[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PAYCHECK SECURITY: ECONOMIC
PERSPECTIVES ON ALTERNATIVE
APPROACHES TO PROTECTING
WORKERS' PAY DURING COVID-19
=======================================================================
VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY,
INTERNATIONAL DEVELOPMENT AND
MONETARY POLICY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JULY 7, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-100
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
43-193 PDF WASHINGTON : 2021
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
DENNY HECK, Washington TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee
KATIE PORTER, California TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin
BEN McADAMS, Utah LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on National Security, International
Development and Monetary Policy
EMANUEL CLEAVER, Missouri, Chairman
ED PERLMUTTER, Colorado FRENCH HILL, Arkansas, Ranking
JIM A. HIMES, Connecticut Member
DENNY HECK, Washington FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California ROGER WILLIAMS, Texas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey ANTHONY GONZALEZ, Ohio
MICHAEL SAN NICOLAS, Guam JOHN ROSE, Tennessee
BEN McADAMS, Utah DENVER RIGGLEMAN, Virginia, Vice
JENNIFER WEXTON, Virginia Ranking Member
STEPHEN F. LYNCH, Massachusetts WILLIAM TIMMONS, South Carolina
TULSI GABBARD, Hawaii VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
KATIE PORTER, California
SYLVIA GARCIA, Texas
C O N T E N T S
----------
Page
Hearing held on:
July 7, 2020................................................. 1
Appendix:
July 7, 2020................................................. 37
WITNESSES
Tuesday, July 7, 2020
Cook, Lisa D., Professor, Department of Economics, James Madison
College, Michigan State University............................. 6
Garcia, Lily Eskelsen, President, National Education Association
(NEA).......................................................... 7
Stiglitz, Joseph, Professor of Economics, Columbia University.... 9
Zuluaga, Diego, Associate Director, Financial Regulation Studies,
Cato Institute................................................. 11
APPENDIX
Prepared statements:
Cook, Lisa D................................................. 38
Garcia, Lily Eskelsen........................................ 42
Stiglitz, Joseph............................................. 46
Zuluaga, Diego............................................... 51
Additional Material Submitted for the Record
Cleaver, Hon. Emanuel:
Written statement of Hon. Pramila Jayapal, a Representative
in Congress from the State of Washington................... 53
Letter and attachment from the National Women's Law Center
(NWLC)..................................................... 56
Garcia, Hon. Sylvia:
April 29, 2020, sign-on letter to Speaker Pelosi and
Democratic Leader Schumer.................................. 62
April 29, 2020, letter urging Congress to pass the Paycheck
Guarantee Act, from the Economic Policy Institute and 100
economists................................................. 65
Porter, Hon. Katie:
April 29, 2020, sign-on letter to Speaker Pelosi and
Democratic Leader Schumer.................................. 62
Op-ed by Mark Zandi.......................................... 71
PAYCHECK SECURITY: ECONOMIC
PERSPECTIVES ON ALTERNATIVE
APPROACHES TO PROTECTING
WORKERS' PAY DURING COVID-19
----------
Tuesday, July 7, 2020
U.S. House of Representatives,
Subcommittee on National Security,
International Development
and Monetary Policy,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 12:08 p.m.,
via Webex, Hon. Emanuel Cleaver [chairman of the subcommittee]
presiding.
Members present: Representatives Cleaver, Perlmutter,
Himes, Sherman, Vargas, Gottheimer, San Nicolas, Wexton, Garcia
of Illinois, Porter, Garcia of Texas; Hill, Williams, Emmer,
Gonzalez of Ohio, Timmons, and Taylor.
Ex officio present: Representative McHenry.
Chairman Cleaver. The Subcommittee on National Security,
International Development and Monetary Policy will come to
order.
First, I want to thank you, Clem. I appreciate all of the
work that you and Petrina have done to make this hearing and
many other hearings possible. We couldn't do it without both of
you.
The subcommittee is now in order. Without objection, the
Chair is authorized to declare a recess of the subcommittee at
any time. Also, without objection, members of the full
Financial Services Committee who are not members of this
subcommittee are authorized to participate in today's hearing.
Members are reminded to keep their video function on at all
times, even when they are not being recognized by the Chair.
Members are also reminded that they are responsible for muting
and unmuting themselves, and to mute themselves after they are
finished speaking.
Consistent with the regulations accompanying H. Res. 965,
staff will only mute Members and witnesses as appropriate when
not being recognized by the Chair to avoid inadvertent
background noise. Members are reminded that all rules relating
to order and decorum apply to this remote hearing.
Today's hearing is entitled, ``Paycheck Security: Economic
Perspectives on Alternative Approaches to Protecting Workers'
Pay During COVID-19.''
I now recognize myself for 4 minutes for an opening
statement.
In February, before a pandemic was declared and the
economic livelihood of Americans was placed in peril, I sent a
letter, asking the White House, the Treasury Department, and
the Federal Reserve how they planned to prevent a crisis from
occurring due to COVID-19. I asked them what their strategy was
to help protect American's health and the national economy.
It would be months until that letter that I wrote with
Chairmen Meeks, Green, and Clay would receive a response.
Unfortunately, by that time it was clear, at least to me, that
there was no plan. Because we did not plan, we have become a
part of the virus' plan.
Congress was forced to take unprecedented steps to rescue
our economy and provide emergency assistance to American
families and front-line workers through the Coronavirus Aid,
Relief, and Economic Security (CARES) Act. We provided nearly
every American money to feed their families. We rushed
resources for COVID-19 testing and personal protective
equipment (PPE) to hospitals. We created the Paycheck
Protection Program (PPP) as a short-term lifeline to keep small
businesses alive and their employees on the payroll.
Just last week, we heard from Fed Chairman Powell that the
CARES Act was able to, ``provide direct help to people,
businesses, and communities,'' and ``made a critical
difference.'' It prevented the kind of mass layoffs and
evictions that threatened millions and millions of Americans.
Despite that significant bill, it has become profoundly
clear that our initial response will not be enough and was not
administered the way we intended. The U.S. has suffered the
largest increase in unemployment of any major economy on the
planet.
The unemployment rate was over 13 percent in May, more than
16 percent after accounting for various measurement issues, and
closer to 20 percent when workers with reduced hours are
included.
Additionally, the clock is ticking on the expiration of
many provisions of the CARES Act, as economists and public
health experts are telling us that the outlook is getting
worse. This week, a report written by Moody's Chief Economist
Mark Zandi highlighted that the prospects are high that we will
suffer what may well be considered an economic depression.
His analysis leverages Federal Reserve and Congressional
Budget Office's research that initially assumed that COVID-19
would be tapering off and double-digit unemployment would
persist into next year. However, with a resurgence of COVID-19
around the United States, in Florida, Texas, Georgia, and my
home State of Missouri, businesses are being forced to shutter
again, driving a possible second round of economic catastrophe.
Throughout the course of this crisis, both the economic and
health consequences of COVID-19 have fallen disproportionately
on low- and middle-income families and communities of color.
The Inspector General for the Small Business Administration
(SBA) highlighted that the CARES Act required rural minority-
and women-owned businesses to be prioritized for PPP loans, but
based on their analysis, they were not. By mid-April, 440,000
Black business owners had shuttered their company for good, a
41 percent plunge. By comparison, 17 percent of White-owned
businesses closed during that same period.
The New York Times successfully sued the CDC to release the
COVID-19 information, based on ethnicity and race, and learned
last week that Blacks and Latinos were 3 times more likely to
be infected with COVID-19 and twice as likely to die.
When you combine these facts with data from the Brookings
Institution, that low-income communities of color are more
likely to serve as essential front-line workers with higher
rates of exposure, this second dangerous wave could be
cataclysmic for the working poor in our country.
The remedy that Mark Zandi prescribed in his report, which
is echoed by the Federal Reserve Chairman, many of our
witnesses today, and even by President Trump, is simple: There
is a need for more congressional action that places employees
first.
The Health and Economic Recovery Omnibus Emergency
Solutions (HEROES) Act, which passed the House in May and is
waiting in the Senate, would go a long way in preventing the
kind of catastrophe that leading economists are predicting.
Further, a bill sponsored by my friend, Congresswoman
Jayapal, the Paycheck Recovery Act of 2020, would go a long way
in aiding those who need it most. Congresswoman Jayapal has
offered a statement, which I would like to enter into the
record.
Without objection, it is so ordered.
I will now recognize the ranking member of the full
Financial Services Committee, Ranking Member McHenry, for 5
minutes.
Mr. McHenry. Thank you for the recognition. My
understanding was, it would be for a shorter period of time,
but I will thank you for yielding. And first, let me say thank
you for yielding, and thank you for being a good leader of this
subcommittee.
The frustrating part is to listen to the opening statement,
and to recognize that this serves as a legislative hearing on a
bill that represents what is absolutely wrong with this
Congress' and some of my Democrat colleagues' responses to
COVID-19. They want to be hyper-partisan rather than trying to
remake the bipartisan success of the CARES Act. Rather than
coordinate between the House and the Senate and the White
House, what they want to do is just up the ante because they
view it as good politics.
And I have to tell you, responding to the American people's
concerns is the best way for us to be good stewards of the
taxpayers and also good stewards of our constituents. Through
the bipartisan success of the CARES Act, we have deployed rapid
support to our fellow Americans. The Administration has done a
great job of implementing it, and we have portions of America
that are reopening. We still have enormous challenges ahead,
and that is the reason why we should continue our bipartisan
work.
Instead, we are here today considering a partisan COVID-
response bill by a far-left progressive Member that seeks to
hold American workers and employees hostage unless they consent
to a laundry list of unpopular social mandates from the far-
left wing.
The bill that this hearing is about was so far to the left
that it wasn't even part of that left-wing package called the
HEROES Act that a couple of Democrats weren't even willing to
go along with that partisan approach.
This bill is nothing more than protecting Democrats' left
flanks, and instead, we should get serious about crafting
legislation that will get the American people back to work and
grow our economy, not codify a partisan wish list.
So, it is quite frustrating, as a policymaker, that we are
wasting this subcommittee's time by having a hearing like this,
when we should be crafting and working through the things that
will have a very good impact and get people back to work, and
keep people safe and healthy. I think that should be our focus,
rather than really a laundry list of left-wing ideas that this
bill--that this hearing is about.
Let's stay focused on getting the American people back to
work. Let's not focus on social mandates and extraneous
partisan measures, and let's get back to the work that the
American people want us focused on. With that, I yield back.
Chairman Cleaver. Thank you, Mr. McHenry. I did yield you
too much time, not that you used it all. So, I apologize that
we didn't present you with less time. But nonetheless, we will
now go to the ranking member of the subcommittee, Mr. Hill.
Mr. Hill. Thank you, Chairman Cleaver. I appreciate you
convening this virtual hearing, and I appreciate this
distinguished list of witnesses for their expertise. Today, we
are discussing the paycheck security topic with a specific
focus on H.R. 6918, the Paycheck Recovery Act of 2020,
sponsored by Representative Jayapal, which would require the
Treasury Secretary to provide grants to small businesses that
have been impacted by COVID-19.
Before making my comments on the legislation, I, too, want
to make some procedural comments. This legislation should not
be moving through this committee, let alone this subcommittee.
The essence of this bill is to create a grant Paycheck
Protection Program for small businesses, which implies that the
Small Business Committee should be managing this effort.
I understand the bill was referred to our committee because
it involves the Treasury. However, we are using our very
limited subcommittee time to discuss a partisan bill, sponsored
by a Member who is not on this committee. It is just
disappointing that there are plenty of bipartisan bills that we
should notice and have influence over our direct work in
international institutions, sanctions, and monetary policy.
