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[Joint House and Senate Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 114-12

                  THE ECONOMIC REPORT OF THE PRESIDENT

====================================================================

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                        
                     CONGRESS OF THE UNITED STATES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 18, 2015

                               __________

          Printed for the use of the Joint Economic Committee
          
          
                                     ______
 
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                        JOINT ECONOMIC COMMITTEE

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

SENATE                               HOUSE OF REPRESENTATIVES
Daniel Coats, Indiana, Chairman      Kevin Brady, Texas, Vice Chairman
Mike Lee, Utah                       Justin Amash, Michigan
Tom Cotton, Arkansas                 Erik Paulsen, Minnesota
Ben Sasse, Nebraska                  Richard L. Hanna, New York
Ted Cruz, Texas                      David Schweikert, Arizona
Bill Cassidy, M.D., Louisiana        Glenn Grothman, Wisconsin
Amy Klobuchar, Minnesota             Carolyn B. Maloney, New York, 
Robert P. Casey, Jr., Pennsylvania       Ranking
Martin Heinrich, New Mexico          John Delaney, Maryland
Gary C. Peters, Michigan             Alma S. Adams, Ph.D., North 
                                         Carolina
                                     Donald S. Beyer, Jr., Virginia

                  Viraj M. Mirani, Executive Director
                 Harry Gural, Democratic Staff Director
                 
                 
                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Daniel Coats, Chairman, a U.S. Senator from Indiana.........     1
Hon. Kevin Brady, Vice Chairman, a U.S. Representative from Texas     3
Hon. Carolyn B. Maloney, Ranking Member, a U.S. Representative 
  from New York..................................................     4

                               Witnesses

Hon. Jason Furman, Chairman, Council of Economic Advisers, 
  Washington, DC.................................................     6

                       Submissions for the Record

Prepared statement of Hon. Daniel Coats..........................    30
    Chart titled ``CBO's Long-Term Publicly-Held Debt 
      Projection''...............................................    31
Prepared statement of Hon. Kevin Brady...........................    32
Prepared statement of Hon. Carolyn B. Maloney....................    33
    Chart titled ``Longest Streak of Private-Sector Job Growth 
      Continues''................................................    35
    Chart titled ``U.S. Economy Has Grown Faster Than Other 
      Leading Advanced Economies''...............................    36
Prepared statement of Chairman Jason Furman......................    37
Questions for the Record submitted by Senator Ted Cruz and 
  responses from Chairman Jason Furman...........................    42
Questions for the Record submitted by Senator Gary C. Peters and 
  responses from Chairman Jason Furman...........................    43

 
                  THE ECONOMIC REPORT OF THE PRESIDENT

                              ----------                              

                       WEDNESDAY, MARCH 18, 2015

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:45 p.m. in Room 
562 of the Dirksen Senate Office Building, the Honorable Daniel 
Coats, Chairman, presiding.
    Representatives present: Brady, Paulsen, Hanna, Schweikert, 
Carolyn B. Maloney, Delaney, Adams, and Beyer.
    Senators Present: Coats, Cassidy, Cotton, Sasse, Klobuchar, 
Casey, Heinrich, and Peters.
    Staff present: Hank Butler, Barry Dexter, Connie Foster, 
Harry Gural, Christina King, Kristine Michaelson, Viraj Mirani, 
Andrew Nielsen, Matt Solomon.

   OPENING STATEMENT OF HON. DANIEL COATS, CHAIRMAN, A U.S. 
                      SENATOR FROM INDIANA

    Chairman Coats. The Committee will come to order. This is 
the first of many hearings to follow on the Joint Economic 
Committee.
    We delayed this morning--this afternoon, excuse me. The 
House is in the middle of a number of votes. I think our House 
members will be joining us. So we stalled for a while and 
decided we needed to get started here.
    The chairman has many things to do, as well as the rest of 
us. So when Vice Chairman Brady and Ranking Member Maloney 
arrive and I think Senator Klobuchar is also about here, we may 
have to mix things up just a little bit.
    But in the interest of time, let me start. First of all, 
Chairman Furman, welcome. It is the tradition of this committee 
to have the chairman of the President's Economic Advisory 
Council speak to us first and give us the overview of where we 
are and where we are going. I appreciate Chairman Furman's 
involvement here. So we thank you for that.
    I often hear from Hoosiers that we must take action to grow 
the economy and I think it is safe to say that all of us in 
this room agree on that whether we are Republicans or 
Democrats.
    But the age old question in economics is this: how does a 
nation or state best create economic growth and rising living 
standards for its citizens?
    It has been nearly six years since the recent recession 
ended. Although many encouraging signs of improvement, the 
recovery has been modest and there are still many Americans in 
need of opportunity.
    In fact, since 1960 our nation has experienced seven 
recessions and recoveries but the current recovery has been the 
slowest of those seven. The recoveries of the past 50 years 
provide comparative data to measure the progress of our current 
recovery.
    On measures of GDP, jobs and income growth, our current 
recovery ranks either dead last or second last. Annual GDP 
growth grew 4 percent in the average post-1960 recovery.
    This recovery has averaged just 2.3 percent GDP growth. 
Personal income rose an average of 15.3 percent in the past 
recoveries. This recovery has reached 7.1 percent over the same 
time frame.
    Median household incomes have collapsed by $2,100 on the 
average in real terms during this recovery, and while the pace 
of new jobs has picked up recently there are still 5.5 million 
fewer private sector jobs in this recovery than the average of 
past recoveries. That is not something to be proud of.
    In addition to working to improve the recovery in the short 
term, I believe we must also address our long-term fiscal 
health. Earlier this year, the nonpartisan Congressional Budget 
Office issued its updated budget and economic outlook for the 
next decade.
    The report warned that under current law our, and I quote, 
``large and growing Federal debt would have serious negative 
consequences including increasing Federal spending for interest 
payments, restraining economic growth in the long term, giving 
policy makers less flexibility to respond to unexpected 
challenges and eventually heightening the risk of the fiscal 
crisis.''
    Federal Reserve Chair Yellen said essentially the same 
thing when she appeared before this Committee last year. Her 
answer highlighted why the long-term deficits Washington 
currently is projected to run must be addressed.
    She said there is more work to do to put fiscal policy on a 
sustainable course. Progress has been made over the last 
several years in bringing down deficits in the short term.
    But through a combination of demographics, the structure of 
entitlement programs in historic terms and health care costs, 
we can see that over the long term deficits will rise to 
unsustainable levels relative to the economy.
    With these comments, the Fed Chair joined a long list of 
academics, economists and business leaders who have all stated 
the obvious.
    Unless the United States makes tough spending choices in 
the near term, eventually we are going to face a debt-induced 
crisis at some point in the future.
    It is only a matter of time because the clock is ticking 
and we continue to postpone the ever more necessary policy 
changes that will help us avoid the coming fiscal crisis.
    In fact, if interest rates were not being artificially held 
down by the Fed at historically low levels, we might already be 
facing our day of reckoning.
    According to CBO, even a 1 percentage point increase in 
interest rates would add $1.7 trillion to the United States 
deficits over a 10-year period of time and that new debt would 
occur without any changes in spending or taxing. Interest rates 
alone would simply drive our debt out of control.
    I look forward to discussing these issues in more depth 
with Chairman Furman. I am pleased that my colleagues from the 
House are arriving after some voting issues, and I now turn to 
former chairman, Mr. Brady. Thank you very much--now vice 
chairman and colleague.
    We appreciate all the leadership you have provided in the 
past. I am using that as an example to try to match--as we go 
forward here and I look forward to your opening statement.
    [The prepared statement of Chairman Coats appears in the 
Submissions for the Record on page 30.]

 OPENING STATEMENT OF HON. KEVIN BRADY, VICE CHAIRMAN, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Vice Chairman Brady. Well, Chairman, thanks very much for 
your leadership. We have had the opportunity to work together 
and actually, Chairman Furman, not only welcome but we have 
tried to find in very thoughtful ways some of the solutions 
going forward economically.
    And I expect that not only to continue under Chairman Coats 
but even be of higher value. I am going to, for the sake of 
time, just submit my opening statement for the record but to 
make the point--to Chairman Coats' point, yes, the economy is 
improving.
    Last year 2.3 percent real GDP growth, not much above what 
it has been throughout this recovery. This is one of the worst 
economic recoveries in half a century.
    My worry is the growth gap. We are missing right now from 
our economy an economic hole the size of Australia or Spain or 
Mexico's economy that ought to be back in our economy today.
    We are missing 5.5 million jobs, enough to put everyone 
looking for work in 45 states back to work today if this were 
just an average recovery, and we are missing, almost $11,000 a 
year out of the paycheck of a family of four.
    So we have got a growth gap in the economy, we have a jobs 
gap and we have a paycheck gap for a lot of hardworking 
taxpayers. The question is how do we close that gap.
    To do that under this President we will need more than 
400,000 new jobs net every month for the rest of President 
Obama's term, which means we can't stay the course. We have to 
look at new policies and, certainly, removing the barriers for 
this type of growth.
    And I believe the answer is pro-growth tax reform. I think 
it is rebalancing our regulation to allow local businesses to 
hire.
    You know, I believe it is the sound dollar from the Federal 
Reserve and I think it is free trade agreements that allow us 
to not just buy American but sell American around the world.
    And so, Chairman Coats, thank you again for your leadership 
and, Chairman Furman, thanks for joining us today.
    Chairman Coats. Congressman Brady, thank you.
    Congresswoman Maloney, thank you for hustling over here.
    [The prepared statement of Vice Chairman Brady appears in 
the Submissions for the Record on page 32.]

OPENING STATEMENT OF HON. CAROLYN B. MALONEY, RANKING MEMBER, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Representative Maloney. Thank you so much, Mr. Chairman, 
for calling today's hearing and I look forward to working with 
you on the Joint Economic Committee this Congress.
    Welcome, too, to Dr. Furman. Thank you for coming to answer 
questions about the Economic Report of the President and the 
status of the U.S. economy.
    There seems to be a rather broad consensus these days that 
the economy is beginning to get back to what we think of as 
``normal'' and it is stronger than it has been in years.
    We have had a record 60 straight months of private-sector 
job growth. Businesses created over 12 million jobs during that 
time.
    [Chart titled ``Longest Streak of Private-Sector Job Growth 
Continues'' appears in the Submissions for the Record on page 
35.]
    As I have listened to some of my colleagues across the 
aisle complain about how the recovery is leaving too many 
people behind--even while their budget proposal is busy 
throwing people off the bus.
    Let us put the recent progress in perspective. In 1984, 
when President Ronald Reagan was running for re-election and 
airing those wonderful, popular TV ads proclaiming that it is, 
quote, ``Morning in America,'' the unemployment rate was 7.4 
percent.
    He was touting his economic achievements. Today, under the 
leadership of President Obama, the unemployment rate is 5.5 
percent--5.5 percent.
    So both are achievements but is it a morning in America 
now? Or maybe a pre-dawn? Let us look at how far we have come.
    Just over six years ago when President Obama took over for 
George W. Bush, our economy was in a dire situation.
    We were losing 800,000 jobs a month. In the final quarter 
of 2008, GDP had shrunk by a staggering 8.2 percent. U.S. 
household wealth fell by about--I can't even say it--$16.4 
trillion from its peak and it was painful.
    Housing prices were collapsing. American families had less 
money, so consumers spent less and businesses suffered. Our 
economy was in a steep downward spiral.
    And in fact, Dr. Furman, a predecessor of yours, Dr. 
Christina Romer, told this Committee in 2009 that by some 
measures the economic and financial shocks we experienced 
during the most recent recession were even worse than the Great 
Depression.
    But bold action by President Obama and Democrats in 
Congress as well as by the Federal Reserve helped put our 
nation back on track. The economy today looks very different 
than it did six years ago when the President took office.
    U.S. GDP has grown in 20 of the past 22 quarters. The 
deficit has been cut by two-thirds. The stock market has 
doubled. The auto industry, which was written off for dead by 
some, is now thriving and in fact we are now exporting and we 
have reached a record high in auto exports in 2014.
    And in the past five years, the industry has added more 
than 500,000 auto jobs. Inflation is low, gas is cheap and the 
dollar is strong.
    My friends across the aisle claim that this recovery is 
weaker than previous ones. However, economic research reveals 
that this is misleading because financial crises like the ones 
that we went through are deeper, more damaging and have longer 
lasting effects.
    Comparing this recovery to other post-World War II 
recoveries is like comparing apples and aardvarks. The Economic 
Report of the President correctly notes that, and I quote, ``It 
is essential that a broad range of households share in the 
United States' resurgent growth,'' end quote.
    That is exactly right. Far too many people are still 
suffering from the lingering effects of the Great Recession. 
The policy initiatives outlined in the report focus on helping 
middle class families.
    History has shown again and again policies that raise the 
incomes and purchasing power of the middle class are a powerful 
and effective way to promote economic growth.
    It would be fairer to compare our record to other countries 
that currently are recovering from the Great Recession, and as 
you can see in this chart--and it is on the TV over there--the 
U.S. economy has expanded at a significantly faster pace than 
other leading advanced economies in the world.
    [Chart titled ``U.S. Economy Has Grown Faster Than Other 
Leading Advanced Economies'' appears in the Submissions for the 
Record on page 36.]
    The recent economic news is very encouraging but our work 
is not done. I am heartened that there is an entire chapter in 
the economic report devoted to examining how workplace policies 
can be improved.
    As one who struggled with this my whole life, I am very 
supportive of it. Paid leave boosts employee retention, lifts 
worker morale and can increase participation in the workforce.
    It is good for employers and good for employees. I have 
spent much of my career working on these issues and living them 
actually and I hope that we can finally make some much needed 
progress in this Congress.
    As the recovery continues it is vital that we pursue a 
broad range of policies that expand economic opportunities for 
all Americans.
    Dr. Furman, thank you so much for appearing before the 
Committee today. I am eager to hear your perspective on the 
economic challenges and opportunities ahead, and I look forward 
to working with the Chairman and the Vice Chairman and 
implementing many of these policies.
    Thank you, and I yield back.
    [The prepared statement of Representative Maloney appears 
in the Submissions for the Record on page 33.]
    Chairman Coats. Thank you, Congresswoman Maloney. And now 
we--now we turn to introducing our distinguished witness, 
Chairman Furman.
    Jason Furman is the chairman of the Council of Economic 
Advisers. Previously, he served as the principal deputy 
director of the National Economic Council and senior vice 
president at the World Bank.
    He has also been a senior fellow in economic studies and 
director of the Hamilton Project at the Brookings Institution. 
Dr. Furman earned his Ph.D. in economics and a Master of Arts 
in government from Harvard University and a Master of Science 
in economics from the London School of Economics.
    Chairman Furman, thank you for joining us today. We look 
forward to your testimony.

