great moderation of the 1990s and instead adopted an interventionist approach that helped inflate the housing public and led to a global economic crisis. this intervention was justified by the employment half of the dual mandate and continues today. i believe it's a contributing factor to this anemic recovery. the policies are felt by the single mom who goes to the grocery store and finds her paycheck doesn't go as far because inflation is robbing her of the value of her hard earned dollar. she finds the same thing as ss fills her gas pump as well. these policies are also felt by the unemployed. the uncertainty generated by the fed's unprecedented interventions is discouraging business investment in new buildings, equipment, and software, which drive job creation in america. you look at the numbers.

government spending is where it was before the recession. consumer spending is where it was before the recession. business investment is not. the fed has played a role in that. for america to remain the world's leading economy in the 21st century, congress must give the fed a single mandate for price stability, ensure that it is independent from political pressure, and hold it accountable for results. critics charge focusing on a sound dollar implies the fed will ignore the unemployment needs of america. they're wrong. america with only maximize our real output in employment with long-term price stability, protecting the purchasing power of the dollar over time provides the strongest foundation for lasting economic growth and job creation. critics also react as if a single mandate is a shocking proposal. as we know, the united states won world war ii, enjoyed three decades of prosperity and put a man on the moon without a dual mandate. it's not a fundamental part of our constitutional fabric. it's a 1977 policy directive based on discredited phillips curve, and congress can change it.

while it may be politically appealing, the current dual mandate asks the fed to do something it simply cannot do. chairman ben bernanke has testified that in the long run, the only thing the fed can control is inflation. in the long run, low inflation is the best thing we can do for growth. the maximum level of employment is largely determined by non-monetary factors. further, using monetary policies as a short-term tool to speed growth may actually harm the economy in the long term. let me skip to the end and make the point here that among other provisions in the sound dollar act, we grant a permanent vote to all the regional federal reserve bank presidents because as important as new york and washington is, there is much more to america's economy. therefore, it should better reflect our geographic diversity. we require the fed for the first

time to articulate its lender of last resort policy in order to reduce uncertainty of moral hazard. we speed the release of transcripts in five to three years to create more timing of transparency. we make sure the new consumer financial protection bureau is accountable to hard working americans by funding it the same way as other agencies do. mr. chairman, i've included my full testimony for the record as well. >> i thank the gentleman. now mr. frank is recognized. >> thank you, mr. chairman. i appreciate your acknowledgment of the work we did together. it actually is work that began with one of your texas colleagues, mr. gonzalez, who works down with us who was a pioneer in forcing the federal reserve to be open. he made them release information they claimed didn't exist. kind of a magical feat. one of the things that ought to be noted, in every instance, beginning with mr. gonzalez and maybe before, in the work we did as the information flow has increased, it has been beneficial.

there have been none of the negative effects some people have worried about. at the same time, it ought to be clear that the release of all this information has, i think, helped dispel the notion that there were nefarious things going on. we've gotten a lot of information out under the legislation we have that there will be no transactions the federal reserve engages in with private companies that won't at some point be made public. i think that has reflected well on what they've done and suggested there was something going that haven't been proven true. i filed legislation to remove the regional presidents from the voting power that they have. it was pointed out to me that would have a problem of diminishing geographic representation, so i submitted a version that would have appointees appointed to the board a. pointed by the president, confirmed by the

senate, from various regions. the problem you have now is this. the regional presidents are picked by bankers. it's an extraordinary power. that the fmoc has. i cannot think of another element in american government where there is formal binding legal power given to the representatives of the industry that's in question. i don't think the american people are aware of the undemocratic nature of this, to have bankers who pick the regional president who in turns picks boards, which are primarily from industry and dominant in the financial industry. to have them setting the policy seems gravely mistaken. i think you can get to a presidential set of appointments without diminishing geographic diversity, and that's what we've done. beyond that, i do feel somewhat compelled to come to the defense of the bush administration. the single most important economic appointment made by president bush was, of course, chairman bernanke. he'd been his economic advisor, chairman, then became head of the fed.

