seeing a lot of these major, huge, multi-
    billion-dollar companies, then either flip those properties or
    just resell them at a higher rate due to that artificially
    inflated price, or they hold on and hoard this housing stock
    and rent out at exorbitant prices.
        Dr. Zandi, isn't it the case that the average American now
    has to compete with major companies like Invitation Homes,
    whose parent company is Blackstone, which is the largest
    private equity company in the world, when they are in the
    market for a home?
        Mr. Zandi. Yes. I think obviously, the institutional
    investors and mom-and-pop investors, as I mentioned earlier,
    were one quarter of all home sales at the end of last year, so
    they are big players, and that is nationwide. In some markets,
    if you go to Atlanta or Phoenix or Boise, they are much higher;
    they are at 30 percent to 40 percent of the market. So yes,
    they are playing a very large role. They don't affect the
    amount of housing stock. The home is still there. It is
    changing. We are going from single-family homeownership to
    rental, so it is making it more difficult, of course, for home
    buyers--
        Ms. Ocasio-Cortez. Yes. And available housing stock for
    purchase, I should clarify.
        Mr. Zandi. Yes, exactly.
        Ms. Ocasio-Cortez. Yes.
        Mr. Zandi. So, this is definitely having an impact there.
    And that is why it is very critical, in my view, for lawmakers
    to really focus on the kinds of things to increase the supply--
        Ms. Ocasio-Cortez. Thank you.
        Mr. Zandi. --so that becomes less of an issue.
        Ms. Ocasio-Cortez. Thank you, Dr. Zandi. So to clarify, the
    image that we have here is that you have a young couple, and
    they try to do the right thing. They were told that if you go
    to college, you will get a good job. They graduate with
    hundreds of thousands of dollars, or tens of thousands of
    dollars in student debt, but they worked through it. Perhaps
    they have a young child, so they want to get a 2- or 3-bedroom
    home. And they are competing against the largest private equity
    firm in the world to purchase a home. In fact, companies like
    Blackstone, Zillow, and Bedrock are buying up to 15 percent of
    available homes. But what I find interesting here is that they
    are purchasing them in minority and low-income neighborhoods,
    specifically. Particularly, in metro areas like New York,
    Atlanta, and Detroit, about 1 in every 7 homes in the United
    States is being bought by a corporation at an inflated price.
        Dr. Drummer, we are seeing here that even in communities
    like mine in Queens, renters are now facing drastic rent hikes
    as large as 30 percent to 50 percent up from what they were
    paying last year. Can you expand a little bit on how this
    concentration of corporate power and the skyrocketing costs of
    housing are being disproportionately felt in low-income,
    working-class, Black, and Latino neighborhoods?
        Mr. Drummer. Thank you, Representative, for the great
    question. This is the market that we have created for housing
    in America. Right now, 6 million rental households are
    currently behind on rent. Again, as stated previously, that is
    double the pre-pandemic baseline, and two-thirds of these
    people are people of color. In 2021 alone, rents increased by
    at least 10 percent in 149 metropolitan areas. So what we are
    seeing around the country is a failure of policy and law to
    address the acute shortage of housing. If someone wants to make
    the case that this is just how markets are supposed to work,
    they can. My view is that our current housing crisis
    constitutes a serious significant series of market failures
    that require robust policy response at the Federal, State, and
    local level.
        Ms. Ocasio-Cortez. Thank you. Thank you, Dr. Drummer. I
    have one more question as well. I want to explore a policy
    possibility with you. There are a lot of ideas that are
    explored. The United States has very different housing policies
    than other countries and areas. What do you make of the idea of
    a public institution that purchases distressed real estate and
    finances it to transfer to the social housing sectors such as
    cooperatives, committee land trusts, the nonprofits--
        Ms. Garcia of Texas. The gentlewoman's time has expired.
        Mr. Drummer. Yes. The Build Back Better bill actually has--
        Ms. Garcia of Texas. The gentlewoman's time has expired. If
    you'll just submit your answers, sir, for the record, that
    would be great. Thank you.
        The gentleman from Illinois, Mr. Garcia is now recognized
    for 5 minutes.