 STATEMENT OF HON. JASON FURMAN, CHAIRMAN, COUNCIL OF ECONOMIC 
                            ADVISERS

    Chairman Furman. Chairman Coats, Vice Chairman Brady, 
Ranking Member Maloney and members of the Committee, thank you 
for the opportunity to appear before you here today.
    Last month, the Council of Economic Advisers released the 
69th Annual Economic Report of the President, which reviews the 
United States' accelerating economic recovery and the steps we 
can take to further support economic growth and strength in the 
middle class.
    The clearest signal that the recovery has accelerated comes 
from the job market. As the Ranking Member noted, the United 
States has now seen 60 straight months of private sector job 
creation, the longest streak on record.
    The pace of overall job growth averaged 260,000 per month 
in 2014--the best calendar year since 1999. This robust pace of 
job growth has continued so far into 2015.
    In fact, more than 200,000 private sector jobs have been 
created each and every month for the last 12 months, the first 
time that has happened in 37 years.
    Moreover, in 2014 we saw the continuation of a pattern 
observed throughout this recovery as essentially all the 
employment gains were in full-time positions.
    The unemployment rate currently stands at 5.5 percent, down 
more than a full percentage point over the past year. During 
that time, the labor force participation rate, a topic that is 
discussed extensively in this year's Report, has been stable.
    This is because the decline in participation that continues 
to be driven by the aging of the population has been offset by 
business cycle conditions which have improved.
    And perhaps the most encouraging sign of all, real wages as 
measured by average hourly earnings for production in non-
supervisory workers, are rising again, up eight-tenths of a 
percent in 2014 as a whole.
    While this pace of real wage growth is above the average 
rate seen--preceding the financial crisis, we know that we 
still face a major challenge in this area.
    The historical roots of this challenge and the steps we 
must take to address it are a key theme in this year's report 
and a topic to which I will return in a moment.
    Looking to the months ahead, the administration expects the 
economy will continue to grow at an above-trend rate and that 
the unemployment rate will decline further.
    Strong near-term economic growth is likely to be supported 
by the recent drop in energy prices, a factor we discuss in 
detail in this year's report, which includes a chapter on 
energy that highlights the role that increased U.S. production 
and reduced U.S. consumption have played in recent 
developments.
    In addition, the more neutral and predictable fiscal policy 
environment secured by the Murray-Ryan agreement reached at the 
end of 2013 has made it easier for the private sector to 
increase growth.
    We have an opportunity to build on this precedent through 
affirmative policy measures instead of unnecessary fiscal 
brinkmanship and austerity.
    One potential concern for the near-term economic outlook is 
the economic slowdown in many of our key trading partners. The 
administration continues to monitor global economic situation 
and to engage with our key partners around the world to work to 
strengthen growth.
    As I said, the 2015 economic report of the President 
explores the long-term factors that drive middle class incomes. 
We see three key factors as having special importance-- 
productivity growth, income inequality and labor force 
participation.
    Since the end of World War II, the contribution of each of 
these factors to middle class income growth has varied 
considerably. For example, productivity grew rapidly following 
World War II but slowed in the 1970s and 1980s before picking 
up again in the 1990s.
    In contrast, the labor force participation rate increased 
markedly in the 1970s and 1980s and with a historic 
transformation of women's role in the economy.
    But recently the aging of the U.S. population and retiring 
the Baby Boomers has put downward pressure on the labor force 
participation rate.
    Finally, the last 40 years have seen a steady decline in 
the share of pre-tax income going to the bottom 90 percent of 
the income distribution, raising fundamental concerns about 
whether macroeconomic improvements are translating into genuine 
gains for middle class families.
    This year's report outlines President Obama's approach to 
economic policy, what he terms middle class economics, which is 
designed to improve all three of the factors that drive middle 
class incomes.
    One chapter of the report focuses on the ways in which 
business tax reform can boost productivity. Not only would a 
reformed business tax code create a more efficient framework 
for corporate decisions but the President's plan is 
particularly designed to enable productivity-enhancing 
investments in American infrastructure as well.
    Another chapter of the report lays out the expended 
benefits of international trade which arise in part because 
exporting firms tend to be more productive, supporting jobs 
that pay higher wages.
    We devote an entire chapter, as the ranking member noted, 
to the economics of family friendly workplace policies like 
paid sick and family leave.
    The evidence shows that these types of policies can 
increase employee retention and morale as well as strengthen 
individual's attachment to the labor force.
    The report also discusses several longer-term challenges 
labor markets face and describes how a continued strong 
recovery can help overcome these obstacles.
    In many cases, the President's proposals can help improve 
two or even all three of the key factors driving middle class 
incomes simultaneously.
    For example, an enhanced child care tax credit can help 
facilitate parents' participation in the workforce while also 
directly pushing back against the longer term trend of middle 
class income stagnation by investing more in children's early 
development.
    Similar complementaries are present in the President's 
other proposals like expanding access to community college, 
investing in apprenticeships and job training, helping the 
long-term unemployed return to work and raising the minimum 
wage.
    I look forward to discussing these and other topics with 
you today. Thank you.
    [The prepared statement of Chairman Furman appears in the 
Submissions for the Record on page 37.]
    Chairman Coats. Chairman, thank you very much. I am going 
to try to set the example of keeping question time to five 
minutes per member.
    I think if I can--and I have two questions for you but if 
we have to squeeze it I want to set a good example getting off 
to a start here.
    In my opening statement, I discussed the long-term debt 
problems facing our country. There have been several serious 
bipartisan efforts both in Congress and by outside groups in 
the past few years to address this challenge.
    Groups like Fix the Debt, the Business Roundtable, 
Domenici-Rivlin effort at the Bipartisan Policy Center all try 
to develop solutions to this and official government efforts 
also included Simpson-Bowles, the Gang of 6, the 
Supercommittee, resulting from the Budget Control Act and the 
so-called dinner club of senators, which I participated in.
    Unfortunately, all of these efforts failed to reach an 
agreement. I was particularly frustrated over the failure of 
the final effort, which started with go big, ended up with 
simply the President rejecting even those proposals that he 
himself had previously endorsed as--such as chain CPI.
    I guess my question to you is the President has two years 
left in his term. We have all acknowledged, I think, on a 
bipartisan basis that our continued deficit spending and plunge 
into extraordinary long-term debt presents serious consequences 
and challenges.
    So my question is, is the President and his team prepared 
to address this in his last two years and what kind of 
encouragement can you give us?
    Because I will say this in a bipartisan way--the can has 
been kicked down the road both by Republican and by Democrat 
presidents and the clock is ticking, and the question is when 
are we going to have the will to do it.
    I think that reflects on all of us sitting up here on this 
dais. But also when will we have the leadership from the 
executive branch to cooperate with us in achieving this kind of 
result?
    Chairman Furman. Thank you for your question.
    The short answer is the President stands ready to work on a 
balanced approach that would bring down our deficit over the 
medium and long run.
    It would build on the substantial progress we have made 
bringing the deficit down from 9.8 percent of GDP to 2.8 
percent of GDP--progress that was in part due to the 
strengthening economy but in part due to a number of steps we 
have already taken.
    The Budget Control Act, the Affordable Care Act and the tax 
agreement reached at the beginning of 2013--all three of those 
steps are working together to reduce our deficit.
    And so if you look out over the next 25 years, the fiscal 
gap--a measure of that deficit over time--has also come down 
substantially.
    But it hasn't come down to zero which is why the President 
has a balanced set of proposals that include entitlement 
reforms and additional revenues from cutting tax expenditures 
for high-income households that together would bring down that 
deficit over the medium and long run.
    Chairman Coats. Well, we know there has been some short-
term progress here and the CBO projects that short-term 
progress will last another year or two but then the spike is at 
a pretty high angle here, going forward in subsequent years to 
that.
    And so while we can perhaps celebrate some of the steps 
that have been taken, it comes nowhere close to dealing with 
the long-term problem.
    When do you think--do you think the President is willing to 
address the long--given one last chance in his eight-year 
presidency to address that long-term problem?
    Chairman Furman. You know, I don't disagree and I wasn't--I 
certainly wasn't trying to claim that the problem is solved. It 
is not.
    But we have made a lot of progress on it. Over the next 25 
years CBO foresees a smaller deficit than they had foreseen. 
But it does come back and rise, as you correctly said, which is 
why we have proposed the steps we have proposed.
    I would say the steps are very much in the spirit of a lot 
of the different deficit proposals you describe in that it 
included revenue that you would get through tax reform and 
spending reduction, and it is bringing those two together in a 
balanced way that I think is a prerequisite for making 
meaningful progress on the deficit.
    Chairman Coats. Well, I think that answer basically 
outlines the President's position. I am not sure it leads to 
the kind of result that we are looking for.
    But in--to honor and to set the example for five-minute 
questioning I will bypass the second question or the follow-up 
on the first and turn it over to Chairman Brady--Vice Chairman 
Brady.
    Vice Chairman Brady. Thank you, Chairman. If you need 
additional time I would be glad to yield to you.
    Chairman Coats. You used to ask for that when you were 
Chairman.
    Vice Chairman Brady. Yes. Chairman----
    Chairman Coats. So I appreciate that.
    Vice Chairman Brady. Thank you.
    So here is my question, and this isn't a gotcha question. I 
really would like your thoughts on this.
    Normally, as the unemployment rate goes down the percentage 
of adults in the workforce goes up. Makes sense--employment to 
population ratio. But not this time.
    It has--it is still way below what it was before the 
recession began, basically flat over five or more years. 
Today--so in some ways we have made absolutely no improvement 
at all in the percentage of adults who are working.
    Your report, believes half of that is because we have aging 
demographics even though the older workers, frankly, are 
staying in the workforce.
    It is our younger ones who are struggling right now. So I 
know your predecessor, Ed Lazear, and University of Chicago 
economist Casey Mulligan has said for the other half of that 
problem, and it is a big one, you have the disincentives of 
additional regulation on local job creators and disincentives 
to work by increased social welfare programs.
    So what is your thought? Wouldn't you agree that they may 
be contributing to that other half of that very large problem?
    And what other factors have contributed to it? Because it 
is hard to find a solution if we don't know the cause for why 
so many adults are still not back in the workforce.
    Chairman Furman. Mm-hmm. Thanks for that question.
    First of all, I would want to note that it has been a 
genuine labor market recovery. The Bureau of Labor Statistics 
tracks, in addition to the official unemployment rate, broader 
measures that include people who have been discouraged and 
given up looking for jobs or aren't actively looking for them 
for other reasons.
    Those have also come down. So U-6, the broadest measure of 
all, has come down even faster over the last year.
    Vice Chairman Brady. And I will tell you it doesn't feel 
that way.
    Chairman Furman. Then----
    Vice Chairman Brady. I mean, there is just--almost half the 
college graduates aren't finding a job that requires a college 
degree so either sitting at home or working a cash register is 
not what they dreamed of.
    Chairman Furman. Right. In terms of the labor force 
participation, part of that other half, as you described it, 
referencing our analysis, is a pretty standard whenever the 
unemployment rate is high the participation rate will be a 
little bit lower, and as the unemployment rate comes down that 
piece goes back up in the opposite direction and that's what I 
think we are seeing right now.
    The other part of it, frankly, we don't fully understand 
and we have put a lot of effort into understanding it. I don't 
think I would, frankly, place a lot of weight on some of the 
explanations you put forward in part because male labor force 
participation has been declining since the 1950s for prime age 
men.
    For prime age women it has been declining since the 1990s, 
and so I don't think recent policy changes, you know, one, I 
don't think explain it and two, certainly don't explain that 
phenomenon.
    I think part of it is--gets at some of the work-family 
issues--that we are one of the only countries in the world that 
doesn't have paid leave.
    We don't have sufficient support for child care. That makes 
it harder for women to get into the workforce and keep jobs.
    Workplaces are less flexible, which affects both. There is 
a number of different policy levers that I think could be 
important there.
    Vice Chairman Brady. You know, I am just not sure that the 
obstacle to a college graduate finding a job is either an 
increased child tax credit or family medical leave.
    We have got a problem with job creation in the economy. Two 
hundred thousand jobs--I applaud every improvement that has 
been made. But we should be cranking at 400,000 jobs or more 
easily at this point in the recovery.
    There is a reason why we are not. I just don't want either 
party for us to settle for an economy that is stuck in second 
gear when I think we are capable of much more than that.
    I don't want to lay it off to demographics. Employment 
population ratio simply isn't budging and we can't lay it off 
to long-term. We have a real problem in the workforce right 
now.
    So I just think, again, my solution is to fix this broken 
tax code. I think it holds back job creation, makes us less 
competitive. I do think we need to rebalance our regulation. We 
need good standards.
    We just need them balanced with job creation. I think the 
sound dollar by the Fed and it is time that they begin slowly 
to normalize interest rates.
    Of course, these free trade agreements that tear down the 
American-need-not-apply sign around the world allows our 
workers in Pennsylvania and Texas and Indiana to compete and 
win again are all important.
    So, Chairman, right on the knob for five minutes. Thank 
you.
    Chairman Coats. Perfect. I will give you a star for that.
    Congresswoman Maloney.
    Representative Maloney. Thank you very much.
    I would like to get Chairman Furman's take on the current 
state of our economy.
    As you mentioned, we have had 60 straight months of 
private-sector job growth and look at this wonderful slide that 
shows the long red deep valley, losing 800,000 jobs a month, 
and then you start crawling up in the blue, creating jobs.
    GDP has grown in 20 of the last 22 quarters and the 
unemployment rate is at the lowest level in almost seven years.
    So when we look at our peers around the world, the U.S. 
economy is growing at a faster pace than most advanced 
economies if you look at this slide that compares us to our 
competitors.
    And, Dr. Furman, as we sit here this afternoon, how would 
you characterize the state of the economy?
    Chairman Furman. I would characterize it as accelerating 
and increasingly strong. Over the last two years, it has grown 
at 2.7 percent. That compares to 2.1 percent for the first 
three and a half years of the recovery.
    I also think it is important--we have heard a number of 
comparisons to historical growth patterns. Our demography is 
vastly different than it was in the past.
    If you look at prime age workers between 25 and 54--age 25 
and 54--that population is falling at two-tenths of a percent a 
year. It used to historically be rising at 1.4 percent a year.
    So in the 1980s, when you have an influx of Baby Boomers 
into the workforce, that is going to increase your growth rate. 
In this decade, as those Baby Boomers are retiring, we always 
knew that that would mean the population component of the 
growth rate would be lower and that has nothing to do with 
policy. That was baked in the cake decades ago.
    Representative Maloney. So why would you or how would you 
characterize the fact that the U.S. is experiencing the fastest 
job growth compared to other advanced economies?
    Chairman Furman. Right. In total more than half of the 
jobs--people put back to work in the advanced economies are 
here in the United States, even though we are about a third of 
the population.
    I think that is due to the vigor of our response. 
Everything from the Recovery Act, the auto rescue, how the 
Federal Reserve has conducted its policy and the rescue of the 
financial system all have been considerably more vigorous and 
sustained and consistent than you have seen in many other 
countries.
    Representative Maloney. But still it's not enough, and I 
don't think the President will be satisfied until every 
American who wants a job can have a job. So what can Congress 
do to help accelerate the pace of growth?
    Chairman Furman. There are a lot of answers to that but one 
is infrastructure investment. It expires at the end of May. 
Extending it, increasing our investment and having more 
certainty knowing the amount of funding you have over a six-
year period would be one good way to increase growth and put 
more people back to work.
    Representative Maloney. And how would you describe our 
recovery? Are we recovering from a cold or a heart attack? 
Although the economic indicators are very strong, some claim, 
as we have already heard, that this recovery isn't as strong as 
the average post-war recoveries.
    But it seems to me that in order to have a reasonable 
debate about the recovery that we need to--we also need to 
answer an important question--recovery from what.
    And when President Obama took office, we were shedding 
800,000 jobs per month. Home prices were collapsing and the 
U.S. banking system was in peril. What else can you tell us 
about the scope of this economic catastrophe? How bad was it?
    Chairman Furman. Yes. The loss in wealth as a share of the 
economy that precipitated this recession was about five times 
as large as what precipitated the Great Depression.
    The collapse in the volume of global trade at the onset of 
the Great Recession was even larger than the collapse of global 
trade that precipitated the Great Depression, and that is why 
in addition to Dr. Romer, who you cited before, Dr. Bernanke 
and Dr. Greenspan have also both said that a lot of the shocks 
that led to this crisis were worse than the Great Depression.
    Representative Maloney. So how would you describe the 
severity of this economic meltdown and what he inherited from 
President Bush? Would you call it a common cold? An economic 
flu? A pneumonia, shingles or a major heart attack?
    Chairman Furman. I am not sure any of those are recognized 
economic terms but I would choose the economic heart attack 
from that multiple choice.
    Representative Maloney. So is it fair to compare the 
recoveries from average recessions to a recovery from a major 
heart attack? My time has expired. Thank you.
    Senator Klobuchar. Thank you very much. Thank you, Chairman 
Furman. I had to step out for a Commerce hearing.
    But it is good to see you again and thank you for your good 
work and I know we have discussed what is going on with the 60 
straight months of private-sector job growth and added 12 
million jobs over that time.
    The unemployment rate in my State is significantly better 
than the rest of the country--Congressman Paulsen's State as 
well. But I think we all know that there is more work to be 
done and I know we are here to focus on some good things--
better news than we have had in a while at these hearings but 
also the fact that we have some challenges.
    One of the challenges, of course, is that higher labor 
workforce participation. In the past, we have talked about 
underemployment, people working part time or higher skilled 
workers taking lower skilled jobs.
    In your testimony, you show that all the employment growth 
since 2010 has been in full-time positions with over 12 million 
full-time workers being added in the past five years through 
February.
    Can you talk about what is contributing to this full-time 
employment and what the other challenges are that remain to get 
it up to an even better state nationally?
