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MONETARY POLICY AND THE STATE

OF THE ECONOMY, PART II

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

FEBRUARY 16, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–4

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MARSHA BLACKBURN, Tennessee 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

February 16, 2007 ............................................................................................ 1

Appendix: 

February 16, 2007 ............................................................................................ 51

WITNESSES 

FRIDAY, FEBRUARY 16, 2007

Bernstein, Jared, Senior Economist, Economic Policy Institute, Washington, 

D.C. ........................................................................................................................ 6

Blackwell, Ron, Chief Economist, American Federation of Labor and Congress 

of Industrial Organizations (AFL–CIO) ............................................................. 8

Blank, Rebecca M., Gerald R. Ford School of Public Policy, University of 

Michigan ............................................................................................................... 11

Grant, James, Editor, GRANT’S Interest Rate Observer ..................................... 14

APPENDIX 

Prepared statements: 

Bernstein, Jared ............................................................................................... 52

Blackwell, Ron .................................................................................................. 68

Blank, Rebecca M. ............................................................................................ 74

Grant, James .................................................................................................... 900

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hon. Barney Frank: 

New York Times article by Bob Herbert, dated 1/22/07, ‘‘Your MasterCard 

or Your Life’’ .................................................................................................. 95

(1)

MONETARY POLICY AND THE STATE 

OF THE ECONOMY, PART II 

Friday, February 16, 2007

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:03 a.m., in room 

2175, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Present: Representatives Frank, Maloney, Watt, Moore of Kansas, McCarthy, Lynch, Scott, Green, Cleaver, Sires, Hodes, Ellison, 

Klein, Wilson; Bachus, Lucas, Paul, Gillmor, Jones, Capito, 

Neugebauer, Putnam, Blackburn, and Roskam. 

The CHAIRMAN. Today’s hearing of the Committee on Financial 

Services will come to order. Would members of the staff please 

close the doors? This is a continuation of a hearing on Monetary 

Policy and the State of the Economy, and today we have a panel 

of four economists. Three were selected by the majority, one by the 

minority, and we think they represent a good panel of people to express their views on the subjects that are covered in the Monetary 

Report that are covered in the Humphrey-Hawkins bill that are before us today. 

The key issue, I believe, before the country economically is how 

to continue and perhaps improve on economic growth in a manner 

that more fairly distributes the proceeds of that growth. No serious 

individual is trying to do away with inequality. Inequality is a driver of the capitalist economy, and it serves us well. But too much 

inequality can become socially problematic, it can become economically problematic, and it can become politically problematic. And 

the task I believe, for us, is not to do away with inequality, as I 

said, but to try to have public policies that contain it so that there 

is enough inequality to provide the incentives that the system 

needs to be productive, but not so much as to become socially, economically, and politically counterproductive. 

Now politically, it is clearly counterproductive now. Whether or 

not it is socially, and whether or not it will become so economically, 

remains to seen. I would note that the Federal Reserve Chairman 

and others have cited the great strength of consumer spending as 

we go forward in the economy, but a number of people, including, 

I believe, the gentleman from Connecticut, Mr. Shays, yesterday 

raised a kind of paradox, which is that consumers are being told 

two things: One, to consume; and two, to save. And you cannot consume and save the same dollar, at least not legally. So the issue 

then becomes do the consumers have enough to do both? And that’s 

2

the economic problem. You can reach a point where there is simply 

not enough money going to the great bulk of citizens for them to 

do both. And it does appear right now that consumption is being 

maintained, but to some extent at the expense of savings. I’ve had 

friends in the financial community who are concerned about the 

low savings rate in America, the negative savings rate in some 

cases, saying to me, ‘‘Don’t you think we need to do things to help 

the average citizen save more?’’ My answer is yes, begin by letting 

him or her have more money. For people who have run out of 

money by the end of the month, there is no incentive in the world 

that is going to get them to save. They cannot save what they do 

not have, and I think that is the problem. 

And, of course, it is also the case that Henry Ford, when he de- cided to pay the workers $5 a day and was chided by some of his 

fellow industrialists for profligacy, made the very sensible statement that if he didn’t pay them, they couldn’t buy the cars. You 

can’t have a mass production economy without mass consumption. 

And he, although he was a raving anti-semitic lunatic in other contexts, he was a pretty good economist as well as obviously a great 

industrialist, showing that intelligence does not necessarily jump 

from area to area. 

But that’s the dilemma we have, and I do think it is clear that 

certainly politically we have reached a point where excessive inequality has become a cause of political gridlock, not just in America, but elsewhere. You see it in Latin America with the increasing 

success of some politicians winning elections who many in America 

disagree with. And I must say I think it is far healthier to have 

elected officials like Lula and Kirshner than Morales and Chavez, 

but we are, I think, undercutting the responsible democratic left. 

In America, it is clear to me that as trade promotion expansion, 

trade promotion authority expires, it will not be renewed in the 

current context. A Doha Round is unlikely probably because of resistance from many of my colleagues in the areas that represent 

agriculture, agriculture apparently being an exception in the minds 

of many of my conservative friends to all the doctrines of free enterprise and little government that they otherwise support. 

But apparently Von Mises has a footnote that says that none of 

this applies to agriculture. It’s apparently written in German, so I 

couldn’t understand it, but my colleagues from the agricultural 

area apparently all seem to understand it. 

But if they got a Doha Round, I don’t think it would pass the 

House. We are bringing out a bill from this committee on foreign 

investment, direct foreign investment, which is clearly in the interest of the United States and of our workers. It is more controversial than it ought to be, because there is this fear on the part of 

the average American that foreign economic activity somehow will 

undercut them. I think it is wrong in this case, but it is not wrong 

in general. So that is the subject that I hope we will be able to address. I think all of us want to see growth go forward. 

And I will just close by saying I was troubled by what seemed 

to me some bias that had crept in—well, not crept in, that is 

present in the Federal Reserve’s approach, where in the Federal 

Reserve Monetary Report they say three things. One, production in 

America is now below capacity, will remain below capacity for sevVerDate 0ct 09 2002 18:20 May 07, 2007 Jkt 034674 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\34674.TXT HFIN PsN: TERRIE
3

eral quarters, and is expected to reach capacity, not to go above it. 

Two, inflation appears to be diminishing. Three, therefore, our 

major concern is inflation. 

That does not compute. That bespeaks a bias, and while I do not 

believe—I think we’ve gotten proof that growth alone is not a sufficient basis for the kind of economy we want, it certainly is a necessary one. So as bad as things are when growth is not fairly 

shared, they would be worse if growth is diminished. And that is 

the set of problems we have today. 

And I believe now I will turn to the gentleman from Texas, the 

ranking member of the subcommittee, for his time. 

Dr. PAUL. Thank you, Mr. Chairman. I want to thank you for 

holding these hearings, and I am very pleased that you do have an 

interest in monetary policy, because over the years, I have emphasized monetary policy as being very important. I think it’s frequently neglected. 

There was a time that the Humphrey-Hawkins type of hearings 

that we’ve had semi-annually emphasized the issue of money 

growth and how this affected the economy. That is no longer the 

case; as a matter of fact, it’s been de-emphasized. The Federal Reserve no longer even reports M3, as if total money supply has no 

importance, and yet there are some who think it still is important, 

even though most of us recognize that measuring money in this age 

of global financing has become more difficult. 

Most of the time when we, in the Congress, and other economists 

talk about the Federal Reserve, they talk about the fixing of interest rates on the overnight rate and its influence. Generally speaking, they’re dealing with central economic planning rather than 

dealing with the currency itself. I like to think more that the role 

of the Federal Reserve ought to be to guarantee that we have a stable value of the dollar rather than concentrating on prices. Because 

if we have a dollar that falls in value, and prices go up and you 

concentrate on the prices, then the policies are directed toward rising prices and not to the cause of the inflation, which happens to 

be the inflation of the dollars themselves. 

The other thing that has always concerned me over the years has 

been the neglect in emphasizing that there are other things that 

occur when a central bank increases the supply of money. Not only 

might it lead to higher prices—the one thing is, you don’t know exactly which prices will go up. Sometimes they’re in the financial 

markets and sometimes they’re in the asset markets. 

But there also tends to be a neglect of some other consequences 

of what the Federal Reserve does. For instance, even if prices happen to be relatively stable because of increased productivity, generally, everybody is reassured. Well, there’s no inflation. And they 

fail to recognize that there are other consequences of Federal Reserve monetary policy such as the misdirected investment, the 

malinvestment, the accumulation of debt, and the formation of bubbles. And if we look at our history, we know something about bubbles. We know about NASDAQ bubbles. We know about housing 

bubbles and the various different portions of the economy that will 

get out of control. 

So, I am very pleased that we are having these hearings with 

this emphasis on Federal Reserve and monetary policy, and also 

4

the important issue that we have been dealing with more recently, 

that of transparency of the Federal Reserve. And though there 

have been some new items introduced, like the release of the minutes, and we know a little bit more a little faster about the Federal 

Reserve, what’s going on, we still don’t know the details of international transactions, the international conversations and what 

type of agreements there might be with central banks, which I 

think are very important. 

These are the kinds of things that I hope we can move forward 

and for which Congress will assume more responsibility. It is the 

Congress that is responsible, and I think we have been derelict in 

many ways of delivering so much of this responsibility to the Federal Reserve, and in many ways, the Congress, as it has in other 

areas in recent years, has not had adequate oversight, so I like the 

idea that we will have more oversight. 

I have had concerns about the President’s working group on financial markets, and not too many people talk about it or know 

about it, and quite frankly, even as a member of the Banking Committee, I wish I knew more about it. I haven’t been getting information, and to me, that is rather significant if there is a group. We 

know the group exists, we know they meet, but we don’t know 

what they do, and I’m hoping I get cooperation on the committee 

so we can find out more about how they do and what their plans 

are and what their intents are. That to me, is very important. 

So, with that in mind, more transparency and more concentration on the value of our money and how it affects the distribution 

of wealth in this country, there is a saying that goes when you inflate a currency, there is a redistribution of wealth and it leaves 

the poor and the middle class and goes to the wealthy, and there 

are some statistics that point this out. And that’s one of the reasons the working class can’t keep up, because they suffer more 

from the inflation. 

And with that, I yield back to the chairman. 

The CHAIRMAN. The Chair apologizes. The gentleman has concluded. The gentleman from North Carolina, then we’ll go to the 

gentleman from Illinois. 

Mr. WATT. Thank you, Mr. Chairman. I’ll be brief, although I 

wouldn’t bet you that it would be the 1 minute that I told you it 

would be. I’m not betting, but I’m going to try to stay within that 

minute. 

The CHAIRMAN. 10 seconds gone. 

Mr. WATT. I walked into the discussion when the Chair was talking about Chairman Bernanke’s statement that we wanted to both 

increase savings and increase consumption at the same time and 

how that may be difficult to do or impossible to do. I’m wondering 

whether, in the course of this discussion today, somebody can address the concern I have that there probably is actually a negative 

savings going on that’s feeding this consumption in the sense that 

my sense is that most of the consumption that’s taking place with 

a number of my constituents is taking place with borrowed money. 

It’s not coming at the expense of savings, it’s coming at the expense 

of negative savings, because people are borrowing money to consume. And it would be helpful in this discussion today to see how 

5

this massive increase in personal debt that we are observing plays 

into this whole equation that we’re discussing for the last 2 days. 

And with that, I’ll yield back. 

The CHAIRMAN. I thank the gentleman. Since he did leave us 

some time, I would ask him to yield for the purposes just of saying, 

and he reminded me to do something. Bob Herbert of the New York 

Times did a very good column a while ago about the extent to 

which credit card debt and bankruptcies based on credit card debt 

have in some cases resulted from the need to pay medical bills by 

people who had no other alternative. And I would ask that the article which references a broader study be made a part of the record, 

because that’s exactly the problem the gentleman was talking 

about, and it clearly is directly relevant here. 

Mr. WATT. Just to reclaim my time for a second. That’s part of 

it, but that’s at least a mandatory expenditure when you’re talking 

about medical expenditures. A lot of what I’m talking about is discretionary expenditures, which is not in an emergency medical situation of that kind. I just think people are putting more and more 

and more debt onto credit cards at the expense of savings of any 

kind, really getting further and further into a negative savings situation. 

The CHAIRMAN. The gentleman is correct. The gentleman from Illinois. 

Mr. ROSKAM. Thank you, Mr. Chairman. I just want to thank you 

for holding these hearings and really setting the tone in terms of 

a macro level. I think you made a very interesting point about sort 

of the orthodoxy of the free market. I ran into that in the Illinois 

legislature where we would all sort of worship at the altar of local 

control until our ox was being gored, and then suddenly we would 

all sort of manipulate things around. 

But I think yesterday we heard some very interesting news, and 

I think encouraging news from Chairman Bernanke, and that is 

that the economy is strong, and I just want to point out a couple 

of those elements and then speak directly to what I think are some 

of the challenges that we face. 

3.4 percent growth in 2006 with 7.5 million new jobs created 

since 2003, no small task. Unemployment is low comparatively, 4.6 

percent in 2006. Inflation is under control. It fell from 3.4 percent 

in 2005 to 2.5 percent in 2006. And our productivity is up by 2.2 

percent, and of course we’ve all been reading about how the stock 

market is exceedingly strong. 

But there are still some challenges that are out there. We heard 

them yesterday a little bit, and that was a discussion or allusions 

at least to long-term entitlement costs and devising new ways to 

train dislocated workers and workers who are coming into the 

workforce. 

I think it’s important as we begin these conversations to realize 

that all of us on this committee, and I think all of us in Congress, 

agree that it’s essential to help those in the lower wage portions 

of the economy to improve their earning power, but I don’t think 

some of the rhetoric that has bubbled over characterizing all of 

these positions as merely Wal-Mart jobs or low skill jobs is accurate. In fact, Chairman Bernanke said yesterday, ‘‘There certainly 

6

has been job creation at the high level as well as throughout the 

distribution of wages.’’ 

And at that, higher wage jobs, the problem is often that there’s 

not enough skilled workers to fill that demand. And I agree with 

him. I have run into this problem in terms of interacting with manufacturers in my district, which is the west and northwest suburbs 

of Chicago, who are having a very difficult time filling competitive 

slots based on training levels. 

So it’s my hope that this will turn into a frank and positive discussion and that we avoid can some of the pitfalls that sometimes 

come up in economic conversations. We need to find ways to create 

and promote economic growth, but in my view, protectionism 

doesn’t work, can’t work, and will ultimately hurt our economy. As 

I’ve interacted with manufacturers, particularly in my district, 

they’ve said, ‘‘Look, we don’t need help from that point of view. We 

just need help being more competitive here and at home.’’ And 

we’ve all heard and seen egregious examples of CEO compensation 

that’s been reported in the news media, but I think we risk killing 

the goose that lays the golden eggs if we overly regulate in that 

area. I think we need to create greater transparency. Again, my experience in Illinois has run its economy down considerably, now 

ranking 46th out of 50 in job creation due to a high regulatory environment. 

Mr. Chairman, our success has always been tied to an ever expanding wave of social and economic opportunity for citizens, and 

that’s why I believe that our best solution involves finding new 

ways to empower our citizens. I look forward to hearing these witnesses and their testimony, and I yield back the balance of my 

time. Thank you. 

The CHAIRMAN. I thank the gentleman, and we will now get to 

our panel of witnesses who are being called upon in alphabetical 

order so that no one reads significance into it. And the first witness 

is Dr. Jared Bernstein, who is director of the Living Standards Program, the Economic Policy Institute and has been a very, in my 

judgment, welcome contributor to the policy debates we’ve been 

having in recent years about this very set of topics. 

