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58–197 2010

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THE ECONOMIC OUTLOOK 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

JULY 14, 2010 

Printed for the use of the Joint Economic Committee 

( 

(II) 

JOINT ECONOMIC COMMITTEE 

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

HOUSE OF REPRESENTATIVES 

CAROLYN B. MALONEY, New York, Chair 

MAURICE D. HINCHEY, New York 

BARON P. HILL, Indiana 

LORETTA SANCHEZ, California 

ELIJAH E. CUMMINGS, Maryland 

VIC SNYDER, Arkansas 

KEVIN BRADY, Texas 

RON PAUL, Texas 

MICHAEL C. BURGESS, M.D., Texas 

JOHN CAMPBELL, California 

SENATE 

CHARLES E. SCHUMER, New York, Vice 

Chairman 

JEFF BINGAMAN, New Mexico 

AMY KLOBUCHAR, Minnesota 

ROBERT P. CASEY, JR., Pennsylvania 

JIM WEBB, Virginia 

MARK R. WARNER, Virginia 

SAM BROWNBACK, Kansas, Ranking Minority 

JIM DEMINT, South Carolina 

JAMES E. RISCH, Idaho 

ROBERT F. BENNETT, Utah 

ANDREA CAMP, Executive Director 

JEFF SCHLAGENHAUF, Minority Staff Director 

(III) 

C O N T E N T S 

MEMBERS

Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New York .......... 1 

Hon. Kevin Brady, a U.S. Representative from Texas ......................................... 3 

Hon. Elijah E. Cummings, a U.S. Representative from Maryland ...................... 5 

Hon. Michael C. Burgess, M.D., a U.S. Representative from Texas ................... 7 

Hon. Vic Snyder, a U.S. Representative from Arkansas ...................................... 9 

Hon. Ron Paul, a U.S. Representative from Texas ............................................... 9 

Hon. Charles E. Schumer, Vice Chairman, a U.S. Senator from New York ...... 11 

Hon. Sam Brownback, Ranking Minority, a U.S. Senator from Kansas ............. 12 

WITNESS

Hon. Christina D. Romer, Ph.D., Chair, Council of Economic Advisers, Washington, DC ............................................................................................................. 12 

SUBMISSIONS FOR THE RECORD

Prepared statement of Representative Carolyn B. Maloney, Chair .................... 56 

Chart titled ‘‘Quarterly Change in Real GDP’’ ............................................... 58 

Chart titled ‘‘Quarterly Change in Private Payrolls’’ .................................... 58 

Prepared statement of Representative Kevin Brady ............................................ 59 

Chart titled ‘‘Forecast vs. Reality, Unemployment Rate (%): Actual vs. 

Stimulus Projections (2009–2014)’’ .............................................................. 61 

Chart titled ‘‘Job Gains & Losses by Congressional Control’’ ....................... 62 

Chart titled ‘‘Forecast vs. Reality, Change in Non-Farm Payroll Jobs, 

February 2009 to June 2010’’ ....................................................................... 63 

Prepared statement of Representative Michael C. Burgess, M.D. ...................... 64 

Prepared statement of Dr. Christina D. Romer .................................................... 66 

Council of Economic Advisers’ report titled ‘‘The Economic Impact of the 

American Recovery and Reinvestment Act of 2009’’ ......................................... 77 

Submitted by Representative Burgess: Letter dated June 21, 2010 from Ivan 

G. Seidenberg and James W. Owens to Hon. Peter R. Orszag followed 

by the Business Roundtable report ‘‘Policy Burdens Inhibiting Economic 

Growth’’ ................................................................................................................. 132 

(1) 

THE ECONOMIC OUTLOOK 

WEDNESDAY, JULY 14, 2010 

CONGRESS OF THE UNITED STATES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The committee met, pursuant to call, at 2:03 p.m. in Room 106 

of the Dirksen Senate Office Building, The Honorable Carolyn B. 

Maloney (Chair) presiding. 

Representatives present: Maloney, Hinchey, Cummings, Snyder, Brady, Paul, and Burgess. 

Senators present: Schumer, Klobuchar, Brownback. 

Staff present: Andrea Camp, Gail Cohen, Colleen Healy, Jessica 

Knowles, Jane McCullough, Jeff Schlagenhauf, Robert O’Quinn. 

OPENING STATEMENT OF THE HONORABLE CAROLYN B. 

MALONEY, CHAIR, A U.S. REPRESENTATIVE FROM NEW YORK 

Chair Maloney. We will call the meeting to order. We just had 

votes, so we are a few seconds late, but I want to thank everyone 

for coming, and particularly to welcome Dr. Christina Romer, the 

Chair of the Council of Economic Advisers, and thank her for her 

testimony today. 

The Council of Economic Advisers and the Joint Economic Committee were both created by the Employment Act of 1946 and share 

an important history of providing the White House and Congress 

with an analysis of economic conditions and economic policy. I understand that you joined the Vice President this morning with an 

announcement on your report, and we are so thrilled you will be 

testifying today. 

Our hearing is on the economic outlook, as well as the impact of 

the Recovery Act, on the economy. In the first quarter of 2009 

when the current Administration took office, the economy was facing the worst economic crisis since the Great Depression: GDP fell 

by 6.4 percent, the fastest rate in almost three decades; monthly 

employment losses were higher than any seen since after World 

War II—in the first quarter of 2009, an average of 753,000 jobs 

were lost each month. 

As you pointed out last fall, Dr. Romer, the shocks that we felt 

during this recession were greater and more severe than the Great 

Depression. 

As a result of the Recovery Act and other targeted spending programs passed in the 111th Congress, the economy has recovered 

over the last year. 

2 

Private-sector jobs were created in every month of 2010, for six 

straight months. And GDP grew for three straight quarters, with 

forecasts of growth continuing for a fourth quarter. 

As the Chair of the JEC, I have learned how valuable charts can 

be to present the story, and here we have it in red, white, and 

blue—the quarterly change in real GDP. The red is the former Administration, and you see the progress in the blue here is this current Administration. 

And the quarterly change in private payrolls, as you see, in the 

last month are up. We are trending in the right direction. 

I am especially pleased that you are appearing before us today 

before the JEC transmits its mandated response to the Economic 

Report of the President (ERP). Your testimony here today will inform us as we put the finishing touches on the report that we are 

literally working on around the clock to finish. 

Since January, the JEC has been laser-focused on job creation, 

holding numerous hearings and issuing a number of reports on this 

topic. While the economy has expanded, consistent with the ERP’s 

predicted growth for the first half of 2010, I worry that this recovery is still very, very fragile. 

It is clear that some of the differences between this Recession 

and previous recessions might endanger this very fragile recovery. 

First, although the unemployment rate has been higher in previous recessions, the long-term unemployment rate—that is, workers looking for work for more than six months—is at historically 

high levels. 

Second, the median duration of unemployment is almost six 

months, which means that the typical worker searches for six 

months before finding a job or possibly giving up on his or her job 

search. 

Finally, state and local governments are experiencing significant 

budget gaps as property and income tax revenues have fallen while 

aid to unemployed families has spiked and demand for public education has risen. 

In order to spur the hiring process, it is clear that additional 

measures must be taken to create enough jobs for the nearly 15 

million unemployed. 

I am dismayed by my colleagues who are listening to the political 

siren’s call of short-term cuts to the deficit instead of heeding the 

economic imperative of robust job creation. Make no mistake: the 

national debt is a serious challenge for our economy. We need to 

carefully craft a plan that is smart, effective, and fair. 

A long-term strategy on debt reduction is essential for a strong 

economy for generations to come. And as Chairman of the Board 

of the Federal Reserve System, Ben Bernanke told the JEC earlier 

this year when he stressed the need for sustainable fiscal balance, 

and I quote: ‘‘. . .maintaining the confidence of the public and financial markets requires that policymakers move decisively to set 

the federal budget . . . toward a sustainable fiscal balance.’’ End 

quote. 

However, efforts to translate this need into short-term spending 

cuts—especially cuts in unemployment benefits—have moved the 

deficit battle into the homes of the unemployed. This is bad economics and bad public policy. 

3 

Dr. Romer, we want to thank you for once again coming before 

us. We look forward to your important report, and to your testimony today. 

[The prepared statement of Representative Maloney appears in 

the Submissions for the Record on page 56.] 

[Chart titled ‘‘Quarterly Change in Real GDP’’ appears in the 

Submissions for the Record on page 58.] 

[Chart titled ‘‘Quarterly Change in Private Payrolls’’ appears in 

the Submissions for the Record on page 58.] 

Chair Maloney. Thank you. And I now recognize for five minutes Mr. Brady. He will be followed by Mr. Schumer for five minutes, and other Members for three minutes. 

Thank you. 

OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A 

U.S. REPRESENTATIVE FROM TEXAS 

Representative Brady. Well, Madam Chairman, I am pleased 

to join in welcoming the Chair of the President’s Council of Economic Advisers, Professor Christina Romer, before the Committee 

this afternoon. 

While I often disagree with her advice to the President, I am always appreciative of how accessible you are to this Committee. 

On November 2nd, the American people will judge the economic 

policies of President Obama and Congressional Democrats, and 

may well direct a mid-course correction, much as professors do with 

their students at mid-term. 

President Obama took office under unfavorable economic circumstances, but so did Franklin Roosevelt and Ronald Reagan. The 

question is: Has the White House met its economic promises? And 

are we positioned for long-term growth? 

Economists, job creators in the private sector, and families 

should question: Have President Obama and Congressional Democrats spurred private investment in job creation with their stimulus spending? Or have their policies added costs and uncertainty 

that have weakened the recovery? 

Have President Obama and Congressional Democrats met our 

demographic challenges and improved our long-term economic prospects? Or have they diminished them through an ideologically driven expansion of the size and scope of the Federal Government, 

higher taxes, burdensome new regulations, and a reckless increase 

in federal debt? 

To help answer these questions, let us examine the record as 

measured by the standards that the White House has set for itself 

and for the country. 

In January 2009, Madam Chairman, you published an economic 

analysis of President Obama’s stimulus plan and forecasts that if 

Congress were to pass this plan, one, the unemployment rate would 

remain below 8 percent; two, nonfarm payroll employment would 

increase to 137.6 million by the fourth quarter of this year; and finally, 90 percent of the jobs created would be in the private sector. 

Obviously Congressional Democrats passed the stimulus bill and 

the President signed it into law. Today we see the fourth quarterly 

report of the stimulus bill, and I will in all honesty nominate it as 

4 

a Pulitzer in fiction, which would be humorous but for 15 million 

American workers who face the harsh reality of no jobs. 

What’s missing from this report are the benchmarks the White 

House set for itself, which you can argue, Democrat and Republican benchmarks, but let’s look at what the White House said the 

stimulus would do. 

Instead of keeping the unemployment rate below 8 percent, it’s 

at 9.5 percent today and going higher. Nonfarm payroll employment right now is 130.5 million, 7 million jobs short of where the 

White House predicts it will be at the end of this year. And then 

since February 2009, instead of 90 percent of the jobs in the private sector being created, just the opposite. The Federal Government payroll has increased by over 400,000. Private-sector, where 

the jobs in the recovery should actually occur, has lost 3.3 million 

payroll jobs. 

Clearly, the President’s stimulus plan failed to work, as was predicted. Instead, this recovery has been unusually weak for one after 

a severe recession. 

Turning to the long-term consequences of the Democrats’ economic policy, one sees higher taxes, heavy regulation, gaping Federal budget deficits, and soaring Federal debt. 

President Obama and our Congressional Democrats are increasing taxes through legislation. Their failure to legislate in BRAC 

creep in the non-index portion of the Tax Code, including the Alternative Minimum Tax and Excise Tax on so-called ‘‘Cadillac health 

care plans.’’ 

Individual income tax rates will increase at the end of this year, 

and without a solution up to 27 million families will become ensnared in the Alternative Minimum Tax for the first time. 

The top tax rate on capital gains will increase from 15 percent 

this year to 23.8 percent in 2013, while the top tax rate on dividends will also skyrocket from 15 percent this year to 43.4 percent 

in 2013. 

Congress allowed the research and development tax credit to expire. Moreover, Congress levied new excise taxes on private health 

insurance plans, pharmaceutical and medical device manufacturers, and tanning salons. 

And if these tax increases are not enough to choke the private 

sector, President Obama and the Congressional Democrats are still 

scheming to pass new energy taxes through cap and trade legislation and green jobs’ legislation. 

According to press reports, two Administration panels will recommend levying a value-added tax once the mid-term elections are 

over. 

However, these massive tax increases are still not enough to 

fund Obama’s extravagant Federal spending. The Congressional 

Budget Office predicts Federal outlays over the next decade will be 

24.1 percent of our economy, 4.6 percentage points above the postwar average in this country. 

Our long-term fiscal outlook is dire. If current policies remain in 

place, the Congressional Budget Office projects that publicly held 

Federal debt will soar to an incredible 947 percent of our GDP by 

the end of fiscal year 2084. 

5 

These are all drags on our economy. Madam Chair, I look forward to discussing these issues with you. Yield back. 

[The prepared statement of Representative Brady appears in the 

Submissions for the Record on page 59.] 

[Chart titled ‘‘Forecast vs. Reality, Unemployment Rate (%): Actual vs. Stimulus Projections (2009–2014)’’ appears in the Submissions for the Record on page 61.] 

[Chart titled ‘‘Job Gains & Losses by Congressional Control’’ appears in the Submissions for the Record on page 62.] 

[Chart titled ‘‘Forecast vs. Reality, Change in Non-Farm Payroll 

Jobs, February 2009 to June 2010’’ appears in the Submissions for 

the Record on page 63.] 

Chair Maloney. I want to thank my good friend and colleague 

for his testimony, but there seems to be a lot of revisionist statements in it. 

As this chart shows, clearly the economy has improved under 

President Obama not only in GDP but also in private payrolls. And 

if you recall, the last month that our former president was in office, 

this country lost 790,000 jobs. 

The chart goes upwards, and we are gaining jobs. We gained 

83,000 private-sector jobs in the last jobs report; 33,000 private-sector in the time before; and roughly 550,000 new jobs in the past 

three jobs reports. 

So we are trending in the right direction—— 

Representative Brady. Well Madam Chairman, since we’re not 

following regular order, let’s look at the jobs standards since Democrats took over control of Congress. Up until 2007, fully Republican-controlled Congress added almost 6.7 million jobs. Since 

Speaker Pelosi was handed the gavel, we’ve almost lost every one 

of those jobs back. And the stimulus isn’t creating more—3.3 million jobs lost in the private sector since the stimulus began. 

Chair Maloney [continuing]. That’s not the jobs report that the 

economists have been talking about. We lost jobs under the Bush 

Administration. We are gaining them now—— 

Representative Brady. Well we are—— 

Chair Maloney [continuing]. And as these charts show, we’re 

trending in the right direction. 

Representative Brady [continuing]. Very slowly. 

Chair Maloney. Mr. Cummings is recognized for five minutes. 

OPENING STATEMENT OF THE HONORABLE ELIJAH E. 

CUMMINGS, A U.S. REPRESENTATIVE FROM MARYLAND 

Representative Cummings. Thank you very much, Madam 

Chair. 

You know, I am sitting here and I am listening to this, and we’ve 

got 53,500 people before the end of the day, Mr. Brady, who will 

lose their unemployment benefits, who will not be able to take care 

of their children, who will not be able to put food on the table. And, 

you know, we can go back and forth, but yesterday I was listening 

to Mr. Gregg, Senator Gregg—I think it was on MSNBC—and he 

said something that was very interesting. I almost had an accident. 

[Laughter.] 

He said, Mr. Brady, he was asked a question. You know he is no 

liberal. He is no flaming liberal, and he is a Republican. And he 

6 

was asked a question about early on when the Bush Administration came asking the Congress for TARP money, he was asked the 

question: Was it as bad as it seemed? He said it was worse. 

But he said something else. He said, if it were not for—he was 

talking about TARP—but he said, if it were not for those funds, the 

unemployment rate would now be around 15 or 16 percent. That’s 

what Gregg said yesterday. 

Now, you know, we are digging ourselves out of a deep ditch. 

And I’ve said it over, and over, and over again. We all know that 

60 percent of the GDP is consumer consumption. We know that. 

But yet and still, it seems as if there is an effort to, whenever 

progress is being made—and Chairman Romer, watch out, because 

it’s coming—if you’ve got anything positive to say, I promise you 

you will be told that the sky is still falling, that this President had 

nothing to do with the progress. There is no progress. 

I don’t care what happens, you will hear that. And at some point 

we have to join in and root for the home team. I’ve said that over 

and over and over again. If we want to constantly say the sky is 

falling, the sky is falling, the sky is falling, the sky is falling, guess 

what? The sky will fall. 

There has been progress made, whether we like it or not. Maybe 

it’s not moving as fast as we would like. And, yes, predictions were 

made. But the fact is that those predictions—I mean, keep in mind, 

we are at 9.5. We could have been at 16, as far as unemployment 

is concerned. 

And so I am looking forward to the report of Chairwoman Romer, 

but I want us to keep some things in mind. When this President 

came in, we were losing 750,000-plus jobs a month. That is no 

longer happening. 

Now, you know, I’m not going to stand here and say it was 

Bush’s fault. I’m not going to say that the fact is, it was happening. 

We were losing. You can blame anybody you want. The fact is, we 

were losing 750,000-plus jobs every month. In January, back in 

January when he came in. And now we are not losing that. We are 

gaining jobs. 

And so it is so easy to stand on the sidelines and talk about this 

ain’t happening, and that’s not happening, and maybe it’s not happening as fast as we want it to, but when you are in a deep ditch, 

sometimes you’ve got to climb up slowly because it takes a lot to 

get out of that ditch to get to level ground. 

And so I would beg my colleagues to root for the home team. 

America is a great country. We’ve dug ourselves out of ditches before, and we will dig out of this one again. As I said to my constituents over and over and over again, we will get past this economic 

problem. 

The question is not whether we will get past it. The question is: 

Who will be living in their house? Who will have their job? Will 

they have their health insurance? Will they have gone through a 

period of unemployment like millions and millions of Americans 

have gone through, over six months of unemployment, a substantial number of unemployed have been unemployed for over six 

months, but will they get through that process still standing? 

And I would submit that we need to join in with this President. 

Join in with Chairwoman Romer who is doing everything she can 

7 

to make it possible so that when the storm is over, when the storm 

is over, people will be still standing, still moving forward, and will 

still be a part of the All American Dream. And with that, I yield 

back. 

