[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
PRICES ON THE RISE: EXAMINING OF INFLATION
ON SMALL BUSINESSES
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JUNE 7, 2023
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-017
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
52-423 WASHINGTON : 2023
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HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MORGAN MCGARVEY, Kentucky
MARIE GLUESENKAMP PEREZ, Washington
HILLARY SCHOLTEN, Michigan
SHRI THANEDAR, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Roger Williams.............................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Mr. Gordon Gray, Vice President for Economic Policy, American
Action Forum, Washington, DC................................... 5
Ms. Silvia Saldana Lee, Executive Vice President and Chief
Lending Officer, First Community Bank, Corpus Christi, TX...... 6
Mr. Dave Zittel, President, Amos Zittel & Sons, Inc., Eden, NY... 8
Mr. Lyle J. Bivens, Chief Economist and Research Director, Policy
Institute (EPI), Washington, DC................................ 9
APPENDIX
Prepared Statements:
Mr. Gordon Gray, Vice President for Economic Policy, American
Action Forum, Washington, DC............................... 35
Ms. Silvia Saldana Lee, Executive Vice President and Chief
Lending Officer, First Community Bank, Corpus Christi, TX.. 43
Mr. Dave Zittel, President, Amos Zittel & Sons, Inc., Eden,
NY......................................................... 48
Mr. Lyle J. Bivens, Chief Economist and Research Director,
Policy Institute (EPI), Washington, DC..................... 52
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
PRICES ON THE RISE: EXAMINING THE
EFFECTS OF INFLATION ON SMALL
BUSINESSES
----------
WEDNESDAY, JUNE 7, 2023
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 2:01 p.m., in Room
2360, Rayburn House Office Building, Hon. Roger Williams
[chairman of the Committee] presiding.
Present: Representatives Williams, Luetkemeyer, Stauber,
Meuser, Mann, Ellzey, Molinaro, Alford, Bean, Hunt, LaLota,
Velazquez, Golden, Mfume, Phillips, Landsman, McGarvey,
Gluesenkamp, Perez, Scholten, Thanedar, Davids, and Pappas.
Chairman WILLIAMS. Good afternoon to everybody. And before
we begin, we're going to take a moment and ask Congressman
Meuser of the great state of Pennsylvania to lead us in our
opening prayer in the Pledge of Allegiance.
Mr. MEUSER. Please stand for the Pledge of Allegiance.
Chairman WILLIAMS. I now call the Committee on Small
Business to order without objection. The Chair is authorized to
declare recess of the committee at any time. I now recognize
myself for my opening statement. I'd like to welcome everyone
to today's hearing, where we will be examining the detrimental
effects inflation has had on main street America. I also want
to thank our witnesses for joining us today. Your time is
greatly valuable and we appreciate you being with us.
According to almost every small business economic survey,
inflation has been ranked as the owner's biggest concern going
back to 2021. They have been seen utility payments increase
because of skyrocketing energy prices, distributors charging
more to source materials because of supply chain disruptions,
and labor costs rising because of not being able to find
qualified workers. In all these instances, small businesses are
left with 2 options pass along these price increases to the
consumer, or absorb the cost and watch your operating profit
margins shrink.
The COVID-19 pandemic started this inflationary cycle that
we are still experiencing, but we have seen it prolonged by
reckless levels of government spending. The Federal Reserve
Bank of San Francisco did a study after the passage of the
partisan American Rescue Plan that showed government spending
made inflation in the United States spike more than other
developed economies. This should not come as a surprise to
anyone. There are going to be consequences when the Government
continues to stimulate the economy further than what is
necessary. This has led to a prolonged period of high prices
that has forced the Federal Reserve to raise interest rates to
tamper demand.
High interest rates have led to many additional problems
that are being faced by small businesses. The cost of getting a
loan has greatly increased, and now even the average SBA loan
is approaching 10 percent interest. This is forcing banks to
tighten their lending standards as they evaluate if it will
make sense to even extend the loan, and is forcing many
business owners to delay expansion plans because it simply is
too expensive in this environment.
There are a few things that I think will stop the runaway
inflation problem. First, we must stop reckless government
spending, as we say. We all know this was not a transitory
issue like so many people claimed when this started in 2021.
And we must get the Government's fiscal house in order. Second,
we must stop passing burdensome regulations when businesses are
forced to hire compliance officers, it is nothing but a drag on
a company's bottom line. And a third, we must find ways to
secure our supply chains and expand our domestic manufacturing
base, whether it be energy or food supply. We must reduce our
reliance on foreign influences.
In this hearing, I hope we will explore how each of your
businesses and industries have been dealing with this pressing
issue that has been affecting every American for the last few
years. As the voice for main street here in Washington, the
House Committee on Small Business will be working to create an
environment where businesses can thrive and where businesses
can grow. We are eager to find solutions that will help pave
the path towards success for both now and in the future. So, I
want to thank all of you again for being here with us today,
and I'm looking forward to today's conversation. With that, I
want to yield to our distinguished Ranking Member from New
York, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. The effect of
inflation on small businesses is no secret. It can dig into
margins and contribute to tighter monetary conditions, limiting
access to capital and the ability to grow and expand. However,
inflation is not a single threaded issue. It is a complex
dynamic of global events. The COVID-19 pandemic, supply chain
disruptions, labor shortages, monopolistic price gouging, and
geopolitical tensions have created a perfect storm of
inflationary pressures that are impacting main street. It is a
disservice to our nation's small firms to oversimplify this
issue, as a mere consequence of federal spending. We stand in
the middle of the global pack in terms of inflation rates.
Yet our recovery from the pandemic has been unparalleled.
Fiscal stimulus, like the Cares Act and the American Rescue
Plan, turned the deepest post World War II recession into the
shortest. Projections from Moody's Analytics predict that
without this relief U.S. GDP would have fallen 3 times its
actual rate, and we would have experienced a double dip
recession in early 2021. Today, we now enjoy unemployment rates
at 50 year lows, with GDP recovering to its prerecession trend,
something not seen in decades. According to the Federal
Reserve, the entire $5 trillion worth of fiscal stimulus
deployed in response to the pandemic contributed to only about
a third of total inflation. Therefore, we must consider the
many other drivers of inflation to create a comprehensive
policy response, not play political games.
First, our country has a history of outsourcing and supply
chain consolidation. While this made a few shareholders a lot
of money in good times, it made us increasingly vulnerable to
disruptions. Additionally, the increasing concentration of
industries over the past 30 years enabled corporate monopolies
to exploit their market power and dramatically increase
margins. Democrats focused on enhancing our domestic productive
capacity by passing the Infrastructure Investment and Jobs Act
to revitalize and bolster our supply chains. We passed the
Chips and Science Act to invest in innovation and create
resilient domestic supply chains. Finally, the Inflation
Reduction Act was enacted to lower health care and energy costs
for small businesses while making the U.S. a world leader in
clean energy and reducing our dependence on volatile global
energy markets. Clearly, there is more to be done, but we are
seeing encouraging signs of lower inflation, nearly cut in half
from last summer's peak.
While the only Republican plan to fight inflation is
draconian cut to our social safety net, democrats have
recognized the need to invest in the future to bring long term
stability to our small businesses. I thank all the witnesses
for their participation and look forward to hearing your
testimony. Mr. Chairman, I yield back.
Chairman WILLIAMS. Thank you very much, and I will now
introduce our witnesses. Our first witness this afternoon is
Mr. Gordon Gray. Mr. Gray is the Vice President for Economic
Policy at the American Action Forum, located in Washington, DC.
Prior to joining the American Action Forum, he was a
Professional Staff Member for the Senate Budget Committee
before working for Senator Rob Portman as a Senior Policy
Advisor.
Mr. Gray's portfolio includes the federal budget, taxes,
the macronomic outlook, and general economic policy. He has
testified as an expert witness before the multiple committees
in Congress on domestic and economic issues. Mr. Gray is a
graduate of Tufts University and has a degree in Political
Science. Mr. Gray, thank you for being here today, and we look
forward to hearing from you.
Our next witness here with us today is Silvia Saldana Lee.
Ms. Lee is the Executive Vice President and Chief Lending
Officer of the First Community Bank in Corpus Christi, Texas,
and she previously served a 3 year term on the Texas Bankers
Association board of Directors. Ms. Lee has worked in the
banking for over 31 years and has been with First Community
Bank since 2000.
In her current position, she manages all aspects of First
Community Bank's lending portfolio, including risk selection,
underwriting, and loan production, making her uniquely
qualified to discuss the important topic at hand today. Ms. Lee
is a graduate of Texas A and M University in Kingsville, Texas,
where she received her Bachelor of Business Administration
Finance. So, Ms. Lee, thank you for being with us today, and we
also look forward to your testimony.
I now recognize my colleague, Mr. Molinaro from New York,
the great state of New York, to briefly introduce our third
witness who is appearing before us today.
Mr. MOLINARO. Thank you, Mr. Chairman. The great state of
New York is happy to welcome Mr. David Zittel. A graduate of
Cornell University. Mr. Zittel is president of Ammo. Zittel and
Sons, inc. In Eden, New York. The Zittels have been farming in
Eden Valley for six generations, since 1897. Producing
vegetables on about 400 acres.
The farm primarily focuses on vegetable production. To
sustain operations, the farm heavily relies on a labor force
comprising over 100 seasonal workers, some of whom have
dedicated more than 2 decades to working at the farm. However,
rising inflation rates have driven up prices and wages, which
cut into profit margins, making today's hearing all the more
relevant and pressing.
Given Mr. Zittel's extensive experience and long-standing
ties to the community, his testimony provides invaluable
insight into how the current economic conditions are affecting
the economic mainstays of local communities like his and his
business. Mr. Zittel, thank you for being here today, and we
look forward to hearing from you, and I yield back.
Chairman WILLIAMS. Thank you. I now recognize the Ranking
Member, Ms. Velazquez, to introduce the minorities witness for
today's hearing.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. Our final witness
today is Dr. Josh Bivens. Dr. Bivens is the Chief Economist at
the Economic Policy Institute. His areas of research include
macroeconomics inequality, social insurance, public investment,
and the economics of globalization. He has been published in
both peer reviewed journals, like the Journal of Economic
Perspective, as well as in popular print outlets like The New
York Times and Wall Street Journal. He is the author of the
books Failure by Design: The Story of America's Broken Economy
and Everybody Wins Except Most of Us: What Economics Really
Teaches Us About Globalization. He holds a PhD in Economics
from the New School of Social Research and a BA in Economics
from the University of Maryland. Thank you, Mr. Bivens, for
joining us on such short notice. Your attendance is greatly
appreciated. Thank you and welcome.
Chairman WILLIAMS. Thank you again to all of you for being
here today. So before recognizing the witnesses, I'd like to
remind them that their oral testimony is restricted to 5
minutes in length. So if you hear this and you're still
talking, that means you're talking too long, okay? And if you
see the light turn red in front of you, it means your 5 minutes
have concluded, and you should wrap up your testimony. So with
that, I now recognize Mr. Gray for his 5 minute opening
remarks.
