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76–458 2012

THE PATH TO JOB CREATION: THE STATE OF 

AMERICAN SMALL BUSINESSES 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

FEBRUARY 1, 2012 

Small Business Committee Document Number 112–050 

Available via the GPO Website: www.fdsys.gov 


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HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

CHUCK FLEISCHMANN, Tennessee 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, General Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Sam Graves ..................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Dr. Dennis J. Jacobe, Chief Economist, Gallup, Washington, DC ....................... 3 

Mr. Peter Ferrara, Senior Fellow, Entitlement and Budget Policy, The Heartland Institute, Chicago, IL .................................................................................. 5 

Dr. Martin Neil Baily, The Brookings Institution, Director, Initiative on Business and Public Policy Senior Fellow, Economic Studies, Bernard L. 

Schwartz Chair in Economic Policy Development, Washington DC ................ 7 

Dr. Michael J. Fredrich, President, Manitowoc Custom Molding, Manitowoc, 

WI .......................................................................................................................... 9 

APPENDIX 

Prepared Statements: 

Dr. Dennis J. Jacobe, Chief Economist, Gallup, Washington, DC ............... 36 

Mr. Peter Ferrara, Senior Fellow, Entitlement and Budget Policy, The 

Heartland Institute, Chicago, IL ................................................................. 44 

Dr. Martin Neil Baily, The Brookings Institution, Director, Initiative 

on Business and Public Policy Senior Fellow, Economic Studies, Bernard L. Schwartz Chair in Economic Policy Development, Washington 

DC .................................................................................................................. 67 

Dr. Michael J. Fredrich, President, Manitowoc Custom Molding, 

Manitowoc, WI .............................................................................................. 80 

Questions for the Record: 

Rep. Owens Questions for Dr. Jacobe ............................................................. 86 

Answers for the Record: 

Dr. Jacobe Answers for Rep. Owens ............................................................... 87 

Additional Materials for the Record: 

CompTIA Statement for the Record ................................................................ 88 

Marine Industries Association of South Florida Careers for Veterans ........ 96 

MCM Composites Letter .................................................................................. 98 

National Association for the Self-Employed Statement ................................ 100 

The Financial Services Roundtable Statement on Record for House Small 

Business Committee Feb. 1, 2012 ................................................................ 101 

Credit Union National Association Letter for the Record ............................. 103 

The Financial Services Roundtable Small Business White Paper—Nov. 

2011 ................................................................................................................ 105 


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THE PATH TO JOB CREATION: THE STATE OF 

AMERICAN SMALL BUSINESSES 

WEDNESDAY, FEBRUARY 1, 2012 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 1 p.m., in room 2360, 

Rayburn House Office Building. Hon. Sam Graves (chairman of the 

Committee) presiding. 

Present: Representatives Graves, Chabot, King, Mulvaney, West, 

Walsh, Schilling, Vela ́zquez, Schrader, Clarke, Cicilline, Richmond, 

Hahn. 

Chairman GRAVES. Good morning. We will call this hearing to 

order. I want to thank everyone for joining us today to examine the 

state of small business economy. Some of our witnesses have traveled here from a pretty good distance and we appreciate you being 

here very much. Thank you. 

Being a small business owner in America is a tough job. No matter what your business is you must wear a lot of different hats. In 

addition to doing what you do when you went into business in the 

first place you probably have to tackle responsibilities like being a 

tax accountant, advertising executive, regulations expert, fund-raiser, and human resources expert as well. Yet throughout our history 

entrepreneurs in America have done all these things and a lot 

more. 

Recently, the business if being in business has gotten a whole lot 

more difficult. Last year, Gallup released a poll outlining the most 

significant concerns facing America’s small businesses. Small business owners have a very simple message for Washington—get out 

of our way. Entrepreneurs in this poll pointed to excessive government regulation, lack of available capital, and low consumer confidence as the biggest hurdles small businesses have to overcome. 

And this poll mirrors numerous trade association, think tank, and 

national media polls that say the same thing. Small businesses 

want Washington to let them do what they do best. 

Earlier this year the U.S. Chamber of Commerce released a poll 

showing that the vast majority of small businesses believe that the 

national economy is on the wrong track. Nearly two out of every 

three do not plan to hire in the coming year due to regulations and 

the general uncertainty of the national economy. Seventy eight percent of small businesses surveyed reported that taxation, regulation, and legislation from Washington makes it harder for businesses to hire more employees. The uncertainty is coming at them 


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from all sides and I think we need to be doing a better job of restoring confidence to entrepreneurs and consumers alike. 

Adding yet more doubt to the economy is the rising federal deficit 

and the financial crisis abroad. We see firsthand how out-of-control 

debt can destroy economies all over in Europe. This can impact our 

economy through decreased exports and exposure of American investments to losses overseas. Small businesses remain uncertain 

not only about the U.S. economy but about trouble in the world 

economy as well. This economic uncertainty disproportionately impacts small businesses more than larger businesses because larger 

businesses have the resources to deal with a rapidly changing economic environment. 

We have a real opportunity to enact changes that give small 

businesses the tools they need to lead an economic revival. Government does not create jobs to produce long-term economic growth; 

the private sector does. The faster Washington releases the reigns, 

the faster we will see Americans back on the job and put our nation back on the path of economic prosperity. 

And again, I want to thank all of our witnesses. I look forward 

to hearing your testimony. And now I will turn to Ranking Member 

Vela ́zquez for her opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Chairman Graves. 

By almost any measure conditions for small firms are better 

today than any time since the recession ended in June of 2009. According to the Federal Reserve, banks losing credit restriction for 

small businesses every quarter in the last year. Similarly, the 

Thomson Reuters Small Business Lending Index showed an increase in borrowing by small firms for five straight months through 

the end of 2011. There has also been a steady decline in delinquency and defaults on small business loans for much of the past 

year. These conditions are a significant reason why the NFIB index 

of small business optimism registered the fourth straight monthly 

increase in December. Last month, 9 percent of small business 

owners reported plans to increase employment, the second strongest reading since 2008. 

Even with this progress a great deal of work remains to be done. 

Despite adding 1.6 million jobs to the economy in the last year, federal policies have not been sufficient to overcome job losses incurred in the recession. The unemployment rate which has fallen 

over the past year is only projected to reach the low 8 percent 

range by the end of 2012. Clearly, our optimism must be tempered 

by the reality that we still have a long road ahead of us with millions of Americans who are seeking jobs unable to find it. Members 

of this committee know better than most that small businesses will 

be critical for job growth. In particular, one group excels over others. Startup businesses grow faster, create more employment opportunities, and are more innovative than older, more established 

firms. 

While startups account for only 3 percent of U.S. employment, 

they are responsible for nearly one out of every five jobs created 

year over year. And according to the Kauffman Foundation, the net 

new jobs from startups can be credited for all the job growth in the 

U.S. over the stretch of roughly 30 years. If we want to accelerate 

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nesses but also to target help to high growth startup firms. Unfortunately, this is one area where federal policy continues to lack. 

While general credit conditions have improved, lending to startups 

and early stage businesses remains tight. Last year the number of 

small loans to smaller firms, those of 250,000 or less in the SBA 

7(a) program fell by over 50 percent compared to pre-recession lessons. 

With that said, small businesses of all varieties remain critical 

to our economic health. Today I look forward to hearing both anecdotal accounts, as well as empirical evidence about the state of the 

economy. In doing so this committee can identify what is working 

as well as areas where we still face challenges. 

Let me thank all the witnesses who traveled here today for both 

your participation and insight into this important topic. 

I yield back. Thank you, Mr. Chairman. 

STATEMENTS OF DENNIS J. JACOBE, CHIEF ECONOMIST, GALLUP; PETER FERRARA, SENIOR FELLOW, THE HEARTLAND 

INSTITUTE; MARTIN BAILY, SENIOR FELLOW, THE BROOKINGS INSTITUTION; MICHAEL J. FREDRICH, PRESIDENT, 

MANITOWOC CUSTOM MOLDING 

Chairman GRAVES. All right. Our first witness today is Dr. Dennis Jacobe, who is the chief economist at Gallup with 20 years of 

experience working with some of the world’s best known financial 

firms. He leads several of Gallup’s key economic tracking measures. Dr. Jacobe received a Ph.D. in economics from Virginia Tech 

with major areas of specialization in money and banking, public finance, and public choice. Thank you for being here today with us, 

Dr. Jacobe. 

STATEMENT OF DENNIS J. JACOBE 

Mr. JACOBE. Thank you, Mr. Chairman. It is a pleasure to be 

here, Chairman Graves, and Ranking Member Vela ́zquez. 

What I will do is just quickly go through some of the key points 

of my testimony. We have a lot of data moving very quickly. What 

I want to do is cover five quick points, the first being that I think 

we are at a critical juncture for the economy from our behavioral 

economics data and it provides us with an opportunity and also a 

risk, of course. 

Second, we just completed a poll with Wells Fargo Gallup Poll 

that we do quarterly every year and we found the highest optimism 

we have found since July of 2008. So that is a really good opportunity in that context. We found their hiring intentions to be the 

best they have been since January of 2008. So it is another kind 

of opportunity where people are looking forward to 2012 in a very 

optimistic way. 

We also found in our survey some key obstacles to their doing 

that hiring and to expanding, and then I have a suggestion for you 

from our sort of behavioral economics and polling analysis. 

So what we do is every night we ask about 1,000 Americans 

across the country their opinions on the economy. We ask a lot of 

other things but we are the only polling firm that goes and does 

that every night. We have done that consistently since January of 

2008, so now we have a pretty good behavioral economics database. 


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From that, for example, we create a consumer confidence index of 

our own we call Economic Confidence. And unlike what you heard 

from the conference board, our numbers show that consumer confidence remains as high as it was prior in May of last year. So it 

is not the downturn that you have heard recently, and we think 

our numbers, about 30,000 interviews a month, are pretty impressive in that kind of measurement process. 

In terms of job creation, we created something we call a Job Creation Index and we ask firms’ employees whether they are hiring 

or firing. In that process we measure over time their intentions to 

hire. What we are finding is employees are saying that hiring intentions are the best they have been since 2008. Again, another 

surprising number. Actually, September of 2008. 

We also measure unemployment, and what will happen Friday I 

do not know because there is a lot of change taking place with 

what the BLS does on an annual basis. But our number comes out 

to be, as I have in my testimony, at mid-month it was 8.3 percent, 

which is seasonally unadjusted. Just today our number comes in at 

8.6 percent in terms of the unemployment rate. More important, if 

you see in my testimony on the first chart in there, I have 18.1 percent underemployed. Our underemployment measure takes the 

people who are unemployed and adds to the number of people who 

are working part-time but want to work full-time. That number 

just over the last two weeks has gone up to 18.6 percent. So again, 

a critical kind of junction and a big jump in a short period of time. 

If you look at our index, which is a couple charts further into my 

testimony, you see that huge jump in terms of small business optimism. That number, the 15, as I said, the highest since July of 

2008, and on the next page I sort of outlined for you the gap in 

terms of hiring intentions, which again is good at January 2008. 

When we survey small business owners, which we do routinely, 

we ask them why they are not hiring. And I outline in my testimony a sequence of different questions as to why people are not 

hiring right now. And obviously, they always come back—small 

business owners come back they would like more revenue, they 

would like more cash flow, that kind of thing. But one of the key 

items that they continually repeat no matter how we ask the question is that they are concerned about government regulation. 

Whether that is true in reality or simply true in perception, they 

continually repeat that as one of the reasons why they are not hiring. 

So that leads me to sort of two quick conclusions. One is that I 

think that given the juncture of small business with their optimism 

right now, anything that you could do to help that optimism and 

that psychology would be beneficial, and simply a moratorium on 

regulations so you do not discuss what is good and what is bad but 

simply taking away that psychological constraint I think would 

give a boost to small business at this point in time. 