    Chairman Furman. Yes. Now, maybe I will take that in 
reverse order. There is a huge increase in part-time employment 
during the recession and since then we have made a lot of 
progress because 100 percent of the people put back to work 
have been in full-time jobs.
    But there still remains--essentially, you could describe it 
as a backlog that is left over from that recession of people 
who are in part-time jobs who would like full-time work.
    I think the main explanation of that is just a stronger 
economy. Economic growth that is creating jobs, that is 
bringing down the unemployment rate, that is now doing it at 
the fastest pace we have seen in more than a decade is creating 
demand for those full-time jobs.
    Senator Klobuchar. Okay. And then the other challenge we 
know we have is income inequality. In the economic report of 
the President, you described the economic impacts of widening 
of income inequality and this is an issue that doesn't just hit 
the top or the bottom but those in the middle--the middle 
class.
    Can you talk about why we have seen this rise in income 
inequality and what can be done to reverse the trend?
    Chairman Furman. Yes. The bottom 90 percent of households 
got two-thirds of the income in 1973, down to about half of the 
income in 2013, and it is hard to make wage gains when your 
share is going from two-thirds of the pie to half of the pie.
    There is a lot of different of causes of that--changes in 
technology, education, globalization, institutions like labor 
unions and the minimum wage--and I think that diagnosis of the 
cause leads us to there is going to be a lot of different 
solutions, many of which draw on a number of those different 
causes I described.
    Senator Klobuchar. Very good, and I was thinking back to 
some of the hearings we had when I was the Chair. You were 
here, and I want to congratulate, first of all, my friend 
Senator Coats, as well as for his Chairmanship, as well as 
Representative Brady and also Ms. Maloney for her leadership, 
and I love working on this Committee and it gives you sort of a 
big picture, which I think is really important.
    And I know one of the issues we talked about was workforce 
training and apprenticeships, and especially in a state like 
mine with our low unemployment rate we are really trying to 
figure out how do we get these high school kids that might not 
be graduating or might be underemployed when they get out of 
high school--how do we get them that training at the high 
school level.
    And I really think this could be a bipartisan issue, given 
the work I have seen from the National Association of 
Manufacturing, what I have seen in the states to really take 
this on and have a national effort for more apprenticeship, the 
community college proposal that the President proposed as part 
of this.
    But I want to focus--really zero in on apprenticeships and 
those high school kids that could go to community college and 
get a degree but also could work in a company and start getting 
that sense of the factory floor.
    Chairman Furman. Yes. I think that--I agree that is really 
important and, you know, a lot of that isn't necessarily things 
the Federal Government does but there is things we can do to 
catalyze and----
    Senator Klobuchar. Can you do, incentives through the 
Department of Education?
    Chairman Furman. Right.
    Senator Klobuchar. Maybe making it easier to do the 
apprenticeship. Some of this is state law but some guidance on 
that. We have been having trouble with that in our state.
    Chairman Furman. Well, that is--the President very much 
agrees with that approach and we can keep looking at other 
options, too.
    Senator Klobuchar. Okay. Last thing I wanted to ask about 
is immigration reform. Again, we all know that 90 of the 
Fortune 500 companies were founded by immigrants. More than 200 
were founded by immigrants or their kids including many in my 
state.
    Thirty percent of our Nobel Laureates in the U.S. were born 
in other countries. Can you talk about how, if we could finally 
pass something like--not exactly--the Senate-passed immigration 
bill how that could help the economy right now as we are seeing 
lower unemployment rates?
    Chairman Furman. Absolutely. The Congressional Budget 
Office estimates that common sense immigration reform along the 
lines of what the Senate passed last year would add 3.3 percent 
of GDP to the economy.
    It would do it not just by bringing additional workers but 
also by expanding what economists call total factor 
productivity--the total amount of output you get for a given 
amount of inputs because of the innovation and entrepreneurship 
that you were citing in your question of many of the 
immigrants.
    Senator Klobuchar. And thank you. I remember--my last 
comment--that we had a hearing here on immigration reform and I 
called Grover Norquist as my witness because one of the other 
benefits is, of course, that it brings down the debt by nearly 
160 billion dollars in the first ten years and by nearly $700 
billion in the next 10 years, and I think that is something 
else to be added because people paying taxes that are in the 
shadows, people bringing in economic opportunities to our 
country. Thank you.
    Chairman Coats. Senator, thank you. I appreciate my 
colleagues adhering to the five-minute rule. As you can see, 
it's a large Committee. We would like to give everybody an 
opportunity to--without wearing out the Chairman, give 
everybody an opportunity to get their questions asked.
    Just a matter of procedure: there is a balancing act here 
between chambers and between parties, and so we're trying to 
balance back and forth, and there may be a glitch here and 
there. I am missing half the answers because I am trying to 
make sure I keep everybody in the right--people come and go and 
so forth, but we'll try to honor that back-and-forth between 
parties and chambers so that everybody has an opportunity to 
speak in the order in which they arrived.
    And Senator Casey, that sends it over to you, two Democrat 
senators in a row probably violates something here.
    [Laughter.]
    Nevertheless, given the complexity of this process, you're 
next.
    Senator Casey. Hit the--hit the gong if I get five minutes.
    Thank you very much, Senator Coats.
    Mr. Furman, I am grateful you're here. I wanted to try to 
raise maybe two questions with you.
    The first I'll set forth kind of a predicate of what the 
problem is. It's a familiar problem, but these are pretty 
stunning numbers.
    The issue is how do we make sure that parents can afford 
childcare for what I would call early care and learning? We 
have made great progress on children's health insurance over a 
generation now, still have more to do on that, but on the early 
care and learning, early education childcare, I think we're--
we're not where we need to be.
    Just by way of background, a recent Pew study found that 
average weekly childcare expenses rose 70 percent in 28 years 
between the mid 80s and 2013. That is inflation adjusted. 
Instead of $87 a week, it is $148, so a big increase in the 
expense.
    What does that mean? Well, in Pennsylvania, it means that 
if you're talking about an infant, that full-time daycare, 
$10,470. For a four-year-old a little less, but a little more 
than $8700. So big numbers.
    The adverse impact on all of us is as follows: reducing 
spending, if they have--if parents can't afford childcare, 
reducing their spending on consumer goods, working fewer hours, 
leaving the labor force. All bad for that family, but 
especially for the economy.
    You noted in your testimony that, and I'm quoting, ``An 
enhanced childcare tax credit can help facilitate a parent's 
participation in the workforce while also directly pushing back 
against the longer-term trend of middle class income stagnation 
by investing in children's early care and development.''
    Can you highlight the positive impact of that kind of a tax 
credit, because I know the President has proposed one?
    Chairman Furman. Yes. You get a--in a sense a triple 
economic benefit.
    One, it is a benefit that the child is in a better position 
to, when they go to school, learn, and we see improvements in 
their earnings decades later, which helps the economy over the 
long run.
    The second is it puts the parent in a better position to 
continue to work if he or she chooses to do that, helping their 
family and helping the economy today.
    And then the third is by providing tax relief, it's 
directly improving the income of that family as well.
    So those three--those are the three economic benefits, and 
we have a proposal on the tax side, we also have a proposal on 
the spending side that's more focused on lower income families 
that need the money in advance and up front in a way that the 
tax cut wouldn't provide.
    Senator Casey. And we hope we can get some consensus more 
broadly on tax reform, and I think this is one of the areas 
where we can, in addition to reforming the code, use the code 
in a constructive way to help the middle class.
    I wanted to move to the issue of tax reform. We have an 
under--an effort underway in the Finance Committee, we have a 
group, you know, individual senators on various groups to focus 
on specific sectors.
    I am on one of two subcommittees, so to speak. It's the 
Business Tax Reform Subcommittee, or Group, I should say.
    These are informal, but it allows us to sit down and to--to 
take a hard look at the code and to try to see where there is 
consensus.
    Tell us about what you hope tax reform could yield, and 
especially getting at this generational or more or longer 
problem of a lack of wage growth, or something close to a flat 
growth in wages.
    Chairman Furman. On the individual side, it can get at that 
some degree directly, and it can also enable more people to for 
example participate in the workforce, as the EITC does or an 
expanded childcare credit would.
    On the business side, it would help us expand our 
productivity, and productivity has been part of the challenge 
that we face in terms of wages, and it would do that by 
bringing rates down; making it more attractive to invest in 
America; getting rid of a lot of loopholes so capital would be 
allocated to where it's most--has the highest economic return 
rather than where it gets the greatest tax benefits; and 
rationalizing an international system that right now is badly 
broken, and both discourages investment and does it without 
raising revenue for the Treasury.
    So in all of those ways, I think business tax reform could 
help our productivity, and we extensively discuss that in I 
think Chapter 5 of the report.
    Senator Casey. Thanks very much, and I have seven seconds 
left.
    Vice Chairman Brady [presiding]. So noted, former Chairman. 
Representative Delaney, you're recognized, then we'll go with 
Representative Paulsen.
    Representative Delaney. Thank you, Vice Chairman Brady, and 
thank you Chairman Furman for your testimony. It was as always 
well and truly delivered.
    I have three relatively direct questions that I'd love your 
perspective on.
    The first is around dynamic scoring: what is your 
perspective on whether that would help us, the Congress that 
is, make better decisions around our budgeting and tax policy 
and spending policies? Right now in the House, we're just 
dynamically scoring revenues. Obviously, I am asking it as if 
it was more evenhanded, dynamically scoring revenues and 
investments. That's my first question.
    Second question is there seems to be a fair amount of 
convergence, something I'm very happy about, around the concept 
of pairing increased infrastructure with fixing the 
international tax system, mostly around repatriation and the 
issues associated with that. Give your perspective on why that 
is maybe a good deal for the country.
    And then finally, how large is the effect of kind of 
disruptive technologies on some of the job creation numbers? So 
when we think about comparing this to prior periods, do you 
view that as a significant factor? In other words, the 
disruptive effect of technology has been really positive in so 
many ways for our lives, but it clearly, at least in my 
opinion, has been a headwind on some of the job creation 
statistics.
    So I'll get those three questions out there.
    Chairman Furman. Okay. I can't do full justice to them in 
my 3 minutes and 41 seconds.
    On dynamic scoring, I think dynamic analysis, which is 
looking at the economic impacts of a policy, makes perfect 
sense. It's something that is done here--has been done here for 
a while, and it involves looking at a range of models and 
looking at a range of assumptions on how something might impact 
the economy, and, you know, that's why you'd want to support a 
policy more or less.
    Dynamic scoring, where you actually incorporate that model 
into an estimate of some revenue or budgetary feedback, I think 
is considerably more problematic. There is first of all the 
issue of which model you select, but there's also technical 
issues of if you, for example, propose a tax cut, the model 
blows up because it has forward-looking agents, and they see 
ever-spiraling debt, so the model is meant to make assumptions 
about the behavior of future Congresses: do they cut spending, 
do they raise taxes? And the estimates they have tell you more 
about the assumptions they made about things that Congress 
might do in the future than whatever tax proposal is in front 
of them today.
    And that is why I think as analysis, it can be informative 
and help the discussion. As scoring, that's not the case.
    Very much agree with and really thank you for your efforts 
on linking international tax reform to investments in 
infrastructure. I think it's a real win-win potential there. As 
I said before, international tax system is badly broken. It 
discourages investment, and it doesn't raise revenue, and I 
think we can do better in both respects, having more 
flexibility to move money back and forth and actually collect 
more revenue and have less erosion of our tax base and tax 
incentives for shifting jobs and production overseas.
    Doing that raises some one-time money as part of the 
transition, and I think it makes perfect sense to take one-time 
money, not to use it for something permanent like a rate 
reduction, but to use it for something one time, like for 
example in the President's proposal, and you've talked about 
similar things, a six-year reauthorization of the highway 
programs. I think both halves of that are good economically. 
Together, I think they're even better economically.
    Finally, disruptive technologies. I think there is no 
question that over the last several decades, we have seen a 
hollowing out of the occupational distribution of jobs, with 
fewer jobs created in the middle, and more jobs created that 
need very high skills, and more jobs created that need very low 
skills, and this has been a longstanding trend. I think it very 
much is related to the nature of technological progress, which 
has replaced a number of things, that, you know, that used to 
be good middle-class jobs.
    It's not entirely that, you know. Things like the decline 
in manufacturing and other longstanding developments in our 
economy have contributed as well, so I think you diagnosed the 
problem, the question is what the solution is, and I don't 
think you would suggest, I certainly wouldn't suggest, the 
solution is to reduce those technologies.
    I think a lot of it is in education, and, you know, at the 
same time we had these disruptive technologies, we slowed the 
pace of increase in education. We continued to increase it, 
we're not increasing it as much as we did in the 50s and 60s 
with the G.I. Bill, and so right, it's that disconnect that I 
think is our problem, and I think that is potentially 
remediable.
    Representative Delaney. Shifting the rest of the time to 
you was a good idea because you've managed it perfectly, so 
thank you.
    Chairman Furman. Thank you, Congressman.
    Chairman Coats [presiding]. Congressman, thank you very 
much.
    Congressman Paulsen.
    Representative Paulsen. Thank you, Mr. Chairman, and thank 
you Mr. Furman for being here.
    I know we've had some back-and-forth already and we've 
acknowledged in this Committee several times the hole we had to 
dig out of and the weakness in our economy when the President 
took over. I don't think there's any Member up here or anyone 
in the public that wouldn't hope that we had a similar recovery 
to Ronald Reagan's. I mean, he had a higher unemployment, and 
if we only had that type of resurgence right now in our 
economy, you know, in infrastructure. Representative Delaney in 
particular has had some ideas around that, in terms of our 
cliff coming up in May that we need to address. I also think 
it's interesting from the economic stimulus perspective that 
was offered by the President just five, six years ago that 
infrastructure was largely ignored in terms of that package.
    I do want to focus on something in particular in the 
report, because I disagree with some of the metrics and the 
policy prescriptions that are contained in here, but I do 
wholeheartedly agree with the Chapter 7 discussion on the 
benefits of effective and fair trade agreements. There is no 
doubt that we need to establish fair and strong rules that hold 
other nations accountable for their unfair practices.
    We need to tear down these barriers that block our goods 
from foreign markets. The importance of free trade and fair 
trade to our economy and to a state like Minnesota; as Senator 
Klobuchar noted, where our employment rate is much lower but we 
have a lot of exports--can't be understated.
    I know this last month, I received a letter from another 
company, Creganna, a global supplier of medical device 
components with a facility that employs about 270 people, 
employment for Minnesota, assembling these complex medical 
devices. Trade does lead to more jobs, as you stated, higher 
wages.
    And it's correct that 95 percent of the world's customers 
are outside of the United States, 80 percent of the world's 
purchasing power is outside the United States, overseas as 
well. These trade opportunities, whether it's the Trans-Pacific 
Partnership, whether it's the negotiations between the EU and 
the United States with TTIP, will allow our workers to compete, 
and the Plymouth facility is going to grow and expand to reach 
their customers more easily.
    I also think they note in this letter that they sent me 
that trade promotion authority is key to getting the best 
agreements possible for a more streamlined and efficient trade 
agreement process, and it's necessary to have these high-
standard agreements, which is what the administration's main 
goal is.
    So this leads into my question, Mr. Furman: the President 
has acknowledged that TPA is a necessary tool to get to really 
strong high-standard agreements for TPP and TTIP. Enacting TPA, 
is going to require bipartisan support. What is the President 
doing, or what is the administration doing to help secure 
support from some of the Democratic members of Congress? I know 
USTR has been up on the Hill pretty aggressively, but what's 
the status of the negotiations with Senator Wyden? Can you 
share----
    Chairman Furman. Yes.
    Representative Paulsen [continuing]. Some information on 
where we're moving there?
    Chairman Furman. Sure.
    So first of all, thanks for your--I think it's not 
mischaracterizing to say an endorsement of Chapter 7 of our 
Report, and the things that you've observed firsthand and hear 
from your constituents are very similar to the analysis that 
we've done of the data, and it shows the large benefits of 
trade, and that is why the President is pursuing it so 
actively.
    Just today, for House Democrats, there were two sets of 
briefings that included Secretary Lew, Ambassador Froman, I 
think Jeff Zients, and maybe one other, Secretary Perez as 
well. The President has had a number of, you know, one-on-one, 
small-group, large-group, every-size-group conversations with 
members and others, and our team is working with leadership 
with the committee heads, ranking members, and others to help 
bring together an agreement around trade promotion authority, 
so you can see a bipartisan vote in committee, it can go to the 
floor, it can have bipartisan support and can be something the 
President signs into law.
    Representative Paulsen. Your role is a very important role, 
you are very well-respected, certainly, as Chairman of the 
Council of Economic Advisers.
    What role are you playing? Are you having these types of 
meetings as well? Are you helping convince some of our 
colleagues in terms of the importance of this agreement to 
follow through on the chapter and not miss the opportunity?
    Chairman Furman. Yes, absolutely. This is an 
administration-wide effort that starts with the President, and 
he expects all of us to be actively working on it. You see that 
manifested in the Report.
    Certainly I've done meetings, conversations, and a variety 
of other ways to help push it forward, as have pretty much my 
colleagues across the board in the cabinet.
    Representative Paulsen. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Chairman Coats. Thank you.
    Congressman Beyer.
    Representative Beyer. Thank you, Senator--Mr. Chairman.
    Mr. Chairman Furman, thank you for being here.
    There is going to be a lot of discussion about the 
unemployment rate, the number of unemployed, and I agree that's 
the number one concern, but closely related to it is wage 
stagnation.
    You talked about trying to seek higher productivity growth, 
but most of the numbers I have seen have shown pretty meteoric 
productivity growth since 1979-1980, in the 170 percent range--
140 percent, rather, and yet wage is up at most 9 percent in 
real dollars.
    How can we better connect wage productivity growth with 
wage growth?
    Chairman Furman. Right, and I very much agree with you, 
Congressman, I think we need to do both. We need higher 
productivity growth and we need to better connect them.
    Some steps would actually help both of those: so more 
investments in education would better--would both increase our 
growth and help more people get the benefits of it.
