[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
TAKE TWO: THE PRESIDENT'S PROPOSAL TO STIMULATE THE ECONOMY AND CREATE
JOBS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON REGULATORY AFFAIRS,
STIMULUS OVERSIGHT AND GOVERNMENT SPENDING
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 13, 2011
__________
Serial No. 112-78
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Regulatory Affairs, Stimulus Oversight and Government
Spending
JIM JORDAN, Ohio, Chairman
ANN MARIE BUERKLE, New York, Vice DENNIS J. KUCINICH, Ohio, Ranking
Chairwoman Minority Member
CONNIE MACK, Florida JIM COOPER, Tennessee
RAUL R. LABRADOR, Idaho JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee BRUCE L. BRALEY, Iowa
FRANK C. GUINTA, New Hampshire
MIKE KELLY, Pennsylvania
C O N T E N T S
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Page
Hearing held on September 13, 2011............................... 1
Statement of:
Taylor, John, Mary and Robert Raymond professor of economics,
Stanford University and George P. Shultz senior fellow,
economics, Hoover Institution; Diana Furchtgott-Roth,
senior fellow, Manhattan Institute; Heather Boushey, senior
economist, Center for American Progress; Peter Schiff, CEO,
Euro Pacific Capital, Inc.; and Brink Lindsey, senior
scholar, Kauffman Foundation............................... 26
Boushey, Heather......................................... 49
Furchtgott-Roth, Diana................................... 33
Lindsey, Brink........................................... 72
Schiff, Peter............................................ 64
Taylor, John............................................. 26
Letters, statements, etc., submitted for the record by:
Boushey, Heather, senior economist, Center for American
Progress, prepared statement of............................ 51
Furchtgott-Roth, Diana, senior fellow, Manhattan Institute,
prepared statement of...................................... 35
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio:
Article dated May 17, 2011............................... 7
Article dated May 18, 2011............................... 4
CBO report entitled, ``Estimated Impact of the American
Recovery and Reinvestment Act on Employment and
Economic Output from April 2011 Through June 2011...... 10
Information concerning mainstream economists............. 100
Lindsey, Brink, senior scholar, Kauffman Foundation, prepared
statement of............................................... 74
Schiff, Peter, CEO, Euro Pacific Capital, Inc., prepared
statement of............................................... 66
Taylor, John, Mary and Robert Raymond professor of economics,
Stanford University and George P. Shultz senior fellow,
economics, Hoover Institution, prepared statement of....... 28
TAKE TWO: THE PRESIDENT'S PROPOSAL TO STIMULATE THE ECONOMY AND CREATE
JOBS
----------
TUESDAY, SEPTEMBER 13, 2011
House of Representatives,
Subcommittee on Regulatory Affairs, Stimulus
Oversight and Government Spending,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:07 a.m. in
room 2154, Rayburn House Office Building, Hon. Jim Jordan
(chairman of the subcommittee) presiding.
Present: Representatives Jordan, Issa, Buerkle, DesJarlais,
Kelly, Kucinich, and Cummings.
Staff present: Robert Borden, general counsel; Will L.
Boyington, staff assistant; Molly Boyl, parliamentarian; Adam
P. Fromm, director of Member services and committee operations;
Linda Good, chief clerk; Tyler Grimm, professional staff
member; Christopher Hixon, deputy chief counsel, oversight;
Justin LoFranco, press assistant; Mark D. Marin, senior
professional staff member; Becca Watkins, deputy press
secretary; Jaron Bourke, minority director of administration;
Lisa Cody, minority investigator; Kevin Corbin, minority staff
assistant; Ashley Etienne, minority director of communications;
Jennifer Hoffman, minority press secretary; Adam Koshkin,
minority staff assistant; Lucinda Lessley, minority policy
director; and Ellen Zeng, minority counsel.
Mr. Jordan. The committee will come to order.
Today's hearing is on the President's job stimulus package
that was just delivered to Congress yesterday.
We will start with an opening statement from the Chair and
then from our friend and ranking member, Mr. Kucinich, then get
right into testimony.
In early 2009, President Obama sold the stimulus as a
solution to the recession and skyrocketing unemployment. The
President worked with House and Senate Democrats to pass the
stimulus as quickly as possible, promising that the
unemployment rate would not go above 8 percent once the bill
was passed.
The administration assailed critics by claiming there was a
consensus amongst economists that a massive spending bill was
in the country's best interest. The President and others
claimed the stimulus would create 3 to 4 million new jobs. Yet,
over two and a half years later, 1.7 million fewer Americans
have jobs at a cost of $825 billion to taxpayers. The
unemployment rate has climbed above 8 percent, as we all know.
It was 8 percent the month the President signed the stimulus
and stayed above that point ever since.
Currently, only 55 percent of Americans have full-time jobs
and 25 million Americans are unemployed or cannot find full-
time jobs. That is more than twice the population of the State
the ranking member and I come from. Last month, the U.S.
economy had zero job growth, the first month that has happened
since the Second World War.
No matter how you look at the stimulus, it has simply
failed to live up to the administration's promises. However,
President Obama has never admitted any failure. Instead, he has
continued to mislead the American people by praising the
benefits of the stimulus package and at times, has claimed ``it
worked exactly as we anticipated.'' Now the President wants
more.
Last Thursday, he announced he wanted a new $447 billion
stimulus package. The President claimed that this new American
Jobs Act will ``provide a jolt to an economy that has
stalled,'' almost the exact same language Vice President Biden
used to describe the 2009 stimulus when he said it would
provide a ``necessary jolt to our economy.''
We all know that the first stimulus did not provide that
jolt but the similarities between 2009 and 2011 go beyond the
administration's rhetoric. The Stimulus Part II contains many
of the same spending priorities that failed to create jobs
under the first one, throwing hundreds of billions of dollars
in tax money around at ill advised projects that did not create
jobs the first time and will not create jobs under a second so-
called stimulus bill.
We need an honest discussion about our economy and not just
rhetoric. Millions of unemployed Americans are depending on it.
Before we consider the President's second package, we must
examine the results of the first one to learn from them and to
prevent ourselves from making the same mistakes.
I have said many times, if big government spending was
going to get us out of this mess, for goodness sakes, we should
have been out of it a long time ago. That is all the government
has done for the last 3 years. You can even take that back to
the previous administration to some degree. This administration
has obviously taken it to a whole new level and as the facts
point out, it does not work.
Instead of rushing to pass additional spending, we need to
ensure that any new legislation is carefully crafted and
actually facilitates job creation. Today's hearing brings
together economic and financial experts from a wide array of
backgrounds to discuss this so-called second stimulus. I hope
this hearing will bring to bear what we have learned over the
past several years and how we can move forward to create an
environment favorable to job creation and economic growth, one
that is conducive to job creation and not an impediment to that
fact.
With that, I now recognize my good friend, the
distinguished Member from Ohio, Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman.
The most recent figures paint a stark picture of the U.S.
economy. Employers did not add any jobs in August and only
35,000 jobs were added over the last 3 months. Unemployment
remains at 9.1 percent and although the economy added 2.4
million private sector jobs between February 2010 and July
2011, these gains were partially offset by the loss of 402,000
public sector jobs at the State and local level during the same
period.
The problem we are facing is growth is too slow. The
Economic Policy Institute just released a report that found
there are approximately 11.1 million fewer jobs than needed and
6.8 million fewer jobs than when the recession started. To
bring down the unemployment rate and to stay even with the
adult population growth, our economy should be creating 400,000
jobs per month. As the EPI report notes, over the last 6
months, the economy has added only an average of 144,000 jobs
each month. In August, most private sector jobs added were in
social services or health care.
Mr. Chairman, I have several documents I would like to put
into the record by unanimous consent. The first is the Paul
Krugman analysis. Chairman Issa issued a staff report claiming
that the entire stimulus failed. One of the key assertions in
this report is that the stimulus somehow destroyed a million
jobs. To support this conclusion, Chairman Issa's staff report
cites a single study, one study, an analysis issued in May 2011
by researchers at Ohio State University. Unfortunately, this
study has been widely discredited by economists because of its
flawed methodology.
The first document I would like to enter into the record is
an analysis by economist and Nobel laureate Paul Krugman called
``Stupid Stimulus Tricks.''
Mr. Jordan. Without objection.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Kucinich. I just want to cite one paragraph. It says,
``So here is another the stimulus didn't work paper making the
rounds and as usual being seized upon by people who have no
idea what the issues are with this kind of estimation. The
instruments, variables used to correct for possible two-way
causation are weak and dubious. The best interpretation is that
the authors tried something that happened to give the results
they wanted, then stopped looking. Really, this isn't the sort
of thing worth wasting time over.''
The second analysis I want to be made part of the official
record is an analysis by Dean Baker. This is an analysis that
also faults the methodology of the Ohio State University
report.
Mr. Jordan. Without objection.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Kucinich. I just want to quote a paragraph in there
that says, ``With an exercise like this,'' talking about the
report, ``you always have to worry about the problem of cherry
picking. For this reason, you usually want to run your
regressions a variety of different ways to show the results do
not depend on some arbitrary specification. It doesn't look
like they've done this or at least they didn't show much
evidence of such robust tests in their paper.''
Finally, the CBO report, I ask unanimous consent that this
be entered into the record.
Mr. Jordan. Without objection.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Kucinich. This CBO report is cited in the very first
footnote of Chairman Issa's staff report but the staff report
omits the key passage from the CBO report that undercuts the
entire argument that the stimulus failed. To the contrary, the
CBO report says the stimulus worked. It says this, ``CBO
estimates that the ARRA's policies had the following effects in
the second quarter of the calendar year 2011 compared with what
would have occurred otherwise.'' Here is what they cite.
They raised the real gross domestic product by between 0.8
percent and 2.5 percent; they lowered the unemployment rate by
between 0.5 percent and 1.6 percentage point; they increased
the number of people employed by between 1 million and 2.9
million; and increased the number of full-time equivalent jobs
by 1.4 million to 4 million. The CBO report makes exactly the
opposite point as the chairman's staff report.
The reason I brought this to the committee's attention is
that there are errors in the staff report and they could cause
people to be misled. I don't want to belabor the point but I
think it is important that the committee is apprised of this so
that in our deliberations, we can consider this additional
information.
As the Chair knows, I am not someone who is a reflexive
supporter of the administration. I don't think the stimulus
went far enough, but it did do something and I wanted to make
sure that was put in the record.
I thank the gentleman for his time.
Mr. Jordan. I thank the ranking member.
It is the practice of this committee to swear in all
witnesses, so if you will all stand and raise your right hands.
[Witnesses sworn.]
Mr. Jordan. Let the record reflect that the witnesses
answered in the affirmative.
In order to allow time for discussion, please limit your
testimony to 5 minutes and your entire written testimony will
be made a part of the record.
I want to introduce our panel. First, we have Professor
John Taylor, the Mary and Robert Raymond professor of economics
at Stanford University and the George P. Shultz senior fellow
in economics at the Hoover Institution. Thank you, Mr. Taylor,
for being with us again.
We have Ms. Diana Furchtgott-Roth, senior fellow at the
Manhattan Institute for Policy Research. Thank you for being
with us this morning.
We have Dr. Heather Boushey, a senior economist at the
Center for American Progress. Thank you for joining us as well.
We also have Mr. Peter Schiff, chief executive officer of
Euro Pacific Capital and Mr. Brink Lindsey, senior scholar at
the Kauffman Foundation. Thank you both for being with us this
morning.
We will go right down the list and start with Mr. Taylor.
Each of you has 5 minutes, so fire away.
STATEMENTS OF JOHN TAYLOR, MARY AND ROBERT RAYMOND PROFESSOR OF
ECONOMICS, STANFORD UNIVERSITY AND GEORGE P. SHULTZ SENIOR
FELLOW, ECONOMICS, HOOVER INSTITUTION; DIANA FURCHTGOTT-ROTH,
SENIOR FELLOW, MANHATTAN INSTITUTE; HEATHER BOUSHEY, SENIOR
ECONOMIST, CENTER FOR AMERICAN PROGRESS; PETER SCHIFF, CEO,
EURO PACIFIC CAPITAL, INC.; AND BRINK LINDSEY, SENIOR SCHOLAR,
KAUFFMAN FOUNDATION
STATEMENT OF JOHN TAYLOR
Mr. Taylor. Thank you, Mr. Chairman and members of the
committee, for holding this hearing, which is very important.
