U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

45–030 PDF 2008

BUILDING AN ECONOMIC RECOVERY PACKAGE:

CREATING AND PRESERVING JOBS IN AMERICA

HEARING

BEFORE THE

COMMITTEE ON 

EDUCATION AND LABOR

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, OCTOBER 24, 2008

Serial No. 110–115

Printed for the use of the Committee on Education and Labor

(

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/education/index.html 

(II)

COMMITTEE ON EDUCATION AND LABOR 

GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice Chairman 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Danny K. Davis, Illinois 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

Linda T. Sa ́nchez, California 

John P. Sarbanes, Maryland 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Mazie Hirono, Hawaii 

Jason Altmire, Pennsylvania 

John A. Yarmuth, Kentucky 

Phil Hare, Illinois 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

Carol Shea-Porter, New Hampshire 

Howard P. ‘‘Buck’’ McKeon, California, 

Senior Republican Member 

Thomas E. Petri, Wisconsin 

Peter Hoekstra, Michigan 

Michael N. Castle, Delaware 

Mark E. Souder, Indiana 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Ric Keller, Florida 

Joe Wilson, South Carolina 

John Kline, Minnesota 

Cathy McMorris Rodgers, Washington 

Kenny Marchant, Texas 

Tom Price, Georgia 

Luis G. Fortun ̃ o, Puerto Rico 

Charles W. Boustany, Jr., Louisiana 

Virginia Foxx, North Carolina 

John R. ‘‘Randy’’ Kuhl, Jr., New York 

Rob Bishop, Utah 

David Davis, Tennessee 

Timothy Walberg, Michigan 

[Vacancy]

Mark Zuckerman, Staff Director 

Sally Stroup, Republican Staff Director 

(III)

C O N T E N T S 

Page

Hearing held on October 24, 2008 .......................................................................... 1

Statement of Members: 

Altmire, Hon. Jason, a Representative in Congress from the State of 

Pennsylvania, prepared statement of .......................................................... 124

McKeon, Hon. Howard P. ‘‘Buck,’’ Senior Republican Member, Committee 

on Education and Labor, prepared statement of ........................................ 124

Miller, Hon. George, Chairman, Committee on Education and Labor ......... 1

Prepared statement of ............................................................................... 3

Additional submissions: 

Letter dated October 22, 2008, from Alan S. Blinder, professor 

of economics, Princeton University ............................................... 78

Statement of the National Youth Employment Coalition ............... 79

Statement of Goodwill Industries International .............................. 87

Pension Benefit Guaranty Corporation (PBGC) graphic ................ 83

Joint statement of Rev. Donald Roberts, president and CEO of 

Goodwill Industries of Manasota, and Sandra Purgahn, president and CEO of Goodwill Industries of Acadiana ...................... 89

Letter dated October 23, 2008, from Allen Sinai, chief global 

economist, Decision Economics, Inc. ............................................. 83

Inslee, Hon. Jay,, a Representative in Congress from the State 

of Washington, statement for the record ...................................... 91

Letter dated October 23, 2008, from the National Urban League . 92

Statement of Witnesses: 

Beach, William W., director, center for data analysis, the Heritage Foundation ............................................................................................................. 52

Prepared statement of ............................................................................... 54

Bernstein, Jared, living standards program, Economic Policy Institute ..... 14

Prepared statement of ............................................................................... 17

Blackwell, Ron, chief economist, AFL–CIO .................................................... 10

Prepared statement of ............................................................................... 12

Hansen, Chris, president, American Electronics Association ....................... 31

Prepared statement of ............................................................................... 33

Millard, Charles, director, Pension Benefit Guaranty Corporation ............. 95

Prepared statement of ............................................................................... 98

Pollin, Robert, professor of economics and co–director, Political Economy 

Research Institute, University of Massachusetts-Amherst ....................... 34

Prepared statement of ............................................................................... 36

Stevens, Dana, human resources professional ............................................... 6

Prepared statement of ............................................................................... 8

(1)

BUILDING AN ECONOMIC RECOVERY PACKAGE: 

CREATING AND PRESERVING JOBS IN AMERICA 

Friday, October 24, 2008

U.S. House of Representatives 

Committee on Education and Labor 

Washington, DC

The committee met, pursuant to call, at 10:03 a.m., in room 

2175, Rayburn House Office Building, Hon. George Miller [chairman of the committee] presiding. 

Present: Representatives Miller, Woolsey, Sarbanes, Loebsack, 

and Courtney. 

Staff Present: Aaron Albright, Press Secretary, Tylease Alli, 

Hearing Clerk; Chris Brown, Labor Policy Advisor; Jody Calemine, 

Labor Policy Deputy Director; Lynn Dondis, Senior Policy Advisor, 

Subcommittee on Workforce Protections; Carlos Fenwick, Policy 

Advisor, Subcommittee on Health, Employment, Labor and Pensions; Patrick Findlay, Investigative Counsel; David Hartzler, Systems Administrator; Ryan Holden, Senior Investigator, Oversight; 

Brian Kennedy, General Counsel; Therese Leung, Labor Policy Advisor; Sara Lonardo, Junior Legislative Associate, Labor; Ricardo 

Martinez, Policy Advisor, Subcommittee on Higher Education, Lifelong Learning and Competitiveness; Alex Nock, Deputy Staff Director; Megan O’Reilly, Labor Policy Advisor; Rachel Racusen, Communications Director; Meredith Regine, Junior Legislative Associate, Labor; Melissa Salmanowitz, Press Secretary; James Schroll, 

Staff Assistant; Michele Varnhagen, Labor Policy Director; Michael 

Zola, Chief Investigative Counsel, Oversight; Mark Zuckerman, 

Staff Director; Robert Borden, Minority General Counsel; Cameron 

Coursen, Assistant Communications Director; Ed Gilroy, Minority 

Director of Workforce Policy; Rob Gregg, Senior Legislative Assistant; Alexa Marrero, Minority Communications Director; and Jim 

Paretti, Minority Workforce Policy Counsel. 

Chairman MILLER. Good morning. A quorum being present, the 

Committee on Education and Labor will come to order. The purpose of this morning’s hearing is to listen to witnesses on the issue 

of building an economic recovery package and creating and preserving jobs in America. I want to thank in advance all our witnesses for your testimony and for your time and your expertise in 

this challenge that we have here. 

The real economy, I think it is apparent to everyone at this 

point, is in a shambles. If you look at the staggering job losses, the 

rising unemployment and the sharp decline in families’ earnings, 

2

September, for example, saw more mass layoffs than any other 

month since September 2001 after 9/11. Earlier this month, we enacted an emergency $700 billion financial rescue plan to stem the collapse of the credit markets. This 

was a necessary step to prevent the bottom from falling out, but 

we knew it would not cure all that ails our economy. What we are 

seeing now in the continued decline in the volatility of the financial 

markets is a realization that recession is setting in and it is likely 

to be long, it is likely to be deep, and it is going to be global. It 

is urgent that we prepare now to take the next steps to rescue the 

economy by creating jobs, providing for immediate relief to the 

States and small businesses, and making real investments in energy, technology and education. We must have a plan to speak directly to the needs of America’s families and workers today. 

At a forum convened by Speaker Pelosi last week, leading economists agreed that creating jobs is essential to rebuilding our real 

economy. Alan Blinder and other economists told us that they fear 

unemployment could soon hit 8 percent or higher, and I think, 

Jared, you concurred in that, and I think Alan Sinai also concurred 

in that determination last week in that meeting. 

In testimony early this week, Fed Chairman Bernanke agreed 

that Congress should develop an economic recovery package to help 

blunt rising unemployment. American families are facing a quadruple economic whammy; falling home values, shrinking retirement 

savings, rising basic costs and job insecurity. The economists warn 

that things are likely to get worse, since the real prospect of today’s 

economic realities will result in a generation of Americans that are 

worse off than previous generations. 

In September, the House approved an economic recovery plan 

that would have created good-paying jobs by investing in energy 

technology and infrastructure and retrofitting our schools; investments that would prevent the falling recession. It also would have 

provided access to job training and helped working families with 

grocery and health care bills. It also approved an extension of the 

unemployment benefits in October. Unfortunately, these efforts 

were blocked by Senate Republicans and the President in denial of 

the impact of their disastrous economic policies on American families. 

Democrats, on the other hand, recognize that we should act now 

to restore confidence. For starters, we have to deal with growing 

numbers of the unemployed. Over the past year, unemployment 

rates have increased in 47 States. We must extend unemployment 

benefits for out-of-work Americans whose current benefits are set 

to expire or, in fact, maybe already have started expiring. 

Next, rebuilding our crumbling roads, businesses, transit and 

schools must be central to our jobs and economic policy for an economic recovery package. These investments not only provide urgently needed repairs, but increase productivity, create good-paying 

jobs, and spur additional private investment. States and localities 

have projects ready to go, but lack funding as they face declining 

revenues. We will hear testimony this morning that making infrastructure investments are some of the most effective uses of Federal dollars in creating, jobs both in the short term and in the long 

term. 

3

Encouraging the development of the green economy must also be 

a core component of any jobs recovery package. Not only will these 

investments create millions of good-paying jobs, but they will lead 

to fundamental change in the way we produce and consume energy. 

Other infrastructure investments such as the build-out of the national broadband network promises similar benefits. The U.S. Lags 

behind dozens of other industrialized countries in terms of 

broadband diffusion. 

As a letter from my colleague, Anna Eshoo from California points 

out, in a recent paper presented, the availability of broadband in 

communities added 1 percent to the employment growth and over 

a five-tenths of a percent increase in the growth of business establishments and five-tenths of a percent increase in the share of establishments represented by the information technology firms. The 

broadband build-out would add $500 billion to the GDP and 1.2 

million additional jobs in construction and use of the national 

broadband network. We know how important this is to the rural 

communities in our country. 

There are a number of the other proposals that will be considered in an economic recovery package, including job training, food 

stamps, heating assistance and help to the States to cover critical 

costs. 

As we continue our efforts to create an economic recovery plan, 

we must make sure that these ideas provide the best help to struggling families and the best return to the taxpayers’ investment. 

After we hear from the first panel, we will also hear from the director of the Pension Benefit Guaranty Corporation, Charles Millard. The Pension Benefit Guaranty Corporation provides pension 

protection for 44 million workers and is responsible for administering benefits of more than 1 million Americans. 

Director Millard will also discuss the new investment policy his 

agency has adopted in February of this year and whether it is a 

prudent approach for the unique mission of the Pension Guarantee 

Corporation. The new policy dramatically shifts PBGC’s investments away from fixed income securities such as U.S. Treasuries 

into equity securities and aggressive asset classes. We will examine 

the rationale for such a change in light of the recent market meltdown and the reported loss of at least $3 billion, and I think we 

will hear later this morning it is much more than that, in investment in recent months. We must preserve and strengthen these retirement plans. For example, we must strengthen 401(k)s to provide complete disclosure of all related fees and requiring independent management advice. That will be the second panel that we 

will hear from. 

With that, I would like to recognize Ms. Woolsey or other members for any opening remarks they may have. 

[The statement of Mr. Miller follows:]

Prepared Statement of Hon. George Miller, Chairman, Committee on 

Education and Labor 

The Committee on Education and Labor meets this morning to examine the state 

of employment and solutions that will put our economy on the road to recovery and 

get Americans back to work. 

4

The ‘‘real’’ economy is in shambles. Just look at the staggering job losses, rising 

unemployment, and a sharp decline in families’ earnings. September, for example, 

saw more mass layoffs than in any other month since September 2001, after 9-11. 

Earlier this month, we enacted an emergency $700 billion financial rescue plan 

to stem the collapse of the credit markets. That was a necessary step to prevent 

the bottom from falling out. But we knew that it would not cure what ails our economy. 

What we are seeing now, in the continued decline and volatility in the financial 

markets, is the realization that recession is setting in; that it is likely to be long; 

it is likely to be deep; and it is going to be global. 

It is urgent that we prepare now to take the next steps to rescue the economy 

by creating jobs, providing immediate relief to the states and small businesses, and 

by making real investments in energy, technology and education. 

We must have a plan that speaks directly to the needs of American families and 

workers today. 

At a forum convened by Speaker Pelosi last week, leading economists agreed that 

creating jobs is essential to rebuilding our economy. 

Alan Blinder and other economists told us that they fear that unemployment 

could soon hit 8 percent or higher. 

Even Fed Chairman Ben Bernanke agrees that Congress should develop an economic recovery package to help blunt rising unemployment. 

American families are facing a quadruple economic whammy: Falling home values, shrinking retirement savings, rising basic costs, and job insecurity. 

And economists warn that things are likely to get worse. There is a real prospect 

that today’s economic realities will result in a generation of Americans worse off 

than the previous generation. 

In September, the House approved an economic recovery plan. It would have created good-paying jobs by investing in new energy technology and our infrastructure—investments that would prevent our economy from falling deeper into recession. 

It would have also provided access to job training and helped working families 

with grocery and health care bills. We also approved an extension of unemployment 

benefits in October. 

Unfortunately, these efforts were blocked by Senate Republicans and a President 

in denial of the impact of their disastrous economic policies on American families. 

Democrats, on the other hand, recognize that we should act now to restore confidence. 

For starters, we have to deal with the growing numbers of the unemployed. Over 

the past year, unemployment rates have increased in 47 states. 

We must extend unemployment benefits for out-of-work Americans whose current 

benefits are set to expire. 

Next, rebuilding our crumbling roads, bridges and schools must be central to our 

jobs and economic recovery package. 

These investments not only provide for urgently needed repairs, but increase productivity, create good-paying jobs, and spur additional private investment. 

States and localities have projects ready to go but lack funding as they face declining revenues. 

We will hear testimony this morning that making infrastructure investments are 

some of the most effective uses of the federal dollar in creating jobs in both the 

short-term and the long-term. 

Encouraging the development of a green economy must also be a core component 

to any jobs recovery package. 

Not only will these investments create millions of good-paying jobs, but they will 

lead to a fundamental change in the way we produce and consume energy. 

Other infrastructure investments, such as increasing broadband diffusion, promise 

similar benefits. 

The U.S. lags behind a dozen other industrialized countries in terms of broadband 

diffusion. 

This gap slows our efficiency and our ability to remain globally competitive. 

There are a number of other proposals that will be considered in an economic recovery package, including job training, food stamp and heating assistance, and help 

to states to cover critical costs. 

As we continue our efforts to create an economic recovery plan, we must make 

sure that these ideas provide the best help to struggling families and the best return on taxpayers’ investment. 

We will also hear from the director of the Pension Benefit Guaranty Agency 

Charles Millard. 

5

PBGC provides pension protection for 44 million workers and is responsible for 

administering benefits for more than 1 million Americans. 

Director Millard will also discuss his new investment policy that his agency adopted in February of this year and whether this is a prudent approach for the unique 

mission of the PBGC. 

The new policy dramatically shifts PBGC’s investments away from fixed income 

securities, such as U.S. Treasuries, into equity securities and other aggressive asset 

classes. 

We will examine the rationale for such a change in light of the recent market meltdown and the reported loss of at least $3 billion in equity investments in recent 

months. 

We must preserve and strengthen Americans’ retirement plans. For example, we 

must strengthen 401(k)s by increasing transparency and providing complete disclosure of all related fees and providing independent management advice. 

We must also waive the current tax penalty for seniors over 70 and a half who 

don’t take a minimum withdrawal from their retirement accounts. And we must prohibit privatizing Social Security. 

Today’s witnesses will help us understand what’s happening in the real economy, 

where we are headed, and help us consider what proposals might work best to get 

the economy moving in the right direction. 

I look forward to their testimony. 

Ms. WOOLSEY. Thank you, Mr. Chairman. This is going to be 

very interesting. But I want to get on with this, so I won’t have 

opening remarks. Thank you. 

Mr. LOEBSACK. Thank you for convening this hearing, Mr. Chairman. Like my colleague, Ms. Woolsey, I will just hold off until we 

get to the Q&A. 

Mr. COURTNEY. I will also, Mr. Chairman. 

Chairman MILLER. Thank you. What wonderful Members of Congress. 

This morning on our panel we will first hear from Dana Stevens 

from Thorofare, New Jersey, who has worked in benefits administration for the past 10 years. She wad laid off by her employer in 

July due to corporate restructuring and she will be discussing her 

experience with the deteriorating job market over the past several 

months. Thank you so much for joining us this morning. 

Next we will hear from Ron Blackwell, the chief economist at the 

AFL-CIO. Before joining the AFL-CIO, Mr. Blackwell was assistant 

to the president of the Amalgamated Clothing and Textile Workers 

and chief economist of Unite Here. Before that, he was a faculty 

member and academic dean at Seminar College at the New School 

where he taught economics. 

Gerald Bernstein is the director of the Living Standards Program 

at the Economic Policy Institute. Dr. Bernstein joined EPI in 1992 

and has written extensively on issues such as income inequality, 

mobility and trends in employment and earnings. His latest book 

is Crunch: Why Do I Feel So Squeezed, and Other Unsolved Economic Mysteries. Dr. Bernstein earned his Ph.D in social welfare 

from Columbia University. 

Chris Hansen is president and CEO of AEA, the Nation’s largest 

association representing the electronics and IT industries. Before 

joining AEA in November of 2007, Mr. Hansen was AARP’s group 

executive officer for State and national initiatives. Previous to his 

work at AARP, Mr. Hansen was a senior vice-president at Boeing. 

Mr. Hansen holds a BA from the University of Denver and a masters from the American Graduate School of International Management. 

6

Robert Pollin is a professor of economics and founding co-director 

of the Political Economy Research Institute at the University of 

Massachusetts, Amherst. Dr. Pollin’s research centers on microeconomics conditions and low-wage workers, the analysis of financial markets and the economics of building a clean energy economy. 

He earned a BA from the University of Wisconsin and an MA and 

Ph.D. from the New School of Social Research. 

William W. Beach is the director of the Center For Data Analysis 

at the Heritage Foundation. In his position, Mr. Beach oversees 

statistical research on taxes, Social Security and trade, among the 

other issues. Prior to joining Heritage in 1995, he served as a litigation economist and economist for the Missouri Office of Budget 

and Planning. Mr. Beach is a graduate of Washburn University 

and holds a master’s degree from the University of Missouri in Columbia. 

With that, we will start with you, Ms. Stevens. Again, thank you 

so very much for joining the committee. I know that it is not easy 

to tell personal stories in public settings, but having looked at your 

testimony, I think you are presenting a face on this problem that 

many, many, unfortunately millions of Americans will recognize 

and understand that yours is a problem that we are trying to address in providing for strengthening the economy. 

Under the system, when you begin to speak, a green light will 

go on, that will be about 4 minutes. An orange light will go on 

which suggests you might want to start wrapping up your remarks, 

but we want you to finish in a way that you are comfortable and 

is also coherent for us. 

So thank you again. We look forward to your testimony. 

STATEMENT OF DANA STEVENS, HUMAN RESOURCES 

PROFESSIONAL 

Ms. STEVENS. Chairman Miller, Ranking Member McKeon, members of the committee, thank you for inviting me to testify at this 

hearing today. My name is Dana Stevens and I am a resident of 

Thorofare, New Jersey, in Gloucester County. 

Since July 11th, I have been unemployed and struggling to find 

a new job to make ends meet. My story is not unique, I am sure. 

I am like millions of others who are struggling in the current economy. I am grateful for the opportunity to share my story today on 

behalf of all the unemployed workers out there who are ready, willing and eager to work, but simply cannot find a job. 

I am 31 years old and have been working continuously since I 

was 21 years old. Shortly after high school, I began working fulltime and going to college on a part-time basis, steadily pursuing 

my degree in business administration. 

In June of 2007, I began working for an insurance broker. I was 

recruited to join that employer and was hired to fill a new position 

of benefits administration supervisor. I loved the job and I felt very 

comfortable and secure and settled, until last March. 

I was notified that my department would be outsourced in order 

to save $80,000 in business costs in addition to the salaries and additional money spent on benefits for the employees. This decision 

was also made as part of the sale of my employer to a much larger 

insurance company. I was initially told to remain positive and that 

7

my employer wanted to find me another position. However, in May, 

I was told that July 11th would be my last day of work. 

As soon as I learned that I would lose my job, I immediately 

began looking for a new one. I followed every avenue I could. I 

posted my resume on line. I networked extensively with the clients 

of the employer. I applied for job openings. I have even worked 

with professional headhunters. My husband and I also began saving every single penny that we could to be able to pay our mortgage and bills once my position had ended. We have always lived 

within our means and paid our bills on time, but I knew that the 

amount I receive in unemployment insurance benefits would not be 

enough to cover our monthly mortgage. 

Since I learned that I would lose my job, I have applied for over 

143 positions, in addition to all of the other network I have done. 

In that time, I have had interviews with only seven companies. 

While I have come close to getting a job and I have received compliments on what a strong candidate I am, I am still unemployed. 

I am looking as broadly as I can. I live in Southern New Jersey, 

so I am applying for jobs within Wilmington, Delaware, Philadelphia, Pennsylvania, and the entire region. I am not simply looking 

for human resources or insurance jobs, but for anything that I 

could do, including office work and administrative jobs. Most would 

be a step backwards from the positions that I have previously held. 

I am even willing to take a significant pay cut just for the sake of 

working, but I do need a job that will pay me enough so I can keep 

my house and avoid becoming part of the working poor. 

I am even willing to do contract work that offers no benefits, just 

for the sake of being employed and be able to pay my bills. 

I thought I had a good chance of finding a job two weeks ago 

when a headhunter called me about an open position within an organization. The next day I got a phone call from that headhunter 

stating that the corporation had decided to put the position on hold 

until at least February because they do not have the money to fill 

it right now. 

Everyone is willing to accept jobs for which they are overqualified and take pay cuts, so the competition is really tough out there. 

Luckily, my husband still has his job, but in order for us to make 

ends meet, he has been working overtime. He also goes to school 

two nights a week for 4 hours each night so he can better his employment prospects for the future. 

While I am lucky that he has a job and is working hard to support us, it upsets me that he is doing it alone. I am a very independent person and I feel bad that my husband has to endure the 

extra hours of work, plus his school work and working full-time. 

Even though he is working overtime, we have used up almost all 

of our savings just to continue to pay the mortgage. We have just 

enough savings left to scrape by on our December payment. After 

that, I don’t know what we will do if I can’t find a job. 

My husband and I are careful and responsible people. We own 

a home and made sure to purchase a House we could afford in 

order to avoid risky financing. We made educated decisions and 

worked hard for what we have. I have worked continuously for over 

10 years. Now I feel like the odds are against me because I have 

had to rely on unemployment. 

8

Beyond that, my self-esteem has taken a real hit. You can’t help 

but ask yourselves sometimes, what is wrong with me? Why am I 

not picked? At times, even when I go for an interview, I hope that 

employers don’t see that. 

Congress can help people like me. In the short-term, please extend unemployment benefits since the economy isn’t getting any 

better and jobs are continuing to disappear. You have been elected 

to serve the people of the United States, and we have never needed 

you more. 

Thank you again for the opportunity to tell my story and represent all of the unemployed workers throughout the country who 

are struggling just to survive in this current economy. 

[The statement of Ms. Stevens follows:]

Prepared Statement of Dana Stevens, Human Resources Professional 

Chairman Miller, Ranking Member McKeon, and members of the Committee, 

thank you for inviting me to testify at this hearing today. My name is Dana Stevens, and I am a resident of Gloucester County, New Jersey. Since July 11th , I 

have been unemployed and am struggling to find a new job and make ends meet. 

My story is not unique—I am like millions of others who are struggling in the current economy. I am grateful for the opportunity to share my story today on behalf 

of all the unemployed workers out there who are ready, willing and eager to work, 

but just cannot find a job. 

I am 31 years old, and have been working continuously since I was 21 years old. 

Shortly after high school, I began working full time and going to college on a part 

time basis, steadily pursuing my college degree in general business administration. 

In June of 2007, I began working for an insurance broker. I was recruited to join 

that employer and was hired to fill a new position of Benefits Administration Supervisor. I loved the job and felt very secure and settled, until last March. I was notified that my department would be outsourced in an effort to save $80,000 in business costs, plus salaries and additional money in benefits. This decision was also 

made as part of a sale of my employer to a much larger insurance company. I was 

initially told to remain positive and that my employer wanted to find me another 

position within the organization. However, in May, I was told that July 11th would 

be my last day of work. 

As soon as I learned that I would lose my job, I immediately began looking for 

a new one. I followed every avenue I could. I posted my resume on-line, networked 

extensively with the clients of my employer, applied for job openings, and even 

worked with professional head-hunters. My husband and I also began saving every 

penny we could to be able to pay our mortgage and bills once my employment ended. 

We have always lived within our means and paid our bills on time, but I knew that 

the amount I receive in unemployment insurance benefits would not be enough to 

cover our monthly mortgage payment. 

Since I learned I would lose my job, I have literally applied for over 140 jobs, in 

addition to all of the other networking I have done. In that time, I have had interviews with only seven companies. While I have come close to getting a job, and have 

received compliments on what a strong candidate I am, I am still unemployed. I am 

looking as broadly as I can. I live in southern New Jersey so I am applying for jobs 

in Wilmington, Delaware, as well as Philadelphia, Pennsylvania, and the entire region. I am not simply looking for human resources jobs, but for anything I could 

do including office work and administrative jobs that are a step backwards from the 

positions I previously held. I even am willing to take a significant pay cut for the 

sake of working, but I need a job that will pay me enough so that I can keep my 

house and avoid becoming part of the working poor. I am even willing to do contract 

work that offers no benefits, just for the sake of earning money to pay our bills. 

I thought I had a good chance of finding a job two weeks ago when a head hunter 

called me about an open position. But then she found out the next day that the position was put on hold until at least next February because the employer could not 

afford to fill it right now. That is the situation I am facing everywhere I look. There 

just are not a lot of good jobs out there right now, and the ones that do exist have 

hundreds of people applying for them. Everybody is willing to accept jobs for which 

they are overqualified and take pay cuts, so the competition is really tough. 

Luckily my husband still has his job, but in order for us to make ends meet, he 

has to work over-time. He’s also going to school two nights a week, for four hours 

9

each night, so he can better his employment prospects for the future. While I am 

lucky that he has a job and is working hard to support us, it upsets me that he 

is doing it alone. I am a very independent person and I feel bad having my husband 

endure the long hours and extra work. Even though he is working over-time, we 

have used up almost all of our savings just to continue paying the mortgage. We 

have just enough in savings to scrape by on our December payment. After that, I 

don’t know what we’ll do if I can’t find a job. 

My husband and I are careful and responsible people. We own a home and made 

sure to purchase a house we could afford in order to avoid risky financing. We make 

educated decisions and work hard to earn what we have. I’ve worked continuously 

for over ten years. I’m going to school to get my degree, and I have never received 

government services before. Now, I feel like the odds are against me because I have 

had to rely on unemployment in order to help support our family. 

My unemployment has had very real consequences that will take years to correct. 

I had to transfer colleges, because the school of my choice was just too expensive. 

Even at the local community college, I’ve had to pay my tuition on a credit card. 

At times, I’ve even had to put the cost of groceries on my credit card so we can pay 

our bills and still have food to eat. I will pay high interest rates on that tuition and 

food as I pay it off over several months, possibly years. In addition, my husband 

and I were getting ready to start a family right before I lost my job. This is something we both want very much. As disappointed as I am that we had to postpone 

having children, I am also relieved that I did not get pregnant before I lost my job. 

I’m sure my job opportunities would be nominal, as very few employers would hire 

me knowing that I would have to take maternity leave within months of starting 

a new job. 

Beyond that, my self-esteem has taken a real hit. I’ve always been a very confident person and feel that I present myself well. But, when you apply for so many 

jobs and nothing comes through, you can’t help but think ‘‘what’s wrong with me?’’ 

Imagine going into an interview and trying to project self-confidence when you feel 

completely defeated. I’m putting on a front every time I have an interview and I 

just hope that potential employers cannot see through it. There are even times when 

I apply for a position and know that I would be a great fit for the role and I don’t 

even get a response on my resume submission. 