frankly, i think people have been unfairly critical of mr. bernanke. he's obviously been reappointed and reconfirmed by the senate. but once again, there have been predictions that haven't been born out. the interventions by the fed to deal with the problems that we had from the financial crisis have not led to inflation. inflation is not at the point where it has become a serious problem for people. the interventions they've made have actually made money for the federal government. they have not added to the deficit. as i said, the opening shows they haven't caused problems in terms of any kind of conflicts of interest. we did make some changes in the legislation that was passed. we mandated much more openness. we repealed that part of the bill that said the fed could give money whenever it thought it was important to do so, if they thought they might get paid back. the best example of that was aig. unilateral intervention by the

federal reserve. we still are owed some money. we replaced that with some other ways to go. finally, i think it would be great to appeal the dual mandate. yes, it is true that in the long run, monetary policy means what people have said. but as we know, the fact that something means something in the long run does not mean that's the only run, that there are not times in the shorter run, in the intermediate run, when a balance is necessary. i would say this, mr. chairman. i can make a procedural motion. i have a bill dealing with the presidents. i think we have a central issue here in the bill that my colleague from texas has put forward. i will agree with him on one point, when he said that the dual mandate is not in the constitution. i agree. neither is the federal reserve. it was made up in about 1912. wasn't in the constitution. in fact, alexander hamilton tried to put it in there. got his brains beat out a couple times. the question is this, there are

very big difference -- to some extent, they're partisan. partisan differences can be carried too far, but they're also at the heart of democracy. it's entirely legitimate. to have contending groups with different views. there's clearly a major party difference. there are those of us who think unemployment is a very serious problem that deserves being addressed explicitly. i would urge you, let's put it out there. let's have a committee markup. let's bring it out. let's debate that one before the election. let's not have it be a stealth presence with the american people to take way the concern over employment after the election. >> i thank the gentleman. i thank both members for their opening statements. i ask unanimous consent to include in the record statements by the subcommittee today. without objection. i will now yield myself five minutes for questions. the first question i have is for

congressman brady. i love the title of your bill, the sound dollar. that's something i think is so important. but it seems to get a sound dollar, we need to have something we can define. do you have a definition in order to give us an idea what our goals are? divorced, maybe, from the policy. how do we define the unit of a count -- because it was precisely defined for a good many years. as a matter of fact, up until 1971 in a relative way, it always had a precise definition. do you have, in your own mind, a definition for a sound dollar? >> i do. in my mind. we didn't include it in the legislation. right now, the fed has identified a 2% inflation target, which seems reasonable

over time, but truth of the matter is, we want a rules based inflation targeting. we want the fed to stop the interventionist policies and to focus on staying within the lines, both inflation and deflation. that is the strongest foundation for economic growth. mr. frank likes to point out this is an either or. it's not. the fed does not do, and cannot do a good job at job creation. as the chairman and the members agree. but over time, in fact, preserving the purchasing power of the dollar does create the strongest economy for the u.s., or at least the opportunity for it. so, no, there's not explicit target in the bill itself. >> so in a way, you define the dollar by achieving price stability. >> we don't use a strong dollar or weak dollar, but a sound one. >> because there are many free market economists who don't

concentrate on that. as a matter of fact, want a flexible pricing level, not a fixed pricing level. how would the monetary policy have been altered in the 1920s? a lot of people said there's no inflation because prices were stable, relatively stable because productivity goes up. if prices are relatively stable due to productivity, but then there still are distortions in the market, say in the stock market that led to the 1930s, can't you be deceived if you concentrate, you know, on prices rather than looking at the total picture of the mall investment. i know you mentioned about not monetizing debt, but how would you adjust for the fact that the price level doesn't give you the information? even today, a lot of prices, in

