[Senate Hearing 117-620]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-620


            BUILDING A RESILIENT ECONOMY: SHORING UP SUPPLY

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

     EXAMINING HOW WE CAN BEST SUPPORT AMERICAN WORKERS, AMERICAN 
         INNOVATORS, AND INVESTMENTS IN DOMESTIC MANUFACTURING

                               __________

                             MARCH 22, 2022
                               __________


  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs

                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                  Available at: https://www.govinfo.gov/
                  
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
55-714 PDF                WASHINGTON : 2024                     


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL G. WARNOCK, Georgia          KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        TUESDAY, MARCH 22, 2022

                                                                   Page
Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    33

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     3
        Prepared statement.......................................    34

                               WITNESSES

William E. Spriggs, Professor of Economics and Chief Economist, 
  Howard University and AFL-CIO..................................     6
    Prepared statement...........................................    35
    Responses to written questions of:
        Senator Cortez Masto.....................................    67
Betsey Stevenson, Professor of Public Policy and Economics, 
  University of Michigan.........................................     7
    Prepared statement...........................................    41
    Responses to written questions of:
        Senator Warnock..........................................    67
Erica R.H. Fuchs, Professor of Engineering and Public Policy, 
  Carnegie
  Mellon University..............................................     9
    Prepared statement...........................................    43
    Responses to written questions of:
        Senator Cortez Masto.....................................    67
        Senator Warnock..........................................    69
Veronique de Rugy, George Gibbs Chair in Political Economy at The 
  Mercatus Center, George Mason University.......................    11
    Prepared statement...........................................    55
Phil Levy, Chief Economist, Flexport.............................    12
    Prepared statement...........................................    59

              Additional Material Supplied for the Record

Statement submitted by Northeast Ohio Build Back Better Regional
  Coalition......................................................    80

                                 (iii)

 
            BUILDING A RESILIENT ECONOMY: SHORING UP SUPPLY

                              ----------                              


                        TUESDAY, MARCH 22, 2022

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:15 a.m., via Webex and in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Senate Committee on Banking, Housing, 
and Urban Affairs will come to order. Today's hearing is in a 
hybrid format. Our witnesses are in person. Thank you, each of 
you, for getting here and being here in person. Members have 
the option to appear in person or virtually.
    For generations, manufacturing was the lifeblood of 
communities across Ohio and Pennsylvania and South Dakota and 
throughout the country. It was heavily unionized and the jobs 
paid well, and it is not a coincidence that those things go 
together. Those jobs allowed generations of Americans to build 
a middle-class life. Workers innovated on the shop floor, 
propelling our economy to new heights and allowing us to lead 
the world in developing new industries.
    Ohioans know all too well what happened. Beginning in the 
1970s and 1980s, we stopped making things here. Look at places 
like my hometown of Mansfield, Ohio, an industrial city of 
50,000 halfway between Cleveland and Columbus. Companies like 
Westinghouse, Tappan Stove, Ohio Brass, and General Motors 
closed down, one after another after another. Go to any town in 
Ohio and people can name a similar list. They now too often 
measure their local history in lost opportunities, lost plants, 
and lost jobs.
    All over America, companies were moving production 
elsewhere, in the name of ``efficiency.'' ``Efficiency'' was 
essentially business school speak for ``lower wages.'' 
Corporate America wanted cheaper labor, wherever they could 
find it. First, they went to anti-union, anti-worker, low-wage 
States, often in the South. Then, when even those wages were 
not low enough for corporate America, they shut those plants 
and moved overseas.
    When these companies moved out, they were not replaced by 
new investment. The creative destruction that the market 
fundamentalists like to talk about, it was not followed by any 
construction, creative or otherwise.
    Corporate greed, aided by decades of underinvestment, bad 
trade policy--which these corporations lobbied Congress for--
and worse tax policy--which these special interests also 
lobbied Congress for--drove production overseas. It left us 
reliant on other countries, too often, our economic 
competitors. It exposed us to supply shocks. It gutted our 
middle class. Ohioans and workers in historic industrial towns 
in all our States felt it first.
    Now the whole country feels it in the form of higher 
prices, empty shelves, and months-long waits for products 
people need.
    We need to make things here in America.
    That is not going to happen on its own, not when the 
economy of the last five decades was built on corporations 
hopping the globe in search of workers to exploit, and not when 
countries like China steal our ideas, then they monetize them 
and use them to compete--and often cheat--against American 
businesses and American workers.
    We need a concerted, coordinated effort to invest in 
American industries. We need to reverse decades of bad policy, 
and instead invest in our greatest assets: American workers and 
American innovation.
    Look at what is happening now in Bucyrus, Ohio, a town 
about 30 miles west of where I grew up.
    There are few innovations more quintessentially American 
than the light bulb. Every elementary schooler knows that 
Thomas Edison, from Milan, Ohio, invented the light bulb at his 
lab in Menlo Park, New Jersey. Ohio became the center of light 
bulb manufacturing.
    We've seen plants close across my State in places like 
Ravenna and Warren. We were told that these plants were old and 
dated--they made old-fashioned incandescent light bulbs. 
Instead, Americans would make new, next-generation technology 
like LED bulbs.
    Well, we--not exactly what has happened.
    We just learned that two Ohio factories that were part of 
the LED lightbulb supply chain in Ohio, in Bucyrus and Logan, 
southeast of Columbus, each are closing their operations. 
Promises made. Today, 99 percent of LED lightbulb production is 
in China--99-point-something percent. Think about that--99 
percent of the production is in China. Promises made.
    And when you move the entire production overseas, you move 
the shop floor innovation right along with it. Again, corporate 
America underestimated the ingenuity of American workers, they 
usually do, or they just did not care.
    Or let's look at semiconductors.
    Americans developed the semiconductor. American research 
and development created these chips, and American companies did 
most of the manufacturing. Yet over time, production, often 
fueled by incentives from foreign countries, and betrayed by 
American tax and trade policy, this production moved overseas.
    And look what happened. During the pandemic, companies in 
Ohio and Pennsylvania and all over shut down production lines 
and laid off workers because they could not get enough 
semiconductors. Whether you are Ford Motor Company in Lima, 
Ohio, Whirlpool in Clyde, Ohio, or Navistar in Springfield, 
Ohio, you need these chips.
    In the semiconductor industry, we see the problem, and we 
see the solution.
    At the end of January, I flew to Columbus to join Intel to 
announce the largest-ever domestic investment in semiconductor 
manufacturing. It will create 10,000 good-paying jobs, and 
5,000 of those will be union tradespeople working for 10 years 
to build this facility. And it is all possible because we are 
on the verge of passing an historic investment in American 
innovation and manufacturing.
    We need to pass this bipartisan legislation that supports 
efforts like Intel's to build new production here. Our bill 
invests in research, development, and manufacturing throughout 
the country to enable us to compete for the jobs of the future. 
That builds on the work we did with the Bipartisan 
Infrastructure Law, which will create new jobs and allow us to 
move more goods, more quickly, shortening supply chains.
    That us how we build a more resilient economy that can 
withstand global events, whether it is a public health crisis, 
a geopolitical crisis, or a climate crisis. We need to invest 
in our workers and ensure that they reap the benefits of the 
economic growth they create, through good-paying jobs and 
investment in training programs and affordable childcare. Taken 
together, these investments ensure that economic growth reaches 
the whole country.
    We need to support local and regional efforts to drive 
innovation.
    I am submitting a statement for the record from a coalition 
of businesses, industry associations, and nonprofits in 
Northeast Ohio on how supply chain resilience affects Ohio's 
economy. I ask unanimous consent that the coalition's letter be 
submitted for the record. Without objection.
    I am working closely with them to support their application 
for a Federal challenge grant that would help turn the region 
into a national hub for advanced manufacturing innovation. It 
is the kind of effort we need in communities all over the 
country. We can lower prices and speed up supply chains. We can 
better compete with China. We can create jobs and economic 
growth in places that corporate America helped to kill and then 
left for dead decades ago.
    I am excited to hear from our witnesses today about how we 
can make smart investments that will spur innovation and job 
creation. We will hear from experts on the unique nature of 
supply shocks triggered by the pandemic, like semiconductors, 
and how we can prevent them in the future. We will talk about 
how we can best support American workers, American innovators, 
and we will talk about investments in domestic manufacturing.
    It is time to make things in America again. Ohio has buried 
the term ``Rust Belt''. It is time for our whole country to 
bury it.
    Senator Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman.
    Just to get an important fact out there on the table, if 
you look back to find that year in which total manufacturing in 
America reached an all-time high, if you look way back to find 
that year--wait for it--it was 2018, basically flat in 2019. 
Then we had a decline from COVID, and this year we are on track 
to set a new all-time record for manufactured goods in the 
United States of America. We have never made as much stuff in 
this country as we will make this year, and then we will break 
that record probably next year, if the economy is strong. I 
think it is important to have that perspective.
    This hearing is about supply chain resiliency. Of course, 
the Banking Committee is talking about supply chains for one 
reason, that is that inflation has hit a 40-year high. Under 
President Biden, consumer prices have risen by 8.4 percent. 
That is more inflation than under the entirety of the prior 
Administration.
    Even though wages are rising, prices are rising faster, and 
that is causing workers, especially lower-income workers, to 
fall further and further behind.
    Milton Friedman said, and I quote, ``Inflation is taxation 
without representation,'' end quote. Now Democratic policies 
are hiking that tax. Rather than course correct, our Democratic 
colleagues have been trying to shift the blame for their 
inflation tax to someone, anyone else. One of their favorite 
scapegoats has been the supply chains. that is, in addition to 
blaming ``greedy corporations,'' Republicans, generally, and 
Vladimir Putin.
    Actually, inflation is pretty easy to understand. It 
results from more money chasing fewer goods.
    The Biden administration's policies have limited the 
economy's ability to produce some consumer goods, and 
Democrats' reckless spending has resulted in more money chasing 
those fewer goods.
    As an example, consider the President's war on American 
energy independence. In 2020, then-candidate Joe Biden promised 
that in his Administration there would be, and I quote, ``no 
more ability for the oil industry to continue to drill. 
Period.'' End quote.
    On day one of his Administration, he started to make good 
on that threat. He stopped all new oil and gas leases on 
Federal land, and ended the Keystone XL pipeline project. Even 
before Russia's invasion of Ukraine, gas prices were up 40 
percent. And now the Administration is going on bended knee to 
plead with Venezuela's illegitimate dictator to produce more 
oil that America is quite capable of producing and exporting.
    On the spending side, former Obama administration officials 
Larry Summers and Jason Furman warned that Democrats' reckless 
spending spree would cause inflation. Yet, with inflation at 8 
percent, most of my Democratic colleagues still support another 
deficit-financed, blowout spending bill.
    So today we are going to set the record straight. First, 
inflation did not suddenly accelerate simply because global 
free trade somehow made our supply chains ``fragile.'' Global 
trade has provided tremendous benefits to Americans and, if 
anything, has made our economy less fragile.
    Rather, supply chains are struggling because fiscal policy 
has over-stimulated demand. For example, because of high 
demand, port volumes have hit record levels.
    Second, Democrats' far-left agenda would continue to make 
inflation worse, not better. Where to begin?
    Democrats are pushing for price controls, and for using 
antitrust law to reduce economic efficiency. And my Democratic 
colleagues continue to push for the reckless tax-and-spend 
Build Back Better plan that will further fuel inflation and 
harm our economy.
    Amazingly, the White House now claims that even more 
deficit spending will lower inflation. Now that just defies 
belief. And you do not have to take my word for it. Last month, 
former Obama administration Treasury official Steven Rattner 
wrote a New York Times op-ed entitled, quote, ``Biden Keeps 
Blaming the Supply Chain for Inflation. That's Dishonest'', end 
quote.
    Steve Rattner said the President's claims about supply 
chain disruptions are ``both misleading and simplistic.'' He 
asserted ``the bulk of our supply problems are a product of an 
over-stimulated economy.''
    Now while supply chains are not to blame for inflation, our 
recent experience highlights the need to enact some sensible 
reforms that will improve supply chains. These reforms could 
include making U.S. ports more efficient by increasing their 
use of automation, which obstructionist unions have long 
blocked, and eliminating harmful tariffs that increase 
transportation costs and bottlenecks by reducing the supply of 
needed equipment, like truck chassis.
    In addition, to help fight inflation, it is time for the 
President to abandon this domestic agenda he has been on. He 
should end the war on American energy that has led to higher 
prices for American families. The President should restart the 
Keystone XL pipeline, should be expediting natural gas pipeline 
and LNG facility approvals, and should repeal the broad and 
punitive regulations and restrictions on American oil and gas 
production.
    The President should also drop his reckless tax-and-
spending plan that would dramatically increase the size and 
scope of Government by expanding the welfare State and fueling 
still more inflation.
    The best approach to achieve economic growth is to unleash 
market competition, the engine of economic growth. Congress can 
focus on three areas: cutting through the jungle of red tape 
preventing new entrepreneurship, innovation, and competition; 
eliminating Government-created barriers and distortions to 
Americans working and saving; and increasing opportunities for 
global trade and getting rid of protections for special 
interests.
    To help us understand these issues, today we will hear from 
two experts on global trade and fiscal policy: Phil Levy, the 
chief economist at Flexport, a leading supply chain logistics 
company, and Vero de Rugy, an economist from the Mercatus 
Center at George Mason University.
    I look forward to hearing from them about the importance of 
free trade and free markets for creating strong and resilient 
growth, and commonsense solutions for increasing growth and 
lowering inflation.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    I will introduce today's witnesses. Dr. William Spriggs, 
Professor of Economics at Howard University, Chief Economist of 
the AFL-CIO. He previously served as Assistant Secretary for 
the Office of Policy at the Department of Labor, and as a 
senior advisor at the Small Business Administration. Welcome, 
Dr. Spriggs.
    Dr. Betsey Stevenson is Professor of Public Policy and 
Economics at the University of Michigan. She previously served 
on the Council of Economic Advisors and as Chief Economist at 
the Department of Labor. Welcome, Dr. Stevenson.
    Dr. Erica Fuchs, Professor of Engineering and Public Policy 
at Carnegie Mellon, where she leads the College of 
Engineering's Moonshot Initiative on national technology 
strategy and critical technologies, supply chains, and 
infrastructure. Welcome, Dr. Fuchs.
    Veronique de Rugy is George Gibbs Chair in Political 
Economy at the Mercado Center at George Mason. She previously 
was a resident fellow at AEI, policy analyst at Cato, and a 
research fellow at the Economic Research Foundation. Welcome, 
Dr. de Rugy.
    Phil Levy is Chief Economist at Flexport. He previously was 
senior fellow on the global economy at the Chicago Council on 
Global Affairs and senior economist for trade at the CEA during 
the George W. Bush administration as a member of the policy 
planning staff for the State Department. Dr. Levy, welcome.
    Dr. Spriggs, please begin.

  STATEMENT OF WILLIAM E. SPRIGGS, PROFESSOR OF ECONOMICS AND 
         CHIEF ECONOMIST, HOWARD UNIVERSITY AND AFL-CIO

    Mr. Spriggs. Thank you, Chair Brown, for this opportunity 
to offer this testimony on behalf of the AFL-CIO, America's 
house of labor, and based on my experience as an economist at 
Howard University.
    We are in an unusual moment. We have not seen price 
volatility of this sort in about 50 years. The analogy to the 
previous time we saw price volatility of this type, in the 
early 1970s and the late 1970s, when we had oil shocks, when we 
had wars, and we had two major hurricanes that disrupted 
production, has led many people to think that those supply 
shocks should be viewed as benign and the real issue was 
demand, and people want to think the current situation of price 
volatility is similar. It is not.
    So I just want to walk through this issue of price 
volatility, and by that I mean that month-to-month price 
changes, the variation of month-to-month price changes have 
peaked at an unusual level. They are receding on their own 
right now.
    To walk through how the supply chain can affect things, 
remember that if you stop the ability to buy one good you are 
going to have people look for substitutes. The lack of chips 
for the auto industry has led to the greatest decline in 
production we have seen over the last 40 years. So as an 
example, in 2019, when General Motors forced a strike on the 
UAW, we had a strike that lasted from mid-September to the end 
of October, total U.S. auto production only fell by about 20 
percent.
    Last year, at the worst of not being able to find chips, 
production dropped 60 percent. This is a collapse in auto 
production. We have not seen that before. We have only gotten 
back to around 58 percent of the production that we had in the 
pre-COVID January of 2020. That is a huge drop in supply over a 
prolonged period. We simply have not had that.
    The result is that the price for new cars has gone up, not 
because demand over the 2-year period was excessive but simply 
you cannot function it if you are going to make less than half 
the cars you used to make. That sent the price of cars up by 
about 10 percent. The price percentage points to the total 
inflation was about 0.4 or 0.5.
    If I cannot buy a new car then I am going to buy a used 
car, so we shift the demand curve out for used cars. The demand 
curve for used cars resulted in a prolonged spike in used car 
prices that generated 1.7 of the points. Of the 7.9 points in 
inflation, 1.7 is just from the seeking of a substitute for the 
new cars, which are not producing, which we are only being able 
to make at the lowest level ever.
    And, of course, if I cannot buy a new car, and a used car 
is too expensive, then I repair my old car. And so we have 
another little bump-up in inflation from the shift for more 
auto repairs. In total, that comes to over 2.3 points of the 
7.9 points. About 30 percent of inflation is just because we 
cannot get chips.
    To say that this is not dealing with a supply, a lack of 
supply, General Motors right now would be making every car they 
could because people want to buy them. They cannot.
    But these supply shifts and the ripple effect have repeated 
themselves throughout 2020, whether it is Vietnam having to 
shut down a plant because of COVID, or India having to shut 
down because they have to divert oxygen to their hospital, or 
China shutting down ports. We need a more resilient economy. We 
need Congress to pass the CHIPS Act to address what we now know 
was an over-concentration of chip manufacturing in the hand of 
just a few companies too far from the United States, and we 
need more competition in that space. We need Congress to look 
at the supply of labor and the passage of the Build Back Better 
to ease frictions that are keeping women from returning to the 
labor force.
    These are steps that Congress can make to recognize that we 
live in a world with higher risk, global geopolitical, and we 
hope never another pandemic. Congress can make this different 
for us going forward. Thank you.
    Chairman Brown. Thank you, Dr. Spriggs.
    Dr. Stevenson, welcome.

 STATEMENT OF BETSEY STEVENSON, PROFESSOR OF PUBLIC POLICY AND 
               ECONOMICS, UNIVERSITY OF MICHIGAN

    Ms. Stevenson. Thank you very much, Chairman Brown, Ranking 
Member Toomey, and distinguished Members of the Committee for 
this opportunity to speak to you today.
    Both GDP and the labor market have recovered at a much more 
rapid rate than many predicted. Unemployment has fallen to 3.8 
percent. People have the confidence needed to look for better 
opportunities and leave their current jobs, and they are 
finding better opportunities. A recent Pew survey found that 
more than half workers who quite a job in 2020 were now earning 
more money, they had more opportunities for advancement, and 
improved ability to balance work and family responsibilities.
    Indeed, the V-shaped recovery that Members of Congress 
hoped for when they passed those many spending bills to help 
Americans recover from the pandemic has materialized due to 
those efforts.
    Now that same survey, though, found that among parents who 
had quit a job, nearly half said they had quit because of 
childcare issue, and that highlights a challenge I want to 
speak to you about today. But let's start with the dark side of 
the economy, inflation.
    While inflation captures a generalized rise in prices, it 
does not mean that all prices are rising similarly, and 
Professor Spriggs articulated quite clearly that there is a 
concentration in inflation, in the goods-producing sector.
    I share some of Senator Toomey's enthusiasm for trade, and 
I would say to you that our urgency there to support trade is 
to vaccinate the globe. Similarly, within the U.S., containing 
COVID is essential to keeping the economy smoothly operating. 
The last COVID surge in January did not lead many people to 
lose jobs, so it is not showing up in the data that way, but it 
did lead to millions of people missing work due to illness. 
Availability of tests, vaccines, well-ventilated buildings 
helps boost productivity and ensures that workers are healthy 
enough to meet the demand of customers.
    A healthy and robust labor supply is particularly important 
for the service sector. To put in perspective the size of the 
manufacturing sector in today's economy, we produce a lot more 
stuff in today's economy, but it has really shifted toward the 
service sector. When we entered the pandemic, we had a million 
fewer people working in the goods-producing sector than we had 
at the beginning of the 2008 recession. Today, 84 percent of 
private sector workers are in the service sector, and for much 
of the past year the service sector has not experienced the 
upward price pressures of the goods sector.
    Inflation in services excluding energy is running at 4.4 
percent, and most services are well within normal inflation 
rates. Medical services, just 2.4 percent. Education and 
community services, just 1.7 percent. But do not take this as 
good news. Take it as a warning. These low rates of inflation, 
combined with low labor supply, is why services are where our 
most significant risk to ongoing high inflation lies. A rise in 
inflation in services could have a devastating impact on 
overall inflation, even if the price increases for goods begin 
to evade.
    The economy remains short 1.4 million workers, particularly 
prime-aged women, whose labor force participation rate is down 
relative to prepandemic levels and down relative to prime-age 
men's labor force participation today.
    Women exited the labor force and lost jobs at higher rates 
during the pandemic than men did, and yet in every other 
recession the United States has ever experienced, it is women's 
growth in labor force participation that helped pull us out of 
the recession. Between 2015 and 2019, women took way more jobs 
than men, and those jobs were largely in the service sector. 
One in 4 women work in education and health services, that area 
where we have yet to see high inflation.
    But this and the rest of the service sector is poised for a 
rapid recovery and demand over the coming year, as consumer 
demand for services is likely to rise as the pandemic wanes. 
But will there be workers to meet that demand?
    There are two critical steps you can take to ensure that 
workers, particularly women, return to the labor market. The 
first is to ensure access to care services, such as childcare 
and home nursing care. Research, that I outline in my written 
testimony, has shown that caregiving responsibilities keep 
women and men out of the labor force. Remember that stat: 
parents just told us that their quits were driven by care 
concerns in 2021.
    The second step is to increase funding and improve access 
to training programs, particularly for vocational and community 
college programs. Enrollment in community colleges declined 
nearly 15 percent during the pandemic. Enrollment in health-
related programs declined nearly 10 percent, education programs 
12 percent. Enrollment has fallen most for first-generation 
students and underrepresented and minorities.
    These declines are bad for the potential students but they 
are the Achilles heel in our supply chain resiliency. The 
slowdown in training in some fields is a harbinger of potential 
labor shortages that will translate into an increase in prices. 
As employers compete for a dwindling supply of workers with the 
needed training, wages will be bid up to the point that the 
additional costs will need to be passed on to customers. The 
time to act is now. Thank you.
    Chairman Brown. Thank you, Dr. Stevenson.
    Dr. Fuchs, welcome.

  STATEMENT OF ERICA R.H. FUCHS, PROFESSOR OF ENGINEERING AND 
           PUBLIC POLICY, CARNEGIE MELLON UNIVERSITY

    Ms. Fuchs. Thank you, Chairman Brown, Ranking Member 
Toomey, and Members of the Committee.
    Early during the pandemic, I spoke with a medium-sized U.S. 
medical supplier capable of manufacturing nine million masks 
per month. Surprisingly, their most challenging bottleneck was 
elastic ear loops. When discussing critical technologies, we 
would not ordinarily think elastic, yet during those early 
months of intense supply shortages that lack of elastic cost 
our country millions of masks a week.
    A similar story could be told in how the current shortage 
in semiconductors is stopping cars from being produced and 
leading to job losses in Michigan.
    The solution to these problems are not as simple as just 
stockpiling masks or reshoring manufacturing. In the case of 
elastic, what was missing was the capability to pivot--adapt 
the equipment, change the elastic, change the mask to not 
require elastic, change the regulations. In semiconductors, 
what is needed is to redesign the chips.
    I will highlight three steps toward building a resilient 
economy, and the cross-mission, critical technology analytics 
our country needs to implement these steps.
    First, the U.S. must build timely situational awareness. 
Otherwise, we are flying blind. At the time of the COVID 
outbreak, the last data collected by the economic census on all 
domestic manufacturers was 2017. While the Government convened 
large leading companies, they estimated that they had the 
capability to meet only half of domestic demand. What they 
needed, however, was not more firms but better tools.
    Leveraging automated text analysis of public data, my 
colleagues and I created timely situational awareness of U.S. 
domestic manufacturers entering, pivoting into, and scaling up 
in response to the COVID crisis, particularly small- and 
medium-sized firms unknown to Government. Within 2 weeks, we 
revealed significantly greater domestic mask and respirator 
manufacturing capability than known before.
    The Government needs these modern data analytic 
capabilities. Figuring out which products and supply chains 
have sufficient national value to be tracked pre-emptively will 
require cross-mission valuation that aggregates across defense, 
health, labor, equity, and commercial interests.
    Second, the U.S. must create the supply chains of tomorrow, 
not fix the supply chains of yesterday. Innovation can 
transform supply chains and our competitive position thereon. 
Most batteries for electric vehicles require significant 
cobalt, the majority of which is mined in the Congo and refined 
in China. As the world scales up electric vehicle production, 
innovations such as in cobalt-free batteries could reduce and 
even eliminate such regional-specific risks.
    Semiconductor chips used in transportation and defense 
systems are highly heterogeneous and custom-designed to single 
manufacturing facilities. Government funding of common design 
platforms would reduce the cost of switching between facilities 
and increase supply chain resiliency. It would also increase 
the aggregate market power of these sectors critical to 
security and the economy.
    Third, the U.S. need to rebuild its manufacturing ecosystem 
through investments in infrastructure. In our research on 
domestic manufacturers pivoting during the pandemic, what was 
left of the U.S. manufacturing ecosystem was central to the 
U.S. response.
    In Wisconsin, the founder of a waste management and 
construction company, MacGyver'd broken mask manufacturing 
machines into working for commercial-scale production. In 
Indiana, a company leveraged its expertise in filtration 
materials and oil-absorbent products to pivot into making melt 
blown polymers for masks, and later also N95s themselves.
    These pivoting companies' previous experience in waste 
management, construction, and water or oil infrastructure 
strengthens my belief that the greatest promise for rebuilding 
our manufacturing ecosystem may be equitable, country-wide 
investments in infrastructure of the future. Infrastructure for 
transit, energy, communications, and data address needs of 
society and manufacturing. Done right, investments in smart, 
climate-resilient infrastructure of the future can build 
national capabilities in the companies and skilled workers who 
become the manufacturing workforce of the future.
    Going forward, the U.S. needs to build the analytic 
capability to identify win-wins across missions. My research 
shows that certain innovations in areas critical to national 
security, including high-end semiconductors for communications 
and cobalt-free batteries, offer better jobs for hard-working 
high school graduates.
    Similarly, in the case of the current semiconductor 
shortage, Government funding of design platforms that embrace 
commonalities but leave room for differences across the 
technological demands of the defense and commercial sectors can 
lead to a solution where the sum is greater than the parts for 
U.S. security, economic, labor, and equity interests.
    To ensure future U.S. security, competitiveness, and access 
to critical supply, the U.S. must establish a forward-looking, 
cross-mission, critical technology analytics program able to 
build timely situational awareness, quantify the value of 
innovations to transform our geopolitical dependencies, and 
identify win-win pathways across national missions.
    Chairman Brown. Thank you, Dr. Fuchs.
    Dr. de Rugy.

