the senate budget committee budget committee today consider the president's job creation plan. members heard from alice rivlin, former white house budget director in the clinton administration and j.d. foster, who worked in the white house budget office for george w. bush. president obama and failed his job plan to congress earlier this month, which includes payroll and small-business tax cuts along with infrastructure spending. kent conrad of north dakota chairs this two-hour hearing. [inaudible conversations] >> the hearing will come to order.

i want to welcome everyone to the senate budget committee today. today we will begin focus on the economy and additional steps that can be taken to strengthen the recovery and to create jobs. we are fortunate to have three distinguished witnesses here today, dr. alice rivlin of course, is well-known to this committee and has testified here many times. she currently serves as director of the greater washington research and brookings institution as well as cochair of the bipartisan policy centers, debt reduction task force. she was the founding director of the congressional budget office, served as director of the office of management and budget in the lens administration and held the position of vice chair of the federal reserve. she has also served with me last year is a member of the president's fiscal commission. i can attest to the extraordinary contribution she made there.

dr. rivlin is truly a giant in the budget world. we are delighted that she could be with us today. dr. harry holzer is professor of public policy at georgetown university. dr. holzer served as the chief economist at the labor department during the clinton administration. delighted that you could be here as well. and dr. j.d. foster is a senior fellow in the economics of fiscal policy at the heritage foundation. dr. foster serves as assistant director for economic policy at the office of management and budget during the george w. bush administration and i understand he will be here shortly. thank you all and we look forward to your testimony. i would like to just begin by putting things in perspective. and i want to begin with a brief overview of the economic situation as i see it. it is important to remember what

has happened to the economy. in january 2009, the economy was losing more than 800,000 private sector jobs a month. private-sector jobs, growth returned in march of 2010 and we have now had 18 consecutive month of growth. however, in august, we gained only 17,000 private sector jobs, which is clearly not enough. we face a very real threat going back into a recession. that is why i believe we need to take steps to generate near-term economic growth and jobs while we simultaneously address the long-term debt threat. the unemployment rate remains far too high and as of august the unemployment rate was 9.1%. long-term unemployment is up sharply. in august, long-term unemployment, those unemployed for 27 weeks or longer, with

3.9%. that is up dramatically from the .8% average over the period from 1948 to 2007. the median duration of unemployment is also up sharply, climbing to almost 22 weeks in august. we know that some of the drag holding back the recovery is caused by the nature of the recession that preceded it. economists have found the following recessions that were caused by our company, a severe slew of man -- financial crisis. the recoveries tend to be shallower intake much longer. the two leading economist, the two reinhart's dr. carmen reinhart and dr. vincent reinhart found in their research and i quote, real per capita gdp growth rates are significantly lower during the decade following the severe financial crisis. in a ten-year window following severe financial crises, unemployment rates are

significantly higher than in the decade that preceded the crisis. the decade of relative prosperity prior to the fall was importantly fueled by an expansion of credit and rising leverage that spans about 10 years. it is followed by a lengthy period of retrenchment that most often only begins after the crisis and lasts almost as long as the credits surfed. we also know that federal response to the recession and financial crisis helped to pull the economy back from the franken made the recovery stronger than it would have been without it. one of our witnesses last week, dr. mark zandi come along, long with dr. allen blinder the chairman of the federal reserve, completed a study last year that measure the impact of federal actions to shore up the economy. including both the fed's monetary policy actions in the fiscal actions taken by the congress and the administration. here is a quote from their

report. we find that its effects, it being the federal response, on real gdp, jobs and inflation are huge. and probably averted what could have been called the great depression 2.0. when all is said and done the financial and fiscal policies will have cost taxpayers a substantial sum, but not nearly as much as most of fear do not nearly as much as if policymakers had not acted at all. the comprehensive policy response save the economy from another's depression. as we estimate they were well worth their cost. this chart, the next chart, shows dr. zandi and dr. blinder's testament of the number of shows we would have had without the federal response. it shows we would have stayed million fewer jobs in the second quarter of 2010 if we had not had the federal response. we see a similar picture in the unemployment rate. if we had not had the federal

response, the unemployment rate would have been 15% in the second quarter of 2010 and would have continued rising to 16.2% in the fourth quarter of 2010. this again according to sandy and blinder. in addition to helping create jobs it is also worth noting the importance of the 2009 recovery act in strengthening the nation's social safety net. according to an analysis of census bureau data unemployment benefits kept 3.2 million people out of poverty in 2010. medicaid and chip expansion insured half a million fewer children were uninsured in 2010 than in 2007. snap, formerly known as food stamps, kept 3.9 million people out of poverty in 2010. and the turned on come tax credit capped 5.4 million people

out of party in 2010. i hope our witnesses can comment on the importance of these programs and their impact on their recovery. with that we will turn to senator sessions. for his opening remarks and then we will turn to our witnesses for their testimony. >> thank you chairman conrad for holding this hearing. i think it is helpful for us to meet and continue to discuss these issues, although we are not working on a budget unfortunately. and thank you dr. rivlin for all you have done for your country and for being with us again today and dr. holzer and dr. foster for joining us to share your insights. i know dr. sandy is a good man and he insisted that we have a plan and demanded that we have one. and we got one and it didn't do what he predicted. now he says if it hadn't passed it would have all been a disaster. i am not unaware of the fact that dr. sandy is capable as he

is, in january of this year predicted we would have 3.9% economic growth this year. when the first quarter came in at or tenth and the second at one point and now his prediction has dropped to 1.6, a stunning reversal of his predictions. so i guess i would just say mr. chairman that when you are running up unprecedented debt it is easy to say we borrow and spend and is going to create growth but it didn't create much growth, that's for sure and not as much as dr. zandi and others predicted. there is one thing we can agree on i think and we are suffering from unaccepted leann persistently high unemployment. millions are unable to find jobs and millions are unable to find jobs on a full-time basis and that are now working part-time. our economy has experienced anemic growth this year and

unexpectedly high unemployment this year. america's gross debt is rising to dangerous new levels. i do, however, have a confident feeling about our future. i believe that if we meet the challenges of our current crisis, we will struggle but we will rise from it with a new vibrancy and strength. no workforce on earth is more skilled or more productive or dynamic than the american workforce and no business community is more effective. no nation can compete with the men and women to make up this economy. that is as true today as it ever was and there is some indications that if we do things right, we may take back a reduction of manufacturing that america has lost in past years. america's private sector is just waiting to grow and expand, but

unwise government policy continues to stand in the way. unpredictable federal intervention is fostering a climate of fear and uncertainty. businesses are threatened with constant -- a constant slew of new taxes and regulations and roast debt now 100% of gdp, hangs over the economy like a dark gray cloud. a prominent study by secretary geithner indicates that are dead and the dead level today already cost us growth and jobs. we need policies that create a better environment for job creation, and ones that don't add to the debt. that means more american energy production, the elimination of harmful and costly regulations, and growth oriented tax reform. all three committee witnesses last week democrat and republican agree with the wisdom of those ideas.

since taking office president obama has served their gross federal debt nearly $5 trillion in three years. nondefense discretionary spending spikes 24% during the first two years of his presidency, and his february budget calls for further dramatic increases in spending -- discretionary spending next year, increase, doubled digit. france as he has requested a increase in educational spending following a 70% increase in total education spending since taking office. the president routinely talks about the roots -- make government investments i.e. spending but if it gets to mention just how much we have already spent. yesterday he made his fourth attempt this year to offer a credible fiscal vision but i was disappointed to see he again failed to present an honest budget plan america deserves and our economy needs.

the white house says that the president's plan achieves $3.2 trillion in deficit reduction. the actual deficit reduction is only 1.4 trillion. less than half of what the white house said. note, this is $1.4 trillion in deficit reduction, not spending reduction. even the 1.4 that is achieved, this has become the pattern. the president understates the depth of our fiscal danger and overstates the impact of his plans. consider the astounding disparity between the levels of taxation claimed versus those actually contained in the proposal. the white house has served $2 in cuts for every 1 dollar in tax hikes. the true figure is nowhere close to that. the president's plan is comprised of tax hikes alone in reality. there is not a single penny of net spending that is cut.

yesterday the president said this. quote i'm proposing real serious cuts in spending. when you include the $1 trillion in cuts that i have already signed into law, these would be among the biggest cuts in spending in our history. "matt. in reality and are the president 's planned the net change in spending is an increase. and in fact the president's plan is to keep spending more. part of this as a result of of the presidents need for the stimulus jobs program, but there are three additional accounting tricks the white house used to get these inflated figures. first, or funding. the plan shows $1.1 trillion in savings from putting a cap on the war costs but those costs are going to decrease as the war effort in wines, whether or not there are caps in place. they do not represent actual

spending cuts from what we project, or a new policy to achieve future savings. the president proposed cabs simply manipulate a slime concepts that show the savings as a policy choice, which inflate the spending cuts in the president's plan. congress rightly rejected this accounting process as part of the deficit reduction during our recent debate. the doc fix. the administration lionel so assumes a medic or doc fix which is the payment for our physicians, an increase in spending of $293 billion. over 10 years compared to the current baseline. this gimmick of pounds accounts for the higher spending and big rather than a policy choice that needs to be offset. without this gimmick the president's health care savings of $320 billion becomes a health care savings of only

$27 billion. interest savings. the president counts of savings the net interest reduction that results from his proposed tax hikes. becomes that is a spending cut. when you are in a crisis, you must deal honestly with the american people. a president more than anyone should have credibility with the american people. you must present the facts with a credible solution. americans are good, decent and hard-working people who will accept a difficult course of action on honest terms but the white house is trying to be clever at the expense of being credible. the debt is destroying jobs today and if we are going to restore confidence and growth and credibility, growth credibility as one asset we cannot afford to borrow against. america deserves an honest fact-based approach to our economic challenges, one that

controls washington spending and grows the private sector. i hope today's hearing will move us in that direction. thank you mr. chairman for leading us and calling us together with this good panel of witnesses. >> thank you senator sessions. obviously we don't have complete agreement on this panel. [laughter] you know, we certainly disagree as to how we got here. i don't think the current administration created this problem. they inherited it. they inherited an economy that was on the brink of financial collapse. and that was that we were brought to the brink of collapse by the set of policies that i see being repeated by her friends on the opposite side. it's the same nostrand they offered before that brought us to the brink of financial collapse. don't have regulation that

they'd financial institutions. that is what led to the collapse of the financial sector. don't regulate derivatives. we saw what happened. aig, the biggest insurance company in the world, fail. had to be taken over during the bush administration. and the debt skyrocketed as a result of those failed policies. give tax cuts that disproportionately benefit the wealthy are the answer, we would have had the main economy at the end of the bush administration. instead, we were on the brink of financial collapse. i was in the room. the secretary of the treasury and the bush administration came to tell the leadership of congress, republican and democrat, that if they didn't take over aig the next morning there would be a financial collapse within days. barack obama was not the president. george w. bush was the president.