spite of the monetary inflation, some prices are going down, like in electronics. at the same time, you know, the price of an education, the cost of education skyrockets. how would you adjust for that? >> thank you. i have long ago learned, never discuss fed history with you, dr. paul, since you're as knowledgeable as anyone on the planet that way. but looking a little closer in history, the last 40 years, what we saw in the 1970s was a great lesson. we were told we couldn't have high unemployment and high inflation at the same time. not only did it, the fed in the venti -- interventions, go, stop, go, stop, actually created a stop, actually created a volatile economy with deep and frequent recessions. when the fed focused back on a single mandate of price stability, 1979, that changed. for almost 20 years, we had not only strong economic growth, but

we had very short, very shallow recessions. we saw the benefits of that focus on price stability. in the 2000s, we saw the fed keep interest rates too late for too long. it helped inflate a credit-fueled housing bubble and helped create a global financial crisis, and to sort of wrap that up to your immediate question, within the sound dollar act, not only do we focus on rules based inflation targeting, but we require the fed to monitor and report back on these potential asset bubbles to monitor the price of gold, other commodities, equities, bonds, commercial real estate agriculture, real estate industrial, real estate as well.

we don't force them to act on that. that circumstance will vary. we want to ensure to your point that not just the price index of goods and services, but those potential asset bubbles not only be monitored but reported to you and i and to the public as well. >> i have a question for mr. frank, but i'm out of time. i think there's going to be a second round, so hopefully i can get my question asked. i now yield to mr. gray. >> thank you so much, mr. chairman. let me ask both witnesses. currently, the unemployment rate, according to the labor department, is 8.1%. what can the federal reserve and congress do to put americans back to work? mr. brady, you have any thoughts, views on that? >> i do. one, i think the fed is trying

to do too much. they're trying to make up for, i think, some failed economic policies, in my view, from the white house. i also believe -- they're sort of like the doctor who gives you a pill every five minutes and says, how are you feeling? take another one. how are you feeling? take another one. as a result of creating uncertainty, i believe the more the fed does, the less responsibility congress and the white house is taking for getting the right fiscal decisions, getting the right tax policy, getting balanced regulations, ensuring the right spending levels, and reforms that create that uncertainty. i believe as the fed does more, congress is doing less. in the long term, that slows our recovery. >> don't you think that congress could be doing something now as far as passing a transportation bill, which would be a job starter? >> you know, ranking member clay, i think it's important,

especially long term, to get our transportation policy right. i think that would be helpful. i also think taking off the table this discussion of higher taxes. you know, this tsunami of regulation hitting these businesses. the president's health care plan, in my view, is a real, right now, a real deterrent to new job creation in america. so, yeah, there's a lot of things congress can do right. there's a reason the fed said, in the end, we're not setting an employment target because until the end we can't control employment. >> mr. frank, what do you think the federal reserve and congress could do? >> i think they have been very helpful. i think the policies in brady's bill would prohibit the future. we would have been worse off if it hadn't been for them. the interventions the fed has taken have been helpful to us. first of all, in helping to provide the funding that's helped our economy. secondly, and i think there's a real point of difference between the parties.

i was surprised by it. i think the role of the federal reserve in working with europe, working with european central bank has been helpful in avoiding the kind of serious downturn in europe, which will be negative effects on us. i think the federal reserve -- >> excuse me. check on your mic. >> thank you. with the european central bank have been very helpful. to have prevented the federal reserve from that kind of cooperation, increasing the chances of trouble in europe, would have been, i think, a very grave error. secondly, as far as congress is concerned, we have the major activity. we should be following a two-step procedure. long-term debt reduction. the fact is the unemployment rate is higher than it would have been if we had not forced

