[Joint House and Senate Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 117-292
BUILDING ON A STRONG FOUNDATION:
INVESTMENTS TODAY FOR A MORE
COMPETITIVE TOMORROW
=======================================================================
VIRTUAL HEARING
before the
JOINT ECONOMIC COMMITTEE
of the
CONGRESS OF THE UNITED STATES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
APRIL 27, 2022
__________
Printed for the use of the Joint Economic Committee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
47-925 WASHINGTON : 2022
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Donald S. Beyer Jr., Virginia, Martin Heinrich, New Mexico, Vice
Chairman Chairman
David Trone, Maryland Amy Klobuchar, Minnesota
Joyce Beatty, Ohio Margaret Wood Hassan, New
Mark Pocan, Wisconsin Hampshire
Scott Peters, California Mark Kelly, Arizona
Sharice L. Davids, Kansas Raphael G. Warnock, Georgia
David Schweikert, Arizona Mike Lee, Utah, Ranking Member
Jaime Herrera Beutler, Washington Tom Cotton, Arkansas
Jodey C. Arrington, Texas Rob Portman, Ohio
Ron Estes, Kansas Bill Cassidy, M.D., Louisiana
Ted Cruz, Texas
Tamara L. Fucile, Executive Director
Kevin Corinth, Republican Staff Director
C O N T E N T S
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Opening Statements of Members
Page
Hon. Donald Beyer Jr., Chairman, a U.S. Representative from the
Commonwealth of Virginia....................................... 1
Hon. Mike Lee, Ranking Member, a U.S. Senator from Utah.......... 3
Witnesses
Dr. Josh Bivens, Director of Research, Economic Policy Institute,
Washington, DC................................................. 5
Dr. Michelle Holder, President and Chief Executive Officer,
Washington Center for Equitable Growth, Washington, DC......... 7
Dr. Sudip Parikh, Chief Executive Officer, Executive Publisher,
Science Family of Journals, American Association for the
Advancement of Science, Washington, DC......................... 9
Dr. Tyler Goodspeed, Kleinheinz Fellow at the Hoover Institution,
Stanford University, Stanford, CA.............................. 11
Submissions for the Record
Prepared statement of Hon. Donald Beyer Jr., Chairman, a U.S.
Representative from the Commonwealth of Virginia............... 28
Prepared statement of Hon. Mike Lee, Ranking Member, a U.S.
Senator from Utah.............................................. 29
Prepared statement of Dr. Josh Bivens, Director of Research,
Economic Policy Institute, Washington, DC...................... 31
Prepared statement of Dr. Michelle Holder, President and Chief
Executive Officer, Washington Center for Equitable Growth,
Washington, DC................................................. 42
Prepared statement of Dr. Sudip Parikh, Chief Executive Officer,
Executive Publisher, Science Family of Journals, American
Association for the Advancement of Science, Washington, DC..... 54
Prepared statement of Dr. Tyler Goodspeed, Kleinheinz Fellow at
the Hoover Institution, Stanford University, Stanford, CA...... 64
Graphs submitted by Representative Schweikert
Nominal and Real Wages--Average Hourly Earnings (All
Employees)................................................. 70
Nominal and Real Wages--Average Hourly Earnings (Production
and Nonsupervisory Employees).............................. 71
Nominal, Trend, and Real--Average Hourly Earnings (All
Employees, Total Private).................................. 72
Cost of the Average Monthly Electricity Bill................. 73
Cost of a Gallon of Gas...................................... 74
Cost of the Average Monthly Natural Gas Bill................. 75
Cost of Rent................................................. 76
Cost of Food................................................. 77
Cost of an Annual Physical with a Doctor..................... 78
Question for the Record for Dr. Josh Bevins submitted by Senator
Klobuchar...................................................... 79
Question for the Record for Dr. Josh Bevins submitted by Senator
Warnock........................................................ 79
Response from Dr. Michelle Holder to Question for the Record
submitted by Senator Klobuchar................................. 79
Response from Dr. Michelle Holder to Question for the Record
submitted by Senator Warnock................................... 81
Response from Dr. Sudip Parikh to Question for the Record
submitted by Senator Warnock................................... 82
BUILDING ON A STRONG FOUNDATION:
INVESTMENTS TODAY FOR A MORE
COMPETITIVE TOMORROW
----------
WEDNESDAY, APRIL 27, 2022
United States Congress,
Joint Economic Committee,
Washington, DC.
The WebEx virtual hearing was convened, pursuant to notice,
at 2:30 p.m., in Room G-01, Dirksen Senate Office Building,
Hon. Donald S. Beyer Jr., Chairman, presiding.
Representatives present: Beyer, Trone, Schweikert, Pocan,
and Beatty.
Senators present: Lee, Hassan, and Kelly.
Staff: Ismael Cid-Martinez, Chelsea Daley, Hugo Dante, Sebi
Devlin-Foltz, Ron Donado, Carly Eckstrom, Ryan Ethington,
Tamara Fucile, Devin Gould, Owen Haaga, Erica Handloff, Colleen
Healy, Jeremy Johnson, Adam Michel, Michael Pearson, Elisabeth
Raczek, Alexander Schunk, Nita Somasundaram, Sydney Thomas,
Ivan Torrez, Emily Volk, Brian Wemple, and Katie Winham.
OPENING STATEMENT OF HON. DONALD BEYER JR., CHAIRMAN, A U.S.
REPRESENTATIVE FROM THE COMMONWEALTH OF VIRGINIA
Chairman Beyer. This hearing will come to order. I would
like to welcome everyone to the Joint Economic Committee's
hearing ``Building on a Strong Foundation: Investments Today
for a More Competitive Tomorrow.''
I would like to thank all of our distinguished witnesses
for sharing their expertise today. We have an exceptional panel
of experts, and I am looking forward to hearing from them.
Two years ago the United States discovered its first case
of COVID. Since then, hundreds of thousands of lives have been
lost, and the Nation has experienced the worst recession since
the Great Depression. Virtually overnight, more than 22 million
jobs disappeared and the GDP cratered. This loss of life is a
national tragedy and we mourn the lives that were taken too
soon.
Today's hearing will focus on how our country is overcoming
the economic effects of the pandemic and the steps we can take
to ensure our economic health for the long term.
As we convene this discussion, our Nation's economic
rebound has exceeded all expectations. The American Rescue Plan
and other pandemic relief, including the successful
dissemination of vaccines have created a remarkably different
economic reality than the one we were facing at the start of
2021. To date, nearly 93 percent of the jobs lost during the
pandemic have been regained. The unemployment rate has fallen
to just one-tenth of one percentage point above its pre-
pandemic rate. And GDP has reached the fastest pace of job
growth in nearly 40 years.
President Biden has overseen the creation of 7.9 million
jobs, and 2021 set a record for the most new businesses ever
started. Far from guarantee, the speed and strength of the
economic recovery is a direct result of increased public
investment.
Thanks to the effort of this Congress and the Biden
administration, the United States has experienced the fastest
recovery among G-7 nations. In fact, it is the only major
economy who has recovered to its pre-pandemic economic growth
or what would have been absent from a coronavirus recession.
But the United States has not escaped the global spike in
inflation that is denying workers and their families the full
benefits of the recovery.
Global supply chain disruptions have pushed up prices
worldwide, and Putin's invasion of Ukraine is exacerbating the
effects of energy and food prices. We in Congress have an
opportunity to lower costs for workers and families, spur job
creation, and promote U.S. competitiveness now and for
generations to come.
Evidence shows the public investment in research and
technology drive innovation and boost productivity, which is
the bedrock of economic growth. Historically, U.S. economic
growth has been fueled by investments in science and technology
that were initiated and sustained by public funding.
For example, we all know about the public investment in the
Defense Advanced Research Projects Agency, DARPA, to help
support the development of the personal computer and the
Internet. Together, these growths in technologic revolution
turbocharged U.S. productivity and radically changed the way
people conduct their lives, not to mention the creation of
hundreds of thousands of new jobs.
The goal of our government is to drive broadly shared
economic growth, and ensure that the United States remains
internationally competitive. Public investment is essential for
this.
The recently passed bipartisan Infrastructure Investment
and Jobs Act is a down payment. It will address years of
inadequate Federal investment in critical infrastructure--
roads, bridges, broadband--to create jobs, enhance
productivity, and improve supply chain resilience.
The economy-wide benefits will reduce long-term
inflationary pressures. Congress should build on this
foundation and pass the Bipartisan Competition bills, drive
economic growth, and shared prosperity. The investments in
innovation, research, and manufacturing will boost our economic
capacity, create high-quality jobs in communities across the
country, and raise worker wages. And by promoting increased
efficiency among workers and businesses, the investments will
also lower costs. This is the long-term strategic structural
way to address inflation.
The bill's focus on racial, gender, and geographic
diversity and training and education will help ensure that
communities that have been historically excluded are able to
share in the benefits.
We have all experienced the many ways disinvestment in
American-made products has contributed to a recent supply chain
disruption, and the investments in this legislation will help
to shore up American supply chains and domestic manufacturing.
The pandemic shined a new light on inequality in this
country. It exposed underlying vulnerabilities in our economy
that are constricting our collective potential. We have an
opportunity now to lower out-of-pocket costs for families on
the biggest household expenses, while also paving the way for
economic growth in the longer term that is stronger, stabler,
and much more broadly shared.
As we dive into these issues, I look forward to the
testimonies of our expert witnesses. I would now like to turn
it over to Senator Lee for his opening statement.
Senator?
[The prepared statement of Chairman Beyer appears in the
Submissions for the Record on page 28.]
OPENING STATEMENT OF HON. MIKE LEE, RANKING MEMBER, A U.S.
SENATOR FROM UTAH
Senator Lee. Thank you, Mr. Chairman. Before the COVID-19
pandemic, pro-growth policies brought the American economy
roaring to life in a way that bigger government and more
central control never could. But while the strong economy
lifted up all Americans, historically disadvantaged groups
benefited the most. Unemployment for Hispanic Americans, Black
Americans, and Asian Americans fell to the lowest rates on
record. The unemployment rate for women dropped to its lowest
level in almost 70 years, and low-income workers saw their
wages rise at some of the fastest rates ever recorded.
All told, in the three years leading up to the pandemic,
poverty reached an all-time low. Real median income increased
by almost $6,000 per household, and the bottom 50 percent of
American households saw their wealth increase by over 70
percent.
The recipe for this broad-based prosperity was lower taxes
and less regulation. Today, after two years of mandates,
subsidies, and expert control, government has all but
eviscerated this strong foundation. Americans have been forced
to endure government's shuttering their livelihoods, schools,
and communities.
