i think you're right, senator. over the past 40 years, social security and medicare represented outlays for the program were 6% of gdp. by 2038 under current law, outlets will be about 11% of gdp. so the cut if spending that will be required on the programs that will be required to bring them back to the historic am average will be a cut of almost one half. we don't have anything that would accomplish that. as i said to start with, there is no particular reason why those programs should go back to the historical share of gdp given that many more people and much larger share of the population is eligible for them. on the other hand, if one does not restrain the programs, then significant changes need to be ma made. >> is there anything else you'd

like, senator? >> r & d, we're in the process of producing a chart book of federal investments and some of the private sector investments as well. in terms of development, there is often a great deal and growth in private sector development but in the more basic forms of research. that is the sort of output for the economy that the private sector will tend not to do enough of. that is really a responsibility for the federal government to support that sort of basic research. >> i'll run through the list of those of you who know will know. >> thank you, mr. chairman. in listening you to, it really

is striking to me we have a short term challenge that is different than long term in some ways. and the good news is we've actually begun to tackle long term and have been put in place the yearly deficit coming down by half. good news. you talk about growing the economy and being smart not reckless in what we're doing. when we look at that, it seems to me a good way of summing up is you're not going to get out of debt with more than 11 million people out of work. a number of us are talking about the economy. i'm wondering if you might just talk a little bit more in terms of the short term how we're smart about growing the economy. the manufacturing institute says there are 600,000 manufacturing jobs unfilled right now because skills are different than the

jobs available. and national skill coalition says about 300,000 people are going to be turned away from training programs because of the sequester cuts. so we have got inability, if we continue down this road to provide training whether it's the 20 to 25-year-old that you talked about where we have a 12.5% unemployment or others. i mean we're -- if we don't do this right, if we don't stop what is in my judgment recklessness in terms of how we approach cutting spending, we are cutting our nose to spite our face in terms of economic growth. since 2011, countries like china and india increased investment and basic research, we're cutting ours. again, short term, not looking very wisely at n. what happens in terms of across the board cuts on sequester on education innovation which seemed to me are critical if we're going to

grow the economy and get people back to work. you could talk a little bit more about that in terms of what we need to do, skills gap, so on? >> as i mentioned in my opening remarks, the sharp reduction in the deficit over the past few years has had the beneficial effect of reducing the accumulation of government debt. that is a tradeoff that is up to you and your colleagues to make. i think we've been clear now for a number of years. i think the skills gap is partly an issue in the short term and even more important in smub ome terms. important source of growth in the american economy, growth in people's incomes has been the greater education that people have received.

if that doesn't continue to happen, then that will have adverse consequences on our future ability to consume our ability to raise our standard of living over time in the way that we have in the past. and the government supports programs and mostly at least through nondefense discretionary spending of one sort or another that can help to build people's skills, can help to do the research that's needed. as you discussed the amount and composition of nondefense discretionary funding, i think it is appropriate for you and your colleagues to be concerned about what the effects are over time of those different sorts of investments. and we're happy to talk with you about the work that we've done or know of that other people have done. as i said, i think there aren't simple lessons about -- in all -- there isn't that much evidence about just how much --

how certain things work better than others. whatever there, is we're happy to try to bring to your attention. >> the number one issue i'm hearing does relate to this issue of skills gap. i hope we'll keep that in mind. mr. graham? >> there. >> let's talk about general treasury obl obligations. medicare. what percentage of medicare payments come from the general treasury? >> so senator in our long term budget outlook, we reported -- we showed that in a figure. >> let's just make it really three out of $4?

2 out of $3? >> so, senator, about now roughly half of total medicare outlays come out of general revenues. the other half come largely out of medicare payroll taxes. >> premiums are about 10% of medicare payments. >> over time this problem really becomes difficult for the general treasury, right? medicare obligations over time grow? >> yes, sir. very much, senator. >> 10,000 people a day and the baby boomers are retiring. there are 80 million of us over the next 40 years are going to go into retirement. when i was born in 1955 there were 16 workers for every retiree. today, how many are there?

>> a few, senator. >> three. in 20 years, how many will it be? >> two. >> right. so here's the big dilemma. if 80 million people are going to retire and the numbers are going to change from three now and 20 years two, we have a problem. you agree with that? >> yes, senator. >> so when it comes to a general treasury obligations in the future, i just don't see how we can avoid entitlement reform. do you gr agree with that? raise taxes a lot or cut benefits a lot. >> they have to cut even further what is scheduled in current law into the other benefits and services of the government provides. >> that will amount to a smaller share of gdp than it has in many decades. logically, that is your number. >> we have a prom that can't be

ignored. that is the retirement of the babyboomers. is that correct? >> that's correct, senator. >> is that why president obama decided to address cpi reform and means testing of medicare benefits? >> as you know, i will not speak to the president's motivations. >> why don't you go talk to him and ask him? >> i think not, senator. >> i would go along your lines, we did analysis of the sources of growth in spending. >> would you gr he with me that it would be responsible for a president of the united states, democrat or republican, to be thinking about cpi reform and means testing, medicare benefits? >> senator, i will not comment on what the senator should do. >> we were talking about two minutes for questions. >> all right. >> may i just note for your and other people's interests, we did an analysis of the sources of growth in spending for social security and medicare as a share

of gdp over the next 25 years. and fully half of the growth in spending for those two programs, share of gdp is just from the aging of the population and rising number of beneficials. >> can you tell me how two people -- >> last question? good lord. >> this is why he shows up late. >> tell me how two people can do what 16 people used to do. >> that would require a lot of work, senator. >> senator merkly? >> thank you for this discussion. >> i want to reinforce the budget, we should think about the current state of affairs in america. the current state of affairs is a large portion of the economy is going to very few. large percentage of the wealth is held by very few. but another key point is that we are losing living wage jobs. by one estimate, 60% of the jobs we lost in the great recession

were living wage jobs and less than 40% of those we're recovering our living wage gojo. is that a piece of the puzzle you have insight on? >> i can't speak to the precise numbers off hand. but you're certainly correct that the -- a number of decades now a larger share of total income has gone to people at the very top of the income zrp distribution and other people experienced very little increase in their standard of living. >> the reason i want to emphasize this living wage job is when folks have living wage jobs, they don't need other programs and reduces the government expenditures considerably. >> i just want to reinforce this point over investing for growth.

we've had some comments around the table that if you are spending money on a tax loophole or a credit or deduction and you close that loophole, you should not consider spending that money on something that would create growth. we have tax loopholes of basically compensate companies and we regard them for shipping jobs oversees. is that any possible way that can be construed as something that really helps our country, grow our economy here at home or increase the number of living wage gojobs? >> senator, i don't want to speculate about the features and the particulars of the tax code. reform of the corporate tax code and reform of the individual tax

code could have a significant positive he infect effect on th economy and people in that economy. >> you're being very diplomatic. i think most of us understand if you spend money to eliminate jobs in america and put them somewhere else in the world, that hurts our own economy here at home while investing in training to create jobs here improves our economy. >> yes, senator. but there is a growing and complicated empirical literature by economists about how helping u.s. companies compete overseas can oorneither hurt or help the activities in this country. that is an issue i don't want to wade in off the cuff while i sit here. >> okay. thank you. >> thank you. senator mccain? >> thank you, mr. chairman. i want to ask you a question about what i thought was the end of your oral presentation. we don't have the written testimony. i don't want to put words in your mouth. tend of your oral presentation

after you were done with the charts you were sort of offering the advice to us about the sa -- sulutory effects of finding a deal which would involve compromise between the house and senate. this refers a little bit to the opening comment that senator warner made. i've been worried about uncertainty as an ankle wait around economic recovery. i would like you to elaborate on the final comments and talk about the extent that you think uncertainty is an ankle weight on the recovery and if we can find a deal for 13, 14sh, 15 or beyond and see positive economic effects. >> yes, senator. so we and many analysts i think have concluded that uncertainty about federal fiscal policy has been considerable drag on economic activity in the

few years. but quantifying that effect is very difficult. we had some people talk at our panel who have done work in that area to see how far we could go. and i think the conclusion of the advisors is that the results were quality but lots of numbers are important that can't be agn, our judgment to many other peo , about what will happen to taxes, federal taxes and federal spending has been an important source -- been important head wind to the economic recovery. and my remarks concluded that it would be salutory. but re-allocating portions of the budget in way that's fit what you think would be best for the country. and would reduce uncertainty