As both you and the ranking member indicated, unemployment
is tragically high at this point. Also, as you both indicated,
the reason for that is economic growth is so low. Businesses
are not starting up enough, they are expanding enough and they
are not hiring enough to reduce unemployment from these very
high levels.
In my view, based on my studies and others, I think the
fiscal policy response to this so far have been largely
ineffective. They may have even made things worse. They have
largely been in the form of temporary, targeted interventions
rather than comprehensive economic strategy. Economic growth in
this recovery has been 2.4 percent, almost not a recovery at
all. That compares to 6.5 percent in the recovery from the last
deep recession. In 1983-1984, that recovery had a growth of 6.5
percent. I have a chart in my testimony which shows the
striking difference.
I do think we need a new economic policy, one that focuses
on sustained higher growth. Unfortunately, the proposal the
President announced last week is really more of the same as
what we have had in the last few years, temporary, targeted
programs and now even with permanent tax increases down the
road.
It is much like the 2009 stimulus when you look at it--307
billion of the 447 billion are temporary reductions in tax
payments. We did that in 2009. It didn't work. When I look at
where the money went and it is very important not to just use
regressions, not just to use models, but look where the money
went. When I look at where the money went, it largely stayed in
peoples' pockets, they didn't spend it, it didn't jump start
consumption or the economy.
When we look back at previous episodes like this, these
temporary interventions, you see the same thing. In 1975,
President Ford signed one of these. His own council of economic
advisorers said it didn't work effectively, concluding after
that, ``Tax reduction should be permanent rather than in the
form of temporary rebates.'' Then it was tried in 1977, the
same thing, the same assessment.
Fortunately, we had a couple of decades where we didn't do
these things and economic growth was strong. In 2001, we had
one, and in 2008 and 2009. The record is very clear, these do
not work effectively.
$140 billion of the $477 billion is in the form of grants
to State and local governments and other entities to increase
spending. This also we tried in the 2009 stimulus. I looked at
this in detail, looked at where the money went. It didn't work.
These State and local governments largely put these funds in
their coffers and you see very little impact on infrastructure.
In fact, it went down.
We also have experiences in the past in 1977 and 1978.
President Carter had a jobs oriented program like this, a
public works program where money was sent to the States and the
same thing happened. We should learn from these experiences,
don't keep trying these things.
Some say it would have been worse and Mr. Kucinich referred
to some of these studies. They are based on models, people
simulate models, they say it will work in advance, they
simulate the same models to show it worked after the fact. It
is no new information. They are not looking at where the money
went. I hope people recognize that.
From my point of view, more of these kinds of policies will
not effectively lower unemployment. I think they are a mistake.
A much better approach is to lay out a lasting, permanent
economic strategy. I would build on the Budget Control Act
which was signed this summer that makes some progress. It
doesn't go all the way but if it brings spending down further,
I would bring it to levels just of 2007 as a shared GDP. What
is so hard about that? If you do that, you can do it without
increasing taxes, with tax reform that is revenue neutral and
allow for regulatory reform or monetary reform as well. To me,
that is the best, most promising way to reduce unemployment, to
get this economy going, much more effective than more
temporary, targeted interventions which we have seen do not
work.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Taylor follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Jordan. Thank you.
Ms. Furchtgott-Roth.
STATEMENT OF DIANA FURCHTGOTT-ROTH
Ms. Furchtgott-Roth. Thank you very much for giving me the
opportunity to testify today. I would like to submit my written
testimony for the record.
I agree with everything Professor Taylor said and I don't
want to repeat what he said. I would like to move on to the
later parts of my testimony.
One of the thing we are doing increasingly in the United
States is making it harder for employers to hire workers. We
run the risk of getting back to a normal GDP growth path about
2.5 to 3 percent a year but still having employers choose to
hire fewer workers than they did previously. I would like to go
through a few reasons for that.
One is the new health care tax that is going to take place
in 2014. Starting from 2014, employers who don't have the right
kind of health insurance will have to pay $2,000 per worker per
year. Employers who do have the right kind of health insurance
but whose workers have low incomes and the premiums are higher
than 9.5 percent of the worker's household income will have to
pay $3,000 per worker per year.
This imposes a great disincentive to hiring, moving from 49
to 50 workers after the subtraction for the 30 workers that are
exempt, the cost of business, $40,000 a year. You can see that
many businesses are planning ahead. The administration says
this tax only takes effect in 2014, so it doesn't matter but
businesses do plan ahead.
The tax also affects franchises which are groups of firms.
If you are running a McDonald's, for example, and it is part of
a franchise of half a dozen McDonald's, then your number of
workers would very well exceed 49 and you might be competing
against another small independent firm with just 49 workers,
you would be at a competitive disadvantage.
Interestingly enough, the tax doesn't apply to part-time
workers. The incentive would be for the employers to reduce the
hours of their full-time workers and hire more part-time
workers. If you hire two part-time workers instead of one full-
time worker, you are exempt from the tax. This isn't the kind
of incentive we want to give employers.
Also, apart from health care, there are different
regulations that make it increasingly difficult to hire.
President Obama admitted this when he put a hold on the ozone
regulation. He did that the week before last saying this is not
the right time for such a regulation.
I went to the unified spring regulatory agenda at
www.reginfo.gov and I counted the number of EPA regulations.
There are 308 regulations in process. That means there are
still 307 that are moving forward. This doesn't even count the
36 completed regulations, completed actions. These might seem
small. If you are an employer, say a farmer, there is a
regulation that is going to tell you how you have to feed your
cattle and how you have to dispose of the manure. If you sell
pesticides, there is a regulation that says what kind of
pesticide labeling you have to put on this. They seem small
perhaps to you and me, but to these employers, they are a big
impediment for doing business. The EPA also has major
regulations on utilities, boilers, farm dust, greenhouse gases.
Moving on to the Labor Department, the EPA would still
allow coal production, we just wouldn't be able to use it in
our power plants. We would be allowed to ship it to China, but
the Labor Department has regulations on coal dust that would
prevent us even from mining the coal and getting it out of the
ground and shipping it to China for them to use. Again, this
affects geographic areas that are already very much hurt in our
recession.
The National Labor Relations Board, in its charges against
Boeing for opening a second plant in South Carolina, is sending
a chilling effect to any employer, especially those who want to
locate in the more unionized States. Any manufacturing
candidates thinking of perhaps opening a plant on the border,
just across the border in Michigan or Ohio, is thinking if I
open this plant, then if I want to open a second one maybe in
Alabama, I won't be allowed to do that so maybe I should open
the first one further south.
General Electric moved its GE headquarters to China. They
didn't get any problem from the NLRB. The message goes, if you
offshore your work, you are fine. If you open a second plant
here in the United States, we are going to cause problems.
Finally, in the last 9 seconds, I would like to mention
that we need to do more in terms of importing entrepreneurs.
Senators Kerry and Lugar have proposed a bill that would allow
more visas for employers abroad who want to create jobs here,
entrepreneurs. If they create jobs, after 5 years we give them
a green card. This is the kind of costless reform we need to be
considering.
Thank you so much for allowing me to testify.
[The prepared statement of Ms. Furchtgott-Roth follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Jordan. Thank you.
Dr. Boushey.
STATEMENT OF HEATHER BOUSHEY
Dr. Boushey. Thank you, Chairman Jordan and Ranking Member
Kucinich, for inviting me to testify today.
My name is Heather Boushey and I am senior economist at the
Center for American Progress, Action Fund.
The American Jobs Act includes proposals that will create
jobs by investing in infrastructure, putting teachers back in
schools, targeting tax cuts toward small businesses and helping
the unemployed. Independent economic forecasters say the plan
will boost growth and employment. I provide details on this in
my written testimony.
Presidents and Congresses of all political stripes,
including the Bush administration, have embraced short term,
temporary fiscal expansion to create jobs in times of labor
market weakness. An empirically grounded body of literature
documents the effectiveness of fiscal expansion and again, I
document that in my testimony.
Denying that there was any impact of fiscal expansion in
recent years is an ideological, not empirically based stance.
The American Jobs Act builds on what we know we works to get
people back to work--investments in infrastructure, both human
and physical capital, will put people to work now and yield
lasting benefits for the economy.
These investments should raise U.S. economic output by
about $220 billion above what it would otherwise be. It will
prevent up to 280,000 teacher layoffs and keep police officers
and firefighters on the job. It will modernize and upgrade our
school infrastructure, community colleges and invest
immediately in highway, highway safety, transit, passenger rail
and aviation.
This is much needed spending. The accumulated backlog of
deferred maintenance and repair in schools is at least $270
billion. The American Society of Civil Engineers estimates that
we need to spend at least $2.2 trillion over the next 5 years
just to repair our crumbling infrastructure.
Increased investments in infrastructure have saved or
created 1.1 million jobs in the construction industry and
400,000 jobs in manufacturing through this spring. Almost all
of these jobs were in the private sector. Upgrading roads,
bridges and other basic infrastructure not only creates jobs
but lowers the cost of doing business and paves the way for
businesses, small, medium and large, to be more competitive.
They put people to work earning good, middle class incomes
which expands the consumer base for businesses.
The American Jobs Act also cuts payroll taxes and provides
a tax holiday on new hires, but focuses these tax cuts on small
businesses. In 2010, 50 House Republicans co-sponsored similar
legislation. Tax cuts are an effective way to boost the economy
when demand is low although the multipliers are smaller than
for other expenditures such as unemployment benefits and
infrastructure investments.
The American Jobs Act will help the long term unemployed.
Unemployment benefits kept an average of 1.6 million American
workers in jobs every quarter during the recession. During the
past 40 years, Congress has not once allowed benefits for the
long term unemployed to expire when the unemployment rate was
above 7.2 percent and as already noted, that is 1.9 points
lower than it is today.
The American Jobs Act will also provide every worker with a
payroll tax cut. The typical household earning less than
$50,000 will receive about $1,500. This is paid for by limiting
itemized deductions and certain exemptions for high income
families, taxing investment fund managers' income as ordinary
income, eliminating certain oil and gas industry tax breaks and
changing the corporate depreciation rules. This is a good set
of pay-fors.
The economy does not have a supply side problem. Since
December 2008, the non-financial corporate sector has seen
profits rise by over 100 percent. They are holding almost $1.9
trillion in cash, the highest level since the fourth quarter of
1959. Recent regulatory changes are also not the reason for
today's high unemployment. Let's go back to basics. As the
Financial Crisis Inquiry Commission found, it was a lack of
regulation that was a key factor in creating today's economic
crisis and putting 14 million people out of work.
The problem is demand. The collapse of the housing bubble
drained trillions from our economy, followed by a financial
crisis which has left 14 million people unemployed, meaning
that households quite simply have less to spend. There is less
money flowing through our economy.
As Bill Gross, founder and Chief Investment Officer of the
world's largest bond fund, PIMCO, said recently, ``We need to
create a demand for labor. The private sector is not going to
do it.'' The question before this committee is, how will
bringing down government spending increase growth when already
interest rates are at record lows and we have trillions that
have been taken out of the economy because of the collapse of
the housing bubble. Quite simply, it won't.
The National Federal of independent businesses, which
represents small business owners, reported in August, as it has
each month since mid-2009, that it is weak sales that is the
problem. There are clear steps we can take to create jobs and
the American Jobs Act is a real step forward.
Thank you for your time.
[The prepared statement of Dr. Boushey follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Jordan. Thank you.
Mr. Schiff.
STATEMENT OF PETER SCHIFF
Mr. Schiff. Thank you. My name is Peter Schiff. I guess you
can say I am in the economic and financial gloom and doom
business. Thanks to this body, President Obama, and the Federal
Reserve, business is booming.
I would rather profit from America's success rather than
her failure, which is the reason I am here today. We have some
serious structural problems underlying the U.S. economy and we
cannot solve them until we understand them.
As a Nation, we have borrowed and spent our way into a
gigantic ditch. We are not going to get out of the ditch by
digging it deeper. We have to reverse the mistakes of the past,
not repeat them. Government stimulus will never grow this
economy. It will never create jobs. It is the equivalent of
trying to put out a fire by pouring gasoline on it.
We have to understand that the housing bubble, the
financial crisis of 2008, two events I predicted and warned
about, were the consequences of government stimulus. We
stimulated our way into this problem, we are not going to
stimulate our way out. In fact, the stimulus is actually a
sedative. The stimulus is preventing the free market from
unraveling the problems that years of bad monetary and fiscal
policy have created. We don't need more spending, we need the
opposite of spending. We need under consumption. What the
economy lacks is savings, investment, production.