STATEMENTS OF GORDON GRAY, VICE PRESIDENT FOR ECONOMIC POLICY,
AMERICAN ACTION FORUM; SILVIA SALDANA LEE, EXECUTIVE VICE
PRESIDENT AND CHIEL LENDING OFFICER, FIRST COMMUNITY BANK; DAVE
ZITTEL, PRESIDENT, AMOS ZITTEL & SONS, INC.; JOSH BIVENS, CHIEF
ECONOMIST, ECONOMIC POLICY INSTITUTE
STATEMENT OF GORDON GRAY
Mr. GRAY. Chairman Rogers, Ranking Member Velazquez, and
Members of the Committee. It is a privilege to be before this
committee again, to join my fellow witnesses and to discuss a
matter of National significance: inflation and its effects on
the beating heart of American commerce, Small Businesses. In my
testimony, I wish to make 3 basic observations: The United
States is experiencing persistent inflation that is taxing
America's families and businesses.
Policy choices have contributed to the recent rapid
acceleration in price levels. Federal policies should be
oriented around reducing inflationary pressures, and the record
has been mixed at best. I'll briefly discuss these observations
in turn. According to the U.S. Census Bureau, the median age of
the United States is about 39, which means a little bit more
than half the United States population has never experienced
inflation like what we've seen over the last couple of years.
Not since 1980 has the consumer price index grown as rapidly as
was observed in June of 2022, when yearly inflation topped 8.9
percent. Stripping out more volatile food and energy price
components to isolate core price growth reveals a similar story
of rapid, historically aberrant inflation.
Notably, one can observe a significant divergence between
the 2 indices around the time of the Russian invasion of
Ukraine that significantly disrupted energy markets. It is
clear that event moved food and energy prices, but the
fundamental story of U.S. price growth is not about the Russian
invasion, but the laws of supply and demand. These laws are in
force, and they are taxing small businesses and the households
that support them.
Over the last 2 years, yearly price inflation has averaged
about 2 percentage points higher than yearly wage growth. Wage
growth has been substantially elevated over the same period but
has nevertheless failed to keep pace with price growth. Put
another way, small business and households are falling behind.
While inflation is down off of the recent peak, it remains
stubbornly elevated at well above the average of recent decades
and more than twice the target rate set by the Federal Reserve.
Thus, even though the U.S. inflation outlook has improved,
enduring inflation is nevertheless a significant tax on
household finance that will diminish the US standard of living.
At the current rate of 5 percent, a family with a median income
of about $71,000 is paying over $3,500 in price growth.
Food, energy and shelter inflation, which tends to be more
volatile but nevertheless represents about half the average
household budget, has been more elevated and serves as a
uniquely regressive tax. It is worth acknowledging the rocky
road that led us here. In March of 2020, the COVID-19 Pandemic
precipitated a historic shuttering of the economy. The public
policy response was robust, with combined monetary, fiscal and
administrative actions estimated to be on the order of $11
trillion. Most notable was the series of bipartisan measures
that were enacted in 2020. Through a combination of public
policy, effective vaccines and more than a fair amount of grit
from the American public, the nation and the economy recovered
rapidly. Subsequent policy changes marked a break from the
bipartisan tradition that largely characterized the
Congressional response to the Pandemic.
One conspicuous example, though not the only one, is the
$1.9 trillion American Rescue Plan Act. Despite a chorus of
warnings from a diverse range of economists that the act would
give a massive injection of fiscal stimulus at a time when it
needed, at least the law was passed and sure enough, within 2
months, inflation had nearly doubled before doubling again in
the subsequent months. It is important to note that while other
global economies faced rapid inflation, the United States was a
conspicuous frontrunner, subsequent to the enactment of the
American Rescue Plan. To be sure, there are economic forces at
work that can and eventually do swamp the effects of temporary
legislation. Many of these challenges are beyond the direct
control of policymakers.
Accordingly, while I want to emphasize that no single
policy change is responsible for the current inflation
challenge, to the extent legislation is within the direct
control of policymakers, American Rescue Plan stands out as a
significant policy error. The Federal Reserve's rapid
tightening of monetary policy and eventually improved public
comments on the likely course of monetary policy have done and
will continue to do most of the work in bringing stubborn
inflation under control. But as any household or business
relying on credit markets knows this is not costless. Congress
should therefore help the Fed by pulling in the same direction.
Congress has a somewhat uneven record since the enactment of
the American Rescue Plan. The Inflation Reduction Act, for
instance, was found to have no effect on inflation by CBO and
Penn Wharton. Policies such as the Chips Act and the
infrastructure bill must be balanced against the risk of
additional inflationary measures. Most recently, the Fiscal
Responsibility Act could modestly reduce inflationary pressures
through deficit reduction largely deriving from the Act's
spending caps. Thank you very much and I look forward to
addressing your questions.
Chairman WILLIAMS. Thank you, Ms. Saldana Lee, for her 5
minute opening remarks.
STATEMENT OF SILVIA SALDANA LEE
Ms. SALDANA LEE. Thank you, Chairman Williams, Ranking
Member Velazquez, and the Committee Members. I appreciate the
invite of being here and I pray that my testimony will be
beneficial to the objective of this meeting. As Chairman
Williams mentioned, my name is Sylvia Lee. I'm a graduate of
Texas A and M University Kingsville with a Bachelor's in
Finance.
I have been a Texas banker for 32 years with the last 23
years at First Committee Bank in Corpus Christi where I am the
Chief Lending Officer. Our bank has 175 employees and is a
somewhat unique factor about First Community Bank is that 73
percent of our employees are shareholders via our Employee
Stock Ownership Program. Our Community Bank was founded in 1983
and now has eleven branches with 657,000,000 in assets and
growing daily. We have a loan portfolio of 458,000,000
consisting of residential and commercial real estate and of
course, small business loans, which are the subject of today's
hearing.
As a preparatory point, I do want to mention that almost
all our Paycheck Protection Program loans that we funded have
been paid out at our institution. They consisted of 845 loans
in an aggregate amount of 107,000,000. And I can tell you
personally that these loans contribute immensely to the ability
of our local customers to continue as growing concerns during
the pandemic. In my view, lending to small businesses and
thereby allowing them to add new customers, purchase property,
buy equipment and hire more employees is frankly the most
important community service we provide. Federal Reserve data
confirmed that small businesses in search of a loan look first
to their Community Bank.
With respect to today's hearing topic, namely the impact of
inflation on small businesses, the answer is simple and is
applicable to small and large businesses and individuals. It is
hardship for all, but for small businesses it can often be
worse in that they start with smaller margins to absorb adverse
outside factors. Everyone is familiar with the severe decline
in mortgage origination volume as the Fed's anti-inflation
strategy has driven up interest rates nearing the 8 percent
range. What is not widely appreciated, however, is that the
housing industry is composed almost exclusively of small
business contractors.
At our bank, for example, we developed a great market niche
in the home construction business, but new credit applications
have slowed significantly due to less buyer demand. Recently, a
longtime bank customer who owns a small business had an
increase in his monthly loan payment of approximately $1,000
due to increased interest rate. The loan has an annual
adjustment and repriced. In May 2023, the business owner
commented that he would price his goods out of the market to
absorb the increased cost of his inventory and increase rates.
He mentioned he has increased his prices 10 percent, but would
have to raise them 40 percent in order to absorb all those
costs. He mentioned that he feels our government does not want
small businesses to succeed and wants only large companies in
business. It is an unfortunate perspective.
Underwriting small business loans relies primarily on debt
coverage ratio, which is monthly debt service in relation to
historical net income. With what has been a doubling of
interest rates in just the last twelve months, the equation is
fairly straightforward in that we are now seeing the cash flow
available for debt service drop dramatically for every type of
business. This would be especially true for a small startup
business, which is probably the most critical local component
for a growth economy.
As a bank with a very strong earnings and capital, we are
prepared to work with any of our small business borrowers
encountering temporary difficulties, and all of us, whether
borrowers or lenders, hope that this unprecedented combination
of excess fiscal and monetary policy, followed by rapidly
rising interest rates will soon come to a pause.
The current market pressure is notwithstanding. Texas is
blessed to have a strong economy and very strong banking
system. Nevertheless, Texas has not been immune from industry
consolidation trends, where the number of FDIC insured banks
headquartered in our state has declined from 556 to 387 over
the last ten years. An even sadder part of this is that even
among the remaining local bank, so many have been forced to
abandon important parts of the consumer market, such as home
mortgage lending to the larger banks or nonbanks, as the case
may be. Fortunately, that has not been the case at First
Community Bank. We remain committed to home mortgage, to the
home mortgage market, the small business market and as many of
the full service banking products as make economic sense. On
behalf of the banking industry, I thank you for your time and
the opportunity to appear before you this afternoon.
Chairman WILLIAMS. Thank you very much. And next, I
recognize Mr. Zittel for his 5 minute opening remarks.
STATEMENT OF DAVE ZITTEL
Mr. ZITTEL. Thank you to the Committee on Small Business
and Chairman Roger Williams for inviting me to testify to you
today on the impact of inflation on small business like my
family farm. My name is David Zittel and my family is owned and
operated Amos Zittel and Sons, a fresh market, vegetable and
greenhouse farm based in Eden, New York. My brother and cousin
and I are currently 4th generation and my son, the fifth
generation is now back on the farm. I'm also representing the
farming and agricultural community across New York and the
country that works hard to produce food and fiber for consumers
across the country and globe.
At Amosinol and Suns, we produce a wide variety of fresh
vegetables 350 acres in western New York, including lettuce,
strawberries, peppers, cabbage, corn, tomatoes, broccoli,
eggplant, Brussels sprouts, grape, tomatoes, et cetera.
Approximately 95 percent of our produce is sold through our
marketing cooperative Eden Valley Growers, which our farm is a
proud founding Member of from 1956. This co-op is created to
bring growers in the area together to market and sell our
produce. In addition, the farm is also consists of greenhouse
operations that produce approximately 4 million rooted liner,
geraniums and other spring annuals that are marketed through
brokers Nationally and retail ready container crops sold to
local garden centers. In addition, we grow over 2 million
transplants for our field grown vegetables.
The farm employs 40 to 50 individuals year round and
approximately 135 employees during the peak season. Because we
produce fresh market produce, all the crops must be hand
harvested and can be very labor intensive. It also means that
our business is directly impacted by market forces and we
cannot wait to sell the crop until prices increase. Farmers are
price takers, not price makers. As a small family owned
business, we feel the direct effects of inflationary pressure
to have seen the overall increase in the cost of operating the
farm.
While farmers have become more efficient over time and
helps overcome the lower commodity pricing, like increasing
production per acre, inflation can quickly take away the
efficiency gains through the pandemic and even to this day, we
continue to feel the impact of inflation. Examples of inflation
and rising costs have seen on the farm include tractor
equipment parts have increased 15 percent to 30 percent. A
delay in timely delivery of these things are also adding to the
supply chain issue. The consolidation of agricultural industry,
which has decreased available vendors to source, also lends
itself to increased prices. The cost of boxes and
transportation of our vegetables is up 30 percent, with the
cost of the farm of $100,000 this year. Fertilizers and most
other inputs are up 30 percent to 50 percent. Cost of feed for
dairy farmers is up 25 percent to 40 percent.