    Other steps, like a higher minimum wage if there were steps 
that could increase the bargaining power and voice of workers, 
I think there's been a disconnect in that regard that has 
helped reduce the share of income going to labor, reduce the 
share of income going to the bottom 90 percent of workers.
    And then things like what we're trying to do in TPP, for 
example, is make sure that we're raining labor standards in our 
trading partners, making sure that we're knocking down barriers 
that are disproportionately large to our exporting to them than 
they currently have to us. We're already quite open to them. I 
think that, too, would help a voice that's more to the top than 
to the bottom, and help better connect wages to productivity 
while increasing productivity.
    Representative Beyer. Mr. Chairman, it seems that one of 
the great debates since the Great Recession was the folks who 
believe that austerity will lead us to--to a healthier economic 
future, and those that thought, you know, the stimulus bill and 
others.
    You see it played out in the op-ed pages every day, but 
you've also seen it played out around world economies. How have 
the austerity economies, the Estonias of the world, grown 
compared to what we have chosen to do here?
    Chairman Furman. Yeah, I think, and Ranking Member Maloney 
had a good chart up there that showed the United States 
compared to the other major advanced economies, and we've come 
further, we've come faster, and we're continuing to move 
faster.
    And I think that is in part due to the vigor of our fiscal 
response. The first fiscal expansion was passed in February 
2008 and signed into law by President Bush. President Obama 
then did a, you know, much more substantial one in the Recovery 
Act and then followed through about a dozen times, many of them 
actually bipartisan bills doing things like expanding payroll 
tax cuts, incentives for investments in infrastructure, 
incentives to protect teacher jobs, and I think that has helped 
put the United States in the position that we're in today.
    Representative Beyer. And I think we'd all rather see four 
percent growth and 400,000 new jobs per month. Vice Chairman 
Brady laid out a pretty straightforward agenda: meaningful tax 
reform, infrastructure bill, you know, TPP and TTIP, and you 
mentioned in the immigration reform that if we had that, it 
would be a 3.3 percent income hit to GDP, positive.
    If we did meaningful tax reform, the infrastructure bill, 
the trade agreements, can we get the 400,000 jobs a month?
    Chairman Furman. I don't have a particular estimate for 
you, but I think there are a lot of shared things in the 
agenda.
    I think it's also important that the budget the House is 
considering right now, according to the CBO analysis, would 
actually subtract from our growth rate over the next three 
years, taking an average of half a point of GDP off the level 
of output, which would cost us jobs and slow our growth over 
the next three years, so I do think there are some, you know, 
important choices and differences as well.
    Representative Beyer. You know, you mentioned all the 
people who were coming to talk to us about TPA and TTIP and the 
like and TPP. One of the things I haven't heard yet is any 
projections about what the new trade bills will do to our trade 
deficit. Does it move us in the right direction? And how 
concerned are you about the trade deficit where we are right 
now?
    Chairman Furman. We have--as I showed, GDP brought our 
trade deficit down, and now it's the lowest it has been since 
the 1990s, and I think that is a good economic development.
    It always creates a challenge for the trade deficit when 
our economy is growing faster than others. It makes it easier 
for us to import and harder for them to buy our things, so 
we're going to be facing that type of challenge over the next 
year or two, but disproportionately, knocking down trade 
barriers which are much higher in the other countries we're 
negotiating with than they are here in the United States--we 
already are relatively open to them, these agreements are very 
much about opening their markets to our companies--would help 
our overall economy.
    Representative Beyer. All right, thank you, Mr. Chairman.
    Chairman Coats. Thank you, Congressman.
    Congressman Schweikert.
    Representative Schweikert. Thank you, Mr. Chairman, and 
being sort of one of the newbies here, I look forward to doing 
a couple of things, one not embarrassing myself.
    [Laughter.]
    Chairman Coats. That's our first challenge for all of us.
    Representative Schweikert. Yeah, and some of us are greater 
failures at that than----
    Mr. Chairman, one thing I have always wanted to ask you: 
explain to me or help me understand, the models keep missing 
the GDP projections. One of the little charts we've been 
working on in my office to do a floor presentation, and going 
back to 2011 and, you know, the last four or five years, we 
keep missing it, not within the margin of errors substantial. 
What are we modeling wrong? Why are we missing the GDP growth 
numbers?
    Chairman Furman. I think that's a great question, and, you 
know, economic forecasting is an--a very uncertain art, there 
is no doubt about that.
    The unemployment rate has consistently fallen further and 
faster than we expected.
    Representative Schweikert. But----
    Chairman Furman. But you asked about GDP growth?
    Representative Schweikert. Yes, and Mr. Chairman--Mr. 
Chairman, the reason the GDP model obviously, it's because it 
sets off a cascade of so many other effects, and we haven't 
missed it by little margins----
    Chairman Furman. Right.
    Representative Schweikert [continuing]. We, I mean, if you 
were playing professor, you would have flunked me.
    Chairman Furman. Yeah. I think, you know, some of the 
initial modeling made the mistake of assuming a V-shaped 
recovery similar to the pattern we saw in the 1980s, and the 
models didn't build in the financial sector in the way that we 
understand the----
    Representative Schweikert. But we knew that last year. I 
mean, even last year, hitting--what did we hit, about two four?
    Chairman Furman. Last year, about two four, yes.
    Representative Schweikert. Yes, so--because there's another 
side, and this one was a little more ethereal, touching on 
academic. I have a fascination, one of my Democratic colleagues 
tried to touch on it, but I think we sort of missed the 
communication with you--there is a new economy out there, and 
I'm not talking the long-term adoption of technology, I'm 
literally speaking of the last five years.
    Some people call it the peer-to-peer economy, the hyper-
efficient economy, the Uber economy, you know, where I go on a 
Web site and I rent a tool from my neighbor instead of going 
down and buying it.
    The way we do our samples to build a GDP model, do you 
believe we're doing a sufficient job of capturing these--this 
new level of transactions?
    Chairman Furman. I think that's a really important 
question. My predecessor under President Reagan, Marty 
Feldstein, recently wrote that he thinks that we're not and 
that the growth rate is actually substantially higher than is 
reported in the official statistics because a lot of the parts 
of GDP, especially in services and especially in technology, 
aren't being properly measured.
    And I think it's much easier to measure manufacturing than 
services, and as our economy shifts more and more, it 
definitely gets harder to measure.
    Representative Schweikert. Well, and this is where, I don't 
mean it to sound like a criticism, but one of the things we've 
seen in this new sort of peer-to-peer hyper-efficient economy 
is you no longer have to be a master's computer programmer, you 
can be the pool repairman that hits the button, rents the tools 
he needs to fix this, you know, right off of his smart device, 
and are we seeing a little more egalitarian access now to that 
efficient economy?
    Chairman Furman. I think in some respects we are. I think 
the premium to a community college degree, the premium to a 
college degree, remains quite large and about what it was 
before these developments, but it does open up a number of 
opportunities for people.
    Representative Schweikert. You touched on it, and I may 
have made the mistake, being new to the Committee, of actually 
reading----
    Chairman Furman. Thank you.
    Representative Schweikert [continuing]. Literacy--well, at 
some point I'll sit down and show you the parts I highlighted 
where I think you even got some math wrong. But that's just a 
personal thing.
    On--you had spoken earlier about the annual movement in 
average age, you know, was it 0.20----
    Chairman Furman. Yes----
    Representative Schweikert [continuing]. As you get older--
--
    Chairman Furman [continuing]. In terms of the participation 
rate.
    Representative Schweikert [continuing]. And participation 
rate, but that also has potentially devastating consequences in 
the entitlement state, and do you really believe we're taking 
the coming sort of entitlement wave seriously in the policy 
discussions?
    You answered before a question saying well, the President 
is willing to work with us on that if we're willing to give 
more revenues, and----
    Chairman Furman. Well----
    Representative Schweikert [continuing]. But there's other 
optionality to start to deal with this.
    Chairman Furman. Yes. I probably have the same sign that 
you have implicit your question, a different magnitude of 
adjective. But there is no question that that slowing 
participation rate is a challenge for entitlements. That is why 
the President did things like the Affordable Care Act, and that 
is why he is proposing----
    Representative Schweikert. And we're just on----
    Chairman Furman [continuing]. Changes to do in conjunction 
with----
    Representative Schweikert. And I wanted to say this in open 
hearing, having actually--the joy of being in Arizona, I spend 
lots of time in airplanes reading. Should I be surprised how 
political much of this book was?
    Chairman Furman. You know, I think you can judge for 
yourself. We put out best professional judgment here. It's very 
much grounded in the economic literature. I have heard very 
positive feedback from a number of my predecessors who are both 
Republican and Democratic.
    There's chapters on business tax reform, on international 
trade, a variety of topics----
    Representative Schweikert. I will yield back, but later on, 
I'll show you my highlights.
    Chairman Furman. Sure.
    Chairman Coats. Congressman, thank you.
    Dr. Adams.
    Representative Adams. Thank you, Mr. Chairman, and thank 
you Dr. Furman.
    I represent North Carolina's 12th District, which has some 
of the highest rates of unemployment in the state, maybe even 
the nation. Bringing new jobs to the district and the state 
requires that we make sure that our residents have the skills 
for jobs currently being demanded by the economy, so it also 
demands the creation of new industries and products through 
research and innovation.
    Our public education system, and we have research 
institutes, North Carolina has the ability to be a leader in 
job creation throughout the Southeast and the entire country.
    My question is that North Carolina is home to a strong 
university and community college system: what are the specifics 
in the President's plan that will expand access to community 
college, and what measures will be in place to ensure that 
community colleges are supporting new students?
    Chairman Furman. Thank you. I think that's a great--a great 
question.
    And the President already did the first set of Federal 
funding for community colleges as part of the same legislation 
that created the Affordable Care Act and has set up competitive 
grants that have been very successful I think in catalyzing 
innovation in community colleges and helping to modernize them.
    What we have proposed in our budget is a much more dramatic 
step: $80 billion over ten year investment in making the first 
two years of college, community college, free for anyone that 
maintains successful academic performance.
    At the same time, we're trying to use that money by working 
through states to set up models to drive changes so that 
community colleges are geared towards the types of things you 
were describing, of placing people in jobs and being successful 
in those careers, and so we think that particular legislative 
idea, building on what we've already done together with 
Congress, would really help move us forward.
    Representative Adams. Thank you. Because of the economy and 
the situation with unemployment in my state, my district in 
particular, I have had a long-time concern about minimum wage, 
as a matter of fact, I worked nine years as a state legislator 
to get the minimum wage increased. We only got it increased by 
a dollar. That was in 2006.
    And so, you know, people are working two and three jobs 
every day, working hard is not enough if you don't make enough. 
But what benefits do you see from raising the minimum wage for 
hourly employees?
    Chairman Furman. The direct benefit is that it would be 
additional income. Raising the minimum wage would result in a 
wage increase for tens of millions of workers. It would lift a 
lot of people out of poverty and relieve poverty for others.
    And I think importantly for employers, it helps reduce 
turnover, increase motivation, and in a number of ways can help 
with the productivity of the employees, and that's why I think 
you've seen a number of businesses, you know, across the 
country raising their wages, because they recognize it's a 
smart business decision. That is exactly why we, the President, 
has ordered the same thing for Federal contractors.
    Representative Adams. All right. And my final question, 
what proposals has the Council of Economic Advisers discussed 
to help the long-term unemployed return to work?
    Chairman Furman. We've discussed a number. One of them is 
just a stronger economy will help bring down long-term 
unemployment, but also we think we can reform the unemployment 
insurance system, both to provide people with longer benefits 
automatically when the unemployment rate is high so it adjusts 
based on the economy to bring more solvency, but to also have 
funding for states to try different types of experiments, and 
these are experiments that build on bipartisan legislation we 
did that would let states figure out, for example, how to do 
apprenticeships or other ways of bringing people back into jobs 
who have been out of them for a while.
    Representative Adams. Thank you, sir.
    Mr. Chair, I yield back.
    Chairman Coats. Thank you.
    Congressman Hanna.
    Representative Hanna. Thank you. It's good to see you.
    Chairman Furman. Good to see you.
    Representative Hanna. Thank you for being here.
    A couple of questions: one of the things I--one of the 
issues that comes up constantly in my office by organized labor 
and others is the concern over TPP, and I'd like to give you an 
opportunity to speak to those individuals worried about their 
job loss.
    The other thing that I want to ask you about too is you say 
millennials are more educated than previous generations, but 
they're also deeply in debt. College debt is growing. I 
wondered your opinion of the long-term and short-term 
ramifications of putting off marriage, having children, 
homeownership is a huge piece of our economy that is allegedly 
being put off, you know, launching a different--a new career, 
and generally the lowering--potential of lowering lifetime 
income.
    So those two things, I----
    Chairman Furman. Yes, okay.
    Representative Hanna [continuing]. Take it away.
    Chairman Furman. Great.
    In terms of TPP, our analysis is that it would support 
better higher-paying jobs, and there is no doubt that if a 
constituent walks into your office and they say globalization, 
the process of globalization has created challenges for them, 
they could definitely be correct, because it absolutely has.
    What TPP is about is making sure that we're better managing 
the process of globalization and doing it in a way that's in 
the interests of the United States as well as of the global 
economy.
    So, you know, to draw on some of the examples I was giving 
before, our average tariffs are 1.4 percent. We already are an 
open economy. Our partners sometimes have 20, 30 percent 
tariffs, so this involves really opening up their markets to us 
in a way that ours are already open to them, is what we're 
doing TPP.
    You don't have anything resembling the types of labor 
standards that we have in a number of the TPP partner 
countries. Because of this agreement, we would have better 
labor standards.
    So, you know, I think you can take someone and say there's 
a legitimate set of concerns here, and the whole point of the 
way we're negotiating this agreement is to manage that process 
of globalization better so that we're creating more higher-
paying jobs here in the United States.
    Representative Hanna. So that past treaties should not be 
an indicator of future treaties?
    Chairman Furman. Yes. That is right, and it's not just past 
treaties. Some of it is just technological: the development of 
container shipping and a whole range of things like that that 
have helped shape this phenomenon.
    In answer to your second question, there's no doubt that 
there's a set of challenges associated with student debt. I 
don't think we should lose sight of the forest for the trees in 
that college is still a very good deal, and, you know, then of 
the debt, you're still raising--tend to raise your earnings 
substantially, but not everyone does, and that's why something 
like expanded income-based repayment, that if you end up not 
earning as much you basically get some insurance against that 
outcome and have some, you know, ability to restructure or 
relieve your debt.
    A focus on college completion: a lot of the biggest 
problems with college debt aren't from college graduates, 
they're people who didn't graduate from college, and so they 
incur some of the costs. That is an especially serious issue 
with some for-profit schools, so we've put in place gainful 
employment regulations to deal with that in that sector as 
well.
    In terms of some of the empirical links between student 
debt and delayed marriage and homeownership, that's something 
economists are actively studying and debating. Some see that 
set of links.
    You know, it's also the case though that if you go to 
college, you're likely to delay marriage, you're likely to 
delay buying a home, regardless of whether or not you're in 
debt, so I think some of what's going on here might be a 
correlation with debt and not necessarily something being 
caused by the debt, but it's worth continuing to look at, and 
there's a number of different ways we can do better.
    Representative Hanna. Thank you.
    So in terms of college debt, though, it is an enormous 
number, and there are numerous studies that show that people 
are defaulting at an accelerated rate. That has to have some 
long-term implications, though, on their ability to do a whole 
host of things in their futures.
    Chairman Furman. Yes, and the fact that this is the second 
largest segment of consumer debt after home mortgages, and that 
as you said, you do see some default rates--delinquency rates 
rising there, you know, means that it is an area that we should 
be actively monitoring and looking for ways to improve on, 
absolutely.
    Representative Hanna. Thank you for your time.
    Yield back.
    Chairman Coats. Well, Chairman Furman, we thank you for 
your participation in this today. I think we're off to a good 
start with the Committee, and I want to thank my colleagues 
from the House as well as the Senate, both parties 
participating here. It's been constructive.
    I think we will look forward to continuing to work with you 
and the Council of Economic Advisers. A lot of issues have been 
raised here today that probably deserve some drilling down on 
the specific issue, and so you've given us, I think, a broad 
range of issues here that affect the future growth of the 
United States, the economy, and issues that we're having to 
deal with here in Congress.
    I really appreciate your willingness to work with us and 
look forward to some continued participation.
    We're going to keep the record open for five days, and with 
that, unless my colleagues have something they would like to 
follow up on?
    Representative Maloney. I'd just like to join you in 
congratulating and thanking Chairman Furman and all of our 
participants on this Committee, and especially congratulating 
you on your new position, and quite frankly, Dr. Furman, you 
stunned me when you said it was five times the economic shock 
of the Great Depression. Then we must have learned a lot in the 
Great Depression on how to handle this.
    I do want to recall a statement I heard earlier today 
from--from Mr. Lew, Secretary Lew, where he credited the 
recovery, obviously, to the spirit of the American people, but 
also to the many efforts that we tried. We tried so many 
efforts, more than the whole efforts of all the world combined, 
to try new ways to try to combat the challenges that we faced.
    So I appreciate your insights today and look forward to 
working with you, and thank you so much for being here today.
    Chairman Coats. And thank you to the Ranking Member from 
the House, and I think you've sort of set the stage for 
continued discussion on the very topic that you were referring 
to.
    I think it's important to the future of our country that we 
understand not only what has happened, where we currently are, 
but where we need to go.
    I raised that issue of entitlements, and I do not assess 
that the--either the Congress or the Executive Branch have 
exercised the will to make the tough decisions to go forward on 
the crushing statistics relative to unchecked entitlement 
growth.
    We're going to do more investigation and discussion on that 
in future hearings. We thank you for your contributions to 
that.
    And with that, the Committee is adjourned.
    (Whereupon, the hearing went off the record at 4:05 p.m.)
                       SUBMISSIONS FOR THE RECORD