I really feel like I’ve done the right things in life. In spite of all my efforts and 

being responsible, I cannot get ahead. It makes me worried and frustrated, even 

angry at times. I hope that by being here today, my story will be beneficial to others 

that are in my situation. They need to know they’re not alone, even though being 

unemployed is one of the loneliest feelings in the world. I look at the rising unemployment statistics to gain some perverse comfort in realizing I’m not the only one 

out there struggling to find a job. 

People like me are really hurting. We want to work. Believe me, the amount we 

get for unemployment is no incentive to stay home. I hear the President’s spokesperson say that extending benefits again might create an incentive for people like 

me to stay home longer and that’s just wrong. There is nothing fun about staying 

home when you can’t find a job. There is nothing enjoyable about being up at night 

worrying about how you are going to make ends meet. Being unemployed hurts you 

and your family financially, but emotionally and physically as well. For anyone to 

suggest that receiving unemployment is like getting a free vacation is insulting and 

degrading to the millions of people like myself who are desperately trying to get 

back to work. 

Congress can help people like me. In the short-term, you need to extend unemployment benefits again because the economy is not getting any better, jobs are continuing to disappear, and the winter is coming when we need to money to pay our 

heat and other bills. But I also ask you to come up with legislation that will help 

provide a financial recovery for all people in this country, especially those who are 

struggling the most. Use your influence to help create new jobs with good pay and 

good benefits. Find ways to create incentives for companies to keep good jobs inhouse, rather than outsourcing them to cheaper vendors who undercut the market 

for hard working men and women. You have been elected to serve the people of the 

United States, and we’ve never needed you more. 

Thank you again for the opportunity to tell my story and to represent all the unemployed workers throughout this country who are struggling just to survive in this 

current economy. 

10

Chairman MILLER. Thank you very much for your testimony. 

Again, we appreciate how difficult it is for you to discuss this in 

public among strangers. 

Mr. Blackwell. 

STATEMENT OF RON BLACKWELL, CHIEF ECONOMIST,

AFL–CIO 

Mr. BLACKWELL. Thank you, Chairman Miller. Unfortunately, 

Ms. Stevens is not alone. There are currently 10 million Americans 

that are formally unemployed and looking for work every day and 

can’t find it. If you added the number of Americans that are working part-time when they need a full-time job or people who have 

been discouraged or people that are near taking employment, you 

would double that number. 

As we meet today, we face the most complex and dangerous economic crisis that I have seen in my career. I wasn’t around for the 

Great Depression, but this is much more serious than the 1980s, 

as I recall. The bursting housing bubble last year has triggered a 

global credit crisis, and together they are dragging the U.S. And 

other economies into recession and slowing growth worldwide. 

As a result, the American economy has been shedding jobs in accelerating rates since the beginning of the year. The economy lost 

168,000 in September alone. There has been a total of 900,000 private sector jobs lost this year so far. 

The unemployment rate has increased by 1.2 percentage points 

since January and now stands at 6.1 percent. Nearly 10 million 

workers, as I said, are now unemployed and seeking work. Over 2 

million of those have been unemployed for over 27 weeks, and hundreds of thousands of American workers are approaching the exhaustion of their unemployment benefits even as recently extended. 

Unemployment claims are now running at nearly 500,000 a 

week, which is clearly consistent with the rapidly deteriorating 

labor market, and this kind of deterioration has not been seen outside of the context of a recession in our history. 

A majority of private sector economists now consider the economy 

is either in or entering a recession of uncertain depth and duration. 

And with job loss projected to continue for several quarters, private 

economists are forecasting a rise the unemployment rate, as you 

mentioned, to a total of 7 to 8 or even above percent by the end 

of next year. 

In my judgment, we are clearly in the early stages of a potentially very seriously recession that will likely be as deep as anything we have experienced in a generation, last longer than most, 

and one which is rapidly becoming global in scope. Just how deep 

and protracted this recession will be depends on the timeliness of 

congressional action, the aggressiveness of congressional action, 

and whether it is properly focused on the activities that we need 

supported. 

The current economic crisis is the conjunction of three distinct 

elements; a housing crisis, a credit market crisis and an employment crisis. Each of these crises is serious enough in itself, but 

their interaction is now making for a particularly dangerous dynamic. 

11

Housing prices have already lost 20 percent of their value on average and can be expected to fall another 10 to 15 percent, even 

if they do not overshoot their fundamental values. Home foreclosures are spiking, people are losing their homes, communities 

are being devastated and trillions of dollars are being drained from 

the net worth of households. 

Consumers, who have been driving the economy, debt finance 

consumption spending is what has been behind the recent recovery 

from the last recession, but they are pulling back sharply. They 

started initially on autos, of course, as you know, and houses, but 

in September, it seems like the dam has broken and consumer has 

capitulated. So it looks like the consumers are pulling back very 

sharply. They represent 70 percent of the spending in the economy, 

and with housing prices continuing to fall and with people continuing to lose their jobs, that can only get worse. 

Unfortunately, the complexity of the forces dragging us into recession makes formulating and calibrating an economic recovery 

plan particularly difficult. We truly are in uncharted territory in 

terms of economic policy. 

Nevertheless, this designing and building an economic recovery 

plan, Congress should bear in mind three particular considerations 

which I think bear on the shape and the appropriate size of a recovery program and that follow from the very distinctive characteristics of this last recovery and the recession that we are now in. 

I detail some of these considerations in my written remarks. I don’t 

have time to present them here. 

I will simply mention that we have to focus on two things: One 

is the urgency of congressional action. We have no time to waste. 

The labor market is deteriorating very, very rapidly, and the consumer, as I said before, has capitulated and is pulling back very, 

very sharply. 

If housing prices continue to fall like the way they are falling 

and people continue to lose the jobs the way they are doing, then 

all of the effort that Congress made to stabilize our credit markets 

by committing this money will be lost, because even as the government pours money into these financial organizations, the net worth 

of the assets they control are draining out. 

Secondly is to be aggressive. I think the stimulus program that 

was undertaken earlier this year was more than welcome and very 

timely. It was poorly targeted, in my view. But it is clearly not adequate to match the kind of challenge that we have in front of us. 

Finally, I need to say that it needs to be well-focused. This current crisis is the result of fundamental economic imbalances in the 

U.S. and global economy that have been allowed to develop over 

the past 30 years, and we need to take action now that addresses 

those. I think your suggestion that we get involved in aggressive 

infrastructure spending is exactly the kind of focus that we need. 

These are long-term needs that we need to rebuild the competitiveness of our country, to have broadband in our cities, to have 

bridges that aren’t falling into rivers and cities that aren’t drowning, and to provide the basis for this country to be able to pull its 

weight in the world and produce more of the value equivalent of 

what it consumes. 

I think I will stop there. 

12

Chairman MILLER. Thank you. 

[The statement of Mr. Blackwell follows:]

Prepared Statement of Ron Blackwell, Chief Economist, AFL–CIO 

Thank you, Chairman Miller, Ranking Member McKeon and members of the Committee. I welcome the opportunity to be here today to testify on behalf of the ten 

million members of the AFL-CIO and share our views on the state of the economy 

and the importance and the urgency of building an aggressive economic recovery 

program. 

I want to begin by mentioning that I serve on the board of Baltimore Branch of 

the Richmond Federal Reserve Bank. I want to make it clear that I am speaking 

today exclusively in the role of chief economist of the AFL-CIO and nothing I say 

should be taken to reflect the views of the Bank or the Board of Governors. 

As we meet today, we face the most complex and dangerous economic crisis since 

the Great Depression. A bursting housing bubble last year has triggered a global 

credit crisis and together they are now dragging the U.S. and other economies into 

recession and slowing growth globally. 

As a result, the American economy has been shedding jobs at an accelerating rate 

since the beginning of the year. The economy lost 168,000 jobs in September alone, 

bringing total private sector job loss to nearly 900,000 so far this year. The unemployment rate has increased 1.2 percentage points since January and now stands 

at 6.1 percent. Adding the millions of workers who want a job, but who are not now 

looking, would bring the ’under-employment’ rate into double digits. 

Nearly ten million workers are now unemployed and seeking work, over two million of whom have been unemployed for over 27 weeks. Unemployment claims are 

now running at over 500,000 a week, indicating a sharp recession is well underway. 

A majority of private sector economists now consider the economy as either in, or 

entering, a recession of uncertain depth and duration. And, with job loss projected 

to continue for several quarters, private economists are forecasting a rise of the unemployment rate to between seven and eight percent by the end of next year. 

In my judgment, we are clearly in the early stages of a potentially very serious 

recession that will likely be as deep as anything we have experienced in a generation, last longer than most recessions and is becoming increasingly global in scope. 

Just how deep and protracted this recession will be depends on a timely, aggressive 

and well-focused economic recovery package. 

The current economic crisis is a conjunction of a housing crisis, a credit market 

crisis and an employment crisis. Each of these crises is a serious enough in itself, 

but their interaction is now making for a particularly complex and dangerous dynamic. Housing prices have already lost 20 percent of their value on average and 

can be expected to fall another 10-15 percent even if they do not overshoot their fundamental values. Home foreclosures have spiked to between 9000-10,000 a day and 

trillions of dollars have been drained from household net worth. Consumers are 

pulling back sharply as their wealth declines, slowing the economy and forcing employers to shed jobs and cut wages and benefits. The continuing decline of housing 

prices also aggravates the credit crisis as the value of mortgage-backed assets continues to undermine the balance sheets of under-capitalized financial firms. 

Unfortunately, the complexity of the forces dragging us into recession makes formulating and calibrating an economic recovery plan particularly difficult. We truly 

are in uncharted territory. Nevertheless, in designing and building an economic recovery plan, Congress should bear in mind three considerations that bear on the 

size and shape of a recovery package that flow from the distinctive features of the 

most recent expansion and the forces behind the crisis. 

First, Congress must act with appropriate urgency to address the acute pain and 

anxiety that the current economic crisis is producing in the lives of millions of working families. The current crisis brings to an end the slowest recovery in terms of 

job creation, wages and family incomes of any business expansion since the Second 

World War. And it comes at the end of a generation-long stagnation of wages and 

rising economic insecurity. 

American workers are the most productive workers in the world and we are now 

working longer hours than workers in any other developed country. Nevertheless, 

wages and family incomes have stagnated, making it very difficult for workers to 

sustain their living standards. Since 1980, productivity has grown 70 percent, but 

wages have increased by only 5 percent. Real median family income has only increased by 15 percent, but only because each worker is working longer hours and 

more jobs and especially because each family is sending more family members into 

the labor force. The only reason median family income has increased at all is because of increased female labor force participation. 

13

Productivity increased by 16 percent in the recovery from the 2001 recession, but 

real wages and earnings increased only 2 percent. As a result, the recovery just 

ended was the first business expansion on record that left real median family income below its pre-recession level (-$2000) and even below its level in the 2001 recession year (-$1000). Because of stagnating wages, working families have exhausted their savings and have increasing turned to personal indebtedness to maintain their living standards. 

Any economic recovery program should move with the same urgency in addressing 

the acute pain and anxiety of working families as shown in addressing the global 

credit crisis. At a minimum, this means the recovery program should contain measures to extend the unemployment benefits for the hundreds of thousands of workers 

who are now exhausting their unemployment benefits. It should also greatly expand 

the food stamp program for our lowest-paid workers. And it should aid state and 

local governments who are otherwise forced to cut back their expenditures on health 

care in order to balance their budgets. 

Second, any economic fiscal package must be aggressive enough to make a difference against the powerful and still developing forces dragging the economy into 

recession. The economic expansion from the 2001 recession—like the previous recovery from the early 1990s recession—was very different from all other post-World 

War II recoveries. The earlier recoveries ended as a result of policy actions by the 

Federal Reserve to stanch inflationary pressure by slowing economic growth by raising interest rates. The last two recoveries ended with the bursting of asset bubbles—equities in the late 1990s and housing prices since 2000. 

The importance of this difference between the older business cycles and the newer 

is in the usefulness of traditional monetary policy instruments in mitigating the 

damage of recessions and aiding in the subsequent recoveries. In policy-induced recessions, monetary authorities could expect a reversal of policy—lowering interest 

rates—could be counted on to provided much of what was needed to spark a recovery of interest sensitive industries and restart growth. In response to asset deflation, a lowering of interest rates cannot be counted on alone to restart growth. Instead, counter-cyclical fiscal policy is necessary to arrest the decline and help power 

a recovery. Moreover, the deflation of housing values in the current recession is 

much more serious than the decline of equity values in the 2001 recession and, 

therefore, the current recession is likely to be much more serious than that recession and will require much more aggressive fiscal policy to stabilize. 

The recent aggressive lowering of interest rates by the Federal Reserve is certainly welcome, but they are not sufficient to restart robust and sustainable growth 

under current circumstances. For this reason, the first $168 billion economic stimulus package passed by Congress in the Spring was especially appropriate and timely, but it was simply too small to counteract the combined depressing effects of a 

bursting housing bubble and the global credit crisis it triggered. 

Congress acted with great dispatch to enact the $700 billion package to address 

the credit crisis and help maintain the stability of global capital markets. The same 

energy and imagination is called for in shaping an economic recovery package if we 

are to stabilize the rapidly deteriorating conditions in the real economy. This is not 

the time for undue caution or misplaced concern for federal budget deficits. 

Third, an economic recovery package should target the underlying fundamental 

economic imbalances that have produced the current crises if we are to avoid repeating them in the future. Three imbalances are particularly worth noting: 

The imbalanced between the U.S. and global economy. The unsustainable U.S. external account imbalance requires us to borrow five to six percent of our national 

income to pay for the things we consume as a nation but no longer produce. Our 

external imbalance with our Asian trading partners is maintained by our partners 

buying large quantities of dollar-denominated assets—U.S. Treasuries, of course, 

but also mortgage- backed securities—to maintain their competitive advantage. 

These trade surpluses in this way have fueled what Fed Chairman Bernanke refers 

to the ‘‘ global savings glut’’ which has powered the housing bubble that has now 

burst and is the proximate cause of the current crises. Either we find a way to 

produce more of the value equivalent of what we consume as a nation or, one way 

or another, we will be forced to consume less. 

Correcting this imbalance suggests that any economic recovery program focus the 

needed fiscal spending on improving our nation’s competitiveness through public investment to create a world-class workforce and a world-class national transportation, information and communications infrastructure. A public investment-led recovery program would focus needed spending on longer term needs that we must 

find a means to address if we are to support our living standards in an increasingly 

competitive global economy, crowd in private investment and provide a more susVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK
14

tainable basis than that provided by asset inflation for our nation’s economic 

growth. 

The imbalance between finance and the real economy. In a well functioning economy, finance is supposed to be the servant of the real economy, not its master. But 

a combination of financial deregulation and financial innovation has allowed the 

bursting housing bubble to trigger a global financial crisis. Correcting this imbalance is more a matter for the regulatory reform of our capital markets than the economic recovery program. Nevertheless it is an essential component of a comprehensive program to build a strong, sustainable and internationally competitive national 

economy. 

The imbalance of bargaining power between workers and their employers. This 

imbalance is responsible for the stagnation of wages and the rupture of the crucial 

relation between wages and productivity that has served as the foundation of the 

American social contract. The stagnation of wages has motivated American workers 

to work more, save less and borrow imprudently against appreciating assets to 

maintain their living standards. Correcting this imbalance requires sufficient demand from public and private investment to produce something close to full employment, a meaningful minimum wage and reforming our labor law to allow workers 

to freely associate with their fellow workers and form a union to bargain collectively. Again, this is beyond the concern of an economic recovery program, but is 

essential to restoring an American economy that is strong, sustainable and internationally competitive, but also one whose prosperity is broadly shared. 

And finally, although it is not the subject of today’s hearing, Congress must find 

away to address the continuing decline in housing prices, the proximate cause of the 

credit market crisis and the current recession. RealtyTrac reports a record 775,000 

foreclosures in the third quarter, a 71 percent increase from the same period last 

year. Whether a part of an economic recovery package, or parallel to it, the Congress must address the housing crisis with an aggressive program to keep families 

in their homes. The AFL-CIO has long supported a moratorium on foreclosures and 

action to allow the terms of mortgages on primary residences to altered in the bankruptcy process. Given the scale of the housing crisis, and the central role it plays 

in resolving the credit crisis and mitigating the employment effects of the recession, 

even more aggressive steps should be considered to restructure mortgages more 

broadly. 

Other panelists will address more specific recommendations for the composition 

of an economic recovery program, but I am prepared to offer the views of the AFLCIO on these suggestions in answer to the Committee’s questions. 

Thank you again for the opportunity to be with you today and share the views 

of the American labor movement. 

Chairman MILLER. Mr. Bernstein. 

STATEMENT OF JARED BERNSTEIN, LIVING STANDARDS 

PROGRAM, ECONOMIC POLICY INSTITUTE 

Mr. BERNSTEIN. Chairman Miller, Ranking Member McKeon and 

members of the committee, I thank you for the chance to testify on 

this urgent topic. As other panelists have covered the current conditions, I will focus on two other points: First the impact of recessions on incomes; and, second, policy options intended to address 

the downturn and offset these negative effects. 

Due to the factors Ron just talked about, including job loss, fewer 

hours and slower wage growth driven by the weaker labor market, 

incomes usually fall in recessions. Moreover, as recoveries following 

the two previous downturns, the 1991 and the 2001 recessions were 

both weak, both were labeled jobless recoveries, family incomes fell 

in the early years of these recoveries as well. 

These dynamics are plotted in figure 7 in my written testimony, 

which shows the trend in real average income of low and median 

income families in the first and third income quintiles. The peak 

year is either 1989 or 2000, the slide is up there now, and the 

years that follow include the recessionary period. Both of these recessions lasted 8 months and the first few years of recovery. 

15

Note that lower income families tend to experience greater income losses as these families response to labor market changes is 

more highly elastic. This is one reason why the real incomes for 

middle and low income families rose quickly in the latter ’90s when 

very different job market conditions prevailed and the labor market 

was uniquely tight. 

As others have noted, one prominent forecast predicts the rising 

unemployment through at least next year, reaching 8 percent by 

the end of 2009. Comparing this to a baseline of 4.6 percent in the 

next figure that prevailed in 2007, I expect that the increase in unemployment will lead to losses in the average income of low income 

families of 5 percent in real terms, about $900 in 2007 dollars. Poverty may increase from 12.5 percent to 14.3 percent. I expect the 

average income of the middle fifth to fall by about $2,500. As the 

figure reveals, these losses continue for a few years into the recovery. 

Turning to the recovery agenda, I note that public officials both 

at the Congress and Federal Reserve have historically acted to offset recessionary conditions. Both the Fed and the Treasury have 

been aggressively intervening in financial and credit markets and 

their efforts are beginning to show some thawing of the freeze in 

these markets. 

I view these as supply side interventions. That is, by opening up 

frozen credit lines, these actions are intended to clear supply lines 

of credit such as the borrowers and lenders will now lend at least 

somewhat more freely to each other. But in the absence of stronger 

demand, it is less likely these supply lines will be tapped. Thus, 

a demand side stimulus is warranted. 

What form should it take? I recommend a 1-year recovery pack- age in the neighborhood of 1 to 2 percent of GDP, $150 billion to 

$300 billion, targeted at infrastructure, State fiscal relief, unemployment insurance and food stamps. 

I do not stress direct payments to households, though these may 

be helpful as well. But by emphasizing rebates, the last stimulus 

package overlooked other important priorities, and these channels 

are likely to provide a bigger bang for each stimulus buck. 

A first priority should be to extend unemployment insurance benefits. Hiring freezes and layoffs have led to higher unemployment 

and at this point about a fifth of the jobless have been so for at 

least 6 months. Congress previously enacted an emergency unemployment compensation program, which provided up to 13 weeks of 

federally funded jobless benefits beyond the 26 weeks provide by 

States. 

The National Employment Law Project estimates that beginning 

in October, in early October, 800,000 jobless persons began to exhaust their benefits and will be left without employment compensation. 

But Congress may want to go beyond the extension in two ways: 

Raising the benefit levels of UI compensation and extending eligibility to unemployed persons who currently need but do not qualify 

for benefits. 

Like unemployment insurance, food stamp expansion would also 

address a critical human need while generating a large multiplier 

effect. State fiscal relief was also left out of the last stimulus packVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK
16

age, and while last time Congress invested about $20 billion in 

State fiscal relief, it was helpful but it was enacted late in the 

game as was thus less effective. 

Finally, I urge this body to strongly consider including funding 

for infrastructure projects in a second package. A common argument against such investments in the context of a recovery package 

is that the water won’t get to the fire in time, that the implementation lag is so long it will be unable to inject growth quickly enough 

to aid the ailing economy. 

However, researchers at EPI have carefully documented current 

infrastructure needs that could be quickly converted into productive job producing projects. My written testimony lists many examples. I am happy to discuss them later. 

Thank you. 

[The statement of Mr. Bernstein follows:]

17


ber-1.eps
18


ber-2.eps
19


ber-3.eps
20


ber-4.eps
21


ber-5.eps
22


ber-6.eps
23


ber-7.eps
24


ber-8.eps
25


ber-9.eps
26


ber-10.eps
27


ber-11.eps
28


ber-12.eps
29


ber-13.eps
30


ber-14.eps
31

Chairman MILLER. Mr. Hansen. 

STATEMENT OF CHRIS HANSEN, PRESIDENT, AMERICAN 

ELECTRONICS ASSOCIATION 

Mr. HANSEN. Chairman Miller, members of the committee, good 

morning. Thank you for providing this opportunity to testify before 

your committee today. 

The subject of this hearing is extremely important to those of us 

in the high technology industry, which currently employs nearly 6 

million people in the United States. The average wage of those U.S. 


ber-15.eps
32

workers is 87 percent higher than the average U.S. private sector 

wage. In other words, high-tech in the U.S. is providing the kind 

of good, high-paying jobs that America wants to keep. 

I have three recommendations that I would like to make about 

the stimulus program that we would ask that Congress consider. 

The first, Chairman Miller, is actually the same thing that you 

mentioned in your statement about broadband deployment and infrastructure. Advanced networks will allow increased opportunities 

for the creation of even more highly skilled jobs, to invent new 

products and improve existing ones in the vital areas of energy, 

health care, education, public safety and services. These are the 

jobs of the future. 

AEA research shows that the United States now trails 15 other 

major countries in terms of broadband connectivity. Internet speed 

is the determining factor in promoting technology-based economic 

growth. The median download speed in Japan is 30 times faster 

than it is here, while Japanese pay about the same as we do for 

their significantly faster Internet connection. Telemedicine, 

telework, rural development and job creation are all predicated on 

having large numbers of people in disparate regions having access 

to fast, secure Internet service. We don’t want to lose any more jobs 

or economic growth opportunities to overseas economies that have 

faster, more developed networks. 

My second recommendation will be very familiar with you, Mr. 

Chairman, since it was included in the Democratic Innovation 

Agenda and it was also highlighted in President Bush’s American 

Competitiveness Initiative, and that is that America must continue 

to invest in government-funded research in the physical sciences. 

The goal of the America Competes Act was to honor the commitment of both political parties to double funding for the National 

Science Foundation, the Department of Energy’s Office of Science 

and the National Institute of Standards and Technology. I would 

note that both presidential candidates support such an increase as 

well. 

Unfortunately, the funding level for these organizations has remained relatively flat for the last 2 years. The economy and the 

American people need the kinds of breakthroughs that these agencies provide in environmental technologies, alternative energy 

sources and communications technologies that will enable wider 

use of medical health records, E-prescriptions and remote diagnostic procedures. This recommendation, Mr. Chairman, is not just 

about future ‘‘dot’’ jobs. R&D funding is about the job pipeline now 

and into the future. We can’t afford to see these high-end research 

jobs disappear. 

My third recommendation for crafting a new economic recovery 

package is to quickly increase liquidity and stabilize the U.S. economy by temporarily reducing the effective corporate tax rate for foreign earnings repatriated back to the United States. 

The United States corporate tax system discourages companies 

from reinvesting their foreign earnings back into the U.S. And enacting such a provision would encourage companies to bring back 

overseas capital at a time when our companies are facing a difficult 

credit crunch. This would infuse the U.S. economy with funds needed to create new jobs and spur new investments. 

33

As The Wall Street Journal pointed out on July 1st of this year, 

the capital infusion that resulted from the 2004 repatriation may 

be the reason why U.S. investment rose 9.6 percent in 2005. When 

this policy was enacted in 2004, at least $360 billion was brought 

back into the United States, generating billions of dollars in Federal tax revenues. This far exceeded the government’s expectations. 

Instead of receiving 35 percent of nothing, since companies are now 

incentivized to keep their cash abroad, the U.S. Treasury received 

5.25 percent of billions of dollars brought back into the United 

States. This benefited our companies, our economy and the U.S. 

Treasury, and it is precisely the type of provision that we need 

today. 

Mr. Chairman, I congratulate you on conducting this hearing. It 

is very important to the future of American jobs and our economy, 

and I am grateful to have the opportunity to testify before you 

today. I will look forward to answering questions as appropriate. 

Chairman MILLER. Thank you very much. 

[The statement of Mr. Hansen follows:]

Prepared Statement of Chris Hansen, President, American Electronics 

Association 

Chairman Miller, Ranking Member McKeon, Members of the Committee, good 

morning. My name is Chris Hansen, and I am the President and CEO of AeA, which 

the nation’s largest high-tech trade association. I know you are both very familiar 

with AeA, and I would like to thank you for this opportunity to testify before your 

Committee to provide our perspective on your efforts to lay the groundwork for a 

comprehensive economic recovery and job creation program. This subject is important to us in the high-tech industry, which currently employs nearly six million people in the United States. And the average wage for those US workers is 87% higher 

than the average private sector wage. In other words, high tech in the US is providing the kind of good, high-paying jobs that America wants to keep. 

I have three recommendations for any stimulus program that Congress might consider. First, under the category of infrastructure, we need even greater deployment 

of high-speed broadband networks in the United States. Advanced networks will 

allow increased opportunities for the creation of even more highly skilled technology 

jobs to invent new products and improve existing ones in the vital areas of energy, 

health care, education, public safety and services. These are the jobs of the future. 

AeA research shows that the United States now trails 15 other major countries 

in terms of broadband connectivity. Internet speed is the determinative factor in 

promoting technology-based economic growth. The median download speed in Japan 

is 30 times faster then it is here, while Japanese pay about the same as we do for 

their significantly faster Internet connection. Telemedicine, telework, rural development and job creation are all predicated on having large numbers of people in disparate regions having access to fast, secure Internet service. We do not want to lose 

any more jobs or economic growth possibilities to overseas economies that have faster, more developed networks. And the government has a critical role to play. Just 

one example: it was government research 40 years ago that ultimately led to the 

development of the Internet. That development created a major industry in this 

country and created incredible benefit to Americans and populations worldwide. 

My second recommendation will be very familiar to you, Mr. Chairman, since it 

was included in the Democratic Innovation Agenda and was also highlighted in 

President Bush’s American Competitiveness Initiative. America must continue to invest in government-funded research in the physical sciences. The goal of the America Competes Act was to honor the commitment of both political parties to double 

funding for the National Science Foundation, the Department of Energy’s Office of 

Science, and the National Institute of Standards and Technology. I would note that 

both presidential candidates support a funding increase. For many reasons, the 

funding level for these organizations has remained relatively flat for the last two 

years. The current Continuing Resolution calls for no increase in funding. America 

needs the vital research that these government agencies promote. The economy and 

the American people need the kinds of breakthroughs that these agencies provide 

in environmental technologies, alternative energy sources, and communications 

34

technologies that will enable wider use of medical health records, e-prescriptions, 

and remote diagnostic procedures. 

This recommendation, Mr. Chairman, is not just about future jobs. R&D funding 

is about the job pipeline now and into the future. Our best and brightest need to 

know that cutting-edge jobs are waiting for them and that they’re available now. 

We cannot afford to see these high-end research jobs disappear. We need our best 

people working now to create the technologies and innovations for the future. 