All of these things, unfortunately for us, are prices that
we receive for our product do not cover and the cost increases
since our markets are no longer local but global, resulting in
a reduce in profits. Inflation has created a price instability
and uncertainty for our farm economy and has made many
investment decisions riskier than they would be if inflation
remained low or stable. We have an impacted in the last 2
recent historical snowfalls in 2014 and again last November,
which resulted in rebuilding greenhouse shops, storage
buildings. In both situations we had decent insurance
recoveries, but the cost was 3 times. We will be financing
another million dollars and the rebuild for the loss from the
72-inch snowfall in November. Held off as long as we could in
hopes that interest rates would stabilize or begin to go back
down. As we look to the future of our operation, young farmers
are so discouraged by challenges that they face in making
career in agriculture the expense of land, labor, fuel, energy,
machinery, taxes, rules and regulations the list goes on and
on.
It is no secret that in New York is a high cost state in
the difficult regulations and environment for our family,
business and farms. But despite all this, we are so proud that
the next generation has decided to carry on the farming
tradition. We know that there will remain challenges and need
to overcome, including inflation, regulatory requirements and
labor challenges. Like to finish with a quote from John F.
Kennedy the farmer is the only man in our economy who buys
everything at retail, sells everything at wholesale, and pays
freight both ways. Thank you.
Chairman WILLIAMS. I now recognize Mr. Bivens for his 5
minute opening remarks.
STATEMENT OF JOSH BIVENS
Mr. BIVENS. Chair Williams, Ranking Member of Velazquez and
Members of the Committee, thank you for inviting me to testify
today. My name is Josh Bivens. I'm the Chief Economist and
Research Director of the Economic Policy Institute. EPI is a
nonprofit, nonpartisan think tank that uses the tools of
economics to identify policies that will boost living standards
of low and moderate income families, particularly through their
role as workers.
I'd like to make the following points about the subject of
this hearing inflation and its effect on small businesses.
First, inflation has been a key economic challenge for workers
and small businesses over the past 2 years. But inflation is
not the only notable economic trend that is emerged in this
time. We've also seen by far the best labor market in a
generation, particularly for low wage workers. We've also seen
extraordinarily fast growth in employment at small businesses
and in the aggregate, and extraordinarily fast growth in small
business applications. Small business income growth has
actually performed better relative to corporate profits since
the last business cycle peak than it was doing in the 2 years
before the COVID-19 recession. All these salutary trends are
the direct result of the policy choice to fight the COVID-19
recession with fiscal relief and recovery at scale.
Second, inflation has not simply been the result of a US
Policy mistake. Inflationary pressures have clearly been
global, and it is essentially been the inevitable result of
massive shocks to the economy and the long lived but steadily
dampening ripple effects. The shocks are obvious. The Pandemic,
the Russian invasion of Ukraine, and the ripples were mostly
about jockeying by different economic actors corporations,
workers, small businesses to protect their own real incomes
from these shocks. The inflationary pressures, particularly the
ripples, could have theoretically been reduced if the economy
was allowed to settle into stagnation with really high rates of
unemployment for an extended period of time, like we did after
the 2008 recession. But inflation wouldn't have been zero even
in that scenario and the collateral damage would have been
absolutely immense.
Third, the ripple effect stemming from economic actors
seeking to insulate their own incomes from price shocks meant
that inflation in this time around has mostly been a
distributional challenge because one person's income is another
person's cost. Higher cost for some has shown up as significant
income gains for others that mostly has been the business
income of sellers, but particularly corporate profits. A key
question is has any small businesses been able to draft in the
corporate pricing power wake and charge higher prices
themselves to protect their own margins? I would say the first
thing to know about this is that the small business sector is
incredibly variable and lots of what we call small businesses
are actually very rich in privileged enterprises. My guess is
this privileged slice of the sector has done quite well to the
degree that lots of genuine main street small businesses have
been squeezed on the input side but have been unable to pass
these costs on. Maybe because their primary customers are big
corporations who refuse to pay higher prices to their
suppliers. That is more a problem of unbalanced power in
markets and monopoly power generating an unlevel playing field.
We certainly should address that problem. It is carried long
run costs. It is less a problem of inflation per se in terms of
the most important input cost labor.
It is important to note that there is no generalized labor
shortage anymore relative to pre pandemic trends. Labor supply
has essentially fully recovered. There are smart policies we
could undertake, particularly large investments, say in
Childcare, that would boost labor supply even well above its
historic highs. And I think we should absolutely do that. But
again, there is no labor shortage today relative to pre COVID
trends. Finally, the risk to small businesses from an over
aggressive attack on inflation that seeks to slow the economy
with contractionary fiscal and monetary policy in the name of
tamping down inflation will sacrifice the huge gains from the
rapid recovery for no real need. If inflation is already
normalizing, and my view is inflation is already normalizing,
it is not happening fast enough for any of us.
But I would say one example showing that we do have some
time for some patience is if you look at nominal wage growth
over the past year. We've seen a sharp deceleration in that
growth even as unemployment has remained very low. We had many
people a year ago saying that was impossible. We were going to
need 6 percent unemployment to get nominal wage growth into a
noninflationary place. It is in a noninflationary place today,
even with unemployment remaining very low. In short, as
challenging as the inflation of the past 2 years has been, it
remains the case that many proposed cures could do a lot more
damage than normality itself. I look forward to talking more
about this issue with the committee. Thank you so much for your
time.
Chairman WILLIAMS. Thank you. And we'll now move to the
Member questions. Under the 5 minute rule, I recognize myself
for 5 minutes. There were many factors that have contributed to
inflation. The Pandemic destroyed supply chains, reckless
government spending overheated the economy, and businesses are
having trouble finding qualified workers to fill open
positions. While some of these issues are long, will take some
time to get resolved, there are certain things that can be done
in the short term that could make an immediate impact on this
upward price pressure. And one of these things that the Biden
Administration could do to help small business deal with this
economic headwind is to end the regulatory assault on the
private sector. When businesses are forced to spend more time
and resources on compliance, these costs get passed along to
the consumer in the form of higher prices or increased fees.
So, Mr. Gray, my question to you. Can you discuss the
regulatory impact the Biden Administration has had on main
street, America, as has inflation, and do you have any
suggestions on how Congress could begin to rein in some of the
most damaging regulations?
Mr. GRAY. Yes, sir. So I am lucky in that I work with one
of the, I think, finer regulatory shops, policy shops in DC. My
colleague Dan Gobeck tracks the self reported costs of the
accumulation of regulation, and he and his team has been doing
this over the years, and we have seen hundreds of billions of
dollars in additional regulation. And in the present
environment, when a number of the policy approaches that this
Congress and policymakers in general have been attempting to
expand supply, we later see regulations tacked on that are
somewhat in conflict to the notion of supply because they
restrict the businesses and workers that may or may not
participate in that given activity, and that makes the activity
more expensive, thus restricting supply. And so that is a very
real challenge at the moment.
Chairman WILLIAMS. Thank you. One of the most harmful
aspects of inflation is what the Federal Reserve is being
forced to do to get it under control. Interest rates are rising
at the fastest pace in decades, and it is making it much more
expensive for small business to get loans or service and their
debt. We've heard that already today. I have come across my
small businesses that have variable term loans we talked about
that who are not having to pay a few hundred dollars more each
month in interest payments, but it is changing their entire
business, even the smallest amount it is eating to their
margins and making them unable to remain profitable. So, Ms.
Saldana Lee, can you tell us what you're doing on the ground as
it relates to small businesses service and their existing debt,
as well as the overall loan volume coming through your bank?
Ms. SALDANA LEE. First, the loan volume is not coming
through the bank. Our production is very low right now, and
most investors have postponed any projects that they had at any
one time. And what we're doing is we're actually doing
outreach. Our loan officers are reaching out to our borrowers,
making sure that they are in a good position, and if they're
not, if they're being stressed, if there is anything that we
can do to assist them with those stress factors. What we have
seen, because we do have a large portfolio of construction
loans, our contractors and builders and developers as well,
they have limited the amount of inventory that they have on the
ground, which is not normal because they just want the
inventory to keep rolling because they're selling one house.
And they need to have been building a house that would be 40 to
50 percent to 60 percent complete at the time of a sell of a
subject house. So that has slowed tremendously. And that end
user, the consumer, who is stressing their income as well,
their debt to income ratios have increased, making it extremely
difficult for them to qualify for a loan.
Chairman WILLIAMS. I've been a car dealer for over 50 years
and but also run a calf cow operation. We talked about that at
my family ranch, and you've talked about Mr. Zittel, you talked
about the cost of fertilizer, inability to find workers, et
cetera. So, I've got a little bit of time left. Let me ask you
this. Can you tell us how you've been dealing with the
persistently high inflation and some of the other economic
headwinds that you mentioned and that you're feeling in the
economy today?
Mr. ZITTEL. Yes, so 2 specific examples. The winter storm
that we went through that knocked down our greenhouses. I think
the first round that happened in 2014, we were able to rebuild
and take loan money out and be able to handle the inflationary
effect with the last November storm. Perfect example of where
we're not doing what we should be doing, and that is where
we're building infrastructure, but we're not doing the
technology tied with the infrastructure that we should be doing
right now. So we're basically going at it at a limited fashion,
knowing that there are things that are there that we'd like to
do but aren't doing.
Chairman WILLIAMS. My time is up. I now recognize the
Ranking Member for 5 minutes of questions, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. Mr. Bivens,
inflation is a complex global phenomenon, and you stated that
in your remarks. Can you give us an overview of where America
stands compared to our peers in terms of inflation rates and
recovery?
Mr. BIVENS. Yeah, I would say it is definitely the case
that the inflation acceleration of the past 2 years was global.
Every single advanced economy in the world experienced an
inflation of core inflation relative to pre COVID trends. And I
say that acceleration is actually important. Sometimes people
just look at the rate of inflation in, like, the US. Versus the
EU, and it is higher in the US.
But we went into COVID with higher inflation rates in many
of these cases. So you have to look at that acceleration. The
US was first in seeing some of those outbreaks of core
inflation, but we also have peaked first and we are clearly
coming down at, again, too slow a pace, but coming down,
whereas other countries are not seeing the retreat in core
inflation. I think the really important thing here is the
inflation experience has been very common. The policy decisions
made immediately after the COVID Pandemic recession were very
different. And so that is why I think there is such a weak
linkage between any specific piece of policy we did in the
inflation exchange.
Ms. VELAZQUEZ. How can you explain how policies like the
ones that we passed last Congress contributed to that recovery?
Mr. BIVENS. So the US recovery is clearly there is many
other countries in the world. It is clearly at the top end in
terms of fast recoveries being experienced in the world. We've
been much better on that front than many countries. And I think
that is just directly the result of we were also on the leading
edge of how big we went with fiscal relief and recovery
efforts, which I think were correct, given the scale of the
problem.
Ms. VELAZQUEZ. What does that recovery mean for small
business in particular?
Mr. BIVENS. By the measures I track, small business has
participated fully in this recovery. If you look at their share
of net employment gains, their share of sort of total income,
they look right on track with what they were pre COVID. So it
has been a broad based recovery that has not left small
business behind in any way.
Ms. VELAZQUEZ. Thank you. Mr Zittel, you mentioned that
consolidation in your industry has led to fewer vendors to
source goods from in your lifetime of farming. Has this been an
ongoing trend?