Dr. Bernstein. 

STATEMENT OF JARED BERNSTEIN, SENIOR ECONOMIST, 

ECONOMIC POLICY INSTITUTE, WASHINGTON, D.C. 

Mr. BERNSTEIN. I thank Chairman Frank, Ranking Member 

Bachus, and the members of the committee for our opportunity to 

testify on the critical issue of the importance of full employment in 

today’s economy. 

In recent months, top policy officials and economic commentators 

have wondered why there seems to be more economic anxiety 

among working Americans than might be expected, given the low 

unemployment rate and solid macro economy. 

While some officials remain puzzled by this apparent disconnect 

between macro performance and perceptions of economic wellbeing, 

a quick look at some relevant data suggests it should not be such 

a head scratcher. After rising at rates close to that of productivity 

over the latter 1990’s, the real wage of the typical worker, the median wage, flattened in real terms, as did the average real wage 

7

of high school and even college graduates. After rising along with 

productivity growth over the latter 1990’s, the real median income 

of working age families fell 5 percent or $3,000 since 2000. 

In fact, the latter 1990’s were anomalous. For most of the past 

3 decades, real middle wage and income growth has occurred at a 

pace far below that of productivity growth. The economist’s mantra, 

rising productivity growth boosts living standards, now begs the 

question: Just whose living standards are being lifted? 

Two of the main reasons for the evolution of this productivity income gap are the absence of full employment and the loss of worker 

bargaining power. My key points today are truly tight labor markets are critically important for middle income working families. In 

a labor market that lacks the institutions and the norms to provide 

workers with some bargaining power in a global economy where 

those whose access to power and assets gives them a huge upper 

hand in the distribution of wealth, the predictable outcome is precisely the surge in inequality we’ve seen over the past few decades. 

In this context, full employment is one of the few reliable sources 

of bargaining power available to the American worker today. 

Now one reason for this imbalance has been the allegiance to a 

‘‘natural rate’’ theory of unemployment. Despite little evidence to 

support its contemporary use, this theory has led policymakers to 

give greater weight to inflation relative to unemployment concerns, 

and this has been partly responsible for years of unnecessary slack 

in the labor market. Economic elites have been operating from a 

playbook with an inherent bias against broadly shared prosperity. 

Now the views of many economists and the policymakers who 

still heed their advice are driven by the belief that there is this socalled ‘‘natural rate’’ of unemployment, the rate below which inflation would not merely rise, it would continually accelerate until unemployment went back up to the so-called ‘‘natural rate.’’ The Congressional Budget Office currently sets this rate to be 5 percent. 

Like many other economists today, I consider this concept to be 

a poor guidepost for policymakers. Events have overtaken the original model, and the evidence I present below suggests that subscribing to the model risks persistent and unnecessary slack in the 

economy, wasting billions of dollars, and consigning millions of potential workers to fewer job opportunities and lower wages than 

should be the case. 

We’re not denying that a relationship between unemployment 

and inflation exists. We do, however, deny that policymakers can 

effectively identify the so-called ‘‘natural rate’’ and that unemployment below that rate leads to spiraling inflation. To the contrary, 

I provide evidence that when unemployment has fallen below the 

natural rate, middle-income families have prospered and vice 

versa. Tight labor markets are a critically important ingredient to 

a balanced economy where the benefits of growth are broadly 

shared. 

Let me take a few moments to clarify these claims. First, the unemployment rate has been below 5 percent for over a year. Are we 

not currently at or at least close to full employment? And second, 

given that we’re below this alleged natural rate that I claim looms 

large in economists’ thinking, why has the Federal Reserve not 

raised interest rates since last June? 

8

On the first point, while the current job market is relatively tight 

and a lot tighter than it was for the first few years of this recovery, 

our workforce has not enjoyed a sustained period of full employment in this business cycle, and the result has been the absence 

of broadly shared economic gains. 

Second, while concerns about tight job markets generating wage 

push inflation are of course evident in their statements and speeches, the actions of neither the later years of the Greenspan Fed nor 

the Bernanke Fed appeared to be dominated by concerns about the 

natural rate. And to their credit, both men have consistently practiced a more nuanced version of monetary policy than would be the 

case if they were bound by the belief that unemployment below 5 

percent would automatically lead to spiraling wage growth. 

Allow me to demonstrate the points I’m trying to make here with 

a table that I handed out to all the members on the committee. 

They contrast two periods with very different outcomes for the median family. They are also two periods where the goals of macroeconomic policy were quite different. 

Using historical estimates of this natural rate, we can determine 

when the actual unemployment rate was above or below the supposed floor in the job market. In truly full employment periods, the 

unemployment rate will be below the natural rate and vice versa. 

Between 1949 and 1973, as the table that I handed out shows, the 

unemployment rate was often below the natural rate, cumulatively 

19 percentage points. This happens to be about the same number 

of points that unemployment was above the natural rate in the latter period. Not only was middle income growth much higher in the 

period when we were often below the natural rate, but inflation 

was lower as well. 

Clearly, from the perspective of middle class incomes, and especially for minority families, for whom full employment has consistently made a huge and positive difference, tight labor markets, 

even below the supposed natural rate were associated with much 

better income growth. 

Thank you. 

[The prepared statement of Mr. Bernstein can be found on page 

52 of the appendix.] 

The CHAIRMAN. Thank you. Next, sticking with my alphabetical 

order, which the gentleman from Alabama is helping me master, 

we will hear from Mr. Ron Blackwell, who is the chief economist 

for the AFL–CIO. 

Mr. Blackwell. 

STATEMENT OF RON BLACKWELL, CHIEF ECONOMIST, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL–CIO) 

Mr. BLACKWELL. Thank you, Chairman Frank, Ranking Member 

Bachus, and other members of the committee for the opportunity 

to be here and to testify on behalf of the 10 million members of the 

AFL–CIO and its affiliated unions on the economy and the conduct 

of monetary policy. 

I should begin by acknowledging that I happen to sit on the 

board of the Baltimore branch of the Richmond Federal Reserve 

Bank, but I’m appearing here today exclusively as a representative 

9

of the AFL–CIO, and nothing I say is intended to express the 

thinking of either the Richmond Bank or the Board of Governors. 

The CHAIRMAN. Unfortunately. 

Mr. BLACKWELL. Our view of monetary policy, like our view of 

economic policy in general, proceeds from a single important central fact of our times, which is that in the richest country in the 

history of the planet, it’s increasingly difficult for people to make 

a living by working. 

We have a $13 trillion a year economy, and it’s growing at over 

3 percent a year, while real family incomes have stagnated. The 

rupture between productivity and wages that Dr. Bernstein mentioned is one of the signal facts of our time. I think I understand 

the diagram that you’re looking at. 

If you look at the early period of the post-war period, the period 

when the middle class was built, we had very rapid economic 

growth, over 5 percent a year. Rapid productivity growth and real 

wage growth tracked productivity step for step. That was the most 

rapid increase of living standards not only in the United States’ 

history but in world history. 

But the period after that is very different. Today, we believe that 

3 percent is a very rapid pace of economic growth. Productivity 

growth is growing today very strongly, at least since 1995, but 

wages have been stagnant. The increase in productivity since 1973 

is something like 67 percent, contrasted with 100 percent increase 

in the earlier period. But real wages have increased by 8 percent, 

8 percent compared to 67 percent. 

The only reason—and family incomes have gone up by something 

like 15 percent. But the only reason they’ve gone up is because 

each worker is working more hours per job. Each worker is working more jobs on average. And most importantly, each family is 

sending more of its members to work, placing enormous strains on 

the working family. 

And of course, there’s the borrowing of money against rising 

housing prices, first and foremost, but in general, rising indebtedness of households as they try to maintain living standards in a 

stagnating environment. 

Moreover, economic insecurity is on the increase, as the chances 

of a working family losing 20 percent of its income in any 2-year 

period have doubled since 1980. And with 46 million people with 

no health insurance in this country, despite the fact that we spend 

more per capita on healthcare than any country in history, and 

with the shift by employers from defined benefit to defined contribution plans, which it’s estimated by Ed Wolfe at NYU, has basically left older Americans aged 55 to 60 with lower net worth than 

their parents had, despite all the increases in wealth over the past 

generation. 

So we basically have a situation where workers are struggling to 

make a living in the midst of the most prosperous country in the 

history of the world. And this is what—the stagnation of wages and 

the rupture between productivity and wages, which used to be the 

standard of fairness in our country, is one of the things that’s driving inequality. Today the United States has the most unequal distribution of income and wealth in the developed world, and we’re 

10

more unequally developed today in terms of income and wealth 

than we have been since the 1920’s, and we’re headed backwards. 

There are many causes for this stagnation of wages and the 

growing inequality, but I think we have to rethink our country’s 

economic policy if we’re going to be able to respond to this and 

allow our country to grow together again instead of growing apart 

economically, politically and socially. 

The core issue, and Dr. Bernstein mentioned this, but I want to 

stress it, these various policies have shifted the balance of bargaining power from working people, whether they’re in a union or 

not, to their employers. And the employers are using this increased 

relative bargaining power to reduce wages, keep productivity gains 

for themselves in the form of higher profits, shareholder pay, CEO 

pay, but also to walk away from their responsibilities for 

healthcare provision for their employees and for the retirement security of their employees. 

And the solution to this, I mean, the guiding thread of economic 

policy from our point of view is that we have to enact economic 

policies that rebalance power between working people and the people for whom they work. And in doing so, it’s not against these employers. We need great American companies led by far-sighted 

business leaders, and we understand the increased competitive 

pressure they’re under from globalization and other forces. But we 

do have to find a way in this new global economy to balance this 

power between working people and their employers. 

We proceed on economic policy and monetary policy from the 

point of view of the values of American working people, and four 

of those, in particular, are very important to mention. 

The first one is that anybody in this country who wants to work 

should have a job. It’s a terrible thing when people are left, as a 

matter of government policy, unemployed, as we currently do millions of people, unemployed, looking for a job, and unable to find 

one because of our policy of controlling inflation. 

Second, if anybody does work in this country, their family 

shouldn’t be living in poverty. And their family members, especially 

their children, should have access to healthcare, and they should 

have some reasonable hope that at some point in their working life 

they could stop working and live a dignified retirement. 

Third, if they want to associate with their brothers and sisters 

at work and form a union, they should be able to. 

And fourth, in conclusion, we know we live in a global economy, 

but American workers want to have a strong American economy, 

one that pulls its weight in the world and that is internationally 

competitive. The fact that we’re borrowing 6 percent of our GDP to 

consume things that we no longer produce is a problem from the 

point of view of the sustainability of our country’s competitiveness, 

and it’s a problem for American working families. 

But in this context, the very foundation of economic policy is the 

first value. If someone wants to work in this country and improve 

their living standards and that of their family through their own 

efforts, the government should assure that they have a job to occupy. This was recognized in 1946 in the Employment Act, and in 

1978 in the Humphrey-Hawkins Act. But the conduct of monetary 

policy since that time has narrowed the dual mandate of the FedVerDate 0ct 09 2002 18:20 May 07, 2007 Jkt 034674 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\34674.TXT HFIN PsN: TERRIE
11

eral Reserve to maximize employment on the one hand, maintain 

price stability on the other. That is has been effectively narrowed 

because of this NAIRU concept, on to inflation fighting. Hence, the 

irony that you were noting, Mr. Chairman, about the fact that inflation is still our biggest concern even though there’s no sign of 

it anywhere. 

I want to recommend shortly, briefly in closing that instead of 

narrowing the mandate of the Federal Reserve, we need to broaden 

and bring up to date that mandate. We currently have an economy, 

as mentioned by Mr. Bernanke as a strong economy. The current 

recovery is the weakest in terms of job creation of any recovery 

since the Second World War. And wages and productivity are still 

dividing. It’s higher now than it was when the recession began. 

Our employment population is lower. We need to broaden it to include a genuine full employment and establish full employment as 

the foundation of our economic policy. 

Thank you very much. 

[The prepared statement of Mr. Blackwell can be found on page 

68 of the appendix.] 

The CHAIRMAN. Thank you. Next is Dr. Rebecca Blank, who is 

the Joan and Sanford Weill Dean of the Gerald R. Ford School of 

Public Policy at the University of Michigan, and I assume by the 

time you go back, they will have found someone to name the State 

of Michigan after so that they can maximize the deference that we 

pay. 

Dr. Blank. 

STATEMENT OF REBECCA M. BLANK, GERALD R. FORD 

SCHOOL OF PUBLIC POLICY, UNIVERSITY OF MICHIGAN 

Ms. BLANK. Thank you, Chairman Frank, Ranking Member 

Bachus, and the distinguished members of the committee. I’m delighted to be here this morning. I want to give you just a few facts 

about life for low-skilled workers in America. I want to say something about the implications of rising inequality and then close 

with a very, very brief discussion of the policy implications. 

It has always been clear that the most important policy to assist 

less-skilled workers is a healthy macroeconomy with strong job 

growth. There has historically been a strong positive correlation between unemployment rates and poverty rates. When unemployment rises, so does poverty. It is worth noting that inflation actually has little correlation with poverty among non-elderly adults. At 

the bottom of the income distribution, keeping employment high is 

significantly more important than keeping inflation low. 

A primary reason why unemployment and poverty are strongly 

correlated is that unemployment tends to be concentrated among 

less-skilled and lower-wage workers. If you look at the trends in 

unemployment by skill over the past 25 years, three points become 

very quickly apparent. One, unemployment rates are substantially 

higher among less-skilled workers than more-skilled workers. Two, 

unemployment is much more cyclical among less-skilled workers. 

When jobs become scarce, those who lose their jobs first are those 

who are lower wage. Three, while overall unemployment rates do 

remain quite low at present, the unemployment rates among lessVerDate 0ct 09 2002 18:20 May 07, 2007 Jkt 034674 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\34674.TXT HFIN PsN: TERRIE
12

skilled workers still are relatively high, higher than they were, for 

instance, at this point in time in the expansion of the 1990’s. 

Unemployment rates of course are only an imperfect indicator of 

what’s going on in the labor market, and many people also look at 

labor force participation rates. Trends in labor force participation 

rates show a very interesting divergence by gender. Labor force 

participation rates among less-skilled men have been falling steadily, even through the rapid economic expansion of the 1990’s, while 

they’ve been rising among less-skilled women. I might note those 

falls in labor force participation among less-skilled men are particularly strong among African American men in communities of 

color. 

It’s important to understand why labor force participation among 

less-skilled women is going up, while it’s going down among men. 

Part of the answer is microeconomic policy, which, I realize, is not 

the jurisdiction of this committee. There have been changes in 

terms of welfare reform, in terms of expansion in the earned income tax credit, in child care subsidies, and in Medicaid that have 

made work more attractive, particularly for less-skilled women. 

But policy changes at the micro level are only one part of the 

story. Macroeconomic shifts in demand are also very important. 

And the changes in relative wages that both of the previous speakers have referred to are a major reason for declining labor force 

participation among less-skilled men. Calculations of inflation-adjusted median weekly wages indicate that women who are high 

school dropouts have seen their weekly wages rise by 14 percent 

over the last 15 years. Men who are high school dropouts have basically seen no change whatsoever in their wages. 

In short, as wages have changed in this economy, both lessskilled men and women have fallen further behind their moreskilled brothers and sisters. The job market has simply gotten 

tougher for less-skilled workers. But other changes among women, 

growing work experience, changes in policy, and greater returns to 

experience have offset these problems and led to somewhat greater 

wage increases and hence greater workforce participation. 

