lot of room left for anything else in the budget. would you agree with that? >> yes. in that picture, i think congresswoman, under current law, you've set revenues just above 18% of gdp. if you clear that, that is under our extended alternative fiscal scenario. under current law, revenues rise a good deal more. i think what you've done here is to extrapolate what you might think of as current policies and hold revenues at that share of gdp. certainly if revenues were held at that share of gdp as they've been historically, then the dramatic rise of costs for other programs makes the budget completely untenable. and that's why ultimately you and your colleagues face this choice of pushing that left bar down or right bar up. >> so i think we just have to admit, we can't stay where we are. there have got to be policy changes. >> absolutely. >> if we could go to the next chart. and i think this is even more devastating when we look at current policy and we don't do anything, with ekeep sticking

our head in the stand and saying, we'll just wait, we'll wait. we see here that by 2037, our total spending far, far outpaces our total revenues. and we see how our debt continues to grow. and i think that these charts, as we put these out there for people to see, rather than these reports that are so instructive, and if we have time to read these, that's great. but when we just take a flash and we take a look at these in a chart form, it has got to wake us up to say, there have got to be some changes as we move forward into the future. >> that's absolutely right, congresswoman. we cannot go back to the combination of policies in the past. i would just note about this chart, again, so people are clear, this under current law is under the current scenario, spending is that high in large part because of the explosion of interest payments, reflecting the gap between the noninterest spending and revenues, all the years between now and 2037.

noninterest spending would itself would be a good deal higher in 2037 than historically, but not much higher than the historical averages shown in this picture. >> so you can take a lot of these scenarios and do different things with these charts. i think the most important thing is when we look at it in a chart like this, it has got to be striking to us that we've got to act on this. and we do have some alternatives out there, and hopefully we'll get serious and get out of the politics and get down to the policy and address these and get them done for the american people. thank you very much. >> thank you, congresswoman. >> last but not least, ms. schwartz. >> thank you very much. i really appreciate your testimony and your patience. it was good to follow miss black. i was really interested in your response to her charts. you just spent two hours telling us that it's not just spending, it's also revenue. and that last chart really

ignores the fact we could do something about revenue. i'm surprised you didn't say that, yes, it's not just spending. because you just said it many times that the problem we're facing in terms of deficits, and the dramatic increases in deficits and the national debt, relate to both spending and reductions in revenue. can you just -- that's true? >> yes, the unsustainability of fiscal policy is the gap between spending and revenues. >> right. >> whether you and your colleagues choose, the gap under current policies, and whether you choose to resolve that by raising tax revenue or cutting spending is a choice that you can make. >> and on that last chart that was just shown, is based on the fact that there will continue to be the lower revenues built on the fact that there are, as an insistence on the republican side, instead of looking at both spending and revenues, and

recognizing that we cannot, given the dramatic concerns about deficit, we cannot ignore the revenue side. now, again, you've pointed out how we do that is for us to decide. but whether we maintain those tax deductions for our largest corporations, can they afford to do that, is completely ignored by that chart. i just want to have you make absolutely clear that, that is a choice the republicans are making to take -- only look at the spending side and to refuse to look at the revenue side. and in fact, revenues that -- well, reduced revenues that we are -- that they want to continue, they are making a choice to reduce revenues, refusing to raise any revenues. they said only discussion about tax policy, is if it's revenue neutral. no new revenues. even if those tax deductions are not contributing to economic growth. >> will the gentle lady yield?

>> no. >> will you answer that? i mean, would you just speak to that? >> you're certainly right, congresswoman, that the explosion of debt and explosion of interest payments that we show under the extended alternative scenario, could be addressed either by reductions in spending relative to that scenario or increases in revenues. >> or a combination. >> or through a combination. >> and one of the things that we have put forward, and i contend this all the time, that budgets are about choices. we have put forward, the democrats have put forward a budget that is clear about our insistence that, yes, we're going to deal with the deficit. we're going to create that certainty. we're going to do it in a way that does not hurt our fragile economic recovery. and we've seen economic growth, but we want to see more. and the only way we're going to do it, every bipartisan commission has said it's got to be both looking at the revenue side, getting rid of tax