Mr. ZITTEL. No, I'd say when I got out of college back in
the late 80s, there was expansion, more people were getting in,
we had more tractor dealerships, we had more fertilizer plants,
we had more seed companies. The consolidation has certainly
happened over the last 20 or 30 years and I'm not seeing it
getting any better going the other way. It seems like it is
getting worse.
Ms. VELAZQUEZ. Can you explain how competition in this area
can lead to lower prices?
Mr. ZITTEL. So a perfect example would be we've had upwards
of 5 or six seed companies and now we're down to 2 or 3 seed
companies. You're forced to go to those houses, there is less
competition. Some of them don't even carry the varieties you
want. So if you want that variety, you've only got a sole house
to go to. They name the price, pretty much.
Ms. VELAZQUEZ. Thank you. Mr Bivens, you mentioned housing
as a key factor of inflation. Can you discuss what Congress can
do to increase housing development, to alleviate our housing
shortage and bring prices back down to earth?
Mr. BIVENS. Yeah, I think that is an incredibly important
question. I would say to me, the key to getting house prices in
check, which is just a huge challenge for household budgets is
building more quality housing. We just have underbuilt housing
for a generation. We need to build more lots of the blockages
to that building actually happen at the state and local level.
So the federal has to do policies that complement that. I think
some of the big things the Biden administration has done that
will help a lot is they sort of plus up federal grants to state
and localities that change their zoning and regulatory laws to
allow more housing to be built. I think that is a really good
thing to do. This could be even supercharged with legislation
that allocated actual money to go to states and localities that
do more building or do good things on the regulatory and zoning
side.
Ms. VELAZQUEZ. Thank you. Mr. Gray, recently we learned
that the producer price index has dropped to only 2.3 percent.
Do you think this is a positive development for small
businesses and may be able to give them more hope for economic
conditions to stabilize?
Mr. GRAY. I think to the extent that we can observe
improvements in the inflationary environment in general is a
good thing for households, businesses, small business in
particular, and that may be an indication of that. So I would
view that favorably.
Ms. VELAZQUEZ. Thank you. I yield back.
Chairman WILLIAMS. Thank you. Ms. Valezquez. I now
recognize Mr. Luektkemeyer from the great state of Missouri for
5 minutes.
Mr. LUETKEMEYER. Thank you, Mr. Chairman. In this committee
last year, we had a number of economists come in and we talked
about the causes of inflation, and they all agreed on 4
different chart costs or reasons energy costs, rules and
regulations, supply chain, employee problems, and our immense
money supply that was poured in the amount of money was poured
in the system.
So let's start with Mr. Gray. The Fiscal Responsibility Act
cut the NEPA requirements down from what would be an average of
seven years to approve a project, down to either one for small
projects, 2 for larger projects. Can you give us just a quick
recap on the importance of that with regards to the cost of the
projects and effects on inflation?
Mr. GRAY. Absolutely. I haven't studied the degree to which
that particular policy change would move development costs,
because I haven't seen the estimate of that but directionally,
that is entirely the right way to go if the goal is to expand
the supply of energy production and thus lower the price for
households and consumers.
Mr. LUETKEMEYER. Ms. Lee, having been in the banking
business myself for a few years, I know that the banking
business is extremely regulated, and you've been inundated with
even more regulations. So I know that when we were my brother
and I had a bank and forever loan officer, we had a higher
compliance officer. Is that kind of your experience as well?
Ms. SALDANA LEE. Well, our compliance department has grown,
and it continues to grow.
Mr. LUETKEMEYER. Does it make you any money? No, that is a
dead investment, a dead cost for you that you've got to
overcome.
Ms. SALDANA LEE. That is correct.
Mr. LUETKEMEYER. And it is all due to more rules, more
regulations?
Ms. SALDANA LEE. That is correct.
Mr. LUETKEMEYER. And you haven't any fewer rules and
regulations over the last few years? You've had more, probably,
have you not?
Ms. SALDANA LEE. That is correct.
Mr. LUETKEMEYER. Thank you. Just kind of curious, too. You
mentioned the PPP program. I thank you for those comments. I
mean, this committee was one of the key folks that oversaw I
was served on Financial Service Committee, and our subcommittee
there oversaw the PPP program, helped originate it, and then we
provide the oversight here. Thank you for your comments on that
because it was a very successful program due to the banks
getting involved and using your customer law to be able to
protect the integrity of that program. So we thank you for that
and for thanking your clients.
With regards to inflation, how is it affecting your small
businesses that you're financing right now? Are they struggling
as a result of that? And you're seeing increased past dues
losses, businesses go out of business. What do you see as the
effect of inflation on small businesses?
Ms. SALDANA LEE. There is a variety of things. What we're
really watching right now is any small loans that have a fixed
rate. At this point, we originate 5 one Arms or 3 one. So that
means they're fixed for 5 years or 3 years. So they're in that
time frame. As they start to readjust those rates, that is
where the stress comes in. We had one business owner that
absolutely cannot afford the increase in rates and other costs
associated with his business, and he is put his business up for
sale. And so it is just a timing aspect of what is going to
happen in the future with our loan portfolio and past dues and
any kind of restructuring. But that is something that we've
talked about already in our bank, is that if there is
restructuring which don't want to get into banking too deep,
but you start restructuring, that means problem loans and then
regulatory burdens and a lot of other work that comes along
with that.
Mr. LUETKEMEYER. Thank you for that. Mr. Zittel, you are in
a very difficult business. As you said a minute ago with your
Kennedy quote, you're the only group that can you have no
control over your cost, no control over sale your product, and
you hope the weather works. I always tell people that farmers
are the ultimate gamblers. Las Vegas folks are nothing compared
to what farmers are because you truly roll the dice every day.
And I thank you for what you do because you feed our country in
the world. But you've had a roller coaster effect with your
revenues that you're talking about here with regards to the
inflation and the Pandemic. And now the roller coaster of all
is can you talk a little bit about that, how that is all
affected you and what kind of changes you've made to your
organization with regards to inflation?
Mr. ZITTEL. Very briefly, the pandemic did not affect us
much because we went to work every day. Didn't know a damn bit
of difference beyond that. The inflation rate, like we said,
we're not doing the things we should be doing because we don't
want to leverage our business. And I think regulation wise, our
state has been very difficult to work with as far as passing
things like overtime rate, mandatory days off and things like
that.
Mr. LUETKEMEYER. Your labor costs have gone
Mr. ZITTEL. Our labor costs, which 50 percent of cost of
doing business for a farmer is.
Mr. LUETKEMEYER. Labor, and you have no control over that
cost. And you have no control on being able to pass that cost
on like most businesses.
Mr. ZITTEL. Exactly.
Mr. LUETKEMEYER. Thank you very much.I yield back now.
Chairman WILLIAMS. I recognize Mr. McGarvey from the great
state of Kentucky for 5 minutes.
Mr. MCGARVEY. Thank you, Mr. Chairman. Very much appreciate
it. Really glad we're having this conversation today.
Obviously, we are all concerned about the root causes of
inflation and how we prevent a recession in this country. I
think it is important to understand and identify those causes
of inflation so that we can best deal with it. Because, again,
we can all, I think, agree that reigning in inflation is vital
to protecting consumers and small businesses. And it is
appropriate to look at those. I think it is appropriate for
this committee to understand how the COVID stimulus programs
contributed to inflation. But it is easy to Monday morning
quarterback this a little bit as well and just reminding
everybody how important these programs were during the
Pandemic.
As the Ranking Member noted, found that the US GDP would
have fallen by 11 percent in 2020 without fiscal stimulus, and
that is equivalent to 3 times the actual decline we saw. We did
much better here than other places in the world during this
kind of difficult time between COVID and what was going on in
Russia and Ukraine. So in talking about how we combat a
recession, how we help these small businesses, looking at these
stimulus programs I think is helpful too, in understanding how
they were helpful. Mr. Zittel, you're talking about your
experience during the Pandemic. And like so many of the great
business people in my state of Kentucky, you're one of the
millions of small business owners who participated in and
benefited from the PPP program. And so just tell us your
experience with that and how you used that funding to help your
business and the employees in your area.
Mr. ZITTEL. So I would say probably the best example of it
is you are correct. It was well needed and a perfect timing.
And not just because of the Pandemic, because like I said
before, the Pandemic really didn't change our lives a whole
lot. We weren't moving any place anyhow. But I think one of the
biggest effects is we've been falling behind. Our margins have
been dwindling. Our rate of trying to stay ahead of technology
and move with that curve to try and make money has fallen
behind because we haven't had money to work with. That was a
great stimulus package, whether it was pandemic or non
pandemic, it was a breath of fresh air. But we continue to see
those regulations that keep pushing us down and pushing us
down.
I don't know if I'll have an opportunity, but I just want
to say it one time I did a calculation logbook 1935. If you do
the calculation on labor, it is 50 times higher. If you do the
calculation on a couple of the vegetables that I did that take
exact the same amount of space as it did in 1935, you're only
talking about 15 to 18 times. So labor costs that cost us 50
percent are rampant. So that was a breath of fresh air. But
will it be enough for the future? We don't know.
Mr. MCGARVEY. I appreciate that insight and talking more
you're speaking more regulatory pressure than the stimulus
funding and the impacts there. Going back again to some of the
things that were going on during COVID My home state of
Kentucky is using $500 million in American Rescue Plan funding
for the Cleaner Water Program to invest in water and sewer
projects across the state. I can tell you I was in the state
legislature at the time. There are Kentuckians who now have
clean drinking water for the first time because of this
investment in a state like ours, sewer access for homes, this
has been a game changer for us in Kentucky. So Mr. Bivens,
looking at how this infrastructure has or Dr. Bivens, I should
say, looking at how access to clean drinking water we have 89
million in my state that got people Internet for the first
time. We remember people going to McDonald's parking lots
during the pandemic so that they could go to school or go to
work. Can you explain how this investment in infrastructure and
local economies will benefit small businesses and the National
economy in the long term?
Mr. BIVENS. Yeah, I think it is a lot of the mechanisms you
just talked about, like small businesses, like kind of every
other actor in the economy, they need good roads to transport
their product on. They need good schools to make sure the
workers coming out of those schools are productive and provide
good value. And then I think one maybe underrated thing that is
in the infrastructure bill that was passed in 2022. A very big
investment in broadband and especially in a world if we're
going to see more remote work to actually expand the pool of
people actually available to work in areas that have been
underserved by broadband before, I think that could be a huge
boon to small businesses. But basically all the mechanisms you
talked.
Mr. MCGARVEY. About, the hardest question I'll ask you with
25 seconds left, given what we're all trying to do, help small
businesses, help consumers bring down inflation, you're in our
shoes. What would you do to help small businesses and consumers
and bring down inflation?
Mr. BIVENS. I think the inflation bit is going to be really
hard. It is just going to require a little bit of patience and
to make sure we don't make any mistakes going forward to help
small business generally, to me, that the biggest arrow in the
quiver is antitrust policy that levels the playing field
between them and the very large corporations.
Mr. MCGARVEY. So well done. I yield back.
Chairman WILLIAMS. Thank you. I now recognize from
Pennsylvania Mr. Meuser for 5 minutes.
Mr. MEUSER. Well, thank you very much, Mr. Chairman.