Chair Maloney. Thank you. Senator Brownback has indicated 

that he will be yielding his five minutes to Congressman Burgess. 

OPENING STATEMENT OF THE HONORABLE MICHAEL C. 

BURGESS, M.D., A U.S. REPRESENTATIVE FROM TEXAS 

Representative Burgess. Thank you, Chairwoman Maloney, 

and Chairwoman Romer welcome to our Committee once again. We 

appreciate as always your ability to share your time with us. 

So we’ve got another month, another set of facts and figures telling the American People what they already know; that the stimulus is not working. Recent polling out suggests that fully 60 percent of the American People do not believe that the stimulus has 

worked. 

So it begs the question that is asked over and over again, and 

a question which I will ask you today: Chairwoman Romer, where 

are the jobs? 

Companies are not hiring at rates anywhere near where this Administration claimed they would be. And indeed anywhere near 

what is required simply to maintain a level state of employment, 

let alone gain jobs in this economy. 

Business and individuals who have the same outlook when it 

comes to the President, what’s it going to do—what is he going to 

do next that may make it harder for us to move forward? 

We hear a lot of talk about rooting for the home team. I wish 

the White House sometimes would root for the home team. An illadvised and scientifically suspect drilling moratorium that is already seeing jobs shipped overseas, has rigs pull up anchor and sail 

to foreign ports, looming EPA regulations on emissions that will 

have consumers seeing their pocket—their energy bills skyrocket. 

Financial regulatory reforms that will take years to implement 

causing uncertainty in an already fragile market and leading banks 

to be able to loan less and less money, and really which do nothing, 

which do nothing to prevent a future financial meltdown, because 

after all the two biggest problems remain on the Federal ledger in 

the form of Fannie Mae and Freddie Mac. 

People not knowing what the future holds from this Administration makes it very, very difficult for them to invest their capital. 

I asked Secretary Salazar in a letter whether the Administration 

had done any economic analysis of what the drilling moratorium 

would do to job outlooks in the Gulf Region. To date, no response. 

I can only assume that this has not been done, or that the Administration would know, as the New Orleans Times-Picayune reported, that each job in energy exploration supports an additional 

four jobs providing supplies and services. 

What a deal. You can kill five jobs for the price of one. Now that 

is a statistic that the White House does not want us to hear. 

Sound economies need stability, and this President has provided 

anything but. He can claim to be pro-business all he wants, but 

continue to talk of card check and other pro-unionizing regulations? 

Businesses know they can’t afford to take risks right now. 

8 

Congressional Democrats even inserted a provision in the War 

Supplemental essentially forcing state and local fire and police departments to unionize regardless of whether the workers in those 

departments have expressed any interest in that activity. 

Actions speak louder than words. And the actions of this Administration indicate one thing; this President and the people that he 

has put in place throughout the government have yet to see a rule 

or regulation that they aren’t in favor of passing, and each rule or 

regulation adds to the cost, adds to the price of doing business, and 

each rule or regulation makes it less likely that especially smalland medium-sized businesses are going to add a new job. 

The Business Roundtable recently sent a report to the White 

House, a report of exactly what this President’s policies are doing 

to businesses around the country. In a letter to Peter Orszag, Ivan 

Seidenberg, CEO of Verizon; James Owens of Caterpillar, said 

business leaders are increasingly concerned that political expediencies of the short term harm our ability to partner with government and create policies that foster growth. 

The CEO of JPMorgan told the White House: Punishing whole 

industries, whether they were reckless or not, just isn’t the way to 

do things. The CEO of Nucor Corporation told The Wall Street 

Journal, there’s this common concern that we’re not doing things 

right yet, and it is showing up in the jobs numbers. 

One reason this Administration is so likely disconnected with the 

reality of what life is like in the private sector is so few of the 

President’s top advisors have ever worked in the real world. It is 

difficult to find someone who has run a lemonade stand or held a 

paper route. 

Professors and academics, people who have spent the bulk of 

their careers in government, that is who we have dictating to the 

private sector how CEOs should be running their business. And 

that is in large part why business overwhelmingly resents and rejects the mandates being thrown at them by the Administration 

and this Congress. 

Maybe if the President started hiring more CEOs in his cabinet, 

like past presidents of both parties, as they have done for decades, 

he would start getting the kind of advice he needs to allow the private sector to recover and grow. 

It is further dismaying that the Council of Economic Advisers’ 

latest Economic Impact Report admits that any analysis of job creation in each state in this report is, and I quote, ‘‘speculative and 

uncertain,’’ closed quote. 

After spending hundreds of billions of dollars to stimulate the 

economy, a year and a half later we can still only speculate on job 

growth? There either have or have not been jobs created by the 

stimulus. 

I don’t need to speculate. All I have to do is look at the unemployment numbers that have been so stagnant under this President. The stimulus was a failure. I don’t have to speculate about 

that. 

President Obama’s philosophy in steering this economy seems to 

be taken directly out of Alice In Wonderland. When I use a word, 

it means just what I choose it to mean, neither more nor less. And 

9 

furthermore, if you don’t care where you end up, it doesn’t really 

matter which road you take. 

I’ll yield back the balance of my time. 

[The prepared statement of Representative Burgess appears in 

the Submissions for the Record on page 64.] 

Chair Maloney. I thank the gentleman. Congressman Snyder 

for three minutes. 

OPENING STATEMENT OF THE HONORABLE VIC SNYDER, A 

U.S. REPRESENTATIVE FROM ARKANSAS 

Representative Snyder. Thank you, Madam Chair. 

Mr. Burgess, I had both a paper route and a lemonade stand. I 

never did very well with the lemonade stand because I kept drinking the product, but I hope that gives me some credibility with you. 

[Laughter.] 

I don’t have a copy, a written statement, but when I hear somebody say each regulation and rule inhibits job growth, that is just 

not the nature of a market economy. We have to—I mean the 

World Cup has referees. Football has referees. Baseball has umpires. We have to have rules and regulations that are fair to business, that are fair to consumers, that are fair to credit markets, 

that are fair to government, that are fair to the American People. 

Without them, we have chaos. That has been the history of capitalism. 

And so to just—and I don’t have it in front of me, but when I 

hear you say each rule and regulation decreases jobs, in fact it 

gives people confidence that their investments will be protected, 

that there will be transparency in their investment—I mean, that 

is the whole point of the Wall Street reform, the Financial Services 

Reform bill that is going to be passed this week. 

So I think there certainly can be too much regulation. There can 

certainly be too little regulation. And it’s like the Three Bears and 

the porridge, you’ve got to find the right blend. 

Dr. Romer, it is great to have you here. I hope that our discussion so far today does not sound more like we are concerned about 

our jobs rather than the jobs of the American People. 

I think I will defer from this point on and wait for your opening 

statement. 

Chair Maloney. Thank you, and Congressman Paul for three 

minutes. 

OPENING STATEMENT OF THE HONORABLE RON PAUL, A U.S. 

REPRESENTATIVE FROM TEXAS 

Representative Paul. I thank you, Madam Chairman, and welcome to Dr. Romer. 

I am not very good at the partisan blame game, but I am very 

interested in the business cycle and why we have unemployment. 

And actually I am interested in the measurement of our problems. 

I think sometimes we deceive ourselves, because following some 

free market web sites that measure unemployment somewhat differently than our government, they come up with a figure of 22 

percent unemployment. And also, even the way the Bureau of 

Labor Statistics measures it, if they looked at all the people who 

10 

are not looking for work at the moment, that is 16 percent. So 

things are not very good. 

Also, the GDP is what we measure. If the GDP is going up, everybody is supposed to feel good. But if we spend a billion dollars 

on a missile and we blow it up, that’s an increase in the GDP. And 

it didn’t give us a house. It didn’t give us health care or education. 

So there is a big difference. 

And also the inflation rate is very important. If you go back and 

use the old CPI measurement of inflation, we have 6 percent, not 

2 percent. So there is a lot of deception. And the people sense this. 

I think they would rather hear accurate information than to try to 

be bamboozled into believing things are just hunky dorey when 

they know there is a lot of inflation out there. 

The other thing that I have concern about, in measuring the 

GDP if you looked at the GDP in a private way, if somebody had 

a $200,000 job and he lost the job, and the family had $200,000 or 

$300,000 of debt, for them to be told that what they need is a million dollar loan, and spend it, buy a house and buy a car and live 

high, and their personal GDP goes up, but they never measure the 

debt. 

But when we go to the government, we say the government is in 

debt; they’re spending too much; what we need to do is spend. We 

need to borrow. And the GDP goes up. But if you measure the GDP 

that goes up because of borrowing, inflating, and spending, and 

look at that with a better perspective, I would say that maybe the 

real GDP isn’t going up, and maybe that is why we are not having 

real growth. 

There is a big difference between people working hard and paying their bills and actually saving some money. I think the biggest 

fallacy that we have, because we don’t have a correction, is we 

don’t understand how we got here. 

We had too much debt and too much mal-investment. And we 

have not dealt with that. And when you get too much of it, you 

have to liquidate it. When you get in over your head and you can’t 

pay the bills, you either have to declare bankruptcy or work hard 

or take a new job. 

But we can see this as an individual or a company, but evidently 

our economic theory now is that governments are exempt from 

those kinds of economic rules. 

I yield back the balance of my time. 

Chair Maloney. I thank the gentleman for his statement, and 

now I would like to introduce Dr. Christina Romer. She is the 

Chair of the Council of Economic Advisers. Prior to joining the 

Obama Administration, she was the Class of 1957 Garff B. Wilson 

Professor of Economics at the University of California, Berkeley. 

Before teaching at Berkeley, she taught economics and public affairs at Princeton University. Until her nomination, she was co-director of the program in Monetary Economics at the National Bureau of Economic Research, and served as the Vice President of the 

American Economic Association, where she was also a member of 

the Executive Committee. Dr. Romer is known for her research on 

the causes and recovery of the Great Depression, and on the role 

that fiscal/monetary policy played in the country’s economic recovVerDate Nov 24 2008 14:03 Oct 28, 2010 Jkt 058196 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\58197.TXT SHAUN PsN: DPROCT
11 

ery. That was all valuable experience for what we are confronting 

now. 

Her most recent work, co-authored with her husband, David 

Romer, also an economics professor, shows the impact of tax policy 

on government and economic growth. 

She is the recipient of the John Simon Guggenheim Memorial 

Foundation Fellowship, an Alfred P. Sloan Research Fellowship, 

the National Science Foundation Presidential Young Investigator 

Award, and the Distinguished Teaching Award at Berkeley. 

She received her Ph.D. from the Massachusetts Institute of Technology. Thank you so much for coming, but we have been joined by 

the Vice Chair, Senator Schumer. He is always on a tight schedule, 

so I would like to call on the Senator very quickly for his statement, and then we will go to Dr. Romer. 

OPENING STATEMENT OF THE HONORABLE CHARLES E. 

SCHUMER, VICE CHAIRMAN, A U.S. SENATOR FROM NEW YORK 

Vice Chairman Schumer. Well thank you very much, Madam 

Chairperson. I very much appreciate it. I am on a tight schedule. 

I was supposed to come before you started, so I apologize. I will 

make my brief statement here and first thank you for the great job 

you are doing both here and in New York, Madam Chairperson. 

And I thank you, Chair Romer. The economy is on the forefront 

of everybody’s mind. The official unemployment rate remains unacceptably high, 9.5 percent. But if you are one of the 15 million 

Americans who are out of work, the unemployment rate feels more 

like 100 percent. 

Our economy is showing signs of life. As you know, GDP growth 

is healthy. But we in the Congress need to do more to spur job creation. And as you know, Madam Chair, back in January I teamed 

up with Senator Hatch of Utah to author a targeted, simple, and 

cost-effective tax incentive to encourage businesses to hire unemployed workers. 

The tax cut we proposed passed the Senate with 70 votes and became law as part of the HIRE Act in March. Today, every business 

in America is exempt from paying payroll taxes on wages paid to 

previously unemployed workers. It’s that simple. 

Hire a person who has been unemployed for at least 60 days, and 

you don’t have to pay the 6.2 percent Social Security payroll tax 

for that worker for the duration of 2010. 

According to a recent report by the Treasury Department, the tax 

cut has been a wild success. They estimate that 4.5 million unemployed Americans have been hired between February and the end 

of May, and there is no question many of these workers would have 

been hired anyway, but there is also no question that many of 

them would not have been. 

And each of those businesses that hired someone saw a tax 

break. If these 4.5 million stay employed through the rest of the 

year, businesses will see a total of 5.1 billion in tax savings. 

So I think there is no denying that the Schumer-Hatch Tax cut 

is working. My question that I will ask you to answer after your 

testimony is: In light of this success, do you support extending the 

tax cut for an additional six months? What type of impact would 

12 

such an extension have on our Nation’s long-term economic outlook? 

And so that is it. I yield back my time and very much appreciate 

your letting me speak now, Madam Chairwoman. 

Chair Maloney. Always a pleasure, Senator, and we have been 

also joined by Senator Brownback, so I would also like give him the 

courtesy of speaking. 

OPENING STATEMENT OF THE HONORABLE SAM BROWNBACK, RANKING MINORITY, A U.S. SENATOR FROM KANSAS 

Senator Brownback. Thank you very much, Madam Chairman. 

I apologize for being late. I had two subcommittees I needed to attend. 

Welcome, Chair Romer. I am happy to have you here. I am really 

looking forward to your comments, because it seems like the Administration holds the key to a lot of what is holding back in the 

economy—uncertainty in regulation, and taxation is certainly buzzing in the air, as businesses consider whether or not they’re going 

to invest, or they are going to hold back. 

And we need people investing. We need people moving forward. 

We need people creating jobs. We need job creation. We need these 

things to move on forward. And yet that level of uncertainty that 

is created in the tax and regulatory environment in particular 

seems to be stymieing a lot of people. And you are now hearing 

that being expressed in a very open fashion. 

So my hope is that you can address that level of uncertainty, particularly on taxes and regulations from the Administration’s perspective. Because it is really needed for the American public and 

the economic health of our country to be able to move forward. 

I was very concerned when I saw today’s front page of The Wall 

Street Journal that the Fed is citing slower growth rates. We need 

faster, not slower growth rates taking place. The consumer confidence is getting shaken, not moving in the right directions. Seeing 

just a number of factors that have raised concern, and I really hope 

you can address those issues, particularly on taxes and regulation 

and overall debt and fiscal policy that I think are contributing way 

too much to that concern. 

Chair, thanks very much for holding this hearing. I think it is 

important that we do it, and important that we hear from the 

Chair on this. 

Chair Maloney. Thank you so much, and we now recognize 

Chairwoman Romer. 

STATEMENT OF THE HONORABLE CHRISTINA D. ROMER, 

PH.D., CHAIR, COUNCIL OF ECONOMIC ADVISERS, WASHINGTON, DC 

Chair Romer. Thank you so much, Chair Maloney, Vice Chair 

Schumer, Ranking Member Brownback, Congressman Brady: 

It is indeed a pleasure to be here today to discuss two issues that 

are of interest to both the Joint Economic Committee and the 

Council of Economic Advisers. 

One is obviously the economic impact of the American Recovery 

and Reinvestment Act of 2009. As part of the unprecedented transVerDate Nov 24 2008 14:03 Oct 28, 2010 Jkt 058196 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\58197.TXT SHAUN PsN: DPROCT
13 

parency and accountability provisions in the Act, the CEA provides 

a report to Congress about the Act each quarter. 

In this Fourth Quarterly Report released this morning we not 

only find that the Act has had a substantial effect on output and 

employment, but that it is leveraging private capital and making 

an important investment in the future of productivity of the country. 

The second topic I will discuss is the economic outlook. The Recovery Act and other actions have helped to turn the economy from 

free fall to recovery. But much work obviously remains to do to return the economy to full health. And I will discuss the role that the 

targeted actions currently being discussed by Congress could play 

in counteracting some of the headwinds to growth that have become more apparent in recent weeks and, by doing so, accelerate 

the rate of recovery. 

Let me begin by discussing what the CEA’s new report finds 

about the impact of the Recovery Act as of the second quarter of 

2010. With the Chair’s permission, I would like to enter a full copy 

of the report into the record. 

You know, Congress designed the Recovery Act both to begin 

spending out quickly and to provide crucial support to the economy 

over a two-year period. It has met and is continuing to meet those 

goals. 

The state fiscal relief, the payments to seniors, the emergency 

unemployment insurance benefits went out almost immediately 

and started aiding the economy in the spring and summer of 2009. 

The tax cuts went into effect immediately as well, but it was 

really during tax season—the first two quarters of this year—that 

many Americans have seen concrete signs in the form of reduced 

tax payments and increased tax refunds. 

In previous CEA reports, we have highlighted the state fiscal relief and the tax cuts and income support provisions of the Act and 

found evidence of their effectiveness. 

Well in today’s Quarterly Report we highlight the public investment spending in the Recovery Act. This is the project spending 

that not only creates jobs in the short run, but leaves us with an 

expanded and improved ability to create high-paying jobs in the future. 

The Recovery Act includes some $319 billion of public investment 

on everything from basic infrastructure such as roads, bridges, and 

airports, to 21st Century infrastructure such as a smarter electrical 

grid and universal broadband. It invests in community health centers, health information technology, education, and job training to 

improve the health and skills of our citizens—our human capital. 

And it makes unprecedented investments in basic scientific research to enhance innovation and help retain our competitive edge. 

The public investment components of the Recovery Act were always expected to spend out more gradually, because they typically 

require planning, and they are often awarded through a rigorous 

competitive process. But these outlays increased by more than 50 

percent between the first and second quarters of this year, which 

explains why the Vice President has named this summer the ‘‘Summer of Recovery.’’ 

14 

In the area of transportation infrastructure alone, nearly 14,000 

projects have been awarded as of the first quarter of 2010. 

Now an innovative feature of the Recovery Act is its focus on 

partnering private investment—or public investment with private 

and other funds. Much of the Recovery Act investment spending 

takes the form of matching grants, loan guarantees, interest subsidies, and tax incentives that support and encourage outside investment. 

For example, the 48C Advanced Energy Manufacturing Credit 

gives private firms that pass the Department of Energy’s competitive process a 30 percent tax credit for their investments in factories to produce solar panels, wind turbines, and other clean energy products. 

The Broadband Initiatives Program provides grants and loans to 

firms and regional authorities to bring Internet access to rural 

communities. And the Build America Bond Program subsidizes the 

interest cost of state and local government borrowing for schools, 

transportation, and other vital projects so that these entities are 

encouraged to invest in local infrastructure. 