And then I also mentioned, and we are very concerned about the 

high level of unemployment and underemployment, so we think 

that we should consider something that helps get small businesses 

into the process of bringing in interns and those kind of works to 

learn because we are afraid that a lot of people are not getting the 


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skills they need. And when we keep surveying small businesses 

they tell us that they need skilled workers. 

Thank you very much. I will be glad to answer any questions. 

Chairman GRAVES. Thank you, Dr. Jacobe. 

Our next witness is Peter Ferrara, the senior fellow for entitlement and budget policy at the Heartland Institute. He served in 

the White House Office of Policy Development under President 

Reagan and as associate deputy attorney general of the United 

States under the first president Bush. Mr. Ferrara is a graduate 

of Harvard and Harvard Law School. Welcome to the Small Business Committee. 

STATEMENT OF PETER FERRARA 

Mr. FERRARA. Mr. Graves, Ms. Vela ́zquez, members of the Committee, thank you for the opportunity to testify this morning—this 

afternoon, actually. I have sort of a macro view of the economy and 

as it affects small businesses and everyone else, actually. 

Even President Obama’s budget projects that the federal government’s gross federal debt will soar to 100 percent of GDP by 2020. 

The Bank for National Settlements estimates that this gross debt 

will accelerate even faster, hitting 200 percent of GDP by 2022, and 

300 percent by 2030. Under current policy, CBO projects that even 

the smaller national debt held by the public would rocket to 185 

percent of GDP by 2035 and to 200 percent by 2037, twice as large 

as our entire economy. This national debt would explode further to 

unprecedented levels of 233 percent of GDP by 2040 and to 854 

percent of GDP by 2080. 

What this means is that America is almost at the same disastrous level of debt as Greece, and on our current course we will 

soon be there. Indeed, in our current course we will rocket right 

through that level and well beyond. Now, most people do not know 

that soon after World War II, federal spending as a percent of GDP 

has been fairly stabilized and has remained stable at around 20 

percent of GDP until recently. Official U.S. government projections 

have shown for some time now that over the next 30 to 40 years 

federal spending as a percent of GDP will double to 40 percent or 

more. Financing that will ultimately require at least doubling every 

federal tax. Adding continued state and local spending growing towards 15 percent of GDP and government in American will consume more than half of the economy. In fact, it will be more than 

that because the economy will collapse under that burden and the 

percent of spending as a percent of GDP will be even higher. This 

would fundamentally transform America into a static, low growth, 

socialist European state. America’s traditional world-leading prosperity and opportunity, the American dream, would be gone. And 

of course, small businesses would be the first and chief victims of 

that economic future. 

But there is good news if we would open our minds and think 

anew. As I showed in detail in my recent book, America’s Ticking 

Bankruptcy Bomb, by modernizing our old-fashioned tax and redistribution entitlement programs to rely instead on 21st century capital labor insurance markets, we can achieve all the social goals of 

these entitlement programs far more effectively, actually serving 

seniors and the poor far better at just a fraction of the current cost 


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of these programs. Such reforms would involve powerful market incentives driving the programs to contribute further to boom the 

economic growth and prosperity rather than detracting from it. Ultimately, these reforms all together would reduce federal spending 

by half or more as a percent of GDP of what it would be otherwise 

solving the long-term fiscal problem. Yet, because these reforms 

would involve fundamental structural changes that actually serve 

the poor and seniors far better, rather than simple-minded benefit 

cuts they would be politically feasible. Modernizing the programs 

to the remarkable benefit of the populations they serve, which the 

book shows is possible by harnessing markets and incentives to 

achieve the social goals of the programs far more effectively is the 

political key to unlock the door to unnecessary entitlement reform. 

Exhibit A, the first example of this, would be the 1996 Welfare 

Reform that reformed the old AFDC program. That program previously was based on a matching federal funding formula. The 

more the state spent, the more the federal government would send 

to the state, basically saying the state to spend more. That form 

was transformed into finite block grants. The federal funds for the 

states were fixed by a formula fixed finite amount. If the states 

spent more, the states had to spend it out of their own pocket. If 

the states reformed, the program spent less. They could keep the 

money. 

With those incentives we had remarkable results. Two-thirds got 

off the program within a couple years and went to work. They 

saved the taxpayers about 50 percent of what it would have cost 

otherwise after a period of about 10 years. Yet, the poor gained. 

Their incomes are documented to increase by 25 percent because 

so many more of them were working. There are nearly 200 more 

federal means tests and welfare programs. This same reform could 

be extended to each one of those. They are estimated to cost $10 

trillion over the next 10 years. I estimate that extending those 

same reforms would save $4.1 trillion. See, again, the poor gain; 

the taxpayers gain as well. 

Another key example, personal accounts for social security. You 

would shift the spending from its enormous reduction in federal 

spending. You shift the spending from the public sector to the private sector; yet the seniors in the future would gain higher benefits 

rather than lower benefits because the long-term market investment returns are so much higher than what social security can 

even promise, let alone what it can pay, which is based on no savings and investment at all but just tax and redistribution. So 

again, seniors gain and taxpayers gain because the tax burden, 

eventually you could expand those personal accounts to displace 

the payroll tax entirely, financing all the benefits through that are 

financed by the payroll tax today through those personal accounts. 

So that is another example that modernized programs serve seniors far better and solve the long-term fiscal problem. The same 

would apply to Obamacare and I could go into that. Thank you 

very much. 

Ms. VELA ́ ZQUEZ. Yeah. It is my pleasure to welcome Mr. Martin 

Baily. He is a senior fellow in economic studies at the Brookings 

Institution. He is also a senior advisor to McKinsey and Company 

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viously served on the Council of Economic Advisors, including as 

chairman from 1999 to 2001. Dr. Baily earned his Ph.D. in economics from MIT. He has taught at MIT, Yale, and the University of 

Maryland. Welcome. 

STATEMENT OF MARTIN BAILY 

Mr. BAILY. Thank you, Chairman Graves, Ranking Member 

Vela ́zquez, and members of the Committee. It is a real privilege for 

me to be able to speak here today. 

Let me start on the overall economy. It is still fairly weak, although I think it is doing better than it was. I think we are going 

to see so much stronger growth in 2012 than we saw in 2011, and 

I think the report from Dr. Jacobe supports that. Optimism is beginning to rise both among consumers and among small business. 

Nevertheless, I would not expect to see more than about 2 to 3 

percent growth in 2012. Why are we having such a slow recovery? 

Housing, housing, housing. It has got an awful lot to do with the 

fact that we ended up in this housing bubble. We spent too much 

money thinking that we were richer than we were. We built too 

many houses, and as the bubble burst we lost a lot of household 

wealth and so we really are still experiencing the legacy of the 

housing bubble. 

Also, recessions develop their own kind of inner dynamic. You get 

a loss of jobs, a loss of income, then consumption is weak. That 

means that sales are weak so hiring and investment are weak because sales are weak. And so that goes around again and we end 

up in a fairly deep hole and it has taken a long time to get out of 

it. I think it would have been helpful actually if everyone, policymakers and economists, had realized just how long it was going to 

take to get out of this mess. It really was the most severe recession 

in a long, long time and that is just not solved very easily. 

I think there is an upside. I think we could get more than 2 to 

3 percent growth if confidence begins to build. This is about the 

time when you might expect to see the recovery really begin to 

break out on the upside, so I do have some confidence. On the 

other hand, we have some risks, too, including Europe. If Europe 

goes down, if we get a lot of financial failures in Europe, I think 

that will be very hard for the U.S. not to get dragged down. We 

have tensions in the mid-East. If oil prices were to jump that would 

be another serious problem. 

Turning to small business, as you know it has been very hard 

hit. I have some charts in my testimony. There were fewer startups 

and a lot of stress among existing businesses. Why are there fewer 

startups? Well, obviously when you go into recession it is just not 

as attractive to try to start up a new restaurant, a new drycleaner, 

whatever it is, a technology company. Those things have been 

much less attractive in these recession conditions that we have 

had. 

Another issue is the loss of homeowner equity. Of course, we 

have all experienced that but small businesses typically will take 

money out of their homes or they will pool together. A few partners 

will get together, get a loan against the value of their home to fund 

a startup. And so that money has not been available. Also, bank 

credit, which has been tightened and then loosened as Ms. 


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Vela ́zquez said but it is still more difficult to get funding if there 

is a lot of uncertainty if you are a small business. So lack of sales, 

lack of credit, those have been the things that have hurt on the 

startup side. 

Now, there are concerns about regulations, taxes and the deficit. 

I have concerns about all of those things, so those are important 

issues. Let me talk about the regulation issue. The one that has 

gotten the biggest hit has been the Affordable Care Act. And there 

is just tremendous opposition to that which seems out of proportion 

to the content of the act itself. There are no requirements on businesses with 50 or fewer employees to provide health insurance, nor 

are they required to pay a penalty if they do not. And that is actually most small businesses. So they are not really affected that 

much. 

Not only that, there was a report, which I had not seen when I 

wrote my testimony, by the Kaiser Family Foundation. Of the companies between 50 and 100 employees, 92 percent of them were already providing some kind of health insurance benefit. So we are 

not telling them, start anew and do something you are not doing. 

And many small businesses, those under 50, could get some subsidies and actually help them along. So the Urban Institute study, 

for example, argues that actually small business on balance might 

be helped by the Affordable Care Act. 

I understand why small businesses say, this is a problem. This 

is terrible. This is all this regulation. That is what they hear all 

the time. That is what everybody is saying. 

I am running out of time. Let me just say what could be done. 

Obviously, if we can improve the overall economy we will improve 

small business as well. So some modest continued stimulus. I think 

it was a good idea to do the payroll tax cut and we should extend 

that for the whole year, find a way to do that. I think on the credit 

side we should work with bank regulators. We do not want to give 

away money and have a lot of bad loans again. So let us not go 

back to that. But I think banks and regulators, there is some demand for credit from sound businesses and so more could be done 

in that area. 

I think the SBA has done a good job and I think we should think 

about maybe ways to get a little more money to the SBA to provide 

guarantees or to do some direct lending. I would also mention that 

the Startup Act of 2012 has been proposed in the Senate. It has 

got a number of different things, and I do not agree with everything in it, but it does suggest we should simplify and streamline 

some of the permissions and regulations, some of which happen at 

the state and local level. That is an area where maybe the federal 

government and state and local governments can cooperate. I think 

it would be good to get more visas for skilled people because I think 

they are job creators, and we need to do more to help the skills of 

the American population so that small businesses can find the people they need. 

Thank you. I will stop there. 

Chairman GRAVES. Thank you, Dr. Baily. 

Our next witness finishing up today is Mr. Mike Fredrich. He is 

president at Manitowoc Custom Molding. Did I say that right? 

Mr. FREDRICH. No, but that is okay. 


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Chairman GRAVES. Oh, I am sorry. 

Mr. FREDRICH. Nobody says it correctly. It is Manitowoc. 

Chairman GRAVES. Manitowoc. 

Mr. FREDRICH. Yes. 

Chairman GRAVES. Manitowoc. He is testifying on behalf of the 

Small Businesses and Entrepreneurship Council. Mr. Fredrich has 

owned MCM, a custom molder of precision thermoset plastic parts 

for 10 years. He received his degree in nuclear engineering and his 

MBA from the University of Wisconsin in Madison. Thank you for 

being here today. 

STATEMENT OF MICHAEL J. FREDRICH 

Mr. FREDRICH. Thanks a lot. I am not a doctor, by the way. Just 

a regular guy. 

Chairman GRAVES. Mike is pointing that out to me. I apologize 

for that. 

Mr. FREDRICH. Thanks a lot for having me here. It is an honor 

to come and speak before the Committee. 