about what fiscal policy will do over the next year or two or three while improving or at least not worsening the long term budget outlook will be a positive factor for the economy now and next year and the year after. and i think there are very few large problems that are settled in one go. i don't want to discourage ambition on the part of the economy. but i think one should in many lines of life, the perfect should not be the enemy of the good. i think that applies to budget policy as well. >> thank you. mr. widen? >> thank you, very much, mr. chairman. director elmendorf. i think we know traditionally when you're trying to find a consequence, you're looking for both areas when they're on record for supporting changes. for example, chairman camp in the house and the president's treasury department have identified among the trillion dollars of tax expenditures that

the tax treatment of derivatives is particularly inefficient and abusive. now you can't be in the business of advocating specific policies this morning. we all get that. so let me just put this as a theory. is it correct to say that theoretically -- theoretically, you could eliminate several of the most play grant tax loopholes without compromising the broader tax reform agenda? just in theory? >> yes, senator, that sounds right to me. >> okay. thank you for that. the only other thing i wanted to do, chairman ryan, is ask we put into the record at this point a chart that director elmendorf sent you to a few weeks ago. i thought it was particularly important. the chart demonstrates for 2014, congress adhered to the caps for nondefense discretionary

spending but disregard the caps for defense. i would ask unanimous consent to put that chart in the record. >> without objection. >> thank you. >> thank you, senator. >> mr. cane? >> thank you, mr. chairman. i have a real sense of you aurg about this. there is no question the uncertainty of the policy is affecting the economy. it's also undermining confidence generally in the country and undermining certainly confidence in this institution. to that end, i have a modest proposal. i commend to you as a suggested way to begin to talk about a result for this conference. i call it the grande proposal. they tell me in starbucks, grande is in the middle. it's a medium size. >> i just call it medium. >> it's a medium. okay. here's what i propose, a 10-year deal which include mandatory cuts, cuts in mandatory spending, revenues, and a

smoothing to substantially mitigate the effects of the sequester but produce the same deficit reduction effect. number one, cut the sequester caps in half through a combination of cuts in mandatory spending of $255 billion and revenues derived from corporate tax expenditures of $200 billion. you would generate an additional $325 billion in additional revenue from corporate tax reform which will be applied to corporate rate reduction. and an infrastructure fund in a ratio of 5-1. $ $275 billion rate reduction and fran structure fund which would take the current corporate rate from 35% to 32.5%. you're left with half the sequester amounts and you would apply the smoothing concept that senator sessions has suggested in terms of the interest -- i'm sorry, the growth rate which would essentially minimize -- >> do you mean smoothing on pensions? >> no, i'm sorry.

there is smoothing the rate of growth in the sequestered amounts. you know, there are varying growth rates. and if you lower the rates in the out years, increase them in the near years, you can in effect eliminate the cuts that we're now facing. this would provide certainty to the appropriators. we give them numbers that they can then work with and that in turn gives us the plechl buifle that people talked about in the appropriations process in the congress rather than in the administration. i think there is something in there for everyone to dislike. i hope you'll take a welcome at this and consider this as a possible and it leaves further deficit reduction for further talks. but it solves the immediate problem of the sequester and, yet, wend up at exactly the same place in terms of deficit reduction as under current law.

>> thank you, i encourage every one of our colleagues if they have suggestions, submit them. thank you. >> thank you. >> i want to get to a point that was raised by senator warn we are respect to historic revenues as a percent of gdp. from 1973 to 2012 it was 17.4% revenues percent of gdp. of course, we were running deficits at 3% on average. the only time in that entire period we did not run deficits was 1998 to 2001 where the revenues as a percent of gdp averaged 19.5%. if you look at your chart under current policy, at the end of this ten-year window, he would still be at least a percentage

point below what it was when we balanced the budget. i would point out between now and then, we will have a 33% increase in medicare beneficiaries and a 30% increase in social security beneficiaries. so huge increase in seniors that qualify or are eligible for social security and medicare at a lower revenue percent of gdp then ten years from now in the years we actually balanced a budget. i want to emphasize that point. it seems to me it's hard to say you care about reducing or long term deficit but have a position that you wont close a single tax break or loophole or eliminate a -- any tax expenditures for the purpose of reducing the deficit. the senator pointed out and you're pointing out the recovery helped cushion the economy during a difficult time. that some of the debt service in

the outyears will provide drag. the drag from the interest rates we're inoccurring as a result of the wars, unpaid for prescription drug plan and the tax rates dwarf any outyear drag from the recovery bill. the sequester, as you pointed out, will result in approximately 800,000 fewer jobs. at the end of this year the current policy on unemployment compensation will expire. can you tell us what impact that will have on economic growth? these are people still looking for work, out of work through no fault of their own. what benefit would it be to the economy from extending that current policy unemployment compensati compensation? >> we wrote and report about this time last year that extending the additional unemployment benefits through

2013 would provide a boost to gdp and jobs in 2013. we think extending the benefits now through the end of 2014 would provide a boost to jobs next yearme. we have not yet tried to quantify that. quantify that t to k. -- i wou impact. thank you. >> i'll look into that. >> let's go senator johnson anden in senator sessions then senator murray. >> we were given a sheet of paper on the possible obama care. the trust fund holds about $2.6 trillion of nonmarketable government bonds, correct? >> that sounds about right, senator. even the treasury has a $2.6 billion liability, correct? >> yes. >> so if you consolidate the books of the federal government, do the assets off sets liability and has a net monetary value of zero, correct? >> yes, that's right. >> so the trust fund has no

monetary value in total? consolidate ed base snis. >> in fact, senator, we work on a consolidated basis. that's why we talk about the federal debt held by the public. >> i understand. again, the federal government is an entity. it has zero monetary value. now i want to quick go back to the cost of obama care. in front of you now is what i was looking at that showed over the next ten years the cost of the affordable care act will be about $2.4 trillion. i'm not sure what you were categorizin categorizing. do you agree this analysis, discretionary spending, woint go through it. >> let me clarify what i was saying. i was referring to the cost of the coverage proifvisions. >> i'm talking about all the expenses that it's going to cost over the federal government. >> so we have not tried to tote up the costs in this way, senator. i can check. we have -- i have here our estimate of the effects of repealing a legislation that we provided to speaker of the house

last summer that has a breakdown of total outlays and receipts. by our estimates, the total cost -- the total addition outlays over the come being decade was about $900 billion and the total increase in revenues was about $1 trillion from the affordable care act. but you were doing i think different sort of breakdown into constructive pieces you have here. we can look at it and talk about it. >> i feel like we're showing about $2.4 trillion, a trillion dollars in revenue. where is the $1.4 trillion come from to make up that gap? >> as i said before, senator, there are cuts in other sorts of spending and increases in revenues. that's why on balance all of the provisions together, we indicate they will reduce deficits. >> so you're still sticking to that? >> yes. >> yes, senator.

>> thank you. senator sessions? >> thank you. with regard to the sequester and the job short term but in long term, your report makes clear on chart 62 as we discussed earlier that if we don't adhere to that $2 trillion in savings, we'll see a minus 7% reduction in long run gdp whereas if we do, we'll have a 4% gain which is a huge difference. if we take another $2 billion out, we'll have another 7% gain. the long term -- i think we all have to realize that sometimes you have to take some medicine to get off an illness. are you familiar, doctor, with a new imf international monetary fund report on europe that found on all the actions they've been taking over there that tax increases are two to five times more harmful as cutting spending

to reduce deficits? >> i've heard of the report, senator. i've not read the details of it. and i should say, as you know, in our analysis of the effects of changes in the budget, we try to incorporate the effects of changes in tax rates in addition to the effects of changes in overall amount of government borrowing. >> and your findings are not inconsistent with that general principle. your find woing findings would that tax increases are less helpful than spending cuts over the long term to deal with deficits. >> so the one clarification i would offer, senator, is that increases in marginal tax rates, tax rate that people pay in an additional dollar of saving increases in marginal tax rates, slow the economy relative to some other way of reducing the deficit. it's not affecting people's behavior. >> with regard to the marginal rates, you would agree that it -- on tax increases are less

advantageous over the long run for the economy than spending cuts? >> than spending cuts that do not otherwise distort people's behavior. again, we come back to the discussion about the role of investment. federal investments can also help the economy in the long run. senator, the point is -- >> that's not what your report says. >> no, actually, senator -- >> in general that the tax increases are less -- are less helpful in reducing the deficit as -- tax increases do more damage to growth over time than spending reductions as we seek to reduce deficits. >> senator, i think we tried to be very careful in our reports not to paint either all tax increases or all spending cuts with the same broad brush. >> i know. >> as you understand, the incentive effects of -- >> i'll look at your report.