deductions that do not grow the economy, and the other side saying they're job creators. they have not created jobs. the provisions that don't create jobs, that don't create economic growth, that we could get rid of those. we could see something on the side of revenues. but of course we're going to cut spending. we have already. we've made that commitment. $1 trillion-plus at the end of this year, in tough wails. so could you just -- this is really about choices that we're making. and it is about choices of whether we take all of it out of the spending side. that we walk away from our commitment on seniors on medicare, which republicans voted for time and time again, that we walk away from investments in education, and innovation, and growth industries. and as was pointed out on our side, walk away from potential of public investments now, such as in transportation infrastructure, that not only grow jobs right now, but

actually help economic growth in the private sector by creating demand, and creating an environment that grows jobs and encourages companies to stay here, invest here and grow jobs in the private sector. it is certainly possible, and your testimony for the last two hours have suggested, we've got to take the approach of a balanced approach. and we've got to do it sooner than later. >> as you know, congresswoman, i can't tell you what approach you should take. but you're absolutely right that you and your colleagues, and we as citizens, base fundamental choices about the role of the government in our society, what we want to do collectively versus what we want to do privately. and the choices are forced upon us because we have a set of programs that are becoming much more expensive than it used to be. >> and reduced revenues. and reduced revenues that -- >> thank you. >> doctor, i appreciate you being here. i had a couple of follow-up questions. one of my colleagues had

questions about the stimulus package and why it didn't work. i want to refresh your memory.a the cbo, predicted roughly the unemployment rate today would be 5.7%, if that had worked. as the economist, most economists i guess in town are promoting that, today it's 8.2% is the actual unemployment rate. the difference is 13 million americans are not working today, that were projected. you said that the economic recession was worse than was figured. well, can you tell me what numbers were missed? the reason i'm asking this is not a gotcha question, i'm trying to find out who in this town actually does an accurate job of predicting? because the folks that said we need to spend more money were very, very wrong. and can you tell me where you and others were wrong as far as the economic figures you were using for that type of projection? >> yes, congressman.

those are good questions. economic forecasting is very hard. we release regular updates of our success at that. and i think a good way to summarize that is that we're no worse than other economic forecasters. but it's hard to do. i think in our case, and for many forecasters, the u.s. has not experienced a recession of the magnitude of the one we've just lived through since the depression. we have become used to having infrequent and fairly mild recessions. and we and other forecasters expected this to be like that. in fact, people who had studied more carefully downturns in other countries following financial crises, were saying from the beginning that, in this sort of situation, we should be looking for a much longer and more pronounced downturn in this country. and they turned out to have been right. i want to be clear about the effect of the recovery act. there is disagreement as the chairman noted among economists about the size of these multipliers. we show ranges of estimates.

but there's only a small fraction of the profession that thinks that the recovery act was not good for the chief. >> doctor, i appreciate that. but on what particular figures, just in general you're saying that most economists were generally wrong? were there specific indicators that were missed? because -- and this gets pretty political, because we have folks suggesting, and maybe yourself, that it wasn't big enough, that we should be spending more money and actually according to your report on page 34 you suggest that if we could just spend some more money, somehow that's going to grow the economy some more. and after spending $880 billion, with a $1.1 trillion cost to pay it back, i just can't figure out what economic indicators were missed to suggest that we should have another stimulus, or bigger stimulus, or just spend more money of any type that somehow that's going to grow the economy. what did you and other economists miss specifically that led to this huge jobs deficit between what was projected by the folks that

produced the stimulus -- i mean, we're talking 13 million americans would like an answer to say, where did washington mess up. you're saying most economists say it should have worked. it didn't. >> can the gentleman yield for a second? >> yes, sir? >> the question is whether, if i'm not mistaken, doug, whether the multiplier is above 1 or below 1. that's where few people say it's below 1, is that not the case? and what was the bernstein multiplier? >> the question was whether the recovery act was good for the economy. and the multiplier was above or below zero. can i put into the transcript on this regard. there's a question in the economists at the university of chicago that did a regular survey of distinguished economists at leading universities on issues of public policy, to show where the agreements lie and whether -- >> the dollar spending produces more dollars worth of economic output or less, right? that's basically the question? >> i'll read you a specific question they asked. because of the american recovery