Well the CEA’s Report collected information from 15 agencies on 

the nature and the extent of the leverage provisions in the Recovery Act. We find that roughly $100 billion of Recovery Act funds 

use leverage, and that these provisions are encouraging co-investment in a wide range of areas. 

The greatest use of these innovative provisions are in the areas 

of clean energy, economic development, and building construction. 

We estimate that the $100 billion of Recovery Act funds will partner with close to $300 billion of other funds, the majority of which 

are from the private sector. That is, $1 of Recovery Act funds is 

matched by $3 of other funds. All told, the $100 billion investment 

from the Recovery Act will support more than $380 billion of total 

investment spending. 

Now a detailed examination of the incentives for wind energy 

production suggest that such leverage provisions can have a significant impact on private sector investment behavior. Thus, the Recovery Act appears to be stimulating private investment and job 

creation at a time when the economy needs it most. 

Now in our Report we estimate the impact of the Recovery Act 

on job creation in two ways. 

One is a model-based approach similar to that used by the Congressional Budget Office. This approach uses multiplier estimates 

based on the historical record to estimate how the Recovery Act tax 

cuts and outlays likely translate into employment effects. 

The second approach that we use to estimate the employment 

impact of the Act does not depend on policy multipliers estimated 

from past history. Instead, it uses statistical procedures to project 

the likely path of employment based on the information available 

through the end of the first quarter of 2009, when the Recovery Act 

was passed, and then it compares the actual path of employment 

with the forecasted baseline. 

Now the model-based approach indicates that the Recovery Act 

has raised employment relative to what it otherwise would have 

been by 2.5 million jobs as of the second quarter of this year. 

15 

Of these jobs saved or created, more than 800,000 are due to the 

public investment outlays that have occurred so far. The projection 

approach yields a substantially larger number: It suggests that employment as of the second quarter is 3.6 million higher than it otherwise would have been. By that estimate, the Recovery Act has 

met the President’s goal of saving or creating 3.5 million jobs—two 

quarters earlier than anticipated. 

Now our review of a wide range of other estimates of the employment effects of the Act, coming from private forecasters as well as 

the nonpartisan Congressional Budget Office, shows that our 

model-based estimate is very similar to that of outside experts. Our 

projection-based estimate is higher than other estimates, though 

very similar to the Congressional Budget Office’s high-end estimate 

of 3.4 million. 

There is obviously a great deal of uncertainty around any jobs estimate, and I suspect that the true effects of the Act will not be 

fully analyzed or fully appreciated for many years. But our compendium of outside estimates shows that respected analysts across the 

ideological spectrum, as well as the Congressional Budget Office, 

agree that the Act has had significant benefits on employment and 

output over the past year. 

Well let me turn to the second topic that I want to discuss today, 

and that is the state of the U.S. economy and the outlook for the 

future. 

First, and most obviously, the economy is doing much better 

today than it was when I last testified to the JEC in October of 

2009. At that point we were just beginning to see the first signs 

of recovery. We now know that GDP began to grow in the third 

quarter of 2009, and has been expanding at a moderate pace since 

then. 

In October of 2009 we were still losing jobs, although at a much 

slower rate than in the depths of the crisis. Since the beginning of 

2010 we have been consistently adding jobs. Private sector employment is up nearly 600,000 since the start of the year. In October 

of 2009, the unemployment rate hit 10.1 percent. It has fallen sixtenths of a percentage point since then to 9.5 percent in the most 

recent report. 

While the conditions are much improved from last October, and 

dramatically better than they were in the dark days of late 2008 

and early 2009, the economy remains far from fully recovered. The 

financial crisis and the ensuing recession inflicted a terrible toll on 

American families and workers, and much work remains to be done 

to repair the damage after the storm. 

Now some might see a conflict between my earlier discussion of 

how useful the Recovery Act has been and the fact that economic 

conditions are still very tough. But there is none. 

The Recovery Act is doing what the Administration and other analysts said it would do: It has increased employment greatly relative to what it otherwise would have been. It has helped to fill in 

some of the shortfall in demand, and has played a fundamental 

role in the dramatic change in the trajectory of the economy. 

But because the deterioration of the economy was so severe in 

late 2008 and early 2009, even with this essential aid the economy 

remains troubled. It is surely little comfort to families that are still 

16 

struggling to hear that without the Recovery Act, conditions would 

have been far worse. But it is, nevertheless, true. 

What can we expect for the economy in the months ahead? The 

past few weeks have seen more mixed economic reports than we 

saw in the spring. Following the troubles in Europe associated with 

the Greek debt crisis, stock prices have declined noticeably and financial markets have been subject to greater volatility than we’ve 

seen for more than a year. 

Perhaps related to this financial sector unease, some measures 

of consumer confidence have fallen. Also, housing sales and building permits took a decided drop in May, suggesting that a self-sustaining recovery has not yet taken hold in the housing sector. 

Importantly, despite these troublesome developments, many 

areas of the economy continue to show strength. The fact that personal consumer expenditures grew in May suggests that consumer 

spending, the largest source of aggregate demand, is continuing at 

a solid pace. 

The data on shipments of capital goods in May indicate that 

business investment in equipment and software continues to grow 

rapidly. And industrial production has expanded strongly, particularly in the high tech-tech manufacturing sector, where production 

is up 18 percent since May of 2009. Manufacturing jobs are growing at their strongest pace since 1998. 

Now as we look forward, it is clear that the economy continues 

to face some strong headwinds. The dire situation of state and local 

budgets means that without additional Federal aid, state and local 

governments will continue to shed jobs and act as a contractionary 

force on overall economic activity. 

Though credit conditions have ceased tightening, both recent statistics and reports from market participants suggest that many 

borrowers, particularly small businesses, still find it difficult to get 

loans. This obviously hinders small business growth and job creation. 

Finally, the housing bubble and bust has left many homeowners 

over-indebted, and the U.S. economy with a substantial over-supply 

of housing. As a result, the prospects for a rapid growth in residential investment, as we have seen in previous recoveries, are slim. 

Because of these persistent headwinds and the recent spate of 

mixed indicators, most private forecasters are predicting continued 

growth and job creation, but at a somewhat more subdued pace 

than the robust growth that looked possible a few months ago. 

Without further aid, the economy will continue to grow but the rate 

of recovery will likely continue to fall short of the rapid expansion 

that is needed to bring the unemployment rate down quickly. 

For this reason, the additional targeted actions that the President recommended last winter are even more important today than 

when he first proposed them. Each of the actions is designed to 

counteract some of the headwinds that we face, and by doing so to 

increase the speed of recovery. 

The most fundamental of these targeted actions is an extension 

of emergency unemployment insurance benefits. According to the 

Department of Labor, 2.1 million Americans have already seen 

their unemployment insurance benefits stop because of the failure 

to extend the program. That number will rise to 3.2 million by the 

17 

end of this month. It will be devastating both to the families affected and the overall economy if this support is not renewed. 

At a time when the unemployment rate is 9.5 percent, there can 

be little question that such support is deeply needed. 

Support for small business lending is another essential program 

to counteract the headwinds we face. This is an exceptionally lowcost measure that promises to materially increase the availability 

of credit to small firms currently struggling. 

Such credit support, together with the small business tax cuts 

and bonus depreciation included in the bill, will be a much needed 

shot in the arm for small businesses. Such support will help them 

to expand and create jobs. 

The third targeted measure that will help to ensure more rapid 

recovery is additional aid to state and local governments. There has 

been much discussion in the past week of innovative ways to structure this aid so that it encourages beneficial reforms or pays for 

itself over time. Many variations have merit, and the Administration is anxious to work with Congress to pass a sound plan. But 

some form of meaningful state fiscal relief is necessary both to prevent widespread layoffs of teachers, fire fighters, and police officers, 

and to accelerate job growth throughout the economy. 

Now we are all keenly aware of our large budget deficit and the 

long-run fiscal challenges that we face. The President is committed 

to meeting those challenges. That is why he has worked with Congress to pass health care reform that will lower the deficit by more 

than a trillion dollars over the next two decades. 

It is why his budget included a three-year freeze in nonsecurity 

discretionary spending, and why he established a bipartisan commission to forge the necessary consensus for sensible, serious deficit reduction. 

It is also why the Administration has pursued a wide range of 

low-cost measures to spur job growth such as export promotion and 

public-private partnerships that have proven so successful in 

leveraging private investment through the Recovery Act. 

But not taking additional targeted actions, many of which are 

fully paid for over the budget window, because of concern about the 

deficit would be misguided. Allowing the unemployment rate to remain severely elevated for an extended period runs the risk of permanently lowering labor force participation and worker skills. Such 

permanent damage would not only be terrible for the workers involved, it would be terrible for our long-run budget situation. 

Our Report today contains the latest evidence that the Recovery 

Act has been highly effective at helping to turn the economy from 

free fall to growth. What we need now is to take some targeted, fiscally responsible additional steps to speed the recovery and finally 

return the economy to health after the wrenching events of the 

past few years. 

Now much of my discussion this afternoon is appropriately focused on the recovery and the need to jump-start job creation. 

Nothing is as important as getting Americans back to work. But in 

closing let me take just a minute to look both further back and further into the future. 

Even before the financial crisis and the Recession that followed, 

the United States was facing economic stress. As documented in 

18 

the Economic Report of the President from last February, health 

care costs were rising rapidly, squeezing both families and businesses. We were failing to invest as much as we should in education and R&D. And our financial regulatory structure had failed 

to keep up with the technological and behavioral changes in the industry. 

These developments were leading to stagnating incomes for middle class families, less innovation, and excesses in our financial system that set the stage for the crisis. 

Over the past 18 months, the President and Congress have not 

only taken unprecedented steps to deal with the Recession, but 

have also made great progress in facing these longer run challenges. 

The Patient Protection and Affordable Care Act passed last 

March will slow the growth rate of health care costs by improving 

both the efficiency and the quality of our current system. 

The investments in education and basic scientific research started in the Recovery Act and continued in other legislation will build 

the skills and knowledge base essential for raising standards of living and competing in world markets. 

And the financial regulatory reform legislation on the verge of 

completion will help prevent a repeat of the terrifying meltdown of 

the financial system that we experienced in the fall of 2008. 

By working to both rescue the economy in the short run and rebuild the fundamental sources of productivity and stability in the 

long run, the President and Congress are charting a path not only 

back to normal but to a better normal than we had before. Thank 

you. 

[The prepared statement of Dr. Christina D. Romer appears in 

the Submissions for the Record on page 66.] 

[The Council of Economic Advisers’ report titled ‘‘The Economic 

Impact of the American Recovery and Reinvestment Act of 2009’’ 

appears in the Submissions for the Record on page 77.] 

Chair Maloney. Thank you very, very much for your testimony. 

In your testimony you explained how $100 billion in Recovery Act 

investments use leverage to encourage private sector investment, 

the result being that Federal dollars go much further. 

I was extremely struck by your statement that $100 billion in 

Recovery Act dollars supports $380 billion in total investments 

when we partner with the private sector, with each $1 of investment enabling another $3 of activity. 

I would like to ask a question about my home State of New York. 

I saw in your report that you released today that the Recovery Act 

has created an estimated 206,000 jobs in New York State, and of 

course I am very pleased to see that. New Yorkers need every single one of those jobs. 

Along those lines, can you tell me how much private investment 

in New York State has been spurred or sparked by the $100 billion 

in Recovery Act investments? 

Chair Romer. All right. Let me first say, since it came up earlier about state employment numbers, one thing—— 

Chair Maloney. The microphone. They need to hear you better. 

Chair Romer [continuing]. I wanted to first say a word about 

the state employment numbers. Because it was mentioned, we do 

19 

say those are inherently more uncertain than our overall estimates. 

And it is important to realize we get direct reports from only a 

small fraction of the recipient of funds. No one fills out a form 

about the unemployment insurance, or the tax cuts. It’s only the 

direct projects. And that gives us one read on employment by state. 

What we try to do in our report is get some estimates about all 

of the effects on employment. And that is where that larger number that you mentioned comes from. And we do the best that we 

can, but it is inherently harder when you are trying to do it for 50 

individual states. 

In terms of how much of the leverage is happening in particular 

states, we have not actually done that analysis. It was hard enough 

to get the overall level of analysis, but that is certainly something 

that I think we would very much like to work on. I know that the 

Vice President’s office is planning to do a follow on to our work. We 

are really the first step in evaluating these leverage provisions. 

And so I think going—looking state by state would be very interesting to the degree it is possible. 

Chair Maloney. That would be helpful. But could you elaborate on what sectors, or what areas, are benefiting from this $100 billion in leverage? Is it clean energy? Or loans to small businesses? 

Or manufacturing? Could you elaborate on what areas are benefiting and possibly give us some examples of some successes that 

have leveraged these dollars and helped communities employ 

Americans? 

Chair Romer. Absolutely. So in terms of areas, one of the striking things is there are these leverage provisions over a wide range 

of areas of investment. But the biggest ones are clean energy, 

building construction, and economic development. 

Just some examples of clean energy, the 48C Advanced Manufacturing Tax Credit is one I mentioned in my testimony. That is 

where people who want to build a factory set up a company to 

make some of these new clean energy projects partner and get 

some seed money from the government and do that. 

The President is going to be in Holland, Michigan, tomorrow— 

or later this week to talk about an advanced battery manufacturing 

plant, which is getting a direct grant from the government, being 

matched by private funds. 

In terms of economic development, a lot of that is the Small 

Business Administration. We have the loan guarantees that were 

passed in the Recovery Act. They upped some of those. That is 

partnering with a lot of loans to small businesses, creating businesses throughout the country. 

And then building construction. We know the Build America 

Bonds that were included in the Recovery Act have been wildly 

popular with a lot of state and local governments. They are being 

used to fund everything from schools, to community centers, to 

other kinds of infrastructure, and those are being very, very widely 

used and quite successful. 

Chair Maloney. Well thank you. My time has expired. Senator 

Brownback. 

Senator Brownback. I understand you are going to have a vote 

shortly, so I will pass to Congressman Brady so he can go to vote. 

Representative Brady. Thank you, Madam Chairman. 

20 

I feel like the report, you cherry picked a lot of the economic 

studies and I think almost made up some of the comparative projections, but what is more disappointing is that your own benchmarks are not included. 

My question is: Why don’t you have them in there? It was in the 

first two Quarterly Reports. You can’t say that the economy was 

worse than imagined because the Republicans said your projections 

were rosy to begin with, so is the White House ducking accountability on the stimulus? Or simply hiding the test so that we can’t 

match it against the poor performance? 

Chair Romer. So let me be very clear. First, on the numbers 

that we compare ourselves to, we are looking at the same range of 

estimates that we have looked at in all of the four quarterly reports. So that we tie ourselves to the Congressional Budget Office— 

a highly respected forecaster. 

Representative Brady. But is there a reason yours are not in 

here? I mean, you were very—you were front and center on what 

the stimulus would do. It was widely reported. Members of Congress debated it on the House Floor and in the Senate, as well, but 

now they’re missing. 

Chair Romer. Can I say that, no, they’re exactly—the main goal 

that the President gave was that he thought that this Act would 

save or create 3.5 million jobs. And that is absolutely the marker 

that we are looking at and comparing ourselves to. 

Representative Brady. So just to be clear, the White House 

didn’t say ever that unemployment would remain below 8 percent? 

That you would create 137 nonfarm payroll jobs by the end of the 

year. Or that 90 percent of the jobs would be created in the private 

sector? You did—and the fact it was actually in the first two Quarterly Reports when it shouldn’t have been there? 

Chair Romer. It was not in the first two Quarterly Reports. 

That was in the report that Jerry Bernstein and I put out during 

the transition. And let me just address it right now, because we 

did—the picture that you showed is one that has even showed up 

on Jon Stewart. But let me explain what I think is going on. 

I think the most important thing to say: It has nothing to do 

with the stimulus not working. Every study that comes out, every 

test that we do says that the stimulus is doing what we anticipated 

it would do. It’s on track to save or create 3.5 million jobs. 

Representative Brady. Sure. But I disagree with that, but 

back to sort of hiding the benchmarks. Why? 

Chair Romer. No one is hiding a benchmark. The fundamental 

thing is about what I have control over, what you had control over 

in designing the Act is what would the Act do? What none of us 

has control over is what was happening in the economy, what was 

going to happen without the Act. And the fundamental—— 

Representative Brady. Well actually you did estimate—you did 

estimate originally what would happen without the Act in comparing it against that—— 

Chair Romer [continuing]. Absolutely. 

Representative Brady [continuing]. It is still a failure. 

Chair Romer. Okay, so that—— 

Representative Brady. I guess, again, your benchmarks to me 

mean something because they’re not Republican or Democrat, they 

21 

come from the White House. They’re no longer cited because obviously the performance has failed to meet the—— 

Chair Romer [continuing]. No. I want to disagree completely. 

Our benchmark had always been how many jobs would this save 

or create. And that is what we are judging ourselves against. That 

is what we estimate in every way possible. It is what we contract— 

contact private investigators—private analysts on Wall Street. 

Let me come back to what changed between when we made that 

prediction about what would happen to the unemployment rate is 

the economy, the track it was on, net of the—without the Recovery 

Act deteriorated. And I think it is important to realize—— 

Representative Brady [continuing]. But we were telling you 

that when you made that prediction. 

Chair Romer [continuing]. You know, if you looked—— 

Representative Brady. We were telling you those were rosy assumptions. 

Chair Romer [continuing]. You know, if you go back and look 

in the Economic Report of the President, which is before your Committee, look in chapter two. Because we actually show you what 

other forecasters, the blue chip consensus, right, the 50 top forecasters in the country, what they were predicting. I think what you 

forget is, we were getting a tremendous amount of information that 

first couple of months, and the economy was turning in a way—— 

Representative Brady. But with all due respect, we haven’t 

forgot what your benchmarks are. And I don’t know how, really, 

you can claim success when you failed on those three key features. 

Plus, predictions you would jump start the economy didn’t happen. 

That you’d restore consumer confidence—it is low today, 90 percent 

of Americans believe the economy is in bad shape, and 3 out of 4 

don’t believe it is getting better. 

And how do you claim the stimulus worked when you’ve got busi- nesses holding on to $2 trillion of cash that they are not rehiring 

people with. They’re not hiring new workers with. They are not 

making that investment or expansion decision. That is proof positive that the stimulus has failed, because those companies, eager 

to recover, simply face uncertainty, don’t want to be punished, reluctant to do it. How do you stimulate by causing people to hold 

on, and businesses to hold on to their own cash? 