Measured against the pre-pandemic trend, 6.6 million
workers are currently missing from the workforce. These
Americans are missing out on not only the financial rewards of
the job, but also the community and purpose that come from
work.
In contrast with the pre-pandemic economy that especially
benefited low-wage workers and historically disadvantaged
Americans, these groups are again falling further behind, with
more government getting in the way, the middle class and low-
wage workers that are hurting the most.
Democrats' $1.9 trillion partisan spending has ignited the
worst inflation in four decades, inflation that is hitting my
home state of Utah harder than almost anywhere else. Even if
prices were to stop rising tomorrow and things were just held
in place as they are now, Utah families will have to pay nearly
$8,500 his year just to afford the same items that they
purchased at the beginning of the Biden administration--
according to the Joint Economic Committee's steak inflation
tracker.
Meanwhile, school closures have caused devastating learning
losses for the youngest and lowest income students. The Penn-
Wharton Budget Model estimates that these losses will weaken
our productivity and wages for the next 30 years. Unconditional
stimulus checks and explicit anti-work incentives have
increased the use of harmful substances at a time of
vulnerability for many Americans. Drug overdose deaths are back
to an all-time high, and suicides and alcohol abuse have also
spiked.
Lockdowns have triggered rising crime rates across the
country causing Americans to feel less safe in their
communities. The murder rate jumped almost 30 percent in 2020,
the largest increase ever on record. It is clear that so-called
investments from Washington have failed to produce the
prosperity the Biden administration promised. And many of the
proposals I hear from my colleagues will make problems worse--
much worse.
Plans to keep spending money that we do not have will pour
more fuel on the inflation fire. Tax hikes on businesses will
make it harder for Americans to innovate at home and harder to
compete abroad. And legislation that takes a clue from China's
state-directed economy, by federally commandeering research and
development here in the United States is the opposite of what
has made America the world's strongest and most prosperous
nation.
We will never beat China by becoming more like China,
never. We know what works. Before the pandemic, tax cuts and
deregulation supported a thriving economy, one that benefited
families and workers of all walks of life. The free market
system that prizes ingenuity and rewards people for using their
God-given talents in service of their neighbors resulted in
benefits for the Americans who needed it most.
After two years of policies that have assaulted and eroded
this strong foundation, I hope we can learn from our mistakes.
I hope we have learned that when we choose to remove government
barriers to Americans' creativity and freedom, families of all
types prosper.
Thank you.
[The prepared statement of Senator Lee appears in the
Submissions for the Record on page 29.]
Chairman Beyer. Senator, thank you very much.
I would like to introduce our four distinguished witnesses.
Dr. Josh Bivens is the Director of Research at the Economic
Policy Institute. His areas of research include macroeconomics,
fiscal and monetary policy, economics of globalization, and
social insurance in public investment.
Prior to becoming Director of Research, Dr. Bivens was a
research economist at EPI. Before that, an Assistant Professor
of Economics at Roosevelt University, and provided consulting
services to Oxfam America. Dr. Bivens has a Ph.D. in Economics
from the New School for Social Research and a B.A. from the
University of Maryland at College Park.
Dr. Michelle Holder is the President and CEO of the
Washington Center for Equitable Growth. Dr. Holder is also an
Associate Professor of Economics at John Jay College, City
University of New York, where she is currently on academic
leave. Her research focuses on the Black community and women of
color in the U.S. labor market. Before joining CUNY, Dr. Holder
worked as an Applied Economist in the nonprofit and government
sectors for a decade, and also served as Finance Director at
Demos. Dr. Holder earned a Ph.D. and an M.A. of Economics from
the New School for Social Research, an MPA from the University
of Michigan, and a B.A. in Economics from Fordham University.
Dr. Sudip Parikh is the Chief Executive Officer of the
American Association for the Advancement of Science, and
Executive Publisher of the Science Family of Journals. From
2001 to 2009, Dr. Parikh served as Science Advisor and
Professional Staff for the U.S. Senate Appropriations Committee
where he was responsible for negotiating the budgets for the
NIH, CDC, BARDA, and other scientific and health agencies.
Prior to joining AAAS, Dr. Parikh was Senior Vice President and
Managing Director of DIA Global. Before that, he was General
Manager of the Health and Consumer Solutions Business Unit and
Vice President at Battelle. Dr. Parikh earned his Ph.D. in
Macro Molecular Structure and Chemistry from the Scripps
Research Institute in La Jolla, California, and a B.A. in
Material Science from the University of North Carolina at
Chapel Hill.
Finally, Dr. Tyler Goodspeed is the Kleinheinz Fellow at
the Hoover Institution at Stanford University. From 2020 to
2021, he served as Acting Chairman and Vice Chairman of the
Council of Economic Advisors, after being appointed as a member
of the CEA by President Trump in 2019. In that role, he advised
the Trump administration's economic response to the Coronavirus
pandemic, as well as subsequent economic recovery packages. He
also served briefly as the Chief Economist--maybe not briefly--
for macroeconomic policy and senior economist for tax, public
finances, and macroeconomics at the CEA. Before that, Dr.
Goodspeed was a professor of economics at the University of
Oxford. He was a lecturer of economics at Kings College,
London. He was also an adjunct scholar at the CATO Institute.
Dr. Goodspeed received a B.A, M.A. and Ph.D. from Harvard
University, and is a Kleinheinz Fellow at the Hoover
Institution, Stanford University.
Dr. Bivens, we will hear your testimony, and then we will
continue in this order. Dr. Bivens, the floor is yours.
STATEMENT OF DR. JOSH BIVENS, Ph.D., DIRECTOR OF RESEARCH,
ECONOMIC POLICY INSTITUTE, WASHINGTON, DC
Dr. Bivens. Thank you so much. I would like to thank the
Chair, Vice Chair, and Ranking Member, and the rest of the
committee for the chance to talk today about building on a
strong foundation.
I am Josh Bivens, a macroeconomist and the Research
Director of the Economic Policy Institute. EPI is a think tank
whose mission is to make sure the economic fortunes of low- and
middle-income families are given their proper due in policy
debates. And I would like to make a couple of quick points in
the statement, and these are mostly fleshed out in the written
testimony I have submitted.
First, I think U.S. economic growth before the pandemic
over a span of decades was too slow and too unequal. Over each
successive business cycle since 1979, average growth slowed and
the share of income accruing to the bottom 90 percent of the
population declined. From this very broad overview, there does
not seem to be any tradeoff between equity and growth. Instead,
less equity has gone hand in hand with slower growth.
Second, overall growth clearly has been hampered by a
pronounced slowdown in public investment over that time period.
This contraction of public investment did not lead to more
private investment; instead, all forms of investment have been
weakened in recent decades outside of a pretty brief one-off
period in the late 1990s as the U.S. business sector connected
to the Internet. While there are some tools that hold some
promise to induce more private investment, they largely do not
include tax cuts for capital owners and corporations, nor a
broad-based assault on Federal regulations. Instead, what can
work to induce more private investment is to keep the economy
penned at full employment, make sure recessions are short and
recovery is rapid, and taking measures to incentivize
technology of the future like things that might boost private
investments in fields like clean energy. But of course the most
direct way to boost overall investment through public policy is
simply by undertaking more public investment in both shared
physical infrastructure as well as human capital and families'
economic security more generally.
Given the large rise in inequality in recent decades,
income growth for the middle fifth of households has lagged far
behind even the slower overall growth over this time period.
Crucially, the vast majority of growth for the middle fifth of
households could be attributed to the legacy of past rounds of
large-scale investments in social insurance. To say it more
plainly, without the influence of Social Security, Medicare,
Medicaid, income growth for the middle fifth of U.S. households
since 1979 would have been essentially stagnant.
Since the beginning of 2021, we have made a very good start
in trying to build a better post-pandemic economy. The first
order of business was undertaking the substantially more
ambitious fiscal policy response to the pandemic recession. The
result has been far more rapid jobs recovery since the end of
the pandemic recession when compared to some other previous
recessions.
However, stabilizing the economy after a shock is just a
necessary, not a sufficient condition for reversing the slow
and unequal growth of recent decades. A full reorientation of
policy to significantly boost incomes and economic security for
the vast majority requires continued public investments in both
infrastructure and people.
Blocking these investments in the name of fighting the
recent rise in inflation makes very little sense from either an
economic perspective or a policy perspective. Fighting
inflationary surges by throttling back demand growth is just
not a job that fiscal policy is nimble enough to do. There are
huge lags between the time when fiscal policymakers start
debating an issue, passing a bill to address it, and then it
gets implemented. Those long lags are why the Federal Reserve
is the Nation's first-line of defense against inflationary
surges. That division of labor makes a lot of sense.
The second reason why it makes little sense to block
proposed investment packages in the name of fighting inflation
is that most of these recent proposed public investment
packages are not fiscal stimulus. It is not meant to be a very
large surge of spending in the short run that boosts spending
and puts inflationary pressure on the economy; instead, the
spending is spread out over a long period of time. It is
gradual. It is meant to provide long-lived investment, not
fiscal stimulus. And many of the investment proposals put
forward recently have been fully paid for. So that would blunt
even the incredibly minimal inflationary pressure that spending
would put into the economy.
The final way I would say the evidence linking the
inflation of 2021 and early 2022 to sort of economic
overheating caused by too generous fiscal relief passed in the
wake of--passed in response to the COVID pandemic and the
American Rescue Plan specifically, is exceedingly weak. Just
the clearest reason why is; the inflation has been global. If
you look across countries, they did very, very different things
in terms of their fiscal response to COVID.
We were on the more generous end. Many countries did much
less generous fiscal relief, and yet the inflation experience
is about the same everywhere. So linking it to something that
specific just in the U.S. misses the global picture.
And finally, I will just end by saying that going forward
both the fiscal response to the COVID shock and further Federal
investments will make future inflationary outbreaks like we
have seen in the past year far less likely. This past year's
inflation has its roots in past policy failures, most
conspicuously the failure to invest enough in both fighting
recessions with proper force, and in building up the Nation's
full productive capacity.
Thank you so much for the opportunity to talk on this
issue.
[The prepared statement of Dr. Bivens appears in the
Submissions for the Record on page 31.]
Chairman Beyer. Dr. Bivens, thank you very much. We will
now hear from Dr. Holder. Dr. Holder, the floor is yours.
STATEMENT OF DR. MICHELLE HOLDER, Ph.D., PRESIDENT AND CHIEF
EXECUTIVE OFFICER, WASHINGTON CENTER FOR EQUITABLE GROWTH,
WASHINGTON, DC
Dr. Holder. Well thank you, Chair Beyer. And thank you as
well to Ranking Member Lee, Vice Chair Heinrich, and members of
the Joint Economic Committee for inviting me to speak today. It
is an honor to be here.
