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THE ECONOMIC REPORT OF THE PRESIDENT 

2014 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MARCH 13, 2014 

Printed for the use of the Joint Economic Committee 

( 
(II) 

JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

HOUSE OF REPRESENTATIVES 

KEVIN BRADY, Texas, Chairman 

JOHN CAMPBELL, California 

SEAN P. DUFFY, Wisconsin 

JUSTIN AMASH, Michigan 

ERIK PAULSEN, Minnesota 

RICHARD L. HANNA, New York 

CAROLYN B. MALONEY, New York 

LORETTA SANCHEZ, California 

ELIJAH E. CUMMINGS, Maryland 

JOHN DELANEY, Maryland 

SENATE 

AMY KLOBUCHAR, Minnesota, Vice Chair 

ROBERT P. CASEY, JR., Pennsylvania 

BERNARD SANDERS, Vermont 

CHRISTOPHER MURPHY, Connecticut 

MARTIN HEINRICH, New Mexico 

MARK L. PRYOR, Arkansas 

DAN COATS, Indiana 

MIKE LEE, Utah 

ROGER F. WICKER, Mississippi 

PAT TOOMEY, Pennsylvania 

ROBERT P. O’QUINN, Executive Director 

NILES GODES, Democratic Staff Director 
(III) 

C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Kevin Brady, Chairman, a U.S. Representative from Texas ...................... 1 

Hon. Amy Klobuchar, Vice Chair, a U.S. Senator from Minnesota ..................... 3 

WITNESS

Hon. Jason Furman, Chairman, Council of Economic Advisers .......................... 5 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Kevin Brady ............................................................. 20 

Prepared statement of Hon. Jason Furman .......................................................... 21 

(1) 

THE ECONOMIC REPORT OF THE PRESIDENT 

2014 

THURSDAY, MARCH 13, 2014 

HOUSE OF REPRESENTATIVES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The committee met, pursuant to call, at 2:27 p.m., in Room 1100, 

Longworth House Office Building, the Honorable Kevin Brady, 

Chairman, presiding. 

Representatives present: Brady of Texas, Paulsen, Carolyn B. 

Maloney, Cummings, and Delaney. 

Senators present: Klobuchar. 

OPENING STATEMENT OF HON. KEVIN BRADY, CHAIRMAN, A 

U.S. REPRESENTATIVE FROM TEXAS 

Chairman Brady. Good afternoon, everyone. 

Today we will hear testimony from Dr. Jason Furman, the chairman of the Council of Economic Advisers. The Economic Report of 

the President was released on Monday. 

I thank Dr. Furman for testifying so promptly after the Report’s 

release. 

Families on Main Streets across America are suffering from a 

disappointing economic recovery that still feels like a recession to 

them. Due to the alarming growth gap that describes the gap between the Obama recovery and other average recoveries of the past 

50 years, America is missing 5.6 million private sector jobs and 

$1.3 trillion in real GDP from the economy. Using the latest economic buzzword from the President’s report, job years, we are also 

missing over 18 million private sector job years. 

Wall Street is roaring, thanks to White House policies, but middle class families are being left behind. The S&P 500 total return 

index adjusted for inflation is up 98 percent since the recession 

ended, but real disposable income per person has risen a mere 3.6 

percent. To put it another way, under President Obama’s economic 

leadership, for every new dollar of disposable income a person receives, Wall Street has gained $27 in value. 

No wonder income inequality is a concern. Clearly, President 

Obama inherited an economic mess. The question before this committee is whether staying the course will close the alarming growth 

gap and provide real opportunity to middle class families and Main 

Street businesses left behind in this recovery. In both the President’s budget presented to Congress last week and the Economic 

Report of the President, it is clear the White House is stubbornly 
2 

adhering to the current slow growth policies that much of America 

has lost confidence in. 

For example, using a Keynesian analysis that focuses solely on 

aggregate demand, the Report asserts the American Recovery and 

Reinvestment Act added about two percent to real GDP between 

the fourth quarter of 2009 and the second quarter 2011. Many 

economists disagree. For example, John Taylor found the stimulus 

had little positive effect. The report praises infrastructure investment, which has bipartisan support, yet ignores the President’s decision to block a major privately funded infrastructure project, the 

Keystone XL pipeline. 

The Report lauds the administration’s success in promoting alternative energy, but ignores the shocking waste of precious taxpayer 

dollars to failed companies like Solyndra and others. Ironically, the 

Report claims credit for increasing oil and natural gas production, 

while ignoring the fact that this occurred on private and State 

lands, while the White House has further restricted access to public lands. 

Moreover, the Report fails to acknowledge the harmful effects 

from the White House’s regulatory onslaught against American 

businesses, and does the same for President Obama’s insistence at 

the end of last year on higher taxes on small businesses and successful Americans as a condition of renewing middle class tax relief. Not surprisingly, policy uncertainty remains unprecedentedly 

high four and a half years into this disappointing recovery. 

The Report makes a great effort to blame congressional Republicans for the fights over increasing the debt ceiling and the temporary government shutdown, which created more policy uncertainty, but ignores the even larger uncertainty the White House 

has created with its call for higher taxes, less American-made energy, burdensome regulation, and the President’s Affordable Care 

Act. 

The Report observes that business fixed investment has been unusually weak, which this committee has been highlighting for some 

time. Indeed, real fixed business investment finally reached its 

fourth quarter of 2007 level in the most recent report on GDP. 

The Report asserts, ‘‘The pace of growth of business fixed investment is puzzling because interest rates are low and internal funds 

available for investment are high.’’ The reason for this weakness is 

staring the CEA in the face. Economic growth is a function of both 

supply and demand, yet the Report focuses on aggregate demand. 

Businesses don’t make investment decisions based solely on their 

assessment of future demand. They also consider cost. Supply-side 

factors such as taxes and regulation are at least as important as 

demand-side factors. 

The administration has increased both the expected after-tax 

costs of new business fixed investment and heightened uncertainty. 

It was entirely predictable that sluggish business fixed investment 

would produce a weak recovery. Is no one at the White House listening to local businesses? They have been telling you this for 

years, and continue today. 

I will conclude with this. While the Report identifies issues worth 

a thoughtful, bipartisan discussion, too much energy is again wasted attempting to shift the blame for this anemic recovery to anyone 
3 

or anything other than the leadership of this White House and this 

President. The report impugns a variety of headwinds from 

droughts to the euro crisis. However, other Presidents, Presidents 

Kennedy, Reagan, and Clinton for starters, overcame the 

headwinds of their time and achieved superior economic results for 

American families and businesses. 

President Obama has the opportunity to do the same. I urge him 

to work with Congress to grow the economy in ways that have been 

shown to work. And with that, Chairman Furman, I look forward 

to your testimony. Thank you again for being here. 

And I would yield for an opening statement to the vice chair, 

Senator Klobuchar. 

[The prepared statement of Chairman Brady appears in the Submissions for the Record on page 20.] 

OPENING STATEMENT OF HON. AMY KLOBUCHAR, VICE 

CHAIR, A U.S. SENATOR FROM MINNESOTA 

Vice Chair Klobuchar. Thank you very much, Mr. Chairman. 

Thank you for holding this hearing. 

And welcome, Dr. Furman. We are happy to have you here. 

I apologize in advance, we just had a vote called on the CIA 

counsel, so I am going to go back, and hopefully I can get back here 

to this lovely room. 