and reinvestment act of 2009, the u.s. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill. could i answer that question? >> no, i'm sorry, you did. >> that was the question. the question was, with a question mark at the end. phrased as a statement. because of the recovery act, unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill. 80% of the respondents, 80% agreed or strongly agreed with that statement. >> right. so -- >> 4% disagreed or strongly disagreed. >> a positive number versus a negative number. >> i'm not sure if john taylor is in this group. if he was, i would guess he would be in the 4%. >> here's what i think he's getting at. what was the plumultiplier -- i think it was the bernstein, i don't remember who came up with the multiplier to generate those stimulus projections? was it 2 point something?

>> i don't know what they did. what we did -- >> i know. but what he's getting at is, how did they get it so wrong off their projections. and my question is, what was the multiplier that they used? and was that multiplier not outside of the realm of what most economists thought it would have been? >> i just don't know what they used. i know what we did. we went through the literature, we looked at a set of multipliers from the evidence the economists generated. we reported what the multipliers are. >> yours is one point something? >> for every sort of provision, the multiplier is different. i think for the recovery act as a whole, and part of the recovery act was tax cuts. >> temporary. >> i think in the end we thought the multiplier on average across the provisions was about 1, in very rough terms. that's what we've been reporting in our regular reports. >> and his point, i'm doing this off the top of my head, if i'm not mistaken was the bernstein multiplier? i think it was bernstein. that was 2 something, was it

not? joyce, do you know the answer to that? no? >> i'm not trying to rebut what we do. they did their only analysis. i can't speak to what the administration did. >> we're now over the time -- >> but the question is, whether or not the recovery bill, the stimulus bill helped the economy relative to not doing a stimulus? and the answer from cbo and 80% of the economists is that it helped the economy. >> the claims that were used to sell the stimulus were based on a multiplier that clearly did not materialize, which was much higher than what cbo claimed it would be. we'll go to the record and figure out what that was. i think it was 2.1 or something like that. >> we started doing our analysis -- >> we're not suggesting you're selling anything, we're suggesting the administration was selling something, and they oversold it. >> i just invite everybody to look at the congressional budget office analysis on this exact issue that's been raised a couple of times, which made

clear as a result of the recovery bill, we've saved or created over 3 million jobs. they talk about it on a year-by-year basis. and for those people that have those jobs, it's pretty meaningful. >> and the administration claimed unemployment would never get above 8%. that millions more jobs would be created. and they plugged in a multiplier that very few economists support or justify. mr. mcclintock? >> mr. chairman, i think -- >> can i say one more thing? >> not on my time. we're doing a report right now on the slow recovery. we are trying in fact ourselves to understand better where we went wrong in an effort to improve our forecast going forward. and we're writing this up in a way that will be available to you and your colleagues i hope within a few months as part of our preparation for our august forecast update. >> mr. chairman, i request 30 seconds to close. >> i actually started the mantra after your time expired. >> no, i gave you my time. >> oh, you're right.

go ahead. sorry. >> i appreciate that. i wasn't around here. and i'm going with the numbers that were provided by the administration saying it's 5.7%, that's in writing. it was so far off, it might have been different 34umultipliers. i would ask, if you can make an estimate as mrs. black indicated, what's the economic impact of uncertainty? i'm hearing that from job creators. that's nowhere in your report. that's a difficult thing to measure. >> thank you. i apologize. thank you for the indulgence. mr. mcclintock? >> it reminds me of the economist that said, well, that might be true in practice, but how does it work in theory? i think we've run afoul of mcclintock's first law of political physics which is, the more we invest in our mistakes, the less willing we are to admit them. corollary, that is concede to the left that somehow a consensus determines science or economics. the sad fact of the matter is, if 80% of the economists turn

