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U.S. House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.

    The committee met, pursuant to call, at 10:07 a.m., in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.

    Present: Chairman Leach; Representatives Roukema, Bachus, Castle, Royce, Paul, Ryun of Kansas, Hill, Ryan of Wisconsin, Ose, Biggert, Terry, Toomey, LaFalce, Kanjorski, Sanders, Watt, Bentsen, J. Maloney of Connecticut, Sherman, Inslee, and Moore.

    Chairman LEACH. The hearing will come to order.

    The committee meets today to receive the Semiannual Report of the Board of Governors of the Federal Reserve System on the Conduct of Monetary Policy and the State of the Economy as Mandated in the Full Employment and Balanced Growth Act of 1978.

    Chairman Greenspan, welcome back to the House Banking Committee and congratulations on your renomination and reconfirmation as Chairman of the Federal Reserve. The President of the United States and the Senate have made a wise and timely decision. It underscores that this country has been well served by an independent non-partisan Federal Reserve.
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    The Act under which this hearing is held prescribes that the Federal Reserve System conduct policies to bring to realization ''the goals of maximum employment, stable prices, and moderate long-term interest rates.''

    As we exit the 20th Century and enter a new millennium, the underpinning goals of the Humphrey-Hawkins legislation appear to have been met. More Americans have jobs than ever before; the unemployment rate is at a historic modern-day low; inflation is in check; productivity growth is the highest in fifteen years; and not only is the Federal budget in balance, but to the astonishment of most, surpluses are forecast for the foreseeable future.

    Sustained economic growth has occurred in part due to significant private sector productivity increases, in part as a result of a mix of fiscal and monetary policies which, perhaps for the first time in decades, are working in sync rather than in juxtaposition. The budget surplus, which has had the effect of reducing reliance of debt issuances at the Federal level, has increased the flexibility of the Fed to manage monetary policy.

    Divided Government has had its rewards. A conservative bent to the Congress has moderated the Executive Branch and has served well the American economy. In this regard, it deserves stressing that just as the Executive Branch has primary responsibility in the fields of international affairs and the Fed and the Open Market Committee have authority over the conduct of monetary policy, the Congress is preeminently accountable for Federal budgetary matters.

    One of the stark difficulties in our economy is that while the gap between the well-to-do and the less-well-off is widening, job creation appears to be spreading to the most disadvantaged parts of the population. Growth has been propelled in a circumstance where per capita Federal Government spending has leveled off, or perhaps even declined, giving rise to the conclusion that for the vast majority of Americans, the economics of compassion is the economics of Governmental restraint.
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    Before turning to your testimony, Mr. Chairman, I would like to ask if the Ranking Member of the Full Committee and the Chairman and Ranking Member of the Monetary Policy Subcommittee have opening statements.

    Chairman LEACH. Mr. LaFalce.

    Mr. LAFALCE. Yes, Mr. Chairman.

    Chairman Greenspan, we are delighted to have you before us again, and I sincerely am delighted that you were reappointed as the Chairman of the Federal Reserve Board. You have done your job admirably. You have done your job regardless of the President being a Republican or a Democrat, and I know you will continue to do that regardless of the circumstances, regardless of whether there is a Republican or Democratic Congress and you have been constant in your thinking and your policies and objective in everything you have done.

    Whether you or the President or the Congress, too, we have all been tremendous beneficiaries of having to do our job in the age of technology. Sometimes people ask me ''Who deserves more credit, Alan Greenspan, the President, Democrats or Republicans?'', and I always give them the same answer: ''technology.'' It has been tremendous. It has been phenomenal. I also think that your appearance under the auspices of Humphrey-Hawkins is extremely important. It gives us an opportunity to dialog on some very important issues.

    Your domain is primarily economic and primarily monetary policy as opposed to fiscal policy, although everything is interrelated. And yet we do not live in a vacuum. We live with statistics, but not statistics as an end in and of themselves, statistics as a reflection of where we have been, where we are and where we might go. We have to penetrate these statistics.
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    What does it mean when we talk about unemployment rate? Well, first of all I suppose we have to ask ourselves how accurate are those unemployment figures.

    What is the extent of our under-employment? Are people making more real money? That is extremely important. Do they have to rely on two jobs or two incomes or three or four incomes in order to keep up?

    You talk about productivity improvements, but how accurate are those productivity measurements? Are people really working longer hours at home with the laptops that they are able to bring home, and do we therefore really have enhanced productivity? Are we coming to these productivity improvement judgments backward, looking at output and then extrapolating that there has been these huge productivity improvements?

    But beyond questions such as that, I would like to see Congress have hearings not just on these statistics, but the true social health of the Nation. We are in an era of unprecedented growth. Do we have better health care, and for whom? You know, how is it that in an era of unprecedented economic growth, so they say, we have 45 million Americans without any health insurance whatsoever. What is the disconnect? Why is that happening? Does that mean that there is increased disparity within our society?

    What is the status of education? Are those in affluent areas getting better and better education and those in poorer areas getting worse and worse education?

    This is not exclusively within your domain, but you are a great collector of data and figures. And do these data and these figures come within your public concern or personal concern and what are your comments on it.
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    So we have a great shining city on the Hill, but what about that other portion of the city that is not shining so greatly? And it would be remiss on our part if we just use these hearings to regurgitate dry economic statistics without relating these statistics to the human condition, and whether or not there are better ways of life for not just those of the top rungs of society, but for all rungs of society given the prosperity that we love to proclaim and boast so much about.

    Thank you.

    Chairman LEACH. Chairman Bachus.

    Mr. BACHUS. Thank you, Mr. Chairman. I thank you, Chairman Greenspan. I want to first assure you that you won't have to wait an hour like you did in the Senate last week to testify. And I will try to wrap this up. First of all, I want to commend you on your reappointment and also on your accomplishments.

    Under your tenure mortgage rates have dropped about 2 1/2 percent, inflation is down 1.7 percent, unemployment is down almost 2 percent. And that is quite an achievement. We have got low inflation, low unemployment, rising wages, robust economy, a rising stock market, undoubtedly your leadership on the Federal Reserve has been a significant part of that. So you are to be commended.

