[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]







                    INFLATION: A PREVENTABLE CRISIS

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

                                HEARING

                               before the

                      SUBCOMMITTEE ON HEALTH CARE
                         AND FINANCIAL SERVICES

                                 of the

                         COMMITTEE ON OVERSIGHT
                           AND ACCOUNTABILITY

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 9, 2023

                               __________

                            Serial No. 118-9

                               __________

  Printed for the use of the Committee on Oversight and Accountability


                       Available on: govinfo.gov 
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               COMMITTEE ON OVERSIGHT AND ACCOUNTABILITY

                    JAMES COMER, Kentucky, Chairman

Jim Jordan, Ohio                     Jamie Raskin, Maryland, Ranking 
Mike Turner, Ohio                        Minority Member
Paul Gosar, Arizona                  Eleanor Holmes Norton, District of 
Virginia Foxx, North Carolina            Columbia
Glenn Grothman, Wisconsin            Stephen F. Lynch, Massachusetts
Gary Palmer, Alabama                 Gerald E. Connolly, Virginia
Clay Higgins, Louisiana              Raja Krishnamoorthi, Illinois
Pete Sessions, Texas                 Ro Khanna, California
Andy Biggs, Arizona                  Kweisi Mfume, Maryland
Nancy Mace, South Carolina           Alexandria Ocasio-Cortez, New York
Jake LaTurner, Kansas                Katie Porter, California
Pat Fallon, Texas                    Cori Bush, Missouri
Byron Donalds, Florida               Shontel Brown, Ohio
Kelly Armstrong, North Dakota        Jimmy Gomez, California
Scott Perry, Pennsylvania            Melanie Stansbury, New Mexico
William Timmons, South Carolina      Robert Garcia, California
Tim Burchett, Tennessee              Maxwell Frost, Florida
Marjorie Taylor Greene, Georgia      Becca Balint, Vermont
Lisa McClain, Michigan               Summer Lee, Pennsylvania
Lauren Boebert, Colorado             Greg Casar, Texas
Russell Fry, South Carolina          Jasmine Crockett, Texas
Anna Paulina Luna, Florida           Dan Goldman, New York
Chuck Edwards, North Carolina        Jared Moskowitz, Florida
Nick Langworthy, New York
Eric Burlison, Missouri

                       Mark Marin, Staff Director
       Jessica Donlon, Deputy Staff Director and General Counsel
          Daniel Ashworth, Deputy Chief Counsel for Oversight
                    Tyler Sanderson, Senior Counsel
                 Reagan Dye, Professional Staff Member
      Mallory Cogar, Deputy Director of Operations and Chief Clerk

                      Contact Number: 202-225-5074

                  Julie Tagen, Minority Staff Director
                      Contact Number: 202-225-5051
                                 ------                                

           Subcommittee on Health Care and Financial Services

                   Lisa McClain, Michigan, Chairwoman
Paul Gosar, Arizona                  Katie Porter, California Ranking 
Virginia Foxx, North Carolina            Minority Member
Glenn Grothman, Wisconsin            Alexandria Ocasio-Cortez, New York
Russell Fry, South Carolina          Jimmy Gomez, California
Anna Paulina Luna, Florida           Greg Casar, Texas
Nick Langworthy, New York            Becca Balint, Vermont
Eric Burlison, Missouri              Summer Lee, Pennsylvania
                                     Jasmine Crockett, Texas






















                         C  O  N  T  E  N  T  S

                              ----------                              
                                                                   Page
Hearing held on March 9, 2023....................................     1

                               Witnesses

Mr. Douglas Holtz-Eakin, President, American Action Forum
Oral Statement...................................................     4

Dr. John Taylor, Mary and Robert Raymond Professor of Economics, 
  Stanford University
Oral Statement...................................................     6

Mr. Mike Konczal, Director, Macroeconomic Analysis, The Roosevelt 
  Institute
Oral Statement...................................................     8

Written opening statements and statements for the witnesses are 
  available on the U.S. House of Representatives Document 
  Repository at: docs.house.gov.

                           Index of Documents

                              ----------                              

No additional documents were submitted for this hearing.

 
                    INFLATION: A PREVENTABLE CRISIS

                              ----------                              


                        Thursday, March 9, 2023

                        House of Representatives

               Committee on Oversight and Accountability

           Subcommittee on Health Care And Financial Services

                                                   Washington, D.C.

    The Subcommittee met, pursuant to notice, at 2:06 p.m., in 
room 2247, Rayburn House Office Building, Hon. Lisa McClain 
[Chairwoman of the Subcommittee] presiding.
    Present: Representatives McClain, Comer, Foxx, Grothman, 
Fry, Langworthy, Burlison, Porter, Balint, Lee, Casar, and 
Crockett.
    Mrs. McClain. The Subcommittee on Health Care and Financial 
Services will come to order. Welcome, everybody.
    Without objection, the Chair may declare a recess at any 
time.
    I recognize myself for the purpose of making an opening 
statement.
    Welcome to the first hearing of the Subcommittee on Health 
Care and Financial Services for the 118th Congress. To the 
witnesses, thank you very much for your attendance and 
participation in today's hearing on the inflation crisis.
    I think it is most important to understand how we got here 
so we don't make the same mistakes going forward, and we can do 
better going forward. We first have to agree that we have a 
problem before we can fix it and move forward for the American 
people. When the pandemic began in March 2020, Congress and 
Federal agencies took quick action to deliver financial relief 
to the American people. Congress quickly enacted a series of 
five laws providing over $3.1 trillion in Federal funds to 
mitigate the economic and public health impact of the COVID-19 
pandemic.
    President Trump's pro-growth and pro-worker economy, 
created by the Tax Cuts and Job Act, and investing in American 
manufacturing, combined with the unparalleled response to the 
pandemic, created the fastest economic recovery in history. As 
a result, only $1.9 trillion of the COVID relief funds were 
spent by January 2021, leaving over a trillion dollars for 
further relief.
    Between the start of the pandemic in March 2020 and March 
2021, inflation rose 2.6 percent. The Food Index rose 3.5 
percent. Energy services increased by only 4.1 percent, and 
gasoline prices increased by $0.67 to $2.89 a gallon. Instead 
of allowing these policies to continue supplementing the 
successful economic recovery efforts, Democrats jammed through 
Congress another $1.9 trillion, claiming it was for pandemic 
relief.
    I want to remind everyone that we still had at that time $1 
trillion leftover from the relief packages that we hadn't spent 
yet, and the definition of ``inflation'' is too many dollars 
chasing too few goods. Republicans and economic leaders of both 
parties, including Larry Summers, Greg Mankiw, and Michael 
Strain, warned that this completely unnecessary spending would 
put the economy at risk of inflation and possibly recession. 
Congressional Democrats simply did not listen to the experts. 
They were determined to spend more money. Government clearly 
has a spending problem. Then exactly what Republicans and 
economic experts predicted actually happened.
    In 2020, inflation rose to a 40-year high. The price of 
groceries went through the roof, gas prices soared, and 
retirement accounts plummeted. Between March 2021 and March 
2022, inflation rose 8.5 percent. The Food Index rose 8.8 
percent, the largest increase since 1981. Welcome back, Jimmy 
Carter. The Energy Services Index rose by 13 percent, more than 
triple the rate it did the year prior under Trump despite the 
COVID-19 pandemic, and gasoline prices increased $1.43 to 
$4.32.
    What was the Democrats' response? More spending. They 
pushed through the wrongly named, I might add, Inflation 
Reduction Act, another $740 billion boondoggle which did 
nothing to fight inflation, but it did spend more than $360 
billion on climate policies and funded 87,000 IRS agents. I am 
not sure how that helps the pandemic, but this is on top of 
$3.1 trillion and $1.9 trillion. Democrats decided to spend 
even more money, and let me remind you that we still have left 
over money to this day from those relief packages.
    Democrats' spending spree over last Congress drove the 
prices of groceries up by more than 11 percent. Their spending 
spree and attack on American energy caused Americans across the 
country to pay 27 percent more to heat their homes this winter. 
Inflation driven by Democrat policies made Michiganders choose 
between heating their homes and buying groceries. I don't know 
if you all know, but it gets cold in Michigan, especially this 
winter.
    Then what was President Biden's solution to the 
skyrocketing energy inflation? He told Americans to buy 
expensive electric vehicles. Now, mind you, in Michigan, we 
didn't have the infrastructure, the charging stations, nor the 
money to buy these electric vehicles. But President Biden's 
``let them eat cake'' response illustrates just how little he 
and congressional Democrats care about the impact of the 
reckless spending policies have had on working Americans.
    This Committee stood on the sidelines for too long while 
Americans across the country were feeling the pressure of 
inflation brought on by the Biden administration and 
congressional Democrats. Today, we hear from experts to better 
understand how inflation could have been prevented and what 
this administration and Congress must do to address it. I thank 
you and look forward to your testimony.
    I yield now to Ranking Member Porter, for her opening 
statements. Thank you.
    Ms. Porter. Thank you very much, Madam Chairwoman. It is 
great to join you at our first Subcommittee hearing together, 
and I look forward to working across the aisle to oversee and 
strengthen our capitalist economy.
    Today, we begin our work by discussing inflation. My 
Republican friends titled this hearing, ``Inflation: A 
Preventable Crisis.'' So, I think our first task is to dig into 
what they think was preventable. Let's rule a few things out. 
We all know that Congress couldn't have prevented a once-in-a-
century pandemic or Putin's illegal war in Ukraine. We all know 
Congress couldn't have prevented the strain on our supply 
chains when people started trading consumption of services for 
goods during COVID, and we all know Congress couldn't have 
immediately fixed our strained supply chains to reduce 
inflation. After all, it took decades for Washington to crack 
our supply chains by underinvesting in infrastructure, ignoring 
price gouging monopolies, and letting corporations offshore 
manufacturing.
    So, we have ruled out Congress preventing the economic 
shocks and the resulting effects that led to inflation, but 
still, our Republican friends are suggesting that something 
about inflation was a choice. Well, I suppose it was a choice 
to help people suffering the economic impacts of COVID, but to 
me, that help wasn't really a choice. It was a necessity, but 
it seems like today's hearing could turn into a forum to blame 
American fiscal policy for the global phenomenon of inflation. 
If American fiscal policy created inflation as a crisis that is 
being felt in countries across the globe, then American fiscal 
policy should equally be able to solve that crisis.
    So, what policies do Republicans think will solve global 
inflation? Is it deep cuts to social programs like Social 
Security and Medicare that would devastate our seniors and 
working families, or maybe it is just the REIN IN Act, which 
Republicans passed last week, which requires the President to 
consider the inflationary impact of executive orders. The 
problem is the REIN IN Act commissions a report. It is not a 
comprehensive look at the costs and benefits of executive 
orders. Does that really help us make more informed fiscal 
decisions, or is it just designed to discourage executive 
orders?
    Either way, the REIN IN Act still just commissions reports. 
It takes no real action. If that was House Republicans' secret 
plan to fight inflation, it is going to be a long two years for 
American families. Either Republicans don't have a plan to 
address inflation while making life better for families, or 
they are too afraid to admit that their plan is to take away 
deeply popular and needed programs from the American people.
    Let's contrast that with what Democrats have been up to. We 
passed the Inflation Reduction Act, which would cap the price 
of insulin for seniors, allow Medicare to negotiate drug 
prices, lower the cost of health insurance, and lower the cost 
of renewable energy, all while reining in inflation by paying 
down the national debt. We passed the Bipartisan Infrastructure 
Law to invest billions in our ports and airports to stop the 
supply chain bottlenecks that have spiked prices during the 
pandemic. We passed the CHIPS for America Act that will bring 
back domestic manufacturing that Washington let move overseas 
for decades, injecting competition and resiliency into our 
markets that lowers prices. And perhaps most importantly, we 
have had a President who has taken executive action to break up 
monopolies, chipping away at the power big corporations have 
enjoyed to gouge huge profit margins and raise prices on 
consumers. These are the kinds of actions that contain 
inflation, make life better for families, and shore up our 
economic resiliency.
    Today, I am calling on House Republicans to please put 
forward your own plan to fight inflation that is at least as 
detailed as the Inflation Reduction Act. It is time the 
American people see where you stand, not see you grandstand. I 
yield back.
    Mrs. McClain. Thank you, Ms. Porter. I am pleased to 
introduce our three witnesses today, who are experts in fiscal 
and monetary policy and can speak to the causes and long-term 
consequences of the current inflation crisis. Dr. Douglas 
Holtz-Eakin is the president and founder of the American Action 
Forum. From 2003 to 2005, he was the sixth Director of the 
nonpartisan Congressional Budget Office, which provides the 
budgetary and policy analysis to the U.S. Congress. He has a 
Ph.D. in economics from Princeton University. Welcome.
    Dr. John Taylor is the Mary and Robert Raymond Professor of 
Economics at Stanford University and George P. Shultz Senior 
Fellow in economics at the Hoover Institute. He is known for 
his research on the foundations of modern monetary theory and 
policy, which has been applied by central banks and fiscal 
market analysts around the world. He has a Ph.D. in economics 
from Stanford University.
    And Mr. Michael Konczal--did I say that correct? I am 
always struggling with names, so I apologize in advance--is the 
director of macroeconomic analysis at the Roosevelt Institute. 
A former financial engineer, he holds a B.A. in math and 
computer science and an M.S. in finance from the University of 
Illinois at Urbana Champaign.
    Pursuant to the Committee Rule 9, the witnesses will please 
stand and raise their right hands.
    Do you solemnly swear or affirm that the testimony that you 
are about to give is the truth, the whole truth, and nothing 
but the truth, so help you God?
    [A chorus of ayes.]
    Mrs. McClain. Let the record show that the witnesses all 
have answered in the affirmative.
    We appreciate all of you being here today, and we look 
forward to your testimony. Let me remind the witnesses that we 
have read your written statements, and they will appear in full 
on the hearing record. Please limit your oral statements to 
five minutes. And as a reminder, please press the button on 
your microphone in front of you so that it is on and the 
Members can hear you. When you begin to speak, the light in 
front of you will turn green. After four minutes the light will 
turn yellow. When the red light comes on, your five minutes is 
expired, and we would ask that you please try and wrap it up as 
soon as possible.
    I recognize the first witness to begin their opening 
statement.

   STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT AND FOUNDER, 
                     AMERICAN ACTION FORUM

    Mr. Holtz-Eakin. Well, thank you, Chair McClain, and 
Ranking Member Porter, and Members of the Committee for the 
privilege of being here today. You have my written statement. 
Let me say three things briefly, and then I look forward to 
answering your questions.
    Point No. 1 is that inflation really took root in 2021. At 
the beginning of 2021, in January, year-over-year CPI inflation 
was 1.4 percent. One year later, in January 2022, it was 7.5 
percent. This marks one of only three years in which CPI 
inflation grew by six percentage points in a single year in the 
postwar United States. So, what are the sources of this sharp 
run up in 2021? Well, the Chair alluded to some of them in her 
opening remarks. One was excessive monetary stimulus. The 
Federal Reserve responded aggressively to the arrival of the 
pandemic recession, cut rates to zero, made an open-ended 
commitment to provide liquidity to markets, and, importantly, 
started buying $90 billion a month of Treasuries and mortgage-
backed securities, and it continues to do so in 2021. Even as 
inflation started to creep up, it maintained this pace through 
the entire year.
    In addition, there was excessive fiscal stimulus, the 
American Rescue Plan, $1.9 trillion in stimulus, was enacted in 
March 2021 at a time when the U.S. economy was growing at 6.5 
percent. It was plain in the data, things like GDPNow at the 
Atlanta Fed showed that. At a time when the measured output gap 
between what GDP was running at and what its potential was, as 
calculated by my old shop, the Congressional Budget Office, 
that budget gap was $400 billion to $600 billion. You don't 
need a $1.9 trillion bill to close a $400 billion to $600 
billion output gap, so it was just much too big and destined to 
cause macroeconomic disruptions.
    And there were, as well, supply chain constraints from 
around the globe, but to the extent that you recognize supply 
constraints, you should be even more restrictive in your fiscal 
stimulus because it is only demand relative to supply that 
matters. So in 2021, inflation really, really ramped up, and 
that, I think, is the period that was most crucial and where 
the biggest policy errors were made.
    Point No. 2 is that once inflation gets embedded in the 
economy, policymakers have essentially no good choices. Choice 
No. 1 is live with the inflation. When it got to 10 percent, 
that was clearly unpalatable. American households were deeply 
dissatisfied and being harmed by the inflation. The alternative 
is to live with the things necessary to bring it back into 
control, and that is a steady stream of bad news in the terms 
of house prices start going down, retail sales declining, 
slower growth in jobs in the labor market. And as a result, 
that initial policy, it gets compounded into further costs down 
the line as you deal with taking the inflation out of the 
system.
    Point No. 3 is we are hardly done with this episode. In the 
most recent readings, CPI inflation was 6.4 percent year-over-
year, well above two-percent target. The core, taking out the 
volatile food and energy components, was still at 5.6, but for 
me, the really striking numbers are food, energy, and shelter 
are 50 percent of the CPI. That is because they are about 50 
percent of the typical family budget, and food, energy, and 
shelter still rising at 8.5 percent year-over-year. Go to the 
gasoline station, go to the grocery, go home and be reminded 
that your paycheck is nearly 10 percent less valuable than a 
year before.
    And inside that, shelter is really the poster child for the 
inflation problem. Shelter is a third of the CPI. Year-over-
year inflation, shelter inflation is 7.9 percent. It has risen 
every month since February 2021. We have yet to see a peak, and 
shelter isn't something that has a supply chain. It is in the 
United States. Shelter is a service, and services are the U.S. 
inflation problem right now. Goods price inflation has been, in 
fact, addressed to some extent, and the Federal Reserve, in 
particular, will need to do more to address the inflation 
problem.
    I will just close with something which I find sort of 
slightly depressing on the inflation front. The Fed's preferred 
measure of inflation is a geeky thing called the market-based 
Price Index for personal consumption expenditures. We don't 
want to talk about that in public, but I will be happy to 
answer questions later. But it is really just indicative of 
what transactions are actually happening in the economy right 
now. When they started their tightening in April 2022, year-
over-year market-based core PCE was 4.9 percent. In January 
2023, it was 4.9 percent. That is very little progress on the 
underlying inflation, which means that as the tightening the 
Fed has done so far gets into neutral, there is more to do to 
really address the inflation.
    So, I thank you for the chance to be here today, and I 
would be happy to answer your questions.
    Mrs. McClain. Thank you, sir. I appreciate your opening 
statement. I now recognize Dr. Taylor.

STATEMENT OF JOHN B. TAYLOR, MARY AND ROBERT RAYMOND PROFESSOR 
OF ECONOMICS, STANFORD UNIVERSITY, AND GEORGE P. SHULTZ SENIOR 
             FELLOW IN ECONOMICS, HOOVER INSTITUTE

    Mr. Taylor. Thank you, Chairwoman McClain and Ranking 
Member Porter, for inviting me to this important Subcommittee 
meeting. Inflation is such an important topic. I am going to 
focus most of my remarks on that, in particular, the monetary 
policy aspects of that.
    For several years, starting back in 2017, the Fed began to 
move to a more rules-based monetary policy, and it worked well 
for the United States in 1980's, 1990's, and in other years. 
Many papers were written at the Fed and other places showing 
the benefits of the so-called rules-based policies. In July 
2017, when Janet Yellen was the Chair of the Fed, a whole 
section on rules-based monetary policy was put in the monetary 
policy report. The target inflation rate was only two percent.
    Many monetary policy experts made favorable comments about 
the rules-based policy. J. Powell, for example, said, ``I find 
these rule prescriptions helpful.'' Evidence was that with the 
move toward rules-based policy was beneficial, economic 
performance improved. Unfortunately, this moved toward monetary 
policy rules was interrupted when the pandemic hit in 2020. 
First, rules were removed from the Fed's report. They were put 
back in in February 2021. Then rules were taken out again in 
February 2022. But Chair Powell, in answer to complaints from 
Members of Congress about rising inflation, said he would put 
the rules back in. And in the report released on June 17, 2022, 
policy rules were back.
    This approach of including rules in the report has 
continued, and it appeared last Friday, in the March 3, 2023 
report. A copy of the table is in my prepared testimony, but 
let me just mention the Taylor rule was first on the list. And 
the Fed admitted that throughout 2021 and 2022, the target 
range for the Federal funds rate was below the prescriptions of 
most simple rules. I think it is good that rules are back in 
the Fed's monetary policy report. It would be more helpful if 
the Fed formally incorporated rules into its actual decisions 
and apparently has been trying to do this recently. At first, 
only small changes were seen in actual monetary policy as 
inflation rose sharply, as you just heard. This was the case of 
the Fed and other central banks who are behind the curve. So, 
we are still living in a high inflation era, unless monetary 
policy actions are taken.
    Events in Ukraine raised inflation, but not the basic 
story. Figure 1 in my prepared testimony shows the effective 
Federal funds rate through late 2022 through the present. The 
rate moved from 25 basis points to 4-and-a-half percent, but 
that is still probably too low. While the gap between the rules 
and the effective rate has narrowed, the huge discrepancy still 
exists.
    During March 2022, the actual Federal funds rate was well 
behind the curve. Why? If we use the Taylor Rule, which is in 
the Fed's report, the most recent monetary policy report in 
particular, you plug in an inflation rate over the past four 
quarters of only four percent, a target inflation of two 
percent, which the Fed says we are still taking it to, an 
equilibrium interest rate of one percent, which is a consensus 
at this point, lower than I assumed originally, and the gap 
between real GDP and its potential of zero--we are pretty close 
to zero, low unemployment--then you get a Federal funds rate of 
six percent. These are mild assumptions. So, even with these 
mild inflation numbers, the Fed is still behind the curve, 
though, as Chair Powell indicated this week in testimony, they 
are still trying to catch up, so we will see.
    My written testimony shows that the Fed got way behind the 
curve in detail compared to the rules-based monetary policy, 
and it says this is why inflation rose so much. The Fed has 
started on a method to get inflation back down. By reviewing 
the years leading up to the present situation, the formal 
testimony provides the background needed for analyzing the 
current and future monetary policy decisions.
    There are now more reasons than ever for central banks, 
including the Fed, to use the more rules-based policy, to keep 
inflation at the two-percent target range. Central banks should 
start now on procedures or rules that markets understand. The 
policy interest rate would increase as inflation rises, as has 
now just begun to happen. It would, of course, be a contingency 
plan, as are all rules. This would greatly reduce the chances 
of a large, damaging change later. Thank you.
    Mrs. McClain. Thank you. I appreciate your testimony. I now 
recognize Mr. Konczal.