out to be wrong, the fact it was 80% of them doesn't make it right. it is still wrong. and that's been the experience that we've had, and why your testimony is being greeted with a certain degree of skepticism now. with respect to the question of default, doesn't the secretary of the treasury have the authority to prioritize payments to assure the timely payment of the government's sovereign debt obligations? >> i think that's right, congressman. >> i think it is, too. so does the gao. in fact, i think it's embedded in the original act that established the department of the treasury. so sovereign debt default then would not be an act of the congress, it would be a malfeasance of the executive and not prioritizing payments to assure a timely payment of our sovereign debt obligations? >> i'm sorry, congressman, i can't speak to the legalities of this. i can speak, i think, to our sense of the economic consequences. >> miss castor called the budget passed by the house last year a

disaster. i recall standard and poor's warning that a deficit reduction of $7 trillion in the baseline over the next ten years was what was necessary to preserve the aaa credit rating of the united states government. i specifically asked the head of their sovereign debt division if the budget adopted by the house last year, the so-called ryan budget would have preserved the aaa credit rating of the united states government. his answer was, it would have. do you have any reason to contradict that? >> i have no view on that one way or the other, congressman. >> we could have preserved the aaa credit rating of the united states government. but i have friends on the left who think that's a disaster. >> i can't speak to what standard and poor's -- >> let me talk about the relationship between tax and deficit, if i could. tax has often been put forward as an antidote to deficits. you essentially said that in

your testimony. but aren't taxes and deficits basically the same thing? isn't deficit simply a future tax? aren't taxes and deficits the only two possible ways of paying for spending? >> i think that's right, congressman. certainly as you know, in the long run, won't can't continue to run up deficits. in the long run we need to bring our spending and taxes in correspondence with one another. >> whether you're taxing today, or you're taxing tomorrow, which is what we call a deficit, you're still taxing, and those are the two ways you pay for spending. so it seems to me with apologies to the clinton campaign, it's the spending stupid. >> congressman, when we run up a debt today, it does commit us to do either more taxation or less spending in the future. but which it is depends on the decisions of the congress. >> can you give us an example of when the nation borrowed and taxed its way to prosperity?

>> i'm not sure what you mean by that. prosperity comes ultimately from the ability of the economy to produce goods and services. it's from the amount and quality of the labor force, it's the amount and nature of the capital spending. more >> it's productivity and so on. >> going from theory to actual practice, i look back over the 20th century, the beginning of the 21st century, and i see reducing spending as a percentage of gdp in the early '20s, truman reducing it in the 1940s, reagan reducing it in the mid 1980s and clinton reducing it in the mid 1990s and each period follows or is followed by a rather dramatic expansion of the nation's economy, yet i see when spending is dramatically increased, hoover in the late '20s, early '30s, roosevelt throughout the '30s, bush in the 2000s, the economy has languished.

what are we to draw from the practical experience that is quite consistent over the past century? >> i think the practical experience is harder to interpret than you're suggesting, congressman. for example, if one looks across european countries, you asked different countries and how they performed, a table in front of me, germany which is one of the stronger european economies being relied on by others in europe today, they have a much larger share of gdp collected in tax revenue before -- >> tax revenue -- that's not what i'm talking about. i'm talking about spending as a percentage of gdp. >> they have higher spending than we do. also, there are different spending and tax policies. >> i think i just saw a chart that measured in per capita dollars, per capita spending in the united states is higher than it is in those european countries. >> we are richer than they are. so a share of our gdp goes fourth -- >> we continue those policies, we can fix that in a hurry.

>> i'm using your time, mr. chairman. can i just say, you refer, congressman, to whether people invest in errors and aren't willing to admit them. i'm not sure if you're referring to our analysis or policy making but i would like to say on behalf of our analysis that we continue to read the literature and have in fact adjusted our range of estimates of the effects of the recovery act in response to what we have learned through that process but we have not adjusted the range to include effects below zero because we don't think that is consistent with the evidence, and only 4% of the economists seem to think it is and 80% think it isn't. again, although we do respond to the evidence and are not afraid to admit that, we're very clear when we change our views and why. we think again with the great majority of economists, the recovery act was on net good for the economy over the past few years. >> thanks. >> was the stimulus bill the recovery act the only way that we could have helped the economy? >> no, congressman. there were a whole collection of