    Today we are going to hear what is required by the Humphrey-Hawkins law which was passed in 1978. There is some sort of rumble in the Senate that we may quit having these hearings or we may go to a different format. And I would simply like to say that it is my opinion that these hearings are very helpful. They are helpful for the public to get to share in the discussion and I think they are very useful. Of course they can have temporary effects on the stock market one way or the other, but I think it is something that is very important and ought to be continued. I want to make that clear.
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    I also want to point out this in the context of the Humphrey-Hawkins, for the first time since Humphrey-Hawkins was passed under your leadership this country has achieved the goals of Humphrey-Hawkins. We have not only achieved them, but we have maintained them over the past eighteen months. Balanced budget, adequate productivity growth, reasonable price stability, and unemployment rate near 4 percent, all were goals of Humphrey-Hawkins.

    In fact, when that legislation passed most economists said that we would never reach those goals. Others said that if we reached all those goals together, they would work at cross purposes and we wouldn't have a good economy. So, the wisdom of those goals, now that they have been achieved, I think is being demonstrated daily in our economy. But as we prepare to enter the new millennium, I think it is important for the Federal Reserve, and I think today gives you a good opportunity to clearly articulate the principles on which future policy decisions will be made. Particularly speak to us and discuss why the Fed thinks it is necessary to maintain this tightening bias or tightening mode when we are seeing very little real inflation. We may be seeing signs of inflation, but the inflation rate is still low.

    Let me conclude by saying I know there are a lot of pitfalls out there, a lot of potential things that can affect the economy. Obviously inflation is something we talk about all the time and we have a spike in oil prices, which is of great concern. You have expressed your opinion on that. Also, the inversion of the bond yields, which historically both when you get—obviously inflation, but also when you get a bond yield that stays inverted, it usually portends an economic downturn. So I would like you to discuss that bond inversion.

    Also, I would like you to talk about what you consider some other danger signs. Let me just offer two of them to you, one that I am especially concerned about that sort of was confirmed in the Seventh Federal Reserve Report is margin lending. Now margin lending tends to go up when the market goes up, so we should expect that margin lending would go up. But actually what we are seeing is we are seeing margin lending going up faster than the market as a whole. I would like you to discuss what concerns you have about that, particularly in that the banks are increasing their lending to security brokers and security brokers are increasing their lending not only to their internal accounts, but also to other investors. So I would like you to touch on that.
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    The second thing is our U.S. current account deficit, which is forecast to climb to 4.2 percent GDP this year. And to not only that, but to remain above 4 percent for 2001. I know that can cause problems if investors don't continue to purchase U.S. denominated financial assets on a large scale and large enough to finance our external debt. So I would hope you will comment on that.

    It is undeniable that our economy, our prosperity in this country, the growth, is at a historical high, but at the same time, Mr. Chairman, there are potential dangers that exist and threaten our economy. And we will be counting on you to help guide us down the unmapped and the untraveled roads of the new millennium. I will say this to the committee and to the American people that your experience and intellect should serve us well in this endeavor, one that will have unprecedented challenges and complexities. Thank you.

    Chairman LEACH. Thank you, Mr. Chairman.

    For a final opening comment, Mr. Sanders.

    Mr. SANDERS. Thank you, Mr. Chairman. And welcome, Mr. Greenspan. I do not share the rosy outlook of my friend from Alabama. And I want to pick up on some of the points made by Mr. LaFalce, because after all of the statistics are out there, really what matters is what is going on with the average person.

    And I know that the average person turns on the television every day and hears that the economy is booming, we have never had it so good. But sometimes those average working people have a little difficulty watching the television, because they are out working longer hours for lower wages than they used to. And the statistics are pretty clear that between 1973 and 1998 real wages for the average American worker declined. Now in the last few years we have seen some increases and we are appreciative of that. But let's not kid ourselves, the average American today is working longer hours for lower wages. It is not uncommon for that worker, whether it is in the State of Vermont or New York State or anyplace else, to have to work two or three jobs.
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    Mr. Greenspan, when you and I were a bit younger what used to be understood is that one breadwinner in a family, before the great economic boom, could go out and work forty hours a week and bring in enough income to take care of the family.

    Well, you know what? In the State of Vermont and throughout the country in the midst of this great booming economy I do not see so many families where one breadwinner working forty hours a week is earning enough money to take care of the family. What I see are wives out working, as well as husbands. I see people working fifty or sixty hours a week. I see people working two jobs and three jobs.

    So let me respectfully disagree with those people who say the economy is booming for all people. Now, is the economy booming for some people? Sure it is. The wealthiest people in this country have never had it so good. Even magazines like U.S. News talk about the rich getting richer.

    We have today in the United States the largest gap between the rich and the poor of any Nation in the industrialized world. And let me not just talk about economics, let me talk about morality, if I might, something we don't always talk about in the Banking Committee. We have got to raise the question of whether it is appropriate in our Nation, under current economic policy, that we see a proliferation of millionaires and billionaires, and at the same time throughout this country the emergency food shelves are overflowing because low income people don't have enough food to eat. We continue to have—we don't talk about this issue—by far the highest rate of child poverty in the industrialized world.

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    Scandinavia and many of the European countries have basically wiped out childhood poverty, and yet 20 percent of the kids in this country live in poverty. Mr. LaFalce appropriately mentioned that close to 45 million Americans have zero health insurance and many more are underinsured. I think we have got to, as a committee, as a Nation, start dealing with the reality of the very unequal distribution of income and wealth in this country.

    Is it appropriate, my colleagues, that the wealthiest 1 percent of the population owns more wealth than the bottom 95 percent, or that one person owns more wealth than the bottom 40 percent of the families in this country?

    I am also concerned about something that recently came to the public's eye, and maybe Mr. Greenspan can comment on this later. The International Labor Organization, the ILO, recently published a report, and working people in the United States now have the dubious distinction of working longer hours than the Japanese, and longer hours than the workers of any other industrialized nation.

    In fact, we have a situation where the number of Americans working more than one job at a time increased 92 percent between 1973 and 1997. Americans who hold more than one job work an average of forty-eight hours a week, and 40 percent of them work fifty to sixty hours a week. Is this a booming economy? Why, if this economy is booming, why aren't people making more money and working fewer hours and having more time with their families?