And as others also have noted, this rising inequality of wages 

also reflects itself in rising inequality in household incomes. Some 

of that has been offset by the fact that more people are working, 

and working harder, so rises in household inequality are not quite 

as great as rises in wage inequality. 

So why should we care about rising inequality? I think there are 

at least three reasons. First, there’s a sense of economic deprivation among lower-income families as they watch others move further ahead. Tuition for higher education is increasing faster than 

inflation. Housing and rents in many areas are going up faster 

than inflation. Healthcare is almost impossible to purchase if you 

don’t get it through your employer. Lower-wage workers in today’s 

economy are finding it harder to achieve those things that are part 

of the American Dream: a house; a job with pension and health 

benefits; and the opportunity to send their children to college. 

Second, economic inequality is linked with other types of social 

inequality. Health disparities between more- and less-skilled workers have risen. Differences in educational achievement between the 

best and the worst students have risen. These social inequalities 

13

only reinforce economic inequality, and most troublesome, they 

limit opportunities for the children of today’s lower-wage workers. 

Quite a bit of evidence now suggests that economic mobility is 

greater in many European countries than it is in the United States. 

Third, economic inequality and a sense of relative deprivation 

have negative effects on the civic and the political realm. The economic experiences of the past 2 decades are simply different for 

those with a college education as opposed to those with a high 

school education. Fear of technological change and growing economic internationalization is fueling a backlash that will lead to 

bad policies that limit future economic growth. Public discussions 

of Social Security reform or health insurance are simply hard to 

hold when the bottom third of the population is going to retire only 

on Social Security and Medicare, while the top third has extensive 

market investments and long-term supplemental health insurance 

through their employer. 

In short, economic inequality makes it harder to solve our common problems, and harder to evoke a sense of common purpose and 

experience. This is not only inconvenient for politicians, it threatens the civic nature of public debate in a democracy. 

What should we be thinking about on the policy front? Chairman 

Bernanke, in a recent speech, called for investments in education 

and training to moderate inequality, and he’s absolutely right. In 

the long run, more Americans need more and better education. But 

by itself, that’s not a complete strategy. Three additional policy emphases need to be considered. 

First, we need a strong labor market with growing demand for 

workers at all skill levels. This means macroeconomic policies that 

promote stable economic growth and low unemployment among all. 

Two, we need to maintain and expand our policies that subsidize 

work for the least skilled and that encourage adults to take and 

keep jobs. This committee, I know, is focused primarily on macroeconomic issues, but the answers to these questions will also include some more specific focused microeconomic policies, such as 

expansions in the earned income tax credit, a moderate minimum 

wage level at levels similar to where it’s historically been set, and 

assurances that low-income families have healthcare available to 

them. 

Third, and finally, it is important to think creatively about ways 

to make sure that all Americans benefit from the economic growth 

that is resulting from our recent economic changes. There are two 

ways to redistribute the benefits of these changes more broadly. 

First, we do redistribute some of it through the tax and transfer 

system through such things as the earned income tax credit or better healthcare. But secondly, we can assist those workers who are 

displaced by new technologies or by shifts in where goods and services are produced. Policies such as wage insurance, aimed at cushioning income losses for displaced workers, can help America’s 

workers adjust to a changing economy. 

Work is a good thing in the lives of adults. It produces income, 

a sense of self-value, and demonstrates that an individual has 

skills to contribute to the society. We should do all we can to encourage men and women to acquire the skills and work behavior 

that allows them to support themselves and their children, but we 

14

should also do all we can to guarantee there are jobs available to 

those who work, and to ensure that those who demonstrate their 

ability and their willingness to work are able to support themselves 

and their families. 

Thank you. 

[The prepared statement of Ms. Blank can be found on page 74 

of the appendix.] 

The CHAIRMAN. And to introduce our final witness, the Chair recognizes the gentleman from Texas. 

Dr. PAUL. Thank you, Mr. Chairman. I would like to welcome 

Mr. James Grant, who is a financial journalist and the editor and 

founder of the GRANT’S Interest Rate Observer. He’s also written 

several books on finances as well as even been involved in writing 

history books. So I welcome Mr. Grant today. 

Thank you. 

STATEMENT OF JAMES GRANT, EDITOR, GRANT’S INTEREST 

RATE OBSERVER 

Mr. GRANT. Thank you, Chairman Frank, Ranking Member 

Bachus, and distinguished members of the committee. The currency that the Federal Reserve sponsors is the greatest achievement in the history of money. It is a miracle. It is uncollateralized, 

and has been since 1971. Nothing tangible stands behind it. It is 

purely faith-based, and yet this piece of paper of no intrinsic value 

passes from hand to hand, and they’re nice to have as well. And 

so 30 years have passed since Humphrey-Hawkins enjoined the 

Fed to promote full employment and to promote a sound dollar. 

Those 30 years have by and large passed the Federal Reserve by, 

it seems to me. The Federal Reserve is a financial institution of 

moderate size. Morgan Stanley’s balance sheet is bigger than the 

Fed’s. The Fed holds $850 billion or so of government securities. 

The foreign central banks together hold an admitted $1.6 trillion, 

and the Federal Reserve has one policy tool at its disposal, and 

that is to manipulate a single interest rate. 

Now when Pope Julius II said to Michelangelo, ‘‘Go paint the Sistine Chapel,’’ he did not say, ‘‘Here is your roller.’’ And yet this 

blunt tool is what the Fed has. A roller, however, has never destroyed an industry nor stymied an economy, but the black art of 

price control is just that dangerous. The Fed essentially is in the 

business of price control. It is not so different than the late and 

unlamented Interstate Commerce Commission, nor the unreformed 

Texas Railroad Commission. It is in the business of picking a rate 

out of the air and imposing that rate on a market. 

Now people acting in markets are not infallible, nor are people 

in bureaucracies always in error. But I think we have come to believe, all of us in economics and finance, that by and large, prices 

discovered are better than prices imposed. And yet the Fed imposes 

a price. The Fed is well-intentioned and smart, too—so many college-educated economists—but the rate that the Fed imposes is not 

always the rate we ought to have. 

Consider, for example, the 1 percent rate the Fed gave us from 

mid-2003 through mid-2004. You’ll recall at the time that the specter of deflation loomed over the American economy. So far as I 

could tell, that was a specter of every day low and lower prices. 

15

However, Chairman Bernanke, and then-Chairman Greenspan, 

who had previously sung the praises of globalization and high productivity growth, now decided that those things, in fact, posed a 

distinct menace. 

And to save us from a price level too low, an inflation too low, 

they went out and ordered the printing of more money. Chairman 

Bernanke was especially vivid in that mission, reminding us that 

the Fed could, if it wished, drop dollar bills from aircraft, which I 

gather the Fed has done in Baghdad. But this was in the United 

States. So 1 percent was the rate for a full 12 months. 

Not since the second Eisenhower Administration had anything 

like that been seen. The result was a great rush of prosperity into 

residential mortgage finance and into housing. Housing for the 

next several years generated fully 40 percent of private sector employment growth. Everybody and his brother—you didn’t have to 

apply for a loan any more. They came to you. And this was fine. 

It was good for the working man, it was good for the families. 

Home ownership, a great, an inherently great good, one hears, 

went up and up. 

And now we no longer have a 1 percent interest rate. The Fed 

has decided that the market needs a 5.25 percent interest rate. In 

consequence, there is a small but significant and growing and financially worrisome problem with mortgage finance. The so-called 

‘‘subprime’’ area of our mortgage market is in disarray. 

Interest rates are the traffic signals of a market economy, and 

when they are all switched to green, there is bound to be confusion 

at the intersections and a certain number of pileups. We have 

talked about growth and opportunity. Everyone wants the same 

thing. The question is, can the Fed deliver those things through the 

manipulation of one rate? In 1978, the United States was the net 

creditor to the world. Today we’re a massive net debtor. In 1978, 

most interest rates were manipulated by the Fed under a regulatory regime that went out the window in 1980. The world is so 

very different from 1978 that we ought to think about what the 

Fed can do and what it can’t do and not ask too much of this body 

of mere mortal men and women. 

Thank you. 

[The prepared statement of Mr. Grant can be found on page 90 

of the appendix.] 

The CHAIRMAN. Thank you, Mr. Grant. I’m going to go, in the interest of reaching people who didn’t get reached, right to the gentlewoman from New York. Does the gentlewoman have questions, 

or do you want to defer? 

Mrs. MALONEY. Well, I was going to pull a report out of my 

BlackBerry. Maybe I should defer till I get this report out. 

The CHAIRMAN. All right. 

Mrs. MALONEY. But I’ll just say what it is generally. It is a report from the United Nations that rates countries in the Western 

industrialized world, and we are rated very, very low, I think 37th, 

or 47th. Let me look it up. 

The CHAIRMAN. All right. 

Mrs. MALONEY. But I’ll ask one question now. You mentioned 

about the dollar and how important that is. Well, could any of the 

economists comment on the dollar and the fact that the last time 

16

I looked it was 16 silver dollars to the dollar. The euro was much, 

much higher. The value of the dollar is falling in terms of the global market, and what does that mean for us? 

I do want to comment to Mr. Blackwell that I’m very, very 

pleased that you were appointed to the Federal Reserve. Your voice 

is refreshing on the need to make sure that our economy expands 

and grows for all of our citizens, and I thank you for that really 

heartfelt testimony that you gave. 

But could the panelists comment on the dropping value of the 

dollar and what that means for our economy and for our people? 

And also, America doesn’t make anything any more. We’ve lost 22 

million manufacturing jobs. And when I look around my district, it 

used to be a manufacturing district, now it’s a service district. Can 

our economy continue providing just services and without really 

making anything? Thank you all for your testimony, and I thank 

the chairman for holding this very important hearing. 

Mr. BERNSTEIN. If I may make a response to your question about 

the dollar, earlier in our discussion, one of the members of the committee mentioned that manufacturers in their district said they, 

‘‘need help being more competitive.’’ I’ve heard that myself. I think 

dollar policy actually plays a role therein. If some of the other 

countries with whom we compete manipulate their currency so that 

the U.S. dollar stays high relative to the value of their currency, 

it is much more difficult for our exporters to compete. And this has 

been occurring with, I think, quite alarming results. We’ve lost 3 

million manufacturing jobs since 2000, and the story you told, Representative, is not at all uncommon, particularly in States in the 

so-called rust belt. 

Manufacturing is an integral part of our economy. The productivity provided by manufacturing—innovation, not to mention the 

quality jobs, are integral to a powerful, strong, innovative economy. 

So I think as part of the mandate of this discussion, this committee 

needs to look at dollar policy with that in mind. 

Now it sounds bad to think about a weak dollar. Weakness 

sounds like something we don’t want. And if the dollar is to fall too 

quickly, that could be inflationary, as others have mentioned. But 

an orderly decline in the dollar and a strong stance against those 

who manipulate their currency to boost their exports and hurt ours 

should be well within our mandate. 

Ms. BLANK. I’d like to just say something about the loss of manufacturing jobs as well. I’m from Michigan, so I’m very well aware 

of some of the concerns here. It’s not that we actually make a lot 

less. We make an amazing amount in this country of real goods, 

not just services, but we use a lot less labor in it because of the 

rise of productivity. And the result of that has been huge displacement of, particularly, middle-aged men who thought they were set 

for life in terms of a reasonably well-paying job, and have now lost 

those jobs. 

We have done very little to cushion those sorts of economic 

changes, and the loss of income and the loss of employment that’s 

happened inside families that have been affected by these manufacturing shifts. It has really been very devastating in some areas of 

the country. It’s time to think seriously about some polices that 

don’t permanently cushion these things, but that provide at least 

17

some safety net that allows people to make transitions in their 

lives when they get faced with these types of major economic 

changes going on around them. 

Mr. BLACKWELL. I also wanted to point out that we consume just 

as many things as a people that we’ve ever consumed, but we 

produce only about 70 percent of what we consume. The other part 

is purchased from offshore, and oftentimes and increasingly it’s 

purchased offshore from American companies operating offshore. 

Part of the reduction of employment in manufacturing is not due 

just to productivity growth, it’s due to the outsourcing and the 

offshoring of manufacturing activities in U.S.-based companies. 

And an increasing, a large portion of that is in China, which is the 

country that is manipulating its exchange rates and is tying the exchange rates of all Asian competitors above what they would be if 

the market were operating. 

I think this is a special area of concern of the Federal Reserve, 

and they need to be asked serious questions about the strong dollar 

policy that they have supported since 1995. This strong dollar policy is making it more and more difficult to have meaningful, productive activity here in the United States. 

When I mentioned before that we have an unsustainable borrowing and unsustainable $3 billion a day to pay for the things 

that we consume that we don’t produce, nobody believes this is sustainable. We’ve got to find a way to produce a competitive U.S. 

economy that will require a lower dollar. 

Mr. GRANT. Since the late 1990’s, the price of gold in terms of 

dollars has gone up a great deal. Gold is a more or less stable 

source of purchasing power. Time was when $295 or so bought an 

ounce. Now it’s $670. I don’t think the dollar policy we have is 

strong, but I think we are hugely vulnerable with regard to the dollar. 

This is a world of paper currencies, and there is something very 

fragile about it. These currencies owe their legitimacy to governments and their quoted value to speculators. Think about it. The 

U.S. dollar is the global brand name par excellence—nothing like 

it. Which, however, puts us at enormous risk for the portfolio preferences of the world at large. You know, we issue six—I don’t 

know, 800 billion or so greenbacks a year into the world payment 

stream. These dollars are absorbed not by private investors who 

want the dollars because they trust them. They are absorbed at the 

margin, and importantly, by foreign central banks. 

And how does a foreign central bank buy a greenback? It creates 

the local currency with which to buy it. So what you have been seeing is the huge creation of currencies by all countries. We send 

them paper, they send us stuff. The way they absorb the paper is 

by printing RMB, yen, Singapore dollars, and Korean yuan, so 

there is a huge outpouring of what on Wall Street is called liquidity. 

Now liquidity is a word for bank credit. It’s a word for elixir. You 

know it’s—these currencies are flooding the world, and the United 

States position is much different than it was in 1978 when Humphrey-Hawkins was enacted. Then we might have been able to manipulate interest rates in order to increase employment. Now we 

18

are at the mercy, to a great deal, of our holders of dollars abroad. 

We no longer have the freedom of action that we did. 

The CHAIRMAN. The gentleman from Alabama. I’m sorry. The 

gentleman from Texas first? I apologize. 

Dr. PAUL. Thank you, Mr. Chairman. I have a question relating 

to a chart on page 4 of Dr. Bernstein’s written statement. I don’t 

know if you have that chart, but it’s a chart that shows a tracking 

with productivity and real compensation, and these two lines 

tracked together up between 1947 and 1971, then all of a sudden 

they started to diverge. 

The productivity curve goes up where the real compensation flattens out, and I think that demonstrates much of what many of us 

have already talked about, that there is something unfair going on 

here. And yet I don’t think we’ve gotten to the bottom of it to find 

out what was wrong, why it happened, and what we’re going to do 

about it, and that is I think very important. 

Not only has it happened in wages, but we see a difference in the 

income on Wall Street. You know, back in 1971 a certain event occurred, and I think it was significant. But at that time, wages, the 

CEO pay was 30 times the wage, but today if you add up all the 

benefits of Wall Street, it’s 500 times the wage. And yet there is 

one firm in Wall Street that passed out bonuses of $16.5 billion, so 

there’s a certain inequity going on. 