As the chairman said, I have owned the company for 10 years 

and the company was started in 1983. It has had two owners. The 

guy who started it and I bought it from him in 2001. And none of 

our products show up in anything that you would ever notice because they are all products that go into somebody else’s product. 

But we have a good diversity of industries that we sell to. We have 

in consumer products maybe 25 percent of our business; industrial, 

35; aerospace, 20—that is growing; and defense, 15. And then we 

have some cats and dogs. 

So we have a pretty good view of how the general economy is 

doing. And I can tell you that last year, 2011, we had the best year 

we ever had. So you would think everything is rosy. I am happy. 

I am here to report to you that the psyche of small businesses is 

good and I just cannot say that. I have to say I have never been 

more concerned with our prospects as a company than I am right 

now. And I used to worry about all sorts of things that are related 

to the business—customers, serving customers, on-time performance, quality, things like that. 

But now I spend the majority of my time worrying about the 

country because we are here. And unlike multinationals we cannot 

diversify out of here and we are stuck and we have got some bad, 

bad things going on in this nation which will affect everybody, not 

just small businesses but everybody. But it will affect small businesses. So when asked to do this I highlighted some of them, some 

of the areas which are going to affect us. 

And, you know, regulation is an issue and you say, yeah, everybody is worried about regulation but here are some things that affect us. Dodd-Frank, for example. We deal with a bank in Green 

Bay. It is a privately held community bank. So I called the owner, 

who I know. I have known him for 20 years. I said, ‘‘Bob, how is 

this Dodd-Frank thing going to affect you?’’ He said, ‘‘You know, I 

do not know. They are still writing it.’’ 

The obvious question is what did everybody vote on? But it is not 

going to be good. They have one compliance officer for the entire 

bank and this is just more red tape compliance that will make it 

difficult for small businesses whose primary source of capital by 


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the way are banks, commercial banks. And I like dealing with community banks because at least the people make the decision that 

you are talking to. So that is one area that I am worried about. 

Health care is another one. We just pre-priced our health care insurance and you are right. A lot of the small businesses between 

50 and 100 people have insurance. We have a high deductible HSA 

plan and this year—it is hard to go out and replace these things 

and get quotes because you have to do a survey of everybody. But 

we did that this year because we wanted to try and get a better 

deal. So we went to five new companies that were not—that were 

new to us and asked them to quote on our business. Every one of 

them, all five quoted 85 percent premium increase, which is the 

maximum they can quote. I do not know if that is a Wisconsin law 

but in Wisconsin they can quote 85 percent which means they did 

not want the business. The company carrying it right now raised 

the price 14.5 percent for the premium and the maximum they can 

raise it according to state law is 15 percent. So they raised it the 

maximum. 

So what we have is a situation where we have no competition 

anymore from carriers, from insurance providers because they are 

just not going to quote. I think there is so much uncertainty with 

that that they are holding firm. And the people who are stuck with 

us, the one company, they can raise it 15 percent a year and that 

is probably what we are going to see. So that is a concern. 

The other issue I have is—I am running out of time—inflation. 

And there has not been much but there is going to be. Has to be. 

If you look at what the Federal Reserve has done, they have created a bubble of money which eventually will flow into the system 

and create inflation. It will raise our prices of raw material. Our 

raw material is 45 percent of our cost and you can say, okay, well, 

just pass it on to your customer. It does not work that way. Sometimes we have contracts and they often have other opportunities to 

source that either domestically, change the material, or source it 

internationally which is more likely going to be the case. So I am 

worried about inflation. 

Dependency. We have a country that is becoming dependent on 

the federal government. I have seen this in our business and there 

is a new dependency class that I call the ‘‘happily unemployed.’’ 

Their job is to stay on unemployment. And I know this because 

every Friday they come into our place because they have to show 

that they are actively seeking work and what they are really actively doing is trying to stay on unemployment. And they are very 

happy there. You know, they work part-time. They work for cash. 

They get food stamps. Why work? And I know jobs are available 

in Manitowoc. Good jobs. Manufacturing jobs. Cannot fill them. 

Cannot fill them. They are $11, $12, $13 an hour jobs. Cannot fill 

them. No applicants. That is a problem. 

And finally, my biggest fear is the federal debt because that has 

the potential to get us all. Forget all the regulations. All the little 

nibbling around the edges. If you do not get a handle on federal 

spending and deficit spending we are all gone. We are past Greece. 

Do not use Greece as an example. We are past Greece. People will 

still lend us money. That is the only difference. But if you look at 

the statistics, we are worse than Greece. 


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That concludes what I have to say. And thank you very much. 

Chairman GRAVES. We will start questions and we will start out 

with Ranking Member Vela ́zquez. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Mr. Baily, in your testimony you highlight the important role 

that startups play in driving economic growth. And according to 

SBA data, less than a third of SBA lending goes to startups. Are 

there ways to change this trend and encourage lenders to make 

more credit available for startup businesses? 

Mr. BAILY. Yes, I think there is a case. Startups are really important because a lot of small businesses fail. There is a lot of turnover in small business. They create a lot of jobs but there are also 

those that do not succeed. So we need that flow of startups to keep 

employment growing. 

It is obviously difficult to get money if you are a startup because 

you do not have a track record. And as I mentioned earlier you 

used to be able to use real estate collateral and now it is more difficult to do. So I think if it is done through either loan guarantees 

or through the direct lending program, a small business bank 

would be a possibility, which would not take a lot of money but 

could provide much needed additional funding for potential growth 

companies that would help our economy. 

Ms. VELA ́ ZQUEZ. Yeah. You mentioned, Dr. Jacobe, that we have 

not seen the number of startups this time around during this last 

recession as we saw in the ’80s, ’70s, and ’90s. And a lot has to do 

with access to capital. You mentioned in your testimony that real 

estate represents the single largest source of collateral for loans to 

startups. And the drop in real estate prices has significantly affected the availability of credit for these firms. 

So with housing prices unlikely to recover in the immediate future, what should be done to take the place of this asset in securing capital for startups? 

Mr. JACOBE. Well, that is a hard question. I do not know if we 

can operate on a very different model. I do think that there are 

many small businesses that provide a good opportunity for the private sector so I think private sector banks. I know some folks on 

Wall Street that are actually making money by packaging loans 

from small businesses. So we do have other resources, people willing to take risks on a small business if it is a good bet. 

Ms. VELA ́ ZQUEZ. Would you see—what we have seen and the senior survey of loan officers and the fed report that was just recently 

released show that credit standards have been eased and that more 

credit is flowing to mid-size and large firms. 

Mr. JACOBE. Right. 

Ms. VELA ́ ZQUEZ. The problem and the gap is on startups. 

Mr. JACOBE. On the smaller size. 

Ms. VELA ́ ZQUEZ. And they are the ones that really create the jobs 

in this country. So would you see a direct lending role for SBA? 

Mr. JACOBE. Yes, I would. 

Ms. VELA ́ ZQUEZ. Okay. Mr. Baily, according to a Kauffman Foundation survey, 40 percent of the respondents said that the biggest 

obstacle in the way of high growth companies is finding qualified 

people. Twenty-one percent said that managing fast growth; accessing capital 16 percent; and the sluggish economy, 13 percent. They 


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mentioned that those are all obstacles. Regulatory uncertainty and 

taxes were only 3 percent and 4 percent, respectively. Why do you 

think there is such a disparity between this poll and the Gallup 

poll about the top conditions facing companies? 

Mr. BAILY. I mentioned what I would point to as the main reason 

and that is that everybody is talking about regulation. We have a 

lot of discussion on regulation in this election year. I think there 

are things that one could do to improve the regulatory environment, so I am not saying I want to dismiss the potential for 

streamlining regulation and making it easier for small business to 

operate. We probably all support that. But I do think this regulatory issue has been blown out of proportion. 

I have done a lot of comparisons between the U.S. and other 

countries and the U.S. is still pretty high on the list of countries 

where it is relatively easy to start a new business. If you look at 

the World Bank data, it is much harder in China or places like 

that. So we are still a good place. I still have a lot of confidence 

in this country as a place to start a business and where enterprising people will be able to. And yes, we should do whatever we 

can to make sure that the regulatory environment is doing its job 

properly and not getting in the way of growth. But I think the reason it becomes such a football is because that is what people want 

to make it. 

Ms. VELA ́ ZQUEZ. Dr. Jacobe, will you care to comment? 

Mr. JACOBE. Well, polls will differ. And what we have done is we 

tried to ask a series of different questions over time since last year. 

And I think it is clear that there is a psychology that has developed. And you can argue about the reality. The psychology is that, 

and we have actually done some individual interviews with small 

businesses just recently on a sort of long-term, sort of long interview. And they come to this without urging. So whatever the psychology is, it seems a positive if that fear could be halted for some 

period of time. Normally, regulations do not play this big a role. 

The problem is that this sector is so threatened, so weak. We 

have been four years in this process and people are recovering but 

it is a slow recovery and small businesses are struggling. And so 

things that they normally would be able to go through and work 

their way through are much harder right now and I just think that 

has raised the issue. 

Ms. VELA ́ ZQUEZ. Thank you. And I do not know but maybe anyone who would like to answer this question, but again it might be 

the psychology explanation because people are saying that community banks—and your community bank, you just mentioned—do 

you know how much assets does it have? You are from United 

Bank? 

Mr. FREDRICH. I do not. I consider it the largest commercial bank 

in Green Bay. I do not know how many millions. They have to be 

$300, $400 million. I am guessing though. 

Ms. VELA ́ ZQUEZ. So no more than $1 billion in assets? 

Mr. FREDRICH. No. No. No. 

Ms. VELA ́ ZQUEZ. Right? So am a member of the Financial Services Committee. I was involved with a Dodd-Frank regulation and 

every place we go when you listen to bankers the first thing that 

they say if they are community banks is that it is having a negaVerDate Mar 15 2010 08:40 Nov 09, 2012 Jkt 076458 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HR\OC\A458.XXX A458

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tive impact in their lending practices because it is creating uncertainty. But the fact of the matter is that community banks for the 

most part are exempted from the regulations of Dodd-Frank. Those 

banks who have assets less than $10 billion are exempt. So community banks are the ones lending to small businesses. So when we 

hear that small businesses are not getting access to capital and we 

blame Dodd-Frank, I want to invite people to really go to the law 

and review if those regulations will apply to those banks. 

And I yield back. 

Mr. FREDRICH. It is not that—— 

Chairman GRAVES. Go ahead. 

Mr. FREDRICH. It is not just Dodd-Frank. I mean, I would not 

want to be in the banking business based on the amount of regulations and control that they have. And I will give you a good example of the same bank. They did not need to but they took some of 

that TARP money and they tried to pay it back. Would not let 

them. No. You cannot give it back. Your ratios were good. Did not 

have to take it. You cannot give it back. 

Ms. VELA ́ ZQUEZ. Well, the TARP money for those community 

banks was to provide access to capital to small businesses, not to 

pay back. 

Mr. FREDRICH. They did not need it. They have plenty of access. 

I will give you another one. There used to be a publicly-held 

bank and Sarbanes Oxley converted them from public to private 

which also restricts their access to capital which restricts their access to lending to small businesses. 

Mr. FERRARA. Can I address this since she asked if anybody 

could answer this? I do not think psychology has anything to do 

with it. You have got to create a booming economy and the psychology takes care of itself. But the recovery is—the problem is the 

recovery is long overdue and whatever signs of life in the economy 

there are it is too little too late. 

