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WHO IS THE ECONOMY WORKING FOR? THE

IMPACT OF RISING INEQUALITY ON THE AMERICAN ECONOMY

HEARING

BEFORE THE

SUBCOMMITTEE ON 

ECONOMIC POLICY

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED THIRTEENTH CONGRESS

SECOND SESSION

ON

EXPLORING THE STATE AND TRENDS OF INEQUALITY AND WEALTH 

CONCENTRATION IN THE UNITED STATES AND ITS IMPACT ON THE 

MIDDLE CLASS AND THE ECONOMY OVERALL

SEPTEMBER 17, 2014

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

(

Available at: http://www.fdsys.gov/


BANKI-41578DSA with DISTILLER
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director

DAWN RATLIFF, Chief Clerk 

TROY CORNELL, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor

SUBCOMMITTEE ON ECONOMIC POLICY

JEFF MERKLEY, Oregon, Chairman 

DEAN HELLER, Nevada, Ranking Republican Member 

JOHN TESTER, Montana 

MARK R. WARNER, Virginia 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

MIKE CRAPO, Idaho

ANDREW GREEN, Subcommittee Staff Director

SCOTT RIPLINGER, Republican Subcommittee Staff Director

(II)


BANKI-41578DSA with DISTILLER
CONTENTS

WEDNESDAY, SEPTEMBER 17, 2014

Page

Opening statement of Chairman Merkley ............................................................. 1

WITNESSES 

Heather C. McGhee, President, Demos ................................................................. 3

Prepared statement .......................................................................................... 26

Amir Sufi, Ph.D., Chicago Board of Trade Professor of Finance, University 

of Chicago Booth School of Business .................................................................. 5

Prepared statement .......................................................................................... 83

Claudia Viek, CEO, CAMEO—California Association for Micro Enterprise 

Opportunity .......................................................................................................... 7

Prepared statement .......................................................................................... 87

Adam S. Hersh, Ph.D., Senior Economist, Center for American Progress ......... 9

Prepared statement .......................................................................................... 89

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Letter from the National Asian American Coalition ............................................ 93

Letter from the Los Angeles Latino Chamber of Commerce ................................ 95

Letter from Reverend Mark E. Whitlock, II, Senior Minister, COR AME 

Church, and Chairman of Corporate Partnerships, 5,000 African Methodist 

Episcopal Churches .............................................................................................. 97

Letter from the Albina Opportunities Corporation ............................................... 99

(III)


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BANKI-41578DSA with DISTILLER
(1)

WHO IS THE ECONOMY WORKING FOR? THE 

IMPACT OF RISING INEQUALITY ON THE 

AMERICAN ECONOMY 

WEDNESDAY, SEPTEMBER 17, 2014

U.S. SENATE, SUBCOMMITTEE ON ECONOMIC POLICY, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Subcommittee met at 2:32 p.m., in room SD–538, Dirksen 

Senate Office Building, Hon. Jeff Merkley, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN JEFF MERKLEY 

Senator MERKLEY. I call this hearing of the Economic Policy Subcommittee of the Committee on Banking, Housing, and Urban Affairs to order. 

This hearing is titled ‘‘Who Is the Economy Working For? The 

Impact of Rising Inequality on the American Economy.’’ And put in 

simple terms, it is a chance to look at how inequality is driving the 

results of the economy, and whether it is driving further inequality, 

and how this reverberates back through our political system in 

terms of additional drivers of economic policy decisions. 

So I am delighted to have our four folks here today to testify. I 

will make some opening comments, and then if any of my colleagues arrive, we will see if they have opening comments, and we 

will jump right into your testimony. 

Back home in my State of Oregon, I live in the same workingclass neighborhood that I grew up in since the third grade. Families are struggling to stay afloat, and there is growing fear that income inequality is undermining the foundations of our economy for 

working families. We are seeing more and more of the living-wage 

jobs lost during the Great Recession, replaced with lower-wage jobs 

that pay minimum wage or near minimum wage. Indeed, 60 percent of the jobs lost in the Great Recession were living-wage jobs, 

and only 40 percent of the jobs that we are gaining back fall into 

the same category of living-wage or good-paying jobs. More and 

more families are chasing part-time jobs, low to no benefits, and 

near to minimum wage, which is not a foundation for a family to 

thrive. 

This trend of increasing inequality is diminishing not only our 

economic strength but also our working families’ trust in our political system and the ability of policymakers to make smart decisions 

on economic policy in regard to restructuring the results to enable 

families to thrive. 


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2

Growing inequality has rightfully gained national interest in recent years. A report from the Congressional Budget Office found 

that from 1979 to 2007 income growth was concentrated among the 

highest earners, with the average after-tax household income for 

the top 1 percent rising 275 percent. And for the rest of the top 20, 

it still did well but rose only 65 percent. But for the bottom 20 percent over that time period, 1979 through 2007, it rose just 18 percent. A very small rise compared to that 275 percent for the top 

1 percent. 

A separate report from the Economic Policy Institute asserts the 

income losses during the Great Recession were similarly unequal, 

with the bottom fifth experiencing an average income loss of 2.7 

percent per year while the top fifth dropped an average of 0.4 percent per year. 

This difference is particularly pronounced when we look at the 

cumulative change in real annual wages. Between 1979 and 2012, 

the cumulative change in wage growth was 34.8 percent. The wage 

growth for the bottom 90 percent of the people was less than half 

that, at 17 percent. Thus, profound impacts on the families and 

across the economy. 

Today there is evidence that unequal concentrations of wealth 

are affecting our policymaking in ways that could make it more difficult for our Nation to create a stronger middle class and reignite 

the middle-out economic growth. Every day thousands of lobbyists 

come onto the Hill and seek to influence policy debates, usually in 

favor of the interests of more affluent citizens. We must make sure 

that the voices of millions of Americans with low and middle incomes are not drowned out by those with far more resources. It is 

not a leap to suggest that recent decisions like that of Citizens 

United has further concentrated such influence. 

It is critical that policymakers work to better understand these 

trends and ensure that we are doing everything possible to support 

policies that broadly benefit families across America, policies that 

work for working Americans, and not simply working well for the 

best-off. 

We have with us today a panel of experts who will discuss the 

trends and economic impacts of inequality in the United States. 

Thank you, all of you, for your participation today, and I am going 

to go ahead and proceed with the introductions and then invite 

your testimony. 

Heather McGhee is President of Demos, a public policy organization working for ‘‘an America where we all have an equal say in 

our democracy and an equal chance in our economy.’’ Before taking 

over as President in March 2014, Ms. McGhee served as Vice President of policy and outreach at Demos. She is a frequent contributor 

on MSNBC, and her opinions, writing, and research have appeared 

in numerous outlets, including the Wall Street Journal, USA 

Today, National Public Radio, the Washington Post, and the New 

York Times. Ms. McGhee holds a B.A. in American studies from 

Yale and a J.D. from the University of California at Berkeley’s 

Boalt School of Law. 

Dr. Amir Sufi is the Chicago Board of Trade Professor of Finance 

at the University of Chicago Booth School of Business. He graduated with honors from the Walsh School of Foreign Service at 


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3

Georgetown University with a bachelor’s degree in economics and 

has earned a Ph.D. in economics from the Massachusetts Institute 

of Technology. He is co-author of the book ‘‘House of Debt,’’ which 

was published just earlier this year. 

Claudia Viek is CEO of California Association for Micro Enterprise Opportunity, a Statewide network of organizations that promotes economic opportunity through entrepreneurial training and 

micro loans. She has been a pioneer in both the micro enterprise 

and business incubation fields for over 25 years, including serving 

as executive director of the Renaissance Entrepreneurship Center 

and founding the Pacific Network of Business Incubators from Baja 

to Alaska. She is the past President of the San Francisco Bay Area 

chapter of the National Association of Women Business Owners. 

And Dr. Adam Hersh is a Senior Economist at the Center for 

American Progress, focused on economic growth and inequality in 

the United States, China, and the global economy. He has co-authored a report, ‘‘The American Middle Class, Income Inequality, 

and the Strength of Our Economy: New Evidence in Economics.’’ 

He publishes and is cited regularly in both academic and popular 

venues and appears regularly on media outlets such as NPR, 

CNBC, and BBC. He earned a Ph.D. in economics from the University of Massachusetts, Amherst, and a B.A. in international political economy at the University of Puget Sound. 

Before we begin, I will just ask if my colleague Senator Warren 

has any introductory comments she would like to make. 

Senator WARREN. No, Senator Merkley. The only thing I want to 

say is thank you very much for having this hearing, for pulling together such an illustrious panel. This is a topic we need to talk 

about—we need to do more than talk about; we need to do some 

things about. And I just appreciate your terrific leadership on this, 

and I want us to get straight to their testimony and our questions. 

Thank you. 

Senator MERKLEY. Great. Before I begin, I would like to request 

unanimous consent to insert into the record letters from the National Asian American Coalition, the Los Angeles Latino Chamber 

of Commerce, the AME Corporate Partnerships, and Albina Opportunities Corporation of Portland, Oregon. 

Senator MERKLEY. Let me also ask that the record remain open 

for 1 week for additional statements and questions from Members. 

With that, we will begin with our 5-minute statements. Ms. 

McGhee, thank you for coming. 

STATEMENT OF HEATHER C. MCGHEE, PRESIDENT, DEMOS 

Ms. MCGHEE. Thank you, Chairman Merkley and Senator Warren and Members of the Subcommittee, for this opportunity to testify. My name is Heather McGhee, and I am the President of 

Demos, a nonprofit public policy organization. 

As requested, Demos’ testimony lays out the experience of inequality at the household level. Of course, it is actually a story of 

divergent experiences among our fellow Americans, of rapid wealth 

accumulation for the already wealthy at a time when half of Americans could not pay a $400 bill without going into debt or selling 

something. 


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4

The testimony includes the tight monthly budget of Patricia 

Locks, who has worked at the same company for 11 years, and we 

compare her experience with that of her company’s majority owners, the six richest Walton family heirs, whose net worth is higher 

than the combined assets of at least 41 percent of American households. 

We also describe the state of public higher education, formerly 

the great equalizer, where cuts to taxes and spending have made 

the new price of entry into the middle class so expensive that a student from a low-income family would have to pay 95 percent of her 

family’s income to go to college for a year, and that is after financial aid. 

We also analyze the major structural drivers of inequality from 

globalization to financialization, and the good news is that these 

megatrends have not made this degree of inequality inevitable. Policy choices have brought us here, and different ones can lead us 

out. 

So why have our elected representatives not taken urgent national action when the lights are dimming on the American dream? 

Today a cashier who earns just $7.25 an hour can only buy $7.25 

an hour worth of food for her family. She can only buy $7.25 an 

hour worth of education for her children. But she also only seems 

to merit $7.25 worth of esteem in our political culture, and most 

dangerously, only $7.25 worth of voice in our democracy. 

And I would like to spend the remainder of my time on the topic 

of our democracy, as the data now reveal that economic inequality 

and political inequality are mutually reinforcing. 

In a more than $8 billion election cycle, less than 1 percent of 

Americans gave over $200 to a Federal candidate in 2012, and it 

took just 32 super PAC donors to outspend the millions of small donors to Governor Romney and President Obama combined. 

So why does that matter? Demos has been working with a group 

of leading political scientists who are now able to quantify the compound effects of the distortions in our democracy on the very subject matter of this Subcommittee—on our economic policies. 

The conclusion? When the policy preferences of the donor class 

diverge from those of the working and middle classes, Congress 

votes with the donor class. The policy divergence is most pronounced on economic issues. Significant differences between the 

wealthy and the general public are evident in such areas as taxes 

and deficits, trade and globalization, regulation of business, labor 

protections, the social safety net, and the overall role of Government. The general public is more open than the wealthy to a variety of policy measures designed to reduce inequality and expand 

economic opportunity. 

Take the minimum wage. Over 70 percent of Americans, including over 50 percent of Republican voters, want it to be high enough 

so that a full-time worker can keep his or her family out of poverty. 

But when asked, members of the donor class, only 40 percent of 

them agree with that proposition. So add to the donor class’ disapproval that 80 different corporate interests that lobbied against 

a wage increase in recent years, and the will of the majority gets 

drowned out. 


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5

Or take higher education: 78 percent of the general public believes that the Federal Government ought to do everything in its 

power to make sure that everyone who wants to go to college can 

do so. But only 28 percent of the wealthy are in favor. 