    STATEMENT OF MICHAEL KONCZAL, DIRECTOR OF MACROECONOMIC 
        ANALYSIS, ROOSEVELT INSTITUTE, WASHINGTON, D.C.

    Mr. Konczal. Chair McClain, Ranking Member Porter, and 
distinguished Members of Subcommittee, thank you for inviting 
me to testify at this hearing. My name is Mike Konczal, I am 
the director of macroeconomic analysis at the Roosevelt 
Institute.
    Today I am going to speak about the causes of inflation 
that have been unique to this recovery, the progress we have 
made so far, and what policymakers can do to bring down 
inflation further. But first, it is important to remember this 
recovery has been remarkable. The economy has added more than 
500,000 jobs each month for the past two years. There are now 4 
million more jobs in the February 2021 CBO projection of what 
would have happened without the American Rescue Plan. In 
contrast to previous recessions, real GDP is recovering to 
projections of where it would have been without the pandemic, 
but we have also experienced inflation has been higher and more 
sustained than financial markets and the Federal Reserve 
projected.
    There has been four key contributors to inflation during 
the past two years, and we have heard stories about people 
canceling gym memberships and buying home gym equipment 
instead. And the first contributor, the shift in demand from 
services to goods, has been aggregated across the entire 
economy. Second, vulnerabilities in our supply chains, many of 
which already lacked resiliency pre-COVID, led to skyrocketing 
prices for goods in summer of 2021, yet during this time, the 
prices for services did not fall. As the economy reopened, 
inflation and services picked up even as supply chains were 
still normalizing. This all mechanically increases inflation.
    Third has been the change in demand for housing resulting 
from remote work, which now covers over a quarter of the work 
force. One study by the San Francisco Fed found that these 
shifting patterns of demand for housing explain half of the 
overall increases in house prices and rents during the past two 
years, all of which has been a major contributor to inflation. 
And fourth, Russia's invasion of Ukraine in February 2022 also 
increased inflation, especially through energy and food prices. 
Thanks to U.S.-led domestic and international efforts, 
especially the financial commitments in deploying and 
restocking the U.S. Strategic Petroleum Reserve, the CPI for 
inflation has come down to rates near the beginning of the war 
in recent months.
    Now, what we don't see is if these explanations are 
sufficient to explain most of the shifts in inflation over the 
past two years. But if inflation was primarily the result of 
the Biden administration's policy, we would have expected to 
see certain things in the data, but we see the opposite. First, 
if too much demand was the main contributor of inflation, we 
would expect to see potential output, real GDP, or real 
consumption exceed pre-pandemic projections or trendlines. 
Where we would expect the big difference is the composition of 
them have changed.
    Second, we would expect the United States to be globally 
unique, but instead, we see inflation increasing across the 
globe. All of the 40 countries the OECD collects data on saw 
higher core inflation across 2022 than in 2019. Of those 40, 28 
of those 40 had higher inflation increases relative to 2019 
than the United States. United States' increase in inflation 
has been lower than many European countries, like the U.K. and 
Germany, but also lower than countries not in Europe, such as 
Canada and Israel. Our inflation increase has been about the 
same as South Korea. This inflation is truly a global 
phenomenon. Now, our inflation picked up earlier in 2021 than 
peer countries, driven by price breaks and automobiles 
particularly, but our reopening growth started earlier and 
stronger as well. The IMF estimates that the U.S. growth will 
be twice the average of the Eurozone from 2020 to 2023.
    A third thing is instead of seeing people not working, we 
have seen a rapid recovery in the labor force. Prime age 
employment to population ratios are near pre-pandemic levels 
and still growing. There are more workers working today than 
the CBO projected in 2019 that there would be at this point. 
Fourth, if unemployment was below a natural rate of 
unemployment, we expect nominal wages to be increasing and 
increasing fast. Instead, wages decelerated across 2022 to 
rates that, while still especially strong, are more consistent 
with lower inflation.
    Now, there has been a lot of progress. Inflation is down 
almost half across the past three months compared to the first 
half of 2022 across a variety of metrics, roughly six percent 
to four percent, depending on what you are looking at. However, 
inflation is still higher than we want it to be, and there are 
still policy options we can use to speed its decline.
    First is to raise or eliminate the debt ceiling. A 
financial crisis would be devastating to this economy, I don't 
need to say much more about that. Second is to recognize that a 
lot of tightening has taken place. Federal Reserve raised 
interest rates rapidly in 2022, almost five percent, close to 
the six percent, as the Taylor rule might suggest, and 
economists agree that these hikes slow the economy in long and 
variable lags. We don't want to administer too much medicine if 
we think we haven't seen all the effects of the previous around 
yet. Measures of housing inflation, in particular, which we 
know will fall from private sector analysts, take a long time 
to be incorporated in the official statistics.
    Third is to look at corporate profit margins. Non-financial 
profits as a percent of GDP are at record levels. If corporate 
profits fall, it means we can have lower inflation while still 
keeping a strong job market. Fourth, we need to build more. Our 
infrastructure needs to become more resilient through 
successful deployment of the Inflation Reduction Act. And also, 
we need more housing, which was a challenge even before the 
pandemic. And fifth, we need to expand the labor force from 
everything, through higher immigration to expanded childcare. 
There are many job openings available, and this would make our 
economy stronger.
    Thank you for your time, and I look forward to your 
questions.
    Mrs. McClain. Thank you very much for all of your testimony 
and opening statement.
    I am going to recognize myself for five minutes.
    Dr. Holtz-Eakin, yes or no. Did the American Rescue Plan 
increase inflation?
    Mr. Holtz-Eakin. Yes.
    Mrs. McClain. Was it predictable that the American Rescue 
Plan would drive inflation so significantly?
    Mr. Holtz-Eakin. Yes. People said so at the time, notably 
Larry Summers, former Secretary of the Treasury, also an 
economist. History has given us examples just like the American 
Rescue Plan. In 1951, the U.S. economy was growing at 10.5 
percent, quite rapid growth. Federal spending was increased by 
about 50 percent. That is roughly the American Rescue event, $2 
trillion on a $4 trillion race, and inflation jumped by six 
percentage points that year. So, you get the big fiscal 
stimulus, and an accommodative Fed, and the high growth 
environment, you get inflation.
    Mrs. McClain. Thank you. Were the Democrats warned about 
these risks?
    Mr. Holtz-Eakin. Yes, there were public comments made by 
people about how undesirable this was and how large it was. 
There was testimony. I testified at the Senate Banking 
Committee about the risks of the American Rescue Plan and made 
the points I made today about how it is the wrong time for 
stimulus. We are growing rapidly. It is too big compared to the 
problem. I had some issues with the design. It wasn't really 
focused on COVID-related fallout in the economy. And so, there 
were lots of people who had expressed some concern over the 
scale and composition of the bill.
    Mrs. McClain. So, Democrats passed the legislation they 
knew would likely drive the country into its worst inflationary 
period in 40 years?
    Mr. Holtz-Eakin. I don't have any idea what the motivation 
is. The bill passed, and we have now seen the policy error.
    Mrs. McClain. And it is good to learn from our past 
mistakes.
    Mr. Holtz-Eakin. It would be nice if we did.
    Mrs. McClain. In your opinion, I would like to understand 
your definition of inflation.
    Mr. Holtz-Eakin. Inflation is a broad-based increase in the 
price level so that the dollar price of goods and services 
broadly in the economy rising.
    Mrs. McClain. OK. Thank you. In 2021, President Biden's 
then chief of staff, Ron Klain endorsed a tweet saying, 
``Inflation is a high-class problem.'' From Jason Furman, a 
Democrat who was President Obama's Chair of the Council of 
Economic Advisers, inflation is a high-class problem. Doctor, 
doesn't inflation affect middle-income and low-income Americans 
as well?
    Mr. Holtz-Eakin. You got a couple of doctors.
    Mrs. McClain. I got a couple of doctors. We will start with 
you.
    Mr. Holtz-Eakin. Yes, certainly. In my written testimony, I 
pointed out that if you look at the median income in the United 
States and you say 50 percent, it is going to food, energy and 
shelter. That is a $3,000 tax on food, energy, and shelter at 
current inflation rates. It is a real loss in purchasing power 
for other purposes because you have to devote it to those core 
elements.
    Mrs. McClain. Dr. Taylor, would you agree?
    Mr. Taylor. Yes. I think the effects of inflation on a 
broad population are completely understated. That is why this 
two percent or whatever, I thought it should be 1.5 percent 
before they chose two. That is why I think it is so important.
    Mrs. McClain. Thank you, and a follow-up. In fact, 
according to several research institutions in the Fed, the 
inflationary crisis brought on by the Biden and congressional 
Democrats' reckless spending has disproportionately impacted 
low-income individuals. Shouldn't the Biden administration be 
forcing more help on Americans in need by actually addressing 
the inflationary crisis rather than minimizing the real pain 
inflation caused by their reckless actions? We can't fix a 
problem unless we first admit we have a problem.
    Mr. Holtz-Eakin. I think we all know we have an inflation 
problem. The question now is what is the best route to fixing 
it. My own opinion is that the Federal Reserve is, in fact, 
correct when Chairman Powell said that this is the Fed's 
problem. We have a mandate for price stability and full 
employment, and the only way to get to full employment is to 
restore price stability.
    Within the Fed's strategies, I want to just note what Dr. 
Taylor said about the fact that their discretionary decisions 
thus far have left them way behind the curve. There was a large 
discussion about the uptick in inflation in the first half of 
2021. They continued with the foot on the gas through the whole 
year and didn't begin tightening until early in 2022, and 
tightened too slowly.
    Mrs. McClain. I agree. Dr. Holtz, the Biden administration 
continues to claim that 70 percent of the increased inflation 
was due to Russia's invasion of Ukraine. Is that true? Big 
percentage?
    Mr. Holtz-Eakin. You can find a window where you can make 
that true, and they did. It was one month earlier last year. 
But broadly, the inflation problem really did take root in 
2021, prior to the invasion, and I don't think explanations 
that point toward an invasion of Ukraine as the problem of 
inflation are correct.
    Mrs. McClain. Well, I am just looking at the facts. So, if 
I understand the facts correctly, and please correct me if I am 
wrong, when the President took office in January 2021, 
inflation was at 1.4 percent. By December of that year, 
inflation had risen, right, to seven percent, six percent jump, 
kind of a big jump in my opinion, but the war in Ukraine didn't 
start till the following February. So, those are the facts, 
right? I am not distorting the reality, and I am looking at the 
global picture.
    Mr. Holtz-Eakin. That is right, and that was in my written 
testimony as well.
    Mrs. McClain. So, how much of the inflation is due to 
Biden's policies versus how much is caused by Putin's invasion 
of Ukraine? I mean, we have to start talking about facts.
    Mr. Holtz-Eakin. So, a crude decomposition, as you put 
aside the invasion, which happens later, you compare Europe to 
the United States, as many people want to do. In 2021, European 