Now, let me turn my attention to the topic of the hearing
at hand. The Federal Government responded to COVID-19 by
authorizing nearly $2 trillion of direct spending, 65 percent
of what we spend in a full year, including $454 billion to the
Treasury's Exchange Stabilization Fund, which can be leveraged
up to 10 times. Therefore, we have nearly $7 trillion, Mr.
Chairman, of resources available to help get our economy back
to full capacity, as we fight this virus, almost 35 percent of
GDP.
All that said, the money is still flowing, and before we
start creating new programs, we ought to assess the current
programs that we have and the amount of money that we have
gotten out into the economy.
H.R. 6918 would create a program at Treasury to provide
grants to small businesses. As a former Treasury official, I
have long opposed Treasury becoming just another program agency
in the Cabinet. And if we have learned anything about the CARES
Act that we passed, it is that the Government is not always
well-equipped to carry out programs on a broad-based scale.
Look at the PPP program, how it is operated, versus the
Economic Injury Disaster Loan Program.
Using the banks, the PPP program, while not perfect, got
over $500 billion of assistance out to our small businesses,
preserving millions of jobs in just a month, whereas the
Economic Disaster Loan Program still suffers from a
bureaucratic approach that is limited in its effectiveness.
The PPP program, Mr. Chairman, has $134 billion of
available funding. Let's focus on improving that program to
help our small businesses over the weeks to come, and let's fix
the idle program in the right way.
Further, I would like to mention the role that State and
local governments play. Our State of Arkansas used CARES Act
funding to set up its own program for small businesses, the
Arkansas Ready for Business Grant Program. It received over
2,300 applicants within 1 hour, and helped over 200,000
Arkansas employees across the State stay at work. Ninety-four
percent of those businesses had 50 employees or less, and a
quarter were minority-owned and women-owned.
So, Mr. Chairman, I think we have the solutions here to
help our small businesses and provide guidance to our State and
local governments, and let's fix the idle program and the PPP
program so that more small businesses can be helped as we
continue to fight this terrible virus across our country. Thank
you for the time, and I yield back the balance of my time.
Chairman Cleaver. Thank you, Mr. Hill.
And I want to apologize again for the mismanagement of the
time early on with you and Mr. McHenry.
Today, we welcome the testimony of Ms. Lisa Cook, Ms. Lily
Eskelsen Garcia, Mr. Joseph Stiglitz, and Mr. Diego Zuluaga.
First, Ms. Cook is a professor of economics and
international relations at Michigan State University, and is a
member of the American Economic Association's executive
committee.
Previously, she served as a Senior Economist on the Obama
Administration's Council of Economic Advisers. As an authority
on international economics, she has also advised policymakers
from the Nigerian and Rwandan governments. Thank you for
appearing before this committee.
Second, Ms. Eskelsen Garcia is the president of the
National Education Association (NEA), the largest union in the
United States. Prior to holding this position, she served as
the NEA's secretary treasurer and vice president. A life-long
educator and advocate, Ms. Garcia served as a member of the
Clinton Administration's White House strategy session on
improving Hispanic education, and was named a member of the
President's Advisory Commission on Educational Excellence for
Hispanics. Thank you for appearing before the committee.
Third, Mr. Stiglitz is an economist and professor at
Columbia University. He was the chief economist of the World
Bank, and Chair of President Clinton's Council on Economic
Advisers. He is the founder of the Initiative for Policy
Dialogue, a think tank on international development, and he is
a recipient of the Nobel Memorial Prize in Economic Sciences,
and the prestigious John Bates Clark Medal. Thank you for
appearing.
And finally, Mr. Zuluaga is the associate director of
financial regulation studies at the Cato Institute's Center for
Monetary and Financial Alternatives. Prior to holding this
position, he was the head of financial services and tech policy
at the Institute of Economic Affairs in London.
He has written on a variety of financial regulatory topics,
and his work has been featured in a number of reputable media
publications. Thank you for appearing before this committee.
Witnesses are reminded that your oral testimony will be
limited to 5 minutes. A chime will go off at the end of your
time, and I would ask that you respect the Members' and other
witnesses' time by wrapping up your oral testimony as quickly
as possible. And without objection, your written statements
will be made a part of the record.
Ms. Cook, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF LISA D. COOK, PROFESSOR, DEPARTMENT OF ECONOMICS,
JAMES MADISON COLLEGE, MICHIGAN STATE UNIVERSITY
Ms. Cook. Thank you, Chairman Cleaver, Ranking Member Hill,
and members of the Subcommittee on National Security,
International Development and Monetary Policy. The coronavirus
pandemic and the resulting human, economic, and financial
crises are unfolding at breakneck speed. Nonetheless, the rent
and bills of Americans were and are still due.
The quick action of Congress has gone a considerable way to
lessen or postpone the pain associated with this pandemic-
induced recession, specifically, these measures: adding $600
per week to unemployment checks; providing assistance to small
businesses through the PPP; and giving Americans a direct
payment of $1,200.
With an unemployment rate of 11 percent, we have now
entered the history books with the second highest unemployment
rate than at any other time since 1940. The unemployment rate
for African Americans is 15.4 percent, and for Hispanic
Americans, it is 14.5 percent.
These data are especially disturbing because Black and
Hispanic wealth fell significantly during the Great Recession,
making it more difficult to weather the COVID recession. By
early June, 44 percent of adult Latino renters and 41 percent
of Black renters, compared to 21 percent of White renters,
reported not being able to pay their rent. Twenty percent of
rental households face eviction by September 30th.
A wave of bankruptcies could ensue if small businesses
cannot stay afloat, renters cannot pay their rent, and
landlords cannot pay their mortgages. Early evidence shows that
the direct Federal payments of up to $1,200 per adult and $500
per child are a critical, first lifeline for many households in
the U.S. economy, allowing them to purchase food and pay their
bills.
To minimize the likelihood that a liquidity crisis for
these households becomes a bankruptcy crisis for them and for
the economy, Congress should authorize another round of direct
payments along with extended unemployment benefits.
By mid-June, of the businesses that were listed on Yelp,
140,000 of those closing since March 1st were closed by mid-
June. Thirty-five percent of shopping and retail businesses
listed had closed their doors permanently. Fifty-three percent
of restaurants listed had closed their doors permanently.
Forty-one percent of African-American businesses report being
closed, compared to 35 percent overall.
In the only survey providing demographic data on PPP loan
recipients, a report by Color of Change indicates that 45
percent of Black and Latino businesses will close by the end of
the year, without more relief.
Prior to reopening, States that recovered, that received
more PPP loans and with more generous unemployment benefits had
less severe declines and faster recoveries.
Macroeconomists are expecting a slower recovery. Given that
consumer spending is 70 percent of GDP, it is clear that more
and extended help to the American people and small businesses
will be urgently needed.
I agree with the economic security project and colleagues
who signed their letter, that regular, lasting, direct stimulus
payment would be a critical part of ensuring that the economic
recovery does not grind to a halt.
In addition, more aid to State and local governments is
desperately needed now, to continue to fight the pandemic and
to prepare for job losses stemming from impending austerity
budgets being adopted by State and local governments.
This relief should be directed at healthcare providers,
community colleges, universities, mental health, and other
social services, universal broadband, and the arts.
Any and all relief to the American people should be
authorized and disbursed with all deliberate speed. Thank you.
[The prepared statement of Ms. Cook can be found on page 38
of the appendix.]
Chairman Cleaver. Thank you very much.
Ms. Garcia, you are now recognized for 5 minutes.
STATEMENT OF LILY ESKELSEN GARCIA, PRESIDENT, NATIONAL
EDUCATION ASSOCIATION (NEA)
Ms. Eskelsen Garcia. Thank you, Chairman Cleaver, Ranking
Member Hill, and members of the subcommittee. This is an
important opportunity, and I really appreciate your time.
My name is Lily Eskelsen Garcia. I am a 6th grade teacher
from Utah, and I am the current president of the National
Education Association (NEA).
And as NEA's president, I am honored to represent more than
3 million educators, teachers, education support professionals,
specialized instructional staff, K-12 schools, preschool to
graduate school, including university and college campuses.
NEA also represents educators in the Department of Defense
schools, college students who are planning to become educators,
those student teachers, retired educators, and public employees
in local and State Government.
I am so proud, but I am not the least bit surprised by how
NEA members have risen to this moment, and demonstrated
resilience, creativity, and team work, as we have tried to
cultivate in our students those same characteristics. We have
been called on to organize car caravans through student
neighborhoods to deliver a message: Even though our school
building is closed, we are still learning, and we are still
here for you.
We have helped parents who, overnight, had to become their
kids' substitute teachers, and I have had more than one of my
members who has cried with me over how worried they are about
their students, because school was the only stable place in
their lives.
And as we speak today, governors and mayors are taking note
of very steep budget cuts that are going to harm our students.
This is the result of the pandemic, not someone who didn't plan
for something no one even knew would come.
Without Federal assistance, we are going to see massive
educator layoffs, and that is going to be incredibly harsh,
especially for those who struggle the most to make ends meet,
even during normal times, such as our wonderful, amazingly
devoted, education-support professionals. These are the lunch
ladies, the school bus drivers, the maintenance staff. Many of
these workers stayed on the job, putting themselves in harm's
way to deliver meals to students and families, to drop off work
packets to students, and to keep our schools sanitized and
safe.
According to the Bureau of Labor Statistics, nearly 900,000
public education jobs have already been lost because of budget
cuts. By comparison, more than 350,000 education jobs were lost
due to the Great Recession. In other words, COVID-19 has done
more damage in 3 months than a recession that lasted for a
year-and-a-half did.
If this damage goes unchecked, nearly 2 million educators
could lose their jobs over the next few years. According to
NEA's analysis--and we studied the same numbers that school
boards are receiving all over the country--this could represent
one-fifth of the entire workforce that powers public schools
and higher education institutions.
The COVID-19 recession could be 6 times worse for education
than the 2008 financial crisis. Our nation now has 1.4 million
more K-12 students than we had in 2008, but we have 135,000
fewer educators than we had 12 years ago. These layoffs could
stem from pandemic-related budget cuts.
It is just going to worsen an already dire situation. No
community is going to go unaffected. But the schools in wealthy
communities are more likely to weather the storm, while schools
in poorer communities, that are already struggling, might not.
Job losses in these schools would profoundly affect low-
income students whose schools rely on Title I funding to reduce
class size, hire specialists, and offer a rich curriculum.
We know that we are going to need more, and we thank the
House for taking the bold action to pass the HEROES Act. We
call on Mitch McConnell in the Senate to please abandon the
wait-and-see, till-we-get-around-to-it approach. The Senate
needs to hit the panic button.
I thank you for your time, and I am happy to answer any
questions.
[The prepared statement of Ms. Eskelsen Garcia can be found
on page 42 of the appendix.]
Chairman Cleaver. Thank you, Ms. Eskelsen Garcia.
I now recognize Mr. Stiglitz for 5 minutes.
STATEMENT OF JOSEPH STIGLITZ, PROFESSOR OF ECONOMICS, COLUMBIA
UNIVERSITY
Mr. Stiglitz. Thank you very much. Sad to say, the U.S.
response to COVID-19 has been disappointing. We have done a
much poorer job than other countries, both in maintaining the
health of our country and that of our economy. And the two are
related. There will not be a strong recovery until the pandemic
is brought under control.