While we are still not where we would like to be, as you know, 

Dr. Furman, we have made real progress recovering from the recession. The economy has added jobs for 48 consecutive months, and 

has now regained 8.7 million of the 8.8 million private sector jobs 

lost during the recession. I bet you want that extra point. 

The national unemployment rate of 6.7 percent has dropped 1.2 

percentage points since the end of 2012, and has dropped more 

than three percentage points since the downturn. In my State, the 

unemployment rate is much better than the national average. It is 

at 4.7 percent. And we are having our own challenges when it 

comes to finding workers and worker training and other things. 

But they are good challenges to have. 

In 2009, there were nearly seven unemployed workers for every 

job opening. There are now 2.6 unemployed workers for each opening, almost back to the pre-recession ratio of two unemployed workers for every opening. GDP has grown for 11 straight quarters, and 

the CEA projects stronger growth in 2014. There are a number of 

bright spots in our economy that have contributed to the growth. 

Manufacturing is one exciting example. After being hit incredibly 

hard during the recession, U.S. manufacturing employment has increased by 612,000 jobs since February 2010. Manufacturing employs more than 12 million people, is responsible for nearly 70 percent of private sector R & D, and generates 90 percent of all patents. Increased energy production has also spurred economic 

growth. Greater production of natural gas, much of it is in my 

neighboring State of North Dakota, has kept prices low, which has 

strengthened manufacturing and created good-paying jobs. 

As the report highlights, imports of crude oil and refined petroleum products have fallen from more than 12 million barrels per 

day in 2005 to about 6.2 million per day in 2013. Starting in Octo-
4 

ber of last year, domestic production of crude oil has exceeded imports for the first time since 1995. 

Another bright spot in our economy is exporting. One of the administration’s goals I know is to double exports. And we are more 

than halfway toward achieving that goal. We need to continue to 

open new markets and ensure that American businesses can compete in the global marketplace. We have taken steps to put our 

country on a sound fiscal path. The deficit has been cut by more 

than half since the end of 2009. We passed the bipartisan MurrayRyan budget agreement, which led to the passage of the omnibus 

spending bill. We raised the debt limit. And finally, we passed the 

farm bill, which saved $23 billion over the last bill, and is vital to 

many States in this country. 

I want to briefly highlight a few topics in the CEA report, including income inequality, technology and innovation, and the reviewing of efficiency of Federal regulations, something I used to do a 

lot of work in this area, I care a lot about it, and I always think 

we can make improvements. I was pleased to see the emphasis on 

reducing poverty and expanding economic opportunity, as this committee discussed at a hearing I chaired in January with former 

Labor Secretary Reich. Income inequality in the United States has 

grown for more than three decades. Secretary Reich testified that 

the richest 400 people in this country have more wealth than half 

of the American population combined. And a staggering 42 percent 

of kids born into poverty in the U.S. won’t get out. I am pleased 

that you are looking at this. I know we will have questions for you 

about it. 

Technological advances have empowered much of our economic 

growth since World War II. Improved broadband access and adoption rates will strengthen U.S. competitiveness, as the report points 

out. A patent system is important. I know the House has done 

some good work on the patent reform issue. And as a member of 

the Judiciary Committee, I am a sponsor of Senator Leahy and 

Lee’s bill, the Patent Transparency and Improvements Act. We will 

be having hearings in April. I think that is very important as we 

look at technology issues going forward. 

Finally, we need to ensure that rules and regulations deliver the 

outcomes we want. Right now, cost-benefit analysis of proposed 

regulations are done before the regulations are implemented and 

are rarely revisited. I introduced a bipartisan bill with Senator 

Susan Collins of Maine that requires the Congressional Budget Office to look back at rules and regulations to make sure they are 

meeting their goals by having an analysis done of their cost-benefit 

effectiveness five years after the bill takes effect. I think it is rather absurd that we only look at them before, and we don’t look at 

them after and figure out what changes have to be made or which 

ones need to be eliminated. 

An immediate challenge, of course, is unemployment insurance. 

I know we are working very hard on a bipartisan agreement in the 

Senate. And I add the other immediate challenge is getting the immigration bill done. Very important to our economy. We had Grover Norquist testify here about how the Senate bill reduces the 

debt by $160 billion in 10 years, $700 billion in 20 years, and also 
5 

of course will allow many entrepreneurs and engineers and doctors 

to come into this country. 

I would end by telling you I think it is incredibly silly, as much 

as I love hockey in Minnesota, that we have unlimited visas for 

hockey players, which we want to continue, half our team is Canadian, but we make it almost impossible to get a doctor into the 

Mayo Clinic. 

With that, thank you very much, Dr. Furman, and hopefully I 

will return to have some questions. 

Thank you. 

Chairman Brady. Thank you, vice chair. 

Jason Furman is the chairman of the Council of Economic Advisers. Previously, he served as the principal deputy director at the 

National Economic Council and senior vice president of the World 

Bank. He has also been a senior fellow in economic studies and director of the Hamilton Project at the Brookings Institute. 

Dr. Furman earned his Ph.D. in economics, and a master’s in 

government from Harvard University, an MS in economics from the 

London School of Economics. Please welcome the distinguished 

chairman of the Council of Economic Advisers. 

Thank you for being here, Doctor. 

STATEMENT OF HON. JASON FURMAN, CHAIRMAN, COUNCIL 

OF ECONOMIC ADVISERS 

Dr. Furman. Chairman Brady, thank you very much for having 

me. 

I would thank Vice Chair Klobuchar in person if she hadn’t gone 

to her vote, and members of the committee. 

The 2014 Economic Report of the President discusses the 

progress that has been made from recovering from the worst recession in our lifetimes, and President Obama’s agenda to build on 

this progress by creating jobs and expanding economic opportunity. 

And I am grateful for the close reading that you have already done 

of that document. 

Last Friday, we learned that businesses added 162,000 jobs in 

February, so that over the last 48 consecutive months of job 

growth, private employment has risen by 8.7 million jobs. The unemployment rate ticked up one tenth of a percentage point in February, but it has still fallen by half a percentage point since October, with the entirety of that decline attributable to gains in employment. Nevertheless, essentially all of the remaining elevation 

in the unemployment rate is due to long term unemployment, 

which represents one of our most pressing economic challenges, 

and is one of the reasons that the President is focused on extending 

unemployment insurance. 

The economic recovery is well underway, but it remains incomplete, and much more work is left to be done, in large part because 

of the depth of the hole, out of which we are still digging. As discussed in this year’s Economic Report of the President, recoveries 

from financial crises are challenging because heavy household debt 

burdens and tight credit conditions can linger for years, constraining spending and investment. However, among the 12 countries that experienced a systemic financial crisis in 2007 and 2008, 

the United States is one of just two in which output per working 
6 

age person has returned to pre-crisis levels. The fact that the 

United States has been one of the best performing economies in the 

wake of the crisis supports the view that the full set of policy responses in the United States has made a major difference in averting a substantially worse outcome. 

This year’s report provides an in-depth look at one major aspect 

of the policy response of the crisis, the Recovery Act, and more 

than a dozen subsequent pieces of fiscal legislation, including bipartisan measures like the payroll tax cut, small business tax cuts, 

incentives for business investment, and extended unemployment 

insurance. Our analysis finds that the effects of these steps were 

substantial. 

Specifically, the Recovery Act alone raised the level of GDP by 

between 2 and 2.5 percent from late 2009 through mid-2011. Combining the effects of the Recovery Act and the additional fiscal 

measures that followed, the cumulative boost to GDP from 2009 

through 2012 was the equivalent of 9.5 percent of fourth quarter 

2008 GDP. Looking ahead, this year’s report also identifies several 

key reasons why the administration, like other forecasters, expects 

growth to strengthen in the coming years. 