consumer price inflation rose about a percentage point each 
quarter, went from zero percent to four percent. That is 
because they shared the same supply chain problems the U.S. 
had. U.S. inflation got well above seven percent, and so there 
is part which is attributable to the impact of supply chain 
difficulties, but there is another part that is unquestionably 
excessive demand stimulus in the U.S.
    Mrs. McClain. Thank you. The Chair would like to recognize 
Mr. Casar. Did I say that right, Casar?
    Mr. Casar. Yes, thank you. Thank you so much. There is this 
false presumption that I think is talked about here in Congress 
that government spending always necessarily equals inflation, 
and my understanding is that that is just wrong. I want to go 
back to some basics here that we heard today. Prices can go up 
for a variety of reasons--supply demand mismatch, corporate 
greed, supply chain issues, war--and when prices go up, smart 
government interventions can have a role in bringing those 
prices down.
    And I want to talk about one example, for example, 
investing in childcare when there is a smart investment by the 
Federal Government or local government to make sure that there 
is more childcare available for people, something I hear from 
my constituents, they need all the time, if we bring people 
back into the childcare work force, raise their wages, make 
sure that there is more small childcare operators available. 
Mr. Konczal, can you talk to us about whether smart, targeted 
government investments like this one to provide people more 
childcare options could actually bring prices down as opposed 
to driving them up?
    Mr. Konczal. Yes, absolutely. So, a strong characteristic 
of this recovery has been a lot of job openings. Though the 
labor market has recovered quite rapidly to pre-pandemic 
levels, we knew pre-pandemic, we were still missing millions of 
people who could be working as a result of lack of access to 
childcare and lack of other kinds of care infrastructure, and 
that problem is still with us even after the pandemic. We also 
know that declines in immigration are probably putting pressure 
on labor markets and making it harder for employers to find 
workers that they could be filling the jobs.
    Mr. Casar. So, on top of potentially bringing childcare 
costs down by the government, subsidizing childcare, and 
helping open more childcare centers, what you are saying is 
also by having folks send their kids to that childcare, they 
could reenter the work force, increase productivity overall, 
overall increase supply, and, therefore, also drive prices 
down?
    Mr. Konczal. Yes, absolutely. We knew this was a problem in 
2019, and it still remains with us.
    Mr. Casar. And then long term, when you have those children 
participate in high-quality childcare, we know that their 
overall productivity goes up, their ability to innovate and 
find the career of their choice goes up in their adult life, 
and long term, that also increases our overall productivity, 
the overall strength of our economy, and that is anti-
inflationary as well?
    Mr. Konczal. In the long and medium term, it allows us to 
be much more productive and have a much higher level of output.
    Mr. Casar. I think that is really important because the 
false narrative that I think needs to not be constructed is 
that we shouldn't help folks when they are in need. The 
government shouldn't intervene and spend in smart ways, because 
the answer to any time congressional Democrats or the Biden 
administration want to do something good is that it is going to 
further inflation, then the answer is let's just not do much at 
all. But I, as a city council member, saw how the American 
Rescue Plan not only created millions of jobs, but saved 
people's lives. And if we make sure we make smart investments 
that actually support the American worker and bolster our 
economy, we can make those kinds of investments in ways that 
actually bring prices downward, and I think that your testimony 
makes that really clear. I appreciate that.
    Mr. Konczal. Thank you.
    Mr. Casar. Thank you, and I yield my time back to 
Representative Balint.
    Mrs. McClain. Thank you, Mr. Casar. OK. The Chair 
recognizes Dr. Foxx for five minutes.
    Ms. Foxx. Thank you very much, Madam Chair, and thanks for 
our panelists being here, particularly Doug Holtz-Eakin. We 
haven't seen you in a little while. It is nice to see you, Dr. 
Taylor. Thank you very much to all of our panelists.
    Dr. Holtz-Eakin, Federal officials and members of academia 
have used the term ``transitory'' to describe the current trend 
of inflation. Now, they have been saying that lately, but do 
you want to explain a little bit more about what you think they 
mean by that?
    Mr. Holtz-Eakin. Early in 2021, as inflation started rising 
from that 1.4 percent, I noted it. At the start of the year, 
there was a discussion about whether this was something that 
was transitory, would take care of itself and return toward 1.4 
percent within the year, or if this was part of a longer trend 
that was more permanent and something the Fed would have to 
actively lean against to get back to the two percent target. 
For at least six months, perhaps longer, many Fed officials and 
analysts stuck to the notion that it was transitory and that no 
change in Federal reserve policy was necessary. By the second 
half of 2022, essentially, everyone had been in this notion. 
Inflation was clearly high, rising, and not a transitory 
phenomenon.
    Ms. Foxx. Thank you. Dr. Taylor, last Congress, I 
introduced the Spending Safeguard Act, which would tamp down 
mandatory spending increases by establishing specific caps for 
new or reauthorized programs. How would legislation like this 
affect America's inflation?
    Mr. Taylor. I think it would be a step in the right 
direction. This is in focus on the budget deficit. In my 
testimony, I focus on monetary policy, which I have looked at a 
lot, but the deficit is an issue. And you can wish it away, but 
it is there, and it is a very, very important factor, so 
actions like this are very important to take. Monetary policy 
is complicated. The tendency is, it is always easy to think 
about fiscal policy, but it is such a difference now in terms 
of monetary policy. That is why I focused on that.
    Ms. Foxx. And you mentioned the deficit just now, so I will 
follow up. Do you think that really could be effective in 
lowering the deficit and the debt as well?
    Mr. Taylor. Oh, yes. I think a policy is monetary, is 
fiscal, is regulatory, is international. We are focusing a lot 
on fiscal now because it is such a mess. We are focusing on 
monetary because it is such a mess, but don't forget the 
regulatory stuff. Don't forget the international stuff. It is 
very important. But I always say, yes, the fiscal side is so 
important, and it has exploded and needs to be brought back to 
normal.
    Ms. Foxx. Yes. For my colleagues, we have agencies that 
have money that they can spend under mandatory spending, and an 
estimate comes from CBO, it is going to cost $100 million, and 
then they go out and spend $200 million because there is no 
cap. And so, my bill put a cap on it saying if it goes above 10 
percent, you have to come back to us to get approval for it. It 
may not be trillions, but pennies add up. So, Dr. Taylor, in 
your opinion, is allocating trillions more in spending toward 
liberal initiatives like the Green New Deal an effective 
approach to addressing inflation?
    Mr. Taylor. I don't think it is an issue really. It would 
be counterproductive to do this. In fact, it doesn't really 
matter too much of what you are spending on. It is a deficit 
itself, and it has caused a lot of problems. I think it is too 
big by any stretch of the imagination. It interferes with other 
kinds of policy, so that should be the focus, and I think what 
you describe, limits mandates, is an important part of this. We 
used to have thought about a balanced budget amendment at one 
point, so this is in that direction.
    Ms. Foxx. OK. For both you and Dr. Holtz-Eakin, when do you 
anticipate inflation to return to pre-COVID levels, and what 
actions should the Biden administration, Congress, and the 
Federal Reserve be taking to meet that timeline?
    Mr. Taylor. So, we can't predict inflation very well, but 
the stated goal of the Fed is to get it back to two. They will 
probably raise rates a little bit more. I know that has 
concerned people, but it is the best thing that I know that 
they could be doing. If they do that, then inflation will come 
down gradually, and that could be instantly--be lucky to be 
instantly--but come back to this two percent, which is the 
target we shouldn't give up on.
    Mr. Holtz-Eakin. At the time that the Fed launched this 
tightening cycle, Chairman Powell addressed the National 
Association for Business Economics and said it would take three 
years to get back to the two-percent target. In the interim, 
inflation has proven more stubborn than he had anticipated, and 
the terminal rate are going have to get to higher than they had 
anticipated. So, I think it will probably take longer than he 
anticipated.
    Ms. Foxx. Thank you, Madam Chair. I apologize for going 
over. I yield back.
    Mrs. McClain. Thank you. The Chair recognizes the 
gentlelady from Pennsylvania, Ms. Lee.
    Ms. Lee. Thank you, Madam Chair. So, we have all seen 
personally back in our communities, right, how they are 
hurting. I have never seen eggs costing you $7 at Giant Eagle. 
Rents are rising, housing costs are only getting worse, but we 
know why. Inflation is hurting everyone globally because the 
pandemic was global. A war in Europe is impacting everyone. We 
know the reasons, but today, we really want to focus on 
solutions. So, Mr. Konczal, what policies could Congress pursue 
to further tackle inflation, in your opinion?
    Mr. Konczal. I believe things that help us build more and 
expand our capacity would be very helpful, particularly in the 
housing sector. I think things that might raise taxes on rich 
people, in particular, to bring down the deficit to pay for 
important targeted investments, I think, would be very useful. 
I think letting the tightening that has already happened, 
seeing the impacts of it, I think that is actually quite 
important. And things that increase our labor force supply, 
such as childcare, immigration, other things I think would 
really help our work force.
    Ms. Lee. Yes. Similarly, I think that listening to 
testimony and about the different causes of inflation, I think 
the one thing that we didn't maybe hear a lot about is 
corporate greed and price gouging. Gasoline prices now average 
more than $5 a gallon in Pittsburgh, and oil companies posted 
record profits this year, leading me to suspect price gouging 
at the pump. Pennsylvania has among the weakest laws in the 
Nation when it comes to investigating and preventing price 
gouging. What actions do you believe we can take at the Federal 
level to address corporate greed impacting my constituents?
    Mr. Konczal. I think broadly speaking, we had a competition 
problem in 2019, and I think that competition problem is here 
now. It is important to remember that the labor share has 
fallen during this recovery; that is, workers' wages have gone 
up less than the prices. Workers are not driving the inflation. 
The inflation has been reflected in corporate profits. And so, 
I think things like competition coming online, that would bring 
down margins. Particularly we see prices that businesses pay 
have increased less than the prices consumers pay, which has 
shown up in these corporate profits. I think competition 
bringing that down and increasing the labor share, I think 
could do a lot to help alleviate inflation at the margins.
    Ms. Lee. Thank you. In the wake of historic pandemic, 
ideally war, inflation rates now, is not the time to simply 
point fingers. I want to ensure we are doing work to get money 
back into the pockets of all the people in this country. I 
yield back, Madam Chair.
    Mrs. McClain. The gentlelady yields.
    Ms. Balint. If I may, Madam Chair? One of the premises of 
this hearing is that the Biden policies have been reckless, 
that the policies of the Biden Administration have added to the 
deficit. And I just want to really be rooted in fact here, 
which is that the new budget that has been proposed will 
actually cut the deficit by nearly $3 trillion over the next 10 
years. And that is really a stark contrast to what I am hearing 
