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80–093 2013

S. HRG. 113–4 

STATE OF THE U.S. ECONOMY: WHY HAVE ECONOMIC GROWTH AND JOB CREATION REMAINED WEAK, AND WHAT SHOULD CONGRESS 

DO TO BOOST THEM? 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 28, 2013 

Printed for the use of the Joint Economic Committee 

( 
(II) 

JOINT ECONOMIC COMMITTEE 

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

HOUSE OF REPRESENTATIVES 

KEVIN BRADY, Texas, Chairman 

JOHN CAMPBELL, California 

SEAN P. DUFFY, Wisconsin 

JUSTIN AMASH, Michigan 

ERIK PAULSEN, Minnesota 

RICHARD L. HANNA, New York 

CAROLYN B. MALONEY, New York 

LORETTA SANCHEZ, California 

ELIJAH E. CUMMINGS, Maryland 

JOHN DELANEY, Maryland 

SENATE 

AMY KLOBUCHAR, Minnesota, Vice Chair 

ROBERT P. CASEY, JR., Pennsylvania 

MARK R. WARNER, Virginia 

BERNARD SANDERS, Vermont 

CHRISTOPHER MURPHY, Connecticut 

MARTIN HEINRICH, New Mexico 

DAN COATS, Indiana 

MIKE LEE, Utah 

ROGER F. WICKER, Mississippi 

PAT TOOMEY, Pennsylvania 

ROBERT P. O’QUINN, Executive Director 

GAIL COHEN, Acting Democratic Staff Director 
(III) 

C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

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

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

WITNESSES

Hon. Michael Boskin, former Chairman of the Council of Economic Advisers, 

Senior Fellow at the Hoover Institution and the T.M. Friedman Professor 

of Economics at Stanford University, Stanford, CA .......................................... 6 

Hon. Austan Goolsbee, former Chairman of the Council of Economic Advisers, 

the Robert P. Gwinn Professor of Economics, University of Chicago, Booth 

School of Business, Chicago, IL .......................................................................... 9 

SUBMISSIONS FOR THE RECORD

Prepared statement of Chairman Brady ............................................................... 36 

Chart titled ‘‘5.5% Growth Rate Needed Over Next 4 Years’’ .............................. 38 

Chart titled ‘‘How Does the Obama Jobs Recovery Stack Up?’’ ........................... 39 

Chart titled ‘‘Obama Recovery Dead Last for Growth’’ ........................................ 40 

Prepared statement of Hon. Michael Boskin ......................................................... 41 

Prepared statement of Hon. Austan Goolsbee ....................................................... 59 

Questions submitted to Hon. Austan Goolsbee from Senator Martin Heinrich . 62 

Responses from Hon. Austan Goolsbee to questions Posed by Senator Martin 

Heinrich ................................................................................................................ 64 

(1) 

STATE OF THE U.S. ECONOMY: WHY HAVE 

ECONOMIC GROWTH AND JOB CREATION 

REMAINED WEAK, AND WHAT SHOULD CONGRESS DO TO BOOST THEM? 

THURSDAY, FEBRUARY 28, 2013 

CONGRESS OF THE UNITED STATES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The committee met, pursuant to call, at 9:59 a.m. in Room 216 

of the Hart Senate Office Building, the Honorable Kevin Brady, 

Chairman, presiding. 

Representatives present: Brady, Campbell, Duffy, Amash, 

Paulsen, Hanna, Maloney, Cummings, and Delaney. 

Senators present: Klobuchar, Murphy, Heinrich, Coats, and 

Lee. 

Staff present: Conor Carroll, Gail Cohen, Christina Forsberg, 

Connie Foster, Colleen Healy, Patrick Miller, Robert O’Quinn, Jeff 

Schlagenhauf, and Annabelle Tamerjan. 

OPENING STATEMENT OF HON. KEVIN BRADY, CHAIRMAN, A 

U.S. REPRESENTATIVE FROM TEXAS 

Chairman Brady. Good morning, everyone. I would like to call 

to order the first meeting of the Joint Economic Committee for the 

113th Congress. 

The Employment Act of 1946 established the Joint Economic 

Committee to analyze economic issues and make policy recommendations to Congress. As the 37th Chairman of the Committee, I want to congratulate Senator Amy Klobuchar on becoming 

Vice Chair, and welcome both new and returning Members to the 

Committee. 

I would like to introduce our new Members: Representative Erik 

Paulsen of Minnesota, Representative Richard Hanna of New York, 

Senator Roger Wicker of Mississippi, Senator Christopher Murphy 

of Connecticut, Senator Martin Heinrich of New Mexico, and Representative John Delaney of Maryland. 

While the United States confronts many problems, our most vexing economic challenge is the growth gap—and how we close it. The 

growth gap between this economic recovery and other recoveries is 

significant and intensifies our federal spending and debt problems. 

The growth gap has two interrelated aspects: 

First, by objective economic measures the recovery that began in 

June 2009 remains the weakest among recoveries since World War 

II. 
2 

Second, according to many economists, our economy’s potential to 

grow over time has slowed. If true, the average rates of growth and 

private job creation during this recovery of 2.1 percent annually 

and 175,000 new jobs per month, respectively, are about as good 

as our economy will ever perform in the future. And that is unacceptable. 

Therefore, it is appropriate that the first hearing of this Committee should address this growth gap. Why have economic growth 

and job creation remained weak? And what should Congress do to 

boost them? 

The anemic nature of the current recovery is indisputable. 

During the current recovery, real GDP increased by 7.5 percent 

in 31⁄2 years. By contrast, average real GDP growth during the 

same period in all the post-war recoveries was 17.5 percent. Today’s recovery is less than half as strong as the average. 

Real GDP would have to grow at an annual rate of 5.5 percent 

in each of the next four years merely to catch up with an average 

recovery by the end of President Obama’s second term. That would 

be slightly higher than the 5.4 percent annual rate that President 

Reagan achieved during the first three-and-a-half years of the 

Reagan recovery. 

Private payroll employment—that is, jobs along Main Street— 

have increased by only 5.7 percent since its cycle low. Had this recovery been merely average, private payroll employment would 

have increased by 9.4 percent. The growth gap means the United 

States should have 3.9 million more private jobs today than it does. 

Equally troubling is mounting evidence that the annual growth 

rate for potential real GDP in the future has fallen dramatically. 

In its most recent ‘‘Budget and Economic Outlook,’’ the Congressional Budget Office cut its estimate of the potential real GDP 

growth rate to 2.3 percent, one percentage point below its average 

since 1950. 

One percentage point may not sound like much. However, the 

real economy doubles in 22 years at a 3.3 percent growth rate. But 

at that lower, smaller rate, it takes 31.9 years to double, almost a 

decade longer. 

The prospect of a ‘‘new normal’’ for America’s economy in which 

our future economic growth permanently slows by one-third should 

be a red flag for all Americans. 

During this Congress, the Committee will, through hearings and 

research, investigate the growth gap and how to close it. No doubt 

some of the growth gap may be due to demographic factors that are 

not so easily amenable to economic policy; however, even a cursory 

review of recent history strongly suggests that economic and fiscal 

policies have played the dominant role. 

To understand how these policies affect performance, let us compare the generally pro-growth policies and the superior performance of the U.S. economy during the 1980s and 1990s with the generally slow growth policies and the lackluster performance during 

the last decade. 

During the Great Moderation under both Republican and Democratic Presidents and Congresses and Republican, Democratic, and 

split control, the Federal Government generally pursued progrowth economic policies and achieved outstanding results: 
3 

The size of the Federal Government, as measured by federal 

spending, gradually shrank relative to the size of the economy. 

Marginal income tax rates fell. Policymakers focused on reducing 

the after-tax cost of capital for new business investment, and jobs 

grew. 

Monetary policy became increasingly rules-based and predictable. 

Ignoring the employment half of its dual mandate, the Federal Reserve focused on price stability. 

The regulatory burden on businesses and households declined. 

And the United States led the world in liberalizing international 

trade and investment. 

Beginning in 2001 under both Republican and Democratic Presidents and Congresses with Republican, Democratic, and split control, the Federal Government reversed course—in large part due to 

the terrorist attacks of 9/11—and the results have been disappointing: 

The size of the Federal Government has grown substantially relative to the size of the economy, soaring to 25.2 percent of GDP 

and remaining elevated at an estimated 22.2 percent of GDP during the current fiscal year. 

Marginal income tax rates were first decreased, then increased. 

In recent years, policymakers have primarily focused on the ‘‘fairness’’ of the tax system instead of its effects on growth. 

Monetary policy has become discretionary once again. The Federal Reserve has justified its extraordinary actions based upon the 

employment half of its dual mandate. 

The regulatory burdens on businesses and households has increased, generating uncertainty and inhibiting new business investment. 

The United States has fallen behind its major trading partners 

in liberalizing international trade and investment. 

Today is the perfect time to focus on the growth gap and what 

we should do about it. Given the historical and legal relationship 

between the Joint Economic Committee and the Council of Economic Advisers, it is appropriate that two of the most distinguished 

former Chairmen, Dr. Michael Boskin and Dr. Austan Goolsbee, 

are with us today as witnesses. 

With that, I look forward to their testimony. 

I recognize Vice Chairman Klobuchar for her comments. 

[The prepared statement of Chairman Brady appears in the Submissions for the Record on page 36.] 

[Chart titled ‘‘5.5% Growth Rate Needed Over Next 4 Years’’ appears in the Submissions for the Record on page 38.] 

[Chart titled ‘‘How Does the Obama Jobs Recovery Stack Up?’’ 

appears in the Submissions for the Record on page 39.] 

[Chart titled ‘‘Obama Recovery Dead Last for Growth’’ appears in 

the Submissions for the Record on page 40.] 

OPENING STATEMENT OF HON. AMY KLOBUCHAR, VICE 

CHAIR, A U.S. SENATOR FROM MINNESOTA 

Vice Chair Klobuchar. Thank you very much, Chairman 

Brady. It is an honor to be here in my first meeting as the Vice 

Chair of the Joint Economic Committee, and joined by many great 

colleagues from both the House and the Senate. 
4 

I look forward to working as a committee on some very good discussions and hopefully solutions to the budget and the economic 

problems facing our country. 

I also want to thank our two witnesses, Dr. Boskin and Dr. 

Goolsbee. It is a great way to start this hearing with both of you 

having been former Chairmen of the Council of Economic Advisers. 

We are gathered here at a time, as we know, when Congress’ energy is focused on the Sequestration and the solutions to that. 

While that is not the focus of today’s hearing, in many ways it’s 

a good starting point for our discussion, not just because of its economic consequences but because it underscores the critical need for 

thoughtful, balanced, bipartisan policies that address our debt challenges without undermining growth. 

My hope for today is that we can explore some of the bigger picture ideas for moving our economy forward, while discussing specific policies for strengthening the fundamentals, the core economic 

engines like entrepreneurship and innovation. 

As we examine the current economic landscape, I think it is important to remember where we were just a few years ago. I sat 

through many hearings in this very room as we would hear the unemployment numbers, as we would hear from economists the difficult situation our country was in. 

I think back to the first half of 2009 when our country was losing 

jobs at a rate of nearly 700,000 a month. That is literally equal to 

the entire population of Vermont. 

Four years later, we are adding jobs. Not as many as we would 

like, but we have still seen 35 straight months of private-sector job 

growth. In that time, more than 6 million private-sector jobs have 

been created. 

We have also seen promising signs of growth recently in critical 

industries like housing. Take the January numbers for new-home 

sales, they hit their highest rate in 41⁄2 years, up nearly 16 percent 

compared to December. 

Exporting has been another bright spot, with a total value of 

American exports reaching a record of $2.2 trillion last year. 

I personally spent last week in 30-below-windchill weather 

around Minnesota visiting 30 different businesses, saw warehouses 

full of big crates that said ‘‘ship to China,’’ and saw first-hand in 

our State where we are down to 5.5 percent unemployment what 

we are seeing with this kind of private-sector job growth, which is 

based so much on exports in our State, as well as a skilled workforce. 

These are positive signs, but it is clear that there is so much 

more to be done. There are still more than 12 million Americans 

out of work, and there is no question that we have much more 

work to do. 

Our focus needs to be on policies that spark job creation in the 

short-term, while laying the groundwork for prosperity in the long 

term. Because if we’ve learned anything from the economic turmoil 

of the last few years, it’s that America can no longer just afford to 

be a country that churns money. Our financial industry is important, but it cannot be the basis of our economy. 
5 

We need to be a country that makes stuff, that invents things, 

that exports to the world. We need to be working to bring our country back to the brass tacks of innovation and entrepreneurship. 

