>> governor malloy and governor snyder, thank you for being here. you're going to be called upon to make very difficult decisions as we are here in this committee and in this congress. i wanted to revisit a difficult decision that we had to make about the need for best practices to make sure that it's a wise use of taxpayer dollars and you emphasized your support for paying attention to the deficit, making sure that we're reducing the deficit. i supported the balanced budget. i voted for it on the house floor and i think that was the right decision. but we do occasionally have to make extraordinarily difficult decisions on allocating federal resources. one of which was the auto recovery program. you have talked about it a couple of times. i wanted to get your sense in thinking about whether or not

was that an appropriate use of taxpayer resources? did this congress dot right thing in promoting the auto recovery part? >> yeah. as i mentioned, in many respects it wasn't about one individual company. it was the entire auto industry that was in jeopardy and that would have been a major catastrophe for our company. it's great to see the success of the auto industry. in hindsight you can go back and say there could have been other ways to do it that would have been more efficient. it's done and the exciting part we should be proud about is the auto industry moving ahead and we need to be supportive about that but that's the point of making sure that they have the right skill trades to succeed. we need to do a better job of collaborating with them. >> i appreciate that. i ask that question once again

to ask this question to both of you, a couple of decisions we're going to have to make in short order deal with unemployment insurance and transportation and infrastructure on federal highway bill. starting with unemployment insurance, can i ask governor malloy and then governor snyder how important is it that that gets done? what is your opinion of what we should do and if it doesn't get extended -- >> well, let me begin with the quick answer. if it's not extended, 51,000 people will be left without jobs. that number will grow to 71,000 by august. it will have an extremely detrimental effect on our economy and might be destroying of relationships, of homes caused apartments and houses to be lost. i urge you to address this issue

as rapidly as you can. i can't imagine being one of those 51,000 people in my state who is on the verge potentially of losing that benefit. the sole benefit that keeps family and home together and obviously the lot of purchasing power of 51,000 people in my state would be reflected in all aspects of commerce, in our state. we have an extraordinarily for our state high unemployment number even at 8.2% and even having fallen 1% in the last year. but we are making progress. there is a better day ahead of us and to suddenly cut 51,000 people or 71,000 by august off, i think will sloel the recovery very substantially. >> mr. snyder? >> yeah. what i would say is i don't believe it's appropriate for me to make that call because there's so many good things.

the challenge is to prioritize. we need to be like a family where we don't have unlimited resources. but what has to get done and what do we have to give on and that's where i encourage congress to work on the administration to come up with a solution. that's what i had to deal with last year. when i had a billion and a half legislature, we made tough cuts and at the same time i'm proud to say we stood firm on medicaid reimbursement and adding dollars to child services. were the other things that we cut also good things? we had to do our job in a difficult circumstance and i encourage everyone collectively to make that happen. >> thank you, mr. chairman. >> i thank the gentlemen. i thank you both, governors, for your time and testimony and answering our questions and sometimes reanswering the

question. i applaud your efforts in trying to connect education and job training to the jobs that are out there and, governor snyder, you used the word "talent." but both of you trying to make that connection which we consider broken all across the country. we've had hearings in pennsylvania, new york, nevada, as dr. heck said and so often what we hear is that the community colleges, for-profit universities are not connecting with where the jobs are and what businesses need. you both addressed that issue and we're going to continue to look at that. i thank you both very, very much and we'll look forward to talking to you again and we'll ask the second panel to come

forward. it's now my pleasure to introduce kellie johnson, president of ace clear water industries, 210 employees that builts complex formed for power

generation industries. she serves on the board of the national association of manufacturers and is the chair of the national association of manufacturers, small and medium manufacturers group. she also serves as a member of the manufacturing council. welcome. dr. jared bernstein served as chief economist and economic adviser to vice president biden and a member of president obama's team. before joining the obama administration, he was a senior economi economist. between 1995 and 1996 he was at the u.s. department of labor. he holds a ph.d. in social welfare from columbia university. dr. matthew mitchell is senior research fellow for economics at the mercatus center.