i think it says what i said. >> okay. we'll go to mr. whitehouse. >> thank you. so this relates to health care in the country. and the figures i have is that we are spending about 18% of our gdp on health care nationally. that figure is northbound, headed for 20 and higher. >> yes, senator. >> and that the least efficient of our competitor and industr l industrialized nations is burning maybe 12% of their economy on health care. so we pay about a 50% inefficiency premium in our

health care system compared to other industrialized countries. the president's council of economic advisors said there is $700 billion per year to be saved in the health care system without affecting the quality of care in any adverse way. the institutes of medicine i think are at $7 auto -- $750 billion. george bush's treasury secretary who is putting knowledge in this because he ran the pittsburgh group that focused on health care therement they'. they're at $1 trillion a year. so these are very, very, very big numbers. and 40% of the numbers would come back into the federal budget if we were able to achieve those savings on a national level. so i know that there's a scoring problem with trying to work from

the national health care cost savings into the federal budget. but just in terms of talking to us as members of congress, in terms of the priorities that you see out there, how important is it for us to get a handle on the health care cost problem in the united states? >> senator, i think it is a tremendous difference for the federal budget. if you and your colleagues and people running the programs can find ways to slow the growth and costs that do not adversely affect people's health. but i think the principle problem is not -- >> that's the premise of all the different studies that i've reported. is that it won't hurt people's health care but improve it. >> i understand, senator. i would -- the place i would disagree with you is that i think it's not basically a scoring problem as a policy problem that you confront. so there is very widespread

agreement, as you know, among analysts and practitioners, health care providers, that a good deal of health care spending in this country is doing little or nothing to improve people's health. but there's much less agreement and much less evidence to show how federal policies should be changed to squeeze out that extra spending. >> i'm not saying we understand the policy jujtsmedgments yet. but you think we should be relentless on this? >> yes. it would make a huge difference. >> before i turn for the last word to senator murray, you had a uc request? >> yes. i would like unanimous consent to enter into the record "the wall street journal" article that i referenced in my comments. >> all right. without objection. >> thank you. [ inaudible ] >> i think he's good. good? perfect. >> just very briefly, mr.

chairman. i want to thank you and senator murray for allowing us to have this dialogue and also for saving probably tens of thousands of dollars in your own budget cutting techniques by turning off the heat in this room today. >> it's like wisconsin right now in here. >> just very briefly, i think this has been a great hearing. director, i think what i take from what you're saying and the charts and so on is consistent with where i think there's kind of a growing consensus which is that the two-thirds of the budgets that we don't appropriate every year which is on autopilot and growing to 76% of the budget based on your statistics is where we got to be focus a lot of our attention even in this group. and what you said earlier was you don't mean to be too pessimistic in the sense even if we made small steps in the right

direction in terms of mandatory savings and reforms that markets would respond favorably and that we would be viewed by the american people as dealing with a real problem. is that correct? if so, maybe it's a good conclusion statement for you to make as far as what you review this group. we don't have all the answers here. we don't have all the committees of jurisdiction. but we have an opportunity to do something that moves us in the right direction. what would you recommend that we do? >> well, senator, i can't make specific recommendations. i think that -- i would say i think the big steps are better than small steps. but small steps are better than no steps at all. and no steps at all is better than stepping backward. and so i think that the specific changes that you would make are, of course, up to you and your colleagues to judge on behalf of me and other citizens. but i think that while keeping your keeping your eye on the longer term problems

is critically important that one should not view this as sort of the world series or bust, that if one can move the ball a little bit, one can make some changes that would fit your sense of where they ought to be and reduce uncertainty about what will happen in january and february and throughout next year. that can be an important lift to the economy. it can improve the efficiency which the government operates and so i think that as i said earlier, one should not make the perfect enemy of the good. >> thank you. senator murray. >> actually, senator portman, that was where i wanted to end as well and i echo what was said, we all appreciate your comments about not discouraging us from doing the large obviously we have to keep our eye on the ball and continue to

work on that. your comments today are especially important for all of us to here, the uncertainty created by the way that things have been managed by crisis and by the sequester is harmful to the economy and that by making some small steps now moving us forward providing that certainty, so that businesses can sign contracts and know where they are going for the next year to two years is

[inaudible conversations] hall [inaudible conversations] [inaudible conversations]

>> i started with teddy roosevelt i got into taft known they were friends than broke apart when i figured out what was the difference between the two is teddy's public leadership to in tasks familiar i started to read about the progressive era can these guys stood at the center to play a single roll even the best historians will say these people were the vanguard then i started to read about them. i did not novia others i did

not know them until they came into my life. >> chairman furman, welcome. both vice chair klobuchar and i sppreciate your willingness t >> will come today.ec. we are all pulling for a strong recovery. all all ages and races have simpl simply given up hope to find-tie a full-time job.ll now four years after the recession ended some partsrts ot pr the nation are making progress. the current recovery is the

weakest of all posting to 52 recoveries of all majortroubli,d performance and with a growt dangerous growth gaps for real gdp is growing by 10 percent since then by 10% recession ended just barely above one half over the sameingh period progressing aid growth gap of 1.three troytrilln it -- trillion dollars. real disposable income of oftha less than one-third of 11average .7% average.s a this means a family of four has $11,420 less of real after-tax income spent if the recovery had been average. recory had it is producing 4.4 million4.4 m fewer privateil payroll jobs pal from an average recovery. e is e

population ratio. it measures the proportion of the country's population age 16 or over that's employed. by now it would have risen by 1.7 percentage points in an average recovery. more than double that in a reagan recovery. today it's actually declined by 1.1 percentage points. to put the stalled labor market in perspective, in october of 2013, the employment to population ratio was only .06% higher than the lowest reading during the president's administration. in october, right before the participation rate fell to 62.8%, a low not seen since the carter administration, and as many unemployed americans are learning the hard way, the decline in the official unemployment rate to 7.3% is largely illusory. because so many americans have simply given up looking for work. the labor force participation

rate had not declined since the president took office, the unemployment rate would be a whopping 11.3% today. as president john adams observed, facts are stubborn things. facts prove that this is the weakest recovery since 1960. indeed, since word war ii. on july 24th president obama described a growing middle class as the engine of our prosperity. he was exactly right. in this recovery, however, middle class americans continue to suffer, while wall street has roared. since the recession ended, the s&p 500 total return index is up by more than 86%. while real disposable income per capita is up a mere 3.7%. to make matters worse, as of this past july 15.7 million more americans were receiving food stamps, while only 2.1 million more americans were employed.

adding eight americans to food stamps for every one finding work is not growing the middle class. in fact, the recovery might better be described as a real war on the middle class. today we want to discuss the economic -- roadblocks to job creation and economic growth and search for bipartisan solutions to restore prosperity to the suffering middle class. clearly, main street is being harmed by the president's higher taxes. mountains of new red tape on local businesses. and the disastrous rollout of the ill named affordable care act that's cutting workers' hours, raising their health care costs, preventing small businesses from hiring, and canceling health insurance for millions of americans. both parties agree that americans deserve better. chairman furman, we look forward to your testimony. with that, i recognize vice chair klobuchar. >> thank you very much, mr. chairman. thank you, dr. furman, for being here. the last time a council for economic adviser testified before -- chairman testified before this committee was in october of 2009. so we thank you for coming close

in to the time that you were appointed. i note that that month the economy shed more than 200,000 private sector jobs as it struggled to regain its footing. the exact opposite of what we just saw with the job gains from the past month of october and, in fact, we've now seen an average of 200,000 for each month in the last three months. i think we all know that we have come a long way, as this chart shows, since the beginning of the downturn. four years later, we are still adding jobs, not as many as we would like, as the chairman pointed out, but we have still seen 44 straight months of private sector job growth. 1.9 million private sector jobs just this year. in this time, 7.8 million private sector jobs have been created overall, including more than 2.4 million in the past 12 months. last month the unemployment rate was 7.3%. in my state, as i've noted here

before, the unemployment rate is down to 5.1%. so let's look at another measure of the economic progress. the number of unemployed workers per job opening. in 2009, there were nearly seven unemployed workers for every job opening. there are now about three unemployed workers for each opening. almost back to the prerecession ratio of two unemployed workers for every job opening. in addition, while economic growth has been slower than we would like, the overall economy has grown for ten consecutive quarters, growing at an average annual rate of 2.4%. we are also seeing promising signs of growth in critical sectors like the housing market, single family home prices are up more than 10% from a year ago. housing starts are up across the country by 19% from august 2012 to august 2013. these are positive signs, but it's clear there's much more to be done. we need to focus on policies.