Fortunately, there are solutions to political inequality. Reforms 

like the public financing system and the Fair Elections Now Act 

would allow more officials more time with their constituents and 

less time on call time with wealthy donors. And the good news is 

that money and politics reforms are extremely popular with the 

American public across the ideological spectrum. In fact, support 

for solutions from public financing to a constitutional amendment 

do not fall below 7 out of 10 from libertarians to progressives. 

Demos, when analyzing this bipartisan opinion data, actually 

ended up calling the report ‘‘Citizens Actually United.’’

Finally, I just will want to conclude with this: We cannot 

strengthen our democracy and, therefore, our economy without remembering the urgency of addressing the root word of the word 

‘‘democracy,’’ which is the ‘‘demos,’’ the people of a Nation. Ours is 

the world’s great experiment in democracy. The ancestral strangers 

who have come here with ties from every community on the globe 

have been met here with the promise that out of many, we could 

become one. 

But forging a sense of common purpose amidst that great diversity is not easy, and it takes leadership. No other Nation has done 

it on the scale that we are currently endeavoring to do it, and certainly no Nation for whom racial hierarchy was the economic policy 

for most of our history. 

I offer that it is no coincidence that the rules have changed to 

make it harder for the average American to get by over the same 

decades when the face of the average American has changed and 

when social distance has increased between regular citizens and 

the nearly all-white wealthy donor class which has such outsized 

influence on our policymaking. 

At Demos we believe that if there is such a thing as American 

exceptionalism, our great diversity is its source. In the 20th century, America placed a bet on the children of immigrants and the 

descendants of slaves, and those public investments spurred on an 

economic force that changed the world. 

Today the most diverse generation in American history is ready 

for that same commitment, for that commitment to the human capacity that lies within all of us, and to that very American idea 

that we all deserve an equal say and an equal chance. 

Thank you. 

Senator MERKLEY. Thank you very much, Ms. McGhee. 

Dr. Sufi. 

STATEMENT OF AMIR SUFI, PH.D., CHICAGO BOARD OF TRADE 

PROFESSOR OF FINANCE, UNIVERSITY OF CHICAGO BOOTH 

SCHOOL OF BUSINESS 

Mr. SUFI. Chairman Merkley, Senator Warren, Members of the 

Subcommittee, thank you very much for the opportunity to testify. 

My name is Amir Sufi. I am the Chicago Board of Trade Professor 

of Finance at the University of Chicago Booth School of Business. 


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6

My research area is macroeconomics and finance, and I would like 

to give you some thoughts on the current U.S. economic situation. 

As Senator Merkley noted, it is not good. There is something 

very wrong with the U.S. economy. We all know that the Great Recession was the most severe economic downturn since the Great 

Depression. What is perhaps less well understood is that the recovery since 2009 has been dismal. From the end of recession through 

2014, real economic growth has averaged 2.1 percent per year, far 

lower than the 3.5 percent average annual growth that the U.S. 

economy generated from 1947 to 2007. The decline in the unemployment rate over the past 2 years should not be a cause for celebration. It is driven primarily by households leaving the labor 

force. There are currently 4 million fewer Americans aged 25 to 54 

working today compared to 2006. 

How did we get into this mess? And why is it taking so long to 

recover? 

My research with Atif Mian at Princeton University suggests 

that the culprit is the devastation of wealth suffered by middleand lower-income American households during the Great Recession. The weak recovery is due to the lack of any rebound in wealth 

among these households since the end of the recession. 

The numbers are simply startling. Americans below the top 25th 

percentile of the wealth distribution have lower net worth in real 

terms today than they did 15 years ago. For Americans below the 

median of the wealth distribution, it is even worse. For example, 

those in the lower-middle quartile of the wealth distribution have 

seen their net worth plummet from $65,000 in 2007 to $40,000 in 

2010, with a further decline to $38,000 in 2013. That puts their 

wealth in 2013 below their 1989 level. The Great Recession has 

wiped out 25 years of wealth accumulation. 

The disproportionate negative impact of the Great Recession on 

the net worth of lower-wealth Americans may at first seem surprising, but it makes perfect sense with an understanding of how 

the financial system operates. Richer Americans save a much higher fraction of their income, ultimately holding most of the financial 

assets in the economy: stocks, bonds, money market funds, and deposits. These savings are lent ultimately by banks to middle- and 

lower-income Americans, primarily through mortgages. 

There is nothing sinister about the rich financing the home purchases of the poor. But it is crucial to note that the borrowing 

takes the form of debt contracts which leave the borrower with the 

first losses in case house prices fall. The use of mortgage debt within the financial system gives the holders of financial assets protection against a fall in house prices. But it provides this insurance 

by concentrating the brunt of the economic downturns on borrowers. The standard mortgage contract is inflexible. The same 

amount is owed even if house prices and the economy collapse. 

Given that 85 percent of the financial assets in the U.S. economy 

are held by the top 20 percent of the wealth distribution, the financial system’s reliance on inflexible debt contracts means it insures 

the rich while placing an inordinate amount of risk on middle- and 

lower-net-worth households. 

As we illustrate in our research, it was the massive pullback in 

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sion. The financial system concentrated the collapse in home values 

on exactly the households that were prone to cutting spending most 

dramatically in response. Further, the lack of any increase in the 

net worth of lower- and middle-income Americans helps explain 

why the recovery in household spending has been so weak. 

Going forward, there are two important lessons from the framework we outline in our research. 

First, encouraging borrowing by lower- and middle-income Americans may temporarily boost spending, but it is not a path to sustainable economic growth. We witnessed this in the subprime mortgage market during the housing boom, and we are seeing an aggressive expansion of auto loans currently to lower credit score individuals. Credit card originations are following a similar pattern, 

albeit to a lesser degree. The problem is that these lower credit 

score borrowers are not seeing any improvement in real income 

growth. Credit growth without income growth is a recipe for disaster. We desperately need higher income growth for low- and middle-income Americans, and policymakers should tackle this problem directly rather than encouraging the extension of credit. Two 

suggestions I would make for product would be the expansion of 

the earned income tax credit and public infrastructure projects that 

can boost productivity while putting Americans to work. 

Second, the financial system in its present form concentrates risk 

on lower-wealth households who are least able to bear it. The current policy and regulatory framework encourages such a system, 

even though it has disastrous effects for the economy. We must encourage the financial system to share risk with lower- and middleincome Americans instead of making them bear all the risk themselves. 

I am happy to talk more about student debt, which is another 

market where I see this lesson having a lot of power. 

I am happy to expand on these proposals in my remaining time, 

and thank you for the time. 

Senator MERKLEY. Thank you very much. 

Ms. Viek. 

STATEMENT OF CLAUDIA VIEK, CEO, CAMEO—CALIFORNIA 

ASSOCIATION FOR MICRO ENTERPRISE OPPORTUNITY 

Ms. VIEK. Thank you, Chairman Merkley, and thank you also, 

Senator Warren, for attending today, and for this opportunity to 

submit testimony, and I am really going to be talking about the impact on small business and also the opportunities offered. 

So let me start out first, though, with a brief story. Johneric 

Concordia is a young man who was laid off as a baggage handler 

at United Airlines about 3 years ago. He loved to barbecue in his 

neighborhood in Filipinotown in Los Angeles. He and his uncles 

would compete to see who made the best sauce. So when he lost 

his job, he sought business counseling to realize his dream to start 

his own barbecue catering business. He raised $8,000 off of his 

Facebook wall friends and family, and then he bought a truckmounted barbecue rig. Just about a year later, he opened his first 

restaurant called Parks Finest in Echo Park neighborhood. He has 

now hired nine of his homies, his friends, to work for him, and he 

is ready for a larger loan from a local nonprofit lender. 


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Now, Parks Finest is not a one-off. I have many, many similar 

stories from my members like the American Sustainability Business Council, the National Asian American Coalition, and from the 

85 CAMEO members who serve entrepreneurs with small-dollar 

loans and coaching. Johneric and many other people share the desire and ability to contribute to our economy by being their own 

boss, and then they can go on to employ others. They are exactly 

the kind of people we should be investing in. 

If we are serious about addressing income inequality, then we 

need to support entrepreneurship across a spectrum, that this is a 

real pathway to closing the wealth gap and generating new jobs. 

There are 26 million small businesses in the United States, and 

most of them are self-employed people. Just imagine, if one in 

three created one job, we could have full employment. 

I want to point out that a minimum of a million new jobs a year 

could be created through bank investment in lending and technical 

assistance programs to startup business. And my friend the Reverend Mark Whitlock, who is chair of corporate relations for the 

5,000-member National AME Church, told me recently that these 

new jobs would address the 50 percent unemployment rate among 

black and Latino youth. 

The Congressional Budget Office found that the richest among us 

own businesses. So to solve inequality, instead of handouts and 

promises of trickle-down job creation, let us help people create their 

own businesses and have them close the income inequality gap 

themselves. 

I am going to refer to something Dr. Sufi is aware of: 88 percent 

of minority business owners finance their small businesses from 

home equity compared to about 25 percent overall. So the loss of 

home equity disproportionately affects minority-owned businesses. 

In California, almost 2 million homeowners are still underwater—also true of Nevada, even though Senator Heller is not 

here. I wanted to say that, too. And from this fact we can assume 

that minority-owned businesses have not been able to fully recover 

from the downturn. 

Business ownership is an effective strategy to reduce income inequality. The median net worth of business owners overall is 2.5 

times that of nonbusiness owners, and the median net work for African American business owners is 8 times higher than nonbusiness owners. 

The Association for Enterprise Opportunities’ recent report 

showed that households headed by women who own a micro business generate up to $13,000 more in annual household income than 

similar households without a micro business owner. Now, this may 

not sound like a lot of money, but it can be the difference between 

sending one’s child to college or buying a home. And the same report showed that the children in families with a micro business 

owner do better in terms of education and social mobility. So selfemployment, business ownership, and entrepreneur, again, across 

the spectrum are key ways for lower-income people to become middle-income. 

We know from the Aspen Institute studies and I know from my 

personal experience of 25 years in this field that when businesses 

get training and coaching help, 90 percent are still in business 


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after 5 years as compared to 50 percent of those that did not get 

such help. Also, businesses that received capital and services from 

a nonprofit organization have a median annual revenue growth 30 

percent higher than those that do not get help. And when micro 

businesses succeed, they create on average another two jobs. 

Currently, our bank regulators are proposing giving extra Community Reinvestment Act credit to banks that provide small dollar 

micro loans in low- and moderate-income communities. This policy 

could have a major impact on new self-employment and job growth 

in communities that have not recovered from the recession. 

So if there is one thing that you remember from my testimony 

today, let it be how small business creation and entrepreneurship 

can reduce income inequality, and they can bring hope to our communities that have so much untapped entrepreneurial potential. 

Thank you. 

Senator MERKLEY. Thank you very much for your testimony. 

Dr. Hersh. 

STATEMENT OF ADAM S. HERSH, PH.D., SENIOR ECONOMIST, 

CENTER FOR AMERICAN PROGRESS 

Mr. HERSH. Chairman Merkley, Senator Warren, thank you so 

much for inviting me to testify today. My name is Adam Hersh. I 

am a Senior Economist at the Center for American Progress. I was 

asked to focus more narrowly on the role of trade in this story of 

U.S. inequality and economic growth. 

International trade and investment are critical parts of the U.S. 

economy. They always have been, and they always will be. But 

trade raises complicated policy issues because it is simultaneously 

a cause of inequality and of the innovation and investment that 

leads to our growth. 

Trade globalization is one factor among several responsible for 

the staggering rise of U.S. income and wealth inequality since the 

late 1970s. Declining unionization and the real value of the minimum wage, decreasing tax progressivity, increased business shorttermism, and focus on financial profits, and shifting technologies 

all have played roles. But economists do not really debate whether 

trade has distributional impacts; we debate how big those impacts 

are. And estimates that range from about 10 percent to 52 percent 

of the overall increase in U.S. wage inequality is attributable to increased trade. 

Trade’s impact on inequality happens both directly through job 

and income losses when businesses shrink, close, or move overseas, 

and they happen indirectly through the spillover effects that can 

saddle entire regional economies in localized states of depression. 

The combined effects weigh not just on those families and businesses impacted by trade, but they also pass through to our public 

budgets with lower tax revenues collected and increased expenditures on social insurance. 

To be clear, there are many positive economic benefits from trading. Opportunities for bigger markets and specialization create incentives for innovation that propel overall growth. Access to a 

broader variety of stuff at lower prices raises our living standards. 