If we try to preserve the jobs of the bubble economy with
more reckless money printing, borrowing and government
spending, all we are going to succeed in doing is preventing
the restructuring we need and preventing more productive jobs
from ever coming into existence.
I want to talk specifically about jobs. I am an employer. I
employ about 150 people. I would probably employ 1,000 more if
it weren't for government regulations that have inhibited my
ability to hire and grow my business and have forced me to move
portions of my business overseas in order to escape the
regulatory burden here.
The question is, why do I hire people, where are these jobs
coming from? Jobs in a free market come from two things. They
come from profits or the profit motive and they come from
capital. You need both to create jobs. In a free market, there
are going to be jobs and if there aren't enough jobs, Congress
has to ask what are we doing to inhibit this process. How are
we preventing jobs that would normally be here from coming into
existence?
In order for me to hire somebody, I have to be able to make
a profit. That means the person I hire has to deliver to me
more value than the cost of employing them. The cost of
employing them is not just the wages I pay them, but all the
mandatory benefits, the taxes and more importantly, the legal
liability that I incur when I hire somebody.
In fact, one of the riskiest things you can do in America
is to hire somebody. Because of that reason, because of all the
liability from government, from lawsuits, that you have put on
employers, most small businesses' main concern is how not to
hire people. How can I grow my business and hire as few people
as possible, that is not something that happens in the market.
That is something that happens as a consequence of government.
The other thing you need to create jobs in addition to
profit is capital. People work for me because I have capital. I
have tools that my employees lack. They come to work, I give
them an office, I give them secretarial support, I give them
computers, I give them leads, I give them brand. I give them
all sorts of things, but where does capital come from? It comes
from savings, from under consumption. Either I have to save it
myself or I have to borrow it from somebody else.
There is no money to borrow because it is all going to
government or something that government guarantees like
education or home mortgages. There is no credit available for
small businesses. It is actually a paradox but what we need is
higher interest rates. Higher interest rates encourage savings.
These low interest rates are of no benefit to typical
businesses.
Yes, it benefits government. Government can borrow all this
money from the bond market. Some of the major corporations have
access to cheap money. Wall Street can gamble with it, but
small businesses can't sell bonds. They need to borrow money
and there is no savings available. There is nothing there, so
businesses can't get capital and there is no incentive to hire
because the costs are too high.
You are looking at somebody who was actually fined--I am
happy to talk from my experience--$15,000 by security
regulators because I hired too many people. Because I hired too
many people, I incurred over $500,000 in legal bills defending
myself because I hired too many people.
Because I hired too many people, I have been in a hiring
freeze ordered by regulators for 3 years. They will not let me
hire people, they will not let me open new offices, despite the
fact that I was dying to do it. I had plenty of demand, my
business was growing, unfortunately, thanks to what you guys
were doing, but regulators prohibited me from doing this.
There are all sorts of ways that rules and regulations have
inhibited my business. In fact, it is now so expensive, I
started my securities firm in 1996, there is no way I could
have started that firm today. I have an entire compliance
department and it costs me millions of dollars a year just to
stay in business just to comply with rules and regulations that
are not doing anything to protect my customers.
[The prepared statement of Mr. Schiff follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Jordan. Thank you, Mr. Schiff. We appreciate that.
Mr. Lindsey.
STATEMENT OF BRINK LINDSEY
Mr. Lindsey. Mr. Chairman, members of the subcommittee,
thank you very much for the opportunity to appear at today's
hearing.
Everyone knows that the current employment situation is
dire. What is less well known is the roots of our present jobs
crisis go deeper than the great recession that began in 2008.
The share of adult Americans who are employed peaked at an all
time high of 64.4 percent back in 2000, 11 years ago, and never
recovered since.
In 2007, before the financial crisis of 2008 and the
ensuing recession, the employment to population ratio had
fallen down to 63 percent. It now stands at 58 percent, the
lowest level since 1983.
For public policy to be effective in dealing with this grim
situation, it needs to be based on a clear understanding of
where jobs come from. On that question, research from the
Kauffman Foundation, my employer, leaves no doubt new firms are
the main engine of job creation in this country. Specifically,
from 1977 to 2005, there were only 7 years in which existing
firms created more jobs than they destroyed. The bottom line is
simple, without startups, there would be no net job creation in
the United States.
Additional Kauffman Foundation research reveals that the
engine of new jobs began sputtering before the great recession.
Census data show that the number of new employer businesses
created annually began falling in 2006, dropping 27 percent by
2009. Meanwhile, the average number of employees for new firms
has been trending gradually downward since 1998 and the pace of
job growth at new firms during the first 5 years has been
slowing since 1994.
The timing of deteriorating employment situations suggests
the problem is structural, not merely cyclical. Structural
problems call for structural solutions, not temporary stimulus
but permanent policy changes.
Specifically, the ultimate answer to restoring prosperity
and vigorous job growth lies in policy reforms that create a
favorable environment for the creation and growth of new
businesses. Barriers to entrepreneurship need to be identified
and systematically dismantled. This conclusion is further
supported by my own research into the growth challenges
confronting not only the United States but all advanced
countries operating at the technological frontier.
My findings regarding what I call frontier economics can be
summarized as follows, the available sources of growth and the
policy requirements of growth change over time with a country's
advancing economic development. What may work at one stage of
development won't work in another. In particular, as countries
get richer, they become ever more heavily dependent on
homegrown innovation as opposed to merely expanding existing
opportunities or borrowing good ideas from abroad in order to
keep the growth machine humming.
Since new firms play a vital role in the innovation
process, that means that removing barriers to entrepreneurship
becomes increasingly important to maintaining economic dynamism
and prosperity. In an effort to identify the kinds of policy
reforms needed to reduce structural barriers to
entrepreneurship and job creation, the Kauffman Foundation
unveiled in July of this year a series of legislative proposals
that we call the Startup Act of 2011.
Let me review the major elements of this plan: an
entrepreneur visa along the lines of the revised Lugar Startup
Visa Act; green cards for foreign students that receive so-
called STEM degrees, degrees in science, technology,
engineering and mathematics; exemption from capital gains
taxation for investments in startups held for at least 5 years;
100 percent exclusion from corporate income tax for qualified
small businesses on their first year of taxable profit;
followed by a 50 percent exclusion over the next 2 years;
allowing shareholders of companies with market valuations under
$1 billion to opt out of Sarbanes-Oxley requirements since
those requirements are supposed to protect shareholders, then
we think shareholders should be able to have a say as to
whether they want that protection or not; higher fees for
better, faster service at the Patent and Trademark Office to
clear the backlog at the PTO, I believe that provision is
included in the patent reform legislation now nearing
completion; mandate that all Federal research grants to
universities be conditioned on universities affording their
faculty members the ability to choose their own licensing
agents rather than having to rely as they do at present on
their own university's technology licensing office; institute a
requirement that all major regulatory rules sunset
automatically after 10 years; subject all proposed and existing
major regulatory rules to uniform cost benefit analysis; and
institute monitoring of the business climate in States and
localities along the lines of what the World Bank's doing
business report does for different countries.
The proposals contained in the Startup Act can represent a
kind of greatest hits collection from a far broader set of
promising reform ideas. Some of these other ideas can be found
in a book published this year by the Kauffman Foundation
entitled, ``Rules for Growth.'' A great deal of additional work
will need to be done beyond these proposals, but in the current
crisis, first steps are urgently needed. We believe the
proposals put forward in this Startup Act would make excellent
first steps toward restoring job creation and prosperity.
Thank you.
[The prepared statement of Mr. Lindsey follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Jordan. Thank you, Mr. Lindsey.
Mr. Schiff, your testimony actually reminded me of a
comment a friend of mine made to me several years ago, 5 or 6
years ago, actually, him and his brother. The older one said to
me, Jim, I love being in business, I hate being an employer. I
hate being an employer because of all the stuff you make us do,
and he pointed right at me, talking about government.
It is not that Mike doesn't like people or want to hire
them, it is just he said exactly, may be not as eloquently as
you put it, but exactly what you said--all the regulatory
things that government makes him do is what makes it so tough
for people to hire.
I think Dr. Boushey talked about $1.9 trillion that
companies are sitting on and they are sitting on this I believe
as sure as I am sitting here for exactly the reason that Ms.
Furchtgott-Roth talked about, they are looking at what is
coming. There is no definitive answer on health care and we are
not going to get one maybe 14 months, maybe the next election.
There is no definitive answer on what is ultimately going to
happen, so they know they have to hold some money for that.
I would make this case, and this is what I want you to
comment on, this idea that the spending, the deficits we are
running, piling up the debt we are piling up, the job creators
out there deep down understand they are probably going to have
to pay for that too. At some point, that has to be paid off. I
would argue that may be more than anything is the biggest
uncertainty they face. I think there is a huge link between the
spending and the failure to create jobs.
Talking about the spending and then also the regulatory
issue. Senator Johnson has a bill which simply says no more, no
more new regulation, stop the damage where it is. I want your
thoughts on that, plus this link between the spending and job
creation. We will start with Professor Taylor and go done the
line.
Mr. Taylor. I think a moratorium on new regulation would
help a lot, absolutely. You heard the testimony here that
confirms that and I have seen it myself. Firms are sitting on a
huge amount of cash. Not all of them have it but a large number
do, so that would remove a lot of uncertainty.
The second part of your question, I do think the debt and
the uncertainty about how it is resolved creates uncertainty.
Will there be a tax increase? Will there be inflation? Will
there be deflation? There is just a huge amount of uncertainty.
By outlining a coherent strategy to deal with that debt that is
credible would be the best stimulus I can think of.
Mr. Jordan. The one word I have heard more than anything
else over the last 3 years relative to our economic situation
and the lack of growth is uncertainty. I fail to be convinced
how so-called temporary fixes alleviates the underlying
uncertainty.
Mr. Taylor. I think it makes it worse. Even the people who
use these models to say it is going to boost the economy,
always emphasize it is short term. It is not a fixing growth.
Even if it works, as some of them say--which I don't believe it
will--they predict a few months from now, we will be back in
the same dismal place. That is what the models are saying.
Mr. Jordan. Thank you.
Ms. Furchtgott-Roth. Yes, I think a moratorium on new
regulations would be very helpful also, a hold on all existing
regulations that are right now going through the Notice of
Proposed Rule and Comment. I would add to include those.
I would add to the uncertainty, not just over the debt, but
also over taxes. You recall that in December, we went through a
whole discussion, debate as to what to do with taxes. Finally,
they were kept at the current level for the next 2 years. In
every speech, President Obama says he wants to raise them. He
just proposed raising them yesterday in the bill he sent to
Congress.
Even though Congress said taxes were going to remain the
same, no, the President is sending a completely different
message.
Mr. Jordan. Nine months later, we are changing already.
There is a proposal to change that.
Ms. Furchtgott-Roth. Yes, that is right. In every speech he
has, he says millionaires and billionaires should pay more by
which he means people earning over $200,000 a year in his
specific proposals.
Mr. Jordan. Thank you.
Dr. Boushey.
Dr. Boushey. I want to make three quick points. First, on
the issue of regulations, I think we need to be very careful
that we are very specific about what we are talking about. In
today's New York Times, for example, there was an article about
whether or not the FDA would regulate new forms of e coli in
our hamburgers. That creates a level playing field so every
producer knows it, everyone else needs to make sure they are
not allowing hazardous foods, that is an important regulation
and certainly it costs businesses money, but that is important
for consumer health. I don't know when I see that hamburger
what is in inside of it. That is critical, so there is sort of
blanket regulatory stuff and we need to dig down deep into
that.
Second, we had an over 8 percent drop in GDP because of the
crisis. That is a massive hole to fill. I concur with my
colleagues over here that it may have been that the housing
bubble had an elevated level of demand flowing through the
economy because of the housing bubble but that doesn't change
the fact that when you pull it out of the economy you have a
gapping hole and that has left 14 million people out of work.
It is that hole that government spending, is the only
entity, right now can fill unless we are going to dramatically
increase our experts.
Very quickly, my third point around this uncertainty
question. Certainly there is always uncertainty in an economy,
but I think we should have been asking ourselves in the early
2000's how we were going to pay for the massive tax cuts that
we did when we were also having to unfunded wars. I didn't hear
as much discussion around that then but those are the kinds of
questions we should have been asking and a part of why we are
here today.