        Mr. Garcia of Illinois. Thank you, Madam Chairwoman. And
    thanks to all of the witnesses who joined us today to discuss
    the economic challenges our country faces. I represent a
    working-class district, and my constituents are the hardest hit
    by inflation, and the hardest hit by interest rate hikes. We
    have to understand what is driving inflation in order to tackle
    it, and from your testimony, it sounds like it is corporate
    greed.
        Dr. Mabud, in your testimony, you raised a pretty striking
    quote that I just have to revisit. Earlier this year, the CFO
    of Constellation Brands, a company that owns Modelo and Corona
    beers, and I admit, I enjoy these frequently, said, ``As you
    know, we have a consumer set that skews a bit more Hispanic
    than some of our competitors and in times of economic downturn,
    if you will, or weakness, they tend to get hit a little harder,
    and they recover a little bit slower. So we want to make sure
    that we are not leaving any pricing on the table. We want to
    take as much as we can.''
        I represent a Latino, largely immigrant district, and I can
    confirm that our communities were hit hard by the pandemic, but
    this is shocking. Our suffering is their excuse to raise
    prices. Can you talk about how corporate concentration is
    raising prices for some of the most basic goods that my
    constituents buy, from diapers to beer?
        Ms. Mabud. Thank you for that question, and that quote is
    really striking. The truth of the matter is, we have heard over
    and over and over on earnings calls across a range of sectors
    that these big corporations simply have the power to raise
    prices, particularly when they have the cover of inflation to
    do so. And they are shameless about it. That quote is so bald-
    faced about exactly what it is that they are going to do, which
    is to exploit the pain of a community and pocket the profits as
    a result. And we see that time and time again. We have seen
    that with Johnson & Johnson, with Chipotle, with McDonald's,
    and I can go on and on with the number of companies that we
    have heard, really of this moment, to jack up prices and pocket
    the profits.
        Mr. Garcia of Illinois. Thank you. Mr. Vaheesan, the
    corporations and local businesses faced similar challenges at
    the start of the pandemic, but market concentration allowed big
    businesses to reap record profits, while local businesses
    struggled to recover. And as always, consumers pay the price
    with inflation. In your testimony, you laid out that our policy
    choices brought us here. I hope they can bring us out as well.
    Can we reverse decades of corporate concentration to avoid what
    we see happening today? What is the first step?
        Mr. Vaheesan. Thank you, Congressman. You are absolutely
    right. For 40 years, we have tolerated consolidation across the
    economy, and it was a policy choice, and just as we initiated
    certain pro-merger policy choices in the 1980s, we can undo
    those. And I think a good place to start is by reversing some
    of the mergers that have happened in recent years. Meatpacking
    is a great industry to start with, since it is a driver of
    inflation and we have seen extraordinary levels of
    concentration in that industry, driven in large measure by
    consolidation. So, I think the Department of Justice and the
    Federal Trade Commission can actually unwind these mergers and
    create more competitive market conditions. And going forward,
    they can strengthen anti-merger laws to ensure that businesses
    grow through investment in hiring instead of by acquiring
    existing corporations and enhancing their pricing power.
        Mr. Garcia of Illinois. Thank you for that. Mr. Drummer,
    from what we just discussed, it is clear that corporate
    concentration and price gouging directly contributes to
    increased prices of goods and services. Corporate greed should
    be addressed to mitigate inflation. But many policy experts are
    only talking about raising interest rates. Can you talk about,
    in the next 50 seconds, how raising interest rates hurts
    working-class people?
        Mr. Drummer. That is an excellent question. Yes, if we use
    interest rates to curb inflation, what are we doing? We are
    literally driving down the demand for labor, which
    disproportionately affects the lowest-income workers, which
    means that we are lowering their ability to bargain, right? And
    to demand higher wages, which means we are taking money out of
    their pocket in order to balance our economy. That is the most
    inequitable way to handle this crisis. We believe that the best
    way to address this affordability crisis is to turn our gaze
    away from inflation and focus on deep structural changes to
    rebalance our economy.
        Mr. Garcia of Illinois. Thank you, sir. And, Madam
    Chairwoman, I yield back.