One key reason that growth is expected to pick up is that households have made substantial progress in deleveraging, putting 

them in a better position to increase spending going forward. Specifically, the average required minimum payment on household 

debt has fallen from a high of 13 percent of disposable income in 

the fourth quarter of 2007 to 10 percent in the third quarter of 

2013, the lowest since we began collecting this data in 1980. 

It is important to note that these figures represent aggregates, 

and that many middle income households have seen less benefit 

from the recent stock market gains, and are still grappling with the 

implications of home prices that despite recent progress remain 

well below their previous highs. I would add that other reasons to 

expect stronger growth in 2014 include diminished fiscal drag, recovering asset values, strengthening among some of our key international trading partners, and demographic forces that are expected to maintain upward pressure on housing starts. 

Although all of these positive factors need to be weighed against 

the uncertain risks that can adversely affect the economy, looking 

over a longer time horizon, the report identifies a number of emerging trends that can support a stronger economy on a sustained 

basis in the future, including improvements in the production and 

use of energy, a slowdown in the rise of health costs, and technological advances. 

The Administration is not sitting back and waiting for these 

trends to unfold, and the President has set out an ambitious agenda to capitalize on these opportunities. He would agree with you, 

Chairman Brady, that we need to worry both about the demand 

side, especially in the short run, of returning the economy to its potential, as well as the supply side, to expand the economy’s potential and increase our growth over the medium and long term. And 

finally, taking steps to ensure that all Americans share in those 

benefits. 

This is just a brief overview of the economic outlook, and I am 

happy to talk more about that, the President’s priorities, as well as 
7 

the other topics that we covered in our report, including the slowdown in health costs, the role of technology in the economy, the lessons we have learned 50 years after the beginning of the war on 

poverty, and a discussion of the importance of Federal program 

evaluation. 

I look forward to your questions. 

[The prepared statement of Hon. Jason Furman appears in the 

Submissions for the Record on page 21.] 

Chairman Brady. Great. Thank you, Chairman. 

It is no secret, I think these are the wrong economic policies. I 

would like to see a change in course. But the purpose of this hearing is to talk about the Report, and we hope to shed some light 

onto some of the challenges we face. 

So, my question really is not a ‘‘gotcha’’ question, it really deals 

with labor force participation. You know, it has been troubling in 

the recovery that that data continues to stay extremely low. It really masks the accuracy of the unemployment rate. Some have tried 

to say the decline since 2007, or at least the lack of an increase, 

has come from demographic change. 

Chairman, I had our staff really go through and look sort of in 

each of the key age groups looking at the demographic shifts. We 

used 12-month moving average unadjusted data, took out 

seasonality, looked at the narrow age groups so we can try to figure 

out exactly what is going on. Using that metric, you know, the decline in the labor force participation, while most assume it is just 

seniors growing old and retiring, the numbers seem to show the 

only increases are in the upper age groups, and some of the more 

serious declines are in that 16- to 59-year-old range. We have been 

looking at those factors as well to try to determine what is driving 

that. 

What would you attribute that to? What are some of the factors 

you think are impacting that? And what would you do—you know, 

what are some of the perhaps solutions for that challenge? 

Dr. Furman. Right. Well, Mr. Chairman, I appreciate the question, and I appreciate your interest in this topic. I think understanding the dynamics of labor force participation really is one of 

the most important issues in understanding the performance of the 

labor market today. 

In our analysis of this question, I would divide the change in the 

labor force participation rate into four general areas. 

The first is the demographic trend. And our analysis, like a 

range of other analysts, would suggest that about half of the decline in the labor force participation rate is due to demography. 

And I think that is important, because sometimes if you are looking, for example, at changes in the employment population ratio 

over time, those can give you a misleading picture of the economy 

because they don’t adjust for those demographic—— 

Chairman Brady. I would agree with that. 

Dr. Furman [continuing]. Changes. 

The second set of factors are longer run trends that are not just 

the aging of the population, but represent other factors. And I 

think you are picking up some of those in the chart you have here. 

For younger Americans, some people are, for example, staying in 

school longer, and that lowers their participation rate. There are 
8 

older Americans now who are in the types of jobs that they are able 

to work in until older ages. So there has been a trend of people 

working longer at an older age. I think those trends that aren’t related to aging roughly net out to zero in terms of the overall explanation, but they are very important for particular groups. 

Next, the third one, is the normal movements of the business 

cycle. And any time unemployment is elevated, some people are 

going to, for example, you know, take a little bit longer before they 

decide to return to the labor force and look for a job, or maybe even 

get discouraged and not want to look for a job. As the unemployment rate comes down, a lot of those people return to the labor 

force. And we have been seeing that, and we expect to continue seeing that. 

Finally, some of that reduction in participation is probably related to the increase in long term unemployment, and represents 

that people have been out of work for years. It has been a tough 

economy for years, it was a really deep crisis that we went through. 

And that can have, you know, some longer term effects on the economy. 

In terms of the policy implications, I will just be very brief. On 

demographics, you know, some of that is just inevitable. But 

through steps like immigration reform we can go against the 

headwind there and make progress on participation. 

In terms of the cyclical component, anything that strengthens aggregate demand brings the unemployment rate down more quickly, 

will help with that. 

And then finally that last component I talked about, which is 

probably related to long term unemployment, steps to help connect 

the long term unemployed with jobs will bring some of those people 

back into the labor force too. 

Chairman Brady. Two thoughts based on your views. I understand a cyclical business climate. But over the past four and a half 

years this participation rate, even as unemployment has come 

down from 10 percent, significantly, that hasn’t budged. In a normal business cycle you would think it would begin to trend upward 

to some degree. And certainly among those age groups in their 

prime working years. How would you explain that? 

Dr. Furman. I think in aggregate, and then I will get to the age 

groups, you are seeing two trends going in opposite directions. One 

is that as you recover it brings people back into the labor force. But 

then you still have people aging and leaving the labor force. 

And in aggregate, those two effects have been roughly offsetting 

each other. And that is why you haven’t seen the participation rate 

recovering. If you look at the Congressional Budget Office, for example, projects that the economy will recover, but that that recovery will not be enough to offset the demographic impact, and that 

over the medium and long run you will continue to see the participation rate fall for that reason. 

If you look at some particular age groups, I think it is partly 

that—I think there is another important factor, which is related, 

as I said, to just how deep the recession was, is long term unemployment, which remains very elevated, and the flip side of it, 

which is its impact on participation. 

Chairman Brady. And we need to wrap up time. 
9 

Briefly, how do you view immigration reform as improving the 

labor participation rate? 

Dr. Furman. Well, first of all, by bringing more workers into the 

country it expands the labor force, and second of all, the age ratio 

of the people that come into the country are more working age people relative to older retired people. So it doesn’t just improve the 

quantity of labor, it improves the ratios as well. And that is why 

the Congressional Budget Office and other analysts have said that 

it would raise the labor force participation rate. 

Chairman Brady. Okay. It seems counterintuitive. Thank you, 

chairman. 

Are you ready? Sorry about that. 

Vice Chair Klobuchar. No, I am all ready. 

Chairman Brady. I recognize Vice Chair Klobuchar. 

Vice Chair Klobuchar. I almost feel as fit as Dr. Furman looks 

running back from there. But here I am. 

Now, we continue to see positive signs in the economy, we both 

spoke about that. How would you characterize the current state of 

the economy? And what makes you more optimistic about the prospects of the future? 