STATEMENT OF VERONIQUE DE RUGY, GEORGE GIBBS CHAIR IN POLITICAL 
    ECONOMY AT THE MERCATUS CENTER, GEORGE MASON UNIVERSITY

    Ms. de Rugy. Chairman Brown, Ranking Member Toomey, and 
Senators, thank you for having me today and giving me the 
opportunity to testify. You have a copy of my original 
testimony so I would like to focus on two key points today.
    First, fiscal and monetary policy decisions are the key 
reasons for the inflation we face.
    Second, while supply shocks should not be ignored, they are 
not the main cause of inflation.
    So first, the United States is currently experiencing an 8 
percent inflation over the past year. The key reason for this 
burst of inflation is Government-induced demand. The U.S. 
Department of Treasury first issued $3 trillion of new debt, 
which the Fed quickly bought in exchange for $3 trillion of new 
reserves at the Treasury, which then, in turn, the Treasury 
sent out as payments to Americans. The Treasury then borrowed 
another $2 trillion or so send out another round of payments. 
Overall, Federal debt rose by almost 30 percent of GDP over 2 
years.
    This response was crafted on the mistaken assumption that 
the pandemic-induced recession was mostly an aggregate demand 
shock, not one of aggregate supply caused by the lockdown and 
the pandemic. Under these circumstances, sending money to 
people was going to have little impact on the output while 
greatly affecting demand for durable goods.
    The size of the fiscal stimulus was also a problem. Even by 
Keynesian standards, the COVID relief was larger than any 
plausible output gap. The deficit spending of $1.9 trillion in 
the American Rescue Plan, in particular, was much large than 
the projected $700 billion output gap through 2023, the period 
when most of the spending would take place and at a time when 
unemployment had reduced quite significantly.
    Whereas everyone from the Fed chairman to monetary experts 
spent most of 2021 explaining inflation without any mention of 
fiscal and monetary policies, economists such as Larry Summers 
and Jason Furman were sounding the alarm that excessive 
spending would boost aggregate demand to the point of 
overheating the economy and causing inflation. They also 
objected to the inconsistent but widespread narrative that this 
inflation was mostly due to supply shock. Several studies 
confirmed the demand-side effect of inflation.
    So what about supply shock, such as supply chain 
chokepoints? What about shift of demand from service to 
durables? I mean, these factors cannot be dismissed, but they 
are not the main cause of inflation.
    First, there would not be such supply chain issues without 
the massive increase in demand for durable goods fueled by 
Government spending and money creation. According to the WTO, 
artificially inflating demand for goods accounted for 65 to 75 
percent of supply shortages.
    Second, global supply chains are global. If inflation were 
truly the product of global supply chain issues we would 
witness roughly the same level of inflation throughout 
industrial Nations. But we do not. Most industrial countries 
have much lower level of inflation than us. These other 
countries also implemented significantly lower levels of COVID 
relief.
    Finally, one needs to differentiate between supply 
constraints, which increase the price of some or even many 
goods relative to other prices, and inflation, which occurs 
when the price of everything, including labor, rise. We are now 
seeing the price of everything go up, and wages too also 
rising, though for now at a lower rate.
    Supply shock and constraints do not cause a broad-based 
pattern. In addition, price level hikes caused by supply side 
shocks are generally not ongoing month after month price hikes. 
They are usually a one-time price level jump, which eventually 
dissipates when the supply shock is over, and indeed usually 
reverses, resulting in a period of measured deflation. Again, 
here, all prices are rising. The inflation is persistent, and 
there is no sign of a reversal.
    The bottom line is the inflation we have is, for the most 
part, a fiscal and monetary inflation. Controlling it requires 
strong Fed actions but also significant fiscal restraint from 
Congress. Short of implementing both, inflation could persist 
much longer, at the expense of the most economically vulnerable 
in our society. However, be aware that our level of debt has 
made controlling inflation harder and will make it much more 
fiscally painful.
    Thank you.
    Chairman Brown. Thank you, Dr. de Rugy.
    Dr. Levy, welcome.