Chair Romer [continuing]. Congressman, I have to disagree 

fundamentally with your statement that it hasn’t had an incredible 

impact on changing the trajectory of the economy. 

You can’t look at the kind of pictures that the Chairwoman 

showed that showed we were on a trajectory of losing 750,000 jobs 

a month. 

Representative Brady. But last month not a single industry in 

America statistically showed a significant increase in jobs. Last 

week, a little less than a half a million people filed for unemployment, and that was celebrated. How can these be signs of success 

after a stimulus of breath-taking proportions? 

Chair Romer. Can we cite the number that we added 600,000 

private sector jobs since the beginning of this year? You’re not 

going to get any argument with me, things are still—— 

Representative Brady. But you’ve lost 3.3 million jobs since 

the stimulus passed in that 16 months. We’re going the wrong— 

22 

it’s gone the wrong direction. And the Federal Government workers 

are the only ones so far that have had safe paychecks. 

Chair Romer [continuing]. I think you need to remember again 

how severe this Recession has been, and how it got dramatically 

worse before anyone passed any Stimulus Act. 

If you want to know about our forecast errors, almost all of them 

came from the fourth quarter of 2008, and the first quarter of 2009. 

Before the stimulus could have done anything, the economy deteriorated rapidly. That’s the main source of why we’re not meeting 

that benchmark. 

Can I also point out one other thing? Which is, while you like 

to talk about how we’ve missed our unemployment forecast, it actually turns out that our GDP forecast has turned out to be remarkably accurate. And that in terms of what we said the stimulus 

would do to GDP, even taking into account the baseline—because 

part of what’s happened is a breakdown in the usual relationship 

between GDP and unemployment. 

Chair Maloney. The gentleman’s time has expired. I would like 

to comment to my very good friend and colleague for whom I have 

great respect: you say we haven’t seen any evidence of a recovery, 

that uncertainty is preventing businesses from hiring, and that the 

Recovery Act did not help get the economy back on track. 

Of course I disagree with this, but I was also very interested in 

reading the Republican Study Committee document. This is from 

the Republican Caucus and their Committee of the Budget. I would 

just like to read a few sentences in there, and it seems to disagree 

with some of the statements from my respected colleague, and it’s 

from the newest global financial risk sovereign area that they’re 

writing about, and I quote: 

The U.S. economy began to slowly recover in 2009 from the 

effects of a long and deep recession and a financial crisis. 

GDP growth turned positive. In the latter half of this year, 

financial markets normalized and major credit markets 

began to function smoothly, after an extended period of paralysis and turmoil. For most of 2010, economists have 

said a moderate recovery was well underway. 

That’s just from the Republican document, and I would like to 

give it to my good friend and colleague. 

Representative Brady. Do they cite the stimulus for that? Because I specifically know it doesn’t. It cites $1.3 trillion in federal—— 

Chair Maloney. ‘‘The economy is improving,’’ according to the 

Republican Caucus Report. We have been called to vote, and I 

would now like to turn it over to Senator Klobuchar and thank her 

very much for chairing this committee while we run to vote. Thank 

you for your testimony, and here is the Republican document, 

which basically says the same thing you were saying, Dr. Romer. 

Thank you for your hard work. 

Senator Klobuchar [presiding]. Representative Cummings. 

Representative Cummings. Thank you very much, Madam 

Chair. 

23 

I told you. I told you that they would say the sky is falling, and 

that the progress that we have made, that the President and your 

Administration had nothing to do with it. I told you. 

You said something that really intrigued me. You said a lot, really, but you talked about small business lending and how significant 

that would be, and I’m going back to some of the things that Mr. 

Brady was talking about. 

We had the Federal Reserve in my District about three weeks 

ago, and we had business people come in. And one of the things 

that they said is that if we could just get access to capital, there 

are—I mean, one lady stood up and she said: I’ve got opportunities 

at my fingertips. I just can’t get the capital. And so could you comment on that briefly? 

And then I want to ask you about the whole idea—and this is 

the major question, Dr. Romer—a lot of people think that Democrats, some of us, are not concerned about the deficit. And we are 

concerned about the deficit. I want you to just—you talked about 

how it is important that we also create jobs and do those things 

to spur jobs, and I need you to tell us about the balance. That is, 

dealing with the deficit and also creating jobs. 

Because I’ve got people, and they are concerned about the deficit, 

but let me tell you something. They are trying to figure out how 

they are going to be alive. Although they are concerned about the 

deficit, they are worrying about being alive to see the effect of the 

deficit going down. 

So can you answer those two questions for me? 

Chair Romer. Absolutely. So first on the small business capital, 

what you are hearing in your District is exactly what we are hearing. Which is, as many parts of the financial system have gotten 

more stable, it is easier for big firms to issue bonds and get capital, 

we are still hearing that it is hard for small firms. 

And the idea that there are opportunities at our fingertips, and 

you just can’t get the loan to put them into practice. And that was 

something that Chairman Bernanke also talked about in a recent 

speech. And that is exactly why, for several months we have had 

the proposal for a Small Business Lending Fund that takes a small 

business—a small amount of government money, gives it to—lends 

it out to community banks that do most of the—small banks that 

do most of the lending to small businesses at very favorable rates, 

and encourages them. They get even more favorable rates if they 

do more small business lending. 

It’s just a win—it’s a very winning proposition. It’s very cost effective. But we think it will have a material impact on getting 

more loans to small business. 

Representative Cummings. Now talk about deficit versus— 

now are you concerned about the deficit? 

Chair Romer. Of course. 

Representative Cummings. And you are a professional. You 

have been doing this for years. I just don’t want people to think 

that Democrats and this President are not concerned about the deficit. Can you kind of tell us about what you all are trying to do? 

I think you’re trying to balance this thing out? 

Chair Romer. Absolutely. I can tell you how many times we 

have had meetings with the President. He is deeply concerned 

24 

about the deficit. He is concerned about the fact that it has been 

a problem we have known about for a good 20 years, that keeps 

getting kicked down the road, and that is why he set up the bipartisan commission. 

He was convinced it was such an important problem, he also 

knows the only way we’re going to solve it is if both parties come 

together and figure out a solution that we can both live with. 

So you will get no argument from me that it is an incredibly important problem. I do want to say that I think that the health reform legislation was a major step in the right direction. For all that 

we can talk about quality, and efficiency, and expanding coverage, 

that bill was also a major fiscal action. It was a consolidation that 

is truly going to help to slow the growth rate of costs, and that is, 

any study will tell you, the main source of big budget deficits in 

the future. 

So that was an important first step. We absolutely need to do 

more. 

Representative Cummings. Well if I say to you, don’t, for example, do unemployment benefits because I’m worried about the 

deficit, I mean what’s your answer to something like that? I’m just 

curious. 

Chair Romer. Well there are two things to say. One is, our 

budget had a very serious plan. Which is, we knew that the fiscal 

stimulus was going to be going off. We also in our budget had— 

letting the tax cuts for the highest income earners expire, as 

they’re set to do at the end of this year. We mixed that with a 

group of targeted actions like extending unemployment insurance 

to have a sensible path, what Peter Orszag has described as a 

‘‘glide path’’ back down to a smaller deficit. And so that was absolutely—it’s important to have a plan, and we had that in our budget. 

The other thing is, and so it is important to realize we are making important fiscal consolidation over this year and next year precisely because the fiscal stimulus is going off. And that is an important point. 

But the other point that I made is, we do need to worry—when 

unemployment stays high for an extended period of time, what you 

worry about is some of those workers are permanently scarred. 

They drop out of the labor force. They lose their skills, and so are 

not as employable as they were before. And one of the worst things 

that could happen is that some of this high unemployment becomes 

permanent, or structural, because that obviously is terrible for the 

people involved, and it’s terrible for the productivity of the country, 

but it’s also terrible for the deficit. 

So I think it is in fact shortsighted to say we need to—you know, 

we can’t do anything today to get the unemployment rate down because of the deficit, when by not taking those actions today you 

could make the deficit worse in the future by causing unemployment to be permanently higher. 

Representative Cummings. Thank you very much. I see my 

time has expired. 

Senator Klobuchar. Representative Burgess. 

Representative Burgess. Thank you. Thank you, Senator, for 

yielding to me. 

25 

Chair Romer, are you familiar—the Business Roundtable and the 

Business Council on June 21st sent to Peter Orszag a list of things. 

The letter that accompanied it says it’s a follow up to your request, 

Mr. Orszag’s request, to both the Business Roundtable and the 

Business Council for examples of pending legislation and regulations that could have a dampening effect on economic growth and 

job creation. Surveyed our members to get their views. Attached is 

an executive summary and a detailed description of what they see 

as government initiatives that will inhibit growth, paraphrasing 

there just a little bit. 

Are you familiar with this document? 

Chair Romer. I am indeed. 

Representative Burgess. On page 10 of the document in the 

detailed portion, about the middle of the page, there’s a paragraph 

devoted to Texas Title 5 permitting and new source review. And 

this is a complicated subject, and I know it is not really the subject 

of our discussion today, but let me use this as an example of some 

of the things that are happening at the level of the Administration 

that are having an inhibitory effect on investment certainly in my 

home State of Texas. 

On March 31 the EPA formally disapproved of revisions to the 

Texas Qualified Facilities Exemption Rule that allowed facilities to 

use certain types of control equipment to make changes in their operations without going through permit review as long as these 

changes did not result in a net increase in emissions. 

So we’re not harming the environment anymore, but we were 

asking—we had some flexibility in implementing new equipment 

coming online in some plants like refineries that make refined 

product for gasoline that people depend upon in this country and 

need to have a stable and price secure source. 

So it goes on to say: Continued EPA objections could delay startup of certain projects already under construction or extend the permitting process for major new projects. In general, a flexible permit 

can provide a single emissions cap for part of an entire facility in 

lieu of permitting each individual unit built within the facility. 

Here’s the important part: Similar rules exist in other states and 

have not been challenged by the EPA. Is Texas being singled out 

here? Or are other states that work under flexible permitting from 

the EPA, can they expect similar Draconian policies to be enacted 

in New Jersey, Pennsylvania, other states that do refining? 

[Submitted by Representative Burgess: Letter dated June 21, 

2010, from Ivan G. Seidenberg and James W. Owens to Hon Peter 

R. Orszag followed by the Business Roundtable report ‘‘Policy Burdens Inhibiting Economic Growth’’ appears in the Submissions for 

the Record on page 132.] 

Chair Romer. Well let me—I’m not going to try to get into the 

specifics of that particular rule. Let me actually, though, the general issue of regulation, certainly as I said we have been talking 

to the Business Roundtable. I think probably the most important 

thing in that letter was the first sentence that said, ‘‘as you requested, here’s the work that we’ve done.’’ 

I think what you’re seeing is, there’s been a lot of business outreach. One of the things that I’m at lots of meetings with are meetings with businesses—— 

26 

Representative Burgess. I don’t mean to interrupt, but I’m 

going to run out of time. Can I—and maybe we can get back to you 

in writing on this, but this is a terribly important point back home. 

And the economy of Texas actually has done a little bit better than 

some other state economies. We’re not a basket case yet, but we 

could be with this type of Federal burden coming down on the state 

permitting process. 

We want clean air in our State. There’s no argument about that. 

This does not increase the pollution burden in the State. We are 

simply asking for flexibility. And right now you have got the governor of my state, Governor Perry, in a pitched battle with the EPA 

over this, and it does no one any good to do that. And certainly it 

is doing nothing to foster job growth, not even in my District. This 

is down in the Houston-Beaumont area, but it is certainly going to 

affect the economy of our State. 

You talked about the health care bill, and I’ve just got to ask 

you. I mean, you don’t really believe that that health care bill that 

was passed is actually going to lower the cost of health care in this 

country? 

Chair Romer. I absolutely believe it will slow the growth rate 

of health care costs, absolutely. 

Representative Burgess. It is a fantasy that really needs to be 

stamped out and rejected. We’re through with the bill. The President got what he wanted. Let’s be honest and admit we’ve driven 

costs through the roof. 

If you’re really honest about what happened in that bill, we 

didn’t include the doc fix in that bill. We didn’t include it because 

it was $300 to $500 billion. When that bill comes due, do you really 

believe that the health care law that is now the law of the land 

is actually going to reduce the cost of anything for anyone in regards to health care in this country? 

We turn tons—tons of regulation over to the Federal agencies. 

No one has any idea what those rules are going to look like. Your 

Business Roundtable is concerned about the effect on jobs and job 

creation of the result of those rules. And if those rules become too 

onerous, employer-sponsored insurance will indeed become a thing 

of the past. If you like what you have, you can keep it will become 

a hollow promise. 

And the Federal Government will then have the burden of all of 

those health care costs that the private sector is now unloading. It 

will be cheaper to pay the $2000 fine than it will be to keep up 

with the rules and regulations that are coming out of Health and 

Human Services and the Center for Medicare and Medicaid Services. 

Chair Romer. Congressman, I just have to recommend that you 

read three wonderful studies done by the Council of Economic Advisers where we went through the provisions of the bill, and our 

analysis based on outside studies is that it will slow the growth 

rate of costs by one percentage point per year. 

The other thing I think we lose sight of the fact, the reason it 

was as hard as it was to pass is precisely because it included some 

very hard things that will help to slow the growth rate of costs: the 

excise tax on high-priced plans is something that health economists 

say can genuinely help to slow the growth rate of costs. 

27 

The Independent Payment Advisory Board is something that we 

think can—— 

Representative Burgess. It scares everyone to death. 

Chair Romer [continuing]. We think it is something that can 

help to slow the growth—— 

Representative Burgess. And again, my time is up, but I just 

have to say one thing. Richard Foster, the actuary for CMS, came 

up with a figure that was available before we voted on the bill, but 

withheld from Congress, that said the cost of this thing was going 

to be much greater than what was being advertised. 

I have sent letters to Secretary Sebelius. Let us see the notes 

and e-mails and traffic back and forth of what went on between the 

actuary and the head at HHS before we voted on this bill. Why was 

Congress denied accurate cost information on this bill? I have not 

gotten any answer from the Administration yet. 

Chair Romer [continuing]. Can I say, you did get an answer 

from the Congressional Budget Office, which is one of the sources 

of high-quality information, and what they said, what we based a 

lot of our analysis on, is that it would slow the growth rate of costs 

and save a trillion dollars over 20 years. 

Representative Burgess. To paraphrase, they said: Oops, we 

goofed. I yield back. 

Senator Klobuchar. Thank you very much, Dr. Romer, and 

thank you for being here today. 

I am someone, as a former prosecutor, who believes in facts. And 

I have been hearing a lot of accusations that I believe are not factbased. And you seem to me like you are someone who is pretty 

straightforward. 

Just to get one fact completely straight, is it true that we lost 

3 million jobs in the last six months of the Bush Administration? 

Chair Romer. Yes. 

Senator Klobuchar. And then is it true that so far this year 

private-sector employment has increased by nearly 600,000 jobs? 

Chair Romer. Yes. 

Senator Klobuchar. Okay. Well I think I would rather be on 

this trend, even though I will admit it is not exactly where we 

want to be yet, I think everyone knows that, but when we were 

back before we passed the stimulus package, before we passed the 

Recovery Act, before we started doing a number of major transportation projects in my State that I know were long overdue, and I 

guess this question of predictions. At the beginning of the year, I 

assume you had a counterpart under the Bush Administration that 

headed up the Council of Economic Advisers. Did they predict that 

year that the Administration was going to lose 3 million jobs? 

Chair Romer. No. 

Senator Klobuchar. Did they predict that they would gain jobs, 

actually? 

Chair Romer. I believe they did. 

Senator Klobuchar. Well we will have to look at that. I think 

that is interesting. Because people seem to be making a lot of hay 

out of things. When I look back at the time when we were basically 

on the edge of a financial cliff, I remember actually the country 

came together at that moment, good or bad, with President Bush 

28 

and with John McCain, and Barack Obama, and made a decision 

that we needed to shore up the financial system. 

I believe we then continued with unemployment losses under the 

Bush Administration. President Obama took over. My memory of 

the facts is in the first month when he took over, while Bush was 

still President, we lost more jobs in this country in the month of 

January than the State of Vermont has people. 

We then passed the stimulus package. We evened things out, and 

we are now in what I consider a recovery that is taking too long. 

I would like it to go quicker, like everyone else. 

I will say that in my State the unemployment rate is better than 

the rest of the country. It’s in the low 7 percent. But as Senator 

Schumer pointed out, when people are hurting in a household, if 

in their household no one has a job, it is 100 percent unemployment. 

But the things that I have found helpful in our State is, first of 

all, the jump start of the stimulus, but then the belief in the private sector economy and working with small businesses. That is 

why I so badly want to get the Small Business bill passed. As well 

as a belief in innovation and American jobs, and America making 

things again and exporting them to the world. 

And I would like to see some shift in focus. I actually spoke with 

people in the White House about this today. This is a continuation 

of what the President talked about in the State of the Union, doubling the exports in five years, getting that R&D tax credit through 

Congress. A major focus on math and science. ‘‘Nation building in 

our own Nation’’ is what Minnesota native and New York Times 

columnist Tom Friedman calls it. 

So I would like you to shift a little bit and talk some about where 

you see this going in terms of some of the other initiatives outside 

of stimulus that the Administration is working on that you think 

will be helpful, starting with the export initiative. 

Chair Romer. I would be delighted to, because that is the—you 

know, one of the issues that we have talked a lot about is the world 

is different. Before the Recession, we knew that we were saving 

very little. Consumers had very low savings rates. 

We were building a tremendous number of houses so that we had 

an overbuilding in housing. When we think about what the economy is going to look like as we come through, we are going to 

need—you know, we don’t think consumers will go back to saving 

zero, and we anticipate that, you know, construction will be a 

smaller fraction at least for awhile. So the whole question is going 

to be: Where is the demand going to come from for all of our goods 

and services so that we keep people employed? 

And one of the things that we have identified for the President 

is, an obvious place where we can expand is exports, right? That 

creates demand for American products and keeps us employed here 

at home. 

And so we are doing a range of things. A lot of them are simple 

no-brainers. What we learned from the theoretical economics literature is that often it is just small, fixed costs that make it hard 

for a firm to get over that first hump of starting to export. 

And so just things like providing information through the SBA 

for small businesses. Or some more credit through the Import-ExVerDate Nov 24 2008 14:03 Oct 28, 2010 Jkt 058196 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 C:\DOCS\58197.TXT SHAUN PsN: DPROCT
29 

port Bank can make a big difference in getting firms that first export experience and getting them used to exporting. So we are taking a major initiative there. 