        Ms. Garcia of Texas. The gentleman from Indiana, Mr.
    Hollingsworth, is now recognized for 5 minutes.
        Mr. Hollingsworth. Good afternoon. I appreciate everyone
    being here. Maybe I'll just talk about a constellation of
    things I have heard today and observations about some of this.
        Number one, I am frequently reminded of a famous economist,
    John Kenneth Galbraith, who famously retorted, ``When given the
    choice between changing one's mind and proving there is no need
    to do so, almost everyone gets started on the proof.'' This
    hearing is that proof.
        It is embarrassing to hear policymakers try to claim that
    it is anything but the policies that they have enacted that
    have led to this inflation. And frankly, much of the,
    ``evidence,'' that has been asserted in some of these
    testimonies isn't real evidence at all. I didn't see
    significant data about the surfeit of demand. I didn't see data
    about the wage gaps that existed 2 years ago that we overfilled
    with trillions of dollars of stimulus and transfer payments.
    No, I saw quotations from earnings conference calls with CEOs
    who mentioned the word, ``price,'' and, thus, it must be
    corporate greed and profiteering and not real inflation.
        Second, during the course of this entire hearing, I have
    been struck by the fact that no one here seems to understand
    that every price increase is not inflation; inflation and price
    increases are different and can be rooted in different things.
    But I don't believe anyone here thinks that inflation doesn't
    exist, being separate from price increases. I think some of you
    can argue short-term supply chain issues have led to certain
    price increases, but I don't think anyone can argue against the
    tidal wave of evidence that inflation also exists.
        Third, I think it is almost embarrassing that we would sit
    here and say that inflation is not harming those at the lowest
    end of the income deciles, the people we are most here to help,
    but we have seen real wages decline month after month,
    purchasing power declining month after month, because of these
    policies. I want to ensure that inflation does not continue to
    erode the purchasing power, especially of those that are least
    able to cope with it.
        Dr. Goodspeed mentioned earlier that those in the higher-
    income levels can cope better with inflation. They have many
    opportunities to substitute goods, they have many opportunities
    to move to lower-cost locations. They have more exposure to
    inflation hedges; those are not benefits afforded to those
    lower-decile earners. I want to make sure that we tackle
    inflation in order to empower them. What I have heard, however,
    is that 40 years of failed policy has somehow led to a year of
    the highest inflation in those 40 years, so the mistakes of 40
    years have somehow come together. And all of these corporations
    were sitting around biding their time for 39.5 years, and, by
    God, they saw this was the opportunity for them to dramatically
    raise prices. That was not the case.
        And Dr. Zandi also said that we can't directly tie the
    significant amount of stimulus that the Federal Government has
    undertaken during those periods, because inflation didn't save
    it for a couple of months after that. Certainly, he understands
    that it takes time from the moment Federal legislation passes
    until those dollars are spent in the economy. What I have seen
    in table after table, chart after chart, data after data is the
    tremendous growth in M2, and the tremendous acceleration in
    inflation on account of that, which has led to significant
    erosion in the purchasing power, especially of those at the
    lower deciles. The reason Nobel Prize economists are not in
    here testifying to the contrary is because that is the case--
    pandemic profiteering cannot be the sole reason for this
    dramatic increase. And even Mr. Vaheesan, at one point, said
    that companies are beginning to take advantage of the
    inflationary environment to raise prices. Well, which is it?
    Did the inflationary environment preexist corporations taking
    advantage of that to raise prices? It must have for them to
    have used that, as you said, for cover, to do so.
        This hearing is an embarrassment and a further proof of the
    great dichotomy between Washington, D.C., that wants to engage
    in political fallacy, and Hoosiers back home, who are picking
    up the tab for these failed policies. With that, I yield back.
        Ms. Garcia of Texas. The gentlewoman from Georgia, Ms.
    Williams, who is also the Vice Chair of our Subcommittee on
    Oversight and Investigations, is now recognized for 5 minutes.
        Ms. Williams of Georgia. Thank you, Madam Chairwoman. And
    now, we are in the homestretch with the last questions of the
    day.