his primary interests include economic freedom, growth, fiscal policy, public choice, and institutional economics. dr. mitchell currently serves on the joint advisory board for the commonwealth of virginia. dr. mitchell received his ph.d. from george mason university. he received his undergraduate degrees from arizona state university and i have no idea what the school colors are so we'll move on. let me again explain our lining system. i think most of you were here before. it's a green, yellow, red system. green when you start, yellow when you have a minute left, and red when you're out of time. please try to wrap up your testimony when you see that red light. finish your thought. and then we'll have a chance to ask questions. so we'll start -- we'll go in

the same direction. miss johnson, you're recognized. >> thank you, chairman cline and distinguished members of the committee. i greatly appreciate the opportunity to participate in the hearing today. i'm kellie johnson. we manufacture complex components for the aerospace and power generation industries at three locations in southern california. the company was started by my grandfather more than 60 years ago and we employ over 200 of the best men and women of the industry. i'd like to discuss the issues facing the small and medium manufacturers in the united states. as a manufacturer, i was heartened by the system president obama put on manufacturing and competitiveness in the state of the union address. and if we make good on president

obama's plan to be the best place to do business, we must take immediate action to reclaim manufacturing as the foundation of the american economy. when jobs are the number one issue on everyone's mind, we know that manufacturing is a known and proven solution. it's a catalyst that generates american jobs across many industry sectors. we know it's what has helped create and sustain the middle class and a hardworking engine that drives our economy. but we face a competitive crisis. it's 20% more expensive to do busi i compared to our nine major trading partners. it's 20% more expensive and that cost gap is not the work of our competitors but it's been self-inflicted by washington. it's been self-imposed, this cost gap. we've added to our cost burdens and done little to spur the innovation that has so for long

been america's advantage in the global economy. there is an enormous and growing set of threats to competitive and our success will depentd ee we work together to address these issues. many of the problems are not new but what has been missing is a shared strategy for divisive action. if we are going to prevent more american manufacturers from closing their doors. there is a perception for manufacturers that we're operating in a hostile work environment with the nlrb and epa. need a positive message from washington. manuur history, especially for the small and medium manufacturers that make up the suplyan arrowspace suppl op cains need to be the reality. we have become integral

partners, not just suppliers. but increasingly my customers will migrate to places that care about manufacturing and where the most robust infrastructure and supply chain exists to conduct their business. the uncertainty of our regulatory and economic environment makes it almost impossible for short or long-term growth, especially for capital intensive industries like manufacturing. as manufacturers we know firsthand our regulations are complex, redundant, and change a lot. taxes, fees, mandates and regulations are currently enacted without considering the cumulative and dynamic impact. the more unpredictable business environment, the less likely it would be a competitive place to do business. we need stable and pro-growth policies to create jobs and remain competitive. ace clear water last year spent $250,000 on compliance costs.

environmental compliance costs. in addition to over $40,000 in consulting fees. we have more than 42 labor laws that we comply with that had their own set of sub-tier compliance standards as well which requires us to use third-party administrators on many retain legal services that amount to more than $51,000 annually. i mention all of this because the compliance costs for small businesses is about 125% more than it is for large companies. we do not have the economy as a scale so therefore our costs are disproportionately higher. the reality of these costs are driving innovation out of the supply chain because we are doing all we can to just stay in business. innovation, as we know, in this global economy is a strategic must. if we lose our ability to innovate, we lose the ability to manufacture and without

manufacturing, innovation is just a good idea. as manufacturers, we have been running hard for the past decade to stay competitive. we've cut or costs from our and made huge investments in people and technologies. over the last eight years, ace clearwater has invested more than a million dollars each year in people, facilities, and equipment. and during that time, many states like california, my home state, lost a large percent of their home base and earned anti--business reputations. my concern is that as california goes, so goes the rest of the country. our utility costs are 50% higher. we' we've lost 33% of our industrial base in the last decade and once the home for the aerospace for the united states, we no longer have an oem headquarter there. but i believe the government can play an important role as long as can business in playing in the business of manufacturing.