Dr. Furman. I think you see an economy that continued to gather strength over the course of 2013. It started off the year having 

to overcome the expiration of the payroll tax cut, then the sequester going into effect, and then the government shutdown. And despite all of that, you saw considerably stronger growth in the second half of the year than in the first half of the year. 

In terms of 2014, you know, you certainly see volatility from 

quarter to quarter. Cold weather is adversely impacting the economy in the first quarter, but most analysts would expect a bounce 

back from that over the course of the rest of the year. And some 

of the forces I talked about in my testimony, including reduced fiscal drag, improved household deleveraging, and continued potential 

in the housing sector, all have the potential to strengthen the economy further this year. 

Vice Chair Klobuchar. The report focuses some on income inequality, and I talked about in my opening how we have seen this 

increase in income inequality over the last few decades. And how 

do you think we go about reversing the trend? 

Dr. Furman. Right. First of all, I think it is important to start 

with that fact. And there is a wide range of data sources and methods, but all of them show the same conclusion, which is that income inequality has risen. 

The biggest consequence of that is, that you don’t have sufficient 

opportunities for advancement if you are born into the wrong family. And for many middle class families, they haven’t seen their incomes rise. So to some degree we want to address those problems 

in terms of opportunities for advancement, by, for example, expanding preschool education. 

In terms of rising incomes, anything from raising the minimum 

wage, that directly helps incomes, to anything that helps enhance 

our economic growth, whether it is business tax reform or investment in infrastructure, will expand the pie and give us more resources to address the reasons we are ultimately concerned about 

inequality. 
10 

Vice Chair Klobuchar. I chaired a hearing last year on long 

term unemployment. And while we are continuing to see improvement in the overall employment numbers, as you know, the long 

term unemployed, I think there are nearly four million Americans 

who have been out of work for over six months. 

Why do you think this rate is still so high, and in fact the recovery for the long term unemployed has been slower than it has been 

in other downturns. 

Dr. Furman. I think it is a measure of the severity of the downturn. The long term unemployment rate rose, you know, to above 

four percent at the depths of this recession, well above the level it 

has ever gotten to before. And some of those people can lose skills 

in terms of looking for jobs. And a lot of employers may discriminate against them in the hiring process. 

So it is a tough problem to reverse. We are making progress on 

it. It has come down from over four percent to 2.5 percent, but it 

is still more than twice as high as the long term unemployment 

rate has been historically. 

Vice Chair Klobuchar. Is that one of the reasons you favor 

continuing the unemployment compensation? 

Dr. Furman. Yes. Absolutely, Senator. 

Vice Chair Klobuchar. Okay. 

Productivity growth generally translates into higher wages for 

workers, but in the last 40 years the relationship between these 

productivity increases and wage growth has stagnated. 

As your report shows, by the end of September 2013, real output 

per hour was 107 percent higher than in 1972, but average hourly 

earnings had grown by only 31 percent. Do you think there are 

policies that can boost both productivity growth and wages? 

Dr. Furman. Yeah. I think technology expands the pie. I think 

it has the potential to expand it for everyone if it is done the right 

way. And just to give one example of an initiative the President 

has undertaken is something called ConnectED. 

And that is about putting faster broadband in schools and libraries, as well as giving teachers the training to use it and students 

the equipment they need to use it. And that is a good way in which 

you could use technology to bring people up and make sure that 

they share in that growth. 

Vice Chair Klobuchar. Last question, just immigration reform, 

it is stalled out right now. And I want to know how you see the 

economic impact of immigration reform. 

Dr. Furman. I think immigration reform is the closest thing to 

a win-win-win that we have identified in economics. You can expand economic growth, and it doesn’t just increase the level of output because you have more workers producing it, it actually expands the productive capacity of the economy. 

It increases what economists call total factor productivity growth, 

because immigrants are very innovative, very entrepreneurial. Taking 12 million people and letting them move out of the shadows 

gives them the certainty they need to make investments, whether 

in education or business that would also contribute to our growth. 

So it helps our economic growth. 

It reduces our budget deficit. It does that, as you said in your 

opening, over the next decade, and it does it even more over the 
11 

second decade. So it is an important part of addressing our medium 

and long run fiscal challenges. 

And finally, it can be done in a way that makes America safer 

and more secure by investing in protection of our borders. 

Vice Chair Klobuchar. And just one last question about energy 

production. I talked in my opening about what we have seen there, 

and I think the decrease from dependency on foreign oil from more 

than 60 percent to less than 50 percent or somewhere in that 

neighborhood. Could you talk about how the expansion of energy 

production here at home has helped our economy, particularly 

manufacturing? 

Dr. Furman. Yeah. If you look in 2008, I think we were producing five million barrels of oil a day. Now it is about 8.5 million 

barrels of oil per day. The difference between those is the equivalent of Iraq. It is basically like you discovered another Iraqi set of 

oil wells here in the United States and were able to use those. 

And that is good for our economy, good for our national security. 

And it has been combined at the same time with a reduction in use 

of oil through having the most fuel efficient vehicle fleet in our 

country’s history on the roads today. So the combination of those 

two is what has reduced our imports so dramatically as you described in your opening. 

Vice Chair Klobuchar. And how do you see natural gas fitting 

in? 

Dr. Furman. In a complementary way with two other advantages. The projections are that that natural gas boom will last for 

decades. Oil may not be as sustained as natural gas. And second 

of all, that natural gas has facilitated a shift to using that for 

power generation. That also helps address our climate problems. 

Vice Chair Klobuchar. Thank you very much. 

Chairman Brady. Thank you. 

Mr. Paulsen. 

Representative Paulsen. Thank you, Mr. Chairman. 

Dr. Furman, last year’s Economic Report of the President had an 

entire chapter that was devoted to international trade and competitiveness. That chapter highlighted the President’s National Export 

Initiative, which Senator Klobuchar mentioned. That is a five-year 

goal, of course, of doubling exports by the end 2014 in order to support two million jobs. 

Now this year’s report actually relegated international trade to 

a small subsection within chapter two. It didn’t mention the National Export Initiative at all, actually. I am curious, why was the 

National Export Initiative left out of this year’s report? 

Dr. Furman. Not by design. It is very important, and we certainly talk throughout the report about the importance of exports 

and trade agreements. But I guess we didn’t use that term. 

Representative Paulsen. Okay. Do you feel like we are on 

track right now? I know that total yearly exports at the end of 

2013 were at $2.27 trillion, which is short of the $3.14 trillion 

needed by the end of 2014 to meet the export goal. 

But does the administration think we are on track to the goal of 

doubling exports? 

Dr. Furman. I think there has been a substantial increase in exports since we set the goal. We have done everything we can to, 
12 

through policy, facilitate that increase in exports. There also was 

a very large contraction in the global economy following the President’s setting that goal. And that has gone in the other direction. 

So 2012, for example, you saw very little increase in our exports. 

And that had everything to do with the global economy, not what 

was going on here. 

Representative Paulsen. I think you know there is strong bipartisan support for these trade initiatives that are on the horizon. 

And to be honest, I don’t think the administration or the President 

wants to claim enough credit for moving these forward, or claim bipartisan credit where it is due. 

What is the Administration doing right now to help garner support for moving forward on TTIP, on TPP, and Trade Promotion 

Authority to make sure that these agreements actually come to fruition? 