Congress responded to the pandemic with a massive amount of
assistance. It succeeded in preventing much suffering that
would have otherwise occurred, but in many ways the programs
were badly designed and badly implemented, with much of the
money not going to where it was most needed, and with the
unemployment rate soaring far higher than elsewhere. This put
strains on our unemployment insurance system, resulting in many
of the unemployed not receiving money for weeks and weeks.
The increase in unemployment is especially inopportune in
the United States, because so many depend on employer-provided
health insurance. Losing health coverage in the midst of a
pandemic is a calamity.
The program of assistance was predicated on there being a
short shutdown, in other words, a V-shaped recovery. Such
beliefs appear now to be utter fantasy. With the pandemic
continuing the pace, no one thinks that we will be back to
normal by the end of the month.
There are a few principles and priorities that should guide
the next package of assistance. First, because we cannot have a
healthy economy without a healthy population, health should be
given priority. While some of your earlier programs did this,
there were important lacunae.
It was, for instance, foolish, shortsided, and
unconscionable not to have ensured that everyone was provided
with paid sick leave. We don't want people with the disease
going to work and spreading the disease, but with so many
Americans living paycheck-to-paycheck, it was inevitable that
that would happen without paid sick leave.
As another example, there are likely to be large increases
in demand for Medicaid. And the States will be suffering large
losses in tax revenue, as was just pointed out. With States
having balanced-budget frameworks, only the Federal Government
can help them meet these needs.
Second, hysteresis effects are enormous. Bankrupt firms
don't become unbankrupt when the pandemic is over. Balance
sheets of households and firms often take a long time to
recover. That is why you did the right thing in responding
quickly and massively. But all of these investments in our
future will be for naught if assistance is not continued so
long as the pandemic and its economic aftermath persists.
There is a third powerful force that will depress the
economy: precautionary behavior. As long as there is
uncertainty, both about the course of the disease and the
economy, there will be a reluctance to spend, either by firms
or households.
In the previous downturns like that of 2008, we provided
assurances to workers that there would be extended unemployment
insurance so long as the unemployment rate remained elevated.
We need to do that now, and we have to provide similar
assistance assurances for all of the other critical assistance
that we provided.
We also need to provide income-contingent loans, where
repayment and the duration of the loan automatically adjust to
the circumstance of the economy and the firm, providing an
automatic stabilizer to the economy. Thus, there must be a
commitment, in the famous words of Mario Draghi, to do,
``whatever it takes.''
But at the same time, we must spend our money well, which
is why the design of the program is so important. As I wrote in
my Roosevelt Institute Policy Brief in April, even before the
passage of the CARES Act, the alternative approach of direct
payments to employers to retain workers seemed more likely to
be more effective than the disparate programs included in that
bill.
The evidence over the last few weeks seems consistent with
those expectations, and the evidence since then, both in those
countries around the world that adopted these programs--and let
me emphasize, these are not left-wing countries that adopted
programs similar to H.R. 6918, the bipartisan Paycheck Recovery
Act--and the United States, which took an alternative course,
strongly reinforce the conclusion I had reached at that time.
Both the forecast that additional funding would be needed,
and that the PPP program would not be as effective as had been
hoped have unfortunately been more than fully realized.
I went on to argue that the Paycheck Recovery Program
represents a significant improvement over the existing PPP. It
is simpler to administer, with more of the money going to where
it is needed, and considerably less costly and more effective.
Some will say, yes, we should have adopted the Paycheck
Guarantee Program, but that is water over the dam. It is now
too late. That argument might have had some validity if, as
thought at the time these measures were adopted, the pandemic
had been of short duration. But since then, it has flared up,
and there is a good chance that it will be with us for a long
time.
As I have already said, we will need to maintain some kind
of support, and this program is the best way forward. Among the
virtues of the program I cited is its transparency, its
administerability, its comprehensiveness, its power to get the
money where it is needed, in prescribing important links
between workers and employers, its ability to deliver money in
a timely way, and its role as an automatic stabilizer.
I want to conclude with two more general comments. First,
our assistance to the economy has to be far more comprehensive.
There were some important sectors that did not receive the
assistance they needed.
One sector is States and localities. I already referred to
the severe budgetary constraints that they faced. These
authorities are responsible for many of the services on which
so many of our citizens depend, including education--which has
been discussed--and health and welfare.
But cutbacks in spending will greatly weaken our economy,
in that the law has multiplier effects. It is austerity from
below. In previous downturns, we have seen the devastating
macroeconomic effects. Already, layoffs of government workers
are among the large sources of increasing unemployment. We will
not have a robust recovery without adequate support for this
vital sector of our economy. One of the virtues of the Paycheck
Recovery Act is that it allows States and localities to access
grants.
Second, our aspirations to not be in recovery in which some
time, some say in 2022, when we get back to where we were in
late 2019, we simply pick up where we left off. Never has
government played such a role in economy, not even in the
Great--
Chairman Cleaver. Mr. Stiglitz?
Mr. Stiglitz. --Recession. Citizens have the right--
Chairman Cleaver. Your time has expired Mr. Stiglitz, thank
you. Thank you very kindly. I appreciate it.
[The prepared statement of Mr. Stiglitz can be found on
page 46 of the appendix.]
Chairman Cleaver. Mr. Zuluaga, you are now recognized for 5
minutes.
STATEMENT OF DIEGO ZULUAGA, ASSOCIATE DIRECTOR OF FINANCIAL
REGULATION STUDIES, CATO INSTITUTE
Mr. Zuluaga. Chairman Cleaver, Ranking Member Hill, and
members of the subcommittee, thank you for the opportunity to
testify before you today. My name is Diego Zuluaga, and I am
the associate director of financial regulation studies at the
Cato Institute.
America's 30.7 million small businesses have taken a very
severe hit from the COVID-19 pandemic. The share of small
businesses reporting that the health emergency has had a large
negative effect on them was 37.7 percent in late June, down
just 14 percentage points from 8 weeks earlier.
Another survey found in April that 1.8 percent of small
businesses have permanently closed because of the pandemic
which, if true, would mean that more than 550,000 firms are
gone forever.
Yet economic activity and employment are so far recovering
faster than many expected. Early action to support small
businesses through the Paycheck Protection Program has helped.
According to my estimates, around 77 percent of small
businesses with employees had gotten a PPP loan by June 30th.
And while the proportion of employing small businesses with
a PPP loan varies considerably across States, nowhere is it
below 60 percent. By allowing millions of small businesses to
keep paying their workers, as well as utility and rent bills,
the Paycheck Protection Program has prevented a greater
destruction of livelihoods and valuable business relationships
than has actually happened.
It doesn't follow, however, that a program of grants, based
on lost revenue, will assist the recovery. I believe, on the
contrary, that it will hinder the recovery by delaying
businesses' necessary adaptation to changing consumer demand.
The pandemic has not just caused all sorts of businesses to
suffer losses. It it has also led to permanent changes in
economic activity, mainly because production processes and
consumer preferences have shifted in response to new health
risks.
Restaurants are cooking more meals for take-away and
outdoor consumption. More retail activity is moving online, as
are larger transactions such as home purchases. These changes
are unavoidable and permanent.
Any recession involves the reallocation of workers across
firms and industries. But because of the pandemic's wide-
ranging consequences, recovery from the present recession will
likely involve a larger redeployment of workers and capital
than previous downturns.
Attempting to freeze America's productive structure in its
pre-COVID-19 state will, therefore, only delay the return to
full employment and steady growth. The bounce-back will be
swifter, on the other hand, the more quickly businesses adapt
to the new conditions.
I don't at all mean to suggest that government policy can't
play any additional valuable role, but it can best do so by
removing barriers to geographic mobility and business
investment.
Instead of rigid support programs that impede mobility and
risk prolonging financial insecurity, workers need flexible
support in the face of uncertain economic conditions. A program
of direct grants to cash-strapped households, whether or not
their members are employed, would address paycheck insecurity
while preserving the incentive to adapt to the post-pandemic
economy.
A conditional grant program, on the other hand, would tie
up capital and labor in firms whose long-term viability is far
from assured.
Besides delaying adaptation, conditional grant programs are
costly to administer, as officials must verify applicants'
declarations and monitor the use of funds.
These programs also raise fairness concerns. Why should
laid-off employees, who find new work, not be entitled to a
reward, whereas those lucky enough to keep their job, get a
bonus? Why should taxpayers support businesses while the
national unemployment rate remains above the threshold but not
thereafter?
The macroeconomic arguments about supporting demand are
unpersuasive since direct, unconditional cash grants would have
at least the same effect on demand, for two reasons. First, a
larger share of available funds would go to recipients instead
of program administrators.
And second, because grant funds would go to the least well-
off, regardless of employment status, and the least will have
consumed more of their disposable income, the immediate impact
on aggregate demand might be greater.
Congressional action, to support the solvency of small
businesses in the most dire weeks of the pandemic, has enabled
a speedier recovery than many expected. Now, the goal should be
to encourage adaptation so American workers and businesses can
resume productive activity.
Achieving this goal will require their ingenuity, on which
we can count, but also flexible, change-friendly support from
policymakers.
Thank you. I will be happy to answer your questions.
[The prepared statement of Mr Zuluaga can be found on page
51 of the appendix.]
Chairman Cleaver. Thank you very much. I will now recognize
myself for 5 minutes for questions.
This morning, I woke up to the news that Mexico is now
closing some of its borders to the United States because we are
losing this battle with COVID-19, and apparently we are losing
worse than anybody else. If we believe we are losing and it is
okay, then we will never win.
But I am troubled by what I am seeing and reading, and it
is probably a little embarrassing--it should be to the whole
country--but The New York Times headlines yesterday read,
``European Workers Draw Paychecks and American Workers Scrounge
for Food.''
Dr. Stiglitz, you are a renowned economist and former chief
economist, and you have had some outspoken comments on this
whole issue of COVID-19 and the crisis that it has created for
the United States, and comparing them to others.
Do you believe that Mark Zandi's report assessment that the
prospects are higher that we may suffer from an economic
depression? What is your analysis of his analysis?
Mr. Stiglitz. Yes. I am very concerned. The fact, as I said
in my testimony, is that we are not getting a V-shaped
recovery. And even moderate economists, like the Chairman of
the Federal Reserve, do not think we are going to be back to
where we were at the end of 2019, until sometime in 2022, if we
do everything right.
And if we don't do things right, if we follow Herbert
Hoover and don't provide the assistance the economy needs, then
we are setting ourselves up for another depression, for a
severe economic downturn.
Chairman Cleaver. Thank you. Somebody said that, now I
guess Mexico will build a wall to protect itself from us, so I
guess something good can come out of something bad.
But I would like to know, Ms. Eskelsen Garcia, what is
going on with educators? How are they faring in this COVID-19
world? What kind of difficulties are they experiencing and what
are the prospects of opening schools in September in the
current atmosphere?
Ms. Eskelsen Garcia. You can't see the back of our head. We
have been pulling our hair out for, like, 4 months now, and we
are so frustrated. We love our students. I am a 6th grade
teacher. I had 39 kids in my room--39--12-year-olds one year.
That was not healthy on the best day of the year, but we have
millions now facing overcrowded classrooms, trying to figure
out how do you make that work coming back in the fall.
When they told us to leave the building, it was like
someone pulled the fire alarm. Everybody grabbed what they
could, and ran out, and the next day, we were trying to figure
out how we could deliver--to 52 million public school
students--reading, writing, and arithmetic online. It has been
incredibly challenging.
Under the best of circumstances, it is frustrating. That is
when you have Wi-Fi in the home, and mom and dad have a laptop
or a tablet, and it is just kind of annoying. But it can be
alarming when you get into communities of poverty, where the
only technology in some homes was mom's telephone, and she took
it with her to work, because she stocked shelves in a grocery
store, and the kids didn't even have adult supervision in their
home.