In this period of time from 1971 up till now, in 1971 in today’s 

dollar, the minimum wage was $9.50. Today it’s $5.15. So we can’t 

deny there’s an inequity. But the event that occurred in 1971 was 

the breakdown of the Bretton Woods system. And if you put a chart 

on here with monetary supply increases, it would probably be growing much faster than productivity. 

My question is, how willing are you on the panel to identify this 

and relate this to a depreciation of the money and it being a monetary problem rather than some other condition that we could correct by legislation? Dr. Bernstein? 

Mr. BERNSTEIN. Thank you for that very interesting question. 

And in framing the question, I think you raised most of the answers that I personally would sign onto. And by the way, myself 

and Lawrence Mishel have written a mind-numbing paper that decomposes the gap between those two lines over that period, and I 

will submit it to your office. 

I think that there are a whole set of factors, and as I said, you 

ticked them off. But let me make a point that you didn’t quite 

speak to as much before I talk to your Bretton Woods point. The 

fact is that productivity slowed post-1973. This is well known. And 

family income growth slowed as well. But right after that chart in 

my testimony comes a table which showed that as productivity 

slowed by a percentage point between the postwar boom and the 

latter—the period of the gap, where productivity growth slowed by 

one point, real median family income growth slowed by over two 

points per year. The problem was not just one of slower growth, but 

it was also diminished bargaining power, lower minimum wages, 

and a trading system that, I think, began to tilt against American 

workers in a way that Ron Blackwell has articulated and Dr. Blank 

as well. 

19

This is also the period wherein monetary policy became, I would 

argue, much less concerned with Humphrey-Hawkins type goals of 

full employment and much more concerned with slaying an inflationary threat that has more often than not been a phantom menace in terms of the actual pressures on prices. 

In terms of Bretton Woods itself, I do think that the time has 

come upon us once again to have that kind of arrangement where 

countries get together and agree on how exchange rates ought to 

flow instead of allowing the kinds of mechanisms that are currently, I think, distorting such flows. 

Ms. BLANK. Can I just add one thing to that? One of the striking 

aspects of both that chart and other similar charts about what’s 

happening in the United States is that you don’t see these same 

patterns to anything like the same extent in other parts of the industrialized world. The European nations have not seen the sort of 

executive pay rise. Yes, it’s gone up, but nothing like the extent it’s 

gone up in the United States. So there’s nothing that’s inevitable 

about this. It is a function of how our economy and our policies organize themselves, and we could organize ourselves in ways that 

would turn some of these trends around. 

Mr. BLACKWELL. I would just say, obviously, our members work 

and live in the real economy for the most part. We are concerned 

about the financial economy and its relationship to the real economy, and the Fed is in the center of that mix. 

Clearly, there were very important changes, both in the real and 

the financial economy in the mid-1970’s, all through the 1970’s, including the breakdown of the Bretton Woods system. 

I would suggest to you as something you should follow-up on is 

a discussion of whether or not in a global economy, we can conduct 

monetary policy as if we have a closed economy. 

In the mid-1980’s, when currencies got out of line, then-President 

Reagan was able to convene an accord which brought these exchange rates back into line and helped coordinate the macro-economic policies of the leading countries of the world, to produce 

more rapid growth and more equitably shared growth around the 

world. 

We have no kind of leadership presently at the international 

level on that basis, and only the United States can provide it. 

Mr. GRANT. When people talk about inflation, they define it, I 

think, arbitrarily and narrowly. Inflation proverbially is too much 

money chasing too few goods. 

I think that, in fact, the thing that money chases varies from 

cycle to cycle and from era to era. In the 1970’s, it was merchandise; more recently, it was financial assets. 

For Chairman Bernanke to come before the committee and say 

the inflation rate is 2.1 percent; that is the measured rate of inflation. Excess of dollars have been chasing something else: stock certificates, bonds, commercial real estate, residential mortgages, and 

residential houses until recently. 

It seems to me that we are the prisoner of the definition of ‘‘inflation’’ that does not always serve us well. 

The CHAIRMAN. The gentleman from North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. I thank the chairman for 

a fascinating panel. I have so many questions in so many different 

20

directions, that I am not sure which one I want to ask, and that 

is dangerous. Let me wander here a little bit before I ask anything. 

The interplay between Dr. Bernstein’s testimony and Mr. 

Blackwell’s testimony about full employment most profoundly had 

this impact on me. I had this deja vu moment about the first Humphrey-Hawkins’ hearing that I attended in this committee, and 

Chairman Greenspan was testifying. 

I had come out of the private sector, not paying any attention to 

this interplay between interest rates and full employment and inflation, and the whole range of things he was talking about. 

Unemployment was 6- to 7 percent at that time. Here was a man 

who was saying to us that we were very close to full employment. 

I would have to say I was stunned to have the person who was controlling our whole monetary and economic policy in this country tell 

me that at a time when I observed 15, 16, 18, and 20 percent unemployment in my Congressional district, particularly among African Americans, that we were at full employment. 

A stunning revelation. It is the first time I focused on this concept of full employment. Had I not gotten side tracked yesterday 

on questions about regulatory stuff, the question I wanted to ask 

Mr. Bernanke was how do you define what ‘‘full employment’’ is? 

This hearing is actually very helpful in that respect because you 

all are talking about a different kind of full employment than I 

have heard anybody at the Fed talk about. You are saying that the 

Fed’s definition of ‘‘full employment’’ is 5 percent unemployment. 

Mr. Blackwell is saying our definition of ‘‘full employment’’ 

should be every single person who wants a job should have a job. 

I take it that is what you are saying, Mr. Blackwell? 

Mr. BLACKWELL. That does not translate into zero unemployment 

rate for reasons I will explain, but it should be much below 5 percent a year, certainly. 

Mr. WATT. I am going to ask two questions and then I will stop. 

I will ask the first one to Mr. Blackwell and Dr. Bernstein. 

How would you want to define ‘‘full employment’’ in the ideal 

world? And to Mr. Grant—I am sorry, Dr. Blank, I am not ignoring 

you—you talked about this blunt edge tool, the roller, in the paint 

scenario that the Fed has, just dealing with interest rates. It was 

not clear to me whether you are advocating giving the Fed more 

tools other than interest rate variations to have impacts, or whether you were advocating that we just pay less attention to the tool 

that they have and just disregard what they are saying more. 

Let’s deal with those two questions, and then I will shut up. 

Mr. BERNSTEIN. Let me read you a quote from today’s Wall 

Street Journal: ‘‘There is no specific level of employment or unemployment that is a trigger for inflation.’’ 

That is a quote from Fed Chairman Ben Bernanke. He is clearly 

saying he does not know what the full employment/unemployment 

rate is, in terms of rate. The 5 percent is the Congressional Budget 

Office’s estimate of the NAIRU and one that I am quite critical of 

in my paper. 

Second, to my knowledge—he said a lot about unemployment. 

Former Fed Chairman Greenspan never said what he thought the 

natural rate of unemployment was either. 

21

Third, if you look at a graph in my paper, it shows that the best 

estimates of today’s crack macro-economists are that the NAIRU is 

coincident with the average unemployment rate. This, as I describe 

in my paper, is a very poor guidepost. 

I am just corroborating your view. For myself, especially given 

the conversation I just had with Representative Paul about the 

split between productivity and wage growth, I would believe that 

we are at full employment when we see the wages of most workers 

rise not in lock step with productivity, but in a range around that 

of productivity growth. 

We achieved those conditions in the 1990’s, between 1995 and 

2000, and Dr. Blank’s work has been very helpful in this regard as 

well. 

We saw the wages of workers not at the 90th, 95th, 99th, at the 

20th percentile, low wage workers, 80 percent, rise in step with 

productivity growth for the first time in 30 years. 

Did skills all of a sudden fall from Heaven and turn these workers into highly skilled, more productive workers? No. The job market finally tightened up and the benefits of our very impressive 

productivity growth were broadly shared for the first time in decades. That is when I will sign off, when we are there. 

Mr. BLACKWELL. I think answering this question of what ‘‘full 

employment’’ is in general and today is a very important thing for 

this committee to clarify and to understand the thinking of the 

Federal Reserve. In my service there, this term very seldom comes 

up. 

I said in my testimony that it is an important value for the 

American labor movement and, I believe, for the bulk of American 

workers, that if somebody wants to work, they should have a job 

and it is the responsibility of the Federal Government to make that 

possible. 

At any one point in time, Mr. Watt, people are between jobs, 

when you ask them—frictional unemployment; it is about 1 percent 

or so. At any given time, workers do not have jobs, or do not have 

the skills for the jobs that do exist—structural unemployment; another 1 point or so. 

If you have a stated unemployment rate or full employment rate 

of 5 percent, what is that extra 3 percent of workers out there looking for a job every day, and in minority communities, it is double 

or triple that, and they are being told that the government is working to keep them from having a job in the name of fighting inflation. 

We used to call this tragic situation and these people in this 

tragic situation ‘‘front line inflation fighters.’’ Maybe that is a contribution to the national welfare, but it is cruel economic policy and 

a very inefficient way of enforcing price stability. 

The main point in my testimony was to say that today, Humphrey-Hawkins was a long time ago, but today, I believe the unemployment rate cannot just be as it is in Humphrey-Hawkins, a single unemployment rate number, like 4 percent. 

We have 4.9 percent. In the press, it says we have full employment. We are operating at 1 percentage point lower in terms of the 

employment population ratio than we were at the peak of the last 

recovery. 

22

There are a lot of people who are out of the labor force. Professor 

Blank mentioned this in her testimony. 

The third element is this connection, this rupture, between productivity and wages. A relevant concept of full employment would 

include both, all three of those elements. 

The CHAIRMAN. Mr. Grant? 

Mr. GRANT. Mr. Watt, you asked about the Fed’s empty toolbox. 

The Fed can and does manipulate the interest rate. It has a second 

tool which is a soap box on which it is often to be seen. 

Proverbially, a regulatory body can fix the price or it can fix the 

supply. If the U.S. Department of Agriculture wanted to put corn 

prices at $1 a bushel instead of much higher where they are in the 

market, it would not get much corn. It can pick its poison, supply 

or price, and since about 1982, the Fed has picked price. 

Today, the Fed’s price is on outlier. It is the highest price for interest rates on the so-called Treasury yield curve. The Fed is gambling that its judgment is better than the collective judgment of the 

marketplace. It might be. 

You ask whether I want more armaments. No. I think the Fed 

has enough with one or two. 

I think we ought to ask if the Fed really can fix this price any 

better than New York City rent stabilization apparatus could fix 

the residential rental structure for New York City. 

The CHAIRMAN. I thank you. These are important questions, but 

please try to stick to one point. We will not be able to get everything in. 

I was speculating on the limits of metaphor. I am sometimes 

moved to speculate on the limits of metaphor, and I just wonder 

whether the market could have painted the Sistine Chapel; I think 

things are being metaphorically carried too far. 

The gentleman from Oklahoma. 

Mr. LUCAS. Thank you, Mr. Chairman. I could not help but note 

that as we start to write a farm bill this year in the U.S. House, 

the observations about that, and agricultural economics is a fascinating part of the science. 

Since 1933, we have done an amazing job of priming both sides 

of the engine by providing resources to encourage overinvestment 

on the production side, to keep food costs down, while at the same 

time providing food stamps to enhance consumption of that cheaper 

food on the other side. 

It is an amazingly successful consumer bill. 

That said, let’s address for a moment the limitations, of course, 

of the Fed’s ability to effect policy. A number of my colleagues, both 

today and on a number of occasions, have discussed the inequities 

that seem to be increasing in our society in salaries, bonuses, and 

those kinds of things. 

Let me ask this question. Would the Fed’s toolbox limited in its 

nature, and some of you might say that is a good thing, one of the 

traditional ways to address these issues, for the last 100 years, has 

been a progressive income tax code and our progressive estate tax 

code. 

Let me ask the panel your perspective on that. Do you support 

going back to a more aggressive progressive tax code and estate tax 

23

code, and expand on that for just a moment, if you would, why that 

matters, from your perspective. 

Mr. BERNSTEIN. First of all, I apologize to Chairman Frank. We 

have been chomping at the bit to talk about these issues for about 

10 years. We will try to do our best to keep our answers shorter. 

Here is how I would answer that question. First of all, I do support a more progressive tax code. Interestingly, in my last comment, I talked about the truly impressive benefits of the full employment period, including accelerated productivity goals. 

Remember, we had a productivity regime of 1.5 percent for about 

25 years, a jump up to 2.5 percent in 1995 to 2000, and even a little faster in the more recent period. 

This occurred in a period where the Federal income tax was more 

progressive than it is now. I very much reject the notion that 

changes to make the tax let’s say, more regressive, has somehow 

boosted growth and gotten us closer to full employment. 

To the contrary, the last time I observed full employment was 

when the tax code was more progressive than it is today. I tend to 

believe those two are not nearly as related as they are in the economic debate. 

Secondly, a more progressive tax code, especially at a time like 

this, with high incomes rising so quickly, would give us more revenue to implement some of the programs Dr. Blank talked about, 

that I also think are very helpful in this context. 

Ms. BLANK. I am a very strong supporter of progressive taxes, as 

well as some forms of estate tax. I will give you a slightly more theoretical response, which goes back to some of my comments on why 

we care about rising inequality. 

The question is what do we mean by ‘‘equal opportunity’’ in this 

country, and I think equal opportunity has to mean giving people 

the base in order for them to achieve to their fullest capacity in 

terms of their own sets of skills and talents. That has to mean good 

public schools, it has to mean effective healthcare, and a whole 

range of things that require the government to be involved at least 

in part, in the provision of those services, even if the government 

does not do all of it. 

That requires a stable tax base. This is needed to provide some 

re-distribution from those who happen to be advantaged in the particular economy to those who happen to be disadvantaged to create 

opportunity for the next generation. 

I would make that same argument about estate taxes as well. 

Mr. BLACKWELL. The AFL–CIO and American Labor Movement 

are very strong proponents of progressive taxes. We very much regret the direction taxes have been pursuing most recently. 

The recent cuts in 2001 and 2003 were very disproportionately 

directed towards capital and away from people who work, and toward richer families as opposed to poorer families. We would like 

to see this remedied. 

I also want to say that in terms of inequality, at least 80 percent 

of the growth of inequality is pre-tax income. It is growing inequality by virtue of the imbalance of power in the labor market. It is 

just adding insult to injury when the government weighs in with 

taxes that increasingly are disproportionately burdening poor and 

working class people. 

24

It is worth mentioning here, as Mr. Grant has pointed out, that 

the Fed cannot generate full employment by itself. It is going to 

have to require the action of fiscal policy by the U.S. Treasury as 

well, including their decisions on taxes and spending. 

These decisions have to be made in ways that respect the incentives in our economy to keep economic growth going, but you also 

have to be mindful of leaning against the wind and producing full 

employment. 

Mr. GRANT. Mr. Lucas, I would favor something like the repeal 

of the 16th Amendment, but in any case— 

Mr. LUCAS. To the point, Mr. Grant. Thank you. I yield back, Mr. 

Chairman. 

The CHAIRMAN. I think you might get some screaming around 

here about a package deal if it would include some kind of alteration to the 17th Amendment that the United States Senate put 

in. 

Let me recognize myself. One of the things that concerned me 

yesterday raised with the Chairman that has been alluded to was 

what seems to me to be a bias—‘‘bias’’ is a negative word—a strong 

focus in the Federal Reserve on inflation to the exclusion of employment. 