so, the place we do agree it is, we have a death threat that must be confronted. it must be confronted. this is the place we do it. we have got to find a way to come together to both deal with the short-term crisis we confront in terms of one in every six americans be on them floyd or underemployed, and the harsh reality that we have a debts that is to hide and is growing too fast and must be dealt with. so, that is where we are. >> mr. chairman, there is much truth in what you say. i remember you hammering president bush with the charge week after week on the floor for overspending while in effect, democratic colleagues were simultaneously criticizing a the

republicans for not spending enough. but, we did put our country at risk, and decisions were not correct over a period of years including the democratic blocking of president bush's request to have more regulations of freddie and fannie. had that been done, we may not have had anything like this serious problem we have. so the regulations were proposed by senator shelby, my colleague, pastor of the committee on a partyline vote, but blocked on the floor. but you are correct, we have got to now focus on the future. and i just would say to you, i believe my statement was hard this morning but i believe it

was correct, and holding the president accountable for resenting now a fourth planned that does not seriously address our problems. it is essentially a plan to raise taxes on a weak economy and as dr. hassett said previously, in our previous hearing, that it would take -- we may be going a long time with very slow growth and he is spending now to borrow will come to roost before our economy has come back. that is a dangerous path. thank you for having this hearing and i appreciate your leadership. >> can i take under one minute because the finance committee is going to a markup. i just want to offer one quick thought because i think it can help bring us together. mr. foster is here and he is with a heritage association. mr. foster i'm not sure you are aware that heritage scored our tax reform bill. the legislation i have had with

senator gregg and senator coats. here are the numbers. heritage said that bill would create 2.3 million more jobs per year, increased disposable income by $4100 per year for a family of four, raise foreign investment in the united states y. $292 billion a year on average and boost real gdp by an average of $298 billion per year. let a offer this up because i've listened to this kind of discussion. we have a chance with the bipartisanship here, senator warner in particular and mr. chambliss is done very good work and miss rivlin has done some very good work. i'm trying to go to -- it back mr. chairman but i just wanted to bring that up because i continue to believe we can bring that together particularly around growth oriented policies and my apologies to my colleagues for imposing. >> mr. chairman? senator wyden, truly worked hard

on a complex piece of legislation that has the potential for bipartisan support and does have some very fine parts of it. i congratulate you senator wyden for trying to come up with some ideas that can make this country better. >> i thank senator sessions for that observation. i add my voice to that. this session as senator sessions started with senator gregg who was the ranking republican on this committee. he and senator wyden work together in a very collaborative and intense efforts to look at the tax code, which is a monstrosity by anyone's definition. we appreciate the work. let's go to the witnesses. alice rivlin really needs no introduction before this committee. welcome, please proceed. >> thank you mr. chairman, senator sessions and members of the committee. i'm delighted to be back here

and want to reinforce what has been said, that there is a chance for why partisan cooperation now. this is a critical moment for this committee to focus on employment and job creation and for the congress to take action. the future of the united states is a prosperous economy and is a world power depends on getting people back to work in productive jobs. unless employment accelerates sufficiently to keep up with a natural increase in the labor force and gradually absorbs the unemployed and the hidden labor force of discouraged and part-time workers, we are doomed to stagnation and standard of living. this fate is not necessary. we have jobs that need to be done in both the public and the private sectors and elliott to people who want to do them. it would be unbelievably stupid to allow capacity to sit idle. worker skills to atrophy and

workplaces to become museums and out of date technology for lack of imagination and political will. however policies to accelerate job growth and prevents a double-dip recession must be part of the simultaneous strategy to stabilize the projected increases in the national debt and return the federal budgets to a fiscally responsible path. rather than conflicting these two sets of policies complemented reinforce each other. the faster we get people back to work, the zierdt will be to move toward a sustainable budget. if the recovery stalls and unemployment rises again, prospects for stabilizing the debt will deteriorate rapidly. it will be worse than temporary increase in in the near-term deficits to avoid getting into another downward spiral of falling jobs, sales investment confidence. at the same time the faster we can put a firm plan in place to

reduce looming future deficits by reforming entitlements and the tax code to enhance things incentives for growth, the more sustainable the recovery will be. we cannot afford to wait until the economy recovers before acting to reign in future deficits. these deficits reflect the oncoming tsunami of retirees combined with rising health costs. they can't be blamed on president obama or president bush. the sooner we put fixes in place, either on the spending side or on the tax side, the less disruptive these changes will have to be. if we continue postponing actions to stabilize the debt, we undermine confidence at home and abroad and the ability of our political system to face problems and solve them. a spike in interest rates and even the sovereign debt crisis that could permanently damage

the power and prosperity of the united states. no one should underestimate the difficulty of crafting policies that will effectively create jobs and the daunting economic circumstances we face. it will take the best efforts of the public and private sectors working together plus cooperation and compromised across party and ideological lines, which is hard to achieve in the current polarized political atmosphere. the recession is deeper and more intractable than most economistn the obama administration, including mark zandi and almost all the other economists that i know realize that the time that employment and incomes were plummeting in 2008 and 2009. recessions precipitated by financial crises tend to be deep and long, as scholars like the

reinhard's have shown but this one is likely to be especially hard to pull out of quickly. it was precipitated by an uncontrolled and i believe in moral frenzy of overleveraged trading and complex derivatives based on unrealistic expectations of continued value increases in the very assets that american households depend on most, their homes. after the plunge and those overinflated values, we should not be subprized that complements as low end consumers and businesses that depend on them are deeply frightened of eating overextended. the large stimulus package enacted in 2009 helps the economy -- helped keep the economy from sliding into an even deeper recession. i don't know whether these andy blinder numbers are exactly

right but we surely would have had millions more people out of work if we hadn't done something. together with aggressive monetary policy, the stimulus help reverse the downward spiral of falling demand and layoffs. the congressional budget office and many other analysts have rarely shown that the economy performed substantially better than it likely would have in the absence of fast and aggressive administration and congressional action. the growth, though positive, has been modest and unemployment remains high is evidence of the deep and intractable nature of the recession. not that the stimulus didn't work. the events of the last year have shown that more action is needed. justice the direct impact of the stimulus begin running out additional negative forces hit the economy. the rising energy crisis, the effects of a the japanese nuclear disaster, slowing growth in the rest of the world then

worrisome disarray in your. the president is absolutely right i believe to propose a new package of tax cut extensions with incentives to boost employment, help for the long-term unemployed and infrastructure investment. this package was carefully designed to incorporate many policies that appeal to both parties. it included a proposal to redesign unemployment compensation, to facilitate getting workers into jobs. i believe this congress should take the proposal seriously, but incorporate it into a long-run deficit plan as the president suggests. any action to create jobs right now either through spending or tax increases will increase the deficit and add to the debt. we can afford to do this as the

immediate actions are part of the legislative package that stabilizes the debt irish forming and simplifying the personal corporate tax codes, reducing the rate of growth of medicare and medicaid in putting social security on a firm foundation. variations of such a grand bargain were recommended by the simpson-bowles commission and the domenici rivlin task force. indeed, any serious bipartisan group seeking to stabilize the debt is forced by the arithmetic of the situation to a similar solution. the residents beach yesterday speech yesterday voiced his clear commitment to the double strategy of creating jobs and bringing in future deficits. the new joint select committee, which i think of as conrad gregg come to realize, as the power to go beyond its initial mandate and make the grand bargain a legislative reality. the best thing that could happen

to prospects for american growth and jobs both long-run and short run, would be for this committee with a strong the strong support of the current president congressional leadership to go big, to use their extraordinary powers to put into law an immediate jobs creation program incorporated into a grand bargain to stabilize the debt. mr. chairman, you and your former colleague senator judd gregg and many others worked tirelessly to get the congress and the president to this point. i honestly hope the select committee will prove able to finish the job. thank you. >> thank you dr. rivlin. dr. holton. >> thank you and good morning chairman conrad, senator sessions and senator warner. i would like to make several points this morning about the unemployment rate and also about the u.s. labor market situation in the next several years and i would like to make 5.2 by me. point number one, as we all know the great recession created high

unemployment that will persist were several years to come and will have lasting negative impact on millions of workers, even after the economy goes on. as senator conrad pointed out over 40% of the unemployment already have suffered lengthy stalls of unemployment of six months or longer and will make it harder for them to re-enter the job market and find labor, find jobs when job creation actually picks up. low earnings will scar millions of young workers for years to come even when the labor market recovers. point number two, even before the recession began most american worker workers suffered from a stagnant earnings growth in very high earnings in the quality. during the full economic cycle in 2,002,007, median earnings stagnated or declined for most groups of american workers. many of those hit hardest during the downturn, less educated men, were staring quite badly before

the recession began because of declining -- disadvantaged workers who are broadly suffering only from high unemployment but also from low wages and limited labor market activity even when the economy was small. among many other problems the education of skill levels of many of these workers have failed to keep pace with the rising demand for skills and good-paying jobs in our economy. point number three, policy efforts to improve labor market outcomes for labor workers should focus both on creating jobs and reducing unemployment caused by the recession in in the near-term as well as improving the skills and earnings of american workers over the long-term. to create more jobs and reduce unemployment, i support many provisions in the jobs act including reduced reduce payroll taxes for workers, targeted payroll taxes for employers for expanding payrolls and additional spending on infrastructure, school construction and layoff prevention of state and local

government employees. personally i would prefer the tax cuts for employers to be more generous than those proposed by the upon administration but at the same time much more targeted on employers whose payrolls have expanded. this would improve incentive and limit the windfall for employers who don't change the behavior and pocket the tax cuts anyway. at the same time we also need to take action to improve the education and the work worse preparation of american workers so that they are more able to build good paying jobs and that leads me to my fourth . to improve worker skills we need to develop more effective education and workforce systems. better targeted to its growing and high-paying sectors of the u.s. economy. burning supplements for disadvantaged and dislocated workers who are actually taking low-wage jobs could be expanded while the unemployment insurance system could be more closely tied to skill building efforts. i would like to elaborate on

those proposals. the current workforce system funded by the workforce investment act appears to generate employment services and job training quite cost-effectively but it has been starved for funds for many years and should not be further reduced in the context of the budget cutting efforts. we also need to better integrate career services and occupational training in our high schools and in our colleges and to make institutions more responsive to the demand side of the labor market. for high schools this means generating high-quality career and technical education, not as a substantive for higher education but as another means of preparing students for higher education labor market. career academies have demonstrated the value of such education especially for at-risk young men. turning to american colleges, most never compete any educational -- which i define ethers and occupational certificate.

too often they are not in the fields by the labor market. that is often not the case for them. rigorous evaluation shows that sectoral training in which youth or adults are prepared for specific sectors of economy the economy and which employers are actively engaged can provide improvements for the disadvantaged while meeting employer needs for skilled workers. these programs can and should be especially supportive to take the high road and provide good-paying jobs are less educated workers. dislocated workers including the long-term unemployed can also derive substantial benefits from

technical training targeted towards growing fields in the economy. now i believe all of this could be supported by a competitive grant program provided to the states that more actively integrate the education and the workforce systems to make all of the more responsive to the labor market and especially the deeds of good paying employees. this program should actively reward states for building on their effort and leveraging many other sources of funding. any new funding should not become yet another excuse to cut back funding for existing programs. for disadvantaged workers or dislocated workers who don't benefit from training, supplements to their low ratings could be expanded. these would include the earned income tax credit, which right now benefits adults without children too little, who are also wage ensures for the dislocated to have taken lower wage jobs than the one for help before and i believe a variety of the unemployment insurance system might encourage more

employers and more training to be provided. finally my last section deals with the budget issue. all of these measures could be undertaken with modest new federal expenditures over time. they are not inconsistent with sensible efforts to limit our budget deficits over the long run. which should primarily focus on raising federal tax revenue below its historically low level right now and reducing spending on entitlement programs especially for future retirees and that is where where i think the bulk of the long-term savings on the budget chart -- side should be made. thank you nick. i will stop there and look forward to our question and answer session. >> thank you very much. dr. foster. >> chairman conrad ranking member sessions thank you for the opportunities testify. my names jb foster and i'm a senior fellow at the heritage foundation. the views i express or manage it not be construed as representing

an official position of the heritage foundation. the rest of the economy today are great and so our focus on jobs and economic growth is critical. two years after the end of the great recession as the economy should be accelerating economic growth and job growth have ground to a hault. mr. chairman as you noted, when a recession is fundamentally involved with financial markets and they are troubled, they are at the epicenter of the recession you are going to have a very troubled recovery, absolutely correct that you will have recovery. two years on, we should be in recovery. not flat-lining, not heading toward a double dip possibly. while financial markets may explain the early troubles in the recovery i don't believe they provide much of an explanation for today. speculation, richtman patient theorizing and models are now are relevant on this simple point. the data before us agree on the underlying message from the president's recent jobs speech. they'll test to the simple

incontrovertible fact that the president stimulus policies have failed utterly and completely. i take no pleasure in pointing out this fact nor an affected we predicted the policy failure two years ago. i would much rather have been wrong and for millions of my fellow citizens be gainfully employed in all the jobs the president promised a gray. to understand what policies might be helpful today and it is important to assess why the economy is not recovering. the fundamentals of our economy remains sound and natural productive tendencies for american workers. investors an american dr. murderers remain undiminished. there are of course the initial headwinds such as the follow-on effects of japan's devastating earthquake and tsunami. the economy faces and overcome such headwinds even the best of times. headwinds there are to be sure but they are not an explanation of the economies lethargy. the economy suffers from two categories of troubles.