Certainly, thank you to our witnesses. It is appreciated. I
spent about 25 years in small business. I talk with small
businesses every day, visit them regularly, as I should, being
on this committee as well as just being a Member of Congress.
Since 70 percent of those employed are in my district are
employed through small business, you've been dealing with high
inflation supply issues, wage disruptions costs, regular costs
going up, regulations. So I'd like to start with the regulation
costs, which aren't really factored into well, they're factored
into the inflation, but they're not factored into necessarily
your added bottom line costs on your balance sheet.
Mr. Gray, the Biden Administration, according to your
colleague Dan Goldbeck, American Action Forum, found that the
Biden administration accumulated approximately $367,000,000,000
$367,000,000,000 in less than 30 months in regulatory costs.
Can you share with us the impact that these costs have on small
businesses in what is a very fragile economic climate?
Mr. GRAY. Absolutely. So I should stipulate that those
costs come from the administration. So those aren't our
estimates. Those are the self reported costs and they are
significant. And they are significant to small businesses
because whereas a one key difference between a large firm and a
small firm is just as has been referenced elsewhere is just the
capacity to absorb compliance costs. And I know from the small
business in my family, there isn't the capacity to go hire
compliance officers. And so each time one of these comes down,
all it does is come out of out of their pocket.
Mr. MCGARVEY. Sure. All right. Thank you. I have in my
district, we have one of the largest reserves for natural gas.
Natural gas, of course, half the carbon emissions of other
fossil fuels, and yet we see a regular regulatory.
Russian assault on natural gas pipeline distribution and
such. Lately, we're seeing where prohibitions on gas stoves,
which boggles the mind, right? I mean, gas stoves, you need
electricity for other stoves. Where does that electricity come
from? Some don't think a little bit past what is right in front
of us. But that being said, would more natural gas be
beneficial? Mr. Zettel, first of all, where you are in upstate
New York, you'd like to mine or gather some of that natural
gas? And I know that is hopefully down the road for you, but
what would
Mr. ZITTEL. We actually started in 1973 and started with
our first well, which was an abandoned well, and we've got nine
wells. But we can only go down to the Medina region, which
supplies about 30 percent of the gas for our greenhouses and
our greenhouse operation. If we were allowed to deep well,
probably one well would do that in all of our houses and
probably half the neighbourhood. But we are limited, but we do
have gas wells. And yes, we are very short sighted, at least in
our state, to say, let's get rid of gas. Let's go all electric.
There has been comments on what would have happened in that
November storm, and it would have been a lot more than 40
people die in Buffalo from freezing to death if we would have
had all electric instead of gas.
Mr. MCGARVEY. Yeah, and I'm just south of you in
Pennsylvania, fortunately, where we have been fracking, and it
is been a real benefit and godsend to many of our farmers and
businesses, and it is bringing in many new competitive, adding
competitive advantages for businesses because of the low cost
of energy. Let me move on, Ms. Lee. The CFPB Small Business
Data Collection Rulemaking, where they're asking for, frankly,
a bizarre list of personal data on your clients. How are you
doing with that?
Ms. SALDANA LEE. Well, I'm very grateful that I don't have
to manage that part of the bank. And so, I'm not in compliance.
And we have a compliance officer in his department, and they're
working through all the details. It is extremely burdensome,
and we're going to have to develop programs and systems. And it
is a project committee that has been meeting for months now,
and they continue to meet until everything gets finalized.
Mr. MCGARVEY. Thank you. I appreciate all of your work for
small businesses. Mr. Bevins, how many years' experience do you
have in the small business sector?
Mr. BIVENS. My employer is fewer than 50 people, so I work
for a small business.
Mr. MCGARVEY. Okay. I yield back.
Chairman WILLIAMS. I now recognize Ms. Gluesenkamp. Camp
Perez from Washington, the great state of Washington, for 5
minutes.
Ms. GLUESENKAMP PEREZ. Thank you, Mr. Chairman. Mr. Bevins,
in your testimony, you noted that one avenue for looking at
inflation is actually as a distributional issue, because what
is a cost to one person is profit to another person. In this
case, higher costs for consumers have often shown up as higher
profits for some corporations. You note that in normal times,
corporate profits contribute about 13 percent to prices. But
since the second quarter of 2020, they have instead contributed
more than a third to the growth or more than twice as much as
they normally do. Inflation has given corporations a lot of
room to pad profits and increase margins. But that is not all
corporations, right? There is a difference between my
corporation with eight employees and some of the big guys. So
why is there such a difference? Why are our profits diminishing
and some others are getting so much higher? Why is there such a
difference in gouging and then the rest of us who are just
trying to get by? One thing that I hear about all the time when
I'm back at home is the impact of consolidation, particularly
in AG and in our food supply chain. I hear about the
concentration of power in the hands of a few of these
distributors. Transporters has resulted in unfair practices and
higher prices for us at the grocery store. So what efforts
should be made to improve or better enforce some of these
antitrust issues? How can you discuss, can you discuss the
benefits of enforcing those laws on small businesses, on
competition overall?
Mr. BIVENS. Yeah, I'd say a couple of things. Your question
about what explains why some firms have really been able to
just pass on all costs and then some, whereas other firms have
been more constrained. I think there is 2 answers. One is just
partly luck. The supply chain snarls meant that some people who
had supply on hand as supply chain shut down were just in a
great position to charge whatever they needed to. The more sort
of profound answer is just there is lots of market power in the
corporate sector and very big corporations exert a lot of that
power. What is different this time is they have normally
exerted it mostly not against their own customers. They've kept
inflation has been low for like 25 years. Instead, a lot of
that power has been thrown backward against their own workers
and against small businesses. This time the shortest route to
profitability was by raising prices and lots of them took it.
And that is why you saw such a sort of huge contribution of
corporate profits to inflation over those past couple of years.
And so I think whether we're talking about the long run problem
or the short run problem, the answer is we need a more level
playing field between various economic actors and the economy,
between workers, between corporations and small businesses. And
a key policy lever is the one you talked about, which is more
robust antitrust enforcement that doesn't only look at product
market competition, but also looks at what is happening in the
labor market and to suppliers.
Ms. GLUESENKAMP PEREZ. Yeah, like on a very small frame.
Remember when everyone was getting their catalytic converters
stolen rampant everywhere? There was one point where there was
one catalytic converter on the entire West Coast for a year.
Make and model of a vehicle, one on the entire West Coast. And
I bought it and I paid for it and it never showed up. And turns
out the dealerships get to pull first order off of it. And so
prices went up for everyone. And what could have been a simple
fix instead was a bill because of these inflationary issues
that eviscerated people's savings accounts. So appreciate the
seriousness and the perspective with which you all are all
taking this issue. Thank you to all of our witnesses for being
here and thanks for this hearing today. I yield back.
Chairman WILLIAMS. Yields back and now recognize Mr.
Stauber from the great state of Minnesota for 5 minutes.
Mr. STAUBER. Thank you, Mr. Chair. And I've said it in this
committee before, small businesses are not only the engine of
our economy, but they're the innovators. And we're hearing it
here today. During the COVID-19 Pandemic, our small businesses
were hit incredibly hard. Yet it was small businesses that held
this economy and the entire country together. Our small
businesses, just like everyday American consumers, are being
hit with inflation the hardest, which are being worsened by the
Biden administration's policies. Mr. Bevin, my colleague from
Pennsylvania. Maybe I'll ask the question just bluntly. Have
you ever owned a small business?
Mr. BIVENS. No.
Mr. STAUBER. No? It sounds like it. Mrs. Lee, I have a few
questions about the small business loan activity at First
Community Bank. What is the current rate on business loan that
most small businesses working with your bank would receive
today?
Ms. SALDANA LEE. Approximately 10 percent.
Mr. STAUBER. And what ballpark estimate of the interest
rate that a small business would have received in January of
2020?
Ms. SALDANA LEE. Oh, goodness. Probably 5 and a quarter.
Mr. STAUBER. Almost double?
Ms. SALDANA LEE. Yes, sir.
Mr. STAUBER. What kind of trends have you seen over the
past year or so in small business loan activity? Have you seen
an increase in the number of businesses that are unable to keep
up with their loans or small businesses?
Ms. SALDANA LEE. Actually, what we've seen is just a
decline in applications because they're in a very difficult
situation in which their profits are suffering. And as much as
they would like to come to the bank to borrow money, they know
that that is going to further their problems. And a lot of
things are just services in the moment where you don't want to
do some short term lending and borrowing for long term capital.
And that is really what they're needing.
Mr. STAUBER. You had said to, I think, Mr. Luke Byer about
some of the regulators or specialized workers that follow help
with your regulations in the bank. How many of those do you
employ right now?
Ms. SALDANA LEE. Oh, goodness. When I look around the bank,
it is going to be I'm going to say at least 30 are looking at
one piece of compliance and that is more in an in depth level.
Every person in the bank has to deal with compliance.
Mr. STAUBER. So you have 30 that you've hired specifically
for compliance?
Ms. SALDANA LEE. Not specifically for compliance, but it is
throughout the bank where among their responsibilities is
looking at something, reviewing something, monitoring
something. And in my opinion, that is the compliance piece.
Mr. STAUBER. Thank you. Mr. Ziedel, the farming industry is
an incredibly labor intensive industry, as you described. Can
you once again share some of the challenges you are facing with
recruiting and retaining your employees?
Mr. ZITTEL. So recruiting during the Pandemic was difficult
just because of the process in applications, because it is
Chicago, California, and the consulate in Mexico. So
logistically, during the Pandemic, it was tough. Other than
that, the federal H 2 A program is the only program to go with,
again, the regulations of our state. Because the H 2 A rate,
the AW rate that they call it, is based off of your minimum
wage rate. That is one of the driving forces. So the higher the
minimum wage rate, the higher the AW rate. But as far as
retention wise, we've got a great track record. And I'd like to
say because we're good employers.
Mr. STAUBER. I just known you and heard you comment here.
You're somebody I could work for. I think you're a straight
shooter and common sense and a good business owner.
Mr. ZITTEL. Thank you.
Mr. STAUBER. Mr. Gray, as you noted in your testimony, the
federal government has poured an excessive amount of money into
our economy over the past few years. Do you believe we would be
seeing the same level of inflation we are today if Congress and
our president did not pass excessive spending packages like the
American Rescue Plan and the so-called Inflation Reduction Act?
Mr. GRAY. I do not.
Mr. STAUBER. Where do you think it would be at?
Mr. GRAY. I don't want to overstate the effect,
particularly a couple of years later, and I have not done a
backwards looking analysis, but I believe we've seen other
research that suggested it was a positive contributor to the
inflation rate.
Mr. STAUBER. My next question, and I don't have much time
how would lowering regulatory burdens and cutting red tape help
tame inflation? You got 2 seconds.
Mr. GRAY. Increase supply. Increase.
Mr. STAUBER. There you go. Thank you. Mr. Chair back.
Chairman WILLIAMS. Thank you. I now recognize Ms. Davidson,
the great state of Kansas for 5 minutes.