    Prepared Statement of Hon. Dan Coats, Chairman, Joint Economic 
                               Committee
    The committee will come to order.
    Chairman Furman, welcome. Vice Chairman Brady, Ranking Member 
Maloney and I appreciate your willingness to continue the longstanding 
tradition of the Chairman of the Council of Economic Advisers 
testifying before the Joint Economic Committee. We look forward to 
discussing the Economic Report of the President with you.
    I often hear from Hoosiers that we must take action to grow the 
economy, and I think it's safe to say all of us in this room agree on 
that. But the age-old question in economics is this: how does a nation 
or state best create economic growth and rising living standards for 
its citizens?
    It has been nearly six years since the recent recession ended. 
While there are many encouraging signs of improvement, the recovery has 
been modest, and there are still many Americans in need of opportunity. 
In fact, since 1960, our nation has experienced 7 recessions and 
recoveries, but the current recovery has been the slowest of them all.
    The recoveries of the past 50 years provide comparative data to 
measure the progress of our current recovery. On measures of GDP, jobs, 
and income growth, our current recovery ranks either dead last or 
second-last. Annual GDP grew 4 percent in the average post-1960 
recovery; this recovery has averaged just 2.3 percent GDP growth. 
Personal income rose an average of 15.3 percent in past recoveries; 
this recovery has reached 7.1 percent over the same time frame. Median 
household incomes have collapsed by $2,100 in real terms during the 
recovery. And while the pace of new jobs has picked up recently, there 
are still 5.5 million fewer private-sector jobs in this recovery than 
the average of past recoveries. That's not something to be proud of.
    Why is this recovery so different? And just as important, if not 
more important, what does the future economic situation look like for 
the average American family?
    In addition to working to improve the recovery in the short-term, I 
believe we also must address our long-term fiscal health. Earlier this 
year, the non-partisan Congressional Budget Office issued its updated 
budget and economic outlook for the next decade. The report warned that 
under current law our ``large and growing Federal debt would have 
serious negative consequences, including increasing Federal spending 
for interest payments; restraining economic growth in the long term; 
giving policymakers less flexibility to respond to unexpected 
challenges; and eventually heightening the risk of a fiscal crisis.''
    Federal Reserve Chairman Yellen said essentially the same thing 
when she appeared before this committee last year. I asked how Congress 
can help those in Indiana and across the country with the uncertainty 
they face in this economy. Her answer highlighted why the long-term 
deficits Washington currently is projected to run must be addressed.
    She told me, ``There is more work to do to put fiscal policy on a 
sustainable course . . . Progress has been made over the last several 
years in bringing down deficits in the short term, but [through] a 
combination of demographics, the structure of entitlement programs, and 
historic trends in health-care costs, we can see that, over the long 
term, deficits will rise to unsustainable levels relative to the 
economy.''
    With these comments, the Fed Chairwoman joined a long list of 
academics, economists, and business leaders who have all stated the 
obvious: Unless the United States makes tough spending choices in the 
near term, eventually we are going to face a debt-induced crisis at 
some point in the future. It is only a matter of time; the clock is 
running down, and we continue to postpone the ever more necessary 
policy changes that will help us avoid the coming fiscal crisis.
    In fact, if interest rates were not artificially held down by the 
Fed at historically low levels, we might already be facing our day of 
reckoning. According to CBO, even a one percentage-point increase in 
interest rates would add $1.7 trillion to the United States' deficits 
over 10 years. And that new debt would occur without any changes in 
spending or taxing--interest rates alone would simply drive our debt 
out of control.
    I look forward to discussing these issues in more depth with 
Chairman Furman.
[GRAPHIC] [TIFF OMITTED] T4196.001