       STATEMENT OF PHIL LEVY, CHIEF ECONOMIST, FLEXPORT

    Mr. Levy. Thank you. Thank you, Chairman Brown, Ranking 
Member Toomey, and Senators, for this opportunity to testify 
today on the performance of supply chains through the COVID-19 
pandemic. Even from a purely economic perspective, it has been 
a time of extraordinary shocks, unprecedented policy responses, 
and shifting economic behavior.
    One salient outcome has been disappointment in the 
performance of global supply chains. In my testimony, I would 
like to address the question of why this happened. Why did we 
not continue to enjoy the ready availability of goods at 
moderate prices, to which we have become accustomed?
    I will focus on two potential dominant causes and then 
argue for a choice between them. I will close with a thought or 
two about supply chain resiliency.
    The first explanation I will offer attributes the shortages 
and the prices hikes that the country has experienced to a 
failure of global supply chains. Over the course of the 
pandemic, we saw periods when factories around the world closed 
due to COVID infections or were operating at limited capacity. 
We saw infections and restrictions hit truckers, warehouses, 
rail, air, and port operations. It is inarguable that the 
pandemic posed serious challenges for supply chain operations.
    There are some who believe that if we just reduced our 
dependence on foreign goods we would be insulated from such 
shocks and enjoy greater resiliency in our supply chains. 
However, the supply chain challenges that I described above 
were by no means limited to foreign suppliers, foreign ports, 
foreign warehouses, and foreign truckers. They were not 
confined to any one country. We experienced all of those 
difficulties in the United States as well.
    Even if it were economically feasible to produce all the 
goods we want in the United States, at high quality and 
reasonable prices--it is not--the result would only be enhanced 
resiliency if the United States were immune to the ravages of 
such pandemics. It is not.
    Before we blame everything on supply chains we need to 
consider an alternative explanation. The pandemic-era economy 
has been characterized by a dramatic expansion in the demand 
for goods. How could it be that goods consumptions rose so 
sharply in the wake of such a powerful shock? We can look at 
three complementary explanations.
    First, there was the clear effect of health measures. When 
it became difficult to go to a gym, or a restaurant, or a movie 
theater, people instead purchased home exercise equipment, 
kitchenware, or entertainment centers.
    Second, in the wake of the pandemic due to powerful fiscal 
policies, real personal income never dropped back to its level 
of March 2020, nor did the level of Government social benefits.
    Finally, extraordinarily accommodative monetary policy, 
negative real interest rates, provided an incentive for 
consumers and businesses to move purchases forward in time, 
thus stimulating present consumption.
    Note that either an expansion of demand or a contraction of 
supply could drive up prices. However, only an expansion of 
demand would explain the additional quantity consumed. Had the 
supply chain been unable to deliver the goods, quantities 
consumed would necessarily have fallen. Instead, they grew 
significantly. By spring of 2021, durable goods consumption was 
up 35 percent on its February 2020 level.
    For imports, if we compare the fourth quarter of successive 
years, 2020 was 5.4 percent above 2019, while 2021 was 13.6 
percent up from 2 years before. Those were record highs. None 
of this is consistent with an international supply system that 
has broken down.
    So what happened? The supply chain system was able to 
deliver significantly more goods in the face of surging demand, 
but has had its limits. The system has now been operating at or 
above peak capacity for almost 2 years. That has brought 
congestion, high prices, strains, and delays.
    One might ask, why did we not have an even more resilient 
system that could readily accommodate such surges in demand? 
The answer is that capacity is costly. For the public sector, 
there is a reluctance to allocate funds to build out 
infrastructure beyond any realistically anticipated need. For 
the private sector, the cost of excess capacity can drive 
companies out of business.
    On the subject of resiliency, there is no simple, low-cost 
policy that allows an economy to gracefully accommodate very 
large and sector-specific surges in demand. In general, an 
efficient trading system that allows for flexible, competitive 
sourcing, is most likely to meet shifting demand. As a policy 
measure, this argues for an open, rules-based trading system.
    To conclude, the shift in preferences and a strong policy 
response induced an extreme and sustained demand for goods. The 
global logistics system was able to partially accommodate this 
surge in demand, even amidst operational difficulties. But 
global supply chains had and have capacity constraints. As 
surging demand hit those constraints, costs have risen and 
goods have taken a long time moving from factories to 
customers.
    The resulting scarcity, along with pressures for increased 
production and hiring, have contributed to rising inflation. 
The measures most likely to ease supply chain pressures are 
those which curtail demand. The measures most likely to bring 
resilient supply chains are those which facilitate global 
sourcing. Thank you.
    Chairman Brown. Thank you, Dr. Levy.
    Let's start with you, Professor Spriggs. Your explanation 
with the chip shortage and its impact on new auto sales and 
used auto sales, and even auto repair was clear and concise as 
a major contributor to inflation. Thank you for giving us that 
insight.
    Answer these couple of questions, if you would, Professor 
Spriggs. Would making more in America make our supply chains 
shorter and stronger, and how do we make sure we are better 
prepared for these risks and their impact on the supply chain 
and our economy?
    Mr. Spriggs. Yes, it would make our economy more resilient 
because the supply chain, particularly for chips, turned out to 
be too highly concentrated. This is bad, even if it had been in 
the United States, because if it had been in Texas, the freeze 
that we had a year ago might have destroyed chip capacity.
    We do not want, as a global matter, to have this high 
concentration in a small set of firms in a small geographic 
space. We would be more resilient, the world would be more 
resilient, and the United States, as you mentioned, is the 
inventor of this technology. We need to renew our commitment to 
being ahead on that game.
    This is key to manufacturing. That would be like saying, 
``I do not want oil,'' to say you do not want chips. It is that 
essential, and we have to guard that.
    Chairman Brown. Thank you, Professor Spriggs.
    Professor Fuchs, in your testimony you mentioned the back-
and-forth between engineers, between and among engineers and 
workers on the assembly line is essential to bringing 
innovation to market. The people coming up with ideas, the 
people executing those ideas need to be in conversation with 
each other. We lose that when corporations move abroad.
    Elaborate on why investing in a vibrant manufacturing 
sector is critical to retaining domestic innovation.
    Ms. Fuchs. So I actually want to address two things in one. 
One is Senator Toomey's comment that there is a growing amount 
of manufacturing in the United States. That is correct, 
according to manufacturing value-added statistics. It is 
complicated because our proportion--(a) what does value-added 
measure, and (b) what our proportion is of the global pie has 
been shrinking.
    I think the most important question, which comes to your 
question, Senator Brown, is what we do not produce, which is 
why I focus on critical technologies and defense types of 
implications. So for example, 90 percent of cellphones, and 80 
percent of computers are made in China. Is that OK for defense? 
Is that OK for our economic security? That is where I would 
focus our questions.
    I think that when we talk about--and our resiliency--when 
we talk about--I will stop there, actually.
    Chairman Brown. OK. Thank you.
    Dr. Stevenson, as you know and as you pointed out well, 
some workers, especially women, were forced to leave their paid 
jobs at the beginning of the pandemic because of the lack of 
childcare that made it harder for people to afford to go to 
work. People went to work but they simply cannot afford to with 
a child under 4 years old at home.
    The expansion of the child tax credit certainly helps 
workers afford childcare. What additional actions should 
Congress take to support workers, especially women, in 
reentering the paid labor force?
    Ms. Stevenson. Well, the childcare provisions in Build Back 
Better are necessary to strengthen our childcare system. You 
know, childcare workers are some of the lowest-paid workers in 
the economy. A typical childcare worker makes $12 an hour. It 
is impossible to hire childcare workers at this point at that 
wage because, fortunately, the wages at the bottom have been 
pushed up.
    The problem for families is that if childcare workers start 
to see wages that are competitive with, say, Amazon, at $18 an 
hour, that is going to think about maybe a 50 percent increase 
in childcare for families. That is going to make even more 
families find that childcare is unaffordable for them.
    That means that there needs to be broad-based subsidies 
available for parents to be able to afford to work. If we 
really want to think about this, can you afford to work? There 
is a long literature that shows that many women have paid to 
work in the past. By the time they pay their marginal taxes, by 
the time they pay for childcare, by the time they pay their 
commuting costs, they come out behind. As childcare costs rise, 
even more women are going to find themselves in that situation, 
and as an economy we really cannot afford to lose these women 
right now.
    We need them to come back. They provide essential services, 
and produce essential goods in the economy. But they need the 
kind of support that families need to be able to afford high-
quality investment in their children.
    Chairman Brown. Thank you. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Dr. de Rugy, so 
let me see if I have got this right. So over 2 years of 2020 
and 2021, money supply grew at about 40 percent. The Federal 
Government took on massive amount of new debt, spent a massive 
amount of money, more than offset lost income. Government 
spending was greater than the output gap.
    And if I understand correctly, your view is that all of 
this extraordinary money creation, new debt, and spending 
actually is the source of most of the inflation. Is that a fair 
characterization?
    Ms. de Rugy. Yes.
    Senator Toomey. And Dr. Levy--I am sorry. Is it LEV-y or 
LEE-vy?
    Mr. Levy. LEE-vy.
    Senator Toomey. Levy. Dr. Levy. Some have still tried to 
blame inflation on supply chain disruptions, and President 
Biden, not too long ago, described our supply chain as a being, 
quote, ``cut off.'' Our supply chain was ``cut off.'' So tell 
us about the state of our supply chain. Is it cutoff? Is that 
what happened with our supply chain?
    Mr. Levy. No, sir. It is not. The supply chain is working 
very, very hard at the moment. Now, it is experiencing delays. 
There are actually people working heroically, in very difficult 
conditions, but an awful lot of goods are moving. It is not 
cutoff.
    Senator Toomey. So, in fact, are the ports, through which 
we bring in a lot of the imported components of our supply 
chain, are they operating at record levels?
    Mr. Levy. They are, and they are suffering from congestion. 
There is difficulty moving containers around, getting rid of 
empties. But yes, you are quite correct. They are operating at 
record levels.
    Senator Toomey. So they are pushing more products through 
than they ever have before, really.
    Mr. Levy. Correct.
    Senator Toomey. That is what is happening with our supply 
chains.
    Now even if that is not the cause of our inflation, it 
would still be great if our ports could be even more 
productive, right, if they could put more products through. 
That would be great. Tell me this. Do American ports lead the 
world in productivity and efficiency?
    Mr. Levy. Sadly, they do not. If you look at independent 
rankings of port efficiency, American ports do not tend to rank 
especially high. There is room for improvement.
    Senator Toomey. Dr. de Rugy, do you have any views on what 
could be done to increase the productivity and the efficiency 
of our ports?
    Ms. de Rugy. With the caveat that it is not my area of 
expertise, I mean, there is no doubt that there is a lot of 
room for improvement. As Dr. Levy has said, like when you look 
at most rankings, the U.S. ports never rank in the top 50. In 
fact, I went and looked at the World Bank's Container Port 
Performance Index, and not a single port--so maybe it is the 
top global 50 ports. And the largest U.S. port, Los Angeles and 
Long Beach, which account for 40 percent of loaded import 
nationally, ranked 328th and 333rd.
    I mean, I thought it was quite puzzling, considering we are 
a big, big country, doing a lot of trading. And it seems that 
there is a fair amount of consensus about the fact that unions, 
I mean, could be one of the factors that reduce the efficiency 
of ports, not because when they are on the job they do not 
actually work a lot, but it is because through their contracts, 
and because of labor purposes, they have reduced hours, they 
are very opposed to automation. And automation is one way to 
significantly create increase in efficiency. And you can see 
it. Like a lot of our ports apparently are manually--the cranes 
are manually operated, which is not the case in a lot of Asian 
ports. They do not function 24/7.
    I mean, it is hard. It is a hard transition from what we 
have now to what other ports have, but we just far, far from 
what we could do.
    Senator Toomey. So that makes it more expensive to process 
goods through our ports than it needs to be.
    Ms. de Rugy. Absolutely. Yeah. Well, I mean, and again, not 
my area of expertise, but it does look that it--I mean, it is 
just pretty lucrative to work at a port. And so, yes.
    Senator Toomey. My understanding is wages are 
extraordinarily high. Some of the highest labor wages in 
America, are at our ports. What is maddening is the leadership 
of organized labor resisting the automation. You could 
grandfather current workers. You could make sure that nobody 
gets laid off in the near term. But you could ensure that at 
least in the future we would begin to catch up to sort of a 
second-world level of productivity at our ports. That would be 
nice.
    I see my time has expired. Thank you.
    Senator Menendez [presiding]. Thank you. Senator Brown had 
to step outside for an introduction so he asked me to preside. 
I will recognize myself.
    One of the major factors holding back the supply chain is a 
widespread shortage of labor. And while some of the labor 
shortages we hope to be addressed by the reopening of the 
economy as the pandemic recedes, I am not convinced that will 
fully address the problem.
    Dr. Stevenson, can you briefly describe the effects of the 
labor shortage and where we are seeing the largest deficits?
    Ms. Stevenson. Yeah. So we are still missing a million-and-
a-half, roughly, workers who have not returned to the labor 
force.
    Let me put this in the broad spectrum, which we have seen 
declining labor force participation for prime-age men for many, 
many, many decades. What has saved the United States has been 
the rising labor force participation of women, which has pulled 
us out of every single previous recession, with women's labor 
force participation growing faster than male labor force 
participation.
    That is not happening right now. And so it is crucial that 
we bring women back. I think it is also crucial that we solve 
the problem of declining male labor force participation. Some 
of that is about making sure that there is widespread 
availability of jobs but also that workers have access to the 
training that will give them the good-quality jobs that they 
can stay attached to, that motivate them to be in the labor 
force.
    I am particularly worried about ongoing labor shortages as 
demand for services resumes. This Committee has heard a lot 
about our big consumer demand for goods. We really liked our 
goods during the pandemic. But I believe we are going to want 
to go back to things like preventative health care, elective 
health care, enrichment, educational products. So when I say 
education workers I am not talking about public school 
teachers. I am talking about private sector. All of that 
inflation is very, very low. Demand is low. If it comes back 
and the workers do not, that is going to be source of inflation 
that you are having hearings about next year.
    Senator Menendez. Yeah. And that million-and-a-half that 
you are talking about who have not returned to the workforce 
still falls far short of the nearly 10 million jobs that go 
unanswered in the economy today.
    A few weeks ago, Chairman Powell of the Federal Reserve 
testified before the House Financial Services Committee that 
part of the labor shortage is being fueled by an inordinately 
high number of retirements. We just do not have the workers to 
replace those who are leaving the labor force.
    Thankfully, immigrants are ready and willing to fill those 
jobs. In your view, what is the potential role of immigrant 
workers in mitigating the current labor shortage?
    Ms. Stevenson. I think that Congress should take immediate 
steps to ensure that undocumented immigrants who are in the 
United States, particularly young ones, can stay and can work, 
because we need them in the labor force. We are going to have 
to open our borders back up and welcome workers from around the 
world, and welcome students from around the world back into our 
schools. That is a place where we get a lot of our innovation 
from, that sort of rich source of immigrant labor. So I think 
that is a very important part of expanding our labor force.
    Senator Menendez. You are not alone in that view. Leading 
business groups in this country agree that robust immigration 
reform is urgently needed to address our labor shortage. And I 
am talking about not only in the question of dealing with 
undocumented workers but even in terms of our visa process. 
There is an enormous backlog.
    I wanted to ask Dr. Spriggs. The pandemic exposed or 
exacerbated disparities throughout all sectors of the economy, 
including the supply chain. Recent research from the University 
of Chicago's Booth Business School showed that customers 
delayed payments to their suppliers when their suppliers had a 
female or Black trade credit officer, at 10 to 20 percent 
higher rates relative to the payments to White men.
    Are you familiar with this or other research regarding 
racial or gender bias in the supply chain?
    Mr. Spriggs. I am not familiar with that specific study. We 
saw many disparities that we did not want to see, with the 
Payroll Protection Plan loans, through the slow rate at which 
Black workers were able to be rehired, despite the fact that 
many employers said they were desperately looking for anyone. A 
number of these cleavages unfortunately showed themselves 
during this crisis.
    Senator Menendez. What broader negative effects could bias 
in the supply chain produce for minority communities?
    Mr. Spriggs. Well, this makes it harder for those 
businesses to survive in this setting, and it was very hard for 
them to get access to the liquidity to survive in this setting. 
Frictions in the economy hurt everyone. They drive up costs. 
And so we all lack because of that.
    Senator Menendez. So, Mr. Chairman, just taking one 
community that I am infinitely familiar with, the Hispanic 
community, largest minority in the country and growing 
exponentially, fastest rate of growth of small businesses are 
Latina-owned business, but if they are disproportionately 
affected by our payment process and the supply chain effort and 
access to capital and all of those things, then the biggest 
growth faces some of biggest challenges, which means at the end 
of the day there are consequences for the country, far beyond 
the community itself. That is something I look forward to 
working with the Chairman on.
    Chairman Brown [presiding]. Thank you, Senator Menendez.
    Senator Rounds, of South Dakota, is recognized.
    Senator Rounds. Thank you, Mr. Chairman. First of all, 
thank you to all of you for coming and visiting with us today.
    I want to take a little bit different tact. In South Dakota 
right now, January to January, we saw an increase of $1 a 
gallon in unleaded fuel. I think right now it is fair to say 
that the cost of fuel is up about 38 percent, year to year, 
right now. Clearly that impacts the cost of transportation, the 
cost of production, and so forth.
    We have not talked a lot about energy, and I would like to 
bring that into the conversation a little bit. I will begin 
with Dr. Levy. What would you say is, of the total inflation, 
let's just say rounded at 8 percent inflation, what do you 
believe the impact of these higher energy costs are in terms of 
the inflationary numbers that we are seeing right now?
    Mr. Levy. Thank you, Senator. I do not have the numbers in 
front of me. You frequently get these numbers put out, where 
they will exclude food and energy and get to a core inflation, 
which is usually 1 or 2 percentage points lower. But that still 
leaves you at a very high number if you are starting at 8, so 
on the order of 6 percent, but I cannot swear to a number.
    Senator Rounds. Thank you. Professor Spriggs, I am curious. 
What would be your thought with regard to how much the cost of 
energy is adding or is a part of the inflationary trend today?
    Mr. Spriggs. We are just going to just see the tip of that. 
As you mentioned, it is an input throughout the system, whether 
it just to fuel the tractor, but that tractor is then used to 
produce our wheat. So we are going to see ripples of that, but 
this is the point of overdependence on any specific energy 
source, and why we must seek to diversify our energy sources. 
And we must make the investments to allow for the just 
transition of workers, not only because we need this 
diversification but also because we know it is contributing to 
some of the global warming crises that we are seeing.
    But we cannot stop this right now, unfortunately, because--
--
    Senator Rounds. But Dr. Spriggs, right now we are looking 
at--and I recognize that we have to have energy from all 
sources, and we should be in all of the above. But what I am 
curious about is right now, with energy costs rising, and you 
indicated earlier that, you talked about chips and oil, and I 
think the similar thing here is we have got a shortage of chips 
right now but apparently we have an increase in the cost of oil 
as well.
    Dr. de Rugy, I am just curious of your thoughts with regard 
to inflation. And right now we are trying to split this up 
between the impact of demand versus supply. But where does our 
energy come into play with regard to the inflationary impacts 
that we are seeing today?
    Ms. de Rugy. So this is what I was saying earlier on, which 
is we have to be careful when you actually try to measure what 
is inflation and what is not, to not confuse inflation, which 
is basically the rise of all prices including wages, and change 
in relative prices. And it is true that the supply shock of 
energy, this has reduced the supply of energy and has increased 
the price of oil and energy, is picked up in the inflation 
number.
    The question is, is it going up month after month after 
month, and what happens when the supply or the supply shock 
dissipates? Is the price going to go down? The answer is very 
likely yes.
    With pure inflation, with inflation that is the product of 
demand and excess money printing and spending, you do not have, 
unless you, unfortunately, have very strong Fed action and 
Congress restrictions spending. And I am afraid some slowdown 
in the economy, you do not have these types of prices that go 
down.
    So it is a big difference. We always talk about all of this 
as if they were exactly the same thing, but once the supply 
shock, while it is painful right now, when it goes away 
hopefully the price will go down. This is not going to be the 
case for a lot of other prices that have gone up because of 
inflation.
    Senator Rounds. I just think that the fact that right now 
we have got an increase in the costs of energy right now, and 
that is impacting everything else, and as our economy starts to 
pick up again, the demand for the energy, the demand for 
gasoline and so forth, is going to be there. But most certainly 
if we do not continue to increase the availability of energy in 
the United States, of all sorts, we are going to continue to 
see that increase impact the prices that we pay for all 
products out there.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Rounds.
    Senator Tester, from Montana, is recognized from his 
office.
    Senator Tester. Yeah. Thank you, Mr. Chairman. This is for 
Ms. Stevenson. You talked about a million-and-a-half people are 
not returning to the workplace, and you said that women have 
bailed us out in the past and they were not returning--and 
correct me if I am wrong--were not returning at a very fast 
rate. And you also spoke to childcare.
    Could you tell me, number one, if childcare is one of the 
major issues that is stopping women from returning to the 
workforce, number one? Number two, what should Congress do 
about it?
    Ms. Stevenson. Thank you very much for that question. Yes, 
childcare is a factor that is keeping women from returning to 
the workforce. I actually also want to add that it is having a 
big impact on fathers now as well. What we saw during the 
pandemic was childcare responsibilities impacted the employment 
of mothers and fathers. Women were more likely to leave the 
workforce in its entirety because of their childcare concerns. 
But in a wide-ranging survey of fathers, I found that fathers 
turned down promotions, cut their hours, switched to more 
flexible work, stopped training or upskilling. Parents were 
forced to cut back their work efforts. That does not always 
show up in employment but it is going to show up in 
productivity as they switch to jobs that demand less because 
their childcare demands cannot be met in the market.
    I think it is also important to realize that both men and 
women are held back not just by childcare needs but by 
eldercare needs. We have seen a massive decline in employment 
in nursing care homes, that is partially due to supply--it is 
hard to find workers--partially due to demand--people do not 
want to put people in nursing care homes because they are 
worried about the health impacts. They need help with home 
health aides so that they can keep people at home and keep 
their jobs.
    In research prior to the pandemic we found that most people 
who are caring for an adult are prime-age workers, and a very 
large share of them are not in the labor force, and tell us it 
is because they cannot find a job with the flexibility they 
need to provide that kind of care. And additional research has 
found that, for each adult that gets access to sponsor to home 
health care, you get about a third of an adult being able to 
reenter the labor force. So you get two to three adults who 
need care----
    Senator Tester. I got that. What I am looking for, we know 
the problem, and I agree with you 100 percent. The issue is 
what can Congress do, and be very brief because I need to talk 
about some supply chain and shipping too.
    Ms. Stevenson. Sure. Thank you. So Build Back Better 
actually outlines what you need to do when it comes to 
caregiving and home health care aid. So I think it is simple. 
Pass Build Back Better.
    Senator Tester. OK. Thank you.
    This is for Mr. Spriggs. Mr. Spriggs--or Dr. Spriggs, I am 
sorry--you know, know what is going on in the ports right now. 
From an agricultural standpoint we cannot get our exports out, 
and they are taking back empty containers. We have seen 
prepandemic container costs go from $1,300 a container to 
$11,000 a container for stuff coming into this country, and 
they are taking empty containers back.
    When we had a hearing on this in Commerce a few weeks back, 
anti-trust smacked all over the room. Can you talk about 
whether we should be concerned about potential antitrust 
violations in the shipping industry?
    Mr. Spriggs. Yes, I think you should be concerned. I think 
this is another one of those things that popped up. The United 
States has more market concentration than is true in some other 
countries, and it is part of the reason why prices have gone up 
more in response to these shocks than in other countries. And 
we saw this specifically when it came to shipping. As 
complicated as they keep their ownership, it turns out that 
that is a highly concentrated industry, and it is not beyond 
the pale that some of this is those companies taking advantage 
of their market power.
    Senator Tester. All right. Well, I am going to check out, 
but thank you guys very, very much. I appreciate it. This is a 
big issue, and it is entirely caused by the pandemic, I 
believe, when people were told to stay home worldwide. And we 
lived off inventory for a while, and that inventory is not 
there now.
    Thanks, Mr. Chairman.
    Chairman Brown. Thank you, Senator Tester.
    Senator Warner is recognized, from Virginia.
    Senator Warner. Thank you, Mr. Chairman. Dr. Stevenson, I 
want to come back to you. In your testimony you talked about 
the need to increase funding for training programs and mid-
career upskilling. I think we have seen, literally over the 
last few decades, unfortunately the private sector decrease 
their investments in training and upskilling. I think that is 
bad for the individual. I think it is actually bad for the 
company as well.
    I have been working for some time, with very little success 
unfortunately, on rethinking about the whole way we treat 
classification, tax accounting, and porting-wise on investing 
in human capital versus investment in tangible goods. I mean, I 
have got a bill that has been modeled on the R&D tax credit 
that would give that same kind of incentive for businesses to 
invest if you upskill an individual.
    I always cite--and apologies to my colleagues; you have 
heard me use this example a number of times--a company spends 
$5,000 investing in a robot. You get an R&D tax credit. The 
robot is an asset. You can put it on your balance sheet. You 
can brag about it if you are a public company.
    The same company spends $5,000 training two human beings to 
be better than the robot, you do not get the same tax 
advantage. It is viewed as an expense. There is no asset 
categorization.
    So this Investing in American Workers Act is something I 
would like you to speak about. Also I have been working the 
head of the SEC, Gary Gensler, on robust human capital 
reporting again, something I think that most investors want to 
look at and need to make an honest assessment of the company's 
performance.
    So can you talk about these and other ideas to increase 
private sector investment in their human capital?
    Ms. Stevenson. Thank you so much for raising this point 
because I believe that it is incredibly important. We have seen 
companies invest less in worker skills. The fear that somebody 
is going to poach your worker after you have invested means 
that they do not want to invest, and we have also seen 
declining public investment in a lot of these skills as well.
    So we have workers, particularly those who are not 
graduating from college or advanced programs but who need very 
specific training so that they can be good at their job or that 
they can adapt to changes, just not getting those investments.
    You know, you positioned it as either the robot or the 
worker. I actually want to encourage you to say it is the robot 
and the worker, because if we look at what happened in the 20th 
century, America led the way in productivity growth because 
education kept pace with technological change, so that our 
workers were able to take advantage of the new technology and 
use it to its highest productive capacity. And we had the glory 
days of productivity growth.
    Senator Warner. Let me just interrupt you. I do not 
disagree with you, but I think we ought to at least treat the 
investment class the same way.
    Ms. Stevenson. Exactly.
    Senator Warner. I mean, for years we had abundance of labor 
and shortage of capital. We still favored investment in 
intangible goods over human beings. That balance has shifted 
back, and I think we have to say investment in humans ought to 
be treated as least as good as the investment in the robot. And 
I do not think it is an either/or. I agree it ought to be both. 
But this is a fairly radical shift in our thinking.
    Ms. Stevenson. And I would say we are far behind in 
investing in humans now. In the 21st century, we are behind 
most other OECD countries in investing in the skills of our 
people. That is not a place we should be. And if we want to 
take advantage of technology we need to create the incentives 
for employers to be investing in their workers, and I think 
that that would allow us to have skilled workers who can work 
better with technology.
    So I do agree that it needs to be on equal footing. I would 
actually put the thumb on the scale of invest more in workers 
now because our workers have fallen behind relative to other 
countries.
    Senator Warner. And I think that the R&D notion of an asset 
class back in the '70s was hard, I think sometimes, for 
accountants to wrap their head around, that idea that it would 
be fairly radical to think about investment in human capital as 
an asset class. But I think it is time to push that and let 
folks wrap their heads around it.
    It looks like Dr. Fuchs, are you trying to jump in on this 
one too?
    Ms. Fuchs. I do not know if I am actually allowed to, but 
if you call on me, yes.
    Senator Warner. Yes.
    Ms. Fuchs. I really like your proposal to invest in humans 
and a tax credit.
    Senator Warner. Well, if you like it you can jump in as 
long as you would like. Keep going.
    Ms. Fuchs. What I wanted to emphasize, complementing my 
colleague's comments, is that some of the most advanced 
technologies, advanced materials and processes, critical 
technologies, lead, if manufactured domestically, to more good 
jobs with more, exactly to Senator Brown's comment, more 
engagement by high school-educated operators and technicians in 
the innovation process itself in getting the products out the 
door. So we need to strategically invest in those skills needed 
for those future technologies.
    And so I think thinking about how we are going to make sure 
we are investing in the skills of the future is going to be 
essential. I also continue to believe that the best way to 
build skills and manufacturing capabilities in the country is 
investing in the infrastructure future. That brings in the 
ports concept. That brings in also the issue that Texas' grid 
going down led to some of the shortages in semiconductors that 
we are facing today. Not all of them. Oh my gosh, the shortages 
are so much broader than that.
    But if we improved our infrastructure, the resilience of 
our electric grid so that it is smart, it is resilient, it has 
dynamic capability, that improves cybersecurity, the 
incorporates your renewables. We need to invest in that 
infrastructure of the future as part of our training program.
    Senator Warner. And I know my time has expired but I just 
want to add again, I think Dr. Stevenson said, this notion that 
private sector was afraid workers may be poached from each 
other. I mean, I wish we would go back to potentially some of 
the upside of when somebody went and worked for the same firm 
for 30 years and that company felt an investment in that human 
being. I do not think we are going to reverse that. And so I do 
think we are going to need to think, frankly, more radically 
around asset class definition, tax accounting, and I think some 
of these ideas are worth pursuing.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Warner.
    Senator Van Hollen, from Maryland, is recognized.
    Senator Van Hollen. Thank you, Mr. Chairman. I thank all of 
you for your testimony today, and I know you have covered a lot 
of things that I was planning to ask about. But I do want to 
focus for a moment on the medical supply chain.
    Dr. Fuchs, a couple of questions for you, because we did 
see lots of bottlenecks when it came to our medical supply 
chain during the pandemic. PPE, like N95 masks and nitrile 
gloves, are essential to protecting our frontline workers. And 
yet we saw a big backlog when it came to supplying those. The 
U.S. market uses 55 to 60 billion pairs of these medical gloves 
every year, and yet right now only 1 percent of the world's 
supply comes from the United States, despite the fact that a 
lot of these products were first developed in the United 
States.
    Now some companies are moving to fill the gaps. In my State 
of Maryland, United Safety Technology, just last week announced 
that it was opening a $350 million plant at a site called 
Tradepoint Atlantic in Baltimore County, and it will bring 
2,000 jobs to that area, leveraging Federal Government support 
through a $96 million DoD-HHS contract.
    So my question is, clearly this is a step in the right 
direction, but how can we assure that as these investments are 
made, and when this pandemic begins to subside, that the 
downstream purchasers of these products do not simply go back 
overseas to something that may be cheaper but also less 
quality, but also, therefore, make us vulnerable again if we 
are not supporting manufacturing here in the United States?
    Ms. Fuchs. This is the million-dollar question, right? So 
we are talking about, in our original defense, the act of 1990, 
which looked at the concept of criticality, we did not have 
health in there. So obviously the pandemic highlights the 
importance of health, and more broadly social well-being in 
addition to security and economic prosperity.
    The question then becomes, though, how much do we need 
here? Now much do we need to be able to pivot, right? If Ford 
and GM, in 2 weeks, were able to bring up massive capacity for 
ventilators and for masks, so how much do we need our economy 
to pivot in order to move into that space, and how much do we 
need to create the new products of the future that are better, 
that everyone in the world wants? So I think those are all part 
of the solution.
    When we come to--and I know United Safety Technology from 
our research--when we come to these firms that pivoted during 
the pandemic into scaling and responding, there were issues 
they faced in terms of regulation that slowed them down, higher 
fees, for good reasons. There were issues that they faced also 
in terms of having other types of support that they needed, and 
there are issues now in terms of, as you noted, that continue 
then and now, getting to large-scale hospital distributors.
    I do not have an easy answer to you of how much we need. It 
is actually why I believe we need an entity in our country that 
is focused on critical technology analytics and that are cross-
missioned in order to figure out what is the cost and benefit. 
We are not going to make everything here, so what do we need to 
make sure, given the probability that it is going to be needed 
under an unknown future, how much we do we need to invest to 
make sure that we can sort of resiliently respond? How much do 
we need to help companies to make the products of the future? 
And how do we make sure, in certain cases, that we are 
investing as a country, whether that be in better ventilation 
or that be in ensuring the demand for mask, that we help these 
people get into those broader distribution channels and also 
continue to produce product for our country.
    Senator Van Hollen. Thank you. I do not know if any of the 
others of you want to comment on that question, your assessment 
of the current state of the vulnerability of our medical supply 
chain. If not, Dr. Fuchs, thank you, because I think this is an 
area that we are going to continue to drill down on. I am 
pleased to see these investments, but as you indicated in your 
answer, we need to make sure that these are sustainable 
investments that fix the problem over the long term.
    Ms. Stevenson. I would, I guess, one thing, which is your 
question was largely focused on manufacturing medical 
equipment, but I also want us to think about workers who are 
working in medical fields, where we actually see significant 
drop-offs in enrollment in certification programs and training 
programs.
    So I think the challenges we are going to see along our 
medical supply chain may move from being the PPE and goods to 
the people who wear the PPE and goods.
    Senator Van Hollen. No, I think that is a really good 
point. I am glad you raised it. I had some other questions on 
sort of the workforce shortage issue but I know some of those 
issues were covered, and childcare. And thank you, Dr. 
Stevenson, for your work on that.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Van Hollen.
    Senator Warnock is on his way. We will have a series of 
questions with him.
    Professor Fuchs, you seem eager to answer questions so I am 
going to give you another shot, so I appreciate that.
    Your work advances the notion that by investing in domestic 
manufacturing we invest in innovation and creativity. And I 
think one of the most important things to never forget in this 
is the contribution workers make on the shop floor, or on the 
jobsite, to innovation and technology and invention, and all 
the things that workers can do. And I think that we probably 
underestimate that, as we underestimate and do not talk enough 
about the dignity of work and all that workers need at the 
center of our economy. That helps us keep up with the changing 
world.
    So tell us more about how it will take a whole-of-
Government approach to build out the infrastructure to invest 
in innovative and creative technologies and make them here at 
home. How will that benefit us?
    Ms. Fuchs. So I believe part of the reason that we have 
underinvested historically in manufacturing and in 
infrastructure is our inability to value the full value of 
those investments. So for example, they do not only impact our 
security, national security, they do not only impact our 
economic prosperity, they also impact jobs. Those decisions 
also could impact climate.
    So if we take a cross-mission approach we might actually--
for example, in my work that I mentioned in the testimony on 
semiconductors for communications, those high-end 
semiconductors have better jobs, and having them domestically 
enhances our security, so why would we not invest in them? So I 
think if we take that cross-mission approach then we really 
would be investing more than we are currently.
    Chairman Brown. Professor Spriggs, talk for just a moment 
or two about housing. I was talking to some people from rural 
Ohio yesterday about how we fall so short, in rural areas and 
in urban areas, in providing housing for workers that is 
affordable and accessible. Talk about the role that you see 
there.
    Mr. Spriggs. Well, one of the great challenges we have seen 
are trends driven by the growth in inequality, and we need to 
remember that markets are one-dollar, one-vote, not one-person, 
one-vote. At this high level of inequality, where the top 10 
percent consume as much as the bottom 40 percent combined, it 
moves the price point on a lot of things, the things that the 
wealthy spend more on than the rest of us, housing being one of 
them.
    And so it sucks up the resources and it makes it harder to 
make affordable housing somewhere else. So in rural areas, for 
low-income families who live in urban areas, they are priced 
out of this demand equation. It is important for us to 
recognize that and to find ways to make public investment in 
housing in rural areas as well as in urban areas, so that we 
can put people back into the market, not just the dollars back 
into the market.
    Chairman Brown. Thank you, Dr. Spriggs. Senator Toomey has 
a question, and then we will go to Senator Warnock.
    Senator Toomey. And my question is for Dr. Levy. There are 
some who think that we need to have the Government intervene in 
the economy to make up for what the free markets are doing 
wrong, and specifically onshoring economic activity. Some 
openly describe this as national industrial policy, which 
strikes me as a euphemism for having the Government decide who 
they want to subsidize.
    But it is happening. I mean, EXIM Bank, for instance, has a 
whole new program where it is going to provide domestic 
financing, in some cases to companies that are not even 
exporting. I guess they think we do not have banks in America 
that can provide that financing. It is unbelievable.
    But what are your thoughts on the wisdom of devising a 
centrally planned national industrial policy to deal with these 
problems?
    Mr. Levy. Well thank you for the question. I think it is 
not a new idea. It is an idea that has been popular for many 
decades. It is rather old. And as such, we have seen all kinds 
of problems with this idea, that one of the real challenges--
knowing in what one should invest and picking the areas of the 
future is inherently difficult. If you do it in the private 
sector and you get it wrong you go out of business. That is 
unfortunate but it happens. If you do it in the public sector 
and you get it wrong there has been an unfortunate tendency 
that you keep going and going and going, and these tend to be 
sort of costly difficulties.
    So I think one needs to be extremely careful looking for 
instances where the public sector can outdo the private sector 
in these, and I think we have seen a lot of errors in that 
respect, looking around the world over the decades.
    Senator Toomey. And Dr. de Rugy, did you want to add 
anything to that?
    Ms. de Rugy. I agree. It has been tried many times in the 
past, and it often did not deliver on the promises that were 
made, precisely because the political system allocates 
resources not in the most effective ways. Very often it goes to 
special interests, and that is the primary driver of the 
decision.
    And unfortunately, as my colleague has just said, it is 
really hard when mistakes are made to correct the path. There 
is extreme path dependency. When you name the Export-Import 
Bank, I have been following the Export-Import program for a 
long time, and you, Congress, have given the Export-Import Bank 
very different mission goals ever since I have started 
following it, and yet the Export-Import Bank keeps doing 
exactly the same thing, independently of what you guys have 
asked it to do.
    So when it is convenient it is like, focus on China. Does 
it actually change the allocation of activities at the Export-
Import Bank? Not really. Actually, it was always that Boeing 
was the biggest beneficiary and a lot of the same constituents 
in higher-income countries, a place where capital is actually 
not that difficult to come by.
    And now, of course, you know, while it has totally 
underperformed on the China goal, there is a new mission, this 
mission that is currently perfectly performed by private banks. 
And that raises a lot of questions about whether it is going to 
actually really deliver on this, and I doubt it, precisely 
because of this path dependency.
    Senator Toomey. Thank you, Mr. Chairman.
    Chairman Brown. Thank you. Senator Warnock, from Georgia, 
is recognized.
    Senator Warnock. Thank you so very much, Mr. Chairman.
    Georgians are hurting and are dealing with the rising costs 
of basic things like clothing and medicine and groceries. And 
as someone who is home every week dealing with families, as 
their Senator, and families in my church, I see this up close. 
Families need immediate support as we are dealing with the 
rising costs that are a consequence of the pandemic, where the 
economy was slowed down significantly, supply chain issues, and 
corporations artificially raising prices.
    And that is why I introduced the Relief for Families Act. 
This legislation would cut costs of essential goods for hard-
working families by allowing States to use their American 
Rescue Plan dollars to offset sales tax holidays on essential 
items like groceries, school supplies, diapers, and other 
household goods. This is a win-win because it is covered by 
revenue or resources we made available through the American 
Rescue Plan. States do not have to take it onto their budget. 
It will not cost the States or the Federal Government any 
additional money. It is a no-brainer investment in working 
families.
    Dr. Stevenson, my bill would cut taxes on essential goods, 
like food, diapers, and clothing. Can you tell us who is likely 
to benefit most from a policy like this?
    Ms. Stevenson. Yes. Thank you for asking. I think that is 
an extremely well-targeted policy because who is going to 
benefit most are going to be the families that spend a higher 
share of their budget on essential items like food, diapers, 
and other necessities.
    It is also the case, so as how economists talk about it, we 
think of that as having very inelastic demand. You pretty much 
have to buy those things, even if it means really sacrificing 
spending elsewhere. Well that also means that when it comes to 
tax incidence, like who sort of benefits when you cut the tax? 
It is going to be those families that benefit rather than the 
stores.
    So I think it is a really good way of getting money back 
into families and it is specifically targeting those families 
that spend a high share of their budget on essential items, and 
those are, by definition, lower-income families.
    Senator Warnock. So these are ordinary folks, folks who do 
not have a wide margin. And as you point out, these are 
essential items. And so as the economy opens back up, how 
important are policies that keep costs down for working-class 
and middle-class families? How important is that for them and 
for the larger economy?
    Ms. Stevenson. Keeping costs down for low-income families 
is critical because they spend all of their money now. They do 
not have a way to hedge against inflation by putting into some 
inflation-protected asset, because they are using their money 
to live right now. They are the ones who are dealing with 
higher prices at the pump, higher food prices, higher energy 
prices, because these are a really big share of their budget.
    So anything you can do to offer relief to families I think 
is really critical. One of the things we saw disappear this 
year that has been so hard on families is the end of the 
expanded child tax credit.
    Senator Warnock. Yeah, I agree with that, and I would hope 
that we could extend the expanded child tax credit, the largest 
tax cut for working and middle-class families in American 
history, a tax cut for ordinary folks. This Federal tax 
holiday, another tax cut for ordinary folks, which is why I am 
glad we were able to pass the American Rescue Plan, and just 
the other week, prevent $400 million from being clawed back 
from people of Georgia so we could fund this kind of thing.
    Gas prices, of course, is another issue that folks are 
struggling with, and during the last year of supply chain 
disruptions we saw ocean carriers use market volatility to 
increase their profits by 2,000 percent in the middle of the 
pandemic. This is why I called for a Federal investigation into 
shipping carriers' corporate greed, and I am happy to see that 
the Department of Justice answered my call and has subpoenaed 
Maersk as part of a probe into supply chain disruptions. These 
types of corporate greed have significantly affected our supply 
chains for years.
    Dr. Spriggs, what affect has corporate greed and market 
consolidation had on our supply chains and manufacturing? Has 
it, in fact, raised costs for families, pushed down wages, made 
the economy less resilient, in your opinion?
    Mr. Spriggs. Yes. We need to do more to police market 
concentration. We know specifically you mentioned food, that 
this has been critical. Cattle ranchers are not any happier 
than those of us buying beef. Neither one of us are smiling at 
this price. And the risk that the workers were put through in 
producing this meat, the reckoning has not come for that.
    We have characterized this disease so much as the loss of 
those who were elderly, but we forget how many workers died 
among the million Americans who have died from this disease. In 
Georgia, your State, in particular, the disproportionate loss 
of Black live was Black workers in food processing. And so that 
market power seems to also protect them from the kind of steps 
that we needed to take to protect workers. So yes, we need to 
do a lot more about the market concentration of power.
    Senator Warnock. Thank you so much. I think it is past time 
for us to hold corporations accountable for price gouging, in 
the middle of the pandemic, of all times, and I am glad that we 
are thinking about ways to invest in an economy from the bottom 
up rather than waiting on resources to trickle down. Thank you 
so much.
    Chairman Brown. Thank you, Senator Warnock.
    Senator Sinema, from Arizona, is calling from her office.
    Senator Sinema. Thank you, Mr. Chairman. Thank you to the 
witnesses for being here today.
    Global supply chains are comprised of complex working 
relationships between private businesses. When they get 
disrupted or broken they have ripple effects, and there is very 
little that Government, or really anyone, can do to fix it in 
the short term.
    We are seeing higher prices at the pump and restaurants and 
at the grocery stores, and working families feel the pinch the 
most. Arizonans continue to tell me that supply chain 
disruptions and inflation are their top concern.
    Now the global pandemic and Russia's illegal war in Ukraine 
stretched and broke the fragile supply chains of businesses 
around the world, and Arizonans and Americans re dealing with 
the consequences by paying higher prices for fewer goods. We 
need to work together to find solutions that bring down costs 
and make it easier for families and small businesses to make 
ends meet.
    Dr. Stevenson, thank you for being here today. Prior to the 
pandemic, many businesses employed an operations strategy that 
minimized the amount of slack in their supply chains, usually 
by eliminating what was seen as access inventory or capacity. 
The goal was to lower holding costs and production costs to 
increase net earnings. Can you speak to the fragility of these 
types of supply chains during the pandemic?
    Ms. Stevenson. Yes. Thank you. I mean, I think you are 
highlighting the fact that there were some gains that came from 
this idea of ``just in time,'' but as soon as we have delays 
that ``just in time'' means empty shelves. And that created a 
set of fragility that meant that everyday items that consumers 
wanted to buy just were not there.
    And I think it something that people panic about a little 
bit. Some of the price rises we have seen have come when people 
overbuy, because they are so terrified they are not going to be 
able to get their hands on things because they saw empty 
shelves, and many stores took action to try to calm people 
down.
    But I think there is another aspect of that ``just in 
time'' attitude that I would like to really highlight, which is 
that ``just in time'' for workers. So workers are sent home 
when it turns out there are not enough customers, even though 
they have already paid for the childcare they needed to be able 
to work that day. They are given insufficient hours because 
they are trying to hold onto excess capacity of workers, just 
in case we need to be able to ramp up production. ``I would 
like to be able to give people more hours'' and so they keep 
people sort of at under hours. And they provide them with their 
schedule with insufficient notice.
    All of those ways of sort of treating business as if what 
they want to do is operate on the absolute slimmest of margins 
but taking it out--really the consequences for that are paid by 
workers. I think the way to build more resiliency is for our 
businesses to understand that they need to invest in people and 
long-term relationships with them as well as with their 
suppliers.
    Senator Sinema. Thank you. Dr. Levy, I would like your 
thoughts here as well. Do you agree with Dr. Stevenson, and do 
you think that operation strategies for global companies need 
to adapt, moving forward, where businesses should plan to have 
more slack in their supply chains to anticipate volatility and 
avoid disruption for consumers?
    Mr. Levy. Thank you, Senator. I think there are very 
difficult tradeoffs there. It is costly to hold inventory. One 
can get caught in the other direction by having excess 
inventory that is no longer needed or simply is not consumed.
    But you are right. If one errs by having too little, one 
could get caught by surprise, and we have seen some companies 
actually anticipate some of this. I think you see some of the 
semiconductor industry very recently have noble gasses on hand, 
which sort of insulated them against a cutoff. So I think this 
is a major consideration that businesses are now thinking 
about.
    Senator Sinema. Thank you. There is a lot of conversation 
about increasing domestic manufacturing in critical products 
like semiconductors. Our bipartisan CHIPS for America Act 
supports domestic semiconductor manufacturing, and it was 
funded in the bipartisan Competition bill. We want Congress to 
pass our law ASAP to build more resilient supply chains here at 
home.
    But repealing outdated tariffs like aluminum is another way 
to lower prices and shore up supply chains. Dr. Stevenson, if 
we ended the aluminum tariffs today how soon would we see a 
change in prices?
    Ms. Stevenson. Well markets react quite quickly to news, 
and I think markets would react quite quickly to the news of 
eliminating tariffs today. You know, while that may take a 
little bit longer to get to the end to consumers, I think you 
would pretty quickly see that show up in prices.
    Senator Sinema. Thank you. You know, another approach is to 
redesign our supply chains to bring them closer to home, to 
reduce the potential for major disruptions.
    Mr. Chairman, my time has expired so I will submit my 
additional questions for the record.
    Chairman Brown. Thank you, Senator Sinema.
    Senator Reed, from Rhode Island, is recognized.
    Senator Reed. Thank you very much, Mr. Chairman, and I 
thank the witnesses.
    One of the issues that is causing great inflationary 
pressure in Rhode Island and across the country is rent and the 
cost of housing. And to Dr. Spriggs, what steps can we take to 
ease the import costs and increase the housing supply so that 
it is affordable?
    Mr. Spriggs. Thank you. So part of what is going on in the 
housing market right now is they are having supply problems 
also, so they are not able to produce as many homes as they 
would like. So part of it is us getting through those. But part 
of it is, again, recognizing it is a market and we need to have 
public investment so that the investment matches people. 
Housing, as a private matter, matches dollars, and dollars are 
not equally distributed. As long as you are going to have a 
market dominated by 10 percent who consume as much as the 
bottom 40 percent you are going to have a lot of people outbid 
on housing.
    And so we must recognize that public investment in housing 
is a necessary tool to make sure we get the proper level of 
investment. We have long had a low-income tax credit. We should 
think of ways that we can use that. We have a lot of us who 
believe in a global minimum tax, and we need to find ways that 
that low-income tax credit can still be effective, even in the 
face of a global minimum tax.
    And we need to make sure that we raise the wages of 
workers. Fortunately, 21 States have been raising the minimum 
wage this year. In January, the majority of American workers 
got a raise at the bottom. That is a large part of what is 
fueling not only, call it ``the great quit,'' because when the 
minimum wage goes up, turnover goes up as well. There is a 
ripple effect that goes on that makes people switch jobs more 
and workers get a higher wage.
    But we need that $15-an-hour legislation to be in place, 
and we need the PRO Act. We need to have workers with the right 
to organize so that we can get wages back up to go along with 
the productivity increases that are coming from the automation 
and the improvements in productivity that are being put in 
place.
    Senator Reed. Thank you. Dr. Stevenson, would expanding 
training and apprenticeship programs for building trades 
increase labor supply and also contribute to ease housing 
prices and rental prices?
    Ms. Stevenson. Absolutely. I mean, one of my biggest 
concerns is that we see an ease in the supply chain constraints 
around the materials, and then you cannot find the workers. We 
need the workers and the materials to be together. There are 
lots of reasons to think that we are going to find ourselves 
without enough skilled tradespeople to be able to produce that 
housing stock, and obviously a really great way to do that is 
through apprenticeship programs and vocational training.
    Senator Reed. Thank you. And Dr. Spriggs, there has been 
some discussion of targeted Federal financial assistance for 
grocery and gasoline costs, which, for low-income families are 
some of the biggest expenditures, perhaps something like a 
debit card that is exclusive for those items. And would that 
effort, coupled with pay-fors by increasing the tax on very, 
very wealthy Americans make sense?
    Mr. Spriggs. In this situation, absolutely. We do not want 
to exacerbate aggregate demand, and offsetting it would be a 
great way to make that happen. It would be a great way to 
target it to those at the bottom. Going forward, we know that 
we are going to have disturbance with food prices because of 
global warming. It would be nice to have a trigger so that SNAP 
benefits could adjust automatically when we get these kinds of 
disturbances. At some point in the next 15 years we are going 
to get a major flooding of our Mississippi Valley, and we are 
going to have huge disruptions to corn, hogs, beef, as well as 
the transportation of those goods. And we should be ready 
beforehand to make sure we can give people relief from those 
price shocks.
    Senator Reed. We also have ongoing disruption in Ukraine 
with wheat and fertilizer, which will be reflected, and I think 
first, in the developing world, because we can outbid them for 
the supplies. But we will not be immune from that either.
    Well thank you all very, very much. I appreciate it.
    Chairman Brown. Thank you, Senator Reed.
    Thank you, all five of you, for joining us today to talk 
about how to build more resiliency into our supply chains and 
into the economy.
    Senators wishing to submit question for the hearing record, 
those questions are due 1 week from today, Tuesday, March 29th. 
To each of the five of you, please submit responses to those 
questions for the record within 45 days from the time you 
receive them.
    With that the hearing is adjourned. Thank you so much for 
joining us.
    [Whereupon, at 12:04 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    For generations, manufacturing was the lifeblood of communities 
across Ohio and throughout the country. It was heavily unionized and 
the jobs paid well--and it's not a coincidence that those things go 
together. Those jobs allowed generations of Americans to build a middle 
class life. Workers innovated on the shop floor, propelling our economy 
to new heights and allowing us to lead the world in developing new 
industries.
    But Ohioans know all too well what happened. Beginning in the 1970s 
and 1980s, we stopped making things in America.
    Look at places like my hometown of Mansfield, Ohio--an industrial 
city of 50,000 halfway between Cleveland and Columbus. Companies like 
Westinghouse, Tappan Stove, Ohio Brass, and General Motors closed down, 
one after another. Go to any town in Ohio, and people can name a 
similar list--they now measure their local history in lost 
opportunities and lost jobs. All over America, companies were moving 
production elsewhere, in the name of, quote, ``efficiency''--
``efficiency'' being business school speak for ``lower wages.''
    Corporate America wanted cheaper labor, wherever they could find 
it. First, they went to anti-union, antiworker, low-wage States, often 
in the South. Then, when even those wages weren't low enough, they 
moved overseas. And when these companies moved out, they weren't 
replaced by new investment. The creative destruction the market 
fundamentalists like to talk about wasn't followed by any 
construction--creative or otherwise.
    Corporate greed--aided by decades of underinvestment, bad trade 
policy--which these corporations lobbied for--and worse tax policy--
which these special interests also lobbied for--all drove production 
overseas.
    It left us reliant on other countries--too often, our economic 
competitors. It exposed us to supply shocks. And it gutted our middle 
class. Ohioans and workers in historic industrial towns in all our 
States felt it first. Now the whole country is feeling it in the form 
of higher prices, empty shelves, and months-long waits for products 
people need.
    We need to make more things in America.
    That's not going to happen on its own--not when the economy of the 
last four decades was built on corporations hopping the globe in search 
of workers to exploit. And not when countries like China steal our 
ideas, monetize them, and use them to compete--and often cheat--against 
American businesses and American workers.
    We need a concerted, coordinated effort to invest in American 
industries. We need to reverse decades of bad policy, and instead 
invest in our greatest assets: American workers and American 
innovation.
    Look at what's happening now in Bucyrus, Ohio. There are few 
innovations more quintessentially American than the light bulb. Every 
elementary schooler learns that Ohioan Thomas Edison invented the light 
bulb at his lab in Menlo Park, New Jersey. And Ohio became the center 
of light bulb manufacturing.
    But we have seen plants close across Ohio in places like Ravenna 
and Warren. We were told that these plants were old and dated--they 
made old-fashioned incandescent bulbs. Instead, Americans would make 
new, next-generation technology like LED bulbs. That's not what's 
happened.
    We just learned that two Ohio factories that were part of the LED 
lightbulb supply chain in Ohio--in Bucyrus and Logan--are closing their 
operations.
    Today, 99 percent of LED lightbulb production comes out of China. 
Think about that--99 percent of production is in China. And when you 
move the entire production overseas, you move the shop floor innovation 
right along with it. Again, corporate America underestimated the 
ingenuity of American workers--or they just didn't care.
    Or let's look at the semiconductor shortage.
    Americans developed the semiconductor. American research and 
development created these chips, and American companies did most of the 
manufacturing. Yet over time, production--often fueled by incentives 
from foreign countries--moved overseas.
    And look what happened: during the pandemic, companies across Ohio 
and the rest of the country shut down production lines and laid off 
workers because they couldn't get enough semiconductors.
    Whether you are Ford Motor Company in Lima, Whirlpool in Clyde, or 
Navistar in Springfield--you need these chips.
    In the semiconductor industry, we see the problem--and we see the 
solution.
    At the end of January, I flew to Columbus to join Intel to announce 
the largest ever domestic investment in semiconductor manufacturing.
    It's going to create 10,000 good-paying jobs. Union tradespeople 
are going to build the entire facility.
    And it's all possible because we are on the verge of passing an 
historic investment in American innovation and manufacturing.
    We need to pass bipartisan legislation that supports efforts like 
Intel's to build new production in the United States. Our bill invests 
in research, development, and manufacturing in communities throughout 
the country to enable us to compete for the jobs of the future.
    That's going to build on the work we did with the Bipartisan 
Infrastructure Law, which will create new jobs and allow us to move 
more goods, more quickly, shortening our supply chains.
    That's how we build a more resilient economy that can withstand 
dynamic global events--whether it's a public health crisis, a 
geopolitical crisis, or a climate crisis.
    We also need to invest in our workers and ensure that they reap the 
benefits of the economic growth they create--through good paying jobs 
and investment in training programs and affordable childcare. Taken 
together, these investments ensure that economic growth reaches the 
whole country.
    We need to support local and regional efforts to drive innovation.
    Today, I'm submitting a statement for the record from a coalition 
of businesses, industry associations, and nonprofits in Northeast Ohio 
on how supply chain resilience affects Ohio's economy.
    I ask unanimous consent that the coalition's letter be submitted 
for the record.
    I'm working closely with them to support their application for a 
Federal challenge grant that would help turn the region into a national 
hub for advanced manufacturing innovation.
    It's the kind of effort we need in communities all over the 
country.
    We can lower prices and speed up supply chains. We can better 
compete with China. And we can create jobs and economic growth in 
places that corporate America left for dead decades ago.
    I am excited to hear from our witnesses today about how we can make 
smart investments that will spur innovation and job creation throughout 
the country.
    Today, we're hearing from experts on the unique nature of supply 
shocks triggered by the pandemic--like in the semiconductor industry--
and how we can prevent them in the future. We'll talk about how we can 
best support American workers and innovators, and about investments in 
domestic manufacturing will position us to lead the world.
    It's time to make things in America again. Ohio has buried the term 
``Rust Belt''. It's time for our whole country to bury it.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Mr. Chairman, thank you.
    This hearing is about supply chain resiliency. Of course, the 
Banking Committee is talking about supply chains for one reason: 
Inflation has hit a 40-year high.
    Under President Biden consumer prices have risen by 8.4 percent. 
That's more inflation than under the entirety of the Trump 
administration.
    Even though wages are rising, prices are rising faster. That's 
causing workers, especially lower-income workers, to fall further and 
further behind.
    Milton Friedman said, ``Inflation is taxation without 
representation.'' Democrat policies are hiking that tax.
    Rather than course correct, Democrats have been trying to shift the 
blame for their inflation tax to someone, anyone else. One of their 
favorite scapegoats has been supply chains. That is, in addition to 
blaming ``greedy corporations,'' Republicans, and Putin.
    Actually, inflation is pretty easy to understand. It results from 
more money chasing fewer goods.
    The Biden administration's policies have limited the economy's 
production of consumer goods. And Democrats' reckless spending has 
resulted in more money chasing those fewer goods.
    As an example, consider the President's war on American energy 
independence. In 2020, then-candidate Joe Biden promised that in his 
Administration there would be ``[n]o more ability for the oil industry 
to continue to drill. Period.''
    On day one of his Administration, he made good on that threat. He 
stopped all new oil and gas leases on Federal land, and ended the 
Keystone XL pipeline project.
    Even before Russia's invasion of Ukraine, gas prices were up 40 
percent. And now, the Administration is going on bended knee to plead 
with Venezuela's illegitimate dictator to produce more oil that America 
is quite capable of producing and exporting.
    On the spending side, former Obama administration officials Larry 
Summers and Jason Furman warned that Democrats' reckless spending spree 
would cause inflation. Yet, with inflation at 8 percent, most Democrats 
still support another deficit financed, blowout spending bill.
    Today we're going to set the record straight.
    First, inflation did not suddenly accelerate simply because global 
free trade somehow made our supply chains more ``fragile.'' Global 
trade has provided tremendous benefits to Americans and, if anything, 
has made our economy less fragile.
    Rather, supply chains are struggling because fiscal policy has 
overstimulated demand. For example, because of high demand, port 
volumes have hit record levels.
    Second, Democrats' far-left agenda would continue to make inflation 
worse, not better. Where to begin?
    Democrats are pushing for price controls, and for using antitrust 
law to reduce economic efficiency. And Democrats continue to push for 
the reckless tax-and-spend Build Back Better plan that will further 
fuel inflation and harm our economy.
    Amazingly, the White House now claims that even more deficit 
spending will lower inflation. That defies belief.
    You don't have to take my word for it. Last month, former Obama 
administration Treasury official Steven Rattner penned a New York Times 
op-ed titled, ``Biden Keeps Blaming the Supply Chain for Inflation. 
That's Dishonest''.
    He said the president's claims about supply chain disruptions are 
``both misleading and simplistic.'' Mr. Rattner asserted ``the bulk of 
our supply problems are a product of an over-stimulated economy.'' He 
advised prioritizing deficit reduction, calling it ``dishonest'' for 
the President to claim that his Build Back Better plan would be deficit 
neutral.
    While supply chains are not to blame for inflation, our recent 
experience highlights the need to enact sensible reforms that will 
improve supply chains. These reforms include making U.S. ports more 
efficient by increasing their use of automation, which obstructionist 
unions have long blocked, and eliminating harmful tariffs that increase 
transportation costs and bottlenecks by reducing the supply of needed 
equipment, like truck chassis.
    In addition, to help fight inflation, it's time for the President 
to abandon his far-left agenda. He should end the war on American 
energy that has led to higher prices for American families by 
restarting the Keystone XL pipeline; expediting natural gas pipeline 
and LNG facility approvals; and repealing broad and punitive 
regulations and restrictions on American oil and gas production.
    He should also drop his reckless tax-and-spending plan that would 
dramatically increase the size and scope of Government by expanding the 
welfare State.
    The best approach to achieve economic growth is to unleash market 
competition, the engine of economic growth. Congress can focus on three 
areas: Cutting through the jungle of red tape preventing new 
entrepreneurship, innovation, and competition; eliminating Government-
created barriers and distortions to Americans working and saving; and 
increasing opportunities for global trade and getting rid of 
protections for special interests.
    To help us understand these issues, today we will hear from two 
experts on global trade and fiscal policy: Phil Levy the chief 
economist at Flexport, a leading supply chain logistics company, and 
Vero de Rugy an economist from the Mercatus Center at George Mason 
University.
    I look forward to hearing from them about the importance of free 
trade and free markets for creating strong and resilient growth, and 
commonsense solutions for increasing growth and lowering inflation.
                                 ______
                                 