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ready takes into account this effect of lower consumer prices when 

we measure incomes, wages, and wealth adjusted for inflation. 

More trade does not automatically equal more people getting 

ahead. Two new realities face lawmakers in approaching these 

issues of trade and inequality. First, the gravitational center of the 

world economy is shifting to the east and to the south, that is, to 

developing countries, where wages, regulatory standards, and 

norms of rule of law and transparent commercial exchanges are far 

from the level that they are in the United States, Europe, or other 

advanced economies. Already half of world growth is coming from 

the developing world, and that share is set to rise going forward 

in the future. 

The second new reality is the transnationalization of businesses 

through offshoring. Trade used to be mainly an arm’s-length affair, 

trading between countries. But today fully half of U.S. imports are 

transactions between related corporate entities. A substantial additional share of imports are also offshore trade through unrelated 

business parties. 

Transnationalization makes it easier for companies to take advantage of opportunities for labor and regulatory and tax arbitrage. 

That creates a race to the bottom for economic development and 

undermines the social contracts underlying our economy and those 

of our trading partners. 

This brave new world requires us to rethink the means by which 

the United States encourages economic growth beyond just trade 

policy, as well as rethinking what success means, not being measured just in increases in trade and GDP. 

The questions before lawmakers are: How should the United 

States engage trading partners in an increasingly open and competitive world in order to grow our economy? And what should the 

United States do to make sure that workers and businesses in the 

United States can thrive in this environment? 

First, in order to have a strong trading economy, we need a 

strong overall economy, and there is increasingly broad consensus 

among professional economists that high inequality is extremely 

detrimental not only to current economic growth but to future 

growth as well. This is the case because when we talk about the 

economy, we are talking about what is happening to people and 

how people are faring in their lives. An economy delivering equitable growth creates the financially secure families who can invest 

in human capital, the health and education that creates a productive, innovative, workforce. Families can provide a stable, strong 

consumer demand that entices business investment. And strong 

families can provide would-be entrepreneurs with the financial security to take the risk on starting a new business. 

Economies with lower inequality and stronger middle classes also 

have more stable financial systems, better investment in public 

goods, better quality of governance in public and private institutions, lower crime, and less political polarization. Taken as a whole, 

lower inequality is the central thread that runs through essentially 

all the factors economists identify as being important for growth. 

In other words, a vibrant U.S. economy does not trickle down from 

the super rich but, rather, it springs forth from the well of a thrivVerDate 0ct 09 2002 13:24 Jan 21, 2016 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 S:\DOCS\92718.TXT SHERYL

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ing middle class. And over the past generation, America’s middleclass well seems to be running dry. 

Congress should commit to investments that build the foundations for strong growth with a broad middle class in order to have 

a strong overall economy and a strong trading economy. This 

means more investments in making broadly available quality education, modernizing our infrastructure, investing in scientific research and development, replacing outdated trade adjustment assistance programs with a more universal dislocated worker program, and upholding standards for workplace rights and protections, including by extending paid sick/family leave and pay equity. 

Second, Congress should focus on trade policy as well to grow the 

economy from the middle out. To do so, Congress should press U.S. 

trade negotiators to establish strong, enforceable standards for 

open and fair competition in the global economy. This would include going beyond the May 10th agreement on labor and environmental rights to include things like currency manipulation, ensuring public policy space for nondiscriminatory regulation, enforcing 

competitive neutrality with State-invested commercial enterprises, 

and more. 

These rules alone mean little if we do not have the ability and 

resources to enforce the rules to ensure that we are receiving these 

gains from trade. Therefore, Congress should also increase the resources available for U.S. trade enforcers, doubling the funding to 

ITEC, the Interagency Trade Enforcement Center, and creating incentives for trade enforcement authorities to take more at-bats, 

bringing more trade cases to prosecution. 

Thank you, and I look forward to your questions. 

Senator MERKLEY. Thank you all very much for your testimony, 

and I believe for three of our witnesses, this is your first testimony 

in Congress, House or Senate, the first three, and for you, Dr. 

Hersh, you have testified on the House side but not on the Senate 

side before. So for all of you, welcome to the Senate, and thank you 

for bringing your expertise and your insights. 

We will take 5 minutes apiece and go back and forth. 

Senator WARREN. Thank you very much, Mr. Chairman. I appreciate it, and I appreciate your letting me go first. I am going to 

apologize in advance. I have got another commitment, and so I can 

only stay for one round here. 

This is a terrific panel, and you all—just great topics that you 

have hit on and brought some new parts to the conversation. But 

since I am only going to get to do this once around this discussion, 

I wanted to raise another issue that layers into this and ask for 

your thoughts on it. 

There is a new report out. I hope you have seen it. It is from 

Harvard Business School professor Michael Porter and Jan Rivkin, 

and the report is called ‘‘An Economy Doing Half Its Job.’’

Now, here is what the researchers find, and I just want to quote 

it to make sure we get this exactly right. They find that ‘‘corporate 

profits in America are at an all-time, and the Dow Jones Industrial 

Average continues to hit new records.’’ But living standards for the 

average American have fallen over the last 15 years. 

Porter and Rivkin from the Harvard Business School note that 

this ‘‘recent divergence of outcomes, with firms, (especially larger 


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firms) thriving and workers struggling, is unusual in the United 

States’’ because ‘‘American companies and citizens have tended either to thrive together . . . or to suffer together . . . ’’ But no 

more. 

Now, there is a pretty simple explanation for this recent divergence. Corporations no longer share their prosperity with their 

workers. They share their prosperity only with their shareholders. 

According to research by Professor William Lazonick of the University of Massachusetts at Lowell, back in the early 1980s, large corporations dedicated less than half their earnings to their shareholders. The rest went to investment in their equipment and in 

their employees. But from 2003 to 2012, those big companies dedicated 91 percent of their earnings to their shareholders, either in 

the form of stock buybacks or dividend payments. 

Now, why have companies shifted their priorities so dramatically 

in such a short period of time? Well, because CEOs are now compensated almost entirely based on the company’s share price. As a 

result, CEOs love buybacks and dividend payments because they 

boost share prices, even if they come at the expense of long-term 

investments in the company and in its workers. 

So here is my question: If we cannot count on CEOs and senior 

management to reinvest at least some of the corporate profits in 

their workers like they used to, what steps should the Government 

take to fill that void? And I would like to hear from all of you. Ms. 

McGhee, would you like to start? 

Ms. MCGHEE. Thank you, Senator Warren. That is an excellent 

question, and it really goes to the heart of what our economy is for. 

Demos has been doing some investigation into these issues of how 

much increasingly large, low-wage employers that are extremely 

profitable are financializing, essentially, and concentrating the effort, the result of the production of their workers. My colleague 

Katherine Roishlin actually wrote a report on our country’s largest 

private employer, Walmart, who spent $6.6 billion just last year 

buying back its own stock in the market. And she calculated that 

if that money were instead invested in the human capital of the 

workers who make that wealth, it could give the lowest paid workers, those who make under $12.25 an hour, which is almost a million Walmart workers, a raise of over $5 an hour just from what 

they spend buying back their own shares. So this has a very, very 

real effect on the working lives of workers and families. 

So some of the things that Government can do——

Senator WARREN. I am sorry. I have to say, and to think about 

what it would mean if that million workers made $5 more an hour 

in terms of what they could buy elsewhere in the economy. 

Ms. MCGHEE. Exactly. 

Senator WARREN. And the overall growth in the economy and 

growth in jobs. Growth in demand, growth in jobs. 

Ms. MCGHEE. Exactly. 

Senator WARREN. Sorry, Ms. McGhee. I did not mean——

Ms. MCGHEE. No, no. Absolutely, because low-paid workers are 

the job creators who are waiting to have more money in their pockets to spend in our economy. 

I will just say a few things that could be done. One, Congress 

could stop giving preferential treatment to this kind of income, to 


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wealth income—stocks and dividends—over work. It is important to 

remember that less than half of Americans own any stock at all, 

so when we give this preferential treatment, we have to remember 

to whom it is going. 

The part of the picture of that declining ability for the people 

who are actually doing the work to get a bigger slice of the pie that 

they spend all day baking is the decline in unionization, which has 

also been as a result of policy choices. So Congress could pass, for 

example, the Employee Free Choice Act and make sure that there 

is more collective bargaining power in our economy and in our enterprises. 

Thinking about all of that money that unfortunately is not going 

to the public good in many, many cases, you have to look at the 

effective corporate tax rate. The Institute for Policy Studies shows 

that 26 of our biggest corporations spent more—paid their CEOs 

more than they paid to the Government in taxes. So we should be 

closing tax loopholes and havens and ensuring that corporations, 

which are at an all-time high in profitability, are sharing some of 

that revenue and we can make a new commitment to the quality 

of life of all Americans. 

Senator WARREN. Thank you very much. You may have covered 

a lot here. 

Dr. Sufi, we are over, but would you like to add something to 

that. 

Mr. SUFI. Yes, that is a great question. I think another way of 

saying the same facts that Professor Porter and his co-author are 

saying is that the capital share of income, the amount of income 

that is going to the owners of capital, has gone up dramatically 

over the last 15 years. And in just thinking about the reasons for 

that, one reason I think is that capital markets have become quite 

ruthless in the sense that they want profits and they want them 

in the short term. And I think, Senator Warren, you are exactly 

right that we may worry—and I think there is research to back 

this up—that it excessively leads managers to focus on short-term 

gains rather than more longer-term investments such as job training, such as trying to boost the productivity of their workers, which 

I think is the best way ultimately to try to get wages and income 

up. 

So I think going forward, as I mentioned before, I think expansion of the earned income tax credit, I think public infrastructure 

projects—it is amazing to me the consensus among people, economists, even economists at the University of Chicago who I sit down 

at lunch with, who we would all consider quite right-leaning, say, 

look, interest rates are zero, basically, and there may be very good 

infrastructure projects to do, it may help with this labor share 

problem. And it seems like that consensus is not here on Capitol 

Hill, but you definitely see it among economists. I think those are 

the solutions I would point to. 

Senator WARREN. Thank you. 

Ms. Viek, would you like to add to it? 

Ms. VIEK. I am not the economist in the room, but I would like 

to just repeat or sort of say certainly closing the tax loopholes and 

reinvesting in human capital, small business entrepreneurs, it is 

human capital, and that is what communities need today. 


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I think also looking at perhaps—and this does not quite address 

what you are saying, but there are funds that could be used to help 

deal with this home equity issue, which has a huge impact, and 

then also reducing student debt. 

Again, if you close tax loopholes and you have more income, let 

us invest in young people so that they do not have to increase their 

debt to go to a university. 

Senator WARREN. Thank you, Ms. Viek. 

Dr. Hersh? 

Mr. HERSH. I would reiterate and agree with most of what has 

been said here on the panel so far, and I think that there is a very 

simple answer to your question of if the private sector is not willing 

to invest, even though the corporate sector is holding more than $2 

trillion in cash reserves, even though they can borrow billions at 

essentially zero interest rates right now and are sitting on this 

cash rather than doing something productive with it, if they are 

not willing to invest, then the public sector has a role to step up 

and invest. There is no shortage of public goods and public services 

investments that will increase the productive capacity of the U.S. 

economy and create jobs that will lead to rising incomes and aggregate demand that will then crowd in investment from businesses. 

When they see a growing market, the investment will come to 

serve that market. 

And while we are in this time of high unemployment, high excess 

capacity in the productive economy, this is really the way that we 

are going to get out of this spot. 

Senator WARREN. Well, thank you very much. Those are very, 

very thoughtful answers, and I very much appreciate it. 

You know, my Republican colleagues like to say a rising tide lifts 

all boats, and what they are saying is if we create the environment 

where corporations and investors thrive, then working families will 

thrive, too. We now have two decades of hard evidence disproving 

that theory. Corporations may be turning their backs on their 

workers, but that does not mean that the American Government 

should do the same. We can do better than this, and you have 

given us some great ideas to work with. Thank you. 

Thank you, Mr. Chairman. 

Senator MERKLEY. Thank you very much, Senator Warren, and 

I am sorry you cannot be here for a little while longer to participate in this, but I know this is the conversation that you are engaged in every day, and we appreciate that you are. 

Senator WARREN. Yes, you are. Thank you. 

Senator MERKLEY. I wanted to just reflect for a moment on the 

kind of different visions of how you build a successful economy for 

working America. 