And so our members, these are America's educators, have
said, we raced out and had to make up things and do the best we
could to have a meaningful, educational experience for our
students.
But now they are alarmed because they see politicians--I
know I am talking to some politicians here--but they see people
who are making decisions to race back into that school without
the proper plan to distance, to disinfect, to have the PPE, to
have the health checks and the COVID testing. And it is like,
no, no, no, we have to warehouse those kids, put those 39 kids
back into my classroom and don't worry, don't worry that
somehow they will be at risk, or put their own families at
risk, put their teachers and the lunch lady and the janitor at
risk. And so--
Chairman Cleaver. Thank you.
Ms. Eskelsen Garcia. --we are scared. We are scared.
Chairman Cleaver. Yes, understandably so. Thank you very
much.
The Chair now recognizes the ranking member of the
subcommittee, Mr. Hill, for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman. I appreciate it. This is
a very interesting discussion.
Mr. Zuluaga, would you tell me what you think, having
watched the PPP program put out $500 billion into the economy,
helping millions of people stay employed--here in Arkansas, it
was $3 billion--three and a half billion dollars for about
40,000 businesses. We have $134 billion left in that program.
With work in the House and work in the Senate, we extended
that date now to August 8th, which I want to thank Marco Rubio
for his leadership, and thank my friends in the House for not
blocking that earlier in the week, last week.
What should we change in that program to make it more
helpful to people who are still fighting various shutdown
issues in some States, while others are doing better? What
should we change in that program?
Mr. Zuluaga. I think additional flexibility, in terms of
the timing within which the funds can be spent would be quite
helpful, as would probably adjusting the percentages that may
be allocated to the different types of expenses authorized.
Increasingly, it seems that it is going to take longer for
the pandemic to get resolved, and maybe the timing is different
in different States, and as a result of that, it would be
useful to give funds that, for example, help businesses change
their premises to become safer for what is to come over the
next few months, at least before we have a vaccine.
In addition to that, I would say that what is left of the
PPP is about proportional to the share of employing small
businesses that haven't gotten a PPP loan just yet. There is
still funding available, and I think that program has worked
well so far.
Mr. Hill. If a business was still significantly down
because they are in a hotspot and in trouble, and say revenues
are still down 50 percent, or something off, would you allow a
business to go back and get a second PPP loan?
Mr. Zuluaga. I would. Because I think the key distinction
here is between a supply shop, something that makes a business
that is otherwise perfectly viable and has the same customer
base as it did before, from being able to be in business as a
result of a new outbreak, or because the second wave or
something like that, distinguish that from a demand shop, which
is, the longer this goes on, and the more people change for it,
the more people decide to move from cities to the suburbs or to
other parts of the country, the more the changes in demand and
industrial patterns become permanent. And in that case,
sustaining existing industrial structure is counterproductive
because you don't get the adaptation that needs to happen.
Mr. Hill. And the issue of the $600 of unemployment
compensation that is on top of the States' existing
unemployment compensation benefits, Members are really looking
at how should that be extended or modified before the end of
the month? This is an important component of the next
legislative effort that we collectively make, hopefully on a
bipartisan basis. What are your thoughts about the unemployment
compensation, the pandemic piece, the $600 extra per week?
Mr. Zuluaga. I think it is still unclear as to whether
there is a disincentive effect in raising the unemployment
benefit in, for example, making the PPP work. Because in some
places and for some businesses, it became more attractive for
workers to earn unemployment benefits than to remain and work,
particularly given the insecurity of going to work in the midst
of a pandemic.
So, I think even though it may be well-intentioned to boost
those incomes, it is probably more helpful to have a direct
support that is regardless of your employment status, because
in that case, you don't get those incentive effects.
And from the analysis I have done of the PPP program so
far, it seems to be the case that in some States, taking of PPP
was less, and there was a relationship with those posted
unemployment benefits.
Mr. Hill. Yes. Thank you for that.
Ms. Eskelsen Garcia, I want to thank you for your
leadership at the NEA. I spent a lot of time talking to my
teachers, and there is nothing more fun than 6th graders. I
don't know if I want 39 of them all day, but I want to thank
you for leading the NEA this year and helping be a constructive
voice to try to find bipartisan support for what our teachers
need to go back to the classroom.
Would you agree, though, that we really need to get kids
back in school, and that it is better in so many ways? Do you
agree with that?
Ms. Eskelsen Garcia. There is no parent, no Republican
parent, no Democratic parent,who wants their kid in an unsafe
situation. And so here is the good news--we don't have to do it
in an unsafe way.
People keep asking me the question, they will say, okay,
overcrowded classrooms, we need hand sanitizers, and we need
PPE, and we need all of these things while we are talking about
maybe laying off almost 2 million educators. That is
unimaginable.
But they said, obviously, we have to talk about whether we
should close that unsafe school or open that unsafe school.
Wrong choices. We need to make those schools safe. We need--
Mr. Hill. Thank you.
Ms. Eskelsen Garcia. --to make sure we have everything that
teacher needs and that the parents want to keep those kids
safe.
Mr. Hill. Thank you so much. I yield back.
Chairman Cleaver. Actually, Mr. Hill, if you would like to
proceed with another question, please feel free to do so. We
went a bit longer earlier, so you are welcome to go ahead with
another question if you have one.
Mr. Hill. I yield back, Mr. Chairman.
Chairman Cleaver. Okay, thank you.
Mr. Perlmutter, you are now recognized for 5 minutes.
Mr. Perlmutter. Thank you, Mr. Chairman.
And to Mr. Zuluaga, I think you were saying two things, and
I kind of agreed with both of them, even though they are
opposite of one another. You said the PPP has generally been
pretty good, and I would agree, and that it ought to be
extended and some people ought to get a second loan, and maybe
I agree with that.
And I should just let you know that I practiced bankruptcy
law, business bankruptcy law, for 25 years before I got elected
to Congress. And what I am worried about is, you say, well, it
is the demand shock.
Now, economists have the advantage of hindsight as to what
the demand shock is. We are seeing unavoidable, permanent
changes, but you really don't know it for a while.
So, I am worried that we are going to continue to throw
good money after bad with respect to a lot of businesses that
aren't going to make it, no matter what we do.
I agree with some of your statements, and I appreciate the
desire to tap into ingenuity and improvisation and innovation.
That is all right, but we are in an emergency situation right
now.
We came through 3 months of hell, and we still have some
ahead of us. Mr. Stiglitz, you didn't get to finish your
statement. I want to hear your closing remarks, and then I have
some questions for Ms. Garcia and Ms. Cook.
Mr. Stiglitz. Thank you very much for giving me this chance
to finish. What I wanted to say is that we need to have a
vision of what kind of economy we want coming out, and agreeing
with what has been said, there are going to be structural
changes. We are going to be worried about another pandemic.
Those are some of the examples. The aviation sector is going to
be weaker.
But as we think about providing money, we ought to be
thinking about, how do we move the economy to the future
economy? Part of that is, we want to have more of a knowledge
sector. Our comparative advantage as an economy is our
technology. It is really what makes it strong.
And one of the very disturbing aspects of what has happened
is, we haven't given support to our knowledge sector, to
education. We heard from Ms. Eskelsen Garcia about how the
number of teachers has gone down. Our universities are being
devastated. All of the sources of the revenues are going down.
The decision yesterday of ICE to make it more difficult for
foreign students to come to the United States--one of the
things that has made us strong is having the most talented
people come to the United States and often stay to study and to
start up a lot of our new enterprises. We are making that
extraordinarily difficult. ICE has just made a policy statement
to encourage them to stay here on their visas.
So what I wanted to urge is, as you think about spending
money, have a comprehensive view, making sure that no sector is
devastated, and that we have a vision of what kind of economy
that we want emerging in 2022.
Mr. Perlmutter. Okay. Thank you very much. Ms. Eskelsen
Garcia, Ms. Cook, my wife is an NEA lifetime retiree, and she
has been called back 3 times, and she is making a list of
things that she thinks, as a math teacher in high school, need
to be done for her to be able to teach and deal with the
potential hazards of the virus. But she also knows tax revenue
is way down--State, local, and school districts.
I will start with Ms. Cook. You were talking about a number
of things to try to avoid a wave of bankruptcies. I think they
are coming anyway. But I feel like we really have to support
our State, local, and school districts, or we are going to hit
a wall by the end of this summer. How would you react to that?
And you need to unmute. I still can't hear you, Ms. Cook. I
am not sure what is going on with your audio.
Chairman Cleaver. Ms. Cook?
Mr. Perlmutter. We can talk about it offline.
I am just worried we are going to hit a brick wall at the
end of this month. To all of our economists, and to the head of
the NEA, when the unemployment runs out, when State and local
school districts are broke, we will have problems and huge
layoffs, and we are going to have to deal with it. And I will
yield back to the Chair.
Chairman Cleaver. Mr. Perlmutter, we had a technical
problem. Ms. Cook, if you would like to respond to Mr.
Perlmutter's question, please proceed. I am doing this a little
bit lax because we are still experimenting with things. So, Ms.
Cook, please?
Mr. Perlmutter. And you will need to unmute.
I am not hearing anything, Mr. Chairman.
Chairman Cleaver. Ms. Cook, if you can hear me--
Mr. Perlmutter. There you go.
Ms. Cook. I absolutely agree with you. We want to avoid the
problems that we saw in the Great Recession--the fiscal cliff
that led to so much pain, so much suffering, and so much
unemployment because State and local governments laid off so
many people, because we didn't come to help, because Congress
didn't come to help, because there wasn't enough aid.
And all of the problems that we are talking about, from the
schools, to the universities, to community colleges, to the
arts, and certainly healthcare workers--all of these support
the economy. This is 70 percent of GDP. It is consumer
spending.
All of them need support. And I think it would be foolhardy
to think that they are adopting austerity budgets, the State
and local governments that are adopting austerity budgets, that
they won't follow through. They have a hard budget constraint.
So, I think that aid has to be quick, it has to be now, and
this is from learning the lessons of 2008 and 2009. Thank you.
Mr. Perlmutter. Thank you very much.
I yield back, Mr. Chairman.
Chairman Cleaver. Thank you. The Chair now recognizes Mr.
Williams for 5 minutes.
Mr. Williams. Thank you, Mr. Chairman. I appreciate your
bringing everybody together today, and thanks to all of the
witnesses.
We saw some promising economic data come out last week,
with over 4.8 million jobs being added to the economy during
this month of June. We still have a long way to go before we
are back to the pre-pandemic levels, but from the data, it
looks like the economy is bouncing back sooner than many people
had predicted.
Unfortunately, the legislation that is attached to this
hearing today, the Paycheck Recovery Act by Congresswoman
Jayapal, is not a realistic path forward that would help
continue this growth trend. The bill contains such a radical
proposal that they were not even, as we have heard, included in
the $3 trillion partisan HEROES Act that was passed in May.
So, Mr. Zuluaga, do you think that drastic new government
interventions would be the best way to get our economy to
recover quickly?
Mr. Zuluaga. I don't think it would help. The thing, I
think, that we need the most right now is flexibility. We have
seen from the start of the pandemic that relaxing regulation--
how about, for example, educational licensing, or the practice
of telemedicine, or where one can purchase different types of
food and drink, that all of those things are helpful in terms
of getting the economy moving even in the context of a lot of
uncertainty about the future.
And, to the extent that you are introducing new rigidities
by tying support to one's pre-pandemic employment status, I
think that can make recovery more difficult, and it can make
people's financial position more precarious rather than more
assured.