from my colleagues, the Republicans' proposal, which would 
actually increase the national debt by $3 trillion over the 
next 10 years, and would continue to give big handouts to the 
rich, to big corporations, to special interests. And I just 
want to make sure that we are always keeping that fact at the 
center of this. We are here to try to work toward solutions, 
and I think it is really important that we are rooted in 
reality. I yield back.
    Mrs. McClain. Thank you. The Chair now recognizes the 
gentleman from Wisconsin, Mr. Grothman.
    Mr. Grothman. Thank you. I am going to kind of follow up on 
some of the things Ms. Foxx said. Could you comment on the 
current Federal deficit or the total amount of Federal debt as 
to where it is historically as far as percentage GDP? Whichever 
one of you guys. You seem pretty bright. We will give you 
another shot.
    Mr. Holtz-Eakin. We are at roughly 100 percent of GDP, and 
we will shortly exceed the highest level relative to GDP in the 
history of the country.
    Mr. Grothman. Right, and I don't think people realize how 
much we are exceeding it. We were near 100 percent, I think, 
only for like one year, but have we been anywhere near 100 
percent, say, for the last 75 years?
    Mr. Holtz-Eakin. The only comparable period was World War 
II, and so we are now even going to surpass the levels in World 
War II.
    Mr. Grothman. Right. We are around 100 percent, you are 
right. For most people on this panel, for most of our life, 
what were we around, 40 to 50 percent through the 1970's and 
1980's?
    Mr. Holtz-Eakin. About 35 coming into the financial crisis, 
jumped to about 70 after the financial crisis. We are now at 
100.
    Mr. Grothman. Right, so easily the most. Next thing I want 
to comment about GDP itself. We calculate that GDP is supposed 
to be a measure, I guess, of the wealth in society, OK? But if 
the government spends money on something, say that government 
spends money on childcare, the government spends money on some 
green initiative, something that not by itself is increasing 
the wealth of American society, or the government just spends 
more money on government bureaucrats, the government spends 
more money on IRS agents, what effect does that have on GDP?
    Mr. Holtz-Eakin. So, GDP is actually not a wealth measure. 
It is a measure of the----
    Mr. Grothman. I mean----
    Mr. Holtz-Eakin [continuing]. Production and goods and 
services in a year.
    Mr. Grothman. Right.
    Mr. Holtz-Eakin. It is an income----
    Mr. Grothman. Measure of income, right?
    Mr. Holtz-Eakin. It is an income measure, and one way to 
measure the income is to add up how it is spent. And so, if it 
is spent on government bureaucrats, or childcare, or something, 
that is one way to get a measure of it. Another way to get a 
measure of it is to look at all the people who are contributing 
to producing it, look at their wages, and their profits, and 
their rents, and things like that. So, those measures are just 
accounting classification.
    Mr. Grothman. Right. I guess the point I am trying to make 
is, normally when you say a country's GDP is expanding, you 
think of more cars, more houses, more dinners out or something, 
not just expanding government bureaucrats, but for the purpose 
of GDP, we are including things like hiring new bureaucrats, 
that sort of thing.
    Mr. Holtz-Eakin. Correct.
    Mr. Grothman. OK. Well, just kind of question here for you 
on just the Fed in general and something that the press has not 
adequately reported. When this COVID thing broke, we met with 
the Fed, or at least with Powell, and we were encouraged to 
spend as much as we could. And we were told that that would not 
lead to inflation, which I thought was preposterous at the 
time, but that is what we were told. Could you comment on that 
philosophy that spending recklessly, at least when we are in 
a--what do they call it, depression, recession, whatever--could 
not lead to inflation?
    Mr. Holtz-Eakin. I think that reflects two things. One was 
really the, I think, the recent history of the Fed coming out 
of the financial crisis where it felt that fiscal policy was 
not being used, and that all of the responsibility was up to 
the Fed to generate growth. And it simply can't do that, and it 
was unable to do that, and so it wanted some help in the face 
of a downtrend. That is point No. 1. Point No. 2 is, the Fed 
had publicly been quite celebratory of its tactic of keeping 
monetary policy quite accommodative, in like 2019, late in the 
cycle, and having unemployment get to record-low levels without 
generating inflation. And I think it believed that it was going 
back to a war world inflation, just wasn't going to where it 
said, but it was an error, and they have since admitted it was 
an error in judgment.
    Mr. Grothman. OK. Quick other things. In this budget, we 
have an increase in a variety of taxes, so I am going to ask 
you to comment on two things, first of all, because capital 
moves about. When we raise marginal rates in this country 
compared to other countries, what effect does that have on GDP?
    Mr. Holtz-Eakin. We lose capital to produce goods and 
services, and so it diminishes future GDP on the supply side.
    Mr. Grothman. So, it affects growth, right?
    Mr. Holtz-Eakin. Yes.
    Mr. Grothman. Rates, marginal rates and affects growth. 
Next thing along those lines, if we increase marginal rates, 
what effect does that have on wealth within the country? In 
other words, say, on an individual, and I am just kind of 
speaking the Laffer Curve here, that sort of thing. I wonder if 
you could comment on the effect of increased rates, be it on 
corporate business level or individual level?
    Mr. Holtz-Eakin. Well, I would be happy to get back to at 
length on the individual pieces, but I would just point out the 
corporate rate reverses something which is an undisguised 
success. Getting the U.S. rate down has changed the situation 
formula. We lost 10 headquarters a year on average in the 
decade leading up to 2017. We haven't lost a single U.S. 
headquarters since, and, indeed, the one company that was 
leaving then came back. So, these do affect location decisions, 
and we should be cognizant of that.
    Mr. Grothman. Thank you.
    Mrs. McClain. Thank you. I want to thank my colleagues for 
pointing out that the President's budget reduces the deficit by 
$3 trillion. Another interesting fact I would like to add is 
the President's budget actually increases taxes by 4.5 
trillion. Interesting, it only reduces the deficit by 3 
trillion. But with that said, I would like to recognize the 
gentlewoman from Texas, Ms. Crockett.
    Ms. Crockett. Thank you so much, Madam Chair, and thank you 
so much to all of you for being here. You definitely make me so 
happy that I did not do the economist side of things as I was 
supposed to do as a business major. So nevertheless, I just 
want to be clear about a few things because I feel as if the 
conversation is veering off in a couple of different ways. Can 
I have each of you agree with me or just say you disagree that 
inflation is a multifaceted issue? Yes or no.
    Mr. Holtz-Eakin. I am not even sure I understand the 
question, but I will say yes.
    Ms. Crockett. OK. Dr. Taylor?
    Mr. Taylor. It is multifaceted, but there are a few things 
that we know is a big factor in inflation, is the Fed.
    Ms. Crockett. OK.
    Mr. Konczal. Multiple causes to our current inflation.
    Ms. Crockett. OK. Perfect. Along with that, would you all 
agree with me that the inflation that we are experiencing in 
the United States is not solely because of one person being in 
the White House, but this is inflation that has affected the 
entire world? Yes or no. I will start it this way.
    Mr. Konczal. As of 2022, U.S. is not an outlier. There is 
an increase in inflation.
    Ms. Crockett. Thank you so much.
    Mr. Taylor. So, I think it is the Federal Reserve, and they 
have been followed now too slowly by the ECB and the other 
countries in Latin America. It is a global phenomenon.
    Ms. Crockett. Thank you so much.
    Mr. Holtz-Eakin. It is global.
    Ms. Crockett. Thank you so much, and I would agree with you 
that it is global. And I had the privilege of traveling on our 
last district work weekend, and I left the country, and I had 
some conversations about what they were experiencing 
economically, as well as conversations about how, say, those 
that threatened not to raise the debt ceiling, which I know we 
are not here to talk about that. But we have conflated the 
budget with debt ceiling conversations continually, so I just 
decided I will go ahead and conflate, continue on with the 
tradition of this House.
    But in talking to them, I was curious to know, what did 
inflation look like to you, and surprisingly, it looked a lot 
like what it looked like here. They talked about supply chain 
issues as it relates to food. They talked about the war in 
Ukraine. I will admit that they did not talk about healthcare 
as much because, you know, in fact, I believe, in your opening 
statement, you mentioned Europe. Europe actually has universal 
healthcare. So, when you look at, say, a pandemic, we didn't 
have as many people that did not have health coverage. And I 
know about lacking in health coverage because in the great 
state of Texas, we have over 5 million people that are not 
covered. That tends to drive costs up when we increased the 
demand so much on the system that was really already on the 
brink and we weren't providing coverage, but that is yet 
another issue for another day.
    I know there was just mention about tax cuts, and I will go 
to you. I am not going to slaughter your name. So, I am going 
to just go like this, right? So, the Trump tax cuts not only 
devastated this country's finances with deficits, but it also 
set the stage for inflation even before the pandemic. Would you 
agree with this statement or disagree?
    Mr. Konczal. I am not sure. I need to know more context. It 
did not provide any kind of increase in investment that 
economists have found, which have left us in a worse position 
for our infrastructure and for our ability to produce.
    Ms. Crockett. Absolutely. Thank you so much, and you would 
agree with me that it is important to invest. And let me ask 
you all this again because I like having all three of you all 
participate. You would agree with me that no one had a playbook 
for what to do in the midst of a pandemic, correct, in order to 
make sure we didn't suffer from the inflation that we are 
seeing?
    Mr. Holtz-Eakin. I guess I would tend to disagree. I think 
that in March 2020, what the Fed saw very clearly was across 
the economy--cash-flow crunches, liquidity crunches in the 
lingo--because the customers disappeared while hiding from the 
virus. And the Fed knows how to deal with liquidity shortages, 
and it dealt with them, and that was a playbook they ran from 
the financial crisis.
    Ms. Crockett. I didn't want to get into it back and forth. 
I guess I am not going to get to you all because we only got 40 
seconds. But for instance, I live in Dallas, and I believe that 
there is housing crisis all over the country. There are plenty 
of people we know right now. Commercial businesses are still 
complaining about the fact that people aren't going into the 
businesses, right? And so, we know that our work force has 
actually morphed into something else.
    There are people that saw an opportunity to be able to take 
care of their children, and stay at home and work, and save 
that money. Would you not agree that there had been actually a 
shift? Right now, what I hear from small business owners is 
they don't have a work force, so I don't think that the Fed can 
fix that or fix that person that, say, has a preexisting 
condition and decides, I don't want to risk my life by going to 
work. Do you think that changing the Fed rate can fix those 
types of things that were going on, which is why my first 
question was? Do you not agree that this was a multifaceted 
issue?
    Mr. Holtz-Eakin. So, the Fed can't control supply issues, 
and labor force participation is part of the aggregate supply 
issues. It can only control demand issues through the 
quantitative tightening, buying back the bond, selling off the 
bonds, and raising rates.
    Mrs. McClain. Thank you. The Chair recognizes the gentleman 
from South Carolina, Mr. Fry.
    Mr. Fry. Thank you, Madam Chair, for having this hearing 