I again mention that I come from a State—I will try not, Chairman Brady, to mention my State too much if you don’t mention 

Texas too much—but my State brought the world everything from 

the Pacemaker to the Post-It Note. We’re second per capita for Fortune 500 companies. So I have a model that I look at when I look 

at how we were able to keep our head above water during this 

downturn. 

And the model is really about innovation and exports. But this 

just isn’t a Minnesota story, it’s an American story. I believe that 

innovation is the engine that has kept our country moving forward 

since its earlier days. 

So the things I think we need to focus on with this Committee, 

as we go forward, and working with Chairman Brady, and I hope 

we can be as bipartisan as possible—we’re going to have different 

views, but as long as we get the right information from our witnesses I think we can come together on a number of hearings. 

First of all, our debt. We need to bring our debt down in a balanced way. I personally think that there were some very good 

things coming out of the Simpson-Bowles Commission and the 

work that is being done by many on that balanced approach to 

bringing the debt down. I don’t think we can put our heads in the 

sand, and certainly not when we’re facing Sequestration. 

Secondly, education. I think we should double our number of 

STEM schools. I think there is so much more that we can do to get 

our kids to get into science, engineering, technology, and math, 

with a better focus on these two-year degrees. 

We have so many companies right now in our State that are 

looking for welders, and tool-and-die, and these are jobs that are 

there right now that are going unfilled because we have failed to 

train students in those areas where we have jobs that are goodpaying jobs. 

Exports, I mentioned. The President’s goal of doubling the number of exports within this five-year period is attainable. 

Regulations. Looking at keeping very important safety regulations in place, but going industry by industry and saying what can 

we do to make things work better so we can compete on an international basis. 

Reforming our Tax Code so it provides greater clarity and consistency, and doing something about immigration reform which I 

think is very doable given the bipartisan work that’s going on in 

the United States Senate. 

I am excited about the coming year on the Joint Economic Committee and working with Chairman Brady and the rest of my colleagues. I look forward to this hearing. 

Thank you, very much, Mr. Chairman. 

Chairman Brady. Thank you, Vice Chairman. 

As this time I would like to welcome and introduce our distinguished witnesses for today’s hearing. 

Dr. Michael Boskin is a Senior Fellow at the Hoover Institution 

and the T.M. Friedman Professor of Economics at Stanford. Previously Dr. Boskin served as Chairman of the President’s Council 
6 

of Economic Advisers from 1989 to 1993, at which point the Independent Council for Excellence in Government rated the CEA as 

one of the five most respected agencies in the Federal Government. 

Also, Dr. Boskin chaired the highly influential blue ribbon Commission on Consumer Price Index, whose report has transformed 

the way government statistical agencies around the world measure 

inflation, GDP, and productivity. 

Dr. Boskin is author of more than 150 books and articles and is 

internationally recognized for his research, and has received the 

Adam Smith Prize for outstanding contributions to economics in 

1998. 

Dr. Boskin received his Bachelor’s, Masters, and Ph.D. at California-Berkeley. 

Next I would like to introduce The Honorable Austan Goolsbee. 

He is currently the Robert P. Gwinn Professor of Economics at the 

University of Chicago, the Booth School of Business. 

Previously he served on the Council of Economic Advisers from 

2009 to 2011, and led it as Chairman from September 2010 to August 2011. He writes monthly for The Wall Street Journal, and is 

a contributor and respected economic analyst for ABC News. 

Dr. Goolsbee has also spent time as a Special Consultant for 

Internet Policy for the Antitrust Division of the Department of Justice, and was the lead editor for the Journal of Law and Economics 

for several years. 

Dr. Goolsbee earned his Bachelor’s and Master’s Degrees in Economics from Yale University, and graduated with a Doctorate in 

Economics from the Massachusetts Institute of Technology. 

Well clearly we have highly respected witnesses who we hope 

will bring insight. In reading your testimony previously, there is an 

awful lot of wisdom to be tapped today as we look at these issues. 

So, Professor Boskin, Professor Goolsbee, thank you for your willingness to come before the Committee. We look forward to hearing 

your testimony and expert opinion. 

Dr. Boskin, you are recognized for five minutes for your statement. 

STATEMENT OF HON. MICHAEL BOSKIN, FORMER CHAIRMAN 

OF THE COUNCIL OF ECONOMIC ADVISERS, SENIOR FELLOW 

AT THE HOOVER INSTITUTION AND THE T.M. FRIEDMAN 

PROFESSOR OF ECONOMICS AT STANFORD UNIVERSITY, 

STANFORD, CA 

Dr. Boskin. Thank you, Chairman Brady, Vice Chair Klobuchar, 

Distinguished Members of the Committee: 

I have had the privilege of testifying before this Committee and 

working with it since the late 1970s when Senator Bentsen, and a 

remarkable bipartisan effort of 19 of 20 Members brought the supply side of the economy to the attention of Congress, amid the concerns there, in addition to the demand side. I obviously testified 

often in my four years as Bush, Senior’s CEA Chairman when we 

were cleaning up two financial crises—the Savings and Loans and 

the Money Center Banks being insolvent. We had the first Iraq 

War, an oil shock, and a recession. So, not totally dissimilar to, although not as large a scale, as what we went through recently. 
7 

Obviously we had a horrific recession following the collapse of 

the housing market and the bursting of the housing bubble and the 

financial crisis. The recovery, unfortunately, has been anemic. 

Compared to previous recoveries from deep recessions, GDP is 

growing at about 40 percent as rapidly, and employment only at 20 

percent as rapidly. This long period of sub-par growth is as damaging to lost incomes and employment opportunities and skills as 

the deep and severe recession. 

The modestly good news is, despite the fact the economy has basically been flat lately and most people expect this quarter to be 

only slightly positive, most forecasters expect the economy to pick 

up a little later this year and into next. 

The Administration is particularly at the high end of that forecast, as it has been for some time. Hopefully they are right, but the 

Blue Chip is looking at 2.0 percent or a little higher growth this 

year heading toward 3 percent next. That would still be way below 

what the economy should be doing recovering from such a deep recession. 

There are many, many risks the economy faces, from problems 

in Europe, to fiscal instability, to geopolitical issues, Iranian oil for 

example, continued deleveraging of the private sector, additional 

regulation raising costs and uncertainty that has yet to be written 

and enforced and so on. All of those—and the uncertainty about the 

Fed’s exit from its monetary policy. 

But there are a few good signs: 

The fiscal drag of state and local governments from their tax 

hikes and spending cuts has probably peaked. The technology revolution in fracking is bringing energy costs down in the United 

States, and is promoting jobs along a wide array of our states. 

Housing seems to be rebounding, and there’s lots of cash sitting 

on the sidelines on household and corporate balance sheets waiting 

for an improved economic environment and an improved policy environment. 

I believe that the early policies, the early Fed actions, the automatic stabilizers in the Tax Code, and making capital available to 

the banks, as poorly as it was done, was essential to preventing the 

recession being even worse. But much of the policy since then has 

not been nearly as effective as it could have been. 

I detail that in my testimony, but in my own view the temporary 

spending increases, inframarginal tax cuts, the attempted social reengineering of wide swaths of the economy, from energy to health 

care to financial services, whatever their intrinsic benefits and 

costs, created a lot of uncertainty, delayed investment, and hiring. 

So I think there’s lots of reasons to believe that we have a different course of action as likely required now. In my opinion, it 

starts with a strong, credible commitment to serious fiscal consolidation, phased in gradually as the economy recovers; difficult to reverse absent a major emergency such as war or recession. That 

means it’s got to be permanent and structural and likely requires 

toughened budget rules, process rules on spending and debt. 

Pro-growth tax reform, lower rates on a broader base, which almost all economists agree is desirable, would be an important complement to that effort. 
8 

In the long run, we need to get entitlement cost growth under 

control in a manner that strengthens and preserves our key entitlement programs, but prevents them from bankrupting the rest of 

the private economy and the rest of the government. 

Simply put, we are going to have too many people collecting too 

large of benefits—they’re not all that generous at the bottom, but 

we should be trimming them at the top. And we should be slowing 

their real increase per-beneficiary through a variety of structural 

reforms. 

I have calculated that the harm from allowing the projected debt 

to grow—we hear it is unsustainable. That’s too antiseptic a term. 

It’s dangerous. It really would lead, by all the basic studies that 

have been done of this, to a generation of lost income for our children and grandchildren on the order of 20 to 30 percent lower than 

it might have been. So we need to get the debt/GDP curve heading 

down in the near future as the economy recovers, and continuously. 

I think that there should be, therefore, in addition to those two 

things—medium-term fiscal consolidation and tax reform—long-run 

entitlement reforms that minimize work and saving disincentives 

while reducing subsidies to the well-off. 

Budget reform. Making programs more effective. Vice Chair 

Klobuchar pointed to some of these issues about jobs going vacant 

for lack of training. We have 46 job-training programs in the Federal Government. President Obama added another one for green 

energy jobs. It didn’t work very well. The Labor Department’s Inspector General said it should be shut down. 

Most of those programs don’t even have metrics. We need to take 

those 46 programs, eliminate the bad ones, consolidate the hopeful 

ones, modernize them, and get people trained for real jobs. That’s 

something Republicans and Democrats should agree to. It’s conservative and liberal. It will help more people at lower cost. 

There are many examples of that throughout the government. I 

would be happy to take questions on that. 

In terms of monetary and fiscal policy, they need to be far more 

predictable and permanent, what I call Rules-based. Even if it’s not 

following a specific, clear rule, it’s working as if it is roughly doing 

so. And any time it deviates from it, there’s clearly an emergency 

reason, and so on. 

You could start by eliminating the endless use of temporary tax 

rules and new spending programs that leave everybody uncertain 

about whether they will be renewed. Now that gerryrigs all the incentives in the economy. 

Of course in addition to that, the human capital policies, education as well as job training reform, sensible regulatory reform, 

and I might add trade liberalization, which I’m glad to see the 

President has begun starting to talk about in some dimensions, 

would be an important complement to strengthen growth. But the 

focus should be on medium-term fiscal consolidation primarily on 

the spending side as the economy recovers. 

The research shows successful fiscal consolidations that do not 

cause recessions and succeed in consolidating the budget have $5 

or $6 of spending cuts for every dollar of tax increase. 

So an economically balanced fiscal consolidation is primarily on 

the spending side; it’s not 50–50. 
9 

Thank you. I wish the Committee good luck and tremendous 

progress under the new Chair and Vice Chair, and I look forward 

to working with you and to hearing your questions. 

[The prepared statement of Hon. Michael Boskin appears in the 

Submissions for the Record on page 41.] 

Chairman Brady. Great. Thank you, Dr. Boskin. 

Dr. Goolsbee. 

STATEMENT OF HON. AUSTAN GOOLSBEE, FORMER CHAIRMAN OF THE COUNCIL OF ECONOMIC ADVISERS, THE ROBERT P. GWINN PROFESSOR OF ECONOMICS, UNIVERSITY OF 

CHICAGO, BOOTH SCHOOL OF BUSINESS, CHICAGO, IL 

Dr. Goolsbee. Thank you, Chairman Brady and Vice Chair 

Klobuchar. It’s a great honor, and I appreciate the invitation. 

I think the central question that you have raised here today fits 

in the tradition of the Joint Economic Committee where they have 

had a long history of Democrats and Republicans working together, 

the House and the Senate working together, and I think there are 

a lot of things that Dr. Boskin and I can agree on, not the least 

of which is our dress code today. 

[Laughter.] 

We did not coordinate, but if the questioning gets difficult I’m 

simply going to try to look like I were him and maybe direct the 

questions away from myself. 

The central question is: Why is the economy not growing faster 

after a deep recession? 

Now before—and I think there are three primary reasons for 

that, but before I state those reasons I would just like to make one 

factual observation. Which is: This is not the weakest recovery in 

recent memory. This is not even the weakest recovery of the last 

two recoveries. 

The 2001 recovery was substantially slower than this one. What 

is different about this one is that it is not V-Shaped in the way, 

as Professor Boskin points out in his testimony, it was after the 

deep recessions of 1975 and 1982. 

And I think there are three reasons why that is. 

The first is, this Recession came from the popping of a bubble, 

unlike the 1982 and 1975 recessions, and popping bubbles are 

much more difficult to escape from the grips of than are the others. 

So in 1982, my dear friend and mentor, Paul Volcker, rose—the 

interest rates rose to over 20 percent on mortgages. Economic activity slowed dramatically. As interest rates came down, that pentup demand could come right back. The fundamental necessity for 

a V-Shaped recovery is not having to do a lot of structural transformation of what the economy is doing, but being able to go back 

to what you were doing before. 