what we've often done in this committee on a bipartisan basis, policies that spark job creation in the short term while laying the groundwork for prosperity in the long term. the first thing we need to do is to stop subjecting the economy to self-inflicted wounds like we experienced last month with the government shutdown and brinksmanship over paying our bills. that crisis was unnecessary. a 16-day government shutdown negatively affected millions of people's daily lives, stunned countries around the globe and caused significant harm to our economy. as dr. zandi testified, who had testified before our committee twice this year, i noted that it took about -- out of the fourth quarter gdp, reduced gdp by .5 percentage points, taking it from 2.5% to 2%. he estimated the crisis cost the country $20 billion. the agreement reached in mid-october reopened the government, allowed us to pay our bills on time and set up a framework for reaching a long-term deal. i'm hopeful that this will

happen. as we know, we have until mid-january. we also have an opportunity as you know, mr. chairman, to replace the upcoming sequestration cuts. and i hope some of the other existing sequestration cuts with some additional revenue or finding other ways to reduce our debt besides that hammer of sequestration. i have two good ideas right now. the farm bill. i felt good about our first conference committee meeting. it went well between the house and the senate. and that would bring the debt down, at least the senate side bill, $24 billion. of course, the immigration bill, we've had a hearing on that here. that would bring the debt down $158 billion in ten years. $700 billion in 20 years. so those are all positive ideas as well as the many things we've discussed in this group. last thing i wanted to mention was exports. been one of the brightest spots in our economy. i truly see this as the way we get out of the downturn that we've experienced. the total value of american

exports reached a record 2.2 trillion last wreeyear. exports are a key driver of job creation with every billion in exports supporting nearly 5,000 jobs. i'm proud to be on the president's export council. i thipg there's a lot of good work being done there including the export control list which i've advocated for changing so that we make it easier for some of our industries to export items. and we just have to look at seeing ourselves as a competitor in this global economy and looking at how we can compete in today's world. because if we learned anything from the economic turmoil of the last few years, it's that america can no longer afford to be simply a country that churns money. we have to be a country that makes stuff, that thinks, that invents things it exports to the world. i look forward to hearing your testimony. thank you. >> thank you, vice chair. dr. jason furman is a distinguished chairman of the council of economic advisers. previously he served as the principal deputy director of the national economic council.

and director of the hampton project at the brookings institute. he's an expert in fiscal policy, tax policy, economics, social security and monetary policies, all key issues for our country. dr. furman earned his doctor rat in economics and an m.a. in government from harvard university and msc in economics from the london school of economics. chairman, thanks for joining us today, and you're recognized. >> thank you so much, chairman brady, vice chair klobuchar, and members of the committee. as you know the council of economic advisers and the giant economic committee were created by the same act of congress and have a common interest in using economic analysis to craft and promote policies to promote economic growth. i'm pleased to be before you today and look forward to continuing to have a strong relationship. in my statement, i would like to highlight some of the main

opportunities and challenges the economy faces right now. and then briefly discuss several policies that could capitalize on the opportunities and address the challenges. all of these are discussed in more detail in my prepared remarks. after going through the worst recession since the great depression, the economy today is strengthening. the private sector has added 7.8 million jobs over 44 consecutive months. the unemployment rate has fallen by about .7% per year. while it remains unacceptably high at 7.3%, it's back to where it was in december of 2008. mr. chairman, the question and answer, we may be able to discuss some of the points you raised about the participation rate in the employment ratio. come back to those important issues. the economy has expanded for 16 out of the last 17 quarters. america has a strong auto industry. our banks are increasingly well capitalized. our housing prices are rising.

and construction is recovering. with this context, there are five areas of opportunity that i would like to highlight, including two cyclical factors that could contribute to the recovery and three structural factors that will help improve the economy's long run growth potential as well. first, the most immediate macroeconomic opportunity is the potential for continued increases in residential investment, consumer durables, and consumer spending more generally. residential investment has helped drive the recovery over the last 2 1/2 years, growing at a 12% annual rate. the overbuilding of new homes during the bubble has now been o offset by several years of depressed construction. and if you look at housing construction, it remains below the steady state level that we would expect for household formation, indicating further potential in that sector. there's similar pent up demand

in the automobile sector as well. the second cyclical factor is that the economy is headed towards a less contractionary fiscal stance. although the precise magnitude of that will depend on policy choices. the budget deficit has fallen rapidly from 9.8% of gdp in fiscal year 2009 to 4.1% of gdp in fiscal year 2013. remarkably, nearly half of that deficit reduction, 2.7% of gdp, was in this last fiscal year alone. although deficit reduction is an important long-term policy goal, the rapid fiscal consolidation over the past year has created challenges for growth. the good news is that the economy has already gone through most of the severest fiscal head winds and further deficit reduction will be at a more gradual pace, although the exact pace does depend on policy.

third, and shifting towards more structural items, the market slowdown and the growth of health care costs presents a long-run opportunity for job and wage growth. quoting for the center for medicare and medicaid services, inflation adjusted health spending grew at a 2% annual rate over the three years since 2010. the lowest rate recorded since we began tracking these data in the 1960s. lower health spending helps with wages and jobs. fourth, the dramatic increase in domestic energy production is another opportunity for the u.s. economy. crude oil production has grown each year the president has been in office, reaching its highest level in 17 years in 2012. we've seen stronger fuel efficiency, and as a result of all of these advances, we learned just today that our domestic production of crude oil

exceeded our net imports of oil in october. more broadly, the president remains firmly committed to an all of the above energy strategy, including progress on renewable energy as well. finally, the last favorable trend we have is that technology provides significant opportunities for long-term growth, especially in areas that benefit from the combination of mobile computing and increasingly fast wired and wireless internet connections. over the last four years, the united states investment in these networks has grown 40%, markedly faster than in europe and asia, and these investments are key to a vibrant ecosystem throughout our economy. we have several outstanding challenges that i wanted to briefly list as well, mr. chairman and madam vice chair. the first is we're still strug wlg the legacy of a severe recession. most notably, the significant elevation of the unemployment

rate. that current elevation is primarily due to the large number of long-term unemployed workers. the second and less widely appreciated challenge is that the recession appears to have exacerbated a longer-term trend of reduced job-to-job mobility for the labor force. while many focus primarily on net job growth, the flow of workers across firms matters a lot to the economy as well, providing workers with matches to the jobs in which they're most productive and can be paid the most. as a result, reduced mobility is an important challenge. third, and finally, we have a very long standing and deeply embedded trend rise in equality. it began in the late 1970s. one of the starkest data points in that regard is that last year 19.3% of the total income went to the top 1%, the largest share

since 1928. finally, turning very briefly to the policy agenda, the most immediate priority is to do no harm by avoiding repeated fiscal wrangling, allowing our economy to capitalize on all of the opportunities that i sketched earlier. there are also substantial opportunities to make more rapid progress in addressing the challenges identified through an affirmative agenda to create jobs, increase growth, and raise wages. one area we can make progress is on budget policy. the president's budget includes significantly more medium and long-term deficit reduction than the sequester. as a result, the congressional budget office estimates that the deficit falls to 2.1% of gdp in 2023 and that is consistent with debt falling as a share of the economy. moreover, the president's proposal shifts the composition of spending towards investments in jobs, infrastructure, education, and research while

taking steps to strengthen medicare, continue to slow the growth of health care, and reduce inefficient tax expenditures and reform our business tax code to make it more competitive. getting beyond these immediate fiscal challenges would allow the economy to continue to strength. but there are opportunities to do more, and the president has sketched many of these out in the context of his better bargain for the middle class, which addresses jobs, housing, retirement, health care, and ladders of opportunity. finally, the president has identified immigration reform and the farm bill, both of which were mentioned by the vice chair here today, as two economically important priorities that he would like to congress to get done. that concludes my comments. i would be happy to take any questions you have. >> great. chairman, thank you for being here. you've cited some positive economic statistics in your testimony, which we appreciate very much. i agree with your assessment of

energy and technology and tax reform as potential upsides in growing this economy. but i think everyone has to agree this is four years after the recession has officially ended. this is a disappointing recovery. a lot of americans have given up hope. a lot of college graduates have no jobs or are working behind cash registers. a number of people have dropped it out completely. so my question is, do you -- with this economy disappointing this far into the recovery, do you anticipate the president making a change in the direction of his economic policies or will he continue to stay the course? >> well, mr. chairman, i'm not sure i fully accept the premise of your question. i went through some of the statistics in terms of the strength of the recovery. i would, in benchmarking that success and strength, look at some comparisons.