the first or structural which to primarily reflects the housing sector till and deep disequilibrium and many urzua country. there is little substantive way the government can do to return the housing markets to normal and heaven knows congress and the president have tried just about everything. that is part of the problem. governments well-intentioned meddling has delayed and distorted the essential requirement for normalization of the housing markets. on balance these policies have set back the housing recovery by months and perhaps here and there is an important lesson there. the second category of trouble is what might be termed environmental. not the natural impairment that the economic environment. most relevant to our discussion today is alternatively a shortage of confidence or excess of that uncertainty. those who could make the decisions and take the actions that would grow the economy lack the confidence to do so. even today the economy bounce bounds and opportunities for growth. turning potential into reality requires action in action

requires confidence. confidence in the future, confidence in the specific effects of government policy and confidence government can properly carry out its basic functions like a green tool budget. america severs a competent shortage and washington is overwhelming the cost. confidence in turn is lacking because of an excess of uncertainty, uncertainty about the future but also insert me about the effects of government policies, tax, regulatory monetary, trade. insert the actual course in the future is always uncertain. but there is good uncertainty and that uncertainty much as there is good cholesterol and bad cholesterol. good uncertainty for example presents opportunities for-profit. bad uncertainty arises largely when investors amount of printers have real questions about the consequences of government policy. tax policy provides a good example of that uncertainty. the president's repeated insistence on raising taxes on the high income workers and investors slows the economy

without the policy even being enacted. it does so by raising the uncertainty about the tax cuts for various actions. does not stop all subsections but it stops some and therein lies the difference between growth and stagnation. the president's insistence is a twofer in terms of bad uncertainty, the specific is that taxpayers don't know what the tax liability will be. the general is that suggesting raising taxes on anyone in the face of high and rising unemployment suggested gross lack of ms.-- understanding about how it and economy works. that is the source of bad uncertainty that afflicts the entire economy not just those threatened with higher taxes. in this environment congress need not enact bad policy to weaken the economy. threats suffice. the federal government should adopt a simple guiding principle for deciding what to do next. that principle is, do less harm. do less harm. there is very little in terms of

concrete actions government can do at this stage that would help and a great deal of the intended help would harm either by raising the deficit to no good effect or by creating more uncertainty in slowing the economy's natural healing process. do less harm means getting spending under control and thereby cutting the budget deficit. americans are worried about spending and the deficit. that worry by itself is debilitating. do less harm means policymakers should stop threatening higher taxes. we can have debates about who should pay what and how much. in the meantime, this thread is holding us back. do less harm means stop new regulations. the recent pullback of epa's ozone regulation was a good example. even the threat of a regulation creates bad uncertainty for those affected, freezing them in place. again we can work through these regulations when americans are back to work. do less harm means policymakers should stop meddling with economy. there is almost no limit to the

harm washington can do to the economy and its efforts to do something for the economy. the patient is in recovery. the difficult recovery to be sure that in recovery, slowed by the incessant products and procedures of washington's policy doctors. the patient doesn't need another procedure. let it heal, do less harm. let me talk briefly about one philosophy that has been driving a lot of our policy, the model of keynesian demand management. this is a perfect example of a policy that fails do less harm. the philosophy is very simple. the economy is underperforming in demand is too low. the government budget deficit is a component of demand surges reza. it is an equation. huckabee wrong? raise government to deficit spending and a commie should recover. the reason this fails is the economy is a little more complicated than a simple equation. the model it is based on ignore something else in the economy a process called financial

intermediation. basic function of financial markets. the problem is that when government runs more deficit spending it has to borrow the money. when it borrows the money that money is not available for private sector you say you have not increased total demand. all you have done is shifted around. now advocates for this policy will say yes but there is so much saving and people are doing anything with it. corporations are sitting on the money. yes they are but that is not an issue. they don't put it in the mattresses. they have put it available to the financial system which intermediates it to those who needed. it is fiscal -- adding to the headwinds and economy. this is a perfect example of a policy that fails, do less harm. thank you mr. chairman. >> thank you. we are going to go to senator warner for the first round of questioning, because he has got other obligations, as do -- this

is a meeting i would say to our witnesses, this is the morning in which other committees in which budget committee members serve have mark-ups, so you are going to be seeing senators, and go to accommodate that. i know senator warner has other obligations as well as does senator sessions. senator warner. >> thank you mr. chairman. thank you for the courtesy. i would like to thank the panel. a couple of quick questions. while we have a diversity of views on the panel, think in a traditional books we would normally say in periods of recession that the two major tools that a national government has is monetary policy and fiscal stimulus. we can gauge how effective they both been but we basically use both of those bullets, and i am curious, the one thing i haven't heard many of the witnesses quantified, and from across the spectrum is that as someone who

liked the chairman and others has been working on and feels very strongly about the deficit reduction and debt reduction, the added cost of the debt of the stagnant economy. have we been able to equate per point of increased unemployment what that translates into in terms of lost tax revenue, additional mandatory government spending in terms of unemployment insurance and medicaid and other government support programs, so that while some would advocate immediate cuts regardless of effect, we bump up an extra pointer two of unemployment, what direct effect is that have on the current deficit? >> higher unemployment and less growth, clearly cuts into tax revenue, and adds to costs and

programs like unemployment compensation. the cbo and others have done that calculation. i don't have the numbers at my fingertips. >> does anybody have that number kind have been off their heads ballpark number? >> i don't have the exact number but i do know that people have looked at the growth of the debt over time. attributed a good part of that growth not to specific policy choices made since 2008 at in fact to the recession and automatic declines in tax revenues and automatic increases in spending programs. they don't provide any choices that we have made that is added several billion dollars, trillion dollars, i'm sorry to the current level of debt. that is likely to swamp if the economy double-dip stack of swamp any efforts made by the supercommittee to trim the deficit by further reducing tax revenues and raising spending. >> dr. foster. >> yes senator this is one of those rare moments when we are

in agreement which is rather pleasant. to read what dr. rivlin said there's there is a chapter in the analytical specter of the president's budget in which there is a table. i believe it is chapter 3 and perhaps table 3.11 which goes to a budget sensitivity analysis you can see in their various divergences of economic performance from the president's economic assumptions and the consequences for revenues and outlays over 10 years. while i don't have the numbers i can tell you at least where you can find them. it would be nice to be able to have this kind of one of our normal talking points, how that adds to the deficit. i guess dr. foster is two things, and i understand your perspective but and you are concerned about kind of the do no harm theory. would that do no harm theory in terms of the revenue side also

apply to the immediate government spending side? i mean, would not immediate cuts at this moment in time with the verge of a double-dip in front of us also fall into that category of harming the economy? >> in general i don't believe so senator because i believe that government spending which is being funded by bob harling is simply moving demand around in our economy. is crowding out in the old expression, certain other spending. now if you quickly switch from formal spending where the economy has predicted capacity built up to deal with that like defense spending, where we have defense contractors who are geared up to produce certain weapon systems so suddenly cut them off. obviously that is going to require -- require changes in cost but otherwise no i don't believe reducing the spending would be harmful. in fact there is so much concern about the deficit and debt that

is one of the factors eroding confidence are building up bad uncertainty in the economy and it is what is holding us back. not only would we not suffer a downside to such a policy but there would be an actual game to the economy by reducing the uncertainty. >> but are you saying that transformation in terms of cutting defense spending might be bad but cutting state support of infrastructure or teachers or others would not be bad or would not have any ill effect? >> the point i'm trying to make as some would have transitory effects that would be harmful and others would not. defense is a simple example because you often have large examples to produce a large aircraft. >> is easy to understand it would be transition cost from cutting babette but there are others as well where you have a profit economy geared for a customer. the federal government cuts out the customer and there's going to be a transition cost but purchase of goods and services are relatively small portion of spending. there's an awful lot of spending

that would not the subject to that limitation. >> purchase of goods and services, cutting off direct employment would not a bad? >> that would not have that transitional effect, that is correct. >> one of the of the things i was questioning is i concur with your point that capital sitting on the sidelines does not simply sit in a vault. it is impressive but i would question in terms of particularly with record low interest rates and a lack of willingness to invest that there are more productive uses of this corporate tech -- capital than investing in t-bills in terms of generating job growth and generating investment, taking greater risk with larger rewards. i am not sure -- . >> there is no doubt there would be more productive very soon i am sure corporate america would love to deploy his best

resources more productively. they lack the opportunity to do so in the current economic environment. we have a very uncertain future and sitting on the sidelines. that is not to say you are going to get a better outcome because government puts its hands on and decides to decide suspended itself. >> let me take one last question since the chairman was kind enough to give me the time and i would talk -- love to hear dr. rivlin and dr. hold 'em comment. i generally agree with your prescriptions but one thing i am talking about is it seems even what the president has proposed there were a few things that are going to get as immediate and short-term and i completely concur with you on the training initiatives and, but i constantly so much of what we try to do appear as well-intentioned the lag time to where it has an effect on immediate job growth or spurs really takes much longer than i would like.

and again my tank is to the chairman. >> just a brief comment. i believe what is holding back investment is not crowding out by the federal borrowing, but lack of demand. and possibly some uncertainty, but lack of demand is the basic album. if you don't think you can sell your product you are not going to make more of it, and the way to increase demand in the short run is to get money into people's pockets that will spend it. that is the argument for extending and increasing the payroll tax cut. it goes to wage earners all over the country. they won't spend all of it because they are trying to repair their balance sheets but they will spend some of that and that is a way to get demand up. >> i think that there were efforts along the line with the

american jobs act. we are looking at the rest of this decade but eventually of having very stagnant growth in sufficient demand. i think a lot of this proposal for instance, the payroll tax cut targeted towards employers. again i would targeted much more. i think that could actually raise higher even at this level the demand quickly. not enormously in a cost-effective way. i think some of the spending proposals like preventing a layoff of state and local employees has been a huge drag on economy and the employment growth numbers and that could occur relatively quickly as well. i think within a reasonable timeframe many of these policies could be effective and also cost effective. i want to take issue with my colleagues analysis. this notion that government spending has a one for one crowding out effect on private spending especially with the recession is not a new idea. has been debated for 70 or 80

years i my profession. i think most economists in this kind of an economy would not subscribe that pointed most economists would not read the evidence as supportive and indeed many conservative economists republican economist like my former teacher martin bell john and economist certainly did not subscribe to that point of view. i think we should put those opinions and perspective is very much a minority viewpoint within our profession. >> senator whitehouse. >> thank you very much mr. chairman. as some of you who have been here before no, i take a very keen interest in the burden that our health care system plays on our economy. the president's council on economic advisers said he could

take $700 billion a year and costs out of the health care system without harming anybody's quality of care. the lewin group which is pretty well-regarded in this area and george bush's treasury secretary, secretary o'neal, who knows a fair amount about this from his work in the pittsburgh regional health initiative and as the ceo of alcoa, they both have agreed that is actually a trillion dollars a year. ..