by a variety of fiscal policies state and local governments to fire 600,000-plus teachers and firefighters and public works employees and police officers. i think that's been a very -- they've been hurt because many of them are financed primarily by the property tax. property values went down. i think forcing those reductions by inappropriate federal policies is a great mistake. yes, it's important for us to reduce a deficit long term. unlike many of my republican colleagues who thinks the president wants to get out of afghanistan too quickly, i think he wants to stay there too long. i think there's room for reduction in the military budget. i think we should be -- and we'll be fighting about this in the budget. do we cut the military or restrain the military, or do we cut medicare and medicaid? i would be for a short-term increase in spending and stimulus at federal level here. if you give money to the states, they're going to hire people, who will be spending money. as for taxes, i heard the argument that higher taxes were going to kill the economy in '93 when i voted for the tax proposal put forward by president clinton. in the years afterward, we had a very good economy.

i don't have to claim that the higher taxes marginal rate increase of a small amount caused that economy. people are making more than $1 million a year. for every $1,000 they make over that, tax them for $56. it's inconceivable to me. i think it's been proven by economic history it has no negative effect and allows us to do a long-term deficit reduction with short-term help for the economy. >> thank you so much. >> i yield five minutes to the gentleman from arizona. >> would you like me to yield you a couple minutes to finish your previous question? >> pardon me? >> would you like me to yield you a couple minutes to finish where you were at? >> oh, thank you. yes, absolutely.

thank you very much. >> mr. chairman, i would rather be grilled by him than yourself, if that's okay. >> no, i saved this one for the ranking member. >> okay, okay. go ahead. >> you know, the big argument is dual mandate or one mandate. i'm sort of a pretty much a skeptic on what we get from the fed. i think they generally can find an excuse to do whatever they want to do, so i know that's important argument, and it's going to go on for a while. i'm not, you know, hopeful that, in itself, will solve the problem. because i think they're rather independent in what they do. i want to ask you a question, mr. frank, about, you know, the appointees, whether they're approved by the senate or not. because a lot of people that i talk to are very interested in this subject. you know, they -- they're very concerned about the fact that this isn't a government operation. this is a private operation. they don't like the private.

now, do you think you fully answer that, or do you partially answer the question by saying people have to be approved by the senate? has this become less private and less sinister? >> i wouldn't say sinister. i don't think the people on the federal reserve regional boards who are predominantly from the financial industry in terms of influence, when they pick a president, who in turn picks the new people. that's not sinister. they're people of goodwill. i diminish the extent to which it's private sector by not having them vote. there's another thing we could do. you were absent when we voted here during the reconciliation markup on whether or not to subject the federal reserve to the appropriations process. not monetary policy, but there was a proposal, as you know, to subject the consumer financial

protection bureau to the appropriations process. it would seem to be another step that could be taken. i'm not for it myself. but for those who are worried, i would think consistency would say why not subject the federal reserve, including the regional entities, to the appropriations process? i think if you said -- now, there is an alternative in terms of the regional presidents and having senate confirm. i think that might be worse. yes, i think i partially -- i diminish the private sector element. people who are concerned about it more than me might subject it to appropriations. >> i'm sorry. i don't want to use all his time. i yield back my time. >> you're not going to comment on the appropriations process? >> he's just sorry he wasn't here. thank you, mr. chairman. one of the things i've been trying to get my head around is

with the dual mandate. this is for both our honored members here. does it ultimately, do you think -- because, okay, here we're chasing inflation. here we're chasing employment. does that also allow us, as members of congress, often to avoid tough decisions, whether they be on fiscal policy? >> i don't see how it does. first of all, i reject the notion that we, as elected officials, should be blaming the feds. it's our fault if we don't step up. the problem is, we have very different views about how to do it. that's democracy. some people want to raise taxes on the wealthy and restrain the military and make some domestic restraints. others want to do others. we don't know nobody who doesn't have views on this. but no, i don't see the fact there's a responsibility somewhere else that in any way allows us -- >> you did say one truism. that is ultimately it's our responsibility. >> yes. >> in my, what, 16 months here, i find policy-wise, we do lots of trying to push it off to regulators. others, you do the work. that way we have this sort of