As I said, it is clear, at least to me, that growth alone does not 

resolve the problem, but the absence of growth would make just 

about everything worse. 

Again, there was this sort of disconnect in my mind. The Fed had 

three statements in a row in the monetary report, not just testimony. 

One, we are now producing below capacity and we will be doing 

so for some time and we will probably hit capacity after a while. 

No prediction of going above capacity. Two, inflation is moderating 

and the reasons that cause inflation are declining. And, three, a 

major concern is an outbreak of inflation. 

What it suggests to me is that you could have a situation where, 

if we reached capacity without any significant increase in inflation, 

there would be an anticipatory increase in interest rates and a 

drop downward. There is at least a dual mandate in the Humphrey-Hawkins Act for employment and price stability. 

I am concerned that there are people in the Fed who do not really accept that or who argue, and I would ask you to address this, 

who argue yes, they are going to serve employment but the best 

way to serve employment is to deal with price stability, that full 

employment, maximum achievable employment, will be an automatic or at least a semi-automatic result of price stability. 

Let me begin with Dr. Bernstein to comment on that set of concerns. 

Mr. BERNSTEIN. I can be quite brief. I would refer the chairman 

and the committee to the table I produced, which just quite clearly 

shows that over a period of 20-plus years, we were 19 percentage 

points below the NAIRU. That is, if the NAIRU is 5 percent and 

we are at 4 percent, that gets counted as a negative one. 

We were 19 percentage points below the NAIRU compared to a 

period when we were 19 percentage points above this natural rate, 

and in the former period, inflation grew more slowly, and in the 

later period, inflation grew more quickly. 

25

The CHAIRMAN. I think you said that there are people who say 

that the non-accelerating inflation rate of unemployment, the 

NAIRU, is roughly the unemployment rate. 

My recollection from the 1990’s was that it was a lagging indicator of the unemployment rate, that the people who believed in it 

started out by saying it was 6 percent and then unemployment was 

5.5 percent, when unemployment dropped to 5 percent, they said 

it was 5.5 percent. As the unemployment rate actually dropped, 

this rate stayed above it. 

Mr. BERNSTEIN. Half a point. What the economists who have defended this view have done is invent something called the ‘‘TV 

NAIRU,’’ which is not the NAIRU you see on television. It is the 

Time Varying NAIRU. This led Jamie Galbraith to say not only is 

it invisible, but it moves. 

In the policy agenda that I did not speak to in my testimony, in 

my spoken testimony, I argued that there is, of course, a role for 

the Federal Reserve, as we have been discussing, i.e., re-balancing 

the inflation and unemployment tradeoff. 

This committee may choose to take another look at the Humphrey-Hawkins Act with an eye toward elevating the goal of full 

employment, the Fed’s share, and his or her Humphrey-Hawkins’ 

testimony to this body might be required to explain whether the 

labor market is at full employment and if not, what steps will be 

taken to get there. 

The CHAIRMAN. Thank you. Dr. Blank? 

Ms. BLANK. We all know a variety of historical cases where accelerating inflation has been a disaster. It is clearly appropriate for 

the Federal Reserve to worry about keeping us out of those sort of 

situations. 

The question is, ‘‘Where are we right now?’’ One does not need 

zero price change to have a stable economy. Small and stable levels 

of inflation, particularly in the current financial markets with the 

way we are able to adjust to those with ARM’s and various forms 

of price adjustment mechanisms seem just fine. 

The only reason that I could think of to worry about inflation as 

a major problem right now is if one believes there is something 

lurking out there that could explode, where we do not know enough 

about what is going to happen. 

The obvious example is energy prices. We saw an explosion in 

energy prices in the last several years. They have not come down 

to where they were before. If one believed those prices were going 

to go up again dramatically in the next year or so, then I think it 

would be appropriate to worry about inflation. 

The CHAIRMAN. Even there, with a very significant increase, it 

did not trigger any kind of rapid inflation. 

Ms. BLANK. That is absolutely correct. 

Mr. BERNSTEIN. Especially in the core rate. 

The CHAIRMAN. I would also say that I was struck with Mr. 

Bernanke. When I asked him why inflation was explicitly the 

major concern, and I thought this was rather odd, he said, ‘‘Well, 

they think we are going to not get above trend, above capacity, and 

they think there is an inflation problem, but they think they might 

not be right in what they think.’’ 

26

You cannot logically say I think, ‘‘A’’, but then I also think, ‘‘B’’, 

which includes ‘‘anti-A.’’ Then you do not think ‘‘A.’’ You cannot be 

given credit for thinking something and simultaneously thinking 

that you do not really think that. He is too smart a man for that 

logic, so I think it is just an institutional bias. 

Mr. Blackwell? 

Mr. BLACKWELL. I think there is an important lesson in this regard to be learned from Mr. Greenspan. I remember in the mid1990’s when economists were telling him that the NAIRU was 6- 

to 6.5 percent, and that if unemployment fell below that level, that 

there would be ever escalating inflation, accelerating inflation. 

Because he was a practical man who studied the material in detail and was not given to obeying rules, NAIRU or otherwise, he 

allowed the economy to grow faster than that, and unemployment 

came down to 3.9 percent with no increase in inflation, and produced millions of jobs. 

The CHAIRMAN. And increases in real wages. 

Mr. BLACKWELL. That is right. 

The CHAIRMAN. Thank you. One of the members of the Fed 

Board who was the greatest opponent of Mr. Greenspan on that, 

and who felt there was some kind of automatic trigger, wage inflation, and unemployment went down, is also the one who expressed 

some consternation about the conclusions of Mr. Grant and this 

panel. I suppose it is appropriate to ask Mr. Grant to comment. 

Mr. GRANT. I think there is a big semantic problem that is concealing a bigger conceptual problem, namely that there is no such 

thing as wage inflation. Full employment does not cause inflation. 

People getting work at good wages does not cause inflation. 

Money causes inflation. The Federal Reserve, when it falls into 

error, causes inflation. 

They say we are producing below capacity. So we are, but we are 

consuming above capacity. What this trade deficit means is that we 

produce much less than we consume. The risk we face is not so 

much that oil prices will rise or certainly not that wages will rise. 

The risk is that this Nirvana in which we find ourselves, in 

which we produce so much less than we consume, and we finance 

the difference with dollar bills we print, that ends because they 

lose confidence in the currency. That is the risk. 

The CHAIRMAN. Thank you. Mr. Bernanke, to his credit, did address those who tend to blame wages. I appreciate Mr. Grant’s answer. He acknowledged that, in fact, if wages rise to productivity 

at a point when price mark up’s are much higher than they have 

historically been with regard to productivity-based labor costs, then 

it is not wages that is driving this up, and in fact, it would be a 

conscious decision, through the use of some maybe excessive market power to raise prices even higher. I do credit him for that. 

Mr. Roskam? 

Mr. ROSKAM. Thank you, Mr. Chairman. I thank you, witnesses, 

for your testimony today. 

I am still in the ‘‘trying to size you up and figure you out’’ mode. 

What I am trying to do is figure out—I have always appreciated 

over the years when advocates come in and say, ‘‘Look, here is the 

good side, here is the bad side, and we are advocating this because 

27

of this.’’ I have not really heard that holistic approach from you. 

Maybe it is the time demands that are upon us, and I get that. 

It does seem to me that there are some really good things that 

are happening in our economy today and your testimony, at least 

in terms of what I have heard, has not reflected that. 

Let me challenge you with a quote. Then I will be quiet and I 

will listen and you can use the rest of my 5 minutes. You can either answer the question or duck it. 

In the September 4th issue of The American Prospect, a guy 

named Stephen Rose wrote an article, ‘‘What’s Not the Matter With 

Middle Class.’’ A couple of sentences: ‘‘What progressive’s generally 

say about the economy is unrelentingly pessimistic, stagnant 

wages, rising costs, overwhelming burdens of debt. It is a message 

that does not resonate with the middle class, not only because it 

is overly negative, but because it simply is flat out wrong. 

‘‘Absolute living standards for the middle class have only improved, even if relative increases in income do not match the gains 

at the top,’’ which is basically the argument that you have been 

making today. 

‘‘It is true that the middle class is shrinking but that is because 

more families are better off. The share of prime age adults in 

households with real incomes above $100,000 rose by 13.1 percentage points from 1979 to 2004.’’ 

My dad always used to tell me growing up, he would say, ‘‘Peter, 

we live better than kings did 500 years ago’’, and I do not think 

there is any question of that. 

In light of that challenge, can you reflect on what you think are 

the good things that are happening? If the premise is that it is all 

pain, death, murder, and sorrow, I do not share the premise. 

If the premise is that there are challenges that are out there, 

great. I get that. I think it is always good to reflect on the success 

that we have had, and the success that we have, Mr. Blackwell, 

that have benefitted your organization and your membership, and 

the particular perspectives that you each bring to the table. 

Mr. BERNSTEIN. Thank you. That is an important dimension to 

bring to the discussion. I did start my spoken testimony by citing 

how low the unemployment rate is in historical terms and how 

solid the macro-economy is. 

I think those are facts that we absolutely should take a lot of 

credit for and appreciate. 

I think the two sides of the good/bad scenario are probably both 

seen in the second graph in my testimony, where I show productivity growth, not just growing, but accelerating. Productivity 

growth accelerated about a point between 1995 and 2000. Sounds 

like one little percentage point, but it is tremendously important. 

Then another point or so, although that seems to have trailed off, 

post-2000. Economists assume that the increase in productivity 

growth automatically translates into a better living standard. 

I think what we are trying to say and what we are showing with 

this graph is that does not occur, when income inequality creates 

a wedge between the very impressive macro-economic system that 

we all celebrate, low unemployment rate, and the actual living 

standards of middle income families—you mentioned the work Stephen Rose cited. 

28

In David Brooks’ column the other day in the New York Times, 

he cited that same work saying middle income families of a certain 

age have an income of $60,000, something like that. 

It turns out, I went to the data, and found those families have 

lost 4 percent, about $3,000, in their real income, between 2000 

and 2005, when productivity growth was 20 percent. 

That just does not seem right. It does not seem just. It does not 

seem fair. It does not seem like the kind of economy that is really 

linking the good side with the less good side. 

If we have overemphasized the latter, I am sorry. That linkage 

is missing and it is critically important, and full employment is 

part of it. 

Ms. BLANK. Economists are notoriously cautious and pessimistic. 

When asked to come and testify about what the problems are in 

the U.S. economy, here is what you get. 

I absolutely agree with Dr. Bernstein that there are a lot of good 

things about the current aggregate economy. We have high productivity, low inflation, low aggregate unemployment, strong consumer 

spending, and strong business investment; it is a good outlook. 

The issue here really is one of who is sharing in those gains. If 

you are a college-educated worker, the last 10 years, the last 25 

years, have been some of the best years in history for more skilled 

workers in the United States. Things could not have been much 

better. 

The issue is the very large group in the economy that just are 

not experiencing that same degree of growth. It is not trickling 

down, to use a phrase from President Reagan, and I think that is 

something that we have to be very concerned about. 

Mr. BLACKWELL. I do not want to dodge the question. I started 

my testimony by acknowledging that we have the richest country 

in the history of the planet. 

We have workers who are the most productive workers in the 

world, and they are more productive now than they have ever been. 

American workers work more hours today than workers in any 

other developed country. 

Our key strength economically, as many imbalances we have, is 

our capacity to innovate in this country. In the increasingly global 

world, we are going to have to find a way to tap that and tap it 

together to stay on the leading edge of innovation. 

That is not going to come out of labs and classrooms alone. That 

is going to come out of the American workplace. We have to be on 

the same page and working for the same cause if that is to happen. 

The problems that we have identified are distributional problems, but that is one of the things that is dividing us, where we 

do not see a common purpose, as Rebecca Blank said. 

We are dividing between the very wealthy and the very poor in 

this country. Under that kind of circumstance, we are not going to 

be able to tap the enormous resources we have and meet the challenges of an increasingly global world that we live in. 

Mr. GRANT. The world is a cornucopia, thanks to the augmentation of the world’s supply force, labor force, by all these people who 

were previously shut out. The world supply curve has moved downward and to the right. It is truly the age of abundance. 

29

It seems to me at a time like this, you are supposed to ask questions. You are supposed to be worried when things are great. On 

Wall Street, things are perfect, and yet apparently improving. 

Never so many lent so much at so little margin of safety as they 

do on Wall Street today. 

We should save the cheerleading for the bottom. Be bullish at the 

bottom, and bearish at the top. 

The CHAIRMAN. The gentlelady from New York. 

Mrs. MCCARTHY. Thank you. Thank you for your testimony. I 

find it fascinating. 

One of the things that was not brought up was the alternative 

minimum tax and how that is affecting the middle income families. 

I have always had the curiosity when we see so many lost jobs 

and even though unemployment is low, those that have lost jobs in 

the past, what kind of jobs are they exactly in today? Are they the 

same kind of pay? Are they lower pay? 

We just read in the paper the other day that Chrysler is going 

to be letting go 13,000 people, 16 percent of their workforce. 

I also sit on the Education Committee. We have been looking at, 

for a number of years now, how do we take these workers who are 

basically earning a decent salary and re-train them? 

A number of issues that came forward and were put into law 

were that they would get a certain amount of money to go back to 

school. Yet, when I saw that amount of money, I am saying how 

are they supposed to go to school, how are they supposed to pay 

their mortgages, how are they supposed to pay their car payments 

and keep going, and that would be it. That would be used instead 

of a substitute of unemployment. 

I do not see good programs that are forecast out there. It is one 

thing to re-train someone, and then they lose their job 2 or 3 years 

down the road. I do not think there is a good program out there. 

What are we looking for in the future and how are we going to 

re-train these workforce jobs for those that might be manufacturing 

jobs, but obviously, we are in that trend of—we are not preparing 

our people. I think that is one of the big problems. 

I will open it up to the panel. 

The CHAIRMAN. Let’s start with Mr. Grant. 

Mr. GRANT. The answer I was formulating is, it is not my subject, so I will pass. I am sorry. 

The CHAIRMAN. Mr. Blackwell? 

Mr. BLACKWELL. I think it is a very, very important point. We 

are in a global economy. The economy is changing. Our competitive 

advantages as a country, as opposed to the companies involved, are 

our people and the skills they have, and the machinery for giving 

them those skills is simply not there, and neither are the resources. 

I would suggest to you that if we are going to really make this 

an innovation-based economy, we have to make training available 

to all workers, incumbent as well as displaced workers. We simply 

cannot afford not to train people for the highest productive and 

most creative job they are willing and able to take. 

We will not otherwise be able to pull our weight in the world 

economy. We are completely supportive of that kind of idea. We regret that the discussion in Congress is so much how do we deal 

with the people who are the losers, and how do we get them into 

30

a Wal-Mart greeter job as quick as possible, and not spend any 

money on them, either on unemployment insurance or training. 

I suggest that we should be taking the position that whether 

they are an incumbent worker or whether they have been displaced, displaced by trade or anything else, they should have an opportunity to train themselves for the most productive job they are 

willing and able to take. 

Ms. BLANK. I wish I could be optimistic about re-training, but I 

have to say the evidence that I know suggests that most people 

over the age of 40, and as I look around this room, that is most 

of us, do not re-learn new skills very easily, and are not very optimistic about going and taking on entirely new jobs and new careers. We absolutely need to provide support for re-training, for 

mobility, for workers who have been displaced, but we have not 

been very successful at that in the past. 