Ms. DAVIDS. Thank you, Chairman. And thank you to the
Ranking Member to both of you for holding this hearing today, 3
years after the start of the COVID-19 Pandemic, Kansas
families, small businesses and workers are still dealing with
high costs. Inflation makes it harder for our small businesses
to keep their doors open, for our workers to put food on their
tables. And I've been particularly focused on making sure that
our domestic supply chains meet our country's demand to move
goods efficiently. I've been proud to introduce legislation to
support our small manufacturers and vote for critical
legislation like the bipartisan infrastructure law and the
major manufacturing domestic manufacturing bill that we passed
in the last session. These things are helping us get our
economy back on track. They're helping to create good paying
jobs and lowering prices for folks back home in Kansas. But
there is clearly a ton of work still left to be done. Mr.
Bivens, I'm curious if you could answer my first question here.
I know there are some indicators that inflation is slowing, but
that it is not declining fast enough to provide real relief to
our small businesses. I'm curious if you could share your
insights on how the current supply chain disruptions that we're
looking at are impacting the elevated prices that people are
still seeing.
Mr. BIVENS. So my sense is that the supply chain
disruptions, which were a major cause of the initial surge in
inflation, are substantially better than they were years ago.
The New York Federal Reserve Bank tracks something called the
global supply chain pressure index. It was historically high
pressure earlier. Now it is getting much more normalized. And
so my expectation is that that along with hopefully some
reduction in profit margins over the next year, will start to
bring down overall inflation a little faster than what we've
seen. But yeah, I think it is headed in the right direction.
But I agree it is agonizingly slow.
Ms. DAVIDS. Yeah. And I appreciate the insights on supply
chain disruptions. Can you talk a little bit about the other
factors that are playing into the elevated prices that we're
seeing?
Mr. BIVENS. Yeah, so I think profit margins are a big part
of it. So basically, you had this enormous rise in profit
margins in corporations that drove at one point about 60
percent of the price increases. Since then, they have been
coming down, but they've not anywhere near normal. And so
normally at this point in a recovery, you'd see quite a dip in
profit margin. They would actually provide some really nice
disinflation that has not really happened yet. I think it will
happen. I think supply chain unsnarling will increase some
competition. People will let go some of those very high profit
margins because they'll be forced to. I think the other thing
that is keeping inflation too high is just a lot of lagged
effects that are taking some time to get through the economy.
One obvious one, there is a range of service sector industries
that are very labor intensive and inflation is mostly driven by
wage increases and very early in the recovery there are some
sectors like leisure and hospitality that is all real scramble
for workers. And you actually really had a labor shortage. I
think those are gone. I think the lagged effect of those wage
normalization is going to show up in inflation. And then the
last one, everyone knows housing costs only hit official
measures of inflation with very long lag. We know in the
private sector housing costs really have gone down quite a bit
in the past year. It has really not shown up much at all in the
CPI. It will show up in the next six to eight months. So, I
think there is a lot of disinflations in the pipeline coming.
Ms. DAVIDS. That is really helpful. And I might follow up
with you about the housing cost lag that you were mentioning. I
did want to touch on really quickly that I have been working
specifically on trying to figure out ways to help restore some
of our manufacturing capacity and of course I want to do more
manufacturing in the Kansas Third. But I am curious, speaking
of Lags and what the timing might look like on the commitment
to reshoring manufacturing, can you share some insights on how
you think that might stabilize or impact the price inflections
and that sort of thing?
Mr. BIVENS. My hope is we're going to see enough
disinflation over just the next six to twelve months, that all
that extra capacity that is coming online from things like the
bipartisan infrastructure law won't have a huge effect on this
episode, but it will have an enormous effect in the future. It
basically means we're not going to be in this situation again.
If we're hit by a big shock 3 years from now, it is not going
to cause anywhere near the inflationary blow up it did this
time because our supply chains will be so much more diversified
and strong. So, it really is an investment in the future. Even
if it is not going to come online quick enough this time to
really shove down inflation over the next 3 months. I think it
is absolutely worth doing because of the resilience it builds
into the economy.
Ms. DAVIDS. Thank you and I'll follow up with some of the
other questions I had. Thank you so much. I yield back.
Chairman WILLIAMS. Thank you. And now recognize Mr. Hunt
from the great' state of Texas for 5 minutes.
Mr. HUNT. Thank you Mr. Chairman. Really appreciate it.
Also want to thank the witnesses for being here as well. Really
appreciate your time and efforts today. Yesterday we observed
our greatest generation's greatest moment. D-Day brave men
risked their lives to free the world from tyranny to ensure
that we don't speak German. Today, they waited through waste
deep water in the face of machine gunfire into a barrage of
machine gunfire in order to free the world from fascism. And
more than 57,000 of these men gave their lives 79 years ago.
Yesterday, those fearless and courageous soldiers, sailors,
marines and airmen wanted those closest to them to prosper in a
free society. Not just then, but now and of course for the
future. Today, because of many of the policies from this
administration, we can hardly say that we've kept our promise
to America, the promise of freedom that our greatest generation
sacrificed for us, that we observed yesterday. The American
people are suffering under this administration. Small
businesses, as you have articulated, are feeling the sting of
this administration's actions. Inflation has remained at a
record high for going on 2 years now. Groceries and essential
items have been at all time highs for American families. Bread,
eggs and the most basic staples of life are now exorbitantly
expensive for American families.
We are feeling this everyday. Fuel costs are at a halt or
at all time high heating. Our homes are at an all time high.
American films are struggling right now because this
administration has waged war on our oil and gas industry. As
you have just articulated, sir, your state is sitting on the
Marcel Shale and you can't even get the natural resources
needed to fill your home and to fuel your farm. These are not
real solutions that are being proposed right now. Solutions
like we must demand that everybody buys an EV or we have to use
solar panels. And by the way, I'm not an anti green guy. I'm
just an all hands on debt kind of guy. And we are a country
that must have redundancies. The economic and energy priorities
of this administration are flat out not sustainable. We passed
the so called Inflation Reduction Act, and we know 2 things
about this bill. According to our former Vice President Al
Gore, the IRA is a quote is a quote climate bill. He said these
words and it will cost the US at least $1.2 trillion in green
subsidies instead of cutting the continued wasteful spending,
this administration is on track as of last week to spend an
additional $4 trillion over the course of the next 18 months
instead of curbing our spending to pre COVID levels. Because
last I checked, COVID is over. And for you, sir, COVID never
started. Thank you for all you've done for our country. Small
businesses will continue to feel this and so will the consumer.
Under this administration has become harder to start a
business and very costly to do so. President Reagan famously
said the nine most terrifying words in the English language
are, I'm from the government and I'm here to help. We don't
want that. We want you to be able to make your own decisions.
We want to empower you. The individual the individual small
business owner is the very backbone of this country. We must
unleash American energy. We must unleash your spirit fire and
reign in the influence that we have seen destroy this country
for the past 2 years. Now, ma'am, before I did this job, I was
actually in the mortgage business. And also, I worked for a
home builder in the greater Houston area. One thing that I
found to be very interesting is for every $1,000 increase in a
home, you basically price out 2900 potential home buyers. When
we have inflation, the input goes into the slab, it goes into
the frame, it goes into the brick, it goes into the roof, it
goes into the doors, it goes into everything of the home. And
that then gets pushed down to the consumer.
So, ma'am, my question is for you. What have you seen in
this industry and how damaging has inflation been to the
industry that I work in and that you work in every single day?
And in spite of the strength of the Texas economy, how has this
hurt the home builder and the homeowner?
Ms. SALDANA LEE. I'm going to start with the homeowner we
have seen our custom home built. They have decreased by half
from about a year ago. And we track that because, again, we're
very heavy in construction lending. We have the data to support
that. And I see it as because of the home mortgage interest
rates, families are not being able to build their dream homes.
And the other thing that I'd like to add really quickly, we had
some builders that were building custom homes and eight
households in particular, homeowners in particular. Those 2
builders went out of business during construction. I was able
to talk to one of the owners who was extremely disappointed,
distraught, because they were going to have to go out and find
another builder to finish her house. And this was like a 2 year
period.
Mr. HUNT. Okay, time is up. Thank you very much, ma'am, for
your time. And thank you, sir, for feeding our country. I yield
back.
Chairman WILLIAMS. I now recognize Mr. Mfume from the great
state of Maryland for 5 minutes.
Mr. MFUME. Thank you very much, Mr. Chairman. I want to
thank you and in her absence, I want to thank the Ranking
Member also, and I want to thank our witnesses. One of the
interesting things about this committee and all committees is
that we don't always agree. And fortunately, we ultimately
found our way out of disagreement, back to the facts and back
to the reality and back to the science. And I know it has been
oftentimes convenient because President Biden is in the White
House, to sort of paint him as the great culprit, the great
conspirator that has created a situation that we're all
definitely trying to survive under. But the fact of the matter
is Joe Biden did not create this inflation. And if we really
want to talk about inflation and administrations, the inflation
last year got up to what, over 6 percent?
Well, in the 1970s, following 2 back to back Republican
administrations, Ronald Reagan and his successor, inflation hit
12.6 percent. Now, can you imagine what that would be like
today? 12.6 percent? And small businesses were screaming for
help. It was so interesting that in 1974, Gerald Ford addressed
the joint session of the Congress, and he gave this long,
detailed speech about what we as Americans can do to drive down
inflation. And people listened politely. And then at the end of
the speech, he pulled out a great big button that said W-I-N.
And he hung it on his lapel, and it said it stood for Whip
Inflation Now. And that he and the First Lady and his family
was going to find a way to spend less, and the government
probably needed to find a way to spend less. But all Americans
have the responsibility to, quote, Whip inflation. Now, Bob
Hope, who was a dear friend of the President at the time, went
on stage a few weeks later and gave a joke, or told a joke,
saying that since that great speech about whipping inflation at
12 percent, whips have gone up by $0.50 in the last week. So if
you live long enough, you'll see everything at least twice. I
believe that Greenspan, Alan Greenspan, who was his economic
advisor at the time, said it was the most unbelievable
demonstration of stupidity that he had ever seen or heard.
So there is enough blame to go around to everybody. And I
know someone mentioned, I think it was the gentleman from the
great state of Texas earlier, Ronald Reagan. Well, I knew
Ronald Reagan. I served with Ronald Reagan. And Ronald Reagan
said about inflation that it is not the fault of any particular
administration. It is the fault of policies that can carry over
from administration to administration. So I just want us all to
take a little bit of a deep breath and remember that we're
seeing now what we saw then only twice as devastating without
as we saw then a Democrat in the White House. So it is really
not about parties. It is more about policies, practices,
principles. Trying to figure out what works doesn't work and
throwing stuff up against the wall and realizing that none of
us really have an answer.
But there is a good idea here, there is a good idea they're
there, and then we try to find a way to make it all work. So I
just have one question of you, Mr. Bivens. I want to go back to
the fact that inflation is slowing, but it is not reversing.
However, I think that there are some other things that are
keeping prices elevated that maybe we should talk about for a
moment. You'd mentioned price margins in respect to the
gentlewoman's question a moment ago, but wouldn't labor market
have something to do with that? Wouldn't employment levels have
something to do with that? And wouldn't the monopoly power and
pressure downward on really small businesses that operate on
the real main street, wouldn't those also be things that sort
of drive this uncontrollable beast that we call inflation?