Mr. Jordan. Mr. Schiff.
Mr. Schiff. First of all, demand doesn't come from
government spending; inflation comes from government spending.
Demand comes from supply. You can't consume something that
isn't produced. We have to make things first.
As far as regulations are concerned, certainly we need to
stop piling new regulations on top of the existing regulations.
More importantly, we have to start repealing a lot of the rules
and regulations that are already in place. There are millions
of Americans unemployed. How do we increase the demand for
labor. It is simple. You bring down the cost of labor.
Regulations substantially increase the cost of employing people
and as a result, fewer people are employed.
There are simple things you can do from getting rid of the
minimum wage law, which you can do this afternoon, which would
create millions of jobs and more importantly, help people get
trained for much higher paying jobs in the future. Right now,
they are never going to get jobs.
The regulations that increase labor costs and that subject
employers to all sorts of lawsuits if they don't create jobs in
precisely the manner that some bureaucrat thinks they should be
created you have to level the playing field between employers
and employees. You can't lose your rights because you hire
somebody. You can't give workers some kind of special privilege
and then call it worker's rights. Workers don't have special
rights because they get a job. Everybody has individual rights
and you shouldn't lose them because you hire somebody.
Mr. Jordan. Mr. Lindsey, can you be brief because we want
to get to Mr. Cummings.
Mr. Lindsey. I sympathize with the idea of a regulatory
moratorium, but I would point out that too is another temporary
fix. That moratorium won't last forever, nor should it. What we
need is a permanent change in the regulatory process. A couple
of the proposals in our Startup Act go to that.
First is cost benefit analysis instituted uniformly for all
major new rules and second, even more importantly, 10 year
sunset provisions for all major regulatory rules so they have
to be reapproved and not just go on forever.
Mr. Jordan. Now I want to go to the ranking member of the
full committee, the gentleman from Maryland, Mr. Cummings. You
may have some extra time. I apologize.
Mr. Cummings. Thank you very much.
In a day and age when China is spending 9 percent of their
GDP on infrastructure, we are spending less than half of a
percent. In Maryland in my district in the State of Maryland,
about every half a hour a pothole is opening up. In other
words, the pipes burst. We have bridges in disrepair. President
Obama is about to go to Ohio and talk about 95 bridges that are
in disrepair.
At some point, there is no one in this room who, if you had
a house, you would repair it and maintain it because if you
don't maintain it, it will fall apart from the inside. It seems
to me that the portion of the American Jobs Act that addresses
infrastructure is so very, very, very important.
It makes no sense if you are riding down a road, like the
bridge in Minnesota, on your way home from work, kids in the
backseat in one of the greatest countries in the world and the
damn bridge collapses. At some point, we need to say, wait a
minute, let us get this right. China is about to build 100
airports and we are spending less than half a percent on our
infrastructure, something is wrong.
The thing that gets me is we seem to go to the ring around
the roses thing. Folks say don't tax the rich in a recession
but still the very people who have worked for this committee
will probably end up taking a 10 percent pay cut. They say,
what about them in a recession, what about the secretary who is
only making $50,000 who wrote some of the thing we are asking
this morning. What about her and her two kids?
Then we say, uncertainty. That is the thing we just went
through creating some of the greatest uncertainty that could
exist. We saw that. People look at us like we were fools and
they were totally disgusted. They said, they can't even get it
together to pay the debts we have already made, not the debts
that are coming but the debts we have already made. We saw what
Standard and Poor's did.
The other thing I guess concerns me is when we talk about
regulations, it is interesting we act like President Obama's
administration was the only administration that created
regulations. He has only been in office 2\1/2\ years. Most of
these regulations were created over the years, so now we say,
let us take away the regulations.
Let me tell you what worries me. I used to be an employer
of a small law firm. One of the things that worries me is that
we give the tax cuts to business who are not hiring; we look
out for the banks who are not lending; if we cut out the
regulations making it possible for business to make even more
money--and by the way, there is no guarantee when you get rid
of the regulations that it is going to lead to them hiring more
people, even if they are saving money because the issue still
becomes uncertainty, so we go to ring around the roses.
At some point, we have to say wait a minute, let us get off
this merry go round and begin to create jobs for people. When
they look at this, when they hear this, the people in my
district, I can hear them now. If they are watching, when I get
home tonight, they will say, Cummings, they don't get it. They
don't get that I was not able to pay for my kids' tennis shoes
when they got ready to go to junior high school. They don't get
that I am losing my house.
In some way, we have to figure out how do we come together
to begin to address these issues. I just think there are
solutions but when people say, government doesn't need to play
much of a role--government does have a role. Private business
has a role. All of us know that 70 percent of GDP is dependent
on consumer confidence.
I keep hearing about regulations. I have said in this
committee--and you have probably heard me say it, Mr. Schiff,
and thank you for coming back to us again--that when I was in
high school, I used to work at Bethlehem Steel. When I would go
to Bethlehem Steel during the summer to work, when you came out
if you blew your nose in a half hour of being on the premises,
black stuff came out in your mucous.
I think we need to be careful with regulations and we need
to keep in mind why we have regulations. They are to protect
the health, welfare and safety of Americans, of our children. I
don't want my child to have to go to Bethlehem Steel--if it was
still in existence--and when he blew his nose, stuff comes out
like what happened to me 40 years ago. I don't want that. We
are better than that.
I just think there is some kind of way that government does
have a role. I think repairing our infrastructure is extremely
important. I think that will spur on folks working. I see it in
the neighborhoods. You can say what you want about the stimulus
bill, but I can bring in a room full of people who will tell
you if it were not for the stimulus bill, they would not have
had jobs. I know that it has an effect. I think any stimulus
type of action needs to be carefully planned and I think it
needs to be very targeted, but it has a role.
Then business needs to do something for us, the businesses
that have benefited tremendously from Americans when the times
were good, may be they need to say, it is time for us to start
doing some things too and staying here in this country and
making it in America, as Steny Hoyer says.
Dr. Boushey, would you comment on what I just said? I only
have 20 some seconds.
Dr. Boushey. You made some very eloquent points. One thing
about infrastructure that we fail to talk about is how much it
benefits small, medium and large businesses in America. You
talked about the importance for jobs and infrastructure
investments and keeping up with China.
I think about the small business owner across the street
from me who runs a restaurant and over the past few years, the
water main has broken three times, so each time his business
closes and he talks about how hard it is. Now because of
recovery dollars, they are out there repairing those pipes,
giving us new pipes. They are a hundred years old here in the
District of Columbia. That is fantastic. That is exactly what
we need to be doing so he can be competitive and so America can
compete in the 21st Century economy. I think it is exactly what
we need to be thinking about.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Jordan. Before going to the ranking member, I have one
question that I think Mr. Cummings raised.
Professor, did S&P downgrade the bond rating of the United
States of America, in your judgment, because we had a vigorous
debate in Congress about what should happen relative to the
debt ceiling or did they down grade us because the deal that
was put together didn't address the gravity of the problem?
Mr. Taylor. They mentioned the ongoing accumulation of debt
they saw coming down the road and that had not been changed
enough by the budget deal. People think they commented on the
way the budget was put together. I think it represents an
accomplishment, that something was done. Something actually was
done compared to the first budget that the President submitted
in February of this year, there is a substantial change in
direction from that deal. So I think there is some positive
there, but I think S&P was looking at the fact they wanted
more.
Mr. Jordan. Ms. Furchtgott-Roth, if you could briefly
comment. Was it the vigorous debate that caused the downgrade
or was it the deal put together and the lack of real spending
reductions and savings?
Ms. Furchtgott-Roth. Before the downgrade, they said they
wanted to see $4 trillion in debt reduction over the next 10
years. That was under discussion at some part of the process
but then it fell by the wayside. If they had had the $4
trillion in debt reduction, then my impression is they would
not have done the downgrade.
I agree that infrastructure spending is very important. It
does not mean that is necessarily a role for the government. In
Europe, there are many examples of roads and bridges being
leased to the private sector over a period of years and they do
the repairs themselves.
Mr. Jordan. Dr. Boushey, real quickly, which is it,
vigorous debate or the deal itself?
Dr. Boushey. I think it was both but I also want to note
these are the folks who weren't able to call the housing bubble
and did not sufficiently downgrade many of the firms that led
to the financial crisis.
Mr. Jordan. Nevertheless, it is the first time in 70 years
the U.S. bond rating was downgraded.
Dr. Boushey. It certainly was, but other people say similar
things.
Mr. Jordan. You say it is both. Which one had more weight
on their decision?
Dr. Boushey. In their view, in their statements, it was
what Diana Furchtgott-Roth said, about them wanting a bigger
deal.
Mr. Jordan. Think about what the deal was, a $14 trillion
debt; we raise it $2.4 trillion; we got $21 billion in savings
the first year. I always tell folks you have to put it in
family terms. A kid gets a credit card, runs the bill up to
$14,000 and says that is not enough. Goes to the bank, the bank
says, we will give you $2,400 more but you have to promise us
over the course of the next year, in your budget, that you plan
on spending, you will spend $21 less than you planned on
spending. That was the deal.
I would argue Standard & Poor's downgraded us because the
lack of the deal, the agreement addressing how serious this
situation is. To insinuate that it was because Congress had a
vigorous debate, I thought that was what we were supposed to do
in Congress.
Dr. Boushey. Congress is certainly supposed to have a
vigorous debate. Part of the puzzle though was this Congress
refused to put raising taxes, especially on the wealthy, as a
part of that package. That would have been an important way to
get to the goal that S&P wanted.
Mr. Jordan. And an important way to tax the people who
create jobs too.
Dr. Boushey. And that caused the crisis.
Mr. Jordan. The good doctor from Tennessee next and then
the ranking member.
Mr. Schiff. It was definitely the deal, not the discussion.
With due respect, I did call the financial bubble and I
criticized S&P and Moody's and Fitch at the time for putting
AAA ratings on bonds I knew were going to go to zero. In my
opinion, S&P didn't downgrade the United States far enough.
That is the problem.
I would love to address some of Mr. Cummings' points.
Mr. Jordan. Make it quick because I want to get to the
ranking member.
Mr. Schiff. He made so many points, but you are right about
one thing. The bad regulation didn't start under Obama. We have
a lot of regulations that need to be undone. It is not just the
intent. I don't argue that in some cases the intent of the
regulation is good; the problem is the consequences are the
exact opposite of the intent.
Infrastructure spending doesn't stimulate the economy; it
drains the economy of resources. Infrastructure only helps in
the long run when you finish the project if it raises the
productivity of the Nation. In the meantime, we are too broke.
China can put in these airports because they are rich. We are
broke.
Before we can afford to improve the infrastructure, we need
to have more serious restructuring of our economy. We have to
start making stuff. We need more factories before we can start
figuring out how to make our roads prettier.
Mr. Jordan. Mr. Lindsey, real quick, was it the debate or
the deal?
Mr. Lindsey. I can't speak for S&P, I don't work there and
wasn't privy to all their deliberations.
From my own perspective, the combination of an utterly
unsustainable fiscal situation and a political process that
does not look it is terribly serious about coming to grips with
it, merited an alarm bell.
Mr. Cummings. Fifteen seconds.
Mr. Jordan. Fifteen seconds for the ranking member.
Mr. Cummings. Let me just say this. I have read this fifty
million times. Their concern was that there were Members of
Congress that were going around talking about not raising the
debt ceiling. That was one of their major concerns and saying,
we don't have to do that.
Mr. Schiff. That is what you should have done. If you
didn't raise the debt ceiling, then we could have cut spending.
You said we were paying our bills. We don't pay our bills by
going deeper into debt. That is avoiding paying our bills and
guaranteeing eventual default.
Mr. Jordan. The gentleman from Tennessee is recognized.
Dr. DesJarlais. Thank you, Mr. Chairman.
I was one of those guys going around saying we shouldn't
raise the debt ceiling without significant cuts. We saw what
happened because we didn't get significant cuts. I am all in
favor of rebuilding our infrastructure and making our bridges
safe. We had a bridge in Minnesota that collapsed years ago and
that has become the poster child for our failing
infrastructure. We have millions of bridges that work just
fine.
The point is what I don't get is how we are going to pay
for this. We continue to borrow and spend money. We have a
Stimulus II coming up that we need to talk about here a bit to
see if it is feasible and how it is going to be paid for, but I
do agree with Mr. Cummings that it doesn't really matter where
these regulations came from, the fact is there are two darned
many.