possible alternative policies that could have been enacted and when we've been asked a number of occasions now by the senate budget committee to look at alternative ways of providing a boost to the economy, we have offered a menu of options and we have discussed what we think the likely effects would be and the pros and cons of different ways of proceeding. there are many, many different -- >> is it also fair to say the recovery act would add to the deficit? >> yes. that's right. >> and it did add to the debt? >> yes. that's right. >> okay. so what is the effect of borrowing money going into debt and deficit have on private sector capital? >> well, over the medium term and long term, that extra debt will crowd out private capital formation as we said. we said this in february of 2009, the recovery act was then being discussed would be good for the economy in the short run but absent other changes, would be a drag later on. >> so as i look at the president's budget proposal for the next decade, i seem to

recall seeing i think every year for the next ten, our deficit exceeds $1 trillion and then our long term debt continues to grow. i don't know what percentage of the gdp that is off the top of my head. so to your point, that at some point in the long term, which is what this report talks about, we do have to change as you said the ratio of debt to gdp and we've got to change our tax revenue to our expenditures. now, it is suggested by some that the way to do that is to increase taxes. if we increase taxes, let's say we increase every single tax rate, does that necessarily suggest we're going to have more long term revenue to the treasury? >> well, in general, congressman, higher tax rates will lead to more revenues, not proportionately higher because there will be some effect on people's behavior, but in general, higher tax rates will, from the levels the u.s. is starting from today, or has been

talking about over the next decade, increases from that point would lead to more revenues in general. now, could we find specific taxes, that wasn't true, perhaps, i don't know. we haven't checked them that way. >> so there is an alternative to just raising tax rates to trying to fix and solve this problem. what's our revenue today, $2.2 trillion? >> you'd think i would know that, congressman, but i don't. >> so -- well, it's roughly -- >> we think this year, the revenues will be about $2.5 trillion. >> but we will spend $3.5? >> yeah. about 3.5. >> so we're still looking at a trillion dollar deficit. >> we are. i don't think that will persist at that level under current law or in fact another president's budget but the president's budget does have larger deficits than under current law. >> one of the things i do want to try to get on the record, and you may have talked about it before so i apologize if you

have, in terms of health care entitlements, the cbo report says 5.4% of gdp, of that spending in 2012, which goes up to 12% of gdp by 2050. so that is clearly a driver of our long term fiscal problems, is it not? >> that's the thing that's different from the past. that's the part that means that we can't repeat the policies of the past. again, whether that's addressed by you and your colleagues, changes in those programs or other spending or taxes, is up to you and the fiscal problem, imbalance, just comes from the gap, not particularly from either side or the other. >> however, if we were to eliminate 100% of discretionary spending we would still have the -- we would still have a current deficit and we would still have long term debt problems? >> i haven't tried the complete elimination but as i said, when i started, changes one makes in programs outside of the health

care program for social security can affect the magnitude of the changes needed in taxes or the large entitlement programs but it doesn't eliminate the basic tradeoff that we need to either change taxes relative to their performance, change these programs relative to current law or do some combination of those. >> would you be able to comment on what the unfunded liability numbers are in mandatory, on the mandatory side? >> i don't know, congressman. we don't calculate unfunded amounts in dollar terms like that. we generally show projections as shares of gdp and we show some imbalances in the social security trust fund and we show a fiscal gap for the economy as a whole, but it's not -- that's just the gap between spending and revenues. it's not meant to capture the present value of all future spending or all future revenues. >> okay. thank you very much. i yield back. >> thank you, congressman. >> thank you very much. i think that concludes all of our questions. dr. elmendorf, thank you and

your team for all your hard work in putting this very insightful, very harrowing report together. this hearing's adjourned.

on wednesday, jpmorgan chase ceo jamie dimon testifies before the senate banking committee about the company's $2 billion trading loss. live coverage of that hearing on c-span and c-span radio. and the house financial services committee will hold its hearing on the public policy implications of jpmorgan chase's recent trading loss on tuesday, june 19th. live on c-span 3 and c-span radio. >> we're going live now to the