We need some demonstration projects, some additional funding 

that would let us test whether there are some better ways to do 

this. I cannot be very optimistic about that. I think you have to go 

back and say what we need to do is to ensure that nobody drops 

out of high school; that those who graduate from high school can 

read, and they can do basic math; and that those who get through 

high school go on and get some additional higher education of some 

sort, whether it is an associate’s degree or a 4-year college degree. 

Workers need to be ready for a flexible career that means they are 

able to shift between industries and between jobs over their lifetime, because that is the prospect for most of today’s younger workers. 

Mr. BERNSTEIN. My take on re-training is a bit more optimistic. 

We do actually know some things that work. The tough news is 

that they are pricey. You cannot do effective re-training on the 

cheap. 

My concern when I look at where our fiscal priorities are heading 

is that we are squeezing that very part of the budget, domestic discretionary spending, where our training dollars are going to have 

to come out of, so I think we are going in the wrong direction. 

The only other comment I will make is that full employment 

itself is associated with more incumbent training by employers of 

their workers and occupational upgrading. That is, when you are 

in a condition of full employment, labor markets are tight, and 

there is not a long line outside of the factory or the firm door. 

Employers are more likely to undertake training themselves because they have to. Workers’ wages are being bid up, and they need 

to pay for those higher labor costs with increased efficiency. 

We call it a full employment productivity multiplier. I think it is 

real and another important dimension of the benefits of full employment. 

The CHAIRMAN. Mr. Neugebauer? 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

I want to go in a little bit of a different direction, because some 

of the things that have been said today, I may not necessarily 

agree with, but one of the things I think this country was founded 

on were principles of liberty, freedom, and opportunity. 

And that government, and I have not seen it in the Constitution, 

was not charged with creating jobs, nor do I think it is a very good 

31

job creator, but I think government can cause jobs not to be created. 

I think Mr. Blackwell said, and I agreed with him totally, we 

have moved into a global economy. What we ought to be doing from 

a policy standpoint is trying to figure out ways that we can make 

America more competitive because to me, that creates more opportunity, and in the more opportunity is opportunities for people to 

have better jobs, higher paying jobs. 

Two points that I want you to address. One, I question today 

whether monetary policy has any significance in that process. 

Two, I think more today if we want to talk about how we make 

more opportunity and create more jobs is we talk about the fact 

that there is kind of a three legged stool that keeps America, I 

think, today not being competitive in a lot of ways. 

One of those is our tax structure. We had the second highest corporate income tax rate in the world. Secondly, we have a regulatory 

environment that really strangles those people who are trying to 

create jobs in our country today, and all you have to do is look at 

the fact that we have not built a new refinery in this country in 

over 30 or 40 years. 

The third piece of that is this litigation web out there that if a 

company is doing well, and they make a little mistake, somebody 

is going to entitle themselves by dipping into that corporate treasury and redistributing that money. 

I think the question to each one of you is, does this monetary discussion about employment, does it have a relevance in a global 

economy? 

Mr. Bernstein? 

Mr. BERNSTEIN. The financial markets certainly respond to the 

slightest blink of an eye of Federal Reserve bankers. Monetary policy means a lot to them. 

It is also the case, I think we heard earlier, that the Federal Reserve does not set the unemployment rate. I think those comments 

are accurate in that regard. I think Mr. Grant would agree. 

The Federal Reserve does not set the unemployment rate with 

some really acute degree of accuracy. They absolutely can, in my 

view, by ratcheting interest rates up higher than they ought to be 

keep that unemployment rate from falling to a level that I think 

is truly beneficial, and when they do that, they squander billions 

of dollars about putting it into potential jobs and wellbeing, as we 

have all discussed. 

I would certainly agree, especially regarding money supply in a 

global economy, that the actions of the Federal Reserve are much 

less powerful than they would be if we had anarchy. On the other 

hand, they do make a difference. 

Ms. BLANK. The economy is not a well-defined system of equations; if you push this button, you know what you are going to get 

out of the other end. Would that it were, we would all be better 

off in that we could predict better. 

What does monetary policy do? Monetary policy creates stability 

in the financial markets, in particular. It does other things as well. 

It creates trust that the U.S. economy is on an even keel, and what 

is happening in financial markets leads to business investment and 

consumer behavior in all sorts of important ways. 

32

Therefore, monetary policy affects long-term economic stability 

and aggregate economic growth. That is very highly important not 

just for what happens in business America, but it is highly important for what happens to the families out there as well. 

I think you cannot look at that and say that they are not important to these sets of issues. Certainly the choices that the Federal 

Reserve makes with regard to inflation versus unemployment, in 

particular, can affect the number of jobs that are out there. 

Mr. BLACKWELL. I think it is a very important question. We 

clearly exist in a global economy. No one has any doubt about that, 

and no one expects the Federal Government to create jobs. The 

vast majority of our jobs are private sector jobs. 

The question is, does the Federal Government have any responsibility for shaping policies that affect the jobs that are created? In 

that category, I would say emphatically, yes. 

The question is, given the global and changing nature of the 

economy, what is the nature of the changes in those policies that 

we ought to address? 

By our arguing that full employment needs to be re-established, 

we are suggesting a very powerful way that we think policy could 

affect the material standards of living that we have been talking 

about here. 

Monetary policy, as Mr. Grant has pointed out, only operates 

with one instrument. We could talk about other instruments that 

it needs to be operating with, in financial markets and internationally. 

That institution has more significance in terms of the Federal 

impact on the economy and the level of job creation and the important relationship between productivity and wages than any other 

public institution in the country, and it is accountable to the public 

through the Congress. 

Mr. GRANT. Everyone says the world is a global economy, but I 

say it is very global. Let me give you an example of how ‘‘very’’ it 

is. 

In the day, you were a customer of your own nation Central 

Bank. Today, the national markets are basically without boundaries, and people can, and massively do, lend and borrow in currencies not their own. 

There is an immense trade today in borrowing currencies with 

low interest rates and investing the proceeds in assets with much 

higher yields. The yen is the world’s favorite currency for borrowing. 

The Federal Reserve does not set monetary policy for the Japanese Central Bank. Nonetheless, people outside Japan can, and 

massively do, use the yen as a borrowing source. 

The world is positively awash in this elixir called liquidity. The 

Fed is only one central bank. It is not the institution it was in 

1978. It is diminished by the idea of globalism. 

Where is employment doing well? Wall Street. Why might that 

be? Because people are gaming this system of worldwide currencies. Wall Street has never done better. Job growth is nearly at 

an all time high, and it is because of the institution of Central 

Banks, but not for the reason we think, because people can game 

the system of managed currencies. 

33

The CHAIRMAN. The gentleman from Massachusetts. 

Mr. LYNCH. Thank you, Mr. Chairman. First of all, I want to 

thank the chairman and the ranking member for holding this hearing. One matter of disclosure is that I actually am a member of Mr. 

Blackwell’s union; I pay regular dues. 

Mr. Chairman, my voice is gone. I am going to have to come back 

later and ask my questions. 

The CHAIRMAN. All right. We thought you were doing your 

Jimmy Durante imitation. 

Mr. LYNCH. No. I sound more like one of the Soprano’s, I think. 

The CHAIRMAN. The gentleman will now be temporarily wounded/

departed. Mr. Scott. 

Mr. SCOTT. This is a fascinating hearing. Monetary policy and 

the state of the economy, while the economy looks good on the surface, there are subtle as well as very obvious problems arising, 

which I certainly believe need to be addressed. 

I want to talk about a couple of those and have you respond to 

them. The first one is this gap in wealth. I would like to hear each 

of your thoughts on the current state of our CEO’s of these major 

corporations who are receiving these outlandish pensions, and exorbitant amounts of salary. They are all fine people. We live in a free 

capitalistic system where the forces of supply and demand and a 

free marketplace determine these things. 

The problem is while all this is happening, we have lower- and 

middle-class workers who are just barely struggling to make ends 

meet. The ratio has gone from something like in the range of a differential from 10 to 1 to almost like 200 to 300 times what the 

workers make. This has just been extraordinary. 

I think we have to take a closer look at what we, as Americans, 

value in terms of our workers. Those at the top are enjoying the 

perks of this great wealth, and we can agree that the income gap 

between the wealthiest of Americans and the poorest of Americans 

is continuing to widen. 

When we put that together with the other phenomena that is 

happening in our economy as a result of the baby boomers, the entitlement programs, the Medicare, the Medicaid, Social Security, 

and demands on our health system, all are increasing because people are going to be living much longer, 80/90 years old, and so 

much of this is a burden on the wage earner. That class is shrinking. 

I think our only real opportunity to increase that is with an elephant in the room dealing with labor and economy that we have 

not mentioned, and that is immigration, and how you take these—

I see the immigration issue as giving us kind of a windfall to help 

us to be able to increase this wage earner group as we go forward. 

There is no other group that we can really look to. 

There are 14 million people here, many of them not buying into 

the system. We are not cataloging them, but yet they are benefitting from it. That is the area that, I think, we can increase our 

wage group, but I think there has to be some imbalance there. 

I want to talk about that for a moment. Healthcare, I think Mr. 

Blackwell talked about—it is almost shameful and insulting, that 

in a country as advanced as ours, we have people without health 

insurance. 

34

I give a health fair in my district every year. In Georgia and in 

that Belt, so many people are without healthcare. We can do so 

much better than that. I think that is part of the problem there. 

The other area is one glaring statistic that I want to present to 

you, because it very much concerns me. It is a statistic focusing on 

African American men. Clearly, almost 30 percent of African American men at some point are going to be in jail or in prison. There 

is such a waste there. It is a disturbing number that states that 

only 66 percent of African American men are reporting themselves 

at work or looking for work. 

Those are three areas I want you to just tag for a moment if you 

can. I think it provokes some thought. The status of African American men and the peculiar situations they are facing in the marketplace, it also dovetails in with this imbalance in our labor force and 

with CEO’s making so much, and then our challenges for 

healthcare. 

Mr. BERNSTEIN. Let me try to be brief. I am going to defer the 

African American men question to Dr. Blank because some recent 

work of hers speaks directly to that. In the interest of time, I am 

going to speak about the CEO pay, immigration, and just a word 

on healthcare. 

In the context of my testimony, I stress the issue of bargaining 

power. I think what we have going on right now, as we expressed 

earlier, very positive aspects of our economy regarding productivity 

growth, the efficiency with which we are changing our economic inputs into outputs is really quite stellar, and a huge gain. 

Given the fact that so many workers lack the bargaining power 

they need to claim their fair share of that growth, it is as if the 

pie is getting larger, the bakers are doing a great job, but they are 

getting smaller slices. 

How do you change that? That is what I would like to focus on 

in talking to a body like this one. 

There is a discussion now about something called the Employees’ 

Free Choice Act. This is an act that would level the playing field 

for union organizing, clearly a bargaining power tool. 

We have talked about a higher minimum wage. That is another 

way to re-claim some of that fair share of productivity growth, redistributing, without, as has been mentioned, killing the golden 

goose. Full employment as well. 

In the interest of time, I will stop there. 

Ms. BLANK. Let me say a word about your concerns regarding African American men. You are absolutely right. This is the most disadvantaged group in the labor market, whether you look at skills, 

wage levels, or labor force participation. This is obviously a really 

big and complex question and it gets into a whole lot of history as 

to how we got here. 

Clearly, one of the biggest issues here are the urban schools 

where an awful lot of African American children, boys and girls, 

are coming to some of the worst schools in our country and coming 

out simply not prepared for the labor market in which they are 

finding themselves. 

You put on top of that some of the changes in our jail and incarceration policies, which as you point out, have removed large numVerDate 0ct 09 2002 18:20 May 07, 2007 Jkt 034674 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\34674.TXT HFIN PsN: TERRIE
35

bers of African American young men, put them into prison, and 

then put them back into society with no support. 

One of my biggest concerns is that after spending 15 years talking about welfare-to-work programs, we really need to spend the 

next 15 years talking about jail-to-work programs, about ways to 

move men from incarceration back into the community. 

Mr. SCOTT. Thank you. 

Mr. BLACKWELL. Just briefly on CEO pay, it was a 20 times differential between CEO’s on average and workers in 1980. It is now 

431 times. The average CEO makes more in the first day of work 

than the average worker does all year, and he makes more before 

lunch on the first day of work than a minimum wage worker makes 

all year. 

This is a signal point. CEO’s are now claiming over 10 percent 

of all corporate revenue, a point of enormous concern to American 

workers, not only in equality, but even President Bush mentioned 

the lack of relationship of this compensation to performance of 

these companies. He was met by silence on the trading floor in 

New York when he raised this point. 

This is a matter of corporate governance and corporate reform for 

which there is much, much need here, and which needs some attention on Capitol Hill in the form of hearings. 

Why is this happening and what can and should be done about 

it without killing the golden goose. 

A quick point on the entitlement question. We spend, as I said 

before— 

Mr. GRANT. As to CEO’s, I am a CEO of a minor corporation and 

what I aspire to is to become the CEO of a major corporation. I 

think this is a matter of taste and of the marketplace. There are 

some things for which the government really cannot provide the solution, and I think this is one of them. 

Mr. SCOTT. Madam Chairwoman, may I just ask if Dr. Blank, in 

her report—I did not know she had a report on this very perplexing 

problem facing African American men and the employment labor 

force, could we ask that she get a copy to us? 

Ms. BLANK. I do not have a specific report, but I can get some 

resources to you. 

Mr. SCOTT. Thank you. 

Mrs. MALONEY. [presiding] Mrs. Blackburn. 

Mrs. BLACKBURN. Thank you, Madam Chairwoman. Thank you 

to our witnesses for being here. 

Mr. Grant, three quick questions for you, and I enjoyed your 

comments last night on the economy. We talked a little bit about 

long-term liabilities for the Federal Government, and of course, 

GAO is saying that with the entitlement programs that were put 

in place 40 years ago, the growth of those, that we are looking at 

that in the near future consuming as much as 30 percent of the 

GDP. 

If you will very quickly speak to the effect that is going to have 

on the economy and then relate that to how it would affect our low 

income workers and the poor. 

Mr. GRANT. Mrs. Blackburn, a great question, which I certainly 

cannot answer. 

36

As a truism, we are prosperity; we do not pay. The tendency is 

for prosperity not to pay. Somehow, society gets richer. Somehow, 

these overwhelming and menacing liabilities get dealt with. I do 

not know how we will deal with them. I have confidence that we 

will, but I cannot say exactly how. The numbers at the moment 

look horrific. Beyond those observations, I am afraid I really cannot 

comment. 

Mrs. BLACKBURN. Let’s talk for just a moment about the tax 

structure. You may have already covered this. We know that so 

many countries are going to a flat tax structure. There is quite a 

bit of conversation around that now. 

Mr. Neugebauer talked with you a little bit about competitiveness and taxes and regulations and the effect that would have on 

our economic growth. 

I would like your input as to what your thought is on what we 

should do on a tax structure, if we should follow the other countries 

and move to a flat tax structure, move to a different type structure 

that is capped? 

Mr. GRANT. In principle, I believe that you tax the thing you 

want less of and tax more lightly the thing you want more of. If 

we want more enterprise, it would seem to me that you tax that 

less. 

For that principle and for the general principle of liberty and for 

keeping what one earns, I am favor of flatter and lower taxes. 

Mrs. BLACKBURN. Let’s talk for just a second about intellectual 

property rights. We have discussed the global economy. I found it 

quite fascinating that protection of the intellectual property rights 

has not come up in any of the discussions and you have not equated the impact of that onto the economy. 