today. Thank you to the panel for your time and your testimony. 
I really appreciate that. I am glad that we are having this 
hearing. I think it is really important.
    I am a freshman and when we are running, we talk to people 
in our districts about what they face, and they are seeing 40-
year high inflation. They are seeing gas prices are up, grocery 
prices are through the roof, pantry staples such as eggs, 
butter, milk, chicken, have skyrocketed. And what is even 
worse, I think, is that in the district that I represent, that 
is home to 163,000 retired seniors, 1 in 6 seniors in America 
are considering returning to work because they can no longer 
afford the rising cost of living. I think about that. I think 
about the middle-income Americans on fixed incomes. I think 
about seniors who are on fixed incomes. Dr. Holtz-Eakin, you 
previously testified in February 2021 that the American Rescue 
Plan injected too large of a stimulus into the American 
economy. Can you elaborate on that?
    Mr. Holtz-Eakin. Certainly. The bill, when proposed, came 
at a time when the weekly and monthly data that we received 
suggested the economy is growing quite rapidly. A good summary 
of this is something produced by the Atlanta Fed known as 
GDPNow, which sort of gives you an estimate of what is the 
current growth rate is in the quarter for GDP, and it was at 
6.5 percent. So, this was not the same as March 2020 when the 
economy was falling at a rate that ultimately contracted by 
nearly 10 full percentage points in a single quarter, was 
extraordinary. So, we are in a completely different situation. 
We are growing quite rapidly, and we are getting close to full 
employment. We are getting close to potential GDP, and there is 
no reason to have a nearly $2 trillion stimulus. It is way too 
big for whatever problem you might have imagined remained, and 
so it was going to be a big macroeconomic error.
    Mr. Fry. Do you still two years later maintain that same 
assessment that the American Rescue Plan overstimulated the 
economy?
    Mr. Holtz-Eakin. Absolutely.
    Mr. Fry. Is there anything from your original assessment to 
now that has changed in that?
    Mr. Holtz-Eakin. Oh yes, I got one piece badly wrong. I 
thought the biggest fallout would be to repeat what we had seen 
in 2020. We passed the CARES Act, $2.5 trillion spending, and 
in May 2020, the U.S. savings rate went to 33 percent. That is 
positively un-American. We do not save a third of every dollar, 
and that then flowed into asset classes, and we saw, broadly, 
equities were up. Housing was up. That is when crypto first 
became a big deal. Every asset class got inflated. Saw the same 
phenomenon after the December 2020, $900 billion stimulus.
    And so, I was afraid, on the heels of that, with all of 
this money flow into asset price inflation, the Fed would take 
a look at a whole bunch of asset bubbles, and have to just pull 
the plug on them and raise rates sharply, and we would have a 
recession in the immediate aftermath of a terrible pandemic 
downturn. I thought that was sort of lining up to do that. I 
was wrong because the economy opened up at roughly the same 
time, the vaccines came online, and the money came out of the 
asset classes and into the consumer purchases and became 
consumer price inflation instead.
    Mr. Fry. Do you think that the Inflation Reduction Act, in 
fact, reduced inflation?
    Mr. Holtz-Eakin. No single act reduces inflation. Its 
contribution was minimal. At best, it was $300 billion in 
deficit reduction backloaded, so it was going to be five years 
off, and we hope the Fed has got us at two percent well before 
that. At the same time the Inflation Reduction Act was being 
considered, Congress passed the CHIPS and Science Act, $300 
billion of pure deficit-financed spending, the PATH Act, up to 
$600 billion dollars by CBO's estimate of pure deficit finance 
spending. It is the cumulative spending and tax cuts by the 
Congress that matter for inflation, and in 2022, it continued 
to produce inflationary pressures.
    Mr. Fry. So, will the subsidies--you are testifying, your 
testimony is that the subsidies included in those packages 
increase those inflationary pressures?
    Mr. Holtz-Eakin. They pale in comparison to doing $2 
trillion in a month, but they are of the same type.
    Mr. Fry. Right, but all three of those collectively and 
even individually cause that inflationary pressure?
    Mr. Holtz-Eakin. Continually. No question.
    Mr. Fry. Madam Chair, thank you, and I yield back the 
balance of my time to you.
    Mrs. McClain. Thank you. The Chair recognizes the 
gentlelady from Vermont, Ms. Balint.
    Ms. Balint. Thank you, Madam Chair. Last year, as so many 
Vermont families like mine saw their grocery bills, their gas 
bills skyrocket, we know that many American companies were 
posting record profits. And according to a staff analysis by 
the Subcommittee on Economic and Consumer Policy this past 
fall, there is clear evidence that shows record price hikes, 
record profits, profit margins that not only helped to drive 
inflation, but are also continuing to keep prices high.
    So, from 1979 to 2019, profits contributed to only 11 
percent--11 percent--of price growth in the United States, but 
from the second quarter of 2020 through the end of 2021, 
profits accounted for roughly 54 percent of price increases. 
Four of the largest meatpacking companies saw profits increase 
by 134 percent between 2019 and 2021. The two largest public 
companies and the rental car industry enjoyed a 597 percent 
increase in profits. Three of the biggest shipping companies 
saw profits raise by--wait for it because I couldn't believe 
it, had to go back and check--nearly 30,000 percent--nearly 
30,000 percent. I know that the Vermonters, because Vermonters 
watch C-SPAN--Vermonters watch this, they are howling at 30,000 
percent. It is not in their minds that they are being fleeced. 
They are absolutely being fleeced. The Subcommittee analysis 
detailed numerous instances in which companies were using 
inflation as an excuse to justify jacking up their prices and 
forcing consumers to pay more to pad their profit margins.
    So, Mr. Konczal, am I pronouncing your name right? Mr. 
Konczal, why did we see such a significant unconscionable 
increase in excess corporate profits in this time period?
    Mr. Konczal. I think inflation was reflected in corporate 
profits for a couple of different reasons. One was the shift 
from services to goods. I think when you have the kind of 
supply chain problems we have that ends up with higher prices, 
it is moderated through prices. I think there is some evidence, 
or at least there is certainly something worth looking at more 
formally, about whether or not firms have used the opportunity 
of this crisis and reopening to raise prices a little bit 
higher than they would have otherwise.
    I think a lot of economists and certainly a lot of 
financial analysts are a little surprised that the margins, 
corporations, their profit margins have not declined throughout 
2022 and still seem like they might not even decline for quite 
some time. Even a little bit of a decline in those margins 
through competition, through proper regulatory scrutiny, would 
allow inflation to come down while the labor markets still stay 
strong. I think it is in general, and also, I think it is worth 
noting that we don't see workers or wages really leading this 
inflation, like some argue that happened in the 1970's. This is 
really being reflected on the corporate side.
    Ms. Balint. I really appreciate that. I have to bring up 
what I hear when I travel around Vermont. We have a lot of 
general stores in Vermont. These are little mom-and-pop shops. 
They are trying to sell groceries in these tiny rural 
communities. And I talked to them, and they say what is 
happening at the corporate level is disgusting. These are not 
necessarily Democrats that are saying this. There are people 
across the political spectrum who are trying to feed the people 
in their communities.
    And so, I wanted to go back to something that I saw. Again, 
it is really hard to believe some of this stuff. The 
Subcommittee analysis also found examples of corporate 
executives essentially admitting to using inflation as a cover 
for massive price hikes. We had one executive, make sure I get 
this right, executive from Kroger saying, ``Hey, a little bit 
of inflation is always good in our business.'' We had another 
one saying, this one was from industrial sealants, ``We don't 
reduce prices on the back of these increases. We are going to 
see what the consumer will bear.'' Other people said that. I 
could go on and on.
    So, the question to you is when we are trying to convey to 
our constituents back home why it is that they are still seeing 
incredible inflation right now, like, how do you articulate for 
them, regular people, because that is why I ran for office, to 
show up as a regular person here. How do I explain to them a 
30,000 profit increase? How do I explain that?
    Mr. Konczal. I think it is very hard to explain. I mean, in 
that specific case, I would explain that the ports have been 
disinvested in for decades, that our infrastructure is not the 
capacity it needs. And that is why we needed to make important 
investments to be able to have the access to ports and capacity 
that we need to handle those specific problems. More generally, 
people are going to debate why inflation went up, but the fact 
that corporate profits remained so high and so elevated, it is 
part of the reason inflation is not going to come down as 
quickly as it should.
    Ms. Balint. Thank you. I yield back.
    Mrs. McClain. Thank you. The Chair recognizes the gentleman 
from New York, Mr. Langworthy.
    Mr. Langworthy. Well, thank you so much, Madam Chairwoman, 
and thank you so much for our witnesses and the testimony that 
you have presented here today.
    One of the great areas of concern in my district, in the 
23d congressional District in New York, which is large swaths 
of agricultural territory in the New York-Pennsylvania line 
along with the suburbs of Erie County and in Buffalo, is the 
high cost of energy. And, Dr. Holtz-Eakin, are you aware that 
the prices of American home heating this year rose by more than 
27 percent?
    Mr. Holtz-Eakin. Sounds about right, yes.
    Mr. Langworthy. It has been something that people across 
upstate New York have been gravely concerned about while they 
are struggling with some of the proposals at the state and 
Federal level of reforms and changes to the way we heat our 
homes. The other concern is mandates on electric vehicles into 
the future. I have questions. Do you think that President 
Biden's recommendation to Americans that one of their ways to 
reduce energy prices is for them to go out, buy an electric 
car? Do you think that that is a legitimate solution for most 
Americans?
    Mr. Holtz-Eakin. A, the price point on electric cars is 
well above mass penetration. It is not going to happen that 
fast, so the magnitudes are all wrong. It is not going to do 
anything substantial. It is a single price. Again, the 
inflation phenomenon is prices across the economy, all goods 
and services rising at the same time. And so, picking out 
individual items and focusing on them, which is something 
people do a lot, misses the larger point. We have prices going 
up everywhere.
    Mr. Langworthy. Right. I think you bring up a great point. 
I mean, estimates have the cost of an electric vehicle between 
$45,000 and $50,000, on average. A median household income is 
$50,000 to $55,000, and that is with Federal subsidy involved. 
Instead of recommending that Americans spend almost every 
single penny of their income on an electric vehicle, do you 
believe that the Biden administration should instead be focused 
on increasing American energy production at all different 
levels?
    Mr. Holtz-Eakin. I think the strategy which they have 
undertaken on the climate front is an extremely unwise one and 
quite risky. I mean, it basically says we are going to have the 
cleanest electricity sector on the globe. And we are going to 
send that electricity across the grid that doesn't exist to 
power every home, industrial plant, vehicle in the United 
States, and that is betting the ranch on one solution, which 
isn't smart. If you let markets decide things, they will 
diversify and come up with lots of solutions, so I think it is 
not a wise strategy.
    It is also quite troubling from a sort of matching it up to 