On the one hand, we have the post-World War II model in which 

workers earned more. They bought more products. The products 

were made in the United States so U.S. employers hired more people to make more things to sell to those folks. And you had kind 

of an upward cycle that was very powerful over a couple decades. 

And then we have the current situation where we have essentially less and less equality, more concentration of wealth, and, 

therefore, diminishment of purchasing power by the middle class. 

And in this situation, if they can buy less, employers are going to 


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make less. And between automation and decreased demand, that 

hurts. 

But you have the argument—and Senator Warren was making 

reference to this. You have this argument among a great number 

of folks, but wait, the best-off are the job creators, so if we concentrate wealth with the job creators, we will have more jobs. Is 

there any validity at all left in this theory after the results of the 

last decade? 

Mr. SUFI. So I can take a shot at trying to answer that. One of 

the things I think the economics profession understands quite well 

now is that one of the main macroeconomic problems with the U.S. 

economy is evident in very low real interest rates. So we have seen 

real interest rates pinned at basically 0 percent on the short end. 

People say it is all the Fed, but it is not. It shows you that there 

is in some sense an excessive demand for savings, especially in 

risk-free assets. And where does that come from? That comes from 

in large part inequality, because obviously the people at the very 

top end of the income distribution, the more and more of aggregate 

wealth they get, the more they are going to put it into savings and 

not into buying goods. 

So I think we have come to a consensus in large part in the last 

6 years—maybe not a consensus but at least a large swath of the 

economics profession does believe that excessive savings, which I 

think is a product of inequality, is becoming an issue, that we need 

people to actually go out and spend more. And that is something 

that I think, you know, inequality actually inhibits and that we do 

need more income growth, wage growth among the middle class to 

help try to spur demand. And I think that is something that we 

all kind of agree with in terms of one of the main frictions facing 

the economy over the last 6 or 7 years. 

Senator MERKLEY. Any other quick comments before I move on? 

Yes, Dr. Hersh. 

Mr. HERSH. I would say that no, there is really no evidence that 

the trickle-down theory of economics has worked. In fact, we have 

now more than three decades of evidence that it has not worked. 

The trickle-down theory said that if we made capital readily available to people who are going to invest it at a low cost, they would 

make those investments, grow the economy, and create the jobs, 

and the benefits would trickle down. 

Well, we have made the capital available, we have moved the 

capital into their hands through tax policies, through policies within companies about how income will be distributed between the 

owners and the workers. We have made those changes, and what 

we have seen actually is slowing economic growth and more people 

struggling to maintain their financial security in the American 

economy. 

Senator MERKLEY. So if we are caught in a set of policies right 

now that are accentuating inequality, we must still recognize that 

we are here in a democracy where people can vote for changes, and 

there are a lot more folks outside the top 20 percent than inside 

the top 20 percent. So why is it that those dynamics are not resulting in election-driven policy changes that revert to strategies that 

more successfully produce growth in income for middle-class families? Ms. McGhee. 


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Ms. MCGHEE. That is an excellent question. I think there are a 

lot of different aspects to it, and I tend to want to go to the structural. I think it is important that we recognize that there are two 

big pieces of our democracy that are not functioning well right now. 

One is actually our voting system. One in four eligible citizens is 

not even registered to vote. That means they are invisible citizens 

to the political process. They do not get the door knocks. They do 

not get the campaign materials. Some of us would like not to get 

that, but at least we are then engaged in the political process. 

There are a lot of reforms that we can do to cut the red tape that 

needlessly catches one in four, 51 million Americans, who should 

be able to vote and register and are not currently. And that red 

tape actually traps people in a differential way based on age, race, 

and income. There is a gap, almost 30 percentage points, in voting 

between higher- and low-income households. So it is important to 

note that the electorate is skewed older, less diverse, and more 

wealthy. 

And then, of course, my comments before about the makeup of 

the donor class. Some of the amazing political scientists who have 

been doing this work—Martin Gilens, Larry Bartels, Benjamin 

Page—have recently calculated that the affluent, the donor class 

has 15 times more policy influence than the average American. 

Senator MERKLEY. Yes, Ms. Viek? 

Ms. VIEK. I would like to jump in here. I think there is actually 

a little ray of hope, and it was in the New York Times yesterday, 

the front page where, in Kansas, there is now kind of a pushback 

against Mr. Brownback for all these years of disinvestment in the 

State. And I think that it does end up trickling down eventually 

where people say, ‘‘My God, I cannot send my kid to college. My 

God, I cannot even buy a car.’’ I mean, just sort of basic stuff: ‘‘I 

cannot pay my electrical bill.’’ And things that we used to take for 

granted in our culture are not there. 

So I think that this—I mentioned investment in human capital. 

Investment in small business is the same as investment in human 

capital. I think that we are starting to see some recognition of that, 

and I always like to take hope wherever I can. So, anyway, that 

is my 2 cents. 

Senator MERKLEY. Well, so what you are describing in Kansas—

and I gather it is a close race there, so the outcome is not clear. 

But you might think of it a microcosm of the Great Depression in 

which coming out of the failure of that economy, there were many 

strategies that people collectively supported to strengthen the economy working for families. But in the absence of such a horrendous 

debacle, how does this turn around? 

Let me ask just one example of this. In my community, my bluecollar community, many parents are starting to ask the question 

about whether or not it is smart for their kids to go to college, and 

the reason they are asking this question is because they see students coming out of college with debts the size of a home loan and 

not having jobs that can make the monthly payments, or at least 

not enough to create some separation so that you have some money 

left over after the monthly payment. And they feel like, well, do we 

want our children to have this millstone around their neck for 

years or decades to come? 


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And when I hear this conversation, I realize this is not some 

myth or some unjustifiable fear, because the statistics show that 

tons of our students are coming out of college and having trouble 

paying their loans or having the money to live after paying their 

loans. 

And so we see kind of a collapse of the aspirational vision that 

was so important when I was young. My father, a mechanic, was 

able to say to me, ‘‘Son, if you go through the doors of that schoolhouse and you work hard, you can do just about anything here in 

America.’’ And he said, ‘‘Mom and I are saving a little bit of money 

so that you will have a chance to go to college, and we hope you 

go.’’

And I think about how the cost of college has risen compared to 

a working wage. That then has not been compensated for by Pell 

grants. That drives more debt and more debt, and that debt is creating a sense that there is not a pathway for every child to thrive. 

So why isn’t it in a democracy and with so much of the workers 

across this country realizing that the path of opportunity is being 

choked off by the high cost of college, how come there has not been 

a political pushback to vastly increase Pell grants, control the galloping inflation in tuition, and make student loans a lot less expensive? 

Mr. SUFI. Well, let me completely agree with you, Senator. I 

think one of the issues that we talk a lot about in our research and 

in thinking about the way debt works, student debt is an exact example of how awful the financial system works for lower- and middle-income Americans. As you mentioned, when someone entered 

college in 2005, they took on some debt thinking, like you were saying, they were going to get a good job and going to get high wages. 

Of course, they, like no one else, foresaw the worst economic downturn in U.S. history since the Great Depression. And what happened to those debt contracts when, through no fault of their own—

I like to say that in some sense the only fault it was for the class 

of 2009 was being born in 1987, 22 years before this horrible recession. And yet we impose that risk because the debt does not 

change. The principal balance is the same. The interest payments 

are the same. That makes no economic sense. There is nobody that 

would design a financial system that would place such a huge 

amount of risk on students, and they are responding, just as you 

said. They now understand the risk that is being imposed upon 

them, and a lot of them are saying, look, college might not be worth 

it—which, of course, in the long run is the worst possible outcome. 

So one of the policy ideas we have advocated, in addition to expanding Pell grants and trying to lower the cost of education, is 

just even in retrospect looking back and forgiving student debt for 

people who graduated in 2008 or 2009 or 2010. I saw some young 

faces in the crowd. There may be members of that class right here 

today. Through no fault of their own, this group of individuals was 

hit so hard by this recession, and in some sense given that the Government is the main lender, it is a policy that could be implemented potentially quite easily. 

In the long run, I completely agree. Expanding Pell grants, expanding access to higher education is a huge part of reducing inequality because ultimately we need to boost productivity of workVerDate 0ct 09 2002 13:24 Jan 21, 2016 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\DOCS\92718.TXT SHERYL

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ers in order for them to get higher wages that are sustainable. And 

I think we really need to rethink the way the financial system 

works to try to accomplish that. 

Ms. MCGHEE. I would just like to add that I do think that this 

issue of the lack of affordability of higher education should be a signature one for all leaders, because it really goes to the heart of the 

American dream, the idea that you can succeed in a way that your 

parents did not. And we are seeing a generation over generation 

economic decline in this country, and a very big part of that is the 

fact that we traded away the blue-collar working-class jobs that did 

not require a college degree, and at the same time started to close 

the doors to the college degree that then became the most important thing you could do to secure a middle-class life, although not 

guaranteed. 

So Demos has been working on this issue for a long time. We 

wanted to actually model out. People say, yes, it is true, student 

debt, it is getting to be $25,000 from public schools, but it is good 

debt. We wanted to actually test that question, because, in fact, 

what we found is that $25,000 in student loan debt would actually 

end up costing the average borrower over the course of their lifetime 4 times that amount in lost wealth, mostly home equity and 

retirement savings. And so you are saying to two similarly situated 

students, one who could afford to go to college without having to 

take on debt and one who could not, that afterwards, 35 years out, 

the one that started out needing to borrow money should have a 

lower wealth net worth just because of that fact. 

We know that this country can afford to do for this generation 

and subsequent generations what it did to create the greatest middle class the world has ever known: Make college a public good 

again. This cost shift that has happened, 26 cents on the dollar just 

in the past 20 years in terms of States’ cutting back support for 

public higher education, it is no way to run a country in a 

globalized competitive economy. 

Senator MERKLEY. So let me capture your point there. I believe 

you said that the college debt leads to other economic decisions 

that decrease lifetime success, and that one of those is home ownership or equity from home ownership. And that can occur in a variety of ways: a delay in the time that you purchase your home, 

which has a huge effect due to the compounding of value; certainly 

the size of house you might be and the equity you might acquire 

in it; or lower downpayments that result in more money going out 

on the interest side. 

And so when you think about the fact that home ownership has 

been the major source of savings for middle-class America and that 

students with—well, students 25 through 30 graduating from college with student debt, their home ownership rates have dropped 

dramatically, so they are buying later, and these are the effects you 

looked at to see a lifetime impact on wealth and that it is very significant. 

Ms. MCGHEE. Exactly. That is exactly right. 

Senator MERKLEY. Yes. And I think that is a great point, and I 

think it was the New York Fed that came out with studies recently 

looking at, proportionally, as your college debt goes up, how your 

home ownership goes down. Yes? 


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Mr. SUFI. And could I just interject one other distortion that student debt has on individuals, which is really quite problematic? It 

can reduce the incentive to work because at the end of the day, if 

you think most of your wages are going to go toward interest payments that ultimately you are never going to be able to retire the 

debt, that if you have these crushing debt burdens, many people 

may decide, look, it is not worth it for me to even work. So you may 

actually even have a labor supply effect which would be very detrimental. 

So I agree completely. The evidence coming out of the Federal 

Reserve Bank of New York is quite compelling about student debt 

burdens having reduced car ownership and home ownership, and 

I think there is also this knock-on effect and, in fact, there is research that shows more debt forgiveness actually increases labor 

supply, that people are more willing to work once they have had 

their debt forgiven because now they know they actually get the returns to their work rather than handing it over to a bank. 

Senator MERKLEY. So one idea we have been pursuing—and Senator Warren has been in the forefront of this—is enabling folks to 

refinance their higher-interest loans to a lower interest. They 

would still have the same amount of debt, but their payments 

would be smaller. They would be more able to purchase houses, 

cars, invest in the economy in other ways—in essence, stimulating 

the economy in ways that benefit all of us. 

Yet another idea and one that has been pursued by a group of 

students in Oregon called Pay It Forward is essentially a version 

of a future income-adjusted repayment structure or income-adjusted loan payments. And there are multiple versions of that, but 

essentially a sense that if your future pay is lower, you pay a maximum proportion of that income so that you will not be trapped between wages that are here and monthly payments on your loan 

that are at or near—so that you have some gap to live on, if you 

will. Any thoughts on those two approaches? 

Mr. SUFI. Well, I am in very strong support of both. Allowing students to refinance into a lower interest rate to me is a no-brainer. 