plausible deniability. >> by the way, i think that's especially the case with regard to military activity. in my 32 years here, when i have seen us get involved in military activity without congressional authorization, it has not been so much executive overreach as congressional ducking. >> okay. i'm going to agree with you on that one. >> answer is yes, absolutely. as the fed tries to do more, congress is using that in the white house as an excuse not to take the key steps necessary to create the business climate for recovery. if, in fact, the dual mandate is the right answer and the fed is in charge of the economy, they're certainly not doing a good job. weakest recovery since the great depression. lowest number of workers in the work force. despite the stimulus, the

bailouts, auto bailout, housing bailout, stimulus to cash for clunkers, there's fewer americans working today than when president obama took office. at the end of the day, it's our responsibility. >> mr. chairman, thank you for yielding back to me. >> i thank the gentleman. i yield five minutes to congresswoman maloney from new york. >> thank you very much. thank you for calling this hearing. i would like to ask mr. brady to respond to a statement from alan blinder in their paper of 2010. they argue that the federal reserves actions during the economic crisis were more powerful and effective than anything that congress did fiscally through the stimulus. i would argue that the fed's pursuit of the dual mandate contributed to avoiding an all-out economic collapse and helped fuel our economy.

so i'd specifically like to ask my colleague, can you cite any example of how the dual mandate in any way hindered the recovery? most economists believe that it was helpful in the recovery. >> i think there are a couple key issues here. one, the fed's actions in the mid-2000s, keeping interest rates too low for long, helped bring about crisis they later intervened in. >> that happened during greenspan's days. >> we're talking the fed as it is today and its actions over the last four decades, truly. secondly -- >> but we're discussing it -- because i want to make sure you're answering the question on this point, if i could make it clear, what we're looking at now is the recovery, the actions that took place by bernanke and others in response and would have -- and you were saying the interest rates were

too low, would keeping interest rates high to avoid inflation have been a sensible policy during the crisis when we were looking for recovery in 2008 and 2009? that's the time that we're looking at, how the dual mandate responded to the economic crisis, and i would argue that it was helpful. my question specifically -- >> i actually wanted to give you a yes to your answer. >> oh, really. >> during the financial crisis, even though the fed frankly helped fuel it, some of their actions they took during the financial crisis truly did calm those waters? stop there and look at the academic recovery since. in my view, pursuing the dual mandate, in some ways for the first time identifying it as a way to not only intervene for example in the housing market and then continuing to intervene as well rather than allowing exiting that market, continuing to allocate credit around the united states, creating this uncertainty on what will the fed do next has actually, in my view, hindered the recovery.

if you look at three points, did they help fuel the financial crisis, yes? were they helpful during it? yes. from recovery on in truth, no. in my view, we're not at the job levels we should be, in part, because it's congress's role to set the fiscal policy to create the business climate so a recovery can occur. >> well, if the fed had been constrained because they did not have the dual mandate in moderating inflation only and would the recovery be what we are experiencing now? they were able to keep the -- if all they had to do was look at inflation, they would have been raising interest rates. you know, they lowered them in 2008 and '09 which was very important because they had the dual mandate. if they were constrained to moderating only inflation, if that was the only thing they could have looked at, they wouldn't have been lowering the rates. having the dual mandate, most economists are arguing gave them the flexibility to react quickly

to the marketplace. i would also like to hear from the ranking member, mr. frank. >> i would like to respond to that because i think i can shed a little light on it. >> first, i want to talk about the comment about the fed's role in inflating things during the greenspan years. i agree, but not by keeping interest rates in general down, but by explicitly refusing to follow the mandate this congress gave the federal reserve in 1994 in the homeowner's equity protection act and subsequent efforts. many of us did believe loans were being made imprudently to people who couldn't pay them back. there were two ways to deal with that. some argued that would deflate the economy as a hole. that would have been a mistake. there an