Secretary Locke is working with a tremendous amount of additional commercial diplomacy, taking people around the world trying to showcase American products. 

The State Department is taking a lot of the personnel we already 

have abroad and saying, can you get better at helping, you know, 

helping our firms sell their products and get used to exporting? 

And we absolutely think this goal of doubling exports is completely 

reasonable and something that will be very good for the American 

economy. 

Senator Klobuchar. Senator LeMieux and I have a bill that actually—which we’re trying to include in the Small Business package. It’s a bipartisan bill. As you know, he’s a Republican from 

Florida. It went through Commerce unanimously. To try to beef up 

some of that work that the Commerce Department does with small 

and medium sized businesses, because I have seen huge success in 

our State along those lines. 

I did have one question that Senator Schumer was going to ask 

and then he had to leave early. He is introducing a bill to extend 

the HIRE Act for six months. It includes a tax credit for businesses 

that hire unemployed workers, 179 expensing that allows businesses to deduct expenses in the year they are purchased. By the 

way, that is something that I heard a lot about when I was out 

there with our small businesses. And the Build America Bonds. 

Is that something you think would be helpful? 

Chair Romer. You know, I will tell you that in the fall the 

Council of Economic Advisers did a lot of research on a jobs tax 

credit like the Schumer-Hatch tax credit that ended up in the 

HIRE Act, and we were very enthusiastic. We thought it was something that could have very good employment effects. 

And as Senator Schumer mentioned at the beginning, there is 

some evidence coming in about how many workers are eligible for 

it, and suggesting that it could be quite effective. I think it is an 

issue that we need to study to figure out, but what I can tell you 

is we are very enthusiastic, as always, to work with Congress on 

measures that will help to put people back to work. So we—— 

Senator Klobuchar. So one last—— 

Chair Romer [continuing]. Look forward to talking with you. 

Senator Klobuchar [continuing]. Clarification of a fact question 

before I turn it over to Senator Brownback. 

Representative Burgess was asking you about health care expenses, and I thought you made a good case that over the long 

term that this bill took on the difficult task of bringing down 

health care costs, which have been going up and up and up at the 

expense particularly of the self-employed and small businesses in 

this country. 

The CBO score of this, the nonpartisan CBO, which I know is relied on from my colleagues on the other side during the Bush Administration, that agency, to get accurate numbers, the CBO score 

ten years—is it true that the CBO score of this bill is saving $138 

billion over 10 years? 

Chair Romer. Yes, it is. 

30 

Senator Klobuchar. And for the health care bill, over 20 years the score was that it would save $1.2 trillion? Are those the numbers you are talking about? 

Chair Romer. Those are exactly the numbers I am talking 

about. 

Senator Klobuchar. Again, I believe in facts. Thank you very 

much. I turn it over to my colleague, Senator Brownback. 

Senator Brownback. And I believe the taxes kick in in year 

one, and the benefits not to year four, Chair? 

Chair Romer. The important thing is I believe at the end of the 

ten-year window, it is still positive. So I think that’s actually— 

that’s not what’s getting you the good number. 

Senator Brownback. Well I wonder what the next ten years 

will bring, when you have ten years of spending and ten years of 

taxes on that—— 

Chair Romer. That’s when it saves a trillion dollars, or $1.1 

trillion. 

Senator Brownback [continuing]. Good Lord, I hope you are 

right. 

Chair Romer. I hope the Congressional Budget Office is right. 

Senator Brownback. Well, I want to talk about the uncertainty 

factor that’s out there. Because surely you are hearing that. I know 

the President called a number of business leaders and they cited 

to him a series of uncertainties to explain why they’re not employing. And looking forward, which hopefully you are, I’m sure you’re 

saying look, how do we get these guys to put money in the game, 

men and women that are investing, creating jobs, trying to create 

an atmosphere for growth. 

One of the things that people look at, saying it is going to drive 

up costs, is the cap and trade proposed legislation that passed the 

House. In your Chapter 9 of the Economic Report, the President 

supports cap and trade, carbon emissions, to transform the energy 

sector. 

CBO questions the premises for cap and trade, and asks how 

policies reducing greenhouse gas emissions could affect employment. In the May 5th report they say emission reduction policies 

would decrease employment in energy-intensive industries. Quote, 

‘‘Eventually the economy would return full employment. Average 

wages would be lower than that that would otherwise prevail because of the higher cost of energy would reduce the productivity of 

the economy.’’ 

That is a direct quote of the CBO report. Given the uncertainty, 

given the difficulty we are having in the economy, would the Administration now say it is not time to pass cap and trade legislation? 

Chair Romer. So let me first talk about the uncertainty, because it is something that we hear a lot from business. And I think 

the important thing to realize is, what have been the major sources 

of uncertainty over the last 18 months? 

It has been the financial crisis. It’s been the terrible Recession. 

That has been the number one thing we have worked with the Congress to try to turn around, what the Federal Reserve has been 

working on, what Secretary Geithner worked on with the Financial 

Stability Plan. And I think that has been incredibly important. 

31 

Also, on the regulatory side, I think as was made—the statement 

was made very well, often—— 

Senator Brownback. I’m going to run out of time. Do you have 

cap and trade—I just was asking you directly about cap and trade, 

and its uncertainty factor. 

Chair Romer [continuing]. What the President has said is he 

actually thinks getting a sensible energy legislation, like many 

other changes that we make, can help to resolve uncertainty because people understand what the framework is. And what we do 

know is we have a problem. We are dependent on foreign oil—— 

Senator Brownback. Well even though CBO says this is going 

to drive employment down and wages down, you are for cap and 

trade at this point in time in our economy? 

Chair Romer [continuing]. We are for a comprehensive program 

that counteracts many of those things, by investing in clean energy, by trying to jump start the clean energy economy. We think 

a lot of—you know, that that can have very positive employment—— 

Senator Brownback. Do you believe emission reduction policies 

would decrease employment in energy-intensive industries? 

Chair Romer [continuing]. I think it’s going to affect different 

industries in different ways. 

Senator Brownback. What about that industry? 

Chair Romer. Like renewable energy, for example. 

Senator Brownback. What about in an energy-intensive industry? 

Chair Romer. I think we are going to have to develop it very 

well. That is something that the bills are being very careful to try 

to make sure that we minimize any costs on some industries—— 

Senator Brownback. You’re an economist. You’re an excellent 

economist. You know this is going to drive down employment in energy-intensive industry. 

Chair Romer [continuing]. What it’s going to do is to change the 

nature of what we produce. We think that is something we need 

to—— 

Senator Brownback. Will it drive down employment in energyintensive industry? 

Chair Romer [continuing]. I think it is going to depend on how 

we design it. I think that is going to be the basic thing that has 

to happen. 

Senator Brownback. So you honestly believe it might not drive 

down employment in energy-intensive industry? It’s what the CBO 

has said. It’s what every economist that I’ve read or looked at—— 

Chair Romer. So we’re going to need to—I would certainly need 

to think more about the evidence. I think the other thing is, the 

whole thing the President is trying to do is to invest in new energy 

technologies, clean energy technologies—— 

Senator Brownback [continuing]. Create winners and losers? 

Chair Romer [continuing]. Because that’s the way you’re going 

to counteract any—you know, if you’re making carbon fuels more 

expensive, the way you can counteract that is come up with alternative energy. 

Senator Brownback. Will this make carbon fuels more expensive? 

32 

Chair Romer. So certainly what a cap and trade system is designed to do is to, as the President has described, is to put a price 

on carbon. 

Senator Brownback. And it will make carbon-intensive fuels 

more expensive? 

Chair Romer. The—most likely. And then what you have to do 

is to think about how do you deal with those consequences. And 

you have—you know, you have to remember why we’re doing this. 

No one would choose to do this—— 

Senator Brownback. Well I understand why we’re doing 

this—— 

Chair Romer [continuing]. If there weren’t a problem. 

Senator Brownback [continuing]. And I also watch Europe, 

what they’re doing in backing away from some of these policies now 

because their economy is in such difficulty. 

And I’m thinking why shouldn’t we be watching what is taking 

place there, if that is the same sort of track that we are looking 

at going down? And if they have already pursued that very aggressively and now they are saying, wait a minute, look at what it is 

costing us, and look at how difficult this is, maybe we ought to just 

take a moment and say, well, let’s watch what happens here and 

let’s look at this for a little while and see that we don’t hurt ourselves in the process. 

And in an already soft economy, with all you have been saying 

today I believe you think this is still a soft economy—I’m not quite 

sure, but I believe that is what you think? 

Chair Romer. It is still a soft economy. It is an economy that 

is recovering and, as Ms. Klobuchar described, we want it to be recovering faster. 

Can I actually say, the President has been having a very positive 

message here, which is: Let’s be growing the alternative energy 

sector—— 

Senator Brownback. I’m all for that. 

Chair Romer [continuing]. And that’s why he’s been investing—— 

Senator Brownback. I’m all for growing the positive end of it. 

Just don’t tax and kill the other end of it in the process. That’s why 

I always think you do these things by investment and innovation, 

not by taxes and regulation. 

So you grow it, and you push it. We’ve got a hydrogen fuel cell 

locomotive we built in Topeka, Kansas. BNSF and the Army has 

done it. It’s a beautiful example. But it’s an investment in an innovation that isn’t us telling the railroads you’ve got to go to this type 

of a technology. And, that’s how you move through these. 

But on the deficit reduction, because I know you’ve got to be concerned about the deficit, you’ve said you’re concerned about the deficit, it’s being added to at $55,000 a second under the Obama Administration. We just had the Budget Director leave office. The Financial Times reports, June 27th, that he resigned, quote, ‘‘frustration over his lack of success in persuading the Administration to 

tackle the fiscal deficit more aggressively.’’ 

And we’re looking at nearly trillion dollar deficits throughout the 

next decade. I really hope you can tell us how we are going to start 

33 

getting away from this borrowing 40 cents of every dollar we are 

spending right now and move in the positive direction we need to. 

Chair Romer [continuing]. All right, so I think we should very 

much separate the current deficit, which to a very large degree is 

being caused by the terrible Recession that we have been through, 

and our long-run fiscal problem which I absolutely agree is a serious problem and something that we need to be dealing with. 

I think if you talk to Director Orszag and you talk to the President, what you will hear is they are both in complete agreement 

about how important it is to deal with our deficit over time. That’s 

why our budget charts a path to get the deficit down to 4 percent 

of GDP by 2015, and then sets up the fiscal commission encouraging it to then have a goal of getting it down to 3 percent of GDP, 

or even further. 

So that is a very carefully worked out plan, and something that 

absolutely is important. And it is going to take people from both 

sides of the aisle. That’s why the fiscal commission is there. This 

is going to be a hard problem. No one side can solve it by themselves. And we absolutely need to reach that consensus. 

Senator Brownback. Thank you. 

Thank you, Madam Chairman. If you have a second round, I 

would like to add another set of questions. 

Senator Klobuchar. Wonderful. We will do that. 

I just want to go back here, along with my theme of getting to 

the facts. Senator Brownback was just asking about the Debt Commission, which the President as you know had to basically set up 

his own bipartisan Debt Commission with former Republican Senator Simpson, Democrat Erskine Bowles of North Carolina, and he 

had to do that because we were unable to get seven of the Republicans in the Senate who were on the bill to support the statutory 

Debt Commission. 

I was one of the Democrats that held out my vote until we made 

sure that we got that Debt Commission, held up my vote on the 

budget. I think it is incredibly important. 

My question on this is: What was the debt going in that the 

President inherited from President Bush? 

Chair Romer. Certainly the numbers are that before we ever 

walked in the door. I believe the deficit was going to be over a trillion dollars. So that was what we inherited. And obviously the debt 

then accumulated. 

Senator Klobuchar. And as the President has reported, decisions were made to shore up the economy when it was teetering on 

the financial cliff. And how much was added to that, then, for the 

deficit? 

Chair Romer. So in the short run obviously we spent the money 

that we spent on the Recovery Act. I think an important fact that 

we have in the Economic Report of the President, when you look 

at our long-run deficit, all of the actions that we take are about a 

quarter of one percent of that long-run deficit number that is, as 

you know, enormous. And so that they are a tiny, tiny fraction. 

And that makes sense. It’s a one-time expenditure taken in an 

emergency, and that does not add to your long-run deficit. The kind 

of things that add to your long-run deficit are rising health care 

34 

costs, which are an enormous part of the economy and grow over 

time, as our population ages. 

Senator Klobuchar. Very good. And I am very much looking 

forward to the suggestions of this Commission. I think it is incredibly important, as many of us do, to do something on this long-term 

debt. But I think it is very important we get the facts straight 

about the debt that the President inherited when he got in. 

Another fact clarification before I get to my questions. You were 

asked about the benefits and the costs associated with the health 

care bill. You and I went over the long-term cost savings with the 

health care bill. But just to clarify what the benefits are, if you are 

a senior you will—there was a question. Are there benefits? I think 

someone had said you won’t get the benefits for four years. I 

thought it was very important to clarify for the record. 

In 2010, if you are a senior, are there in fact reductions on the 

costs of brand name prescription drugs? And additional help with 

closing the donut hole? Is that correct? 

Chair Romer. Absolutely. 

Senator Klobuchar. And is it true that the insurance companies will also be barred from limiting the total benefits Americans 

can use over the course of their lifetime, and that affordable insurance coverage options will also be made available through a highrisk pool for Americans? And that these are short-term goals of 

this—short-term provisions that will take effect immediately? 

Chair Romer. Yes. And I’d love to actually also add, the credits 

for small businesses are something that kicked in very quickly to 

help them cover the cost of health insurance for their workers. 

Senator Klobuchar. That’s right, because right now small businesses are paying 20 percent more than big businesses for their 

health care. And they are going to be eligible for tax credits up to 

35 percent, which I think a lot of small businesses don’t know yet, 

but that will start in 2011. And then finally, that parents are able 

to keep their kids on their insurance until they’re 26 years old. Is 

that correct? 

Chair Romer. That is correct. 

Senator Klobuchar. All right. We were talking about some of 

the long-term solutions here, and things that will be helpful to the 

economy. One of the things I have been very focused on is how we 

need to jump start and focus on our university research. 

It used to be that we had the Bell Labs, and AT&T Labs, and 

those kinds of things that would generate ideas and new products, 

and they would go right into the stream of commerce. We have gotten away from that, obviously. But what I am concerned about, I 

always think about the Beijing Olympics with the 2000 perfectly 

synchronized drummers in the opening ceremony. And I thought 

when I saw that, we’re in trouble. And those drum beats are getting louder and louder and louder. And while they are building 

high-speed rail in Shanghai, we are still debating transportation 

policy and unfortunately not coming together as we need to as a 

country. And while Brazil is producing more and more engineers 

and scientists, we are falling behind. 

And so that is my major focus here. And one of the parts of this 

is how we generate more commercially focused university research. 

And I mean that in the best of ways, so that that is also focused 

35 

on jobs, and that we use our universities and great learning institutions as incubators for new ideas that will become the next 

Google, or the next Medtronic in Minnesota. 

Could you comment on that, and how we can do that, and maybe 

improve the requirements of the America COMPETES Act? 

Chair Romer. I want to first agree with you completely on how 

important this innovative research is. When you talk to businesses, 

the thing that they say still gives us an edge in international competition is precisely because the new ideas are tremendously developed here. And so keeping that I think is incredibly important. 

If you go back to a speech the President gave very early where 

he challenged both the government and the private sector to make 

research and development of our GDP, to reach a number that we 

have not seen in decades, I think that is an important challenge. 

It is one that we started to meet through the Recovery Act, and it 

is something that the President is dedicated to continuing through 

our funding of things like the National Institutes of Health, the 

National Science Foundation. 

And I think your point about, as much as possible—you know, 

a natural role for the government is of course in doing what the 

private sector wouldn’t naturally do, like the basic scientific research. But as much as we can help to make the innovations that 

we develop here then turn into industries here is incredibly important. 

And here I will just mention, one of the things that is not particularly exciting to many people is reform of the Patent Office, just 

making the way that we protect intellectual property when we discover these things is something that we think can help to make 

this process work better. And that is something that certainly we 

have been working on that I think is an important thing for us and 

Congress to work on together. 

Senator Klobuchar. Very good. Maybe someone asked you 

about this before. As you know, we have been struggling to pass 

the extension of unemployment benefits here. I did a bunch of 

events back in Minnesota for the week, everywhere from Brainerd, 

Minnesota, to Lanesboro, Minnesota, and I was really struck by the 

number of people that just came up to me. And even though we 

have a lower unemployment rate, if they weren’t—didn’t care about 

that. Maybe they had a neighbor that did—how important it is to 

make sure we have a safety net in place right now for those people 

who, through no fault of their own, have lost their jobs. 

Chair Romer. Absolutely. And the numbers that I gave in my 

testimony, that by the end of this month 3.2 million people will 

have exhausted their benefits because the program was not extended. And that is 3.2 million people whose lives will be devastated. 

But it is also a drag on the economy. That is, when people have 

unemployment insurance they spend it. And that is good for local 

businesses. It’s helping to support their communities and help put 

other people back to work. So it is incredibly important. 

Both the Congressional Budget Office, private analysts like Mark 

Zandi, identify unemployment insurance as one of the stimulus 

things you can do that has the highest bang for the buck. And I 

think that is incredibly important for us to keep in mind. 

36 

Senator Klobuchar. And one last question before I go back to 

Senator Brownback. One of the things I have noticed in our State 

is, because of the recovery, there are businesses that are actually 

still—are looking for workers, and they don’t always match up with 

the location of where the workers are. 

I just want to make a pitch for three businesses that I just visited in the last few weeks, one in the last few months. Digi-Key, 

up in Thief River Falls, was literally hiring over a hundred people. 

They make innards for computers. New French Bakery in St. Paul, 

Minnesota, needed some people for their night shift. They literally 

don’t have enough people to produce the bread. Monogram Meats 

in the very rural town of Chandler, Minnesota, that I visited just 

a few weeks ago, was also looking for some new employees. 

So I end with that to say, I guess one of my last questions will 

be, how do you deal with that when there are places that are looking for workers and that’s not where the workers are? But secondly, to end with a positive note that there clearly are some signs 

of recovery across this country. 

Chair Romer. I think you are absolutely right that there are 

signs of recovery everywhere. And I think that is so important for 

us to keep in mind. But as we have said many times, it needs to 

be stronger. And I think that is certainly what we are focused on. 