My third recommendation for crafting a new economic recovery package is to 

quickly increase liquidity and stabilize the US economy by temporarily reducing the 

effective corporate tax rate for foreign earnings repatriated back to the United 

States. The United States’ corporate tax system discourages companies from reinvesting their foreign earnings in the United States, and enacting such a provision 

would encourage companies to bring back overseas capital at a time when companies are facing a difficult credit crunch. This would infuse the US economy with the 

funds needed to create new jobs and spur new investments. As the Wall Street Journal has pointed out (7/1/2008), the capital infusion that resulted from the 2004 repatriation provision may be the reason why US investment rose 9.6% in 2005. 

When such a policy was enacted in 2004, at least $360 billion was brought back 

into the United States, generating billions of dollars in federal tax revenues. This 

far exceeded the government’s expectations. Instead of receiving 35% of nothing, 

since companies are now incentivized to keep their cash abroad, the US Treasury 

received 5.25% of the billions of dollars brought back to the United States. This benefited our companies, our economy, and the US Treasury, and it is precisely the type 

of provision we need today. 

Mr. Chairman, congratulations on conducting a hearing of this kind. It’s very important to the future of American jobs and the economy. I’m grateful for the opportunity to testify today, and I look forward to any questions you might have. 

Chairman MILLER. Dr. Pollin. 

STATEMENT OF ROBERT POLLIN, PROFESSOR OF ECONOMICS 

AND CO–DIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE, UNIVERSITY OF MASSACHUSETTS–AMHERST 

Mr. POLLIN. Thank you, Chairman Miller and Ranking Member 

McKeon. 

As the other panelists have already emphasized, it is imperative 

to take action now to combat what is quickly metastasizing into a 

general economic crisis off of the financial crisis; that is, a general 

crisis with respect to jobs, private business investments, budgets of 

State and local governments. 

The Federal Government has already, of course, committed unprecedented resources to stabilizing the financial sector, but we 

haven’t done enough to advance an effective stimulus to address 

problems in the real economy. This must be done now and it must 

be done in the most efficient possible way. 

What do I mean by most efficient possible way? Three criteria: 

Number one, we must get the maximum amount of employment 

gain for a given amount of spending, the biggest bang for the buck. 

Second, the targets must be such that the short-term injections 

also create long-term gains for the economy. 

Third, we have to continue the fight against global warming. 

I was here testifying a month ago on a hearing before the Committee on the Environment and Climate Change, and one of the 

speakers said, well, we have to put aside these issues about the environment. 

Quite the contrary. I argue that addressing issues about the environment is a very effective way for also addressing the jobs crisis. 

In fact, part of my testimony draws on a study that I published last 

35

month called Green Recovery that was put out by the Center For 

American Progress. 

Okay, the focus of the investments that I emphasize in my testimony are three: Educational services; public infrastructure, including transportation infrastructure, water management and institutional structures such as educational buildings; and, three, green 

investments. That combination of expenditures, as I show in my 

testimony, is by far, the most efficient way of creating jobs. 

If we look at table 1 in my testimony, just to go quickly through some numbers, educational services for $1 million of expenditures 

creates 23.1 jobs; public infrastructure, 17.2 jobs; green investments, 16.7 jobs. Now, the next highest in the categories is the 

kind of tax cuts that you enacted in April, 14 jobs. By contrast, oil 

and gas industry expenditures is going to create about 4 jobs. 

Now, where why do we get these very, very large disparities in 

job creation? There are two factors. Number one is relative labor 

intensity. When you spend a given amount of money, how many 

jobs are created, as opposed to buying supplies or buying imports? 

Secondly is domestic content. The domestic content of investments in infrastructure, in education, in the green economy, are all 

retained within the United States. By contrast, as we know, on average, any dollar spent in the U.S. economy, 17 cents goes out into 

imports. So we need to focus on things that are going to be retained 

within the U.S. economy. Now, if we do a $150 billion program that is roughly the same 

size as the stimulus of last April, what we would see, as I show 

in my testimony, is that you will get nearly 3 million jobs created 

through a combination of educational services, public infrastructure 

and green investments. That is roughly double the amount of jobs 

for the same amount of dollars for expenditures to tax cuts for 

household consumption, military spending and oil and gas industry. 

Now, can these investments be done quickly enough? Jared spoke 

to that, and my own testimony also addresses that. Of course, some 

things are more long-term, but there are other things that can be 

done very, very quickly, including reversing the cuts in educational 

services, including building retrofits, such as this building. There 

are long-term benefits through public infrastructure and green investments. I discuss that in some detail in my testimony. 

But one of the things that we show is that the average expenditure for public investment fell in the last 30 years to 2.4 percent 

growth versus 3.8 percent growth from 1950 to 1980. Bringing it 

back to even 3.4 percent would generate about $40 billion of GDP 

per year. 

Finally, how do we pay for all this? Of course, the first way we 

pay is through the fiscal deficit. The deficit is large. It is not unprecedented. The deficits under Reagan were still bigger. 

I would also finally add that given the financial crisis now, the 

interest rates on Treasuries is extremely low because the risk-premium on everything else is so high. Treasuries are the most desirable financial asset in the markets. Therefore, the interest that we 

would pay, the U.S. Government would pay, is extremely low now. 

For example, T-bills are at 0.05 percent. Even 3-year Treasury 

bonds, 1.9 percent. So we can borrow now for a much lower rate 

36

than we would have even 1 year ago. That makes pursuing a fiscal 

deficit much more affordable than it would be otherwise. 

Thank you. 

Chairman MILLER. Thank you. 

[The statement of Mr. Pollin follows:]


poll-1.eps
37


poll-2.eps
38


poll-3.eps
39


poll-4.eps
40


poll-5.eps
41


poll-6.eps
42


poll-7.eps
43


poll-8.eps
44


poll-9.eps
45


poll-10.eps
46


poll-11.eps
47


poll-12.eps
48


poll-13.eps
49


poll-14.eps
50


poll-15.eps
51


poll-16.eps
52

Chairman MILLER. Mr. Beach. 

STATEMENT OF WILLIAM BEACH, DIRECTOR, CENTER FOR 

DATA ANALYSIS, THE HERITAGE FOUNDATION 

Mr. BEACH. Mr. Chairman, Ranking Member McKeon and other 

members of the committee, it is a pleasure to be with you this 

morning to testify on behalf of a dimension which has been mentioned, but I think I am going to mention a little more, and that 

is how can we use the tax window to actually expand jobs and 

stimulate the economy. 

The main question we have before us is what should Congress 

do? I recommend that Congress address economic policies that realVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK

poll-17.eps
53

ly do create good-paying jobs in three interrelated areas, all of 

which affect near-term and long-term economic performance; a tax 

policy, energy policy and long-term spending. I am going to focus 

most on the first and the second. 

Investors are driven in general by comparative rates of return 

when making investment decisions between various opportunities. 

If two business opportunities are possible, but one has a better rate 

of return than the other, then the investor will choose the superior 

opportunity, the one with the higher rate of return. 

Suppose, though, that outside factor intervene, a flood, a war, 

regulatory changes, and this otherwise superior investment now 

carries more risk than the inferior one. The investor discounts the 

rates of return for the greater amount of risk, and if the rate of 

return on the first opportunity is still superior, the investor chooses 

the same opportunity. If, on the other hand, the risk is too great 

to choose the otherwise superior opportunity, the investor may take 

the more cautious approach of avoiding risk and placing funds in 

the opportunity with the otherwise lower rate of return. 

So what can increase risk? Of course, there are many factors. If 

we are talking about the situation today in the markets, risk is 

enormous. But public policy commonly really looms very, very 

large. Tax increases, especially if they are on capital, increase the 

cost of capital and lower investment returns. When investors are 

uncertain about whether taxes will increase or stay the same, they 

can still act as though taxes have risen if they judge the risk of 

an increase to be nearly equal to the actual increase. And rising 

uncertainty can have the effect of driving down investments, making an economy that is weak even weaker, so I say. 

Among the first actions that Congress can take is in addressing 

the current slowdown, and, of course, the slowdown in employment, 

is to pronounce definitively on the tax increases scheduled for 2009 

and 2011. There are projects, new businesses and expansions of existing businesses that would be undertaken today if Congress signaled that taxes would be lower in 3 years. But if you decide not 

to do that, at least signal the direction that you are going to go in 

order to reduce risk. 

Then there are some other ideas that Republicans and Democrats have commonly joined hands together in the past to do, accelerated depreciation and bonus expensing. We know from past experience that accelerating the tax depreciation of capital equipment 

and buildings or 1-year expensing of business purchases that otherwise would be depreciated over a longer period of time is excellent 

in terms of jumping the economy. This is certainly the record in the 

last slump. 

Taxes on capital gains and dividends. We also have recent experience with reducing the tax rate on long-term capital gains and on 

dividend income. If Congress were to reduce the tax rates by 50 

percent for the next 2 years, the cost of capital to businesses would 

fall and investments stability would be enhanced. Indeed, if Congress were to approve a temporary zero capital gains tax rate for 

new stock issues, troubled banks could raise more capital from the 

private markets, as opposed to going every other day to the Treasury for a handout. 

54

If Congress were to make the tax reductions of ’01 and ’03 permanent and lower the corporate profit rate from 35 to 25 percent, 

which I think is an excellent idea and I join Mr. Hansen in corporate tax rate reduction, I estimate the following economic effects 

would ensue: More jobs. By making the 2001 and ’03 tax reductions 

permanent and reducing the corporate profits tax rate by 1,000 

basis points, we estimate an average of 2.1 million more jobs would 

be created on average over the next 10 years. Indeed, 3.4 million 

jobs would be created based on the current baseline in 2018 alone. 

Overall economic activity would rise. These tax changes dramatically increase the level of national output and the growth rate of 

the economy increases a full half percentage point in 2011 and 

2012 when taxes would otherwise increase. 

More after-tax household spending. These tax changes dramatically improve household income, partly because the economy is so 

much healthier and partly because the average tax burden falls. 

The average household would have about $5,140 additional to 

spend after taxes. In 2018, the end of our forecast period, that rises 

to $9,7509 after inflation and after the payment of taxes. 

In the last 2 seconds, I would like to mention that I also, like 

Dr. Bernstein, have a new book. It is a good time to mention it 

here. This one goes directly to the issues that are before this committee, and it was published by Pugh Charitable Trust on a grant 

that we have, and it is ‘‘The Indicators of Economic Mobility: What 

You Can Do to Invest in People and Families to Make Sure That 

the Next Generation is Better Off Than the Current Generation.’’

Thank you very much. 

[The statement of Mr. Beach follows:]

Prepared Statement of William W. Beach, Director, Center for Data 

Analysis, the Heritage Foundation 

The stock market turmoil that has captured everyone’s attention is rooted in the 

ongoing crisis in credit markets and aggravated by the slowdown in general economic activity that stems from the ills of the financial sector. It is all the more spectacular by the extraordinary highs and lows that equity markets are recording. It 

almost seems that what is truly predictable about today’s investment markets is 

just how unpredictable they have become. 

Yet, the current situation on Wall Street and in bourses around the world is not 

altogether new territory. We have experienced amazing changes in stock market indexes before, and we have seen recovery in each instance. What is new to everyone 

except the very few who can remember market activity during the early 1930s is 

the high level of risk aversion that surrounds virtually every transaction. The 

LIBOR/Fed funds spread, a reliable measure of risk, has reached record levels in 

the past four weeks; and the Federal Reserve lost all control of their Fed funds target rate in the middle of September and has failed as of yet to recapture it. (See 

the attached Figures 1, 2, and 3.) Despite some of the boldest moves ever made by 

the government of the United States to tame these fears, a high intolerance to risk 

continues. 

We are at an odd moment in the evolution of these economic challenges: there is 

great hope but little evidence that the credit market fixes will work; and there is 

increasing concern but, again, little evidence that the financial crisis will push the 

general economy into a severe recession. My own sense is that we have passed into 

a mild recession that could become significantly worse and long-lived if Congress 

and other governments make wrong or ineffective policy decisions. Recessions that 

begin in credit markets last longer than those that stem from shocks to aggregate 

demand or supply. This one appears that it could be with us for a long while unless 

we execute highly effective actions to reduce its impact. As we learned from the last 

recession, recovery in the nation’s job markets can take a great deal longer than 

the recovery in output or in the financial sector. 

55

There is also an increasing awareness that the roots of the current crisis are firmly planted in public policy mistakes, which includes excessive liquidity produced by 

decisions by the Federal Reserve. The engaged public appears to understand that 

staunching the current flow of bad economic news requires that the root causes of 

this crisis be handled. Congress and the past two Administrations bear responsibility for expanding the spectrum of home mortgages into segments of the population that were not ready for the financial responsibilities of mortgage credit. The 

Fed bears responsibility for fueling the feverish pace of speculation surrounding 

mortgages, and regulatory bodies must own up to their failure to rein in these market excesses. 

Congress also finds itself at the center of debate over how best to respond to the 

deepening economic slowdown. Indeed, there is widespread expectation that the 

House and Senate will send the President legislation very soon to stimulate the 

economy. Many who find themselves out of work or have experienced declines in 

their incomes or businesses doubtless look forward to congressional action. Now, the 

question is, what should Congress do? 

As I will argue later in my testimony, Congress obviously should do nothing to 

harm the economy; it should let the Federal Reserve lead the effort to stabilize economic activity; and it should keep its focus on crafting long-term, pro-growth economic policy. Most importantly, Congress should make no change to basic policies 

that would signal increases in risk either through raising taxes or through increasing burdensome regulations. It also should be extremely wary of any legislation that 

could in any way be interpreted as America withdrawing from international product 

or capital markets. Congress can ill afford to repeat the awesome errors of its predecessor in the early days of the Great Depression and retreat from the world economic stage. 

Congress should take this moment of slow growth to do what it does best: set 

broad economic policy. In this instance, Congress should concentrate on signaling 

to investors and workers alike that its principal focus will be on improving progrowth economic policy, mainly in the areas of tax, regulatory, and spending policies. Serious work by the Congress in these areas will create greater predictability 

for investors and business owners and assure workers that they will have a better 

chance of improving their wages through increased productivity. Efforts to enhance 

the long run may very well have immediate, short-run benefits as economic decision 

makers reduce the risk premium they place on starting new businesses or expanding existing enterprises. 

I recommend that Congress address economic policies in three interrelated areas, 

all of which affect near- and long-term economic performance: (1) tax policy, (2) energy policy, and (3) long-term spending. 

Nearly every significant general slowdown in economic activity is a good time for 

congressional policymakers to ask: Are we doing everything we can to support longterm economic growth? That is, slowdowns are good opportunities to return to policy 

fundamentals and ascertain that Congress has explored all possible avenues and 

acted upon them to allow the economy to grow. 

I am convinced the Congress is not the best policymaking body for addressing the 

short-run challenges of the economy. That role is better played by the Federal Reserve System. So much of Congress’s activity is tied to the budget and appropriation 

processes, which take time to reach legislative results. Moreover, Members of Congress frequently do not have the time or background for keeping pace with financial 

markets, the ebb and flow of economic data, and the actions of economic institutions 

in the same way as the Fed, or even as the economic agencies of federal and state 

governments. These institutional factors explain why congressional action often occurs after the need for action has expired and why the actions it takes often are 

not as targeted as deemed necessary. 

However, there are areas of economic policy where congressional action can be 

timely and targeted, though it may not intend to be short-range in focus at all. 

Those areas involve the reduction of investment risk. 

Investors are driven, in general, by comparative rates of return when making investment decisions between various opportunities. If two business opportunities are 

possible but one has a better rate of return than the other, then the investor will 

choose the superior opportunity—the one with the higher rate of return. Suppose, 

though, that outside factors intervene (a flood, war, regulatory changes) and this 

otherwise superior investment now carries more risk than the inferior one. The investor discounts the rates of return for the greater amount of risk, and if the rate 

of return on the first opportunity is still superior, the investor chooses that same 

opportunity. If, on the other hand, the risk is too great to choose the otherwise superior opportunity, the investor may take the more cautious approach of avoiding risk 

and placing funds in the opportunity with the otherwise lower rate of return. 

56

1Matthew Knittel, ‘‘Corporate Response to Accelerated Tax Depreciation: Bonus Depreciation 

for Tax Years 2002—2004,’’ U.S. Department of the Treasury, Office of Tax Analysis, Working 

Paper No. 98, May 2007. 

Tax Policy Changes 

What can increase risk? Many factors, of course, but public policy commonly looms 

large. Tax increases, especially if they are on capital, increase the cost of capital and 

lower investment returns. When investors are uncertain about whether taxes will 

increase or stay the same, they still can act as though taxes have risen if they judge 

the risk of an increase to be nearly equal to an actual increase. And rising uncertainty can have the effect of driving down investments in riskier undertakings. 

Make the tax reductions of 2001 and 2003 permanent: Thus, among the first actions Congress can take to address the current slowdown is to pronounce definitively 

on the tax increases scheduled for 2009 and 2011. There are projects, new businesses, and expansions of existing businesses that would be undertaken today if 

Congress signaled that taxes would be lower in three years. Since nearly all major 

capital undertakings last beyond this three-year period, it is likely that making all 

or most of the Bush tax reductions permanent would stimulate economic activity 

today as well as in 2011. 

I am probably not the only one here today who knows of businesses that are preparing now for higher taxes in 2011. They are preparing themselves by reducing 

their riskier projects and providing for stronger cash flows in 2010. It is altogether 

possible that there are projects being cancelled today that would otherwise go forward if taxes were not scheduled to rise in 2011. At times like the present, the 

speech of policymakers is as important as the policy actions they take. The decision 

makers in business and investment are watching Washington closely to discern the 

direction Congress will take in responding to this crisis. If that direction includes 

tax increases, then investors will find more favorable economies to support and business owners will, as much as they can, locate their expanded activities in other 

countries with more favorable tax regimes. 

Thus, Congress should signal today what it plans to do on taxes in two or three 

years. For my part, I urge the Congress to make permanent the key provisions of 

the 2001 and 2003 tax law changes. Maintaining lower tax rates on labor and capital income will encourage both labor and capital to work harder now when we need 

that greater activity. 

Accelerated depreciation: In addition, we know from past experience that accelerating the tax depreciation of capital equipment and buildings or one-year expensing of business purchases that otherwise would be depreciated over a longer period 

of time for tax purposes can help during periods of slow growth. This was certainly 

the record in the last slump.1

Taxes on capital gains and dividends: We also have recent experience with reducing the tax rate on long-term capital gains and on dividend income. If Congress 

were to reduce these tax rates by 50 percent for the next two years, the cost of capital to businesses would fall and investment stability would be enhanced. Indeed, 

if Congress were to approve a temporary zero capital gains tax rate on new stock 

issues, troubled banks could raise more of the capital they desperately need without 

having to go to the Treasury Department. 

Lower the corporate profits tax: In one area of fundamental tax policy there is 

now nearly universal agreement: our federal business taxes are far too high. The 

tax rate on corporate profits is the second highest in the world. Why is it not the 

firm policy of the government of this country to ascertain that the corporate profits 

tax is always below the average corporate income tax of other industrialized countries? Such a policy would enhance our competitive standing worldwide and significantly reduce the incentive for U.S. firms to relocate to lower tax countries. 

The current high rate affects the location decisions of businesses that end each 

tax year with taxable income and every business decision by taxable and non-taxable corporations who estimate the costs of buying new equipment and expanding 

operations. Congress should follow the lead of its Ways and Means Chairman and 

decrease the income tax on corporations. In fact, it should dramatically drop that 

rate. 

If Congress were to make the tax reductions of 2001 and 2003 permanent and 

lower the corporate profits tax from 35 to 25 percent, I estimate the following economic effects would ensure: 

• More jobs: By making the 2001 and 2003 tax reductions permanent and reducing the corporate profits tax by 1000 basis points, an annual average of 2.1 million 

more jobs are created. Indeed, 3.4 million jobs above a current law baseline are created in 2018 by newly energetic businesses. 

57

2See Karen A. Campbell, ‘‘How Rising Gas Prices Hurt American Households,’’ Heritage 

Foundation Backgrounder No. 2162, July 14, 2008, at http://www.heritage.org/Research/Economy/bg2162.cfm. A copy of this report is attached to this testimony as Appendix 1. 3See Jonathan E. Hughes, Christopher R. Knittel, and Daniel Sperling, ‘‘Evidence of a Shift 

in the Short-Run Elasticity of Gasoline Demand,’’ National Bureau of Economic Research Working Paper No. 12530 (September 2006). 

• Overall more vigorous economic activity: These tax changes dramatically increase the level of national output. The growth rate of the economy increases a full 

half percentage point in 2011 and 2012, when taxes will otherwise increase under 

current law. The annualized growth rate jumps by 0.3 of a percent, and Gross Domestic Product averages $284 billion more over a 10-year forecast window than 

would prevail under current law. By 2018, GDP is $321 billion higher. 

• More after-tax household spending: These tax changes dramatically improve 

household income, partly because the economy is so much healthier and partly because the average tax burden falls. The average household would have $5,138 dollars more to spend or save after paying their taxes. By 2018, this amount is $9,750 

(after subtracting inflation). 

Do not depend on demand-side stimulus: Demand-side stimulus (tax rebates, the 

child tax credit, and the 10 percent tax bracket) do little to change the course of 

the sluggish economy. Certainly for tax rebates we have just passed through a laboratory experiment of sorts. President Bush signed legislation earlier this year that 

gave each taxpayer a $600 tax rebate ($1,200 for married taxpayers). Congress 

hoped that these rebates would stimulate consumption and prevent the economy 

from falling into a recession. While the jury is still out on this experiment, initial 

and supporting evidence for this view looks very thin. 

More than likely, the tax rebate of 2008 will join those of 2001 in falling well 

below expectations as a way to stimulate the economy or move it from a prolonged 

sluggish growth trend. Indeed, the contraction in investment, and thus job creation, 

did not begin to improve until after the 30 percent partial expensing in the 2002 

act and the 50 percent partial expensing in the 2003 act, which also cut the tax 

rates on dividend and capital gain income. Congress has enacted depreciation and 

expensing stimulus plans under Republican and Democrat majorities. 

Energy Policy 

Rapidly increasing prices for gasoline and petroleum-based energy generally 

slowed the economy, helped bring about our current recession, and their effects continue to impede job and income growth. If Congress acts to expand energy supplies, 

forward-looking prices will fall and economic activity will shed off the drag that 

stems from this sector. 

Let me illustrate. Economists working with me in the Center for Data Analysis 

at Heritage estimated the economic effects of a $2.00 increase in retail unleaded 

gasoline.2 We have just experienced such an increase over the past 14 months. We 

found that 

• Total employment falls by 586,000 jobs 

• After-tax personal income falls by $532 billion 

• Personal consumption expenditures fall by $400 billion, and 

• Significant personal savings would be spent to pay for the increased cost of gasoline. 

These national level results reflect the economic effects of price changes. That is, 

disposable income falls because the economy slows below its potential. In addition, 

households must spend more in gasoline. 

We looked at the economic effects on three types of households. Let me describe 

the effects on one of these: a married household with two children under the age 

of 17. For this household, disposable income falls by $1,085; purchases of goods and 

services falls by $719; and $792 is taken out of personal savings just to pay the gasoline bill. 

Some analysts argue that gasoline consumers can adapt to higher prices by 

changing their driving patterns and their automobiles. However, new research by 

Jonathan Hughes, Christopher Knittel, and Daniel Sperling (all from the University 

of California-Davis) shows that families today have little opportunity to quickly 

adapt to higher prices. Most working families have two income earners who commute by automobile to work. They live in suburbs away from mass transit opportunities. Their children have extensive after-school activities to which they are transported more often than not in an SUV. Today’s short-term price and income elasticities are a full ten times smaller than those estimated using data from 20 years 

ago.3

58

These lower elasticities mean that it is much harder for consumers to adapt to 

gasoline price shocks today than two decades ago. For most, their primary option 

is to reduce their consumption on other items and take funds out of savings to pay 

for the higher priced gas. Doing so, of course, slows the economy and affects everyone for the worse. 

There are many economic problems facing Congress, from slowing global economic 

activity to persistently bad news from our financial sector. Congress can act on some 

of the economic fronts before it, but its ability to affect the nation’s economic future 

is limited. On energy, however, its actions to increase supplies in the short and long 

run could accomplish some good, particularly for workers looking for jobs and families hoping to keep their children in violin lessons and little league baseball. 

I am a free trader who believes imports are central to our economic vitality and 

future economic strength. However, our heavy reliance on foreign oil producers (imported oil now constitutes over 60 percent of our daily petroleum demand) has made 

us subject to price variations due to supply disruptions, supply extortion, and booming world demand. I believe that increasing the domestic production of petroleum 

and refined oil products would have a positive effect on our domestic economy, largely through creating more jobs and income. 

In another study prepared by economists in my Center, we asked what would be 

the economic effects of increasing domestic production of petroleum by 10 percent. 

The U.S. currently consumes 20 million barrels per day, of which around 65 percent 

originate from foreign sources. If domestically sourced petroleum increased by 2 million barrels per day, what would be the economic effects. 

Our analysis indicates that such an increase would 

• Expand the nation’s output as measured by the Gross Domestic Product by 

$164 billion and 

• Increase employment by 270,000 jobs. 

Congress exercises enormous authority over petroleum mining, largely through its 

regulation of off-shore and federal land oil reserves. Authorizing more oil mining in 

these reserves today would begin to wean the U.S. from the economically harmful 

reliance on such high amounts of foreign petroleum. 

One of the more tragic features of recent energy policy actions by Congress is how 

often it has failed to increase access to energy resources on the grounds that doing 

so would not have any effect on supply or price for years. While possibly correct 

from an engineering standpoint, this excuse for inaction makes no sense economically. If Congress were to announce greater access to proved reserves, mining activity would immediately begin, capital and talent would leave other parts of the world 

and travel to the United States, forward pricing markets would feel the downward 

pressure on prices that impending supply increases make, and ordinary Americans 

would not discount their own economic futures as much as they do today. 

Spending Policy 

Increase confidence in the U.S. economy by addressing long-term spending challenges. While the attention of most policymakers will be on immediate responses to 

the current slowdown, everyone should attend to a factor that is increasingly important to confidence in the U.S. economy: the seeming unwillingness of Congress to 

seriously address the enormous financial challenges from entitlement spending. 

Many investors and organizations that play key roles in the future of the U.S. economy are worried about long-term growth given the fiscal challenges posed by Social 

Security’s and Medicare’s unfunded liabilities. The Financial Times recently reported that Moody’s lead analyst for the U.S. warned that the credit rating agency 

would downgrade U.S. treasury government debt if action was not soon taken to fix 

entitlements. 

Thus, at a time when the economy is slowing and the voice of Congress, as well 

as its actions, can affect economic activity, policymakers should take concrete steps 

that will announce their intention to address unfunded liabilities in these important 

programs. While reforms in these programs may be beyond what this Congress can 

accomplish, it is possible to signal change by reforming the budget rules. 

Currently, the federal budget functions as a pay-as-you-go system, with a very 

limited forecast of obligations and supporting revenues. We just do not see in the 

official budget what may happen over the next 30 years. The five- and ten-year 

budget windows do not permit Members or the general public to sense the obligations that are coming beyond that ten-year time horizon. 

A good first step in addressing the long-term entitlement obligations of the United 

States would be to show these obligations in the annual budget. This could be done 

by amending the budget process rules to include a present-value measure of longterm entitlements. Such a measure would express in the annual budget the current 

dollar amount needed today to fund future obligations. Such a measure has been 

59

4See Stuart M. Butler, ‘‘Solutions to Our Long-Term Fiscal Challenges,’’ testimony before the 

Committee on the Budget, U.S. Senate, January 31, 2007. 

endorsed by a number of accounting professionals, including the Federal Accounting 

Standards Advisory Board. 

A solid second step would be to convert retirement entitlements into 30-year 

budgeted discretionary programs. Such a move recognizes that mandatory retirement funding programs for millionaires that crowd out discretionary spending programs for homeless war veterans do not make any sense at all. If we are to contain 

entitlement spending and reform the programs driving those outlays, then a paradigm shift likely will be required. Recognizing Social Security and Medicare as discretionary programs helps to force attention on changes that will assure their survival well into the 21st century.4

Chairman MILLER. Thank you very much to all of the witnesses 

for your testimony. 

Ms. Stevens, I there is kind of a dual message in this for you. 