Mr. Williams. Okay. We have heard everyone talking about
the need for another aid package--that is constantly what we
hear--to come through Congress before August. However,
Congress, as we have said, has already allocated $2.2 trillion
from the CARES Act and other bills that we have passed relating
to the coronavirus, but the Paycheck Protection Plan Program,
as we know, still has over $130 billion that is currently
untapped.
So, again, Mr. Zuluaga, how would or how should Congress be
looking at the economy to make sure that the industries in most
need of assistance receive it, while the other money we have
already injected in the economy makes its way into the system?
Mr. Zuluaga. I would pay attention to where the need is,
particularly in terms of local shutdowns of activity or places
where the pandemic has had a resurgence at the State level. I
think it is useful because that is an indicator that that
activity has stopped because of health emergency rather than
because of the response, the medium-term and longer-term
responses to the health emergency.
As you indicated, there is still funding left over in the
PPP, and I mentioned earlier how additional flexibility in
terms of how one can spend amounts and so forth could be
helpful.
Mr. Williams. Okay. Small business owners, of which I am
one--I have been a small business owner, still am, for 50
years--are the engines of job growth of our economy.
Unfortunately, I have heard from many businesses across Texas
that they are concerned that they are going to be sued if they
attempt to reopen and some individuals get the coronavirus,
even if they follow all of the State and local and Federal
safety guidelines.
We need to pass liability protections in the next
coronavirus relief bill so that this economic recovery will not
be hijacked by trial lawyers. I believe this is the major thing
we have to do as we move forward.
So, again, Mr. Zuluaga, how important is passing liability
protections to protect businesses who are trying to open
safely, to getting our economy back on track?
Mr. Zuluaga. Congressman, thank you for the question, but I
am not a lawyer, so I cannot respond with expertise. I would
say that, as with other areas, having flexibility here for
employers, particularly those operating in good faith, is
essential to speeding up the recovery.
Mr. Williams. I think our economy can and will get going. I
am one of those who thinks we could see growth in the fourth
quarter, and actually, into next year, even better. But I will
say that liability protection is important regardless of what
the business is, because if employers are going to get back to
hiring people and getting the income going, Main Street America
deserves that liability protection. So, I think it is very,
very important.
With that in mind, Mr. Chairman, I yield back.
Chairman Cleaver. Thank you, Mr. Williams.
The Chair now recognizes Mr. Himes for 5 minutes.
Mr. Himes. Thank you, Mr. Chairman, and thank you to our
witnesses today. This is a very interesting and important
conversation, given the ongoing difficulties in the economy.
I was a little sad to hear my Republican colleague say that
Ms. Jayapal's proposal is somehow way out there on the fringe.
It simply gives money to employers that have suffered 10
percent declines in revenue, to pay their employees. It looks a
lot to me like the PPP program that we are all praising right
now.
And, by the way, my understanding is that it has been
employed with some success in countries like Australia and New
Zealand, maybe in Israel, hardly left-wing places.
But I have a different concern about the program, which has
been a larger concern I have had with the efforts we have made
across-the-board with the PPP, and with many of the efforts on
the part of the Federal Reserve, including the primary and
secondary purchases that they are making.
Other than the unemployment insurance and the direct branch
to individuals, this has been a very business-oriented
recovery. And I understand the attraction of trying to help
small businesses, but the reality is, as Mr. Perlmutter said,
an awful lot of businesses are going under anyway, already
have, and certainly will.
And that is not a happy thing, but there is a process of
bankruptcy that often will keep a business operating and people
employed while a company rejiggers its capital structure.
So my question is--and let me start with Professor Stiglitz
on this, and, if I have time, I would like to maybe hear from
Dr. Cook and Mr. Zuluaga, but why should we not be focused on
delivering money directly to the individuals who need it? In
other words, if you are unemployed, you get money. If you never
had a job, you would get money. When you go business-focused
PPP, an awful lot of people will have paid their lease
payments, will have paid for insurance. God only knows a lot of
the efforts of the Federal Reserve are there to make
bondholders whole.
Professor Stiglitz, let me start with you. Why should we
not reorient around what is clearly, to me, an obligation to
the government, which is to keep American citizens--not
businesses, large or small--directly whole as efficiently as we
can?
Mr. Stiglitz. I agree very much with your overall
sentiment, and I think congressional response has to have a
balance, but let me explain why I think the Paycheck Recovery
Program is a good way of helping, because maintaining the link
between workers and their firms is important for the recovery.
We know that when that link gets broken, the recovery will be
impaired.
We also know that our unemployment insurance system has not
been able to manage well this constant surge of newly
unemployed. People have had to wait weeks and weeks to get the
money.
We also know, as I mentioned in my talk, that in America,
more than in these other countries, workers depend on employer-
provided health insurance, and, if they get disconnected from
their firm, they then go on Medicaid or on very expensive Cobra
provisions. And so, this is actually an efficient way of
delivering money to a lot of lower-income individuals.
Remember, the way the program is set up, it only goes to people
whose income is less than a certain amount, and you could
obviously jigger that amount.
So, it is actually directing money via an efficient, you
might say, administrating process, to low-income and middle-
income workers who need it. It actually uses the existing set
of relationships to disperse money. That is the way to think
about it.
Mr. Himes. Thank you, Professor. I appreciate it.
Mr. Zuluaga, I only have 30 seconds, but you caught my
attention, because you were sort of arguing in favor of direct
aid to individuals. How do you respond to Professor Stiglitz's
value placed on maintaining the employer-employee connection
for purposes of health insurance, training, et cetera?
Mr. Zuluaga. I think, in specific circumstances, it is very
important, particularly when you have short-term disruptions
and you have very few other changes to the underlying structure
of the economy, because then that intangible capital doesn't
get destroyed by whatever is happening around it.
But increasingly, as time goes on and as people start
making decisions about their future lives on the basis of the
experience, those relationships become no longer sustainable,
regardless of what you do with funding.
Mr. Himes. Okay. Thank you, Mr. Chairman. I yield back.
Chairman Cleaver. Mr. Gonzalez, you are now recognized for
5 minutes.
Mr. Gonzalez of Ohio. Thank you, Chairman Cleaver. And
thank you, everybody, for your testimony today on this
important topic.
I want to start by commenting--I don't know if this was
intentional. I think I have heard a couple of times that maybe
we shouldn't be so focused on business bankruptcies, and I just
fundamentally disagree with that. I think we need to be focused
on bankruptcies, period, whether it is in the household sector,
in the business sector, or the government sector. And having
bankruptcies in any of those sectors and on a massive scale, I
would argue, is net negative for the recovery and just in
general.
But I want to start, Mr. Stiglitz, with a question to you.
In your written testimony, you have a comment here, ``We need
to provide income-contingent loans where repayments and the
duration of the loan automatically adjust to the circumstances
of the economy and the firm.''
I think that is an interesting concept. It is different
from H.R. 6918. I am just curious, could you flesh that out a
little bit for me? What do you mean specifically there? How
would you see that administered? Just kind of drill down on
that for me if you could.
Mr. Stiglitz. Good. Thank you very much for the question.
The point I have tried to emphasize is that no one knows the
course of this pandemic, as we have seen. We thought in the
beginning, it would be very short. We are now going through a
very difficult time in certain States. We don't know whether,
back in New York, we will have another wave. So, there's a lot
of uncertainty.
And we want homes and households to begin to spend as the
economy recovers, but one of the things that dampen that
spending is they don't know what is going to happen. So what I
am proposing is that there be a lending program, a program that
says, look, if there is a second wave or a third wave, fourth
wave, a perpetual wave, we will suspend your payment
conditional on the state of the pandemic, and it could be made
very State-specific, national specific.
But it builds in an automatic stabilizer, gives them some
certainty. Some of the things that we are talking about,
restructuring in response to the need to social distance, some
of the investments that were needed. This would encourage them
to do it, and then, if it turns out they have to shut down
anyway, they will say, okay, you don't have to make a repayment
until the economy starts going again. It really gives the
flexibility that we need.
Mr. Gonzalez of Ohio. Thank you.
And then, Ms. Eskelsen Garcia, a question for you. I share
the goal of needing to support, first off, our State and local
governments, but also, in particular, our schools, so that we
can get our children back in the classroom safely.
In your proposal, you talk about $170 billion in the
education stabilization fund, $56 billion for PPE. Can you just
walk me through kind of where those numbers came from, because
I am somebody who believes, if we don't get our kids back, the
economy is going to suffer, but, boy, there are some massive
long-term ramifications there, and--but we need to do it
safely, so just expand on that if you could?
Ms. Eskelsen Garcia. And thank you for that, because,
finally, I heard someone say we have to open schools safely,
and it will cost money.
We have 4 million, more or less, folks who work inside
those schools, and that is the teachers, the paraprofessionals,
the school principals, the counselors, and, if you are lucky
enough to have one, a school nurse.
So, we have looked at that. We have looked at the cost of
what it costs for a hospital to buy the protective gear that
you need.
I will tell you it is probably a low ball, because we also
need--I used to ask parents if they would donate Kleenex,
toilet paper, and soap. We have always run out of soap for the
kids in the bathrooms. Now, we are going to need something much
more sophisticated to disinfect and sanitize. There is no
budget for that.
And the most expensive part is going to be--we have thought
of some very, very creative ways that you can distance kids,
but it means that you have to creatively use the space--the
library, the gym--or you have to look at split sessions, and
that means you might have to run the school buses twice a day
instead of just that one round trip.
So, we have put all of that into the calculation of what we
are going to need just to maintain what we have right now. And,
like I said, it is probably on the low side.
Mr. Gonzalez of Ohio. Great. Thank you. I yield back.
Chairman Cleaver. Thank you.
The Chair now recognizes Mr. Sherman for 5 minutes.
Mr. Sherman. Thank you. And, Mr. Chairman, thank you for
your opening comment about how apparently, by mishandling
COVID, we might be able to persuade Mexico to build the wall.
While we are talking about spending money and getting the
economy going, I want to put in a strong pitch for the $5
billion in the HEROES Act for doing the research necessary to
ameliorate this disease.
As it happens, our professional medical researchers are at
home because all of the non-COVID research projects have been
suspended. And, every time I ask a medical researcher or
medical expert about this disease, how is it transmitted, et
cetera, the answer is always, well, we need to research this,
we need to research that. There is no better way to fight the
economic effects of COVID than to actually defeat the disease.
Part of that would also be to make sure that everybody has
enough sick days. It is very easy to tell people, ``Stay home
if you have a fever,'' and we provided funding for smaller
employers to have sick days, but everybody needs sick days, and
some people used up their sick days on other illnesses.
Professor Stiglitz, when I first got to Congress, the focus
was on the enormous Federal budget deficit, that deficits cause
inflation, that they cause high interest rates, and, yet, the
inflation is running lower than we want it to. Interest rates
are so low that savers are very frustrated. And we can avoid
future interest on the debt if we monetize the debt, that is to
say, we have the Fed own the debt instead of issuing it to the
public.
The world seems to have an insatiable desire for U.S.
dollars. Is our thinking now emoted on deficits? Can we spend
trillions of dollars, monetize the debt--that is to say, have
the Fed own it instead of selling it out to those who would
expect interest payments--and get through this crisis?
Mr. Stiglitz. I am not worried about the deficit. The
interest rates are very low. Servicing the debt costs
essentially nothing. And, as you said, history shows that the
enormous increase in the balance sheet of the Fed after 2008
did not cause any inflation.