    So, Mr. Chairman, I would hope, and I echo Mr. LaFalce, that we have look at what is happening to the average person in this country, and the quality of life of that person. And I think the end result is that we need some fundamental changes in economic policy to make the economy work for the middle class and the working class, and not just for the millionaires and the billionaires.
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    Thank you, Mr. Chairman.

    Chairman LEACH. I thank the distinguished gentleman.

    Mr. Chairman, you may proceed with the understanding that there are philosophical divides in America on this as reflected in the committee. Please.


    Mr. GREENSPAN. I must say, Mr. Chairman, that that is what makes our country great. That is the ability to have differences freely expressed and debated, and there are not that many countries in the world which can say that they have it at the level that we do. I think that is a great strength of this Nation.

    Mr. Chairman and Members of the committee, I appreciate the opportunity to present the Federal Reserve's Semiannual Report on the Economy and Monetary Policy.

    There is little evidence that the American economy, which grew more than 4 percent in 1999 and surged forward at an even faster pace in the second half of the year, is slowing appreciably. At the same time, inflation has remained largely contained. An increase in the overall rate of inflation in 1999 was mainly a result of higher energy prices. Importantly, unit labor costs actually declined in the second half of the year. Indeed, still-preliminary data indicate that total unit cost increases last year remained extraordinarily low, even as the business expansion approached a record nine years. Domestic operating profit margins, after sagging for eighteen months, apparently turned up again in the fourth quarter, and profit expectations for major corporations for the first quarter have been undergoing upward revisions since the beginning of the year, scarcely an indication of imminent economic weakness.
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    Underlying this performance, unprecedented in my half-century of observing the American economy, is a continuing acceleration in productivity. Non-farm business output per work hour increased 3 1/4 percent during the past year—likely more than 4 percent when measured by non-farm business income. Security analysts' projections of long-term earnings, an indicator of expectations of company productivity, continued to be revised upward in January, extending a string of upward revisions that began in early 1995. One result of this remarkable economic performance has been a pronounced increase in living standards for the majority of Americans. Another has been a labor market that has provided job opportunities for large numbers of people previously struggling to get on the first rung of a ladder leading to training, skills, and permanent employment.

    Yet those profoundly beneficial forces driving the American economy to competitive excellence are also engendering a set of imbalances that, unless contained, threaten our continuing prosperity. Accelerating productivity entails a matching acceleration in the potential output of goods and services and a corresponding rise in real incomes available to purchase the new output. The problem is that the pickup in productivity tends to create even greater increases in aggregate demand than in potential aggregate supply. This occurs principally because a rise in structural productivity growth has its counterpart in higher expectations for long-term corporate earnings. This, in turn, not only spurs business investment, but also increases stock prices and the market value of assets held by households, creating additional purchasing power for which no additional goods or services have yet been produced.

    Historical evidence suggests that perhaps three to four cents out of every additional dollar of stock market wealth eventually is reflected in increased consumer purchases. The sharp rise in the amount of consumer outlays relative to disposable incomes in recent years and the corresponding fall in the savings rate, has been consistent with this so-called wealth effect on household purchases.
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    Outlays prompted by capital gains in excess of increases in income, as best we can judge, have added about 1 percentage point to annual growth of gross domestic purchases, on average, over the past five years. The additional growth in spending of recent years that has accompanied these wealth gains as well as other supporting influences on the economy appears to have been met in about equal measure from increased net imports and from goods and services produced by the net increase in newly hired workers over and above the normal growth of the work force, including a substantial net inflow of workers from abroad.

    But these safety valves that have been supplying goods and services to meet the recent increments to purchasing power largely generated by capital gains cannot be expected to absorb an excess of demand over supply indefinitely. First, growing net imports and a widening current account deficit require ever larger portfolio and direct foreign investments in the United States, an outcome that cannot continue without limit.

    Imbalances in the labor markets perhaps may have even more serious implications for inflation pressures. While the pool of officially unemployed and those otherwise willing to work may continue to shrink, as it has persistently over the past seven years, there is an effective limit to new hiring, unless immigration is uncapped. At some point in the continuous reduction in the number of available workers willing to take jobs, short of the repeal of the law of supply and demand, wage increases must rise above even impressive gains in productivity. This would intensify inflationary pressures or squeeze profit margins, with either outcome capable of bringing our growing prosperity to an end.

    As would be expected, imbalances between demand and potential supply in markets for goods and services are being mirrored in the financial markets by an excess in the demand for funds. As a consequence, market interest rates are already moving in the direction of containing the excess of demand in financial markets and therefore in product markets as well. For example, BBB corporate bond rates adjusted for inflation expectations have risen by more than 1 percentage point during the past two years. However, to date, rising business earnings expectations and declining compensation for risk have more than offset the effects of this increase, propelling equity prices and the wealth effect higher. Should this process continue, however, with the assistance of a monetary policy vigilant against emerging macro-economic imbalances, real long-term rates will at some point be high enough to finally balance demand with supply at the economy's potential in both the financial and product markets. Other things equal, this condition will involve equity discount factors high enough to bring the rise in asset values into line with that of household incomes, thereby stemming the impetus to consumption relative to income that has come from rising wealth. This does not necessarily imply a decline in asset values, although that, of course, can happen at any time for any number of reasons, but rather that these values will increase no faster than household incomes.
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    With foreign economies strengthening and labor markets already tight, how the current wealth effect is finally contained will determine whether the extraordinary expansion that it has helped foster can slow to a sustainable pace, without destabilizing the economy in the process.

    On a broader front, Mr. Chairman, there are few signs to date of slowing in the pace of innovation and the spread of our newer technologies that, as I have indicated in previous testimonies, have been at the root of our extraordinary productivity improvement. Indeed, some analysts conjecture that we still may be in the earlier stages of the rapid adoption of new technologies and not yet in sight of the stage when this wave of innovation will crest. With so few examples in our history, there is very little basis for determining the particular stage of development through which we are currently passing.