for example, we have grown more strongly than many countries around the world, including in europe. financial crises pose a very significant challenge and tend to have longer lasting effects on the economy. there's been a several decade-long slowdown in things like the growth force of the labor force as the baby boomers retire, and that also has an impact on the total growth. when you take all of those factors together, i think we're making progress. we're making progress at a faster pace than you often have in the face of such a massive financial crisis. but i absolutely agree with you, mr. chairman. we can't be fully satisfied with where we are, and we want to continue to make that progress. to that end, you know, the president would like to go to the next stage of what we do. i don't know if i'd describe it as the same or different, but a continuation. we had temporary business tax cuts during the initial recovery phase. now we're more focused on ongoing permanent business tax

reform. we had temporary investments in infrastructure in the beginning. now we're more focused on a sustained six-year reauthorization of the highway bill. so many of those are as the economy recovers, the direction we'd like to see our policy going. >> do you see -- our businesses have cited repeatedly the taxes, the affordable care act as significant drags on the economy. do you view the current rate of red tape on local businesses as a drag on the economy? >> mr. chairman, the president has worked very hard and issued an executive order that you have to take cost-benefit into account in designing regulations. you have to do them flex bli. you have to do them in the lowest cost manner possible. we have to constantly look to see how we can do better. >> in 2012, federal government issued more than 2,300 federal

regulations. only 14 underwent a full cost-benefit analysis. to me, that doesn't seem to be a reasonable approach of weighing what may be commendable goals with the impact on local businesses. let me ask you this. the affordable care act is forcing businesses to cut hours. i visited a steel company in the houston region last week that is doing everything to keep its workers at 49 workers and manage to renew their health care plan to avoid a 47% increase. do you believe the affordable care act is acting as a drag on our local economies? >> no, mr. chairman. i do not. i think the affordable care act includes several important things that actually help our economy. one of them i briefly mentioned in my prepared remarks, which is the large slowdown in the growth of health costs. premiums are rising at 8% a

year, up until 2010. after 2010, they've grown at 6% a year. there are many factors that have contributed to that slowdown, but i have no doubt that the affordable care act is one of them and that's good for businesses. >> as you know, there's a great deal of dispute about what has temporarily slowed medical prices. i know of almost no local business in my district that's only seen a 6% increase in their insurance premiums. just the opposite. they're stunned by the increase costs. now they're seeing workers who frankly are having their hours cut. i think there's a significant drag. let me ask you this. with wall street roaring as a result of the president's policies, middle-class america struggling in a significant way, what specifically is the president going to do differently in economic leadership to bridge the inequality between the middle

class and wall street? >> mr. chairman, there's a long agenda designed to get at that question. first and foremost, it has to be to continue to create jobs and to create jobs at a faster rate. that's everything from investments in infrastructure to reforming our business tax code. we have to address many of the particular issues that face middle-class families, helping them to own a home. some of the credit standards have gotten increasingly tight, what we can do about that. some of the challenges for retirement. many families are having a hard time saving for retirement, helping more of them have accounts, bringing down and slowing the growth rate of the cost of healthcare is an important part of that agenda for the middle class as well. >> may i ask before i turn it over, will the white house having stated support for corporate tax reform, will the white house be bringing a

proposal forward, and will it be encouraging senate democrats to pass a tax reform bill this next year? >> mr. chairman, as you know, the president put forward a framework for business tax reform and it described it at a certain level of specificity, for example, a rate of 28%, describing how it is you'd pay for that rate, but chose not to put out a fully detailed proposal in order to both solicit more ideas but also be able to more effectively work with congress, which actually drafts the laws. what we're always trying to do is figuring out this is a big goal of the president. it's something he tasked his economic team with as early as 2010. he's trying to figure out the best way to push it forward. so welcome any advice and opinion on that. we've certainly encouraged democrats and republicans to do that but also to embed it in a broader grand bargain for jobs that includes not just business tax reform but the other things we need for our competitiveness like investments and

infrastructure, training and strengthening manufacturing. >> vice chairman. >> thank you very much, mr. chairman. thanks for your testimony, dr. foreman. we talked about some of the stability and improvements in the economy and also the employment situation. i cited the figure about how in 2009 there were seven unemployed workers for every job opening. now there are three. we're almost back to the prerecession ratio of two unemployed workers for every opening. for the record, our state representative -- my state just hit a 12-year high for job openings. we had a hearing on long-term unemployment here. one of the things we've seen and you've seen with the statistics is there may be signs of structural unemployment. there's evidence that long-term unemployed workers may eventually become difficult to employ. even though we've seen improvements, there's a number of them that still aren't getting jobs and this negative perception has developed over

time. could you talk about any specific policies that you think could help for the long term unemployed? >> yeah. so almost the entire increase in unemployment relative to where it was prior to the recession is because the long-term unemployment rate is elevated. the short term has basically returned to about where it was prior to the recession. i think to date we have not seen that turning into a serious persistent structural unemployment, but i think we have to be very worried that that's what happens. we saw in europe when that happened. it led to persistently high unemployment and other adverse impacts for their economy. the first most important thing about long-term unemployment is the same things you do about regular unemployment, which is increasing aggregate demand and investing in jobs like manufacturing. all the issues i had been talking about already. i think there's some issues specific to the long-term unemployed that you want to look

at as well. ways of encouraging people to move more quickly into jobs, training, matching them to jobs, and the president has a pathway t pathwayst to work fund he's proposed. >> right. in fact, minnesota has a good pilot going with some of our businesses, a community college in the northern suburbs and then our high schools. we have one high school where the kids can literally get an advanced degree right in high school. looking at that model more, when we have 60% of our mafrers who say they literally can't find someone to fill a job. so we're doing a major report on manufacturing that's coming out soon. trying to find what's wrong with this microphone. i can use yours. just kidding. i think it's better. so we have a major report coming out on manufacturing showing that for the first time in really history of our nation the number of people who are filling manufacturing jobs with advanced

degrees, even if it's a one or two-year post secondary degree has exceeded people that don't have those degrees. i think we're seeing a major change there. i would agree with you on the work skills training. could we talk about -- you know, we have this budget negotiations going on right now. how damaging from your seat as chair of this economic council do you see another episode of brinksmanship or if we get close to a shutdown or experience a shutdown. >> i think there's no doubt that the shutdown and the brinksmanship over the debt limit hurt the economy. when it comes to economic growth as a variety of estimates, we had estimated 0.25 percentage points off the fourth quarter growth rate. that was more conservative than what macroadvisers estimated who thought the effect might be as large as 0.6 percentage points. i think you also observe it in the data. if you look at daily and weekly

data, you saw two different measures shows slowing chain store sales. two different measures, unemployment insurance and a survey, showed weakening job market prospects. you also saw weaknesses in housing. so you saw concentrated worsening of the economy in the first half of october. >> i thought your energy statistics -- they just came out today, that our oil produced domestically has exceeded what we're bringing in from other countries. >> yes, for the first time in a long time. >> very good. and that doesn't include the natural gas and other things. >> correct. that's just oil. >> okay. that's what i've seen as having a major role in our increase in manufacturing, the fact it's easier to transport things and cheaper to do it than it was before. that's a good thing. last thing i was going to ask about is just as we look at the potential for so much kind of long-term budget and tax reform that could actually fund major

areas that you identified with education and with infrastructure and some of these other things, have you looked at this idea congressman delaney has been working on. we have a bipartisan bill coming out of the senate this week about infrastructure financing authority, or as it's known as infrastructure bank. >> i haven't looked at your particular bill. this is the one with senator warner. >> if it's the bill i'm thinking of, that's very similar to the approach the president has suggested in the past. i think it's important in a time of limited budget resources that we're able to leverage our budget dollars as far as we can and also to direct them as efbl effectively as we can. it's smarter money and leveraging our money. as i understand it, that would be the goal of your proposal and certainly something i think is important. >> and in this context of corporate tax reform, we discussed a few months back repatriation and how that could play a role in it, whether it is tied in with an infrastructure