When you go to war, you don't ask the question: Can we
afford it? We are at war with this virus, and we have to win
this war, and we don't want our economy destroyed as we are
fighting the virus. So, I don't think you really have any
choice.
At the same time, you want to spend the money well, and
that is why I think the Paycheck Recovery Act is really a good
bill, because it actually targets the money very effectively.
It doesn't spend billions of dollars in paying the banks to
administer the program and administer it in a way that the
money goes to those who are well-connected. It does it in a--
the recovery program doesn't--can disperse money very very
quickly.
So, to me, I do always worry about spending money well, and
one of the things I like about this particular bill is that it
seems to actually have been very thoughtful about getting money
where we need it and get a big bang for the buck.
Mr. Sherman. Ms. Eskelsen Garcia, I think you have done a
good job of illustrating why we need more funds for our schools
to be able to reopen safely. I point out also that many
schools, particularly here in Los Angeles, will not open in
August, and they need technology for home learning. And, while
that is happening, you need a lot of money to reopen, you need
a lot of money for distance learning. While you have those
increased costs, we have a tremendous decline in revenue for
State and local governments.
I would like to ask whether the $90 billion State fiscal
stabilization fund grants to support State funds of education
in the HEROES Act is helpful, and to what degrees it is--
Ms. Eskelsen Garcia. We have asked for $175 billion for--an
extra $4 billion for technology and the E-rate. And so, to
answer your question, we need everything we can get, and the
thought of not getting any help at all--if you just gave us
what you gave Shake Shack, that would be a giving. That is what
I am thinking, is this is no different. We are talking about
massive layoffs. We are talking about your public schools
facing, are we able to open with any plan? And we can't do it
without extra resources. We just can't.
Chairman Cleaver. Thank you. Thank you, Ms. Eskelsen
Garcia.
The Chair now recognizes Mr. Timmons for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman. I appreciate you
holding this hearing, and it is good to see you all, even if it
is on video conference.
I was going to end my remarks talking about debt, but,
given the previous questions, I would like to also begin with
it.
The cost of our debt last year was $593 billion. Next year,
I would imagine that we are going to spend more on our interest
payment on our debt than on the entire Department of Defense
budget. So, debt is not free. It does come with a cost, and it
is something that we need to be mindful of.
That said, it is not the time to pinch pennies. We need to
get help to the people who need it, we need to get help to
businesses, and we need to get the help to individuals who have
lost their jobs. Those two endeavors are not mutually
exclusive.
As the owner of multiple small businesses--I have a gym, a
Yoga studio, and a real estate development--I am very fortunate
that we had a good year, last year. Between our cash reserves
and the PPP loan that we got, we are likely going to make it. I
say, ``likely,'' because, if this goes past April, May, if we
don't have a vaccine before then, we probably won't make it.
I have a number of small business owners who have reached
out, and they have said, if we re-close the economy, they will
just file bankruptcy. They have to close up shop, and it is a
reality that a large percentage of small businesses will not
survive this.
And it is not right that the government has shut everyone
down. I realize that we had to flatten the curve, slow the
spread, but we need to get help to the businesses that have
been affected by this, and we need to get help to individuals
who have lost their jobs. Those two things are not mutually
exclusive. And I look forward to the conversations around the
phase 4 legislation.
Obviously, there does have to be a component of business
liability protections. If you tell a business they can reopen,
and then you tell them they are going to get sued because they
reopened, even though they are following best practices, that
is not consistent. So we need to reopen, but we have to do it
safely.
Mr. Zuluaga, I would like to hear your thoughts on phase 4
legislation and what you think is the most effective way to get
that relief to those who need it most?
Mr. Zuluaga. Sure. Thank you for the question. I think
focusing the business support on the areas that are shut down
or have experienced a second wave is very important, because
that is where the supply shop is happening and where the help
is going to be most useful.
Besides that, I would focus on incentivizing reentry into
employment. I think some of the protections you mentioned to
businesses that are getting back into business and want to do
so safely and want to buy the protective equipment and so forth
is important so that there is no legal uncertainty.
But, in addition to that, I would say, if there is going to
be spending on supporting demand generally, it should be
unrestricted. It shouldn't be conditional on business
regulations and on businesses taking on new regulatory burdens
that didn't exist before. I think that is the wrong approach,
because, right now, we face a little bit of uncertainty in
businesses, particularly because of all the uncertainty in the
future, and they need that flexibility.
Mr. Timmons. So you would agree that the additional $600 of
unemployment insurance benefits that those who lost their jobs
have received, that perhaps we need to have a more surgical
method to facilitate workforce reentry to encourage workforce
reentry?
Mr. Zuluaga. I would indeed focus on incomes. I would look
at how much people are earning and, below a cutoff, I would
suggest some financial support regardless of their employment
status rather than boost unemployment benefits, because I think
there can be a disincentive to work, and it can cause people to
become more and more removed from the labor market, which we
don't want.
Mr. Timmons. Okay. Just to be clear, I want to help these
people, but we have to get back to work, and we need to do it
in a strategic and surgical way. I think the CARES Act overall
was great, but there were a lot of shortcomings that we could
have modified the approach, and it would have had a better
impact, and it would have helped people, and it would have
helped businesses.
And, again, I think that is the whole point of phase 4
legislation. We have to be very intentional about helping those
who need it without casting a larger net.
And, like I said, I am going to end the way I began--$7
trillion is what we probably have spent thus far. We are going
to have $30 trillion in debt by the middle of next year, if not
shortly after that. We can't keep spending money that isn't
ours. It is our children's, and it is our grandchildren's
money. Now is not the time to pinch pennies, but now is also
not the time to spend recklessly.
So we need to make sure that our dollars have the effect
that we want, we need to get people back to work, and we have
to do it safely, and I am just praying for a vaccine in
November or December as opposed to April.
With that, Mr. Chairman, thank you for holding this
hearing, and I yield back.
Chairman Cleaver. Thank you.
The Chair now recognizes Mr. Vargas for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman, for holding
this hearing, and I thank the ranking member, as well. I
appreciate it very much.
When I first came to Congress, I sat on the Agriculture
Committee, and the Farm Bill was up that year, and they wanted
to make deep cuts to the Supplemental Nutrition Assistance
Program (SNAP). Of course, I was very much against that and
argued against that. That is the old food stamp program.
And I happened to quote the Bible by Matthew 25:33-46,
where it says, ``for I was hungry, and you gave me something to
eat,'' and went on and on. But, anyway, a colleague of mine
from Tennessee took issue with that, and I think he quoted 2nd
Thessalonians, saying: ``If a man will not work, he shall not
eat.''
But what I didn't know in that conversation was that my
friend from Tennessee had received $3.6 million from the
Federal Government for his farm and his family's farm. The New
York Times pointed that out the next day, and I went and had a
conversation with him. I said, ``I find it somewhat
hypocritical that you don't want us to feed hungry people, and,
yet, you put $3.6 million of government money in your pocket.
How do you balance that?''
He said, ``Well, we are a business, and they are just
people.''
I said, ``Oh, okay. I understand.''
That is his view, and that is fine.
Now, I am on this committee, and I have heard people
pontificate lots of times about the Troubled Asset Relief
Program (TARP), saying, ``Oh, no, no. Let the businesses sink.
We should never subsidize them. If they can't make it, let them
sink.'' Yet, that view has changed somewhat now, for some of my
colleagues, and I think that is good.
But it seems to be the same thing. You don't mind putting
money in the hands of the businesses, but when it comes to
putting that money in the hands of the people who need it, the
employees, there is a problem.
I think that is what this bill basically does. It says,
``These people are unemployed. We have to help them.''
Professor Stiglitz, am I wrong on that? The ideology says,
well, because this is socialism, and we are against socialism.
I have been to New Zealand. I have been to Australia. They
didn't seem very socialist to me, but maybe I am wrong about
that. Could you comment?
Mr. Stiglitz. No. You are absolutely right. I have talked
to government officials in many of these countries, and these
are not radical countries. This is not Venezuela or anything
like that. These are middle-of-the-road, center-left, center-
right governments, by the way, in which there is across-the-
board support for these programs. And it is that across-the-
board support that has created a kind of solidarity that allows
the disease to be curbed, because they respect each other,
trusting government.
And, as a result of curbing the disease, the economy is
back, and that really echoes what Ms. Eskelsen Garcia said: If
you have a safe environment, people can go back to work, and
you can go back to school.
Mr. Vargas. Thank you. I agree. I did want to ask Ms.
Eskelsen Garcia, though--I have to tell you that I am very much
in favor of reopening the schools when it is safe. The reality
is that not only do children get educated in the schools, but
it would also help the parents with childcare, to be frank. A
lot of people can't work if their kids can't go to school.
That is what I hear from my educators here in San Diego and
from school board members. They want to open the schools, but
they only want to do it safely. And yet, they are constrained
because they get money from the State Government, and, if the
State doesn't have the money, they can't help out the schools.
Could you comment on that?
Ms. Eskelsen Garcia. It is not rocket science. It is basic
adding and subtracting. School boards are hitting the panic
button. They are being told all over the country, ``Do not
expect what you thought you were going to have next year. Start
cutting your budgets.''
We already have people who are getting pink slips at a time
when we need all hands on deck. There is no other funding
source than the Federal Government. We cannot hold a bake sale
and hire people back. If it was bad for business to have to
have massive layoffs, how can it not be even worse to have
massive layoffs of the only people who can open the schools
safely?
There are some folks who don't see how that connects, that
you can't open schools safely if you don't have enough people
and you don't have the supplies that you are going to need to
do it.
Let's do it safely. We can do it.
Mr. Vargas. I agree. Thank you very much.
Thank you, Mr. Chairman.
Chairman Cleaver. Thank you.
The Chair now recognizes Mr. Taylor for 5 minutes.
Mr. Taylor. Thank you, Mr. Chairman. I really appreciate
this hearing. Thank you, everybody, for being here.
I just want to kind of take us back a little bit and think
about the economic step that we as a Federal Government took
toward our economy. We basically put our economy in a coma,
basically went to a shelter-in-place strategy really across the
country, and then took a series of steps to try to--when we put
the economy in a coma, what do we need to do? One of the things
we did is we did the PPP program. We increased unemployment
benefits. We created a series of different programs that were
absolutely massive, in the trillions of dollars across-the-
board.
One of the things that we did that I think is really
important is we forbeared on mortgages, and we did that
basically in two ways. One was going to Fannie Mae and Freddie
Mac by statute and telling them, ``You need to forbear people's
home mortgage payments. Obviously, if people aren't working,
they are not earning revenue, and they can't make their
mortgage payments.''
And the second way we did that is by going to the banks
through the Office of the Comptroller of the Currency (OCC) and
creating guidance for them that said, ``Hey, you guys can
forbear on your mortgages, right?''
So those two steps were really massive and really allowed
about a little over $30 trillion of debt in this country to
forbear.
A place where we have not seen forbearance is in the real
estate space, and particularly the collateralized mortgage-
backed security market, they don't really--they have not been
given guidance from on high. The Federal Government hasn't
passed legislation. They haven't really taken a step to allow
or encourage them to forbear. I think that they feel some
market pressure to do that, some public pressure to do that,
but we are not really seeing that.
A group of 105 Members--and many of you who are in this
hearing right now were part of this--signed the letter to the
Treasury and to the Fed encouraging them to come up with some
kind of facility, probably using their Section 13(3) authority,
to encourage forbearance on commercial real estate loans so
that those properties are not foreclosed.