with a differential competitive burden on american export product compared to competitive product exported in the same international market. and so it's frustrating to me when we have a panel of experts who talk about our economy and nobody talks about health care. and we've had this discussion for what somebody has said is well, that may be true but because of the nature of the reforms that are required to begin to unload those excess costs, the 18% versus 12% of gdp differential that we carry at the load in our health care

economy, because the nature of the reform is something that is to use the word of the only matter in washington on a score of zero we are not going to look at that. that was true bull simpson and i believe that was also true of domenici rivlin. it strikes me that that is a fairly big piece of this equation, and by understand that it doesn't lend itself to the economic analysis as an input because it is a process of innovation and learning in the trial and error and experimentation but clearly there's a huge gain to be made in the difference between where we are as a country where all of our competitors are and there's an agreement on that subject, so i keep sending and a flair whenever we do one of these

hearings think for god sake can we please consider health care costs and particularly delivery system reform is the way you deal with health care cost without harming some individual intending on a particular benefit so i would love to hear your reaction to that ms. rivlin or dr. foster. >> thank you. as you know, senator whitehouse, i agree with you that the rising health care costs are a huge part of the problem i talk about this almost every day. not always in eight minutes, but the -- it's clear that it is the major health care programs driving the deficits and that we compared to our competitors or other advanced countries spend a lot more on health care per patient, per anything. >> those are relatively crummy

outcomes. >> that's all right. >> with respect to what to do about it i think the problem is not just that we know what to do but it doesn't score a goal, but lots of things that look promising such as many of the pilot programs and experiments with different payment systems and so forth that are included in the affordable care act haven't shown clearly that they deliver lower costs and better quality. the way we handle that in the domenici rivlin plan was we did propose a major restructuring of medicare known as premium support which is a defined contribution plan coupled with competition on exchanges among health plans and we think that

it's better outcomes in the long run from the competition among the health plans to the score above the and the defined contribution that you can say that unless health care costs come down welcome in any case, the federal government will be -- contribution will be defined by the congress and once you do that it is perfectly scrabble so it doesn't mean you could never change it. congress can change any time they want to but i do think there's an advantage in getting medicare on to a defined a budget that you vote on and you know what it is. >> we are below two minutes. i apologize to you and dr. foster. >> i will say briefly in terms of how these pack on the labour market of only to the costs, and

lemurs' which makes it harder for them to hire more workers but one of the ways to deal with that is to take it out of the workers' paychecks ultimately bear most of the cost and indeed i think as much as -- the previous decade might have been eaten up by the rising health care costs in the u.s. which is one of the major reasons why the high productivity growth didn't show up in the paychecks so that's why i agree there's an enormous problem affecting these issues my sense and i defer to alice rivlin i say a lot of promising efforts to reduce the health care costs during the the debate on the health care package that politically seems very unpalatable. things like rethinking the very favorable tax treatment at least from the caps on the favorable tax treatment and the benefits and i think we are going to have to return and make harder choices in the future to get those costs under control.

>> dr. foster? >> another one of those happy moments in basic agreement. it's no question that the rising health care costs are taking the biggest bite out of the workers' paychecks and the need the cash and that is a fundamental problem. we also have a plan similar to what dr. rivlin described as the premium support model. we think that is ultimately the way to go and it's a very an incremental approach to medicare reform. it basically says a lot of the things that are currently done in medicare is simply done incompletely and we need to make them a complete model based on the premium support. >> thank you. my time is expired. >> i'm going to take my time now and go to senator begich next. we had a couple of references to the economist mark azande who testified before this committee at the last hearing, and i just want to say first of all its important to know his background and the adviser to the mccain

campaign in the last election i think he made clear at the last hearing his forecast was off as were many economists because we've had a series of events which he described in some detail last week which i think in fairness we ought to remind people loved and the disturbances in the middle east that have a dramatic effect on all but oil prices. oil prices went up and that meant gasoline prices went up and the fuel went up that operate like putting a tax on the american economy and the global economy so that had an effect on slowing things down. second we had a tsunami in the resulting nuclear disaster in japan. that had an effect on the global

demand. that had an affect on manufacturing. then we had the european debt crisis. we read about that every day. greece, ireland, spain, portugal, increasingly italy, that has had an impact on confidence and without confidence as i think all of you have set at various times in your testimony businesses sitting on a trillion dollars in cash are reluctant to invest. the final point i would like to make is what kind of downturn are we having here? in part because i believe it's a balance sheet recession that is because the financial firms had to rebuild their balance sheets. they've had to pull back from extending credit and i hear about this almost every day i'm home from small businesses in terms of securing credit, and

that is what the reinhardt's found in their study and i would say to you, dr. foster you say to -- two years is too much for recovery. they were up to 200 years of economic history. 44 countries. what they found is that it takes eight to ten years to recover, not two years, eight to ten years. we are two years into this. as we are in a very different situation when a garden variety recession, when you have what is in part a balance sheet recession you have weak aggregate demand. we have we can aggregate demand where is it going to come from? of the federal government doesn't put in a store there is no other place big enough to give a lift. that is my own belief.

i also believe that whatever is done to give left has got to be in the context of a plan that is credible and serious to get our debt under control because the reinhardt's also found once you get to the gross debt of 90% of gdp your future economic prospects are reduced. so we're in a very tough situation and it's a complicated situation. dr. rivlin, let me just ask you do you believe that it would be harmful to at this point have dramatic cuts in federal spending? >> i do. >> and why? >> because it cuts into the demand. you lay off people from a federal -- from the federal work

force or from the state work force but are supported in part by a federal grants. you cut back on payments going directly to people as unemployment compensation or food stamps or the other programs, safety net programs. nobody's going to cut those first, but some of the extensions. so, people have less money to spend, and they don't spend it and the recession gets worse. i believe that is why the first package of the stimulus package prevented a worse and a deeper recession although it wasn't perfectly designed to do that. >> what do you believe? >> i agree. i think that's that large and immediate cut in spending certain kinds of spending or

more stimulant than others. it's quite interesting to me that we have delayed extending unemployment insurance. we know -- again on the employment insurance and a healthy economy could convince workers not to take jobs but in this kind of economy the unemployment is hard to make that case, and the money is a very powerful stimulus for safe food stamps and other things. and i find that really puzzling that some economists will say well, any talk of the tax increases anywhere at any time has a terrible depressive affect but cutting spending right now is perfectly fine. that flies in the face of anything i've learned about macroeconomics. spending increases and cutting taxes really have relatively similar effects in the macroeconomic models to say that one is terrible it really doesn't make any sense and i think flies in the face of the

evidence we have. immediate cuts in spending of the kinds talked about what have depressive effect on the economy. >> dr. foster? >> thank you, senator. but you see here is two very different concept of how the economy works. this isn't it the ultimate this is and partisanship, but different views on how the economy works. i believe a lot to me, i believe when you start with lead to end up with lead and you don't end up with a gold. when government increases its spending and increases its borrowing the money had to come from someplace. it's not like the fed which actually converted dollars, the treasury doesn't print dollars it had to come from someplace. if it's going to come from someplace it is not there anymore. it's not there. maybe it would have been consumers buying cars are buying in-house. the trade deficit would have been lower and was given to to import as much capital from abroad. we will never know where the money came from sweet cannot

wave a wand and produce purchasing power by running the budget deficits. it's not a question as a city all of your partisanship. it's a very different conception of how the economy works. >> i think that's fair. >> and its healthy to discuss these differences. it's amazing as some of my colleagues want to suppress these debates i don't think they should be suppressed. a think it's critically important we have these debates and have these discussions. i think it's entirely healthy. senator sessions. >> i do, to mike and thank you for allowing us to do so. we've had some good hearings on policy earlier last year and it's helpful today. we are supposed to have more time and senator alexander was talking and he decided not to participate in the leadership but be enacted kucinich really is the question of the fierce debate and noted the history and

the fights in history and the doles and the senate so he said we need to work together to accomplish the common goals but could debate is healthy. >> mr. foster, i remember before the first stimulus package passed reading of the nobel prize laureate gary becker who'd written and not in "the wall street journal" saying this was not going to work. he predicted it wouldn't work. you predicted it wouldn't work. you sort of touched on it, but the essentially when you borrow money to spend money, that money comes from somewhere, and i believe you just some of the problem that has a negative impact also. now our chairman mentioned the

reinhardt study that said gross debt reaches 90% of gdp then you have consequences on. the 1% growth is lost. i think the study said one to 2% was lost. perhaps it's coincidence, but we have 90% of gdp in every part of this year, january and the growth of people, the omb and the cbo projected growth this year to be 3.1%, and it's not going to be close to that. it's going to be about zero-point or to be lewd act. dr. zandi i teased and yesterday he predicted 3.9%.

now moody's analytics firms is predicting for the year 1.6. i have my doubts we are going to reach that so 1.6 is about 2% below what he predicted. do you think it is possible, i ask all three of you, that the unexpected fall and growth projections from the blue chip economists and the government and dr. zandi, do you think that could be because we've already reached this debt limit that empirical studies indicated what cause a decline in gross? dr. rivlin, you want to start and just if you have an opinion. >> i do have an opinion. i think it is interesting, but totally irrelevant coincidence, and the reason i think that is

the study which is a fascinating piece of work as you know, but it looks at averages over all kinds of different countries over several hundred years, and it certainly doesn't indicate that all countries are the same, and the united states on unfortunately in my opinion has a very strong ability to borrow money cheaply. we have abused that fact by borrowing too much money cheaply for a long time, but you look at a country like greece right now or even a italy or spain they are in trouble because they can't borrow more money except at very high interest rates, and that's killing them. that's not happening to us. i don't see any mechanism that is causing us at some particular

size of debt to face the market reaction. that doesn't mean we should go on increasing the debt forever. i think that's very a deleterious but this coincidence i think it's just that. >> thank you. so you see it as different maybe this time. >> different for the united states because the world thinks that we are the safest place to put their money, and i never hope we disabuse them of that. islamic that is an advantage we have. doctor, do you have any connection between the unexpectedly low growth and the study? >> i don't think hitting the 90% figure -- i don't think my reading -- >> its 100% now. >> that having read that book and it is a fine study, i don't think that reinhart intended for

us to believe the magic cliff as soon as we draw the line of the recall this is a rough estimate of the point at which these difficulties start to grow on average over many economies and many periods of time. nothing in their analysis suggests a cross this line and terrible things start to happen. we agree we have a major long-term debt problem and there is no dispute about that on this panel, but i wouldn't -- i see no evidence that the capitol markets are reacting in ways right now that are leading because you cross that line that that is leading to slow growth. i think what is happening in other parts it simply says that when the financial bubble bursts you have the deleveraging in most sectors of the economy that deleveraging is the demand and they predicted a very slow recovery from this. i think what we are seeing is in line with exactly what they predicted. not to mention all these other