There was a joke headline in The Onion Newspaper: ‘‘Furious 

Nation Demands New Bubble To Invest In To Restore Prosperity.’’ 

Let us not try to re-enact that Onion headline. So it is quite 

clear, looking at the data, as we highlighted in the 2011 Economic 

Report of the President when I was serving as the Chair, that the 

expansion of the 2000s was dramatically outsized in the contribution of housing construction and personal consumer spending as 

the key drivers of growth. It was way underweighted compared to 
10 

past recoveries and expansions in the U.S., and compared to other 

expansions around the world in business investment and export 

growth. 

We must shift the economy away—we cannot go back to the 

building of residential construction and personal consumption 

spending faster than income growth as the two drivers of growth. 

Those were fueled by a bubble, and they aren’t coming back in the 

way that they were then. So that has taken some time. 

As to what that means for the job market, I think it’s not a secret that the reason the—the performance of the job market is tied 

to how much faster growth is than productivity. Productivity of our 

workers grows about 2 percent a year. So any time growth gets 

above 2 percent in the economy, you have to hire workers or add 

hours to meet that kind of demand. And if growth remains in the 

2 percent range or below, the job market is going to remain relatively stagnant. 

Now as Professor Boskin said, the good news is that the forecasts 

are that growth would get back up in the 2.5 percent or higher 

range in the immediate term. I fear that the impact of the Sequester would cut a half to one percentage point off the growth rate, 

and that it would again put us back into the circumstance in which 

growth is not fast enough to shrink the unemployment rate; that 

instead of unemployment shrinking, unemployment would be rising 

again. 

I think the second factor that has made this not a V-Shaped recovery is that we’re overcoming the worst housing market really in 

U.S. history. If you look at the research of Ed Liemer or others, 

housing and construction are the most cyclical component of economy. They have a much outsized importance in accounting for the 

short-run business cycle. 

So the normal coming out of a recession is at least a third related 

to new construction. We got over-built in the bubble with 6 million 

vacant homes. Construction fell close to nothing. It’s quite understandable why the overall growth rate of the economy has not come 

back in the short run as rapidly as in past big recession because 

we couldn’t go back to getting anything from construction. 

The good news is that the long nightmare of housing in many, 

if not most, markets appears to have turned the corner. So we may 

start to get some contribution from that. 

Third, the evidence is that financial crises and big deleveraging 

take a major toll on growth. The Economic Report of the President 

from this year compares the U.S. experience in its labor market to 

the experience in other countries that have had major financial crises, and actually the U.S. appears to be doing a fair bit better than 

average for that circumstance. 

Now all of those are just to say it’s not fast enough, but I think 

it is understandable why it wasn’t V-Shaped, why it looks more 

like the 2001 recovery than it does the 1984 recovery. 

Lastly, I would like to say two things that I believe the data do 

not suggest are predominantly to explain why growth has not been 

faster. 

The first is, I do not believe the data supports the view that regulation or policy changes over the last three years are the predominant reason why growth has not been a V-Shaped recovery. 
11 

If you look at things like the accumulation of money on the balance sheet of corporations and a lack of willingness to invest, that 

pervades all the advanced economies of the world. That is happening in countries that did not pass a health plan, that have not 

had any changes of their regulatory regime. And so anybody who 

is arguing that that regulation is the driver has to explain why the 

pattern is consistent across these other countries. 

Second, the way economists normally measure the impact of regulation on growth when they say, for example, that the 1977 Clean 

Air Act affected manufacturing, they compare counties where it applies strictly to counties where it doesn’t. They compare those industries and companies that are affected to those that are not, by 

size, by sector, et cetera. 

If you do that now, there is little evidence that those regulatory 

policies are the primary driver. 

The second factor that I believe the evidence does not suggest is 

the cause is the short-run deficit. Most of the short-run deficit has 

been caused by the downturn, not caused the downturn. 

And while I one hundred percent agree and have for a long time 

been an advocate of a rational, long-term fiscal consolidation, I 

think you need only look at the GDP evidence in the United States 

in the fourth quarter, or in Europe where they’re engaged in dramatic austerity, to realize that there is a tension between trying to 

cut too much in the immediate term and the growth rate. 

I think the normal channels by which fiscal contractions can be 

expansionary go through the interest rate; that you satisfy investors, make them more confident in the plan so the long-run interest 

rate comes down. 

We are facing epochally low interest rates. We have bumped 

against the zero lower bound multiple times. It is hard for me to 

understand the mechanism by which fiscal contractions would be 

expansionary in this environment. 

I believe that there are many things that we can agree on, 

whether on long-run fiscal consolidation, on investing in training 

and innovation as the keys to growth. I hope we do not do something that would be a mistake in the short run on a purpose that 

is something other than re-establishing a growth strategy. 

Thank you. 

[The prepared statement of Hon. Austan Goolsbee appears in the 

Submissions for the Record on page 59.] 

Chairman Brady. Thank you, Dr. Goolsbee. Thank you both for 

the testimony. 

Dr. Boskin, as we look at the growth gap, ways to close it, risks 

to our economy, and more importantly solutions, you mentioned 

just recently the generational damage by this high spending to 

GDP ratio, and about the need for fiscal consolidation. 

Economists generally believe that federal spending should be 

capped and controlled relative to the size of the economy. The challenge is how best to do that. 

I would like your advice. We have developed over the past yearand-a-half legislation called the MAP [Maximizing America’s Prosperity] Act that addresses the spending caps. The difference from 

past efforts is that we used two slightly different, we think, smarter metrics to do that. 
12 

One is the numerator is a non-interest spending; that which is 

controlled by Congress, both discretionary and entitlement-type 

spending. And the goal clearly there is to be able to gradually reduce what we can reduce without adding pressure on us to push 

the Fed to keep interest rates politically low for—to mask that 

debt. 

The second, the denominator is potential GDP, rather than estimated actual or a rolling average. The thought being, it’s not as cyclical. Congresses can’t spend as much in the good times, nor do 

they have to cut quite as much in the bad times. 

As we go forward trying to find bipartisan solutions on fiscal consolidation, on gradually lowering the size of our government relative to the economy, are those metrics good ones to work off of? 

Dr. Boskin. I think you are definitely headed in the right direction, Mr. Brady. I think that it is important that we allow the automatic stabilizers, for example, to work. I mentioned them, and 

Austan dwelled on them, as the major cause. I agree that quantitatively they are a large part of the deficit. 

So that’s important. I do believe there are two other things that 

are worth considering. One is that for good purposes or other we 

often wind up doing things that are like spending but don’t count 

as spending. We regulate. 

When the government says ‘‘put this on your car,’’ and therefore 

the auto companies do it and they charge people higher prices for 

their car, that may even have a good benefit/cost ratio but it 

doesn’t show up as part of taxes and spending. It’s almost the same 

thing as the government spending the money, taxing and spending 

the money, and installing it. 

So regulation is a substitute. And tax expenditures, of course, are 

a substitute for spending. So you would need to have some complementary way—legislation, or some safety valve—to prevent, that 

you could tighten if all of a sudden the spending cap started to 

bind and it started edging into regulation and tax expenditures. 

The other is, when you look at spending there’s this fundamental 

fact of arithmetic we can’t get around; that the present discounted 

value of future taxes has to equal the presented discounted value 

of future spending plus the national debt. The government has to 

pay its bills now or later. A dollar of borrowing now means a dollar 

plus the rate of interest tomorrow has to be raised to pay off the 

interest. 

So with that in mind, it is very, very important that the spending caps be reasonable, and a bind, and that there is some mechanism by which we do not, even with reasonable spending caps, 

start continuing to accumulate more debt as well. 

So there is an issue whether you need something on the deficit 

and debt side simultaneously with spending. Spending minus taxes 

equals the surplus or deficit. So you need really to do two to control 

three, but I think the fundamental—you are at the fundamental 

core. The first thing we need to get under control is spending. 

We can argue. I think we would both agree that that should be 

done gradually as the economy recovers in the short-run, but in the 

long run these projections, even if you shave them for optimistic assumptions, are really, really tremendously harmful to take the 

path of spending, as I indicated in my testimony, as the OMB 
13 

projects for the President’s policies with reasonable assumptions, 

which includes the future projected growth of Medicare and Social 

Security, means that we are going to have a wide swath of the population paying marginal tax rates of 70 percent when we keep paying for it with higher payroll and income taxes, not just the very 

well off. 

And it is hard to imagine in a generation from now that we can 

have a successful, dynamic, growing economy with a large fraction 

of Americans being a minority partner in their own labor. 

So I think that you are really right that spending is the fundamental thing. 

The other thing I might say is, you want to give some thought 

to the very long run about whether you would have a recalibration 

exercise, or think about how demographics interact with it. But 

you’re basically in the right place. 

Chairman Brady. Got it. Thank you, Dr. Boskin. 

Vice Chair. 

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

Thank you, both. 

I did see a few common threads in your testimony, and I just 

want to start with the elephant in the room and go through a few 

questions a little more quickly. 

On Tuesday, Federal Reserve Chairman Ben Bernanke testified 

before the Senate Banking Committee, and he said, and this is a 

quote: ‘‘The Congress and the Administration should consider replacing the sharp, front-loaded spending cuts required by the Sequestration with policies that reduce the federal deficit more 

gradually in the near-term, but more substantially in the longer 

run. Such an approach could lessen the near-term fiscal headwinds 

facing the recovery while more effectively addressing the longer 

term imbalances in the federal budget.’’ 

I will start with you, Dr. Goolsbee. Do you agree with his statement? 

Dr. Goolsbee. Yes. 

Vice Chair Klobuchar. Very good. Dr. Boskin, if you could keep 

your statement shorter, I notice that you talked about a phasedin reduction. Do you think that there is a better way to do this 

than the Sequestration? 

Dr. Boskin. I think there is a better way, but I do want to make 

sure we understand that this year the total effect on outlays is 

going to be between $40 and $45 billion because the budget authority gets spent over a couple of years. That is one-quarter of one percent of GDP. So it is very hard to believe that this year the Sequester would be a major macro economic event, whatever specific dislocations it had for some programs and people. 

Vice Chair Klobuchar. And—— 

Dr. Boskin. Next year it starts adding up. So it would be better 

to have it shaped like this (indicating). There’s no doubt. But it is 

very, very difficult to credibly do that when we are living in a 

world where every two months we have got a new set of negotiations about what it is going to be. So—— 

Vice Chair Klobuchar. I agree, and I think there are many—— 

Dr. Boskin [continuing]. So there’s a big tradeoff. 
14 

Vice Chair Klobuchar [continuing]. There are many up here 

that would have liked to do a bigger thing at the end of the year, 

but we will proceed now and have those opportunities in the next 

few months. And there are many I know in the Senate and I know 

in the House that want to get this done. 

I wanted to just follow up on one thing you talked about, Dr. 

Goolsbee, that I thought was interesting, and that is the number 

of businesses that have accumulated money right now that we 

would like them to invest in our country. 

And part of it is the problems that Dr. Boskin has been getting 

at with the uncertainty, with changes all the time, and you, I 

thought rightly, noted this is not just our country that has this 

problem. And what I wanted to get at is how you think we can unleash this money and get it invested. 

Dr. Goolsbee. Well, in my view the reason it is accumulating in 

the U.S. and in other countries is fear about the world economy of 

has a recovery taken hold. For all of the discussion of our growth 

rate being modest, at 2.5 percent that is about the fastest of all the 

advanced economies in the world, which is a sad state of affairs. 

It has been a tough—it’s been a tough period. 

So I think uncertainty about overall world economic growth. And 

second, fear over whether there will be another major financial crisis led by problems coming out of the European banking sector. 

I think those two things hang over the investment decisions of 

big firms. And really we can only address that part through macro 

economic management and trying to persuade the Europeans to 

confront their problems. 

I think on the micro policy side, investment tax incentives I 

think do have some impact in an environment like this on the decision of: If you’re going to invest, where do you want to invest? 

I think putting a focus on, in some of the sectors, getting skilled 

workers, and trained workers that are, in our language, complementary to the capital, is quite important. Because you have 

seen in some high-tech manufacturing and in others they have not 

been able to do that. 

And the third, I think there is a confidence element that, as 

growth gets going you will see more pressure like what you have 

seen with Apple, and others, that investors go to the firms and say: 

Either use the money for investment, or pay out the money and we 

will use it for investment; but do not just sit on the money. 

Vice Chair Klobuchar. Okay. I wanted to follow up on one 

thing you raised, the workforce issue. I was picturing myself telling 

these small business owners in Minnesota: You need some workers 

that are complementary to your capital. 

[Laughter.] 