My name is Michelle Holder, as Chair Beyer noted. I am the
President and CEO of the Washington Center for Equitable
Growth, an organization that seeks to advance evidence-backed
ideas and policies that promote strong, stable, and broad-based
economic growth. I also serve as an Associate Professor of
Economics at John Jay College, which is part of the City
University of New York.
At Equitable Growth, we aim to understand how economic
inequality in all its forms affects growth and stability. The
evidence demonstrates the decades-long trends of increasing
inequality that hurts both families and the long-term
trajectory of the U.S. economy.
Making different policy decisions that support key public
investments in social and physical infrastructure can help
reverse inequality and make our economy stronger. Today I will
show how three pillars of robust government investment have
previously been and continue to be vital to promoting racial
equity and boosting economic growth.
The first pillar is ensuring a full and equitable recovery
from the COVID-19 recession.
The second pillar is revitalizing the manufacturing sector.
And the third pillar is strengthening the future by leading
on green energy.
Let's start with the recovery efforts. By passing the CARES
Act and the American Rescue Plan the government made key
investments to support workers and stabilize our economy. What
were the results?
For starters, the bounce-back in GDP was much quicker in
the U.S. than any developed country. While inflation is
elevated across the globe, as my colleague, Dr. Bivens, pointed
out, the U.S. has created more jobs and higher wages than most
developed nations. And the overall unemployment rate is now
close to its pre-pandemic level.
One of the more powerful policies that came from the
Federal Government's response was the expansion of the Child
Tax Credit. By providing families with monthly income support
to supplement their own earnings, the Enhanced Credit lifted an
estimated 3.7 million children out of poverty. It also helped
reduce racial disparities in household incomes, as poverty
rates fell drastically for Black and Latinx children. This type
of policy is a clear blueprint for success.
Building off this blueprint, government investments can
also make a positive difference for the manufacturing sector
that can once again be an engine for equitable economic growth.
There is strong precedence for this. Research suggests that
prior public investments in manufacturing, particularly during
World War II, had long-term positive effects on growth,
employment, and wages.
Historically, the manufacturing sector has been a path to
the middle class, especially for Black and Latino workers with
less formal education. While upward economic mobility has been
limited by racism, including discrimination and segregation,
manufacturing continues to play an important role in providing
good union jobs.
A recent Economic Policy Institute report finds that Black,
Latinx, Asian Americans, and Pacific Islander and White workers
without a college degree all earned substantially more in
manufacturing than in nonmanufacturing industries.
For instance, for median wage non-college educated
employees, both Black and Latinx workers in manufacturing
earned 18 percent more annually than in nonmanufacturing. The
problem is, manufacturing employment in the U.S. has been
steadily declining for decades, and productivity in
manufacturing has been slow. This decline has resulted in
significant earnings and employment losses, particularly for
Black workers, many of whom live in former industrial hubs.
We therefore have ample room for investments in
manufacturing. These can include, but are not limited to,
``R&D'' spending and equitable trade policies.
Finally, the third public investment pillar is
strengthening the future by leading on green energy. Recent
economic research demonstrates the importance of investment in
green energy. For example, Columbia University economist Joseph
Stiglitz demonstrates that investments in renewable energy and
energy efficiency typically have high multipliers. Meaning
initial investments generate additional economic activity over
time and thus delivers high returns. They also create more
jobs, including ones that cannot be taken offshore, such as
those in home energy retrofitting.
Moreover, according to recent research from Heidi Garrett-
Peltier, an economist at the University of Massachusetts
Amherst, for every $1 million in public investments in
renewable energy or energy efficiency, almost three times as
many jobs are created than if the same money were invested in
fossil fuels.
In conclusion, there is clear precedent and ample
opportunity for government investments to promote growth and
address the harmful consequences of economic stratification in
our Nation. To make the U.S. economy more resilient and
equitable, we need to build off the strong foundations of the
current recovery and continue to make robust investments,
especially in manufacturing and green energy.
Thank you.
[The prepared statement of Dr. Holder appears in the
Submissions for the Record on page 42.]
Chairman Beyer. Dr. Holder, thank you very much. We will
now hear from Dr. Parikh. Doctor, the floor is yours.
STATEMENT OF DR. SUDIP PARIKH, Ph.D., CHIEF EXECUTIVE OFFICER,
EXECUTIVE PUBLISHER, SCIENCE FAMILY OF JOURNALS, AMERICAN
ASSOCIATION FOR THE ADVANCEMENT OF SCIENCE, WASHINGTON, DC
Dr. Parikh. Thank you, Chairman Beyer, Ranking Member Lee,
and members of the Committee. Thank you for inviting me today.
I am a biochemist and not an economist, so I want to talk
about the future in a slightly different way. I would like to
ask a simple, hopefully rhetorical, question, which is: Do we
want to be the Nation that discovers, develops, and
manufactures the economic, environmental, and health advances
of the future? Or do we want to be a nation that lags in these
critical areas while we attempt to buy solutions from at best
friendly competitors or, at worst, geopolitical adversaries.
In the 1800s, Europe was the center of gravity for
scientific discovery. English scientist Michael Faraday was
describing an electricity-related discovery to Parliament, and
future Prime Minister William Gladstone asked: What use is it?
And Faraday supposedly replied: I don't know, but there's every
probability that you'll soon be able to tax it.
He was right. The discovery of electricity marked an
inflection point in history. It opened entirely new fields of
technology and improved the well-being of humanity, leading to
everything from the light bulb to the Internet. It also grew
the economy in ways that we never imagined.
Now today we stand at the cusp of similar inflection points
in many science and engineering fields. Just three weeks ago,
scientists at the Fermilab in Illinois reported that the W
boson, which is a fundamental particle, weighs more than was
predicted by the Standard Model of Physics. Now you may ask
what that means.
If this finding is repeated and verified, it means that
there is a completely new frontier of physics for us to
discover beyond what is currently known. It can be a discovery
that parallels Benjamin Franklin's epiphany that the sparks
that he could make on earth were caused by the same phenomenon
as lightning in the sky. A little bit more expensive than a
key, but it is the same kind of thing.
And someday it could lead to entirely new parts of the
economy that you might even be able to tax. Now even if this
discovery does not pan out, we are at similar inflection points
in the fields of artificial intelligence, quantum computing,
synthetic biology, gene editing, space travel, and more. We are
at the cusp of revolutions in multiple sciences at once, with
potential implications for our economy that could be as game
changing as electricity.
Now for over 75 years we have followed a recipe that has
grown our economy in ways that you could not have thought of at
the beginning of the 1900s--investments in research at the
Department of Defense, NIH, NSF, and 20 other Federal agencies,
coupled with complementary investments by industry have driven
transformative innovations. And investments in R&D have led to
sustained bursts of economic activity, bursts of exponential
growth in new industries that have led to good jobs across the
spectrum. Now this recipe has been so successful that other
nations have copied it. Increasingly with even more vigor than
us.
Now the time has come for us to redouble our efforts and
build on our strengths and show the world again what American
intellect, ingenuity, investment, and risk-taking can
accomplish for the benefit of all Americans. So today I would
like to make three recommendations to ensure that we continue
to lead the world in scientific discovery and deliver it to
benefits to all.
The first is to provide robust investment in research and
development across a broad range of disciplines and
geographies.
Second, we should be investing in our people to ensure that
we are drawing upon the talents of all Americans in our
scientific research, and that all Americans benefit from our
investments.
Third, we need to balance a portfolio of R&D investment
that includes short-term incremental research, translational
research, and high-risk/high-reward research that, if
successful, can change lives and revolutionize the economy.
I provide a lot more detail about these recommendations in
my written testimony, but it is important to remember that the
world is not standing still. Remember that the extraordinary
result I talked about from scientists at Fermilab that might
change our fundamental understanding of physics, well the
instrument where that data was collected was decommissioned
several years ago. So the verification of that result is not
going to come in the U.S. It will have to come from the cutting
edge instruments of today which are based in Europe and Asia
and not in the U.S.
In the last 20 years, the U.S. R&D expenditure from all
sources, government and industry, has only grown at the rate of
3.1 percent annually in constant prices. This investment has
been eclipsed by the meteoric 14.3 percent annual rise in
China's R&D expenditure over the same period, as well as more
robust investments by many others. Look, no nation on earth is
more responsible than the United States for getting us to the
cusp of inflection points in so many scientific disciplines,
inflection points that can create step changes in economic
growth and human well-being.
The decisions that we make today on where and how to invest
are going to determine whether we will make the discoveries and
translate the science into health and prosperity, or whether
someone else will, or whether, worst of all, no one else will.
So will the advances that change the world come in Chicago, in
Shanghai, or nowhere?
Recognizing our potential, I remain optimistic that we are
going to rise to the challenges, and I stand ready to work with
you and look forward to your questions. Thank you.
[The prepared statement of Dr. Parikh appears in the
Submissions for the Record on page 54.]
Chairman Beyer. Dr. Parikh, thank you very much. And now
let me finally recognize Dr. Goodspeed for his testimony.
STATEMENT OF DR. TYLER GOODSPEED, Ph.D., KLEINHEINZ FELLOW AT
THE HOOVER INSTITUTION, STANFORD UNIVERSITY, STANFORD, CA
Dr. Goodspeed. Thank you, Chairman Beyer, Ranking Member
Lee, Vice Chairman Heinrich, and members of the Committee. I
served on the Council of Economic Advisors from 2017 to 2021,
including as Acting Chairman of that Council from 2020 to 2021.
I am now a Kleinheinz Fellow at the Hoover Institution at
Stanford University.
I wanted to take this afternoon to reflect on the economic
recovery from the two most recent U.S. recessions, and the
lessons from those recoveries for prospective economic policy.
So the labor market recovery from the 2007 and 2009 global
financial crisis was the slowest in post-war U.S. history,
taking 77 months to recover the jobs lost during the recession,
compared to a post-war average of 23. And when the Council of
Economic Advisors studied this unprecedentedly slow recovery,
we observed two historical anomalies.
First, the contribution of capital intensity to labor
productivity growth actually turned negative. That means that
firms' investment in new plants and equipment per worker was
insufficient to keep pace with the depreciation of existing
capital plants and equipment per worker.
Second, despite ongoing population growth, the prime age
labor force in the United States--those between the ages of 25
and 54 either employed or actively looking for work, shrank by
1.6 million workers from the start of the recovery in July 2009
through the end of 2016.
So it was in response to this phenomenally slow recovery
that in 2017 to 2019 the U.S. Government implemented an agenda
of tax and regulatory reform designed to lower the cost of
domestic business investment, including in domestic energy
production, and to reduce tax expenditures and reinvest those
revenue savings into marginal personal income tax rate
reductions in order to encourage increased labor force
participation. And the results are quite striking.