Personally, I feel like when we look at a global economy, protection of those rights, fighting against piracy, counterfeiting, is very 

important to having those domestic jobs, and Dr. Blank was talking 

about jobs and re-training, capturing those jobs that are semiskilled and higher skilled jobs, keeping them here. 

Do any of you have a comment that you would offer on intellectual property rights and how you see that affecting our jobs’ growth 

and retention, economic growth? 

Ms. BLANK. Other than simply to affirm what you said, this is 

a very important issue for American business, for us to keep business competitive, to protect patents and to protect intellectual property. 

Mrs. BLACKBURN. Any additional thoughts? Dr. Grant? 

Mr. GRANT. I am in the business of producing written matter, 

which is easily duplicated. It is one of the abiding problems of this 

line of business. 

We aggressively defend our copyright, and I can only begin to 

imagine what it is like to have a global franchise with the global 

risks of piracy and infringement. I cannot imagine a more pressing 

issue in a time when more and more of what we do is of a service 

nature and less and less of the product end. 

Mrs. BLACKBURN. Mr. Blackwell? 

Mr. BLACKWELL. We really strongly support intellectual property 

rights protection. We think we need to take piracy out of international commerce. 

37

We feel just as strongly that we ought to take the oppression of 

workers out of competition among countries, and therefore, that is 

the basis on which we argue for the inclusion of worker rights, fundamental worker rights, in those agreements. 

We wish those rights were protected as well as they are in intellectual property rights. 

Mrs. BLACKBURN. Dr. Bernstein, I had one question for you, if I 

have a couple of minutes left. I have done some reading recently 

on child poverty and the reasons for child poverty, which is a heart 

breaker to all of us. 

So much of what you see are low levels of parental work and 

numbers of single parent homes. Those are two indicators, no matter what you are reading and who it is from, that are always there. 

When we talk about public benefits, I would love your input as 

we talk about jobs that are not those bottom rung jobs, as we talk 

about public benefits, and just a comment from you if they were 

restructured to reward work and to reward marriage, what your 

feeling is if that would help reduce those levels of child poverty. 

Mr. BERNSTEIN. I am quite clear that the evidence is strong that 

precisely that type of program would go a long way in exactly the 

right direction. The reason I get there—it is great that we are talking about it in the context of a hearing about full employment. 

If you look at the employment rates of single mothers during the 

1990’s, we had welfare reform certainly pushing them into the job 

market, but we also had the first full employment economy in 30 

years pulling them in, we had an expansion of the earned income 

tax, it could mean $4,000 or more to a single mother with two or 

more children, as well as a whole set of work supports to help subsidize the gap between what that woman earned and what she 

needed to bring her family above poverty. 

By the way, I think the poverty line is actually insufficient if we 

are talking about what these families really need for wellbeing. I 

think that the one two punch of work supports, a subsidized wage 

through the earned income tax credit, which I think is a program 

that has wide support in this body, and a full employment economy 

gets us a long way towards the goal. 

You mentioned a marriage program. In the interest of time, I am 

going to stop there. Maybe Dr. Blank has also looked at that and 

wants to speak to that. 

Mrs. MALONEY. I would like to hear from Dr. Blank as a recognized authority on this subject. 

Ms. BLANK. On poverty rates among single mothers, it went 

down from 48 percent to 35 percent over the last 12 years. Much 

of that is precisely because of the incentives we put in place to 

make work pay, so to speak, through the earned income tax credit, 

through subsidies to child care, and through some pushes from welfare as well, to put people out into work. 

The fact that only one-third of single mothers are poor is hardly 

a cause for a celebration, but things are moving in the right direction. 

It is certainly true that all of the research evidence suggests that 

children are better off growing up with more adults in their life. 

If those adults are married, that is great. If the dad is not in the 

household but is involved with the kids, that is good. If the grandVerDate 0ct 09 2002 18:20 May 07, 2007 Jkt 034674 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\34674.TXT HFIN PsN: TERRIE
38

parents are involved with the kids, that is good. The more adults 

you can put in a kid’s life, the better off you are in terms of helping 

them move forward. 

I think we do not have very good policies—we do not know how 

to do marriage policies very well. We know a lot more about how 

to create jobs than we know about how to create marriages. That 

is one reason why I tend to focus a lot more on the job side because 

I think we have policy leverage there that is more effective. 

Mrs. MALONEY. The gentlewoman’s time is up. Congressman 

Lynch? 

Mr. LYNCH. First of all, thank you, Madam Chairwoman. I want 

to thank the panelists for helping us out here. 

As a matter of full disclosure, I am a former president of the Iron 

Workers Union in Boston. My monthly dues that I pay every 

month, part of it goes to Mr. Blackwell’s union, the AFL–CIO. 

The title of this hearing is, ‘‘Monetary Policy and the State of the 

Economy.’’ I am tempted to ask which one, which economy? 

I represent both the City of Boston, which is a major financial 

services market as well as healthcare, and I also represent the City 

of Brockton, which is an old shoe manufacturing city, both wonderful cities, and I represent about 19 towns, the workers in which are 

probably a blend of both economies. 

One of the things that troubles me is when some economists, not 

the ones here today, but some economists talk about job loss and 

wage stagnation, like they were talking about the weather, like it 

is a natural phenomenon that we have nothing to do with or no 

control over, and that we are in this global economy, so why try? 

From where I sit, and what I have seen over the past 5 years 

here in Congress, I think there is a real purposeful dimension and 

deliberate effort in some cases to undermine the bargaining power 

of workers in this country, both the skilled workers who are whipsawed by the threat of moving high tech jobs overseas, and also the 

bifurcation between union jobs versus non-union jobs in this country. 

I look at the purposeful efforts by this Administration, the Bush 

Administration, and their policies. They have led efforts to cut 

overtime standards for 6 million workers under the Fair Labor 

Standards Act; the first action by the President after Hurricane 

Katrina was to cut the prevailing wage in Mississippi and Louisiana so workers could work for less. That is what he thought was 

the most important thing to do after Katrina, cut the wages of 

workers in Mississippi and Louisiana. Come on. 

The trade policies and tax policies that we have adopted in this 

country to incentivize companies to move offshore or to ship their 

jobs overseas, as the kids say in my neighborhood, ‘‘You got to get 

real about this stuff.’’ 

I am a former worker of the General Motors plant in Framingham, Massachusetts. That plant closed down because of policies that incentivized the practice of General Motors closing down 

plants in Massachusetts, Michigan, Illinois, and shipping them 

over the border into Mexico. They did that. 

That did not happen in a vacuum. That happened as a result of 

policies that successor Administrations have adopted and there is 

a whole framework here of labor policy within the United States 

39

that is overseen by the Labor Department and the National Labor 

Relations Board. 

People in my district are shocked when I tell them that the mission statement of the Labor Department is to strengthen free collective bargaining. They are dumbfounded. They are also shocked 

to learn that the National Labor Relations Act, which created the 

NLRB, the Act itself guarantees the employees the right to organize and to collectively bargain. 

You would not know that if you simply watched what is going 

on at the NLRB, which together with the Labor Department, more 

so than the Labor Department, has really adopted an attitude and 

a position that is hostile to workers’ rights. 

While I do see the greater dynamic here of forces in the macro 

and micro economies, there is a definite effort here of this Administration and some of our departments to beat down the rights of 

workers and of these families to make a decent living in this country. 

While I really appreciate the high level and the quality of your 

debate, I have to say there are some real things that we could be 

doing here, I think, to empower some of these workers. 

Mrs. MALONEY. The gentleman’s time has expired. I grant him 

another 20 seconds. 

Mr. LYNCH. What do you think we could do in this country to 

strengthen that? You all mentioned at the beginning of your statements this imbalance in bargaining power. 

Mrs. MALONEY. Mr. Blackwell, very briefly. 

Mr. BLACKWELL. Put a meaningful floor underneath wages. The 

minimum wage should be one-half of the private sector wage for 

non-supervisory workers. Give workers the right to organize unions 

when they so choose. 

Very centrally and first, I would suggest that at the center of 

this hearing’s purpose, to re-establish full employment as the responsibility and the purpose of government, to maintain tight labor 

markets. 

With tight labor markets, minimum labor standards and the 

right to organize will close this gap with productivity and wages. 

Mrs. MALONEY. Thank you. Congressman Green? 

Mr. GREEN. Thank you, Madam Chairwoman. I thank the witnesses. Perhaps I should not say ‘‘witnesses,’’ the panelists, for 

being here today. You have really been most edifying. 

It may look like a set-up for one labor person to follow another, 

but I, too, associate myself with labor, having been a dues checkoff member; that means you are really involved in the process. 

We talked a lot about full employment. I think it is a most important subject, full employment. Some people have some degree of 

consternation or look askance at the term ‘‘full employment’’ because some people can remember a time when folks had full employment but they did not receive the emolument that employment 

should accord. 

An extreme example would be slavery. Every African in America, 

not African Americans, but every African in America had full employment, but they did not get the emolument that employment 

should accord the worker. 

40

I have coined my own term, fruitful employment. Full employment is great, but I think fruitful employment is better. You can 

have full employment, work full time, and still live below the poverty line. People do it every day in this country. Say, someone is 

a full time employee, they get $10,000 plus a year, and they have 

one child. The poverty line is $13,000, so they are working full 

time, and still living below the poverty line. 

You can have full employment and not be able to afford health 

insurance. You can have full employment and have no retirement 

benefits. Full employment is not as significant as fruitful employment, employment that allows one to have the emoluments that 

employment traditionally accords. 

I agree that there are some things that can be done, and I think 

that you are on target when you talk about the restoration of the 

balance between industry and labor, and things are out of balance. 

They are not out of balance because of the workers. The workers 

have tried to maintain the balance. Right now, the industry has 

the advantage, and policies have allowed the industry to acquire 

the advantage. 

Either there has to be a reversal or we have to have some new 

policies. I think we have to index the minimum wage. Minimum 

wage ought to be indexed. CPI or possibly poverty. No one should 

work full time and live below the poverty line. Index the minimum 

wage to poverty. You do not live below the poverty line if you are 

working full time. 

There has to be some thought of whether the paradigm that we 

currently utilize to deliver healthcare is the best paradigm, because 

right now, the paradigm is to do it through one’s place of employment. 

Well, we cannot compete in the global marketplace, it seems now, 

with other world class corporations who do not have to factor that 

in when they compete with American corporations. 

Is this going to be the most efficacious way to deliver healthcare 

through a paradigm that puts corporate America at a disadvantage 

in this global economy. 

I think we have to give much consideration to what has been 

said about the earned income tax credit and I would like Dr. Blank, 

if you would, to say a little bit more about the earned income tax 

credit. 

I am concerned as to whether or not if we expand it, it will, of 

course, have an impact on the economy, but can we expand it and 

not have a negative impact on the economy. That is the argument 

that is always made when you talk about expanding these things. 

Finally, I am concerned about living in the richest country in the 

world, where 1 out of every 110 persons is a millionaire. The richest country in the world where we can spend $269 million not per 

year, not per month, not per week, but per day on the war. $269 

million up from $177 million, because of what we are appropriating. With that kind of money and these kinds of riches, I am 

concerned about— 

Mrs. MALONEY. The time of the gentleman has expired. I grant 

him another 20 seconds. 

Mr. GREEN. Thank you. I am just concerned about the hope 

index. How does it impact one level of society to see another level 

41

of society not sharing the sacrifice. The war is being funded on the 

backs of the least, the last, and the lost. What about the hope 

index? 

Thank you. Thank you for the additional time. 

Mrs. MALONEY. Dr. Blank? 

Ms. BLANK. The earned income tax credit, I think, is one of the 

best policies aimed at low-income families in the country today. 

The reasons that we could expand this without having very negative effects are twofold. 

First of all, it is a very well-targeted policy. It is focused on workers who have low wages in low-income families. Unlike the minimum wage, which benefits even those workers, the vast majority 

of which actually are teenagers, in middle and upper income families, the earned income tax credit goes only to low-income families. 

Secondly, it has relatively low displacement rates. One of the 

concerns about wage subsidies is often that companies pay less, because they basically take the Federal dollars and displace their 

wages with Federal wages. 

The reason this doesn’t happen as much with the earned income 

tax credit is it is paid through the tax system, not through companies in the way traditional wage subsidies are. 

If I am an employer, I do not know if you are getting the earned 

income tax credit or if Jared here is getting it, and therefore, I cannot sort of play games with how much I am paying you. I just do 

not know who is receiving it and who is not, because I do not know 

anything about the rest of your family and your total income categories. 

Expanding the earned income tax credit is often viewed as—it is 

viewed as a very efficient policy that has fewer of these sorts of displacement effects than many others. 

Mrs. MALONEY. Thank you very much. Congressman Cleaver. 

Mr. BERNSTEIN. Can I add two sentences to that response? 

Mrs. MALONEY. Yes. 

Mr. BERNSTEIN. There are two ideas to expand the earned income tax credit currently being discussed by policymakers. 

One is to increase the benefits to childless workers and another 

is to increase what is called the third tier, to add an extra benefit 

for families with three or more workers; right now, it is two or 

more. Both of those have been shown to have considerable anti-poverty effectiveness. 

Mrs. MALONEY. Thank you very much. Congressman Cleaver. 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

I have two hopefully quick questions. First of all, I do not know 

if any of you are able to do so, but I would like to speak Chinese 

for a moment. 

As many of you may know, under the current Administration, 

the U.S. debt to China quadrupled since 2000. In the year 2000, 

$62 billion in U.S. public debt was held by the People’s Republic 

of China. China’s holdings on foreign securities today in terms of 

the securities held by China in the United States exceeds $1 trillion. 

China just tested some new missile as a demonstration that they 

have arrived militarily. We are having this big debate here on 

whether or not we should escalate the fighting in Iraq. 

42

The truth of the matter is that even though the brave and honorable men and women who are fighting in Iraq are doing exactly 

what the country has told them, the truth of the matter is that 

their fighting is being financed by China and other foreign countries. 

Do you think this is a matter of national security or is it something that we should just push aside because most Americans do 

not understand the debt even if you tell them that every single 

American, including the unemployed, has a portion of the debt—

$28,000 today and rising. 

The third leading expenditure in the budget that was just submitted by the President is the interest on the debt, and it rises 

$600,000 a minute. 

I do not know if any of you can speak Chinese, but if you can, 

I would like your response, and I would like to ask one other quick 

question. 

Mr. BLACKWELL. I think the issue of the imbalance between 

China and the United States, in particular, is an enormously important issue for the world economy. It is also perhaps a national 

security concern. 

I just wanted to point out one thing that might not be on your 

screen. In order to keep its currency at the current levels, China 

is buying large quantities of mortgage-backed securities, which 

keeps housing prices higher than they otherwise would be. People 

are pulling equity out of those houses. That is part of what has 

been driving the economy. 

The only thing that has been driving this economy in the past 

few years is expenditures by consumers, which is debt finance, and 

in part, by the borrowings of the Chinese Bank. 

Mr. CLEAVER. What happens if China dumps its diet of dollars? 

Mr. BLACKWELL. Obviously, that is a catastrophe. No one expects 

they will because they would be hurting themselves as well. There 

is this kind of dance. 

Can they continue to buy an unlimited quantity of U.S. debt and 

manage the risk that represents to their own economy, and what 

happens to their economy and the U.S. economy if they decide to 

diversify. 

Mr. GRANT. Mr. Cleaver, in the early going, one of the Congressmen said that you cannot consume and save the same dollar, but 

in fact, you can, and we do. We buy things from China. That same 

dollar comes back in the form of a purchase of a Treasury security 

or a mortgage-backed security. 