I am not sure that would quite work. But I think it is right on 

in terms of trying to encourage our schools, from the high school 

level on to train workers. I think manufacturing is one of our big 

bright spots right now, but we simply do not have enough people 

going into welding, and tool-and-die, and we need more women 

doing it because we simply need more people doing it. And we are 

in a big effort in Minnesota to recruit more women into manufacturing for the floor because of these job openings. 
15 

And if you could just briefly, in just a minute here, Dr. Goolsbee, 

talk about your views on this and maybe in a second round I will 

ask Dr. Boskin about your ideas with consolidation. 

Dr. Goolsbee. I absolutely agree with that statement, both of 

those statements: that manufacturing has been one of the bright 

spots. It is pretty clear, as I said in my testimony if you look at 

the data, the U.S. has got to shift to a more export-oriented growth 

model. And, that the biggest export market for the U.S. is in the 

manufacturing sector. 

The most of what we export are manufactured goods. In those 

cases, there are—and especially in a State like Minnesota where 

the unemployment rate has gotten as low as it has—those issues 

of finding structural mismatch and addressing it are quite important. 

And it behooves us now at a time when I still think cyclical unemployment is the dominant factor nationwide, but very soon as 

the unemployment rate comes down structural unemployment will 

be what remains. And we have already seen the weakest part of 

the job market being the drop-outs of the labor force, and a group 

of people that have been unemployed for a very long period; that 

these issues of training and skill are going to be forefront issues. 

The thought that we are going to cut into investments like that 

I think is short-sighted. 

Vice Chair Klobuchar. Okay. Thank you very much, both of 

you. 

Chairman Brady. Thank you. Representative Hanna. 

Representative Hanna. You touched on long-term structural 

unemployment. As regards Michael Spence’s work that I’ll clarify 

for you quickly where I am going, we have created in the past 20 

years, the vast majority of jobs have been service jobs. A very small 

percentage have been science, technology, engineering, and math. 

We know that we have income disparities that are growing. We 

also know that every job is not the same. We could have zero unemployment and still people could be struggling paying their bills. 

What do you think is the severity, in a global sense, that are increasingly moving away from those things we need to invest in to 

increase our global competitiveness in terms of innovation, 

tradeable goods, and that type of thing? How big a factor do you 

think the unemployment rate that we are seeing right now that 

seems to be so intractable is a function of us not being as competitive and as skilled as we needed to be as a people? For both of you. 

Dr. Boskin. Well I think it’s a substantial part of our problem. 

It’s both a short-term problem and a long-term problem I think. 

People are not getting jobs now. American firms list 3.5 million job 

vacancies, saying they do not have workers applying with the skills 

they need. They are not all computer programmers. As Vice Chair 

Klobuchar mentioned, welders, tool-and-die people, et cetera. 

That is partly a problem of our K–12 education system, and partly a problem of the opportunities, private and governmental, to retrain yourself when you need to retrain. 

As I mentioned earlier, we need to modernize these job training 

programs. Austan used the phrase ‘‘hate to see us cut investments 

in that,’’ well I think we can get a lot better out of it for less 

money, and actually help people a lot more than we do now. 
16 

So I think that spending should not be the metric. The metric 

ought to be how many people get jobs at the end. So I think it is 

a serious problem. I think in the long term it is a larger problem. 

As Austan said, there is still sizeable cyclical unemployment. But 

as that comes down, hopefully in the next two or three years to 

closer to full employment, what remains will be primarily structural. 

I also think there is a tendency in many firms, when they are 

hit with really rapid, sharp adjustments, that they make deeper 

cuts, including stuff that has accumulated they have not gotten 

around to, with all due respect, and therefore they tend to shed a 

lot—in recent times, they have shed a lot of labor, more than they 

might have in previous downturns for the same cyclical component. 

And they have pushed their remaining workers to retool and train 

and become more productive. 

So I think all that is interactive. I think there is something 

major to it. 

Dr. Goolsbee. I think it is a major issue. I do not think that— 

I think it is not appreciated that the U.S.’s competitiveness problem has not principally been on the productivity side or the quality 

of our workforce. We remain, really of all the major economies, the 

most productive workforce in the world. And we only got more productive during this Recession. 

So I think the long-run competitiveness of the U.S. economy is 

pretty strong. I think we have gone through a heavy cyclical unemployment period, and I think what Professor Spence has highlighted, and it is something we all ought to think about, is there 

are a lot of different sectors and different jobs that in some sense 

have never faced foreign competition that have become tradeable 

goods. And that leads to a lot of tough adjustments, and we will 

have to—and we should make quality investments. 

I think Professor Boskin’s point is well taken: Let’s do those 

things that will get people jobs and sustain them in the jobs. The 

advance of technology, however, let’s not overly dreadfulize it, if 

that is a word, if they had said in 1920 how many phone lines 

would exist today, they would have said that is flat out impossible 

because every man, woman, and child in America would need to be 

a telephone operator. 

The fact that there do not need to be telephone operators did not 

put everyone out of a job. Gradually, as we trained for other things, 

we got more skill and we just shifted into other sectors, greatly to 

our benefit, and greatly to our income. And there is no reason we 

could not do that again. 

Representative Hanna. Thank you. 

Chairman Brady. Thank you. Representative Cummings. 

Representative Cummings. Thank you very much. It is good 

to see both of you today. 

Dr. Goolsbee, in your testimony today you suggest that Congress 

could help the housing market recovery by, and you said, ‘‘facilitating refinancing for people unable to take advantage of low rates 

because they are underwater and by facilitating people to convert 

vacant homes into rental properties.’’ 

I found it interesting what you said about housing. I think housing sometimes has been put on the back burner, and for my con-
17 

stituents it is a big, big deal because they have lost a lot of wealth 

with the Recession. 

Could you explain the actual benefits to the economy of allowing 

borrowers to refinance their mortgages down to these historic low 

interest rates? 

Dr. Goolsbee. Yes. You bet. And in the City of Chicago where 

I live, the impact of the housing downturn has been really devastating, and in a lot of cities in the United States, as well as a 

lot of suburban areas. This has weighed on growth in a quite substantial way. 

The benefit of refinancing is pretty simple. As Professor Boskin 

discussed in the case of taxes, the most effect of tax cuts are those 

that are long-lived and permanent changes to people’s income. 

We have got epochally low rates. But if you are underwater in 

your mortgage, you cannot go refinance at the bank. So you are 

paying an interest rate that is well above what the market rates 

are. And this has been noted by Chairman Bernanke as an impediment to monetary policies’ effectiveness in stimulating the economy. 

If people could simply refinance at the market rates as they are 

now, it would be literally for the average homeowner thousands of 

dollars lower payments per year that would just go straight into 

their pocket. It would be the equivalent of a 30-year permanent tax 

cut for them of thousands of dollars a year. And that is pretty substantial. 

Now you do need to subtract off. Right now they make a payment 

to somebody, and that somebody does something with it. So it is 

not just pure stimulus. But the incidence in the short run of spending the money for people that are massively liquidity constrained 

and really hurting, trying to figure out how to pay their bills each 

month, that tends to be higher than for the banks who are currently sitting on reserves and for the mortgage-holders. 

So I think that that could have a positive impact. 

Representative Cummings. You know you said something else 

that was very interesting—well, you said a lot that was very interesting—but you talked about this Sequestration possibly cutting a 

half to one percent of the growth rate. And Dr. Boskin projected 

the growth rate at being a certain amount, I think 2 percent, 

about. 

Talk about that. Because, you know, the Democratic Steering 

and Policy Committee had a policy hearing the other day where 

Professor Stephen S. Fuller of George Mason University, who is I 

take it a top economist from what I hear, talked about this very 

subject. And he believes that even a month of Sequestration would 

be like creating, not a hole but a crater in our economy. 

I just want to have your comments. 

Dr. Goolsbee. Okay. I think Professor Boskin and I disagree a 

little bit on what the multiplier would be of this spending on the 

economy. If you take forecasters like Macro Advisers, or some of 

the other standard macro forecasters, they anticipate that the direct impact of the spending, as Professor Boskin said, is maybe 25 

basis points, .2 of a point to .3 of a point. 

And the question is what other spill-on effects does it have. I 

think that leads it up to be a fair bit higher than the .2 to .3 of 
18 

a point. But I don’t think that this is as big, for example, as what 

the fiscal cliff would have been, which in my opinion would have 

driven us into a recession. 

In my view, this will cut the growth rate, and will cut it by 

enough that we drop below the 2 percent, so actually there’s a decent chance the unemployment rate starts to go back up again instead of starting to come back down, but that’s where I would characterize it. 

Dr. Boskin. I think, Mr. Cummings, that it would be—it would 

take quite a stretch to make this into a major macro economic 

event this year. I think it is literally about a quarter of a percentage point direct spending. Economists are not sure in an expansion, 

with a high debt ratio, with where that spending will be offset, 

whether the multiplier is slightly negative .6, 1.3. The incoming 

Obama Administration used 1.7 in the midst of a deep recession 

when all economists agreed they would be much higher. 

So that would get, if you took that, which I believe is fulsome, 

but, you know, there is a range, let me—there is a range of disagreement among economists—that would get us up maybe to .4 

percent. 

So even at the most sort of Keynesian of what has been used in 

Washington recently, it is a minor macro economic event. It’s not 

trivial with respect to some particular things. It is disproportionate 

to the military. Some people are going to get disrupted. There is 

no doubt about that. But in terms of the overall hit to the economy, 

my best judgment is it would be a quarter of a percent, or slightly 

less. 

Representative Cummings. Thank you, Mr. Chairman. 

Chairman Brady. Thank you. Representative Paulsen. 

Representative Paulsen. Thank you, Mr. Chairman. 

Well this is obviously a very extremely important hearing, because I do believe our economy has a long way to go to reach its 

full potential. 

Mr. Boskin, you had mentioned—Dr. Boskin, you had mentioned 

that the current recovery is about 10 million jobs short. I agree 

with you overall that we need a strong, credible commitment to serious fiscal consolidation, as well as pro-growth tax reform to turn 

things around. 

I am just really discouraged about even CBO recently announcing that unemployment is expected to remain at about 7.5 percent 

all the way through 2014, which would be the sixth consecutive 

year we have had that type of a situation and the longest period 

in about 70 years. 

So I guess my overall worry there is that this is being accepted 

as the new normal. It is being accepted by Congress. It is being accepted by elected officials. It is even being accepted by employers 

back in my District that understand that this is what is going to 

happen now. And I am worried about that, because we clearly do 

have a growth gap that needs to be addressed. 

And Dr. Goolsbee mentioned bubbles. I suppose you can look 

back at the 1980s and see the S&L bubble, the 1990s, the dot.com 

bubble, and some would say the housing bubble and the mortgagebacked securities bubble of the 2000s. And now I sort of sense some 

would argue we are in a federal spending bubble. 
19 

Let me just ask you this, Dr. Boskin. At our current trajectory 

of spending right now, at what point do you expect investors would 

begin to lose confidence in the ability of the United States Government to back up our debt, to back up our debt? 

Dr. Boskin. Mr. Paulsen, you are on to something extremely important. Just last week there was a major paper presented by a 

former Federal Reserve Governor and three other distinguished 

macro economists at the Fed, and they concluded that when the 

debt/GDP ratio, in looking at a variety of historical cases, gets to 

80 percent, and in our net debt, leaving out Social Security, previously accumulated Social Security surplus, whatever we want to 

make of that, we are a little below that. Our gross debt is well over 

it. That you run increasing risk of a sudden, abrupt loss of confidence and a dramatic risk in interest rates that requires such a 

wrenching change in the budget position to become sustainable 

that you run into these long, depressed growth episodes. 

That is by former Fed Member Rick Mishkin and three other 

prominent macro economists. So there is a serious risk. The only 

honest answer is, we cannot be sure. But if you are heading toward 

an iceberg, you ought to change course. You ought not see well how 

close can I get before I make a sharp turn? 

So it seems to me we need to start getting the spending curve 

bending down, and we need to get the debt/GDP ratio not only stabilized but heading back down to a safety zone at 50 percent of 

GDP or something over the longer term. 

Representative Paulsen. Let me ask you this, too, because you 

just mentioned interest rates and the growing cost of interest rates 

to the Federal Government as a part of our budget. 

As interest rates normalize—at some point they are going to normalize—how much will these payments increase as a part of our 

national debt? And what are the tradeoffs as a larger share of revenues that now have to go to actually pay off interest? 

Dr. Boskin. Well, that is another important point—I don’t mean 

to disrupt Austan’s opportunity to answer; I’ll give it to him in a 

second—CBO projects that the interest costs over the next decade 

will almost quadruple from somewhat over $200 billion to between 

$800 and $900 billion a year, both from the higher debt and from 

higher interest rates. 