Dr. Furman. Congressman, I absolutely agree with you on the 

importance of those, and can I tell you that the Council of Economic Advisers, and me personally, plan to do continued—increase 

the amount of work we are doing on those trade agreements, and 

documenting the important role that they play in our economy. So 

I will make sure we call to your attention as we do that in the future. If terms of this report, we didn’t have a chapter on it in part 

because we looked at previous years and said we covered a lot of 

this topic, let’s try to vary it and make sure we are covering the 

full waterfront rather than just repeating the same topics from 

year to year. 

But you have recently seen the Vice President write an op-ed on 

this topic. You have seen USTR, Ambassador Froman, give a major 

speech on this topic. And most importantly is the actual work we 

are doing to try to bring TTP to a successful conclusion. 

Because we think it will be easier to explain the benefits when 

you can show people just how much we are able to open foreign 

markets to American goods, both in terms of the variety of barriers 

that our companies face around the world. And we are working to 

get something that we can, you know, that we can show to people. 

Representative Paulsen. I know the benefits are there. 

Let me ask you this, though, because I know you do believe that 

the trade agreements are in our best interest. USTR has done a 

really good job of being up on the Hill and spending time with 

Members. 

So I guess my question is, do you believe Trade Promotion Authority, from the White House’s perspective, or the Administration’s perspective, is equally important? And do they plan to actually weigh in a little bit more heavily and get engaged, as USTR 

has? 

Dr. Furman. Absolutely, Congressman. And the President in his 

State of the Union address talked about the importance of having 

the authority to have, you know, votes on those trade agreements. 

But, you know, what we are doing is negotiating and trying to get 

the best possible agreement so we can show all of you why that authority is so important to us. 

Representative Paulsen. Okay. 

I know we are going to need that help and assistance, because 

in the Senate, leadership threw some cold water on moving forward 
13 

on trade promotion authority before year end. But I would agree 

it is in our interest to have these export markets open and available, with the U.S. back on the playing field and leading these 

trade agreements. Thank you. 

I yield back, Mr. Chairman. 

Chairman Brady. Thank you. 

Mr. Delaney. 

Representative Delaney. Thank you, Mr. Chairman. 

Thank you, Dr. Furman. I am always incredibly impressed with 

your analytics and insights. It is nice to have you here today. 

So I wanted to talk a little bit about the future in terms of how 

we think about some of the challenges we see in today’s jobs market, and how that is likely to play out in the future. Because I 

think the data you present is very clear that by any measure our 

country’s ability to respond to this deep recession, that probably as 

a practical matter really would have started much sooner but for 

some of the things that were going on in the credit markets. 

But our country’s ability to respond to that, I think in part due 

to the President’s policies, clearly has outpaced any other Nation’s. 

And so as you highlighted in your testimony, we have a very significant problem around people who are long term unemployed. 

And we see a lot of disruption in the employment markets based 

on technology and globalization, which seem to me are creating a 

much more specialized economy in our country. 

And the degree that our economy becomes specialized is growing 

over time. And a specialized economy benefits people with really 

great educations and access to capital and things like that. And it 

is generally negative for people who don’t have those benefits. It 

takes time for those benefits to spread out to the larger percentage 

of the workforce. And I think some of the President’s policies, 

which I agree with in terms of greater investments in infrastructure, in basic medical research, obviously reforming immigration, 

reforms in investments in education, are clearly important in terms 

of making our country more competitive and making sure we have 

a workforce that is equipped to hopefully get those jobs. 

But I tend to think that we discuss those policies as it relates 

to the 6.7 percent of the population that is unemployed. What really worries me is what will happen to the other 93.3 percent of the 

population across the next 20 years. Because what concerns me 

greatly is that this trend in our country towards a more specialized 

economy, which is based on the fact that technological innovation 

is accelerating and the world is becoming more connected and more 

global, that that will disrupt a huge number of jobs. 

I don’t know what the percentages are. You hear different estimates. You hear some as low as 20 or 30 to as high as 50 percent 

of the jobs that exist in this country will somehow be disrupted and 

affected in the next 20 years. 

How big of a concern is that? And should we be talking about 

these policies really in that context? Because it is one thing to talk 

about how we have to help the 6.7 percent of the country that is 

unemployed, which is a tragedy, and we should be doing everything 

possible. But I worry that even as we have continued economic 

growth, the sheer number of human beings who are going to be affected by these trends is massive. 
14 

And there could be other shoes to drop in the employment market even as our economy does well. So I would be interested in your 

thoughts on that. 

Dr. Furman. I think that is one of the profound somewhere between a challenge and open question facing our economy today. 

And, you know, we have seen it for a while that tasks that are repetitive, that don’t require certain types of complex pattern recognition, you know, that machines can do them rather than people, 

and that to some degree has led to a polarization of the workforce. 

That there are certain very manual jobs that actually can’t be 

easily replaced by a machine, and you still have those, and certain 

higher level jobs that also can’t be, and a bunch in the middle have 

been hollowed out. And the answer to that is not less technological 

change, even if we knew how to bring about less technological 

change. A lot of that has to be on the human side and what you 

are doing in terms of equipping people with the types of skills so 

that their skills are complementing those machines and technological innovations. 

In which case their productivity rises and their wages go up with 

those technological changes rather than, you know, those machines 

and innovation substitute for them, in which case their wages go 

down. 

Representative Delaney. And not to interrupt you, but just to 

put what you are talking about in perspective, what percentage of 

the population of the working Americans—not a precise number, 

but an estimate—— 

Dr. Furman. Right. 

Representative Delaney [continuing]. Do you think will face 

kind of headwinds as it relates to the viability of the job they have 

today, whether it is them or someone else having it, across the next 

20 years? 

Dr. Furman. I have seen some of the estimates you referred to. 

Representative Delaney. Yes. 

Dr. Furman. I don’t have a particular number I associate with 

it. And I do think the main way it manifests itself is not in somebody losing their job because their job was replaced, but their wage 

going down. And we have seen some of that in the last decade. 

And there is certainly potential for more of that if we don’t harness technological change and use it, you know, to benefit and 

bring people up. 

Representative Delaney. Right. And, you know, because I just 

think so many of the policies that the President talks about, that 

I hear you talk about often, so many of us talk about, really are 

incredibly relevant for this challenge, and are almost unfairly 

framed in the limited context of trying to help the 6.7 percent that 

are unemployed. They will clearly help those people. 

But I think the magnitude of this challenge for the American 

workforce is staggering, and we should be talking about some of 

these policies as it relates to people who already have jobs as well. 

So thank you. 

Chairman Brady. Thank you. 

Mr. Cummings. 

Representative Cummings. Thank you very much, Mr. Chairman. 
15 

It is good to see you again, Mr. Furman. One of the things that 

concerns me is income insecurity for people going into retirement. 

We have got 401(k)s today that aren’t worth very much, I mean if 

you look at the stats. You see what is happening in the pensions. 

They are going down. You got a lot of people who are unemployed 

now. So that may affect them in some way. They don’t have any 

savings because they are trying to help their kids, or trying to help 

a relative that doesn’t have money. And so I was glad to see the 

President back off of that chained CPI. 

But, are we looking down the road? Because it seems like there 

are going to be a lot of people who are going to fall off a cliff with 

all the cutbacks. And I am just curious, what do you see there; and 

what are we doing to kind of help people have a soft landing when 

they get there? 

Dr. Furman. So I very much agree, Congressman, with your diagnosis of the problem. And in terms of the solution, partly it is 

to make sure more Americans have opportunities to save for retirement. 

The President took a step administratively in directing his Treasury to establish accounts called myRAs that would be a starter savings account that would be very safe, it would have very low fees. 