And, just so everybody is clear on what we are about to
see, I think we are about to see a wave of foreclosures
starting this fall going into next year that some analysts
estimate will be 2 or 3 times worse than anything we have ever
seen before. So, it is very serious. It is coming at us at a
relatively quick pace. In other words, it is going to happen so
fast that, by the time we are here to pass--we pass a lot a
day--it would be very difficult for it to be implemented fast
enough to forbear on all of the different pieces of
foreclosures that are coming up.
So my question, Mr. Zuluaga, is: Do you think that getting
mortgages in a place where they are forbearing while we are
putting the economy in a coma makes sense in order to try to
keep things going for the other side--we get to the other side
of this from an epidemiological point of view?
Mr. Zuluaga. I think it can work. There is a risk that you
will get delinquencies accumulating at the end of the period,
and this is something that we are still uncertain about with
regard to Fannie and Freddie, for example.
They have had forbearance for a long time. And, actually,
the forbearance rates, even though the take-up was high, the
actual mortgages in forbearance are much less than most of us
expected, which is good news.
Mr. Taylor. Right.
Mr. Zuluaga. I think forbearance can help, but, so long as
we don't have much certainty around when the recovery is going
to take place, we are really then hiding delinquencies as
forbearances and potentially defaults, and, eventually, when
foreclosures are again allowed, that may happen again.
Mr. Taylor. Sure. And I guess, as part of this
conversation, it is important that, being from Dallas, Texas,
we remember the Resolution Trust Corporation (RTC) days, when
the RTC, through the FDIC, went in and programatically
foreclosed every property that was in default and then just
liquidated it, and it really collapsed values within that
market. It was a very brutal experience for everybody involved
and really harmed a lot of jobs.
I think the important thing here is that, particularly in
the hospitality space, of the first 24 million Americans who
lost their jobs, 6 million were working in hospitality.
And so, that industry has been really, really injured, very
harmed. It is going to be a while until it recovers, and so, if
we could give them a liquidity bridge to get to the other side
so they can start paying their mortgage, so--we lend them money
to pay their mortgage.
I was talking to one hotel operator yesterday who was
looking at the legislation that we are working on. I have a
member of this committee working on filing that bill later this
week. And he is saying, ``Look, without this bill, I am
probably going to lose every single property I own. With this
bill, I probably can keep every property that I own.''
What is important about that is it means they can pay the
money back and that those jobs will be saved.
Mr. Chairman, I yield back.
Chairman Cleaver. The gentleman yields back.
The Chair now recognizes Mr. San Nicolas for 5 minutes.
Mr. San Nicolas. Thank you, Mr. Chairman, and thank you for
holding this very important hearing.
For me, I sat back, and I observed the discussions, and I
listened to the ideas, and I looked at the recommended policy
provisions that were being put forward, and I think that one of
the first things we need to reconcile is somewhat of the
undertone of our witness testimony here today, and that is the
question of whether or not we really view this current set of
circumstances as something that requires permanent adaptation,
or are we looking at a white squall event that we just need to
get through in order to return to a place of normalcy in our
economy and in our daily lives?
And, Mr. Zuluaga, you mentioned that a lot of the necessary
adaptation--that was a phrase you repeated over and over again,
that businesses need to adapt, and I am a little concerned
about that, because, right now, the adaptations that we are
seeing, for example, are 50 percent occupancies in restaurants.
We are seeing lines being drawn on sidewalks leading into
businesses, keeping people apart. And I am worried that, if we
adapt in a way that results in permanent changes, we are going
to actually hinder our ability to recover.
And so I wanted to enter into my comments with that
context, because, as we all know, our economy in this country
is predominantly consumer-driven.
What the consumer needs in order for them to be able to
have the confidence to drive our economy with their own
spending is they need certainty. Any kind of uncertainty
paralyzes them, and, right now, while we have done a good job
as a Congress putting forward stopgap measures, it hasn't done
a lot to ameliorate the uncertainty of our consumers when they
look out 3 months, 6 months, or 1 year ahead.
On July 25th, our eviction moratoriums are going to expire.
On July 31st, the extra $600 in Federal Pandemic Unemployment
Compensation (FPUC) is going to go away. On August 8th, the PPP
is no longer going to be available. And so, when we have all of
this uncertainty out there, it is going to make our consumers
afraid of spending the money that we are even providing now.
And so, I appreciate my colleague's bill that we are kind
of discussing here today, because it kind of helps us provide a
sense of certainty for our consumer.
But I think one of the biggest things on the horizon for
all of our consumers is, how are they going to pay for their
housing? And I wanted to thank my colleagues for moving H.R.
7301 recently to try and address the housing concern.
Dr. Cook, I really appreciated your testimony. You came at
us with a lot of hard data and information that was very
concrete. I would like to focus in more on what you mentioned
earlier about the 20 percent evictions that we are looking at
having to deal with on September 30th.
If you can elaborate more on that, and potentially what
that might do in terms of a domino effect, spilling over into
our housing, a second housing crisis that we have already
just--we have been through in 2008?
Ms. Cook. Thank you for your question.
So, yes, this is something that I am certainly concerned
about. Twenty percent of rental households face eviction by
September 30th, and, as you know, there are moratoria
everywhere, but these are coming to a close now. And this is
happening in the fourth largest city in America, in Houston,
and these courts are working through these cases.
So, I think this is certainly something that has to be
taken quite seriously, and what we know is, from the surveys of
homeowners, of renters and of homeowners, 44 percent of Latino
renters and 41 percent of African Americans won't be able to
pay their rent.
That is somebody's mortgage that is not going to get paid,
and a multifamily home, for example, a multifamily mortgage
that won't be paid. So, 40 percent of those mortgages are
Fannie and Freddie mortgages, but there are a lot that aren't.
And, even with these being covered by Fannie and Freddie, there
is a problem of enforcement. The individuals have to figure out
whether these mortgages are Fannie and Freddie mortgages.
So, there is a lot of danger, I think, ahead if this isn't
straightened out now.
Mr. San Nicolas. Thank you, Dr. Cook.
And, quickly, Dr. Stiglitz, we saw that the housing crisis
was created back in 2008 from a bottom-up problem--I am sorry--
a top-down problem in the debt. Is it possible we are going to
have a similar bottom-up problem with these renters not being
able to pay?
Mr. Stiglitz. Oh, very much. Whenever you have a major
crisis like this, it spreads throughout the economy, and even
good loans turn out to be bad, and you can wind up with a
problem in the financial system, which is why--
Mr. Hill. Time, Mr. Chairman.
Chairman Cleaver. Thank you. Thank you, Dr. Stiglitz.
The Chair now recognizes Ms. Wexton for 5 minutes.
Ms. Wexton, you need to unmute your--we will proceed with
Mr. Garcia, and we will come back to you, Ms. Wexton, if we
can.
Mr. Garcia, you are now recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Chairman Cleaver and
Ranking Member Hill, for convening this hearing, and a
bipartisan proposal--I am referring to the Payroll Recovery
Act, as it has support from across the aisle in both the House
and the Senate, and this discussion about protecting workers'
paychecks is urgent and badly needed for my constituents here
in Chicago and for working-class communities like mine across
the country.
From what our panelists have shared today--and thank you
for joining us today--it sounds like we haven't done enough in
Congress to help ordinary people during this crisis and to
prevent a deeper collapse. Unfortunately, I am not surprised,
because many people in my community are getting more and more
worried.
Wall Street got the guarantees they needed, but my
neighbors are in a very precarious situation. The additional
unemployment benefits provided by the CARES Act expire this
month, and so does the bill's protections against eviction.
Many businesses in my district that were supposed to close
temporarily are now announcing permanent closures. I have lived
in my neighborhood for 50 years, and I was stunned by the scale
of suffering and loss that my community faced during the great
financial crisis of 2008-2009. We had barely started to recover
from that crisis when COVID-19 hit.
Ms. Eskelsen Garcia, you mentioned a looming crisis facing
our public sector workers. Many of my constituents are public
sector employees, and even more rely on teachers and social
workers, nurses, and librarians every day. Cuts in public
services fall disproportionately on communities like mine.
Can you talk about the cuts that you are hearing about at
the bargaining table and how those cuts will disproportionately
affect poor and Black and Brown communities across the country?
Ms. Eskelsen Garcia. I have heard from people from Hawaii
to Wyoming to New York to Florida. Everybody is alarmed by
either school districts saying, we have four 3rd grade classes
of 32 kids. We are going to not replace the 3rd grade teacher
who is retiring, and so we will redistribute those kids, and we
will end up with 40 kids or more in a classroom. Or they are
saying, we are going to lay off the band teacher. We are going
to lay off the foreign language teacher. We are going to lay
off counselors.
At a time where we need every single person to help us open
those schools safely, they are facing budget cuts that will
mean massive layoffs in every community. This will ripple
through the economy and have the double effect of saying--
something that people say is essential to getting people back
to work, a healthy public school open, will be almost
impossible to accomplish, and, in some areas, completely
impossible to accomplish.
Mr. Garcia of Illinois. Thank you.
For Mr. Stiglitz, the COVID-19 pandemic demonstrated how
connected the world is, but also how disconnected the response
to the virus has been in different countries. Unfortunately, I
think the virus could expand the gap between richer countries
and poorer countries, and the burden of additional debt put on
countries in Latin America, for example, could slow down our
global economic recovery.
In April, I introduced the Systemic Risk Mitigation Act to
support an International Monetary Fund (IMF) issuance of
special drawing rights, better known as SDRs, to help
countries' access the currency they need during this crisis. I
was glad to see that Senator Durbin introduced a similar bill
in the Senate last week.
Professor, do you worry that our global economic downturn
will get worse without some form of international stimulus, and
do you think special drawing rights would help?
Mr. Stiglitz. Yes. We live in a very interconnected world,
and a downturn in the rest of the world will inevitably affect
us a great deal. And right now, Latin America is one of the
hotspots, and so the downturn there will have a big effect on
us.
I have been advocating very strongly for a special issuance
of SDRs. If the United States supported it, they can issue $500
billion, and it wouldn't cost American taxpayers a thing, but
it would be of enormous benefit to American citizens, because
it would be a boost to our economy as it helps the rest of the
world, and it would help us in our diplomacy enormously.
Mr. Garcia of Illinois. Thank you.
I yield back, Mr. Chairman.
Chairman Cleaver. Thank you.
Ms. Wexton, are you able to get on now? Ms. Wexton, you are
recognized for 5 minutes. We still can't hear you.
Mr. Garcia of Illinois. Mr. Chairman, I have one more
question if--
Chairman Cleaver. Ms. Porter, you are now recognized for 5
minutes.
Ms. Porter. Thank you so much.
Mr. Stiglitz, in an April 2020 Roosevelt Institute report,
you identified four design problems with the PPP, and I would
like to talk about those, because one of the most common
questions I get is, why support a paycheck guarantee approach
if we have already done the PPP? So, I would like to spend our
time kind of trying to answer that question.
First, in your Roosevelt Institute report, you mentioned
the randomness of who was going to get helped, and we certainly
saw that. Some industries got help while others were left
behind. Industries like construction and professional firms
that weren't very impacted got PPP loans while other
industries, that are really suffering, were left behind.
Second, you mentioned that those who were best-connected,
most likely to know about the program, were more likely to get
relief. That certainly happened. Congress went back and tried
to adjust the PPP loan by setting aside money for some of our
community lenders to try to address that.
I want to pick up on the third thing that you identified as
a problem with the PPP, that the Paycheck Recovery Act would
take a distinctly different approach. You flagged the
introduction and the use of banks as intermediaries in the PPP
as a problem. What is the problem with having lenders be
intermediaries, and how is the Paycheck Recovery Act different?
Mr. Stiglitz. That is a great question.