So whereas between July 2009 and December 2016 the prime
age labor force shrank by 1.6 million workers, from January
2017 through December 2019 the prime age labor force actually
increased by 2.3 million workers. Real inflation adjusted wages
for the bottom tenth of the wage distribution rose 10 percent
during that period, compared to 5 percent for the top tenth of
the distribution, the exact opposite pattern of what prevailed
from July 2009 through the end of 2016. And real median
household income in the three years from 2017 through 2019 rose
by more, $5,900 bucks, than in the entire 20 years from 1996 to
2016. So as a result, wages, income, wealth equality declined,
labor share of income rose.
Now that is where we were on the eve of the COVID shock,
which the Organisation for Economic Co-operation and
Development projected would result in a 12 percent decline in
U.S. output over the four quarters of 2020. And the
congressional Budget Office projected that the unemployment
rate would end the year above 10 percent.
Instead, the unemployment ended the year at 6.7 percent,
and even the broadest measure of labor market underutilization
had declined to 11.7 percent, which was lower than in August
2014. So by December 2020, the U.S. had recovered 55 percent of
the job losses of March and April 2020 and the U.S. economy had
recovered 78 percent of the decline in the level of output.
So it was in the face of this 11-month-old recovery, that
Congress in March 2021 passed a fiscal stimulus equal to 9
percent of the U.S. economy, with the immediate effect that
demand for goods increased 10.7 percent month over month in
March 2021. That was a huge increase in demand, at the same
time the supply side was still recovering. And furthermore,
some of the provisions in that package actually further
impaired the supply side recovery by raising implicit marginal
tax rates on the return to work, and introducing some business
tax uncertainty.
As a result, whereas in the 12 months through February
2021, inflation had risen by less in the United States than in
the Euro area. Since February 2021, the increase in the rate of
inflation in the United States was five times greater than in
the Euro area, using a harmonized index of consumer price
inflation to compare apples to apples. Therefore, explanations
of high U.S. inflation that are global in nature, semiconductor
shortages, supply chain disruptions, cannot explain all or most
of the increase in inflation in the United States-because
inflation has risen by so much more here than in other advanced
economies. And as a result, sector-specific investments and
subsidies are unlikely to resolve inflationary pressure that is
fundamentally macroeconomic in nature.
Rather, I think the lesson of recent recoveries from
recessions in the United States is that we should ensure a
broad-based incentive to domestic capital formation and labor
force participation. The lesson from 2017 to 2019 is that this
is the policy recipe for generating strong and longrun and
sustainable economic growth that delivers real gains across the
income distribution.
[The prepared statement of Dr. Goodspeed appears in the
Submissions for the Record on page 64.]
Chairman Beyer. Dr. Goodspeed, thank you very much. We have
heard from our witnesses, and now turn to questions.
Let me start with Dr. Bivens. In your recent testimony you
say many continue to insist that the American Rescue Plan is
the root cause of recent inflation--in fact, we just heard this
from Dr. Goodspeed--that that hence any further fiscal policy
interventions should be blocked in the name of reining in this
inflation. And these arguments rest from extraordinarily flimsy
evidentiary grounds.
Dr. Goodspeed has postulated that the inflation is
fundamentally macroeconomic in nature, which in my
interpretation means too much money. The unemployment
insurance, Child Tax Credit, and the like.
Dr. Bivens, why is this argument false? Why is this not
true?
Dr. Bivens. As I sort of mentioned in my statement, and
which is in my testimony, the rest of sort of--for countries we
have data on what the fiscal response to COVID was, kept by the
IMF from their fiscal policy data base where they measure
countries' response, there is no relationship between the size
of the fiscal response and the acceleration in inflation those
countries have seen in the past year relative to the pre-
pandemic.
And so any idea that we can sort of pin the uptick in
inflation we have seen in the U.S. on specific pieces of
legislation particularly, I just do not think it is there,
because we can do that using the IMF data on fiscal policy
response and inflation. And then I think there are plenty of
other reasons to think it is not just a simple imbalance of
supply and demand. I think there is lots of distortions that
the pandemic imposed on the U.S. economy and the global economy
that can account for a lot of the common inflation experience.
And then finally I would just say there is an argument
about the past. It is good that we have it. We should
understand what happened. Then there is an argument about
what's--going forward, and the sort of investment packages that
have been proposed in Congress in recent months. Those are very
different from the fiscal stimulus that was passed earlier in
the year. Whatever you think about the American Rescue Plan, it
was meant to be stimulus. It was meant to be entirely front-
loaded and to provide a real sort of burst of spending in a
very short period of time. The proposed investment packages
largely in front of Congress, they do not do that. They are
much more gradual, much less of the spending hits in the first
year. They are meant to be a near-permanent increase just in
the level of public investment that is done. So even their
spending will have much less inflationary effect. And then many
of the proposals come with pay-fors that will raise revenue and
that will further blunt even the very minimal inflationary
impact that might come from the spending.
So I think the analysis of why do we have inflation so far,
linking it to the American Rescue Plan, is pretty flawed, and
then I think even if you believed that, that has very little
relevance to the debates about whether or not we should do
long-lived investment plans which are different than the
stimulus that people are talking about in terms of past fiscal
measures.
Chairman Beyer. Thank you very much.
Dr. Holder, you wrote and spoke that employment gains made
by Blacks, women, and Latino workers suggests that the recovery
efforts in the past usually come to them last. And in this
recession, it hit a much quicker pace than previous recessions.
What part of our Rescue Plan so far has helped the people who
need it most?
Dr. Holder. Yes. Thank you for the question, Chair Beyer.
So I will talk about the American Rescue Plan. Now that piece
of legislation helped an average of over 500,000 jobs per month
through the end of 2021, for a total of 6.1 million new jobs in
2021.
As my colleague, Dr. Bivens, just noted, the American
Rescue Plan was a fiscal stimulus meant to encourage and to
support increased demand for goods. And by doing that, the
natural result would be job creation. And so ARP precisely
reached that goal of increasing demand, stimulating demand, and
thereafter leading to job creation.
And by comparison, that level of job creation, half a
million jobs per month, eclipses monthly job growth after the
Great Recession, our last cyclical downturn, which job creation
averaged just about 130,000 jobs a month from 2010 to 2011.
Economic evidence suggests that success also extends to
wages. Wages are increasing for those who have historically
been left behind during past recoveries. Using the Atlanta Fed
Wage Growth Tracker, we see younger workers saw a 9.7 percent
wage increase, and the bottom 25 percent of earners saw a 5.1
percent raise. Workers with a high school education and those
at the bottom of the income distribution all saw wage growth
stronger than average for a recovery period.
This is still true when you account for the effects of
inflation. Multiple sources find that around the bottom 70
percent of workers had real hourly wage increases over the past
two weeks. While there is still much work to be done such as
the CARE sector which is currently lagging behind, it is clear
that the recovery efforts have been a boom to working families.
And I will end by saying actions such as the Economic Impact
Payments, the Supplemental Unemployment Insurance Payments,
$350 billion in funding for state and local governments to save
jobs and sustain aggregate demand in the face of budget
shortfalls, and other measures were vital to supporting
families as the economy recovered.
Chairman Beyer. Thank you, Dr. Holder, very much.
My time is up. I am hoping we have a second round because,
Dr. Parikh, I want to get back to you on the boson before we
go.
So we have the good Senator from Utah, Senator Lee.
Senator Lee. Thank you.
Dr. Goodspeed, President Biden and many of my colleagues
here claim that inflation is primarily the result of two
things. First, Russia's war on Ukraine. And secondly, corporate
greed. But you noted in your testimony that inflation was
caused by the Federal Government flooding the economy, and
doing so with more than $5 trillion of spending at the same
time that politicians were trying to keep our businesses closed
and actively disincentivizing work.
Now Dr. Bivens argues that the evidence linking inflation
to fiscal stimulus is, quote/unquote, ``exceedingly weak.''
Can you break this down for us? To what extent is inflation
the result of some combination of corporate greed and Putin's
aggression on the one hand, and on the other hand to what
extent has inflation been triggered by excessive fiscal
stimulus?
Dr. Goodspeed. Thank you, Senator. So I think that the
important thing to do is to have an appropriate control group.
And that is why in my testimony I pointed to the Euro area,
which is another large advanced economy, globally integrated.
And, yes, there was fiscal stimulus across advanced economies
in 2020. The key divergence occurred in 2021, and specifically
March 2021, and that is why I think it is an observation that
must not be ignored that in the 12 months through February
2021, inflation in the United States averaged 1 percent.
Inflation in the Euro area averaged 1.1 percent. Since February
2021, the increase in the rate of inflation in the United
States has been more than five times that in the Euro area, and
that preceded the invasion of Ukraine by the Russian
Federation.
Senator Lee. That makes sense to me. It seems like a very
good control group, and I think that backs up your answer.
Dr. Goodspeed, as you pointed out, the economy delivered
widely shared prosperity for Americans prior to the pandemic.
In 2019, the real median household income grew by a record 6.8
percent. And this took us to an all-time high of nearly
$69,000. Poverty, meanwhile, fell to a record low for Americans
across every race and every ethnicity.
Now some analysts have claimed that our prior economic
achievements were simply a natural continuation of the roughly
decade-long recovery from the Great Recession, and that workers
would have been even better off had the government spent and
regulated more during the years between 2008 and 2020.
Do you think that alternative narrative is correct? And
what do you think we can learn from the pre-pandemic economy
that might be applicable today?
Dr. Goodspeed. Right. So first of all, one can estimate a
trend in various macroeconomic indicators during the expansion
period from July 2009 through the end of 2016.
You can project those trends into 2017, 2018, 2019, and
there was a huge out-performance relative to trend. But you do
not have to take my word for it on that. Just look at what the
Congressional Budget Office, the nonpartisan congressional
Budget Office, was projecting in their final projection in
2016. And relative to those projections, the U.S. economy
through the end of 2019 added 5 million more jobs than
projected. And in the first two months of 2020 alone, the U.S.
economy added more jobs, almost half a million, than the
Congressional Budget Office had previously projected for the
entire year.
GDP, the gross output of the United States' economy, was
$300 billion, or 1.2 percent larger, and the unemployment rate
was 1.4 percentage points lower. So I think that this was an
out-performance relative to trend and relative to forecast. And
I think the lesson to be learned is that when you have in place
broad-based incentives, as I pointed out earlier, increased
domestic business investment and increased labor force
participation, then you observe gains across the board. And in
fact we saw, as I said, not just the bottom tenth of the
distribution doing better than the top tenth, we saw wealth
inequality decline. We saw workers wages rise faster than
managers' wages. And that was a complete reversal from the
trends that were underway pre-2017.