For people that don’t have accounts at work, a way for them to be 

introduced to savings. 

Legislatively, he has a proposal that was originally developed by 

the Brookings Institution and the Heritage Institute to have automatic workplace pensions, so everyone would have a pension at 

their workplace. There would be essentially no net cost for businesses to do that because they would be reimbursed for that cost, 

and it would give families the opportunity to save. 

Beyond that, though, I think we need to be continuing to look at 

this issue. 

Representative Cummings. On another subject, some have 

suggested that States should not participate in the Medicaid expansion that is part of the Affordable Care Act because the expansion will eventually result in some unfunded liability for the States 

when the Federal share of the costs of the expanded program is reduced. 

Can you explain why this is not true? And can you explain the 

benefits to a State of participating in the expanded Medicaid program? 

Dr. Furman. Sure. 

So for the next three years, Congressman, as you know, States 

have to pay nothing for their expansion populations in Medicaid. 

That would eventually rise to 10 percent. A 10 percent State match 

is considerably smaller than the match for most Federal-State programs, including what Medicaid has been for decades now. 

And, there is also a set of benefits, above and beyond your population being covered in terms of helping your overall health system 

reducing some uncompensated care costs for your State. And the 

Counsel of Economic Advisers did an analysis in 2009 that found 

in the case of many States, those other benefits would well more 

than outweigh just even the purely fiscal costs to their State, not 

even counting the benefits of the extra people that were covered. 
16 

Representative Cummings. So you got people who are sick, 

and there is money available, they cannot take advantage of it because they can’t—some governors won’t allow that to happen, the 

Medicaid piece. And so there are jobs associated with that too. Is 

that what you are saying? 

Dr. Furman. Yes. 

Representative Cummings. Lots of jobs. To me I find it simply 

incredible. In our State, we have something called Health Care for 

the Homeless. And before they would depend on charitable donations completely. 

I am talking about Maryland. So then once this happened, and 

they started enrolling people in Medicaid, then they had a way of 

helping these people, and they can do even more. Throughout the 

country, I understand that there are some hospitals that are literally having to shut down some units, particularly charity-type 

care, uncompensated care units because they don’t have enough 

money to keep them going. 

Although the money is sitting right there in the Affordable Care 

Act, and so when you get past that three years what happens? You 

said three years is 100 percent? 

Dr. Furman. Yeah. 

When you get past that, as I said, States will—it phases in, but 

will ultimately have to pay 10 percent of the costs. But in exchange 

for that, you get not just a substantial increase in coverage, but 

you get lower costs imposed on your health system by the uninsured people that you are covering, and you know, potentially get 

additional fiscal benefits from that, as well as the benefits for the 

millions of people that would be covered. 

Representative Cummings. Thank you, Mr. Chairman. 

Chairman Brady. Thank you. 

Former Chair Maloney. 

Representative Maloney. Thank you, Mr. Chairman. And it is 

a pleasure to welcome Chairman Furman. 

Dr. Furman, in your report you are showing us that we have had 

48 consecutive months of job growth. And private employment has 

risen by 8.7 million. And I couldn’t help but see your chart that 

when Obama was sworn-in in 2009, our economy was losing roughly 700,000, 800,000 jobs a month. So it has been a difficult time, 

but it is good to see that we are now growing jobs, not shedding 

jobs. So I congratulate you for that. But there is still much more 

that needs to be done. 

In the February payroll survey, you note there is roughly 162,000 

total nonfarm jobs were added. Yet if you look at the household 

survey during that period, although they are not completely the 

same, but 111,000 multiple job holders increased. It increased by 

111,000. Does that mean that 111,000 of the 175,000 are people 

that are now taking on two, three jobs? 

Dr. Furman. That would literally be what it means. That household survey that you just referred to is very volatile from month 

to month. So I wouldn’t personally place a lot of weight on one 

month’s data in it. But that is what it would literally mean. 

Representative Maloney. So that 111,000 of the 162,000 are 

people taking on two or three jobs. That certainly shows the need 

for raising the minimum wage, for goodness sakes, that you have 
17 

to take two or three jobs to make ends meet. And one of the things 

in the surveys that were somewhat troubling to me is that a quarter to a third of them, the job gains that we were getting were in 

the two lowest paying areas, retail and leisure and hospitality. 

So my question is does that disturb you that the job gains are 

in the lowest paying categories? What kind of policies could address 

this? 

Dr. Furman. Right. Well, I think we would like both more better paying jobs—but we also are going to have a range of jobs in 

our economy, and we would like to see the wages for all of those 

rising. 

So something like the minimum wage, which you just cited, is a 

good way to take a lot of people who are going to work in those 

sectors, and that is a great job for a lot of people, but there is no 

reason they should be in that job making $14,000 a year if they 

could be in those jobs making $20,000 a year or more. And that is 

why we would like to raise the minimum wage. 

Representative Maloney. Now, also of concern to me is the 

work week. Now, the work week is behind where it was when the 

recession began, and we are now on the average of 34.4 hours in 

a week. And when you look at a 34.4-hour week as opposed to a 

40-hour week, in a sense you are looking at the same thing as cutting jobs. 

So what in the world can be done about that? That is not a good 

trend that the work week is getting less and less and less. And is 

that a consistent trend? How long has it been that we—actually, 

it is behind when the recession began. So that has been since 2008 

that we were getting a shrinking work week. Could you comment 

and elaborate on that? 

Dr. Furman. Yeah, you see a very similar pattern in the work 

week that you see in the unemployment rate, which is—well, the 

inverse, a really large decline in the work week in the wake of the 

recession, and then it coming back up, but not having fully recovered. 

So anything that helps our economy fully recover, whether it is 

the President’s growth, opportunity, and security initiative that is 

in his budget, extending unemployment insurance, or measures 

like that would help bring the unemployment rate down and the 

work week up. 

Representative Maloney. Well, I can’t help but reminisce that 

the first time I met you, and I was thinking about it, you were testifying before the Financial Services Committee on Social Security, 

and your testimony was opposed to privatization, that this was not 

an investment scheme, this was a safety net. 

In this hearing, I will never forget it, Ranking Member 

Klobuchar, it went on for about eight hours, maybe nine hours. It 

started in the morning and went into the night. It was just ferocious, ferocious hearing. And we won, basically, the Democrats won 

in that we preserved Social Security as a safety net. It was not 

privatized. At that time of that hearing, our economy was roaring. 

Many people were arguing we should privatize it, this will be good 

for the elderly and for those that need the social safety net. 

I would just like to, as an economist, what would have happened 

if we had privatized Social Security and then had that huge eco-
18 

nomic downturn in 2008? What would have been the impact on the 

economy and on individuals? 

Dr. Furman. One of two things would have happened. Either 

there would have been a large reduction in benefits for households 

or there would have been a large outcry, and Congress would have 

reversed it, in which case there would be a large cost shifted to taxpayers. 

Representative Maloney. My time has expired. Thank you for 

your testimony. 

Chairman Brady. Thank you. 

Thank you, former chairman. I can’t tell you how much I disagree with that whole description of that process. And there are serious disagreements about what the best way forward is to get this 

economy back to where both parties want it. 

Nonetheless, I am really pleased, Chairman, that you were here 

today and were willing to meet with us very promptly. Usually not 

in our normal meeting location or time necessarily, which reflects 

some of the attendance today. 

But again, thank you for being here. This is an important discussion for the economy. Look forward to working with you further. 

With that, the meeting is adjourned. 