I mean, I think it is something that we allow people to do with 

mortgages, to prepay and refinance into lower interest rates. I 

think it would provide a huge boost to the economy overall, not 

only because it would probably boost spending by these former students who are carrying the debt, but also I do think it might actually affect labor supply decisions and get people to more actively 

look for jobs if they know they are going to actually get the returns 

to those jobs. 

Our proposal is very similar to the income adjustment, and that 

is to make student debt contingent on what the unemployment rate 

is for recent college graduates. If it goes up above 10 percent, you 

would get automatic debt forgiveness, automatic low interest payments. So very similar to the idea that you were speaking about 

from Oregon. 

Overall, we want to make debt more flexible. We want students 

to have lower interest payments if the economy collapses, and 

given that interest rates typically fall during recessions, allowing 

students to refinance into lower rates would be one way of doing 

it. 


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Senator MERKLEY. Anyone else on this? 

Mr. HERSH. I have to agree with Dr. Sufi that refinancing student debt should be a no-brainer. This is the only segment of our 

credit market that really has not been able to benefit from the 

lower interest rates we have seen coming out of the Great Recession. But just lowering the interest payments on really exorbitant 

principals of debt that students are paying with the escalating 

costs of higher education is really not going to be enough to solve 

the problem of high debt and low prospects for incomes for these 

recent college graduates. So unless we can go further toward the 

kind of proposals that Dr. Sufi is discussing to remediate the principals on these debts when unemployment is so high, when the income prospects of newly employed college graduates is not as 

strong as it needs to be, this is really what is going to impact these 

people’s lives and their ability to contribute to the economy. 

Ms. VIEK. I would just like to jump in. You know I am a big proponent for entrepreneurship, but an unintended consequence of the 

student debt is that, as you were mentioning earlier, people do not 

fully participate in the economy. And so what we see is more and 

more people in the informal economy, so they are not even contributing to a tax base that would then help offset some of these other 

issues. And so I think we need to think about that fact, too, that 

people are sheltering—I definitely know people are sheltering their 

income, and that has consequences for our States. 

Senator MERKLEY. So I want to go back to this issue of the 

daunting prospect of the pathway through higher education, because Ms. McGhee noted the impact on home ownership and how 

that decreased as well. But has anyone got a handle on how the 

message to our working-class high school students that there may 

not be a pathway for you to thrive might affect, if you will, the way 

they pursue their high school studies? In other words, why work 

hard in high school if there is not a pathway in which those grades 

matter to be able to go to college? Are we seeing kind of reverberations back into high school in terms of the motivation of our students? And this, of course, would be very—may be a much harder 

issue to quantify, but it is kind of a huge impact on the future success of the next generation. 

Ms. MCGHEE. There is good news there and there is bad news. 

First, the good news is that young people today are more determined to go to college than ever. They know how important it is 

to a middle-class life, and the vast majority of young people who 

graduate from high school do go on to some sort of college. 

The bad news is that there are at least 100,000 young people 

who graduate from college who are well qualified—I am sorry, 

graduate from high school who are well qualified to go to college 

who do not go, who do not apply to school because simply of the 

cost. 

More often what happens, though, is that young people do go on 

to college. They work 20 hours a week while they are in school. 

There is a lot of unmet costs for transportation and housing and 

in many cases child care. They end up having to take classes at 

community colleges where, because community college spending 

has actually been declining because of those State college investment cuts, they are actually trying to work very hard to get enough 


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credits to finish, and they drop out of college. And the number one 

reason cited for dropping out of college is financial pressures. And 

we know that, according to a recent Economic Policy Institute 

study, nearly half of low-wage workers have some college. 

So it is not that people are being dispirited. They are going to 

college in record numbers. It is that we as the American people 

have given up the sense that this is a public good and that it 

should be a shared contract. I think it is important, very important, to deal with the existing over $1 trillion in student loan debt, 

refinance it, open back up the doors to bankruptcy for a second 

chance for people with private student loans, and I would even say 

Federal loans. But most importantly, I think we should start with 

the assumption that the greatest middle class the world has ever 

known was made with debt-free college, and we should have to justify why this large, diverse generation should have to go into any 

debt at all from working in middle class to be—to get a higher education. 

Senator MERKLEY. So here we are in a world knowledge economy 

where America’s ability to thrive is going to depend on education, 

and we are making it far more expensive to get that education. 

Ms. Viek, I wanted to turn to your thoughts about micro enterprise. One of the tools that some States have used—and there is 

some national policy around it—are individual development accounts. And these essentially are matching grant programs. A lowincome family saves money, and they can earn matching grants to 

either buy a house, go to school, or to start a small business. And 

the reason for those three things is that those three things are the 

biggest levers or pathways for movement from poverty into the 

middle class. And so that third area, to start a business, is a tool 

of micro enterprise, if you will. I am just wondering if that is a tool 

that you have run into and have any particular thoughts about. 

Ms. VIEK. Yes, thanks for asking, because actually at the same 

time that we are meeting is the Corporation for Enterprise Development Asset and Opportunities Conference I just came from, and 

one of the tax policies that is being promoted is that we should 

start savings at birth. And it relates to what you all were saying 

earlier about the lack of wealth and the lack of assets. So it is not 

just labor income; it is actually the lowering of assets. 

So we need to address the issue of inequality when it comes to 

assets, and starting savings accounts for every child at birth is 

working in a pilot in Oklahoma. And as a result of those years of 

showing that it can work, it is now being picked up by Maine and 

other States. 

So I wanted to bring that to your attention, and I think that this 

is something, again, that will contribute to college costs, buying a 

home, or starting a small business. And more and more—it is interesting. The two cohorts that are starting businesses or becoming 

self-employed: one are the over-55’s, which you and I fall into——

Senator MERKLEY. Yes, we do. 

Ms. VIEK. I am assuming. 

Senator MERKLEY. Thank you for reminding me. 

[Laughter.] 

Ms. VIEK. You are on the young side, though. And the other is 

the millennials starting businesses at a faster rate. 


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So, yes, there is an interesting new report out by CFED called 

‘‘From Upside Down to Right Side Up,’’ and it really does deal with 

tax policies as they apply to savings accounts. 

Senator MERKLEY. Thank you. 

Another piece of the small business puzzle is access to traditional 

credit, and we have a story—I have a story that was sent to me 

by Albina Opportunities Corporation. It is a nonprofit small business lender in Portland who lends only to folks who cannot access 

traditional bank loans. And this is from a statement that we have 

now entered into the record, but Albina describes a typical client. 

In 2010, an African American man who owns a trucking company 

for earth-moving purposes approached them to obtain a line of 

credit to expend his 10-person business, but a previous bankruptcy 

prevented a loan from a conventional lender. The Albina Opportunities Corporation underwrote a $100,000 loan, and he used it to 

hire more drivers, obtain larger contracts, and by 2013, the company now employs 26, the revenues have grown sixfold to $4.75 

million, and is now a preferred subcontractor to major general contractors. 

Now, the thing I really want to emphasize is Albina is a nonprofit community development organization that lends only when 

someone else will not. And in 6 years of operation, they have not 

lost a dollar of principal. And the point that they are making is our 

traditional banking does not seem to be reaching out in the same 

way that perhaps community banks might have done in the past, 

and that there is this gap of access to traditional credit that is constraining the entrepreneurial track from poverty into the middle 

class. 

Any thoughts about that piece of the puzzle? 

Mr. SUFI. Well, as you were telling your story, I was recalling 

one time—I teach MBA students, and I was telling them the 

foundational theories of banking involve a bank that goes in and 

carefully screens and monitors and tries to figure out whether this 

business person is credible, whether they have a good business 

plan. And one of them came up to me after class and said, ‘‘Banks 

do not do that.’’ And I said, ‘‘What do you mean banks do not do 

that?’’ He said, ‘‘Maybe banks used to do that 20 years ago, but 

now banks just basically do trading. They try to make some profits, 

and if they run into problems with a borrower, they quickly try to 

get rid of the loan.’’

So there is some way in which banks are no longer doing the 

kind of small business lending that would be profitable for them, 

I think, and that could be because banks have become so big that 

they are just out of this market. It could be for a lot of reasons. 

But I would agree that there probably—it is telling that there are 

nonprofit institutions coming in and able to do such great lending 

in this segment of the market. We have a supposedly thriving private sector of banks that should be doing these loans, but they are 

not. And I think that tells you that there is something wrong with 

the banking system as it is operating today. 

Senator MERKLEY. Anyone else? 

Ms. VIEK. Yes. We have roughly 28 community development financial institutions like Albina Corporation in our membership, 

and while I am heartened by the use of technology and the growth, 


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very fast growth in this segment, because the banks have basically 

ceded the under $200,000 loans to the nonprofit sector. But what 

we are really seeing, though—and it needs to be addressed—is the 

online lenders and some of the cash advance lenders that are not 

regulated. Some of them are transparent. Some of them are 

doing—like Lenders Club, but you have to have perfect credit to 

qualify for that. But it is addressing the market, and now the financial institutions are actually investing in Lending Club. 

So I think that is a whole other hearing that we should have on 

the phenomenon, the emerging phenomenon of online lenders. I 

think it would be appropriate for the Banking Committee to take 

that on. It is something we are watching very carefully in California. We are concerned about it. But we also see some real hope 

for access to capital amongst those folks that have not had access. 

Senator MERKLEY. So were you referring specifically to cash advance, payday loan-style online lending? Or were you speaking 

more broadly? 

Ms. VIEK. The whole spectrum, from the cash advance, some of 

which are predatory, to there are some good cash advance groups. 

I mean, PayPal, Square, they are very transparent, low interest 

rates. But then we have others that end up layering on top. And 

then you have ones that have—are really working with the cream 

of the crop of the top credit scores. 

Senator MERKLEY. When I was Speaker of the House in Oregon, 

we passed a law that limited the payday loan interest rates down 

to about 36 percent, which sounds like a lot, but they were charging well in excess of 500 percent. And I was struck a year later to 

visit a food bank and have the first thing that the director of the 

food bank said was, ‘‘We had a stream of families coming to us who 

had been bankrupted by payday loans,’’ because they started with 

a 2-week plan, and you end up—by the time you have rolled over 

a few times, the equity grew—at 500 percent, the loan multiplies 

fivefold in a year, 25 in 2 years, and pretty soon people are in a 

vortex of debt they cannot escape from. And she was noting how 

dramatically that source of bankruptcy had disappeared and how 

positive that was by passing that law in Oregon. Then she noted 

how the recession of 2008 had unfortunately knocked far more people off their economic foundation, and so that the demand on the 

food bank still had gone up. 

But what we are seeing in Oregon are online payday lenders who 

are violating the State law because State law does not allow them 

to engage in these types of contracts, but they engage in them anyway, but they are operating from overseas or other places that cannot be reached, and they utilize the account number to simply 

reach in and pull money out of people’s accounts. 

So this is a very huge predatory practice that as a society you 

would think that we would be able to get control over, but we do 

not have control over it yet. 

Ms. VIEK. Well, you can see there is this huge market for these 

payday or faster forms of money. I mean, how do people—people 

have used them for generations for that reason. 

I think there are alternatives, and I had mentioned in my testimony the fact that our regulators, the OCC, are looking at a smalldollar loan—promoting small-dollar loans in banks and giving 


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banks extra CRA credit. I do not know how much of an incentive 

that will be, and we need to look at that. So I would just like to 

note that as something you may want to take a look at in a few 

months perhaps as it evolves down the line, because that could be 

another alternative, although I am not quite sure how the banks 

are going to deliver that because it is not exactly cost-effective to 

do it through the branches. It is going to have to be an online product. 

Ms. MCGHEE. There is also something else that the Senate and 

the Banking Committee in particular can do. I commend you and 

the State of Oregon for making that reform to essentially eliminate 

the high-interest payday loan model. But the Senate Banking Committee—actually, I am sorry. It was not the Banking Committee, 

importantly. It was, I believe, the Armed Services Committee did 

pass a similar law for military families. I believe it was called the 

Military Readiness Act, I think, in 2006, if I recall correctly. 

We could do that for the entire country. We could protect every 

single member of the American public from triple-digit interest 

rates on short payday loans whose model is repeating borrowing. 

And I think really the only reason that we do not do that and that 

that kind of reform cannot come through the Senate at this moment is the money in politics problem. I am sure you experience 

this in Oregon, but it happens, I think, every single day there is 

a very well organized payday loan lobby across the country that 

makes a lot of particularly State-level legislative campaign donations, and it becomes very, very difficult to regulate an industry 

that is financing so much of the campaigns at the State level. 