deleterious effects in the last year. i think they've contributed very importantly, and i think of course a lot of the turmoil here in washington, d.c. i think has contributed to a lot of the uncertainty and the unwillingness of the young players to step forward and do more to the estimate dr. foster. headwinds in the economy and the oil prices and the tsunami and so forth, the low forecaster put out a forecast assuming no had when this. the headwind seven of the time and the strong economy overcomes them. one of the head wind could be the 90%, but not in the manner that the study suggested. as dr. rivlin pointed out the studies suggested that you cross the threshold which is proximate, and you get a good interest rate so we are not seeing that today. it's not a mechanism of which there's an effect that there is an effect and that is on about uncertainty. the american people are worried. we may think they should be worried and we may think they shouldn't be worried. they are worried and that is

that uncertainty. it's a bad uncertainty and training of the vitality of our economy. so it does matter but not for reasons suggested. >> you raised the point let's take the first stimulus. the money has been spent, correct? >> every stimulus we got is gone now. what are the permanent costs of the $825 billion expenditure right now? >> as the carrying cost of the service cost from the interest so that is certainly quantifiable and then there's the unquantifiable, which is the end pediment that there is that uncertainty making the decisions the would result in the stronger economy. >> thank you. >> thank you, senator. >> senator begich? >> chairman, thank you very much. i actually want to follow the

ranking member's line and then i have a couple other questions on housing over all. but, you know, what are the permanent results? let me describe -- if this was a man is a pro-government, the stimulus, the 300 billion or so, shy of that was in for the capital prevoyance debt financing like any other local government like i did as the mayor we would build a road, the money would be spent. that's correct, you're absolutely right, but here this the results. there's the road, economic development occurs. i will give you an example of the stimulus money, and i am glad we are getting more of this debate because i agree with a ranking member the money is gone but here's a result can tell you from alaska. i can't tell you from alabama or other states but i can tell you from alaska we build a hospital to be completed in alaska to employ 170 additional people,

provide quality health care making a more livable community in the area of alaska which would have growth. it built some roads which mean a new economic development in the private sector investment which means more tax revenue which means more money being generated which means more bills being paid and so forth and so on. we are invested into helping a shipyard which now landed 150 million-dollar construction of a new ship or senior housing they will provide housing which is paid for by the individuals who live there which generates revenue stream. the way the federal government does the budget is the goofiest thing i've ever seen and i am hopeful as the chairman and the ranking member talked a reforming it is to types, the capitol budget and the operating budget because you do bar for the capitol, private sector does

it, public sector does it, federal government is just a convoluted mess. you shouldn't borrow for the operational but nothing borrowing for the capitol investment and recovery money was predominantly that. then there was about $300 billion which was tax money that we took from people but we gave it back sofer money to the payroll deduction. we gave it back to them. so mr. foster, i'm trying to -- so there's no permanent value for investing in this and it infrastructure investments when you use the recovery money or -- help me understand what -- i don't get that. >> in my written testimony which i didn't put in my eight minutes of reading i pointed out that i wasn't commenting on what the appropriate level of infrastructure spending is from what you say it sounds like

alaska may have had the only shovels ready products in america. >> when they say only and no jobs created, that is an opinion it is not based on fact. >> i would say that is based on the simple set of logic you spend the money you created the infrastructure jobs were created while they were building infrastructure no doubt about that in those locations you distribute can show people working. so you can definitely show that those jobs were there. what you know was you had to borrow the money and when you borrow the money it wasn't available to be used elsewhere by somebody or something. ayman of people to to camera crew to show that jobs destroyed but i know they were there. >> let me ask if you borrow that money in the theory i'm not an economist, a person that's been in the business world since the age of 14. so, if you have so much more money available and you see that so much is taken out by that kind of borrowing and effective than what would happen is the

rates would go up to start controlling the expenditures because obviously to be flexible if i have a product it's selling off my shoulders like crazy i'm going to increase the price to the customer until we hit a certain point the interest rates went the other way, the flattened so it didn't do what you said, what it did do with certain banks don't lend money, they hold it because they can do other things with it but they are not getting out to the economy so the argument really doesn't hold up because it is flat and then at the lowest levels in decades if the money was less interest rates would go up. the problem is one of the things about the interest rates is they are a great many influences on interest rates and right now the dominant influence, our interest rates and i don't mean just today but by 2010, to doesn't mind, in fact growing up in 2000

were other forces at play for instance china's buildup of the foreign exchange reserve is putting downward pressure on interest rates. that's been a factor long time. right now we have the euro crisis and money is flowing into the country driving down the interest rate so the interest rate is not a sign of what i said not being true. >> but, cheap money for business is good money if they are expanding so that hasn't been the problem. it has been a problem of the people that control faucets. i'm telling you from reality, not from a study and research and all that, i'm talking about a person that has had to go through this who still goes through it. on the rates capital for a very high-risk enterprise in the central retail business and economy that is fragile, so i don't buy your argument always want to do is make sure assure what you are saying. as of the businesses -- let me

move on to housing because this to me is a big issue and there's a piece of legislation pending. i don't understand why we don't do that and that is a couple of us in fact my colleague who is not accurate not senator merkley and i advocated this two years ago. two years of a bad economy is improved but it's still rough out there but then you have some people that have been paying on these loans and their mortgages for two solid years of not missing a payment, at - equity. banks have no incentive to refinance them, not one incentive because why? they are paying. why would they change the now and give them a lower rate? unless they are a big customer and will to keep their business but if you're an average working-class it is tough so why not just say to these folks here is what we are going to do. for you pay last two years in using this as a hypothetical by the this is fair and survived the last two years paying your

payment to have negative equity and seven present whenever the loan rate might be, we want to give you the ability to refinance the the market rate which is about 4.25, and the federal research will buy those papers from the banks. so there is no worry of the market tried find out if they would buy them or not, just wouldn't do that because of the default the welcome back to us any way. let me start from here and then go down. your comment on that? would put an enormous amount into the economy. >> i agree with that. it would lower debt payments of those families. you can't do it for everybody, but where you have evidence of having made the payments and they are under water but you may have to have a limit on how much they are under water but i think enabling them to refinance is a very good thing to do. i'm not sure that i did have the federal reserve by the paper

you've got feeney and freddie still there. >> hanging on by a thread but that's okay they will tell us we have no control over it does that affect the yonah 90% of them. >> but you agree with that concept? >> it's hard for me to comment on the specific proposal because it's outside of my area of expertise to i would say this is clear that housing is an enormous drug on the economy. the efforts to date to improve it has been hugely insufficient i think to deal with the level of problem we have and to stabilize the market and to stabilize the market the would be a major drag on the economy for many years to come. so i welcome the proposals along the line but i think that a general level they do make sense and it's a much needed area to make more effort than we have.

>> i think that is fundamentally correct. people that have been making their payments on time for an extended basis cannot refinance their mortgages. with the best mechanism a share dr. ruslan's concern the best way to do this there may be simple regulatory adjustment, but why people of proven they are able to make the payments shouldn't be allowed to make smaller payments. >> so you agree on the concept? yes, sir. skype i left my question with three people agreeing on something with potential. i better stop while i am ahead. >> that's really good when you can get all three agreeing. >> senator. >> thank you mr. chairman. thank you, appreciate all of you coming to testify before the committee today to read dr. rivlin, i want to ask about reforms to entitlement programs specifically medicare.

as understand in the november 2010 proposal in which you did some work with congressman loci -- paul ryan, there was a recommendation in that proposal that we raise the medicare eligibility age incrementally by two months per year to the age of 67, and i wanted to get your views. one of the concerns i have is that as we look at where the rising health care costs where an entitlement spending is going we need to make some responsible decisions in ways that protect the programs around here to make sure that they are preserved for those relying on that particularly with the recent medicare trustees' report that came out saying that essentially goes belly up in 2024. wanted to get your view but there you think we should gradually raise the age and what

ought to have for medicare to make it more sustainable for the future generations? >> the work that i did when congressman ryan focused on seeing we never had a complete proposal but seeing if we could get a bipartisan proposal on the premium support, and i had forgotten that he had raising the age that isn't part of what he and i were working on, but i do believe a version of the premium support particularly the one i worked up with senator domenici and our task force which is actually different from what paul ryan was talking about, anyway, i think it is a very good approach to the future control on medicare. raising the age possible for a long period doesn't save a lot of money because the young

seniors between 65 to 67 are not terribly expensive as people my age are more expensive, and the -- most of them are not working and don't have coverage, so you might then transfer those costs to the exchanges on the affordable care at as they get set up, but that's not an advantage to the federal government. so i'm a little skeptical of raising the age although it certainly ought to be in the mix of things considered. >> do you believe we fundamentally need to reform what we are doing with respect to medicare in order to preserve it? >> i do. and i can't there are several fundamental reforms possible, but the one that i have come out in favor of which is a very

bipartisan. >> we can get a medicare provider kutz? >> nope. >> does anyone else on to comment on that on the panel? >> dr. rivlin is exactly right. we are providing medicare right out of existence where people when they are my age and they start to think about where you might retire to you have to start thinking about if you move how your doctor is going to see you. dr. availability is an issue in this country because we keep pushing these provider cuts. we are killing a program that we need with provider cuts and we have to start shifting the structure of the program to make it affordable in the manner i think essentially dr. rivlin was describing. >> i appreciate your answers on that. i want to also ask about the concept of tax reform. dr. rivlin, you participated in

the president's fiscal commission, as did my predecessor who might have great respect for, and to the fiscal commission recommended as did i believe the chairman of the committee recommended in its proposal tax reform that would simplify the tax code, and lower rates in terms of how we would reform the tax code. do you still believe that that is the best way to go forward on tax reform? >> i do. i think that we have an enormous opportunity because there is bipartisan support for the city and there has been for a long time. the tax code quite drastically to get rid of almost all of the special provisions or transform them in a way that is more pro-growth and that we can lower

their rates and raise more money. and i believe we do need more money, and that a tax reform is the path to doing that. schenectady believe tax reform -- i would also like the other panelists to comment on this, but if we do tax reform and in that manner that we can actually help in terms of when we look at our economy competitiveness in terms of using the tax code as a way to help our economy? >> i agree simplifying the tax code and lowering the rates and getting rid of a lot of the special provisions that cause distortions in the economy is a good thing. >> i would agree that broadbased, that kind of comprehensive tax reform of the lower rates and closing the loopholes is a good thing and should be a big part of this discussion, but again i would

add important caveat to that. number one, like alice rivlin it's important to use this as a mechanism to raise revenue. given the crisis and the debt we all agree on to having the revenue neutral tax reform efforts makes no sense at all. it's an opportunity to raise more revenue they need to to get advantage of that opportunity. and second i think it is possible to make the tax system even more progressive than it is right now by an employee does mechanisms. tens of billions of dollars currently go in the tax expenditures to the very high income americans that provide no positive benefit to the economy and exacerbate the jury and come inequality. we have incredible levels of income inequality that this country hasn't seen since the gilded age that's unmatched anywhere in the industrial world. a lot of it is grown within the last few decades in a way that is not reflective of any productive activity in the economy. this kind of tax reform i think would be yet another possible

mechanism of addressing that. so i say for that kind of broad based comprehensive tax reform but those provisions used to raise revenue and improve the progress of the same time. >> to be very clear we use the concept of tax reform and you are suggesting that they be used as a way of raising revenue except from the economic growth you gain and thereby use fraud. tax reform means revenue neutral. we can have to be bates let's have a tax system and let's have more revenue. the to the gates to keep them separate or you want to either. i don't mind not having that tax increase part but as dr. rivlin suggested that is something the would be important for the economy but it's not in the context of the tax reform just about the lower rates. you also have to correct the tax base. it's not just what your tax so when we talk about getting rid of the tax expenditures and broadening the base your heading down the wrong road and you're going to create the benefit from

their rates and exacerbate the problems by eliminating everything you can find 50 years ago as a tax expenditure. the concept should be the neutral tax base so you eliminate the distortion because you properly define them at a lower rate. thank you. >> thank you, doctor. >> thank you, senator. senator nelson. >> you can start with the concept of financial basic tax reform. but then if you get additional revenue of seven growth, and i want to ask you all about the growth and the scoring of a, you could do a tax reform the you get new revenue and could be used to a very salutary purpose which is deficit-reduction. it doesn't mean it has to go to spending. it can go to deficit reduction. so let me ask you all.

one of the problems on the question that is revenue neutral do we have a problem on scoring with cbo as to whether or not it's been to be revenue neutral? in other words, each of the three of you talked about what the senator asked that simplifying the tax code, lowering the rates because you got rid of a lot of the preferences will cause economic growth. economic growth is going to produce new tax revenue. do we have a way of scoring that new tax revenue as a result of growth? >> i think you have to be careful of bigot claims, how fast the economy would grow if

you lowered the rate. i believe that it would come and i believe that the simplification would help. but once you get into making claims that this particular thing is going to grow the economy like gangbusters, then somebody else like my colleague mr. holzer might say that if you improve the skills of the american public dramatically of workers isn't that going to contribute to growth? , and you have to be a little conservative about these claims. i do believe that we would get additional growth but i also believe we need additional revenue because we cannot observe this tsunami of retirees and the higher health care cost even if we are successful in reducing the rate of growth without more revenue or we will close on the whole rest of the government.