    Without doubt, the synergies of the microprocessor, laser, fiber-optic glass, and satellite technologies have brought quantum advances in information availability. These advances, in turn, have dramatically decreased business operational uncertainties and risk premiums and, thereby, have engendered major cost reductions and productivity advances. There seems little question that further major advances lie ahead. What is uncertain is the future pace of the application of these innovations, because it is this pace that governs the rate of change in productivity and economic potential.

    Monetary policy, of course, did not produce the intellectual insights behind the technological advances that have been responsible for the recent phenomenal reshaping of our economic landscape. It has, however, been instrumental, we trust, in establishing a stable financial and economic environment with low inflation that is conducive to the investments that have exploited these innovative technologies.
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    Federal budget policy has also played a pivotal role. The emergence of surpluses in the unified budget and of the associated increase in Government saving over the past few years has been exceptionally important to the balance of the expansion, because the surpluses have been absorbing a portion of the potential excess of demand over sustainable supply associated partly with the wealth effect. Moreover, because the surpluses are augmenting the pool of domestic saving, they have held interest rates below the levels that otherwise would have been needed to achieve financial and economic balance during this period of exceptional economic growth. They have, in effect, helped to finance and sustain the productive private investment that has been key to capturing the benefits of the newer technologies that, in turn, have boosted the long-term growth potential of the U.S. economy.

    The recent good news on the budget suggests that our longer-term prospects for continuing this beneficial process of recycling savings from the public to the private sectors have improved greatly in recent years. Nonetheless, budget outlays are expected to come under mounting pressure as the baby boom generation moves into retirement, a process that gets under way a decade from now. Maintaining the surpluses and using them to repay debt over coming years will continue to be an important way the Federal Government can encourage productivity-enhancing investment and rising standards of living. Thus, we cannot afford to be lulled into letting down our guard on budgetary matters.

    Although the outlook is clouded by a number of uncertainties, the central tendencies of the projections of the Board members and Reserve Bank presidents imply continued good economic performance in the United States. Most of them expect economic growth to slow somewhat this year, easing into the 3 1/2 to 3 3/4 percent area. The unemployment rate would remain in the neighborhood of 4 to 4 1/2 percent. The rate of inflation for total personal consumption expenditures is expected to be 1 3/4 to 2 percent, at or a bit below the rate in 1999, which was elevated by rising energy prices.
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    Continued favorable developments in labor productivity are anticipated both to raise the economy's capacity to produce, and through its supporting effects on real incomes and asset values, to boost private domestic demand. When productivity-driven wealth increases were spurring demand a few years ago, the effects on resource utilization and inflation pressures were offset in part by the effects of weakening foreign economies and a rising foreign exchange value of the dollar, which depressed exports and encouraged imports. Last year, with a welcome recovery of foreign economies and with the leveling out of the dollar, these factors holding down demand and prices in the United States started to unwind. Strong growth in foreign economic activity is expected to continue this year, and other things equal, the effect of the previous appreciation of the dollar should wane, augmenting demand on U.S. resources and lessening one source of downward pressure on our prices.

    As a consequence, the necessary alignment of the growth of aggregate demand with the growth of potential aggregate supply may well depend on restraint on domestic demand, which continues to be buoyed by the lagged effects of increases in stock market valuations. Accordingly, the appreciable increases in both nominal and real intermediate- and long-term interest rates over the last two years should act as a needed restraining influence in the period ahead.

    However, to date, interest-sensitive spending has remained robust, and the Federal Open Market Committee will have to stay alert for signs that real interest rates have not yet risen enough to bring the growth of demand into line with that of potential supply, even should the acceleration of productivity continue.

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    Achieving that alignment seems more pressing today than it did earlier, before the effects of imbalances began to cumulate, lessening the depth of our various buffers against inflationary pressures. Labor markets, for example, have tightened in recent years as demand has persistently outstripped even accelerating potential supply. As I have noted previously, we cannot be sure in an environment with so little historical precedent what degree of labor market tautness could begin to push unit costs and prices up more rapidly. We know, however, that there is a limit, and we can be sure that the smaller the pool of people without jobs willing to take them, the closer we are to that limit. As the Federal Open Market Committee indicated after its last meeting, the risks still seem to be weighted on the side of building inflation pressures.

    Mr. Chairman, as the American economy enters a new century as well as a new year, the time is opportune to reflect on the basic characteristics of our economic system that have brought about our success in recent years. Competitive and open markets, the rule of law, fiscal discipline, and a culture of enterprise and entrepreneurship should continue to undergird rapid innovation and enhance productivity that in turn should foster a sustained further rise in living standards. It would be imprudent, however, to presume that the business cycle has been purged from market economies so long as human expectations are subject to bouts of euphoria and disillusionment. We can only anticipate that we will readily take such diversions in stride and trust that beneficent fundamentals will provide the framework for continued economic progress well into the next millennium.

    Thank you, Mr. Chairman. I hope and trust that my full remarks will be included for the record. I look forward to your questions.

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    Chairman LEACH. Thank you, Mr. Chairman. Without objection, your full remarks will be placed in the record. Without objection, any opening statements of Members of the committee will be placed in the record as well.

    The Chair would like to note that we have been given new equipment in terms of timing that the committee has never had before. Now we not only have precise measurements of the five minutes, but we also have a clock that indicates the amount of seconds and minutes Members go over. And given that this is a large committee, let me indicate to Members that this will be watched very carefully at this kind of setting.

    Let me, if I could, begin with a question about the numerical aspects of labor in this sense, that economists in the 20th Century have varying views about the intermix of the importance of capital and labor. But in countries like Japan it looks like there could well be a sustaining weakness in the economy based on the fact that the country is getting quite elderly. In parts of Europe that is the case and America seems to be about to confront the problem in about a decade.

    So the question I would ask you, and I don't know if the Federal Reserve has ever opined, does the Federal Reserve—or do you—have views on issues of a nature like the need or lack thereof for expanding visas for high tech employees and does that have an effect on the inflation rate? Does it have an effect on sustaining Social Security?

    Mr. GREENSPAN. I am sorry, could you speak into the microphone a little closer. I was having trouble hearing the question.