In the American Jobs Tour and my stops across Tennessee,
the number one complaint and impediment to job growth,
according to the 30-plus industries I visited, is we need to
get government out of the way. We are simply not doing that
with this. We are looking at 219 new regulations by this
President costing over $38 billion and this new proposed plan
is going to show an increase of 10,000 new regulators a year.
Certainly that doesn't seem to be solving the problems they
were set out to do.
As far as paying for this, Dr. Boushey said that it is time
to increase taxes on the rich or we going to back into this
spread the wealth mentality to get ourselves out of the
problem. How exactly do you think that is going to solve the
problem and as far as the taxes on the rich and removal of the
deduction in the charitable contribution area, can you comment
on that and how you think that is going to solve the problem?
Dr. Boushey. As many of us have discussed today, we clearly
have a long term deficit problem, we have a gap, we have a
challenge there. One of the things we have seen over the past
few decades is America has become a fairly low tax country. One
of the things we have done is extended these tax cuts on the
wealthiest.
Dr. DesJarlais. Let me interrupt. Do we tax too little or
do we spend too much as a government? Look at our deficit.
Dr. Boushey. Exactly. Relative to other countries, we are a
relative low tax country and we are not a relative high
spender.
Dr. DesJarlais. Are we a high spending country or not?
Dr. Boushey. No, not relative to our GDP and relative to
other countries.
Dr. DesJarlais. How did we get in this mess?
Dr. Boushey. I would be more than happy after this to send
you a series of charts that document this.
Dr. DesJarlais. Do you think closing the loophole on
charitable contributions is going to hurt charities?
Dr. Boushey. That is only for wealthy families and I think
over the long run, no.
Dr. DesJarlais. Wealthy families over what amount,
$250,000?
Dr. Boushey. Two hundred fifty thousand dollars.
Dr. DesJarlais. That is a wealthy family. Who do you think
gives the most to charities?
Dr. Boushey. It is a wealthy family and those are families
in the very top of the U.S. income distribution. Those are
families that have benefited from economic growth over the past
few decades while other families have not, so they have
benefited more from the 2000's, more during the 1980's, more
during the 1990's than middle class and lower income families,
so asking them to pay their fair share does seem like an
appropriate place. If we are all focused on closing that
deficit, it has to come from somewhere. It can't come from
families that have not seen income gains.
Dr. DesJarlais. Mr. Schiff, do you have a comment on that?
Mr. Schiff. As Dr. Boushey, what percentage of my income do
you think the government should take? What would be fair?
Dr. Boushey. I am not going to give you a number here.
Mr. Schiff. Just guess. What do you think would be fair?
You say I am not paying enough taxes, how high should my taxes
be. What percentage of my income should be taken away from me
by the government?
Dr. Boushey. We have a progressive income tax structure.
Mr. Schiff. What do you think--half, 60 percent, 70
percent?
Dr. DesJarlais. Taxing the rich is a great idea until the
rich run out of money.
Mr. Chairman, let us shift gears for a second because this
is going to go on forever.
Ms. Boushey, do you feel that government jobs create
revenue? I think you said the Stimulus I, the majority of jobs
created were private sector jobs. Do public jobs create revenue
or do they just cost the taxpayers money?
Dr. Boushey. Recovery dollars that go into communities to
say build a bridge, you hire engineers typically in the private
sector, some in the public, some in the private; you hire
contractors; you hire people that do concrete. You hire a lot
of folks in the private sector and then that has spillover
effects, so if you hire that person who has the concrete, they
have more money and spend it in their communities. That is how
those private sector jobs are created, both directly and
indirectly.
Dr. DesJarlais. Mr. Schiff, do you feel that is a good
return on your investment, to spend those tax dollars that way?
What is your chance of making a profit?
Mr. Schiff. First, I want to point out that 99 percent of
my income is taxed at the marginal rate, so the marginal rate
is my rate. If the Federal Government is taking 35 percent of
my income, and another 3 percent for Medicare, that is 38
percent and the State of Connecticut almost 7 percent, over 45
percent of my income is in tax before I pay any property taxes,
sales tax or anything else.
If you raise my taxes much more, that is it. I am done. I
am already moving businesses to Singapore, moving businesses to
the Caribbean to try to go to lower tax jurisdictions. We are
not a low tax country. We are a high tax country and we are a
much higher tax country than we used to be in the past by far.
Dr. DesJarlais. I am out of time but I am going to close
with the fact that we continue to spend money at an
unprecedented rate. As Mr. Cummings said, I think people were
very shocked at the debt ceiling debate. My stance, and at
least what I gathered from the people from Tennessee, is they
are shocked that we once again increase our debt ceiling by
$2.4 trillion and weighed it over cuts over 10 years that they
don't have any faith is going to happen. I would say the shock
and outrage with what happened up here was more the fact that
we allowed this to happen, that we once again spent our
children and grandchildren's money.
I yield back.
Mr. Jordan. Thank you.
The gentleman from Pennsylvania, Mr. Kelly.
Mr. Kelly. Thank you, Mr. Chairman.
Professor Taylor, you are obviously a student of history
and I do believe you don't study history, you don't repeat it.
Let me read a quote: ``We have tried spending money. We are
spending more than we have ever spent before and it does not
work and I have just one interest. Now, if I am wrong, somebody
else can have my job. I want to see this country prosper, I
want to see people get a job, I want to see people get enough
to eat. We have never made good on our promises and I say,
after 8 years of this administration, we have just as much
unemployment as when we started and an enormous debt to boot.''
That is Henry Morgenthau who was the Secretary of Treasury
under Franklin D. Roosevelt.
We haven't had 8 years of this administration, but as the
chairman spoke, and being a small businessman myself, we keep
talking about the uncertainty is what is keeping people on the
sideline. I would say it is just the opposite. It is the
certainty that under this administration's policies, we have no
way in heck to dig ourselves out of this debt.
I am a firm believer that you have to kill more than you
eat, or you can't stay. I am trying to understand how in the
world with these policies that we are enacting, with no
remedial only punitive actions against people and small
business people, how in the world are we encouraging these
people to hire people. Mr. Schiff, I feel your pain.
We talk about China and what China is doing. China is not
borrowing 42 cents on every dollar it spends. It is not as
clear and transparent a society as we would like it to be. All
these things are important, all these things are fun to talk
about but the reality of this is the trajectory we are on right
now is totally unsustainable. Standard & Poor's was not wrong.
If you want to see what is wrong, go back to Fannie Mae and
Freddie Mac, when you tell banks you have to lend money to
people who no way in heck can pay it back, but you have to do
it anyway.
When I bought my first house, the first question I was
asked by the lender was how much money do you have to put down.
I said, $10,000 and I was told, you can buy a $30,000 house.
Flip it to now, how much do you have to put down? Nothing. Then
buy anything you want, we will underwrite it.
Doctor, we talked about stimulus in the past under
President Bush. I had friends that just couldn't wait to get
that check from President Bush. In your opinion, what do people
do with this money they get back? Do they put it back into the
economy? What do they do with it?
Mr. Taylor. They largely saved it, they largely kept it in
their pockets. We have seen this time and time again. That is
why it is so frustrating to hear this proposal. We tried this
in 1975 under President Ford. Soon after it was done, his own
Council of Economic Advisors looked at it and said it didn't
work. Don't do this again.
President Carter in 1977, the same thing and after that was
done, his economic advisors said it didn't work. Then
fortunately we had a couple of decades where we didn't do these
things. In 2001, we had one. I looked at that myself. It didn't
work. Now 2009 is gigantic and we are proposing it again. Why
don't we learn that these temporary interventions don't work
and I think they are counter productive for many of the reasons
you are saying.
Mr. Kelly. I agree. Mr. Schiff, I have also tried to borrow
money and I will tell you right now, the problem with lenders
is they are scared to death because there is legislation passed
with no rules. Banks, and I am talking about the smaller banks,
and I have come to believe that if you are too big to fail, you
are also too small to survive, when collateral used to be what
we worked on but there is uncertainty as to what your
collateral is going to be worth, when covenants change
quarterly, it is very difficult to run a business.
I think when you don't have policies that transcend the
next administration but don't go to 5 and 10 year plans, when
you see a shift because of an election, that doesn't add any
certainty to the way the economy is going to be stabilized. I
have to borrow a lot of money for my business to work, but when
you can't borrow it, when the regulations become too
overburdening, it makes it difficult for lenders to give it to
you, it is bothersome to me.
It is very important that people understand. This isn't
easy, what we are doing. It is very difficult and government
has it harder for us.
Mr. Schiff. It takes two to tango. You can only borrow if
somebody is saving. There has to be a lender on the other side
of that transaction. There has to be something in it for the
lender. You have to have higher interest rates. The problem is
the banks are just getting money from the Federal Reserve and
buying treasuries with it. That is not going to grow the
economy, that is going to grow the government but meanwhile,
these monetary policies are stifling the savings that we need
to grow the economy.
Mr. Cummings pointed out when people get a stimulus job, he
can see those jobs. Yes, you can always see the jobs government
creates. We don't see the jobs they destroy to create those
jobs. All the government can do is rearrange the resources. It
doesn't create any wealth. The problem is the jobs or the
wealth that gets destroyed is more productive than whatever the
government replaces it with. On balance, the country is poorer
as a result of that.
The fact that we send out a stimulus check is not going to
stimulate the economy. If an American buys some more products
that were made in China, how does that help our economy. It
runs up the trade deficit and now we have to go deeper into
debt to spend that stimulus check. All of that is counter
productive.
We are going to continue to repeat those mistakes, to keep
throwing gasoline on this fire until we incinerate the entire
country.
Mr. Kelly. Thank you.
I yield back, Mr. Chairman.
Mr. Jordan. Thank you, Mr. Kelly.
Now I yield to the gentlelady from New York, Ms. Buerkle.
Ms. Buerkle. Thank you, Mr. Chairman. Thank you all for
being here today.
Many of us came to Congress early this year to really
address the unemployment issues in our Nation and to get this
economy back on track. The biggest reason for doing that was
what we had seen 2 years prior in this administration, this
government overreach, this Keynesian economics where we think
we can spend money to create jobs doesn't work.
I have spent the last several months in my district talking
to the businesses because those small businesses are what make
upstate New York tick. Upstate New York has taken such a hit.
You mentioned manufacturing jobs. We used to have Carrier, we
used to have Crucible Steel, we had General Electric back then.
We have lost those manufacturing jobs. We have lost those
industries.
I go around and talk to all these small businesses and
without exception, what I hear from them is get the government
out of our way. We comply with these regulations, we spend the
money to comply and before we know it, the regulations have
changed. They continue to change the rules which is what Mr.
Kelly mentioned. They continue to create an environment of
uncertainty.
I guess the question for all of us, because we all want to
address this issue, is what are we going to do about this. How
are we going to get the government out of the way. My own
personal belief is if they would just rewind and get rid of
these regulations, just get out the way and just be silent, I
think we would all be better off.
I would like to hear from you, and I will start with
Professor Taylor, what is your vision. I can't agree with much,
although I haven't seen the specifics of this bill, I just know
that the last stimulus of close to $1 trillion failed. I have
listened and talked to my city and county governments and so
many of them used that money to plug holes in their budgets.
That wasn't want that money was supposed to be used for. It was
not used at all, I don't think for what it should have been
used for. We have proven that doesn't work. What would work in
your estimation?
Mr. Taylor. The new proposal is much the same, so I don't
see how that could work based on what I have looked at myself
which corresponds to your observations. What would work is a
comprehensive, economic strategy to offset what has recently
been done. We raised the government spending as the shared GDP
from 19.6 percent in 2007 to 23.8 percent now. We are making a
small bit of headway on that but it needs to come back to 2000
levels as a share of GDP. Then we wouldn't have to have a tax
increase that everybody is worried about, we could have some
revenue neutral tax reform which would boost the economy and
then we could proceed with the regulatory issues and I think
some of the monetary issues that are also a drag on the
economy.
It is really a comprehensive strategy. I think it could
build on the Budget Control Act which obviously didn't go all
the way or not far enough even. You have a nucleus to work on
and I think it is quite doable. Why can't the Federal
Government spend as a share of GDP what it did in the year
2007? That is all we need to do in order to avoid tax
increases, to have a good tax reform and stimulate the economy.