>> just this one footnote. i agree with all of that but the federal government revenue, federal revenue as a percentage of gdp i believe are the lowest levels since about 1950. we keep seeing the political rhetoric about the taxes and there is no question there are ways of structuring the tax system devotee probably more beneficial of economic growth like if all of us were designing the tax system we would move more in the direction although i believe the tax productivity, but the federal government is now taking less than 15% of gdp relative to the burden of spending that we are committed to as the baby boomers retire. it really makes no sense not to talk about the revenue enhancement and makes it impossible to talk about seriously dealing with the deficit without being serious about the revenue enhancement. >> of course we are up about 14.5% of gdp because the

recession and congress continues to push additional tax relief at the payroll tax relief. if you look at projections further out, you end up closer to the traditional 18.5% gdp as a revenue. so the current measure of the revenue is no indicator of whether we need additional revenue what everyone thinks about additional revenue and senator, to answer your question directly we do not really have the capacity credibly right now the federal government at the joint tax committee or the congressional budget office to do a credible economic analysis and doing a great many years with little progress, but we don't really have that and dr. rivlin is right we have to be careful of these claims about what the different tax reform proposals would do for the economy and we would all agree since the reform would produce a stronger economy the would generate additional revenues the could be used for deficit reduction is we don't have the ability we are developing the ability very rapidly at the

heritage foundation and the senate for the analysis but even there this is an art form we are learning how to develop how to work. it's not some software that you can go down to kmart and pull off the shelf. >> we are engaged in a political moment in time that we have the opportunity for tax reform and if we don't gravid that we have lost years in the opportunity to do something significant. what i'm trying to understand is from you experts is what is the consequence of the beneficial consequences of simplifying the tax code and getting rid of a lot of those preferences. as a practical matter you're not going to get rid of all the preference is because too many of them are in grand in what is

considered fair and reasonable such as mortgage interest, such as charitable deductions. but maybe there is a limit to that and there are a bunch of other tax preferences that we've seen that have grown up over the years because people have had the ability to get to the decision makers to get their particular tax aging scratched, and i want to see us take this opportunity and this super committee is the opportunity. i want to just ask one technical question, dr. rivlin. you said that your task force with senator pete domenici had come up for some version of premium support. can you define that with regard to medicare?

>> yes. on the version that we support would say the following. seniors after a certain date would get a choice whether they stay in ordinary fee-for-service medicare or go to a new exchange on which they could choose a plan and would be competition among health plans and the health plan would be compensated by medicare or risk adjusted way this is a vulture you go out and shop around. but, and this is where the scoring comes in. the zero original amount of the subsidy for medicare would be the same whether you stay in the fee-for-service or go to the exchange, but it would increase on the at a defined rate. the rate we chose was gdp plus 1% that's a little lower than

the current increase fox the competition on the exchange has brought the cost down within that and if it didn't whether you were in the exchange or in the fee-for-service system you would have to pay an additional premium, could be means tested premium it would be a premium and if the congress decided the was shifting too much cost to the beneficiaries, and you might worry about that you could change the formula but that's how it works. >> mr. chairman, do you remember when we were doing with the health care bill how the critics were saying about the role was going to come to an end when he were taking on the medicare hmo medicare and vintage? did you hear the cms

announcement last week that nationally the premiums for medicare advantage as a result of the reforms that we did in the health care bill has gone down 4%, and the enrollment has gone up 10%. now, let me just add you know what it is in florida? the premiums have gone down 26% in the enrollment has gone up 20% in the state with the largest number of enrollees in medicare that vantage. >> the predictions were that would be the opposite. we are going to kill the program. instead the program has thrived. so much for all the expertise within the beltway.

senator sessions, any last words? >> thank you, mr. chairman. senator begich made a reference to this and the roads that are built. i was very disappointed at how little infrastructure was in the bill. roads and bridges specifically were 3%, and i do agree that while we can dispute where to get a real growth from a stimulus road-building program you can't dispute where you have a road and bridge that you can use and that's beneficial whereas most of the money that we spend in this program or one time expenditures that did not to reappoint me ask i also what note that cbo scored that stimulus package over ten years as having a net to the economy discordant as being positive before it passed and being

positive in the short run. i'm afraid what policy we've had and i think now we're beginning to draw on the negative. in the response to the question from me last week dr. zandi responded i do not think 2.4 trillion is enough, talking about the cuts that the committee of 12 is charged with cheating. he goes on to say i think we need -- if you do the arithmetic rating there's a general consensus that we need 4 trillion in a ten year deficit reduction that 2.4 trillion is not enough, no. would you agree, i ask you if you can be brief would you agree with that? >> i would definitely agree with that. i think the consensus in the domenici rivlin group and others that have looked at this problem, if you are going to

stabilize the debt you need four to 5 trillion in savings over the next ten years. >> what you call for in your commission. >> yes. >> it gets into some baseline problems but that is the basic story. >> dr. holzer? >> i tend to agree to .4 is probably too little and it needs to be in that three to 4 trillion-dollar range and of course there are many ways of measuring the different baselines that can be used. we have a caveat that i would add as once again the deficit reduction in the short term could be harmful to growth depending on how it is done and it could further reduce the revenue coming in and require more automatic expenditures. so it's important to balance the overall number with a ' of a lot of the professions. we are going to be facing slow economic growth perhaps for much of the rest of the decade.

so we have to trade off and balance of the serious debt reduction that we need but doing it in a bay and the matter and the timing that doesn't put an undue burden on the economy over the next handful of years. >> dr. zandi, i ask you to respond to that question and then with regard to the idea of another stimulus, you spend 400 or so billion dollars that digs the debt hole deeper and we have to raise that money before we even get back to the level that we are now in terms of the projected debt situation. would you comment? >> yes, basically it is assembly of matter you have to stabilize your debt as a share of gdp and then from that point forward so in a sense as the president suggested it is a matter of math. scores this ascent too he's referring to and you don't have to get there all at one the

congress just passed one bill with $900 billion to solve the progress you can do it in a series of steps that they do have to be short-term steps. that is one falling quickly upon the other. >> and you think that they are 2.4 trillion is not enough? >> i think eventually you are going to need something closer to four or five especially for sliding into recession again for the purpose of the very, very slow growth. we are not going to be getting the revenue that is expected and the deficit is going to be that much larger and the whole we have to dig out of is that much deeper. >> thank you, senator. let me just say i guess part of the fiscal commission senator gregg and i have pushed that starting five years ago because we saw that we were headed for debt threat overhanging the economy that had to be faced up to. we agreed that everything had to be on the table. we agreed we need fundamental

entitlement reform. to my colleagues on the left that resist that, i just say i don't know any way around it. the harsh reality is you look at the demographics, if you look at the budget we have to deal with the entitlement side of the ledger. that is the biggest part of the federal budget. it didn't used to be. it used to be about one-third of the federal spending. now it is 60% and growing, and the demographics are as clear as they can be. so to the friends of mine on the left that say you've got it all wrong we don't have to touch that, really? the trustees say that we are headed for insolvency, and then my friends on the right to say you don't have to touch revenue.

really? revenue is the lowest it's been in 60 years as a share of national income. that's where it is. it's the lowest it's been. spending is the highest it's been a to me it's very clear you have to work on both sides of this equation. to those who say that is a job killer, that isn't what the evidence shows this is a look at different top marginal rates and what economic growth has been treated at the end here is the top marginal rate of 28 to 31%. the economic growth during that period, average employment growth has averaged 1.1%. now the top rate of 35% virtually no unemployment growth. 38.6, which is what we had the

previous top rate was half of 1%. and we had the top marginal rate of 39.6% employment growth averaged 2.4%. when we had the top marginal rate of 50%, employment growth averaged 2.1%, and on up from there. so, you know, this idea that the top marginal rate is a job killer with no evidence in the real world and the real economy that that is true there is no evidence that that is true. so i'd know. we're in a very skilled debater mature between the two parties to me. very stale and it is not going to solve the problem to be stuck with a stale, tired and sony

debate. at some point we have to get real. getting a real means both sides have to get off their fixed position and the faster it happens, the better. i thank the witnesses for participating today and we stand adjourned. [inaudible conversations] ..

>> senator lamar alexander announced he would be stepping down from his republican leadership position. he was served as chairman for four years. we hear from mitch mcconnell and bob corker. this is 15 minutes. >> madam president, next january, following the annual retreat of republican senators, i will step down from the senate republican leadership.

my colleagues have elected me as republican conference champion three -- chairman three times and i will have completed four years, or two two-year terms. the reason for doing this is this. stepping down from republican leadership will liberate me to spend more time trying to work for results on issue is care the most about. that means stopping runaway regulations, runaway spending, but it also means confronting the timidity that allows us -- that allows healthcare spending to squeeze out support for roads, support for research, support for scholarships and other government functions that make it easier and cheaper to create private sector jobs. i want to make the senate a more

effective place to address serious issues. my leadership has been this. to help leadersed and to look for a consensus within our caucus and to suggest a message. i have enjoyed that. but there are different ways to author leadership in the united states senate. and i have concluded, after nine years, that this is not the best way for me to make a contribution. it boils down to this, serving in this body is a rare privilege. i'm trying to make the besty of that time while i'm herement for the same reason i plan to step down in january from the leadership, i will not be a candidate for leadership in the next congress. but i do intend to be more, not less, in the think of resolving issues and i plan to run for the united states senate in 2014.