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    Chairman LEACH. The question relates to whether the Federal Reserve would have a position on the appropriateness of increasing, for example, visas for high tech employees. And does that have an effect on the inflation rate, does it have an effect on whether or not over a period of time Social Security can be handled more readily.

    Mr. GREENSPAN. It is fairly apparent that we are under fairly extreme pressure in high skilled labor markets, especially in the high tech areas. And I know that Congress has been pressured considerably by a number of high tech companies seeking to get increased visas and increased capacity to bring people into the country. We do not at the Fed have an official position on that. I would merely express, as I indicated in my prepared remarks, that it is fairly apparent that the people who are being brought in—and indeed the growth in our total labor force is approximately one-third immigrants, a little more than that actually in recent years—and there is no question that they contribute substantially to economic growth in this country.

    Chairman LEACH. If I could turn to another subject, oil is on the minds of many people with the price of oil going above $30 a barrel. And you have indicated that in a percentage basis some of that was factored into the last half of last year's inflation index. Are you concerned that another oil shock could have deterring aspects on our economy?

    Mr. GREENSPAN. Mr. Chairman, I have been through too many oil shocks to take them unseriously. Even if the evidence does fairly conclusively indicate that the proportion of both the American economy, and indeed the rest of the world that is dependent on oil for energy sources, is declining, and has declined very measurably. The problem that I think we have is, even in its reduced status, it is a very important element within an industrial system. And if the price changes fairly rapidly, it has a major impact on the structure of our economy. We are all acutely aware that the inventory levels of oil, both crude and products, in the United States has been driven down very substantially—well below normal. Indeed, some are joking that we need to measure the fumes to get any measure of inventory at all these days.
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    And what we know about very low inventories of any commodity is that if an untoward pressure, an unexpected pressure of demand surges, there is no buffer. And the result is a very substantial spike in prices with fairly substantial negative consequences to the economy. I don't forecast that, I merely recognize that the inventory levels worldwide in the so-called commercial stocks, which are those stocks available as a buffer to unexpected demands, are exceptionally low. And even though we are moving into a period when the normal pressures begin to ease, we are starting from a very low base. And the simple answer to your question is yes, I am concerned about what is happening to oil prices.

    Chairman LEACH. Thank you.

    Mr. LaFalce.

    Mr. LAFALCE. Thank you very much, Mr. Chairman.

    First of all, just a few observations. I think I read between the lines, Dr. Greenspan, that you might be suggesting that we could use more immigration in the United States in order to buttress our work force and actually add to the body politic. That certainly is my position. I think that what made the Buffalo, New Yorks great at the turn of the century, and so forth, and so forth, were the huge influx of immigrants and I think that can certainly help us in the future too. Was I correct in reading that between the lines?

    Mr. GREENSPAN. Well, I personally have always been of that persuasion, but I cannot speak for the Federal Open Market Committee in that regard, mainly because I have not discussed it with them in detail. I am obviously aware, as we all are, that this is a very difficult problem, a trade off against many other considerations, and I am not arguing that economics is the sole consideration here by far.
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    Mr. LAFALCE. Not at all. Let's talk about economics not being the sole consideration in your future testimony too. Let's talk about socioeconomic conditions and the relationship between the two—the Federal Reserve Board, the central bank of the United States, you are the central bank here, to a certain extent you are the central bank of the world. We don't want to lose sight of your primary mission in life, granted, but what are the present capacities of the Federal Reserve Board, what are the present practices of the Federal Reserve Board in data collection that could give us a better socioeconomic map or report card? I don't want you to reinvent the wheel of what you are doing, but if I were to sit down and say, look it, if I wanted you to give testimony on the following, could you? On educational status, on the amount of debt per household per person, on the amount of debt that college kids are assuming, because they must have a college education today, and what its effects are on their ability to have children, their ability to buy homes, on their ability to live where they want to live, perhaps where they grew up with their families as opposed to seek new jobs. What is this changing economic dynamic doing to pensions, because of the portability of jobs and perhaps the non-portability? What about health care, because so many jobs today are not permanent jobs, but temporary jobs or part time jobs, and so forth. If I were to sit down with you or your economists, could you tell me what data you collect that could, if Congress requested or if Members requested, give us a better indication of the social condition of America? Do we have not just one-worker families, but two or three or four or five, because they want to or because they have to, and so forth?

    Mr. GREENSPAN. Mr. LaFalce, it is a very difficult issue you are raising. It turns out that, because of the fairly extensive state of knowledge about all sorts of issues by the staff of the Federal Reserve, because many or most come out of an academic environment specializing in a number of issues related to economics, but which spill over into other considerations, we do have access to a vast amount of information. But it is from secondary sources. In other words, we know in some detail what the Census Bureau collects, which is extraordinary in detail for many, many different types of issues for which they survey the American population.
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    Mr. LAFALCE. Do you ever gather this information together in a way that could give me a report card on the issues that I am most concerned about?

    Mr. GREENSPAN. The answer to your question is we probably could, but we are not the best suited to do that. What we are good at doing in this regard is to handle, in an effective manner I should think, other people's data. We do have our own Survey of Consumer Finances in which we do collect data every several years.

    Mr. LAFALCE. Do you know of any other entity, especially within the Federal Government, that either does this or is better suited to do it?

    Mr. GREENSPAN. The Council of Economic Advisors, for example, is also exceptionally well staffed with people who, frankly, are in a much more recent context, having come out of the universities. And the types of issues that you are raising, while important, cannot be the focus of monetary policy. Nonetheless, we are all citizens, we are all very much aware of what numbers mean to various people and they represent various things, so I would say that I hate to impose a burden on the Council of Economic Advisors, but unfortunately, they are very well qualified.

    Mr. LAFALCE. Let me suggest this. I would like to get together with some representative from the Federal Reserve Board and maybe the Chairman of the Council of Economic Advisors and try to devise some type of a report card. I would like your help in that.

    Mr. GREENSPAN. I think you will find——
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    Mr. LAFALCE. I think Congress needs it. I think the American public need it. And I have yet to hear it presented to the Congress or to the American people.

    Mr. GREENSPAN. I would suggest, Mr. LaFalce, that you have people on your staff contact us or others and we will try to find a way to inform you on what is available, what could be done and what can't be done.