On the mismatch, we have heard some. There have been some 

stories about mismatch in skills. You were describing people aren’t 

where the jobs are. One of the great strengths of the American 

economy is its flexibility of its workforce. 

I would anticipate that when you tell people there are jobs in 

these areas, I can imagine many people very anxious to get there. 

In terms of skills—— 

Senator Klobuchar. That’s why I tried to do it, for the benefit 

of the C-SPAN viewers. 

Chair Romer [continuing]. Excellent. 

Senator Klobuchar. Like beef jerky. All right. 

Chair Romer. But there’s also—you know, within the Recovery 

Act and certainly there’s other legislation, improving our educational system and our job training, making sure that the skills 

that our children and our existing workers are developing are the 

skills that are going to be necessary in the 21st Century, is a 

never-ending challenge. It is what every economy needs to do. We 

need to constantly be growing and changing, and that is something 

that we are very much committed to. 

And again, working with Congress to make sure that we’re 

spending that money as effectively as possible. 

Senator Klobuchar. Thank you very much. 

Senator Brownback. 

Senator Brownback. Thanks, Madam Chairman. 

To start off with a softball for you, I am very pleased that the 

President set the November timeframe to address outstanding 

issues on the U.S.-South Korean Free Trade Agreement. I think 

that is where we can have a broad base of agreement. This is a 

positive for the economy. 

There are issues outstanding still related to autos and beef. It is 

my hope that those can be resolved. You can submit and aggressively push that before Congress. I would hope, as well, you would 

37 

push the trade agreements with Colombia and Panama, as job creators as well, and that you would push those aggressively with the 

Congress. That would be my hope. 

Chair Romer. The President certainly in his State of the Union 

mentioned those, and he has singled out Korea at the G–20. But 

I think you point out an important point, which is as we want to 

increase exports, opening up world markets through trade agreements is an important way to do that, and that is ultimately good 

for America and for our workers. 

Senator Brownback. And I think you can get some broad base 

of support. 

Madam Chairman, you are a noted economist. Is this a good time 

to pass cap and trade legislation? 

Chair Romer. With the—so, I mean the President has said that 

he thinks this is an issue that we need to face, and that is absolutely correct. So what is true is—— 

Senator Brownback. So this is a good time to pass cap and 

trade legislation? 

Chair Romer [continuing]. We need to deal with our energy situation. We have—we are dependent on foreign oil. We have a problem of climate change. And there’s the opportunities in alternative 

energy. Now is a propitious time to make sure that we—— 

Senator Brownback. And it will drive energy costs up. Kansas 

City, Kansas, Board of Public Utilities projects that it is going to 

drive up their energy costs 25 percent to their customers over a 

near-term basis. That’s over the next three years. Is that a good 

thing? 

Chair Romer [continuing]. Okay, so let’s go back to say the legislation that was passed by the House, the Waxman-Markey legislation, the whole idea of making it a package is that you deal with 

any consequences in terms of industries, in terms of consumers, 

by—— 

Senator Brownback. Fair enough. 

Chair Romer [continuing]. By dealing with it. 

Senator Brownback. How is Kansas City, Kansas, going to 

benefit from this? 

Chair Romer. So every American is going to benefit by jump 

starting clean energy, by breaking our dependence on foreign oil, 

and by not warming the planet to the point of catastrophe. All 

those are things that need to be dealt with. 

Senator Brownback. And my Kansas City, Kansas, their utility bills go up 25 percent. Their cost of gasoline in their car goes 

up to them on a near-term basis. And maybe some of them see a 

job opportunity. So by and large they are going to benefit from this 

in the near term in a soft economy? 

Chair Romer. So the key thing has been, right, how do you protect consumers? And so the original legislation had things like a rebate to the energy—you know, to the service providers to insulate 

consumers. 

We can have long discussions on how you design this thing to 

minimize impact on consumers, to get the benefit through clean energy, you know, preventing climate change, breaking our dependence on foreign oil, and deal with consequences. I would love to 

38 

talk with you in detail about how do you design that in the best 

way possible. The President has said we need to do it. 

Senator Brownback. I would prefer you would talk to the 

American citizens that are looking at prices going up because of 

this. And my point to you is that, we need to talk about uncertainty, talk about why we’re not creating the jobs we need to at 

this point in time. There’s a positive. We can look at trade issues. 

I think there’s a positive we can look at Chinese currency issues. 

I think that would be a helpful thing if the Administration would 

really push on China to float its currency. I’m with Senator Schumer on that. I believe the Administration is generally supportive 

of that policy. I think those are good bipartisan things. 

Cap and trade—even if you support the idea this is a bad time 

for it. That’s when you get people keeping their investment on the 

sideline. Or you get people saying I’m not sure about whether or 

not to move this on forward. 

And it would be wiser, I would submit to you, let’s invest in renewables. Let’s do more ethanol. Let’s do things that support wind 

energy. But not cap and trade that drives up your costs at a time 

when you have such a weak economy. 

I would really—I am not going to convince you to do that—— 

Chair Romer. You have convinced me that we should talk more. 

Senator Brownback [continuing]. We will be happy to talk 

with you. 

Let me, because I’m going to run out of time, on the Council of 

Economic Advisers web site you talk about using the best data 

available. 

Chair Romer. Um-hmm. 

Senator Brownback. You have created this term ‘‘jobs saved.’’ 

‘‘Jobs created and saved.’’ Now you’ve got well respected economists 

that believe this is a nonmeasurable number. I’m sure you’re familiar with this. 

Chair Romer. Um-hmm. 

Senator Brownback. Harvard University Professor Greg 

Mankiw wrote on a blog: The expression ‘‘created or saved’’ which 

has been used regularly by the President’s economic team is an act 

of political genius. You can measure how many jobs are created between two points in time, but there is no way to measure how 

many jobs are saved. 

Professor Allan Meltzer, critical in an op ed recently says: The 

Council of Economic Advisers shamefully embedded a number 

called ‘‘jobs saved’’ that has never been seen before and has no 

agreed meaning, and no academic standing. 

Now I am certain you are familiar with academic standing on 

numbers and terms. And I don’t want to really dispute with you 

about the nature of the state of the economy today, but I think we 

should be on measurables that have been generally agreed to by 

the profession. And this one is not. 

Chair Romer. Actually I disagree fundamentally. Actually, both 

of those distinguished economists I’m sure actually understand the 

fundamental notion that any policy has to be judged relative to 

what otherwise would have happened. 

Allan Meltzer is a distinguished economic historian, and everything that we do is about counterfactuals. And in terms of how do 

39 

you measure it, that is exactly what our report is about. We go 

through pages and pages of saying, how do we identify what would 

have happened otherwise? And therefore, how do you say what we 

think the contribution of the Recovery Act is? 

It is hard. It is not an easy thing to do. That is why we spend 

weeks writing these reports. It is why the CBO spends weeks. It 

is why the Federal Reserve is looking at this. It is why Mark Zandi 

looks at this. Everybody—I mean, it is a well-defined concept. It’s 

just hard. And it doesn’t mean that you don’t do it. Somebody has 

to say what’s the effect of this policy? And it’s just simply not possible to say, well, look at this point, look at that point. This is what 

the policy did. 

You need to know. You need to have some way of estimating 

what would have happened in its absence. It’s the fundamental 

issue in any economic analysis of a policy measure. 

Senator Brownback. Of ‘‘jobs saved’’? But let me ask you 

quickly, on the G–20. They recently met and was strongly focused 

on government deficit spending. And it appeared to be saying that 

we are all concerned about it, but it did not appear that the Obama 

Administration was, of what came out of that meeting. And they 

are saying we need to get deficits under control. 

I would hope that the Administration would look at those push— 

that push by European governments, particularly that they faced 

in this recent debt crisis, that for most Americans saw that as a 

shot, a warning shot to us on the track that we are on. And, that 

you would put more emphasis—I understand your concern about 

the deficit, but a lot more emphasis. 

We just recently pushed the idea of doing a freeze on spending 

for this next year in the Republican appropriations, and trying to 

get the rest of our colleagues to go along with that as a way to get 

focused on this deficit. And I would hope the Administration—— 

Chair Maloney [presiding]. Would the gentleman sum up? He 

is way over time. 

Senator Brownback. We did about ten minutes on Senator Klobuchar while you were gone—— 

Chair Maloney. Oh, okay. Okay. All right. 

Senator Brownback [continuing]. So I was just saying, well, 

okay, I will do about ten. And I will sum up here. But my point 

being, that the G–20 is deeply concerned. 

They have confronted this debt crisis that is a crisis of confidence 

as much as anything. And we cannot let that come to the United 

States, have that crisis of confidence in the fiscal house in the 

United States. And I would really hope that if you were more aggressive on dealing with that, we would not confront that crisis of 

confidence moving on forward. And I am afraid it could come this 

way. 

Chair Romer. All right, so let me first respond by saying, you 

know, in our budget we talked about a nonsecurity spending freeze, 

because the President agrees that he thought that was a sensible 

strategy. 

On the G–20, there is no disagreement on the notion that our 

budget deficit needs to be brought down over time. We agree completely with the other countries of the world that that is an issue 

that we all face. And I have said before, I think one of the great, 

40 

you know, lessons from this crisis is don’t—you know, get your fiscal house in order in good times because you never know when you 

may need the ability to take care of an economy that is in trouble. 

But I think a fundamental issue that came up at the G–20 is the 

rate of exit. Because we do know that fiscal stimulus is having an 

important effect on the economy. And those distinguished economists that you mentioned, I can tell you from their textbooks, for 

example, Greg Mankiw’s textbooks, he believes that government 

spending and tax cuts have an effect on the economy. 

And if you take away all of that too quickly, what you run the 

risk of is pushing the world economy back down into recession. So 

very much what Secretary Geithner and the President were talking 

about is, as we move toward fiscal consolidation, take into account 

what is happening in our own country, and what is the appropriate 

rate of moving in that direction. 

That was the only level on which there was any discussion. The 

overarching goal of getting our deficit under control, I am exactly 

with you. The President is with you. Director Orszag, Secretary 

Geithner, we are unified in the importance of getting that under 

control. That is why we strongly supported the bipartisan commission. 

Chair Maloney. Thank you very much. Congressman Snyder. 

Representative Snyder. Thank you, Madam Chair. 

Dr. Romer, thank you for your patience today. We have been 

running back and forth for votes. One quick question, if I might, 

and Mr. Brady is not here, but I am reading from his opening 

statement when he was talking about things that he considered 

bad things that President Obama and Congressional Democrats— 

of which I am one—have done. 

One of them is, he states, quote, ‘‘The top tax rate on capital 

gains will increase from 15 percent this year to 23.8 percent in 

2013; while the top tax rate on dividends will skyrocket from 15 

percent this year to 43.4 percent in 2013’’. End of quote. 

I don’t recall you recommending to President Obama that he sign 

that bill. I don’t recall voting for that bill. In fact, that was President Bush’s April 2001 Economic Plan that was adopted by the Republican Congress and signed into law by President Bush. 

Isn’t that correct? 

Chair Romer. That is correct. 

Representative Snyder. Which Mr. Brady voted for. So when 

he talks about, and Republicans talk about this ‘‘skyrocketing soonto-come skyrocketing tax increase,’’ it is a plan that they voted for. 

And one of the great weaknesses of that plan was that the numbers were gamed so that the 10-year and 20-year numbers would 

look better because it did come to an abrupt end. They, in my view, 

did not have the nerve to actually carry it out indefinitely. 

And so that is a plan that they voted for. They voted for skyrocketing tax rates, in their words, in 2013, not Congressional 

Democrats, and certainly not signed by President Obama, and certainly not recommended by Dr. Christina Romer. 

Chair Romer. Absolutely. And by structuring it the way that 

they did, it allowed them to hide the impact that it was going to 

have on the deficit. 

41 

Representative Snyder. That was the big reason for it, yes, to 

frankly fool the American people. 

I want to get into this thing. We have used the word ‘‘stimulus’’ 

and we have kind of ignored the word ‘‘countercyclical,’’ but I want 

to play that I’m a teacher, if I might, which is probably not going 

to work, but maybe I will be a better teacher than a lemonade 

salesman, for Mr. Burgess. 

If this [illustrating with water bottles] was the consumption by 

state government before the recession, jobs drop off, that’s what 

they’re buying out of the economy now in state government. 

If this was the consumption by local government before the recession, and this glass is what they drop off. If this is the consumption 

by private corporations, and small business firms, and this is it 

after the recession begins. If this is consumption by individuals in 

the economy like myself who is about to borrow some money to 

have some work done on my house, and this is our consumption 

after the recession began. This illustrates the problem, I think, 

which is economy is about demand for product. 

And in all these components of the economy, demand has 

dropped. I can add on another one, which is international buyers. 

The same thing has happened there. That is demand for U.S. products before. That has dropped off. 

Now the only one we have tried to maintain, or even do a little 

better, is the Federal Government to be a counterweight to all this 

dropoff. And I want to make one point, and then one question. 

My point is, I don’t understand what is wrong in the times of a 

downturn in the economy, why it has become so bad to talk about 

or advocate for something countercyclical to be a counterweight to 

this. 

My friends on the other side, they were fine to deficit spend to 

do a military runway in Iraq or Afghanistan, but somehow that 

money that goes to the Iraq air force base, which it did, to do repairs on the air base, but that’s bad and not a good investment in 

national security. Or $50 million for clean water projects in Arkansas under the stimulus bill is bad, but to deficit spend for clean 

water projects in Iraq or Afghanistan is good. 

I don’t get it, when you’ve got this kind of a situation. But here’s 

my question. And somehow I got, I’d better give them credit, I got 

put on a Goldman Sachs mailer years ago, and I’m afraid to mention it because they’ll probably pull me off, but is there something 

inherently different now about these components that’s making 

them difficult, making it more difficult, or by choice they are not 

buying more product to get that up, back to the normal level? It’s 

taking them longer. 

Are they making decisions, a deliberate decision, we’re going to 

work on keeping our debt load lower this time around, because 

we’ve got some uncertainty out there? And so we’re not coming 

back as fast? Whether you’re local government, state government, 

a corporate entity, big or small, or an individual, and international? 

Is there something inherently different about this recovery, using 

my bottle now? 

Chair Romer. You are doing very well at your teaching. 

Representative Snyder. And now I am hidden behind bottles. 

[Laughter.] 

42 

Chair Romer. So you make a couple of excellent points. One is 

just what’s the notion of countercyclical policy? And it’s precisely 

what the President has always said. At a time when the private 

sector is not buying things, the government has a very legitimate, 

essential role in counteracting some of that. And that is exactly 

what the Recovery Act was designed to do. 

The one thing I would say, though, is one of the key ways it was 

designed to do it is not just all the government spending, right? We 

gave very large tax cuts to consumers so that they would go out 

and buy. We gave unemployment insurance to consumers so they 

would go out to buy. 

We gave the 48C tax credits to businesses so they do more investment. So a whole bunch of that is in fact not in that cup, it 

is in all of your bottles. And the other thing you were mentioning 

that I mentioned when you were going is that the world is different 

coming out of this. 

We have a lot of consumers who are over indebted, and so that 

they may not go back—and we probably do not think they should 

go back to perhaps the very high spending ways from before the 

crisis. If consumers are never going to be all the way up to the bottle, you have to ask, well what’s going to make sure demand 

equals? And that is why we talked a lot about exports. That’s another source of demand. 

I have talked a lot in the economic report about investment. If 

we can get firms to do more investment, that is going to be something that holds up demand but it is good for our long-run productivity. That is why things like the Small Business Lending Fund, 

the Bonus Depreciation, the Zero Capital Gains for Small Businesses, that’s going to encourage them to invest and be a source 

of demand for the economy. 

So you are absolutely right. We need to get demand up to the 

level of all those bottles, but I think the composition may be different as we come out of this crisis, and we need to be adjusting 

policies to try to support that every healthy what we call in the 

economic report, a rebalancing. 

Representative Snyder. Thank you, Madam Chair. 

Chair Maloney. Thank you very much. 

Dr. Romer, the long-term unemployment rate during this Recession is at an historic high. In your report, you mentioned that the 

historical relationship between unemployment rate increases and 

output declines did not hold during this Recession, and that the unemployment rate rose much more than expected given the decline 

in output. 

Do you still believe that this rule-of-thumb known as Okun’s Law 

is holding? 

Chair Romer. That’s an excellent question. It does go back to 

how did some of our forecasts not come to be. Part of it was what 

we discussed at length with Mr. Brady about the deterioration in 

the economy which was much faster than we or any private sector 

forecasters were calling for. 

But the other piece of that was an unusually bad behavior of unemployment. That given what has happened to GDP, the unemployment rate has risen more than would have been expected. And 

in the economic report we say it is probably about a point to a 

43 

point-and-a-half higher than you would normally expect from that 

famous relationship called Okun’s Law. 

I can’t help but note it is named after a previous Chair of the 

Council of Economic Advisers, Arthur Okun. But anyway, this is 

certainly part of why the unemployment rate is so high, and higher 

than people had been expecting, is the breakdown in that relationship. 

The question is what is going to happen on the other side. So 

what we have been seeing in the last several months is GDP has 

started to grow again. The unemployment rate has come down. 

And I think that relationship is pretty much following the usual 

Okun’s Law relationship. 

I think the one thing we of course all hope for is anything, sort 

of the bad residual that we got in the Recession at some point do 

we see firms suddenly hiring more, bringing the unemployment 

rate down more quickly for a given behavior of GDP. I think that 

is something that is hard to know, but that is certainly a hope that 

we can have that when this thing really gets going strongly, do you 

get some of that Okun’s Law residual, if you want, back in the recovery phase. 

Chair Maloney. Well, many people have noted that during this 

Great Recession we have been very fortunate to have you and Ben 

Bernanke, two noted Depression scholars, working in the government and advising us. 

A hearing that we talked about that would be interesting, would 

be a hearing with you and Ben Bernanke on the Great Depression 

and the lessons that you learned from it. 

Some of my colleagues are arguing that we should look to Greece 

as a cautionary tale of sovereign overspending. Others are arguing 

that, given a low inflation rate, we are much more likely to end up 

with a lost decade like Japan faced. Some look at the tight monetary policies put into place during the Great Depression, which 

many believe prolonged the misery by preventing the flow of credit. 

What is the most appropriate lesson for us now? Is monetary policy too tight? What are the lessons that you feel we should be 

studying and listening to the most? 