        Our economy is built on our infrastructure and supply
    chains. And in the decades before COVID, our infrastructure was
    slowly crumbling. Our ports, airports, roads, and bridges kept
    getting older, but year after year, infrastructure work
    remained an empty promise. Before President Biden, we didn't
    invest enough in the infrastructural modernization that will
    help get products quickly to our people. At the same time, we
    didn't invest enough in making critical products here at home.
    Even though we need semiconductors for everything from credit
    cards to cars, we haven't produced enough critical products
    like this in the United States. Before President Biden, we got
    by, but we didn't get ahead when it came to our infrastructure
    and supply chains. Whether it is an economic shock like a
    pandemic or an economic surge like we are seeing now, our
    infrastructure and supply chains have to be resilient over the
    long-term if we want our economy to respond well to rapid
    change.
        Ms. Mabud, how exactly does an economic surge stretch our
    infrastructure and supply chains, and what is the connection
    between the resilience of infrastructure and supply chains and
    the prices of everyday goods?
        Ms. Mabud. Thank you for this question, Congresswoman.
    Corporations have the power to hike prices in a crisis like
    this, because we spent half a century allowing business
    executives and financiers to take control of every single piece
    of our supply chain, from shipping to manufacturing, to
    trucking, to rail. And so, over the last 50 years, these
    companies have shaped our supply chains into the extremely
    brittle system that we have today, which means that when we
    experience shocks, whether it is a pandemic or a weather event
    halfway across the world, we are going to see bottlenecks and
    supply shortages. And big companies can use their dominance in
    markets to hike up prices, because consumers don't know how
    much of that is the rise in input costs, and how much of that
    is just them padding their profits. That is particularly the
    case when they have the cover of inflation.
        Ms. Williams of Georgia. Under President Biden, GDP grew
    nearly 6 percent in 2021 and the demand for goods has boomed as
    consumption patterns have changed. Democrats know that we can't
    build the economy of the future with the infrastructure of the
    past. That is why we invested in long-term success with the
    bipartisan infrastructure law.
        Dr. Mabud, in what ways will the long-overdue
    infrastructure investments from the bipartisan infrastructure
    law address the supply side vulnerabilities currently impacting
    prices, while fostering the continued record-breaking economic
    growth that we have seen under President Biden?
        Ms. Mabud. Shoring up our infrastructure and key modes of
    our supply chains is absolutely critical to making sure that we
    have functioning supply chains that can deliver goods on time,
    and that doesn't allow these big corporations to really take
    advantage of the situation. Furthermore, this bill has critical
    investments in child care and other aspects of our economy that
    have been putting strain on family budgets for decades. So,
    these investments are long-overdue. And frankly, with the ARP,
    I think we really saw how effective these investments are in
    making sure that people can live a good life in this country.
        Ms. Williams of Georgia. That led me to the next part of my
    question. Under President Biden's leadership, we boosted our
    economy from the brink with the American Rescue Plan, and
    invested in our long-term success with the bipartisan
    infrastructure law, but we know that we have more work to do.
    Reducing inflation means advancing our global competitiveness
    and investing in housing, child care, paid leave, health care
    and more so that we can lower costs for working families. Dr.
    Mabud, can you expand on how making these investments and
    realizing President Biden's full vision for building a better
    America and reduce rising costs that are impacting everyday
    people?
        Ms. Mabud. Absolutely. People are feeling this, right? They
    are feeling the pressure of rising prices, but they are also
    feeling all of the issues that you just talked about, rents
    going up, child care being expensive and hard to get, and
    access to health care taking a huge toll. So really, tackling
    both sides of that equation and making sure that people have
    the means to participate in the labor market and continue this
    historic recovery is absolutely critical.
        Ms. Williams of Georgia. Thank you so much, Dr. Mabud.
        And Madam Chairwoman, I yield back the balance of my time.
        Ms. Garcia of Texas. The gentlelady yields back.
        The Chair notes that some Members may have additional
    questions for these witnesses, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        This hearing is now adjourned. We thank everyone for
    participating today.
        [Whereupon, at 2:07 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                 March 8, 2022

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