Senator MERKLEY. Your point is absolutely right. This is a very 

good example of that type of economic clout, that influence, if you 

will. 

I was very struck in Oregon how the industry’s core argument 

was that clearly there is a demand for these loans; therefore, we 

should simply leave the system as it is and allow these 500-percent 

loans. 

What we knew from other States, though, and from the military 

communities due to the 2006 law, was that ready equivalence did 

not disappear. The interest rates just came down dramatically. So 

you still had access to short-term lending, but you had it at a far 

lower rate. 

Now, there should be a lot of doctorate theses exploring why it 

is competition did not have the effect of bringing this down. But 

it did not. It did not. 

And so I can tell you there is absolutely no impulse in Oregon 

to restore us to where we were before we capped these loans. And 

we did it across the spectrum of consumer loans because we saw 

the migration in other States from payday loans to title loans to 

general consumer unsecured loans and so forth. And so it is only 

the folks who are online violating the law that are really the problem at this point. 

But a major argument that we made was from the military community, because we had generals and admirals who were coming 

to Congress and saying these payday loans are destroying our military families and that is unacceptable. Why should it be acceptable 

for any family or community to be destroyed, not just our military 


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families and our military communities, but any community to be 

destroyed? And, unfortunately, we have not completed the vision 

that was so well laid out through that 2006 Act. 

Well, obviously there is a lot going on here, how we change the 

role of influence from money to shape policies that restore strategies that strengthen the middle class. What is absolutely clear is 

we are desperately off track right now in a rapidly changing world. 

And all of you are contributing significantly to the effort to illuminate strategies and possibilities for putting this back on track. 

And so I thank you very much for your participation and particularly for your ongoing work in your respective fields, and I look forward to learning additional insights from your work in the time 

ahead. 

I will invite anyone who would like to submit any other information for the record to do so. We will be holding it open for a week, 

and that goes for my colleagues on the Committee who might want 

to submit questions. And if you get questions, certainly we look forward to your answers. 

With that, we are going to conclude this hearing of the Subcommittee. Thank you. 

[Whereupon, at 3:55 p.m., the hearing was adjourned.] 

[Prepared statements and additional material supplied for the 

record follow:] 


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1This is based on active population of United States aged 25 to 54 of 101 million as of 2013, 

and a 4 percentage point difference between the employment to population ratio in 2006 versus 

2013. 2This research, published in economics and finance academic journals, is summarized in my 

book with Atif Mian: House of Debt: How They (and You) Caused the Great Recession and How 

We Can Prevent It From Happening Again, University of Chicago Press: Chicago, 2014. 

PREPARED STATEMENT OF AMIR SUFI, PH.D.

CHICAGO BOARD OF TRADE PROFESSOR OF FINANCE

UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS

SEPTEMBER 17, 2014

There is something wrong with the U.S. economy. We all know that the Great Recession was the most severe economic downturn since the Great Depression of the 

1930s. What is perhaps less well understood is that the recovery since 2009 has 

been dismal. From the end of recession through 2014, real economic growth has 

been 2.1 percent per year, much lower than the 3.5 percent average annual growth 

the U.S. economy generated from 1947 to 2007. The decline in the unemployment 

rate over the past 2 years should not be a cause for celebration—it is driven primarily by households leaving the labor force. Only 76 percent of Americans aged 25 

to 54 currently have jobs, compared to 80 percent in 2006 and 82 percent in 1999. 

Put differently, there are currently 4 million fewer Americans aged 25–54 working 

today compared to 2006.1

How did we get into this mess? And why is it taking so long to recover? My research with Atif Mian at Princeton University suggests that the culprit is the devastation of wealth suffered by middle and lower-income American households during 

the Great Recession.2 The weak recovery is due in part to the lack of any rebound 

in wealth among these households since the end of the recession. 

Americans below the top 25th percentile of the wealth distribution have lower net 

worth in real terms in 2013 than they did 15 years ago. For Americans below the 

median of the wealth distribution, it has been a disaster. For example, those in the 

lower-middle quartile of the wealth distribution have seen their net worth plummet 

from $65 thousand in 2007 to $40 thousand in 2010, with a further decline to $38 

thousand in 2013. This puts their wealth in 2013 below the 1989 level—the Great 

Recession wiped out 25 years of wealth accumulation. The chart below shows how 

bad the Great Recession was for the bottom 75 percent of the wealth distribution.

The disproportionate negative impact of the Great Recession on the net worth of 

lower wealth Americans may at first seem surprising, but it makes perfect sense 

with an understanding of how the financial system operates. Richer Americans save 

a much higher fraction of their income, ultimately holding most of the financial assets in the economy: stocks, bonds, money-market funds, and deposits. These savings are lent by banks to middle and lower-income Americans, primarily through 

mortgages. 

There is nothing sinister about the rich financing the home purchases of the poor. 

But it is crucial to note that the borrowing takes the form of debt contracts which 

leave the borrower with the first losses in case house prices fall. Here is a simple 

example to illustrate. Imagine a homeowner in 2007 who had a $100 thousand 

home, a $60 thousand mortgage, and therefore $40 thousand of home equity. When 


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3Of course if the home value declines by even more, it will also reduce the value of the mortgage, which is what happened during the Great Recession. But the losses will be more severe 

on home equity because by definition the mortgage only falls in value after the equity is wiped 

out. 4 A credit score below 660 is considered subprime.

house prices fell by 40 percent from 2007 to 2010, the house plummeted in value 

to $60 thousand. The mortgage in 2010 was still worth $60 thousand, but the $40 

thousand of home equity vanished. The homeowner lost 100 percent of their home 

equity, even though house prices fell only 40 percent. 

This is the effect of debt. The use of mortgage debt within the financial system 

gives the holders of financial assets protection against a fall in house prices. In the 

example above, the mortgage did not decline in value.3 But it provides this insurance by concentrating the brunt of economic downturns on borrowers. The standard 

mortgage contract is inflexible—the same amount is owed even if house prices and 

the economy collapse. Given that 85 percent of the financial assets in the U.S. economy are held by the top 20 percent of the wealth distribution, the financial system’s 

reliance on inflexible debt contracts means it insures the rich while placing an inordinate amount of risk on middle and lower net worth households. 

As we illustrate in our research, it was the massive pullback in spending by indebted households that triggered the Great Recession. The financial system concentrated the collapse in home values on exactly the households that were prone to 

cutting spending most dramatically in response. Further, the lack of any increase 

in the net worth of lower- and middle-income Americans helps explain why the recovery in household spending has been so weak. 

Going forward, there are two important lessons from the framework we outline 

in our research. First, encouraging borrowing by lower- and middle-income Americans may temporarily boost spending, but it is not a path to sustainable economic 

growth. Instead, stronger income growth for the lower and middle part of the income distribution is necessary for a balanced growth path. Second, the financial system in its present form concentrates risk on lower wealth households who are least 

able to bear it. The current policy and regulatory framework encourages such a system, even though it has disastrous effects for the economy. We must re-think how 

the financial system allocates risk. I explain these two lessons in more detail below. 

Credit Growth Without Income Growth: A Recipe for Disaster 

A tempting solution to our current troubles is to encourage even more borrowing 

by lower- and middle-income Americans. This group of Americans is likely to spend 

out of additional credit, which would provide a temporary boost to consumption. But 

unless borrowing is predicated on higher-income growth, we risk falling into the 

same trap that led to economic catastrophe. 

In the past 3 years, there has been an aggressive expansion in credit to lower 

credit score borrowers. While credit scores and income are not the same, they are 

closely related; lower-income Americans tend to have lower credit scores. More data 

are available that track consumers by credit score, and so the statistics I show 

below focus on credit scores. 

In contrast to the expansion of subprime mortgage credit during the 2002 to 2006 

housing boom, the current expansion has been concentrated in auto lending and to 

a lesser degree credit card lending. For example, from 2009 to the first quarter of 

2014, auto loan originations grew by 300 percent among consumers with a credit 

score below 620, which is deep subprime territory.4 The growth has been much 

smaller among prime consumers with a credit score above 700: less than 50 percent. 

The chart below shows this pattern. The tremendous growth in auto loans to 

subprime borrowers may help explain why auto spending has been a bright spot for 

retail spending since the end of the Great Recession. Credit card lending to low 

credit score consumers has also accelerated, but the increase has been more modest 

and more recent. From 2011 to 2013, credit card originations grew by 30 percent 

among consumers with a credit score below 620, compared to 3 percent for consumers with a credit score above 700. 


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5Gould, Elise, 2014. ‘‘Why America’s Workers Need Faster Wage Growth—and What We Can 

Do About It,’’ EPI Briefing Paper, August 27th. 6See Bricker, Jesse, Lisa Dettling, Alice Henriques, Joanne Hsu, Kevin Moore, John 

Sabelhous, Jeffrey Thomson, and Richard Windle, 2014. ‘‘Changed in U.S. Family Finances from 

2010 to 2013: Evidence from the Survey of Consumer Finances,’’ Federal Reserve Bulletin, 100:4, 

September. 

Such rapid growth in credit to lower credit score households may not be a cause 

for alarm—after all, credit to lower credit score households all but disappeared during the recession, and we would therefore expect some growth from 2009 to 2014. 

But the key question is whether income growth among lower credit score individuals 

justifies the expansion in auto lending. Are lenders willing to lend more because 

they believe borrowers have better income prospects? 

The answer to this question is worrisome: income growth among lower credit score 

and lower-income Americans has been flat or even negative during this same timeframe. A variety of data sets show this pattern. Analysis by the Economic Policy 

Institute based on Current Population Survey data shows that real income was between 2 and 3 percent lower in 2012 than in 2007 for the bottom 60 percent of the 

income distribution.5 The grand majority of Americans have not seen real income 

growth from 2007 to 2012. The recently released 2013 Survey of Consumer Finances 

of the Federal Reserve shows the same result from 2010 to 2013.6 During these 3 

years, income has fallen for all but the top 10 percent of the income distribution. 

The evidence from the 2013 SCF is especially alarming, and worth discussing in 

more detail. From 2010 to 2013, real income fell by 4 to 7 percent for households 

in the bottom 60 percent of the income distribution. These losses were registered 

after the Great Recession. For the 60th to 90th percentile of the income distribution, 

real income fell by 2 to 3 percent. Real income grew by 2 percent for the top 10 

percent of the population. These statistics contradict the notion of a recovery since 

2010 for the grand majority of American households. 

Different data sets tell one consistent story: as in the subprime mortgage credit 

boom, credit is once again expanding to households that have declining real incomes. The magnitude of the credit expansion is smaller given that auto and credit 

card debt are smaller markets than mortgages. But something has to give. Income 

growth needs to improve, or lenders will eventually shut off the credit spigot. 

Relying on lender willingness to provide credit is not a sustainable way of generating economic growth. We desperately need higher-income growth for middle and 

lower-income Americans. The best way of generating income growth in the long run 

is by improving the productivity of workers. Better education and strong life skill 

development at a young age can help achieve higher productivity. Unfortunately, 

such a boost in worker productivity takes time. 

In the short run, policymakers should investigate whether there are policies that 

can boost wage and income growth among lower- and middle-income Americans 

without reducing economic efficiency. Some potential policies include expanding the 

Earned Income Tax Credit, or identifying public works projects that can boost aggregate productivity. Such public investment could potentially pay for itself in the 

longer run while boosting earnings in the short run. I do not know for certain 

whether such policies would help. But I know for certain that stagnating income 

growth for the majority of American households is a serious economic threat. 


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7Kahn, Lisa, 2010. ‘‘The long-term Labor Market Consequences of Graduating from College 

in a Bad Economy.’’ Labour Economics, 17:2, 303–316. 

Financial Reform: Making the Financial System Work for Americans 

Another pressing matter is reform of the financial system, which as currently constructed does not work for the majority of Americans. Let’s start with a basic indisputable point: the economy is a risky place. House prices go up and down, as do 

the returns to business capital. Human capital is risky—the wages one earns could 

potentially collapse if the economy falls into recession. 

This risk must be borne by someone, and the financial system should help Americans share this risk with one another. Those that bear the most risk should be those 

who have the capacity to bear losses in case the economy crashes. In general those 

with a large amount of wealth have exactly such capacity. And of course, those that 

bear the most risk should be compensated for bearing that risk—earning high returns when the economy is strong. Investors should look to the financial system to 

take risk and earn a return as a result. 