The National Bureau—the statistics show that since the Great 

Depression, recessions in America on average have lasted 10 

months. The longest previously was 16 months. Here we are more 

than 48 months after the recession started and there is still no real 

recovery. Moreover, you cannot say, well, it is because the recession 

was so bad. Historically, the worse the recession, the stronger the 

recovery. So based on these historical standards we should be nearing the second year—the end of the second year of a booming economy by now. And it is the fact that it has not—there has been no 

real recovery. That is what is destroying the psychology of small 

business. If you follow pro-growth economic policies you will get a 

booming economy and small business will have fabulous psychology. 

Ms. VELA ́ ZQUEZ. So, Mr. Ferrara, what you are saying is that this 

administration did not know how big a hole was dug by the previous administration. Right? 

Mr. FERRARA. No, that is not what I am saying. 

Ms. VELA ́ ZQUEZ. And the stimulus package that we put in place 

was too small to produce the kind of results that were needed given 

the big hole that was dug. 


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Mr. FERRARA. No, that is not what I am saying. My estimate, 

well, no, I would never say that. My book, America’s Ticking Bankruptcy Bomb shows just the opposite. 

Ms. VELA ́ ZQUEZ. I understand. I understand. 

Mr. FERRARA. I can tell you exactly how many jobs were created 

by the stimulus. It was 0.000 because if you take a trillion dollars 

out of the economy and spend a trillion dollars back into the economy, you have not done anything for the economy on net. It is old 

fashioned, outdated Keynesian economics which is a proven failure. 

In fact, it is probably a drag on the economy because the private 

sector will spend that trillion dollars more efficiently than the private sector. 

Chairman GRAVES. Mr. West. 

Mr. WEST. Well, thank you, Mr. Chairman. Thank you, Ranking 

Member. And thanks for the panel for being here. 

It is very interesting what I heard at the beginning and by the 

time we got to the end when we talk about psychology. You started 

out we are talking about optimism. By the time we got to the end 

we are talking about uncertainty and lack of confidence. So my 

question is, especially I have Christina Hebert here who is a chief 

operating officer of a small business as part of the marine industry 

of South Florida. She is also an executive director there. Let me 

read you a summary of a report that she just gave to me that follows up from the Fort Lauderdale Boat Show, which is the largest 

boat show in the world, as a matter of fact. ‘‘The recreational marine industry needs assistance facilitating communications with all 

agencies whose regulations affect the industry.’’ 

Second summary point. ‘‘The United States is unable to attract 

90 percent of the large yacht economy to this country due to the 

onerous regulatory environment. Attracting this business to the 

United States would mean a massive influx of spending and jobs.’’ 

So I hear about optimism. I hear about lack of certainty. I mean, 

lack of confidence and uncertainty. What can we do up here in 

Washington, DC to bridge the gap between those two points? 

Mr. JACOBE. Well, what I was trying to say is that right now we 

have an opportunity and the optimism is very tenuous. That is why 

I think it is a very fragile kind of optimism. We had some of it a 

year ago and we need to do something to keep the momentum of 

that optimism going. And that is why I was saying just freeze regulations because whether you want to agree with it or not it is having a behavioral impact and in this sense perception is reality. And 

small business owners are very concerned about regulation. And I 

think anything we can do to help their psychology right now, we 

can start to overcome some of these kinds of things and the kind 

of thing you were just talking about. 

Mr. BAILY. I would just say that I think those regulations about 

yachts have been in place for a long, long time. So I do not think 

this is something new. I do not think it is something that President 

Obama did. 

Mr. WEST. I did not say anything about administration. 

Mr. BAILY. No, you did not. 

Mr. WEST. I will talk about fixes. 


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Mr. BAILY. I do not know enough about it. It may be we should 

be able to simplify that regulation and make it easier to build a 

yacht. 

Mr. WEST. What I am saying is not just specific for this industry. 

We are talking about an environment out there where people are 

saying it is an uber regulatory environment that is constraining 

the growth of our economy in this country. So what I am asking 

you real smart guys because I was just a paratrooper in the Army, 

what are the type of things that we need to be doing coming out 

of Washington, D.C. to turn this around? Because as Mr. Ferrara 

said, when you sit back and you look at pro-growth economic policies, I do not want to see us be like Japan and start down the path 

of 9 or 10 stimulus packages and we have a lost decade. So what 

should we be doing to go and build upon this optimism and get 

away from this lack of certainty? 

Mr. FERRARA. Can I address that? 

Mr. WEST. Sure. 

Mr. FERRARA. I discuss this in my book and I served on the 

White House Office of Policy Development under President Reagan. 

And I went back and looked at what did he do to address the enormous crisis we had at the end of the 1970s which was arguably 

even worse than this crisis. You ended up with double-digit unemployment, double-digit interest rates, and double-digit inflation. 

There were four components he campaigned on and implemented 

once elected. One is reduced tax rates to maximize the incentives 

for production. Two was reduce regulatory burdens to reduce the 

costs on production. Three was to reduce government spending to 

reduce the drain on the private sector. And four was a strong dollar 

monetary policy, which serves to enhance investment because investors are confident they will not lose the money because of a declining dollar or because of cycles of boom and bust due to unstable 

monetary policy. 

Those policies worked spectacularly. I call it the most successful 

economic experiment in world history. By 1982, the economy took 

off on a 25-year economic boom, what Art Laffer and Steve Moore 

called in their recent book ‘‘the greatest period of wealth creation 

in the history of the planet.’’ Twenty million new jobs were created 

in the first seven years alone. Fifty million jobs were created from 

1980 to 2007. Recently that was reported in the Wall Street Journal. So if we would restore those pro-growth policies the economy 

would take off at another long-term boom within a year or so and 

that would be a way to solve the problem. 

Mr. BAILY. We also had pretty good growth during the ’90s during the Clinton years, let me remind you. In fact, maybe even 

slightly better growth. And President Reagan was a practical man. 

You know, he cut tax rates very heavily. He saw the big deficits 

that came about and he agreed to actually some very substantial 

tax increases that followed when he realized he had overdone it on 

the tax side and that is what we have to do now. Obviously, we 

need to control spending. Of course we do. But we cannot, I agree 

with you, we cannot run these huge budget deficits and we have 

got to attack that from both sides, the spending side and the revenue side as President Reagan did. 


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Mr. JACOBE. And let me just add that there is an immediate situation and there is a longer term kind of situation. And what I was 

trying to say with a moratorium is that we really ought to take advantage of this opportunity with some increasing optimism out 

there and try and do something immediate. There are all kinds of 

other solutions, part of which is housing. But the immediate situation is we will lose it if we do not act quickly. 

Mr. WEST. Mr. Chairman, if I could ask one quick one. Could we 

have reinstated Glass-Steagall instead of going the direction of the 

Dodd-Frank? 

Chairman GRAVES. Yes. 

Mr. WEST. Thank you, Mr. Chairman. I yield back. 

Chairman GRAVES. Ms. Hahn. 

Ms. HAHN. Thank you for holding this important hearing. And I 

will tell you I am still sort of new around here. I was just elected 

to Congress last summer in a special election. But I love being on 

this Committee. I think the Small Business Committee is one of 

the more important committees back here in Congress because it 

really is critical, I believe, to the growth of our economy, getting 

things back on track in this country, creating more jobs. It is really 

about small businesses. 

And since I was elected last summer I have made a point of touring and meeting with small businesses in my district, probably 

close to 100 now individually, and talking to them about what I 

think we are trying to get at in this Committee and in this Congress, is what can the federal government do or not do to really encourage growth in our small businesses, encourage hiring, and really help them do what they do best. And you know, as you all know 

there is a difference in small businesses. I would like to ask Dr. 

Jacobe later in his polling did you differentiate between the largesmall businesses and the small-small businesses because I do think 

they have a different perspective, particularly when it comes to 

regulations. 

And I think you are right. I think all of us want to find those 

regulations which may be burdensome, which may be out of whack, 

which might do better to be tweaked or not in place. But I for one 

am not interested in removing regulations that are there solely to 

protect the consumer or there to protect the health and safety of 

the worker. I am not interested in that. But if we can look at other 

things that might be beneficial I think we are all willing to do this. 

One of the things that I kept finding out when I talked to my 

small businesses, two things which your poll actually pointed to. 

The second and third one was lack of consumer confidence and lack 

of consumer demand which between the two of them is about 27 

percent. So regulations was 22 percent. So to me that is really the 

bigger issue that we need to focus on. What can we do to bring 

back consumer confidence and consumer demand? I participated in 

the Small Business Saturday on November 26th, which I hope we 

make that a bigger deal this year. Every one of the businesses that 

I walked into, small businesses, they said, ‘‘Congress member, we 

need more consumers. I want more people coming through my 

doors to buy my products. Because when that happens I can hire 

more people and I am willing to hire more people but I need people 

who have their jobs. I need people who are not losing their homes. 


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I need people who are making decent wages. I want consumers. 

That is what is going to help my small business.’’ 

The other thing I found overwhelming was a lack of access to 

capital. That seemed to be really just a common theme with all my 

small businesses. They did not like the fact that we required way 

too much paperwork to even apply for a loan so I have introduced 

legislation which will cut down paperwork and expedite approval 

process for loans under $250,000. And credit unions. Community 

banks and credit unions. Credit unions, you know, under regulations are not allowed to lend more than a certain percentage of 

their capital. They would like to be more on par with banks. So I 

have also co-sponsored legislation that allow credit unions to loan 

more capital which I think will benefit small businesses and I 

think it brings back that in our community we know our community banks and our credit unions. 

But beyond that, Dr. Baily, you touched on it a little bit. I think 

it is the startup businesses. By the way, what we are finding in 

new statistics is that some of these people that got laid off through 

no fault of their own, they are now looking to be entrepreneurs and 

innovators and start up their businesses. I think it is terrific. But 

what else can we do to help these startup businesses survive, 

thrive, and being to hire people because we know that the biggest 

growth in hiring is going to come from our small businesses, not 

our large businesses. What else can we do specifically? 

Mr. BAILY. I am not sure I have got a lot that is different from 

what we have already talked about and I think I would agree with 

the things that you have said is what is needed is access to capital 

and they need more consumers so we need to follow a sound policy 

for the economy overall so that we begin to get that overall growth 

and we get more people coming through the door. Those are the 

main things that we need to do. 

I said in answer to an earlier question, if we can get more money 

coming from our small community banks, which are not so affected 

by—not really affected by Dodd-Frank and I think the Small Business Administration. It is not huge but I think that is playing a 

useful role also. 

Ms. HAHN. And Dr. Jacobe, and I know regulations, we are tackling that issue in this Committee. I did not hear that from one of 

my businesses that I have talked to. They were really more about 

access to capital and more customers. Did you differentiate in your 

poll between the large small businesses and the small-small businesses in terms of the burdensome regulations? And besides health 

care, are there some specific regulations that you have uncovered 

in your polling that businesses are pointing to? 

Mr. JACOBE. Well, we did not really break out the regulations by 

size. We call it sample size limitations on some of those kinds of 

questions. What we know is that business that, say, have more 

than $2 million in revenues or assets are more optimistic and tend 

to be more optimistic about credit than the ones that are smaller 

than that. The others tended to be dependent on housing finance 

as part of their sort of capital source and entrepreneurship and all 

that kind of stuff. And taking the housing finance system as it 

stands now has really hurt small business. Some kind of change to 

the housing finance system would help a lot. We will look at that 


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but again, as I said, it is a sample size kind of problem and it is 

not unusual that they would not necessarily mention regulations 

because they have a whole lot of things on their mind when they 

are talking to you. 

Ms. HAHN. Thank you. 

Chairman GRAVES. Mr. Schilling. 

Mr. SCHILLING. Thank you, Chairman. 