Senator Lee. Thank you. That is helpful. As I mentioned in
my opening comments, I am a little bit worried about the fact
that both the House and the Senate have passed different bills
in the direction of industrial policy to the tune of $250
billion to $400 billion in Federal spending.
Do you think going down that path, the path of state-
sponsored industrial policy, is the best way to help us achieve
long-term economic growth? And what do you think the
consequences of that would be?
Dr. Goodspeed. Well, it has not worked in the past, and I
might suggest that you just ask the United Kingdom or France
circa 1970s.
Senator Lee. Right. Thank you. I see my time has expired.
Thank you, Mr. Chairman. Thank you, Dr. Goodspeed.
Chairman Beyer. Thank you, Senator, very much. Let me
recognize our distinguished Congressman from Madison,
Wisconsin, Mr. Pocan.
Representative Pocan. Thank you very much, Mr. Chairman.
And thanks to all of our panelists today. You are appreciated.
It seems odd that we have had record fast recovery. We have
got job creation and low unemployment. Because of quality
science, we are largely leaving the COVID era. The COVID
hangover is done. Yet inflation right now for people seems to
block all of those really good things that have happened. The
Rescue Plan, as Dr. Bivens talked to us, we have money in the
economy, the Infrastructure bill and the more long-term way to
put money into the economy.
But what I just heard was that inflation, according to
Democrats, is because of the war in Ukraine, which certainly is
having an additional impact on gas prices and on corporate
greed, which I am going to ask about in a second, but I have
been a small business owner since I was 23 years old, since I
had a pretty full head of hair, a long time ago, and I can tell
you what I found is when everything reopened last year, here in
the country and around the world, because we do not make enough
things in the United States, and because everywhere stopped
production, there was a lot of demand for everything at once.
Scarcity. Scarcity drives up the cost of goods, and we are all
paying more. There were three steel increases last year. I had
one this year. And I just got a new one that went up 11 percent
again on purchasing steel.
So I guess the questions I have, Dr. Bivens, let me start
with you, I mean this question of corporate profits, I went to
your website and I saw you have got some stuff there. Can you
talk a little bit about corporate profits and inflation? And
can you talk about the fact that we don't make things here
anymore? And we have lost that control, and how that effects
inflation in particular?
Dr. Bivens. On the corporate profit issue, I mean just as a
matter of decomposing what has driven in an accounting
framework, sort of the rise of prices and sort of the
nonfinancial corporate sector. We have data that lets us do
that.
During normal times, labor costs are supposed to contribute
about 60 percent of the costs; profits about 15 percent. If you
look at sort of the trough of the pandemic recession until now,
labor costs are only contributing about eight percent. Normally
it is 60. Corporate profits are well over 50 percent. It is
supposed to be 15, one-five. And so it is clearly the case that
it is sort of thicker profit margins that are in an accounting
way the much bigger thing driving price increases. What does
that mean? I mean to my mind it means a couple of things.
One, there were some extreme distortions imposed on the
economy by the pandemic, and basically a huge swing away from
services into durable goods. Take the example of used cars. A
lot of people moved to the suburbs, no longer take public
transit to work. They have to get a car. A huge demand in this
narrow sector of used cars. Just the supply chain snarls that
are also driven by the pandemic made it really hard to deliver
those used cars. If you were a dealer who had cars on your lot,
you made out like gangbusters, and so your profit margins went
up.
And so I think it is mostly those pandemic distortions that
have channeled corporate power into price increases this time.
And then I think, you know, I just talked about the supply
chain snarls being a forcing factor there. Yes, I think a lot
of those snarls are because over the past couple of decades we
have chosen a mode of production to just make sure the
component is always produced in the absolute cheapest place
possible, without trying to build any resiliency into the
system. And so I think that has led the companies to spread out
things in ways that made supply chains very fragile because
they were way too myopic. And I think that is a big problem,
and I think we also just did not do the public investment in
the basic infrastructure that would have provided more
resiliency, too. So I think all those things add up to the
perfect storm of inflation that we have.
Representative Pocan. And if I can in the minute and ten
seconds or so I have left, specifically gas and food. Those are
the two biggest things I am hearing wherever I go. I remember
when gas prices went up last March when Texas did not invest in
their grid and they had cold weather and suddenly power went
out and prices stayed up. And, yes, they have gone up again
because of what is happening in Russia and Ukraine. But they
maintained that level for a long time, and also on food prices.
Can you talk just a little bit about gas and food in 46
seconds?
Dr. Bivens. I will try. So the gas and food prices tend to
always be volatile. There is very little you can do in the very
short run with macro policy to tamp them down, and you probably
should not try. You will just cause more collateral damage if
you do.
People forget. They also do go down. They really do,
eventually. And so that is the only sort of word of comfort.
And I do think there is some suggestive evidence that they do
not necessarily go down quickly enough after a spike, and that
could actually be some manifestation of corporate power, and
even some price gouging. And so to the degree that regulatory
agencies should keep an eye on that, and to make sure that
prices go down as input costs go down, I think that is
something to think about for sure.
Representative Pocan. I appreciate it. I yield back, Mr.
Chairman. Thank you.
Chairman Beyer. Thank you, Mr. Pocan, very much. I will now
recognize my friend from Arizona, Doctor--Congressman
Schweikert.
Representative Schweikert. Thank you, Chairman Beyer.
Interesting witnesses. Some bizarre statements, and
particularly in some of the writeups, but I guess it is not
polite to take shots at each other's witnesses. And
particularly one of the witnesses--and forgive me if I
mispronounce the name--Dr. Parikh really, really appreciate the
discussion and fixation on disruption and technology leaps, and
what that means to future prosperity.
I almost wish I could convince Don to have a discussion of
what a disruptive competitive economy embracing technology
would mean for productivity, for the wealth of the working
poor, those things.
But, Mr. Chairman, I have a number of charts and reports I
wish to put into the record that basically show--and it's graph
after graph after graph that the Democrats on your spending
binge from last March, and you can actually see on charts. Here
is one on rents, on fuel, on food, that basically you see the
charts just blow up after March of last year. So with your
permission, I would like to submit those for the record.
Chairman Beyer. Without objection.
[The graphs of Representative Schweikert appear in the
Submissions for the Record on pages 70-78.]
Representative Schweikert. Dr. Goodspeed, sometimes the
simplest chart actually explains the story. I am holding one
here that basically is inflation and real wages. So real
purchasing power for the working poor, the middle class, and it
shows, as you see that alligator mouth expanding, it shows you
that the fact of the matter is the brothers and sisters in this
country are getting poorer every single day. And the math is
the math. I mean I know our friends desperately want to run
away from this, but the math is the math. They are getting
poorer every day, and it is because of fiscal policy, and
probably 50-50. It is half the Federal Reserve built a pile of
kindling, and a year ago we threw a flaming log on it.
I turn to you, Doctor, and said from a policy standpoint
what could we do right now to spike productivity so we would
make more things? So there would be more goods and services to
purchase, maybe tapping down inflation? Are there things we
could do to encourage people to move money into their
retirement funds to remove liquidity?
What could we as Congress do right now to do some
mitigation of this inflation monster that is really hurting
retired people and working people in the country?
Dr. Goodspeed. Well thank you, Congressman. And, yes, I
think you are quite right to point out that real wages--wages
have been struggling to keep pace with inflation. And
historically that is what happens, because wage contracts tend
to be negotiated at lower intervals than other prices, and so
real wages for average American workers have been declining.
I think that there are a number of things that Congress
could be doing now. One would be to help make up for the large
cumulative shortfall in business investment in the United
States that has accumulated since the start of the pandemic.
Introduce some business tax certainty so that firms have an
incentive to invest in more plants and equipment in the United
States. Because right now there has been a lot of uncertainty
both in the direction of the statutory corporate income tax
rate, but also on the question of whether or not the full
expensing of new equipment investment will be extended.
Representative Schweikert. Doctor, right there on that
subject. You say, okay, expensing right now, I think this year
we fell to what, 80 percent of the purchase. And then if you do
inflation, the costs of the new productive piece of equipment,
it is actually--you know, if it has gone up 20 percent, you are
looking at a 40 percent margin. You have to have a very
substantial step up in productivity for that capital investment
to actually have value.
From a policy standpoint, what if we did a--we put
expensing back to 100 percent, but you do not get it until the
productive piece of equipment is in production, is actually
producing? What would you do?
Dr. Goodspeed. Well, without getting into the technicals, I
think that some certainty over the longer run direction of
expensing is one way to now increase business investment not
only in equipment but also I would consider expanding it to
other asset types. In addition, I would be looking to provide
some regulatory certainty for domestic energy production. And I
would provide some certainty on the future direction of
marginal personal income tax rates to help encourage workers to
return to the labor force because we are still well below pre-
COVID levels of labor force participation.
Representative Schweikert. I appreciate that, Doctor. I
think on the energy hydrocarbon production, unless we get
something cleaned up on the capital stack and the regulatory
threat there, I am fearful we are going to continue to fall
further behind in energy.
Mr. Chairman, thank you. I yield back.
Chairman Beyer. Thank you, Mr. Schweikert. Now let me
recognize my friend from Maryland, Congressman Trone.
David, I think you are muted.
Representative Trone. Okay, are we on, Mr. Chairman? Thank
you, Mr. Chairman.
Dr. Bivens, in your testimony you talked about ambitious
fiscal policy response to the pandemic recession to help pave
the way for a stronger recovery. I always see big investments
of the American Rescue Plan, nationally, locally. We are proud
to have a $60 million funding in the American Rescue Plan to
the Mental Health Association and Addiction in Maryland, which
helps Marylanders. What investments can we make to help provide
resources for individuals who are working toward recovery, and
those entering the workforce after they have sought treatment?
Dr. Bivens. That is a really good question. I would say, so
I am not an expert in that sort of human services investment. I
do think the great thing about the American Rescue Plan, or one
of the great things about it, was it gave a lot of flexibility
to state and local governments, along with substantial
resources, in order to let them expand those investments. But
in terms of the specific ones we should make and the research
on that, that is not my sort of wheelhouse of expertise.
Representative Trone. Okay. Any idea of how to highlight
these on a state and local level?
Dr. Bivens. No great ones. I mean I would definitely say,
one thing I appreciated as well about the fiscal relief that
was included in the ARP to the state and local governments was
the Treasury Department provided a set of guidelines about what
that aid could be and should be used for. And it sort of
prioritized things that really would be investments in
historically disadvantaged communities, investments in
economically distressed communities were really high on the
list of things they urged state and local governments to invest
in.