    Mr. LAFALCE. That would be great.

    Mr. GREENSPAN. Because there is a lot in the latter category as well.

    Mr. LAFALCE. That would be great. Thank you.

    Chairman LEACH. Thank you.

    And the Chair would like to give a resoundingly high mark to the gentlelady from New Jersey and her report card. But please go forth.

    Mrs. ROUKEMA. Thank you very much, Mr. Chairman.

    I am not going to go into that question of immigration cap. But I do want to discuss what I see as your report here today in the context of some policy questions that we are going to have to be facing as we approach the budget, tax policy and the question of paying down the debt. Mr. Chairman, of course you are always profound and substantive in your analysis, and I would like to take you on to another step.
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    As you remember last year, my question to you, and it was in the context of the tax debate at that time, was the relationship between tax cuts, paying down the debt, and the economic growth and inflation rates.

    Now, I had planned this question prior to reading this morning's New York Times article, but I am going to reference it and direct my question in the context of statements made in this article.

    It is prompted by Treasury Secretary Summers' proposal for paying off the debt by 2013.

    The article is entitled ''Shrinking Treasury Debt Creates an Uncertain World.'' It goes right to the essence of what you are talking about today in terms of its relationship to inflation. It may or may not be true.

    Let me just quote from the article and ask you for your response and how you would advise the Congress in terms of both debt and its relationship to the tax policies and balancing the budget and the spending policies.

    The reference is to last month, when Treasury outlined an aggressive plan to reduce the debt and to buy back debt already in investors' hands. At that time, this article says, ''the market went haywire.''

    It then goes on to say, ''More important, economists and market strategists are saying that the Treasury's plan and the ensuing rush to long-term bonds are throwing sand into the gears that the Fed uses to keep the economy perking while protecting against inflation.''
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    Mr. Chairman, I would like your reaction to that statement. How can we put that paying down the debt and effective monetary policy in balance? In addition, how would you advise us as we in the Congress face the budget this year, as well as another tax bill, and what has been a stated priority of paying down the debt?

    Could you respond, please?

    Mr. GREENSPAN. Indeed, I think that it is extraordinarily important to maintain surpluses and to pay down the debt in a significant manner.

    The argument that the process itself would undermine Federal Reserve policy is not correct. The reason it is not correct is that while it is certainly the case that when suggestions were made of a significant reduction in long-term maturities outstanding for Treasury issues, that they took on scarcity value. The prices went up very substantially and their interest rates fell dramatically, which would seem to be counter to the issue of maintaining an adequate degree of liquidity and liquidity positioning in the marketplace.

    If that had simultaneously created a major decline in long-term interest rates or intermediate interest rates in the private sector, then the argument would have been valid, but that indeed did not happen.

    It is the case that some very long private issues declined in yield, but not anywhere near as much as the Treasury yield. But, the vast proportion of private lending showed very little change in the level of interest rates, and it is that market which we are interacting with in an endeavor to get the appropriate degree of liquidity in the system to maintain economic balance.
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    So it is certainly the case that there have been large gyrations and volatility in the Treasury bond market, especially for longer issues, but, as far as we can judge, it has had very little effect on policies of the Federal Reserve, and it is more important to understand that the only way that you can have these surpluses over the long run is to reduce the Federal debt to the public. So it is not as though you can have a surplus and not have debt reduction.

    The only alternative would be for the Federal Government to create assets or to purchase a lot of private assets. I don't think that is a good alternative.

    Mrs. ROUKEMA. Thank you, Mr. Chairman. I know my time is up, but I am going to ask the Chairman in writing if he could then project how far into the future and to what point we pay down the debt over a time period. I appreciate your advice and counsel in that aspect of it.

    Mr. GREENSPAN. I would be glad to.

[Chairman Greenspan subsequently provided the following response for the record:

Although the Federal Reserve does not make longer-term projections on Federal debt outstanding and the time frame over which the projected paydown would occur, the Congressional Budget Office released on January 26 an updated set of such projections, based on three alternative scenarios. The projections appear in the Budget and Economic Outlook: Fiscal Years 2001-2010, pages 19-21. A copy of the relevant pages is attached.
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    Chairman LEACH. Thank you, Mrs. Roukema.

    Mr. Kanjorski.

    Mr. KANJORSKI. Thank you, Mr. Chairman.

    Mr. Greenspan, you are probably not aware of it, but I am the new Chairman of the Greenspan Memorial in Washington, DC. We are thinking that this upstanding economy certainly should have your fingerprint and perhaps your silhouette somewhere in Washington.

    I congratulate you, because as you may recall, maybe a decade ago, you and I were not quite certain that your activities in monetary policy were going to afford us the opportunity of this great growth. In 1991 or 1992, you assured me that your policies would create an economy that would be second to none.

    I think that has happened. With the budget agreement of 1993, I think both fiscal and monetary policies working together have really accounted for a good part of this great economy, plus, of course, the private sector.

    Mr. Greenspan, last year you told us to run the surplus, and I thought your advice was excellent. Last week I was one of only ten Members of Congress to oppose any tax cuts. I intend to pursue that position until we establish a plan for Government spending levels, paying down the national debt, and securing Medicare and Social Security's long-term solvency, because I very fundamentally believe that we should not get to the dessert before we have had the entree.
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    Do you still hold your positions in terms of what we do with reduction of taxes and the surplus? And I assume from your answer to the last colleague of mine that it is the same as last year; is that correct?

    Mr. GREENSPAN. Yes, indeed, Congressman, I still have the same position that I reiterated here a year ago and elsewhere since then, and I covered in some detail some of the data and some of the issues in my prepared remarks, even though I did not use them in my oral text.

    Essentially, the issue gets down to how secure we are in these surplus forecasts. As I tried to point out in my prepared remarks, there are very substantial uncertainties in both directions.

    It is quite conceivable that we may end up with even larger surpluses than we are currently projecting. But also because we are quite uncertain of the reasons why the ratio of tax receipts to taxable income in the individuals sector of the economy has been going up so significantly, even adjusting for what we know about capital gains and bracket creep and the like, because there is a large element in those increased revenues which we cannot explain until we see detailed tax reports on what has happened, which will take several years in the so-called statistics of income tabulation tables, we will not know how secure the forecasts are.