I guess being a small business owner and actually currently still 

having my family run the small business I have got to disagree 

with the statements about regulations are not affecting our businesses because I truly believe they are. And just like the gal before 

me, the congresswoman, I just had a small business meeting just 

this past Monday. And I had a small business with 33 employees 

that they are in the process of going under. They have had no 

deaths, no major accidents, the business has been in place for I 

think 35 years. They do about $3 million a year in business and 

OSHA has come out and fined them left and right. The first one 

they had was taking their forklift trucks and forcing them to 

switch from LP gas over to electric. 

But, you know, just to give you an idea. This is coming from the 

real world. These are real numbers that I am going to be telling 

you about and these are factual numbers coming directly from my 

business. Back in January of 2009, I own a pizzeria store and 

cheese has gone up 40 percent. Back in 2009, mushrooms, from 

2009 till today have gone up 44 percent. Pork has gone up 32 percent. You know, the problem is that I cannot in a downturn economy, I cannot turn that over to my customer. And yet we have gas 

prices that are sitting at $3.50 to $4.00 per gallon and yet we will 

not allow for the Keystone pipeline to be brought into the United 

States of America. We are going to send that over to China. 

But I guess the thing that I wanted to get at is with the Affordable Health Care Act—some call it Obamacare, call it what you 

will—but you indicated that a lot of the customers, folks out there 

have less than 50 employees and they really do not need to worry 

about being forced upon the plan. But my concern is the fact that 

the people with 53 to 60 to 62, the people that I have talked to 

have said, look, you know what? We are just over the threshold. 

Guess what they are going to do? They are letting people go. They 

are going to get under the part that is going to force them to be 

on the plan. So I think that we have got to take all that into consideration. 

When we talk about the jobs created under the administration, 

you know, the fact of the matter is under the administration we 

have actually lost 1.6 million jobs since this administration has 

taken over. You know, if you have a dollar and you lose all of it 

and then you find a dime, well, you have a 10 percent increase in 

what you had so we have got to be really real. And I was happy 

to see that you, Mr. Jacobe, that you were talking about the people 

that have quit looking for work because that is important because 

we are closer to 20 percent. We can all point fingers back here and 

there but I think something else that we have got to do is we have 

got a bunch of bills that are bipartisan bills that are sitting over 

in the Senate right now. And what we have got to do is all of us 

take our democrat and republican, you know, we are here as U.S. 


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members of Congress and what we have got to do is we have got 

to come for some solutions for the American people. And I hate to 

go on a rant but this is—when I am hearing some of this stuff, 

being right in what I call the final three feet of the business and 

I hear people over here telling us that the regulations are not adversely affecting small businesses in the United States of America, 

I cannot disagree with that more than anyone. 

And another thing we talked about a little bit is the fact that we 

have access to capital. You cannot have small businesses if you do 

not have that access. I had a gentleman this week that I talked to 

that basically what is happening is they want him—he wants to 

start up a restaurant. They want 50 percent down. He does not 

have 50 percent down. So we have got to figure out a way to find 

some solutions. We all know there is a problem and I do not believe 

it is more stimulus. I am sorry. You know, the administration told 

us that it was spending $787 billion that we were going to keep unemployment rates under 8 percent. They also told us if we did 

nothing that today we would be sitting at 6.5 percent. So it is not 

working and throwing more of my kids’ and my grandkids’ money 

to just continue to spend it away I do not believe. What we have 

got to do is what our job is is not to spend the taxpayer money. 

I believe it definitely is to create certainty. And that is to get all 

the ridiculous regulations. And we all want clean air, clean water, 

and all that stuff, but what we have to do is when they are coming 

out to regulate our farmers, the dust that they are putting up in 

the air, we have got to say, hey, wait a minute. Come on. Where 

are we going with this? 

But I think the key here is to find solutions to the problems and 

things that are going to really definitely help to fix the United 

States of American and keep jobs here rather than giving incentives for them to move jobs outside of the U.S. So I do not really 

have a question but I had to kind of speak my mind on that. And 

that is coming from a small business perspective. So thank you and 

I yield back my time. 

Chairman GRAVES. Mr. Schrader. 

Mr. SCHRADER. Thank you, Mr. Chairman. The Small Business 

Committee usually is a bipartisan committee or historically has 

been and I am sure we will get back to that. Thank you all for 

being here. I am sure you do not want to hear my political talking 

points so I will just ask a few questions and take advantage of the 

fact you all are here. 

Mr. Jacobe, if you could go—your graphs are very illuminating 

and I think very helpful to give us a perspective. Do you have access to data that goes back further to get a more historical? Because it looks like we are seeing the run-up. I would like to see as 

we recover where we are getting back to the historical norm because as you all have pointed out I think perception becomes reality. Certainly it is in our business and it is now becoming true 

for small and large businesses in this country. Do you go back further in your data? 

Mr. JACOBE. We have a lot of different data sources but the daily 

measurement only goes back to January 2008. So my reference is 

to 2008, the time just before or as the recession started. 


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Mr. SCHRADER. That is kind of an unrealistic era and obviously 

led to the crash. So I was just trying to get perspective. 

Dr. Baily, with regard to—you co-authored a Brookings deal last 

year, I believe, or two years ago in 2010, and talked about economic 

additions and not being precedent or conducive to businesses being 

able to get back on their feet or start up. Given this Committee and 

its area of expertise, what should be we doing do you think with 

the SBA and some of these policies and programs to really get 

things going? 

You have to push your button, sir. 

Mr. BAILY. I have to push my button. Thank you. 

Mr. SCHRADER. We are pushing yours but you might push ours 

once in a while. 

Mr. BAILY. Oh, do not worry about my buttons. I am used to having them pushed. 

Mr. SCHRADER. All right. 

Mr. BAILY. With regard to the earlier questions, it is important 

to take a hard look at the regulatory environment for small business and make sure that we are not putting in place or we do not 

have in place regulations that are really going to discourage 

growth. So I think everybody can get onboard with that. That is a 

bipartisan thing. I think it is part of the startup act that I mentioned that is being sponsored in the Senate and there are other 

bills being sponsored in the Senate. So it is not like I am sitting 

here saying, oh, you know, regulation is always just great. I think 

we can improve regulations. 

Mr. SCHRADER. How about my question, Mr. Baily? 

Mr. BAILY. I apologize. 

Mr. SCHRADER. I have limited time. 

Mr. BAILY. You have limited time. 

I think the things that we need to do right now are do the best 

we can to get the overall economy going because that is eventually 

what is going to help small business. So that means dealing with 

the budget crisis and getting some modest stimulus in 2012. I 

think for small business specifically we have talked about access to 

capital. That, I think we are all agreed, is a key item and that has 

to come from private banks and make sure that they are doing 

what they need to do to provide capital to small business and the 

money coming from SBA is adequate to provide a supplement to 

that. 

I think that if we could—I think there is more that could be done 

to get more worker skills in place and I think we are not doing a 

good job right now with the folks that do not go to college. And 

there are some technological advances were we looking for a quick 

fix. It is not a quick fix but there are new ways of providing skills 

to workers. The Army is doing it, for example. They are providing 

skills to some of their recruits. I think businesses could learn a lot 

from that and the government could act as a facilitator to get people together and say let us find out how we can train these workers, give them the skills that they need so that they can perform 

the jobs that small business, and indeed, larger businesses are 

looking for. Because skill shortage really is a problem. I mean, we 

hear reports there are three million jobs out there that are not 

being filled because the skills are not available. 


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Mr. SCHRADER. Good. Those are very concrete. I appreciate that. 

Real quick answer if I can from each of the panel talking about 

everyone has referenced the huge debt and deficits we face when 

they argue over the causes and effects of those. There are several 

different proposals out there to deal with that and I happen to believe, and I am curious if you do, that with all the money sitting 

on the sidelines not invested people are concerned about where the 

country is going. Are we going to end up like Greece? I think we 

are already there. I agree with those statements, frankly. 

The Bowles-Simpson plan has had a lot of bipartisan support. 

Did not quite make the grade with supermajorities but we have 

done a pretty good job bipartisanly in cutting discretionary spending. We may not like the heavy hand approach on the second cut 

here but discretionary spending is on a course downward. Maybe 

not as far as some of us would like but certainly more than others. 

But the big dogs are revenue and entitlements. Do you agree that 

revenues in some form or another have to go up a little bit and entitlements need to be cut significantly to get our country back on 

track? Just a yes-no from you guys if that is possible. 

Mr. FREDRICH. I think revenue is absolutely important. And if 

you wanted to raise revenue you would lower taxes. It works every 

time. 

Mr. SCHRADER. Like their tax reform proposal? Talk about—— 

Mr. FREDRICH. I do not know what it is but I will tell you if you 

lower taxes at the margin, which is where it counts, you would 

raise revenue. If you are worried about small business startups and 

capital you would make the capital gains tax zero. But I do not 

think there is any incentive to do that. 

Mr. SCHRADER. If you could look at that report I sure—because 

you are a good small business guy. I would really love to get your 

opinion on their tax reform piece. If you could do that for me at 

some point. 

Mr. FREDRICH. I would be happy to. 

Mr. SCHRADER. If you do not mind. Big request, I am sorry, but 

if you could it would be cool. 

Mr. FREDRICH. Sure. 

Mr. BAILY. I like the Bowles-Simpson proposal. Some of them 

were not as specific as they might have been but I think it would 

have been a great framework to deal with the budget. And it proposes higher revenues and controlling the growth of spending. And 

I think that is what we absolutely have to do. 

I think they do propose lower tax rates, so lower marginal rates. 

But in return for that you have to give up something because that 

does not give you more revenue. You have got to give up some of 

the special tax breaks or something like that if you want the lower 

rates. And I think that would be a great thing to do. 

I also would say that there is a proposal by Domenici and Rivlin, 

which I think in some ways I like even better than Bowles-Simpson. But either one of those I would take as a basis for dealing with 

this problem. 

Mr. FERRARA. I think the Simpson-Bowles points in exactly the 

right direction. The only way you can raise revenues in this economy is by lowering the rates and stimulating, creating incentives 

for economic growth. And I agree that you can go along with that 


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and reduce some loopholes and some of the—because when you 

lower the rates, a lot of those loopholes become completely unnecessary and can be eliminated. So that does point us in the right direction but I think that I like what Congressman Paul Ryan has 

been proposing in his budgets. He has a tax reform. Ten percent 

for families below 100,000. Twenty-five percent for families above 

that. And so I think that that is a stronger measure but it goes further in that direction. I think that is the right direction to go. 

My entire testimony addresses entitlement reform and the whole 

point of the testimony in the book is that entitlement reform can 

be done in a positive way, that it does not have to involve how 

much are we going to take away now from seniors and the poor. 

That, in fact, if you do structural systemic reforms, change the way 

these programs operate, they are so old. They are so based on ideas 

from 100 years that you can produce programs that actually serve 

seniors and the poor far better but cost just a fraction of what the 

current approaches do. And those reforms can involve pro-growth 

incentives that would contribute to the economy as well. And we 

discuss that in detail in the book and some in my testimony as 

well. 

Mr. SCHRADER. Thank you. 

Mr. JACOBE. I think the real solution is a very rapidly growing 

economy. I think there is potential there and I know I am not necessarily in sync with a lot of people on that. But we have not recovered as we said earlier from the downturn in any way like we 

should have. And that will change everybody’s perspective if we 

really start going like we did after the Reagan recession. And to 

be direct, I do not agree with any kind of tax increases. 

Chairman GRAVES. Mr. Wall. 

Mr. WALSH. Thank you. Thank you, Mr. Chairman. 

If there is anybody on the panel that disagrees with me say 

something. Are any of you four gentlemen at all satisfied with 

where we are at with this economic recovery? Is anybody satisfied 

with how this recovery is going? 

Mr. FERRARA. Absolutely not. It is the worst economic recovery 

since the Great Depression. I have written on that recently at 

Forbes.com. 

Mr. WALSH. Dr. Baily, are you satisfied with where we are at? 