It sounds to me, as a nonexpert, like those sorts of
investments absolutely fit the bill. It discouraged things
like, it actually forbade just tax cuts across the board. And
so it really urged state and local governments to make those
investments targeted. How well each state is doing is probably
subject to a ton of areas.
Representative Trone. Okay, to jump over to Dr. Parikh, in
your testimony you highlighted the importance of diversity in
scientific research. In Maryland, high school graduation rates
were on the rise, especially in underrepresented communities.
So unlike their peers, the underrepresented students face
additional barriers to higher education that is typically
required for a STEM career.
So what do we do to level the playing field for students of
all backgrounds? And what role do career training centers play
in bridging that gap?
Dr. Parikh. Thank you, Congressman, for that question. We
have to start very early, but we have to be able to--if we are
to level the playing field, we have to make up for a whole
bunch of challenges that have built up over time. And that
means starting very early with education around science and
math and engineering with kids that are even pre-kindergarten
who can be excited about math. There is a program in Chicago on
the South Side of Chicago that gets young boys and girls on the
south side of Chicago interested in algebra in the 5th grade.
And it has over 600 alumni that are populating companies like
Boeing, and elsewhere, terrific engineers. It shows that at the
small scale we can do this. We just have to scale up those
kinds of programs to get these kids there.
Representative Trone. Our competitors like China and India,
are they starting this early?
Dr. Parikh. They are starting extremely early. I will tell
you, I can tell you from my own personal family experience that
if you are a young child in India, being an engineer or being a
doctor is part of the culture. It is part of what we are
teaching--of what is being taught to kids that they are going
to become. And we have got to be doing that here. We have to
set people's expectations to be that high.
Representative Trone. U.S. global research, when you see 39
percent of it, Doctor, now we are down 30 percent and we are
heading the wrong way. What are your thoughts about career
training in this area, trying to get world class talents?
Dr. Parikh. We have got to make sure that we are pulling
talent from the Central Valley of California, from the
Appalachia area, from the Mississippi Delta, and from Palo Alto
and from Cambridge. We have got to be pulling all of our
talent. Because, look, there are 1.4 billion people in China
and there are 330 million people here. We are not going to win
this on just sheer numbers.
We have this amazing diversity of thought and diversity of
experience that comes from the fact that we are a remarkably
diverse nation. And we have high achieving scientific minds in
every one of those places. We have got to pull from every one
of those areas, and also----
Representative Trone. How about if anybody who came here to
our country to study if we gave them a path to citizenship?
Dr. Parikh. We are--we have been on record saying that it
would be very important for having scientists who come here to
train, that if they stay here and they want to be Americans
that we should provide a path.
Representative Trone. I yield back, Mr. Chairman.
Chairman Beyer. Thank you, Mr. Trone, very much. Votes will
be here in about 15 minutes, so we have some more time and I
would love to start a second round for anybody who is with us.
Let me begin. First, Dr. Parikh, thank you for bringing up
the heavy W boson. I had not heard that yet, and I am anxious
to hear how we tax it. In the meantime, I know in your AAAS
role you know how exciting it is what is happening on the
fusion side. As we think about a limitless source of energy,
what it can do to economic growth, to poverty, and of course to
climate change in the immediate future.
And by the way, this is more than a trillion dollars just
for fusion. So how does the long-time horizon, the nonstimulus
nature so that there is the infrastructure bill, how does that
play out over the economy? Is it better, or worse as an
investment?
Dr. Parikh. It is an incredible investment. Because what
happens--and we have seen patterns of this throughout history--
is that in certain areas we get to an inflection point. Fusion
is one of those areas. Fusion has always been--the joke has
always been it is 40 years away. And that we are not quite
there.
But those are remarkable amounts of energy right now in the
private sector and the public sector moving toward sustainable
energy production by fusion. There are public companies that
are getting investment, and that hope to have inputs and
outputs equal by the end of the decade. Now that would be a
remarkable achievement. That is harnessing the power of the sun
here on earth and getting just as much energy out as you put
in.
Now the government is doing that. There are governments
around the world working on it. And what it shows is the power
of the American ecosystem. We have financial capital. We do
have world beating companies that are working on fusion.
We have the U.S. investment in ITER, which is in Japan. We
have got an incredible amount of talent that comes together in
this ecosystem of public and private sector that if anybody can
do it, I put my money on us.
Chairman Beyer. Thank you very much.
Dr. Bivens, I was struck this afternoon by the different
fact sets, figure sets, data sets we have on the past. I
respect Dr. Goodspeed's many different charts and analyses, but
I am having trouble reconciling some of them with at least the
facts that I have read. How can it be that the bottom 10
percent grew more quickly, their incomes, than the top 10
percent when almost all of the Tax and Jobs Act went to the top
10 percent? And when the wealthiest two individuals in America
have more assets than the bottom 50 percent combined?
How do you put those together?
Dr. Bivens. I think there is something important there, and
there are two separable questions, which is: What is the state
of the macro economy and the business cycle and labor market
tightness versus what is the policy doing to either contribute
to that or to do things outside of that?
And so I totally agree that 2017, 2018, and 2019 were
actually quite good years from a business cycle perspective. I
disagree, like I think it really was just a continuation of
trend. I think what really was the sort of game changer in
2017, 2018, 2019 relative to what the CBO predicted beforehand
was the Federal Reserve who for the first time in a long time
said, you know what? We are going to let unemployment fall
really, really low without preemptively stopping the recovery.
And so I think those were pretty very good years, low
unemployment, lots of gains including for low-end workers, and
so reinforces to me the value of low unemployment is really a
good thing and something policymakers should always target.
Then the question becomes: Did the Trump administration
policies do anything to lock that in and make it happen faster,
secure it for a longer time? And to my mind, the answer to that
is absolutely not, for the reason you said. Their signature
policy achievement was a tax cut for owners of capital.
So the direct benefits went to the richest households. It
did almost nothing to boost economy-wide investment, which was
its sort of stated rationale. So I think it is true that tight
labor markets are really good for workers, particularly
historically disadvantaged workers, and we had tight labor
markets in 2017, 2018, and 2019. I just do not think the Trump
policies were the reason why labor markets were tights. I think
it really was just a continuation of trend, along with the
change, and admirable change, in Federal Reserve policy that
allowed that to happen.
Chairman Beyer. And despite all that, even with the Tax and
Jobs Act, we never did get the 3 percent growth. In fact, I
believe that growth in 2019 before the pandemic was 2.3
percent, which was, you know, like what it was in 2014.
I mean, I am not bragging on how fast things grew. They
grew too slow.
Let me--I should move on because the clock has turned
green, but Mr. Schweikert, are you still with us?
[No response.]
Chairman Beyer. Actually, he abandoned us. So I will keep
going. Please answer. You seem eager to, Dr. Bivens.
Dr. Bivens. Yes, sorry about that. I put myself on mute. I
agree with that. I would say the Tax Cuts and Jobs Act really
was a pure redistribution policy. It just redistributed a bunch
of money to people who own corporate equities, largely, and it
had almost no footprint at all in increasing the rate of growth
in the economy.
And I think the biggest indicator of that is the way it was
going to increase the growth rate of the economy, like the way
most proponents talked about it, was increasing business
investment. That was really the centerpiece of the economic
case for it. Business investment did not increase in the wake
of the TCJA. It was clearly decelerating rapidly before the
pandemic hit.
It just had no impact at all on the aggregate economy. All
it did was redistribute income around. And it redistributed to
the top, which is not the way I would prefer that happen.
Chairman Beyer. Dr. Holder, in your leadership at the
Center for Equitable Growth, one of the things the Joint
Economic Committee in these two years has really focused on is
income inequality, and wealth inequality. And what are you
seeing happening to the GINI Index, especially looking at it
over the last 10 years, and over the last 50 years? Because I
keep reading things like Bob Putnam's book that it has not been
this bad since the 2013-2015.
Dr. Holder. Yes, I thank you for that question, Chair
Beyer. You know, the evidence is very clear that income
inequality in the U.S. is increasing. So with regard to the
GINI coefficient and the direction that that is moving, it is
absolutely clear that income inequality is widening in the U.S.
And I will, if you will permit me, we do not only need to look
at where GINI coefficient is going. We could also look at the
distribution of income over time. And this is actually a really
simple exercise that I give my students in terms of really
proving that more income is going to the top 20 percent of
households in this country, and less income to the bottom 20
percent.
And so if I could just quickly, the Bureau of Labor
Statistics, which is the statistical arm of the U.S. Department
of Labor, contains a bevy of information. And so in addition to
that, also the U.S. Census Bureau has data. And I believe one
of the pieces of data they have, and they update regularly, is
on income distribution in the United States.
And one of the tables clearly shows over time that the top
20 percent of households in the U.S. is taking in an increasing
share of all income generated in this country, while the bottom
20 percent of households--and when I say top 20 percent of
households and bottom 20 percent I am really talking about by
income. So low-income households versus high-earning
households, or wealthy households.
Analogously, the bottom 20 percent of households, it is
very clearly over the last several decades, is taking in a
smaller share of all income that is generated in this country.
And so along with looking at the direction of the GINI Index,
the statistical evidence is absolutely clear and undisputable
that income distribution is widening, and income inequality is
widening in the United States. The evidence is very clear, and
it is concrete.
Chairman Beyer. Thank you. And Dr. Parikh, the good Dr.
Goodspeed talked about, maybe in response to a question from my
friend Mr. Schweikert, that if we want an industrial policy we
need to look at Great Britain or France in the 1970s.
What is the difference in terms of our investment and the
COMPETES Act, whatever it is being called, the infrastructure
bill, in building factories, the doubling of the investment in
the National Science Foundation, how is that different?
Dr. Parikh. It is a really important question. And, look,
imagine as we were coming out of the pandemic, one of the
things that is not talked about--we always talk about the
discoveries, and how we got the MRNA vaccine, and other
technologies to get vaccines into the field so quickly.
The thing we do not often talk about is the scale up in the
manufacturing. The fact that we could go from zero to 300
million doses in a matter of months is actually an equivalent
success to the scientific success. That is remarkable. And it
is not something that every country can do. And imagine that if
instead of meeting the capacity in building and making vaccines
we needed, the solution involved semiconductor microchips. We
would not have been able to do that. We would have been
beholden to other nations to actually get a solution to the
pandemic if that were the case.
And there are other areas of our economy that are just that
dependent on semiconductor microchips. And we cannot let--we
cannot let it be that one of the most critical components of so
much of our technology is not actually manufactured here in the
United States.
And so it is critically important to have not just the
infrastructure to do it, but the workforce to do it. And so the
rest of that legislation in the USICA, COMPETES Act is about
the funding of the National Science Foundation.
I mentioned several critical areas where we are close to an
inflection point. Artificial intelligence, quantum computing,
launch systems to low earth orbit. These are places where other
nations have seen that we are on that cusp and are investing.