financing authority or not. do you want to talk about that? >> sure. i think as a one-time stand-alone matter, a repatriation holiday i don't think would be very effective in creating jobs and i think would cost significant money. i think it's different when you're talking about ongoing reform of the tax code. if you're transitioning to a new tax system, then you might actually get some money as part of that transition process that you could then take back and put back into infrastructure. but it's important you're transitioning to a new system that is both improving the competitiveness of our companies but also taking base erosion very seriously and doing that on a permanent basis rather than on a one-time basis. >> good. one last question. immigration reform, how do you see that? we had grover norquist here testifying about the debt reduction it would bring. i'm sure that's a major factor. how do you see it contributing to our economy if we get the reform done? >> i think this is an issue

where there's widespread agreement among economists and the congressional budget office embodied that agreement when it said the gdp would be $1.4 trillion higher in 2033 because of immigration reform. what i thought was so exciting about that estimate is that's not just a larger population of workers, although that's important and good. it's that we'd actually have more what economists call total productivity factor growth. more innovation, more ideas. immigrants have always been an important source of that in america. we'd have even more of that with immigration reform. so we would have more output as a result. >> thank you. >> thank you. chairman paulson is recognized. >> doctor, thank you for being here to testify. this committee has spent a lot of time discussing and going over some ideas regarding the growth gap and how america's been lagging in terms of what aen average recovery would be like. as your testimony pointed out, the fundamentals are there, kind of on the right track in many

respects. there are a lot of foalks we tak to where the unemployment situation is better than the rest of the country, but for many it doesn't feel like a recovery. they think it should be much better. there's a lot more potential, i guess is what i'm trying to say. vice chairman cloeb shar mentioned earlier that we are doing better in minnesota. i will tell you that i met with small, medium, and large companies from lube tech and plymouth to karlsson companies in minuten to can. typically congress doesn't six-month extensions. there's no doubt that a lot of minnesota employers would like a tax code that's stable, that is predictable, and that is conducive to growth. i agree. in that light, let me ask you a couple questions around the impact of our current tax code on economic growth. yesterday there was a piece that was written in the wall street journal entitled "the biggest fiscal losers," but it did note

in the last year the deficit has decreased in part because of higher tax rates. however, it also noted that the revenue gains from higher tax rates were offset by the slower growth caused by the higher tax rates. do you believe revenues are affected? >> i certainly agree that revenues are affected by growth. i don't agree that the tax changes that we made at the beginning of this year have had an adverse effect on growth. i think they were part of an overall economic plan that gave more certainty about taxes to the middle class, extended their tax cuts and brought down the deficit over the medium and long run. i think that's a sound economic strategy. >> recently the federal reserve bank of san francisco did a study and found that roughly 90% of the recent fiscal drag comes from higher taxes, not from the slowed spending due to sequestration. do you believe that worry over the sequestration's effect on

the economy was overblown? >> the congressional budget office estimated that the sequester would cost 750,000 jobs and would take a 0.6 percentage point off the growth rate. that, to me s a reasonable estimate. but i think the important issue is that it's not the magnitude of deficit reduction in the sequester. it's the composition and timing of it. we'd actually like to see more deficit reduction than you saw in the sequester over the medium and long run. we'd like to see it coming more in areas like entitlements and tax expenditures rather than in up-front investments in education and infrastructure. >> let me follow up on that. i would agree with that, for those who say a blunt approach to dealing with the budget and sequestration is not the answer. we've got to address the long-term financial pressures that the country faces, namely those of our entitlement programs as you mentioned. if we were to replace sequestration with reforms to some of those entitlement programs, what reforms would you

support in order to put our economy and the united states back on a fiscally sustainable path? >> the president's submitted a budget, and the essence of that budget was a balanced set of changes both to entitlements and to revenue in terms of entitlements. it included means testing medicare for reducing the cost of prescription drugs and some other structural reforms to medicare. in terms of revenue, it included reducing tax benefits for the highest income households. that was something, you know, he saw going together as an effective and balanced package. >> in this latest round of the budget discussions that will be ongoing, do you feel the president will be pretty aggressive in terms of pushing some of those entitlement reforms that were first a part of his budget? there is an opportunity there on a bipartisan basis. >> the president will be aggressive in pushing those as part of the balanced approach that includes revenue as well. that was his basic principle,

that you need a balanced approach that does include both entitlements and the revenue side. >> thank you, mr. chairman. i yield back. >> thank you. representative delaney is recognized. >> thank you, mr. chairman. thank you, dr. furman, for appearing here today and for your testimony. i think a lot of the data you presented makes a very compelling case that our response, particularly in certain areas, like the financial services industry, our response to the auto industry, the housing industry has clearly paid good returns for the taxpayers. but now i think we're confronted with a different set of challenges, which is how do we bring more americans along into the recovery that we are seeing and will likely continue to see. it seems to me one of the challenges that we face is that the two kind of dominant forces in the world the last 20 years, globalization and technology,

have benefitted too few americans. they've benefitted americans that are highly skilled, have great educations, have access to capital, which is why we see good growth among high-skilled workers. we're also seeing good growth among low-skilled workers because we have more income inequality that creates more opportunity for low-skilled workers because the service industries grow. it's this middle-skilled worker issue we have. you've outlined some very good policies in my judgment to address this issue. investments in infrastructure. investments in basic research, which has proven to be tremendously rewarding for the health of the economy. skills training, et cetera. which one of -- in which of these areas do you believe that there is actually an opportunity for good bipartisan support? i know in infrastructure i've got a bill in the house that's got 23 republicans and 23 democrats on it that funds infrastructure by tieing it to repatriating overseas earnings

as an example of good bipartisan support for an initiative that's clearly very important for creating both short-term and long-term economic growth for the country. what other areas or in infrastructure in particular or in investments and research or in skills training it do you think we actually have opportunities for bipartisan support, and what kind of proposals exist as aside from saying we should be doing all these things? which i agree directionally we should be doing all these things. where do you have specific ideas where you think you have support in a bipartisan basis. >> congressman, the nine people in this room that have microphones i'm probably the least expert in that particular question. i'll try to answer it. some things like immigration, the farm bill and the budget where you've seen progress in one or both chambers of legislation moving forward, and those would seem like very good areas to take and build on.

you have areas like infrastructure and the idea of leveraging and better targeting that the chamber of commerce and the afl-cio came out together to announce plans in that area years ago, democratic and republican governors held hands as they, you know, announced plans in those areas. there's other areas like preschool. i can't tell you, you know, what the bipartisan prospects are for that right now, but i can tell you the president's preschool ideas are motivated in part by the work of nobel prize winner economist james heckman, who's a republican but has done the numbers and finds that's among the highest rate of return you have in terms of investments in education. you know, finally, i would say business tax reform is something where i think there's an increasing amount of convergence in views on the topic. >> do you specifically, when you look at the agenda you're advancing, overlay kind of the reality of the political process in terms of thinking about what

initiatives should get priorities? in other words, i think one of the issues we've had in terms of trying to make a difference against this middle-skills job issue, if you will, is we haven't been doing the things we need to do. we have not been investing in infrastructure. we've been cutting back investments in basic research. we haven't been doing the skills training we need to do. so the cost of doing nothing has not been nothing. we've paid it, a big cost. so when we think about our initiatives, our policy initiatives, are we formulating ideas that could -- we believe will actually have bipartisan support, or are we more working on some of these things, you know, without thinking about the political context? >> right. in terms of me personally, i tend to give more economic advice, but absolutely we're very focused. the president is very focused on getting things done and getting things done either on his own

administratorive administratively and also with congress in a lot of the areas i talked about, farm bill, infrastructure, business tax reform. they're all areas where i think there's a lot of convergence. it's just a question of going the last part of the way and really getting them done. >> great. thank you. >> thank you. representative hanna. >> thank you, chairman. thank you, doctor, for being here. you mentioned in your earlier verbal testimony that the affordable health care act, which is only now being enacted, had produced cost savings or cost cuts. can you explain, what they might be? >> sure. and i said it had contributed to it. it was one factor among many. you've seen things like reduced hospital readmissions, fewer hospital acquired infections, a large increase inning accountable care organizations. all of those were reforms that were made in the affordable care