Mr. BAILY. I am not satisfied but I would say that the administration, the Obama administration should get a lot of credit for 

having turned things around. The banking system, the financial 

system did not fail. It was sustained. 

Mr. WALSH. Are you, Dr. Baily, are you—— 

Mr. BAILY. The economy stopped falling. It fell like a stone. 

Mr. WALSH. I will give you a chance. Are you satisfied with 

where this recovery is at? Yes or no? 

Mr. BAILY. No, I am not satisfied. It is still too weak. 

Mr. WALSH. Dr. Jacobe. 

Mr. JACOBE. No. 

Mr. WALSH. Mr. Fredrich. 

Mr. FREDRICH. I do not think we have had a recovery. So no. And 

that is a common perception. 

Mr. WALSH. And as Mr. Ferrara pointed out, historically the 

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covery. And again, I think it is fairly safe to say that when it comes 

to economic growth and job growth, this is easily the most anemic 

recovery we have had since the Great Depression. And so what I 

want to figure out is why is that? What has this administration 

done or not done enough of or done too much of, we are all not satisfied with the varying levels of degree here with where we are at. 

Be as concise as each of you can be why do we sit here in the midst 

of a historically weak recovery if you, in fact, want to call it a recovery? Why are we where we are at? Try to be as concise as each 

of you can be. Let us start down at that end. 

Mr. FREDRICH. I think we are actually living the 1930s all over 

again because it was a recession that was extended through government action. And there were just asinine programs started during that time period that kept this country in a recession until 

after World War II when there was a change in the Congress. 

Mr. WALSH. So to paraphrase, too much government? 

Mr. FREDRICH. Absolutely. 

Mr. WALSH. Dr. Baily, why are we—what have we not done 

enough of? What have we done too much of? Why are we where we 

are at right now? 

Mr. BAILY. I think we are where we are at because this recession 

is very different from the earlier ones in the post-war period because it had this incredible housing bubble and housing prices have 

dropped 30 percent. We lost $14–$15 trillion worth of household 

wealth. We do not have residential construction as a lift to the 

economy. Consumers do not have the value in their homes which 

allows them to feel more confident and spend more. And so I think 

the only thing that could have been done more was more emphasis 

on trying to turn around the housing market, while the truth of the 

matter is that is a very hard thing to do. And so inevitably we were 

going to get a long recession. 

The other thing was that if we had not had deficits coming into 

this recession, in other words, when I was chairman of the Council 

of Economic Advisors we had a 2 percent of GDP surplus in the 

budget. And if that had not been squandered in two large tax cuts 

we would have come in with more ammunition to deal with this 

downturn. 

Mr. WALSH. Mr. Ferrara. 

Mr. FERRARA. I discussed in my testimony each of the four components of Reaganonimcs. And the reason we have no recovery is 

that Obamanomics is following the opposite of every one of those 

four components of Reaganomics. I talked about Reagan reduced 

the tax rates. Next year you have already scheduled in current law 

increases in the top tax rates of virtually every major federal tax. 

The only one left out is the corporate income tax which is already 

virtually the highest in the industrialized world and is already too 

high. Instead of reducing regulatory burdens we have increases in 

regulatory burdens. Instead of reducing government spending we 

have massive increases in government spending. Instead of a 

strong dollar monetary policy we have a weak dollar monetary policy. So that is why we have no recovery. 

Mr. WALSH. Dr. Jacobe. 

Mr. JACOBE. The recessions since World War II and since the 

Great Depression have had a housing cycle embedded in it. This 


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time we had a financial crisis. I do not think people have adequately assessed the financial crisis and therefore have not adequately assessed what needs to be done to change that. But the big 

problem is the finance system is not working the way we want, 

particularly in housing. I think that is the key to the problem. 

Mr. WALSH. Mr. Ferrara, one final quick question for you. Dr. 

Baily testified that Obamacare will actually help small businesses 

and will not increase their costs which I find mindboggling. Would 

you care to comment? 

Mr. BAILY. Yeah, I think Obamacare is very detrimental to small 

businesses, already increasing health costs. In addition to the point 

that was made about companies just above the threshold, there is 

also a negative impact on companies just below the threshold that 

do not want to grow up to 50 and above. And so it is reducing job 

growth in that way as well. And what you have seen is instead of 

increases moderating they seem to be accelerating which is what 

I predicted in my book. 

Mr. WALSH. Thank you. Thank you, Mr. Chairman. 

Chairman GRAVES. Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. I want to go back to 

something that Dr. Baily talked about a few minutes ago and that 

Dr. Jacobe also mentioned which is housing. I used to build houses. 

One of the reasons I am here is that I used to build houses. 

I have heard a lot of different ideas. We have had half a dozen 

or so federal programs designed to try and help the housing industry. I agree with you, Dr. Baily, that this is a crisis within this industry that we have not seen certainly in my lifetime or my dad’s 

lifetime. I come from three generations of homebuilders. 

So I guess since I have got fairly smart people on the panel, some 

of whom I might agree with philosophically and disagree with 

philosophically, I will ask you all the questions. We will start with 

Dr. Baily and then anybody else come in. What would you do? I am 

open-minded to ideas on how to fix the housing industry and 

maybe a corollary to that if you do not have any ideas of what to 

do is what should we not be doing? But I will start with Dr. Baily 

and we will just take it from there. 

Mr. BAILY. I wish I had a better answer to give you. There have 

been a number of programs that have been tried, starting with the 

Bush administration. And I think those were generally good programs. The Obama administration has tried a number. There is a 

new one that is being announced today. I support many of those 

programs. I think they are trying to, I mean, the problem is we 

have very low interest rates but people cannot refinance their loans 

or they are underwater from it. So you have either got to wait this 

thing out for another year until the housing market really comes 

back or you have got to start paying off the people who are underwater. And I think there is a lot of, you know, a lot of reasons to 

be nervous about that. You would end up paying—nearly a quarter 

of the money would go to California since that is where a lot of the 

underwater mortgages are. So I do not know that there are easy 

solutions. I think the programs that have been tried are helping 

but they can only do a limited amount. And unfortunately, we have 

got to wait this thing through to some extent. 


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By the way, I agree with Dr. Jacobe that the financial crisis also 

contributed to where we are now. 

Mr. MULVANEY. Let me press you on that because I think that 

may be where we are right now which is where the financial situation is also hampering recovery in the housing market specifically. 

You mentioned low interest rates. There have been low interest 

rates now for the last two or three years. Folks are not able to refinance in large part because of the regulations that exist on banks 

and what limits they can do on lending. So I hear what you are 

saying about waiting it out but unless we allow banks to flush 

these products through the system, allow housing to actually find 

a bottom, are we really ever going to get to the end of it? 

Mr. BAILY. I agree we have to do that. 

Mr. JACOBE. The housing finance system, it is a long discussion. 

I go back to the days of the thrift lenders and the community lenders and that kind of thing. And a lot of what has happened had 

to do with the whole secondary market and the disconnect between 

finance and the actual borrower in the marketplace. And my solution is to tie those two together again. I think you need to create 

some kind of active community lending where it is profitable for a 

small bank or a credit union or a thrift to actually make a home 

loan, deal with the borrower, not have to send it off to some investor and all of these different processes that go through that have 

created a major disconnect in the housing finance system. And I do 

not think you can do that with the current housing finance structure which is with Fannie Mae and Freddie Mac. So something has 

to be rebuilt in the private sector that will allow homeowners and 

people to actually take some risk in the housing market for some 

period of time. 

What we have done is we have created a situation where nobody 

profits from making a home loan. And that—— 

Mr. MULVANEY. Until you collateralize it, securitize it, package 

it and sell it off. 

Mr. JACOBE. Well, and you get a fee in that process. And if you 

can do a lot of them you get a lot of fees perhaps and refinance 

fees. But it is just a very difficult thing. You need to have community lenders who are invested in the community and who have an 

interest in making sure that you pay that mortgage loan off and 

that you start the process over again because we did that for many 

years and we destroyed it over the last 20 years or so. 

Mr. MULVANEY. Mr. Ferrara. 

Mr. FERRARA. What I would like to say is that if you try to focus 

on just the housing sector then I think there are no good answers. 

What government inventions will help the housing sector, I think 

there is no good answer. What I want to urge you to do is to focus 

on the general economy. If you create a booming economy by following pro-growth measures then the housing will take care of 

itself. So I think that is the basis of the solution. And the bottomline on that is to focus on incentives for production. Incentives to 

maximize investment of production. 

Mr. MULVANEY. Mr. Ferrara, I do not want to cut you off. I only 

have 19 seconds and believe me, you are one of the ones that I 

would typically agree with philosophically. And I am wondering if 

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as, and I posit this just for sake of discussion, that our ability to 

create this environment that would lead to the economy that you 

have just stated, which is what everybody up here wants—it is a 

question of how we want to get to that—is severely hampered by 

the inability of labor to move to where the jobs are. And the housing market is saddling and anchoring this economic growth that we 

might be able to find. And unless we are able to allow, to find a 

way to allow capital markets to function again, to allow labor markets to function again, that we are not going to get to that point. 

I am not for government intervention for the sake of government 

intervention. I am just wondering if there is something that we 

could do to allow the natural force of the economy to do what you 

have just described. 

Mr. FERRARA. Well, you focus on—see, the four principles of 

Reaganomics are based on fundamental economics. And that has 

not changed. And so the key is to focus on the incentives—taxes, 

regulations, monetary policy. What incentives are they creating? 

And how does that affect the overall economy? The fundamentals 

of economics remain. Businesses still start and exist to make a 

profit, to act in their self-interest. And so just take advantage of 

the fundamentals of economics and you would create another economic boom if you did. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

Chairman GRAVES. Ms. Clarke. 

Ms. CLARKE. Thank you, Mr. Chairman. And thank you, Ranking 

Member Vela ́zquez. And I would also like to thank the panelists for 

their testimony today. 

You know, must today the America’s Sustainable Business Council in conjunction with the Main Street Alliance and Small Business Majority released a poll indicating that consumer behavior is 

the number one concern by far with 34 percent of respondents 

pointing out that this is the biggest obstacle they face. Government 

regulations were a distant third at 14 percent. 

This coincides with what my constituent small business owners 

tell me is their number one concern along with access to capital. 

This meshes with the basic economic fundamentals. If consumer 

confidence is low, industry has no incentive to add fixed cost, which 

in this case would be adding jobs, which is why I am having a little 

difficulty reconciling in the somewhat vacuum-like argument being 

made today that government regulations are hindering small business from hiring. 

So I have two questions. My first question is to the entire panel. 

Would you help me better connect the dots that point to government regulations as a bigger detriment to the viability of small 

business that would be stagnant or further dips in consumer confidence? And then to Dr. Jacobe, can you explain to me the difference between consumer confidence and a lack of consumer 

spending as concerns for small business owners? And I ask because 

if you add the two percentages, the sum of the consumer behavior 

makes it the number one obstacle facing small business owners in 

the Gallup poll. 

Mr. JACOBE. Should I begin? A couple things. I think it is arguable to say that major concerns on the part of small businesses are 

a lack of revenue, lack of consumers, lack of consumer confidence. 


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And as I mentioned, we went through several different kinds of 

questions trying to get at that. I think it matters how you ask the 

question and it also matters what the environment is, what people 

are talking about and all those kind of things. 

I think, however, that however we ask the question that that 

comes up and that is something that, for example, you can do 

something about, whereas I do not think you can do a lot about 

some of those other factors that are affecting small business. It is 

very hard for you to drive revenue to a small business. However, 

all I am saying is that whether it is true or not, whether people 

want to make factual arguments or not, there is this perception 

that exists out there and in a behavioral economics context I am 

just arguing if you can help that perception, if you can help change 

that perception even for a period of time until the economy gets 

going better, until the small businesses are doing better, I think it 

is a plus. 