    My argument basically is to be patient, allow the surpluses to run as far as we can, to let debt as a consequence decline, and then, when we have a firmer view of what proportion of the surpluses, if any, are permanent, we then can create an aggregate fund, so to speak, which would tell us the extent to which long-term commitments could be made employing those monies.
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    Paying down the debt is not forever disposing of the surplus. It is merely putting it aside, because you can always reborrow it for whatever purposes you would want. My own judgment, as I believe I indicated last year, and I repeat, is that delaying employing those surpluses causes no harm of which I am aware, and awaiting the clarification of what parts of the surpluses are secure for longer-term calculations, I think will pay substantial dividends.

    Mr. KANJORSKI. Mr. Greenspan, moving completely off that subject and to another subject, I am disturbed about high oil prices and the impact they can have in drawing funds out of the marketplace to be used for investment. I am also concerned about unfairly distributing that burden on lower-income people and truckers who are independent contractors who cannot make the adjustment.

    For the third time in the last twenty-five years we have not as a Congress addressed this idea of whether oil and gasoline should be the basic product of our energy supply. As we move into the hybrid corn market and the new technologies of the 21st Century, do you think the President or the Federal Reserve or both in conjunction should convene some discussion of the fuel cell evolution? Should we look to the oil industry as the basic industry to feed that energy source? Or should we be looking at hydrogen production, since that takes us into a realm where we would control the commodity, as opposed to foreign control of the commodity?

    Mr. GREENSPAN. Congressman, I have been through innumerable synthetic fuels discussions, programs, and endeavors to counter previous oil shocks.

    I think our experience suggests that we ought to leave it to the marketplace to make these judgments. I think it is doing it at this stage. That is, as I indicated before, the weight of oil in our economy is falling fairly significantly.
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    My concern is not the longer term. That is pretty much locked into the type of technological changes that are going on. I do have short-term concerns, because of the extraordinary low level of inventory at the moment.

    But looking at the longer-term question, I think we are going to find that that issue will resolve itself fairly readily, and it is not evident to me that a specific Government program will foster that. We have spent very considerable resources over the decades in alternate means of technologies, and some have worked and some have not worked. But the thing that has worked most effectively is the fact that energy is being substantially—or I should say, oil—is being significantly priced out of the market. That is, at the current costs of crude oil in the recent ranges, it is still an expensive commodity; and as a consequence, energy sources are moving in the other direction, or, more importantly, are being so altered that the amount of energy we need per unit of output is going down very dramatically.

    So I am not particularly concerned about the longer term, but I do share a number of the concerns of your Members here about the immediate problem.

    Mr. KANJORSKI. Thank you.

    Chairman LEACH. Thank you, Mr. Kanjorski.

    Mr. Bachus.

    Mr. BACHUS. Thank you, Mr. Chairman.
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    Mr. Greenspan, Mr. Chairman, I mentioned in my brief opening statement margin lending. We have just had a February 7 report by the Federal Reserve which shows that bank lending to security brokers and dealers was unusually strong in the final two months of 1999.

    There has been—although margin lending I think amounts to only 1.5 percent of the total market value, in some technology stocks, momentum stocks, it is much, much higher. Apparently it has increased about one-third or more in the last six months of 1999.

    My question is this—and let me just throw in one other thing. There is also some evidence that it is not individual investors as much as it is some hedge funds and highly leveraged professional traders. But the last two or three real market downturns have been very much hedge funds and some of the professional traders. So are you following this issue closely?

    I know you have some concerns, but I know you said, or at least your last statement on this was you don't intend to take any action.

    Let me ask you, is this because—I know if you took action, it might actually cause a correction and aggravate the problem. But could you just comment on the general issue?

    Mr. GREENSPAN. First of all, I want to point out that the fairly significant rise in margin lending, as large as it was, as you point out, is still a small part of market values.
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    Most stocks are bought with strictly cash or employing other sources of funding. It is not basically coming out of the banking system. A good deal of the recent moves in bank lending probably are Y2K related, in part increasing liquidity, and a goodly part of the lending that occurs is clearly for Government securities or other forms of non-stock market-related issues.

    The problem that I have had with the issue of moving on margins is not a concern of what it would do to the marketplace. It is the evidence which suggests that it has very little impact on the price structure of the market or anything else. It has one characteristic, however. It basically has its impact, its incidence, on smaller investors, because they have no alternative means of financing. Large investors have all forms of financing, and margin is a very small part of their financing.

    It is true that there probably are some professional investors who are using margin debt for purposes of various different types of hedging or what have you. My impression is that it is probably very small and not an issue that one should be concerned about.

    Second, I view margins per se as essentially prudential, meaning that they are set or should be set by brokers or dealers or whoever is involved in lending to customers in order to protect the solvency of the broker-dealership. And as a consequence of that, even though we at the Federal Reserve stipulate initial margins, and by implication, perhaps maintenance margins, most of the individual brokerage firms have margins well in excess of that. So it is not a particular problem in that regard.

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    Having said all of that, I must tell you that the sharp rise in margin debt in November, December, and January, has not gone without awareness on the part of the Federal Reserve, because it may be telling us things that we need to know about the overall structure of the marketplace. We obviously are in constant discussion with a number of our colleagues in the Securities and Exchange Commission and elsewhere to better understand what is going on.

    So, as I have said before, and I will just really repeat, we are aware of something that appears to be somewhat different from what we have seen. The issue that engaged us wasn't so much the rise in margin debt. It was the rise in margin lending relative to the value of assets. Even though it is from an extremely low base, it has indeed accelerated. And that type of spike or type of statistical aberration invariably captures the Federal Reserve's attention, one way or the other.

    Mr. BACHUS. Thank you.

    Mr. Chairman, could I ask one follow-up question on what Chairwoman Roukema said?

    Chairman LEACH. Let me say this: we are going to go by this rule, and I am going to make a caveat to it, that no further questions can be asked beyond the five-minute, but if you want to ask a quick question for a response in writing, the Chair will accept that.

    Mr. BACHUS. Let me do that.