Chair Romer. Well certainly I think many of the lessons from 

the Great Depression are actually things that we have put into 

practice in this Recession. I think it is no accident that Chairman 

Bernanke and the Federal Reserve took such extraordinary actions 

and were very creative in thinking about how do we deal with the 

freezing up of our credit markets, precisely because Chairman 

Bernanke had studied how devastating the evaporation of credit in 

the 1930s was. 

Likewise, what we learned in the 1930s is that a collapse of aggregate demand does indeed cause the economy to go into a tailspin. And exactly what we have tried to counteract through our 

policies is that decline in aggregate demand. That is where the motivation for the Recovery Act came from, and it is where the motivation from the expansionary monetary policies have come from. 

I think if I would take one lesson—it is actually a short note that 

I wrote last year—is actually from later in the Great Depression, 

from the experience of 1937. Because I think what we saw then is 

the economy was recovering, it was on track, and there was a deVerDate Nov 24 2008 14:03 Oct 28, 2010 Jkt 058196 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 C:\DOCS\58197.TXT SHAUN PsN: DPROCT
44 

sire to have both monetary and fiscal contraction, to basically get 

back to normal as fast as we can on the policy side. 

And exactly what we saw is another terrible recession in the 

middle of the Great Depression in 1938. So I think one of the 

things that we do need to be cautious of, it goes back to what we 

were talking about about the G–20, is everyone agrees policy has 

to go back to normal. We have to get our deficit under control. 

It is a question about when can the economy manage that. What 

is the right trajectory? Do you have a glide path? Or do you have 

a very quick adjustment? I think that is the lesson that I am certainly very aware of and thinking about as we go forward. 

Chair Maloney. Well actually the Senator and I had a personal 

conversation once that this would be a fascinating hearing. So I 

would like to welcome him to ask some questions on the Great Depression, the lessons we have learned, and have a little discussion 

about it, since we probably will not be having a hearing on it. Here 

is our opportunity. 

This was one of your requests for a hearing. 

Senator Brownback. Yes, and thank you. And you have been 

very kind to accommodate some of those. 

There is another school of thought that thinks that a lot of the 

requirements put in by the Administration during the Great Depression also added to the uncertainty of the environment during 

that period of time. And that is what I keep hearkening back to 

you on, because that is what I am hearing people say. 

Now I don’t base that—I don’t have a poll number to base that 

on. I don’t have something else. But that you create that uncertainty out there. That’s why I’ve been harping at you on cap and 

trade at this point in time, why you would push for something like 

that. 

That is one of the other lessons. Now I would appreciate your 

thoughts about when you read economists right about that point 

within the Great Depression. You must not think that was a particular problem during that era? 

Chair Romer. I feel very strongly that the main thing that went 

on in the Great Depression was a collapse in aggregate demand, 

and that is what caused the high unemployment. And the arguments that the regulatory regime was important I think are greatly 

overblown and actually not a very big part of the story at all. 

Let me come back—I mean the issues of uncertainty, you act as 

though not dealing with climate change, with our dependence on 

foreign oil, somehow resolves uncertainty. And in fact those are 

problems that we have to face. And many times by dealing with the 

problems you actually resolve the uncertainty. 

And I will give the example of our CAR rule, right? There was 

a lot of question about how were we going to enforce emission 

standards? California doing one thing. And it was actually industry 

that said: Can you just come together? We’re happy to have a rule, 

but we need the certainty of that rule. 

And after we passed it, what you found was the truck manufacturers came and said we want one of those, too. So that oftentimes 

getting the legislation, getting things—actually setting down the 

rules of the road can help to resolve uncertainty. And that is the 

same with a comprehensive energy plan. We know—— 

45 

Senator Brownback. I will guarantee you—— 

Chair Romer [continuing]. We’re going to have to deal with 

it—— 

Senator Brownback [continuing]. That if you put cap and trade 

in, you’re going to get a big fight here. You’re going to get a big 

fight in the country anyway. And you’re not going to get the investment that you could get in renewables on an easy basis if you don’t 

put cap and trade in. 

I’ll give you an easy one. Why don’t you raise the ethanol limit 

up to E15, instead of 10 percent ethanol? Domestic produced. Looks 

like it works pretty well. You open up to a renewable industry. You 

get bipartisan support for it. Why not pick those pieces like that 

that you can look at and you can say, now we could do something 

like that? 

Chair Romer [continuing]. But what the President has described is one of the ways—again, let me come back to by—— 

Senator Brownback. You’re not going to go with 15 percent 

ethanol? 

Chair Romer [continuing]. We are always happy to discuss 

things, and I’m sure Secretary Vilsack would be delighted to talk 

to you, as well. 

Senator Brownback. Well I would like for you to look at it. 

Chair Romer. We will certainly do that. But I do think the— 

pointing out what everyone knows, which is that we are on—again, 

it’s like the budget deficit—on an unsustainable path in terms of 

our foreign consumption, or consumption of foreign oil, in terms of 

emissions. We’re going to need to deal with it. By dealing with it, 

we actually get certainty. By putting a price on carbon, then people 

know how to make their investment. 

That can actually be very good for investment, because people 

know what they need to do. And it is in fact—you know, if you are 

worried about uncertainty, actually dealing with this, dealing with 

this problem that is not going to go away, can very much help to 

deal with it. 

Chair Maloney. I would say that finally acting on financial regulatory reform in many ways is making the economy more stable, 

as people now know the rules of the game to move forward. 

I would like to ask the question that I hear from my constituents, which is about a lack of access to credit, a lack of access to 

capital. We did pass a $30 billion loan pool that the Administration 

supported, which I think is important, but we are also reading that 

banks are holding onto excess reserves. 

Why are banks holding onto these excess reserves that they have 

and not lending? Why do you think that’s happening? And is that 

what happened during the Great Depression? What happened after 

they recovered somewhat? 

Chair Romer. This is fun. This is—so one of the things that 

happened actually in 1937 was there were a lot of excess reserves, 

and what the Federal Reserve did was to change the reserve requirements and just declared that those were now required reserves. 

And what we discovered was, banks said, no, no, no, we wanted 

to be holding excess reserves. We’ve just been through the Great 

Depression. They were very nervous. And we actually saw them 

46 

gathering more excess reserves around the new—above the new 

higher limit. 

So we do I think have to be careful about figuring out sort of 

what is driving bank behavior. I know Chairman Bernanke was 

also talking about what regulators were doing on the ground, and 

how the Fed was trying to talk to them about, you know, making 

credit-worthy loans when they were, you know—when there were 

possibilities to do so. 

So I do think that we do need to be careful as we go forward. 

But there is a certain amount of remembering what a terrible crisis 

we’ve been through, and how it was a searing experience, not just 

for American citizens but often for some of these small banks. That 

was a very frightening time for them as well. 

So you can imagine some of their behavior. I think what we’re 

trying to do through the Small Business Lending Fund is exactly 

to make the banks have access to capital provided by the government at a good price, if they are willing to do lending as a way of 

making them feel more confident about doing lending. And we 

think that is a very sensible strategy. 

Chair Maloney. That is a strong argument for that. We could 

use some help in passing that bill in the Senate, Senator. I hope 

you would take a good look at it. 

Senator Brownback. 

Senator Brownback. I’ve taken a lot of good looks at that bill. 

The numbers I am seeing is it is going to drive down employment 

and drive up costs. But I understand we have a difference of perspective on that. 

I just want to thank the Chair for being here. I do hope you get 

a lot more aggressive on looking at this deficit. I don’t want to see 

this crisis of confidence come to these shores. And your stance and 

your view on that would be very helpful to be aggressive on that 

so we don’t see that. 

Chair, thank you for having such an open hearing. I appreciate 

that, and I appreciate your willingness to discuss. 

Chair Maloney. I am just going to keep talking about the lessons from the Great Depression, if it’s all right with you, Senator. 

Do you think the Fed is favoring keeping prices stable over full 

employment? 

Chair Romer. So at this point, Madam Chair, I think it is very 

important to remember that the Federal Reserve is an independent 

agency, and I think one of the rules that we in the Administration 

follow is to not comment on Federal Reserve policy. 

Chair Maloney. Okay, well let me ask it a different way. Isn’t 

the inflation rate well below the targeted level? 

Chair Romer. So that I think, I mean I think we can have a 

very interesting discussion on inflation. Because what is certainly 

true is the usual relationship is that when the economy has high 

unemployment the inflation rate comes down. 

We have absolutely been seeing that happen in this Recession. 

And certainly in the last few months, both the level of inflation and 

expectations about inflation are continuing to come down, and are 

getting to quite low levels. 

Chair Maloney. Is deflation a risk? 

47 

Chair Romer. It is certainly, as the unemployment rate stays 

high that puts continued pressure on inflation. So, yes, it is a risk. 

Chair Maloney. Since the Fed can’t lower the targeted federal 

funds rate—they’ve already lowered it to between zero and 25 basis 

points—to influence short-term interest rates, what other tools do 

they have in their arsenal to spur employment? 

Chair Romer. Well here I would mainly again I think the most 

appropriate thing would be for you to bring Chairman Bernanke in. 

I think certainly there have been reports in the press of various 

things that other countries have done. For example, we hear about 

quantitative easing, which is things like the Fed did last year when 

they bought a lot of mortgage-backed securities and pushed down 

mortgage interest rates. So that is something that other countries 

have certainly been doing. That is an obvious additional tool that 

the Fed has certainly used in the past. 

Chair Maloney. Senator Schumer asked me to ask this question. He is introducing a bill that we passed in the House and the 

Senate called the HIRE Act that gave tax credits to employers to 

hire unemployed people, and he is putting a bill in to extend it for 

another six months. 

Do you believe this has had a positive impact on employing unemployed Americans? And do you believe the Administration might 

support such an endeavor? 

Chair Romer. So, Senator Klobuchar actually asked the 

same—— 

Chair Maloney. Oh, she already asked it? 

Chair Romer [continuing]. Question. Certainly the answer that 

I had given then is that we were very big fans of the SchumerHatch, the HIRE Act, and that we thought that a jobs tax credit 

was something with very good job bang for the bucks that are on 

the line. 

And so it is something that we are going to be monitoring. Treasury just did a study on the number of workers that are eligible. I 

think it is something that we certainly are anxious to talk to Senator Schumer about and see what he has in mind, and to pull together the evidence. 

Chair Maloney. Many of my constituents ask me and others 

about whether or not we might be seeing a double-dip recession. 

What is your forecast for the economy? Will growth and employment gains in the second half of 2010 be better or worse than the 

first half? I am asked this question all the time, and I’m sure you 

are too. 

Chair Romer. The first thing to say that’s important is I do not 

foresee a double-dip. 

Chair Maloney. Great. 

Chair Romer. I think what most of the private forecasters are 

saying is we have gone through a period of turbulence. The troubles in Greece that we talked about and slower growth in Europe 

are something that has certainly unnerved financial markets and 

caused some certainly lower growth abroad. 

I think what most people are thinking is that, like the Blue Chip 

Consensus lowered their forecast just a very small amount, but it’s 

still basically steady. I should say that the Administration twice a 

year does an official forecast that comes out first with the budget, 

48 

and then with the mid-session review that’s going to be coming out 

certainly before the end of this month, and I would rather not get 

ahead of the Administration’s forecast. But we will be coming out 

with our updated forecast. 

Chair Maloney. Thank you. I am hearing in my District, and 

I believe probably Senator Brownback is also hearing, the struggles 

of small businesses’ access to capital. I am astounded at how many 

respected firms that have been in business for many, many years, 

who have always paid their bills and been outstanding businesses, 

tell me they can’t find or get access to capital to hire and move forward. And it is a huge challenge. I am hearing it in the Democratic 

Caucus. I believe it is a problem all across the country. 

Could you tell us what the Administration is doing to ease that? 

Could you comment further on the Small Business Loan Guarantee 

Program? Are there any other initiatives or actions that we could 

take to help small businesses have greater liquidity so that they 

can move into the future with more confidence? 

Chair Romer. So I hear exactly the same things that you are 

hearing. And again, Chairman Bernanke gave a speech earlier this 

week talking about what they were seeing in their data; that, yes, 

small businesses are having trouble getting credit. And that is 

something that is impeding their growth and job creation. 

It is absolutely one of the headwinds that we face, and should 

be dealing with. When we did a very comprehensive review of this, 

what we thought was the best way forward was exactly the Small 

Business Lending Fund that is in the legislation. We thought cutting small business taxes, by having zero capital gains on equity 

that small business owners put in, we think that’s a very sensible 

strategy. 

We proposed some small changes to the Small Business Administration Loan Program so that they could have bigger loan amounts. 

All of those we think are, from talking to small businesses, things 

that are likely to work. They are what we thought was the best 

shot we could take at dealing with this problem. 

So our main plea is to get it through the Congress, because we 

think it would be very helpful. 

Chair Maloney. Another area of concern—if you could comment 

on the economics of the unemployment benefits. Many economists 

have testified before us that all of this money is plowed back into 

the economy. It is not only the humane action to take care of unemployed workers, but it also has the effect of keeping them working, or looking for a job, instead of going on welfare and Social Security Disability, which is very costly to the country and certainly 

it’s better for us to have them working to get employed. And every 

one of these dollars goes back into the economy. 

I believe we have 15 million unemployed Americans at this point. 

We have passed unemployment benefits in the House. We are 

hopeful that the Senate will pass it. And if you could, please comment on the economics of the unemployment benefits. This Committee did a study, because some of my colleagues on the other side 

of the aisle were saying that giving the unemployment benefits 

would in some way discourage workers from looking for a job, and 

our report showed just the opposite. They very much want a job, 

and they are frantic to find a job. 

49 

So your comments on the importance of extending the unemployment insurance? 

Chair Romer. Absolutely. I think what your report found is I 

think very much what the economics literature finds. Especially to 

the degree that there are incentive, or disincentive effects from 

high unemployment insurance benefits, those are issues that apply 

in normal times when the unemployment rate is much lower at 

more normal levels. 

At a time when there is a lack of jobs, the main effect that it 

has is keeping people attached to the labor force. And I can’t think 

of anything we want more, exactly what we’re worried about is 

workers becoming discouraged, dropping off, losing their skills, and 

not looking for work. 

The other point that you made about its stimulus impact is again 

very much supported by the economics literature. I cited, while you 

were away, a study by the Congressional Budget Office that said 

that this was a very cost effective form of stimulus. 

I know Mark Zandi, it’s at the very top of his list in terms of 

what he thinks has the best bang for the buck. And I think that 

is an important point to keep in mind. It is a program that is both 

humane to the people involved, but good for the overall economy, 

good for the people in the community that get the jobs producing 

the things that unemployed workers buy with their unemployment 

insurance. 

Chair Maloney. Well, my colleague has raised the concern that 

many of us share on the deficit and the debt, but can you put it 

in perspective, how much of this deficit problem is related to the 

Recession? 

Chair Romer. So I think an important thing is, in the short-run 

deficit, a very large fraction, or probably about half, is due to the 

Recession and half to the policies that we inherited from the past. 

And it makes sense. When you have a terrible Recession, tax revenues go down. Your expenditures for things like unemployment insurance go up. And that naturally tends to swell the deficit. 

In terms of our long-run deficit, however, it is a very small part 

of the long-run problem. The one-time actions that we take to deal 

with this emergency add just a tiny bit to your deficit over time. 

The much bigger determinant of the long-run deficit are things like 

health care costs, the aging of the population, things like that. 

Chair Maloney. Does my colleague have another question? 

Senator Brownback. I do. Because the unemployment insurance issue has come up here so much, wouldn’t it be best if that 

were paid for? 

Chair Romer. No, is the simple answer. 

Senator Brownback. It’s not best if it was paid for by the Federal Government? 

Chair Romer. What I would certainly say, the way we set up 

our paygo rules and the whole idea, we had our long discussion of 

countercyclical policy, I think if anything counts as an emergency 

it is unemployment of 9.5 percent. You will get no argument from 

me, we should pay for many things. We should deal with our deficit 

over time. 

I would not get held up over paying for a temporary one-time extension of unemployment insurance. 

50 

Senator Brownback. What if that is what is holding it up from 

passing? What if it would pass but for being paid for? Would you 

then still argue it should not be paid for? 

Chair Romer. I think the important thing is figuring out how 

it is paid for. Because—so that if you cut expenditures that would 

be aiding the recovery at the same time that you are doing the expenditures for UI, in terms of the over—you may help the particular people that are getting the funds, but in terms of the overall 

health of the economy you wouldn’t have accomplished very much. 

Senator Brownback. So you would prefer it not pass if you 

have to pay for it? Is that—because that’s the whole— if I could, 

Chairman, that’s the whole issue in the Senate. We did the doc fix 

after it was paid for. We did the homebuyer tax credit, after it was 

paid for. Those passed with unanimous consent. That means everybody agreed to it. 

This sits there ready to go, if it’s paid for. And you would argue 

it would be better not to pay for it and it not pass? 

Chair Romer. There are certainly other ways to pay for it. And 

our budget had listed various things that could be used to pay for 

various priorities. And I think, you know, so obviously I think the 

important thing is, you know, we need to work to do this because 

we all agree this absolutely has to be done. 

And figuring out what we can do that will get this necessary insurance in a way that is good for the economy is I think something 

we can work on. And I am happy to work on the details with you. 

Senator Brownback. So you do support paying for it? 

Chair Romer. I support passing it. And that is certainly important, and I would love to work with you and talk with you about 

what’s the best way to do that. 

Senator Brownback. Well I never seem to get a straight answer out of you. You’re not opposed to not paying for it? Can I put 

it that way, and that’s accurate? 

Chair Romer. No. You’re putting words in my mouth. We’re 

having a very sensible discussion—— 

Chair Maloney. She wants it passed, and she thinks it’s economically important. 

Senator Brownback. I agree with that. 

Chair Maloney. If you can find a pay-for, go find it. 

Senator Brownback. We found a pay-for. And you’d support 

that if we can find a pay-for? 

Chair Romer [continuing]. So at this point I don’t know what 

we’re saying, but what I do know is we absolutely need this extension—— 

Senator Brownback. I agree with that. 

Chair Romer [continuing]. We absolutely—you know, I think 

there are many things that absolutely need to be paid for. An 

emergency extension of unemployment insurance is typically not 

paid for. The whole point is that it’s an emergency, and that you 

actually need the stimulus that it provides. 

And if you wish to pay for it, and you think that’s important, 

let’s think about what’s the best way to do that in a way that is 

economically sensible and doesn’t counteract any of the way in 

which it is helping the economy. And that is what I stand for, and 

would love to talk with you more. 