Mr. BIVENS. Yeah, I think all those influences go into the
mix of what generates the inflation rate. And so one of the
reasons why I'm relatively encouraged by what I'm seeing in
very recent data and inflation and think like we some patients
will will help us a lot is that we have not seen inflation lock
in and become embedded across every sector of the economy like
you brought up the 1970s.
One reason why that inflation was so incredibly tough to
fight was like every sector, workers, rank and file workers,
small businesses, corporate profits all saw really rapid gains
in their income growth year after year as they all tried to
pass on price increases to each other. That dynamic really
hasn't happened this time. There is one sector corporate
profits that have really increased their share of the total.
Everyone else's income is kind of lagging behind and actually
being an anchor on inflation and trying to bring it back down.
Mr. MFUME. Thank you very much. That is the thing we don't
talk about that much, the corporate side of all this. Well,
this gentleman from Maryland yields back. Mr. Speaker, thank
you for the opportunity.
Chairman WILLIAMS. Okay, thank you. And I recognize Mr.
Phillips from the great state of Minnesota for 5 minutes.
Mr. PHILLIPS. Thank you, Mr. Chairman. Let me start with
you, Mr. Gray. You made some comments, and I concur that
deficit spending is accretive to inflation. I think it is basic
economics. I just looked at core inflation rates around the
world. The most recent update I see, the US is about 5.5
percent. Some countries doing a little bit better than us, but
we got Germany at 5.8 percent, Italy at 6.9, Denmark, 6.1,
Greece, 6.1, Spain, 6.1, Paraguay, 6.2. France, 6.3, Norway,
6.3. Ireland 6.4. European Union 6.45. Australia, 6.6.
Netherlands, 6.6. Honduras, 6.6. Peru, 6.7. United Kingdom,
6.8, Belgium, 6.8, New Zealand, 7.3. I can keep going. Sweden,
7.6. Chile, 8.7. Estonia, 10.8. Poland, 12.2. Pakistan, 20.
Egypt, 38. Argentina, 105. Not so bad, comparatively. Is that a
fair statement? Compared to developed countries around the
world? Compared to those large numbers, our smaller numbers are
better.
Okay. And by the way, I'm the first to admit I'm really
tired of both parties being very poor fiscal managers of our
economy. One party talks about doing it a little bit more than
the other, neither are doing it. Both deserve blame. What
president in our country's history added more to our federal
debt than any other in a 4 year term? I don't have that off the
top of my head, but I have a pretty good guess. Who do you
think? I would imagine it is probably not the current one, but
perhaps the last one. That is correct. Donald Trump added $7
trillion. So all I'm getting at here is I'm tired of this
nonsense about who. But we're all responsible for it, every
single one of us, both parties. And I simply want to focus more
on solutions because that is what we're here for.
So to all of your witnesses, thank you. To our Chairman and
Ranking Member, thank you. But in terms of culture, man, I just
am tired of this throwing stones, because we're both
responsible. With that said, I do want to talk about solutions.
Some of you have mentioned some before. I've been a small
business owner my entire life. I know how darn tough it is
during the best of times, let alone during inflationary times.
I also, as a banker, Ms. Lee, I can imagine trying to find that
intersection between raising rates to cool the economy and
reduce inflation with ensuring that we have capital access to
small businesses as a challenge. Just share with me what you
think is the most important thing that we policymakers can do
now in a thoughtful manner to actually make life easier for
small business owners as it relates to inflation regulation or
anything else. Why don't we. Start with you, Mr. Bivens.
Mr. BIVENS. I would say for small business owners, the most
important thing is enhanced antitrust agenda level.
Mr. PHILLIPS. You talk about that a little bit. You
mentioned that earlier. Be a little more specific.
Mr. BIVENS. A couple of things. I mean, one, I think we
often think about antitrust as a make sure big companies are
not charging their own customers really high prices because of
their privileged market position. We also need to look at how
they treat their suppliers. A lot of the stories about small
businesses being squeezed are my input. Prices are rising. I
have no control over that. Then when I try to sell my stuff,
often to a big corporate retailer, they just tell me no. And
they do not give me any sort of extra price boost at all. I
think that is a real problem and that is an asymmetry of
bargaining power that is going to hurt them even during non
inflationary times. But it is becoming really acute now.
Mr. PHILLIPS. I appreciate that. Okay. Antitrust. Got that.
All right. Ms. Lee, what can we do expeditiously to help small
businesses?
Ms. SALDANA LEE. In my opinion, every Congresswoman, every
congressman needs to sit and just be in that small business
owner's shoes. Get educated, get in depth into the real cost of
each particular different type of industry, different type of
business. Because that is one of the best things about banking.
We call them deals. No deal is the same, every deal is
different and every customer is different. And that is what I
feel would be beneficial because it would come back to getting
educated and then forming the policies that need to be formed.
Mr. PHILLIPS. Thank you. In fact, I do a series called on
the Job with Dean. I spend 2 to 3 hours a shift at small
businesses. I've done about 30 of them in my district. Most
educational, insightful, enlightening thing. I wish every
Member of our Committee would do the same in his or her
districts. Why don't we move to you, Mr. Zittle? I'm sorry. I'm
sorry, Mr. Gray. Yeah, sorry. Just trying to throw you off a
little bit.
Mr. GRAY. I would just say do no harm. And this Congress
has paid good attention and discussed opportunities to increase
supply across a number of industries, and I would continue
those.
Mr. PHILLIPS. Okay. And Mr. Zittel?
Mr. ZITTEL. Consistency and policy making, it doesn't
matter whether it is state line or country or in the world. You
can't sell coal to China. We live under the same sky and then
want to be all electric. Same thing with state to state. Policy
making has to have a concept and they got to know what they're
talking about.
Mr. PHILLIPS. Any specific policy relative to your business
that would be most helpful? You mentioned natural gas, under--
--
Mr. ZITTEL. Anything labor for US.
Mr. PHILLIPS. Labor----
Mr. ZITTEL. Our state and labor.
Mr. PHILLIPS. Maybe immigration reform to help increase the
supply of labor. What do you think of that?
Mr. ZITTEL. No, we're good.
Mr. PHILLIPS. Oh, you're good?
Mr. ZITTEL. Yeah, they work out just fine. It is our state
labor.
Mr. PHILLIPS. Okay, thank you. I yield back.
Chairman WILLIAMS. Next, I recognize Mr. Alford from the
great state of Missouri for 5 minutes.
Mr. ALFORD. Thank you, Mr. Chairman. I appreciate that.
Ranking Member small businesses contribute greatly to the
American economy, the fabric of our society, our way of life.
But rampant inflation is contributing to the downfall of a lot
of small businesses. It is a matter really important to me in
our district. Our district is very rural, 24 counties. We have
95,000 farms in the state of Missouri. A lot of these are
family owned. We're losing a lot of farms. 1000 a month in
America. This is serious business. Farmers are small business
owners as well. And everyday small business owners have to deal
with the crushing effects of inflation, higher input costs,
increased labor costs.
65 percent of small businesses say they are likely or very
likely that they will permanently close if inflation continues
at its current pace. Economist Larry Summers, who served in the
Obama administration, said the risk of this inflation is
sizable and that he believes we will tip into a recession.
Biden Harris administration has decided to focus on woke
policies. Instead of tackling inflation, they've also decided
to increase, not decrease, regulations, adding to the cost of
doing business. Well, folks, it is time that we and the Small
Business Committee and the House of Representatives get down to
the business, to once again allowing the greatness of our small
businesses to be unleashed and tame the Biden inflation.
My constituents are focused on 3 big things food, fuel and
fertilizer. The F 150 is a model of a truck. It shouldn't be
what it costs to fill it up. But unfortunately, our farmers are
dealing with these higher input costs, driving them some out of
business. President Biden has targeted the fossil fuel
industry, but he has squarely put the crosshairs on the backs
of the American people. And it is time for this to end. Andrew
bettering chairs. The Missouri Farm Bureau young farmers and
ranchers program. He is very concerned about these input costs.
He says, I think we're just in a situation where you have to
hold tight and hope for the best. Hopefully there is light at
the end of the tunnel. Well, hopefully there is. And Mr.
Zittel, I want to start with you. Do you see light at the end
of the tunnel? And what can we tell young farmers like Andrew?
Mr. ZITTEL. Same thing I tell my son, be patient. Same
thing Andrew is saying. We've weathered the test of time. We've
been around 100 plus years. You get creative. It will never be
easy, I don't believe I always had the dream that it would
happen in my lifetime, but I don't think I'm going to last that
long. I believe the American farmer will become more
appreciated and better compensated in the future because we're
going to lose enough of them where they're going to become a
rare enough commodity that people will start to understand what
they're putting in their mouth.
Mr. ALFORD. We better start realizing that quickly. Our
food security is our National security, as you well know. Mr.
Zittel, Mr. Gray, inflation is a burden for all Americans. It
is a tax on all Americans. I don't care how much money you
make, what your skin color is or what pronoun you go by. It is
a tax. The negative effects of inflation are really hard felt
in rural communities. As we've talked about, incomes grew
slower there while expenses grew faster. It has put rural small
businesses in a tough spot. Mr. Gray, how are currently
administration policies making it more challenging for rural
small businesses to navigate the impacts of inflation?
Mr. GRAY. I would first speak to the current inflationary
environment as I think we would all agree is complex. I would
identify, however, some policy errors that were made recently
that exacerbated it. It certainly not the only cause and as the
Members of the Committee have already addressed, the regulatory
environment is a challenge for commerce. And I think the
combination of those 2 elements are antithetical to our
understanding of price discovery which is the intersection of
supply and demand. And these policies sort of push in the wrong
direction.
Mr. ALFORD. I can't help but think have we had a different
president and a different administration? This would not be
happening. The war on fossil fuels would not be happening. We
would be energy dominant and not energy dependent as we are
going on our hands and knees and begging other countries,
taking oil out of our strategic oil supply, putting it at risk
on a National security level. And I can't help but think that
fertilizer prices which are dependent upon natural gas prices,
that's what makes fertilizer. We only have 7 percent of the
world's fertilizer is made in the United States of America
because the overregulation of EPA and other government agencies
that see fit to try to shut down businesses so we can't have an
active, growing economy, I think that is reprehensible. And I
think we here on the Small Business Committee are going to make
every step we can to get people back into the business of doing
business. Thank you, Mr. Chairman. I yield.
Chairman WILLIAMS. Thank you. I now recognize Ms. Scholten
from the great state of Michigan for 5 minutes.
Ms. SCHOLTEN. Thank you so much Mr. Chair and thank you so
much to the witnesses for taking time out of your busy lives
here today. I want to start by saying that inflation has been a
deeply concerning issue for individuals in my district and I am
so grateful that we're having this hearing today.
As my colleague Representative Phillips said, this is an
issue that has been blown up by both parties. We need to put
the politics aside and focus on solutions which is what I hope
we can do here today. I know that I came to Congress because I
was concerned about working families like mine and the rising
costs. So many families in West Michigan work hard, pay their
bills and still struggle to make ends meet. Prices across the
board are too high and wages are too low. Inflation is slowing
which is encouraging.