a manufacturing renaissance was released, four goals for economic growth. and i believe we can find common ground on how to achieve these goals and lower the cost of doing business in the united states and make us more competitive. i see that my red light is on. i'll make it really short. i want to end by saying that in my written testimony i have many ideas and suggestions for improvements going forward and i would ask you to please take a look at those and we need to bring rationalization and balance to manufacturing. because our competition is global, relentless, and unforgiving but we are resilient, tough, innovative, and driven to succeed if we act with a common purpose to fuel innovation and rebuild our industrial base we will ensure american manufacturing remains the best in the world. >> thank you, miss johnson. all of your written testimony will be included in its entirety in the record. dr. bernstein? >> chairman clean, ranking member miller, i thank you for

the opportunity to testify here today and applaud you for holding this hearing about opportunity, jobs, and the understanding of the broad middle class. the economy is continuing to expand in gdp as it has since the secondf 2009. the private sectors have added 3.2 million jobs on net. as my submitted testimony shows, the rate of gdp contraction and job losses shortly after the intervention and federal reserve through monetary stimulus. moreover, nonpartisan research has shown that policies have played an integral look and as the economy has momentum in recent months, the unemployment rate did fall by almost 1 percentage point over the last

year, from 9.4 to 8.5%. the underlying growth rate of the expansion is still too slow to deliver the economic opportunities that they need to meet their family budgets, much less to get ahead. moreover, given the importance of restoring economic prosperity, we must recognize a not sufficient. gdp or productivity growth has not alone sufficiently lifted the incomes and living standards of the middle class. in the business cycle expansion of the 2000,roduivity grew 9%, real gdp grew 8%. middle class income trends were much more favorable in the 1990s as the median households increased. employers added about 23 million jobs over the 1990 cycle compared to 5.5%. in the 2000s policy makers

trickle down measures characterized by large tax cuts favoring the wealthy, deregulation, and the assumption that persistent budget deficits even during an expansion. today this is resurging despite the evidence noted above. the admonition that those who forget the past are doomed to repeat it. it was especially different in the 1990s as taxes were raised on the '90s and the fiscal budget achieve multi-year surpluses for the first time since the 1950s. the trickle down regulatory agenda, what i call yo-yo, you're on your own, trickle down to those at the bottom and middle of the scale. there's a much better theory to show broadly shared growth an economically strengthened middle

class is essential. in my written testimony, i present evidence to this effect. let me use the rest of my time, however, to talk about policies that i think help in this regard. every one of the policy areas that i'm about to mention, some of which compliment my colleague, miss johnson's idea, are arguments that members of the committee can use to help reduce income security, and improve the ability of the middle class. extend the payroll tax and widely nationwide expansion. invest in infrastructure investment. it's my understanding that a bill to repair and modernize the public schools and community colleges will soon come to the floors. it's called f.a.s.t.

the high unemployment and other labors that do this type of work, energy efficiency in many public schools where billions of tax dollars and poorly insulated windows. i urge legislators to give this a close look. the manufacturing policy, as my colleague has mentioned, skill enhancement, improving workers' bargaining power. as with international taxation, to exercise their right to collectively bargain. a recent rule changed by the labor board will form a union to have a more timely election. in a climate where they oppose unions can and do block them with impune tea, this rule removes some of the above noted tilt. i urge the committee to relink

the economic prosperity of the american middle class with productivity and growth that they themselves are helping to generate. thank you. >> thank you. dr. mitchell, you're recognized. >> good morning, sherman cline, members of the committee, it's an honor to speak with you today. the economy is sick and the natural question is what economic medicine will help? unfortunately, economic understanding of how a government can revive an economy is limited. it's not unlike our knowledge in surgery. the instruments are blunt, not very adept at using them, and there's a good chance that the intervention will cause more harm than good. while we may not know how to bring life back into a sick economy, we know the sorts of habits that make for a healthy economy. let me begin with what we can and can't do in the short run. you might not know it listening to some but the truth is, there