the research literature, in any serious study of the economics 
of climate change. Natural gas is the bridge fuel, and natural 
gas is a focus for decades during the transition to cleaner 
energy portfolio. So, to take it off the table in 2021, 2022, 
makes no sense whatsoever.
    Mr. Langworthy. I am glad that you brought up natural gas 
because in my state of New York, in my actual congressional 
district, the Marcellus Shale runs right under the ground in 
the southern tier counties of New York and Pennsylvania does 
safely----
    Mr. Holtz-Eakin. As a native of Pittsburgh, we want to 
thank New York for their policies.
    Mr. Langworthy. But, unfortunately, you are right. In 2015, 
our former Governor, Andrew Cuomo, announced a moratorium on 
the safe pumping of natural gas, making New York as the first 
state with this significant shale resources to do so. In your 
opinion, could ending bans on fracking in states like New York, 
could that increase American energy production?
    Mr. Holtz-Eakin. It would. We have actually already seen 
this from about 2008 to 2012. The hydraulic fracturing and 
horizontal drilling revolution generated a North American 
energy supply expansion that made us the preeminent source on 
the globe, and it was also an enormous source of economic 
growth at that time.
    Mr. Langworthy. That is right. Do you believe that the jobs 
created by domestic production of oil and natural gas could 
benefit Americans in the economy as a whole, and can it 
actually bring down inflation?
    Mr. Holtz-Eakin. Now, again, it is energy. It is energy 
prices, not oil prices, but it is a crucial input. When we see 
global oil prices go up, we see fertilizer costs go up, we see 
all sorts of cost pressures that have to get passed along to 
consumers, so it can contribute.
    Mr. Langworthy. OK. Do you believe that the anti-fossil 
fuel, political leaders that are restricting the supply of oil 
by opposing oil investment, oil production, oil transport, that 
they are causing energy prices to rise?
    Mr. Holtz-Eakin. Global oil markets are always tightly 
balanced, and so small variations in supply and demand produce 
big price swings. And so that certainly has had an impact over 
the past several years.
    Mr. Langworthy. Very good. Thank you very much, and I yield 
back.
    Mrs. McClain. Thank you. The Chair recognizes the gentleman 
from Missouri, Mr. Burlison.
    Mr. Burlison. Thank you, Madam Chair. Thank you for coming. 
I really appreciate it.
    I think that when we are looking at this situation with all 
this unbelievable inflation that we are experiencing, right, 
and consumers are suffering, the question is, what do we do 
about it? To me, the answer is, how do we grow our way out of 
this, right? How do we increase productivity, increase the 
production of eggs so that the price per egg drops? I mean, 
this is simple supply and demand economics, right? So, the 
question is what do we need to do as policymakers to figure out 
how to motivate, whether it is a farmer that wants to invest in 
more chicken production or someone who wants to invest in more 
energy production? What kind of things can we do as a policy to 
ramp up productivity?
    Mr. Taylor. First of all, you don't increase taxes. That is 
maybe the first thing and that will----
    Mr. Burlison. Wait. Wait. Can you repeat that?
    Mr. Taylor. You don't increase taxes.
    Mr. Burlison. OK. And elaborate on that?
    Mr. Taylor. Well, taxes are a drag. It reduces 
productivity. It is not a good thing to do, especially in a 
situation we are now. We have a productivity problem.
    Mr. Burlison. So, if we were to decrease taxes, then all of 
those evil companies that have profit, they would, instead of 
investing that profit into future production, future mining 
operations, future chicken farms, they would hoard the money, 
right, hoard the profits, or they are more likely to do that, 
right?
    Mr. Taylor. They are interested in making profit, so use 
the money most effectively.
    Mr. Burlison. Right.
    Mr. Taylor. Let me say because you began by saying 
inflation is a problem, and so many of your colleagues have 
said inflation is a problem. It is a problem, but it is not 
necessarily related to these profits. It is a different 
subject.
    Mr. Burlison. Right.
    Mr. Taylor. It is monetary policy.
    Mr. Burlison. Right.
    Mr. Taylor. I mean, you can see it, such as the U.S. is all 
over the place. So, this Congress used to have efforts to try 
to have the Fed report more on what it is doing. That seemed to 
disappear. I think it should come back because in a sense, I am 
not the best person to answer your questions. I am not at the 
Federal Reserve Board. Those are the people who can answer your 
questions, and if you had a specific requirement that they say 
what they are doing, it will be much easier for you.
    Mr. Burlison. But going back to my question, though, is 
other policies. Mr. Konczal?
    Mr. Konczal. That was right.
    Mr. Burlison. How do we increase productivity?
    Mr. Konczal. There are a lot of ways. To increase overall 
growth, I think increasing the labor force, that is through 
immigration, through bringing more people into the work force. 
There are a lot of different ways to do that. I think housing 
has been a real lag on productivity, so ways that we can 
intervene to make it easier to build more housing, particularly 
in places that are pretty housing constrained.
    Mr. Burlison. So, what would that mean? Reducing 
regulations, reducing the tax burden on people who are 
developing?
    Mr. Konczal. I mean, it is fundamentally a local zoning 
issue, so it is very hard to do at the Federal level, but I 
know a lot of policymakers who are thinking very hard about 
this.
    Mr. Burlison. OK. Dr. Holtz-Eakin, your comments on that? 
How do we ramp up productivity in the United States?
    Mr. Holtz-Eakin. You don't, but firms have every interest 
in being more productive.
    Mr. Burlison. I guess I should ask, how do I, how do we 
incentivize private actors to ramp up productivity?
    Mr. Holtz-Eakin. You want to have an environment which has 
good incentives for the deployment of risky capital into 
innovation, physical capital accumulation, human capital 
accumulation. That means setting the tax rules and keeping 
them, not moving around. Having sunsets is a bad idea.
    Mr. Burlison. Creating certainty.
    Mr. Holtz-Eakin. The regulatory burden, I think, is an 
underappreciated issue, and at AF, we keep track of the cost of 
every regulation issued by the Federal Government, and there 
have been some remarkable changes over the years. In the Obama 
Administration, the average cost to regulation, $1.1 per day 
every day for eight straight years, $890 billion of self-
reported regulatory costs. That is a $900 billion still tax 
increase. Trump administration, essentially zero over four 
years. First year, the Biden administration, $200 billion 
regulatory costs. That cost goes somewhere, and it goes into 
inflation. It comes at the expense of productive investments. 
So, having a more sane regulatory environment, having a stable 
set of tax rules all would help firms decide what will be 
productive, and the productivity will take care of itself.
    Mr. Burlison. I appreciate it. Thank you.
    Mrs. McClain. Thank you. The Chair recognizes the Chairman 
of the full Committee from Kentucky, Mr. Comer.
    Chairman Comer. Thank you, Madam Chairman. Dr. Holtz-Eakin, 
do you agree that inflation is reflected more in corporate 
profit or corporate greed, as some of our friends on the other 
side of the aisle would refer, than it is for labor cost?
    Mr. Holtz-Eakin. No, I don't agree with that. We have done 
some work at AF on the sort of favorite measures of 
concentration and do they lead to higher prices. They do not. 
Do they lead to reduced competition in the form of entry? They 
do not. So, this line is at odds with the data.
    Chairman Comer. Can you explain why corporate profits are 
increasing in recent decades?
    Mr. Holtz-Eakin. I haven't done a specific study on that. I 
would be happy to get back to you.
    Chairman Comer. Would there be repercussions for reducing 
corporate profits for the sake of reducing inflation?
    Mr. Holtz-Eakin. Yes. The profit motive drives business 
decisionmaking, so you would be interfering with a lot.
    Chairman Comer. Dr. Taylor, would you advise the Fed to 
take a wait-and-see approach raising interest rates because of 
the tightening labor market?
    Mr. Taylor. No, I think it is pretty clear they need to 
move ahead. They began to talk about it recently. The question 
is how far. I say six percent in my testimony. I think that is 
a place to go, and it would be beneficial to the economy. It 
will increase growth and reduce the chances of a serious 
recession later.
    Chairman Comer. So, what would you say the most important 
way to fight inflation would be? What is the silver bullet 
there because the media wasn't as interested in inflation 
during the last administration, and they came to the summary, 
many in the media, that the Inflation Reduction Act actually 
would reduce inflation. Obviously, it has not. So, what would 
you say the most important way to fight inflation would be?
    Mr. Taylor. So, I think that the problem is the Federal 
Reserve. And globally, you have the European Central Bank, you 
have other central banks around the world, which are tending to 
follow the Fed to some extent as they have in the past. That is 
an important thing, so the focus should be the Fed. And as I 
mentioned, this Congress used to have policies that will 
require more reporting. That is why the Fed has reported a 
little bit more, but that could go further so you would get 
explicit answer from them. Why did you have the interest rate 
zero for so long? It was the feeling, that kind of thing, and 
they haven't answered that.
    Chairman Comer. I couldn't agree more. I couldn't agree 
more. So, last question, just to follow up, does investing in 
infrastructure and housing reduce inflation because I think 
that is something the President has implied. Like if we invest 
more money in housing and infrastructure, will that reduce 
inflation?
    Mr. Taylor. So, it will reduce inflation for some goods, 
but it might increase otherwise. I think you have to think 
about inflation, as Doug indicated, it is a measure of all 
prices, and this two percent just doesn't choose a few. And so, 
all the things that have been mentioned in this hearing are 
hoping there is one particular issue, but it is a broader set 
of issues.
    Chairman Comer. And talking about having to raise interest 
rates, obviously, one reason you raise interest rate is to 
fight inflation. But when you raise interest rates, that 
reduces new home builds, new housing starts. That makes housing 
less affordable as opposed to more affordable just simply by 
supply and demand. I think that is something to point out. Go 
ahead, Dr. Taylor, you can finish, and then Dr. Holtz, you can.
    Mr. Taylor. What we have learned about monetary policy, if 
it is clear what is happening, it doesn't have to be these 
crunches. People realize that interest rates will be a little 
higher, but that will be good because inflation comes down, so 
they think about this whole process. The more communicative the 
Fed can be, the more you can participate in this discussion, 
the better this will work, and you wouldn't have the bad 
circumstance you are referring to.
    Mr. Holtz-Eakin. So, I want to agree with that. I mean, the 
idea is to have them look past what is happening right now 
toward a rule that will show a path of future interest rates, 
and they can plan the whole lifecycle, the construction, and 
the sale, and all of that. In the absence of that, the idea 
that right now, if the Federal Government just goes out and 
engineer a residential construction boom, that will somehow be 
effective in fighting inflation, misses the fact that the Fed 
is trying to stop residential construction.
    And if you start trying to build it, they will raise rates 
more because when they reduce residential construction, that 
transmits monetary policies to a big swath of the economy. You 
don't buy refrigerators to put in the houses, you don't buy 
furnaces to put in them, you don't carpet them, and that is a 
traditional route for the Fed to influence the demand for 
goods, especially in the economy. So, to fight the Fed, when 
you are asking it to deal with inflation is not good policy.