Mr. FERRARA. Businesses look to the future, what is coming 

down the pike. And you have, for example, a very activist EPA that 

is on a regulatory crusade that is eventually going to reach down 

to all businesses across the board. If they are going to achieve what 

they say they are going to achieve, sooner or later they are going 

to walk in the door and they are going to say you cannot do what 

you are doing. And they do not want to, you know, an investor does 

not want to put a million dollars on the line or sign for a loan for 

a million dollars you are supposed to pay back if they do not know 

what is going to happen when it comes to—— 

Ms. CLARKE. That begs the question why small business owners 

did not just say EPA regulation. They said consumer confidence, 

consumer spending. This is what they said. We are not, you know, 

and I have yet to hear anyone in my district—and I have a small 

business-laden—we are talking mom and pops, who have said to 

me, ‘‘I am so scared that the EPA is going to come down.’’ They 

are concerned about who is coming through their doors each and 

every day. 

Mr. FERRARA. Well, in your district they may not know about 

that yet but it is affecting other businesses and that is my opinion 

that you asked for. 

Ms. CLARKE. Okay. 

Mr. FERRARA. There is also the employer mandates negatively affecting businesses. We have discussed that before which it is not 

only the requirement to buy insurance but it is like what is coming 

down the pike and what is that insurance going to have to be to 

satisfy what HHS is going to demand to satisfy the mandate? And 

so that is a threat to even companies already providing insurance. 

Is this going to raise my costs? 

Ms. CLARKE. Mr. Ferrara, I got your point but my time is limited. I do want to hear from Dr. Baily. 

Mr. BAILY. Well, I think your sentiments are right. I basically 

agree with what you are saying, that it is really getting the customers in the door that is the biggest problem for small business 

and I think that is what they say. Yes, they have gotten concerned 

about the health care but actually existing plans are basically 

grandfathered in. So I think you should be reassuring your small 

business friends that they are not necessarily going to face a big 


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change as a result of the ACA and they may even get some benefits. But basically, consumer confidence, consumer spending. We 

look at what consumers do and if we can get them spending, then 

small businesses are going to feel better. 

There is a chart in my testimony which shows—it is from the 

NFIB, and NFIB is not a big fan of regulation or the ACA. But if 

you look back at their chart, the level of concern about regulation 

was high when the economy was weak in the early ’90s and it is 

high again now so I think if we can get the economy going that 

concern is going to fade off. It is not going to disappear but it is 

going to go down again. 

Mr. FREDRICH. I think you have to divide the types of businesses. 

I think most of what you were talking about are retail businesses. 

Ms. CLARKE. It is a blend. 

Mr. FREDRICH. It is a blend. But when you think about it, for 

small businesses, especially retail ones, for people to come in their 

doors and buy something, those people have to have jobs. So the 

way I would look at it is how can I create an environment in this 

country where it is not so expensive to employ people vis-a`-vis the 

rest of the world? And we are on the high end of what it costs to 

employ people. If you look at countries that we compete with, like 

China, Vietnam—— 

Ms. CLARKE. Not for long. 

Mr. FREDRICH. There will be one right behind them. I mean, 

Bangladesh, India, there are lots of poverty in the world. So that 

is what you have to look at. You have to look at how could I allow 

our people in this country, our employers, to employ people? And 

let us reduce their costs. I am not talking about wages. 

Ms. CLARKE. I was going to say you just implied that we should 

be competing with the wages of like Bangladesh or India which I 

do not think the average American could go for. 

Mr. FREDRICH. No, we do not have to do that because we have 

an infrastructure here and we are much more efficient and productive than any other part of the world. So we do not have to compete 

on wages. We do not and we should not. But what you do is the 

regulatory burden is cumulative. It just makes it so expensive to 

employ somebody that it goes elsewhere. 

I just bought the new iPod and I thought this thing is really cool. 

It was developed here. It is the neatest product I have seen. It is 

made in China. It was never made here. It went right there. We 

did all the brainwork on it to develop and we produce it in China. 

Ms. CLARKE. Thank you, Mr. Chairman. 

Chairman GRAVES. Mr. King. 

Mr. KING. Thank you, Mr. Chairman. You know, at first as I 

open this up I regret the gentleman from Oregon is not here. I hope 

someone passes him along the message. He seems to be pretty 

thin-skinned about partisanship. I was listening to the gentleman 

from Illinois’ statement about running the pizza place and even 

though I am kind of happy that pork rice is going up 30 percent, 

I did not hear anything partisan in there except the phrase 

Obamacare. And I point out to the panel that to my recollection, 

and I think it could be easily referenced that that phrase was given 

life and momentum and perhaps coined by the president himself on 


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February 25, 2009 at the Blair House. Remember that health care 

summit that is there. 

And so when I am looking through the polling results, the Gallup 

poll results, I am actually surprised at these results, Dr. Jacobe, 

in that I started a small business in 1975 and made payroll for 

over 1,440 consecutive weeks. I sold that business to my oldest son 

and it and a spinoff of it go on today dealing with all these government regulations. I am pretty sure if I asked two of my sons that 

are in that business now what the number one issue was, we would 

have probably gotten Obamacare as the biggest load that they 

would be facing. And I see that down there. Well, wait a minute. 

It is the new health care policy at 5 percent. Now, I am wondering 

if some of the people that said complying with government regulations at 22 percent are not also thinking of Obamacare at least as 

a comment of that. But I would ask you to speculate. If that had 

been phrased differently the way Mr. Schilling phrases it and I 

phrase it, what kind of a response do you think there would be a 

change up or down in that number of 5 percent on the new health 

care policy concern? 

Mr. JACOBE. Well, it is not real good to speculate on question design and responses. My guess is there is some mixing in that area. 

If you look on the testimony after those two tables, I have a part 

that talks about the worries and when we asked people why they 

were not hiring. And if you look down that list you see that potential cost of health care is the 48 percent and then government regulations at 46 percent in terms of where we allowed them to have 

multiple answers. Now, those answers come after statements about 

revenues and cash flows as major concerns of small business. But 

they are all there in the top five. 

Mr. KING. Thank you, Dr. Jacobe. And I think you have added 

quite already to this. Just a quick read of the poll does not go as 

deep as what you have. And I would add to our background on this 

the special election in Ohio that took place a month and a half or 

so ago and was for the purposes of repealing the collective bargaining legislation that was passed there and signed by Governor 

Kasich. So I mean, we know that there were tens of millions spent 

to get people to the polls. It was a union-heavy turnout. Sixty-one 

percent rejected the collective bargaining language and initiative 

No. 3, right behind the initiative No. 2, which I have mentioned, 

was two exempt Ohioans by amending their constitution to the individual health care mandate. And that passed and they amended 

their constitution with 66 percent. So I thought that was a pretty 

powerful poll on the public’s acceptance of Obamacare. Would you 

care to comment on that, Dr. Jacobe? 

Mr. JACOBE. I think that the way we phrased it in our question 

was the cost of health care. And the way most Americans and 

small businesses I think are perceiving whatever you say about 

Obamacare is in the cost of health care to the premiums. 

Mr. KING. What is the average size of the businesses that were 

polled? 

Mr. JACOBE. Businesses that have less than $20 million in revenues or sales. Most of them are under a million. 

Mr. KING. The numbers of their employees, do you have that? 

Mr. JACOBE. No. I can give that to you but it is relatively small. 


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Mr. KING. Thank you. And I turn then to Dr. Baily and ask what 

would in your estimation be the grandest Keynesian experiment in 

the history of the world? The largest, most expansive, grandest 

Keynesian experiment? 

Mr. BAILY. World War II. 

Mr. KING. I did not expect that answer because I thought we 

were fighting to defend liberty and freedom and it was not a 

Keynesian experiment at all. And I have never heard it expressed 

as a means for our economy to recover. 

Mr. BAILY. But it did. 

Mr. KING. It did. We got very large government spending. That 

would be the president’s theory as well. 

How about we go with multiple choice here because that Keynesian experiment did not begin at World War II. We know that. It 

began with the initiatives of perhaps the Iowa president and then 

certainly with the New Deal of FDR. There was a follow-through 

of that under the same president all the way through. And then I 

will ask you this. Do you know when the stock market recovered 

from its peak in October 1929 when it finally got back to that 

level? 

Mr. BAILY. No, I do not. 

Mr. KING. Does anyone on the panel know that answer? 

Mr. FERRARA. I think it was after World War II, I think. Yes. 

Mr. KING. Mr. Fredrich. 

Mr. FREDRICH. Well, I was just going to say 1946. 

Mr. KING. 1954. 

Mr. FREDRICH. Oh. 

Mr. KING. FDR had been dead for nine years by the time the 

Grand Keynesian experiment came back ground to breaking even. 

And so that is a depressing thing to think about the Great Depression, how long it took to come back from the Great Depressions. 

Mr. BAILY. If you give me a second crack at that I would say Europe is providing a very good Keynesian experiment. They are all 

trying to reduce spending and raise taxes and they are all finding 

they are going into recession as a result. So that is the other side 

of the Keynesian coin. 

Mr. KING. Well, the Germans are doing pretty well and have all 

throughout. 

Mr. BAILY. Yeah, but they did not do any contraction. 

Mr. KING. That is true because they did not experiment in the 

Keynesian fashion that the rest of Europe did because they fear inflation and they fear interest rates. 

But Mr. Ferrara, I wanted to ask you what—if we were to, as 

a former Massachusetts governor has advocated, repealed DoddFrank, the Community Reinvestment Act, privatized Fannie Mae 

and Freddie Mac, and repealed Sarbanes-Oxley, what do you think 

would become of our recovery? 

Mr. FERRARA. That would be a very good component on the deregulation component of the four points of Reaganomics that I mentioned. 

I just want to say on the Grand Keynesian experiment, World 

War II, check out the trends in consumer spending during World 

War II to see if that really was a Keynesian experiment. I think 


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you will find that it was not having any kind of Keynesian effect 

and that is why the recovery did not really come until later. 

Mr. KING. And just in conclusion as my time is wearing down 

here, does anyone have the answer to where are the unemployment 

numbers. How many no longer are qualified to meet the category 

of unemployment? Does anyone have the answer on how many 

Americans are of working age who are simply not in the workforce? 

Mr. BAILY. I think that is one up recently. I think that has been 

going up. 

Mr. KING. Let me just respond to my own question then and that 

is I have tracked this for six or seven years and there are different 

ways to define it. So you say Americans of working age not in the 

workforce. That number, roughly not quite 14 million unemployed 

added to those from off the Department of Labor’s website, I started at 16 and I went to where unemployment is no longer paid and 

where Walmart does not hire. That is 74. Over 100 million Americans of working age simply not in the workforce. I just think that 

is an astonishing figure and worthy of consideration. I think your 

book is worth reading, too. 

Thank you very much. And I yield back. 

Chairman GRAVES. Mr. Richmond. 

Mr. RICHMOND. Thank you, Mr. Chairman. Thank you, Ranking 

Member. 

I do not want to oversimplify this but most of our decisions and 

opinions are based on real life experiences. In watched my parents 

operate a number of small businesses, one of which was an electrical contracting company, if no one was building they were not 

hiring. If people were not building homes, they were not doing any 

electrical work. If government buildings were not being built or retrofitted, they were not hiring. So I understand the question about 

government regulations and those concerns but are we overplaying 

the role of regulations compared to opportunity and demand? And 

if you can give a short answer to that I have another one also. 

Mr. FERRARA. Well, you know, the thing is that if you get a 

booming economy then the prices of the homes go up. People want 

to buy homes. There is more demand for homes. And so the focus 

needs to be—the regulation is just one component of a broader 

array. It is one real component but it is a broader array. And so 

the real focus needs to be get the economy overall booming and you 

will solve the housing crisis. You will solve the consumer confidence crisis. And that is the best way to solve the fiscal crisis, too. 