                PREPARED STATEMENT OF WILLIAM E. SPRIGGS
 Professor of Economics and Chief Economist, Howard University and AFL-
                                  CIO
                             March 22, 2022
    Thank you, Chair Brown for this invitation to give testimony before 
your Committee today on the issue of improving the resiliency of the 
American economy. I am happy to offer this testimony on behalf of the 
AFL-CIO, America's house of labor, representing the working people of 
the United States; and based on my expertise as a professor in Howard 
University's Department of Economics.
    The collapse in economic activity in the first quarter of 2020 in 
response to the COVID crisis unleashed a chain of events that disrupted 
normal economic activity. The global Pandemic, unlike other shocks, had 
a simultaneous affect on the world economies. Necessary precautions 
that delayed the spread of the disease and successfully mitigated worse 
loss of life, significantly altered consumption. So, while the initial 
impact was a drop in all consumption, the gradual reopening of some 
activity led to different patterns of consumption than before the 
Pandemic. But the responses of firms to the initial collapse in 
consumption also created difficulties responding to shifting demand 
patterns. What was clear is that our economy was not resilient.
    It took the quick decisive steps of the Families First Act and the 
CARES Act to stabilize the economy. These initial steps addressed the 
obvious shortcomings of an inadequate unemployment insurance system, 
the lingering effects of the Great Recession that left household 
balance sheets woefully weak and revealing the lack of resiliency among 
households to income shocks, the lack of paid sick leave, the 
difficulties of main street businesses in accessing liquidity even in a 
time of low interest rates, and the fragility of State and local 
government infrastructure. These necessary pieces did not anticipate 
the subsequent waves of COVID and how long the support proved to be 
needed. So, fortunately, the American Rescue Plan extended support to 
ensure the effects of COVID would not scar the economy. The American 
economy ended 2021 with its fastest growth in decades and the strongest 
recovery of the labor market on record.
    But we began this year with the world still struggling with COVID 
and all the disruptions that have now revealed the scars and fragility 
of a global system. The continued disruptions to supply chains plague 
all Nations. All advanced economies face higher rates of price changes 
than in the pre-COVID era. This is a natural functioning of markets; 
price pressures appear every time there is a shock to supply and is not 
related to differences in fiscal responses.
    There are specific reasons the U.S. measure of prices has run 
higher than for other countries. The U.S. product markets have been 
criticized for having higher levels of concentration than in Europe 
because of weaker antitrust enforcement. (Covarrubias, Gutierrez, and 
Philippon 2019) (Gutierrez and Philippon 2018) (Baker 2003) (Alemani, 
et al., 2013) (Karabell 2020). Higher levels of concentration make it 
easier for firms to raise prices, but also make an industry more 
vulnerable to supply shocks should one firm's workforce be hit harder 
by COVID.
    Most other Nations' response to COVID was the aggressive use of job 
retention schemes. These programs directly subsidized firms keeping 
their workforces during COVID and lowered the frictions being 
experienced in the United States of trying to recruit workers that were 
sent to their best devices. Among OECD Nations, the U.S. unemployment 
rate spiked significantly higher than for other countries, and while 
U.S. unemployment rates have settled near their pre-COIVD level as they 
have on average for the OECD, total labor hours in the U.S. still have 
not recovered as they have on average in the OECD--this reflects lower 
labor force participation rates in the U.S. The U.S. has low female 
labor force participation because it lacks the infrastructure of 
policies to support the care economy present in most OECD Nations. 
Protecting individuals, through beefing up the coverage and generosity 
of unemployment benefits helped to facilitate shifting workers to 
sectors that faced rising demand during the initial stages of the COVID 
crisis but has now slowed the recovery of those sections that had 
initially faced the greatest spikes in unemployment. And the lack of 
protection from the virus, and weak paid sick leave coverage in the 
United States, meant several industries faced greater losses of workers 
than other OECD countries. (Chen, et al., 2021) (Bureau of Labor 
Statistics 2021) Fewer workers died in other OECD countries.
    The shocks to markets have come from many directions. Price 
volatility is at an astonishing level compared to previous periods. 
Over the last 50 years, only the oil crisis of the mid-1970s and the 
late-1970s coincide with a similar spike in price volatility. In both 
those cases, a shock in the supply of oil, and overlapped with 
hurricanes Eloise in 1975 and Frederic in 1979, the Yom Kippur War of 
1973, the Iran Hostage Crisis of 1979, and the Lebanon War of 1982, 
created price volatility. The similarity in massive supply shocks and 
rising prices have people wanting to invoke rising inflation 
expectations and excess demand.
    Figure 1 shows price volatility, measured as the standard deviation 
in monthly changes in prices (excluding food and fuel) over the 
previous 12 months. It spikes in the early and late 1970s. This period 
also spikes but at a lower level and has already started to recede. The 
decline from the spike in the late 1970s was engineered by massive 
interest rate hikes from the Federal Reserve that caused the greatest 
recession since the Great Depression to that date. Prices have now 
started a path to stability this time without interest rate hikes, 
though they will clearly continue to face the head winds of potential 
climate events, COVID and now war related supply shocks.

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    Because price volatility is high, it means there is a lot of noise 
in the actual signal. Comparing prices one month to the last month or 
the last 12 months will give wildly different views. And, unlike the 
buildup to prices in the late 1970s, this price volatility came after a 
period of price declines for many items and a deceleration in inflation 
as measured by the CPI in 2020 and early 2021. So, the base years for 
this level of price instability include a period of prices rebounding 
to pre-COVID price levels.
    What is important though is that prices become unstable from supply 
shocks because households and businesses must seek substitutes for 
items that become scarce or suppliers that fall off. Households shift 
demand outward for substitutes, and businesses find other suppliers, 
most of whom had been rejected before because they were higher cost 
providers. Early on, COVID induced collapsing demand with shifts to new 
items. For example, unable to go to gyms, households shifted demand for 
in-home gym equipment. The drop in demand for gyms lowered prices for 
gyms and was offset by rising prices for in-home gym equipment. This 
explains the great moderation of prices from spring 2020 to fall 2021.
    But supply shortages are different. Manufacturers unable to get 
smart chips from their old suppliers had to hunt down chips from new 
suppliers, and that raises costs and cuts supplies from manufacturers. 
To see how one supply shock can echo with price increases, motor 
vehicles are a key example. The shortage of chips, the necessary part 
of new cars, reduced domestic automobile production in September 2021 
to a low of 39 percent of its January 2020 production level. It has 
since been slowly building up, but in January 2022 remained only at 58 
percent of its January 2020 capacity. (The last major disruption to US 
domestic auto production was the September to October 2019 strike by 
the UAW against General Motors. During that two-month period, domestic 
production dropped to 86 percent of its August 2019 capacity.) In 
February, the price of new cars rising from 2021 to 2022 levels, 
contributed 0.5 points of the 7.9 percentage point rise in the Consumer 
Price Index. The rise in the price of new cars from the collapse in 
automobile production, of course prompted households to increase their 
demand for used cars, the next best substitute. That shift in demand 
contributed 1.7 points of the 7.9-point rise in the CPI. An additional 
boost came from increased demand for auto repairs, among those who 
could not afford a new or used car, and 0.06 more points added to the 
CPI. In all, the sustained record low in auto production contributed 
2.3 points in the 7.9-point rise in CPI, or 29 percent of the price 
rises. Similar shocks play out throughout the market and into the CPI.
    Figure 2 traces out changes in U.S. domestic auto production (in 
red), sales of vehicles (in black) and the CPI for used cars (in blue). 
The surge in sales in early 2021 appears as mirror to the collapse in 
sales in 2020. It should not be thought of as demand running too high, 
since it subsequently recedes after returning to just above its average 
during 2018, but as a smoothing of demand over a 2-year period. The 
rising CPI for used cars climbs after the collapse in the production of 
new cars.

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    Attempts to roll back demand, in the case of automobiles, to align 
with current capacity would need to be a very drastic drop in aggregate 
demand levels. Only the demand shock of the Great Recession 
approximates the current collapse of auto production. The drop in 
domestic vehicle production from July 2008 to December 2008 was to 64 
percent of July's capacity. That took removing 2.8 million jobs from 
the economy. That makes policies aimed at aggregate demand untenable.
    Throughout 2021 various shocks disrupted supplies including Vietnam 
needing to shut major factories to control the spread of COVID, 6 days 
of blockage in the Suez Canal from a ship run aground, the need to 
preserve oxygen for the rise in COVID cases in India that slowed 
production where oxygen was used interrupting the production of active 
pharmaceutical ingredients, an outbreak of COVID that China had at its 
third largest container ports lowered shipment capacity to 30 percent 
in late spring 2021, and Hurricane Ida in August slowed U.S. production 
and shipments. These are just some of the shocks that make the prices 
of various items jump, causing everyone to seek substitutes and put 
more pressure on the broader measure of prices. Lowering aggregate 
demand in the face of widespread supply constraints can only lead to 
lower levels of output and stalled or falling labor market conditions.
    Instead of focusing on aggregate demand as the Federal Reserve is 
mistakenly doing, Congress should take this as another moment to 
reflect on lessons we are learning during the Pandemic. Clearly, we do 
not want an economy that is vulnerable to computer chip scarcity. While 
issues of economy of scale in the production of chips has led to the 
dominance of a few firms, the chips are too essential to be forced to 
rely on a small set of firms that are too centrally located and 
vulnerable to geopolitical or global warming shocks. The economies of 
scale make for real entry barriers. A policy, like the CHIPs Act, would 
help level the playing field for those seeking to make computer chips 
in the U.S., where they were initially invented.
    Increased scrutiny must be taken by the Department of Justice and 
the Federal Trade Commission to combat growing market concentration. 
Bottlenecks in production, especially of food, appeared throughout 
COVID. They have hurt farmers and consumers, and the workers in those 
plants. (Puzzanghera 2022) This experience demonstrates an extra 
element of consumer surplus must be the risk factor of over reliance on 
a few producers, especially in a time of crisis. In meat production, 
especially, this can be crucial as increasing threats of disruptions 
from global warming events can make us too reliant on the lack of 
supplier diversity.
    Energy independence must now be taken to include our ability to 
rely on fuels like solar and wind that do not trade in the global 
marketplace. We cannot simply rely on the fallacy of domestic oil 
production as insulation from global force since its price is set by 
global forces. Electric cars and reliable electricity sources are 
better insurance for price volatility.
    Our labor market is slowly healing from its greatest collapse in 
the spring of 2020. Policies aimed at slowing aggregate demand will 
make the recovery slower than necessary and create scarring in the 
labor market that will leave more workers vulnerable because the slow 
recovery leaves the most scarred the most likely to take precarious 
jobs and lower earnings. Figure 3 shows the recovery underway in 
women's labor force participation. For the sake of clarity, I only show 
it for Black and White women. Black women are significantly more 
sensitive to labor market conditions to increase their labor force 
participation. The more rapid rise for Black women shows that 
employment prospects have finally picked up, because their figure is 
driven by increases in actual hiring. On the other hand, the slower 
increase for White women's labor force participation is because we must 
still drive policies that can get their labor force participation to 
rise. Frictions in the labor market that cause barriers for women are 
costly. They lead to higher search costs for employers, and weaker good 
job matches for women. We need to adopt the proven policies that other 
Nations in the OECD have in place which put a higher share of their 
women in the labor force and produce lower gender pay gaps. Those 
policies include paid sick leave, paid maternity leave, and public 
childcare. They constitute the infrastructure needed to increase our 
labor capacity and are as essential in a modern economy as good roads 
and ports to moving products.

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    A key component of the Build Back Better Act is to put in place the 
essential elements of labor market infrastructure that goes with the 
21st century. As we saw from this crisis, firms do not benefit if we 
favor policies that weaken the ties between employers and employees. 
Women need a labor market framework that protects their careers. And we 
need women's labor force participation to prosper as a Nation.
    Our unemployment insurance system was woefully lacking in 2020. 
That was clear from the onset of the COVID crisis. Instead of moving 
forward, unfortunately, too many States are in the process of de-
investing in their labor market systems. They are making them weaker. 
Some of their actions are exacerbating the poor job matches going on 
now. Figure 4 shows the relationship between State unemployment benefit 
levels and the rising quit rates. Those States with the lowest benefit 
levels force workers to search for jobs while on the job, with the 
result being greater labor turnover. Instead of getting workers to make 
good matches with employers, employers in those States with low 
benefits get workers that start the job trying to go elsewhere.

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    The falling share of unemployed workers who are eligible for 
unemployment benefits weakens the automatic stabilizer that 
unemployment insurance is supposed to provide. A lesson from this 
crisis is that there is more uncertainty than we appreciated. With 
rising risks, we cannot afford to be under-insured. Congress must look 
at unemployment insurance before the next economic downturn.
    We also must encourage the private sector to be more aware of 
risks. Too great levels of entanglements with countries that can cause 
geopolitical threats, and issues of managing risks from thin supply 
chains in the face of rising global warming threats must get factored 
in. Congress should think of policies that ensure the private sector 
incorporate those risks. Some of that can come from weakening the hold 
of financial markets and short-term thinking on corporate decisions. 
Short term gains lead firms to hold thin inventory, which are just-in-
time until they aren't. When stock buybacks get rewarded on Wall 
Street, they are cringe worthy when firms prove to lack the liquidity 
to be resilient in a world of high risk. Rather than spend time 
shifting incomes to create different tax bases in low-tax countries, 
firms need to be making investments that make them more resilient.
    Going forward, just as we often talk of personal responsibility, we 
must also talk about policy responsibility. Policies should not put 
high risks on the weak and low risks on the powerful. Just as firms 
need infrastructure to plan long-term investments, workers also need 
labor market infrastructure to ensure reliable paths to work. We should 
expect price volatility given the rising risk of global warming related 
events and think of ways to help cope with them. The risks are greatest 
on food prices, and automatic triggers for expanding the protections of 
the Supplemental Nutritional Assistance Program should be in place. 
Being policy responsible means learning lessons from what goes wrong.
References
Alemani, Enrico, Caroline Klein, Isabell Koske, Cristiana Vitale, and 
    Isabelle Wanner. 2013. ``New Indicators of Competition Law and 
    Policy in 2013 for OECD and Non-OECD Countries''. OECD Economcs 
    Department Working Papers, Economics Department, OECD, Paris: 
    Organization for Economic Cooperation and Development. doi:10.1787/
    5k3ttg4r657h-en.
Baker, Jonathan B. 2003. ``The Case for Antiturst Enforcement''. 
    Journal of Economic Perspectives 17(4): 27-50.
Bureau of Labor Statistics. 2021. ``Employer-Reported Workplace 
    Injuries and Illness--2020''. News Release, Washington: U.S. 
    Department of Labor, 1-9. https://www.bls.gov/news.release/pdf/
    osh.pdf
Chen, Yea-Hung, Maria Glymour, Alicia Riley, John Balmes, Kate 
    Duchowny, Robert Harrison, Ellicott Matthay, and Kirsten Bibbins-
    Domingo. 2021. ``Excess Mortality Associated With the COVID-19 
    Pandemic Among Californians 18-65 Years of Age, by Occupational 
    Sector and Occupation: March Through November 2020''. PLOS ONE. 
    doi:10.1371/journal.pone.0252454.
Covarrubias, Matias, German Gutierrez, and Thomas Philippon. 2019. 
    ``From Good to Bad Concentration? U.S. Industries Over the Past 30 
    Years''. NBER Working Paper Series, Cambridge: National Bureau of 
    Economic Research.
Gutierrez, German, and Thomas Philippon. 2018. ``How EU Markets Became 
    More Competitive Than U.S. Markets: A Study of Institutional 
    Drift''. NBER Working Papers, Cambridge: National Bureau of 
    Economic Research.
Karabell, Zachary. 2020. ``What the EU Gets Right--and the U.S. Gets 
    Wrong--About Antitrust''. WIRED, Nov 21. https://www.wired.com/
    story/what-eu-gets-right-us-wrong-antitrust/
Puzzanghera, Jim. 2022. ``Why Are Beef Prices so High?'' Boston Globe, 
    Feb 19. https://www.bostonglobe.com/2022/02/19/nation/why-are-beef-
    prices-so-high-some-ranchers-white-house-say-its-more-than-just-
    inflation/
                                 ______
                                 