But how does the financial system currently operate? Does it encourage those 

with wealth to bear risk by compensating them for it? The answer is no. Instead, 

the financial system relies almost exclusively on inflexible debt contracts, which 

force borrowers to bear risk instead of investors. 

Student debt offers a simple example. When the college class of 2009 entered college in 2005, many of them took on debt to pay tuition. This was a sensible decision—the income premium to a college degree is high, and students were willing to 

borrow in the short-run to get the benefit of higher wages in the future. But of 

course, no one in the college class of 2009 understood in 2005 that the U.S. economy 

was about to get whacked with the worst recession since the Great Depression. The 

unemployment rate for recent college graduates skyrocketed from 9 percent to 18 

percent from 2007 to 2009. Further, wages for those that were able to find jobs collapsed. The consequences for the class of 2009 will likely persist into the future: Research shows that there are long-run, persistent negative effects of graduating from 

college in the midst of a severe recession.7

Did the financial system help share the risk borne by the college class of 2009? 

No. In fact, the student debt burden and interest payments remained exactly the 

same for the students, even though their employment prospects collapsed. The financial system, with its reliance on inflexible student debt contracts, forced young 

Americans to bear risk that they were poorly equipped to bear. They are young with 

almost no assets—why should they bear the costs of an economic downturn? 

A more sensible financial system would share the risk by having the principal and 

interest payments on student debt automatically adjust downward when recessions 

hit. The lenders should share some of the downside risk, and they should be compensated if the economy ends up being stronger than expected. A simple adjustment 

would be a debt contract with a higher average interest payment if the unemployment rate facing recent college graduates remained low, but automatic debt forgiveness if the unemployment rate facing college graduates increased substantially. In 

this way lenders would be paid a higher interest payment if the job market were 

strong, but would have to accept lower payments if the job market ends up being 

very weak. 

This example applies more broadly to financial contracts in the economy. The reliance on inflexible debt contracts forces lower-income and younger Americans to bear 

too much economic risk. Debt contracts require the same payment regardless of 

what happens in the economy. As mentioned above, there is risk in the economy. 

That is unavoidable. But the current bias of the current financial system is to force 

the most vulnerable to bear the risk. 

We need policies that would help move the financial system away from its current 

reliance on inflexible debt contracts. One such policy the Government could implement in the short-run would be to lower student debt owed to the Government for 

those who graduated in the midst of the Great Recession. The college class of 2009 

should not be forced to bear the costs of the downturn with no assistance: it is not 

their fault they were born in 1987, 22 years before the worst recession in 80 years. 

This could be done with outright debt forgiveness, or by allowing borrowers to refinance into current market interest rates. Going forward, student debt provided by 

the Government could be indexed to the unemployment rate facing college students, 

so that debt burdens are automatically reduced if the economy enters another recession. 

More broadly, the current bias of policy encourages the financial system to use 

inflexible debt contracts, even though they have potentially disastrous effects for the 

economy. We tolerate the issuance of fragile short-term debt by financial institutions 


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that enjoy some level of Government backing, and we allow them to do so while 

holding very little capital. Banks then either choose or are told by regulators to take 

very little risk on the asset side of their balance sheets, which results in borrowers 

bearing the risk. We force insurance companies to hold highly rated assets, which 

can only be produced by debt contracts to borrowers. We encourage inflexible mortgage contracts by declaring them as ‘‘conforming’’ mortgages that the Governmentsponsored entities can buy and securitize. More equity-like mortgages where the 

principal adjusts downward if house prices fall do not qualify, and the private sector 

therefore has little incentive to provide them. Further, we give a mortgage interest 

deduction for inflexible debt contracts, which encourages households to use them. 

Removing the strong policy bias toward inflexible debt contracts will not be easy, 

and it cannot be done overnight. However, I want to encourage policymakers to 

think in a big-picture manner about the current financial system, what it is supposed to do, and what Government can do to make it work better for Americans. 

We have a tendency to accept the financial system as it is, and make minor changes 

to help insulate it from risk. But the risk is not going away—it must be borne by 

somebody. A properly functioning financial system would encourage those with 

wealth—that is, those with risk-bearing capacity—to bear risk and earn a return 

for doing so. It would help those with little wealth attend college or buy a home 

without bearing an inordinate amount of economic risk. It may take time, but moving toward such a financial system would improve the welfare of all Americans. 

PREPARED STATEMENT OF CLAUDIA VIEK

CEO, CAMEO—CALIFORNIA ASSOCIATION FOR MICRO ENTERPRISE OPPORTUNITY

SEPTEMBER 17, 2014

Chairman Jeff Merkley, Ranking Member Dean Heller, and Members of the Committee, thank you for the opportunity to submit testimony about an issue of crucial 

importance to the American business community and economy. 

CAMEO’s mission is to grow a healthy, vibrant, thriving environment for all entrepreneurs and startup businesses in California. We are the largest Statewide network of nonprofits that provided training, coaching and loans to 18,000 businesses 

last year, businesses that created 32,000 jobs. We are also a member of the American Sustainable Business Council, which collectively represents over 250,000 businesses, many of which are small businesses that create jobs across the country. 

Let me illustrate with a brief story: Johneric Concordia is a young man who was 

laid off as a baggage handler for United Airlines. He loved to barbeque in his neighborhood in Filipinotown in Los Angeles. He and his uncles would compete to see 

who made the best sauce. When he lost his job, he sought business counseling from 

the Asian Pacific Islander Small Business Program to start his own barbeque catering business. He raised $8,000 for a truck-mounted barbeque rig through Facebook, 

and a year later opened Parks Finest restaurant in Echo Park. He has hired nine 

of his friends to work for him and is ready for a larger loan from a local nonprofit 

lender. 

Parks Finest is not a one-off—I have many, many similar stories from members 

like the National Asian American Coalition, the Los Angeles Latino Chamber, and 

the other 85 CAMEO members who serve entrepreneurs with small dollar loans and 

coaching. Johneric and others have the desire and ability to contribute to our economy by being their own boss, and go on to employ others—they are exactly the kind 

of people we should invest in! 

If we are serious about addressing income inequality, then we need to support entrepreneurship and starting a business as a real pathway to closing the wealth gap 

and generating new jobs. 

There are 26 million small businesses in the United States, most of which are 

self-employed. If just 1 in 3 such businesses created one job, we could have full employment! ‘‘This would address the 50 percent unemployment rate among black and 

Latino youth,’’ said Reverend Mark Whitlock, Corporate Relations Chair for the 

5,000 member national AME Church. 

For example, a minimum of a million new jobs a year could be created through 

bank investment in lending and technical assistance programs. 

Why business ownership? The Congressional Budget Office found that the cause 

of the rise in income inequality between 1979 and 2007 derives mostly from disparities in business income. If we get to the heart of the problem of inequality, the answer can be simple. Instead of handouts and promises of trickle-down job creation, 

help people create their own businesses and have them close the income inequality 

gap themselves. 


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The wealth gap in the United States is large and growing: the median net worth 

of Caucasians was $110,500 compared to $7,683 for Latinos and $6,314 for African 

Americans. The wealth gap hinders their ability to create, maintain and grow their 

small firms, which impacts all of us. 

Eighty-eight percent of minority business owners finance their small businesses 

from home equity, compared to about a quarter overall. Thus, the loss of home equity disproportionately affects minority-owned businesses. In California, almost 2 

million homeowners are still under water; also true in Nevada, Senator Heller’s 

State. We can assume that minority-owned businesses have not been able to recover 

fully from the downturn. 

Business ownership is an effective strategy to reduce income inequality: the median net worth of business owners is two and a half times greater than for all nonbusiness owners, and for African Americans the difference is eight times higher for 

business owners compared to nonbusiness owners. 

Households headed by women who own a microbusiness generate up to $13,000 

more in annual household income than similar households without a microbusiness 

owner. This may not sound like much, but this amount can be the difference that 

sends one’s child to college or buys a home. And, research shows that the children 

in families with a microbusiness owner do better in terms of education and social 

mobility (Source: AEO Report, ‘‘Bigger than You Think’’, 2014). 

Self-employment, business ownership and entrepreneurship are key ways for 

lower-income people to become middle income. Therefore, Government should increase support to programs that help start and grow small and microbusinesses. Instead we have seen a 40 percent drop in funding over past 3 years and fewer businesses benefiting. 

This is the case within the U.S. Small Business Administration (SBA), U.S. Department of Agriculture (USDA), and Housing of Urban Development (HUD), all of 

which fund microbusiness development. Furthermore, women are starting businesses at three times the rate of men and African American women at four times 

the rate, but women receive $1 of capital for every $23 men receive. We are fortunate that Maria Contreras-Sweet, SBA’s new Administrator, is addressing this inequity, as is the proposed Women’s Equity Bill introduced last month by Senator 

Maria Cantwell. 

Self-employment is the labor market trend—by 2017, 50 percent of our workforce 

will be, or have been, self-employed! Research on the independent workforce reveals 

that young millennials and those over 55 are the most likely to choose self-employment. 

We know that when businesses get training and coaching help, 80 percent are in 

business after 5 years, compared to 50 percent of those that did not get such help. 

(Source: Aspen Institute, FIELD). Also, businesses that received capital and services 

from a nonprofit organization have 30 percent higher median annual revenue 

growth than those that did not. And when microbusinesses succeed, they create on 

average another two jobs. (Source: AEO Report, ‘‘Bigger than You Think’’, 2014.) 

These statistics are borne out by my personal experience of more than 25 years 

running entrepreneurship training and business incubation programs. Again, small 

business ownership will help close the income inequality and wealth gap and bring 

low-income families into the middle class. So why don’t we invest more in them? 

For example, the U.S. Department of Labor (DOL) could recognize self-employment as a job. DOL does not provide funding or have performance measures for selfemployment. This keeps many young, lower income, and people of color from starting their own businesses because local Workforce boards will not allow them to pursue entrepreneurship training, but will pay for training in expensive institutions 

that don’t place them in a job. And the SBA only budgets $12 million nationwide 

for helping women business owners, most of whom are low or moderate income. 

Currently our bank regulators are proposing giving extra Community Reinvestment Act credit to banks that provide small dollar microloans in low- and moderateincome communities. This policy could have a major impact on new self-employment 

and job growth in communities that have not recovered from the Great Recession. 

So, I urge you to target our economic policies to very small businesses in and 

around low- and moderate-income communities, those that have not recovered from 

the downturn, that have not regained equity in their homes and businesses. In this 

way we can create more opportunities everyone, especially for young, unemployed 

people of color. 

If there is one thing you remember from my testimony, let it be how small business creation and entrepreneurship can reduce income inequality and bring hope to 

our communities with so much untapped entrepreneurial potential. Thank you for 

this opportunity to address the Committee. 


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1 Heather Boushey and Adam Hersh, ‘‘The American Middle Class, Income Inequality, and the 

Strength of Our Economy: New Evidence in Economics,’’ (Washington, DC: Center for American 

Progress, 2012), available at http://cdn.americanprogress.org/wp-content/uploads/issues/2012/

05/pdf/middleclasslgrowth.pdf. 2Paul Krugman, ‘‘Trade and Wages Reconsidered,’’ Brookings Papers on Economic Activity, 

available at http://www.brookings.edu/∼/media/Projects/BPEA/Spring%202008/2008al

bpealkrugman.pdf. 3 Author’s analysis of U.S. Census ‘‘Family Income: Table F–7. Type of Family, All Races by 

Median and Mean Income: 1947 to 2012,’’ available at http://www.census.gov/hhes/www/income/data/historical/families/.

PREPARED STATEMENT OF ADAM S. HERSH, PH.D.

SENIOR ECONOMIST, CENTER FOR AMERICAN PROGRESS

SEPTEMBER 17, 2014

Thank you Chairman Merkley, Ranking Member Heller, for inviting me to testify 

today. My name is Adam Hersh and I’m a Senior Economist at the Center for American Progress Action Fund. 

There is an increasingly broad consensus among professional economists that high 

levels of inequality are extremely detrimental not only to current economic growth, 

but to future growth as well. This is the case because when we talk about the economy, we are talking about what’s happening to people and how people are faring 

in their lives. An economy with broadly shared income gains creates the financially 

secure families who can:

• Invest in the human capital—health and education—that creates a productive, 

innovative labor force

• Provide stable, strong consumer demand that entices business investment

• Provide a fertile environment for entrepreneurship to develop

Research also indicates that economies with lower inequality and stronger middle 

classes have more stable financial systems, higher investments in public goods, better quality of governance and public institutions, broader civic participation, lower 

crime, and less political polarization.1

Taken as a whole, inequality is the central thread that runs through essentially 

all the factors that economists identify as important for economic growth. In other 

words, a vibrant U.S. economy does not trickle down from the super wealthy, but 

rather springs forth from a thriving middle class. 