 Prepared Statement of Hon. Kevin Brady, Vice Chairman, Joint Economic 
                               Committee
    Chairman Coats, Ranking Member Maloney, Members, and Chairman 
Furman:
    Although the recovery from the financially-triggered recession 
began five and one-half year ago, the U.S. economy regrettably remains 
stuck in second gear. On February 27th, the Bureau of Economic Analysis 
confirmed this, reporting that real GDP grew by 2.37 percent last year. 
That is an imperceptible increase over the average annual growth rate 
of 2.33 percent for the entire disappointing recovery.
    Conditions have improved, but the Obama recovery remains the 
weakest, or near the bottom, in terms of every major measurement of 
economic performance compared with other recoveries during the last 
half-century. The Joint Economic Committee describes the difference in 
economic performance between this recovery and the average of other 
recoveries since 1960 as the ``Growth Gap.''
    Since the recession ended, real GDP grew by 13.5 percent during the 
Obama recovery compared with average growth of 24.1 percent during 
other post-1960 recoveries. This difference, the ``Growth Gap,'' means 
our economy is missing $1.5 trillion in real GDP at this point in the 
recovery--a hole comparable to the economy of Australia, Mexico, or 
Spain. Cumulatively, we are missing $5.4 trillion from America's 
economy.
    Since the end of the recession, private-sector payrolls increased 
by 10.0 percent. Over the comparable period, however, private-sector 
payrolls grew by an average of 15.1 percent in other post-1960 
recoveries. Thus, from the end of the recession, the ``Growth Gap'' in 
Main Street jobs is a staggering 5.5 million private-sector jobs--
enough to put everyone looking for work in 45 states back into a job.
    Not surprisingly, hardworking American families have felt the 
adverse effects of slow economic growth and lagging private-sector job 
creation in their pocket books. Since the recession ended, real 
disposable income per person has increased by a total of 7.1 percent 
compared with an average increase of 15.3 percent in other post-1960 
recoveries. Thus, the ``Growth Gap'' in real disposable income per 
person equates to $2,915 per person--or more than $11,000 for a family 
of four--when compared with the average of other post-1960 recoveries.
    While families and businesses on Main Street continue to suffer 
through a lackluster recovery, the Fed's policies of quantitative 
easing and extraordinarily low interest rates have caused Wall Street 
to roar. Since the end of the recession, the S&P Total Return Index, 
adjusted for inflation, has increased by 125.4 percent. Ironically, for 
a President that obsesses with income inequality and promotes ``Middle 
Class Economics,'' his Administration has presided over a recovery that 
has bestowed most of its benefits to the wealthy and well-connected.
    Closing the jobs, output, and income ``Growth Gap'' will be hard 
for this President to achieve with his current slow-growth policies. 
Merely to get even with the average performance of other post-1960 
recoveries by the time that President Obama leaves the White House:

      Real GDP would have to grow at an annual rate of 7.4 
percent in each of the next eight quarters. That is triple the growth 
rate in the Obama recovery so far;
      The private-sector would have to generate 403,000 in 
every month for the next 22 months. That is well above the average 
monthly gain in private-sector jobs of 285,000 over the last six 
months; and
      Real disposable income per person would have to grow at 
an annual rate of 6.3 percent in each of next 23 months. That is more 
than four times the average annual rate of 1.2 percent so far in the 
Obama recovery.

    Staying the course means the ``Growth Gap'' could grow and 
America's economy will remain stuck in second gear. Without a real 
focus on growth, middle-class families will see their paychecks remain 
flat, while millions of college graduates search fruitlessly for decent 
jobs.
    America needs a ``Growth Agenda'' that creates a healthier economy 
by focusing on fixing the broken tax code, right-sizing the Federal 
Government, more balanced regulation, a sound dollar, and effective, 
enforceable and fair trade agreements.
    On some of these policies, Administration officials have indicated 
a willingness to reach out to congressional Republicans to see if we 
can enact pro-growth legislation. When possible, congressional 
Republicans will work with the Administration to get the U.S. economy 
into high gear. Enacting trade promotion authorization is one area; 
perhaps pro-growth tax reform is another.
    On other policies, however, our philosophical differences are 
simply too deep. Pro-growth regulatory policies and right-sizing the 
Federal Government must await the next presidential election.
    Whatever the White House may do, this Congress is determined to 
lead. We passed a bill authorizing the construction of the Keystone-XL 
pipeline. Unfortunately, President Obama chose to veto these well-
paying American jobs. We will pass a budget that puts our fiscal house 
in order. And we will pass more pro-growth, pro-jobs bills.
    Chairman Furman, I look forward to our discussion of these issues.
                               __________
Prepared Statement of Hon. Carolyn B. Maloney, Ranking Democrat, Joint 
                           Economic Committee
    Thank you, Mr. Chairman-Designate, for calling today's hearing. I 
look forward to working with you on the Joint Economic Committee this 
Congress.
    Welcome, Dr. Furman. Thank you for coming to answer questions about 
the Economic Report of the President and the status of the U.S. 
economy.
    There seems to be a rather broad consensus these days--that the 
economy is beginning to get back to what we think of as normal--and 
it's stronger than it has been in years.
    We've had a record 60 straight months of private-sector job 
growth--businesses created 12 million jobs during this time.
    I have listened to my colleagues across the aisle complain about 
how the recovery is leaving too many people behind--even while their 
budget proposal is busy throwing people off the bus.
    Let's put the recent progress in perspective. In 1984, when 
President Ronald Reagan was running for re-election and airing TV ads 
proclaiming that ``it's morning in America,'' the unemployment rate was 
7.4 percent. He was touting his economic achievements.
    Today, under the leadership of President Barack Obama, the 
unemployment rate is 5.5 percent. Five-point-five percent!
    Let's look at how far we've come. Just over six years ago when 
President Obama took over for George W. Bush, our economy was in a dire 
situation. We were losing 800,000 jobs a month. In the final quarter of 
2008, GDP had shrunk by a staggering 8.2 percent. U.S. household wealth 
fell by about $16.4 trillion from its peak. Housing prices were 
collapsing. American families had less money, so consumers spent less 
and businesses suffered. Our economy was in a steep downward spiral.
    In fact, Dr. Furman, a predecessor of yours--Dr. Christina Romer--
told this Committee in 2009 that by some measures, the economic and 
financial shocks we experienced during the most recent recession were 
even worse than the Great Depression.
    But bold action by President Obama and Democrats in Congress, as 
well as by the Federal Reserve, helped put our nation back on track.
    The economy today looks very different than it did six years ago 
when the President took office:

      U.S. GDP has grown in 20 of the past 22 quarters.
      The deficit has been cut by two-thirds.
      The stock market has doubled.
      The auto industry--written off for dead by some--is 
thriving. U.S. auto exports reached a record high in 2014. And in the 
past five years, the industry has added more than 500,000 jobs.
      Inflation is low. Gas is cheap. The dollar is strong.

    My friends across the aisle claim that this recovery is weaker than 
previous ones. However, economic research reveals that this is 
misleading because financial crises like this one have deeper, more-
damaging, and longer-lasting effects.
    Comparing this recovery to other post-World War II recoveries is 
like comparing apples and . . . . aardvarks.
    It would be fairer to compare our record to other countries that 
currently are recovering from the Great Recession. And as you can see 
in this chart, the U.S. economy has expanded at a significantly faster 
pace than other leading advanced economies in the world.
    The recent economic news is very encouraging, but our work is not 
done. The Economic Report of the President correctly notes that ``It is 
essential that a broad range of households share in the United States' 
resurgent growth.'' That's exactly right--far too many people are still 
suffering from the lingering effects of the Great Recession.
    The policy initiatives outlined in the report focus on helping 
middle-class families. History has shown, again and again, policies 
that raise the incomes and purchasing power of the middle class are a 
powerful and effective way to promote economic growth.
    I am heartened that there's an entire chapter in the ERP devoted to 
examining how workplace policies can be improved.
    Paid leave boosts employee retention, lifts worker morale and can 
increase participation in the workforce. It is good for employers and 
good for employees. I've spent much of my career working on these 
issues and I hope that we can finally make some much-needed progress 
this Congress.
    As the recovery continues, it's vital that we pursue a broad range 
of policies that expand economic opportunities for all Americans.
    Dr. Furman, thank you for appearing before the Committee today. I 
am eager to hear your perspective on the economic challenges and 
opportunities ahead.
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[GRAPHIC] [TIFF OMITTED] T4196.003

Prepared Statement of Hon. Jason Furman, Chairman, Council of Economic 
                                Advisers
    Chairman-Designate Coats, Ranking Member-Designate Maloney, and 
Members of the Committee--thank you for the opportunity to appear here 
today. Last month, the Council of Economic Advisers released the 69th 
annual Economic Report of the President, which reviews the United 
States' accelerating economic recovery and the steps we can take to 
further support economic growth and strengthen the middle class.
    The clearest signal that the recovery has accelerated comes from 
the recent labor market data. The United States has now seen sixty 
straight months of private-sector job creation, the longest streak on 
record. The pace of overall job growth averaged 260,000 per month in 
2014, the best calendar year since 1999 (Figure 1). This robust pace of 
job growth has continued into the beginning of 2015, with employment 
rising by an average of 267,000 in January and February. In fact, more 
than 200,000 private-sector jobs were created in each of the last 
twelve months, the first time that has happened in thirty-seven years. 
Moreover, in 2014 we saw the continuation of a pattern observed 
throughout the recovery, as essentially all the employment gains were 
in full-time positions (Figure 2).
    The unemployment rate currently stands at 5.5 percent, down more 
than a full percentage point over the past year. During that time, the 
labor force participation rate--a topic that is discussed extensively 
in this year's Report--has been stable. This is because the decline in 
participation that is driven by aging has continued, but business cycle 
conditions have improved, thereby offsetting the demographically-driven 
decline (Figure 3).
    And in perhaps the most encouraging sign of all, real wages--as 
measured by average hourly earnings for production and non-supervisory 
workers--are rising again, up 0.8 percent in 2014 as a whole (Figure 
4). While this pace of real wage growth is above the average rate seen 
during the years immediately preceding the financial crisis, we know 
that we still face a major challenge in this area. The historical roots 
of this challenge--and the steps we must take to address it--are a key 
theme in this year's Report and a topic to which I will return in a 
moment.
    Looking to the months ahead, the Administration expects that the 
economy will continue to grow at an above-trend rate and that the 
unemployment rate will decline further. Strong near-term economic 
growth is likely to be supported by the recent drop in energy prices, a 
factor that we discuss in detail in this year's Report--which includes 
a chapter on energy that highlights the role that increased U.S. 
production and reduced U.S. consumption have played in recent 
developments (Figure 5). In addition, the more neutral and predictable 
fiscal environment secured by the Murray-Ryan agreement reached at the 
end of 2013 has made it easier for the private sector to increase 
growth. We have an opportunity to build on this precedent through 
affirmative policy measures instead of unnecessary fiscal brinkmanship 
and austerity.
    One potential concern for the near-term economic outlook is the 
economic slowdown in many of our key trading partners. The 
Administration continues to both monitor the global economic situation 
and to engage with our key partners around the world to work to 
strengthen growth.
    The 2015 Economic Report of the President explores the long-term 
factors that drive middle-class incomes. We see three key factors as 
having special importance: productivity growth, income inequality, and 
labor force participation. Since the end of World War II, the 
contribution of each of these factors to middle-class income growth has 
varied considerably. For instance, productivity grew rapidly following 
World War II, but slowed in the 1970s and 1980s, before picking up 
again in the 1990s--albeit at a rate still slightly below what was seen 
in the early postwar period. In contrast, labor force participation 
increased markedly in the 1970s and 1980s, amid a historic 
transformation of women's role in the economy. More recently, however, 
the aging of the U.S. population and the retirement of the Baby Boomers 
have put downward pressure on the labor force participation rate. 
Finally, the last forty years have seen a steady decline in the share 
of pre-tax income going to the bottom 90 percent of the income 
distribution, raising fundamental concerns about whether macroeconomic 
improvements are translating into genuine gains for middle-class 
families.
    This year's Report outlines President Obama's approach to economic 
policy--what he terms ``middle-class economics''--which is designed to 
improve all three of the factors that drive middle-class incomes. One 
chapter of the Report focuses on the ways in which business tax reform 
can boost productivity. Not only would a reformed business tax code 
create a more efficient framework for corporate decisions, but the 
President's plan in particular is designed to enable productivity-
enhancing investments in American infrastructure. Another chapter of 
the Report lays out the benefits from expanded international trade, 
which arise in part because exporting firms tend to be more productive, 
supporting jobs that pay higher wages (Figure 6).
    We devote an entire chapter to the economics of family-friendly 
workplace policies like paid sick and family leave. The evidence shows 
that the types of policies President Obama has proposed can increase 
employee retention and morale, as well as strengthen individuals' 
attachment to the labor force. The Report also discusses several 
longer-term challenges labor markets face and describes how a continued 
strong recovery can help overcome these obstacles.
    In many cases, the President's proposals can help improve two or 
even all three of the key factors driving middle class incomes 
simultaneously. For instance, an enhanced child care tax credit can 
help facilitate parents' participation in the workforce, while also 
directly pushing back against the longer-term trend of middle-class 
income stagnation by investing more in children's early development. 
Similar complementarities are present in the President's other 
proposals like expanding access to community college, investing in 
apprenticeships and job training, helping the long-term unemployed 
return to work, and raising the minimum wage.
    I look forward to discussing these and other topics with you all 
today.
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[GRAPHIC] [TIFF OMITTED] T4196.006