act. things like delivery system reforms, bundled payments and even some of the payment changes for providers have in the past gone through to the private side as well. i think all of that is contributing. >> in october, the labor force participation rate was, i think, 62.8. it hasn't been that low since 1978. if we accounted for the actual numbers of people unemployed t would be more like 11.3%, not the 7.3 we see. do you think that's -- what could cause a trend like that? what do you see in the future? do you think that trend is continuing? maybe you can help me understand what you believe is causing that. >> i think the number one thing causing it is the retirement of the baby boomers. that wasn't just predictable, it was predicted in the economic report of the president in 2004, written under the bush

administration. they wrote in that economic report that starting after 2008, you would see an accelerating decline in the participation rate. so we always knew -- >> then it counts for 4 million. how do you count for the other 2 million people? >> you're certainly correct. i think that's the main factor. there's also a cyclical reduction in the participation rate as well. whenever the unemployment rate goes up, that tends to lead the participation rate to go down and the participation rate tends to lag changes in the unemployment rate somewhat. so you have this structural compounded by the cyclical. >> you spoke earlier about inequality and the disparaging difference between what we -- the poor and the extremely wealthy that we see. but a lot of what we've lost is really the middle class, which skews that in a way that -- it's

not necessarily relevant how rich people are or how poor people are, it's the middle class that adds to that concern. it would be my bloef that -- it's my belief that we have, educationally, we have not kept up in the fashion that we should. pre-k, i think, is a good example of that and will probably go a long ways towards helping that. just give you a moment to talk about it in any way you like. >> yeah, i appreciate that chance to expand on what i said. it was a point congressman delaney brought up as well. it really is very much how the middle class is doing is the best test of how the economy is doing. to some degree what i was saying before was a shorthand for that trend we've seen of increased technology, increased demand for skills. on the one hand, deceleration in educational attainment on the

other hand. those two trends combining to holl hollow out the middle class. i think it is pre-k through college. >> thank you. i'm set. thank you very much. >> thank you. former chairman maloney. >> thank you, mr. chairman and vice chairwoman. it's a particular pleasure for me to welcome chairman furman as he is from the city that i'm privileged to represent. i can say unequivocally new yorkers are very proud of you and the role you've played not only in this position but in other positions in the administration to assist president obama in the economic recovery, which has led to 44 straight months of private sector job growth, the gdp has grown for ten straight quarters, and housing is rebounding. the economic recovery is showing resilience in strength, even though businesses and

individuals have faced unnecessary uncertainty and harm because of the government shutdown. that fight that really hurt consumer confidence, reuters is saying it's one of the lowest points it's ever been. i'd like you to comment on this self-inflicted damage. how much do you think it cost our economy, and what other factors could slow and hold back our recovery? but it was interesting in your testimony that you pointed out that even with these manufactured crises and slow downs that our economic recovery was deeper and stronger than europe. could you comment on what factors and reasons this is happening. >> thank you so much for those questions. in terms of consumer confidence, i think one of the troubling things is in the most recent

consumer confidence data we got for the beginning of november, it remained down and actually fell a little further relative to where it was in october. i personally would have liked to have seen the episode ended and that confidence starting to recover. it's too soon to say how lasting the consequences of the shutdown and brinksmanship would be, but clearly it'll have some persistent effects. i think the degree of that persistence will depend upon how we handle it. we have a great opportunity with both parties coming together through regular order to address it. in terms of your second question, i think that is really the big picture story in the economy, the unemployment rate. i might be wrong in my memory, but i think it's north of 12% in the eurozone and rising. here it's obviously 7.3% and has generally been on a trend of declid decli

declining. broadly speaking, we've gotten our economic policies right in this country. we've gotten, broadly speaking, our fiscal policies right, especially in the early days of the recovery. we have focused on things like exports that the vice chair was talking about. we have had a really vigorous program in terms of financial rescue. we've put effort into housing in terms of bringing foreclosures done and providing refinancing for families. i think it's that, you know, broad-based, all-fronts approach that's served the u.s. economy well. >> i would like you to comment on what i'm calling the democratic stimulus. this is the credit card bill of rights, the credit card accountability, responsibility disclosure act that was the second bill that president obama signed into law. it was a bill i authored and worked on for well over six years. there was a report in the "new york times," front page on the

business section that economists have come out with a report that this bill alone put $21 billion back into consumers' hands, back into the american economy by cracking down on abusive, unfair, and anti-competitive practices. so this is a stimulus that can help the overall economy. my question is, could you estimate the impact on the economy of the c.a.r.d. act in terms of economic growth and employment? >> right. well, a study, as you just said, from some very good economists found that the c.a.r.d. act was saving $20.8 billion per year, each and every year. there's no question that would

contribute to consumer spending and help the economy recover to its full potential. it's also important to put it in the broader context of deleveraging we've seen for consumers, both for credit card and mortgage debt. you see interest payments have fallen from about 13% to about 10% and now stand around the lowest they've been on record. so i think all of that puts consumers, the contributions of the c.a.r.d. act and everything else, consumers in a better position to be investing in homes, to be spending and to be driving the recovery. >> well, this was an important part of our recovery, and it did not cost any money. just was a reform. can you think of any other areas that we could have a reform that would have this type of impact in helping the middle class, working men and women, putting more dollars rightfully so back into their pockets and thank the president for signing that bill into law. >> i'll certainly do that. i don't have anything off the top of my head, but it's

certainly win-win when you can find a way to protect consumers, not cost taxpayersny money and do it in a way that helps the economy. we should certainly be looking to any opportunity that could accomplish that. >> thank you. my time has expired. thank you. >> thank you, chairman. senator lee. >> thank you, mr. chairman. thank you, chairman furman, for being here with us today. i know you've weighed in in the past, shifting gears for a moment, on changing the minimum wage and on bills addressing the so-called living wage. it has been suggested by some that we might at some point in the near future see movement of such a bill in the senate. so i wanted to talk to you about an article you wrote in 2006, in june of 2006 in "slate" where you said that you would ignore efficiency and the impact on employment of the minimum wage for purposes of the article's

argument. while noting that at $10 or $15 an hour minimum wage, ignoring those same factors would be, as you put it, quote, a terrible assumption. can you explain what efficiency and employment factors might exist there and why it would be a, quote/unquote, terrible assumption to think that a $10 or $15 an hour minimum wage might not impact these? >> sure, senator. glad you've gone back and read that more recently than i have. but the issue with the minimum wage is there have been a range of studies that have found that raising the minimum wage in the range of what we've seen before does not have an adverse effect on unemployment. that's because the extra cost to accompany is outweighed by the benefits in terms of reduced turnover, better motivation, attracting workers and the like.

the levels of the minimum wage one is most comfortable with is ones we've seen in the past. i think it's important to understand that i was writing in 2006. there's been inflation since 2006. so whatever numbers i have in that article there, if you're thinking about 2016, which is when many of these billing would be fully effected, you want to take those numbers and take them up by 20% or 25% in order to have an apples-to-apples comparison. i certainly wasn't commentsiingn a $10 minimum wage in the year 2013. >> sure. i understand that. i understand we've had relatively low inflation since then, so wouldn't it be fair to say the corresponding numbers might be $12 to $18? >> well, the effective date for a lot of the minimum wage proposals are around 2015 or 2016, so there would be a decade

between what i wrote and then. i don't know the number off the top of my head. i would say 20% inflation over the course of that decade. i could obviously look that up and get back to you. >> okay. thank you. in your testimony, while writing about lower health care costs, you indicated that in the short run, lower pressure on employee compensation would translate to job growth. so all else being equal, would a higher minimum wage, say a $10 minimum wage, be a policy that would make it more likely to increase employment numbers, to put more americans back to work? >> right. the difference is there are two sides of the ledger when it comes to the minimum wage. on the one hand, it's an extra cost, but on the one hand it's also an extra benefit in terms of higher productivity, retention, motivation, all of those factors. and the empirical work finds

that those two factors roughly balance out and as a result there isn't a significant adverse effect on employment. in contrast, paying extra for health insurance is really just a cost to accompany, and it's not, you know, everything else being equal of any benefit to the work sore it doesn't have that corresponding other side. >> okay. in that same piece that you wrote for "slate," you stated that while supporting the minimum wage absent other policy changes, you would prefer other policies because they tend to be more progressive, paid for disproportionately through taxes on the wealthy, on upper-income individuals rather than through higher prices that might be passed along to consumers. in a piece on the minimum wage for "the new york times" this march, former cea chair christina roamer made a similar

point stating it might be the case that, quote, businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. often the customers paying those prices including some of the diners at mcdonald's or the shoppers at walmart have very low family incomes. thus, this price effect may harm the very people whom a minimum wage is supposed to help. is it, in fact, likely in your opinion that consumers would foot the cost of a higher minimum wage? >> i think it's a relatively small portion of the cost for those businesses. i think the minimum wage adjusted for inflation is today the same value it was in 1950. hasn't gone up in 63 years. so i think there's certainly scope for an increase. i think that would complement policies like an expanded earned income tax credit. >> okay. i see my time's expired.