That does not include—that does not envision one of these abrupt 

loss of confidence episodes in the meantime, which is possible. It 

is far from certain, but possible. 

So the interest payments are going to be crowding out other outlays. They are going to be crowding out other activity. Higher interest rates will eventually start to crowd out investment, and we 

need that investment to generate jobs and increases in wages. 

So it is a serious problem. I think that we have had an unusual 

period where the Fed, for some good reasons some not, and I have 

been very clear that the only grade I can give them so far is an 

‘‘incomplete’’ because we do not know how they are going to exit 

from this and what is going to happen. I was a fan of the early 

policies. I have not been—I thought there were diminishing returns—not been a fan lately. But they basically replaced the credit 

markets with themselves, basically deciding to keep interest rates 

close to zero. 
20 

And that has enabled the budget to look better than it was. That 

is not why they did it, but as a byproduct it is going to make the 

budget look better than it was. So if we kind of normalize the budget for that, looking at what it would look like at closer to full employment, tax revenues would be well above their historic average 

of GDP at normal employment, for example, and their spending 

would come down a little bit on things like unemployment insurance and so on. 

So if we looked at that, interest is going to become a big issue. 

And of course it is increasingly leaving the country. It is a sizeable 

fraction, roughly half, slightly over half, is now held abroad by foreign central banks, and pension funds, and insurance companies, 

and so on. 

So it is a big problem, and that is an extra reason we need to 

get the debt down. But the effect on interest rates will primarily 

reflect what the budget position is, number one—is it a surplus; as 

Mr. Brady mentioned, a primary surplus if we exclude interest— 

if we get to a primary balance and a surplus, that should take a 

lot of pressure off the risk of interest rates rising a lot. 

Chairman Brady. All right, thank you. Representative Delaney. 

Representative Delaney. Thank you, Mr. Chairman. And I 

want to thank you and the Vice Chair for your opening comments, 

which as someone who is new to Congress I found overly constructive and bipartisan, and I appreciate that very much. Thank you 

for having me on the Committee. 

Dr. Boskin, I thought the last point you made was actually a 

very good point, because I think the point that is often overlooked 

when we talk about our deficit situation is the fact that we do not 

borrow from ourselves. Other countries, like Japan, that have been 

able to maintain very high debts effectively borrow from themselves and they do not have market forces that affect their interest 

rates. In other words, it is not just controlled by ourselves. Which 

is really why it is so important for us to deal with this now while 

interest rates are low, and while we have the flexibility to reform 

some of our entitlement programs in a smarter way than what will 

ultimately or inevitably happen if we do not deal with this now. 

So I agree with the comments. But I wanted to actually shift my 

question to tie into some of the comments that actually Mr. Hanna 

made, which I thought was a very good point about U.S. competitiveness. 

Because it seems to me that that is one of the central issues that 

this country faces. And it really started probably 20 or 30 years ago 

when we entered a global, and technology-enabled world which 

really did change the face of employment in this country. 

And while we talk a lot about tax policy, and we talk a lot about 

the size of government, I worry that we do not talk enough about 

what the future competitive situation of this country is. Because 

even though we have seen cyclical employment trends, the trends 

around the standard of living of the average American have been 

very consistent. They have been down. 

And that seems to me to correlate directly to our competitiveness. Because if you are competitive, you actually create jobs that 

have a decent standard of living. And if you are not competitive, 
21 

you continue to create jobs, to the extent you create them, that 

have a deteriorating standard of living. 

When I think about our competitive situation, it seems to me reforming immigration. You know, there are 7 billion people in the 

world, 6 billion still wake up and largely want to come here. It is 

a huge advantage we have as a country. 

Having a national energy policy, or the lack of a national energy 

policy, which we do not seem to have as a country. Not doing the 

things in education. There has never been a stronger correlation 

than there is now between having a good education and getting a 

job. Not investing in our infrastructure. And not creating enough 

avenues for the significant amount of private capital that is accumulating to actually invest in our economy and shoulder some of 

the burden that government has effectively had to shoulder. 

I worry about these things as they relate to our long-term competitiveness. And my question to you two gentlemen, and field it 

as you see fit, is: 

How do we think about the role of government in light of what 

I think is a changing economic landscape for the country? In other 

words, a landscape that is defined by globalization and technology? 

How do we think about the role of government to address these 

things to make us more competitive so that we actually can reverse 

the employment trends? And again, the employment trend I am 

most concerned about is what has happened to the standard of living of the average American. 

Dr. Boskin. Do you want to start? I’ve had the last few, but I’ll 

be happy to go. 

Dr. Goolsbee. My grandmother lived in Waco, Texas, and she 

used to say to me whenever I would complain about anything, she 

would say: You know, 80 percent of the world really does not care 

about your problems; and the other 20 percent are glad. 

And if you start—if you were thinking, how long will we need to 

wait before the government solves our private-sector competitiveness problem, I think the answer is: Forever. The government is 

not going to—if you were waiting for the Fed to fix it, or the government to fix it, or anyone else, you would do best to remember 

that the vast majority of what happens for the competitiveness of 

U.S. enterprises has nothing to do with the government. Policy is 

only setting the framework that that is operating in. 

In my view, the government has for many decades played an important function through direct and indirect support of research development innovation in ways that have been quite fundamental to 

the growth of U.S. industries. 

The economic infrastructure of the country is quite important. 

You can disagree about individual job training programs, but there 

is not any question in my mind that overall federal support 

through financial aid and through training have been crucial in 

keeping the workforce the most productive in the world. And we do 

also need to have things like a national energy policy. The potential drop of energy costs could be a great boon to U.S. manufacturing. So it behooves us to figure out a way to take advantage of 

the new discoveries, while being mindful that we have got to do 

that in a way that is safe. 
22 

But I think that it is in those types of broad-based things that 

the government can play a more important role, rather than in the 

directly making companies more competitive. 

Dr. Boskin. I think Austan and I generically agree that this is 

primarily something that the private sector primarily does this and 

the government plays a supporting role and directly does a few 

things we wouldn’t expect the private economy to be able to do 

well. 

Pre-competitive research and development, to take the extreme 

case, basic physics, individual firms cannot appropriate the benefits 

from that so they are not going to do it, so it has to get done 

through NSF and things of that sort. 

But that needs to stop short of outright industrial policy where 

we are subsidizing specific firms, by the way which means you are 

giving a competitive disadvantage for their competitors. 

Education is important. The key, however—the key difference between Austan and I, I would suspect, is we would draw the—I 

would draw the line a little shorter than he would. He would have 

a little larger government; I would be very concerned about the effectiveness—he would surely be concerned about the effectiveness, 

but I would be concerned as the larger it got the less effective it 

got. 

And importantly, if the government is playing this role, the larger it gets it does crowd out the private sector. So if a combined 

state, local, and federal government is 50 percent of GDP versus 

40 percent versus 30 percent, the larger it gets, on balance the 

more difficult time the rest of the economy will have because it has 

got to pay taxes and do other things to support that size of the government which provides disincentives to work, and save, and invest. 

Chairman Brady. Thank you, Dr. Boskin. I don’t mean to interrupt, but with votes pending I want to make sure we get as many 

people as possible. 

Senator Coats. 

Senator Coats. Thank you, Mr. Chairman. 

I ask my staff each day to prioritize my memos, and I am going 

to work off this first one. Despite Tuesday’s loss to Minnesota, the 

Hoosiers still control their own—oh. 

[Laughter.] 

Vice Chair Klobuchar. Thank you for bringing up that fact, 

Senator Coats. We appreciate that. 

[Laughter.] 

Senator Coats. That is my first priority—— 

Vice Chair Klobuchar. Since they lost to our team. 

Senator Coats. Let me get to my second—— 

Dr. Boskin. I never thought I would be from a football powerhouse, either. 

[Laughter.] 

Senator Coats. The Cubs still stink. 

[Laughter.] 

I say that as a lifetime, long-suffering Cubs fan. That is an area 

where Dr. Goolsbee and I have suffered greatly. Let me get to my 

questions. Dr. Boskin, I was interested in your comment here, 
23 

which I would like to go into a little more detail on, and I would 

like to get Dr. Goolsbee’s response to this. 

You said economically balanced is not 50–50 between spending 

and taxes. Simpson-Bowles came in with a Commission report 

about a 3-to-1 ratio spending over taxes. Yet the Administration 

continues to insist that any kind of long-term deal that will put us 

on the right track has to be 50–50. 

What should that ratio be? You said it should not be 50–50. 

What do you think it should be? 

And, Dr. Goolsbee, how would you respond to that? 

Dr. Boskin. Well, I think the economic evidence, from looking at 

all the fiscal consolidations in the entire OECD since World War 

II, would suggest that the successful ones have been $5 or $6 of 

actual spending cuts, not hypothetical future ones but actual cuts 

that occurred, for every $1 of tax increases. 

That does not mean that has to be exactly that. It could be a little bit smaller, a bit larger. The U.S. may have slightly different 

circumstances, but it suggests it is primarily on the spending side. 

The evidence also from economics research suggests that tax 

hikes are much more likely to cause recessions than spending cuts. 

There are many, many studies that suggest that. There is a study 

by one of Austan’s colleagues when he first joined the Council of 

Economic Advisers suggesting that what they would call the ‘‘output multiplier’’ is very high for tax increases. So tax increases can 

be very dangerous in the short-term. 

So I think that the mix for economic reasons—there are many 

other considerations. People care about the size of government as 

a political and philosophical and a liberty issue. People care about 

the distribution of income and so on. But basically as a macro economic issue it should be overwhelmingly on the spending side, in 

the vicinity of 5-to-1. 

Senator Coats. Dr. Goolsbee. 

Dr. Goolsbee. I think two things on this. 

First, the evidence that Professor Boskin is citing is based on a 

circumstance that is fundamentally different than the circumstance 

we are facing now. 

Our long-run fiscal challenge is nothing more and nothing less 

than the population is aging, and the health care costs are rising. 

So that if you just advance forward the Baby Boom to their retirement with the existing policy that we have known about for 40 

years, it implies the government’s size will get bigger than it ever 

was before. 

And so either you have got to cut those promises, or you have 

got to raise revenues higher than they have ever been before to 

cover them, or some balance. Those are fundamentally different 

than the experiments that are in this evidence. 

In my view, Simpson-Bowles laid out what they said was 3-to1, but that is counting saved interest payments. It is really about 

a 2-to-1 ratio. When the Administration is arguing about 50–50, I 

think it is best to also remember we have had one round that was 

all cuts and no revenue, and then one round that was all revenue 

and no cuts. 

If you add all of these things together, so far we are at about the 

2- to 3-to-1 ratio that was in Simpson-Bowles. That strikes me as 
24 

a perfectly appropriate starting point that we ought to balance 

these things against; so not on any one particular deal. But at the 

end of the day, if we do the $4.5 trillion of cuts over 10 years that 

Simpson-Bowles recommend, that the total would be 2-to-1, or 3- 

to-1 spending cuts to tax revenues seems totally appropriate. 

Senator Coats. I have 35 seconds. Dr. Boskin, any follow-up to 

that? 

Dr. Boskin. Yes. I think it is important to appreciate two things. 

Number one, this is not primarily an aging-of-the-population problem. The projected cost increase in Social Security and Medicare 

are primarily because of rising real benefits per beneficiary. 

Demography is a very large minority partner, but we are making 

them more and more generous as they go along relative to the cost 

of living. 

Now some people might say we ought to have those be proportionate to the size of the economy, but the original mission of Social 

Security, in FDR’s words, was to provide a measure of security 

against poverty-ridden old age. 

If I were to collect Social Security at the right time, I would be 

getting twice the poverty level just in my Social Security payments. 

So we cannot keep projecting—I would use ‘‘projecting,’’ not ‘‘promises,’’ I do not view 70 years from now as a promise; ask my students, or young children today, they think that Social Security will 

not be there, so it is a big increase if you actually provide something for them, not a cut. 

So I think that we have to get these programs under control. 

With respect to the Simpson-Bowles, I think there are many good 

things in there. I supported a large fraction of them. They did not 

deal with health care costs, and that is a big issue, and that is a 

large—as the President and others have said—a large driver of future debt. 

Senator Coats. Thank you. Thank you, Mr. Chairman. 

Chairman Brady. Thank you, Senator. Representative Maloney. 

Representative Maloney. Thank you, Mr. Chairman. And I 

would like to commend you and compliment you on your new position, and Vice Chair Senator Klobuchar. 

I also would like very much to welcome a new Member on the 

Democratic side, Mr. Delaney, from the great State of Maryland, 

who has been a very successful businessman and will bring a tremendously important perspective to this Committee. And of course 

welcome to our two panelists, and thank you for your government 

service for our country. 