    Chairman Comer. Right. Exactly. Madam Chair, I yield back. 
Thank you for this very substantive Committee hearing.
    Mrs. McClain. Thank you, and now the Chair recognizes the 
gentlewoman from California, Ms. Porter.
    Ms. Porter. Thank you very much.
    If we want to understand the multifaceted root causes of 
inflation, it is important we lay out some basic economics. You 
all know this, but I want to make sure the American people do, 
and we have a great panel to help us learn.
    So, Mr. Konczal, I am going to have you help me with this 
basic economics 101, supply and demand situation. So, here is 
the basic model on economics that helps us determine how much 
real GDP an economy produces, and at what price level. So, what 
are these lines on the graph? The supply line, long-range 
aggregate supply shows us how much real GDP an economy can 
supply at different price levels. And the demand curve, 
aggregate demand right here, shows us how much real GDP people 
are willing to consume at different price levels. Where these 
curves intersect, that shows how much real GDP our economy 
generates and what prices people are going to face. So, what 
causes inflation? What happens when we change this 
intersection? Let's demonstrate. So, Mr. Konczal, what does 
increased government spending do to the demand curve?
    Mr. Konczal. It would increase. It would move it to the 
right.
    Ms. Porter. It would move it over here, so this is what 
happens when you increase government spending. Everyone see? 
Prices go up. All right. What happens to the demand curve if 
the government, say, increases taxes on wealthy Americans?
    Mr. Konczal. It would move the demand curve to the left and 
decrease the price level.
    Ms. Porter. Prices would go down. OK. So, let's combine 
these two effects. What would happen if you increased 
government spending, but you paid for it all with taxes on the 
wealthy?
    Mr. Konczal. In general, it would not have an effect.
    Ms. Porter. So unclear, but indeterminate, could balance 
each other out depending on the scope and size of those 
spendings. So, when you have legislation that puts money in the 
hands of people who need it, say, during a pandemic, but you 
make sure you are getting at least that much back from taxes on 
rich people, you should not see much aggregate meaningful 
inflation. Now, it is even more promising for inflation when 
the legislation generates surplus tax revenue that might even 
be able to help cool inflation. Can you raise your hand, all 
three of you, if you agree that the Inflation Reduction Act 
followed the basic anti-inflationary principle of putting money 
in people's hands, but raising taxes on the wealthy? Anybody? 
One. Mr. Konczal.
    So, Mr. Holtz-Eakin, you are here to advise Congress about 
how to contain inflation, and the best hint I got from your 
testimony is on page one. You said, ``Congress should not 
further exacerbate inflation through excessive spending,'' and 
you said there is no good option. When we get to inflation, it 
is all tough. So, what is next? How are we going to reduce 
inflation without inflicting pain on working families and 
seniors?
    Mr. Holtz-Eakin. So, I say this lovingly, but please don't 
try. I think that this is the Fed's problem that you have 
delegated to the Fed and given it a mandate for full employment 
price stability, and you should let them pursue that mandate, 
review their efforts with oversight hearings. That is exactly 
the right thing to do. And you should think about setting the 
parameters for fiscal policy, the tax structure, the tax 
levels, the kinds of spending programs we have to maximize 
long-run economic growth, and not move them back and forth 
quickly to try to respond to whatever is going on this year, 
next year. Congress is not well suited for that. It is much 
more suited for the long-run growth potential for the economy, 
and so that is an allocation of roles, I think, would be 
preferable.
    Ms. Porter. So, for example, investing in things like 
infrastructure, that is a long-term growth?
    Mr. Holtz-Eakin. Where appropriate, yes. Where appropriate, 
yes.
    Ms. Porter. Where appropriate to invest in that. So, I 
think as we sort of wrap up this, I think, really productive 
hearing with an amazing all-star, and let me just say, 
intimidating witness panel. I want to sort of go through what I 
think are the key takeaways. It doesn't cause inflation to make 
paid-for investments in working families. If you pay for them, 
if you take the money out of the economy with taxes, and you 
put it back in other places, that is allocative, but on 
aggregate, if you get it right, it shouldn't cause inflation. 
That is what that curve, that chart was showing. It is a good 
idea to make wealthy pay their fair share, to pay off the 
national debt, and help cool inflation. We take some of that 
surplus tax revenue, we can actually use it to cool inflation.
    Democrats' Inflation Reduction Act, you two didn't agree, 
but I think it basically met that basic principle of doing 
those two things: making investments in families and making the 
wealthy pay their fair share. And the fourth thing is, I don't 
think, and I really appreciate your honesty, Dr. Holtz-Eakin, 
there really isn't a secret Republican plan or Democratic plan 
for that matter, to fight inflation. There is no easy way to do 
this without punishing hardworking American families, so the 
solution here isn't to cut spending programs that people rely 
on. The solution here is to try to support families as we get 
through this really difficult economic period and let our 
economy try to find its way back to a level of inflation. That 
is less painful than where we find each other today. So, I 
yield back and thank the Chairwoman for her indulgence.
    Mrs. McClain. I thank my colleague for her comments, and 
right now, I will recognize the Ranking Member, Ms. Porter, for 
her closing statement.
    Ms. Porter. Thank you again, Madam Chairwoman, and thank 
you again, for all of our witnesses. I think you probably know 
that I don't flatter witnesses unnecessarily. You really are an 
all-star panel, and we really are grateful for you being here 
today.
    Look, I am a single mom with three school-aged kids, and 
like all of you, I am tired of what is happening at the grocery 
store. It used to be fun, and now it is just tough to go in 
there. I am tired of feeling the sticker shock and putting the 
cereal back on the shelves because we can't afford it. I am 
tired of searching for coupons and finding that there aren't 
any to help me bring down prices. I am deeply invested in 
trying to rein in inflation for constituents and for my own 
family. But when we talk about inflation, we need to do it 
justice by not oversimplifying. And today, what many Democrats 
have tried to do is demonstrate that calling inflation a 
preventable crisis is an oversimplification.
    Now, it is our job in Congress to set aside the partisan 
games and try to get to work. Inflation is complex. It is 
multifaceted, and there are certainly tools that government, 
sometimes Congress, but, as you suggested, often not Congress, 
can use to try to address inflation. We can keep making our tax 
code more fair. We can crack down on tax cheats so that we 
increase tax revenue, can pay down debt, can cool inflation. We 
can keep fighting corporate monopolies so that our markets can 
be more competitive and can deliver lower costs. That is really 
the promise of a capitalist economy. We can keep shoring up 
supply chains, bringing manufacturing back home, and helping 
smooth the transport of goods to market. We can invest in long-
term structural investments that will do right by our economy, 
things like infrastructure, things like renewable energy, 
because these investments pay off in the long run with lower 
costs for families and a stronger, more stable, more resilient 
economy that is less vulnerable to inflationary shocks.
    It is possible to do all of these things together, but we 
can't use inflation as a convenient scapegoat to cut programs 
that seniors and kids and families rely on. Wherever Committee 
Republicans land, and I hope the chairwoman will address that, 
the American people should know that Committee Democrats are 
going to continue to work tirelessly toward thinking about how 
to navigate this inflationary period while honoring our 
commitment to make life better for the American people. I yield 
back.
    Mrs. McClain. Thank you, Ms. Porter, and thank you for 
conducting my first oversight hearing with me. I appreciate it. 
I look forward to working with you in the future to come up 
with some commonsense solutions to help the American people 
move forward.
    I now recognize myself for the closing statements.
    I would agree that we are not here to talk about cuts. That 
is not our plan, but I first feel that we need to start talking 
about the causes of what got us in this situation. So, we are 
not going to repeat the same thing over and over again because 
if we can learn from the past, we can have a brighter future, 
and I think that is what both sides of the aisle are trying to 
do for the American people. I can assure you that is what I am 
trying to do, but we must learn from our mistakes so we are not 
deemed to repeat them in the future.
    Today's hearing has illustrated how important actually 
facts are over fiction, and we need to stop with the messaging 
and take a look at the facts. When the pandemic hit in March 
2020, inflation was 1.5 percent as compared to the prior year. 
When Biden took office in January 2021, inflation was at 1.4 
percent, compared to the previous year. That is just a fact. On 
March 11, 2021, Democrats jammed through $1.9 trillion American 
Rescue Plan. By April, inflation had risen from 1.4 percent to 
4.2 percent. By December, inflation was at seven percent. By 
June 2022, inflation was at 9.1 percent. The Biden 
administration and congressional Democrats did not stop there. 
On August 16, 2022, the $740 billion Inflation Reduction Act 
was signed into law, again, inflation. Too many dollars chasing 
too few goods.
    We are just doubling down on the American people, yet 
Democrats have spent this entire hearing denying that inflation 
exists, claiming inflation is a high-class-only problem and 
blaming the corporations, who I might add, those corporations 
pay massive, massive amount of taxes. And what would happen to 
the taxes if corporations, because there is a third option, the 
corporations could just stop producing? And then who would pay 
the massive amount of taxes that the corporations pay because 
there is another option. We just don't ever want to talk about 
that.
    We cannot fix a problem of inflation until our colleagues 
recognize what all hard-working Americans recognize and what we 
are dealing with, and that is, inflation exists. The truth is 
Democrats' reckless spending caused the dramatic inflation, 
hurting millions of Americans. This isn't an opinion, this is a 
fact, and we need to learn from this fact, to not double down 
and make the same mistakes again.
    The data clearly illustrates that despite the destructive 
economic impacts of the pandemic, President Trump had the 
economy on a rapid path to recovery, 1.4 percent inflation, 
with his pro-growth and pro-economic policies. Yet Democrats 
choose to flood the economy with unnecessary--unnecessary--
remember, we passed, we infused money into the economy. We 
didn't spend it all, and we passed two more policies that put 
more money into the economy. I mean, we flooded the economy 
with unnecessary and wasteful spending, causing inflation to 
spike at a 40-year high and put the economy, I might add, on 
the brink of recession, no matter how you want to change the 
definition of a recession. My colleagues across the aisle must 
acknowledge that it is their inflationary crisis and recognize 
that Congress needs to immediately address it.
    So, I thank the witnesses for your time. You have been 
remarkable, all three of you. The wealth of knowledge that you 
three bring is amazing.
    And without objection, the Members will have five 
legislative days to submit materials and to submit additional 
written questions for the witnesses which will be forwarded to 
the witnesses for their responses.
    Mrs. McClain. If there are no further business, without 
objection, the Subcommittee stands adjourned. Thank you so 
much.
    [Whereupon, at 3:45 p.m., the Subcommittee was adjourned.]

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