i understand you to be acknowledged that some of this would be passed on to consumers? >> no, actually -- i apologize, but i think it actually is part of a strengthening of the economy to put more purchasing power in the hands of families. i think that would help the economy overall and help consumers more broadly. >> i wish we had more time to talk about that. thank you, mr. chairman. >> i can feel it coming on, senator. chairman, thank you for being here today. obviously we're encouraged by certain parts of the economy. still disappointed by many parts of it. looking for bipartisan solutions on how we improve the economy, grow jobs, bridge the inequality between middle class and wall street. i very much appreciate you being here today. look forward to hopefully having you back after the next report is released after the beginning of the year, february, march, whatever that time frame is. chairman, thanks for being here

today.

"washington journal" continues. host: we take a look on when saves about a recent magazine article. to date we want to go online to the atlantic web to look at this piece by philip bump, "does more campaign money actually buy more votes: an investigation." let's answer the question -- does it? guest: there is a correlation, which i suspect will not surprise a lot of people. we took a look at the house .aces in 2012

we found there was a correlation. between the amount of money that was spent and the vote total by which the person won. host: there are these charts with blue dots and red lines. can you explain this first one? it shows the trend and all of the data. explain what happened here, what you are looking at. is.st: it is two ax one is the margin of victory in the race, the number of votes the winner had compared to the amount they spent per vote. one of the measures you can use is comparing the total su m of spending and dividing by the number of votes and that gives you a cost per vote. winning congress members spent

$9.84 for each vote that they got. , theces became closer votes became more costly. they spent more money per vote in closer races. host: what if the vote cost less? guest: this is just a correlation. there are a lot of correlations to go and face here. if you spent less money, you were less likely to win. the next set of graphs shows a correlation between the extent to which you outspent your opponent and your margin of victory. we found there is a correlation there. in races where the person won by 20% is points or less, that was amplified. the more you outspent your

opponent, the more likely you were to win. host: what if you were an incumbent? guest: for the most part, the incumbent usually win. at the races in which the incumbent did not win, in which the challenger was able to win the race. those challengers almost always out raise the incumbent. we looked at what was raised in the case of the incumbents. we thought that might be a better measure of energy and the amount of work the candidates put into the race. so again, there is the correlation. were in aheyhost: what if you tight race? guest: the same effect. i don't mean to sound like a broken record here, but the relationship was between more money and more big threes, more

money, more votes. which is sort of what we assume and what we wanted to do is look and see if there actually existed this correlation. that we take for granted. and their raise. it is not necessarily as strong as people assume, but it exists. it is worth saying -- go ahead. host: what does all of it means then caller? here is the data. yes, more campaign cash will get you more votes, but having the data that proves that, what do you think it means? --st: i think it means that a very good question. there are different meanings people can take. means, yes, the conventional wisdom that there is a relationship between how much money campaigns have, and the margin of victory. say, yes, ittists is the case. it exists. it was demonstrated in 2012. even in the presidential year

when turnout is higher and there would seem to be more instability in what is happening, it would seem to exist. but it does not taken to affect things like outside standing. for example, the aide at the center for responsive politics uses is sec filing --fec filings. it does not include super packs or any of the external expenditures that go into a political campaign. and there are a whole slew of other factors at play in any particular race. if the candidate has some terrible gaffe, a scandal, none of that stuff is accounted for in the calculation. this is purely what the campaign raised versus the vote totals. host: let's talk a little bit about outside spending and the election result of the off year election, 2013. --n secrets categorizes it i 314 spinning. liberal, $2.3erg, million for 2014.

.homas steyer also the liberal michael bloomberg lost a lot of races he dumped a lot of money into. guest: it is categorically the case that money can't buy it elections. i know what i just said about there being a correlation and the amount used spent and the ability to win the race, it exists, i know it sounds contradictory. but there are multiple factors that come into play. bloomberg and other big spenders who come into a race usually have to do so it depends on what kind of race it is, but they have to do so without coordinating with the campaign. by law, that is the standard. that means it may be a doubling of efforts. it may mean that the strategy that is employed is not as did. a lot of the political campaigns are won -- run by political

parties are folks that have been a lot of campaigns in the past. my personal experience, it has been the case that those that are wealthy and want to run a political campaign, -- there are various factors that come into play and it may mean they are less experienced at doing political campaigns. and that may affect the outcome. i do not know it is the case here. the case of tom steyer, the day we did an analysis was a day politico had a report about how much you spent in the race in virginia. this is something his people have and will spend a lot more time analyzing. it took a quick look at the data and where they targeted and, frankly, there was not a big shift in those locations compared to some of the other places in the states. was suspending effective? obviously terry mcauliffe won by a very small margin and in cases like that a lot of little things can make a difference. difference ina

virginia? it is very hard to say given the variables. host: what is the best way -- it doesn't matter how you spend your money, and if so, what is the best way to spend your money? are asking me to tread in a very tricky territory among people who run political campaigns. the past run political campaigns, work on the field, the actual doorknocking and canvassing. so i am a little partial to the field as something being affected in political races but it only makes a small difference. there was a lot of hullabaloo earlier this year -- the mayor's race in new york city during the democratic primary, did not send a lot of direct mail which is usually one of the tactics candidates use because it allowed them to target very specific people, even target for specific demographic and locations. but bill de blasio did not do that. but he was alsoromping in his race.

had a lot of tv ads. but the short answer is it depends on the race. the longer answer -- a lot of ways are good but i personally think field is great. host: a viewer tweets in on that -- said field operations only account for a few percentage points. guest: that's right. in general. it is sort of a rule of thumb. one of the interesting things about political races is it is not usually campaigns themselves that want to go back and do a lot of analysis about what actually works and actually didn't. usually when a candidate wins, the day after -- great, the campaign is over so let's not worry about another two or three years. the little girl parties and a lot of -- of time on this and academics. where is it that -- best spent question mark it depends on the race. if it is a local race, for example, you may spend more time on the field because you have a small area to cover and you can make more of an effect. a statewide race like a ballot proposition on california and

the tv ads may be best because you can reach a lot of people and you know you are going to stay in the geographic area. i live in new york city. i think a lot of people here saw ads over the course of the past month for the new jersey governor's race, which they have thepend that money because local tv news area covers new york city. but it is a waste of money. i don't need to see an ad for chris christie. i can vote for him so there is no point showing it to me. it is a waste of money but you don't have a choice. it sounds like a hedge, but it depends on the situation. host: another tweet from a viewer who wants to know doesn't matter when you spend your money. end or thel at the start of the race? guest: it is a good question. we do not look at that. this, again, has different schools of thought. but in general you want to do a closer to election day because people are paying attention. peopleing here, the watching the show, pay closer attention to politics than most

people do. most people pay attention to politics around election day and don't spend a lot of time before him. it is a question of whether or not you do a tv ad two months before and send the mail -- yes, you will probably be the only message they hear but will they remember two months later? host: jack in texas, independent color. to philip bump about his piece on "the atlantic " online. caller: you talk about the money being wasted in the election -- i am out of breath. all the money spent in the campaign am in the matter what, it goes to support the media. systemia is part of the that support each other. one hand washes the other. there is never any dollar spent in a campaign that protects the vested interests, which is wasted. not one. you talk about bloomberg spent all that money.

my god, he owns half of the media new york city. host: philip bump. the role of the media and also the importance of using midi -- media to win an election. guest: i think it is a valid point. local news stations make a lot of money during elections. they do. there is no way to dispute that. they make a lot of money selling ads. october an ad in late will sell for x amount during an election year, two times or three times -- yes, that is a valid point. that the media make money in political campaigns. however, there are a lot of aspects of little campaigns that don't actually touch the media. there are times lyrical campaigns try to get free media, earned media where they have events and hope the news shows up. they do a lot of direct mail and online advertising. they do a lot of field campaigns. they hire