                 PREPARED STATEMENT OF BETSEY STEVENSON
    Professor of Public Policy and Economics, University of Michigan
                             March 22, 2022
    Chairman Brown, Ranking Member Toomey, and distinguished Members of 
the Committee, thank you for the invitation to speak to you today about 
supply constraints. I am a labor economist who focuses on how the labor 
market has evolved as women have come to play a more equal role in paid 
employment and men have become more essential providers of care for 
their family members. My work has studied how deeply personal decisions 
about how to organize one's family are intertwined with economic trends 
like work and inflation. As a policy adviser, I have helped to produce 
macroeconomic forecasts for the U.S. economy. In my testimony I want to 
help you see the link between the labor market, families, caregiving, 
and the risk of higher future inflation for the United States. But let 
me begin with the economic experience of the past year.
    Both GDP and the labor market have recovered at a much more rapid 
rate than many predicted. Unemployment has fallen to 3.8 percent in 
less than 2 years since the worst decline in employment since the 
depression. In comparison, it took more than 8 years for unemployment 
to fall below 4 percent following the 2008 recession. People have the 
confidence needed to look for better opportunities and leave their 
current jobs. And they are finding better opportunities. A recent Pew 
survey found that 56 percent of workers who quit a job in 2021 were now 
earning more money, 53 percent reported more opportunities for 
advancement, and 53 percent said that they had improved ability to 
balance work and family responsibilities. \1\
---------------------------------------------------------------------------
     \1\ https://www.pewresearch.org/fact-tank/2022/03/09/majority-of-
workers-who-quit-a-job-in-2021-cite-low-pay-no-opportunities-for-
advancement-feeling-disrespected/
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    The dark side of the economy is inflation, which is now currently 
at a pace last seen four decades ago. While inflation captures a 
generalized rise in prices, it does not mean that all prices are rising 
similarly. Energy commodities are up 37.9 percent over the 12 months 
ending in February and energy supply remains a source of concern with 
the Russian invasion of Ukraine. The prices of durable goods are up 
18.7 percent. Price increases are particularly notable in autos with 
the price of used vehicles soaring 41.2 percent. Many of the forces 
that have led to rising prices in durable goods are difficult to 
counter with policy. The pandemic led U.S. consumer demand for goods to 
rise as people shifted their spending patterns from services to goods. 
Health concerns discouraged people from buying the same quantity of in-
person services like dining, preventative medical care, and tourism 
that they bought prior to the pandemic. Instead, they rearranged their 
budgets to include more physical things which could be enjoyed in the 
home or outside. \2\
---------------------------------------------------------------------------
     \2\ https://www.bls.gov/opub/mlr/2021/beyond-bls/covid-19-causes-
a-spike-in-spending-on-durable-goods.htm
---------------------------------------------------------------------------
    American consumers increased demand for goods meant increase demand 
for goods produced in the United States and around the globe, using 
American inputs and foreign inputs. Our infrastructure for receiving 
goods has struggled under the increased flow of goods into U.S. ports. 
And factory shutdowns across the world have meant delays and increased 
transportation and warehousing costs. After years of extremely narrow 
margins, \3\ cost cutting, and ``just in time'' shipping, \4\ goods 
supply chains weren't ready to accommodate the extra demand and the 
additional costs of covid along the supply chain.
---------------------------------------------------------------------------
     \3\ https://www2.deloitte.com/content/dam/insights/us/articles/
the-profit-margin-squeeze-structural-strategies-for-consumer-product-
companies/DUP104-Profit-Margin-Squeeze.pdf
     \4\ https://labornotes.org/2021/12/supply-chain-disruption-
arrives-just-time
---------------------------------------------------------------------------
    In a healthy global economy, we benefit from global supply chains 
that allow U.S. businesses and consumers to source material at the 
lowest cost and enjoy a wider range of available products. Global trade 
can also help insulate the U.S. economy against a recession by 
providing billions of potential customers outside our national 
boundaries for American businesses. While these same linkages are the 
source of some of the price increases we have seen over the past year, 
these are also the supply constraints that are most likely to loosen on 
their own as we recover from the pandemic. The most important effort 
you can make to build resiliency to these supply constraints is to 
support widespread global vaccination against covid. The more the world 
is vaccinated against covid, the easier it will be for factories and 
shipping around the globe to resume smoothly.
    Within the United States this also means trying to keep the economy 
smoothly operating by ensuring widespread access to ventilated schools 
and workplaces, vaccines, and covid testing. The last Covid surge in 
January did not lead many people to lose jobs, but it did lead to 
millions of people missing work due to illness. Containing the spread 
of covid helps boost productivity and ensures that workers are healthy 
enough to meet the demand of customers.
    A healthy and robust labor supply is particularly important for the 
service sector. So far we have seen inflation mostly in the goods 
sector, which employs only 16 percent of American workers in the 
private sector. In contrast, 84 percent of American private sector 
workers are employed in the service sector. For much of the past year, 
services have not experienced the upward price pressure experienced by 
the goods sector. As of February 2022, the prices of services (not 
including energy) had risen only 4.4 percent over the previous 12 
months. And much of this 4.4 percent rise has been driven by the rising 
cost of housing including owner occupied housing. Price increases for 
services not including shelter are well within normal inflation rates. 
For example, the price of medical services rose 2.4 percent and 
education and communication services rose 1.7 percent over the 12 
months ending in February 2022. These two services--medical and 
education services--have historically risen faster than overall 
inflation. The risk to ongoing high inflation is that the price of 
these and other services start to rise at a faster pace. Indeed, the 
past 2 months the monthly price increases in services have started to 
show signs of this stress.
    Inflation in the price of services could be driven by an increase 
in demand for services as the economy continues to recover without a 
subsequent rise in the availability of workers to provide those 
services. A rise in inflation in services could have a devastating 
impact on overall inflation even if the price increases for goods begin 
to abate. The size differential between the service and goods sectors 
means that a 1 percent increase in service inflation can have as much 
of an impact as a 5 percent increase in goods prices. \5\
---------------------------------------------------------------------------
     \5\ https://www.nytimes.com/2022/02/08/podcasts/transcript-ezra-
klein-interviews-jason-furman.html
---------------------------------------------------------------------------
    The risk to rising inflation in the service sector is that labor 
supply remains depressed relative to prepandemic trends. Overall the 
economy remains short 1.4 million workers and 3.5 million jobs relative 
to prepandemic projections. \6\ Prime age women's labor force 
participation rate is down relative to prepandemic levels and relative 
to prime age men's labor force participation. Women are coming back to 
jobs, but they exited the labor force and lost jobs at higher rates 
during the pandemic than did men. Women lost more jobs than men because 
this was a service-sector led recession and women are more likely than 
men to work in the service sector. \7\
---------------------------------------------------------------------------
     \6\ https://www.piie.com/blogs/realtime-economic-issues-watch/us-
gained-surprising-number-jobs-february-wage-growth-was
     \7\ https://www.hamiltonproject.org/papers/the-initial-impact-of-
covid-19-on-labor-market-outcomes-across-groups-and-the-potential-for-
permanent-scarring
---------------------------------------------------------------------------
    Perhaps most notable, women lost jobs in education and health 
services, a sector that experienced job growth during previous 
recessions, as trend growth outpaced the cyclical downturn. These 
relative weaknesses contrast even more sharply in the context of recent 
recessions. In past recessions, contraction in the labor market mostly 
spared women and once the market bottomed out, growth in women's 
employment, particularly in the service sector, helped lead the 
recovery. \8\
---------------------------------------------------------------------------
     \8\ Stevenson, Betsey. ``Women, Work, and Families: Recovering 
From the Pandemic-Induced Recession''. The Hamilton Project (2020).
---------------------------------------------------------------------------
    One in four women work in education and health services and nearly 
4 out of 5 workers in the sector are female. This is a sector that is 
poised for rapid recovery in demand over the coming year. But will 
there be workers to meet that demand?
    There are two critical steps you can take to ensure that workers, 
particularly women, return to the labor market. The first is ensure 
access to childcare \9\ and home nursing care \10\ because these 
services free up family caregivers to remain employed or return to the 
labor force. Of course, these policies help male caretakers remain 
employed as well. But because of the uneven distribution of informal 
and formal care labor, polices that expand access to care are more 
likely to encourage women into the workforce. By increasing labor 
supply we can facilitate continued economic growth without adding 
strain on prices. Supporting employment in the care industries not only 
helps support some of our lowest paid female workers, but it frees up 
informal care-providers who would prefer to find paying work.
---------------------------------------------------------------------------
     \9\ https://bfi.uchicago.edu/wp-content/uploads/BFI-WP-202046.pdf
     \10\ https://scholar.harvard.edu/files/kshen/files/caregivers.pdf
---------------------------------------------------------------------------
    The second step is to increase funding and improve access to 
training programs for mid-skilled positions and community college. 
Enrollment in vocational programs and community college programs fell 
during the pandemic. Enrollment in community colleges declined by 14.8 
percent since 2019. Enrollment in health-related programs has declined 
by 9.2 percent and education programs have fallen by 12 percent. \11\ 
Enrollment has fallen the most for first-generation students and 
underrepresented minorities. These declines are bad for the students 
who have not received training that would help them find employment in 
positions in which they can earn higher wages. But these declines are 
the Achilles heel in our supply chain resiliency. The slowdown in 
training in some fields is a harbinger of potential labor shortages 
that will translate into an increase in prices. The Wall Street Journal 
recently reported on a predicted decrease in certifications for medical 
and nursing technicians, dental assistants, food safety workers, 
cosmetology, and other professions requiring certifications. \12\ When 
there are not enough skilled workers to fill positions, prices will 
rise because skills cannot be gained overnight. As employers compete 
for a dwindling supply of workers with the needed training, wages will 
be bid up to the point that the additional costs will need to be passed 
onto customers. The time to act is now.
---------------------------------------------------------------------------
     \11\ https://nscresearchcenter.org/stay-informed/
     \12\ https://www.wsj.com/articles/covid-19-forces-vocational-
schools-to-adjust-11612348201
---------------------------------------------------------------------------
    Thank you for the opportunity to testify.
                                 ______
                                 
                 PREPARED STATEMENT OF ERICA R.H. FUCHS
 Professor of Engineering and Public Policy, Carnegie Mellon University
                             March 22, 2022
    Thank you Chairman Brown, Ranking Member Toomey, and Members of the 
Committee for the opportunity to talk with you today about the 
strategic capabilities our country needs to build a resilient economy. 
I am a Professor in the Department of Engineering and Public Policy in 
the College of Engineering at Carnegie Mellon University, and a 
Research Associate with the National Bureau of Economic Research. My 
research focuses on the development, commercialization and global 
manufacturing of emerging technology, and national policy in that 
context. My ``research laboratory'' is often the factory floor of 
manufacturing firms across the U.S. and around the world.
    From World War II to the present day, U.S. national security and 
economic prosperity in an increasingly global economy has rested, to a 
significant extent, on American leadership in technology, and through 
that technology, production. The Allied victory in World War II (1939-
1945) was attributed to American (and Soviet) ability to turn out 
military aircraft, tanks, and other weapons systems in unprecedented 
quantities thanks to the technology advancements behind the American 
System of Mass Production (Hounshell 1985). In the 1990 Defense 
Authorization Act (PL 101-189), Congress defined ``critical 
technologies'' as ``essential for the United States to develop to 
further the long-term national security or economic prosperity of the 
United States.'' The COVID-19 pandemic highlighted the criticality of 
technological leadership--such as in mRNA and proline stabilization 
techniques for vaccines (the latter which have helped U.S. vaccines 
have better immunogenic responses to COVID as the virus mutates)--not 
only for security and prosperity, but also for social well-being, in 
particular, human health. Perhaps most significantly, the COVID-19 
pandemic underscored that access to certain final products and their 
intermediate inputs can likewise be critical to national security, 
economic prosperity (including jobs), and social well-being. For 
example, early on in the pandemic, limited access to latex-free elastic 
for mask ear loops held certain companies up from manufacturing masks 
entirely. In one company's case, they finally identified a supply of 
elastic, but it was only available on a spool that didn't work with the 
automated mask manufacturing equipment. With the textile industry 
having moved manufacturing overseas decades earlier, the company was 
unable to identify an automated de-spooler, and so was stuck for a 
period of time having to have a worker hand-unspooling elastic, with 
the expected productivity slow-down (Fuchs Testimony 2020).
    When discussing critical technologies, we wouldn't ordinarily think 
of elastic; yet during those early months of the most intense supply 
shortages (roughly January through May 2020) were hospital workers were 
left with garbage bags and home-sewn cloth masks, that lack of elastic 
cost our country millions of masks a week (alone out of just one 
company--with the total losses surely much more).
    A similar story could be told in how the current shortage in 
semiconductors for applications requiring high robustness and safety is 
stopping cars from being produced and leading to job losses in 
Michigan. The solution to these problems are not as simple as just 
stockpiling masks or reshoring manufacturing of elastic or 
semiconductors. It can be challenging to stockpile for an uncertain 
future (we don't know the most effective protection for the next 
pandemic) and concentrated or single-source manufacturing can also 
reduce the resiliency of supply (electric grid power-outages in Texas 
caused semiconductor plants clustered around Austin to go down, helping 
contribute to the current shortages). As such, stockpiling and 
reshoring are just two (important) tools in a broader suite of tools we 
need in our arsenal: Other tools include leveraging and enhancing 
firms' and the economy's capability to pivot, building design platforms 
that reduce dependency on single-source suppliers, and innovating to 
change the rules of the game and the supply chain dependencies 
themselves.
    For example, in the case of the mask producer facing global 
shortages in elastic, the lesson of the story is not that the U.S. 
needs to reshore or stockpile elastic. What's needed is for that firm 
and the U.S. economy to have the capability to rapidly pivot--diversify 
the suppliers internationally, adapt the equipment, change the elastic, 
create a mask that does not require elastic, adapt regulations. or some 
combination of these actions. To build an economy capable of rapidly 
pivoting during crises, we need timely situational awareness, a robust 
manufacturing ecosystem, tools in place that value common cross-mission 
interests between social well-being (here health) and defense, and a 
Government pre-prepared for adaptive response during crises.
    In the case of shortages of safe, robust semiconductor chips for a 
range of defense, transportation (including automotive and aerospace), 
medical, and power electronic applications, cross-sector data sharing 
in public-private partnerships and funding of common design platforms 
will be essential. Innovations in hardware and software can facilitate 
common design platforms across these sectors, and thereby enhance their 
market power and their ability to switch production to alternative 
manufacturing facilities during supply chain crises. Identifying the 
right path will require sophisticated understanding of the technical 
implications of defense and commercial interests, as well as 
understanding and valuing the systemic implications of semiconductor 
shortages across the economy for businesses (including start-ups 
pushing the technical and possibility frontier), economic prosperity, 
and jobs.
    The stakes for creating effective policy in critical technologies, 
supply chains, and infrastructure could not be higher or more 
challenging. As illustrated above, critical technologies, supply 
chains, and infrastructure are deeply interdependent, such that 
capabilities (and policy) in one affects the other. In addition, their 
impact cuts across all national missions: national security, economic 
prosperity (including jobs), and societal well-being (including health, 
equity, and the environment). When there were medical supply shortages, 
small hospitals, rural doctors, essential workers, minorities, and 
those in the lowest income classes were hardest hit. Energy outages and 
environmental damage to infrastructure have significant costs for 
national security and private companies (for example the February 17, 
2021, electric grid power outages in Texas which led major 
semiconductor plants clustered around Austin both to have to shut down 
and throw out months of ruined products), and at the same time often 
disproportionately affect minorities and those in lower income 
brackets. The current semiconductor shortage is not only a threat to 
national security, but also to jobs and economic prosperity, for 
example in Michigan where fewer cars are being produced and layoffs are 
happening as a result.
    Key to the U.S. overcoming these challenges will be finding a way 
to quantify the value of investments across multiple missions, and to 
identify solutions that offer win-wins where the sum is greater than 
the individual parts. Fortunately, while not simple, with today's 
modern data and analytic tools, charting a path to a resilient economy 
and supply that affords win-wins across missions and sectors is 
attainable. Building this capability, however, is going to require 
Congress creating a new institution capable of being strategic and 
forward-looking, receiving work from all agencies including multiple 
agencies on a single topic, and leveraging leading technical expertise 
in engineering and the physical sciences, matched with leading 
expertise in modern analytics (machine learning, operations research, 
natural language processing) and the social sciences (economics, 
political science, sociology, history).
    In my remarks today I want to highlight three critical steps toward 
building a resilient economy, and the nature of the cross-mission 
critical technology analytics capability our country needs to 
successfully implement these steps:
    First, the U.S. must build timely situational awareness, otherwise 
we are flying blind.
    Inadequate data and analytic capability is weakening Government 
decision-making regarding critical technologies and critical supply 
chains. U.S. Defense agencies and policymakers lack mechanisms to 
assess their strategic weaknesses and opportunities versus other 
Nations in technologies critical to national security. The U.S. 
Government also lacks timely, easy-to-navigate, product-level data on 
the long chain of intermediate suppliers supporting the production of 
final goods. Without knowing the U.S.' global standing in technology 
and production, it is difficult to make policy--whether the importance 
of secrecy about technological capabilities or where to enhance 
domestic manufacturing capabilities and where to create alliances.
    These challenges were underscored by COVID-19: While existing 
surveys such as the Annual Survey of Manufactures and the Economic 
Census provide snapshots of U.S. capabilities, these data do not 
capture the rapidly evolving supply status during a crisis such as the 
COVID-19 pandemic. (The US Census collects data on all domestic 
businesses once every 5 years. At the time of the pandemic outbreak, 
the last data collected on all domestic manufacturers was 2017). Real-
time information is essential to guide decisions to coordinate and 
mobilize additional capacity during crises, whether a pandemic, other 
natural disasters, or war. Fortunately, timely situational awareness is 
attainable: Leveraging automated text analysis of public data, we were 
able to gain real-time situational awareness of U.S. domestic 
manufacturers entering, pivoting into, and scaling up in response to 
the COVID-19 crisis, particularly small- and medium-sized businesses. 
Within 2 weeks we revealed significantly greater domestic mask and 
respirator manufacturing capacity than was known by the Government at 
that time. (Fuchs, Karplus, Kalathil, Morgan 2020)
    Importantly, data collection of any form is costly, whether by 
Government, public-private partnership, or automated algorithm. For 
this reason, it makes sense to focus on supply chains of products that 
are sufficiently critical to national missions--whether national 
security, economic security, or human health--for the benefits (such as 
lives saved) of the full supply chain being tracked to outweigh the 
costs. Similarly, not all products or sectors or situations warrant 
data collection at the same frequency. For example, early on during the 
pandemic the number of mask and respirator manufacturers was changing 
by the week; in contrast, while manufacturing capabilities can change 
from year to year, it takes five years to build a semiconductor 
fabrication facility. Further, with modern data analytics, publicly 
scrapable data is increasingly valuable, but in many cases, and 
particularly during crises, the ability to rapidly spin-up public-
private partnerships around data may also be needed. For example, 
during COVID-19 it became essential to understand personal protective 
equipment and COVID-19 testing supply chains in great depth, but it may 
not be necessary to collect detailed or the same data on these supply 
chains all the time. Similarly, in the current semiconductor shortage 
for safe, robust chips on mature process nodes, a public-private 
partnership may be able to focus on data-sharing to identify design 
commonalities and design paths toward less heterogeneous or production-
line-specific chips, and that same data may have less value once new 
design platforms are in place.
    Going forward, data collection and public private partnership 
infrastructure should be built proactively, rather than reactively. \1\ 
To figure out which products and supply chains have sufficient national 
value to be tracked will require cross-mission valuation that 
aggregates across defense, health, labor, equity, and commercial 
interests. Such cross-mission critical technology and supply chain 
analytics must leverage technical expertise relevant to these sectors 
alongside the latest data and analytic tools. As part of such an 
effort, the U.S. Government should accelerate its investment and 
research in automated tools that dynamically advance our capabilities 
to have real-time situational awareness of global technology, human 
capital, and production capabilities and the U.S.' standing therein. 
The technical frontier in these capabilities are being advanced in the 
U.S. by large companies, start-ups, and academics; but do not yet exist 
throughout Government. A critical technology analytics program will 
need to address what timely situational awareness is needed in 
different sectors, what strategic information is in the public domain 
(and therefore harvestable by automated algorithms), and how the 
relevance of information in the public domain may vary by sector. A 
critical technology analytics program will also need to address the 
relative strengths and weaknesses of automated algorithms versus 
public-private partnerships sharing Government and industry-
confidential data, versus groups of individual experts at assessing the 
U.S. global standing in technologies and supply chains. Finally, a 
critical technology analytics program should also reflect on how--given 
its high relevance across missions, but the distinctly different goals 
of those missions--to advance the algorithmic capabilities to build 
timely situational awareness as a strategic capability in the U.S. As 
goes without saying, as these capabilities become more advanced, they 
should actively be integrated into agencies and departments across 
Government.
---------------------------------------------------------------------------
     \1\ Given the cost-benefit trade-offs in data collection, in our 
white paper, ``A New Approach to Coordinate U.S. Critical Supply Chains 
in Crisis'', (2021) Professor Valerie Karplus and I recommend taking a 
strategic (and analytic) approach to data collection: The U.S. 
Government should only regularly track and model domestic and 
international supply chains of select products critical to national 
missions. For these select products, the Department of Commerce should 
create a ``critical product'' tracker at the U.S. Census that would 
revitalize and revamp the U.S. Census's capability to update with 
greater depth and frequency its relevant business establishments and 
production capacity data in select critical end products. Aspects of 
such industry studies at the Economic Census were historically paid for 
by the Defense Logistics Agency, but discontinued a few years back. 
This mutual interest by the Department of Defense and Department of 
Commerce may also serve as an early indicator of strategic win-wins. 
Given that such tracking is costly, the Department of Commerce should 
through a national critical technology analytics program conduct cost-
benefit analysis to quantify the value of tracking different products 
and their intermediate inputs and with what frequency. Such analyses 
should be conducted by a cross-mission critical technology analytics 
program in conjunction with relevant agencies (e.g., FEMA, HHS, CDC) 
and include the value (in terms of lives saved and improved) of various 
products during crises (starting with the current, past, and various 
future scenarios of pandemic), the value of data on final products and 
one or more of their intermediate inputs (not all may have high value 
in being tracked), and the value of how frequently the data is 
collected (which will vary widely by sector). Finally, the Department 
of Commerce should develop mechanisms for the U.S. Census to share 
business data with action-oriented arms of Government during crises. 
(Fuchs and Karplus 2021). In parallel to these standing data collection 
activities, the U.S. Government should create the public-private 
infrastructure necessary to spin-up during crises near-real-time 
situational awareness, assessment of potential capacity domestically 
and internationally, and response. To do so, the U.S. Government should 
invest in an integrated, secure, near-real-time data architecture for 
supply chains considered ``critical'' and into which multiple 
Government and industry data sources would feed; and maintain the 
necessary connections to mobilize nonpartisan domestic stakeholder 
teams by product with technical competency and visibility into evolving 
production conditions. These public-private teams would commit now to 
being tasked during a future crisis with providing data and options to 
Federal and State decision makers, developing appropriate and 
situationally relevant metrics for progress, and working to achieve an 
equitable nationwide response. (Fuchs and Karplus 2021).
---------------------------------------------------------------------------
    Second, the U.S. must create the supply chains of tomorrow, not fix 
the supply chains of yesterday.
    Timely situational awareness of the U.S. position globally in 
critical technologies and supply chains is necessary, but by itself 
insufficient. The U.S. must focus on and invest in innovation to 
transform supply chains and our competitive position therein.
    Energy storage solutions, particularly lithium-ion batteries for 
electrified transportation, are growing geometrically in terms of 
market size and material needs. And yet, the global supply chain for 
lithium ion batteries is constrained in several ways that could be 
catastrophically disruptive as demand rises. In this context, novel 
battery materials that represent very little (or no) supply chain risk 
in terms of cost, transport, working conditions, and/or geopolitical 
strife; and novel methods for producing materials that are both free of 
cobalt as well as able to be produced using materials that can be 
sourced from within the U.S. (Burke and Whitacre 2020; Sovacool, et 
al., 2020) could be transformative in terms of security and 
geopolitical dependencies. Likewise, synthetic processes for these 
materials that can be scaled with low cost and using well understood 
and common production methods could be revolutionary in terms of 
circumventing risky supply chain situations in favor of locally sourced 
materials, recycled materials, and cost-optimizing processes (Ciez and 
Whitacre 2019).
    Similarly, national leadership in next-generation (e.g., beyond-
CMOS) computing device design and processing capabilities as well as 
the innovations such devices will require across the stack is destined 
to determine national leadership in computing, AI, and beyond (Khan, 
Hounshell, and Fuchs 2018), and create entirely new industries and 
innovation ecosystems. This revolution in the devices that drive 
computing capabilities will draw on entirely new supply chains.
    Both of these hardware innovations hold potential for new 
entrepreneurial opportunities and fundamentally change the existing 
industry, today's supply chain dependencies, and the U.S.' standing 
therein. Excitingly, our research also suggests that these innovations 
in advanced materials and processes are likely to also likely to have 
more and more rewarding jobs for U.S. based high-school educated 
operators and technicians (Combemale and Fuchs 2020; Combemale, Ales, 
Whitefoot, Fuchs 2021; Cotterman, Fuchs, Small, and Whitefoot 2022).
    While innovation is often a middle or long-run game, hardware and 
software innovations that transform supply chain dependencies can also 
be short-term solutions. Take, for example, the current shortage in 
semiconductor chips for industrial applications requiring higher safety 
and robustness but lower performance. In the semiconductor industry, 
given the high capital costs and long lead times in building new 
fabrication facilities, it can be easier to redesign chips for existing 
production facilities than the other way around. The DoD has a long 
history of redesigning chips from legacy systems to be produced on 
available fabrication facilities. Analogously, many companies facing 
shortages are currently redesigning some of their chips to circumvent 
supply constraints.
    Going forward there is an even greater opportunity to leverage 
innovation and chip redesign to address semiconductor shortages in 
applications requiring high safety and robustness but lower 
performance. Production in the global semiconductor industry has in 
recent years increasingly been concentrated in a small set of 
geographic locations and suppliers. Further reducing supply resiliency, 
semiconductor chips have been increasingly customized for unique 
production lines and facilities, creating high switching costs, and 
temporary monopoly power for suppliers during shortages. Industrial 
applications like aerospace, automobiles, medical devices, power 
electronics, and defense systems have different needs (e.g. robust to 
vibrations and heat but lower performance), and are small percentages 
(less than 25 percent) of the total semiconductor market. Application 
needs within this 25 percent are highly heterogeneous, and the robust 
but lower performance chips are produced by semiconductor suppliers 
with lower profit margins. As a consequence, these companies and 
sectors have low market power, which becomes particularly relevant 
during shortages.
    While not using the most advanced chips can limit options (older 
nodes also have lower profit margins), it can also be an opportunity. 
Government funding of common design platforms and design rules hold 
promise to increase both the aggregate market power as well as the 
supply chain resilience of these sectors critical to national security, 
economic prosperity, and domestic jobs. Common design platforms hold 
promise to increase the resiliency of supply chains by moving designs 
away from being tailored to specific production facilities, and making 
them more ``fab-agnostic,'' thus reducing the cost of switching the 
manufacturing facility manufacturing the chip during global shortages. 
The Department of Defense has similar needs to commercial sectors like 
aerospace and automobiles in terms of prioritizing safety and 
reliability over high performance, and similar to what is needed by 
aerospace and automobiles, Department of Defense trusted fabrication 
facilities likewise do not operate at the most advanced semiconductor 
nodes. As such, the Departments of Commerce, Defense, and Energy have 
common interests in funding the development of common design platforms 
in both hardware (such as was done historically in RISC-5) and software 
(such as was done historically in the S-MOSIS program) that enhance 
commonality where sectors have common interests, and still leave room 
for differentiation where interests differ. (Blanton, et al., 2021).
    As these examples show, it is essential that a cross-mission 
critical technology analytics program leverage experts at the technical 
frontier to ensure that the U.S. is incentivizing innovation to change 
the playing field, and incentivizing design platforms where there are 
win-win gains across national missions of defense and economic 
prosperity.
    Third, to have a supply base resilient to demand shocks and to reap 
the benefits of innovation domestically, the U.S. must invest in a 
vibrant manufacturing base.
    To make sure that the domestic economy can rapidly pivot into 
manufacturing products experiencing global shortages during crises, the 
U.S. must have a vibrant domestic manufacturing ecosystem. Already 
before the current pandemic, my and other scholars' research showed 
that countries like China are more competitive than the U.S. in 
adaptively producing a wide diversity of products at low to medium 
volumes (Treado and Fuchs 2015), at refining production systems for new 
products (Fuchs and Kirchain 2010; Nahm and Steinfeld 2014), and at 
scaling up that production (Fuchs and Kirchain 2010, Nahm and Seinfeld 
2014). The COVID-19 pandemic underscored the dilapidation of our 
domestic manufacturing ecosystem and the loss of human capital needed 
for that ecosystem to be highly adaptive, flexible, and resilient. In 
the context of mask and respirator (N95) production during the early 
days of COVID-19, small and medium sized companies struggled with 
access to capital, access to information on how to make medical-grade 
masks, access to machines which were predominantly manufactured in 
China, shipping delays for those same machines and the components 
required for their repair, high qualification and certification costs, 
and challenges breaking into mainstream hospital distributor markets. 
(Kalathil, Morgan, Fuchs 2022)
    That said, while U.S. companies, particularly small- and medium-
sized ones struggled to pivot into and ramp-up domestic production of 
masks, in my research with Nikhil Kalathil and Granger Morgan on 
companies that pivoted, I have been struck by how much what was left of 
our domestic manufacturing ecosystem was central to U.S. companies 
being able to pivot in the cases where they successfully did so. One 
large American manufacturer was able to leverage its intellectual 
property and aerospace sourcing and production expertise to establish 
and ramp-up domestic manufacturing of masks within just a few weeks. 
General Motors was similarly able to leverage its automotive sourcing 
and production expertise to rapidly ramp-up domestic manufacturing of 
masks and ventilators. In Indiana, America Meltblown and Filtration was 
able, with support from the Indiana government, to leverage its 
expertise in filtration materials and oil absorbent products to pivot 
first into making meltblown polymer for masks and later to create a 
subsidiary for also making N95 masks themselves. Another company 
leveraged their company founder's technical macgyver skills to pivot 
from past experience in waste management and construction into domestic 
mask manufacturing. (Kalathil, Morgan, Fuchs 2022.) These observations 
during COVID have strengthened my belief in the importance of domestic 
core competencies in critical technologies and a strong domestic 
manufacturing ecosystem to having a resilient supply base during 
crises. Some pivoting companies' previous experience in waste 
management, construction, and water or oil infrastructure products has 
also strengthened my belief that the greatest promise for rebuilding 
our manufacturing ecosystems may be equitable country-wide investments 
in building the infrastructure of the future.
    Resiliency to crises and the capability to pivot are not the only 
reason to have a vibrant domestic manufacturing base. A vibrant 
manufacturing ecosystem is also important to keeping leadership in 
innovation domestically and creating well-paying U.S. jobs for 
hardworking high school graduates. To make sure the best science and 
technology advancements and the high-end operator and technician jobs 
that go with them happen domestically, in parallel to investing in 
science we need to rebuild our domestic physical and human capital 
across a broader swath of our country. Since co-location with 
manufacturing is in certain contexts, particularly materials and 
process innovations at the technical frontier, necessary for 
innovation, making sure the manufacturing processes happen domestically 
is likewise important to ensuring the capability to innovate and 
continue to lead at the technical frontier (c.f., Fuchs, 2014; Fuchs 
and Kirchain 2010). Excitingly, my research with Christophe Combemale 
and other colleagues shows that these game-changing products that 
leverage the technical frontier in advanced materials and processes 
also tend to have better jobs for high-school educated operators and 
technicians, whose back-and-forth with engineers on the production line 
is essential to bringing the new innovations successfully to market In 
these products, when inventors are U.S.-based (as they often are) and 
production processes for new products are still immature, the U.S. 
should have an initial advantage in keeping production domestic. 
However, unless the U.S. has invested in the prototyping facilities for 
scale-up of new products (particularly knowledge and capital intensive 
advanced materials and processes like those required in high-end next 
generation semiconductors) and the regional manufacturing ecosystems 
(including the highly-skilled high-school educated operators and 
technicians needed) to subsequently make those products at scale, 
investments in innovation will not stay domestically.
    As I discussed in my 2020 testimony before the Ways and Means 
Subcommittee on Trade and in my 2021 testimony before the House Space, 
Science and Technology Subcommittee on Research and Technology, I have 
come to believe strategic infrastructure investments hold the greatest 
promise to revitalizing U.S. worker skills and firm necessary for 
vibrant U.S. manufacturing ecosystems.\2\ \3\ By infrastructure I mean 
not just roads, bridges, transit networks, water systems, and dams; but 
also the energy, communications, manufacturing, and data infrastructure 
necessary for all of those.
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     \2\ My focus on strategic infrastructure investments is due to the 
potential novelty of that approach. Manufacturing Extension Program and 
Manufacturing USA innovation institutes already play and will need to 
play an important role in reviving our manufacturing ecosystem. On the 
Manufacturing Extension Program's effectiveness in upgrading and the 
acquisition of competitive capabilities (c.f., Various pieces by 
Whitford, J.; Shapira; McEvily, B.). On the Manufacturing USA 
innovation institutes, their original goals, and evaluation thereof 
(c.f., Recent studies by GAO, NASEM).
     \3\ The U.S. generally lags behind other peer industrialized 
Nations in infrastructure: The American Society of Civil Engineers 
(ASCE)'s 2017 report finds that the Nation's infrastructure averages a 
``D,'' meaning that conditions are ``mostly below standard,'' 
exhibiting ``significant deterioration,'' with a ``strong risk of 
failure.'' This lag which can largely be traced back to funding: On 
average, European countries spend the equivalent of 5 percent of GDP on 
building and maintaining their infrastructure, while the United States 
spends 2.4 percent. The United States also differs from most other 
industrialized countries in the extent to which it relies on local and 
State spending to meet its infrastructure needs--only 25 percent of 
U.S. public infrastructure funding comes from the Federal Government.
---------------------------------------------------------------------------
    Too often missing from national debates has been thinking about 
infrastructure investments as strategic investments in technology and 
knowledge capabilities, equity, national security, as well as platforms 
that enhance productivity and innovation. To realize this potential, 
our infrastructure investments need to be for the infrastructure of the 
future. Transportation, transit, and urban infrastructure should be 
designed to enable the safe and equitable introduction of driverless 
vehicles and smart city systems, and the matching large-scale 
interconnected data infrastructure for security, privacy, resilience 
and machine learning on that data (Anderson, et al., 2016; Berges and 
Samaras 2019.) Electric grids should be restructured to ensure a clean 
and resilient power system that can accommodate a wide range of new 
designs and services (NASEM 2010, Lueken 2012, NASEM 2017). \4\ (Fuchs 
Testimony 2020)
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     \4\ Among other issues, much of our infrastructure was constructed 
for the climate of the 20th century, rather than for the climate of the 
21st century (Chester, et al., 2020). Rebuilding and reinvesting in our 
infrastructure to be resilient to extreme weather is essential for the 
safety of our communities and the resilience of our economy (Olsen, et 
al., 2015).
---------------------------------------------------------------------------
    Investments such as those described above address national needs 
for resilience, energy and internet access, demand for products from 
cement to steel to semiconductors (particularly if inputs are sourced 
domestic manufacturing), and technology leadership (whether in 
cybersecurity, software for resilient distributed systems, 
semiconductors for communications, renewable energy sources, or 
batteries for energy storage). Infrastructure investments also build 
national capabilities for building things--not just in the form of 
firms responding to the demand, but also in the form of operators and 
engineers. These workers will learn by doing. As we think about these 
investments strategically, it is critical to recognize the 
interconnectedness of knowledge and skills across these infrastructure 
domains. The physical and human capital relevant to deploying and 
managing sensors for sustainable and smart infrastructure--from the 
concrete layer to forman to the engineer to the data infrastructure 
developer to the machine learning software--have corollaries in 
resilient grid infrastructure, privacy-preserving health 
infrastructure, and intelligent manufacturing. In other words, to have 
the human capital and enterprises to manufacture the products of the 
future, we should build the infrastructure of the future. We should be 
strategic about these complementarities between infrastructure and 
critical technology and manufacturing capabilities, in where and how we 
invest, and in facilitating job and skill transitions across sectors 
through targeted training.\5\ \6\ (Fuchs 2020 testimony).
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     \5\ A recent OECD report has looked at current worker skills, how 
demand for those skills is expected to change with automation, and the 
training required to support ``reasonable'' transitions (OECD 2019). In 
our own research, we have been mapping skill requirements to jobs at a 
individual operator task level (Combemale, Ales, Whitefoot, Fuchs 
2020a), and we are extending that task-level skill mapping now beyond 
the shop floor to technicians, engineers, and managers (Combemale, 
Whitefoot, Fuchs 2020). Whether at the OECD level or our own more 
granular one (or another method yet to emerge), we need to be mapping 
and broadcasting to training entities the skill transitions required to 
apply skills from one domain to the other across sectors.
     \6\ In facilitating these transitions, we should not underestimate 
the power of on-the-job learning and learning by doing (building). This 
is not to suggest that training isn't necessary, rather that that 
training may not happen ``out of work'', per se. Here, where large 
firms exist, industry in each sector should lead the training that is 
needed, where relevant in partnership with unions, with Government 
facilitating assessment and dissemination of best practices and the 
mapping of the cross-sector transitions. Where small companies are 
involved, the Government will play an essential role, in conjunction 
with larger companies, in mapping and funding necessary workforce 
transition training.
---------------------------------------------------------------------------
    Once again, a cross-mission critical technology analytics program 
holds the potential to identify and quantify the systemic implications 
of such investments and quantify paths to cross-mission win-wins.
    As the above examples highlight, the U.S. needs to build the 
capacity to identify and invest in solutions that offer win-wins across 
missions, charting paths where the sum across missions may be greater 
than the parts.