these are serious times. every americans' job is on the line. the united states still produces 23% of the world's arrest, even though we only have 5% of the word's people. but all around the world people are realizing there's nothing different about their brains than our brains, and they're using their brain power to try to achieve some of the same kind of standard of living we enjoyed here. as a result of this, some have predicted that within a decade, for the first time since the 1870s, the united states will not be the world's largest economy. they say china will be. my goal is to help keep united states of america the world's strongest economy. madam president there are two other matters that are relevant to the decision i'm making today that i'd like to address. the first is this. when i first rap for the united states senate in 2002. i said to the people of tennessee that i will serve with

conservative principles and an independent attitude. i intend to continue to serve in the very same way. i'm a very republican republican. i grew up in the mountains of tennessee and still live there in a congressional district that has never elected a democrat to congress since abraham lincoln was president of the united states. my great grandfather was once asked his politics. he said i'm a republican. i fought for the union, and i vote like i shot. i've been nominated five times by tennessee republicans to serve in public office. i've been elected three times by senate republicans as conference chairman. if i could get a 100% republican solution of any of our legislative issues, i would do it in a minute. but i know that the senate usually requires 60 votes for solution a solution on serious issues, and we simply got to get that with only republican votes

or only democratic votes. second, by stepping down from the leadership, i expect to be more, not less, aggressive on the issues. i look forward to that. the senate is created to be the place where the biggest issues, producing the biggest disagreements, are argued out. and i don't buy for one minute that these disagreements create some sort of unhealthy lack of civility in the united states senate. i think those who believe that the debates today in our senate are more fractious than the debates in our political history, simply have forgotten american history. they've forgot what adams and jefferson said to one another. and they for got the alexander hamilton was killed. and congressman houston was walking down the streeted of washington one day, came across a congressman from ohio who opposed andrew jackson's indian

policy, and started caning him, for which he was censured. there was a south carolina congressman who came over here before the senate and nearly killed by hitting him with a stick a senator from massachusetts, and they've forgotten another senator from massachusetts, named henry cabot lodge, stood on the floor of the senate and said to woodrow wilson, i hate that man. forgot about henry clay's compromises and the debates held during the army mccarthy day, and what of the watergate debates and the vietnam debates? the main difference today between the debates in washington and the debates in history, are that today, because we have so much media, everybody hears everything instantly. if you would notice, most of the people who are shouting at each other on television or radio are the internet have never been elected to anything.

it would help if we in the senate knew each other better, across party lines, but to suggest that we should be more timid in debating the biggest issues before the american people, would ignore the function of the senate, and would ignore our history. truth is, the united states senators debate divisive issues with excessive civility. so, madam president, i've enjoyed my four years in the republican leadership. i thank my colleagues for that privilege. i now look forward to spending more time working with all senators to achieve results on the issues that i care about the most, the issues i believe will help determine for our next generation what kind of economy we will have, what our standard of living will be for our families and what our national security will be. i thank the president. i yield the floor.

>> madam president. >> the republican leader. >> madam president, i tell you my friend of 40 years, even though there are a number of colleagues on the floor, this is not a eulogy we're about to engage in, but really i think i have a great sense of relief that my friend is going to run again in 2014 and continue to make an extraordinary contribution to the senate and to america. when i first met lamar, he was at the white house. i had just come here as a legislative assistant to a newly elected senator. he had already accomplished a lot. been elected to identify betcha kappa at vanderbilt, graduated from new york university law school. clerked for a well-known circuit judge, been involved in howard baker's first campaign, helped him set up his first office, and that was before i met him.

since i've met him, as many of you are already aware, it's hard to think of anybody -- hard to think of anybody who has done more things well. he went home in 1970 and ran a successful campaign for -- i think the first republican governor of tennessee elected. certainly since the civil war. ran for governor himself in a very bad year, in 1974. didn't work out too well. but one of the things we know about our colleague, lamar, he is pretty per sis -- per sis sent, so he tried it again in 1978. elected governor. reelected governor in 1982. spectacular record. and then he did a very unusual thing, and i remember knowing about it at the time. i kept up with him since we met years before in washington. he took his entire family and went to australia for six

months. put the kids in school there. and actually wrote a book called six months off. which i read then. now, i don't know how many books you sold. how many books senator alexander sole, but it was fascinating review of basically just taking a break, going somewhere else, doing something entirely new, before getting back on the career treadmill that we of course knew he would get back on. so once the australiaian experience was over, this extraordinarily accomplished and diverse individual, became president of the university of tennessee. that is back when they used to play football. then president bush asked him to become secretary of education. so he was cabinet member. and by the way, i think i left out that at his mother's

insistence, he became quite proficient at piano. a fabulous piano player and musician. my mother let me quit. that was the only mistake she made in an otherwise perfect job of raising me, but your mother, by insisting you continue to take piano, gave him that dimension as well. so here we've got a guy who has been governor, president of his university, a member of the cabinet, and if that were not enough, he went into the private sector started an extraordinarily successful business. which did very well. and so i expect our colleague from tennessee thought his public career was over. but then fred thompson decided he wanted to do something else and all of a sudden he was in the united states senate.

not just in the senate, but then becomes a leader in the senate in a very short period of time, and we have had an opportunity to get to know our colleague. it's hard to think of anybody more intelligent, more accomplished, and also more likeable, than lamar alexander. so i must say to my good friend from tennessee, i'm relieved you're not leaving the senate. this is not a eulogy. but it is an opportunity, i think, for those of us who have known and admired you for a long time to just recount your extraordinary accomplishment during a lifetime of public service. and so it's been my honor to be your friend, and i'm going to continue be your friend, and i'm glad you're continuing to be our colleague. madam president, i yield the floor. >> i think the republican leader, deeply grateful for his comments with one exception. i have great confidence in derek dooley.

they're playing very good football and i spend to be in my usual seats at the georgia game in two weeks. >> madam president. >> the other senator from tennessee. >> madam president, thank you. i want to say to my colleague, i certainly enjoyed your comments today, and i'm excited for you. i sit very close to you here in the senate, and i'm with you a great deal. i do plan on keeping a cane out of your reach for a few days. but i very much appreciate your service and leadership of the republican heart peer in the united states senate, and i think what you have done in that position is to bring out the best in all of us, and the best way that you can. i'm excited for you. and i look at this as a great day for the senate. for the united states senate. it's a great day for our country. this is a great day for the

state of tennessee. and i can tell you, based on the conversations we have had and the way i know you, united states senate is going to become very quickly a more interesting place to serve, and for all of us, who have been concerned about our lack of ability to solve our nation's greatest problems, i look at what you have done today as a step in the direction towards us being able, as a body, to more responsibly deal with the pressing issues that you outlined in your talk. so, i thank you for having the courage to step down from a position that many republican senators would love to have. i thank you for the way that you serve our country. i thank you for the example that you have been to so many in your public service in our state and

our country, and i thank you for being my friend.

>> robert king is meeting with south korean officials on resuming food aid to the north. this is two and a half hours. >> come to order. >> thank you for joining us for this very important hearing.

human rights record in the entire world. the democratic peoples republic of korea is known to be the world's most isolateed country as the citizens are prevented from traveling either internally or internationally without express permission. communications with the outside world are also tightly regulated, and attempts by the dictatorship to filter all information accessible bill the north korean people therefore, the testimony to be provided today by our distinguished panel, and in particular our two defector witnesses, is particularly welcomed and appreciated. mrs. kim young soon and mrs. kim hisuk, who survived the north core afternoon prison camps halve traveled from south

corridor ya. -- korea. i want to thank suzanne scholte, i've chaired hearings, and she has played a critical part in every one of those hearings in helping us to get the witnesses to tell the true unvarnished story of what is actually happening in north korea. our witnesses will be speaking on behalf of an estimated 150,000 to 200,000 prisoners currently held in north korean labor camps. it's our hope their testimony will help to galvanize the international community to take action to secure the freedom of those who are needlessly suffering and dying under truly horrific conditions. those living in the prison camps are not only -- are not the only ones suffering in north korea. as one of our witnesses, suzanne

scholte, will testify in north korea, every single human right is enshined in the universal decoration of human rights is violated with absolute impunity. north korea is a tier three country, buying and selling women and others as a commodity. northerer to -- north korea was listed as a country of concern for violation of religious freedom. we'll hear about the new potential for communication through and with north korean people, and explore possibilities for peaceful change, given upcoming political events in north korea and changes in other countries in the region. we look forward to discussing this potential to improve the

lives of all people living in north core -- north korea. i want to thank you for your being here and thank c-span for taking this information and conveying it to the american people. north korea, because it is so closed, very often evades all scrutiny, so people know about it but don't know very much. your testimony, again, will help to shatter that lackadaisical sense of what americans know and think about north korea. so, thank you again. we'll begin with miss suzanne scholte. and is a leader of several groups focused on protecting human rights in north korea. she was recognized with the walter judd freedom aired and with the seoul peace prize. she has helped rescue hundreds

of refugees and facilitated the travel of defectors to speak in the united states. she has participated in numerous congressional hears on north korea, on topics including political prison camps, trafficking of north korean women, religious persecution and north korean refugees in china. i will note that when we held a hearing on trafficked women, some of what they thought were lucky women, who got out of north korea, into china, miss scholte actually brought to this committee, women who -- one woman who went after her daughter, who made her way into china, only to be sold into slavery, and then she and her daughter who went looking to rescue the trafficked woman, were themselves sold into sexual slavery. we'll then hear from miss kim young soon, committee for the democratization of north korea. she was arrested in 1970 and

sent to a political prison camp with members of her family. her parents and el test son died in the camp and her husband and youngest son later died trying to escape north korea. miss kim eventually escaped and has dedicated her life to exposing the truth about the hideous prison camps in north korea, by sharing her story around the globe. she is an outspoken defector, serving as the vice president of the committee for the democracyization of north korea and other human rights advocacy groups. we this will then hear from miss kim hye sook who is a survivor of a political prison camp. she and her family were impresented by guilt by association because of the grandfather's defection to south korea. she was just 13 years old. miss kim regularly witnessed executions and abuse and endured

manual labor, constant hunger, and death of several family members. once released, she fled to children's but was forced to return to north korea by her employer, where she was arrested again. when she escaped, she returned to china but was sold by human traffickers, like other witnesses we have had. she eventually escaped to south korea, and continues to tell her story around the world. earlier this year she published her memoirs in a book entitled "a concentration camp retold in tears." we'll then hear from mr. greg scarlatoiu. the executive director of the committee for human rights in north korea. he was witnessed the fall of

communism. he as authored articles on the applicability of the eastern european experience to the north korean context, and a broadcast into forthkorea by radio free korea. i now yield for opening comments. >> thank you very much, mr. chairman, for calling this very important hearing. and i'd like to certainly express our protection to the -- appreciation to the witnesses here who have agreed to testify. each year, each of your stories help us to better understand the extent and magnitude of the human rights abuses of north korea, and your guidance will help to us target our efforts in alleviating some of these terrible injustices. the human rights vibration north

korea are among the worst in the world. under kim jong-il regime, citizens face killings and detention for basic political expression, seemingly organized market activities, unauthorized travel. north korea seems to vie violate the regime's rules themselves bass they can be penalized for the actions not of themselves but of the actions of their families, which are certainly unjust. according to some observers the conditions are worsening, due to the presentation for lee myung-bak to take over.

there was a human rights act in improving the flow of information to north korea. currently this amounts to $2 million annually for human rights and democracy, 2 million for freedom of information programs, and 20 million to assist north korean refugees. i am interested in hearing from the panelists, if you have expertise in that area, about the views on how proposed cuts to our international affairs budget would impact on our ability to adequately continue to fund these programs that have been successful in getting information to date. although it's not in the realm of your testimony necessarily, i was very disturbed at the behavior of the north korean leadership in november of 2010 when it attacked south koreas a

island of pyongyang with artillery shells, killing several people. this irresponsible behavior of a government really is unwarranted and really needs to have continued watching and scrutinizing as to their behavior. also, their continued adventurism into ballistic missiles and other weapons of war. certainly disturb us. so i certainly look forward to your testimonies and thank you again for your willingness to share them, and i yield back the balance of my time. >> thank you very much. would either of my other colleagues -- i'd like to now then yield the floor for such time as you may consume to

ms. scholte. >> just before you start, make a point. we also invited ambassador at large king, who could not be here because he is out of the country. he has -- he wanted to be here. said very clearly he would gladly come and testify at a later date and wanted to provide the subcommittee with a closed briefing as well on recent events, including the human rights situation in north korea. bob king, as my colleagues know so well, was the chief of staff for the foreign affairs committee, and very good choice for ambassador, so, we look forward to hearing from him as well. so, miss scholte. >> first of all i just want to thank congressman smith for your many years of devotion on the north korean human rights. and it's been a honor to work with your staff for the people of the sahara.