You have got to have economic growth or you are never going to 

deal with the deficit. You are not going to be able to deal with the 

deficit until you get the economy booming again. 

Mr. JACOBE. Let me just mention one number. According to our 

surveys, 29 percent of small businesses are hiring fewer people 

than they think they need. They are holding back. And there is a 

reason for all that caution. And what I am looking for is anything 

that can ease that caution, at least temporarily. Once they get 

more optimistic then I think what you said has a lot more power 

to it. 

Mr. RICHMOND. Now, since you brought up optimism, does a dysfunctional Congress add or subtract to consumer confidence in this 

country? 


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Mr. JACOBE. It clearly hurts consumer confidence. Our numbers 

from last year as to what happened in August when we almost 

talked ourselves into a double dip, clearly Congress can have an 

impact on the economy directly. 

Mr. RICHMOND. Mr. Fredrich. Did I pronounce it right? 

Mr. FREDRICH. You did. 

Mr. RICHMOND. Quick question. I read some of your bio in that 

you took a leap of faith after 9/11 to start your own business. It 

reminds me of what my parents did. So my question to you would 

be as you were purchasing that company was the number of rules 

and regulations and the regulatory environment, was that a part 

of your analysis when you looked at it? Or did you look at balance 

sheet, the assets, the income, the debt, and the revenue? 

Mr. FREDRICH. I did not look at the regulations. I can tell you 

that. I should have but, you know, when you are not in the business it is amazing what you do not know. And there are lots of 

things. But it has gotten worse and it has accelerated. 

But can I answer your first question? 

Mr. RICHMOND. Absolutely. 

Mr. FREDRICH. About your parents and their business. The 

amount of regulation that goes into building a new building is just 

unbelievable. Not so much at the federal level but at local levels, 

too. And it raises the cost of building to a point where people do 

not build. 

And the second point I would make is you should sponsor the repeal of the Davis-Bacon Act which forces people to employ union 

labor when I do not know if your parents, did they run a union 

shop or a non-union shop? 

Mr. RICHMOND. They ran a non-union shop and then they had 

jobs that were also prevailing wage. 

Mr. FREDRICH. See, they got discriminated against because they 

could have gone in at a lower price and said, look, we can do the 

same darn thing at a lesser rate. Oh, sorry. Sorry. 

Mr. RICHMOND. Well, you mentioned the regulations for building. 

And I will just tell you as dreadful as 9/11 was and it highlighted 

our policies on terrorism and inadequate security at airports, being 

a survivor of Katrina highlighted the fact that you need real building codes. And you need to make sure that levies can withstand 

water and that we have some very basic standards. Do I think we 

can simplify the language we use in writing every document in this 

government? Absolutely. And I think that that should be how we 

categorize the conversation which is to simplify things as opposed 

to just say overregulating. But we need to make sure that we build 

safe homes that can withstand 100 mile per hour winds and things 

of that nature. And I think government does have to play a role 

in making sure that that does not happen so that we will have 

homes that survive earthquakes and we, God forbid, would ever 

have anything like Haiti. But building codes and those things make 

a difference. But I think the conversation and what would increase 

consumer demand and consumer confidence in this country is if we 

could get together and have a conversation about how we simplify 

stuff. How we make people really understand why is the tax code 

bigger than the Bible. Those are real conversations we should have. 

And I think we owe it to the American people to do it because we 


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talk a completely different language than people every day just trying to figure out how to build a home, how to pay for it, how to 

go for work and save money. 

So that would just be my two cents. And if you all wanted to 

reply you can but I am out of time. And Mr. Chairman, thank you 

for allowing me to go. 

Chairman GRAVES. If anybody wants to reply they can. 

Mr. BAILY. I agree. 

Chairman GRAVES. Mr. Chabot. 

Mr. CHABOT. Thank you, Mr. Chairman, for holding this hearing. 

I do not want to repeat what a lot of others have already said so 

let me come at it a little bit differently. But I am sure some of it 

has already been mentioned. 

The president during his State of the Union address last week 

called for regulatory reform. I would argue if you look at the actions from this administration, however, any involvement that they 

have had relative to regulations has been anything but reform. It 

has been more and more regulations. And in fact, last year the 

Obama administration proposed over $230 billion in new regulatory proposals which would have—one survey showed that it 

would have meant another 133 million paperwork hours on businesses. And with that amount of paperwork it would have taken 

close to 66,730 additional employees just to comply with the law. 

And I guess you could argue there are jobs there but I think clearly 

those are not the type of jobs that are going to make this a more 

efficient economy and make us more competitive around the world. 

So I think it is clear that these burdensome regulations really remain a thorn in the side of this economy and one of the reasons, 

only one that we have not seen in the recovery that I think we 

would have expected. 

Dr. Jacobe, in your poll it indicated that government regulation 

remains the number one concern for small businesses and I know 

one of my colleagues on the other side had another poll that indicated something different. I know I have talked to an awful lot of 

small businesses in my community and I hear over and over and 

over again that government regulations is a big deal. 

And another one of my colleagues on the other side mentioned 

a dysfunctional government and it clearly is that but I would argue 

that dysfunction is in the Senate and not in the House. When you 

look at regulatory reform and getting rid of burdensome regulations, the House has passed something like 30 bills which are sitting over in the other body and absolutely nothing is happening 

over there on these things. Or much of anything else. As of last 

week they had not passed a budget in a thousand days, which is 

almost three years despite the fact we are supposed to pass the 

budget every year and the House has. But once again not the Senate. But I think the dysfunction is over in the other body. 

Dr. Jacobe, if the Senate and this president perhaps would push 

the Senate into actually passing some of those 27 to 30 bills—and 

I have got copies and could name what they all are but I do not 

want to bore you with all those things—if we actually passed some 

of this deregulation, getting the government the heck off the backs 

of these small businesses would that arguably have a significant effect on small business creation in this country? 


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Mr. JACOBE. There are a couple of different factors obviously in 

that process. What I was trying to talk about was just a freeze because that to my mind would actually have a positive effect immediately. I think when you talk about the others it is a matter of 

what is being deregulated and all those details that you talk about. 

It certainly should have a positive impact. The question is how 

much depends on, you know, everybody has used deregulation differently or regulation differently. 

Mr. CHABOT. Okay. And also one of my colleagues indicated the 

tax code being, you know, more than a Bible. And it is. It is actually eight Bibles stacked on top of each other is how complicated 

the tax code that both individuals and small businesses have to 

deal with in this country. What a waste of time that could be more 

profitably used to better run that business and may actually hire 

some folks. 

The other thing that I heard over and over again from my small 

business folks was how tough it is to get access to capital. And one 

of the things that that is attributed to among other things is the 

Dodd-Frank legislation. What I have been told is, you know, the 

banks and folks that would lend the money are now—they have the 

regulators looking over their shoulders even more and it makes it 

tougher for them to lend out money. And so the businesses are not 

growing. Would anyone want to comment on that? Any of the panel 

members? Yes, sir. 

Mr. FREDRICH. When I spoke, and I understand that maybe he 

is not subject to Dodd-Frank, but in general what it does is it 

makes it more of a process than a relationship in lending. And ratios and statistics do not pay loans back. People, individuals pay 

loans back. And it is a matter of honor that you do it. And he 

thought that regulation, the Dodd-Frank regulation was changing 

that dynamic. It was changing it more from a relationship business, which it is, to just a numbers business where, oh, you fell out 

of our statistical acceptability range so you have got to go. We are 

recalling your loan. We would have been long gone. Our company, 

long gone early on in our lifetime. I would have lost everything. I 

would have lost my house, lost everything. I personally guarantee 

the debt and I still do. So I think it moves that. And if we did not 

have a relationship I would not be here today talking about it. So. 

Mr. CHABOT. Thank you. 

Mr. BAILY. If you look back to the period of the boom I think we 

did not have effective regulation of the financial system and that 

contributed to the crisis that we got into and contributed heavily 

to the recession and the unemployment we have now. So I think 

it was necessary to revisit the regulation of the financial system. 

I think that Dodd-Frank could have and should have been a bipartisan bill. I think it came very close to being a bipartisan bill but 

there was a decision at the end of the day to say no. We are not 

going to go along with that. Maybe it would have been a better bill 

if it had been a bipartisan bill. So I think that is an example of 

a dysfunctional Congress that we did not have a bipartisan bill on 

that. 

I do think that regulators now are looking over the shoulders of 

the banks and probably being a little bit too cautious. I think that 

would have happened with or without Dodd-Frank because, you 


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know, they were on the beach back in 2005 when a lot of these 

crazy loans were being made. 

Mr. CHABOT. Mr. Ferrara. 

Mr. FERRARA. Well, I think the answer to your question is yes. 

I think the Dodd-Frank is one of the components that is perpetuating the lack of any recovery. And I think a fundamental factor, 

too, in the credit market is incentives as well. You know, venture 

capitalists, for example, they are very sensitive to all these tax burdens, the tax rates, and they do look down the line. So it is hard 

for companies to get venture capital. If they think the capital gains 

rate is going to go up, historically that has proven to be a very 

powerful factor affecting venture capital. 

And the point about the dysfunctional Congress, I want to note 

that one very good measure that the House passed is the Reams 

Act which would reestablish constitutional control over regulations 

and it is something that the other body really needs to move on. 

Mr. CHABOT. Thank you very much. I yield back, Mr. Chairman. 

Thank you for holding this hearing. 

Chairman GRAVES. Ms. Vela ́zquez, do you have any more questions? 

Ms. VELA ́ ZQUEZ. Well, I do not know if my colleague was referring to impacting access to capital for small businesses as a result 

of Dodd-Frank. Were you referring the lack of access to credit to 

capital to small businesses as a result of Dodd-Frank? 

Mr. CHABOT. Yes. 

Ms. VELA ́ ZQUEZ. And my argument before to that assertion is the 

fact that Dodd-Frank exempt community banks who have assets 

less than $10 billion. And for the most part those financial institutions that are providing capital to small businesses are those community banks that are exempted from the Dodd-Frank. 

And here we have a chart from the Thomson Reuters/PayNet 

Small Business Lending that shows clearly since Dodd-Frank was 

enacted credit has been going up. So, you know, there is this perception that is not based on the facts. 

Thank you. And I yield back. 

Chairman GRAVES. Well, I want to thank all of our witnesses for 

being here. Obviously, small businesses are plagued by a number 

of things—that lack of available credit that has been there. Obviously, regulation that is hanging out over them. The idea that they 

have got a tax increase that is coming very, very quickly if something is not done about that. I think that is having a huge effect. 

And when 7 out of every 10 jobs in this country are created by 

small businesses that is where our problem is with economic 

growth. 

But I want to thank all of our witnesses for being here. I appreciate all of your testimony and this hearing is not quite adjourned. 

I do ask unanimous consent that all members have five legislative business days to submit statements and supporting materials 

for the record. Without objection, so ordered. 

With that the hearing is adjourned. 

[Whereupon, at 2:54 p.m., the Committee hearing was adjourned.] 


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wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 172 here 76458A.078
114 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 173 here 76458A.079
115 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 174 here 76458A.080
116 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 175 here 76458A.081
117 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 176 here 76458A.082
118 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 177 here 76458A.083
119 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 178 here 76458A.084
120 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 179 here 76458A.085
121 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 180 here 76458A.086
122 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 181 here 76458A.087
123 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 182 here 76458A.088
124 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 183 here 76458A.089
125 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 184 here 76458A.090
126 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 185 here 76458A.091
127 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 186 here 76458A.092
128 


wreier-aviles on DSK5TPTVN1PROD with Insert offset folio 187 here 76458A.093