is a lot that we economists don't know about the stimulus. it's costly and predictable over the long run, the stimulus spending that it finances is helpful or harmful in the short run. reasonable economists using reasonable techniques have found that it enhances private sector growth but reasonable economists have found that it destroys or crowds out activity. i cannot tell you what level of risk is acceptable to take with the american economy but there is risk and further stimulus. one reason for caution is that the optimistic estimates seem not to apply to the current situation. for example, economists find that stimulus is in effective when, one, it's operating under an exchange rate, two, free to trade with other nations and, three, highly indebted to another nation. the congress will find that the

multipliers are large only when the stimulus is necessary. they also find that it's large only when stimulus measures are modest. this is especially relevant in today's context when government has already undertaken massive stimulus projects. there are real risks. a recent study of 91 countries have found that those governments that use the policy aggressively and that instability in turn diminishes economic growth. one problem is that there's a wide way that it ought objeto b implemented and can be counterproductive. in reality, however, it's very difficult to sometimeimultaneout all criteria. more than half of the money slated for investment have yet to be spent. as far as targeting goes, numerous studies have found that the stimulus funds have no

statistical relationships to unemployment rates. the funding didn't go to those most in need. as far as temporary goes, most of it goes far longer than intended. instead of implementing a quick fix, we should create the conditions necessary for a long run economic health. one of the most effective ways to do this is to have a generous degree what economists call economic freedom. permit them choice, free and voluntary interaction and the rule of law. these ideas may sound vague but thankfully in the past several decades economists have made them more concrete by developing objective measures of freedom. can we please bring up my first slide. one measure is that developed by index rating 141 countries on factors such as the government, the degree of openness to trade in the protection of property

rights. this shows that the positive and statistically per capita gdp. per capita of the freeiest countries are seven times that of the least free. in other words, economic freedom is valuable for the average person but particularly valuable for those at least well off among us. in contrast with the literature on stimulus, there's a remarkable consensus in the studies of economic freedom. one recent review of 45 studies showed that quote, regardless of the sample of countries and level of direct positive association between economic freedom and economic growth. can we please bring up the next slide. the literature demonstrates that the prosperity is due to decades of robust freedom.

that freedom has been in decline for about a decade. it can be restored by making the tax system more ex wit table and easier to comprehend by eliminating regulations that detract from or divert capital to unproductive activities and treatment of businesses. no bail outs or special treatment. in conclusion, millions of americans are unemployed or underemployeed. millions more from given up looking for work altogether. we know from experience that intervention can sometimes do more harm than good. thank you for your time today. i look forward to your questions. >> thank you all for your testimony. listening to the testimony, particularly of dr. bernstein

and dr. mitchell, i was thinking back to many, many years ago, in fact, decades ago, when i was in school down in houston, texas, at rice and i was studying economics. majoring in biology and i took economics because i thought it was an easy course and you had to take some electives and i enjoyed it. it was interesting to me and then i got to be a senior and found out that hi to employ calculus to really make this work and it got a whole lot more complicated. in listening to both of you, it is clear what i knew even then but it's been underscored over the years that there can ver l differences in how economists look at sometimes exactly the same data and come up with very, very different conclusions and we have some of that here and it causes me to have great sympathy for miss johnson who is trying

to make a business work while the economists and politicians are battling. so my thanks to you for the great job that you're doing in keeping over 200 people employed and trying to struggle your way through this and struggling with all of the issues, getting legal advice and trying to decipher rules and watching those rules and regulations change and trying to keep up with it, trying to have your business not only survive but to grow. but i'm going to let the economists have a little bit of a discussion here. i want to go to dr. mitchell because dr. bernstein introduced the concept of yo-yo economics, you're on your own. how would you characterize that in comparison to the free market principles which i understand that you're advocating? >> well, you know, it's interesting. on the topic of trickle down economics, i have to admit there

is no respectable economist that i know that trickle down policies. so perhaps we're in agreement here. there really isn't a school or an academic journal that publishes regular leely or teac its students that we ought to be directing sources to the wealthy and hope that they will somehow turn around and spend that. there is a well-respected school of economics that says we ought to treat all people equally and shouldn't single out some for particular treatment one way or the other. and so what i would actually say is that while there isn't any economic school that teaches some sort of top-down, trickle-down economics, unfortunately governments do quite often practice down top-down economics. by that i mean, you study