Tomorrow, the real question before your government now is Sequestration that kicks in with an $85 billion cut. It is estimated 

that this will result in a loss of over 700,000 jobs. 

Chairman Bernanke testified yesterday before the Financial 

Services Committee in the House of Representatives. And although 

we have been gaining jobs over 35 months of roughly 6.1 million 

in the private sector, 5.5 million of non-farm payrolls, but the government lost .6 million jobs. But he testified that the Sequestration 

was a problem not only—and I will quote him: Besides having an 

adverse effect on jobs and incomes but, he said, a slower recovery, 

which he says Sequestration will cause with our fragile economy, 

would lead to less actual deficit reduction. 
25 

Now the whole purpose of Sequestration is deficit reduction. He 

is testifying that it will slow that because of the impact on jobs and 

incomes. 

There has been testimony today that the impact on GDP would 

be roughly a quarter of a percentage point, but the independent 

CBO estimates that it will contribute about .6 percentage point to 

a fiscal drag on the economic growth this year. 

I would like to hear your comments in relation to what Chairman 

Bernanke was saying, that the idea of phasing it in over time, having targeted reductions, the Democratic minority keeps putting forward closing loopholes, let’s not fire all these people that are paying their taxes and are a part of the economy, dredging more 

money back into the economy instead of having them on welfare 

and not able to produce and be part of the economy. 

And this is turned down by the Republicans. But there was an 

article this week in one of the papers where Speaker Boehner was 

quoted as saying, in terms of the tax debate, because we all support tax restructuring, that he would take closing loopholes if given 

a lower rate for taxes. 

But it seems to me that closing some of these tax loopholes—why 

we are giving tax breaks to companies that move overseas and take 

our jobs over there is beside me. If you are going to give a tax 

break, give it to someone who is providing a job here in America. 

Also, the tax subsidies of 40 percent in some examples to really 

very successful oil companies that are making a lot of money. Why 

are we subsidizing a company that is making a lot of money? 

It seems to me that closing these loopholes and lowering the deficit would be a better approach than closing loopholes and giving 

a lower tax break. So I would like Dr. Goolsbee’s response to those 

two questions, and yours, Dr. Boskin, too. 

Dr. Goolsbee. Okay, on the first I think I am more in the camp, 

as I outlined, of the Congressional Budget Office and the Macro 

Advisers that the impact of Sequestration would be half a point to 

as much as a full point off the growth rate. And I think that would 

be enough to set the labor market back, and might even start it 

deteriorating. 

On the tax loophole point, I think what Professor Boskin said in 

his testimony, that there is a whole lot of spending that is done 

through the Tax Code, is correct. And so if you cut the loopholes, 

it is not accurate to think of that as tax increases. By that very 

logic, we should be viewing cutting of tax loopholes as spending 

cuts. 

So I do not see that there is any problem with changing the form 

of the spending cuts to be in a more rational direction, and I hope 

that we would get it off of the next 6 to 12 months and into a period where the economy would be recovering more quickly. 

Chairman Brady. Gentlemen, I am going to be tight on the 

five-minute limit for questions, just because a vote has been called. 

And so I would like, with your permission, to go to Representative 

Campbell, Representative Duffy, and Senator Lee, in that order. 

Representative Campbell. 

Representative Campbell. Thank you. And because votes are 

called I will not take the full five minutes. So I will just ask one 

question. 
26 

The title of this hearing is: Why has economic growth and job 

creation remained weak? And what should Congress do to boost 

them? 

I would ask each of you, and I will start with Dr. Boskin, this 

House and Senate, we cannot do too many things at once; it is just 

kind of the way we are. So give me your number one thing that 

you would think we should do to boost job creation and economic 

growth, and one thing you would say we should avoid. Dr. Boskin? 

Dr. Boskin. The thing I would avoid would be any major tax increase. The second thing—the first thing I would do would be to 

try to have a credible commitment to serious fiscal consolidation as 

the economy phased in. That would mean changing indexing formulas, altering structural features of programs not just cutting a 

few billion off of one program next year that could be reversed the 

next. 

Representative Campbell. Fiscal consolidation? That’s a new 

word. 

Dr. Boskin. Primarily getting spending headed down as the 

economy recovers. 

Representative Campbell. Okay. 

Dr. Boskin. It’s growth of spending heading down, spending to 

GDP ratio heading down. 

Representative Campbell. Dr. Goolsbee. 

Dr. Goolsbee. I guess I would say putting investment in the 

workforce is the most important thing in the short run. And I 

would say the thing to avoid would be anything that is going to 

have a significant negative impact on incomes and wellbeing of the 

broad middle class of the country over the next 6 to 12 months. 

Representative Campbell. Okay, both of those are pretty 

broad. Investment in training? What—— 

Dr. Goolsbee. Sure. 

Representative Campbell [continuing]. What is that? 

Dr. Goolsbee. Quite specifically, federal R&D spending I think 

that we should not just not cut it, that we should increase it. I 

think investments in economically important infrastructure, which 

are not all roads and bridges but a lot of the shipping, container 

ports, and that type of infrastructure is important. 

Representative Campbell. Okay. And then the thing you said 

we should avoid was what? Give me an example of that. 

Dr. Goolsbee. Well tax increases on the middle class would be 

one. 

Representative Campbell. Okay. 

Dr. Goolsbee. Things that are depressing the wages of the middle class, or—I’ll leave it at that. The biggest example would be 

things that would increase the taxes on the middle class. The stuff 

we are doing on the housing front can be thought of somewhat in 

that vein. 

Representative Campbell. Thank you very much, Mr. Chairman. I will yield back so others have a chance. 

Chairman Brady. Thank you, Mr. Campbell. Representative 

Duffy. 

Representative Duffy. Thank you. I am concerned about the 

unemployment rate of our youth. I believe the number from those 

who are 16 to 19 years old have an unemployment rate of 23.5 per-
27 

cent. Those who are 20 to 24 years old have an unemployment rate 

of 14 percent, much higher than the national average. 

I would ask you both, with some quick answers, are you concerned about it? And what impact does that high unemployment 

rate have on the life skills that our kids learn at this very important age? 

Dr. Boskin. You are exactly right. It is a major—even though 

it is limited to some subset of that group—it is a major problem. 

Not being in the workforce means they are not acquiring those 

skills, so they are relatively being left behind. What skills they 

have learned from high school or part-time jobs or jobs earlier is 

deteriorating. 

So I think it is very important that we have a more robust economy. We have talked. We agree on some things and disagree on 

others about how to create that in the short run, but I also think 

we need to dramatically improve our K–12 education system. 

I think injecting competition into it is one. It’s not the only, but 

it is one thing that could be done to improve it so that they wind 

up at the beginning of their careers with skills that are better 

matched, number one. 

And number two, we reform these programs that we have spent 

a lot of money on so that they actually provide jobs, not just spend 

a lot of money. 

Representative Duffy. Thank you. Dr. Goolsbee. 

Dr. Goolsbee. Sadly, and I have published on this subject that 

I am about to describe some work, the evidence suggests that the 

negative dynamic you are describing is persistent and damaging. 

That if you come out of school in a period in which it is hard to 

get a job, or you are forced to take a lower level job than you 

should based on your background, that that sticks with you partly 

because of less skill development, partly because you get tracked 

in a negative way. 

So I think it is critically important. I think we have—the most 

important way to do that is to get the overall growth rate of the 

economy up. But I think that the youth unemployment is one of the 

weakest and scariest parts of the labor market. 

Representative Duffy. And that age range, from 16 to 19, 20 

to 24, are they the higher earners or the lower earners in our economy? They would be the lower earners, right? 

Dr. Goolsbee. Well, yes and no. It depends where you are in the 

skill distribution. I was going to say for the 16 to 19, you have seen 

actually a big uptick as people could not get jobs and stay in school 

longer. 

Representative Duffy. But you would agree that on average 

our younger individuals make less money? 

Dr. Goolsbee. Oh, yes. Sure. 

Representative Duffy. So if we want to improve the opportunity for the youth in our country to make sure they learn the 

skills that are necessary to be successful on a career track, can we 

grow more opportunity for them, create more jobs for them, if we 

would just raise the Minimum Wage? 

Dr. Boskin. No. I think that the Minimum Wage has offsetting 

effects. It may raise the incomes of some, but it obviously will 

disemploy others and will tend to disemploy people with the lowest 
28 

skills. It is not very carefully targeted in this regard. So teenage 

children of rich people who are working in Minimum Wage jobs 

will get more, et cetera. 

So it is a big concern, but I think that raising the Minimum 

Wage is not the most effective way to try to deal with this problem. 

Representative Duffy. And, Dr. Goolsbee, you had talked about 

the growth of jobs. Will that help grow jobs if we raise the Minimum Wage for that sector of our economy? 

Dr. Goolsbee. Well I think the most important word in what 

Professor Boskin just said is the tradeoff; that the Minimum Wage 

has tradeoffs. 

There are some people that it would raise their wage and make 

it harder to get a job. There are others it would raise their income. 

And the question and the tradeoff is really how much do you think 

that affects the overall income and consuming power—— 

Representative Duffy. But my question is very specific, 

though. Will it grow jobs for the—— 

Dr. Goolsbee. It could. It depends, as I just said, it—if you believe that the total income is going to rise for low and middle income people, then that could grow jobs, yes, by increasing purchasing power. 

Representative Duffy. So your position is that if we increase 

Minimum Wage, that means that more of our small businesses or 

manufacturers, the places that a lot of these youth work in, will 

have more opportunity and more jobs for the youth in our community? Is that your position, Dr. Goolsbee? 

Dr. Goolsbee. Well, no, Congressman. My position is that the 

Minimum Wage does several things, not just one thing. But just 

looking at the one thing is the incorrect way to look at it. 

Representative Duffy. But I am looking at the one thing with 

regard to job growth, and your position—— 

Dr. Goolsbee. As regards job growth, there are two factors. One 

is what is the direct impact on the wage of the people who can’t 

get a job, on the people who are still employed, their income goes 

up, and what is the overall macro impact? And the macro impact 

may outweigh the direct impact. 

Representative Duffy. So to invest in our workforce and to 

grow jobs, a good policy would be to increase the Minimum Wage 

to provide more opportunity for the youth in our community? 

Dr. Goolsbee. It could, or it might not. It depends on what those 

values are. 

Representative Duffy. Whatever you—— 

Chairman Brady. We will be tight, if you don’t mind, and we 

can continue this discussion. Thank you, Mr. Duffy. 

As I recognize Senator Lee, let me—votes have started in the 

House, and I want to thank Dr. Goolsbee and Dr. Boskin for being 

here today. It’s been very helpful. And as Senator Lee closes out 

discussion, I want to turn the rest of the hearing over to the Vice 

Chair, and thank you very much. 

Vice Chair Klobuchar [presiding]. Thank you very much, Mr. 

Chair. We had great attendance at this first hearing of the year, 

and I thank you for your leadership. 

Senator Lee. Thank you, Mr. Chairman, and thanks to both of 

you for joining us today. 
29 

Dr. Boskin, I wanted to talk to you a little bit about tax reform. 

There does seem to be a pretty broad bipartisan consensus that we 

need some kind of tax reform, especially some kind of Tax Code 

simplification. 

It was in this committee just a few months ago that we had a 

gentleman who has a Ph.D. in the U.S. Tax Code system, and we 

asked him if he did his own taxes and he said, no, I don’t. 

And we asked why. And he said: Because there is no way I could 

possibly know whether I was correct. And I think that is indicative 

of how many Americans feel. 

So for that and other reasons, I think there is a pretty broad consensus among Republicans and Democrats in both Houses of Congress that a simplified approach to the Tax Code would be better. 

We need some kind of tax reform. 

There is not broad bipartisan consensus on what that ought to 

look like, at least in the sense that some are less inclined than others to say that we need a tax reform package that would yield more 

revenue when statically scored. 

But I think most would agree that, as long as we are within the 

world of saying we are statically scoring something, if we can assume that we are going to be neutral, if we keep what we have got, 

maybe we would be better off reforming the Tax Code, simplifying 

it, and leaving it revenue neutral at least under a statically scored 

model. 

And then at that point, some would suggest that that would 

stimulate economic growth, leaving us free then to see whether or 

to what extent it did lead to more revenue as a result of economic 

growth occurring in the wake of passage of that reform package. 

Would you tend to agree that that would be a good idea? 

Dr. Boskin. Yes, I think it is an excellent idea as long as it is 

primarily of broadening the base and lowering the rates. I think 

that a tax reform that raised tax rates would be a bad tax reform. 