another country trying to get freedom through self-determination. i want to give two main points at this hearing today. first of all, north korea continues to be one hover the darkest places on earth, yet we fail to focus on the main issue, which is the human rights issues, because we have instead focused on the nuclear issue and that hays had tragic results. second, despite the tragedy, there's hope because of changes in the country, but if we fail to enact the policies that dress human rights conditions and empower those who can bring about cheng, we'll certainly end up just prolonging this regime. while we witnessed people rising up in north africa and the middle east, we wonder why the north koreans, who, arguably the most persecuted people in the world, not rise up. it is precisely because they are the most persecuted in the world. north koreans are the only people in the world that do not enjoy one single human right that is enshrined in the

universal declaration of human rights, a document ironically that was adopted in 1948, the same year that kim kim il-sung e to power. when nazi death camps were librated, the international commute vowed never again, never again, would we allow these kinds of atrocities to occur. but the political prison camps in north korea have existed longer than the soviet gulag, longer than the chinese prisons and longer than the nazi death camps. your two detector witnesses today are living proof of the horrors of the camp and the length of their experience, one was in prison in the 1970s, and another was in prisoned for 28 years. we have seen millions of north koreans starved to death, despite billions in economic

assistance, and north koreans are not the only ones who surveil from kim jong-il's dictator south. south korean p.o.w.s are still being held and at least 108,308 captives are being held in north korea, including 80,000 abductees from south korea, and hubs of others from 13 countries a recently documented by the committee for humidity rights in north korea. former presidents bill clinton and president bush made human rights a secondary issue in the hope of getting them to give up nuclear amibitions. we see the failure of these efforts has north korea realized it nuclear amibitions and its proliferation activity continues. kim jong-il may be an evil dictator, but he has brilliantly manipulatedded the good intentions of both america and south korea. my second point. there is hope because things are changing in north korea. despite kim kim kim jong-il's bt

efforts to keep north koreans in the dark, up to 60% of north koreans have access to some form of information beyond the ridge anymore. they're learning the source of the misery is not america or south korea as they're brain washed from childhood to believe. the source of their misery is in fact the kim jong-il and his regime. detectors are sending remittances to their families to help demonstrate their pros apart in south korea. north korea has a cell phone system with 500,000 subscribers, dough -- defectors pay brokers in china to contact their families, and they get dvds, flash drives and balloon launches. north koreans, especially the eleads, are keeping up with south korean soap operas, and watching south korean and

western films. it's more important than over to raise the human rights concerns so they know our concerns are for them. for example, it was a brilliant action by the obama administration to include special envoy for north korean human rights, ambassador robert king in the delegation that went to north korea to investigate the food situation. it's the human rights in north korea that are causing the starvation. furthermore, north koreans are no long dependent on kim jong-il to survive, and because of farmer markets and the capitalism is saving them. kim jong-il's unprovoked attacks on south korea, as congressman paine mentioned, have awake ended south koreans to the truth, we must not ignore the human rights of north koreans for the false promise of this regime to end its nuclear

program. governments, nongovernmental organizations, and individuals, first of all, should make human rights central to all negotiations with or about north korea. second, we should only provide food when relief organizations can stay and monitor it to the point of consumption. otherwise, it will most assuredly be diverted to maintain the regime that is causing the starvation in the first place. third, we need to continue to support radio broadcasting, especially programs like radio free asia and voice of america,; fourth, we need to empower the defector organizations using creative methods to get information into north korea. like fires for a free north korea, and the north korean peoples liberation front. five, we must convince the chinese to end their brutal policy of forced repatriation

for north korean refugees which is prolonging the crisis by giving kim jong-il a reason to resist any reforms that would improve the situation in the country so north koreans do not want to risk their lives trying to three. sixth, we should support the 12 north korean defector churches. i've been working to try to connect church here in the united states with these detector churches in south korea. seven, we need to put the elites in the regime on notice they will be held accountable for their crimes against the north korean people. last week a north korean was caught. his mission was to kill the head of the fighters for a free north korea. hock has been doing the balloon launches, sending up information. both park and another man have been argentinaed targeted --

regularly talladega by assays sans. this tells us they're doing the most effective work in 2009, radio korea started broadcasting interviews from inside the country. supporting this flow of information through radio broadcast, especially by north korean defectors, is the most effective way to reach the people because the internet is only available to the elites in the regime. recently the north korean people's liberation front was formed by former military, including officers, special forces, cyberwarfare specialist propaganda specialists. this is significant because there the only time there was opposition against the regime was from the military who studied in the soviet union and came back wanting reform. they operated against the regime not 198 4. because all north korean males

must serve for ten years and the elites are exempt from service, this means the north korean military truly represents the people. we saw the army in romania turn against kim jong-il and a good friend cue chess sky when the people rose up against the dictate tar. right now the elites in power have no incentive to oppose kim jong-il because they're lives are based on the successful transition to lee myung-bak. we have to assure them they will have a stake in the future. because north koreans are citizens under south corear, south korea has an important role to play, and that they should convene a tribunal of respect judges to begin the prosecution of those in the regime responsible for the political prison camps and other atrocities. there are 23,000 eye witnesses now, and we should start naming

the names of those who are committing these crimes. when north korea finally opens up, i believe we will be even more horrified at the atrocities that the kim regimes committed against the north korean people today that are beyond our imagination. we'll face the same questions the world faced when the allies librated the nazi death camps. what did you know and what did you do to help stop the tragic circumstances? thank you, mr. chairman. >> ms. scholte, thank you for your testimony and your leadership. all those year all these years, and for that very incisesive testimony. we'll now her from miss kim young soon. >> i'm kim young soon. i'm a north korean defector and a survivor of a prison camp.

[speaking korean] >> translator: i want to thank the united states congress and related officials of the congress for giving me a chance to speak at this important venue. i want to thank mrs. scholte for her years of friendship and for listening to my story of the political prison camp experience. [speaking korean] [speaking korean]

>> translator: the camp where i was is known around the world. it was created in 1969 in south province in a region moan known for rough and mountainous regions. and they died silent deaths. [speaking korean]

>> translator: i wrote of my time in a book. my friend was hidden mistress of kim jung ill. and i became a victim of this myself and was, therefore, sent to prison. i want to tell the world about the reality of what happened to me and the reality of the prison camp system. [speaking korean]

>> translator: the workers parties establishment of the principle was instituted whereby the citizens were sent to prison camps for total isolation from the general society for the following crimes. the crime of defaming the authority and refrigerator of kim il-sung and kim jong-il. the crime of knowledge about the private life of kim jong-il and releasing information about it to the general public, thus defaming the prestige of the leader. i had no knowledge about these facts when i was sent to prison camp. ...

>> i was a close friend having had gone to the same school and college and one day i heard directly from her that she would be going to the special presidents number five. at bat time a new special residence five new they meant qassam -- if kim sung il [speaking korean]

>> translator: [speaking korean] >> translator: at the time i was taken to a political prison can i have no idea why i was being incarcerated and there was in the summer of 1989 after i was released that i find out the reason why from the state security agent read the security agent said the following to me colin quote she was not the wife nor did she dare him a son. these were all rumors.

if you mention anything about this again you will not be forgiven. >> [speaking korean] [speaking korean] >> i would like to talk briefly about my interrogation before i was sent to the political prison camp. on august 1st, 1970i was forced

into a car by state security agents taken to a secret location where i was interrogated for two months by the unit called unit 312 for preliminary investigation in a state security investigation room to read under fear for two months i was told to write my entire life story and to include everything and leave out nothing, so i wrote on and on. in my riding i confessed and wrote about him coming over to my house and telling me she would be going to the special residence number five and also admitted people around me knew this information as well. >> [speaking korean] bixby seven

after the investigations were overall october 1st 1970 my entire family and i, seven people in total were sent to the political prison camp. the person who committed the crime was labeled the conspirators were the ringleader of for the yanna torian of workforce association were labeled monk principal, also and this is how the criminals and prison camp for classified. we book about 3:city in the morning to go to work before:40 a.m. and the labor was from some of until sundown. mills had to be provided by ourselves to self-sufficiency. i saw countless prisoners contract the disease and suffer from diarrhea.

>> [speaking korean] [speaking korean] >> translator: after work there would be the fifer ideology meetings for the prisoners. those were unfortunate to be called by the security agents during these ideology meetings sent away in shackles were never seen again. the first manual labor was beyond anyone's imagination and in case of falling short of work goals the whole group was punished. there were so many dead bodies that i saw of their coming enough to fill the field. >> [speaking korean]

[speaking korean] >> translator: my three sons, one daughter father and mother died from starvation. there were no coffins so their bodies were ruled in a straw mat and buried. when my son was 9-years-old at the time in the river near the prison camps. my daughter was given away for adoption after hours release so that she could have a better life to lead to this day i do not know her whereabouts what she is alive or dead. my youngest son was publicly

executed by firing squad for trying to is good north korea after his release and attempting to go to south korea in 1993 at the age of 23. >> [speaking korean] >> translator: my husband was sent to another political prison camp in a total and complete controls on july 18th, 1970, and to this day i do not know whether he is dead or alive, so my original family of eight people, currently only to have survived and successfully he escaped from north korea. myself and another son. the rest of my family, six people, have all died. >> [speaking korean]

>> translator: my older brother, who was the killer of our family was a criminal in the army during the north korean war serving the third infantry and why on a mission for the commander, she was killed in battle at the age of 25. accordingly, our family received favors from my brothers x and kim il-sung and we lived will allow our family was sent to the political prison camp and as a way of feeling betrayed, i escapes from north korea. >> [speaking korean]

>> translator: even after i was released from the political prison camp, i was classified as an antiregime action mary and suffered by the state security apparatus. i.e. state number triet feb first come in 2001 and entered south korea in november of 2003. >> [speaking korean] >> translator: in conclusion i would just like to see that in the political prison camps of north korea, it is a place where the prisoners will eat anything that flies, crawls or grows in the field. >> [speaking korean]

>> translator: bye wasted nine years in the prime of my life in that hell hole of a place where even animals will turn away, turned their faces away. i lost all my family members and have lived a life of years, blood and hardship. please save the 23 million people of north korea living a life of misery, not unlike what i have suffered. >> [speaking korean]

[speaking korean] >> translator: even though i am now over 70-years-old, i will fight for the freedom of my people, my countrymen until all of my strength is expended to read this is the reason why i have lived so far and also my purpose and on that note i want to deeply thank again the members of this committee for your interest in the human rights situation of north korea, especially the political prison camps. thank you. >> thank you so much. the brutality that you, yourself, suffered in the loss of your family members, including your daughter, who as you said, was adopted obviously without your permission, you have no idea where she is, your husband, you have no idea where he is and the loss of your other family members, just underscores the brutality of kim il-jung and the fact that the west united states and any country that has

any sense of compassion needs to speak out against this terrific abuse and this shouldn't be a second-tier issues of human rights abuses that are commonplace of north korea so we think you for making us further aware of the extreme who barbarity that you have been made to endure and your family. we will now hear from another who has suffered three decades in the gulag of and we look forward to hearing her testimony. >> [speaking korean] >> translator: hello i am an earthquake per specter in