And should we invest the same way? Absolutely not. We should do
it the American way, which means that we have this wonderful
ecosystem that has Federal investment plus industry investment.
Industry investment has gotten to around 3 percent of GDP. That
is wonderful. The problem is, Federal investment has fallen to
about 0.6 percent of GDP. And what that means is we have an
imbalance between research and development, and we have got to
work on that.
So it is different. It is very different from the
industrial policy that is picking winners. It is not about
picking winners. It is about looking at which parts of the
scientific ecosystem are about to take that exponential burst
of industrial activity and placing some bets.
Chairman Beyer. Thank you very much. I would really like to
thank all of you. The vote actually did start, so I need to get
over to do that. But this is a really interesting, productive
conversation on a more equitable economy.
And I appreciate the various charts and interpretations
that these are worth fighting over, and trying to understand
how best to go forward.
Thanks to the efforts of this Congress and the Biden
administration, unemployment is down to 3.6 percent. It is just
a tenth above the highlight before the pandemic at the end of
the Trump administration. The economy grew at the fastest pace
in 40 years. Businesses have hired more workers faster than
ever reported. Thirty percent increase in small business
applications over the prior record. But we have not escaped the
global spike in inflation, and that is hurting an awful lot of
families, especially families at the low end. So we need to
lower those costs for U.S. workers and we need to advance
economic growth and competitiveness and we have to act now to
build the capacity of the American people and our economy.
And I think we started that work with the Infrastructure
Investment and Jobs Act and the investments to make competition
bills are the next step to powering this new era of America's
leadership in innovation and technology. The investments we
have discussed today will drive inclusive economic growth and
put us at the front of addressing complex challenges. And they
are complex. And we can do it while strengthening the
bargaining power of workers and realigning corporate incentives
to reward long-term pro-growth investment that generates
society and economy wide returns.
The potential for these investments is exciting. I deeply
believe that America's best days lie ahead. There is a better
tomorrow for U.S. families, workers, and businesses.
So thank you to each of our panelists for their
contributions to this timely and ongoing discussion. And thanks
to my colleagues, coming and going, for being a part of this
discussion and sharing their insights.
The record will formally remain open for three business
days. This hearing is adjourned.
[Whereupon, at 3:48 p.m., Wednesday, April 27, 2022, the
hearing was adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared statement of Hon. Donald Beyer Jr., Chairman,
Joint Economic Committee
recognitions
This hearing will come to order. I would like to welcome everyone
to the Joint Economic Committee's hearing, ``Building on a Strong
Foundation: Investments Today for a More Competitive Tomorrow.''
I want to thank each of our distinguished witnesses for sharing
their expertise today. We have an exceptional panel of experts, and I'm
looking forward to hearing from them.
opening statement
Just over two years ago, the United States confirmed its first case
of COVID.
Since then, hundreds of thousands of lives have been lost, and our
Nation has experienced the worst recession since the Great Depression.
Virtually overnight, nearly 22 million jobs disappeared and GDP
cratered.
The loss of life is a national tragedy, and we mourn those lives
that were taken too soon.
Today's hearing will focus on how our country is overcoming the
economic effects of the global pandemic and what steps we can take now
to ensure our economic health for the long term.
As we convene for this discussion, our Nation's economic rebound
has exceeded all expectations. The American Rescue Plan and other
pandemic relief, including the successful dissemination of vaccines,
have created a remarkably different economic reality than the one we
were facing at the start of 2021.
To date, nearly 93 percent of the jobs lost during the pandemic
have been regained. The unemployment rate has fallen to just 0.1
percentage points above its pre-pandemic rate. And GDP has reached the
fastest pace of growth in nearly 40 years. President Biden has overseen
the creation of 7.9 million jobs, and 2021 set a record for the most
new businesses started.
Far from guaranteed, the speed and strength of our economic
recovery is a direct result of increased public investment. Thanks to
the efforts of this Congress and the Biden administration, the United
States has experienced the fastest recovery among G7 countries. It
remains the only major economy that has recovered to its pre-pandemic
trend of economic growth, or what it would have been absent the
coronavirus recession.
But the United States has not escaped the global spike in inflation
that is denying workers and families the full benefits of the recovery.
Global supply chain disruptions have pushed up prices worldwide, and
Putin's invasion of Ukraine is exacerbating the effects on energy and
food prices.
We, in Congress, have an opportunity to lower costs for workers and
families, spur job creation and promote U.S. competitiveness now and
for generations to come.
Evidence shows that public investment in research and technology
drives innovation and boosts productivity, which is the bedrock of
long-term economic growth. Historically, U.S. economic booms have been
fueled by investments in science and technology that were initiated and
sustained by public funding.
For example, public investments in the Defense Advanced Research
Projects Agency helped support the development of the personal computer
and the internet. Together, these drove a technological revolution that
turbocharged U.S. productivity and radically changed the ways people
conduct their lives--not to mention the creation of hundreds of
thousands of new jobs.
If a goal of our government is to drive broadly shared economic
growth and ensure that the United States remains internationally
competitive, public investment is essential to success.
The recently passed bipartisan Infrastructure Investment and Jobs
Act is a down payment. It will address years of inadequate Federal
investment in critical infrastructure--such as roads, bridges and
broadband--to create jobs, enhance productivity and improve supply
chain resilience. The economy-wide benefits will reduce long-term
inflationary pressures.
Congress should build on this foundation and pass the bipartisan
competition bills to drive economic growth and shared prosperity. The
investments in innovation, research and manufacturing will boost our
economic capacity, create high-quality jobs in communities across the
country and raise worker wages. And by promoting increased efficiency
among workers and businesses, these investments will also lower costs
for everyone.
The bills' focus on racial, gender and geographic diversity in
training and education will help ensure communities that have
historically been excluded are able to share in the benefits.
We've all experienced the many ways disinvestment in American-made
products has contributed to recent supply chain disruptions, and the
investments in this legislation will help shore up American supply
chains and domestic manufacturing.
turn it over to senator lee
The pandemic shined a new light on inequality in this country and
exposed underlying vulnerabilities in our economy that are constricting
our collective potential.
We have an opportunity now to lower out-of-pocket costs for
families on their biggest household expenses while also paving the way
for economic growth in the long term that is stronger, stable and more
broadly shared.
As we dive deeper into these issues, I look forward to the
testimonies of our expert witnesses. Now I would like to turn it over
to Senator Lee for his opening statement.
__________
Prepared statement of Hon. Mike Lee, Ranking Member,
Joint Economic Committee
Before the COVID-19 pandemic, pro-growth policies brought the
American economy roaring to life in a way that bigger government and
more central control never could.
While the strong economy lifted up all Americans, historically
disadvantaged groups benefited the most. Unemployment for Hispanic
Americans, Black Americans, and Asian Americans fell to the lowest
rates on record. The unemployment rate for women dropped to its lowest
level in almost 70 years. And low-income workers saw their wages rise
at some of the fastest rates ever recorded.
All told, in the three years leading up to the pandemic, poverty
reached an all-time low; real median income increased by almost $6,000
per household; and the bottom 50 percent of American households saw
their wealth increase by over 70 percent. The recipe for this broad-
based prosperity was lower taxes and less regulation.
Today, after two years of mandates, subsidies, and `expert'
control, government has all but eviscerated this strong foundation.
Americans have been forced to endure governments shuttering their
livelihoods, schools, and communities.
Measured against the pre-pandemic trend, 6.6 million workers are
currently missing from the workforce. These Americans are missing out
on not only the financial rewards of a job, but also the community and
purpose that come from work.
In contrast with the pre-pandemic economy that especially benefited
low-wage workers and historically disadvantaged Americans, these groups
are again falling further behind. With more government getting in the
way, middle class and low-wage workers are hurting the most.
Democrats' $1.9 trillion in partisan spending has ignited the worst
inflation in four decades--inflation that is hitting my home state of
Utah harder than almost anywhere else. Even if prices were to stop
rising tomorrow, Utah families will have to pay nearly $8,500 this year
to afford the same items they purchased at the beginning of the Biden
administration, according to the Joint Economic Committee's state
inflation tracker.
Meanwhile, school closures have caused devastating learning losses
for the youngest and lowest-income students. The Penn Wharton Budget
Model estimates that these losses will weaken our productivity and
wages for the next 30 years.
Unconditional stimulus checks and explicit anti-work incentives
have increased the use of harmful substances at a time of vulnerability
for many Americans. Drug overdose deaths are back to an all-time high,
and suicides and alcohol abuse have spiked.
Lockdowns have triggered rising crime rates across the country,
causing Americans to feel less safe in their communities. The murder
rate jumped almost 30 percent in 2020--the largest increase on record.
It's clear that so-called `investments' from Washington have failed
to produce the prosperity the Biden administration promised. And many
of the proposals I hear from my colleagues will make our problems
worse.
Plans to keep spending money we don't have will pour more fuel on
the inflation fire. Tax hikes on businesses will make it harder for
Americans to innovate at home and compete abroad. And legislation that
takes a cue from China's state-directed economy by federally
commandeering research and development is the opposite of what has made
us the world's strongest and most prosperous nation. We will never beat
China by becoming more like China.
We know what works. Before the pandemic, tax cuts and deregulation
supported a thriving economy that benefited families and workers of all
walks of life. The free market system that prizes ingenuity and rewards
people for using their God-given talents in service of their neighbors
resulted in benefits for the Americans who needed it most.
After two years of policies that have assaulted and eroded this
strong foundation, I hope we can learn from our mistakes. I hope we've
learned that when we choose to remove government barriers to Americans'
creativity and freedom, families of all types prosper.
Thank you.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Question for the Record for Dr. Josh Bevins
submitted by Senator Klobuchar
The U.S. is facing a manufacturing skills gap that's estimated to
leave over 2 million jobs unfilled by 2030 and could cost the U.S.
economy as much as $1 trillion. My Apprenticeships to College Act with
Senator Moran, which was included in the House-passed America COMPETES
Act, would allow workers to earn college credit for completed
apprenticeships, creating a pathway for workers to gain skills while
earning a good wage.
What role does collaboration between the public and
private sectors play in closing the skills gap and strengthening
American manufacturing?
__________
Question for the Record for Dr. Josh Bevins
submitted by Senator Warnock
You noted in your testimony, ``Before the pandemic struck, economic
growth in the United States was too-slow and too-unequal for decades.''
How can Federal investments help contribute to a more equitable
recovery? What impact would this have on the overall economy?