One, it isn’t about you in the sense of your talents, your skills and 

your obvious presence. You are caught up in a much larger downturn in this Nation. But the bad news is you are caught up in a 

much larger downturn in this Nation that, as I said at the outset, 

is affecting millions of individuals like you who are going out every 

day making every effort to try to connect to a new employment opportunity, in-field, out-of-field, completely new, trying to provide for 

household income, and are finding it more difficult every day, not 

easier every day, more difficult every day, because your ranks are 

being joined by those who have involuntarily lost their employment, their jobs. 

I really want to thank you again for your testimony. I don’t know 

if you want to comment on anything you heard here as you are sitting here listening. I want you to feel free to do so. You can raise 

your hand later if you hear something you want to comment on, all 

right? You have special status as a witness. These guys raise their 

hands, they get nothing. You raise your hand, you will get recognized. 

Thank you again for your testimony. I would like to make a couple of comments and use my time. One is I don’t want to suggest, 

and Mr. Beach has touched upon that tax policy that is under consideration both within the leadership and certainly within the Congress. It is not the core of this committee’s jurisdiction. In fact, the 

other committee will argue it is not at all in our jurisdiction. But 

that will be determined too. 

As many of you commented on, we had the rebate policy earlier 

in the year. That is when people thought this was a different kind 

of problem for the economy. At that time, if you remember, people 

were still arguing it was going to be a V downturn, down sharply, 

up quickly; then it was going to be a U; and now we have this sort 

of elongated L that people now really no longer want to speculate 

on where the end of that is. They say 2009 out of convenience, but 

all of them immediately then tell you it could be longer. 

What we are starting to see is you have a situation in which 

money is rapidly being extracted from the economy, either because 

of the loss of wages, as Mrs. Stevens so incredibly testified to. We 

see the loss of investment being made. We see simply the loss of 

assets, the loss of equity. I think someone can correct me, but I 

think the number was over the last several years up until a year 

60

ago, we were pulling about $700 billion to $800 billion out of home 

equity, and most it was being spent in real time. That has ceased 

because obviously it is not available because of the credit crunch 

and people are too far in debt. 

This morning we look at the headlines and we see that General 

Motors and other employers are reducing their contributions to 

401Ks, they are reducing their contributions to health care, they 

are freezing their contributions on other benefits. That obviously 

has ramifications because people now see that their retirement 

funds will be less than they thought because the contributions will 

be less. We all love the miracle of compounded interest, but it 

works the other way too if you don’t take advantage of it. 

So people are really looking out at a situation where they will 

have fewer resources, and clearly they are not going into the market to spend them as they did in the past. Apparently, again from 

this morning’s papers, they are not going to restaurants, they are 

not going to stores, they are not going to the movies as often, they 

are not doing a lot of things, and the question is obviously for us, 

as you testified, is how do we get this to jump-start. 

Just as I can, without belaboring this because it really isn’t our 

jurisdiction, but this question of whether you get a bigger bang for 

tax cuts, we have had some discussions of this at the leadership 

amongst economists, or in this kind of public spending that you 

outlined. 

Jared or Mr. Beach, do you want to just talk on how you see 

that? 

Mr. BERNSTEIN. I will give you one statistic. Bill Beach suggested 

accelerated depreciation as a job creation measure. There is a very 

good, often cited authoritative study by the group 

moodyseconomy.com which looks at the bang for buck for all of the 

stimulative measures that we have discussed and all the others as 

well. 

I think there are 12 or 13 measures, and the very lowest on that 

list is accelerated depreciation, 27 cents per dollar of GDP investment. That is, invest a dollar in accelerated depreciation and GDP 

grows by 27 cents. Invest a dollar in unemployment insurance benefits and the bang for the buck is about $1.75. That is $1.75 for 

UI extension, 27 cents for accelerated depreciation. Food stamps is 

about $1.65. Infrastructure is about $1.60. As I said, all the way 

down that is accelerated depreciation. This is what I think is commonly referred to as supply side economics, and it has been shown 

to be uniquely ineffective in terms of job creation. 

Chairman MILLER. Mr. Beach? 

Mr. BEACH. Well, I have to dispute that. Absolutely. I wouldn’t 

be earning my buck if I didn’t. 

Every recession is a little different than every other recession. 

That is the first thing you as members must keep in mind very, 

very clearly. You hear testimony and people use averages and they 

say the typical recession. We are not in a typical recession. 

Chairman MILLER. No one is using the word ‘‘typical’’ at this 

stage of the game. 

Mr. BEACH. That is good, because I think that is the beginning 

of wisdom. This is a recession that started in credit markets. They 

always last longer if they are in credit markets. 

61

You can’t address this either with exclusively tax cuts or exclusively infrastructure. You have to do humanitarian things immediately; food stamps, unemployment insurance. Those are the sorts 

of things that you have to step forward and actually produce, because people will be hurting. But don’t bet the ranch on that getting you out of this recession. As important as those are, we need 

to stimulate two things simultaneously. 

On the one hand, we have to go into credit markets and reduce 

the cost of capital in such a way as to augment what the Federal 

Reserve and the Treasury are doing. You have a job of augmenting 

their mission. You don’t have a unique mission. You are a partner 

in all of this. 

Your part of this is to direct your members who are in Ways and 

Means and Finance on the Senate, in a positive move on the tax 

side. That has to be part of your picture. I think everybody on this 

panel has testified that rebates really didn’t work the last time. 

And you just nailed it, because we didn’t——

Chairman MILLER. In fact, rebates worked for the purpose for 

which they were instituted. Most people have testified they carried 

us through a quarter that we would not have gotten through with 

that growth. 

Mr. BEACH. About 30 cents of the dollar was spent. 

Chairman MILLER. I understand. That was for a different purpose. If you talk to the Secretary of the Treasury or President of 

the United States or leader of the House it was for a different purpose. 

Mr. BEACH. But now you know that the recession that you were 

addressing back in the spring is not the recession that you thought 

you were addressing. So it has to be a combination. And my mission here this morning is to say that the tax handles which Congress controls are powerful handles in the combination of public 

policy responses that must be made in order to move us into a 

shorter run as opposed to a longer run. And Dr. Pollin is holding 

up his hand. 

Chairman MILLER. Dr. Pollin, you are not going to talk on this 

point on my time, but you can talk about it later. But I wanted to 

ask you a question. 

One of the things that we have been told, and this includes Mr. 

Hansen’s group, and when we started the Innovation Project for 

the Democratic leadership that later became the COMPETES Act 

that passed and was signed, was we were told by people in the 

technology industry if you want a new generation of technology, invest in energy; that just as telecommunications drove a generation 

of technology, Craig Barrett said at one point this is where you 

would go, both for the future of the country in terms of balance of 

payments, foreign oil, dependency, all those other issues, and also 

the issue of whether or not you would drive a new generation of 

technology as you try to become a more efficient energy user. 

One of the interesting things I am going to ask you is you are 

sort of seeing a convergence here where if you do the public investment policy right in terms of green, energy efficiency, all of those 

characteristics, you start to see a confluence of benefits beyond the 

simple creation of the job. You start to see policy implications for 

foreign oil dependency, for energy use, for climate change. You 

62

start to see these other things kick in in terms of that investment 

policy. 

If you went over and invested in the broadband, you start to see 

not just simple job creation, but business creation. You start to see 

other opportunities that come from that. You may also see opportunities to cut down on commuting, to cut down on people traveling 

for the purposes of conducting businesses because they have those 

resources. I am just kind of interested in that in this hearing, and 

I will give you, Dr. Pollin, a chance to respond, and then I am 

going to go to Congresswoman Woolsey and we will start there. 

Mr. POLLIN. Thanks. Yeah, I mean, there are two basic ways to 

invest in a green economy that will have massive short-term benefits, as well as long-term benefits; and one is, of course, energy efficiency, and the other one is in renewable energy. 

The investments in energy efficiency, at this point, seem to me 

to be no-brainers. We are dealing with known technologies. Again, 

an example is retrofitting existing buildings. We can invest in retrofitting the public sector buildings starting tomorrow. There are 

800,000 construction workers who have lost their jobs. We can put 

them back to work. We can get these projects going. 

They’re relatively short-term projects and will pay for themselves. I mean, there are various—it depends on building types, but 

on average, you will see a full return on your investment within 

about 5 years, and you will create, you know, hundreds of thousands of jobs just from that alone. 

Now, with respect to renewable energy, in terms of tax credits, 

we do know that the renewable energy tax credits, which you had 

stalled and now you have restored, are very effective. The market 

is extremely responsive. We saw a doubling—the last time you held 

back on the renewable tax credits and then increased them, you 

saw a doubling, for example, in investments in wind energy. So 

those things are there before us. 

I do think that the first priority for now in terms of short-term, 

big kick into the energy area is energy efficiency. And you will get 

the most jobs, it will be done fast, the technologies are there, and 

you will fight global warming. You will increase energy independence. You will create a lever against future rises in the price of oil. 

Chairman MILLER. Thank you. 

Congresswoman Woolsey. 

Ms. WOOLSEY. Thank you, Mr. Chairman. Just to follow up on 

what Dr. Pollin just said, don’t forget national security when you 

make that list of what energy independence will make. 

Ms. Stevens, you’re delightful, you’re wonderful, and thank you 

for being here. 

Ms. STEVENS. Thank you. 

Ms. WOOLSEY. All the rest of us, everybody here needs to use Ms. 

Stevens right now as our example of a talented, smart, qualified individual who is out of trouble—I mean, out of work and in trouble. 

Imagine then what happens to the entry-level worker, the basic 

high school graduate if—the older worker who’s lost their job because, guess what, they got paid more than the middle-level worker, and they were one of the first to be let go. We have trouble all 

over. 

63

So my question is mainly to Mr. Pollin and Mr. Hansen: We’re 

talking about creating jobs. We’re talking about, certainly, infrastructure and 800,000 workers that are out of work and green technology jobs which are, I believe, the jobs of the future for the 

United States of America if we are wise enough and quick enough 

to step up to the plate and bring this technology home. It’s being 

created in your area, Mr. Hansen. Those are the brains. Let’s not 

give it away to a foreign country. 

Do we then—in our stimulus package, should we also include an 

education and training component that we will invest in? Not, 

probably, many of these 800,000 construction workers—they probably are not totally ready for the green technology changes to our 

buildings. I mean, they need some help. They need to learn some 

things. 

Ms. Stevens, use her as our example. How do we move her from 

the insurance industry into the green technology industry? I’m a 

human resources person, too. She can move any place; she’s very 

talented, believe me. But not everybody can. So we need—so should 

we in our stimulus package be including training and bringing existing workers into these new jobs? 

Mr. POLLIN. I think that——

Ms. WOOLSEY. Go ahead. 

Mr. POLLIN. Absolutely, the green sector is the future of this 

economy. We may not have any future unless we build that green 

sector starting now. 

At the same time, I want to emphasize that, yes, we do need 

training. We do need people to learn how to operate new kinds of 

work in buildings, in public transportation, and there’s a lot of research and development in renewable energy and using the Internet. 

At the same time, I want to emphasize, virtually all the employment that’s going to get created through green investments are for 

people doing things not that different than what they do now. 

There is this notion that the green investments is something esoteric. Part of it is esoteric. 

There are my colleagues at the University of Massachusetts, for 

example, that are researching new ways of using biofuels. That requires a lot of training, and it all may go bust; we don’t know. But 

there’s also a huge swath, the overwhelming majority of investments are in known technologies. There are people doing things 

that they are going to do otherwise. They are going to be roofers 

putting on solar panels. They are going to be machinists. They are 

going to be truck drivers delivering solar panels as opposed to oil 

pipe. 

So, yes, we do need the education and training component, but 

no, I don’t want people to have the impression that we will be stymied, we can’t get people into jobs now. We can. We can move 

things right now. 

Ms. WOOLSEY. In, particularly, existing infrastructure, roads and 

bridges. Those jobs are just sitting there waiting to go. 

Mr. Hansen. 

Mr. HANSEN. Well, I think the investment in education and 

training is extremely important. First of all, we have companies 

today that are looking for employees that have technology backVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK
64

grounds, and they can’t find them. A lot of that is, we need to educate people so that they are able to fill those jobs and do it here 

in the United States. 

We do a lot on—we do as an organization around the country in 

trying to promote STEM education, trying to work with organizations all across the country on creating programs to help get students and teachers more involved in STEM education. 

The other thing is, a lot of the research—R&D spending that 

we’re talking about with organizations like DOE and the National 

Science Foundation and NIST, that keeps a lot of technical professionals employed working on things that create job opportunities, 

also, in addition to keeping them employed. So the training aspect 

is huge. 

I’d also like to just add one other thing back on the energy R&D 

question because I think a lot of times people don’t really understand exactly all the things that come out of that kind of research. 

And I’ll give you one example out of our industry. If you look at 

an iPod, a lot of what’s in that iPod comes out of DOE research. 

You know, lithium ion batteries come directly from that kind of research. And all kinds of other things that pertain to the circuitry 

and the protection of those systems, I mean, it comes out of that 

research. 

We wind up storing a lot of things that sometimes we don’t have 

any knowledge that we’re going to create when we do those things. 

I could give you an example. I mean, it’s not exactly what we’re 

talking about. 

If you look at GPS technology that we use for a national security 

purpose, nobody really knew, even though the Air Force used to 

say that there would be some commercial utilization of that technology, they had no idea how broad that would be. 

Ms. WOOLSEY. I can use an example. I come from the telecommunications industry, 1969, and after Kennedy’s Apollo program that—whoever knew how important an integrated circuit 

would be and what could happen from that point on? 

Thank you, Mr. Chairman. 

Chairman MILLER. Mr. Loebsack. 

Mr. LOEBSACK. Thank you, Mr. Chairman. It’s great to be here 

today and listen to the experts on the panel, all of them—in particular, Ms. Stevens. I really do appreciate your being here and 

sharing your personal story. 

I might just say at the outset, Rockwell Collins in my district 

does a lot with GPS and, in particular, the handheld GPS receivers 

for our warfighters in the field. It’s remarkable the improvements 

that they’ve made along those lines. 

Earlier this year, I introduced a bill intended to spur investment 

in our crumbling infrastructure. It’s the Green School Improvement 

Act, and it focuses on helping schools repair and renovate using 

green technology, and I was able to cooperate with Congressman 

Chandler and Congressman Dale Kildee and many other members 

of this committee to incorporate provisions of that bill into the 21st 

Century Green High-Performing Public Schools Facilities Act. And 

that bill was incorporated into our stimulus package, as you probably know, that we voted on and passed here in the House, right 

at the end of September, beginning of October. So I’m really happy, 

65

of course, to hear from folks about the importance of green technology. 

And, Dr. Pollin, in particular, I’d like to ask you—you’ve already 

elaborated a little bit on how quickly any investments in infrastructure could have an effect on the economy. Could you be a little 

more specific with respect to educational investments and green 

schools in particular? 

Mr. POLLIN. Well, first, the big picture: I mean, what are the 

things in the green area that can be implemented immediately? 

Certainly, the whole range of building retrofits is an area that is 

just waiting to be done tomorrow, as soon as you pass your legislation. Again, we have—from September ’07 to September ’08, we’ve 

lost 800,000 construction jobs, and these types of projects can be 

done right away. 

In the area of public transportation, we have enormous opportunities. I mean, the argument has always been that, well, people 

don’t like public transportation, they want their cars. Well, what 

happened when energy prices went up is people switched to public 

transportation. I think we ought to invest in simply improving, expanding those services. 

Now, what about construction of educational buildings? Well, as 

Jared Bernstein mentioned and is documented more fully in his 

testimony and other work by EPI, there are things such as in the 

area of educational structures that have been sitting and waiting 

to be implemented now. Of course, you cannot start a building from 

scratch and expect it to be on line in a matter of months, but these 

things are waiting. We have documented that. 

So there are things that are ready and waiting to be done. They 

will have a massive short-term impact. They will have almost 100 

percent domestic content, which I know everyone cares about, and 

they will benefit the economy long term. 

Mr. LOEBSACK. Thank you. 

Dr. Bernstein, in your testimony you outlined the importance of 

investment in public infrastructure, and you cite one example of investments that could help quickly spur the economy as investment 

in combined sewer overflow systems, something that’s not particularly sexy, obviously, out there in the world to talk about. But I’m 

very interested in that, in no small measure because in the 2nd 

District of Iowa, we have a lot of smaller, mid-size and smaller 

communities that, of course, are facing EPA mandates, and they’ve 

got to spend a lot of money, in some cases tens of millions of dollars 

to separate the sewer systems. Ottumwa, Iowa, is one place where 

we’re looking at $160 million over the course of 20 years. 

Can you talk about how you think that investments in that kind 

of infrastructure are really important at this time and obviously to 

spur economic activity? 

Mr. BERNSTEIN. Much in the spirit of what Bob Pollin was talking about, in terms of activities that are ready to go in the sense 

that they are needed but either underfunded or simply ignored, 

there are 770 communities in 33 States with a total of about 9,500 

identified combined sewer overflow problems, much like the one 

you just mentioned, releasing approximately 850 billion gallons of 

raw, partially treated sewage annually. EPA estimates that somewhere between 25- and 75,000 sewer overflows occur each year; 

66

and according to the National Association of Clean Water Agencies, 

communities throughout the Nation have more than $4 billion of 

wastewater treatment projects that are ready to go to construction 

if funding is made available, and we outline those in greater detail 

in the written testimony and other documents we have. 

So there is—that’s kind of the exciting part of this, and I grant 

you maybe exciting is an unusual word for toxic overflow, but the 

point is exciting in the sense that we’re talking about this in the 

context of infrastructure in a recovery package. These are projects 

that are ready to go that have good jobs associated with them and 

that are currently constrained for resources. 

Mr. LOEBSACK. Thank you very much. And I do want to mention, 

too, obviously in many cases in these smaller communities—if I 

might just take an extra 30 seconds, we’re talking about—really if 

these communities are not helped, we’re talking about a huge tax 

bill that’s going to be in terms of water costs, the usage, and how 

much it’s going to cost individual members of the community just 

for their water. 

So I think it’s all the more—I think that’s all the more reason 

why we have to have this kind of package at this point to help 

those communities in the long term as well. 

And I want to thank Ms. Stevens again and wish you all the luck 

in the world in getting back on your feet. Thank you. 

Chairman MILLER. Mr. Courtney. 

Mr. COURTNEY. Thank you, Mr. Chairman. I want to thank you 

for holding this hearing. 

Leading up to the vote on October 4, the hype that was being 

presented in support of that measure, that it was somehow the answer to our economic ailments, obviously, the events over the last 

few weeks have demonstrated we have a much more deep-seated, 

broad-based problem; and this hearing, I think, is probably giving 

some voice to that, particularly from Ms. Stevens. Again, thank you 

for your testimony. 

Dr. Bernstein, I wanted to focus a bit on the State fiscal relief 

issue which you talked about. The governor of Connecticut, where 

I come from, just announced a special session of the legislature in 

the next few weeks to talk about $200 million in spending reductions, deficit reduction. Governor Deval Patrick, up the road in 

Massachusetts, has announced a billion dollars of deficit reduction. 

And the feeling from most people in those States is that really this 

is just the first round of deficit reduction, that there’s actually 

going to be even harder choices being made. 

You talked about in your testimony the impact of this trend, that 

it would, quote, ‘‘deepen the negative cycle’’; and I was wondering 

if you could just elaborate a little bit more about how that aggravates a recession. 

Mr. BERNSTEIN. Thank you. That’s a great question. The States 

have to balance their budgets, as you well know, and so at a time 

of economic distress, when their tax revenues are constrained by 

the diminished consumption that Mr. Blackwell mentioned, by 

lower property taxes, lower sales taxes, lower income taxes, the 

only way they can do so is by—they have three channels. One is 

to tap rainy day funds. And they’re doing that. The other two are 

to raise taxes or to cut services, meaning directly cut services to—

67

publicly provided services to their citizens, typically in the form of 

lower public employment. So that deepens the economic cycle that 

Ron and others have talked about. That’s precisely the opposite 

kind of intervention you’d like to see. 

I’ll just note on top of that that the other dimension—there’s a 

credit crunch out there, as we all know, and the other dimension 

of that is that this has significantly raised the cost of borrowing for 

States; and even though they have sterling borrowing records, very 

rarely default, they’re facing much higher interest rates on their 

bond issues. And this, too, is leading to cutbacks. 

I’ll give you one example from a new study by John Irons and 

you can pull it up at EPI. The Metropolitan Washington Airports 

Authority recently postponed transfer of a $2.2 billion bond sale to 

expand terminals at Dulles and Reagan National, forgone infrastructure projects which have so far been estimated to total $100 

billion, resulting in more unemployment, less demand for goods 

and services, and less overall economic activity. That is going on 

in at least 30 States at this point, those types of reductions. 

Mr. COURTNEY. So in 2001, after 9/11, there was an infusion to 

States, which your testimony mentioned. Again, your comment was 

that, in retrospect, it appears that it probably got there a little too 

late. And I guess, sitting here on October 24, we passed a stimulus 

measure on September 26 which did have an infusion to the States. 

Obviously, we’ve lost a month. If this initiative doesn’t move forward until after a new President is sworn in, we are talking January. I guess—seeing States already having to move now to address 

these problems, I guess—I mean, time is of the essence. 

Mr. BERNSTEIN. I believe it was—I don’t think it was 2001; I 

think it was 2003. And that’s exactly what we want to avoid, you’re 

right. The sooner, the better, particularly from the perspective of 

States. 

Mr. COURTNEY. I guess—and you mentioned the infrastructure 

piece as well. I mean, the time frame even for some of the stuff 

that’s right on the shelf and ready to move is 30 to 90 days. So 

every sort of delay that Washington, you know, experiences is just 

going to keep pushing back the antirecessionary benefit of these 

kinds of ideas. 

Mr. BERNSTEIN. Right. As Ron Blackwell described, there’s a vicious cycle, and as employment falters and as assets depreciate, 

households have less income, they consume less, the economy faces 

that much more negative downward pressure. 

Mr. COURTNEY. Mr. Chairman, I hope the administration who 

came in here with great urgency last September is listening. I yield 

back. 

Chairman MILLER. Thank you. Mr. Sarbanes. 

Mr. SARBANES. Thank you, Mr. Chairman, for holding the hearing. 

Ms. Stevens, I just want to commend you for being as calm as 

you are. I’ve been sitting for the last few weeks in hearings in the 

Oversight and Government Reform Committee where we’ve had 

this parade of people come forward who are largely responsible for 

the situation we’re in. I mean, it’s bad enough to be facing the difficulty you are in, but to face it feeling that it didn’t have to be this 

way makes it just that much worse. 

68

Ms. STEVENS. Not easy. 

Mr. SARBANES. And frustrating, I’m sure. So thank you for being 

here. 

I had a few questions related to—well, first one—I guess, Mr. 

Blackwell, maybe you’re the best one to answer it, but talk just 

very briefly about the difference between a, quote, ‘‘good job’’ and 

one that we wouldn’t characterize as good and particularly in terms 

of the loss of it. In other words, are there certain kinds of part-time 

jobs that are being lost that are important to people obviously to 

their livelihood but aren’t maybe being captured in the job loss figures in the same way as the, quote, ‘‘good jobs’’ or ‘‘full-time jobs’’ 

or whatever? 

I’m just trying to get a sense of whether the job loss figures are 

accurately portraying the actual job loss that’s occurring out there. 

Mr. BLACKWELL. That’s a very good question. I think the gross 

net job losses that are reported by the Bureau of Labor Statistics, 

it’s a pretty crude figure. It really doesn’t express the kind of distress that we see in our labor markets right now for people who 

are working, as well as the people who are looking for work. 

Ms. Stevens mentioned that she’s willing to take contract work 

with no benefits just to be employed. People take part-time jobs 

when they can’t get full-time jobs. People are taking jobs and working every day with no expectation that in the future—somewhere 

in the future of their life they will be able to stop working and be 

able to retire and move on to something else and still get—live a 

dignified life. 

American labor anyway has some values at risk here, and this 

is something that’s been going on for 35 years. It’s gotten very 

much more acutely painful lately, and that is, we believe that if 

you want to work in this country, you should have a job. You 

shouldn’t be looking for a job. You should have a job, and the government should be the organization that has that responsibility to 

provide those jobs. 

Secondly, if you do work, your family should not live in poverty 

and your family members should have health care and you should 

have some expectation that at some point in your life you can stop 

working and still live a dignified life. 

Finally, we believe that if you’re working and you want to associate with your brothers and sisters at work and form a union and 

bargain collectively and help improve the quality of the jobs that 

you all have, you should have that freedom, as American workers 

today do not. 

So I think what you’re seeing over a very long period of time in 

this country is a very different pattern than when I grew up, is a 

deterioration in the standards of work and the disappearance of 

really a systematic employment policy and dereliction of duty on 

the part of the U.S. Government to pursue full employment in this 

country. 

Mr. SARBANES. We’ve invested in many, many things, but we’ve 

not seemed to have invested in the American worker, I think is 

what you’re saying. 

Let me ask a question about—I’m going to run out of time, so 

I’ve got to decide which one I want to ask. 

69

Dr. Bernstein, you talked about $150 billion, $100 to $150 billion. 

How do you come up with that number? In other words, would 300 

be better to do the job, or do you get to a point of diminishing returns in terms of this kind of a stimulus investment? 

Mr. BERNSTEIN. Obviously, it’s a very important question because we don’t want to spend $1 in a recovery package inefficiently. 

I can give you the background. Some of it is in my written testimony, but in my judgment, the State fiscal constraints that I just 

discussed with Mr. Courtney would amount to about a $50 billion 

investment that—the Center for Budget and Policy Priorities very 

closely agrees with that number—infrastructure investment of the 

kind you discussed in the short term. I believe that system could 

also absorb about $50 billion. Similarly, the unemployment and 

food stamp extensions I mentioned would also come to around that 

amount. That’s $150 billion. 

Mr. SARBANES. Okay. So it’s about what the system can reasonably absorb over a period of time? 

Mr. BERNSTEIN. Short of direct payments to households. That $150 billion, in my thinking, is the magnitude of a stimulus, based 

on the factors I just took you through. To the extent that Congress 

wants to also send a check to households, which I believe are an 

effective stimulus, they’re less effective than the ones I’ve mentioned so far, and there’s always focus on the first package. So, to 

me, that’s at the back of the line. Once you get past the $150 billion, I think that’s where you have to go. 

Mr. SARBANES. Well, I’m out of time, but couldn’t you expand the 

number if you were thinking about this direct aid to States, like 

was just being discussed? I mean, why isn’t that an expandable 

number? Why can’t that absorb more, for example? 

Mr. BERNSTEIN. Well, the $50 billion comes off of the amount 

that States are currently—not just currently, but the amount that 

States are looking at in terms of their budget deficit now and in 

the near-term future, that number will likely get larger as the negative cycle deepens, as others have mentioned, so there may be 

more room there. 

My estimate is conservative. 

Chairman MILLER. Thank you. If I might go back here, this question of what seems to be sort of an emerging consensus that we are 

going to be looking at something like an 8 percent unemployment 

rate; and many people think it’s higher, some people think it’s a 

little lower, but it’s well past where we are today. And also this, 

again, people arrived at the conclusion at different times. Some 

people were talking about this many, many months ago. Yet, we 

were looking at sort of an L-shaped recovery here, both recession 

and recovery, that would be deep and long now. It just used to be 

sort of deep and maybe short. And when people look at the market, 

they realize that’s kind of what happened to them here. 

We’re back to where we were in 2000. People were banking on 

that they were going to beat the S&P. Well, the S&P got back to 

2000; we’re in the tank again. 

One of the things that came up in the meeting with the Speaker 

was that when people say, Well, this is going to go out to 2009, 

was—I think it was you that said, Yes, but unemployment will continue to grow after you recognize either officially or otherwise, you 

70

recognize the recovery, that the rate—I think one of the last 

downturns it went for 19 months. Can you just elaborate on that, 

because it goes to the question of how you stage it? 

You know, tax cuts you can do rather quickly by adjusting withholding tables or what have you. You can do those things, but you’d 

also better figure out how you’re going to have some employment 

opportunities here if you’re going to endure that kind of time and 

you want the Nation to get out of this deep recession. 