We have what they call the exorbitant privilege of issuing this 

reserve currency, which has stood us in such great stead, but we 

are ever at risk of the world changing its mind. It will choose other 

assets, other reserve assets. 

Yes, it is a clear and present danger to our prosperity. We are 

consuming much, much more than we produce. 

Mr. CLEAVER. Final question, Madam Chairwoman. I think my 

colleague is gone, who raised this issue. If everything is so good in 

this country, why is it that for only the second time in the history 

of the Republic we have a negative savings rate? 

43

In most Asian nations, the savings rate is 20 percent and above. 

I think the savings rate in the United States is like .9, close to a 

full percent. 

We have never had a negative savings rate since the Depression, 

1932 and 1933, and then we started having a negative savings rate 

in 2005 and 2006. 

If everything is great, why is it that Americans— 

Mrs. MALONEY. The gentleman’s time has expired. I grant him 

another 20 seconds. 

Mr. CLEAVER. Why are Americans spending all they make and 

then borrowing to make ends meet? Thank you, Madam Chairwoman. 

Mr. BERNSTEIN. Quickly, I think one of the reasons for that dynamic is because interest rates, up until a while ago, were so low. 

Then-Chairman Greenspan used to make the point in this very 

room, when we talked about these very imbalances, he would say 

that servicing the debt burden does not seem to be any worse now 

than it was in prior years, it is around the average level. 

The reason was that even though debt was high, interest rates 

were low. Now, interest rates have crept back up, and yesterday, 

Chairman Bernanke presented a chart on the finance obligation 

ratio, that is how much household income it is taking to pay debt, 

and that is at historically high ranges now. 

I agree with you that this is a worrisome development. 

Mr. GRANT. One thing to be aware of is that this country’s current account is mainly trade deficit, almost all of it, but there is 

something called the balance on income; how much we earn on our 

assets abroad versus how much they earn on their assets here. 

For three consecutive quarters, that number has been negative, 

the first time it has happened. We are now borrowing from the 

Chinese, as it were, to pay the Japanese. It is a very big change 

in our external financial position. 

Ms. BLANK. I do want to say a word about savings. Partly, savings rates are low because we have expanded credit availability, 

particularly to lower income households. The ability to borrow, for 

instance, for housing mortgages, in the subprime market, has expanded homeownership by 10 points in this country. 

That also increases foreclosure rates, because not everybody is 

successful in the long run at that, and you have to balance out 

what you are getting from this additional credit with the additional 

financial stresses you are creating on households. 

For some people, the expanded ability to borrow has actually 

really given them a great deal of economic opportunity they did not 

have before. 

Mrs. MALONEY. I thank the panel. I would now like to recognize 

the ranking member, and then I have one final question. 

Mr. BACHUS. I would like the panel to comment on portable 

healthcare plans or portable retirement plans. Companies used to 

be loyal to their employees. Today, there is not that loyalty, and 

senority does not count for as much, unfortunately. 

Mr. BERNSTEIN. I have been watching the system of employer 

provided health and pension unravel at a rate that is becoming a 

bit alarming. I think it is still a bedrock system, and I do not want 

to create a sense of hyperbole to my alarm. 

44

The fact is that employers are shedding these obligations. We 

have seen a large sustained shift from defined benefit pensions to 

defined contribution pensions. Many folks are lucky if they even 

have that. 

The end result is that more risk is placed on workers in terms 

of essentially shopping for those very necessary parts of a social insurance system on their own. 

There are those who believe that kind of market competition will 

help, and I salute that up to a point. 

The fact that the risks have shifted such that individuals are 

bearing more and more, I think, is a worrisome trend. 

Mr. BACHUS. Can you also comment on whether or not you have 

proposals or know of proposals that might work. I know Wal-Mart 

recently proposed that we have a national healthcare insurance. Of 

course, people wondered if that was because they wanted someone 

else to pick up the tab. At least, they were bringing the issue forward and I commend them for that. 

As you said, with less union jobs, and less bargaining power, 

some of these benefits are disappearing. 

Mr. BLACKWELL. Portability is good. It is not because jobs are 

changing rapidly, but portability cannot be used as a mechanism 

for allowing employers to walk away from their obligations under 

the system, either for healthcare provisions or for retirement security. 

We can imagine a system, and we were thinking about proposing 

one, where people who offer a healthcare plan or qualified 

healthcare plan or qualified retirement security plan can run their 

own plan the way they always have. 

Employers who do not have such plans would be required to contribute a proportion of their payroll into a public system that would 

supplement a system that we already have and that would provide 

full portability. 

What we are very concerned about is efforts like that of the 

chairman of Wal-Mart. He says that we need to solve the 

healthcare problem, but what he has in mind is off-loading his obligations onto some kind of individual mandate onto these very 

working families who do not have the money to pay for it, and they 

simply end up in the ranks of the uninsured. 

Ms. BLANK. Just a quick comment. There are a variety of portability plan options that really are aimed at people who have 

health insurance who move across companies. That is important. 

It is equally important to worry about the folks who are at employers who basically do not provide, and cannot provide, health insurance because they are small employers. For this group, we need 

to create some sort of risk pooling schemes at the State level that 

can both allow those employers to contribute and, at the same 

time, give portability to people who move across industries or who 

retire early or whatever. If we could do this, it would be a wonderful improvement over the present system. 

Mr. BACHUS. Thank you. Dr. Blank, I think you may have been 

on television, responding to Chairman Bernanke. I had a question 

about the jobs being created. You all may be aware of his testimony. 

45

His response was there is an enormous demand for high-skilled 

workers and high-paying jobs, and the constraint on highest paying 

jobs, for example, in manufacturing is not the demand but the supply. Firms cannot find workers of sufficient qualifications in many 

different areas. There certainly has been job creation at the high 

level as well as throughout the distribution of wages. Is there a 

problem with educating Americans for those jobs? 

Ms. BLANK. There is a problem with education and skills in this 

country. We do not have the floor on skills that many other countries do. Students who get the worst education come out of our public school system with less literacy, less math skills, and less job 

preparation than the bottom end of the skill distribution in a number of our competitor countries. 

In the long run, the only way we are really going to increase 

competitiveness and jobs for the entire population, and to ensure 

long term full employment, is going to be a strategy of education 

in the public school system. 

Mr. BLACKWELL. There has been creation of high-skilled jobs, no 

question about it. The question is the proportion between the high 

skilled jobs, higher paying jobs and the lower paying jobs. 

It is often reported, I think, particularly through the channels 

that the Fed hears, they hear from the business community that 

we cannot find workers who have the skills we need at the rates 

we are prepared to pay. That is the kind of shortage I think they 

are reporting. If there were high wages being offered out there, 

there would be workers who would respond to those wages. 

Mr. BACHUS. One of my frustrations has been—I will just take 

my home State of Alabama. Our medical schools graduate about 

half of the doctors we need. There is a critical need for doctors in 

rural areas. It is not for want of applicants. I always hear people 

had a 4.0 on a 4.0 scale or 3.8. There are probably 2,000 qualified 

applicants each year, and they accept 125. 

Dr. Blank, you are from the University of Michigan. Why are the 

universities not recruiting these people? Why aren’t the State—

there are qualified applicants. In many cases, the education is offered in maybe subjects where there are not jobs, in engineering 

and subjects where we are constantly told this is why people are 

coming overseas; we do not have skilled Americans. What can we 

do about that? 

Ms. BLANK. I do not have a good answer. I do not know enough 

about the medical school market. 

Mrs. MALONEY. We are going to have to wrap this up in a second. 

Go ahead. 

Ms. BLANK. I do not have a good answer. I simply do not know 

enough about the specifics of what limits enrollments in medical 

schools. 

Mr. BACHUS. Even in engineering or other fields? 

Ms. BLANK. Right. I wish I had an answer for you but I do not. 

Mrs. MALONEY. Congressman Ellison? 

Mr. ELLISON. Thank you, Madam Chairwoman. 

My questions revolve around this issue of bargaining power on 

behalf of workers. I have to be in and out, so I hope you have not 

already addressed this issue. 

46

Could you talk a little bit about what accounts for the diminished 

bargaining power of working people vis-a-vis labor unions or even 

just on their own? 

Mr. BLACKWELL. I think there are four major areas that I would 

identify. One is that we have a much more global labor market 

than we had, and this global competition has cost us jobs as firms 

have outsourced. Even the jobs that have not been outsourced; we 

see that across the bargaining table every day. If you do not pay 

more for your healthcare, we are going overseas. If you demand a 

wage increase, we are going overseas. 

The other thing would be privatization of government services 

and de-regulation of particular industries. 

The third thing would be, as Dr. Bernstein has mentioned, the 

fact that the labor market institutions, like the minimum wage, 

has been lowered to virtually subpoverty levels, and the lack of 

workers’ rights to effectively organize. 

One that is right in the center of the meaning of this hearing is 

the slack in labor markets. The demand for workers is growing 

more slowly in its recovery than it has in any other post-war recovery. That creates, as I think Dr. Bernstein again described, where 

you have a long line of people outside the door prepared to take 

your job if you make unofficial demands. 

Alan Greenspan, I believe, mentioned this in his hearings during 

the late 1990’s. Things have changed. There is a lot of fear among 

working people. That is the reason why they are not willing and 

able to make stronger demands for improvements in their lives. 

Mr. ELLISON. Mr. Blackwell, you mentioned the right to organize. 

Do you think that if Congress strengthened the right to organize, 

for example, if there was employer neutrality, binding arbitration 

on the first contract, how would that impact labor? How would that 

impact workers’ bargaining power? 

Mr. BLACKWELL. There are 90 million workers in the United 

States today who would be eligible to join unions if they want. Over 

53 percent of those people say they would join a union tomorrow 

if they could. The reason they do not is employer interference in 

their decisions, and hiring anti-union consulting firms and firing 

workers who try to form unions. 31,000 Americans were fired illegally from their jobs last year for attempting to form an union. 

Mr. ELLISON. Did not the NLRB do something about that? 

Mr. BLACKWELL. Those were the ones who were found to be illegally fired, but the penalties that are attached to those firings are 

so minimal that it is considered by business as just a cost of doing 

business. 

All you get if you have a finding on your side is you get the difference between the wages you actually earned and the wages you 

would have earned if you had your job. The employer might have 

to post something in a lunchroom saying they will not do it again. 

That is not a meaningful bar from interference in workers’ rights 

to organize. 

Mr. ELLISON. What about this idea of the captive audience? This 

is a practice where employers might just call people into a room 

and say hey look, and make comments about the problems with 

unionization. 

How does that practice impact employee bargaining? 

47

Mr. BLACKWELL. Obviously, if you are living on property that is 

the property of your employer, the employer has the right to take 

you into a private room, and this is very routine, this is a core tactic of union avoidance, and they explain, find out the nature of your 

concerns, why you are interested in forming a union, and that is 

the occasion where they threaten you with the loss of employment 

or where they actually terminate you from employment if they decide you are incorrigible on this issue. 

That is why we just basically have to take the employer out of 

the decision among workers about whether they are going to join 

a union or not. This is a question of freedom of association. This 

is not a question of the employer voting on whether they have a 

union or not. 

Mr. ELLISON. You talked about a slack in the labor market. 

Could you help put some better definition to the term ‘‘unemployment?’’ I think most people think you are unemployed if you want 

a job and you do not have one. 

I have heard other definitions like these are the people who are 

still applying for unemployment benefits, that is how we count 

them, and then maybe there are some other people who might still 

be looking, which I think would be a little bit harder to pin a definite number on because you would have to rely on a survey. 

I know this is elementary for you. Just for the sake of this 

record, could you define what ‘‘unemployment’’ means so we can 

have a clearer understanding of what we are really talking about? 

Mrs. MALONEY. If I could add, Mr. Ellison, your exchange with 

Mr. Blackwell earlier showed why we need to pass the Employment 

Free Choice Act that Senator Kennedy and others have put in. 

Mr. ELLISON. Let me agree with the chairwoman on that point. 

Mr. BLACKWELL. I was suggesting before that we have almost 

lost the term ‘‘full employment’’ from our dialogue. I think the importance of this hearing is we are re-visiting that concept. I think 

we need to revise the definition of it. It cannot just be the 4 percent 

unemployment rate that was stipulated in the Humphrey-Hawkins 

Act. 

It has to look at the employment population ratio, which is still 

a full percentage point below what it was in the previous peak. A 

lot of people that are not even in the labor force, as Dr. Blank had 

mentioned. 

Also, it has to look at precisely this question of the relationship, 

is there sufficient tightness in the labor market in order that productivity and wages are moving together, or at least in the same 

direction? 

Mrs. MALONEY. Thank you. The time of the gentleman has expired. 

The chairwoman recognizes herself briefly. Mr. Blackwell explained earlier that working families are keeping up their standard 

of living or trying to by working harder, longer, taking multiple 

jobs, and sending more of their family members to work. 

I want to spend a little time talking about what this means. This 

is really having a serious impact on real people whose lives are 

simply becoming worse. 

It is damaging families in America. The report that I mentioned 

earlier came out from UNICEF at the United Nations. This report 

48

said that American children are worse off by multiple objective 

measures than children in 21 industrialized countries. We come in 

last. 

The United States was last in health and safety, very low in education, and second to last in family and peer relationships and behavior and risk. 

I would like the panel’s comments starting with Dr. Blank, who 

is a recognized expert in this area. This reflects the strains, I 

would say, on working families caused by the gap between productivity and wages. I would say wages are a family value and this 

report certainly shows that. 

I read reports all the time. I was absolutely shocked by this recent U.N. UNICEF report. I would like to hear briefly from the 

panel. 

Ms. BLANK. I agree entirely with your concerns. I should note 

that if you look at upper income families, you do not see some of 

these same things, if you are looking at educational achievement, 

at health issues, all the things that the U.N. report looks at, those 

are not problems in upper income families. 

The reason the United States ranks low on those statistics is because we have this wide distribution and a much lower bottom end 

in terms of income and skill levels and health disparities than 

other countries with whom we are being compared. 

This whole issue of inequality is key to understanding why the 

United States is ranking so low. We simply do not have the same 

floor, providing the same protections for our lower skilled or low 

wage families as other countries do. 

Mr. BERNSTEIN. Let me talk for a second about that from the 

perspective of middle income families. If you look at married couples with kids over the past 25 years or so, their hours of work, 

the time that family spends in the paid labor market, is up by 

about 500 hours over this time period. 

That means typically, working wives are spending more than 3 

months more in the labor market than they were before. That is 

not by any means an automatic bad. Part of that represents opportunities that were not available to women in the past. 

The fact is this: If you take wives’ earnings out of the equation, 

this family’s income has hardly grown at all. Their income growth 

has been a function of working wives going to work and working 

more weeks per year, and more hours per week. That is a very 

positive development, but it is also a development that creates 

stress on middle income families, and a lack of work/family balance 

that I think shows up in those types of statistics. 

Mr. BLACKWELL. I would only add the disproportionate stress as 

to the women, who as we know still absorb a disproportionate part 

of work at home while they enter the labor force to help support 

their family.

49

Mrs. MALONEY. I want to thank all of my colleagues and the panelists and the chairman for putting together an extremely interesting hearing. 

The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place the responses in the record. 

This hearing is adjourned. I thank everyone for attending. 

[Whereupon, at 12:44 p.m., the hearing was adjourned.] 

(51)

A P P E N D I X

February 16, 2007

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