[Whereupon, at 3:24 p.m., the committee was adjourned.] 
(19) 

SUBMISSIONS FOR THE RECORD 
20 

PREPARED STATEMENT OF HON. KEVIN BRADY, CHAIR, JOINT ECONOMIC COMMITTEE

Today we will hear testimony from Dr. Jason Furman, the Chairman of the Council of Economic Advisers, on the Economic Report of the President that was released 

on Monday. I thank Dr. Furman for testifying so promptly after the Report’s release. 

Families on Main Streets across America are suffering from a disappointing economic recovery that still feels like a recession to them. Due to the alarming ‘‘Growth 

Gap’’ that describes the gap between the Obama recovery and other average recoveries of the past 50 years, America is missing 5.6 million private sector jobs and 

$1.3 trillion in real GDP from the economy. 

Using the latest economic buzzword from the President’s report, ‘‘job years,’’ we 

are also missing over 18 million private sector job years. 

Wall Street is roaring, thanks to White House policies, but middle class families 

are being left behind. The S&P 500 total return index adjusted for inflation is up 

98% since the recession ended but real disposable income per person has risen a 

mere 3.6%. To put it another way, under President Obama’s economic leadership, 

for every new dollar of disposable income a person receives, Wall Street has gained 

$27 dollars in value. 

No wonder income inequality is a concern. 

Clearly President Obama inherited an economic mess. The question before this 

Committee is whether ‘‘staying the course’’ will close the alarming growth gap and 

provide real opportunity for middle class families and Main Street businesses left 

behind in this recovery. 

In both the President’s budget presented to Congress last week and the Economic 

Report of the President, it’s clear the White House is stubbornly adhering to the 

current ‘‘slow growth’’ policies that much of America has lost confidence in. 

For example, using a Keynesian analysis that focuses solely on aggregate demand, 

the Report asserts that the American Recovery and Reinvestment Act added about 

two percent to real GDP between the fourth quarter of 2009 and the second quarter 

of 2011. Many economists disagree. For example, John Taylor found that the stimulus had little positive effect. 

The Report praises infrastructure investment—which has bipartisan support—yet 

ignores the President’s decision to block a major, privately funded infrastructure 

project—the Keystone XL pipeline. 

The Report lauds the Administration’s success in promoting alternative energy 

but ignores the shocking waste of precious taxpayer money to failed companies like 

Solyndra and others. 

Ironically the Report claims credit for increasing oil and natural gas production 

while ignoring the fact that this occurred on private and state lands while the White 

House has further restricted access to public lands. 

Moreover, the Report fails to acknowledge the harmful effects from the White 

House’s regulatory onslaught against American business—and does the same for 

President Obama’s insistence at the end of 2012 on higher taxes on small businesses 

and successful Americans as a condition of renewing middle-class tax relief. 

Not surprisingly, policy uncertainty remains unprecedentedly high four and a half 

years into this disappointing recovery. 

The Report makes a great effort to blame congressional Republicans for the fights 

over increasing the debt ceiling and the temporary government shutdown which created more policy uncertainty, but ignores the even larger uncertainty the White 

House has created with the call for higher taxes, less American-made energy, burdensome regulation, and the President’s Affordable Care Act. 

The Report observes that business fixed investment has been unusually weak— 

which this committee has been highlighting for some time. Indeed, real fixed business investment finally reached its fourth quarter 2007 level in the most recent report on GDP. 

The Report asserts, ‘‘The pace of growth of business fixed investment is puzzling 

because interest rates are low and internal funds available for investment are high.’’ 

The reason for this weakness is staring the CEA (Council of Economic Advisers) 

in the face. Economic growth is a function of both supply and demand, yet the Report focuses on aggregate demand. 

Businesses don’t make investment decisions based solely on their assessment of 

future demand. They also consider cost. Supply-side factors such as taxes and regulations are at least as important as demand-side factors. 

This Administration has increased both the expected after-tax cost of new business fixed investment and heightened uncertainty. It was entirely predictable that 

sluggish business fixed investment would produce a weak recovery. Is no one at the 
21 

White House listening to local businesses? They’ve been telling you this for years— 

and continue today. 

I’ll conclude with this. While the Report identifies issues worth a thoughtful, bipartisan discussion, too much energy is again wasted attempting to shift the blame 

for this anemic recovery to anyone or anything other than the leadership of this 

White House and this President. 

The Report impugns a variety of headwinds from droughts to the Euro-crisis. 

However, other Presidents—Kennedy, Reagan, and Clinton for starters—overcame 

the headwinds of their time and achieved superior economic results for American 

families and businesses. 

President Obama has an opportunity to do the same. I urge him to work with 

Congress to grow the economy in ways that have been shown to work. 

Chairman Furman, I look forward to your testimony. 

PREPARED STATEMENT OF JASON FURMAN, CHAIRMAN, COUNCIL OF ECONOMIC

ADVISERS

Chairman Brady, Vice Chair Klobuchar, and Members of the Committee—thank 

you for the chance to appear here today. The 2014 Economic Report of the President 

discusses the progress that has been made in recovering from the worst recession 

of our lifetimes, and President Obama’s agenda to build on this progress by creating 

jobs and expanding economic opportunity. 

Last Friday, we learned that businesses added 162,000 jobs in February, so that 

over the last 48 consecutive months of job growth, private employment has risen by 

8.7 million (Figure 1). The unemployment rate ticked up one-tenth of a percentage 

point in February, but it has still fallen half a percentage point on balance since 

October, with the entirety of that decline attributable to gains in employment. Nevertheless, essentially all the remaining elevation in the unemployment rate is due 

to long-term unemployment, which represents one of our most pressing economic 

challenges (Figure 2). In January, the President hosted a summit at the White 

House and announced some important new steps to help the long-term unemployed, 

and we still hope Congress will join us in this continued effort by reinstating extended unemployment insurance for the more than 2 million job-seekers that have 

lost a vital lifeline since the end of last year. 

The economic recovery is well underway, but it remains incomplete, and much 

more work is left to be done, in large part because of the depth of the hole out of 

which we are still digging. As discussed in this year’s Economic Report of the President, recoveries from financial crises are challenging because heavy household debt 

burdens and tight credit conditions can linger for years, constraining spending and 

investment. However, among the 12 countries that experienced a systemic financial 

crisis in 2007 and 2008, the United States is one of just two in which output per 

working-age person has returned to pre-crisis levels (Figure 3). The fact that the 

United States has been one of the best performing economies in the wake of the 

crisis supports the view that the full set of policy responses in the United States 

made a major difference in averting a substantially worse outcome—although, as I 

said, more work remains to be done. 

This year’s Report provides an in-depth look at one major aspect of the policy response to the crisis: the Recovery Act and more than a dozen subsequent pieces of 

fiscal legislation, including the payroll tax cut, small business tax cuts, incentives 

for business investment, and extended unemployment insurance. Our analysis finds 

that the effects of these steps were substantial. Specifically, the Recovery Act alone 

raised the level of GDP by between 2 and 2.5 percent from late 2009 through mid2011. Combining the effects of the Recovery Act and the additional fiscal measures 

that followed, the cumulative boost to GDP from 2009 through 2012 is equivalent 

to 9.5 percent of fourth quarter 2008 GDP (Figure 4). The Report also demonstrates 

that the Recovery Act’s support for household incomes prevented millions from slipping into poverty over the last few years, a continuation of a longer-running trend 

in which essentially all of the progress we have made in the War on Poverty has 

come as a consequence of policies like tax credits, Social Security, unemployment 

insurance, and nutrition assistance. 