Mr. BERNSTEIN. Exactly, and this also has bearing on the infrastructure discussion, because if you believe that any infrastructure 

program that wasn’t in place when the recovery began was not useful, that would be wrong based on precisely this logic. In fact, the 

unemployment rate did rise for 19 months after the last recession 

ended. 

Typically, at least the way the National Bureau of Economic Research has been dating recessions, when the recession ends, the 

economy begins to grow in terms of real GDP, but it’s not growing 

fast enough to create the economic activity needed to absorb the 

people coming into the labor market and to rehire all the folks that 

got laid off during the downturn. 

The forecasts, which I view as fairly optimistic, have a gross domestic product in real terms growing at 1 or 2 percent by the end 

of the next year. That’s still below trend. Trend GDP growth is in 

the neighborhood of 3 percent. Unemployment also lags. So if these 

forecasts are correct, and again I believe that you heard at the 

meeting that they may be optimistic, it’s extremely likely that unemployment will continue to rise through 2009 and 2010. 

So we unfortunately have the time to implement these measures. 

Of course, the sooner, as we’ve stressed, the better. 

Chairman MILLER. I think a point that Mr. Loebsack and you responded to, and it’s in your testimony, in this question we’ve tried 

to say that—somebody said they want dirt to fly in 60 days or 90 

days, really projects that are ready to go. 

When you look down the list, whether it’s submitted from the administration or from different organizations that are involved in 

different infrastructure projects, you really see a very substantial 

number of projects that could comply with that edict. I mean, I 

think it’s clear that we want this to be as timely as possible. And 

in some cases, it’s not just a small project. These are projects that 

have cleared the committee processing and everything else that’s in 

place except that component of Federal funding. 

I know in California, through the Southwest to Texas, water recycling projects, there’s a huge backlog of projects that are ready 

to go, where municipalities have put up the money, the States have 

put up their money, in some cases private organizations have put 

up the money, and they’re simply waiting for that component to go. 

Again, we’re looking at projects where we start to yield benefits 

for the Nation far beyond the building of the project. Water recycling may be the most important economic component of the California and Southwest economy if we can both provide economic 

growth in the cities and maintain a farm economy that has huge 

export markets for this Nation and internal markets and how we 

segue that, because we also look like we’re not only in a tough recession, we’re in a very tough drought. And nobody suggests that 

71

we’re halfway through it or wherever we are in it, but we know it 

looks persistent during that period. 

I think one of the contexts of this idea of rebuilding America, if 

you will, is that there’s investments that have simply been lacking. 

As we expand world trade, we’re looking at millions of new containers coming to the West Coast, millions of new containers coming to the Gulf Coast, millions of new containers coming to the 

East Coast, and yet we don’t have ports or transportation routes 

or freight routes on rails that are compatible with that kind of economic growth that we want as a Nation with that kind of growth 

in world trade that we say we want. 

So a lot of this is about sort of clean up, company’s coming, that 

we’ve got to deal with some of these issues in advance of laying the 

foundation for long-term economic growth, it appears to me; and 

the testimony I looked at and the kinds of infrastructure projects 

that are now on hold that are linked directly to well-founded—the 

ports of the Gulf. There’s no question that we’re now seeing a dramatic change in the trade between South America and the United 

States. You know, we’re much more in sequence here on how we 

trade. 

So I just would want to raise that point because the idea that 

we’re recovering and everybody will find a job when everybody’s 

talking about the recovery we’ll continue to see this increase in employment. 

Ms. Woolsey. 

Ms. WOOLSEY. Thank you. I would like to ask Mr. Blackwell a 

question. You have had an easy go of it so far. I would like to ask 

you what your opinion is of a $150 billion stimulus package. Is that 

sufficient? If not, what would you suggest and why? 

Mr. BLACKWELL. I think the way that the Congress approached 

the credit market problem is instructive here. It started out with 

a proposed $700 billion, and then you graduated access to those 

funds because we don’t know how much we’re going to need. 

I would say that you need to think about this with the same level 

of ambition and the same kind of flexibility. We simply haven’t 

been where we are today before. We do not know how much and 

how long we will need this. I would think an immediate consideration, it does depend on how much you can absorb over what period 

of time. There is an absorption problem. We don’t want to waste 

money, but we may need government fiscal support for public investment-led recovery. 

I think it is very important that this committee think about this 

as a recovery program, not as a simple stimulus program, in a policy-constrained economic cycle because the Fed can’t get this thing 

going simply by dropping interest rates, as welcome as that is. It 

is going to take fiscal support, and it may have to be protracted. 

So I would start with a number closer to $300 billion myself, and 

I would urge you to have the flexibility to take it longer. 

This is an asset-based recession. This is not like the normal policy-constrained recession. And I think it is going to take—and we 

have some fundamental problems with this, just as I described in 

my testimony, that I think we have to get after in the long run. 

We don’t want to spend any money that we don’t have to spend to 

get out of this, and we certainly don’t want to waste any of it. 

72

Ms. WOOLSEY. Would you recommend some of the funds being 

spent for training? 

Mr. BLACKWELL. Absolutely. I couldn’t describe it here, I didn’t 

have the time, but one of the problems here is we borrow as a Nation 5 to 6 percent of our GDP every year. We are not pulling our 

weight in the world. We have some of the most competitive companies in the world, but our country is not competitive, and ultimately nobody believes that is sustainable sooner or later unless 

we find some way to produce more in a value equivalent of what 

we consume. We will be forced to consume less, and that is not the 

America we want to live in. 

This will require that we invest in a world-class workforce to be 

able to attract the kind of businesses that can allow the country 

to pull its weight in the world, and it means that we are going to 

have to invest in a world class infrastructure. Otherwise we are a 

high-wage, high-standard country. We simply won’t have a future 

in a globalized world unless we have those two ingredients, and 

right now we are not investing adequately in either. Even if we 

were outside of the problems of the cycle we are in, we need to 

spend more on producing the infrastructure that we need to be a 

successful country in a global economy, and we certainly need to 

invest more in the skills and the abilities of our workforce. 

Ms. WOOLSEY. Thank you, Mr. Chairman. 

Chairman MILLER. Mr. Loebsack. 

Mr. LOEBSACK. Thank you, Mr. Chair. 

First, I want to say to Mr. Beach, I suspect that were there folks 

on the other side of the aisle here, you might have gotten a little 

more attention today. But I just want to say I appreciate your comments as well and your contribution to the discussion today. 

But I would quickly, however, like to move to Mr. Hansen, if I 

may, especially when it comes to what you talked about with respect to broadband connectivity. You know, Iowa is a fairly rural 

State, everyone knows that, perhaps not as rural as some might 

think. But I have been getting around my district a lot the last 2 

years, go back every weekend, and certainly broadband is absolutely critical, I think, in the rural areas of America and not just 

to Iowa, but all over. 

Telemedicine, for example, is something, if you could address 

that, I would like that. But also you mentioned how important 

broadband connectivity is for business, and I have been hearing 

that a lot, especially small businesses, and, of course, how that can 

create the jobs as well. Both those, could you address both those? 

Mr. HANSEN. Yeah. First of all, on just the general business competitiveness, broadband connectivity, broadband speed gives you a 

variety of other options that really have to do with general productivity and competitiveness. You can do a lot of things in a company 

if you have that kind of capability, but these two questions that 

you are asking are really related. 

You know, in a rural community in a lot of places today, there 

is no broadband access at all. There is a fairly large percentage of 

our population that has no access to broadband. That takes away 

all kinds of options. 

Telework. Telework is a wonderful option that saves energy, allows people to work in the workforce with less cost. It allows you 

73

to broaden the workforce in a way that companies and all employers can access a better workforce. 

In medicine, if you take a look at just one area, specialists, there 

are areas of medical specialization where there aren’t enough specialists to go around. We have shortages in those areas, and telemedicine allows you basically to take one specialist and deploy 

them in several other areas so they can basically support emergency rooms in several different communities, several different 

States, because you have that capability. It allows you to take what 

you have and deploy it in a way that you are far more efficient. 

Mr. LOEBSACK. Thank you. 

Chairman MILLER. Will the gentleman yield? 

Mr. LOEBSACK. Yes. 

Chairman MILLER. Just on that point, my colleague Anna Eshoo 

wrote a letter to the Speaker on this issue about this being included in a stimulus package, and she suggested there is a number 

of different ways that you could speed this process up, either immediate expensing of it, you could provide tax incentives. There is a 

question of whether there could be a bonding for this purpose, 

broadband bonds, and then advanced wireless, where you would 

auction part of the spectrum off, and that entity would make a 

commitment to fill out the Nation 95 percent rural over the next 

10 years. Ten years seems like a very long time to get this completed. 

But in any case, I am not asking you to take a position on those, 

but apparently there is a number of ways that different parts of 

the industry have talked about how this could be funded so that 

we could expedite this economic asset nationwide, rural communities and across the board. Is that a fair representation? Again, 

I know there is different attitudes within the industry. 

Mr. HANSEN. Absolutely. I would have to say I am in violent 

agreement with everything she mentioned. I think those are wonderful ways to do it. I think there are some other things we can 

do. There is S. 1492, the Broadband Data Improvement Act, that 

was passed, and I think quick implementation of the studies in 

that bill, I think, would be helpful. I think in the FCC’s deployment 

of spectrum, I think flexible use of licenses so you can get more of 

it into the hands of people that can make use of it in this industry 

area and broadband, I think, would be tremendously helpful. So I 

think all the things you mentioned are good ways to go about it. 

I think we would be happy to provide for the record some additional ways. 

Chairman MILLER. I think it would be helpful. Clearly that is 

going to be discussed, and I think the point, Mr. Loebsack, again, 

knowing the Speaker, the focus on the rural communities and its 

potential for economic growth in services into the rural communities, that would be helpful if you would do that. 

Mr. LOEBSACK. I just want to make one final comment. It is really critical for a place like Iowa, as far as telemedicine is concerned, 

especially places like Iowa where the Medicare reimbursement 

rates are so low, where it is very difficult, obviously, for us to keep 

doctors, MDs and other health professionals, and then that access 

to those folks. It is a real problem. Telemedicine is one way that 

74

we can make some progress, I think, in solving that problem as 

well. 

Thank you very much. Thanks to the whole panel. 

Mr. BEACH. Mr. Chairman, I wonder if I could just make a quick 

comment on that. 

I was with the Sprint Corporation when we built the first entire 

fiberoptical system in the United States from the ground up. I was 

with a company called United Telephone that bought U.S. Sprint. 

We put that company in place, and among the things that we found 

most helpful was a competitive environment for that company to go 

out and merge and develop other companies in partnerships. That 

was crucial. Building businesses along the fiber hub was enormously important, and so local communities and State governments were crucial, and, I must return to it, we had a much better 

tax environment at that time. 

So, yes, Mr. Hansen is absolutely right, that can create enormous 

businesses and wonderful opportunities, but you have to have it in 

the right envelope. 

Chairman MILLER. Mr. Courtney. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

Just quickly, I don’t want to put Ms. Stevens on the spot, but I 

was just kind of curious what your response was to Mr. Blackwell’s 

sort of overall comment that there ought to be some parity about 

the level of seriousness in terms of how we address this issue, 

using the bailout bill or the rescue plan, the $700 billion rescue 

plan as sort of a benchmark. I mean, obviously the whole country 

watched the Congress move very quickly to address that problem. 

At the same time, a lot of people have economic issues like you 

have eloquently described, and just I don’t know if you wanted to 

comment. If you don’t, I understand. I just thought I would give 

you a chance. 

Ms. STEVENS. One of the things that actually comes to mind, it 

is wonderful, and it does seem like there are a lot of opportunities 

for the future, and that is great. But one of the things I am really 

thinking about here is, okay, there will be new jobs, but at what 

price? Will I have to take a pay cut? There is training, that is 

great, but to who? I don’t qualify for financial aid. I would never 

be able to afford training right now myself and on my own. 

Also, a lot of the unemployed are relying on credit cards right 

now. I am actually in the negative for my unemployment insurance 

and what that pays versus what my monthly mortgage is. So, you 

know, yes, my husband’s working overtime, but where is the rest 

of the money coming from? So my debt is going up, and I just want 

to know that there is going to be something out there for me, you 

know. Job creation is great, but I just want to know if there is 

help, and if creation of these positions would be able to find a job 

for me that I wouldn’t have to go into major financial trouble just 

to be employed. 

Mr. BERNSTEIN. Mr. Courtney, can I add one point to that? 

Replacement rates, this is the share of lost salary replaced by 

unemployment insurance, are typically well below 50 percent. We 

just heard from Ms. Stevens how that can be so difficult in the real 

lives of unemployed people. As part of a stimulus package, a temporary federally funded initiative to take replacement rates up to 

75

50 to 70 percent would be highly stimulative for the macroeconomy, 

but, more importantly, provide the unemployed with a much-needed boost. We have done that in the past and, in my judgment, been 

quite successful. 

Chairman MILLER. Mr. Sarbanes. 

Mr. SARBANES. Thank you. 

So that is another way in which you might expand the amount 

that you think could be absorbed, right? 

Mr. BERNSTEIN. That is included in my $50 billion. 

Mr. SARBANES. That going up to 70 percent is included in your 

50-? 

Mr. BERNSTEIN. Right. 

Mr. SARBANES. I wanted to thank Mr. Hansen for the reference 

to the telework. I coauthored this year the Telework Improvement 

Act, which is trying to get Federal agencies more into the business 

of doing this and kind of leading the way. Obviously, private industry has done quite a bit with that, but broadband will allow us to 

move forward by leaps and bounds. 

Mr. HANSEN. It also addresses another problem, and that is the 

cost of health care. Telemedicine, e-prescribing, e-health, all of 

these things make—I think that a step in health care reform is 

making it less expensive, more efficient, better quality, and that is 

something that results from this kind of deployment. 

Mr. SARBANES. One of the themes we are kind of touching on, it 

seems, in the hearing, but maybe not articulating explicitly, which 

I am hearing is, you know, we don’t have to characterize this as 

stimulus. We don’t have to characterize it as recovery. We can 

characterize it very fairly as investment, you know, forward-funded 

investment. I mean, most of the things that you are proposing are 

things we need to do as a Nation anyway. You know, we may just 

now be borrowing against the funds that would have been outlaid 

a little bit further down the line, but all of these things make perfect sense to do, and I am certainly going to present it, as I argued 

for this plan, as an investment opportunity and all the things that 

make sense. 

On that point, one of you in your testimony, I can’t remember 

which, describes this crowding in concept, and you know it was 

said that it is a no-brainer that we would commit ourselves to 

green jobs and so forth. I think you meant because it just makes 

sense and it is a good investment. But I think it is also a nobrainer, many of the things being mentioned, because you are investing in things that are, in fact, the place the private economy 

is going to go, the private-sector economy is going next. So you are 

sort of paving the way or you are teeing that up, as opposed to 

something that you might say, well, that is an old economy, and 

it might create some jobs in the short term through public investment, but it is not really getting us closer to where the private 

economy is going to go. And I think that is the crowding in concept, 

if I am not mistaken, but maybe you could speak to that. Dr. 

Pollin. 

Mr. POLLIN. The term ‘‘crowding in’’ and the way I used it in the 

written testimony basically refers to public investments as we have 

been talking about, enhancing opportunities for private investments. So, in other words, the fact that the public investments, 

76

rather than being in competition with, i.e., crowding out, private 

investments, encourage private investments, create a better climate 

for private investments. So it is a very important number that I 

refer to in the written testimony and I mention very quickly. 

For 30 years the growth rate of public investment was 3.8 percent. That means it was faster than the average growth rate of the 

overall economy, which, as Jared said, is about 3 percent. For the 

last 30 years, it has been 2.4 percent. Why? Again, as Ron 

Blackwell is saying, we have got to build a more competitive economy. We have got to do well by our workers. We have got to do 

well by our businesses. So that means we have to raise the rate 

of public investment. Green public investment is part of the story. 

It is not all the story, but we have to raise that rate. 

Why would we be at a rate that is, you know, a full percentage 

point or more below where we had been 30 years ago? It is a way 

to enhance our business environment. 

Mr. SARBANES. That is what is so exciting about this, because we 

are saying this may be our opportunity to begin modeling the kind 

of public investment that we should be making as a Nation, regardless of the particular economic situation we are in. This is our 

chance. We have been brought to this realization; now we can begin 

this new process and this new approach. 

Mr. POLLIN. Just one other quick point on that. Investments in 

the public sector now have the feature of certainty. We are in a 

highly uncertain business environment. That is exactly why the 

risk premium in financial markets for the private-sector borrowing 

is extremely high. We don’t know what is going to happen. No matter what the incentives are for business investment, those are 

going to be very uncertain. 

The public investments that occur now are certain. Once you legislate them, they will happen, and they will enhance productivity 

and create a better environment for the private sector over time. 

Chairman MILLER. Thank you. 

I would also say, I guess, from a business point of view, if you 

are going to have to buy cement and steel and copper right now, 

this would be a pretty good time to do it, wouldn’t it? There is a 

silver lining. 

Let me thank you very much for your testimony and your expertise. Obviously this discussion, conversation is going to continue in 

the Congress. As you may be aware of, a number of the committees 

have been holding hearings with respect to the recovery, with respect to the problems in the financial institutions and the credit 

markets of this country. 

I think, as my colleagues have pointed out here, we responded 

very rapidly with respect to the Wall Street bailout, and I think it 

is very clear not only to my colleagues, but clearly to our constituents as we now move among them during the election season that 

they clearly believe that there has got to be a Main Street recovery 

plan. It is just very clear they want a Main Street recovery plan. 

And how we combine that, you know, how we integrate tax policy 

and public works and infrastructure and energy policy and 

broadband and innovation is going to be critical for the success of 

that policy, but I think it is clear that it has to be done, and it is 

going to be done by the Congress in relatively short order. AlVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK
77

though when you look at the fallout from our current situation, it 

almost appears that nothing can be done fast enough. 

It is just amazing when you look at the wealth that has been 

stripped from families in terms of the loss of equities, loss of home 

values, the loss—was it just the other day, four point something 

trillion dollars in pension assets that has been stripped. I guess if 

they can all hang on long enough, theoretically that will come back, 

but some of them don’t have that luxury. So we are really talking 

about a dramatic loss in wealth. 

I don’t know what the old wealth effect used to be when the market was going up and going down, but when you lose the equity in 

your home, and you are starting to lose the value of your pension, 

and the value of your home is continuing to decline, I suspect there 

is a wealth effect, and I think that is what we are seeing in the 

general economy, and we are going to have to change that, and the 

Federal Government may be—in fact, is the only institution that 

can do that. We hope to be able to do it in a prudent fashion and 

an efficient fashion and in an effective fashion. 

So thank you so much for all of your testimony. 

Ms. Stevens, again, thank you. I think you know how much the 

members of the committee appreciate you taking your time, and we 

hope that your fortunes change and they change soon. Thank you 

so much. 

Ms. STEVENS. Thank you for having me. 

Chairman MILLER. Thank you. 

As this panel retires, I would like to ask unanimous consent to 

introduce into the record a letter from Alan Blinder, professor of 

economics at Princeton University; a letter from the National 

Youth Employment Coalition; a letter from the National Urban 

League; a letter from Congressman Jay Inslee in support of the 

Green Jobs Initiative. 

[The information follows:]

78


bind-1.eps
79

Prepared Statement of the National Youth Employment Coalition 

Chairman Miller, Ranking Member McKeon and Members of the Committee: On 

behalf of the National Youth Employment Coalition and our 250-plus membership 

network, I am pleased to submit testimony to the Committee on strategies to address unemployment and promote job creation, particularly as they relate to the nation’s disconnected youth and young adults. Across the country, we face a crisis of 

‘‘disconnected’’ youth and young adults: individuals between the ages of 16 to 24 

who are not in school and not working. Approximately one-third of the 17 million 

Americans aged 16 to 24 have neither a diploma nor a job. 

Job training and employment services for many disconnected youth are less available now than in the last two decades. In crafting a national stimulus package, we 

urge you to consider policy measures that not only mitigate the impacts of this economic slowdown, but also make smart investments in longer-term, sustained ecoVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00083 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK

bind-2.eps
80

nomic prosperity that provide employment opportunities for low-income and disconnected youth and strengthen low-income communities. 

Failure to make these investments will have profoundly negative impacts on our 

nation and our economy. More than 540,000 students drop out of high school each 

year and the implications of this phenomenon are staggering: 

• Three quarters of state prison inmates are high school dropouts, as are 59 percent of inmates in the federal system. 

• The death rate for persons with fewer than 12 years of education is 2.5 times 

higher than for those with 13 or more years of education. 

• Ten years from now, at least 200,000-300,000 youth, 5 to 7 percent, will reach 

age 25 without having successfully transitioned to independent adulthood. About 60 

percent will be men; of these, over half will be in prison, while the remaining young 

men will be mired in protracted spells of long-term unemployment. 

• Approximately 16 percent of all young men, ages 18-24, without a high school 

degree or GED are either incarcerated or on parole at any one point in time; 

• The situation is even more dire in minority communities where as few as 20 

percent of black teens are employed at any time, unemployment among young black 

men aged 16-24 not enrolled in school is about 50 percent, and approximately onethird of all young black men are involved with the criminal justice system at any 

given time. 

While it is imperative that we adopt strategies that keep students in high school, 

we must also recognize the fact that millions of youth and young adult dropouts will 

not return to traditional high schools because they have ‘‘aged-out’’ from public education systems, or have had such bad experiences in our schools that they are reluctant to return to those settings. 

Even in the best of times, fewer than half of all high school dropouts aged 16 to 

24 are working. Public/ Private Ventures reported ‘‘nationwide, 15 million people between the ages of 16 and 24 are not prepared for high-wage employment. Inadequate education or training is a major reason.’’ Many young people are unprepared 

to meet the needs of employers or the challenges of higher education. American 

business currently spends more than $60 billion each year on training, much of that 

on remedial reading, writing, and mathematics. High school dropouts are unable to 

enter the workforce with the necessary skills to meet the demands of the nation’s 

global economy. 

A recent study conducted for the National League of Cities by the Northeastern 

University’s Center for Labor Market Studies, reported that youth ages 16 to 24 

have lost 900,000 jobs since 2002. In September 2008, adult unemployment remained at slightly more than six percent, while youth unemployment (16-19) 

reached 19.1 percent. The 2008 summer teen employment rate, 32.7%, is the lowest 

since 1948, a new 60 year historic low. The 2007 year-round teen employment rate 

of 34.8% is a 10.4 percentage point drop from 2000. 

Without adequate education options and training for 21st Century jobs, many of 

these young people will lack the basic skills necessary for even minimum-wage jobs. 

If re-engaged into our economy, they are a potentially valuable resource in improving American competitiveness and strengthening the fabric of our nation. If, on the 

other hand, they remain on the margins, they will potentially drain the economy 

of needed resources and energy. 

In today’s competitive labor market, with the demand for advanced and more diversified skills, it is vital that training keep pace with a rapidly changing employment environment. In fact, public investment has lagged substantially. Inflation-adjusted spending for programs that target at-risk youth dropped by 63 percent from 

1985 to 2003. Since 2001, funding for youth workforce development and training 

programs has been cut by 33 percent ($454 million). The Fiscal Year (FY) 2008 consolidated appropriations bill set an all time low for Workforce Investment Activities 

(WIA) Youth Activities funding at $924 million, coupled with a $245 million rescission of WIA funding applicable to fiscal years 2005 and 2006. 

Short Term Stimulus 

NYEC proposes the following recommendations to address the short-term needs 

of these disconnected youth and encourages you to incorporate these measures into 

a comprehensive economic stimulus bill to set the stage for longer term success. 

• Invest $2 billion in funding for youth workforce development and training programs, including summer jobs, year round employment opportunities for out of 

school youth, and work experience. This investment will contribute immediately to 

our economy by offering income and opportunities to youth across the nation, and 

will also improve young people’s longer-term employment and earnings prospects by 

providing meaningful work experience. 

81

• Support investment in the maintenance and expansion of the infrastructure of 

our nation and thereby create training and employment opportunities for youth and 

young adults 

Long Term Strategy 

In the longer term, as there are so few pathways that adequately prepare disconnected young people for the world of work, we make the following recommendations 

for a $10 Billion annual investment for 5 years to: 1. Invest in Communities Across Systems. Invest $3 billion to target support to 

100 communities of high youth distress to build systems and enhance capacity to 

enable them to build the alternative pathways and supports for reconnecting and 

transitioning youth. Funds would be available from the U.S. Department of Labor 

to encourage communities to engage in joint planning, to set benchmarks, and design interventions, at scale, to provide youth with the academic and labor market 

skills needed for success. This includes support to those communities to work in tandem with their education system to build these pathways. The Secretary shall make 

grants to local Workforce Investment Boards and eligible entities such as community-based organizations, faith-based organizations, education organizations, and 

business groups in urban and rural high poverty areas. Communities may use these 

funds to provide eligible youth a variety of options for improving educational and 

skill competencies that will lead to long term employment and provide effective connections to employers; to ensure on-going mentoring opportunities; to provide opportunities for training; to provide continued supportive services; and to provide opportunities for eligible youth in activities related to leadership development, decisionmaking, citizenship, and community service. Funds shall also be available for intensive placement and follow-up services. In applying, eligible entities will have to provide a description of the activities that the local board or entity will provide under 

this section to youth in the community, a description of performance measures and 

the manner in which the local boards or entities will carry out the activities to meet 

the performance measures, and a description of the community support, including 

financial support through leveraging additional public and private resources, for the 

activities. 

2. Expand opportunities for work experience, internships, and civic engagement 

Invest $2 billion into new and existing competitive grant programs located in the 

U.S. Department of Labor, the U.S. Department of Justice, the U. S. Department 

of Health and Human Services (HHS), the Department of Agriculture (for rural 

youth), and the Corporation for National and Community Service to greatly expand 

programs for work experience, internships, transitional and summer jobs, and civic 

engagement in communities of high youth distress. 

Each Federal agency will develop applications and guidelines consistent with the 

goals of creating and expanding opportunities for disconnected youth to gain work 

experience through national and community service, internships, pre-apprenticeship 

and apprenticeship, and other programs. 

A percentage of these funds will be available to fund new programs that are based 

on effective practices in meeting the needs of disconnected youth. A percentage will 

be available to fund existing programs that have a proven track record in meeting 

those needs. 

In applying, each eligible entity will have to provide a description of how it intends to work with the local boards and eligible entities created in #1 (above) as 

well as the activities that the local board or entity will provide under this section 

to youth in the community. Each entity will be required to provide a description of 

chosen performance measures and the manner in which the local boards or entities 

will carry out the activities to meet the performance measures, and a description 

of the community support, including financial support through leveraging additional 

public and private resources, for the activities. 

Finally, this section will provide funds to stimulate innovative collaborations and 

partnerships between employers and programs that enroll disconnected youth, alternative educational entities that provide such youth with the opportunity to gain a 

high school diploma or GED, local education agencies, and institutions of post-secondary education. In order to be eligible for such funds, applicants must be able to 

describe pathways that lead from a youth serving program to a recognized educational institution, to attainment of a credential or degree, to employment. 

3. Create and Expand Multiple Pathways to Education and Employment. The 

high-paying jobs and careers of the future will require levels of education, skill, and 

technical competence that far exceed those typical of youth coming from distressed 

communities and school systems. These youth are the least likely to be exposed to 

exciting new career opportunities in growing areas of the economy where they will 

be able to earn a living wage. Expanding their horizons and aspirations can only 

82

be accomplished by engaging the corporate sector to help young people explore workplaces and understand the demands, rewards and prerequisites for entry. Invest $2 billion to build pipelines to create a program of incentives and programmatic support to stimulate business and labor to become aggressively engaged 

in the creation of alternatives that establish industry specific pipelines for high-risk 

youth. For there to be meaningful pathways from service to employment, we must 

understand the skills needed to participate in the economy, how training in those 

skills can be provided, and how to establish industry-wide certifications that make 

the training ‘‘portable.’’ To be successful, we need incentives to more closely link 

workforce development to employers and labor to help connect those seeking training and employment to the sources of that training as well as ensuring that the 

training meets the needs of employers. Workforce professionals must learn the landscape if they are to effectively provide guidance about pre-apprenticeship and other 

training programs, job search assistance, link young people to mentors who will help 

prepare them for the world of work, and help to ensure that those seeking the training also have access to other supportive services. Workforce experts will have a crucial role to play in linking those who have training to real, unsubsidized employment. 