__________
Response from Dr. Michelle Holder to Question for the Record
submitted by Senator Klobuchar
One of the most persistent workforce challenges, especially in
rural communities, is access to affordable child care. Many
manufacturers and businesses have job openings, but cannot find enough
trained workers due to the lack of affordable childcare options. That's
why I introduced the bipartisan Child Care Workforce and Facilities Act
to educate and retain child care workers and build and expand
facilities in child care deserts.
How are child care access and affordability a barrier for parents
interested in returning to the workforce?
The current market for child care does not meet the needs of
working families. This is not simply an issue for families with young
children. Accessible, affordable, and high-quality care also has the
potential to generate substantial economic activity and growth that
benefits the entire U.S. economy.
In 2019, even before the pandemic's devastating effects on the
child care industry, roughly half of U.S. families lived in child care
deserts, defined as U.S. Census Bureau tracts where there are three
young children for every licensed slot for child care. The COVID-19
pandemic only worsened these supply challenges. Further, at an average
annual cost of more than $9,000, the price tag of care puts child care
out of reach for many U.S. families.
The inability to access affordable, high-quality child care is
devastating for families. It also constricts the economy's ability to
grow. Research shows that when the supply of child care in a community
increases, so too does that community's parental labor supply.
Likewise, when the cost of child care decreases, researchers time and
again find an associated increase in parental labor supply.
Recent studies in the U.S. context find that a 10 percent reduction
in the cost of child care increases maternal employment by between 0.5
percent and 2.5 percent. To put that in more concrete terms, in a State
such as West Virginia, where about 136,000 women have children at home
and participate in the civilian labor force, a 10 percent reduction in
child care costs would lead to around 3,400 women entering the labor
force. That's 3,400 more breadwinners for families with children, 3,400
more productive workers, and more dollars in the pockets of 3,400
consumers to support local businesses.
More research is needed to understand how the quality and
continuity of available child care options affects parental labor force
participation. But a 2008 study of mothers in low-wage jobs found that
19 percent stopped working entirely in the same quarter in which they
experienced a disruption to their child care arrangements, compared to
only 9 percent who did not experience such a disruption. The evidence
strongly suggests that when child care is available, affordable, and
high quality, more parents get jobs and keep them.
As a result, the economy grows. Employers have access to a larger
workforce from which to select talent, and workers are less likely to
leave well-matched jobs prematurely, which saves firms rehiring and
retraining costs. And it's not just workers who are brought off the
sidelines, but entrepreneurs as well. Parents with winning business
ideas will be free to launch ventures and pursue the American Dream,
household incomes rise and drive consumer spending, and the tax base
from which we can fund pro-growth government programs grows.
As we have recently seen all too clearly, child care also has an
important role to play in stabilizing the macro economy. The child care
market is fragile. A combination of reliance on out-of-pocket payments
that strain parents' budgets and slim profit margins means that even a
small downturn in the economy can cause a damaging and persistent
ripple through the child care sector as parents pull their children out
of child care. This pushes providers into the red, which results in
layoffs, reduced capacity, and permanent closures from which it can be
difficult or impossible to rebound.
We've seen this play out during the COVID-19 pandemic, as well as
prior economic recessions. When unemployment rates increase in the
broader labor market, they increase more quickly in the child care
sector: Every 1 percent decline in a state's overall employment is
associated with a 1.04 percent decline in child care employment. But
when the economy rebounds, the child care sector lags: Every 1 percent
increase in a state's overall employment is only associated with a 0.75
percent increase in child care employment.
We are seeing this slower recovery play out in real time. As of
April 2022, the child day care sector remains approximately 116,000
jobs (or approximately 10 percentage points) below February 2020
levels. Hiring in child care has plateaued in recent months, likely
driven by low wages in the sector failing to keep up with inflation and
wages offered in competing sectors. With low profits and insufficient
government investment, providers are constrained in how much they can
raise wages without passing on higher prices to families, who are
already struggling to afford child care services.
Together, these factors suggest that hiring in the child care
sector will continue to lag behind the broader economy. This lag can be
a drag on reemployment, as we are seeing today: Parents who seek to
return to work after a period of unemployment must be able to secure
child care, which will be out of reach without greater public
investment.
Indeed, while the United States once held a competitive edge in the
global economy due to growth in women's labor force participation over
the past century, that growth has since stagnated, and the labor force
participation rate in the United States now falls below the average for
OECD nations. During the first year of the COVID-19 pandemic, when
families struggled without adequate access to paid leave and child
care, women's labor force participation fell--hitting a low we haven't
seen since 1988.
The child care industry remains in crisis with the supply of good-
quality care too low, the cost of care too high, and child care workers
earning too little, stopping parents from working and causing pressure
on family budgets. We need a child care program in which no family is
asked to pay more than is manageable to ensure that their child is safe
and nurtured during the work day, that ensures that early care
educators can focus on the children for whom they care without being
distracted by their own financial hardship, and that the system has the
resources it needs to ensure that children are receiving high-quality
care.
When the supports we deliver to families to ensure that care is
adequate meet these benchmarks, when we have built a policy environment
that values care for all people who need it--whether it's people with
disabilities who need professional support to fully engage in their
communities; young children who should be able to grow up in households
that are economically secure, so that their parents can meet the
family's basic needs and focus on parenting; or older adults who have
spent their lives providing care for others and now need support
themselves--when this happens, we will know that we have sufficiently
shifted our orientation to care to correct our market failure and allow
the economy to grow.
__________
Response from Dr. Michelle Holder to Question for the Record
submitted by Senator Warnock
What would the economic ramifications been if Congress failed to
pass programs such as the CARES Act and the American Rescue Plan to
support hard-working families during the pandemic? Is there any data
you can point to that supports your answer?
The unprecedented speed and size of the American Rescue Plan and
the CARES Act helped millions of workers and households withstand the
economic pain brought on by the COVID-19 pandemic in a remarkably rapid
rebound. The bounce back in Gross Domestic Product, for example, was
much quicker in the United States than in most other high-income
countries. The safeguards and subsidies provided to families through
this legislation provided an effective stop-gap to prevent income
shocks that can have long-term impacts on workers and households,
compared to previous recessions in which hard-hit groups faced long-
term poor economic outcomes in earnings and employment even into the
recovery.
The prime-age employment rate, one of the best measures we have of
overall labor market health by looking at workers in their prime
working years, is now close to its pre-pandemic level. And workers in
the bottom of the wage distribution have been experiencing real wage
growth. Labor demand has skyrocketed, giving workers more power to
negotiate higher pay and better working conditions, including sparks in
the labor movement.
As such, job openings in the United States reached a series high
since data began being collected in 1999, of 11.1 million in July
2021--an almost 60 percent increase from February 2020--and have
remained elevated since. The jump in open positions has been
particularly stark in industries such as leisure and hospitality, which
declined steeply early in the pandemic, and manufacturing.
Indeed, the recovery in overall employment has been extraordinarily
quick, compared to previous U.S. economic downturns. According to
Moody's Analytics, in a counterfactual scenario in which this fiscal
response was not provided, real GDP would have fallen 11 percent in
2020--more than three times its actual decline. The economy would have
also succumbed to a double-dip recession in early 2021. Without
government support, jobs lost during the pandemic recession would not
have been regained until 2026.
Furthermore, the Federal Government's investment in enhancing
Unemployment Insurance and expanding the Child Tax Credit bolstered
family economic security across the socioeconomic spectrum, reduced
poverty for millions of children, allowed workers to search for jobs
that matched their skills, and improved the ability of parents to
invest in their children's critical human capital development.
Following the unprecedented shock to the labor market caused by the
COVID-19 pandemic in March 2020, Congress supported workers who lost
their jobs through enhancements to the existing Unemployment Insurance
program. The Census Bureau found that in 2020, Unemployment Insurance
reduced the overall poverty rate by 1.4 percentage points, pulling 4.7
million people out of poverty. Research also shows that when workers
access more unemployment benefits, they are able to seek out jobs that
are good matches for their skills to the benefits of themselves, their
employers, and the broader economy.
Then, in 2021, by providing families with monthly income support to
supplement their own earnings and help offset rising prices, the
temporarily enhanced Child Tax Credit lifted an estimated 3.7 million
children out of poverty. It also helped reduce racial disparities in
household income, as poverty rates fell drastically for Black and
Latinx children. This temporary policy provides a clear blueprint for a
successful permanent program.
While inequities in the U.S. labor market remain persistent,
employment gains made by Black women and Latina workers suggest the
recovery efforts are reaching those who are often the last to recover
from a recession at a much quicker pace than previous recessions. The
fiscal response to the COVID-19 pandemic is directly responsible for
the swift recovery we're experiencing today. With economic growth still
strong, there exists a real opportunity to continue to make government
investments to ensure the recovery is not just strong, but also
equitable and thus more enduring.
__________
Response from Dr. Sudip Parikh to Question for the Record
submitted by Senator Warnock
You noted in your testimony, ``There is some evidence that the way
we fund science is increasingly risk-averse.'' Will you expand on how
taking ``safer bets'' could lead us to fall behind on the global stage
and its overall consequences to our economy?
The United States' commitment to basic science R&D has led to
greater original ideas and discoveries. Basic research lays the
groundwork for future scientific and technological development, and it
often addresses society's largest challenges, such as mitigating
climate change, curbing antibiotic resistance, or bolstering food and
water security. It is not a stretch to say that almost every
technological or medical miracle of today finds its roots in
fundamental discovery-driven research, often built on decades of work
that came before. It is the U.S. Federal research agencies--both
defense and nondefense--that are the primary investor of basic research
that has fueled this innovation ecosystem.
As I noted in my written statement, a significant barrier to
adopting a more dynamic, less risk-averse funding system is funding
itself. The pressure and competition within the Federal funding system
reinforces the tendency to go for the sure thing. Safer bets and
incremental advances may yield positive outcomes, but they risk
crowding out projects that could bring game-changing rewards.
A strong and sustained upward funding trajectory can create the
opportunity to take more risks or pursue greater experimentation--
essentially, it can let us loosen the reins and really try new things.
It would allow us to stretch our ideas and creativity to the horizon of
discovery in addition to performing incremental research. For example,
it would allow us to tackle a significant scientific question by
funding more than one research project that approach a solution to that
question in novel ways. That is the innovation strategy that other
nations are pursuing and why we see the research intensity of countries
like China scaling up dramatically. These countries are willing to take
risks by investing heavily in research on critical, emerging
technologies and implementing effective policies for high-risk, high-
reward research. For example, in China it encourages research proposals
that steer away from the mainstream. The OECD published a report on
this subject last year.
The challenge we face today is political will--and the patience to
know that spending on high-risk, high reward research does yield
tremendous results, but often over longer periods of time. That is
challenging for a legislative body that appropriates on an annual basis
and operates in a 2-year legislative cycle--but not impossible.
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