51 

Chair Maloney. Another important part of the economy is the 

housing. Housing is always a large part. In some ways it is as 

much as 25 percent. Do you think that the rebound in the housing 

was due to the the Homeowners’ Tax Credit? Do you believe the 

Homeowners’ Tax Credit was responsible for the movement that we 

saw in our economy in that area? 

Chair Romer. So what we certainly—I mean, what the Homeowners Tax Credit is it’s like the Cash For Clunkers Program. It 

gives you an incentive to do the activity while it’s in place. 

And what we found with Cash For Clunkers is, what that did is 

to bring demand for new cars, not just from a few months in the 

future, but it seems to be probably from very far in the future because we’ve seen car sales continue at a higher level than they 

were before the program. 

I think we don’t know yet about the first-time homebuyers credit. 

It certainly seemed to—you know, we do see that people hurried up 

and bought their homes before it expired. I think what we don’t 

know is from how far in the future they brought it forward. 

The big drop off in May says well maybe it didn’t move it all that 

much from the future. So I think that is going to be the issue, and 

it is a hard one. 

Chair Maloney. And also we are facing the issue with the local 

and state governments, with the FMAP that many of us are supporting. Many economists are concerned that the budgetary shortfalls for our state and local governments will result in additional 

layoffs and service cuts at a time when our economy is very, very 

fragile. 

Was aid to the states a cost-effective and efficient form of stimulus? Did it work? We certainly appreciated it in New York State, 

but I’d like an overall statement. 

Chair Romer. You will absolutely get one from me. I think it 

is one where we had not had that much experience with that form 

of stimulus, so we did not have that much evidence to go on when 

we passed it. But certainly the conditions were dire and it was 

worth a try. 

I think all of the evidence since then is that it has been particularly effective. And I will actually cite our first quarterly report on 

the Recovery Act, because we highlighted the state fiscal relief, and 

actually did I think a very innovative study trying to really pin 

down causation. And what the results of that showed is that it was 

very effective. And looking state by state, we saw a very big impact. 

Chair Maloney. How does it compare to other components that 

were in the Recovery Act such as tax cuts? What was more stimulating? What was more effective in getting the economy churning 

again? 

Chair Romer. So I think we would put the state fiscal relief as 

one of the highest ones. I think when you look at conventional 

macro-economic models, typically tax cuts have less stimulative impact than direct government expenditures. And we would put state 

fiscal relief closer to the direct government expenditures. 

Chair Maloney. Do you think that additional state aid is warranted now in our financial recovery? 

52 

Chair Romer. I do indeed. The numbers that you get from various sources will tell you that state and local governments have a— 

still have a budget deficit of about 1 percent of GDP. If they deal 

with that by cutting spending, raising taxes, that is going to be a 

contractionary force on the economy. 

And so it is something I think we can very sensibly—I think it 

would be money very well spent. It would help keep our teachers 

in the classroom, and our policemen on the beat. 

Chair Maloney. We passed a stimulus of $10 billion for teachers 

in a supplemental budget in the House, and we hope the Senate 

will act on that, too. 

One of the good news items that you had in your report was 

manufacturing, where we are gaining jobs. What do we need to do 

to sustain the current gain in manufacturing, the current manufacturing trend that is very positive? What do we need to do to keep 

this going? 

Chair Romer. You are exactly right, that manufacturing is one 

of the areas that we have seen coming back in the recovery. I think 

the numbers are we have added some 126,000 jobs in manufacturing. Industrial production is up something like 8.2 percent in 

the last 11 months, and that is certainly a trend that we are very 

encouraged by and want to see continuing. 

What is one of the things that the President has talked about is 

how important it is to make sure that we—that our manufacturing 

continues to grow and evolve. He has identified clean energy technologies as an industry of the future, and one that we know China 

is working very hard on, Korea, many other countries, Germany, 

and he doesn’t want to get left out. And that is part of what is I 

think so innovative about the Recovery Act. 

In our second Quarterly Report we actually talked about how about $90 billion of the overall Act went into the area of clean energy, broadly defined. And a lot of that was designed to help jump 

start this, to help make our transition to clean energy work better. 

And I think that is going to be something that is very important. 

Those public/private partnerships that we have been talking 

about in our report, and that the President will be highlighting 

later this week in Michigan, are—I think—an important step towards helping that sector come back very strongly. 

Chair Maloney. Well, I could listen to you all day, but I am 

supposed to be voting in another committee, and I am sure the 

Senator has other demands. But it was really fascinating. It is always a really wonderful opportunity to hear your report. 

We are honored that you discussed the economic outlook and 

your fourth CEA report on the Recovery Act before our Committee. 

We are deeply grateful. I look forward to your future reports on the 

leveraging between the private/public sector job creation projects. I 

found that very interesting and certainly support your desire to 

move forward with special reports on how they are affecting the 

various states. It is very clear that we need to expand every tax 

dollar we have and have each go further and further to help spur 

jobs. And the fact that you have been able to document that is 

very, very good news. 

I thank you for documenting that the Recovery Act is trending, 

moving this country in the right direction, and I would like to conVerDate Nov 24 2008 14:03 Oct 28, 2010 Jkt 058196 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 C:\DOCS\58197.TXT SHAUN PsN: DPROCT
53 

tinue working hard in Congress to try to help move these proposals 

to have access to credit, and help create jobs in our country. And 

believe me, I do not think either one of us will stop until every 

American who wants a job has a job and our economy is strong 

enough to support their desires. 

I want to thank my colleague and good friend, Senator Brownback, for being here today, and all our colleagues. I thank especially you, Chairman Romer, for your outstanding report today and 

for your public service. Thank you so much for being here. We look 

forward to the next time. We hope we hear again from you soon. 

Maybe you can come back when you have your states reports and 

tell us what states have innovative ideas that are really working 

and helping us employ Americans. 

Thank you so much. This meeting is adjourned. 

[Whereupon, 4:40 p.m., Wednesday, July 14, 2010, the hearing 

was adjourned.] 

(55) 

SUBMISSIONS FOR THE RECORD 

56 

PREPARED STATEMENT OF CAROLYN MALONEY, CHAIR, JOINT ECONOMIC COMMITTEE

I want to welcome Dr. Christina Romer, the Chair of the Council of Economic Advisers, and thank her for her testimony here today. 

The Council of Economic Advisers and the Joint Economic Committee were both 

created by the Employment Act of 1946 and share an important history of providing 

the White House and Congress with analysis of economic conditions and economic 

policy. 

Our hearing today is on the economic outlook as well as the impact of the Recovery Act on the economy. 

In the first quarter of 2009, when the current Administration took office, the economy was facing the worst economic crisis since the Great Depression: 

• GDP fell by 6.4 percent, the fastest rate in almost three decades. 

• Monthly employment losses were higher than any seen since after World War 

II—in the first quarter of 2009, an average of 753,000 jobs were lost each 

month. 

As you pointed out last fall, the shocks that hit the economy in the Fall of 2008 

were larger than those that caused the Great Depression. 

As a result of the Recovery Act and other targeted spending programs passed in 

the 111th Congress, the economy has recovered over the last year: 

• Private sector jobs were created in every month of 2010; and 

• GDP grew for 3 straight quarters with forecasts of growth continuing for a 

fourth quarter. 

As the Chair of the JEC I have learned how valuable charts can be to present 

the story of the economy. This chart clearly shows that the Recovery Act had a clear 

impact on the economy’s upward trend. 

I am especially pleased that you are appearing before us just before the JEC 

transmits its mandated response to the Economic Report of the President. 

Your testimony here today will inform us as we put the finishing touches on that 

report. 

Since January, the JEC has been laser focused on job creation, holding numerous 

hearings and issuing a number of reports on this topic. 

While the economy has expanded, consistent with the ERP’s predicted growth for 

the first half of 2010, I worry that this recovery is still very fragile. 

It is clear that some of the differences between this recession and previous recessions might endanger this fragile recovery: 

• First, although the unemployment rate has been higher in previous recessions, 

the long term unemployment rate (that is for workers looking for work for more 

than 6 months) is at historically high levels. 

• Second, the median duration of unemployment is almost 6 months—which 

means that the typical worker searches for six months before finding employment or possibly dropping out of the labor force. 

• Finally, state and local governments are experiencing significant budget gaps 

as property and income tax revenues have plummeted while aid to unemployed 

families has spiked and demand for public education has risen. 

In order to spur the hiring process, it is clear that additional measures must be 

taken to create enough jobs for the nearly 15 million unemployed. 

I am dismayed by my colleagues who are listening to the political siren’s call of 

short term cuts to the deficit instead of heeding the economic imperative of robust 

job creation. Make no mistake. The national debt is a serious challenge for our economy. 

We need to carefully craft a plan that is smart, effective and fair. 

A long-term strategy on debt reduction is essential for a strong economy for generations to come. 

As Fed Chairman Ben Bernanke told the JEC earlier this year, ‘‘. . . maintaining 

the confidence of the public and financial markets requires that policymakers move 

decisively to set the federal budget on a trajectory toward sustainable fiscal balance.’’ 

However, efforts to translate this need into short-term spending cuts—especially 

cuts in unemployment benefits—have moved the deficit battle into the homes of the 

unemployed. 

This is bad economics and bad public policy. 

57 

Dr. Romer, we thank you for your testimony and I look forward to working with 

you as the committee continues our focus on fixing the economy, helping struggling 

families, and, above all, putting people back to work. 

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59 

PREPARED STATEMENT OF REPRESENTATIVE KEVIN BRADY

I am pleased to join in welcoming the Chair of the President’s Council of Economic Advisers, Professor Christina Romer, before the Committee this afternoon. 

On November 2, 2010, the American people will judge the economic policies of 

President Obama and Congressional Democrats and may direct a midcourse correction, much as professors do with their students at midterm. 

President Obama took office under unfavorable economic circumstances, but so 

did Franklin D. Roosevelt and Ronald Reagan. The question is, has the White House 

met its economic promises, and are we positioned for long-term growth? Economists, 

job creators in the private sector and families should question: 

• Have President Obama and Congressional Democrats spurred private investment and job creation with their ‘‘stimulus’’ spending, or have their policies 

added costs and uncertainty that have weakened the recovery? 

• Have President Obama and Congressional Democrats met our demographic 

challenges and improved our long-term economic prospects, or have they diminished them through an ideologically driven expansion of the size and scope of 

the federal government, higher taxes, burdensome new regulations, and a reckless increase in federal debt? 

To help answer these questions, let us examine the record as measured by the 

standards that you set for yourself. In January 2009, you published an economic 

analysis of Obama’s stimulus $787 billion plan and forecast that if Congress were 

to pass this plan: 

1. The unemployment rate would remain below 8.0 percent 

2. Non-farm payroll employment would increase to 137.6 million by the 

fourth quarter of 2010. 

3. Ninety percent of the jobs created would be in the private sector. 

Congressional Democrats passed the stimulus bill, and President Obama signed 

it into law on February 17, 2009. Now let us compare your promises with reality. 

1. Since the stimulus was enacted, the unemployment rate has never been 

below 8.0 percent. It has been as high as 10.1 percent and was 9.5 percent 

last month. 

2. In June 2010, non-farm payroll employment was 130.5 million, 7.1 million payroll jobs short of your forecast. 

3. Since February 2009, only the federal government has added payroll jobs. 

The private sector has actually lost 3.3 million payroll jobs. 

Clearly, Obama’s stimulus plan failed to work as you predicted. Instead, this recovery has been unusually weak for one after a severe recession. Average real GDP 

growth was 7.5 percent in first three quarters after the 1981–82 recession under 

Reagan compared with 3.5 percent in first three quarters after the 2007–09 recession under Obama. In the first twelve months of recovery, the United Stated added 

3.1 million payroll jobs under Reagan, compared with a loss of 170,000 payroll jobs 

under Obama. Similarly, the unemployment rate fell by 2.3 percentage points under 

Reagan, while it increased by 1⁄10th of a percentage point under Obama. 

Turning to the long-term consequences of the Democrats’ economic policies, one 

sees higher taxes, heavy regulation, gaping federal budget deficits, and soaring federal debt. 

President Obama and Congressional Democrats are increasing taxes through legislation, their failure to legislate, and ‘‘bracket creep’’ in the non-indexed portions 

of the tax code, including the alternative minimum tax and excise tax on so-called 

‘‘Cadillac’’ health care plans. Individual income tax rates will increase at the end 

of this year. Without a fix, up to 27 million families will become ensnared in the 

AMT. 

The top tax rate on capital gains will increase from 15 percent this year to 23.8 

percent in 2013, while the top tax rate on dividends will skyrocket from 15 percent 

this year to 43.4 percent in 2013. Congress allowed the research and development 

tax credit to expire. Moreover, Congress levied new excise taxes on private health 

insurance plans, pharmaceutical and medical device manufacturers, and tanning salons. 

If these tax increases aren’t enough to choke the private sector, President Obama 

and Congressional Democrats are still scheming to pass new energy taxes through 

‘‘cap and trade’’ legislation. According to press reports, two Administration panels 

will recommend levying a value-added tax once the midterm elections are over. 

However, these massive tax increases are still not enough to fund Obama’s extravagant federal spending. Based on Obama’s Budget, the Congressional Budget 

60 

Office projects that average federal outlays over the next decade will be 24.1 percent 

of GDP, 4.6 percentage points above the post-war average of 19.5 percent of GDP. 

The federal budget deficit will never be less than 4.1 percent of GDP. And publicly 

held federal debt will climb from 53 percent of GDP at the end of fiscal year 2009 

to 90 percent of GDP at the end of fiscal year 2020. 

Our long-term fiscal outlook is dire. If current policies remain in place, the Congressional Budget Office projects that publicly held federal debt will soar to an incredible 947 percent of GDP by the end of fiscal year 2084. 

I look forward to discussing these issues with you. 

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64 

PREPARED STATEMENT OF REPRESENTATIVE MICHAEL C. BURGESS, M.D. 

Thank you, Madam Chairwoman. 

Here we go again. Another month, another set of facts and figures that are telling 

the American people what they already know—the so-called Stimulus isn’t working. 

WHERE ARE THE JOBS??? Companies aren’t hiring at rates anywhere near 

where this Administration claimed they would be at this time. Businesses and individuals have the same outlook when it comes to this President—what’s he going to 

do next to make it harder for us to move forward? 

An ill-advised and scientifically suspect drilling moratorium that is already seeing 

jobs shipped overseas, as rigs pull up anchor and sail to foreign seas. Looming EPA 

regulations on emissions that will have consumers seeing their energy bills skyrocket. Financial regulatory reforms that will take years to implement, causing uncertainty in an already fragile market and leading banks to be less likely to loan 

money, not knowing what future things this Administration will do to harm their 

capital outlooks. 

I asked Secretary Salazar whether the Administration had done any economic 

analysis of what this drilling moratorium would do to job outlook in the Gulf region. 

To date, we have gotten no response. I can only assume that this hasn’t been done, 

or the Administration would know, as the New Orleans Times Picayune reported, 

that each job in energy exploration supports an additional 4 jobs providing supplies 

and services. Kill 5 jobs for the price of 1—there’s a statistic you don’t hear coming 

out of the White House. 

Sound economies need stability, and this President has provided anything but. He 

can claim to be ‘‘pro-business’’ all he wants, but with continued talk of Card Check 

and other pro-unionizing regulations, businesses know they can’t afford to take any 

risks right now. Congressional Democrats even inserted a provision in the War Supplemental essentially forcing state and local fire and police departments to 

unionize—regardless of whether workers in those departments have expressed any 

interest. Actions speak louder than words, and the actions of this Administration 

indicate one thing—this President and the people he has put in place throughout 

the government have yet to see a rule or regulation that they aren’t in favor of passing, and each rule and each regulation adds cost to the price of doing business. 

The Business Roundtable recently sent the White House a report of exactly what 

this President’s policies are doing to businesses around the country. In a letter to 

Peter Orszag, Ivan Seidenberg, CEO of Verizon, and James Owens, CEO of Caterpillar Inc., said business leaders are ‘‘increasingly concerned that political expediencies of the short-term harm our ability to partner with government to create policies that foster growth.’’ Jamie Dimon, CEO of JPMorgan told the White House 

‘‘Punishing whole industries, whether you were reckless or not, just isn’t the way 

to do things.’’ And Dan DiMicco, CEO of Nucor Corp., told The Wall Street Journal, ‘‘There’s this common concern . . . that we’re not doing the right things yet, and 

it’s showing up in the jobs numbers.’’ 

One reason this Administration is likely so disconnected with the reality of the 

private sector is that so few of the President’s top advisors have any real-world experience. Professors and Academics, people who’ve spent the bulk of their careers 

in government—that is who we have dictating to the private sector how CEOs 

should be running their businesses, and that is a large part of why businesses overwhelmingly resent the mandates being thrown at them by this Administration. 

Maybe if the President started hiring more CEOs in his cabinet like past Presidents 

from both parties have done for decades, he would start getting the kind of advice 

needed to allow the private sector to finally grow. 

Further cause for dismay is the Council of Economic Advisers’ latest Economic Impact report admits that any analysis of job creation in each state in this report is 

‘‘speculative and uncertain.’’ After spending hundreds of billions of dollars to ‘‘stimulate’’ the economy, a year and a half later we can still only ‘‘speculate’’ on job 

growth. There either have been or have not been jobs created by the stimulus. I 

don’t need to speculate, all I have to do is look at the unemployment numbers that 

have been stagnant under this President. The Stimulus was a failure. I don’t have 

to speculate about it. 

President Obama’s philosophy in steering this economy seems to be taken directly 

from Lewis Carroll’s Alice in Wonderland. When talking to Alice, Humpty Dumpty 

tells her ‘‘′′When I use a word, it means just what I choose it to mean—neither more 

nor less.’’ Further, the Cheshire Cat might provide some insight into the game plan 

for this Administration’s policies: 

‘‘Would you tell me, please, which way I ought to go from here?’’ 

‘‘That depends a good deal on where you want to get to,’’ said the Cat. 

‘‘I don’t much care where—’’ said Alice. 

65 

‘‘Then it doesn’t matter which way you go,’’ said the Cat. 

‘‘—so long as I get SOMEWHERE,’’ Alice added as an explanation. 

‘‘Oh, you’re sure to do that,’’ said the Cat, ‘‘if you only walk long enough.’’ 

(Alice in Wonderland, Chapter Six) 

This Administration has been playing fast and loose with words, facts and figures 

in relation to the economic outlook of this country since it came into office 18 

months ago. The American people are catching on. The rhetoric needs to stop. 

With that, I yield back. 

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