So broadening the base and lowering the rates. We have not 

talked much about corporate tax reform, or about small business 

here, but so many successful small businesses, 3 percent of the 

businesses but half of small business income, some of it is passed 

through but some of it is what we normally think of as small business, pay out on the personal form. So broader base, lower rates 

would be very good for their incentives. 

And we have the highest corporate rate in the world, nominally, 

between federal and state taxes, about 39 percent, the highest in 

the OECD. The effective rate, when you account for deductions and 

exemptions and so on, is lower. It’s in the high 20s. But it is out 

of line, but not as far out of line, as the statutory rate. 

So I think that moving in this direction could be very good for 

the economy, both the short and long run, but it is—and I do believe that if it was accurately statically scored that at least over 

time it would raise more revenue than is likely being forecast in 

the models. 

Senator Lee. Particularly if, as you suggest, we lower the rates 

and we broaden the base. Would that also tend to have the impact 

of stabilizing, or producing a less volatile revenue stream? 

It is my understanding our income tax system brings in about 

18.5 percent of GDP on average. We have peaks and valleys within 
30 

that. I think in 2011 we were in a valley of about 14.5 percent. At 

times we have gone just a little over 20 percent, but generally do 

not go higher than that. 

Could lowering the rates and broadening the base produce a 

more stabile code? 

Dr. Boskin. It very much would, because the—the steep progression, some say the rates are too high; I am not going to argue about 

the levels, but we have relative to the other OECD countries according to OECD the most progressive tax system. They have larger tax. They collect more with value-added taxes, but we have a 

more progressive tax system. It becomes more volatile. 

The place to see it most is my home State of California where 

we have by far the most volatile. We have a very progressive income tax. And we get into this awkward situation, especially with 

our balanced budget requirements, which are sort of adhered to, we 

wind up having the revenue flow in. They spend that. They project 

more. Then the crisis hits. We rely heavily on capital gains and 

stock options across Silicon Valley. The revenues collapse. It is very 

hard to cut spending. 

So we wind up trying to make the Tax Code more and more progressive, and we wind up not being able even to fund the basic benefits for people that are really hurting in California. 

Senator Lee. It is a tough cycle. 

Dr. Boskin. You’re right. 

Senator Lee. That is a tough cycle. That is why I ultimately 

tend to come to the conclusion that where there is not consensus 

on everything, we ought to look to where there is consensus. There 

does seem to be a certain amount of political consensus that we 

need tax reform in the form of simplification. 

Maybe we could start out with something revenue neutral, one 

that is statically scored, and then see where it takes us. That 

would leave subsequent Congresses free to either plus-up or minusdown where they go from there. 

If I can ask one more question, as my time is expiring? 

Vice Chair Klobuchar. Of course. It looks like it is just the two 

of us here, Senator Lee, so please go ahead. 

Senator Lee. Thank you, thank you, I appreciate that. Thank 

you, Madam Chair. 

In your testimony, Dr. Boskin, you mentioned the need for permanent structural changes, not just a specific dollar cut, while discussing a credible commitment to deficit reduction. Can you speak 

to us briefly on the importance of maintaining our Nation’s credibility in deficit reduction packages? And why it is that markets are 

not going to be satisfied in this regard with cuts? In other words, 

tell us why cuts just will not cut it anymore? 

Dr. Boskin. Well it turns out that, if you look at the history of 

these budget negotiations, I have been involved in several when I 

was CEA Chair, for example, and advised on others, sometimes the 

cuts, ‘‘cuts,’’ evaporate later. Now sometimes tax policies change 

also later, and that tends to happen less frequently. 

There are a lot of frequent changes, but if you cut tax rates it 

becomes a much bigger battle than small changes in spending at 

the next appropriations hearing. 
31 

So I think what people want to see in financial markets, what 

people what to see about what the environment is going to be for 

investments that are paying off 5 and 7 and 10 years now. Austan 

mentioned infrastructure. A lot of that should be going on in the 

private sector. 

Big investments in—he mentioned energy. We can be exporting 

natural gas. That is going to require firms investing ten billion dollars for an export terminal. To do that, they have to have some notion of what the taxes they are going to pay on that when they finally get that investment done and they are starting to export the 

stuff. 

And so that is, to me, credible means that the rules have 

changed and they are harder to reverse than just a typical single 

appropriations bill next year if the makeup of Congress changes, 

and so on. 

Senator Lee. Okay. 

Dr. Boskin. So tax rules, indexing formula, retirement ages 

phased in over time, things of that sort. We have had a history in 

the past of those actually occurring, like from the 1983 Greenspan 

Commission and Social Security changes. 

Senator Lee. These are the kinds of permanent structural reforms you are referring to—— 

Dr. Boskin. Yes. 

Senator Lee [continuing]. As contrasted against something that 

just occurs in a CR or something. 

Dr. Boskin. Yes. You just say we will cut $10 billion, and it may 

happen once, or it may not. And the following year it is up for debate again. 

Senator Lee. Thank you, Dr. Boskin. 

Thank you, Madam Chair. 

Vice Chair Klobuchar. Thank you very much, Senator Lee. 

I just had one last question. As we grapple with immigration reform in the Congress, and if you could just talk, each of you, a little 

bit about how you view this from an economic viewpoint for the 

country. There are many aspects of immigration reform, but one of 

the parts that I have been working on with Senator Hatch and I 

have a bill called I-Squared, along with Senator Rubio and Senator 

Coons, and what it does is basically makes it easier for students 

from other countries when they study at our universities, that they 

more easily access a green card. In fact, get a green card when they 

get an advanced degree in science, math, technology. 

And then we also are doing more with the cap on the H1B visas. 

Senator Warner and Senator Moran have another bill called StartUp 3.0, I think, that is about entrepreneurial visas. And if you 

could talk a little bit about how this fits in with the overall economy. 

We have been focusing on job training, which is a major part of 

this. In fact, our bill adds $1,000 in fees supported by the Chamber 

for each of these H1B visas, and that money is going to go directly 

to STEM education to help train our students in these areas where 

we have openings right now. 

I guess we will start with you, Dr. Boskin. 

Dr. Boskin. I am a strong advocate of immigration reform, sensible immigration reform. Three key components of that would be 
32 

the green card provision you are talking about. It is silly that we 

have these great students that come from abroad to Stanford and 

Chicago, and the University of Minnesota, and then we send them 

home. 

We make it hard for them to stay. They should be working here 

and helping us grow our economy. The H1B visas, again, we tend 

to focus a lot on the problems of people who are at the lower end 

of the income scale, as we should. That is a big concern. But we 

should not neglect the technology jobs and so on. Those are important. That is a place where the economy is growing and can continue to grow. 

And then thirdly of course we need a sensible guest worker program. There are other aspects about making sure that we do have 

a border that is enforced and things of that sort, and these get very 

emotional. But I think it is the case that we have been refreshed 

numerous times by waves of immigration in our society. 

One of the beautiful things about America is how diverse we are 

in many dimensions. And it seems to me if we are smart and we 

have an immigration policy that strengthens the opportunity for 

higher skilled people to stay here and improves the opportunities 

for people with lower skills, that it could do so again. 

Also, finally I would say these problems of Social Security and 

Medicare, and the slowing growth of the labor force which Chairman Brady mentioned about potential GDP out there over the next 

50 years, unless our birth rates change we are going to probably 

need to have some more immigration. 

Vice Chair Klobuchar. And I appreciate those comments. One 

of my favorite statistics is that 30 percent of U.S. Nobel Laureates 

were born in other countries. So, you know, you go back in time 

and this has been a major part of our innovation in our country 

that has built America. 

Dr. Goolsbee. 

Dr. Goolsbee. Look, Senator, thank you for your support and 

leadership on this issue. We talked about this a lot when I was in 

the Administration, and we should keep talking about it now—— 

Vice Chair Klobuchar. And the President is talking about it 

now and working on it. 

Dr. Goolsbee [continuing]. And the President has endorsed that. 

I championed the—several of the ideas that you mentioned: startup visas and the green card type policies when I was in the Administration. And I think you do not have to look very far, either in 

the research literature or just talking to business people, to recognize that immigrants have made not just an important contribution 

to the legacy of who we are as a Nation, but to the economy. 

My friend John Doerr said that 50 percent of the companies that 

Kleiner-Perkins has funded have at least one founder born outside 

the United States. And I think on net they are big job creators, and 

that by doing some of these things that we could have a positive 

impact. 

I think on H1B visas, they do have the complication that you are 

tied to one employer. So I think there are—— 

Vice Chair Klobuchar. We actually have made some 

changes—— 
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Dr. Goolsbee [continuing]. So making changes on that I think 

is a good idea, as well as expanding the number. 

Vice Chair Klobuchar. Okay. Very good. 

Well I wanted to thank both of you, first for your knowledge and 

wisdom and everything you shared with us; but secondly the civility that you set here I think bodes well for the future of this Committee. 

I had several Members say this is so unique, how everyone is acting. So I hope that we see more of that going forward. I think we 

all know we have to come together to solve these challenges. The 

American People are demanding it, and I thank you for setting a 

good beginning for this Committee, one that you have testified before it sounds like for 30 years, Dr. Boskin. So you have seen it all 

in probably many different outfits and hairstyles over the years. 

But we are very excited. 

Chairman Brady and I are going to do a number of hearings obviously on these topics and move forward, but thank you very much 

for being here. The hearing is adjourned. 

[Whereupon, at 11:38 a.m., Thursday, February 28, 2013, the 

hearing was adjourned.] 

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SUBMISSIONS FOR THE RECORD 
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PREPARED STATEMENT OF HON. KEVIN BRADY, CHAIRMAN, JOINT ECONOMIC COMMITTEE

The Employment Act of 1946 established the Joint Economic Committee to analyze economic issues and make policy recommendations to Congress. As the 37th 

Chairman of this Committee, I congratulate Senator Amy Klobuchar on becoming 

Vice Chair and welcome both new and returning Members to the JEC. 

While the United States confronts many problems, our most vexing economic challenge is the growth gap—and how we close it? The growth gap between this economic recovery and other recoveries is significant and intensifies our federal spending and debt problems. 

The growth gap has two interrelated aspects. 

• First, by objective economic measure, the recovery that began in June 2009 remains the weakest among all recoveries after World War II. • Second, according to many economists, our economy’s potential to grow over 

time has slowed. If true, the average rates of growth and private job creation 

during this recovery of 2.1 percent and 175,000 per month, respectively, are 

about as good as our economy will ever perform in the future. And that is unacceptable. 

Therefore, it is appropriate that the first hearing of this Committee during the 

113th Congress should address this growth gap. Why have economic growth and job 

creation remained weak? And what should Congress do to boost them? 

The anemic nature of the current recovery is indisputable. 

• During the current recovery, real GDP increased by 7.5 percent in three and 

one-half years. In contrast, average real GDP growth during the same period 

in all post-war recoveries was 17.5 percent. Today’s recovery is less than half 

as strong as the average. • Real GDP would have to grow at an annual rate of 5.5 percent in each of the 

next four years merely to catch up with an average recovery by the end of the 

President’s second term. That would be slightly higher than 5.4 percent annual 

rate that President Reagan achieved during the first four years of his recovery. • Private payroll employment—that is, jobs along Main Street—has increased by 

only 5.7 percent since its cycle low. Had this recovery been merely average, private payroll employment would have increased by 9.4 percent. The growth gap 

means that the United States should have 3.9 million more private jobs today 

that it does. 

Equally troubling is mounting evidence that the annual growth rate for potential 

real GDP in the future has fallen dramatically. In its most recent Budget and Economic Outlook, the Congressional Budget Office cut its estimate of the potential real 

GDP growth rate to 2.3 percent, one percentage point below its average since 1950. 

One percentage point may not sound like much. However, the real economy doubles in 22 years at a 3.3 percent growth rate. At 2.3 percent, it takes 31.9 years 

to double, almost a decade longer. 

This prospect of a ‘‘new normal’’ for America’s economy in which our future economic growth permanently slows by one-third should be a red flag for all Americans. 

During this Congress, this Committee will, through hearings and research, investigate the growth gap and how to close it. No doubt some of the growth gap may 

be due to demographic factors that are not easily amenable to economic policy. However, even a cursory review of recent history strongly suggests that economic and 

fiscal policies have played the dominant role. 

To understand how these policies affect performance, let us compare the generally 

pro-growth policies and the superior performance of the U.S. economy during the 

1980s and 1990s with the generally slow growth policies and the lackluster performance during the last decade. 

During the Great Moderation under both Republican and Democratic Presidents 

and Congresses with Republican, Democratic, and split control, the federal government generally pursued the pro-growth economic policies and achieved outstanding 

results: 

• The size of the federal government, as measured by federal spending, gradually 

shrank relative to the size of the economy. 