Ms. Buerkle. I do want to comment and I had this thought as
Dr. Boushey was speaking. This is really what concerns me with
these tax increases. Many of my small businesses have said my
margin is about 2 percent. By the time my taxes go up, I go
over the edge. That is my biggest concern and $200,000-
$250,000, those are the small business owners who file
Subchapter S. It has nothing to do with families who are
wealthy. These are a lot of small businesses who look good on
paper but their net income is not anywhere near $200,000.
My concern is what you said about these people who have
profited, now we need to go back and tax them and increase
their taxes. Since when does the United States of America
punish success. That is the fundamental. We reward hard work.
Our system is one that if you take risks and work hard, you
succeed and you should be able to succeed without being
penalized. That is my concern with this message about we are
going to raise taxes on these people who have done so well.
They didn't steal that money, they worked hard for that money.
I think it is very important that this class warfare thing
really concerns me, if you could comment on that.
Dr. Boushey. Yes. I want to make three quick points because
I know we don't have much time.
First, I was happy to see that the President's plan, when
it does its payroll taxes, targets them at small businesses.
That is an incredibly important thing.
Second, on the tax revenue raisers, those are cutting
loopholes, many of whom are focused on families but I want to
make one note about the small business owners. This is net
income, net of expenses. When you say $250,000, that is over
what someone is making net of their expenses. These are folks
doing really well and for the most part, many of those S Corps
are going to be very much at the high end, sort of your lawyer
firms, things like this. These are people who could afford it.
The last thing is one of the key pieces of the President's
proposal for the pay for is to tax hedge fund managers at the
same rate that me and most Americans who work for a living are
taxed. Right now they are taxed much less than we are and that
is the biggest chunk of change in terms of these increases in
taxes. That was the specific piece I think we should be
focusing on.
Ms. Buerkle. Thank you. I yield back, Mr. Chairman.
Mr. Jordan. Dr. Boushey, if these tax loopholes were so
bad, so terrible, so needed, why didn't the previous Congress
just 10 months ago take care of them then? You could go back a
little over a year ago, there was even a super majority in the
Senate. If they were so bad, so needed, why didn't they take
care of them then?
Dr. Boushey. That is an excellent question and I think one
that Congress itself should think about. I can't speak for what
this Congress does and doesn't do.
Mr. Jordan. Were you talking to them? Were you telling them
to do it back then?
Dr. Boushey. Certainly and many of the things on the table
are things we were talking about.
Mr. Jordan. You couldn't get it done with the super
majority in the Senate?
Dr. Boushey. I don't work for Congress, sir. Certainly this
taxing of hedge fund managers is something people have talked
about for quite some time, that they should be taxed at the
same rate as everyone else who works for a living, not at a
much, much lower rate.
Mr. Jordan. I am going to pick up where Ms. Buerkle left
off. One of the thing we thought this debt ceiling debate made
sense was a proposal we put forward we thought was starting to
break through with the American. We called it cut, cap and
balance, cut spending in a bigger way the first year, not just
$21 billion, over $110-$111 billion, cap it as a percentage of
our economy, Professor Taylor, to get it back in line where it
has historically been around the 20 percent range of GDP, and
then build toward a balanced budget amendment. We thought that
made sense. We were willing to raise the debt ceiling if we put
that kind of plan in place because we thought that wasn't some
deal, that was actually a solution.
We also understand the importance for growth. I would argue
we need something like cut, cap, balance and grow. Tell me what
the tax reform part of a growth component would look like. I
want to start with Ms. Furchtgott-Roth first.
In the town halls I had in August, one of the things that
came through loud and clear is Americans inherently want
fairness in the tax system. I think two things bug Americans,
and appropriately so. They want fairness in the true sense of
the word, not fairness the way the left defines it as tax
people who make money, tax them more, but fairness in the true
sense of the word.
They don't like the idea that 46 percent of Americans don't
pay income taxes. We understand they are paying payroll taxes
if they are working. They don't like that fact and Americans
don't like the fact that GE doesn't pay taxes the second
quarter. They think that is ridiculous as well. They want some
fairness component, a simplified component to the tax package,
but tell me what you think that looks like, the tax reform in a
growth concept that we need.
Ms. Furchtgott-Roth. What we need to do is get rid of the
loopholes and lower the rates, similar to what we did in 1986
and there was many years as you will recall of growth and
employment growth after that. That makes the tax system more
fair, makes it simpler and it is a win-win situation. I would
suggest a revenue neutral manner of getting rid of the
loopholes and lowering the rate so we would end up with the
same amount of revenue as we did before. Then with a more
efficient economy, you would be pulling in more amounts of tax
revenue.
Mr. Jordan. Would you advocate a flat tax, lower the rates,
keep multiple brackets or move to fewer brackets? What would
you advocate on the income side?
Ms. Furchtgott-Roth. My ideal would be a flat tax and may
be two other brackets.
Mr. Jordan. You would be for lowering the corporate rate?
Ms. Furchtgott-Roth. I would also be for lowering the
corporate rate in a revenue neutral manner as before taking
away the loopholes.
Mr. Jordan. What about repatriation, bringing back dollars?
Ms. Furchtgott-Roth. I would be very much in favor of
repatriation. There are trillions of dollars abroad.
Mr. Jordan. Professor Taylor, would you agree that kind of
approach is what is needed for growth?
Mr. Taylor. Absolutely. Tax reform, which is revenue
neutral, should be the goal and that will increase economic
growth because those lower marginal tax rates are lower and
creates more incentive. You generate the same amount of
revenue. Also, that would generate more revenue because we'd
have more growth.
Revenue neutral tax reform, and we have gotten away from
that. People are now talking about tax reform to mean we can
now tax more, so we can spend more. That is not tax reform as I
have come to know the term over the years.
Mr. Jordan. Mr. Lindsey and Mr. Schiff.
Mr. Schiff. Ideally, you would abolish corporate tax
completely. Corporations don't pay the taxes, their
shareholders pay the taxes. Tax them at the shareholder level.
The employees pay the taxes when they get paid, but ideally, we
would have no income tax, we would have no payroll tax. If the
Federal Government needs revenue, let it raise it through a
national sales tax. It would be much more conducive to tax
people when they spend their wealth, not when they accumulate
it.
Mr. Jordan. I agree with all that.
Mr. Schiff. The argument is always if we only tax spending,
the rich don't spend all their money. Precisely, the money they
don't spend is what grows the economy. That is what produces
jobs. If they are not spending the money, it is benefiting
everybody but the rich. The rich enjoy their wealth when they
spend, so that is a much better time to tax it.
As far as your budget plan, I think Congress is much under
estimating how much time we have to deal with this crisis. I
think there is a sovereign debt crisis and a currency crisis
coming to this country soon, may be even before the next
election. That will be far more catastrophic to our economy
than what happened in 2008.
Mr. Jordan. Well said. The window of time to fix this is
closing very rapidly and it under scores how serious it is.
Mr. Lindsey and then I will move on to my Ranking Member.
Mr. Lindsey. I generally agree with what has been said here
on the tax reform side. I am in favor of a tax system that is
as neutral as possible, the economic activity rather than
trying to maneuver people like rats in a maze to do whatever
the flavor of the month is.
As far as a corporate income tax, in a perfect world it
wouldn't exist because we have a double taxation. Generally, we
should be shifting the tax system away from taxing good things
like work and savings and should be shifting it to focus on
consumption.
Mr. Jordan. The gentleman from Maryland.
Mr. Cummings. Dr. Boushey, I think you mentioned earlier
that the percentage of GDP with regard to taxes is lower now
than it has been in a good while, is that right?
Dr. Boushey. Yes. Right now we have had tax cuts because of
the Recovery Act, yes, but it is also lower than most other
OECD countries and other economically developed countries, the
share of GDP.
Mr. Cummings. To make sure I understand this, of GDP, we
are paying less taxes, percentage of GDP, than we have in a
long time, in history or what?
Dr. Boushey. In quite a while. I don't have the exact
number at the top of my tongue but I am happy to get that to
you. I can't remember exactly what the year is.
Mr. Cummings. But it is low?
Dr. Boushey. Yes.
Mr. Cummings. Of course we have had two wars, we had the
prescription drug program and they weren't paid for and at the
same time, we were reducing taxes, is that right?
Dr. Boushey. We reduced taxes sharply in early 2000 and did
not reduce our expenditures commensurate with the lower taxes
and it did not lead to the kind of rebound in economic growth
that would make those taxes ``pay for themselves.''
If I could make one more point on that, in fact, after
those tax cuts, you saw the economic recovery of the 2000's was
the weakest in the post World War II era in terms of growth and
investment, employment gains and was the only economic recovery
since the end of World War II where families ended the recovery
in 2007 with less income on average, the median family, than
they had in the year 2000.
Mr. Cummings. Most top economists are saying that the
President's American Jobs Act will boost the economy and create
jobs. Mark Zandi, chief economist for Moody's, is forecasting a
1.9 million job boost and a 2 percent lift for GDP if the
President's package is passed as proposed.
Allen Sinai, chief economist of Decision Economics, states,
``Payroll tax cuts are very powerful. They provide a boost to
direct income and in turn, spending, which is important to
growth.''
This 2 percent tax cut, Mr. Schiff, you are in agreement
with that? You are in disagreement with that?
Mr. Schiff. I think the deficits that will be created to
finance that tax cut will do more damage to undermine this
economy and destroy jobs than any benefit we will get from the
extra income being spent.
Mr. Cummings. When the President says that basically
borrowing the words of my Republican friends that we should not
be increasing taxes during a recession, but when it comes to
these taxes, do you agree with that, first of all? In other
words, when it came to the millionaires and billionaires, my
Republican friends were singing from the same hymn book, they
were singing loud and clear, in a recession, you do not raise
taxes. The President said the other night, we want to make sure
these folks continue to get this extra $1,500 or whatever it
is, in their paychecks.
Mr. Schiff. The problem is the damage the government does
to the economy is not limited to taxation. It is spending. It
is what the government is spending that is damaging the
economy. If we run deficits instead of taxes, we actually do
more damage. Deficit spending is more detrimental to the
economy than taxation. What we need to do is dramatically
reduce government spending. That is the only stimulus that will
work.
Mr. Cummings. I think we need to do both. I don't think
there is any Member of Congress that does not believe that we
need to do both. Dr. Boushey, what is your opinion on that?
Dr. Boushey. It is hard to understand how government
spending.
Mr. Cummings. I am sorry, Dr. Boushey. I like to give
people their titles like President Obama.
Dr. Boushey. Thank you, Congressman Cummings.
It is hard to image that right now when interest rates are
at historic lows, when people still want to buy U.S.
treasuries, when we have this massive unmet need in terms of
both infrastructure but all of the massive layoffs that have
happened in education around America because of the State and
local budget crunches, that using government dollars right now,
it is hard to understand how that is not easy for us to do
because we can afford it and that doesn't help our economy.
Having children in school rooms in places across the
country with 40 children is not good for America's future, it
is not good for America's work force. We can do something to
fix that. We can borrow at historic low rates and pay it back
as the economy gets back on track.
I would like to take issue with one thing Mr. Schiff said
earlier which is that America can't afford it. America remains
one of the richest countries on the planet. To say that we
cannot afford to make these investments right now when our
economy needs it most and get 14 million people back to work is
quite frankly absurd. We can afford it. It is how we are using
our resources.
Mr. Schiff. We can't afford it and the problem is interest
rates are low now, they are not going to stay low. We have a
$15 trillion national debt financed with treasury bills. It is
the same mistake people made who were taking out subprime
mortgages. What is going to happen rates are at 5 or 10
percent, what is going to happen when interest on the national
debt consumes 100 percent of Federal tax receipts? That can
happen in just a few years.
Interest rates got to 20 percent in 1980. What happens if
they go there again?
Mr. Cummings. Madam Chair, I see my time is up, but I just
want 15 seconds to say this. One of the things we have to do is
invest in people. If you have kids, one of the greatest threats
to our national security is our failure to properly educate
every single one of our children. That is the greatest threat.
If we have to spend now to educate our children so they can
take over this world, innovate, create jobs and do the right
thing, fine.
At the rate we are going, if we are not careful, we will
implode from the inside because we are not doing all the things
we need to do now.
Mr. Schiff. The problem is we are spending and not
educating. We don't need more spending on education. We are
spending too much and the kids are not getting educated. We
need more on the job training. Unfortunately, we have too many
kids going to college on government grants that has bid the
price into the stratosphere and we have all these kids
graduating with huge mortgages and no houses and no marketable
skills.