Funds authorized under this section will strengthen the workforce system so that 

it can meet the needs of the 21st century and involve employers and labor even 

more intimately in the development of training, credentialing, and hiring of disconnected youth by making the workforce system more responsive to their needs. 4. Identify, Collect, and Support Effective Practices. $200 million shall be available for activities (for which nonprofit organizations shall be considered eligible entities) to collect information about effective practices, recognize effective programs, 

provide incentives to those programs, and publish information about how and why 

they succeed to build knowledge across youth-serving systems. Guidance regarding 

the measurement of interim and progress measures may be found through resources 

such as NYEC’s ‘‘Promising and Effective Practices Network (PEPNet) Guide to 

Quality Standards for Youth Programs’’ and ‘‘From Data to Results.’’ PEPNet is the 

nation’s premier resource on what works in youth employment and development. 

Established in 1995, the NYEC PEPNet initiative has been a pioneer in showing 

youth programs, donors, and policymakers how to combine workforce development, 

youth development, and challenging education to create quality programs that help 

vulnerable youth successfully transition to adulthood and the world of work. 5. Provide Transition Support. Invest $2 billion in a new initiative to ensure that 

disconnected youth receive support, services, and opportunities designed to increase 

their postsecondary enrollment, persistence and completion similar to what is offered to high school graduates and high achieving students. 

Disconnected youth need comprehensive and consistent support, services, and opportunities to help them enter, persist and complete postsecondary education. While 

postsecondary institutions often offer outreach, access and support service programs 

to students from low-income backgrounds through some federally funded TRIO programs, these programs typically target high academic achievers. 

When program funding and staff capacity allows it, some out-of-school and disadvantaged youth receive critical postsecondary transition support, services, and opportunities from the same community-based youth service organizations that are 

helping them complete their high school diploma or equivalent. There is a need to 

increase their academic skills and help them obtain job training and employment. 

This section of the RAY Act provides funding to community-based youth service organizations and for partnerships between community-based organizations and postsecondary institutions to prepare and support youth to make a transition into and 

through postsecondary education. 

6. Build Organizational and Professional Capacity. Invest $400 million in professional and organizational capacity building for youth-serving systems. In today’s 

competitive labor market, with the demand for advanced and more diversified skills, 

it is vital to local communities and the national economy that youth-serving systems 

strengthen their capacity to provide effective training and preparation. Youth service professionals, including intake workers, case managers, job developers, and independent living specialists, are often the first contact or ‘‘face’’ of youth-serving systems and must gain specific knowledge, skills, and abilities (KSAs) to work with this 

emerging workforce. There is currently no national system of professional development that identifies, builds, and certifies the KSAs of practitioners. Yet professional 

development has been linked to: professionalization of a field, increased job satisfaction, better youth programs, and improved youth outcomes. 

7. Improve Data Collection and Accountability Systems Invest $400 million in 

data collection, evaluation, and insist on accountability. Federal agencies and grantees serving disconnected youth should publicly report their demographics, service 

83

levels, expenditures and outcomes. This would enable local communities to assess 

the magnitude of the problem, system performance, who is—and is not—effectively 

served, and monitor improvement over time. NYEC recommends the following: 

• Develop a uniform definition for measuring graduation and dropout rates for 

local high schools, alternative schools, charter schools, school districts, and states. 

Establish accountability measures related to graduation rates and hold states and 

local systems accountable for making progress towards those benchmarks for all 

youth, not just youth who stay in school. 

• Require states to monitor policies and practice that result in youth being 

‘‘pushed out’’ or disproportionately tracked to inappropriate educational alternatives 

• Incorporate and potentially expand upon the data collection requirements established by the Foster Care Independence Act of 1999, which established the Chafee 

Foster Care Independence Program and mandated by the implementation of a National Youth in Transition Database (NYTD). 

• Provide both incentives and sanctions to state and local child welfare and juvenile justice systems to ensure effective transitional services, including the requirement that at key risk points and before a youth is discharged, there are explicit 

transition plans to connect youth to key education, training, housing, and support 

services 

We firmly believe that, over the long term, the economic health of our nation depends on investments we make in youth workforce development, secondary and 

postsecondary systems and that our economy will suffer if we do not increase our 

national investment in our emerging young workforce—which includes all youth. If 

re-engaged into our economy, youth who often remain on the margins can be potentially valuable resources in insuring American competitiveness. 

Our nation is facing an economic and social crisis—millions of youth lack the opportunities they need to develop the skills they must possess in order to succeed in 

today’s global economy. Investing in job training and employment services for youth 

will provide immediate economic stimulus and enduring benefits to our youth and 

to our nation. Funding for youth employment should be a part of any stimulus package you consider in the coming weeks. 

Please do not hesitate to contact me for assistance or questions. 

October 23, 2008. 

Hon. GEORGE MILLER, Chairman, 

House Committee on Education and Labor, Rayburn House Office Building, Washington, DC. 

DEAR CHAIRMAN MILLER: I am happy to provide some overview comments relating 

to the Hearings on ‘‘Building an Economic Recovery Program: Creating and Preserving Jobs in America,’’ to take place Friday, October 24, 2008. 


pbgca.eps
84

You will see from my comments that: 1) the U.S. and Global Economies are in 

recession, which suggests rising joblessness; 2) a second stimulus program, or perhaps better called an Economic Recovery Program, is absolutely needed, particularly 

to generate jobs, near- and long-term, given the ‘‘Long and Deep Recession’’ that is 

expected; and 3) federal government spending should be increased, targeted on extending unemployment benefits as an automatic stabilizer, on increased ‘‘infrastructure’’ spending as part of a longer-run program to Rebuild America’s infrastructure, 

aid to states and localities increased to help offset high and rising deficits and 

where cutbacks in jobs are increasingly likely, and tax credits and permanent tax 

reductions instituted for middle- and lower-income families. 

Policies to aid homeowners in distress on foreclosures, bankruptcies, or refinancing mortgages also would make a lot of sense. 

Hopefully, these comments are of help to you and the House Committee on Education and Labor. 

Sincerely, 

ALLEN SINAI, 

Chief Global Economist, Strategist and President of Decision Economics, Inc.

A second stimulus, or now Economic Recovery Program, is essential given the current state and prospect for the U.S. and global economies, which is recession. The 

timing should be immediate. Policies, fiscal and monetary, are behind-the-curve 

given lags in gestation, implementation, and in the response of economic behavior 

to policy changes. Congress can also weigh-in on the Financial Crisis to the Administration, Federal Reserve, and SEC, with or without legislation in-process. 

Full-Fledged U.S. Recession; Global Recession a Reality 

Recent U.S. economic data show a sharp slide and deterioration in the economy, 

also so for numerous non-U.S. economies and several global regions. 

The U.S. economy in the third quarter is tracking negative for real GDP with a 

sharp downturn in inflation-adjusted consumer spending of nearly 3%, at an annual 

rate, and ripple effects to-come, for example in reduced business capital spending. 

Better foreign trade, that is lower imports, should provide an offset but not big 

enough to prevent a ¥0.7% decline for GDP in the third quarter. 

The Baseline forecast is then for a ¥31⁄2% to ¥4% decline of real GDP in Q4; 

in Q1:2009, ¥3% to ¥4%; a small decline in Q2; and second half growth for real 

GDP flat-to-up a little. The unemployment rate likely will rise to 71⁄2%-or-more by 

mid-2009. Price inflation should move lower, particularly for commodity prices, but 

may be sticky downward given the large role of the services economy in the United 

States. 

The view is a ‘‘Long and Deep Recession,’’ extending through most of 2009. The 

previous longest U.S. economic downturns were 16 months each in 1973-75 and 

1981-82. This one probably will be longer. 

Why? The Main Causes 

1. A ‘‘hunkering-down’’ of consumer spending, with rare outright reductions in 

consumption spending and an intensification of the downturn because of the financial crisis and credit crunch. All consumer fundamentals are negative at this time. 

2. The freezing-up of funds inside the financial system as between bank and 

nonbank financial intermediaries and a ‘‘Credit Crunch’’ outside the financial system affecting borrowers including consumers, businesses, and government. 

Historically, when in force, a ‘‘Credit Crunch’’ can produce sharply declining economic activity; therefore, an even more negative pattern could occur with real GDP 

potentially off by ¥3% to ¥7% from Q4 to Q2:2009. 

3. A housing bust and depression in financial services have been both a catalyst 

and cause of the downturn. A housing boom, then bust after a long period of excesses in housing activity, mortgage finance and mortgage indebtedness was one 

reason. A housing price bubble then bursting of that bubble, brought down the values of mortgage debt, credit, derivative mortgage products, structured investment 

vehicles, and financial businesses structured around housing, and continues now. 

The housing downturn is the biggest since the 1930s, with housing starts down 

64.1%, peak-to-trough, new home sales off 65%, existing home sales down by 35%, 

and home prices declining by over 15% year-over-year and near 20% peak-to-trough. 

This represents a bursting asset price bubble, with falling debt and a worsening of 

financial businesses tied to mortgages and residential real estate activity. 

4. The financial services sector, particularly investment banking/brokerage and 

commercial, banks, also is in recession now. The sector is around 15% to 20% of the 

U.S. economy and is consolidating and squeezing down to a much smaller size, with 

a downturn in the volume of activity and large losses of jobs. 

85

Cyclical Processes—About 10 Months Into the Downturn 

The recession likely started at the turn of the year, as reflected in a number of 

key monthly economic indicators although not real GDP. Real GDP is a quarterly 

statistic and an imperfect, late, summary measure of the state of the economy; the 

monthly economic indicators do a better job. On this dating, nearly 10 months of 

the downturn have passed. The cyclical processes to go indicate quite some time left 

before a recovery can begin. 

The role of an Economic Recovery Program would be to cushion the downturn and 

speed up the onset of economic recovery, hopefully dovetailing with longer-run objectives for the economy. 

A housing decline and then bust came first with real estate asset prices tumbling, 

causing weakening consumption and worsening economic activity from the loss of 

household wealth and lessened ability of households to borrow. 

The declines in housing prices brought down the values of a mountain of housingderivative mortgage debt, credit, and complicated financial instruments based on 

the asset values of houses. The Rating Agencies mistakenly rated many of these securities as AAA. Investors willingly bought them, only to find out later that many 

of the securities lost massive amounts of value and could not be sold at any price. 

Financial institutions, both commercial banks and nonbank financial intermediaries such as investment banking/brokerage firms, heavily exposed and involved in the boom of housing-related mortgage debt and finance, saw a shrinking 

of asset values and balance sheets, a need for capital, and periodic ‘‘runs’’ on financial firms that were capital markets-centric. Considerable capital was required and 

several large financial institutions—Bear Stearns, Lehman Brothers, AIG, FMNAFreddy Mac, Washington Mutual, Wachovia, Merrill Lynch—either failed or were 

absorbed into other relatively strong institutions. 

Economic downturn and crunch within the financial system caused distress in financial markets. As a consequence, financial institutions have hoarded funds and 

refused to lend to one another, fearing default and/or failure. The financial system 

seized-up and economic and financial activity, as well as equity market prices, suffered. The freezing-up of the financial system still remains, despite huge injections 

of liquidity, directly and indirectly, by the Federal Reserve and other central banks 

around-the-world. 

A by-product of this has been a significant equity bear market which, in turn, has 

made IPOs and secondary financing extremely difficult, and the cost-of-capital relatively high. Falling stock prices also reduce household wealth, consumer confidence, and consumer spending. And, financial institutions earnings have suffered. 

The Financial Crisis, worsening stock markets, and worsening credit have fed 

back to intensify the downturn. The U.S. downturn is hurting non-U.S. exports, 

with a squeeze on the domestic purchasing power of other countries from high oil, 

energy and food prices impacting to produce a global recession. 

Policy actions and responses so far have been too late and too little, which is not 

unusual—not focused on the places and problems that could alleviate, ease, or cushion the economic downturn and financial crisis, e.g., housing price declines, the consumer downturn, removing bad mortgage-based assets fast enough from financial 

institutions on current plans to prevent further contraction. Financial markets moving at lightening speed are ahead of policy actions, aggravating the problems. 

The result has been an incredible series of swift declines in stock prices, with the 

major U.S. indices now down nearly 40% from the previous peak; total risk aversion 

and seizing-up of credit in the financial system and a credit crunch outside; flightto-quality into U.S. Treasuries; a drying-up of funding in the U.S. and increasingly 

globally; panic and paralysis. 

Policy Actions and the Role of Congress 

Much of the distress and economic downturn is stemming from a financial crisis 

and bursting of several long-time bubbles—housing, credit, debt, financial services 

businesses, and others. This would normally be handled by the Federal Reserve and 

U.S. Treasury, but their actions up-to-now have been too slow. 

Congress can push for measures in this area to help resolve the financial-side of 

the crisis. The Congress has oversight and leadership and can respond to some of 

the non-Congressional actions even if not in legislation. 

The role of Congress also should be to motivate additional programs to help cushion the downturn, its fallout, and to establish a base for future recovery and expansion. 

Problems to Deal With 

There are at least four problems to be dealt with by one-or-more branches of government and/or through multiple policy actions perhaps from multiple sources——

86

1) Financial Crisis—the tasks. 

• unfreezing credit frozen within the financial system and easing the credit 

crunch outside the system. 

• stopping the contraction of balance sheets and financial institution failure fallout—which now amounts to an implosion of the credit channel in the private sector. 

• stabilizing financial markets, especially equity markets, also credit which is impeding flows-of-funds in the financial system and through the economy. 

2) Recession—the task is to cushion or reverse the forces causing the downturn. 

Notable is the important role of U.S. consumption in the recession—now the center of the storm. 

• U.S. consumption is declining sharply as consumers cut back. 

• Housing activity is still declining with continuing housing price declines. 

• The financial and credit crisis is leading to massive losses of wealth and restrictions in the availability of funds. 

• Declining non-U.S. economies—at least 20 countries of the 47 countries analyzed and forecasted by DE, including the U.S., are probably in some sort of ‘‘recession.’’ These countries account for about 75% of total global output. 

Policies need to be designed to offset, or reverse, the down thrust of consumption, 

given that its multiplier effects throughout the U.S. and global economies are quite 

considerable. 

3) Financial Markets Disarray—declines in equity prices and volatility characterize a substantial bear equity market as investors search for appropriate valuations in a situation of declining company earnings, loss of confidence, and a disturbing macroeconomic backdrop. The mechanisms that are intensifying and speeding up the declines of equity prices—including fair value accounting, short selling, 

and rating agencies ratings—should be impeded. 

4) Panic, Loss of Confidence, and Fear—distress selling of assets to raise cash as 

well as fear and panic selling are characterizing equity markets. Generally, there 

has been a growing loss of confidence in the ability of any government to stem the 

declines. 

Not all of these problems lie within Congressional jurisdiction. But Congress can 

contribute to all of them through the deliberations and debates that go on. 

A New Stimulus, or Economic Recovery, Package—Size, Diagnosis, Components 

One principal of operation for any Economic Recovery Program would be to ‘‘fit’’ 

actions into a coherent and thematic long-run vision of what needs to be done, e.g., 

Rebuilding America’s Infrastructure; Tax Relief for the Middle Class; Rebuilding 

and Restructuring the Housing of America; Rewriting the Rules of the Financial 

System. 

This way of looking at it ultimately would be cost- and policy-efficient and better 

than disparate policy actions from different points without coordination. 

Size is important—big enough to make a difference but not too big to cause a significant and sustainable increase in the federal budget deficit. 

The recommendations would be around $200 billion, nearly 2% of nominal GDP. 

Bush Administration tax reductions over 2001-2005 cumulated to nearly 2% of average GDP per annum over that period. Federal government spending added more 

to the stimulus. The Reagan tax cuts were approximately 3% of GDP. Federal government spending added to this. The Kennedy-Johnson tax cuts in 1963-64 were 

1.6% of GDP. Increased federal government spending also occurred here. 

Any fiscal stimulus can be spread over multiple years. Fiscal stimulus and monetary ease together set the stage for an economic recovery and upturn. 

The components of the Economic Recovery Program should depend on the diagnosis of problems. 

Tax Reductions 

The consumer is now the main source of the economic downturn and household 

financial conditions are the worst since early 1980s. This favors personal income tax 

rate reductions for middle- and lower-income families. Social Security tax reductions 

are another possibility, or tax credits. 

More supportive to consumer confidence than temporary tax cuts and lasting in 

effects, as a source of help for household finance, offset to huge losses in household 

wealth, and increased tax receipts on growth stimulus, would be permanent tax reductions. 

$100 billion phased-in over the next three years but passed immediately post-election is one option. Tax reductions could be retroactive for 2008, showing up in reduced withholding by Jan. 1, 2009. The amounts would be: $50 billion in Year 1, 

$25 billion in Year 2, $25 billion in Year 3. 

87

Income tax rate reductions provide more stimulus than lump-sum tax credits or 

tax rebates. Cash flow and incentive effects help both consumption and saving. 

Capital gains tax and dividend tax rates should be sustained at current levels in 

order to provide stimulus to equity markets and the financing of new enterprise. 

Federal Government Outlays: $100 billion 

Federal government outlays of nearly $100 billion would be appropriate, helping 

in the following areas. • Support for Homeowners and Housing Prices—this could be through the establishment of a new entity that would deal with foreclosures and homeowner relief. 

The principal would be to take down the excess supply of mortgages and/or housing 

to help floor the declines in housing prices; thus, to stop the continuing devaluation 

of mortgage debt derivative instruments. 

A government entity, or agency, as established in the 1930s, or direct purchases of excess supply of housing or mortgages, could be legislated—$20 billion. • Unemployment Relief—extension to cover the long-term unemployed—$15 billion. • Infrastructure, Including Education—short- and long-run, with projects on-the- shelf rolled-out that fit longer-run infrastructure needs. Some $20 billion near-term 

and $80 billion more over 10 years are rough approximations. • Aid to States and Localities—to offset budget deficits, $20 billion to $30 billion. 

The impact of this would be roughly 11⁄2 to 2 percentage points of increased real 

economic growth in Year I; about half that in additional real growth in Years II and 

III. The tax revenue feedback from the increased growth would be about $0.20 per 

dollar of fiscal stimulus. 

The Financial Crisis—Potential Actions 

The Congress should support the recapitalization of banks by the federal government through equity shares, partial nationalization, management oversight but not 

government-controlled, and no wiping-out of equity shareholders. 

This would mean a temporary bypassing of the private sector credit channel with 

public funding. 

The creation of a new entity that could enter into the LIBOR market as a direct 

counterparty, or direct guarantor of loans between financial institutions in the 

LIBOR markets. Some of these functions are being performed by affiliate executives 

There should be more flexible mark-to-market accounting and measures to make 

short selling more costly. Increased margin requirements, and/or reinstatement of 

the uptick rule come to-mind. Increase federal insurance of consumer deposits to $350,000 from $250,000. 

Rating agencies have to be reformed, with supervisory and regulatory actions to 

clarify their role. 

Reform, supervision, regulation to be moved ahead. 

Let me note again that in times of stress and extremis, when markets fail and/

or move way out-of-line with fundamentals, mark-to-market accounting, while appropriate as a general rule for transparency, can give false readings, add to financial disarray and conditions that can make a solvent financial institution insolvent, 

encourage short-selling and further declines in stock prices, and intensify an economic downturn. 

Short-selling and circuit-breakers to slow down stock market movements need to 

be considered, perhaps are necessary, even if shutting-down stock markets, in order 

to give time for responsible and careful public sector decisionmaking and deliberation. 

Prepared Statement of Goodwill Industries International 

Goodwill Industries International, Inc represents 184 local and autonomous Goodwill Industries agencies in 48 states and 16 countries that help people with barriers 

to employment to participate in the workforce. The roots of today’s Goodwill Industries International began as a simple idea in 1902 when Rev. Edgar Helms set out 

to help poor immigrants in Boston’s South End by collecting clothes and household 

items from wealthier Bostonians to give clothing and household items for the struggling immigrants. He discovered, to his surprise, that the immigrants were too 

proud to simply accept the items. So he took his idea a step further by enlisting 

volunteers to repair, clean, and sell the items at reasonable prices. He used the revenue to provide wages to the workers—and the first Goodwill Industries store was 

born. 

More than 100 years later, Edgar Helms’ idea of ‘‘a hand up, not a handout’’ has 

become a powerful one. In 2007, the Goodwill Industries network raised more than 

88

$3 billion through its retail, contracts, and mission services operations. Nearly 84 

percent of the funds Goodwill Industries raised last year was used to serve more 

than 1 million different people, including more than 163,000 job placements. As our 

nation—our World—faces an economic crisis that many experts believe to be the 

worst since the Great Depression, Goodwill Industries stands ready to continue in 

its long tradition of enhancing the dignity and quality of life of individuals, families, 

and communities by eliminating barriers to opportunity and helping people in need 

to reach their fullest potential though the power of work. 

Local Goodwill Industries agencies are seeing first hand the effects of the recent 

economic crisis. In terms of retail, sales in North America increased by approximately 7 percent during the first eight months of this year, a statistic that is likely 

to demonstrate that more people, particularly more middle-class people, are shopping at Goodwill Industries stores in an effort to cut costs. On the supply side, donations, Goodwill Industries International has been concerned that donations may decrease as people, short on cash, decide to hang on to the items they have longer 

than usual. While some local Goodwill Industries agencies, particularly those in 

areas affected by recent hurricanes, have seen donations decrease, Goodwill Industries agencies nationwide report that the number of drop-offs in North America has 

remained stable; however it is just too soon to tell. For these and other reasons, 

Goodwill Industries International has been closely monitoring Congressional efforts 

to stabilize the financial sector and stimulate the economy. We are hopeful that the 

package Congress recently passed, the Emergency Economic Stabilization Act of 

2008, will be good for both Wall Street and Main Street as Congress intended. We 

are also encouraged by Federal Reserve Chairman Ben Bernanke’s recent testimony 

before the House Budget Committee, in which he stated that ‘‘consideration of a fiscal package by the Congress at this juncture seems appropriate.’’

Considering the nearly 900,000 lost jobs since January and the 6.1 percent unemployment rate, Goodwill Industries International believes that such a package 

should reflect a strategy to stimulate the economy while investing in job training 

that support efforts to restore struggling and discouraged workers to employment. 

Therefore, Goodwill Industries International was encouraged by Speaker of the 

House, Nancy Pelosi’s September 18 letter to President George W. Bush, which 

called for a second stimulus bill that invests ‘‘in infrastructure for economic growth 

and job creation here at home.’’ While extending Unemployment Insurance benefits 

is necessary to extend a lifeline for people who have exhausted or are close to exhausting their benefits, a second stimulus bill should include additional investments 

in job training. For example, it should include funds such as those proposed in a 

Senate economic stimulus proposal to provide $300 million for ‘‘part-time jobs after 

school, paid internships, and community service jobs for older youth,’’ and an additional $300 million for employment and training activities for dislocated workers. 

Beyond such existing proposals, Goodwill Industries International urges Congress 

to include significant funding in the second economic stimulus bill that would allow 

us to do more. For example, with a minimal investment on the front end, our agencies can expand into new areas to increase transitional employment placements 

until job losses and the unemployment rate show a sustained trend in a positive 

direction. Goodwill Industries is in a unique position to become an administrative 

conduit and employer for putting workers into public sector jobs while providing the 

training and supports necessary to move their careers toward permanent jobs that 

help stabilize their family financial situation. Such an investment would help stimulate the economy and help restore people to employment in a number of ways. First, 

the provision of temporary employment would provide a much needed lifeline to unemployed workers. For example, those who have exhausted or those who are likely 

to exhaust their Unemployment Insurance benefits could be quickly placed in temporary employment, providing an immediate source of income in addition to other 

available public supports that they will quickly spend on basic needs such as housing, food, and utilities. As this money starts to circulate in the economy, our employment specialists could assist their efforts to find more permanent employment. 

While most Goodwill Industries agencies provide transitional employment opportunities, Goodwill’s 2007 Annual Statistical report shows that at least 82 local Goodwill Industries agencies in the United States provided more than $61.6 million in 

paychecks to 11,470 individuals participating in training. Goodwill’s Annual Statistical Report includes a wealth of information about all the local Goodwill Industries 

agencies; however, I’ll highlight the contribution made by Goodwill Industries of the 

Greater East Bay, which provides workforce development services, including transitional employment, job readiness training, and placement services to people facing 

barriers to employment in Alameda, Contra Costa, and Solano Counties. In 2007, 

Goodwill Industries of the East Bay reported that 324 individuals earned more than 

$6.2 million by participating in its paid employment training programs. 

89

As I stated earlier in this testimony, last year, local Goodwill Industries agencies raised more than $3.1 billion through retail, contracts, and mission services. Nearly 

84 percent of that revenue was used to provide services and activities, including 

transitional employment, to help people become productive contributing members of 

their communities—individuals who face such disadvantaging conditions as welfare 

dependence, homelessness, a criminal background, or a physical, mental, or emotional disability. During these uncertain times, the unemployment levels and social 

needs of Goodwill Industries constituents are likely to expand, despite the steady 

and disturbing trend observed over the past several years of reduced federal funding 

for workforce development. 

Many of our local agencies operate One Stop Centers or function as service providers in the public workforce system. As Members of the Committee know all too 

well, the Workforce Investment Act expired in 2003. Although Congress has continued to appropriate funds for WIA’s expired Adult, Youth, and Dislocated Workers 

programs, funding levels for these programs have steadily eroded—from $3.9 billion 

in FY 2002 to $3.2 billion FY 2007. Certainly, the time to reverse this trend is now. 

A time of recession is no time to cut funding for job training. Goodwill Industries 

International urges Congress to make funding for and the reauthorization of WIA 

a top priority. The reauthorization of WIA offers an opportunity to ensure that our 

public workforce system is responsive to the diverse needs of workers and employers. Goodwill Industries International looks forward to working with Congress and 

the new Administration toward developing a bi-partisan WIA reauthorization bill 

that invests in the future of our workforce while assisting individuals with barriers 

to employment to obtain the job skills necessary to become self-sufficient and meet 

the needs of our nation’s businesses. 

Earlier in my testimony, I cited Goodwill Industries of the Greater East Bay to 

illustrate the positive impact that just one Goodwill Industries agency can have on 

the communities it serves; yet Goodwill Industries agencies nationwide are making 

similar contributions that we will gladly share with this Committee. In closing, 

Goodwill Industries International would like to take this opportunity to extend an 

open invitation to Members of this Committee—as well as to other interested Members of the U.S. House of Representatives and the U.S. Senate—to visit the local 

Goodwill Industries agency in your district when it is convenient for your busy 

schedule. I hope that many of you will accept my offer to get a first-hand look at 

how Edgar Helm’s entrepreneurial vision lives on in the communities you represent 

and others across the country. 

Joint Prepared Statement of Rev. Donald Roberts, President and CEO of 

Goodwill Industries of Manasota, and Sandra Purgahn, President and 

CEO of Goodwill Industries of Acadiana 

Mr. Chairman, Ranking Member and Members of the Committee, we appreciate 

this opportunity to submit written testimony outlining our experience in addressing 

the needs of our local communities, and how those strategies can help the nation 

address the severe unemployment outlook and spur job growth. 

As you may know, Goodwill agencies located on Main Streets across the country 

see firsthand the impact of the current economic crisis and are uniquely able to tailor their programs to respond to local needs. Goodwill Industries International has 

submitted separate written testimony which describes the broad activities of Goodwills nationwide. We would like to describe to you the success of our specific programs that resulted from a federal welfare-to-work grant, and how that model of 

capitalization could be expanded to address the current spike in unemployment and 

promote job growth. The fundamental assumption tested by our welfare-to-work 

grant was that the building of new facilities is a long-term investment in job placement as opposed to the short-term investment associated with traditional programs 

that simply focus on hiring personnel. The fact that the one-time capital infrastructure investment provided to us by the U.S. Department of Health and Human Services (HHS) in 1997 has continued to reap benefits for job placement and training 

every year since demonstrates that this model works for both the short-term and 

long-term. 