 Questions for the Record Submitted by Senator Cruz and Response from 
          Jason Furman, Chairman, Council of Economic Advisers
    Question 1: Before the financial crisis, the long-run employment 
rate (employment/population ratio) was 63.3%. Today, it is 59.3%, only 
slightly higher than during the depths of the financial crisis. Isn't 
this number far more telling than the unemployment rate, and- along 
with continued weak data on poverty, median income, and median 
household wealth-doesn't it suggest the economy remains quite weak?
    The economic recovery that began more than five years ago has 
ushered in the longest streak of private-sector job growth on record. 
American businesses created more jobs in 2014 than in any calendar year 
since the late 1990s, and our business have added 12.1 million jobs 
over the past 61 consecutive months.
    When comparing economies across time or across countries economists 
generally use the unemployment rate as it effectively automatically 
adjusts for different demographic factors, reflecting the fraction of 
the population who want to work who can work. The Bureau of Labor 
Statistics (BLS) compiles other broader measures of unemployment and 
labor market underutilization that including U-4 that includes 
discouraged workers, U-5 that also includes other marginally attached 
workers, and U-6 that also includes people working part-time for 
economic reasons. All three of these broader measures show a similar 
recovery as the official unemployment rate.
    The employment/population ratio is a potentially misleading basis 
for comparing over time because it is affected by demographic shifts 
that, in the current environment, mask the labor market's underlying 
strength. Since the financial crisis, the baby boom has become a 
retirement boom, reducing the working-age population and holding the 
employment/population ratio down. Indeed, this demographic trend is 
responsible for half the recent decline in labor force participation. 
Although the employment/population ratio is a misleading indicator 
because of these demographic changes, of course there is more work to 
do to ensure the strong labor market recovery persists. That is why the 
President supports a wide array of policies designed to boost labor 
force participation as well as productivity growth, both of which will 
continue to help strengthen middle-class incomes.
    Question 2: The normal economic recovery since the 1960s has 
featured average GDP growth of 4% per year over a comparable time 
period. The Reagan recovery saw average growth of 4.9% per year. 
President Obama's recovery has averaged just 2.3% per year. Doesn't 
this suggest that policies enacted during the Obama era have impeded 
the economy's recovery?
    When the President took office, the economy was in the midst of the 
worst financial crisis in nearly 80 years. The initial declines in 
household wealth, trade flows, and housing prices during the Great 
Recession exceeded the initial declines during the Depression. Indeed, 
many economists have concluded that absent the aggressive policy 
response, our economy would have plunged into a second Depression. One 
would expect GDP growth to be slower after such a crisis than after a 
normal cyclical recession.
    But even so, the difference between the pace of growth during the 
1980s and during this recovery can be explained by demographic effects. 
The prime-age (25- to 54-year-old) population has declined since the 
start of the crisis, while it surged during the 1980s, boosting the 
most productive part of the workforce. Indeed, when adjusting for 
growth in prime-age population, GDP has grown faster since the last 
business cycle peak than over the comparable period in the 1980s.
    Question 3: One of the most startling statistics in recent years 
has been the decline of business startups since the crisis. According 
to a 2014 Brookings study, ``business deaths now exceed business births 
for the first time in the thirty plus-year history of our data.'' How 
do Obama Administration policies ease the burden on new businesses so 
entrepreneurs can get back into the economy?
    As the cited Brookings study observes, business shut-downs began to 
exceed start-ups when the financial crisis began. But since then, the 
pace of start-ups has consistently risen relative to the pace of shut-
downs during each year of the Obama Administration. The start-up rate 
has risen from 18 percent below the shutdown rate in 2009 to just 1.7 
percent below the shutdown rate in 2012. Data for 2013 and 2014 are not 
yet available, but the positive trend is already clear.
    The President's policies will continue this progress with even more 
support for American entrepreneurs. The President's framework for 
business tax reform will cut small business taxes and dramatically 
simplify the filing process for the vast majority of them, allowing 
them to pay taxes based on their bank statements. The Small Business 
Administration's Boots to Business initiative provides veterans 
transitioning to civilian life with the training and tools they need to 
start their own businesses, and the Entrepreneurship Education 
initiative helps small business owners gain the skills and networks 
they need to grow their business and create new jobs.
    Question 4: The Administration paints a picture of an accelerating 
economy, but economic growth from Q4 2013 to Q4 2014 slowed to an 
annual rate of 2.4%, down from 3.1% over the same period from 2012-13. 
Doesn't this undermine the suggestion that the economy is accelerating?
    A wide range of indicators demonstrate that the economic recovery 
is accelerating. The progress is especially clear in long-term labor 
market trends. In 2014, our businesses added more than jobs than in any 
year since the late 1990s. Indeed, the pace of job growth has increased 
in each calendar year since the President took office.
    GDP growth contains a number of volatile factors that fluctuate 
sharply from quarter-to-quarter, including government spending, net 
exports, and inventory investment. Growth in the combination of the 
most stable and important components - personal consumption and fixed 
investment - grew in the fourth quarter of 2014 at the fastest pace in 
four years. Focusing on these key components helps isolate the signal 
and discard the noise. And using the time periods cited above, the 
combination of these key components did grow faster in 2014 Q4/Q4 than 
in 2013 Q4/Q4.
    Question 5: The Competitive Enterprise Institute estimates that 
regulation cost the U.S. economy $1.863 trillion in 2013, larger than 
the GDP of Canada or Australia. Isn't this burden contributing to 
smothering business startups? What steps is the Administration taking 
to reduce the cost of complying with regulations for startups and small 
businesses?
    Regulatory gaps in the run-up to the financial crisis contributed 
to the worst financial crisis since the Depression, leaving millions of 
Americans unemployed, and erasing trillions of dollars of families' 
savings. Regulatory gaps can also cause damage to the environment, 
health and public safety. The President's approach to regulation is 
focused on addressing this while adhering to Executive Order 13,563 
which requires that our regulatory system ``must promote predictability 
and reduce uncertainty. It must identify and use the best, most 
innovative, and least burdensome tools for achieving regulatory ends. 
It must take into account benefits and costs, both quantitative and 
qualitative.''
    The regulatory review process focuses on the impact of regulations 
on small businesses, reflecting the sometimes greater burdens they face 
on compliance and adjusts regulations accordingly.
                               __________
Questions for the Record Submitted by Senator Peters and Response from 
          Jason Furman, Chairman, Council of Economic Advisers
    Chairman Furman, the administration's January 2015 memo regarding 
the ``Conflict of Interest Rule for Retirement Savings'' suggests that 
enhanced disclosures to investors do not offer increased consumer 
protections and raises the possibility that disclosure could even 
weaken consumer protections. A March 2011 GAO report, ``401(K) Plans: 
Certain Investment Options and Practices That May Restrict Withdrawals 
Not Widely Understood'', recommends providing ``better disclosures and 
guidance to plan sponsors and participants.'' Can you explain this 
contrast and cite studies or provide examples of instances where 
increased transparency or disclosure harms consumers?
    CEA does not comment on internal documents or deliberations. I 
would refer you to our recent public report, The Effects of Conflicted 
Investment Advice on Retirement Savings, which reviewed three concerns 
with mandatory disclosures as the sole solution to conflicts of 
interest in financial advice: (i) a lack of salience to the consumer, 
(ii) the fundamental need to make tradeoffs in disclosure design among 
the objectives of accessibility, accuracy, and relevance, and (iii) the 
potential for disclosures to backfire. Additional discussion of 
mandatory disclosure can be found in ``The Failure of Mandated 
Disclosure'' by Professors Omri Ben-Shahar and Carl Schneider, 
published in the University of Pennsylvania Law Review in 2011, and an 
expanded treatment of the same topic in their book More Than You Wanted 
to Know: The Failure of Mandated Disclosure, published by Princeton 
University Press last year.
    The GAO report, ``401(K) Plans: Certain Investment Options and 
Practices That May Restrict Withdrawals Not Widely Understood'' 
investigates certain investments and practices that can prevent 401(k) 
plan sponsors and participants from accessing plan assets as well as 
changes the Department of Labor could make to assist sponsors in 
understanding the challenges posed by the investments and practices 
that restricted withdrawals. This particular report was not about the 
losses that investors incur due to conflicted investment advice nor 
whether disclosure was an effective remedy against such losses.
    Chairman Furman, as you know, the SEC and FINRA currently provide 
regulatory oversight of brokers and investment advisers. Did the 
January 2015 memo include any analysis of the current protections 
investors received from the SEC and FINRA? If so, could you please 
share any such analysis?
    I am unable to comment on internal deliberations. However, CEA's 
public report, The Effects of Conflicted Investment Advice on 
Retirement Savings, concluded that:

      Conflicted advice leads to lower investment returns. 
Savers receiving conflicted advice earn returns roughly 1 percentage 
point lower each year (for example, conflicted advice reduces what 
would be a 6 percent return to a 5 percent return).
      An estimated $1.7 trillion of IRA assets are invested in 
products that generally provide payments that generate conflicts of 
interest. Thus, we estimate the aggregate annual cost of conflicted 
advice is about $17 billion each year.

    Chairman Furman, would you agree that there are potential investors 
who, without any advice, might keep their savings in low-yield savings 
accounts or other low-growth instruments?
    CEA's public report The Effects of Conflicted Investment Advice on 
Retirement Savings, reviews some of the changes in the retirement 
landscape that have led to an increasing (and important) role for 
financial advice over the last 40 years (citations omitted).

        ``This widely discussed shift from traditional pensions to 
        defined contribution plans and IRAs raises important policy 
        issues. In a traditional pension, investment decisions are 
        largely handled by professional managers. In an IRA, investment 
        decisions are almost entirely left to the individual saver. 
        Defined contribution plans, such as 401(k)s, reflect a middle 
        ground where employers may automatically enroll workers in 
        particular default products and may provide workers with access 
        to various forms of advice, but may also provide a large menu 
        of options and nearly unrestricted choice of investment 
        products.
        This shift in investment responsibility has coincided with an 
        explosion in the investment options and trading platforms 
        available. The period since 1974 has seen the advent and 
        proliferation of index mutual funds, discount brokerage, 
        exchange-traded funds, online trading, and more. The number and 
        complexity of the products available can make financial 
        decision making difficult. Moreover, an abundance of investment 
        options and the way in which investment decisions are framed 
        may challenge financial decision making and lead to worse 
        outcomes for savers. All of these factors in combination have 
        led to an increasing role for financial advice. According to 
        one survey, roughly half of traditional IRA-owning households 
        have a retirement strategy created with the help of a 
        professional financial adviser.''

    However, as documented in the report, conflicts of interest in 
financial advice are costing Americans billions of dollars each year. 
These losses and the increasing role of financial advice in retirement 
saving underscore the importance of ensuring that workers and savers 
can receive advice that is in their best interest.
    Does your analysis in the January 2015 memo show that the proposed 
rule will not significantly reduce access to financial advice for 
working families? Additionally, does your analysis show that the rule 
will prevent increased leakage of retirement assets through pre-
retirement cash outs?
    CEA does not comment on internal documents or deliberations. I 
would refer you to our recent public report, ``The Effects of 
Conflicted Investment Advice on Retirement Savings,'' which does not 
analyze the benefits of a not-yet-proposed rule. It is an economic 
analysis of the effects of conflicted investment advice on retirement 
savings. In other words, the CEA analysis is a study of the impact of 
conflicted payment structures and the corresponding conflicts of 
interest independent of other factors.
  

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