Mr. Cummings. I am saddened by those comments.
Mr. Schiff. I am saddened by what those programs have done
to our young people.
Ms. Buerkle [presiding]. Thank you, Mr. Cummings.
I yield to the gentleman from Pennsylvania, Mr. Kelly.
Mr. Kelly. Thank you, Madam Chair.
Mr. Schiff, because I believe you are on to something, for
those that did not experience this, I remember very vividly
because I paid 1 percent over prime for my floor plan costs, so
in the early 1980's when prime was around 21 percent, which
people say is not possible, it is, and in the artificially low
rates that we are working with today, any type of an idea or
scenario of what could happen when these rates that are being
artificially low at least until the election there is going to
be a low prime rate, but when it rises to what it should be,
market value, the effect it is going to have on businesses?
Mr. Schiff. The problem, the artificially low interest
rates right now are one of the main problems that the economy
has. I think we are pursuing those rates to prop up insolvent
banks, to necessitate the government bubble, the borrowing from
the Federal Government. When interest rates ultimately rise,
the banks you guys bailed out, they are all going to fail again
because they are insolvent. They are only kept afloat by the
cheap money from the Fed. Their portfolios are loaded with low
yielding, long term mortgages and government bonds and when
interest rates go up, the value of those assets will collapse.
They have to go up because eventually the dollar will sink
so much, prices will rise so much, nobody will lend us money.
The dollar won't be the reserve currency. Right now it is kind
of benefiting from the fact that there are problems in other
parts of the world but look at the price of gold. It is at
$1,900 a ounce for a reason. It is going up because of all the
inflation that we are creating now and all the inflation we are
going to have to create in order to keep interest rates at
these low levels.
The only way to solve our problems is to let interest rates
go up and they are going to go way up. Then what are we going
to do? If we keep inflating this bubble, if we let the national
debt get to $20 trillion and then rates go to 10 or 20 percent,
what people are saying now is exactly what they said during the
real estate bubble. People used to tell me, Peter, you are
crazy, real estate prices will never fall. Now we know what
happened. People are now saying the same thing with interest
rates. We don't have to worry because interest rates will never
rise, they will stay low forever. They won't.
Mr. Kelly. You are right. The only thing we know for sure
is they are not going to rise before the next election.
Mr. Schiff. We don't know that for sure. They are going to
try everything they can to prevent.
Mr. Kelly. The other thing that is going to happen is if we
print money that isn't backed by anything, our lenders are
going to say at some point, you are paying me back with money
that isn't worth what I lent you.
Mr. Schiff. We are destroying the value of our money and
that is why prices are rising. Oil prices aren't going up. In
fact, Ron Paul pointed out in his last debate, you can buy a
gallon of gasoline for a dime as long as you have a dime that
was minted before 1965. It is because our money is being
debased by the Federal Reserve. That is what is happening.
Prices aren't going anywhere. The value of our money is
declining and it is going to lose a lot more value in a very
short period of time if we continue these policies.
Mr. Kelly. Under the President's new plan, there is a
$4,000 incentive for hiring people who have been unemployed for
long periods of time. For somebody like yourself who is an
employer and somebody like myself who is an employer, who
interviews people, are we picking winners and losers as to who
it we are going to hire?
Mr. Schiff. Absolutely. In fact, this is another example of
things that are going to backfire. The government is proposing
a plan to make it illegal for employers to discriminate against
people who have been unemployed for more than 6 months. The
effect is going to be that nobody is going to interview anybody
who has been unemployed for more than 6 months because they
don't want to risk a lawsuit.
If somebody was going to hire somebody anyway, they will
try to interview people who have been unemployed for about 5
months, so they can start them at the 6-months so they can get
the tax credit but it is simply going to shift jobs away from
people who are newly unemployed or long term unemployed to
people who have been unemployed for a specific period of time.
I think the most it is going to do is influence minimum
wage. I said earlier that we should abolish the minimum wage.
That $4,000 tax credit temporarily substantially reduces the
minimum wage for a 6-month period of time. I think on the
margin, you will create some minimum wage type jobs on a
temporary basis but it is not going to be any kind of great
stimulus. As I said, the deficits we will generate to finance
the tax cuts will destroy more jobs than those tax cuts create.
Mr. Kelly. I would agree with you on a lot of these things.
It is totally bizarre to me that the people we expect to do the
most lifting are the people that we put the most burden on and
continue to overburden them with regulations that really don't,
in the long run cost benefit analysis, doesn't play out.
I am not saying they weren't good intentions to start with
but when you look at what has happened and it makes it so
difficult on those people who are absolutely being depended
upon to lift that load, it is bizarre to me that anybody could
look at this logically and think this is a plan that makes
sense when in the history of the world, we don't have any data
that would suggest that is possible.
Thanks so much for being here. I yield back.
Ms. Buerkle. Thank you, Mr. Kelly.
I now recognize Mr. Kucinich.
Mr. Kucinich. Thank you very much.
Mr. Schiff, you made a very strong case about cutting
government spending. Does that include the Pentagon and ending
the wars in Iraq and Afghanistan?
Mr. Schiff. Absolutely, it includes that.
Mr. Kucinich. Ms. Furchtgott-Roth, in your written
testimony to this committee, you make an assertion that I
wanted to review. You stated, ``The Acting General Counsel of
the NLRB wants to stop the Boeing Co., which has a backlog of
over 800 Dreamliner aircraft on order from using its new
aircraft manufacturing plant in South Carolina to build
Dreamliners.'' That is on page 5 of your testimony?
Ms. Furchtgott-Roth. Yes.
Mr. Kucinich. Are you aware that the NLRB has not sought,
as a remedy, that Boeing can't produce its products in South
Carolina? The acting general counsel's complaint against Boeing
says that as long as Boeing's decisions are not made for
illegal motives, it can have its work done in South Carolina. I
want to quote from the NLRB complaint. ``Other than as set
forth in paragraph 13(a) above, the relief requested by the
Acting General Counsel does not seek to prohibit Respondent,''
talking about Boeing, ``from making non-discriminatory
decisions with respect to where work will be performed,
including non-discriminatory decisions with respect to work at
its North Charleston, South Carolina facility.''
Madam, are you aware that the case brought by the NLRB's
acting general counsel against Boeing is about work that was
illegally taken away to retaliate against workers for engaging
in acts that are protected under Federal law? The remedy is
that the work that was transferred must be performed in
Washington, not that Boeing cannot produce planes in South
Carolina or any other State. Are you aware of that?
Ms. Furchtgott-Roth. Boeing did not close its plant in
Washington State, it did not lay off any workers in Washington
State; it just needs an additional plant.
Mr. Kucinich. You made a claim that want to see how you
back it up. You said that the NLRB wants to stop the Boeing Co.
from using its new aircraft manufacturing plant in South
Carolina.
Ms. Furchtgott-Roth. To build Dreamliners.
Mr. Kucinich. To build Dreamliners. Where is the proof of
that? Do you have any proof of that at all? I take that as your
answer. I think when you come to this committee and start
making claims, you had better back them up.
I want to move on in the 2-minutes I have left.
Ms. Furchtgott-Roth. I spoke to the general counsel of
Boeing, Mr. Kilberg, and this is the information I got from
him. If that is incorrect, I would be glad to send a
correction.
Mr. Kucinich. You had better check with him. He didn't
prepare you well.
I want to go on now. In the past, there was bipartisan
support for increased government spending during economic
turndowns. In January 2008, Congress passed an Economic
Stimulus Act which injected over $150 billion into the economy.
There were 165 Republicans who supported it and President Bush
signed it. In the spring of 2008, Congress extended benefits
for long term unemployed with the support of 182 Republicans
and President Bush signed it.
There is widespread agreement among economists that
economic growth and job creation during this economic downturn
will only occur with fiscal stimulus from the government. That
is not just my view; it is the view of Joseph Stiglitz who is a
professor of economics at Columbia, a Nobel Prize winner in
economics, former chairman of the Council of Economic Advisors
under President Clinton, and former chief economist for the
World Bank. It is also the view of Bruce Bartlett, a
conservative economist who held senior policy roles in the
Reagan and George H.W. Bush administrations and also argues
that the Federal Government could increase aggregate spending
by directly employing workers or funding public works projects.
Mr. Taylor, in your written testimony, which I was pleased
to be here for, you seemed to dismiss this perspective. Do you
agree with Bruce Bartlett and Joseph Stiglitz about the
positive role that government spending can bring to stimulate
the economy?
Mr. Taylor. Based on my empirical work of what actually
happened, when you look at the data, no, I don't agree. Mr.
Cummings mentioned Zandi. These people have these models which
they simulate; it is their models of the economy and they
simulate them and the models say, this is going to work. Then
they do it after the case, they simulate the same model and say
it did work.
What I have tried to do, and others have tried to do, is
look at the money, look at where it went and when we do that,
we don't see these impacts. You might look at a particular
project may be in my State of California and there is a sign
next to it that says, ARRA, most likely that was going to be
done anyway and they used different financing for it. That is
what we found.
With respect to the idea that most top economists think
these things work, I disagree. Gary Becker, also a Nobel Prize
winner, wrote a column recently disagreeing with this and
Edward Prescott. So the notion that most economists think these
things work, Milton Friedman, won a Nobel Prize; Franco
Modigliani won a Nobel Prize to show these kind of short run
things don't work.
Mr. Kucinich. I appreciate your answer and my time has
expired, Professor, but what I would like to do with unanimous
consent is to place in the record this summary of economists
who support the American Jobs Act who talk about the value of
government spending.
Ms. Buerkle. Without objection.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAIALBE TIFF FORMAT]
Mr. Kucinich. Thank you very much.
Ms. Buerkle. Thank you, Mr. Kucinich.
I want to pick up where Mr. Kucinich left off and that is
with regards to these economic theories and what works and what
doesn't work. Professor Taylor, if you want to finish up and
then just move down the panel, there seems to be disagreement
and I would like to hear your perspectives on what works and
what doesn't work.
Mr. Taylor. We could learn from history about what works.
For example, in the recovery from the last deep recession we
had in the years 1983-1984, we had economic growth that
averaged 6.5 percent. We didn't have one of these short term
stimulus things at that point. We had a permanent tax reform, a
permanent reduction in tax rates. There is no comparison.
Unemployment came down rapidly, job growth grew unlike what is
happening now. You can go back to other periods, the 1970's,
and more recently and see the same thing.
To me, when people study these carefully, they come to the
conclusion that the shorter term, temporary, and I would add
targeted to that, policies don't work. What works are these
more permanent, more lasting policies. That is what we need so
much if we are going to get the unemployment rate down.
The unemployment rate is high because economic growth is
low and even the forecasters who say this is going to work,
predict economic growth will come back down again after a short
term boost. I don't even see the boost but even if you get a
boost, it doesn't deal with the problem. We need to get
unemployment down to where it was before the recession, not
just to have a spurt of growth and then we are back into the
same situation.
Ms. Buerkle. I see we have been joined by our chairman, so
I will yield my time to the chairman of Oversight and
Government Reform, Mr. Issa.
Mr. Issa. I appreciate it, Madam Chair. I was watching this
in the back between other meetings and wanted to come out and
show the special interest that I have in the subject, so no
questions, but please continue.
Ms. Buerkle. Thank you very much.
Ms. Furchtgott-Roth, I think we are up to you.
Ms. Furchtgott-Roth. Just to build on what Professor Taylor
was saying, with which I agree, there is the famous joke, what
do you believe, me or your own eyes. We had an unemployment
rate of 7.3 percent in January 2009; it is 9.1 percent. At that
time, about 22 percent in January 2009 of the unemployed were
long term unemployed, 6 months or more. Now it is 45 percent.
The teen unemployment rate has gone up; the African-American
unemployment rate has gone up. We can see that this isn't
working. We do need to take a different tact.
I would say fundamental tax reform offers the best chance
of immediate economic growth, together with reform of
regulation. I have written about regulations that were passed
during Republican administrations and how those should be
revoked also. One that I have written about is the incandescent
light bulb ban which was part of the Energy Security Act of
2007 and GE closed its last light bulb incandescent light bulb
plant in West Virginia. We need to take a thorough look at
these kinds of regulations.
It is already law that we should do a cost benefit analysis
of regulations. It is not done. In other words, these agencies
are breaking the law by not performing the cost benefit
analysis. One small example, in the Labor Department regulation
that required contractors to give affirmative action for
veterans, this is going through the process right now, the cost
of taking 1 day of all workers' time to inform them of the new
regulation was not listed as a cost by OMB, so they bias the
cost and make the calculation look better.