        Unlike firms, Nations have multiple objectives: national 
        security, economic prosperity (including jobs), and social 
        welfare (including health, environment, and equity). In the 
        past the United States has pursued the technological component 
        of each objective through science and technology agencies with 
        singular missions, such as defense, energy, transportation, 
        commerce, and labor. The National Research Council beautifully 
        describes how this mix of missions helped create the revolution 
        in computing: ``By funding a mix of work in universities and 
        industry, [the United States] was able to marry long-term 
        objectives to real-world problems. And, by channeling its 
        funding through a variety of Federal agencies, it was able to 
        ensure broad-based coverage of many technological approaches 
        and to address a range of technical problems.'' Yet this 
        excellent system has a hole: even if each agency (or program 
        within an agency) perfectly fulfills its own narrowly specified 
        mission, the country could still fail to fulfill the Nation's 
        overarching multi-objective goal. (Fuchs, Boston Review 2021).

    I suspect part of why our country hasn't invested more in domestic 
manufacturing and infrastructure is failure to identify and quantify 
the value across missions (labor and equity, health, security, 
commerce) of these investments. Fortunately, with today's modern data 
and analytic tools it is possible to identify, quantify the value of, 
and incentivize technological solutions that are win-wins across 
multiple national objectives.
    For example, our research shows that certain innovations in areas 
critical to national security (including high-end semiconductors for 
communications) also offer better jobs for hard working high school 
graduates (Combemale and Fuchs 2020; Combemale, Ales, Fuchs, Whitefoot 
2021; Combemale, Ales, Fuchs, Whitefoot 2022).
    Similarly, in the case of the current semiconductor shortage in 
safety-critical robust applications, Government funding of design 
platforms that embrace commonalities (but leave room for differences) 
across the respective technological demands of the defense and 
commercial sectors can lead to a solution where the sum is greater than 
the parts for U.S. security, economic, labor, and equity interests. 
(Blanton, et al., 2021)
    As a third example, if we just want to reduce carbon emissions, the 
best approach might be to scale up the use of electric vehicles as 
quickly as possible. However, if we expand the objective of that 
investment to also maximize national security, prosperity, and equity, 
we would need to find ways to invest in innovations that reduce our 
national reliance on concentrated supplies in geographic locations with 
higher probabilities of disruption; quantify the value (in terms of 
labor, supply resilience, and innovation) of domestic manufacturing of 
batteries; and predict which citizens would gain and lose jobs, and 
support those citizens in having jobs for the future of the industry 
moving to that region and being trained for those positions. (Fuchs, 
Boston Review 2021).
    As I have described, getting these investments right is nontrivial. 
In a mission-oriented Government, how do we build the national analytic 
capacity in critical technologies and supply chains to identify, value, 
and act across missions? We need to create a program whose goal is 
strategically identifying opportunities across missions.
    Today, the U.S. lacks real-time situational awareness of its 
strengths, weaknesses, opportunities and threats in various 
technologies and supply chains. The U.S. lacks ways of quantifying 
technology or product criticality, or the value of various policy 
responses (such as onshore manufacturing or secrecy) for technologies 
identified as critical. Perhaps most importantly, the U.S. lacks ways 
of analyzing the value of various policy responses across missions 
(e.g., national security, economic prosperity, and social well-being 
including health, equity, and the environment). To build a resilient 
economy and ensure that the Nation's investments realize legislator's 
multiple objectives for them the U.S. must establish a national 
capability for critical technology analytics that will build the 21st 
century intellectual foundations, data infrastructure, and analytic 
tools needed to elucidate trade-offs and win-wins across national 
missions, including the dimensions by which to measure a technology's 
criticality, a proactive assessment of strengths weaknesses 
opportunities and threats in technologies and supply chains versus 
other Nations and the ability to spin-up timely situational awareness 
thereon during crises, how innovation could potentially transform these 
situations, and the trade-offs across missions presented by different 
technology policy approaches.
    A critical technology analytics program faces unique challenges in 
that the intellectual foundations for identifying critical technologies 
do not yet exist, the problems require talent not easily attracted by 
individual agencies, and the problems are uniquely cross-mission in 
nature, spanning multiple departments. In terms of talent, not only is 
frontier technical knowledge and sectoral depth needed on the problem-
solving team, but also the latest in 21st century data and analytic 
capabilities (such as machine learning and natural language 
processing). Experts at the frontier of these types of knowledge 
typically sit across academia and industry. Given the overlaps between 
military and civilian demand for knowledge and products in ``critical'' 
areas, the organization would by definition be focused on problems at 
the nexus of academia, industry, and Government.
    Given these challenges, the ideal critical technology analytics 
program would be a highly flexible, distributed model capable of 
rapidly mobilizing and reconfiguring star private sector and academic 
talent, data, and resources. To ensure absorptive capacity of these new 
tools by Government, individual Government agencies would need to in 
parallel be developing internal competencies, and would be responsible 
for transitioning capabilities internally, and would have people on 
rotation in the critical technology analytics program serving as the 
bridge for that transition.
    In summary, for a critical technology analytics program to identify 
cross-mission win-wins and thus have the greatest value for our Nation, 
the program must be set up so as to

  1.  Be strategic and forward-looking, not working on issues of the 
        day or week or becoming a statistical agency focused on 
        comprehensive data collection, rather with outputs involving 
        analytics to inform strategic action,

  2.  Be able to receive work from all departments of Government--
        including from multiple departments on a single subject, such 
        that each department would still have their own analytic team 
        but would seek to leverage the organization where it 
        particularly needed star talent challenging to attract to 
        individual agencies, and where select critical technology 
        problems were particularly cross-mission in their nature;

  3.  Bring together to solve problems leading technical expertise in 
        engineering and the physical sciences, matched with analytic 
        (machine learning, operations research, natural language 
        processing) and social science (economics, political science, 
        sociology, history) expertise,

  4.  Be able to engage neutral third parties and have the capability 
        to forge public-private partnerships that can serve as a 
        neutral third party, and

  5.  Conduct work internally but also be able to leverage expertise 
        from academia and industry through contracts.

    The U.S. has risen to the challenge of creating a star-studded 
entity to cut-across missions before. Founded in the aftermath of 
Sputnik with the goal of preventing technological surprises, DARPA was 
set up to cut through the rivalry between the military services (Fuchs 
2010). To ensure future U.S. security, competitiveness, and access to 
critical supply, and to ensure the landmark science and infrastructure 
legislation proposed achieves legislator's multiple objectives for it, 
the U.S. must establish, a cross-mission critical technology analytics 
program able to receive work across, collaborate with, and catalyze 
initiatives within the existing mission-driven agencies.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                PREPARED STATEMENT OF VERONIQUE DE RUGY
George Gibbs Chair in Political Economy at The Mercatus Center, George 
                            Mason University
                             March 22, 2022
    Chair Brown, Ranking Member Toomey, and Members of the Senate 
Committee on Banking, Housing, and Urban Affairs, thank you for the 
opportunity to testify today. My name is Veronique de Rugy, and I hold 
the George Gibbs Chair at the Mercatus Center at George Mason 
University, where I study tax and fiscal policy, the Federal budget 
process, and the implications of Government spending for economic 
growth.
    I would like to offer the following three main takeaways:

  1.  The inflation Americans are experiencing today was to be 
        expected. There were sufficient warnings that this inflation 
        should not have been a surprise.

  2.  The inflation Americans are experiencing is the result mostly of 
        expansive monetary and fiscal policy, rather than the result of 
        global supply chain problems or other supply shocks.

  3.  Fiscal and monetary restraint are key to controlling inflation.
Background
    The Consumer Price Index in February 2022 showed its sharpest year-
over-year spike in four decades, \1\ catching the Federal Reserve (Fed) 
by surprise. After being slow to recognize the inflation, the Fed 
claimed that the inflation is transitory, meaning that it would go away 
all on its own. When inflation persisted, the Fed said that prices are 
just catching up to prepandemic levels. When prices began to exceed 
prepandemic levels, the list of ``causes'' of inflation began to change 
with the circumstances, to the point that one could conclude that 
inflation can be caused by nearly everything (the restricted supplies 
of lumber, used cars, and other goods, as well as overall supply chain 
tangles).
---------------------------------------------------------------------------
     \1\ Bureau of Labor Statistics, ``Consumer Price Index-February 
2022'', news release no. USDL-22-0145, March 10, 2022, https://
www.bls.gov/news.release/pdf/cpi.pdf.
---------------------------------------------------------------------------
    Today, the argument that inflation is mostly the result of supply 
shocks such as the war in Ukraine or of global supply chain problems 
continues to be widespread. \2\
---------------------------------------------------------------------------
     \2\ Betsy Stevenson, ``The Best Way To Tackle Inflation: Confirm 
Biden's Fed Nominations'', The Hill, March 2022.
---------------------------------------------------------------------------
    None of these alleged causes, however, can explain the persistence 
of inflation or its scale compared with inflation in other countries. 
In particular, explanations about supply-shock-driven inflation seem to 
mistake inflation (i.e., an increase in the general price level-that 
is, of all prices and wages) with changes in relative prices (i.e., 
when only some prices rise, as when the price of cars rises relative to 
the price of other goods and to wages because of reductions in the 
supply of computer chips). In the end, excessive focus on the supply 
side of this issue causes people to fail to recognize the overwhelming 
role played by the demand side, in particular the role of deficit 
spending accommodated by the Fed's expansionary monetary policies. This 
is surprising, considering that many legislators, Fed officials, and 
many experts treated the pandemic and lockdown induced downturn as if 
it were a demand-side shock and have responded with measures meant to 
raise aggregate demand. They should not be surprised that this 
inflation is demand pull rather than cost push.
Global Supply Chains Are Not the Primary Cause of Inflation
    One of the most common talking points about the inflation is that 
it was caused by supply shocks in general and global supply chain 
weaknesses in particular. Fixing inflation therefore requires, among 
other things, pulling in supply chains behind national borders. This 
hypothesis is based on misconceptions about both supply chains and 
inflation.
    According to the World Trade Organization, trade in intermediate 
goods continued to rise during the pandemic, albeit at a slower rate 
than before, in spite of port and shipping bottlenecks. \3\ In other 
words, although there were chokepoints, supply chains were far from 
``cut off,'' as the president recently claimed on national television. 
\4\ In fact, as I will show later, most of the supply chain issues had 
to do with the tremendous increase in demand rather reductions in the 
economy's ability to supply goods due to than supply-chain-specific 
issues. Economist Scott Lincicome has demonstrated repeatedly that 
``the Nation's overall productive capacity and its medical goods 
industries are generally healthy and that domestic industries and their 
supply chains have adapted during the pandemic to meet extraordinary 
demand.'' \5\
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     \3\ ``Exports in Intermediary Goods Continue To Grow in Third 
Quarter of 2021'', World Trade Organization, February 4, 2022, https://
www.wto.org/english/news-e/news22-e/stat-04feb22-e.htm.
     \4\ ``ABC News Live Update: Biden's Exclusive Interview With 
George Stephanopoulos'', interview by George Stephanopoulos, ABC News, 
video, accessed March 18, 2022, https://abcnews.go.com/US/video/abc-
news-live-update-bidens-exclusive-interview-george-76510757.
     \5\ Scott Lincicome, ``The Pandemic Does Not Demand Government 
Micromanagement of Global Supply Chains'', Cato Institute, February 24, 
2021, https://www.cato.org/pandemics-policy/pandemic-does-not-demand-
government-micromanagement-global-supply-chains.
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    Furthermore, it is at best unlikely that moving supply chains to 
domestic producers will lower inflation by reducing the cost of 
production. Global supply chains are global as they are because every 
other available mode of production and distribution is more costly. 
Were the Government to forcibly constrain and alter these supply 
chains, it would increase costs further--and as costs go higher, so do 
prices. Undoing decades of globalization would also take similar 
decades.
    Rachel Fefer, Andres Schwarzenberg, and Liana Wong, economists at 
the Congressional Research Service, write that the United States, in 
particular, was a driving force in breaking down trade and investment 
barriers across the globe and constructing the open and rules-based 
global trading system that has enabled [global value chains] to 
proliferate. . . . For example, stronger linkages to the global economy 
force U.S. industries and firms to focus on areas in which they have a 
comparative advantage, provide them with export and import 
opportunities, enable them to realize economies of scale, and encourage 
knowledge sharing and innovation. In addition, households have been 
able to enjoy lower product prices and a broader variety of goods and 
services--some of which may not be produced domestically. \6\
---------------------------------------------------------------------------
     \6\ Rachel F. Fefer, Andres B. Schwarzenberg, and Liana Wong, 
``Global Value Chains: Overview and Issues for Congress'', (report no. 
R46641, Congressional Research Service, Washington, DC, December 16, 
2020).
---------------------------------------------------------------------------
    Global supply chain constraints or port bottlenecks do exist, and 
Congress can address them in several ways, some of which I will mention 
later in this testimony. Indeed, the United States could get much more 
out of global supply chains by removing the many Government-imposed 
barriers that have intentionally diminished US supply chain capacity, 
efficiency, and flexibility and thus made the supply chain crisis far 
worse than it ever needed to be. \7\
---------------------------------------------------------------------------
     \7\ Scott Lincicome, ``American Sclerosis'', Dispatch, November 
10, 2021.
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    Finally, this is not to say that global supply chain constraints 
cannot and have not led to an increase in the price level. However, one 
needs to differentiate between supply constraints, which increase the 
price of some or even many goods relative to other prices, and 
inflation, which occurs when the prices of everything, including labor, 
eventually rise. We are now seeing the price of everything go up, and 
wages also rising though for now at a lower rate. Supply shocks and 
constraints do not cause that broad-based pattern. Indeed, individual 
price increases show up in measurements of inflation, but these 
increases in relative individual prices should not be confused with 
inflation. In addition, price-level hikes caused by supply-side shocks 
(such as supply-chain chokepoints) are generally not ongoing, month-
after-month price hikes. They are usually a one-time price-level jump, 
which eventually dissipates when the supply shock is over, and indeed 
usually reverses resulting in a period of measured deflation. All 
prices are rising, the inflation is persistent, and there is no sign of 
a reversal.
    Similarly, a shift in demand from services (restaurant means) to 
goods (TVs) can cause goods prices to rise, but it causes services 
prices to decline, with no effect on the overall price level. That is 
not what we are seeing.
    By contrast, inflation, or a general increase in all prices 
including wages, and the associated fall in the dollar's purchasing 
power has a single source: the creation of too many dollars and the 
promise to print more dollars in the future.
The Main Cause of Inflation
    Government-induced demand is a key player in this burst in 
inflation. The U.S. Department of the Treasury first issued $3 trillion 
of new debt, which the Fed quickly bought in exchange for $3 trillion 
of new reserves that the Treasury sent out as checks and other forms of 
payments to Americans. The Treasury then borrowed another $2 trillion 
or so to send out another round of checks and payments to Americans. 
Overall Federal debt rose by almost 30 percent of GDP.
    This action was the product of a misdiagnosis of economic problems 
on the basis of the belief that the pandemic-induced recession was 
mostly an aggregate demand shock, not one of aggregate supply. That 
means that sending money to people would have very little impact on 
output, especially because a large share of the economy was closed. It 
would, however, affect demand for durable goods.
    The size of fiscal stimulus was also an issue. Even by Keynesian 
economics standards, the $5 trillion injected into the economy was 
larger than any plausible output gap, at any level of multiplier. The 
same can be said of the $1.9 trillion American Rescue Plan, which was 
passed in March 2021. Around early 2021, the Congressional Budget 
Office projected that the output gap would be $700 billion through 
2023, \8\ the period when most of the $1.9 trillion in spending would 
take place. $1.9 trillion was two or three times more than needed to 
fill the gap. \9\
---------------------------------------------------------------------------
     \8\ Calculations of the Committee for a Responsible Federal Budget 
based on Congressional Budget Office, An Overview of the Economic 
Outlook: 2021 to 2031, February 2021. ``America Faces a $380 Billion 
Output Gap'', Committee for a Responsible Federal Budget, February 1, 
2021.
     \9\ Veronique de Rugy, ``The Not-So-Stimulative $1.9 Trillion 
Package'', National Review, March 19, 2021.
---------------------------------------------------------------------------
    Whereas everyone from monetary experts to the Fed chairman to 
President Joseph R. Biden, Jr.'s, Council of Economic Advisers spent 
most of 2021 explaining this burst of inflation without any mention of 
the role played by fiscal and monetary policies, economists such as 
Larry Summers and Jason Furman, who had advised earlier Democratic 
administrations, and Olivier Blanchard of the International Monetary 
Fund were sounding the alarm. As some of the best Keynesian economists 
out there, they recognized that the $1.9 trillion American Rescue Plan 
was excessive and would cause an excessive increase in aggregate 
demand, followed by inflation.
    A series of new studies confirm the demand-side effects on 
inflation. \10\ The World Trade Organization's chief economist Robert 
Koopman also estimates that increased demand for goods was a major 
factor behind supply chain issues, accounting for anywhere between two-
thirds to three-quarters of supply shortages. \11\ In other words, 
there wouldn't be ``supply chain'' problems without the massive 
increase in demand for durable goods fueled by Government spending.
---------------------------------------------------------------------------
     \10\ Francois de Soyres, Ana Maria Santacreu, and Henry Young, 
``Demand-Supply Imbalance During the COVID-19 Pandemic: The Role of 
Fiscal Policy'', VoxEU, Center for Economic Policy Research, March 1, 
2022, https://voxeu.org/article/demand-supply-imbalance-during-covid-
19-pandemic; ``Global Supply Chains: Risk, Repair and Restructuring'', 
Morgan Stanley, February 17, 2022, https://www.morganstanley.com/ideas/
supply-chain-disruption-outlook; ``Demand Shock Behind Global 
Bottlenecks Should Ease in Months--WTO'', Reuters, February 14, 2022. A 
recent study by the International Monetary Fund estimates that, in the 
second quarter of 2021, in the United States, about 45 percent of 
changes in producer prices were driven by supply shocks and 55 percent 
were driven by demand shocks. Oya Celasun, et al., ``Supply 
Bottlenecks: Where, Why, How Much, and What Next?'' (working paper no. 
WP/22/31, International Monetary Fund, Paris, February 2022).
     \11\ ``Demand Shock Behind Global Bottlenecks Should Ease''.
---------------------------------------------------------------------------
    The Government has been borrowing money for decades and the Fed has 
been buying Treasury securities and turning the debt into reserves for 
a decade without causing inflation. What was different this time 
around? First, Americans have seen for a decade or so prices rise in 
assets from housing to land to the stock market, but the increase 
didn't spread to broader prices until now.
    Second, as economist John Cochrane explains, the large money 
printing and deficit spending alongside the absence of discussion about 
paying down the debt once this crisis is over is what produced this 
inflation:
    Inflation comes when Government debt increases, relative to 
people's expectations of what the Government will repay. If the 
Treasury borrows, but everyone understands it will later raise tax 
revenues or cut spending to repay the debt, that debt does not cause 
inflation. It is a good investment, and people are happy to hold on to 
it. If the Fed prints up a lot of money, buys Treasury debt, and the 
Treasury hands out the money, as happened, but everyone understands the 
Treasury will pay back the debt with future surpluses, the extra money 
causes no inflation. The Fed can always soak up the money by selling 
its Treasury securities, and the Treasury repays those securities with 
surpluses (i.e., taxes less spending).
    The 2020-2021 borrowing and money episode was distinctive because, 
evidently, it came without a corresponding increase in expectations 
that the Government would, someday, raise surpluses by $5 trillion in 
present value to repay the debt. \12\
---------------------------------------------------------------------------
     \12\ John H. Cochrane, ``Fiscal Inflation'' (paper presentation, 
Cato Institute 39th Annual Monetary Policy Conference, Washington, DC, 
December 22, 2021), https://static1.squarespace.com/static/
5e6033a4ea02d801f37e15bb/t/61d3c86e0797d1326136230b/1641269358431/
Cochrane-Final-12.pdf, 4.
---------------------------------------------------------------------------
    Most economists believe that the Fed has the tools to control 
inflation today by raising interest rates. However, one needs to face 
the fact that the amount of America's debt may make fighting inflation 
harder than in the past. A few fiscal facts are important to bear in 
mind. Federal debt held by the public is now $23 trillion, or 100 
percent of GDP, and a large share of that debt is short term (30 
percent has a maturity of a year and over 60 percent a maturity of 4 
years). Therefore, any increase in interest rates sufficient to fight 
inflation would quickly lead to large increase in interest payments.
    In addition to being politically unpopular, if the additional 
interest payments are paid for with borrowed money rather than higher 
taxes, the borrowing may add fuel to the inflation fire. Cochrane 
explains: ``This consideration is especially relevant if the underlying 
cause of the inflation is fiscal policy. If we are having inflation 
because people don't believe that the Government can pay off the 
deficits it is running to send people checks, and it will not reform 
the looming larger entitlement promises, then people will not believe 
that the Government can pay off an additional $1 trillion deficit to 
pay interest costs on the debt. In a fiscally driven inflation, it can 
happen that the central bank raises rates to fight inflation, which 
raises the deficit via interest costs, and thereby only makes inflation 
worse.'' \13\
---------------------------------------------------------------------------
     \13\ John H. Cochrane, ``Fiscal Inflation'', Grumpy Economist, 
January 3, 2022.
---------------------------------------------------------------------------
Reform Ideas
    First, the Fed needs to fully step back from its expansionary 
policy. It needs to raise interest rates significantly to tame 
inflation. With inflation at 7 percent, even the Fed's promise to raise 
interest rates to about 2 percent leaves the real, after-inflation, 
cost of borrowing at a stunning negative 5 percent. The usual rule of 
thumb is that to tame inflation, the Fed must raise the nominal 
interest rate by more than the inflation rate, so the real inflation 
rate rises. Current Fed policy will only achieve that goal if almost 
all of today's inflation miraculously melts away on its own.
    But Congress needs to do its part too. Without fiscal 
consolidation, the Government's interest costs on the debt. Unless 
fiscal policy tightens to pay those interest costs, raising interest 
rates just makes deficit-induced inflation worse. As economist Eric 
Leeper states, ``fiscal responses are fundamental, even indispensable 
to monetary policy impacts on inflation.'' They are ``the difference 
between a Brazilian-style interest rate and inflation spiral and a 
successful reigning [sic] in of inflation,'' \14\ he adds.
---------------------------------------------------------------------------
     \14\ Leeper, ``Shifting Policy Norms'', 2.
---------------------------------------------------------------------------
    Empirical work confirms that fiscal contraction is a key element to 
reducing persistent inflation. For instance, legislators implemented 
fiscal consolidation (by raising revenue, decreasing spending, or both, 
and passing pro-growth tax and regulatory reforms that increased the 
tax base) during each of the three latest victories over inflation: in 
the late 1940s, after the 1980-1982 Recession, and in the late 1980s 
and mid-1990s. Unfortunately, this link between fiscal and monetary 
expectations is too often overlooked in conventional inflation debates, 
with fiscal authorities acting as though inflation outcomes are 
independent of fiscal policy.
    Higher real interest rates would also increase household wealth 
through lower inflation (increasing the real value of wealth) and 
higher interest receipts (raising household income flows). Thus, 
although the central bank is aiming to lower inflation, its efforts 
could backfire by boosting demand for goods and services. Higher levels 
of debt work to amplify these (demand-driven) inflationary pressures if 
there are no plans for fiscal consolidation (e.g., tax hikes to offset 
the wealth effect). \15\
---------------------------------------------------------------------------
     \15\ Eric M. Leeper, ``Shifting Policy Norms and Policy 
Interactions'' (paper presentation, Jackson Hole Economic Symposium: 
Macroeconomic Policy in an Uneven Economy, Federal Reserve Bank of 
Jackson Hole, WY, September 8, 2021), https://www.kansascityfed.org/
documents/8357/Leeper-JHPaper.pdf.
---------------------------------------------------------------------------
    Second, Congress needs to get its fiscal house in order above and 
beyond the need to tame inflation. Inflation comes when people lose 
faith that the U.S. will eventually repay its debts. Perpetual deficits 
and the looming entitlements crisis undermine that faith. The good news 
is everyone knows what types of fiscal adjustments are effective at 
reducing the U.S. debt-to-GDP ratio. Alberto Alesina and others have 
shown that fiscal adjustment packages based on spending cuts--
preferably reforms to programs that are the drivers of future debt: 
Social Security and Medicare--rather tax increases are the most 
effective way to reduce the debt. Such packages are also less likely to 
cause short-term recessions and, if they do cause short-term 
recessions, those recessions are mild and short, unlike those caused by 
adjustments based on tax increases. \16\
---------------------------------------------------------------------------
     \16\ Alberto Alesina and Veronique de Rugy, ``Austerity: The 
Relative Effects of Tax Increases Versus Spending Cuts'' (Mercatus 
Research, Mercatus Center at George Mason University, Arlington, VA, 
March 2013).
---------------------------------------------------------------------------
    Third, many of the long-term structural problems with the global 
supply chain are legislative, and Congress should fix them. Here are a 
few:

    Eliminate the Jones Act (Merchant Marine Act of 1920). \17\
---------------------------------------------------------------------------
     \17\ Under the act, all freight moved between U.S. ports must use 
U.S.-built, U.S.-crewed, and U.S.-flagged ships to move all freight 
between U.S. ports. This requirement makes shipping more costly and 
puts more pressure on inland transit (trains and trucks). Thomas 
Grennes, ``An Economic Analysis of the Jones Act'' (Mercatus Research, 
Mercatus Center at George Mason University, Arlington, VA, May 2017); 
Nita Ghei, ``The Jones Act and the Growth of Regulatory Barriers in the 
U.S. Shipping Industry'', Mercatus Center at George Mason University, 
April 4, 2017; ``Project on Jones Act Reform'', Cato Institute, 
accessed March 18, 2022, https://www.cato.org/project-jones-act-reform.

    Reform the Foreign Dredge Act, which requires that dredging 
        barges comply with the Jones Act. \18\
---------------------------------------------------------------------------
     \18\ This significantly inflates the costs of dredging U.S. ports, 
preventing expansions that could accommodate more and larger ships. 
There has been no container terminal expansion since 2009 (Charleston).

    End punitive tariffs, duties, and quotas, which inflate 
        costs and reduce the supply of goods that are essential for 
        alleviating supply constraints. \19\
---------------------------------------------------------------------------
     \19\ For example, section 301 tariffs have drastically reduced the 
supply of truck chassis in the United States, worsening truck shipping 
bottlenecks. ``Tariffs Could Be Part of Why We're Short on Chassis'', 
Flexport, October 28, 2021.

    Ease immigration restrictions. \20\
---------------------------------------------------------------------------
     \20\ Immigration restrictions have ``removed at least 1 million 
potential (and lawful) workers from the U.S. labor market, putting 
acute pressure on labor-intensive industries like warehousing. (And 
backed-up warehouses make it more difficult to clear containers that 
are stacked up at various ports.)'' Lincicome, ``American Sclerosis''.

    End the ban on Mexican trucking companies' operation on 
        U.S. roads. \21\
---------------------------------------------------------------------------
     \21\ The ban keeps `` `the largest and closest supply of potential 
U.S. truck drivers' out of the country and reducing the number of 
American trucks available for inland work because they're picking up 
cargo at the border from Mexican truckers who have to drop it there.'' 
Mark Szakonyi, ``Western Countries Waking Up to Freight Infrastructure 
Needs: DHL CEO'', Journal of Commerce, October 14, 2021, quoted in 
Lincicome, ``American Sclerosis''.

    These are some of the things that Congress can do specifically to 
alleviate some of the restrictions imposed on global supply chains.
    Finally, there is a temptation to offset inflation with subsidies, 
to have the Government borrow more money to pay for gas, housing, 
childcare, and more at subsidized prices. Since fiscal largesse is the 
source of the problem, and since these efforts make the affected 
markets more inefficient, this approach threatens a greater stagnation 
spiral. Making a good cheaper for some consumers by subsidies makes it 
more expensive for the economy as a whole.
                                 ______
                                 
                    PREPARED STATEMENT OF PHIL LEVY
                       Chief Economist, Flexport
                             March 22, 2022
    Chairman Brown, Ranking Member Toomey, and Senators of the 
Committee, thank you for the opportunity to testify today on the 
performance of supply chains through the COVID-19 pandemic. Even from a 
purely economic perspective, it has been a time of extraordinary 
shocks, unprecedented policy responses, and shifting economic behavior.
    One salient outcome has been disappointment in the performance of 
global supply chains. Not only has it become significantly more 
expensive to move goods by ocean or air than it was prepandemic, but 
the amount of time it takes to move goods across the world has more 
than doubled. From the perspective of consumers and businesses, this 
has meant shortages, long waits, and rising prices.
    In my testimony, I would like to address the question of why this 
happened. Why did we not continue to enjoy the ready availability of 
goods at moderate prices to which we had become accustomed? Of course, 
there could be many reasons, but I will focus on two potential dominant 
causes and then argue for a choice between them. I will also discuss 
the implications of the arguments for how we view supply chain 
resiliency and what we can expect for inflation.
Supply Chain Challenges
    The first explanation attributes the shortages and the price hikes 
the country has experienced to a failure of global supply chains. At 
first blush, this seems obvious. Over the course of the pandemic, we 
saw periods when factories around the world (and in the United States) 
closed due to Covid infections, or were operating at limited capacity. 
We saw infections and restrictions hit truckers, warehouses, rail, and 
port operations. When health concerns severely limited international 
passenger air travel, we lost the hold capacity in the bellies of those 
planes that had accounted for roughly half of air cargo space. It is 
inarguable that the pandemic posed serious challenges for supply chain 
operations.
    If one adopts this view, then one could well think that these 
problems will soon recede. There are several reasons why they might. 
First, if and when we improve the health situation in the United States 
and abroad, these particular stresses should go away. Second, if there 
is something particular that is broken with global supply chains, then 
we could just fix the problem and watch goods flow freely again. 
Finally, there are some who believe that if we just reduced our 
dependence on foreign goods, then we would be insulated from such 
shocks and enjoy greater resiliency in our supply chains.
    All of these arguments are problematic, but the least compelling is 
the argument that sourcing from abroad is at the root of the problem 
and that nearshoring or onshoring will be the solution. The supply 
chain challenges that I described above were by no means limited to 
foreign suppliers, foreign ports, foreign warehouses, and foreign 
truckers. They were not confined to any one country. We experienced all 
of those difficulties in the United States as well. The pandemic surged 
in different places at different times. At some points Asia was hit 
most acutely, for example, but for substantial stretches over the last 
2 years, Asian supplier countries have had the lowest case rates to 
deal with of major supplying countries. Even if it were economically 
feasible to produce all the goods we want in the United States at high 
quality and reasonable prices--it is not--the result would only be 
enhanced resiliency if the United States were immune to the ravages of 
such pandemics. It is not.
    A study by Bonadio, et al., (2021) makes this point more carefully. 
\1\ It concludes: `` . . . renationalization of global supply chains 
does not in general make countries more resilient to pandemic-induced 
contractions in labor supply. This is because eliminating reliance on 
foreign inputs increases reliance on the domestic inputs, which are 
also disrupted due to nationwide lockdowns. In fact, trade can insulate 
a country imposing a stringent lockdown from the pandemic-shock, as its 
foreign inputs are less disrupted than its domestic ones.''
---------------------------------------------------------------------------
     \1\ Bonadio, Barthelmy, Zhen Huo, Andrei A. Levchenko, and Nitya 
Pandalai-Nayar, ``Global Supply Chains in the Pandemic'', NBER Working 
Paper No. 27224, April 2021.
---------------------------------------------------------------------------
    Even if we set aside the idea that putting all our eggs in a 
domestic basket will deliver resiliency, this supply chain breakdown 
explanation might appear to offer hope that relief from shortages and 
inflation just awaits a few technical fixes.
A Demand Shock
    Before we blame everything on supply chains, we need to consider 
another powerful force at work that provides an alternative explanation 
for recent experience. The pandemic era economy has been characterized 
by a dramatic expansion in the demand for goods. This was not part of 
the conventional recession playbook. In general, a recession is 
characterized--defined--by a marked slowdown in economic activity. To 
be fair, as Figure 1 shows, there was an initial dip in demand for 
goods in the Covid recession, but the effect was as brief as the 
recession (the vertical gray bar in the chart).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    In the graph, services (the bottom line) behave the way we expect 
recession consumption to work. Consumption of services fell from its 
prepandemic level and has only just worked its way back, almost two 
years later. In contrast, durable and nondurable goods consumption had 
regained its prepandemic level by the early summer of 2021 and it 
climbed from there. By the spring of 2021, durable goods consumption 
was almost 35 percent above where it had been in February 2020. If it 
had not been for the durables surge, nondurable goods consumption would 
look impressive in its own right, rising and staying more than 10 
percent above its prepandemic level.
    How could it be that goods consumption rose so sharply in the wake 
of such a powerful shock? We can look at three complementary 
explanations. First, there was the clear effect of health measures. 
When it became difficult to go to a gym, or a restaurant, or a movie 
theater, people instead purchased home exercise equipment, kitchenware, 
or entertainment centers.
    Second, normally the principal constraint on purchases in a 
recession is falling incomes. But in the wake of the pandemic, personal 
income did not fall, due to powerful fiscal policies.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 2 shows that real personal income never fell back to its 
level of March 2020, nor did the level of Government social benefits. 
The jumps in social benefits match with jumps in income (unsurprising) 
and with jumps in the consumption of goods in Figure 1.
    This stimulus was coupled with an extraordinarily accommodative 
monetary policy, as shown in Figure 3, which tracks the real Fed Funds 
rate, the nominal rate less the trimmed mean PCE inflation rate. \2\ 
The nominal rate, for most of the period shown, was fixed near zero, 
but the inflation rate steadily mounted, driving the difference well 
into negative territory. While the graph does not show it, the previous 
low value of this series was just below -2.0 percent in late 2008 
during the global financial crisis. The series dates back to the 1970s. 
Highly negative real interest rates provide an incentive for consumers 
and businesses to move purchases forward in time, thus stimulating 
present consumption.
---------------------------------------------------------------------------
     \2\ While the discussion focuses on the negative real Fed Funds 
rate, this was accompanied by a dramatic expansion of the Federal 
Reserve's balance sheet, from just over $4 trillion on the eve of the 
pandemic to almost $9 trillion today. See https://
www.federalreserve.gov/monetarypolicy/bst-recenttrends.htm. This 
includes over $2.7 trillion in mortgage-backed securities.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Thus, in this explanation of the pandemic economic experience, 
there was a dramatic increase in the demand for goods consumption, 
driven by higher incomes, very low interest rates, and a pandemic-
induced shift in preferences toward goods and away from services.
Deciding Between the Explanations
    Note that either an expansion of demand or a contraction of supply 
could drive up prices. However, only an expansion of demand would 
explain the additional quantity consumed. We already saw this expansion 
depicted in Figure 1, when consumption of durable and nondurable goods 
rose appreciably. Had the supply chain been unable to deliver the 
goods, quantities consumed would necessarily have fallen. Instead they 
grew significantly. The story of a broken supply chain as the source of 
trouble does not fit the evidence.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    While Figure 1 illustrated this for consumption, this held true at 
the international supply level as well. Figure 4 shows quarterly real 
U.S. imports, not seasonally adjusted. Without seasonal adjustment the 
fairest comparison is to look at the fourth quarter of successive 
years. 2020Q4 was 5.4 percent above 2019Q4; and 2021Q4 was 13.6 percent 
above the figure from two years before. Thus, we not only saw strong, 
persistent growth in real imports, but the Q4 figures in 2020 and 2021 
were record highs. This is not consistent with an international supply 
system that has broken down.
    This still leaves us with an important question: if a supply chain 
breakdown was not the culprit, how do we explain the very high shipping 
prices and the extensive delays? Those were real and important, and 
they persist to the present day. Figure 5 shows Flexport's Ocean 
Timeliness Indicator, which measures the time it takes for containers 
to move from a factory in Asia to pickup at a destination port in 
either North America (Transpacific Eastbound) or to Europe (Far East 
Westbound).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The answer gets to what we mean by ``resilient.'' The supply chain 
system was able to deliver significantly more goods in the face of 
surging demand, but it had its limits. It was built with a certain 
capacity in mind. In general, for international logistics, the capacity 
was meant to handle the peak season of imports leading up to year-end 
holidays. Normally that period would be preceded and followed by lulls, 
which would allow the system to catch up. Instead, the system has now 
been operating at or above peak capacity for almost 2 years. That has 
brought congestion, high prices, strains, and delays.
    One might ask why we did not have an even more resilient system 
that could readily accommodate such surges in demand. The answer is 
that capacity is costly. For the public sector, there is a reluctance 
to allocate funds to build out infrastructure beyond any realistically 
anticipated need. For the private sector, the cost of excess capacity 
can drive companies out of business.
    It is also worth noting that capacity constraints apply both in the 
aggregate, but also in individual sectors. If everyone suddenly decides 
they want substantially more personal protective equipment (PPE) or 
home-sized toilet paper rolls, then even a well-functioning domestic 
private sector may have difficulty meeting demand in the short run. In 
some cases, as with imported toilet paper during the pandemic, 
international trade can provide a source of resilience.
Implications for Inflation
    Beyond concerns about resilience, the question of how we should 
understand recent supply chain experience is important in thinking 
about what is likely to happen next with inflation. In traditional 
monetary analysis, when an excess of demand has caused inflation to 
rise, it has been necessary to raise interest rates above the inflation 
rate to rein in the demand. \3\ This was done dramatically in the late 
1970s and early 1980s.
---------------------------------------------------------------------------
     \3\ For a recent analysis of why inflation is a concern, see 
Blanchard, Olivier, ``Why I Worry About Inflation, Interest Rates, and 
Unemployment'', PIIE, March 14, 2022.
---------------------------------------------------------------------------
    It is interesting to note that the Federal Reserve has announced a 
different course. In their economic projections released on March 16, 
they project core PCE inflation to be 4.1 percent in 2022. Yet their 
estimates of the nominal Fed Funds rate do not exceed 2.8 percent 
through 2024. It is unlikely that negative real Fed Funds rates would 
do much to bring down inflation, so that raises the question of what 
else would drive inflation down? In response to such a question, 
Chairman Powell repeatedly cited supply chain improvement as an 
expected positive force.
    If we believed that supply chains had broken down and that were a 
driving cause of inflation difficulties, this would be a plausible 
reason for hope. Just fix the broken supply chains. If instead, as 
argued above, supply chains have been overwhelmed by a surge in demand, 
then the most likely source of relief would be a reduction in demand. 
The reasoning gets circular if we do not distinguish cause and effect.
    There are other possibilities for improvement, of course. The 
demand for goods could abate if the health situation improves and 
consumers revert to their prepandemic preference for services. \4\ 
There could also be progress if supply chains became more efficient--
e.g., through increased adoption of technology--or expanded capacity 
through investment. The latter is not likely to bring short-run relief.
---------------------------------------------------------------------------
     \4\ Flexport tracks and forecasts this preference with its Post-
Covid Indicator, updated monthly. To date, there is only limited 
evidence of reversion.
---------------------------------------------------------------------------
    In sum, if strong demand pushed the supply chain system beyond its 
limits, it seems unwise to count on near-term supply chain improvement 
in the absence of demand restraint.
    Before leaving the topic of inflation, it may be worth noting one 
type of policy that would be actively counterproductive if one wishes 
to combat price pressures: trade protection and impediments to 
international sourcing. Companies that source abroad do not do so 
because of the ease of operating a supply chain across thousands of 
miles and many time zones. They do so because they can produce that 
specific good for lower cost abroad. If they could have produced it for 
less domestically, it would almost certainly have been easier to do so. 
Thus, policies that compel more costly production are likely to add to 
cost pressures and rising prices.
    Further, the U.S. labor market is currently operating at 3.8 
percent unemployment, below the Federal Reserve Board's 4.0 percent 
estimate of long run unemployment. The Atlanta Fed's Wage Growth 
Tracker shows wage growth at the highest rate in the 25-year history of 
the series. Thus, policies that compel domestic production and add to 
labor demand are likely to increase price pressures.
Paths to Resiliency
    There is no simple, low-cost policy that allows an economy to 
gracefully accommodate very large and sector-specific surges in demand. 
In specific cases, such as PPE, it may be worthwhile to maintain a 
stockpile if there are specific expectations of a demand surge. In 
general, though, an efficient trading system that allows for flexible, 
competitive sourcing is most likely to meet shifting demand. As a 
policy measure, this argues for an open, rules-based trading system.
Conclusion
    The pandemic impacted supply chains directly, but also indirectly, 
as a shift in preferences and a strong policy response induced an 
extreme and sustained demand for goods. The global logistics system was 
able to partially accommodate this surge in demand, even amidst 
operational difficulties. But global supply chains had and have 
capacity constraints. As surging demand hit those constraints, costs 
have risen and goods have taken a long time moving from factories to 
customers. The resulting scarcity, along with pressures for increased 
production and hiring, have contributed to rising inflation. The 
measures most likely to ease supply chain pressures are those which 
curtail demand. The measures most likely to bring resilient supply 
chains are those which facilitate global sourcing.
               RESPONSES TO WRITTEN QUESTIONS OF
          SENATOR CORTEZ MASTO FROM WILLIAM E. SPRIGGS

Q.1. What can Congress do to increase the number of skilled 
construction workers?

A.1. Response not received in time for publication.

Q.2. Nearly half of the construction industry's workforce will 
be retired in just over a decade.
    How can Congress promote more young people to pursue trade-
oriented jobs?

A.2. Response not received in time for publication.

Q.3. What role can unions play in getting more recent high 
school and college graduates into the trades workforce?

A.3. Response not received in time for publication.

Q.4. How can the U.S. work with its allies to build resiliency 
in our supply chains for staple crops and basic necessities?

A.4. Response not received in time for publication.

Q.5. Should Congress consider the larger role strategic 
reserves play in stabilizing global prices as well as domestic 
prices in times of disruption?

A.5. Response not received in time for publication.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                     FROM BETSEY STEVENSON

Q.1. What are some of the consequences families are 
experiencing because Congress has not yet renewed the expanded 
tax cut?

A.1. Response not received in time for publication.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
           SENATOR CORTEZ MASTO FROM ERICA R.H. FUCHS

Q.1. What technologies should the Government finance now to 
address supply chain issues, climate needs and infrastructure? 
What do you recommend as top priority investments?

A.1. To address this question properly the U.S. needs to invest 
in a cross-mission critical technology analytics program that 
builds the data and analytic capabilities to inform Government 
decisions, so that we're not flying blind.
    The U.S. must create the supply chains of tomorrow, not fix 
the supply chains of yesterday. Based on our own research over 
the decades, Government should (1) invest in funding innovation 
to reduce concentrated supply chain dependencies in energy 
storage, (2) invest in funding design rules and common design 
platforms in robust, safety-critical semiconductor applications 
shared by defense and transportation systems, and (3) invest in 
smart infrastructure for transportation, communications, and 
transport. In addition, the U.S. must invest now in a 
prototyping facility for researchers across the stack to 
experiment in next-generation (beyond-CMOS) semiconductors, to 
ensure it can lead the AI, semiconductor and computing supply 
chain beyond Moore's Law.
    In parallel, to have the economic resiliency to pivot to 
meet demand as it changes and during crises, the U.S. needs to 
rebuild its manufacturing ecosystem through investments in 
infrastructure. In our research on domestic manufacturers 
pivoting during the pandemic, what was left of the U.S. 
manufacturing ecosystem was central to the U.S. response. In 
Wisconsin, the founder of a waste management and construction 
company macgyvered broken mask manufacturing machines into 
working for commercial-scale production. In Indiana, a company 
leveraged its expertise in filtration materials and oil 
absorbent products to pivot into making meltblown polymer for 
masks and later also making N95 masks themselves. These 
pivoting companies' previous experience in waste management, 
construction, and water or oil infrastructure strengthens my 
belief that the greatest promise for rebuilding our 
manufacturing ecosystem may be equitable country-wide 
investments in infrastructure of the future. Infrastructure--
for transit, energy, communications and data--address needs of 
society and manufacturing. In the same way that we need to 
create the supply chains of the future not fix the supply 
chains of the past, our infrastructure investments need to be 
for the infrastructure of the future. Transportation, transit, 
and urban infrastructure should be designed to enable the safe 
and equitable introduction of driverless vehicles and smart 
city systems, and the matching large-scale interconnected data 
infrastructure for security, privacy, resilience and machine 
learning on that data (Anderson, et al., 2016; Berges and 
Samaras 2019.) Electric grids should be restructured to ensure 
a clean and resilient power system that can accommodate a wide 
range of new designs and services (NASEM 2010, Lueken 2012, 
NASEM 2017). \1\ Foundries should be built to lead the world in 
the invention and commercialization of next generation 
semiconductors and synthetic biology. Investments such as those 
described above address national needs for resilience, energy 
and internet access, and technology leadership within and 
beyond manufacturing.
---------------------------------------------------------------------------
     \1\ Among other issues, much of our infrastructure was constructed 
for the climate of the 20th century, rather than for the climate of the 
21st century (Chester, et al., 2020). Rebuilding and reinvesting in our 
infrastructure to be resilient to extreme weather is essential for the 
safety of our communities and the resilience of our economy (Olsen, et 
al., 2015).
---------------------------------------------------------------------------
    Done right, investments in smart, climate-resilient 
infrastructure of the future can build the companies and 
skilled workers who become the manufacturing technologies and 
workforce of the future: Infrastructure investments build 
national capabilities for building things--not just in the form 
of firms responding to the demand, but also in the form of 
operators and engineers. These workers learn by doing. Indeed, 
it is critical to recognize the interconnectedness of the 
knowledge and skills across manufacturing and these 
infrastructure domains. The skills relevant to deploying and 
managing sensors for sustainable and smart infrastructure--from 
the concrete layer to forman to the engineer to the data 
infrastructure developer to the machine learning software--have 
corollaries in resilient grid infrastructure, privacy-
preserving health infrastructure, and intelligent 
manufacturing.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                     FROM ERICA R.H. FUCHS

Q.1. How have corporate decisions, like off-shoring and just-
in-time supply chains, affected the resiliency of America's 
workforce and supply chains?

A.1. Over the last half a century, the world and the U.S.' 
position in that world has changed dramatically. The global 
geopolitical balance of scientific, economic, and production 
capabilities has shifted away from U.S. dominance. China is now 
the largest producer and second largest market in the world, 
and the U.S. is no longer in a singular position of scientific 
and technological leadership across domains (Branstetter, 
Glennon, and Jensen 2018; Segal 2019). At the same time, the 
U.S. faces equal or greater challenges on its home front. 
Domestic economic inequality has increased (Autor, Katz, and 
Kearney 2008; Autor 2014; Leonhardt 2017, Autor 2019), social 
mobility declined (Chetty, et al., 2017, Chetty, et al., 2020), 
and political polarization is on the rise (Autor, Dorn, Hanson, 
and Majlesi 2020). Center stage to both of these trends are 
trade and technology: research has documented negative impacts 
of import competition on employment and earnings in trade-
exposed local labor markets (Autor, Dorn, and Hanson, 2013; 
Acemoglu, et al., 2016) and a rise in political extremism in 
locations hardest hit by trade (Autor, Dorn, Hanson, and 
Majlesi 2020).
    Unfortunately, in this moment of dual internal and external 
crises, we lack the intellectual and institutional foundations 
to guide our Nation on how to act. While earlier research 
highlighted the benefits of global trade (Ricardo 1817) and 
technology change (Solow 1957), empirical evidence has 
increasingly pointed to how these benefits can be uneven: 
Globalization can decrease some wages (Samuelson 2004, Autor, 
et al., 2016) and innovation (Fuchs and Kirchain 2010, Fuchs 
2014, Autor, et al., 2020) domestically; certain forms of 
technology change, such as automation, can reduce jobs without 
increasing productivity (Acemoglu, et al., 2020) and exacerbate 
inequality (Autor, et al., 2003). In light of these more recent 
findings, some intellectual leaders have suggested slowing the 
progress and adoption of technology (Piore 2018, Acemoglu, et 
al., 2020), and gradualism as a principle for trade policy 
(Autor, et al., 2016). Others are raising concerns about the 
U.S. losing global technology competitiveness, particularly to 
China (Augustine and Lane 2020). These experts are arguing for 
dramatically increasing funding of science and technology 
(Segal 2019, Johnson and Gruber 2019, Augustine and Lane 2020), 
and using regional distribution of funding of science and 
technology to reduce inequality and increase jobs (Johnson and 
Gruber 2019).\1\ \2\
---------------------------------------------------------------------------
     \1\ These first two paragraphs are taken directly from my 
Congressional Testimony (Fuchs 2021).
     \2\ Unfortunately, despite the relatively small total number of 
jobs in the production of science and technology research, the long gap 
between science funding and broader positive economic outcomes, and the 
additional local investments required for the commercialization of 
science to remain local, leave little likelihood that the positive 
externalities of just 15 regional hubs (particularly in their proposed 
locations) will reach the majority of impoverished areas--and 
particularly not rural areas--in the next decade if ever (c.f., Fuchs 
2021, Brookings guy in testimony).
---------------------------------------------------------------------------
    Missing from these debates is that technology directions 
are a choice and while some technology directions may increase 
trade-offs, there may also be win-win technology choices--
strategic technology investments that could meet multiple 
national objectives, such as improving national security and 
economic competitiveness, winning in global trade, and good 
jobs. For example, Combemale, et al., (2021) show that not all 
technology leads to wage and skill polarization, indeed many of 
the technologies on today's critical technology lists may lead 
to better jobs for hard-working high school graduates 
(Combemnale, et al., 2021, Combemale and Fuchs 2022). \3\ 
Combemale, et al., 2020 find that innovation in semiconductors 
for communications would lead to more, middle-skilled 
manufacturing operator jobs in the U.S. Cotterman, et al., 
(2022) likewise find that electric vehicles (and in particular 
battery electric vehicle powertrains) will require more 
operator labor hours, and equal or higher labor skills 
(Cotterman 2022).
---------------------------------------------------------------------------
     \3\ Indeed, work by Combemale, et al., (2020) shows that 
technologies with different labor outcomes compete as perfect 
substitutes (with the same performance and production costs) in the 
marketplace.