Although Goodwill is often recognized simply for its donation centers and donated 

goods stores, our most valuable role is through our job training and placement activities. The Goodwill Job Connection concept was initially developed by Goodwill 

of Manasota in 1988, and was recognized by the American Rehabilitation Association with its ‘‘Employment for Tomorrow Award’’ in 1994. As described in an evaluation of our program submitted to the Administration for Children and Families, our 

Job Connection model provides services in convenient locations situated throughout 

90

Goodwill community service areas, and are paid for through the donated goods business. Once the new infrastructure is built and operational, these Job Connection 

services are not dependent on external subsidies for either staff or referrals. The 

flexibility inherent in this approach allows Goodwill to serve anyone in need without 

consideration of eligibility criteria, on a timely basis, at no cost to the consumer. 

In summary, Goodwill can support its own Job Connection programs with the proceeds from its donated goods stores. 

Nevertheless, our challenge is related to the capitalization costs of infrastructure 

to grow our donated goods business, particularly the cost of site acquisition for new 

donation centers and stores, so that we can meet new and emerging needs in our 

communities. Congress recognized the potential for a system of capitalizing new 

Goodwill facilities in Section 413(h)(3)(A) of the Social Security Act, which allowed 

HHS to grant $10 million combined to our agencies ($7 million to Manasota and $3 

million to Acadiana) for the purpose of purchasing additional sites and the construction of new facilities. In exchange, our Goodwill agencies were expected to demonstrate job placements for those leaving welfare to work with Job Connection programs funded by the proceeds from our new donated goods stores. A three-year evaluation of our grant showed that we met and exceeded our placement quotas. The 

dollars invested by Congress more than ten years ago have created 150 sustainable 

jobs within Goodwill with an annual payroll of $3.5 million—in 10 years that translates into payroll of $35 million and we are still going. It also resulted in training 

and placing hundreds of persons into unsubsidized employment through our Job 

Connection services, which includes job training and placement services—and that 

number grows every year without any additional federal subsidies and will continue 

to grow as long as the business continues. 

The major target population for Goodwill of Manasota’s ‘‘Hand-Up’’ services resulting from our welfare-to-work grant include persons with disabilities, senior citizens, ex-offenders and immigrants with English as second language. The major target population for Goodwill of Acadiana’s ‘‘Hand-Up’’ services has been largely 

women with families moving from welfare to work and a younger population. 

The benefits of capitalization can vary based on the needs of the community being 

served. In addition to our traditional Job Connection services, Goodwill of Manasota 

created a ‘‘Good Partner Coaching’’ program whereby each Goodwill client/employee 

is assigned a personal or family coach whose job is to provide financial planning 

services, address the educational needs of both parents and their children, and provide training to enhance employment opportunities. For our most vulnerable clients, 

we start with their G.E.D. while providing them with ‘‘Opportunity Wages’’ during 

their work with Goodwill, and eventually place them in employment outside Goodwill. 

Additionally, Goodwill of Manasota is able to provide ‘‘Goodhomes’’ services leading to home ownership for those in our program based upon the concept that a 

steady paycheck, which often results from vocational training and transitional employment, and a mortgage, the American dream of home ownership, are the two key 

elements for family stability and economic security. 

Goodwill of Acadiana has expanded its services by building certain skills for our 

clients. For example, we provide work skills such as resume preparation, interviewing, and vocational counseling, as well as life skills such as budgeting and conflict management. Other priorities include computer literacy, interpersonal skills, 

and educational skills such as G.E.D. preparation and literacy classes. Goodwill of 

Acadiana’s work has often focused on proving a realm of services that allow a single 

parent to manage work and parenting. Our welfare-to-work grant also has allowed 

Goodwill of Acadiana to expand its scope of services to youth aging out of foster care 

who otherwise are at-risk for interactions with our criminal justice system. 

The benefits of capitalization go well beyond our Job Connection programs. The 

welfare-to-work grant provided to each of our agencies in 1997 resulted in immediate benefits to the local economy as we constructed new facilities and began employing those we serve in our new donation centers and in our job training centers 

and stores. In addition, Goodwill activities are consistent with the nation’s commitment to recycling as we divert millions of pounds of recycled goods away from landfills and back into the economy. By moving our clients/employees into jobs, there 

is the tangential benefit of taxable income generated to support our federal and local 

governments. 

We believe that we must be accountable to the nation’s taxpayers who expect 

their monies to be used in the most effective way possible, not only to simply fund 

programs but also to build the infrastructure to sustain those programs well into 

the future. Therefore, we urge Congress to learn from our experience and consider 

making capitalization a permanent program for addressing the workforce issues facVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00094 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK
91

ing our nation. The one-time infusion of capital can lead to a lifetime of services 

for the hardest-to-serve populations. 


ins.eps
92


nu-1.eps
93


nu-2.eps
94

Chairman MILLER. So thank you very much. 

We will now move to our second panel, which is Mr. Millard. 

Bear with us as we make a transition here. 

The second panel will be made up of Mr. Charles Millard, who 

is the Director of the Pension Benefit Guaranty Corporation. Prior 

to joining the Pension Benefit Guaranty Corporation, Mr. Millard 

was the managing director at Broadway Partners, a national real 

estate investment and management firm, and was the managing 

director and group head of both Lehman Brothers and Prudential 

Securities. He also served as president of the New York City EcoVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00098 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK

nu-3.eps
95

nomic Development Corporation and chairman of the New York 

City Industrial Development Agency. He holds a B.A. From Holy 

Cross and a J.D. From Columbia Law School. He also informs me 

he spent some time working on the Hill for our former colleague 

Millicent Fenwick, who was also a member of this committee. 

Welcome to the committee, Mr. Millard. Thank you for agreeing 

to testify. Before we move on with your testimony, I would like you 

to please stand and raise your right hand so that I might swear 

you. 

[Witness sworn.] 

Chairman MILLER. Please note for the record that the witness 

has answered in the affirmative, and thank you. 

We will proceed now, Mr. Millard, for your testimony. You proceed in the manner you are most comfortable with. Your written 

testimony will be made a part of the record in its entirety, and you 

know the light system here on the Hill. Green light, you will be 

given 4 minutes; and then an orange light; and then, if you can, 

if you can complete your testimony. But again, we want you to 

make the points that you desire to make here. Thank you. 

STATEMENT OF CHARLES MILLARD, DIRECTOR, PENSION 

BENEFIT GUARANTY CORPORATION 

Mr. MILLARD. Chairman Miller and committee members, I appreciate the opportunity to appear before you today to discuss the 

state of the Pension Benefit Guaranty Corporation and the defined 

benefit pension system. Concern about retirement income security 

is especially important in these challenging economic times. 

Created by Congress under ERISA, PBGC is a wholly owned 

Federal corporation with a three-member Board of Directors; the 

Secretary of labor, who is the Chair, and the Secretaries of Commerce and Treasury. 

Under the Pension Protection Act of 2006, PBGC is headed by a 

Senate-confirmed Director, and I am proud to be the first person 

confirmed by the Senate for this important position. 

PBGC is self-financed, receives no funds from general tax revenues, and its obligations are not backed by the full faith and credit 

of the U.S. Government. PBGC’s revolving funds receive premiums 

which are invested in U.S. Treasuries, and PBGC’s trust fund holds 

assets from trustee plans and recoveries from employers which can 

be invested in more varied holdings, consistent with sound fiduciary principles. 

When an underfunded plan terminates, PBGC takes over the 

plan as trustee and pays benefits to the full extent permitted by 

law. As you know, PBGC has been in a deficit position for most of 

its 34 years. At the end of fiscal year 2007, PBGC had a $14 billion 

deficit with $82 billion in long-term liabilities versus $68 billion in 

assets. 

PBGC staff and our independent auditors are working long hours 

to ensure that our financial results for fiscal year 2008 will be 

available by the annual November deadline. We expect the deficit 

will be somewhat lower for fiscal year 2008, but that it still will 

be in double digits, somewhere in the range of $10- to $12 billion, 

and we can go into that further in testimony. 

96

I do want to emphasize that any numbers that I use today are 

unaudited, as we discussed previously with your staff, Mr. Chairman. We close the books from September 30 until November 15, 

and it’s a very, very hectic time to get books of a $55 billion organization closed. So these are all unaudited. They’re obviously subject 

to change, but they’re reasonable estimates. 

Despite the current deficit, PBGC does not face an imminent financial threat. Unlike a bank, PBGC is not a demand institution. 

We pay monthly pension benefits spread over the lifetimes of participants and beneficiaries, not as lump sums. At the end of fiscal year 2007, PBGC had $55 billion of 

investable assets. How those funds are invested is a significant factor in our ability to meet our long-term obligations to workers. 

In February our Board unanimously adopted a more diversified 

investment policy to better enable PBGC to meet its long-term obligations. The old policy gave us only about a 19 percent chance of 

getting out of our deficit in the next 10 years. The new policy, 

which is designed to take advantage of our long-term time horizon, 

will give us about a 57 percent chance of meeting that important 

goal. 

As you recently noted, Mr. Chairman, PBGC has suffered an ap- proximately $4.1 million decline in our portfolio for fiscal year 

2008. This represents a negative 6.5 percent return on investment 

compared with a 22 percent decline in the S&P. As a result of our 

prudent, diversified approach to investments and our slow and deliberate approach to implementing the new policy, PBGC’s losses 

are far smaller than those suffered by most other investors. 

PBGC’s main sources of information on underfunded plans are 

the Annual Form 5500 and the additional information from plans 

required to report under ERISA section 4010. 

As you know, the Form 5500 data is typically 2 years old when 

we receive it. It is difficult to make informed decisions based on 

such outdated information, especially given the volatile nature of 

the financial markets. 

Section 4010 gives us more current data, but it only applies to 

a relatively few underfunded plans. These filings play a major role 

in our ability to identify potential risks to participants and the pension insurance system. 

Prior to the PPA, plan sponsors were required to report if total 

underfunding in their plans exceeded $50 million. PPA replaced the 

$50 million threshold with an 80 percent funding test. Under this 

new standard, many long-term filers with plans that are underfunded by significantly more than $50 million will no longer have 

to file. 

In summary, please let me say the following. I would like to 

make five quick points. 

Number one, PBGC’s problems, our deficit, are very long-term 

problems. The people who depend upon us for our pensions and 

their payments should not be concerned. Basically, our problem is 

that we take in the assets and the liabilities of plans. So we take 

in sevens, but we owe tens. We get the sevens now; we owe the 

tens over time. So people who are watching this hearing should understand that the assets that we have will be paid out over many, 

many decades, and we hope that over time we will close the deficit. 

97

But taking in sevens now and owing tens later is something people 

need to understand very well. 

Secondly, the new investment policy is designed to give us a better chance to close that gap over time without taking any undue 

risks. In fact, the standard deviation, one measure of risk, in the 

new policy is even lower than the standard deviation in the old policy. The diversification of the new policy gives us a far better 

chance, about a three times better chance, to close the deficit over 

time. 

The old policy was premised on the argument that someday we 

will have to rely on Congress to write a multi-billion dollar check 

to close our deficit. The new policy is based on the idea that we 

should do our best to avoid that eventuality. 

Three, the new policy does not say, let’s take a bunch of very secure Treasuries and dump them into a bunch of high-risk stocks. 

It is very, very moderate, very sensible, very consistent with what 

other large investors in the marketplace would do. It is 45 percent 

equities diversified; 45 percent fixed income, somewhat diversified; 

5 percent real estate; and 5 percent private equity. 

It is designed to be diversified enough to avoid a lot of risk but 

also to give us a chance to, over time, achieve the goal, which is 

about a 7.5 percent annual return. Somehow the press around this 

makes it sound like we are trying to shoot the moon. It is anything 

but. 

Finally, we knew that it would take time to implement this policy when we did. So we haven’t actually made any of the equity allocations in the new policy yet because we knew we would have to 

do manager selection and we knew we would have to be guided by 

market conditions. So that slow and deliberate approach has been 

very, very strong and has borne very good results for PBGC. Over 

the last 12 months, we are down about 6 percent in a marketplace 

where we estimate most pensions are down 15 percent. 

Last of all, our deficit on an unaudited basis has gone from approximately $14 billion to approximately $11 billion this year. That 

is for a variety of things we can talk about. It includes the fact that 

interest rates that value our liabilities have changed and numerous 

other factors. 

But, in fact, it is counterintuitive to think this, but the PBGC 

itself is actually sounder today than it was 12 months ago. That 

doesn’t tell us how things are going to be in the future, but our 

funded status is better, and we have an investment policy that will 

give us a chance to get out of our deficit. But we have avoided the 

market turmoil in the implementation of that investment policy. 

I look forward to your questions. 

Chairman MILLER. Thank you. 

[The statement of Mr. Millard follows:]

98


mi-1.eps
99


mi-2.eps
100


mi-3.eps
101


mi-4.eps
102


mi-5.eps
103


mi-6.eps
104


mi-7.eps
105


mi-8.eps
106


mi-9.eps
107


mi-10.eps
108

Chairman MILLER. On your last point, that you have avoided 

market turmoil because of your prudence, the fact is you have been 

moving steadily along to adopt the new policy. You simply haven’t 

adopted this yet because you haven’t signed the contracts with the 

entities that would manage those funds for you, is that correct? 

Mr. MILLARD. No. We have not—we have taken a few small steps 

so far in changing some of our——

Chairman MILLER. That was all with the wisdom of the market 

that you took those few small steps? 

Mr. MILLARD. Yes. I mean, for a variety of reasons. We knew we 

would have to take time. 


mi-11.eps
109

Let me give you an example specifically, private equity. If we 

could have implemented everything in February, we wouldn’t have. 

It is not a prudent way to invest in private entity. Private equity, 

you want to have multiple vintage year diversification. So you 

would expect a private equity allocation, which in our case would 

be about $2.8 billion, to be put in place over time, over 2, 3, 4, even 

5 years. 

That was expected the day the policy was implemented. When 

the board met, we discussed making sure that we took a deliberative and careful approach to the implementation of the policy. It 

would have taken some time anyway to find some new managers, 

but we also even at this very moment are being very concerned 

about market conditions before we take any actions. 

Chairman MILLER. So the only reason you haven’t invested is because you understood the downside of this current market and you 

understood that in February, March and April? 

Mr. MILLARD. We took a deliberative approach from the start. It 

took some time to think of who our managers would be; and, as we 

found the market turmoil of late, we have been careful about getting into a specific transition. 

Chairman MILLER. Okay. You are familiar with the General Accountability Office discussion. Their April—the Congressional 

Budget Office, excuse me, their April letter to me and their discussion of the asset diversification, the risk of the PBGC’s funded status. 

Mr. MILLARD. Yes. 

Chairman MILLER. How do you recognize their concerns with 

your policy? This is their comments on your expected new policy. 

Mr. MILLARD. Yes. They said it was likely, if I recall correctly, 

that we would have a better chance of closing our deficit over time, 

which is exactly the purpose of the new policy. They also highlighted some risks that I don’t disagree with. Every policy has 

risks, and certainly there will be up years and down years, and we 

are obviously right in the middle of a down year. And they highlighted there are risks in any policy, which is true. 

Chairman MILLER. They highlighted there are particular risks 

with respect to PBGC and that, as they point out, offers a greater 

expected return with lower—this is a suggestion from, I guess, your 

consultants—offers a greater expected return with lower risk and 

assets on the PBGC’s portfolio. This strategy reduces the timing 

match between the Corporation’s future pension obligations and 

the cash flow streams from its investments. 

They are addressing that very often you launched the lifeboat in 

the middle of the storm. 

Mr. MILLARD. I am not sure exactly—obviously, I want to be 

helpful and direct in your answering your question. 

Chairman MILLER. That you may receive your greatest burdens 

at the same time in a down economy. 

Mr. MILLARD. Right. And let me respond to that in a couple of 

ways. It is a pithy statement that some say it is like being an insurer and taking all of the premiums and investing them in Florida 

real estate. Also, some people refer to it as a Texas hedge. 

That is not the case in our actual experience. Our actual experience is that 76 percent of all the liabilities the PBGC has ever 

110

taken in come from two industries, steel and airlines. They come 

because of industry consolidation and industry upheaval. That is 

the thing that is the most consistent theme in the actual liabilities 

we take in. Not necessarily recessions. 

For example, Bethlehem Steel came to the PBGC in 2002 during 

a time of economic recovery, although the markets were down. 

Delta and United Airlines came at a time when the economy was 

stronger and when the markets, the equity markets, were rising. 

So the worry that people say, well, you are going to have a recession and pension plans’ assets will be down at the very time you 

take those plans in isn’t actually consistent with our experience. 

Chairman MILLER. Okay. You in your statement suggested that 

your loss of 6.5 percent is better than the other pension plans, correct? 

Mr. MILLARD. It certainly is better than some, yes. 

Chairman MILLER. But on the equity portion of your plan you 

lost 23.2 percent. 

Mr. MILLARD. Approximately consistent with Standard & Poor’s, 

yes. 

Chairman MILLER. Yes. So the idea that you are structured, one, 

differently than many pension plans because of your current policy 

of fixed income investments, but it is a little disingenuous to suggest that the equity thing is going swimmingly. 

Mr. MILLARD. I haven’t suggested that anything is going swimmingly. Obviously, this is an unbelievable time, probably, let’s 

hope, a once-in-a-lifetime experience for everybody involved investing in the markets today. I won’t say that anything has gone swimmingly, and I don’t mean to claim that. Our equity investments are 

pretty much consistent with other people’s equity investments. I 

am just trying to give you the facts as I know them about where 

we stand today. 

Chairman MILLER. I guess if you want to extrapolate out the new 

policy in today’s markets, the $4.8 billion would look something 

like more than $8 billion in losses? 

Mr. MILLARD. If the new policy had been implemented in February, our experience from February to now—well, let me go back 

a step. It would have been impossible to implement the new policy 

in February anyway. As I discussed before, it takes years to layer 

in some of those asset classes and would have taken many months 

to layer in some of the others. So it is not the kind of thing that 

would have all happened at once anyway. 

Additionally, it is far more diversified than the current equity 

portfolio. You are extrapolating our experience, which is mostly 

right now matched to the S&P, with what the new experience in 

equities would be, which is not nearly matched to the S&P because 

it is intended specifically to be far more diversified. So extrapolating an S&P number isn’t really a fair characterization of how 

the new policy would have performed. But I think it is reasonable 

for us to conclude that it would have performed worse over the last 

8 months. 

But it is not a policy that is designed to function over 8 months. 

We take in sevens now. We owe tens over time. Our obligations are 

not measured in years. They are measured in decades, just like the 

lives of the Bethlehem Steel workers we need to pay. 

111

So we need to make sure that we do our best not to ask Congress 

to bail us out with an asset liability matching policy. The old policy 

tried to match $62 billion in assets with $76 billion—I am sorry if 

I don’t have those numbers exact, but $55 billion in assets—$62 

billion in assets with $78 billion in liabilities. Well, as I say to a 

lot of folks, if you can match 68, 62 and 78, you are hired. Because 

the old policy locked in the old deficit, and it was premised on the 

idea that we would come to Congress some day for a bailout. 

Chairman MILLER. The new policy you mention is more diversified, and that would be how? 

Mr. MILLARD. You mean specifically what are the projected asset 

classes? Currently, we are in U.S. equities approximately 25 percent; the non-U.S. equities approximately 2 percent; emerging market equities about one-half of one percent; long corporate bonds, approximately 40 percent; long Treasuries, approximately 25 percent; 

other Treasuries, approximately 4 percent; total fixed income, approximately 69.4 percent; cash, 1.6 percent; and private equity or 

real estate, approximately 1.8 percent. That is the current. 

The new would be 20 percent, U.S. equities; 19 percent, non-U.S. 

equities; 6 percent, emerging market equities; long corporate bonds, 

13 percent; long Treasury bonds, 19 percent; high-yield bonds, 2 

percent; emerging market debt, 3 percent; total fixed income, 42 

percent; cash, 3 percent; total fixed income and cash, 45 percent; 

private equity and real estate, 5 percent each. 

Now if I can just add one point there, we could pick any one of 

those and say, you are going to put your money in what? And the 

point of that is we want a diversified investment policy. We don’t 

want to be subject to just what is the S&P doing on any given day. 

We don’t want to be relying on how are Treasuries doing on any 

given day. The whole point is the diversification mitigates risks 

and gives us a better chance to make our payments to the Bethlehem Steel workers and other people like them without having to 

ask Congress for a bailout. 

Chairman MILLER. But you do admit the higher risk component. 

You are chasing yield. It is very hard to chase yield without increased risk. A lot of people con themselves into that notion, but 

it is very hard to do. 

Mr. MILLARD. Risk and reward are both on a spectrum. Yes, if 

you sit here in one place and you say, I want more reward, then 

you will probably have to take more risks to get it. But if you diversify, you can say, well, I will take the exact same risk I am taking. 

How much more reward can I get, assuming that diversification 

has a benefit? Or you can say, I will take more diversification. I 

am happy with the return I am getting. Please lower my risk. Or 

you can say, I am going to diversify enough to get a little bit more 

return and a little bit less risk. 

And the standard deviation, which is only one measure, there are 

other measures we can talk about if you like, of the new policy is 

actually lower than the standard deviation of the old. But just as 

important is how bad things can get, and how bad things can get 

is actually safer, if you can call it safer, on a how-bad-things-canget extreme tale under the new than the old. 

112

I mean, the whole point here is time is on our side. We have decades to pay these people, and we are trying to put ourselves in the 

best position to make those payments. 

Chairman MILLER. So in your equity portions, if you can just review this again for me, your equity portions under the current plan 

are divided how again? 

Mr. MILLARD. Twenty-four percent of our portfolio today, 24.5 

percent, is in U.S. equities; 2.1 percent is non-U.S. developed; and 

one-half of one percent is in emerging markets. 

Chairman MILLER. And the second one, non-U.S. developed, that 

is foreign equities? 

Mr. MILLARD. Yes, except not emerging markets. That is an 

emerging category. 

Chairman MILLER. And emerging markets, the third one, is equities? 

Mr. MILLARD. Currently, 0.5 percent emerging market equities, 

yes. 

Chairman MILLER. So those are all equities? 

Mr. MILLARD. Yes. 

Chairman MILLER. Now, in the new plan, if I understand what 

you said, you have emerging market equities, which would be consistent with what you do now, some percentage. You allow 2 percent for junk bonds? 

Mr. MILLARD. Yes. 

Chairman MILLER. I think there is a euphemism for junk bonds. 

Mr. MILLARD. We call them high yield. 

Chairman MILLER. Right, high yield. Until the day they don’t 

yield. Emerging market debt? 

Mr. MILLARD. Yes. 

Chairman MILLER. That is in what form? 

Mr. MILLARD. The form that our managers will buy, and that is 

an important point to make. PBGC doesn’t say, you know, I think 

we would like to have——

Chairman MILLER. Well, what have you discussed in that form? 

What form? Do you expect to buy Treasury notes of foreign governments, of emerging markets? 

Mr. MILLARD. Give me one second. 

Yes. It could be the debt of a foreign government. It could be the 

debt of a company in one of those countries. 

Chairman MILLER. Would it be the actual debt or would it be a 

securitization of that debt? 

Mr. MILLARD. I think the expectation is that it would be the debt 

itself. 

Chairman MILLER. Have you discussed it, the securitization? 

Mr. MILLARD. It could possibly be securitization as well. 

Chairman MILLER. I mean, to a great extent, emerging market 

debt is marketed as a securitized product. Because, otherwise, 

some people could not get their debt to market without absorbing 

a cost. We can expect that that might possibly be securitization. 

Mr. MILLARD. I think we could expect that it could be. We could 

also expect it would also be direct. But the point I want to emphasize is it is diversified. 

Chairman MILLER. I understand it is diversified. I will concede 

the point it is diversified. I want to know what it looks like. So, 

113

in fact, it can be securitized debt of foreign companies. It can be 

securitized debt of foreign countries. 

Mr. MILLARD. Yes, it could be. 

Chairman MILLER. And I assume it would be insured? Are you 

going to buy A-rated debt? Are you going to buy triple-A debt? Are 

you going to buy BB debt? What are you going to buy? 

You are chasing yields. It is of some pertinence here as to what 

it is, because you have obviously made the decision to chase yields. 

Mr. MILLARD. I wouldn’t say we made a decision to chase yields. 

Chairman MILLER. Well, why would you do it? Of course you 

have. 

Mr. MILLARD. I would say—expressing it as chasing yield makes 

it sound as though——

Chairman MILLER. Everybody does it. I mean, any investment 

advisor is always trying to tell you we think we can do better on 

this side. You then have to decide what the risk is for the yield 

that you expect. There is all kinds of ways you can discuss it, but 

that is the basic premise. And we see people place great bets, institutions place great bets to chase yield. We just were looking at a 

number of cities and counties that made that bet in this last economy and the risk overwhelmed the bet. 

But that is what people do. That is risk and reward. You can attach all the terms you want. So it is important as to what are the 

components of the emerging market debt. It is important to know 

the components. 

Mr. MILLARD. No, I am not saying it is not important to know 

it. Of course it is important to know it. 

Chairman MILLER. That is why I am asking. 

Mr. MILLARD. Okay. And I believe I have answered. It can be 

securitized. It can be direct debt of a company, you know, the actual bond of the company. 

Chairman MILLER. I am asking if one of the vehicles by which 

securitized debt became acceptable was because it was insured? 

Mr. MILLARD. I’m not sure I know what you mean by ‘‘insured.’’ 

I mean, if we buy the debt of the government of Brazil, no, I 

don’t——

Chairman MILLER. But if you buy securitized debt of Brazil and 

Zimbabwe and a lot of other people, you are not buying that instrument itself. That is one decision. The other decision is to buy a 

securitized tranche of debt. This is not foreign right now to anybody, and that would be a different decision. 

Mr. MILLARD. Correct. And that decision——

Chairman MILLER. And that allows for that. 

Mr. MILLARD. And that decision is not one I would ever attempt 

to make myself. 

Let me be very clear here: PBGC does not pick the debt of Brazil 

or the bond from the company in China. We pick managers——

Chairman MILLER. I understand that. The world is littered with 

institutions who relied on other people to make those choices for 

them. They all hired the smartest people in the room. I mean, that 

is just a casualty of the system. That is the system. You shouldn’t 

be making those decisions. You should hire somebody who knows 

how to do it. But that is not an insurance policy to success. 

114

Mr. MILLARD. I didn’t promise it is. And to make very clear, I am 

not guaranteeing that this new policy will succeed. I will tell you 

that it gives us a much better chance of being out of our deficit 

over time. 

Chairman MILLER. And the GAO tells us that they think the risk 

is much higher. So we have a difference of opinion. We are just trying to sort this out. 

Mr. MILLARD. Actually, that is not the what GAO said. The GAO 

used a different set of assumptions that were not the GAO’s assumptions. They were J.P. Morgan’s assumptions. And they said, 

under these assumptions, you would get a different answer, which 

would have a higher standard of deviation. GAO did not in any 

way conclude that that proved that the new policy was riskier. 

Chairman MILLER. And private real estate would be what components? 

Mr. MILLARD. When you say ‘‘what components’’——

Chairman MILLER. What would that be? Would that be REITs? 

Would that be actual investment in real estate? Would that be 

mortgages? Would that be securitized mortgages? Would that be 

residential properties? 

Mr. MILLARD. We are actually in the process of consulting with 

a variety of consultants right this moment to reach those conclusions, but likely, trying to be helpful here, I can’t say it is going 

to be A, B and C. 

Chairman MILLER. I just want to know if that component is allowed. I am not asking for a conclusion. I want to know if that is 

the component. 

Mr. MILLARD. If it is allowed under the board policy——

Chairman MILLER. I don’t want to know what the board policy 

is. At some point, you will tell us. 

Mr. MILLARD. We have provided it. It is a public document. It is 

on our Web site. The investment policy statement—I mean, I can 

hand you a physical one right now, if you like. It is a public document. And under that policy, those kinds of investments would be 

permitted. 