You all should make sure these agencies not only do the
cost benefit analysis which they are already required to do by
law, but that cost such as taking every worker in the plant and
not letting them work for 1 day is included also.
Ms. Buerkle. Thank you very much.
Dr. Boushey.
Dr. Boushey. You asked what works and I want to make a few
quick points. First of all, we all know that this recession has
been deeper and more protracted. It followed a financial
crisis. There is work by Carmen Reinhart and Rogoff that shows
these kinds of recessions tend to be different.
The recession of the early 1980's that Professor Taylor
referred to was very different from this one. It was caused
when the monetary authorities started to raise interest rates
because of inflation. That is how we got to this double digit
and then in order to get down, in order to spur growth,
monetary authorities had a huge bit of wiggle room to lower the
interest rate which spurred growth and at that time, you could
have a housing led recovery, which you typically had in
recessions in the United States.
You lower interest rates, people buy houses, they invest in
that kind of investment. You can't do that now because of the
collapse of the housing bubble. This recession is very, very
different in terms of the recovery and what we need to do.
Second, there is a lot of good research that shows the
impact of stimulus. I have cited a lot of it in my testimony. I
am going to direct you to one piece of research by David
Johnson, Jonathan Parker and Nicholas Souleles that looks that
income tax refunds of 2001 and finds that two-thirds of those
dollars were spent within the first two quarters. Money was
spent.
There is a lot of research that shows how multipliers work
and how fiscal expenditures in this kind of recession. This was
very different from the early 1980's, and I think we need to be
very cognizant of that.
Finally, I have one comment on Ms. Furchtgott-Roth's point
about cost benefit analysis. We should also make sure we
include the full cost of implementation such as when you have
disasters or calamities, the catastrophic costs like the
financial crisis, when you are thinking about regulation.
Thank you.
Ms. Buerkle. Thank you.
Professor Taylor, I don't know if you would like a minute
or less than a minute for rebuttal?
Mr. Taylor. Sure. No recovery is the same as others and no
recession is the same as others, but 1983-1984 had a very rapid
recovery and also had drags on it. Housing was not the drag but
net exports because the dollar got so high at that point where
it dragged about 2 percent per year negative. Right now housing
is not going anywhere but it is not taking away from growth.
Every recovery has its problems.
What is unique about this one is its broad base. Investment
is down, consumption is down, firms are not hiring. It is
across the board and that is why I think if you look and try to
understand what is going on, you come to these questions about
the policy, the uncertainty that it has caused, the worries
about higher taxes, the worry about inflation and that is why I
think the remedy has to be to fix that, not to try the things
that we know didn't work from the past.
I can't emphasize enough that just because you can cite
something a Republican voted for in the past doesn't mean it
worked. President Ford was a Republican. He had a temporary
stimulus program that he voted for and within a year of that,
his own Council of Economic Advisors concluded that it didn't
work very well and recommended it not ever be done again.
Again, President Carter, a Democrat, of course, the same thing,
his advisors said, it didn't work. We learned that lesson for a
couple of decades.
Now we are back to the failed policies of the past. I think
it would be a terrible mistake to do it yet again and that is
my concern here.
Ms. Buerkle. Thank you, Professor Taylor.
Mr. Schiff.
Mr. Schiff. Unfortunately Mr. Kucinich left but he made the
point that prior stimuluses had enjoyed bipartisan support.
They didn't enjoy my support. I opposed them at the time. All
of the efforts by government in the past to artificially
stimulate the economy have failed. They have worsened the
problem.
The recession is actually part of the cure. The recession
needs to be allowed to run its course. The reason we are never
going to have a real recovery is because the government won't
let us have a real recession. We have serious economic
imbalances that I mentioned. We have an economy that is based
on spending borrowed money. That can't be. Economies have to be
based on savings, investing and production. We are trying to
run an economy upside down. In order to maintain it, we have to
keep interest rates at zero, we have to run these huge
imbalances, we have to import all these goods that we don't
produce, we have to borrow from the rest of the world. We have
to allow the restructuring to take place.
Until we allow that to happen, we are not going to create
jobs, we are not going to have any real economic growth. We
can't just keep repeating the mistakes. I know, and this is a
political body, it is very difficult for politicians to level
with the American public about how severe these problems are
and how they are the consequence of years and years of mistakes
made by Congress and by the Federal Reserve.
There is a free market cure. It will work if the government
gets out of the way and lets it happen. It is going to be
painful. Just like anyone who has a drug habit, they check into
rehab, they will come out better, but it is not going to work
if every time they feel the withdrawal symptoms, they take
another shot of heroin because that is what these stimuluses
are, a shot of monetary, fiscal heroin and it is not going to
work and only means that the eventual withdrawal is that much
more painful because we have that much more drugs in the system
that have to come out.
Ms. Buerkle. Thank you very much.
Mr. Lindsey.
Mr. Lindsey. I share Professor Taylor's skepticism of
counter cyclical fiscal policy. There are plausible theoretical
reasons why it could work but the empirical track record just
isn't very good, here or in other countries. The proper role of
government is to create stable conditions that are favorable
for economic dynamism and economic growth.
Since our focus here is on jobs, we need to keep in mind
that the job market in this country has been slack for a
decade, that the track record of new business formation and
unemployment and new business has been off trend in recent
years well before the recession, so we should be looking at
structural issues, not just as temporary cyclical fixes.
Ms. Buerkle. Thank you.
I noticed in your testimony you did refer to structural
changes versus cyclical changes. Do you think the
administration's new jobs plan includes any of those changes?
Mr. Lindsey. It is overwhelmingly focused on temporary
counter cyclical measures.
Ms. Buerkle. Thank you.
Mr. Chairman.
Mr. Issa. I too am sorry that Mr. Kucinich left. One of the
flaws we have in our system is we manage to serve on multiple
committees and have multiple obligations.
Mr. Lindsey, I want to follow up first with you and perhaps
others on the panel. This morning I spoke with the Northern
Virginia Tech Council, all CEOs, all involved directly or
indirectly in high tech growth in northern Virginia, a great
success story to say the least.
The dialog, which included repatriation of funds and so on,
quickly went into if I gave you the money, where would you
invest it. It did seem like the message I was getting this
morning was we wouldn't invest it. Basically, we don't have the
kind of stability that causes us to want to make the
investment.
What is it that we should be looking at from this side of
the dais where we have been talking to American job creators
through americanjobcreators.com. We have been hearing from
people what the impediments are to job creation and we want to
deal with those. Those are a given.
What else could we do so that if $1 trillion to $2 trillion
came back in, it would be invested in America and then I have a
side bar question which is, aren't we focusing on the wrong
thing when we focus on jobs? Shouldn't we be focusing on
efficiencies that make American jobs competitive in the world,
which was the other subject this morning. Would you comment on
that?
Mr. Lindsey. Ultimately, we don't spend money in order to
create jobs for ourselves. We work so that we can have money to
spend. The purpose, ultimately, of economic activity is
consumption but clearly, our economy is under performing in job
creation and making use of valuable human resources. Again,
this is the Kauffman Foundation mantra, but if you are serious
and interested in job creation, you must look at who creates
jobs. The soul source of net job creation, the overwhelming
source of net job creation in this country is new businesses,
businesses under 5 years old, specifically startups.
What you need to do is look at the kinds of policies that
make it easier for them to get started, easier for them to
attract capital, easier for them to keep their cost of business
down by freeing them from excessively costly regulations, and
so forth. In my written testimony, I have a laundry list of
pro-entrepreneur policy proposals that Congress could consider
and put into law that would help push us in the direction of a
permanent, not a temporary fix, but a permanently more
favorable business environment.
Mr. Issa. Ms. Roth, I know you were earlier asked a bit
about NLRB's activities related to Boeing and so on. Boeing is
our largest exporter, period. If Boeing can produce more
aircraft with less labor, should they be able to do that or
should we consider that retaliation if they find ways to use
less labor and thus need less union workers in Everett,
Washington? Doesn't the logic of only adding 2,000 jobs in
Everett being a retaliation because they could have added
3,000, isn't the logical next step for NLRB and for the Federal
Government to say, we want you to add 4,000 jobs, you figure
out how to do it, rather than spending every day figuring out
how to build a better airplane with less total cost?
Ms. Furchtgott-Roth. What the National Labor Relations
Board is doing to Boeing is absolutely unprecedented.
Mr. Issa. I just want to know how far, if we let them take
it, they should be able to take it next? Shouldn't they be able
to just mandate X amount of new jobs in order not to be
considered retaliation?
Ms. Furchtgott-Roth. No. It is in the benefit of the United
States for companies to be able to choose their locations and
to move from one location to another which, by the way, Boeing
did not. Boeing kept its plant in Washington State. We can just
have a look at the violence in Washington State over the past
week from the longshoremen who are destroying railroad carts
and grain to give some indication of why an employer might
prefer to build another plant elsewhere if nothing else for
geographic diversity as well as because of different costs.
This is sending a chilling effect to employers who want to
locate in unionized States. They might very well be stuck there
if the NLRB continues with its current policies of not allowing
them to move. It also puts them at the mercy of strikes. If
there is a strike over some perhaps needless or small issue and
that is used in the future as a rationale for disallowing
another plant elsewhere, it works to the harm of the United
States because then companies just prefer to offshore their
manufacturing.
Mr. Issa. Isn't there a record of exactly that happening in
Germany, for example, even though they had a lot to be said for
locating in Germany. For a long time, you couldn't close an
operation or reduce an operation in Germany and as a result,
nobody would make an investment in Germany unless it was sort
of a guaranteed investment which usually was a government
contract.
Ms. Furchtgott-Roth. That is correct. The EU also has rules
against firing workers which makes it very difficult for
employers to take on workers. They know once they have them,
they are stuck with them. In the past, we have benefited from
flexible labor markets. We have created vast numbers of jobs.
We have had unemployment rates 2 to 3 percentage points lower
than Europe. We have laughed at Germany for its 9 percent
unemployment rate and now it is reversed.
My fellow witness talked about the slack labor market in
the earlier part of the last decade but in April 2006, we had a
4.6 percent unemployment rate. That is not a sign of a slack
labor market.
Mr. Issa. I guess I will ask a closing question. It is
rhetorical but it is important to the way I think and perhaps
your comments will help everyone.
How many of you out of five believe Henry Ford did a
service to America in automating and increasing the
productivity at Ford plants during his tenure in the Model T
and Model A?
Ms. Furchtgott-Roth. He certainly did.
Mr. Issa. One of the things we can all agree on. Isn't that
part of the challenge we face today, if you can produce a
better product for less, which also includes less labor, that
is how you end up being a world class creator of jobs? Isn't
that the principle that for some reason stimulus, simply adding
jobs by paying for them, does the exact opposite of less labor,
perhaps, but world class labor that produces a better product?
Mr. Schiff.
Mr. Schiff. Absolutely. Henry Ford was famous for paying
his workers $5 a day.
Mr. Issa. Highest in the world at the time.
Mr. Schiff. That was a ounce and a quarter of gold which at
today's exchange rate is $2,500 a week. Ford's workers were
making $2,500 a week, the equivalent, paying no Federal income
tax and no payroll taxes, there was no minimum wage and no
unions. We paid the highest wages in the world, yet we produced
the best quality and least expensive products. How was that
possible? That was because we had the smallest government. We
had minimal regulations and low taxes.
If we want to recreate American industry, we have to
recreate that environment. We have to allow businesses to grow
and prosper. We have to remove all the road blocks and
impediments that Congress has placed in their path over the
years.
Mr. Issa. Dr. Boushey, you are sort of surrounded here, so
I will give you the last word.
Dr. Boushey. Thank you, Congressman.
I am glad that Mr. Schiff brought up the $5 a day, that was
an important point. The reason Henry Ford did that was to
reduce turnover and to keep highly skilled workers. That
certainly tells you something and it would be great to see more
employers taking that high road strategy today that we don't
see enough here in America.
Mr. Issa. Thank you all.
Thank you, Madam Chair.
Ms. Buerkle. Thank you, Chairman Issa.
I would like to thank all of our witnesses for coming today
and taking time out of your busy schedules. We appreciate that
very much.
At this time, this hearing stands adjourned.
[Whereupon, at 12:08 p.m., the subcommittee was adjourned.]