However, it isn't reversing. American families and small
businesses are still suffering. Mr. Bivens, in your testimony
you spoke about how inflation is the inevitable result of
massive shocks to the economy and the long lived but steadily
dampening ripple effects. You go on to list the Pandemic and
the Russian invasion of Ukraine as some of those shocks but
what is keeping prices elevated now that the ripple effects of
these shocks have subsided?
Mr. BIVENS. So I would argue they have not fully subsided.
I think they're really long lived and there's also big lags
between when they actually subside and when they show up in
lower inflation. And so I gave the example to your colleague
earlier it is widely recognized that what is actually happening
in housing markets is only reflected in official measures of
inflation with up to a year lag. I think we've only seen in the
past month or 2 a deceleration in the housing component of the
CPI. I think that's really reliably going to continue over the
next year because we know in the private sector the real time
data those costs have been moderating a lot. The same story
holds with a bunch of very labor intensive sectors in the
service industry where prices are really a function of what's
happening to wages. Wage growth was through the roof in the
very beginning of the recovery. Everyone remembers the
restaurant scrambled to rehire 12 percent wage increases.
That's an old story and it's just taking time for those to
filter through. And then the last thing is profit margins are
not as high as they were at their absolute historic peak at the
beginning of 2022 but they've only come down a little bit. I
think if they normalize to like 2019 levels over the next year
that puts a lot of disinflation on the table as well. So I
would argue the ripple effects they're still out there but
they're going to predictably dampen unless some, god forbid,
huge shock hits again.
Ms. SCHOLTEN. So you think it is the ripple effects that
are still contributing?
Mr. BIVENS. Yes.
Ms. SCHOLTEN. I wonder if you could talk my colleague Mr.
Phillips listed off a number of inflationary rates of other
countries and developed nations. I wonder if you can dig into
that a little bit and talk about how the United States compares
to other similarly situated countries.
Mr. BIVENS. Yeah, when I see that data the first thing I
think is it's very clear evidence that there is just not some
US specific policy mistake that caused our inflation. It was
literally every single advanced economy in the world saw a
pronounced acceleration in inflation. Ours came a little sooner
than some others but it also peaked sooner and it's on its way
down whereas in many other countries it is not. And if you look
across the different policy choices those countries made,
they're all over the table like some did very aggressive fiscal
relief and recovery like we did, which I think was appropriate.
Some really didn't at all, but still got the inflation. And so
what I take from that data is that the US is kind of in the
middle of the pack generally as to what happened with its
inflation experience. It's better on the recovery front, and it
really means that there is no one dumb US specific mistake that
led to this. It was a global pandemic and global war that led
to most of the inflation we've seen.
Ms. SCHOLTEN. Thank you. Because I only have a minute left,
I want to stick with you. In a little bit of a follow up, we
talk about how inflation needs bipartisan solutions. When you
think about the best case scenarios for recovery, can you speak
to whether we are on track to achieve this recovery scenario
and what specifically in terms of policies, especially those
policies we can actually achieve in a bipartisan manner in this
Congress we can help do as legislators.
Mr. BIVENS. So I think at the moment we're actually on a
pretty decent track. Everyone wishes inflation would come down
much more quickly, but I don't wish that at the cost of having
unemployment rise a lot. And so I don't want the Fed to
continue super aggressive rate hikes. I think at the moment the
soft landing is in reach. That is, we have inflation come down
steadily. Normalize unemployment never really goes up. I think
in terms of, like, bipartisan things that can happen, I think
they're mostly on the sort of infrastructure spending front.
There are still some other things we could do. And I would also
include a big investment in childcare that boosts labor supply.
And actually I think that's not going to take effect in the
next six months, but it really could make us much better
prepared for the next big shock that comes our way.
Ms. SCHOLTEN. Thank you. Yield back the remainder of my
seconds.
Chairman WILLIAMS. And now recognize Mr. Bean from the
great state of Florida for 5 minutes.
Mr. BEAN. A very good afternoon, Mr. Chairman. Thank you so
much. And good afternoon, panelists. I'm a rookie in more ways
than one, Mr. Chairman, as you know, and everything happens at
once. Running from committee to committee. Mr. Who's our
banker? Our banker is Miss Lee. But what are we seeing out
there? And I was a banker for 13 years. What are we seeing? Are
we change because inflation I know it's kicking everybody's
tail. What are we doing? Are we changing lending standards? Are
we looking at different things? What's changed in banking now
that inflation is just kicking everybody's tail?
Ms. SALDANA LEE. Okay, before I answer, can I ask you a
question?
Mr. BEAN. Sure, go right ahead. You're recognized
Ms. SALDANA LEE. Why are you not a banker anymore?
Mr. BEAN. I got this Congress gig going on right now, but
you never know. You never know if it doesn't work out.
Ms. SALDANA LEE. I thought you were going to say
compliance.
Mr. BEAN. No. You never know, though. You never know. But
it's certainly a rewarding career of helping businesses and
putting people in houses and businesses and whatnot. I know
there's great satisfaction. But is it hard now? Is it gotten
difficult?
Ms. SALDANA LEE. It's gotten extremely difficult. And I
mentioned earlier that I think that the thing that's most
difficult is a small business that's already suffering, and
they are needing capital to continue to meet some of those
increased prices. But they don't want to get into debt further
than they might already be or just get debt if they don't have
any already. There's a lot of short-term things that the bank
is assisting them with, and that has helped tremendously. But
it's almost like the paycheck to paycheck for a consumer.
That's the way it is for business. But we're just going to
continue to help however we can.
Mr. BEAN. Good Deal. Are you finding this is a toss-up
question? Is hiring people we've heard that as a recurring
theme. Are you all seeing that as well? Getting people to work
for you everywhere?
Ms. SALDANA LEE. Everywhere.
Mr. BEAN. You're seeing that, too? Anybody else? Mr. Gray.
Jump in.
Mr. GRAY. I don't have any direct reports myself, but I
know elsewhere in my organization it's been a struggle to find
folks
Mr. BEAN. Very good.
Mr. ZITTEL. People are always surprised when I say this not
an issue. But we don't have Americans that want to be farmers
either. So, we're depending on the H 2 A program. Good workers,
reliable workers, happy to be with us, always come back. So
far, so good.
Mr. BEAN. And with the remaining time, does anybody have
anything to say that wasn't asked of you? Ms. Lee?
Ms. SALDANA LEE. I can't think of anything off the top of
my head. Some of the points that I really wanted to make
actually questions were posed and I was able to field those
questions.
Mr. BEAN. Very good. Mr. Gray. Anything? Any final
thoughts?
Mr. GRAY. Just the observations from the Ranking Member at
the beginning are well taken, and I think we would all agree
that the response to the inflation is painful and because the
Federal Reserve, our primary institution for controlling and
moderating price stability, has some very blunt tools. And
unfortunately, we are in a position where they are having to
deploy them. And the issue is a credit crunch.
Mr. BEAN. Got you. Mr. David?
Mr. ZITTEL. I think the American farmer does what he does
because he loves it. It's not ever going to be a get rich
scheme. I always tell people I passed 3 very responsible human
beings on to the rest of the world and only one of them became
a farmer. But I hope more of them become farmers because that's
where you get work ethic from. So don't kill the American dream
of being a farmer.
Mr. BEAN. Amen. Amen. Mr. Chairman, I yield back.
Chairman WILLIAMS. Thank you very much. I now recognize Mr.
Thanedar from the great state of Michigan for 5 minutes.
Mr. THANEDAR. Thank you, Mr. Chair, and I thank all of the
witnesses here. This has been a good discussion. I'm a small
business owner. I'm a serial entrepreneur, started many small
businesses. And Mr. Bivens, I struggled making payroll, hiring,
acquiring new customers. Running a small business is tough,
even though small businesses create 70 percent of the jobs. Now
looking back in this pandemic and in current situation, it
somehow seems to me that larger corporations are continue to do
well. They continue to command higher prices, but the small
businesses continue to struggle. They are closing down. They
have felt real pain of the current economic situation. Why is
that? Why is the larger corporations able to be able to pad
their profits and look robust and healthy as ever? Why is that?
Help, help me understand if you can.
Mr. BIVENS. Yeah, I think the simple answer to it is just
like different degrees of market power. A lot of the stories on
the panel, which I think are totally true, is you've got small
businesses and they look on the input side and they see costs
rising a lot and then somehow, they're not able to sell their
output for much higher prices. And on the one hand that should
be a puzzle. There's inflation. I thought all prices were
rising. Why aren't they just getting it back on the output
side? And it's often the case that because some of their
customers tend to be really big corporate retailers who have
the ability to say no, don't care about what's happening to
your input costs. I'm holding the line on prices and I'm able
to just because I'm a big corporation and I've got market power
that you don't. And so that's why I think, like inflation or
not, long run, short run, one key issue is just to relive level
that playing field and actually do more robust antitrust
enforcement so that the pain is actually shared more. Equitably
across society when you've got these shocks and it just leads
to more efficient outcomes when you've got more competition in
markets as well.
Mr. THANEDAR. Yeah. Thank you. Thank you so much. And Mr.
Gray, I represent Detroit, State of Michigan. Many of the
residents in my district average typical annual household
income could be as low as $25,000, maybe as high as $45,000.
So, people are struggling and they haven't seen, many of these
families haven't seen the benefit of the wage increases
depending on the type of work that they do. But they are
experiencing the same inflation as everybody else, the same
cost increases, the cost of grocery, the fuel, everything else
going up. Now, Federal Reserve at least looks like indicating
that they would want to pause the interest rate hikes. Now,
given the current inflation situation, what would that do to
the inflation? And do you think that the Fed is gone far enough
or they need to continue to go further?
Mr. GRAY. Thank you for the question and your observation
is absolutely correct. And this is true of every recovery, is
it not? Too often, those at the lowest end of the income
distribution recover last. However, I do think in the current
recovery, we've actually seen something of a break from that
tradition. And we have seen, particularly in this very tight
labor market, is unemployment rates across all demographic
groups are really bouncing off historic lows. And I view that
positively within the context, though, of an inflationary
environment. However, in terms of the outlook on the Federal
Reserve, I think there's an argument for a pause. We have seen
rapid increase in the tightening of monetary policy. So,
there's an argument for that at present.
Mr. THANEDAR. Okay. With 30 seconds remaining, do you
believe that the Fed policy has helped us avoid a recession and
likely to end up into a soft landing?
Mr. GRAY. I believe that's the hope. We're not there yet,
and so I simply don't know if that's yet achievable. I am
hopeful, and so far, we haven't landed hard.
Mr. THANEDAR. Mr. Gray, thank you. And, Mr. Chair, I'll
yield back.
Chairman WILLIAMS. Thank you very much. And I would like to
thank our witnesses today. We've had almost 2 hours of a
hearing. It's been great for your testimony, and I hope that
when you go back, you realize that everything in Washington is
not one side or another. I think you see on this committee, we
agree to a lot of things, which is important because we need to
agree on main street, America and so forth. So, I appreciate
you being here. I appreciate all my colleagues being here
today. And without objection, Members have 5 legislative days
to submit additional materials and written questions for the
witnesses to the Chair, which will be forwarded to the
witnesses. I ask the witnesses to please respond promptly if
that happens. And if there's no further business, without
objection, the committee is adjourned. Thank you.
[Whereupon, at 3:50 p.m., the committee was adjourned.]
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