The point is that having the banks as the intermediaries
meant that those who were most connected with the banks got
first in line. And I saw this very vividly. Small business
owners, but very small, called up their bank, and they couldn't
get an answer.
And there were others who were very well-connected, and it
wasn't just random. Some sectors that were very badly affected
didn't get as much money as some sectors that were not very
badly affected.
I also pointed out that we were paying the banks an awful
lot of money to administer it. So, in fact, our taxpayers'
money wasn't going to where we--small businesses. It was going
to the banks.
Ms. Porter. Yes. As I look at it, we paid the banks an
average fee of around 1 percent. It is something in the
neighborhood of $6 billion, taxpayer dollars, that went to
these banks for a loan program in which they took on no credit
risk and did no assessment of the applications. So, it just
seems like that $6 billion could be buying a lot of actual help
for American families right now.
You also raised concerns with the PPP's lack of clarity and
transparency, and I have been pushing hard with regard to
making more data about the PPP transparent.
Can you tell me why you think the Paycheck Recovery Act
would be more clear and would be more transparent and could
avoid some of the problems and abuses that we have seen with
the PPP?
Mr. Stiglitz. The basic idea of the Paycheck Recovery
Program is it is defined by clear rules of who can get access.
You just apply, and, if you are eligible, there is a set of
eligibility criteria. You know exactly what the formula is.
And so, it is available to everybody; not first-come,
first-served. It is available to everybody who meets certain
criteria, so we know that whether or not you are a minority,
you get it.
On the other hand, when you go through the banks, it
depends on who has the connections with the banks. I have been
very disturbed that it took a lawsuit under the Freedom of
Information Act to get the information about where the money
was going.
We, as citizens, should have the basic right to get that
kind of information without having to sue.
Ms. Porter. Yes, and I think one of the things I want to
highlight for everyone who is listening is, for my colleagues,
that the small businesses across the country agree with these
concerns about the PPP and recognize that a Paycheck Recovery
Act remains a necessary step to helping make sure that we are
keeping people on payroll.
When I talk to constituents, they don't want to be on
unemployment. They don't want to be applying for these
programs. They want a paycheck. They want to be able to
continue to make ends meet for their families. They want to
know they are going to have a job to go back to.
That is the help that they are looking for. They are
looking for help in continuing to get that paycheck and to have
that dignity and provide for their families.
Mr. Chairman, I would like to submit for the record an
April 29th letter from over 30 national, State, and regional
small business organizations calling for the passage of the
Paycheck Recovery Act, as well as an op-ed written by Mark
Zandi.
Chairman Cleaver. Without objection, it is so ordered.
Ms. Porter. Thank you, and I yield back.
Chairman Cleaver. Thank you.
Ms. Wexton, you are now recognized for 5 minutes, I hope.
Ms. Wexton. I hope that I am now unmuted.
Chairman Cleaver. Yes.
Ms. Wexton. Great. Thank you very much, Mr. Chairman. And
thank you to the witnesses for coming before us today. I want
to touch on the issue of expanded unemployment benefits a
little bit more. As has been noted, they are set to expire on
July 31st.
And, in my home State of Virginia, the weekly unemployment
benefit is only $378, so it is not the lowest in the country,
but it is not enough for a family to live on, so the additional
$600 a week provided by the CARES Act has been a huge benefit
to people just to be able to pay their rent and their car
payments and things like that. But many are claiming that this
benefit is way too generous.
Larry Kudlow, one of the President's economic advisors,
says we are paying people not to work, and that we are
disincentivizing people to not return to work. That is a lot of
double negatives there, but I think he is saying that it is too
much money for people, that they are living large on $600 a
week.
And we are hearing from various talking heads that
employees are refusing to come back to work, and that employers
are struggling to bring people back to work because of this
extra $600 a week.
Now, we had Federal Reserve Chairman Jerome Powell before
us a couple of weeks ago, and I asked him this very question. I
asked him if he was seeing anything in the data or business
activity surveys that supported this claim, and he said that he
did not see anything like that, and he opined that more likely
what is happening is that people in the service economy jobs
are more reluctant to go back to work because they don't feel
safe, because they are likely going to come in contact with a
lot of people, and a lot of them are not going to be wearing
masks because that is not mandated in a lot of places, and a
lot of employers are not requiring that they do so.
That is pretty consistent with what I am hearing, as well
as people who are having trouble accessing childcare. Many
childcare centers have closed, and they don't have those
options anymore.
And it is not just in the service economy that the jobs are
lost. From April to May in Virginia, we have seen thousands of
jobs lost across the sectors, including 1,300 manufacturing
jobs, nearly 2,600 healthcare and education jobs, 5,900 State
Government jobs, and 15,000 local government jobs.
Ms. Eskelsen Garcia, you mentioned the 900,000 public
education jobs already lost nationwide because of local budget
cuts. Those people don't have the option of returning to work
even if they wanted to. So, Professor Cook, do you think that
now is the time to pull back on this enhanced unemployment
support?
Ms. Cook. Absolutely not. If we are learning the lessons of
2008-2009, now is the time to augment that support, not to
withdraw it, because we will be looking at even higher
unemployment numbers.
There are still 19 million people receiving unemployment
benefits. This is unprecedented for the modern era, for the
post-1940 era. The unemployment rate is 11 percent. So, this is
not the time to withdraw support from State and local
governments, especially given the health crisis.
The health crisis is not over, and all of these hospitals,
the healthcare providers, they need the support. We are going
to need a lot of mental health support once this is all over
for people to be able to go back to work. I think that has been
underrated and has been underestimated. People are going to
need a lot of support to be able to go back to work whenever
that happens, whenever it is safe to do so.
Ms. Wexton. Professor Stiglitz, do you agree that it is not
the time to pull back on that support? It would be wonderful if
we could maintain that employer-employee relationship, but many
people are not going to have that option, so what is your
position on these enhanced unemployment benefits, whether we
should let them expire?
Mr. Stiglitz. I agree very much with Professor Cook. I
don't believe that we should allow those to expire. The fact is
that, with a high probability, we will have significantly
elevated unemployment levels for a long time. And in many, many
States, the basic levels of unemployment insurance are among
the poorest in the western world, and the coverage doesn't
cover a lot of people.
And that is one of the things that you did in the CARES
Act, is extend the coverage. So, both in terms of amount and
the coverage, both of those were deficient, and you addressed
that in the CARES Act.
Ms. Wexton. Thank you. And you guys are in good company,
because one of the things that Chairman Powell indicated was
that he thought that resetting that to zero would have an
extremely detrimental effect not only on the economy as a
whole, but on our recovery, so thank you very much.
And, with that, I will yield back, Mr. Chairman.
Chairman Cleaver. Thank you. We apologize for the technical
problem, whatever it was.
I now recognize the gentlewoman from Texas, Ms. Garcia, for
5 minutes.
Ms. Garcia of Texas. Thank you, Mr. Chairman, and thank you
for allowing me to join you in this very important hearing.
I have been listening, and it just reminds me of some of
the debates we had at the beginning of all this where we were
trying to figure out where do we start, what do we do, and we
focused on making sure that we address the health pandemic,
because, no matter what, we still have to address the health
issues, make sure our hospitals are ready, the frontliners,
they are working at the hospitals and providing the care, and
the research that is necessary to find the treatment.
And then, we decided to make sure that we put money in
people's pockets, like Mr. Himes said earlier, and to make sure
that they were able to buy the things that they needed, which
is why we had to support businesses.
So, I think you can't do one without the other. They are so
connected that I want to focus on the need for the Paycheck
Recovery Act, because I know that, in my own family, it took my
brother maybe 3 weeks of calling and online applications, et
cetera, to even get on unemployment insurance, and then he
loses benefits, he loses his longevity pay, he loses so much.
I think there is still a need for us to take a serious look
at the Paycheck Recovery Act, and I wanted to start with Ms.
Eskelsen Garcia. Every time I heard you being addressed, I
looked up, because I thought it was me.
But you signed onto a letter, Mr. Chairman, and I do want
to ask unanimous consent that it be submitted for the record, a
letter supporting the Paycheck Recovery Act.
And that clearly said that, we know there have been three
packages, but there are still layoffs. The economy is still in
a freefall. Working families are still hurting. They are
worried about putting food on the table. They are worried about
their rent. They need a paycheck. They need a job, as my
colleague, Representative--
Chairman Cleaver. Without objection, it is so ordered.
Ms. Garcia of Texas. Thank you.
Do you continue to believe that the relief packages passed
by Congress so far are insufficient given the scale of this
public health and economic crisis?
Ms. Eskelsen Garcia. Is this for me?
Ms. Garcia of Texas. Yes, ma'am. From one Garcia to
another.
Ms. Eskelsen Garcia. Gracias. I kept thinking, too, there
are a couple of Garcias on here. Great name.
But I don't want to say that it is enough, give us this,
and life will be rosy. This is a beginning, and we know we
can't do what we have to do with less, and we are facing our
funding falling off a cliff.
So, this is something that can at least stop the bleeding,
and we are willing to be incredibly creative about what we can
do, but we will not be able to open schools in so many
districts in a safe way without some significant help, and, as
was said, we have already lost, since this pandemic began,
almost a million support staff.
This might be the bus drivers, the paraprofessionals who
aren't delivering instruction with a Zoom call the way a
teacher is. They have just been told, ``You don't have a job,''
like everyone else who has been told, ``You don't have a job.''
Ms. Garcia of Texas. We may not get them back, but if they
would have stayed on payroll, as the Paycheck Recovery Act
would do, that would be most helpful. So, you feel like workers
still need the Payroll Recovery Act?
Ms. Eskelsen Garcia. Yes, I do. And part of it too is, yes,
the workers that I represent but their family members, and by
the way, our students, and their parents who are out of a job.
Anything that impacts a community impacts that child and that
school, so this is more than just the teacher or the bus
driver. These are the parents of our students who are just
trying to put food on the table.
Ms. Garcia of Texas. Yes. Thank you. Now, I have a question
for Mr. Stiglitz. What are your thoughts on the Paycheck
Recovery Act? Do you think there is a need for that today, as
States are still struggling? I know my State of Texas is
reaching a crisis point, my City of Houston. Do we still need a
Paycheck Recovery Act?
Mr. Stiglitz. Is that for me?
Ms. Garcia of Texas. Yes.
Mr. Stiglitz. Yes, very much so. One of the things that I
emphasized is that the previous CARES Act wasn't comprehensive
enough, didn't provide enough support to the State and
localities. And it was so clear that the revenues of the States
and localities would plummet, and with the balanced-budget
frameworks, they were going to be strangled.
And they provided essential services--education, health,
welfare--and the suffering that would result, and the
macroeconomic effects, I call it in my testimony, ``austerity
from below,'' which would have large, multiplier effects, and
it would mean that we would not have a robust recovery.
So it is, in my mind, absolutely essential for not just
businesses, but also the States and local communities,
educational institutions, the research foundations. It is not
just businesses that are having a hard time now.
Ms. Garcia of Texas. I agree.
Chairman Cleaver. Thank you.
Ms. Garcia of Texas. And Mr. Chairman, I would like
unanimous consent to submit for the record an April 29th letter
to Speaker Pelosi from 100 economists supporting the Paycheck
Recovery Act.
Chairman Cleaver. Without objection, it is so ordered.
Ms. Garcia of Texas. Thank you, sir. I yield back.
Chairman Cleaver. Thank you. And I would like to thank the
witnesses for their testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is adjourned. Thank you, everybody.
[Whereupon, at 2:13 p.m., the hearing was adjourned.]
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