Q.2. What kind of responsible incentives could Congress put in 
---------------------------------------------------------------------------
place to bring these supply chains back home?

A.2. For the U.S. to compete, we must make innovative products 
here in the U.S., that can best be made domestically (due to 
comparative advantage), and that are demanded by the world. 
Doing so can be a win-win for the economy and jobs (as well as 
for technology leadership, national security, and access to 
critical supply). Importantly, making advanced products 
domestically need not equal automation and fewer ``good'' jobs.
    I want to start by debunking the assumption that 
manufacturing advanced technologies needs to equal fewer jobs, 
or more low-skill (often low-wage) and high-skill (often high-
wage) jobs and fewer jobs in ``the middle.'' Some time ago, I 
began to feel troubled by the focus on automation, robotics, 
and IT in the discussions on technology and the future of work. 
While these technologies are important, they are only one set 
of the vast innovations in the world and the world economy.
    Our research demonstrates that some of our more important 
emerging technologies--particularly those in advanced materials 
and processes--may be win-wins in terms of national security, 
the economy, and jobs, including for hardworking high-school 
graduates. As an initial example, we focused on parts 
consolidation--a technically challenging objective well-known 
to the public for example in Intel's ability to fabricate more 
and more components on a single chip (Moore's Law), and General 
Electric's ability to additively manufacture what was formerly 
a 455 piece engine in just 12 parts. It's also a capability 
being pursued in at least 4 of our ManufacturingUSA institutes. 
\4\ Our research shows that whereas automation leads to more 
low-end and more high-end skills being required of high-school 
educated manufacturing shop floor operators with some of the 
high-skill tasks moving outside the jurisdiction of the 
operator, parts consolidation leads to more middle skills being 
required of high-school educated shop floor operators 
(Combemale, Ales, Whitefoot, Fuchs 2020a). \5\ In addition, in 
their early days the consolidated design production processes 
require more ``sorcery'' from the operators and more back-and-
forth between operators and engineers, the latter who are skill 
working to stabilize and understand the relationship between 
material, process, and geometry design decisions and production 
outcomes (Combemale and Fuchs 2020). \6\
---------------------------------------------------------------------------
     \4\ The U.S. Government has funded 15 manufacturing innovation 
institutes. One of those 15 is focused on robotics (ARM) and another 
one on digitization (MxD). A third has a digitization component 
(CESMII). At least four (AIM, America Makes, IACMI, and NextFlex) of 
the 15 manufacturing institutes involve advanced material and process 
innovations that lead to design and parts consolidation, and another 
three (biofabusa, lift, and poweramerica) likely involve parts 
consolidation or part integration through innovations in materials and 
processes as part of their broader projects and mission.
     \5\ We expect the convergence of skills we see with consolidation 
to generalize across contexts--from advanced materials and processes to 
software (Combemale, Ales, Whitefoot, Fuchs 2020b).
     \6\ Research suggests the complex relationship between design and 
production (and thus engineers and operators working together to bring 
new science to reality on the production floor) generalizes to immature 
materials and process technologies at the technical frontier. Due to 
technologists still being in the process of figuring out the underlying 
science, it is common for advanced materials and process technologies 
in their early stages to have nonstandardized production processes 
where the operator and engineer's joint role is more of an art and also 
thus difficulty separating design from manufacturing (Fuchs 2010, Fuchs 
2014). Historical examples include the early days of electronic 
semiconductors; and emerging technologies in chemical processes such as 
electronic and photonic semiconductors, pharmaceuticals, batteries, 
additive manufacturing, and many others yet today (Bohn 1995, Pisano 
1997, Holbrook 2000, Bassett 2002, Bohn 2005, Lecuyer 2005, Bonnin-
Roca, et al., 2017).
---------------------------------------------------------------------------
    In the future, materials and process innovations behind 
parts consolidation may let you manufacture your iPhone as a 
single flexible electronic device, or an optoelectronic 
transceiver so small that it can fit on your contact lens. 
Imagine if your iPhone, were a single flexible electronic 
bracelet like my daughter's slap bracelet--which you wore as a 
watch, but could take off and then unfold on your desktop and 
use as a computer. What if instead of having its components 
produced around the world (primarily in Asia) and assembled in 
China as it is currently, it were produced and manufactured 
here in the U.S., with middle-skill operator jobs. The goal of 
the U.S. cannot be to produce today's iPhone in the U.S. in the 
same way it is currently made in developing Asia. We want to 
produce the flexible electronic slap-bracelet watch/phone/
computer of the future, that everyone in the world wants, and 
that only U.S. technologists and operators can together make. 
The win-win, is that that futuristic technology might also have 
more fulfilling jobs, not just for engineers, but also for 
high-school educated operators.
    How do we get to that technology being manufactured in the 
United States? We need to take immediate steps to support 
start-ups pursuing advanced materials and process technologies 
for longer, and to rebuild our manufacturing ecosystem. The 
U.S. currently still leads the technical frontier in multiple 
of the above-described technologies (if barely); \7\ however, 
my research shows that globalization means that the valley of 
death is getting larger for certain advanced material and 
process technologies: when firms move manufacturing overseas to 
developing countries, such as China, Singapore, Malaysia, and 
otherwise, it can become unprofitable for those firms to pursue 
innovative new products and technologies. Lower wages and 
better assembly overseas reduce the costs of incumbent 
technologies, making emerging technologies have to achieve more 
\8\ before they are able to successfully enter and complete 
against incumbent technologies on the market. (Fuchs and 
Kirchain 2010; Fuchs, Field, Roth, Kirchain 2011; Fuchs 2014).
---------------------------------------------------------------------------
     \7\ While the U.S. currently still leads the technical frontier in 
multiple of the above-described technologies, we do not clearly have 
leadership in the operator skills to manufacture that technology 
domestically, and if we don't manufacture that technology locally, we 
will be unable to maintain our marginal technological leadership.
     \8\ Here, ``more'' could be achieving lower production costs or 
achieving more in terms of improved performance and thus consumer 
demand despite higher prices.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Small Business Innovative Research (SBIR) funding is one 
important tool. (Lerner 1999, Fuchs 2014). Given the 
traditionally high capital expenditures required, long concept 
to development timeline, and dearth of venture capital funds in 
advanced manufacturing (c.f., Combemale, Glennon, Whitefoot, 
Fuchs 2020), SBIR funding may also need to be more and longer 
just for advanced materials and processes, given their 
different nature.
    Materials-tailored SBIR funding and changing corporate 
incentives to invest in longer-term goals including manufacture 
domestically, \9\ however, alone is not enough. We need to 
rebuild a U.S. domestic manufacturing ecosystem both to keep 
companies here and to innovate.
---------------------------------------------------------------------------
     \9\ Given the greater proportion of large firms in manufacturing 
versus nonmanufacturing sectors, it is important to also address large 
firms in manufacturing policy. 66 percent of industrial R&D spending 
comes from manufacturing firms, with the five leading subsector 
spenders being pharmaceuticals and medicine, semiconductors and 
electronic components, communications equipment, automobile and light 
duty motor vehicles, and aerospace products and parts. Due in large 
part to significant offshoring during the last decade by these and 
other manufacturing subsectors, manufacturing contributes only 12 
percent to domestic value added, as measured. (Combemale, Glennon, 
Whitefoot, Fuchs 2020) The erosion of U.S. semiconductor manufacturing 
capabilities suggests the need for alternative incentives to support 
longer-term goals and to keep less profitable business lines (Fuchs, 
Mai, Blanton, Morgan proposal). More research is needed on this front. 
Part of the challenge may be increasingly short-term pressures on firm 
leadership leading to decision-making that maximizes short-term profits 
rather than undertaking more risky directions that confer long-term 
advantage (c.f., Fuchs and Kirchain 2010 on short-termism in 
offshoring, Lazonik 2014 on stockholder buy-backs). Government R&D 
funding has historically played an important role in seeding and 
launching new industries, as well as seeding nonmainstream projects 
within companies that would otherwise have been cut internally (c.f., 
NRC Funding a Revolution, Fuchs 2010). Companies have also themselves 
organized public-private partnerships (Khan, Hounshell, Fuchs 2015) and 
used venture funding and other mechanisms (c.f., Gawer and Cusumano 
2002) to advance research and development in technologies critical to 
their industrial roadmap 3-7 years out.
---------------------------------------------------------------------------
    To rebuild a domestic manufacturing ecosystem, R&D funding, 
supply-side (e.g., R&D tax credit and tax incentives for 
domestic manufacturing) and traditional demand-side (domestic 
procurement) policy instruments need to be aligned with 
strategic investments in the broader manufacturing and 
innovation ecosystem.
    Let me provide an example of how, given the dilapidated 
state of our manufacturing ecosystem, funding research and 
development alone is insufficient (even if that funding were 
spread around the country.) My former Ph.D. student, Hassan 
Khan, after receiving his undergraduate degree in Chemical 
Engineering from Berkeley, moved to Mississippi to help launch 
the manufacturing facility of a Silicon Valley headquartered 
solar photovoltaic startup. Although the photovoltaic cell was 
invented at Bell Labs, by 2010 U.S. capabilities in the 
manufacturing ecosystem had atrophied. My student found himself 
flying multiple times with wafers to Canada, because they 
didn't have locally the fabrication capabilities they needed. 
The firm struggled to find operators they needed in 
Mississippi, despite receiving thousands of applications and 
hired Chinese-trained operators instead. The start-up was also 
reliant entirely on foreign suppliers of process tools, 
including from Italy, Germany, and Japan. Eventually the start-
up failed, unable to compete against Chinese manufacturers that 
captured the majority of the market. The firm's IP was sold, 
investors and the State of Mississippi took a loss and Hassan 
came to Carnegie Mellon to start his Ph.D.
    To rebuild domestic manufacturing, we need to use strategic 
infrastructure investments as pathways to revitalizing U.S. 
worker skills and manufacturing ecosystems.\10\ \11\ By 
infrastructure I mean not just to roads, bridges, transit 
networks, water systems, and dams; but also energy, 
communications, manufacturing, and data infrastructure 
necessary for all of those. In the same way that we need to 
build domestically the products that global markets want and 
only we can make, our infrastructure investments need to be for 
the infrastructure of the future. Transportation, transit, and 
urban infrastructure should be designed to enable the safe and 
equitable introduction of driverless vehicles and smart city 
systems, and the matching large-scale interconnected data 
infrastructure for security, privacy, resilience and machine 
learning on that data (Anderson, et al., 2016; Berges and 
Samaras 2019). Electric grids should be restructured to ensure 
a clean and resilient power system that can accommodate a wide 
range of new designs and services (NASEM 2010, Lueken 2012, 
NASEM 2017). \12\ Foundries should be built to lead the world 
in the invention and commercialization of next generation 
semiconductors and synthetic biology.
---------------------------------------------------------------------------
     \10\ My focus on strategic infrastructure investments is due to 
the potential novelty of that approach. Manufacturing Extension Program 
and Manufacturing USA innovation institutes already play and will need 
to play an important role in reviving our manufacturing ecosystem. On 
the Manufacturing Extension Program's effectiveness in upgrading and 
the acquisition of competitive capabilities (c.f., Various pieces by 
Whitford, J.; Shapiro; McEvily, B.). On the Manufacturing USA 
innovation institutes, their original goals, and evaluation thereof 
(c.f., Recent studies by GAO, NASEM).
     \11\ The U.S. generally lags behind other peer industrialized 
Nations in infrastructure: The American Society of Civil Engineers 
(ASCE)'s 2017 report finds that the Nation's infrastructure averages a 
``D,'' meaning that conditions are ``mostly below standard,'' 
exhibiting ``significant deterioration,'' with a ``strong risk of 
failure.'' This lag which can largely be traced back to funding: On 
average, European countries spend the equivalent of 5 percent of GDP on 
building and maintaining their infrastructure, while the United States 
spends 2.4 percent. The United States also differs from most other 
industrialized countries in the extent to which it relies on local and 
State spending to meet its infrastructure needs--only 25 percent of 
U.S. public infrastructure funding comes from the Federal Government.
     \12\ Among other issues, much of our infrastructure was 
constructed for the climate of the 20th century, rather than for the 
climate of the 21st century (Chester, et al., 2020). Rebuilding and 
reinvesting in our infrastructure to be resilient to extreme weather is 
essential for the safety of our communities and the resilience of our 
economy (Olsen, et al., 2015).
---------------------------------------------------------------------------
    Infrastructure has the interesting property not only of 
creating demand, but also of solving a problem. Investments 
such as those described above address national needs for 
resilience, energy and internet access, and technology 
leadership within and beyond manufacturing. Infrastructure 
investments also build national capabilities for building 
things--not just in the form of firms responding to the demand, 
but also in the form of operators and engineers. These workers 
will learn by doing. Indeed, as we think about these 
investments strategically, it is critical to recognize the 
interconnectedness of the knowledge and skills across these 
infrastructure domains. The skills relevant to deploying and 
managing sensors for sustainable and smart infrastructure--from 
the concrete layer to forman to the engineer to the data 
infrastructure developer to the machine learning software--have 
corollaries in resilient grid infrastructure, privacy-
preserving health infrastructure, and intelligent 
manufacturing. We should be strategic about those 
complementarities, in where and how we invest, in creating 
demand in the complementary areas, as well as about 
facilitating those transitions across sectors through targeted 
training.\13\ \14\
---------------------------------------------------------------------------
     \13\ More work on skill transition mapping is needed. A recent 
OECD report has looked at current worker skills, how demand for those 
skills is expected to change with automation, and the training required 
to support ``reasonable'' transitions (OECD 2019). In our own research, 
we have been mapping skill requirements to jobs at a individual 
operator task level (Combemale, Ales, Whitefoot, Fuchs 2020a), and we 
are extending that task-level skill mapping now beyond the shop floor 
to technicians, engineers, and managers (Combemale, Whitefoot, Fuchs 
2020). Whether at the OECD level or our own more granular one (or 
another method yet to emerge), we need to be mapping and broadcasting 
to training entities that may not have the necessary knowledge the 
skill transitions required from current construction and manufacturing 
for any of the above to the construction and manufacturing for the 
transportation, energy, health and manufacturing infrastructure of the 
future, as well as the skill transitions necessary in each skill domain 
to apply skills from one to the other across sectors.
     \14\ In facilitating these transitions, we should not 
underestimate the power of on-the-job learning and learning by doing 
(building). This is not to suggest that training isn't necessary, 
rather that that training may not happen ``out of work'', per se. Here, 
where large firms exist, industry in each sector should lead the 
training that is needed, where relevant in partnership with unions, 
with Government facilitating assessment and dissemination of best 
practices and the mapping of the cross-sector transitions. Where small 
companies are involved, the Government will play an essential role, in 
conjunction with larger companies, in mapping and funding necessary 
workforce transition training.
---------------------------------------------------------------------------
    Finally, to fully benefit from what economists refer to as 
infrastructure's ``multiplier effect'' (a multiplier effect 
I've arguably defined much more broadly here), as much as 
possible, not only the final product but also the intermediate 
inputs should be largely sourced domestically. Further, 
influence in standards for those technologies should be 
aggressively pursued internationally.

Q.3. What place does working with geographic partners through 
near-shoring have in creating a resilient supply chain 
ecosystem?

A.3. The U.S. must maintain trade relations with allied and--
where not strategically detrimental--non-allied partners. 
Global manufacturing can drive down prices in a way that speeds 
the adoption of new technologies beneficial to social welfare 
(see for example the piece by Helveston and Nahm in Science on 
solar production in China), even if in certain cases global 
manufacturing in low-wage Nations can reduce incentives for 
producing the most advanced innovations and the technical 
frontier (see, for example, Fuchs and Kirchain on 
semiconductors for communications). Rather than ceasing 
international relations, the U.S. should focus on leveraging 
innovation and investments in the vitality of our domestic 
manufacturing ecosystem to change the rules of the game and 
make the U.S. the best place in the world to manufacture the 
innovative products of the future. In addition, the U.S. must 
continue to grow its allied partners with whom they have pre-
agreed plans for exchange of products and knowledge during 
times of domestic shortages or other crises.
    The questions for which the U.S. must leverage modern data 
and analytic tools and build institutional capacity to answer, 
is in which products access is sufficiently critical to 
national security or social welfare that given the 
probabilities of various future disruptions (natural disasters, 
pandemics, tariffs, wars), the U.S. should be attempting to 
ensure leading in innovating and manufacturing those 
technologies and products onshore (in addition to making 
agreements with allied partners). In addition, the U.S. needs 
to leverage modern data and analytic tools to answer where, 
rather than ensuring domestic manufacturing or stockpiling, 
investments in manufacturing resilience to pivot production in 
times of shortages or crises (natural or security related) may 
be a better option. In these analytics, it is important to note 
that during global shortages in the early days of the COVID 
pandemic, most countries enacted protective measures to keep 
products for which they had domestic production inside their 
borders. In these contexts, it was companies and Government's 
abilities to support companies in pivoting into new product 
areas that became essential to meeting domestic demand (and 
later demand globally.)
    As Valerie Karplus and I note in our 2021 policy paper on 
``A New Approach to Coordinate U.S. Critical Supply Chains in 
Crisis'', the analytic tools exist to inform Government 
decision-making, but often the data is laking. In the context 
of medical supplies we make a series of recommendations, the 
approach for which could be applied to critical technologies 
more broadly. The following recommendations are excerpted 
directly from that piece:

        Bottleneck 1: Product-Level Data: A lack of timely, 
        comprehensive, easy-to-navigate product-level data on 
        domestic manufacturing capacity and global supply chain 
        bottlenecks made it difficult for the White House to 
        know how to act to expand these sources on short times 
        frames with high confidence when the pandemic hit in 
        March of 2020.

        Strategic Recommendation: Regularly track and model 
        domestic and international supply chains of select 
        products critical to public health.

  1.  For select products, create a ``critical product'' 
        tracker at the U.S. Census that increases frequency of 
        company sampling and collects data at the product-
        level; Revitalize and revamp the U.S. Census's 
        capability to update with greater depth and frequency 
        its relevant business establishments and production 
        capacity data in select critical end products (aspects 
        of such industry studies were historically paid for by 
        the Defense Logistics Agency). AND, Given that such 
        tracking is costly, the Department of Commerce should 
        in conjunction with relevant agencies (e.g., FEMA, HHS, 
        CDC) conduct cost-benefit analysis to quantify the 
        value of tracking different products and their 
        intermediate inputs and with what frequency. Such 
        analyses should include the value (in terms of lives 
        saved and improved) of various products during crises 
        (starting with the current, past, and various future 
        scenarios of pandemic), the value of data on final 
        products and one or more of their intermediate inputs 
        (not all may have high value in being tracked), and the 
        value of how frequently the data is collected (which 
        will vary widely by sector).

  2.  Model expected delta between capacity and demand and 
        bottleneck points during demand surges, and the 
        expected national value of increased resiliency 
        (including but not limited to increased domestic 
        capacity).

        Bottleneck 2: The U.S. does not possess a capability to 
        quickly scale up access to critical medical supplies, 
        including via domestic production, to meet national 
        needs in the event of a major disruption to global 
        supply chains. Participants involved in the response to 
        the first COVID wave lacked rapid-acting policy tools 
        and other mechanisms to identify and access supplies.
        Markets will create incentives for firm action in the 
        short-to-medium term, but on their own, there are not 
        market incentives for firms to develop capabilities to 
        respond to low-probability high-risk events. Domestic 
        manufacturers in aerospace, automotive, and oil and gas 
        industries were able to leverage their existing 
        knowledge base, sourcing structures, and human capital 
        to pivot particularly quickly. Medium and large 
        manufacturers that pivoted or recreated domestic 
        production largely served Government contracts. 
        Although small- and medium-sized firms and domestic 
        manufacturers from nonmedical product industries that 
        entered or pivoted into medical products significantly 
        enhanced U.S. domestic capacity in critical products, 
        many expressed that their efforts were slowed by 
        barriers in knowledge, shipping, and regulatory 
        approvals. These producers also disproportionately 
        served customers who were not served by traditional 
        distributors of PPE.

        Bottleneck 5: Global Geography of Medical Supply 
        Chains: The concentration of critical supply production 
        in East Asia, and largely in China, meant that U.S. 
        Governments and companies had neither full visibility 
        into supply chains nor the ability to expand U.S.-bound 
        product flow, and access to critical products made in 
        these regions was largely beyond U.S. control. These 
        bottlenecks created conditions ripe for temporal 
        arbitrage by U.S. and foreign product brokers, 
        generating windfall profits amid wide-scale shortages 
        and suffering. Excess funds were spent on product and 
        shipping, due to rent-seeking behavior, and affordable 
        product was not able to reach vulnerable populations in 
        time. Geopolitical tensions also played a role, as 
        workshop discussions revealed that there were multiple 
        ways in which China was perceived to act both for and 
        against U.S. interests in the response to the pandemic.

        Strategic Recommendation: Identify the elements and 
        appropriate scale of a domestic health industrial base 
        with surge capacity (e.g., running one shift, capable 
        of ramp-up to three shifts) beyond what is currently 
        maintained for defense; solicit interest from corporate 
        partners in voluntarily providing available or flexible 
        capacity; and evaluate the extent to which these 
        products will have a higher price point, including 
        conduct a study--including analytic assessment by 
        domain experts--to quantify

  1.  For which final products and intermediate inputs we 
        should maintain a health industrial supply base,

  2.  Domestic demand is in those products, and expected demand 
        under various expected future pandemic scenarios,

  3.  What percentage of that demand should be fulfilled 
        domestically during steady-state, and what excess 
        capacity should be held under various pandemic 
        scenarios

  4.  The expected value of stockpile size in different 
        products, given ``keep warm'' and ``pivot'' agreements 
        and speed for these companies to scale

  5.  What percentage of demand should be fulfilled through 
        pivots versus alliances during steady-state, and what 
        excess capacity should be secured through pivots versus 
        maintained with allies under various pandemic scenarios

  6.  Who the ideal players would be to fulfill that domestic 
        capacity (expanding the existing defense medical supply 
        base versus private large and/or small- and medium-
        sized firms)

        Excerpted from: Fuchs, E., and Karplus, V. 2021. ``A 
        New Approach To Coordinate U.S. Critical Supply Chains 
        in Crisis. Policy Brief''. Insights derived from: 
        ``Lessons From COVID Medical Supply Chains for Critical 
        Technologies: Real-Time Situational Data Infrastructure 
        and Adaptive Manufacturing Ecosystems''. Chatham House 
        Rule Workshop. Carnegie Mellon University. September 
        10, 2021.

Q.4. Please describe how you would implement a critical 
technologies analytics program.

A.4. A critical technology and innovation analytics program 
faces the formidable challenge that it must serve the Nation in 
developing the analytics to inform critical technology policy, 
where the intellectual foundations for determining those 
problems do not yet exist, where those problems require talent 
not easily attracted by individual agencies, and where the 
problems are uniquely cross-mission in nature, spanning 
multiple departments. To achieve this goal, the critical 
technology analytics program will need to build new 
intellectual foundations on what makes a technology critical 
and how much data is valuable in what situations. In addition, 
it will need to build tools (institutional and algorithmic) to 
spin-up timely situational awareness and build the intellectual 
foundations for the frequency and applications where various 
analytic options have the greatest value; build analytic tools 
to identify where innovation could transform U.S. geopolitical 
standing; and quantify cross-mission critical technology policy 
opportunities.
    To meet these challenges, the ideal critical technology 
analytics program would be a highly flexible, distributed model 
capable of rapidly mobilizing and reconfiguring star private 
sector and academic talent, data, and resources. In particular, 
a critical technology and innovation analytics program needs to 
be set up to

  a.  Be strategic and forward-looking--e.g. conduct work on 
        timelines on the order of 6 months to 2 years rather 
        than days or weeks (including thinking about problems 
        on the one to 50-year timeline--for example, the 
        critical technology analytics program would not focus 
        on building data infrastructure long-term rather on 
        strategic and quantitative guidance on how to think 
        about building such capabilities, and demonstrating 
        what capabilities are possible)

  b.  Have integrated teams that leverage leading technical 
        expertise in engineering and the physical sciences, 
        modern data analytics (machine learning, operations 
        research, natural language processing) and the social 
        sciences (economics, political science, sociology, 
        history.)

  c.  Work on interagency projects, including receiving work 
        from multiple agencies on one topic

  d.  Itself be a neutral third party or have the capability to 
        spin off public-private partnerships that can serve as 
        a neutral third party

  e.  Conduct some work internally but also leverage academic 
        and industry expertise through contracts

    A national cross-mission capability for critical technology 
analytics would ideally report to ``mission central'' and at 
minimum needs neutrality across departments. Logical homes 
might include under the direction of the Office of Science and 
Technology Policy (as an expansion of STPI or possibly joint 
with the Office of Management and Budget); the National Science 
Foundation's Technology, Innovation, and Partnerships Office; 
or Commerce. Other options might be to report to an independent 
authority, as was the case with the Nuclear Regulatory 
Commission, or to establish an independent entity as was done 
with the Health Effects Institute. To ensure engagement from 
all missions, a critical technology analytics program should 
have an advisory board from the relevant research arms in each 
department of Government plus leaders from academia and 
industry (perhaps selected out of the National Academies of 
Science, Engineering, and Medicine). Government departments 
would in parallel develop internal competencies into which they 
would merge the strategic cross-mission insights or new 
analytic capabilities they contracted from the critical 
technology analytics program. To enhance engagement and more 
seamlessly transition capabilities, departments would have 
people on rotation at the program. These rotational members 
could sit in academia or industry or join a small initial 
research staff of about 10 individuals established in the host 
agency (such as NSF or Commerce) or FFRDC (such as STPI) 
focused on transitioning novel data infrastructure and analytic 
capabilities developed by the Program and elsewhere in academia 
and industry.
    To have sufficient funds to draw talent from academic 
institutions and the private sector nationwide, the critical 
technology analytics program should initially be funded at 
$10M-20M annually for 5 years. If successful, the program 
should grow by the end of its second 5 years to a budget 
equivalent to $52M per year in today's dollars. (This funding 
is equivalent to the Office of Technology Assessment's budget 
when it closed in 1995.) If the program succeeds in receiving 
work from multiple agencies (e.g., NSF, DOD, DOC, DOE, DOT, 
NIH, DOL), this $52M could come from multiple agency funding. 
Foundations might also serve as start-up funding. Contract 
authorities that might serve well to mobilize academic talent 
from across the Nation (and flexibly configure and reconfigure 
teams) and facilitate private sector data sharing might include 
an Other Transaction Authority (OTA) or a direct subcontract 
within an agency or FFRDC. The Critical Technology and 
Innovation Analytics Program (CTIAP) act in COMPETES sets up an 
Other Transaction Authority (OTA) in Commerce.
              Additional Material Supplied for the Record
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