What we are going to do in real estate, we have not reached a 

conclusion yet, but likely—again, I am trying to be as transparent 

as I can, yet we don’t know this answer. We are talking to real estate investment professionals now about what it should look like. 

Likely, it will have some components of——

Chairman MILLER. So in each of these categories——

Mr. MILLARD. You asked me a question. I am just trying to tell 

you what it is likely to hold. 

Real estate is likely to hold some funds of funds in large U.S. office properties, possibly some funds that invest in retail, perhaps 

some European office buildings, with managers whose names I 

can’t say because we don’t know yet, but of the kinds of real estate 

investors that I think would give you as much comfort as you can 

have about a sober, careful, not-trying-to-shoot-the-moon policy of 

diversifying into real estate. 

Chairman MILLER. And venture equity. That would be——

Mr. MILLARD. Private equity can include venture capital. It can 

include lots of other classes as well. Without knowing the final 

breakdown that we will conclude to have, I would guess that, of our 

115

5 percent in private equity, chances are 1 to 1.5 points of that will 

be in venture. 

So let’s say—just trying to be conversational here with numbers 

we haven’t made decisions on yet—it would be something like 1.5 

percent of our portfolio. Again, please don’t hold me, because it 

could change, but about 1.5 percent of our portfolio would be in 

venture capital. 

Chairman MILLER. The numbers—I don’t know that these are 

your numbers. Just, for example, the venture equity you have 5 

percent. That is the upside limit. It could be 1.5, as you say? 

Mr. MILLARD. No. No. Private equity we are permitted to have 

5 percent. 

Chairman MILLER. You have is a category called venture equity. 

Mr. MILLARD. I don’t think we have ever listed a category called 

venture equity. 

Chairman MILLER. Private equity I guess can include buyout and 

venture. 

Mr. MILLARD. Right. Our expectation is that that 5 percent will 

be broken down approximately 3.5 to 4 points more large cap and 

mid cap buyout and 1 to 1.5 points venture. So that would mean 

that 1 to 1.5 percent of our portfolio, if that is where we come out, 

would be invested in venture capital. 

Chairman MILLER. So just trying to conclude and not to put 

words in your mouth, in each of these categories—junk bonds, 

emerging market debt, private real estate, venture equity and 

emerging market equity, excuse me—all of those allow for a range 

of investments within those categories from what today would be 

considered very risky—you probably wouldn’t make those choices 

today looking at the market—to a more staid investment within 

that category of emerging market equities or junk bonds or what 

have you. 

Mr. MILLARD. I am sorry. I am not following the question. I am 

sorry. 

Chairman MILLER. Again, you have defended each one of these 

as being prudent based upon what they allow under those categories, and all I am saying is you can go from a very risky investment under emerging markets or you can go for a very prudent investment under emerging markets, but both of them are in fact allowed. 

Mr. MILLARD. Within the class of private equity right now, the 

board’s decision to have 5 percent in private equity was not prescriptive about how much of that should be venture and how much 

of that would be a buyout. That is a decision that PBGC staff is 

considering. 

Chairman MILLER. Right. I understand that. And my point is 

that, in emerging market debt, it could be securitized debt, it could 

be the actual instrument, it could be a Treasury bond of the state 

of Brazil or what have you. In private real estate, it could be 

securitized real estate or it could be actual mortgages or it could 

be, I guess, an investment share in a development. That is not unusual for pension plans. 

Mr. MILLARD. It could be those things. But what we are looking 

at, without having reached a conclusion yet, is approximately 75 to 

85 percent buyout in our private equity, which would leave 1 to 1.5 

116

percent venture. And in the real estate area, no, we are not looking 

at securitized mortgages; we are looking at people that buy——

Chairman MILLER. I am not suggesting that you are. I just want 

to know the ranges. You have an old adage in life, if you can handle the worst, you can probably handle the best. And I just want 

to know the range of decisions that are available to this board over 

this long-term that you are talking about. Because you are launching a new policy, and one of the things we see is that people lose 

their memories about the last downturn, the last bubble, the last 

uptick, the last growth pattern. Whatever it is, we kind of lose our 

memories over a 10-year period here. 

So I just want to know what we are setting in motion, and this 

is why we were trying to have these discussions with you prior to 

this, what we were setting in motion here so that the Congress will 

understand. Because a lot of times we get to be surprised by the 

people who want to use your facility. They don’t necessarily give 

you a lot of warning. 

You can anticipate it. You have done some work in the auto parts 

business. You have done some work with what I guess I call Chrysler and General Motors trying to anticipate where you would be, 

where the taxpayers would be and where the retirees would be. 

But, again, in your business, every now and then, you can get a 

surprise. Most of the things we have learned about Wall Street in 

the last year have been a surprise to everybody. They are not playing all their cards up here. 

Mr. MILLARD. And you are right that we tend to forget things. 

But in today’s moment, we can tend to forget that over 20, 25, 30 

years, a diversified policy that has equities as a greater than 30 

percent portion of it is a lot more likely to pay the bills over time, 

and the diversification can help mitigate some risks. The whole 

point here is we are not investing this money to do better between 

February of 2008 and September of 2008. 

Chairman MILLER. I understand that. You also would, I assume—well, I will come back to that. I want to let my colleagues 

have time. I am sorry I have expanded my time here. 

Ms. WOOLSEY. You are the chairman, Mr. Chairman. 

Chairman MILLER. But fair, as always. 

Ms. WOOLSEY. But always fair, knowing that you are the chairman. 

This is so frustrating. I am sitting here thinking that if I am 

frustrated with this conversation between our chairman and the director of the PBGC, imagine what the average, every-day pensioner 

and the companies that have pension commitments, imagine what 

they are thinking. They must be, you know, spinning, because I 

certainly am. 

So I wanted to ask a question, and I think the chairman asked 

the question, but I am going to ask it, so maybe you can talk to 

me, so maybe I will get it. And maybe the pension people, people 

with commitments and expectations, will get it, too, because, as the 

director of the PBGC, given the current state of this economy, 

where we absolutely know that more employers are going to be unable to make good of their pension commitments to their workers, 

what would you do, in straightforward language, to adjust to the 

situation we are in right now? 

117

I mean, in part of your answer, could you please tell me what 

you meant by outdated information, 2-year old information? I 

mean, how much of what you are deciding is based on 2-year information? 

Mr. MILLARD. Well, we have some information about the plans 

throughout the United States. They have to file a thing called the 

Form 5500. They file it. They are required to file it nearly a year 

after the information is current. And through processing, et cetera, 

it takes us sometimes as much as 2 years before we have current 

information. And even if we had it that very day, it is not very detailed. That is number one. The general matter of reporting that 

we are permitted under law to receive from corporation pension 

plans throughout America is not very in-depth. 

Secondly, there is a form called the 4010 form. The 4010 form 

is required to be filed. Under the old law, it was required to be filed 

if your underfunding was greater $50 million of underfunding. And 

the new says if your funded status is below 80 percent funded. 

Those two things are very, very different, and we have actually 

ended up getting fewer 4010 forms, which are the more current 

ones, than we used to, because fewer people are required to file. Even more concerning is the fact that if you have a $1 billion 

pension plan that is 81 percent funded today, then it is not required to show me the detail that I would like. But if you have a 

$100 million pension plan that is 78 percent funded today, they 

are. So the one that presents me a $22 million potential by liability 

for PBGC, I get all the information that I want. But the one that 

shows me a $180 million potential liability for PBGC, I don’t get 

the more detailed filings. 

Ms. WOOLSEY. So I can assume in my question to you, what 

would be one of the things you would change, would you change 

that? 

Mr. MILLARD. Yes. In fact, we would change it for sure. We actually asked for better 4010 information in the Pension Protection 

Act, but did not get it. 

Ms. WOOLSEY. All right. What would be your response with the 

current information on, we’re down 6 compared to the market of 15 

percent, and we’re down 23 percent in equity markets; what would 

you do to change that, if you could? 

Mr. MILLARD. What we are trying to do is implement a long-term 

policy, but we are trying to do in a deliberative and careful way. 

Ms. WOOLSEY. What would you do? 

Mr. MILLARD. This is what we are doing. We are looking at the 

marketplace. We are talking to transition managers. We are evaluating their best judgment about how we should implement a multidecade policy at a time of market turmoil. 

Ms. WOOLSEY. So you are ready for this market turmoil? Are we 

going to wait long-term to be ready? 

Mr. MILLARD. Well, how ready PBGC is, is probably best measured, if you want a snapshot, and I am very reluctant to offer snapshots, because we all know they change, right? I mean, we use a 

certain rate to value our liabilities. That interest rate went up this 

year. That means the value of our liabilities went down. I don’t 

find that all that comforting, because when interest rates go down, 

the value of those liabilities go up. But PBGC will have to pay a 

118

U.S. Air stewardess or flight attendant a certain amount of money 

27 years from now. Whatever that money is, let’s call it $1,000 a 

month, that is not going to change. If interest rates drop and the 

value of our liabilities go up tomorrow, or if interest rates go up 

more and the value of our liabilities go down tomorrow, we still 

owe that flight attendant $1,000 a month 27 years from now. 

So we are trying to keep our eye on a different North Star which 

is not focused on the funded status snapshot of any given month 

or 3-month or even couple-of-year period. We are focused on trying 

to make sure that we can pay those bills without turning to Congress to bail out the deficit. So that is why we are in the process 

of focusing on this policy. 

But if you ask, how is PBGC, because that is really I think part 

of your question, if you want the snapshot answer, in fact our deficit will have dropped from approximately $14 billion to approximately $11 billion over the last fiscal year, partly because the 

value of our liabilities has gone down, other factors and mortality 

tables that help us calculate the liabilities, et cetera. 

Ms. WOOLSEY. Okay. 

Thank you, Mr. Chairman. 

Chairman MILLER. Mr. Courtney. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

You know, listening to you sort of frame the new policy with language like the long-term and the long view, I mean, given the moment that we are in right now, it sort of reminds you of another 

observation by an economist during the Depression that said, in 

the long run, we are all dead. 

At some point we do have to focus on what is right in front of 

us right now. We just had a whole table full of economists testify 

before you, right and left, who all had pretty grim prognosis about 

where we are in terms of not just 2008 but 2009 and possibly into 

2010. 

I mean, the staff here has provided us with information about 

the losses that other pension plans have taken just in the month 

of September of 2008. And it suggests that your sort of reassuring 

words that, in past recessions, there wasn’t a run on the plan, because, you know, we shouldn’t use recessions as necessarily a 

warning or a precondition that there is going to be a strain on the 

plan. I mean, what I heard earlier this morning was something a 

little bit deeper and more deeply rooted in terms of what we are 

up against right now. 

So I guess the question I have is this: You have made this 

change in policy to invest in a broader range of instruments. Again, 

the report we have is that you lost $3 billion in equity investments. 

I mean, if we hadn’t done that, wouldn’t we be in a better position 

today, I am not talking about the long-term, but today, to deal with 

the challenge we face today? 

Mr. MILLARD. No. The investment performance for fiscal year 

2008, which concluded September 30th, and these are, again, I 

want to emphasize unaudited numbers, is based principally on the 

prior policy. We have made very small changes so far in 

transitioning into the new policy because as we went into manager 

selection and as we talked to transition managers and we saw 

what was happening in the fixed-income markets, we saw things 

119

like the liquidity crisis, et cetera; it made sense to not only have 

a long-term strategy, we are not market timers, we are not trying 

to be a market timer, have a long-term strategy that is designed 

to pay our bills over time without having to turn to Congress for 

a multibillion dollar bailout, and at the same time as we transition, 

to do so in a deliberate and measured way. 

Mr. COURTNEY. Then your testimony is then that this loss was 

not the result of any new policy? 

Mr. MILLARD. Correct. The decline in our portfolio, the portfolio 

was approximately 70 percent equities in September a year ago, 

and other than the fact that equities have dropped, we have not 

changed our allocation yet. We have interviewed managers. We 

have prepared to make transition, but we haven’t moved anything 

yet. We will do so very, very deliberatively. Obviously, I can’t say 

specifically too much, like tomorrow we are going to sell, and nothing is happening tomorrow, X amount of fixed income. We would 

not want to say that to the world at large. 

Sorry, I think I mixed the 70 and the 30. It was 70 percent fixed 

income last September, and it has stayed approximately 70 percent 

fixed income, other than the fact equities have gone down. We did 

not make the shift yet, even though we have prepared ourselves to 

do so. 

Mr. COURTNEY. I guess the other question I would like to follow 

up on is, again, your comment that past recessions have not necessarily triggered a run on the plans necessarily. I assume you 

were here for at least a portion of the other testimony and just 

your own analysis of where we are headed over the next 18 months 

to 24 months, do you have any concern that this is going to be a 

little—that that sort of feeling that recessions don’t necessarily 

cause a problem may be different this time, given the fact that pension plans are taking a huge hit out there? 

Mr. MILLARD. I was only trying to answer the question about our 

policy and its relationship to recessions. I am very concerned about 

the future. I certainly am not an economist, and I wouldn’t want 

to try to predict it, but like any well-informed American, I look at 

what is going on in the economy, and I am very concerned. And I 

am concerned about the funded status of the plans that we insure. 

I am concerned about making sure that promises made by these 

corporations are promises that they can keep. I am concerned 

about making sure that companies do fully fund their plans so we 

don’t end up with more things like U.S. Air and Bethlehem Steel, 

who we thought were fully funded and we found out that they 

weren’t. Yes, I am concerned. 

Mr. COURTNEY. Thank you. 

Chairman MILLER. Mr. Sarbanes. 

Mr. SARBANES. Thank you, Mr. Chairman. 

What is the benefit that—if I am a worker and a retiree and the 

pension plan that my company is supposed to be standing behind, 

they can no longer stand behind, so now I am relying on the PBGC, 

correct? 

Mr. MILLARD. Yes. 

Mr. SARBANES. So what is the level of benefit I am getting when 

the PBGC steps in, in relationship to the original bargained benefit 

120

that I would get? What is the relationship? I am not getting the 

full benefit, correct? 

Mr. MILLARD. We have a guaranteed limit. The most that we pay 

right now is $51,000 a year. If your pension is to pay you $45,000 

a year, then you get that full amount from PBGC, and about 85 

percent of the people we pay actually do receive the full pension 

that they were promised. 

Mr. SARBANES. And what does pension include? Does it include 

health care benefits that were going to be part of that? 

Mr. MILLARD. No. 

Mr. SARBANES. No. But that was part of the original bargain. In 

other words, when a plan says it is fully funded and is still under 

the control of the private employer, is the dollar figure that they 

are looking at one that is including the defined pension benefit 

plus, for example, health care benefits that were part of that equation, or not? 

Mr. MILLARD. No. The pension plan does not include health care 

benefits. But to your point, in our view, companies should not be 

making promises that they cannot keep. And while I don’t have a 

role in the health care issue you are getting at, it is the same point, 

right? Companies should not make promises they can’t keep. And 

PBGC is on the hook for the pensions, but, no, we are not on the 

hook for health care. 

Mr. SARBANES. So a company may be making a promise that includes quota promise for the ‘‘pension’’ and a promise with respect 

to the kind of health care coverage or benefits that you might have 

as a retiree. But the part of the promise that you back up at the 

capped level of $51,000 is just the part that has to do with that 

pension benefit. 

Mr. MILLARD. Right. 

Mr. SARBANES. So with respect to the other piece, they are out 

of luck. 

Mr. MILLARD. Well, it is not what PBGC does. 

Mr. SARBANES. I understand. I understand that that is not what 

you do. I am just in constant quest of whether we actually have 

a real pension system in this country, and I keep finding evidence 

that we don’t. 

What is the best kind of scenario under which a company ends 

up coming to you to back them up? And what is the worst kind of 

scenario, from your standpoint? 

Mr. MILLARD. Well, if a company is in distress, sometimes there 

are things that we can do to try to avoid having the PBGC take 

over the plan, and that is, in a sense, I don’t want to say it is a 

good situation, but to answer your question, it is the better kind 

of situation. 

So, for example, right now, Delphi is in bankruptcy, but they 

have kept their plans. Frequently, by the way, partly through the 

negotiations of PBGC, a company can be in bankruptcy, but we try 

to fight to have them exit bankruptcy with their plan still intact. 

That is one of the most important things we can do, is to have 

a seat at the table to negotiate keeping that plan intact, so that 

the people who might not get their full benefit, in other words, the 

people whose pensions would be above $51,000, still can get the 

121

amount above. And, of course, secondly, so PBGC is not on the 

hook for the underfunded status. 

So, in the Delphi case, we negotiated very, very hard between 

Delphi and General Motors to get General Motors to take part over 

part of the Delphi plan. We were successful in that. In our success 

in that, we reduced our exposure to Delphi by about $1 billion this 

year, 

Mr. SARBANES. Let’s take that example. Because if the fact that 

General Motors has now stepped in to assist or backstop the Delphi 

pension obligation is viewed by you as a positive, then what do you 

say about the fact that General Motors is now in serious condition? 

Mr. MILLARD. Well, that almost gets to the part of your question. 

General Motors’ pension plan, some of the information I have is 

confidential, but I would just say is reasonably well funded. So, obviously, the company is having tremendous difficulty. So I can’t 

predict whether General Motors will file for bankruptcy ever or 

never. Obviously, I hope it is never. But their pension plan and the 

security of those workers involved is better today than it was before. 

Mr. SARBANES. I don’t understand a lot about this. But if General 

Motors pension plan is reasonably well-funded, are those funds sort 

of escrowed, segregated, somehow protected against being invaded 

by the other fortunes of the company, or is it sort of well-funded 

today, but tomorrow it may not be well-funded or protected? 

Mr. MILLARD. Those are segregated funds. You put $100 in the 

pension plan. You are not able to take it out because business is 

going badly. You may have to put more in if the assets go down. 

You may have to put less in if those assets go up. 

So, in other words, and I hate to use this example, but if General 

Motors were in bankruptcy, chances are PBGC would say whatever 

entity exits bankruptcy should keep this plan in tact, because if it 

is well funded, then keeping that plan alive is not going to be so 

difficult for that company that is exiting bankruptcy, and that is 

what we do all the time. 

Dana and Dura are two auto parts companies in the last year or 

so that we did this successfully. We have had a run of about 13 

auto parts companies that have been in bankruptcy and that we 

have helped negotiate to make sure those plans stay in tact upon 

exiting from bankruptcy, they can’t just use the PBGC and the 

bankruptcy policy to shed those obligations. 

Mr. SARBANES. Can I just ask one more question? What is the 

average percentage status of being funded that the plans that end 

up coming to you are at, if you understand my question? 

Mr. MILLARD. Around 70 percent. It can change from year-toyear. But what I said in the beginning, we inherit sevens, but we 

owe tens. As a rule of thumb, it has been around 70 percent. 

Mr. SARBANES. Has there been any trending on that or not? In 

other words——

Mr. MILLARD. Sorry, I misspoke. When they come to us, it is in 

the 50 to 60 percent range. We are about 70 percent funded. And 

no, there hasn’t been much change in the level of funding of plans 

that come to us. 

122

Mr. SARBANES. Are you expecting or projecting or modeling that 

you are going to start getting more funds coming to you that are 

at a lower percentage of the funded status? 

Mr. MILLARD. Well, as I said before, it is more about industries 

than it is about specific funded status of companies. If I can give 

you an example, health care is an industry that we are concerned 

about, small hospitals in particular. So we are actually dealing 

with a lot of health care agencies in States and small hospitals to 

help them understand better their own pension obligations. 

Hospitals are very thin margins. They are not-for-profits. They 

don’t have as much money to put into their pension plans, and the 

nurses and the janitors who work there are depending on those 

hospitals, so we are looking across the country at hospitals to try 

to help them solve some of their problems. Not because of a measurement of how well-funded are they, but more because of the 

question of how is that industry doing? How are those hospitals in 

general doing? 

Mr. SARBANES. Thank you. 

Chairman MILLER. Thank you very much. 

I want to thank you for coming this morning and testifying. We 

have had a spat, I know, about your testimony and documents, and 

some of the questions about documents remain, and I will pursue 

those. 

I do have to say I appreciate your explanations, but I am not 

sure I am satisfied. Maybe it is witnessing the trauma in the community I represent and across the country of this particular economic downturn and the breadth of it. 

I would say that diversification is not a defense in this downturn 

unless, of course, you are into Treasuries or something, and there 

the defense was simply to hold on to your own. People pay into the 

Treasury and take their money; it is not a great defense. 

So I worry that we not cloak this policy, that may be legitimate. 

I disagree with it at the moment. I am not persuaded at this point, 

that those phrases have a different meaning today, and we have to 

recognize them in what may be a different market for a considerable period of time. 

The concern is that losses that are unrealized become realized 

because of the demands of that market at the same time; I think 

that is what some of the critics of this plan have said. You have 

refuted that with your sense of history of how plans come to you 

or participants come to you. 

But I think it is incumbent upon this committee to tease those 

efforts out. I mean, most people were quite stunned to see a $4 billion loss in this market in the PBGC. Those who are aware of your 

function realize you are sort of the last-stop pension plan for America’s workers and the level of trust security that they imagine or 

assume, probably more to assume, is very, very high. I think those 

expectations have got to be met. 

I appreciate that you want to characterize your losses at 6 percent, but in the part that is controversial here in terms of investment policy, the losses are 23 percent. So you don’t necessarily 

stand out differently than many others, other State pension plans 

or public pension plans or others. Everybody is having a tough time 

right now. And I think it raises questions about that investment 

123

policy. It may be that you go forward and PBGC works out for 

them, or it is modified further. I hope there is some ongoing assessment based upon this market. 

But, again, the previous panel and many of the economists commenting on the market and in other meetings, we had suggested 

that for individuals or for pension plans or for companies to recover 

those holdings could be considerable. I appreciate there is a lot of 

people running around today saying this is the bottom, this is the 

bottom, buy everything, buy, buy, buy, buy, and other people are 

saying no. As we found out prior to this crash, we were only back 

to where we were in 2000. So we went sideways. It took a long 

time to get there, and essentially, we ended upside ways where 

people were in 2000. 

I find it interesting that just a few weeks before nationally recognizing the extent of the financial problems, the hottest words in 

foreign debt were BRICs. Now a lot of people don’t know whether 

BRICs are going to survive, whether Russia, India and China are 

going to survive, their economies, in their current forms. One is 

considering going back to the IMF. Others are deciding whether or 

not they want to consider sort of thug capitalism or not. 

But those were the havens a few weeks ago, and today they are 

gone, in the sense of presenting the kind of opportunity that people 

envision they would. So the trajectory around here is rather rapid, 

and I think that is why I have tried to insist upon a full airing of 

this policy. 

I don’t think we as a Congress can empower the GAO and the 

CBO and then say, well, that doesn’t count. So we will have them 

back, and we will sort of figure this out, and people will make their 

decisions. But how long it takes and how long you have to carry 

this loss that doesn’t reflect October and what that means down 

the road is going to be very important to America’s working people. 

A lot of people think that they are in a far more precarious position now than they have ever witnessed in their adult life, and I 

think that that means it is incumbent upon the government to be 

prudent about what we are doing in that context. 

I am not suggesting you aren’t. You have a game plan, and you 

have defended it. I am not sold at this point, but you are certainly 

entitled to your defense. But Wall Street and this country is littered with people that had game plans designed by the brightest 

people in the room, and some of them are on their way to jail. And 

some of them are on their way to wherever they go next. 

But those old touchstones don’t necessarily hold for the American 

public when they are thinking about their money, and most of all 

of this was done with other people’s money. This was other people’s 

money that was put into the securitization, put into the deficit 

swaps. This was all other people’s money. 

I appreciate the fees and commissions that have been exorbitant, 

but it was only enabled by other people’s money, and a hell of a 

lot of it was people’s pensions that they were relying on, where 

they have seen about $4 trillion stripped out of those assets in all 

the various pension and 401(k) plans that we have. 

So it is my intent, with the consent of my members, that we are 

going to continue this discussion about this decision by PBGC, beVerDate 0ct 09 2002 11:14 Jan 02, 2009 Jkt 000000 PO 00000 Frm 00127 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-115\45030.TXT HBUD PsN: DICK
124

cause I think in fact both the Congress and the country are entitled 

to have this laid out on the table to its fullest extent. 

So I want to thank you very much for your defense of this, but 

we will continue to do this. I will leave the record open for that 

purpose, both for members and members of the public. Thank you. 

With that, the committee will stand adjourned. I thank my colleagues for coming to participate in these hearings. I know it is a 

difficult time of year in terms of schedule, but we all know that we 

have an awful lot of work to do in the next few weeks and months. 

Thank you. The committee is adjourned. 

[Statements submitted by Members follow:]

Prepared Statement of Hon. Jason Altmire, a Representative in Congress 

From the State of Pennsylvania 

Thank you, Chairman Miller, for holding this important hearing on economic recovery and job creation. 

It is clear that the financial crisis is having an enormous impact on jobs and employment. More than 2.2 million American workers have lost their jobs in the past 

12 months. New claims for unemployment benefits are at their highest rate since 

just after 9/11. This employment crisis is expected to grow. Employers have signaled 

that they will move to cut jobs and reduce costs in the face of a recession. Experts 

predict that the unemployment rate could be at 8 percent by the end of 2009. 

I look forward to hearing from our witnesses about strategies for stimulating employment and job growth. I hope that we can work together to develop a plan that 

helps American workers on the road to economic recovery. 

I also look forward to hearing from Pension Benefit Guaranty Corporation (PBGC) 

Director Charles Millard. The PBGC protects the pensions of nearly 44 million 

American workers and retirees. In this time of financial crisis, it is more important 

than ever to ensure that PBGC is fiscally sound. 

Thank you again, Mr. Chairman, for holding this hearing. 

Prepared Statement of Hon. Howard P. ‘‘Buck’’ McKeon, Senior Republican 

Member, Committee on Education and Labor 

This year has been a difficult one for working families. The American economy 

has shed jobs month after month, and the stock market rollercoaster has shaken 

the confidence of investors and savers alike. It is clear that we need a bold and decisive plan to spur economic growth and job creation. 

Unfortunately, the Democratic majority in Congress has failed to advance this 

type of pro-growth strategy. Instead, they have outlined an economic stimulus package that will cost upwards of $300 billion without providing the long term stability 

or job creation that our economy so desperately needs. 

We know the ingredients necessary to economic recovery. We know that tax relief 

will help struggling consumers and job-creating American businesses, and we know 

that a long term strategy for energy independence will help keep energy costs down 

while putting Americans to work. We also know what won’t work. We know that 

higher taxes on businesses are chasing American jobs overseas, and that American 

companies are now at a disadvantage compared to their international peers. We also 

know that big government programs can create more red tape and federal bureaucracy than actual good-paying American jobs. 

There are some steps that should be taken—indeed, that we could have taken earlier this year, before we reached this point of economic distress—right here in the 

Education and Labor Committee. For instance, the Workforce Investment Act has 

not been renewed in a decade. In today’s economy, it is absolutely imperative that 

we strengthen the job training programs under WIA, which help Americans who 

have lost their jobs or those seeking better employment to get the skills, training, 

and job placement assistance they need to re-enter the workforce. 

The title of today’s hearing is, ‘‘Building on Economic Recovery Package: Creating 

and Preserving Jobs in America.’’ It’s an appropriate focus for our committee, and 

for Congress. This hearing follows two prior in which we looked at a different angle 

on the current economic downturn, namely how it has impacted workers’ retirement 

security. I would note that PBGC Director Charles Millard is offering testimony 

today, and I’m sure we’ll take his findings and counsel into consideration alongside 

the witnesses who testified at our previous hearings on retirement security. 

125

But with regard to the topic at hand today, I would say simply this: now is not 

the time for politics. It is not the time for partisan finger pointing. The question 

of how to create and preserve American jobs in a struggling economy is more than 

a political talking point; it is a question of the livelihood of real American families. 

I hope today’s hearing was called not as a means to score political points less than 

two weeks before an election, but in a genuine effort to foster a dialogue about progrowth policies and economic recovery. I hope that we can reach across the aisle and 

work together to provide real reforms that create good jobs, lower energy costs, and 

allow our employers to compete. And I hope that today’s hearing is not the final 

step but a first step in this process. 

[Whereupon, at 12:53 p.m., the committee was adjourned.]

Æ