Looking ahead, this year’s Report also identifies several key reasons that the Administration, like other forecasters, expects growth to strengthen in the coming 

years. One key reason that growth is expected to pick up is that households have 

made substantial progress in deleveraging, putting them in a better position to increase spending going forward. Specifically, household debt has fallen from a peak 

of about 1.4 times annual disposable income in the fourth quarter of 2007 to 1.1 

times annual disposable income in the fourth quarter of 2013. Similarly, the average 
22 

required minimum payment on household debt has fallen from a high of 13 percent 

of disposable income in the fourth quarter of 2007 to 10 percent in the third quarter 

of 2013, the lowest since the data begin in 1980 (Figure 5). 

It is important to note that while these figures paint a picture of improvement 

in the aggregate, many middle-income households have seen little benefit from recent stock market gains and are still grappling with the implications of home prices 

that, despite recent progress, remain well below their previous highs. I’ll return to 

say a bit more about steps the Administration is taking to expand economic opportunity for these households in a moment. 

Staying on the near-term outlook, I would add that other reasons to expect stronger growth in 2014 include diminished fiscal drag, a recovery in asset values, 

strengthening among some of our key international trading partners, and demographic forces that are expected to maintain upward pressure on housing starts— 

although all of these factors need to be balanced against the uncertain risks that 

can always adversely affect the economy. 

Looking over a longer time horizon, the Report identifies a number of emerging 

trends that can support a stronger economy on a sustained basis into the future, 

including improvements in the production and use of energy, the slowdown in the 

rise of health care costs, and technological advances. 

The Administration is not sitting back waiting for these trends to unfold, and the 

President has set out an ambitious agenda to capitalize on these opportunities and 

make further progress. Specifically, the President’s agenda is designed to address 

three key imperatives: first, it continues to restore the economy to full potential; second, it expands the economy’s potential over the long run; and third, it helps ensure 

that all Americans have the opportunity to realize their full individual potential. 

To return the economy to its full potential more quickly, the President’s budget 

includes an Opportunity, Growth, and Security initiative, which will finance additional discretionary investments in areas such as education, research, infrastructure, and national security. The initiative is evenly split between defense and nondefense and is fully paid for with mandatory spending reforms and tax loophole closers. The President has also called for steps to couple business tax reform with a 

major effort to upgrade our Nation’s infrastructure. 

These steps will not just help speed the economy’s return to full potential in the 

near term, but will expand that potential over the long run by making critical investments in infrastructure and the skills of American workers, and by reducing distortions in the business tax code. Another key step to grow the economy’s long-run 

potential is immigration reform, which would help attract a new wave of inventors 

and entrepreneurs to American soil. The President is also looking for ways to support the historic gains in the domestic energy sector that we have seen in recent 

years. Finally, innovation is key to long-run growth and should be supported with 

everything from tax incentives for R&D to investments in basic research to policies 

like patent reform and freeing up spectrum for mobile broadband. 

The final areas of policy would help ensure that every American has the opportunity to realize their full individual potential. Since the late 1970s, income inequality has risen dramatically, and at the same time, intergenerational mobility has remained relatively low. The President has said that restoring a greater measure of 

economic opportunity in the face of these long-standing trends is ‘‘the defining challenge of our time.’’ 

The President’s opportunity agenda includes an increase in the minimum wage 

and an expansion of the Earned Income Tax Credit, which would lift millions out 

of poverty. The Opportunity, Growth, and Security initiative would help provide 

funding for every American child to attend high-quality pre-school, because investments in early childhood development are among the best investments we as a society can make. Implementation of the Affordable Care Act is another critical step in 

this direction, as it is helping to provide financial security for more American families and to slow the growth in health care costs that cut into workers’ take-home 

pay. 

This is just a brief overview of the economic outlook and some of the President’s 

priorities as described in our new Report. The Report also contains analysis and discussion of the Recovery Act and subsequent jobs legislation, the causes and consequences of the slowdown in health costs, the role of technology in the economy, 

the lessons we have learned 50 years after the beginning of the War on Poverty, 

and a discussion of the importance of Federal program evaluation. I would be happy 

to take your questions on these or any other economic topics. 
Testimony on the 2014 

Economic Report of the President 

Jason Furman 

Chairman, Council of Economic Advisers 

March 13, 2014 
Figure 1 

Monthly Change in Private Nonfarm Payrolls, 2007-2014 

Thousands, seasonally adjusted 

400 

300 

200 

100 

o r ..... !" .. Illmnmm 

·100 

-200 

·300 

-400 

·500 

·600 

-700 

·800 

Feb·2014 

-900 +1 ----.,..-.....;.-.-..,.----,----,,..---,.----,....---.,..-

2007 2008 2009 2010 2011 2012 2013 2014 

Note: Shading denotes recession. 

Source: Bureau of Labor Statistics, Current Employment Statistics. 
The Remaining Elevation in the Unemployment Rate is Primarily Due to L

Term Unemployment, Which is One of Our Most Pressing Challenges 

Figure 2 

Unemployment Rate by Duration, 1994-2014 

Percent of labor force 

8 

7 

6 

5 2001-2007 

4 

3 

2 

o 

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 

Note: Dotted lines represent average during the December 200 1 to December 2007 expansion 

period as defined by the National Bureau of Economic Research. Shading denotes recession. 

Source: Bureau of Labor Statistics, Current Population Survey; CEA calculations. 
u.s. is One of .Just Two Countries that Experienced a Financial Crisis in '07-'0

Has Since Seen Output Per Working Age Population Recover to Pre-Crisis Le

Figure 3 

Real GDP Per Working-Age Population 

in 2007-2008 Banking Crisis Countries, 2007-2013 

Index, pre-crisis peak = 100 

105 u.s. 

Germany 

100 

95 

90 

85 

80 

75 

70 

o 4 8 12 16 20 24 

Quarters from peak 

28 

Note: U.S. as of 20 13 :Q4, all others as of 20 13 :Q3 except Iceland (Q2). Working-age population 

is 16·64 for U.S. and 15-64 for all others. Population for Ukraine is interpolated from annual 

estimates. Selection of countries based on Reinhart and Rogoff (forthcoming). 

Source: Statistical Office of the European Communities; national sources; CEA calculations. 
The Recovery Act and Subsequent Fiscal Legislation Cumulatively Ad

9.5 Percent to GDP From 2009 to 20]2 

Figure 4 

Quarterly Effect of the Recovery Act and Subsequent Fiscal 

Measures on GDP, 2009-2012 

Percent of GDP 

3.5 3.0 

2.5 

Measures 

ARRA 

2.0 

1.5 

1.0 

0.5 0.0 

2009:Q2 201O:Q2 

2012:Q 

201l:Q2 2012:Q2 

4 

Source: Bureau of Economic Analysis, National Income and Product Accounts; Congressional 

Budget Office; CEA calculations. 
Æ 

Figure 5 

Household Deleveraging, 1990-2013 

Years of disposable income 

1.41 

Percent of disposable income 

14 

1.3 13 

Debt Service Share of Income 

1.2 "1 (right axis) 12 

1.1 11 

LO 10 

0.9 9 

0.8 8 

0.7 7 

0.6 :1 ___ .-___ __ -1 

1990:Ql 1995:Ql 2000:Ql 2005:Ql 2010:Ql 6 

Note: Shading denotes recession. Debt service as of2013:Q3; liabilities as ofQ4. 

Source: Federal Reserve Board, Financial Accounts of the United States.