International trade and investment are critical parts of the U.S. economy—they 

always have been and always will be—but they create complicated economic policy 

issues because trade is simultaneously a cause of inequality and of the innovation 

and investment that leads to growth. 

Trade is one among several factors that have contributed to the rise in U.S. income and wealth inequality since the late 1970s—declines in unionization and the 

real minimum wage, decreasing tax progressivity, increased short-termism and 

focus on financial profits over real investments in the business sector, and shifting 

technologies have all played roles. But economists don’t really debate whether trade 

has distributional impacts on incomes and wealth; we debate how big is the impact 

of trade, among the multiple causes. And across a variety of studies, economists estimate that increased trade accounts for between 10 percent to 52 percent of the 

overall increase in U.S. wage inequality since the 1980s.2

Trade also has positive effects on living standards in the United States by 

incentivizing innovation and providing access to a broader variety of goods and services at lower prices. While certainly yielding substantial gains from cheap imports, 

we account for this when measuring inflation—adjusted real wages and family incomes, which, respectively, have stagnated and declined. Median family income, for 

example, today is more than $5,400 below its level in 2000 and back down to its 

levels before the 1990s economic boom.3

Trade’s impact on inequality comes both through direct channels—the dislocation 

of workers when domestic production shrinks or moves overseas—as well as from 

indirect effects that can saddle regions in localized economic depressions. The losses 

to local economies render large swathes of capital stock—factories, office buildings, 

infrastructure—unproductive. It is equivalent to having a Hurricane Katrina or 

Hurricane Sandy, but that capacity won’t be rebuilt. 

Economist Andrew B. Bernard and co-authors found that the more manufacturing 

plants were exposed to low-wage-country imports, the slower they grew and the 


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4 Bernard, Jensen, Redding, and Schott, ‘‘Firms in International Trade,’’ Journal of Economic 

Perspectives, Vol. 21, no. 3, pp. 105–130. 5 Avi Ebenstein, et al., ‘‘Estimating the Impact of Trade and Offshoring on American Workers 

Using the Current Population Surveys,’’ Review of Economics and Statistics, available at http:/

/pluto.huji.ac.il/∼ebenstein/EbensteinlHarrisonlMcMillanlPhillipslAugust2012.pdf. 6Michael Elsby, Bart Hobjin, and Aysegul Sahin, ‘‘The Decline of the U.S. Labor Share,’’ 

Brookings Papers on Economic Activity, 2013, available at http://www.frbsf.org/economic-research/files/wp2013-27.pdf. 7David Autor, David Dorn, and Gordon Hanson, ‘‘The China Syndrome: Local Labor Market 

Effects of Import Competition in the United States,’’ American Economic Review, Vol. 103, no. 

6, pp. 2121–68. 8 Adam Hersh, ‘‘Offshoring Work is Taking a Toll on the U.S. Economy,’’ (Washington, DC: 

Center for American Progress, 2014), available at http://www.americanprogress.org/issues/

economy/news/2014/07/30/94864/offshoring-work-is-taking-a-toll-on-the-u-s-economy/. 9 Adam Hersh, ‘‘New Jobs Growth Underscore Stable Recovery Although Wages Have Yet to 

Budge,’’ (Washington, DC: Center for American Progress, 2014), available at http://

www.americanprogress.org/issues/economy/news/2014/08/01/95027/new-jobs-data-underscore-stable-recovery-although-wages-have-yet-to-budge/.

more likely they were to exit the market—close their doors.4 Similarly, economist 

Avi Ebenstein and co-authors find that wages grow more slowly in occupations more 

exposed to import penetration and to U.S. multinational companies ability to move 

production offshore.5

Recent research from economists at the Federal Reserve Bank of San Francisco 

shows that these dislocation and wage impacts are concentrated in industries most 

exposed to offshore competition—primarily manufacturing industries, and rising increasingly up the advanced technology ladder. Their analysis shows it is precisely 

here where the impact on the distribution of wages and capital income within firms 

have been felt most strongly.6

Other recent research, from MIT economist David Autor and co-authors show that 

the economic impacts of trade competition and dislocation are not limited just to affected factories or companies.7 The spillover effects can essentially create regional 

economic depressions, with broadly elevated unemployment rates, public safety net 

expenditures for things like unemployment, disability, and Medicaid benefits—even 

while the total U.S. economy steams ahead. 

Much has and still is changing in the global competitive environment facing U.S. 

workers and businesses—and binding together their futures with those of people 

and businesses around the world. Whereas most of the postwar period saw global 

trade concentrated among the United States, Europe, and latecomers like Japan, 

the gravity of economic growth and international trade in the world is shifting to 

the East, and to the South—that is, to developing countries in Asia, Latin America, 

and elsewhere that now account for half of global economic growth, a share that is 

likely to continue rising for the foreseeable future. Not only will U.S. businesses 

compete increasingly with businesses based in these countries in United States and 

world markets, but U.S. workers at all skill levels will increasingly compete for a 

share of the work across a growing range of industries and occupations. 

In the past, trade tended to occur at arms-length between independent firms, but 

today globally integrated production and corporate governance systems comprise the 

core of international trade. In 2013, fully half of U.S. imported goods were traded 

by companies within the same corporate families—what the Census Bureau calls related-party trade.8 This means that a foreign affiliate of a U.S.-based company 

transacted with another related affiliate or the parent company in the United 

States. 

This practice of offshoring, moving production to foreign locales while continuing 

to sell goods to the U.S. market, is now a deeply entrenched and a pervasive feature 

of the U.S. economy impacting inequality and growth in several ways. The work 

that would otherwise be conducted in the United States would go elsewhere, causing 

direct disemployment, with expected multiplier effects on output and employment. 

Adjustment to these trade shocks need not be too disruptive if displaced workers 

and capital investments can be smoothly segued into other productive uses, and if 

the shock to aggregate demand can be offset by growth elsewhere in the economy. 

However, because of the widespread trend toward such global production arrangements, and the sharp fiscal contraction we’ve seen in the past 4 years, the quality 

and quantity of jobs being created in the United States. Three-fifths of the jobs lost 

in the United States since the start of the Great Recession earned middle class incomes, but three-fifths of the jobs created since the labor market recovery began in 

2010 are in low-wage industries and occupations. The pace of growth is not adequate to move us back toward full employment—a critical factor for growing market 

wages—or to create jobs that generate opportunities to secure a rising middle class 

standard of living.9


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10 IMF Articles of Agreement, Article VIII, Section 2(a), available at http://www.imf.org/External/Pubs/FT/AA/#a8s2; WTO Articles of Agreement, Article XV available at http://

www.wto.org/english/resle/booksple/gattlaile/art15le.pdf. 11 Adam Hersh and Jennifer Erickson, ‘‘Progressive Pro-Growth Principles for Trade and Competitiveness,’’ (Washington, DC: Center for American Progress, 2014), available at http://

www.americanprogress.org/issues/economy/report/2014/03/11/85639/progressive-pro-growthprinciples-for-trade-and-competitiveness/.

The questions before lawmakers are:

(1) How should the United States engage trading partners in an increasingly 

open and competitive world in order to grow the economy from the middle out?

(2) What should the United States do to make sure that workers and businesses 

in the United States can thrive in this environment? 

The United States and its trading partners across the globe need to find a way 

to set a high road path to trade in an increasingly open and competitive world. Our 

national strength, and indeed our mutual social and environmental future depend 

on this. And doing so will require us to rethink our approach to the means and goals 

of economic growth well beyond just trade policy. 

Though the global competitive landscape has evolved much faster than U.S. economic policies and institutions, there are clear steps we can take to set this high 

road path toward sustained, broadly inclusive economic growth. 

First, the U.S. trade negotiators must be pressed to establish strong, enforceable standards for fair and open competition in the global economy.

Capitalizing on U.S. economic potential for trade and getting better outcomes for 

people in the United States and in trading partner countries begins with negotiating 

better international agreements. Unfortunately, many rules of the international 

trading system that the United States has painstakingly built through the postWWII era are still lacking in key respects and need to evolve to keep pace with a 

changing world economy. 

Currency manipulation for trade advantage is prohibited both by IMF and WTO 

Articles of Agreement and should be dealt with in conjunction with other trade 

issues in bilateral and multilateral trade agreements—not through separate dialogs—and I believe that legislation to treat currency manipulation as a 

countervailable duty would strengthen that position.10 A week’s worth of appreciation of an undervalued exchange rate would do more to expand U.S. manufacturing 

and agriculture exports than years of Trans-Pacific Partnership negotiations. 

Setting a high enforceable standard of conduct also applies to the areas of labor 

rights and conditions at work, incentivizing responsible stewardship of environmental assets in our economies, and ensuring an environment of open competition 

in international commerce.11 The May 10th agreement on labor and environmental 

standards are a start, but fall far short of what is needed: policies with real teeth 

to sanction real, egregious labor practices and conditions that make all workers 

around the world worse off. National labor markets are not segmented along export 

and domestic lines, and therefore labor standards should apply economy-wide. Requiring countries to sign on to a handful of multilateral environmental agreements 

is a win, but does little to address the costs of environmental externalities built into 

current consumer-driven global supply chain—both due to lax pollution controls 

abroad and the environmental footprint from physically trading goods. 

And though trading partners should be free to choose their path to development, 

the United States should insist on establishing international norms of transparency 

and corporate to ensure competitive neutrality where developing countries pursue 

initiatives to build their global economic niches through State ownership. It is imperative that we establish through our international trade relations standards for 

financial reporting disclosures and independent third-party auditing that can establish companies compete with out the undue and impermissible forms of State support and privilege—public bodies operating in the commercial sphere should conform 

to the OECD Guidelines on Corporate Governance of SOEs or face withdrawal of 

reciprocal trade preferences. 

High standard agreements should also set a high standard for public health and 

safety. Intellectual property rights aspects of trade agreements, particularly where 

they pertain to life-saving drugs and medical devices must strike a balance between 

the social welfare and private incentives to innovate. Granting ‘‘ever-greening’’ patent protections creates a monopoly rent, not an incentive to innovate. Nor should 

high standard agreements impede public health policies from using their purchasing 

power to negotiate fiscally responsible procurement for health care goods and services. 


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12 Adam Hersh and Jennifer Erickson, ‘‘Progressive Pro-Growth Principles for Trade and Competitiveness,’’ (Washington, DC: Center for American Progress, 2014), available at http://

www.americanprogress.org/issues/economy/report/2014/03/11/85639/progressive-pro-growthprinciples-for-trade-and-competitiveness/.

Second, Congress should increase commitments to enforce the hardfought rules of trade agreements. Trade agreements aren’t worth the paper they 

are printed on if agreed upon rules are routinely flaunted. Making sure rules aren’t 

violated takes resources to monitor, investigate, and enforce. Our Interagency Trade 

Enforcement Center, or ITEC, is basically an under-resourced public defenders office. As a start, Congress should double funding to ITEC to $50 million per year. 

Congress can also instruct the USTR to increase transparency, accountability, and 

action of trade enforcement by instituting a more effective National Trade Barriers 

Report, a new National Trade Compliance Data base, and expanded statistical reporting to better identify where trade violations are occurring and what we’re doing 

about them.12

Third, the most important things the United States can do to improve America’s 

trade competitiveness is to substantially expand investments in the sources of U.S. 

competitiveness in:

• broadly available quality education to build a workforce that can compete and 

fuel innovation as well as the family friendly workplace environment that allow 

parents to build a career while raising their kids;

• modernized infrastructure that can move people, goods, and ideas around more 

efficiently, lowering costs and making people and businesses more productive;

• scientific research and development, and supporting the innovation ecosystems 

that link together research with workforce development and commercialization;

• replacing outdated trade adjustment assistance programs, or TAA, with a new 

universal dislocated worker program that integrates public and private efforts 

to help workers knocked down by the shock of job dislocation—anywhere in the 

economy, not just in the tradable sector—by helping them climb the next rung 

on their job ladder in finding new work and helping smooth aggregate demand 

for the overall economy.

Trade is an essential part of the U.S. economy, and it is essential that the United 

States get its trade and economic policies on the right track so that we can set a 

high road path for the global economy.


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