• Marginal income tax rates fell. Policymakers focused on reducing the after-tax 

cost of capital for new business investment, and jobs grew. 

• Monetary policy became increasingly rules-based and predictable. Ignoring the 

employment half of its dual mandate, the Federal Reserve focused on price stability. 

• The regulatory burden on businesses and households declined. 
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• The United States led the world in liberalizing international trade and investment. 

Beginning in 2001 under both Republican and Democratic Presidents and Congresses with Republican, Democratic, and split control, the federal government reversed course—in large part due to the terrorist attacks of 9–11—and the results 

have been disappointing: 

• The size of the federal government, as measured by federal spending, has grown 

substantially relative to the size of the economy, soaring to 25.2 percent of GDP 

in fiscal year 2009 and remaining elevated at an estimated 22.2 percent of GDP 

during the current fiscal year. 

• Marginal income tax rates were first decreased then later increased. In recent 

years, policymakers have primarily focused on the ‘‘fairness’’ of the tax system 

instead of its effects on growth. 

• Monetary policy has become discretionary once again. The Federal Reserve has 

justified its extraordinary actions based upon the employment half of its dual 

mandate. 

• The regulatory burden on businesses and households has increased, generating 

uncertainty and inhibiting new business investment. 

• The United States has fallen behind its major trading partners in liberalizing 

international trade and investment. 

Today is the perfect time to focus on the growth gap and what we should do to 

close it. Given the historical and legal relationship between this Committee and the 

Council of Economic Advisers, it is appropriate that two of its most distinguished 

former Chairmen, Dr. Michael Boskin and Dr. Austan Goolsbee, are today’s witnesses. 

With that, I look forward to their testimony. 
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PREPARED STATEMENT OF HON. AUSTAN GOOLSBEE

Thank you, Chairman Brady and Vice-Chair Klobuchar for inviting me today to 

discuss the nature of the recovery in the United States. 

The central question we have confronted in the economy in recent years is this: 

why has the economy not grown faster after such a deep recession? 

I believe there are three basic reasons for that but before laying those out, I would 

like to first fix the facts on the nature of our current economic recovery. I have 

heard the statement that this is the weakest recovery ever. That is factually incorrect. This recovery is not the weakest recovery in recent memory. It is not even the 

weakest recovery of the last two recoveries. Measured from the trough, the 2001 recovery was substantially weaker. On the employment side, the jobs picture continued deteriorating for, literally, two and a half years after the 2001 recession’s declared end date. This time it was 8 months. 

Measured by the speed of decline in the unemployment rate, the rise of GDP or 

the percentage increase in the number of jobs, this recovery has been below average 

compared to past recoveries but substantially better than in 2001. It has not been 

fast enough, certainly. But there is not any question at all that conditions have improved. 

The important question, though, is: why there was not a ‘‘V-shaped’’ recovery following such a deep recession? Certainly compared to 1982–1984 and older episodes 

of big recessions when deep recessions led to rapid rebounds, this time, the recovery 

has looked more like the last two recoveries which followed much shallower recessions than it has looked like 1984. 

In my opinion there are three basic reasons the recovery is not faster right now: 

1) Recessions from Popping Bubbles Are Much Harder To Recover From 

When my dear friend and mentor, former Fed chair Paul Volcker, raised interest 

rates above 20% in the early 1980s, economic activity slowed dramatically. When 

rates came down, people went right back to doing what they were doing before the 

recession began. The key component to a V-shaped recovery is not requiring a lot 

of structural transformation. 

This recession resulted from the popping of a bubble so we were not able to return 

to business as it was before the recession. As we documented in the Economic Report of the President in 2011 when I was serving on the Council of Economic Advisers, the expansion of the 2000s in the United States was heavily driven by residential investment and consumer spending—much more so than past expansions in the 

U.S. and much more so than other advanced economies during the 2000s. 

There was a joke headline in The Onion you may have seen: ‘‘Furious Nation Demands New Bubble to Invest in to Restore Prosperity.’’ Shifting the main drivers 

of growth away from housing construction and spending growing faster than income 

and toward exports, business investment and more sustainable forms of expansion 

entails retraining, labor mobility and time. There really isn’t a get-rich-quickscheme to do it, and that’s a big reason the recovery hasn’t been faster. 

Add to the problem that the necessary shift to exports has been complicated by 

the stagnation and shrinkage in some of our traditionally largest export markets 

and you can understand why recovery hasn’t been faster. Our modest growth of 2– 

2.5% per year has been among the best in the advanced world. It’s been a very 

rough patch for the world economy. 

With regard to jobs and unemployment, I don’t think there is any secret to how 

things go. Over time, productivity grows about 2% per year. If output grows faster 

than that, then companies must hire or get more hours from their existing workers. 

The periods of relatively rapid decline in the unemployment rate in the last two and 

a half years have corresponded to periods when the growth rate got up above 2%. 

When output grows less than 2%, companies really don’t need to hire additional 

workers to grow that fast and the unemployment rate stagnates or gets worse. 

The good news is that exports and investment have rebounded, firm profitability 

has, literally, never been higher as a share of GDP and interest rates and the cost 

of capital are epically low. Once companies feel that the overcapacity problem has 

ended and they can expect a sustainable increase in demand, the stage is definitely 

set for an investment increase. You have seen this already in some sectors. Congress 

should be doing everything it can to encourage export growth and investment at 

home. I can go into more detail on these steps if you like but suffice to say that 

there are many policies that have garnered bipartisan support in past years which 

could help. 

2) Overcoming the Worst Housing Market in History Has Undermined Growth 
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There has never been a housing collapse like the one we just experienced. Housing is normally the most important cyclical sector in the economy, accounting for 

about one-third of the growth in the typical expansion. Economist Ed Leamer has 

documented quite clearly the outsized importance of housing and construction for 

the short-run business cycle. 

So I think it’s pretty understandable why the V-shaped recovery model doesn’t 

work when your recession comes from a popping bubble in real estate. Prices grew 

so far above construction costs in this country that new housing construction exploded to absolutely record levels. Since prices fell, we have had to work through 

an astonishingly large inventory of vacant homes. At one point there were more 

than 6 million vacant properties in the country. Normally construction and housing 

might account for as much as a third of an expansion, but in this kind of environment, they contribute nothing. Who needs to build new houses when there are millions of vacant ones? That major hit on the growth rate also helps explain why there 

has been no V-shaped recovery. 

In the immediate term, the positive side is that in many if not most housing markets around the country, prices seem to have begun rising and we have seen the 

first vestiges of a return to a normal contribution of the housing sector to growth. 

This alone would go a fair way to returning growth to a more normal level. Congress 

could help this process, in my opinion, by facilitating refinancings for people unable 

to take advantage of low rates because they are underwater and by facilitating the 

conversion of vacant homes into rental properties. Longer term, most economists 

would like to see a rational resolution of the country’s housing finance system to 

get the government out of the business of backing 95+% of the mortgage activity 

in the nation. But it doesn’t seem to be on Congress’ primary agenda at the moment. 

3) Financial Crises and Deleveraging Take a Big Toll on Growth 

As our financial system continues its attempts to recover from the crisis, it has 

complicated the recovery, as it always does whenever there are major financial crises and forced deleveraging. The Economic Report of the President in 2012 documented that the U.S.’s labor market experience has actually been a fair bit better 

than the average for countries that have lived through financial crises like the one 

we just endured. 

The good news is that consumer deleveraging may have almost run its course 

now. Several important measures of consumer and small business credit have begun 

to expand again, albeit modestly. But the international experience with events like 

the one we just lived through suggest that years of slower than normal growth result from financial crises. Congress could address this issue by trying to get more 

principal reduction in underwater mortgages, which is the primary form of consumer debt overhang, but that subject has been a vexing one for some time so I 

think policy may not make much of a dent in the near term. 

Let me take a brief moment to mention two things that I believe the data do NOT 

suggest are primary shackles on our current recovery. 

1) Regulation/Policy Changes Are Not the Main Source of Modest Recovery 

Some commentators have argued that the policy decisions and regulatory changes 

of the past three years have been the primary cause of slow investment and modest 

growth. Anyone that argues this must explain why the patterns of behavior we see 

in the U.S., like the accumulation of money on corporate balance sheets without a 

big increase in investment, are prevalent in virtually every advanced country of the 

world. Places that did not enact any of the policies of the last four years still had 

the same experience. 

I have noted in the Wall Street Journal and in other venues that economists’ normal methods of detecting the negative economic impact of a policy or a regulation 

such as comparing places or industries affected and not affected by a particular policy do not, in this case, seem to indicate that policies have been especially important 

as a primary influence on the recovery. This is true for industries most and least 

affected by the health plan, energy policy, and so on. 

2) The Short-Run Deficit Is Not the Main Source of Modest Recovery 

It should be clear to anyone who looks at the CBO projections of the last two decades that the business cycle is an overwhelmingly important driver of the short-run 

deficit and that the large majority of the increase in the deficit in 2009 to today 

came directly from the slowdown, not from any explicit change in policy. That is the 

same reason (in reverse) that government spending and the deficit are now shrinking at the fastest rate in decades. The notion that short-run austerity would increase the U.S. growth rate has not been borne out in the data at all. European 
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countries engaging in austerity have seen their growth rates plunge and their economies shrink. 

The idea that fiscal contractions could be expansionary normally relies on austerity improving investor confidence and, in turn, generating lower interest rates 

which expands output. Interest rates on U.S. debt remain at epically low levels. 

Central bankers are debating what to do when facing the zero lower bound. Arguing 

that major immediate cuts to government spending would increase growth requires 

at least giving a mechanism of how it would work in this kind of environment. 

I am a long time advocate of the nation confronting the long-run fiscal imbalance 

it faces from the aging of our population and the rise of health care costs. I hope 

Congress will work with the President to sign a so-called grand bargain that will 

address those issues and think about the level of tax revenue needed to pay for it. 

But in my opinion, major immediate-term cuts in government spending beyond the 

unprecedented drops in spending as a share of the economy that are already underway will have the same kind of heavily negative impact on the growth rate that we 

have seen in other countries of the world and that we saw in the fourth quarter 

GDP number in the United States. 

CONCLUSION

I think that the difficult experience for the U.S. and for the world over these past 

several years will soon be coming to an end. It has been a brutal episode in our 

history and one that we should come together to rise above. The key is promoting 

growth. I believe Congress and the Administration could have a positive impact on 

the long-run growth rate of the economy and job market by putting a focus on expanding exports, encouraging private-sector investment at home, upgrading the 

skills of the workforce and ensuring that the economic infrastructure and intellectual property of the country are secure. Innovation has driven our growth for at 

least 200 plus years and we should invest in keeping it that way. 

Thank you for your time. 
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RESPONSES FROM HON. AUSTAN GOOLSBEE TO QUESTIONS POSED

BY SENATOR MARTIN HEINRICH

1. I think it is important for us to avoid confusing the effects of recession from 

underlying trends. When the administration’s critics say government has grown 

under President Obama and cite government spending as a share of GDP, they are 

confusing the business cycle with policy change. The overwhelming reason government spending grew in the initial years of the Administration is that we had a terrible recession. Every recession leads to an increase in that ratio, and this one was 

worse than any other. Employing their own logic, those same critics should be praising the Administration for lowering taxes more than any president before for taxes 

as a share of GDP plunged unprecedentdly in the recession. 

As you observe, both the deficit and government spending are now dropping at 

the fastest rates in a half century, and most private sector analysts believe that additional austerity in the short run will undermine growth in the U.S. just as it has 

done in Europe. I believe that the Nation still faces the same long-run fiscal problem it has known about for 50 years and that we will need to address it. But that 

problem has virtually nothing to do with the reason deficits rose in the recession. 

To the second part of your question, as a factual matter, the decline of public sector employment and especially state level teachers and other workers have been one 

of the primary reasons the job market has not recovered to pre-recession health. 

2. I agree with both parts of your statement: we should be sensitive to national 

security technology getting into the wrong hands AND we should constantly be evaluating whether our export controls are doing that in the least intrusive way possible 

with as little disruption of private sector growth as we can. I am not familiar with 

the specifics on satellite technology or other engineering technologies, but I do think 

that being too restrictive or even merely being too slow to update what is cuttingedge technology can have a negative impact on the economy, and we should fix it. 

3. This relates closely to your previous question. Without getting into specific industries, I generally concur with the NRC report that if export controls are not applied judiciously, it can harm competitive leadership of U.S. companies. We should 

be especially mindful of applying excessive controls when there is international competition in the industry. It does little for our national security if we forbid a U.S. 

company from selling some satellite part, say, but the technology is already available on the open market from competing firms not in the United States. 

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