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    Mrs. Roukema talked about, with the Treasury bond, if we pay down the debt, we eliminate a lot of the Treasury bonds. I will submit this in writing. My question is, What type of instrument do you then use for your operations?

    I will submit it in writing. Thank you.

    Chairman LEACH. Thank you.

    Mr. Sanders.

    Mr. SANDERS. Thank you, Mr. Chairman.

    Mr. Greenspan, I have four questions that I would appreciate you responding to.

    Thirty percent of American workers earn poverty or near poverty wages. In fact, low-wage workers in the United States are the lowest paid low-wage workers in the industrialized world. The minimum wage, as you know, is now $5.15 an hour. If it had kept pace with inflation since 1968, it would now be $7.33 an hour.

    Many of us believe it is important to protect low-wage workers and raise the minimum wage so nobody in this country who works forty hours a week lives in poverty.

    Can you make a recommendation to Congress? In your judgment, should the minimum wage be raised?
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    Mr. GREENSPAN. I do not. The reason I do not, strangely enough, Congressman, starts off with the same premise that you did, namely, that I, too, am chagrined about the extent of the dispersion of incomes in this country and as I have said many times publicly, you cannot have an effective society unless you have the assent of all parties in it that the system is fair.

    My concern about the minimum wage is it does not do what you suggest it does.

    Mr. SANDERS. I would respectfully suggest the evidence——

    Mr. GREENSPAN. I understand that. I will give you my reasons.

    Mr. SANDERS. I have three other questions. You don't surprise me by telling me that you are against the minimum wage. I apologize. I don't have a whole lot of time.

    As you know, and I think agree, the United States has the most unfair distribution of wealth and income in the industrialized world. The richest 1 percent own 40 percent of our wealth, which is more than the wealth owned by the bottom 95 percent of all Americans. Meanwhile, 20 percent of our children live in poverty. We have millions of people who are experiencing hunger. We have some homelessness. People cannot afford health insurance and cannot afford to send their kids to college.
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    Could you briefly tell us what policies you would recommend to Congress to do away with or to ease this disparity of wealth that we are currently experiencing?

    Mr. GREENSPAN. Let me start, Congressman, by saying what I would not suggest. What I would not suggest is a means which would somehow obliterate the wealth of those who are in the upper-income groups or upper-asset groups, because there is no evidence to suggest at all that if you were to take the top 20, 50, 100, 500 people and essentially eliminate all the wealth that they had, that that would improve the standard of living of anybody. So merely obliterating wealth or merely confiscating wealth strikes me as a wholly inappropriate policy if the purpose is to achieve higher standards of living.

    Mr. SANDERS. Nobody is talking about obliterating or confiscating wealth. We are talking about fairness and the appropriateness of one person having $180 billion in wealth while children go hungry.

    My next question, I noted you played an active role as Chairman of the Federal Reserve in orchestrating a bailout of the $5 billion hedge fund known as Long-Term Capital. You came before our committee, and what you had to say was very interesting.

    Are you concerned about such mergers as Travelers Insurance and Citicorp when they form a company with assets of almost $700 billion, 140 times as large as Long-Term Capital? What happens if they fail? Who in God's name is going to bail them out? Are you concerned about that?

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    Mr. GREENSPAN. First of all, let me just say that we don't consider that bringing in private investors into the Long-Term Capital Management problem was a bail-out. It was their money, their interest, and all we did was to offer them an office space to come around and——

    Mr. SANDERS. You were very concerned about the implications of failure.

    Mr. GREENSPAN. I certainly was.

    Mr. SANDERS. If you were concerned about that failure, what about the failure of a company——

    Mr. GREENSPAN. We would be concerned about the failure of any large institution.

    But let me suggest further, we do not believe that in the event that it turns out that a substantial institution fails that they should be bailed out. In effect, what we may conclude for purposes of stabilizing the system is that an orderly liquidation of an institution is far superior to letting it crash with all of the implications that would occur.

    That would mean, of course, that all equity owners are out; it would mean that perhaps some debt debenture owners would also have losses. Our notion would not be the question of perceiving that an institution is ''too big to fail'' and that therefore it gets Government support.
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    Mr. SANDERS. I apologize. Let me ask you my last question. I don't mean to be rude.

    Chairman LEACH. Excuse me, Mr. Sanders. This last question will have to be answered in writing.

    Mr. SANDERS. Yes, Mr. Chairman.

    In your own Federal Reserve Report on the Survey of Consumer Finances, if you look on page 5—the statistics on before-tax mean family income—it shows that for all families earning less than $100,000 a year, the mean family income went down between 1995 and 1998. That is on page 5. Meanwhile, the incomes of people earning over $100,000 a year went up.

    Given that reality, I don't know how you keep talking about a booming economy if only the people on the top are doing quite so well.

    Mr. GREENSPAN. I hate to trash some of the data that we collect, but that is a sample mean, and we have far superior data for the aggregate of the mean.

    Mr. SANDERS. You are criticizing your own data?

    Mr. GREENSPAN. No. The problem, basically, is that these are sample statistics. The purpose of this is the distribution, which it is. I agree with your conclusion about the distribution. I just wanted to point out that the actual real median family income between 1995 and 1998 actually went up.
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    Mr. SANDERS. For everybody?

    Mr. GREENSPAN. For everybody.

    Mr. SANDERS. But not for people with $100,000 a year or less?

    Mr. GREENSPAN. All I would say to you is I think the data are accurate in the relevant sense and the conclusion that you draw I don't find objection to.

    Mr. SANDERS. OK. I am using your statistics, sir.

    Chairman LEACH. The gentleman's time has expired.

    Mr. Castle.

    Mr. CASTLE. Chairman Greenspan, I come from Delaware. We are not exactly the Northeast. We are a mid-Atlantic State, but we are also very dependent upon oil for heating and gasoline and whatever. So following up on what Mr. Leach, Mr. Kanjorski, and others have asked about oil prices, I would be interested in developing a little beyond what you have already stated. I have heard clearly what you have stated here in your testimony about leaving it to the marketplace. I don't disagree with that.

    I would like to ask two questions along the lines of short-term and long-term. First, when you are talking about leaving it to the marketplace, I thought you were talking more long-term than you were short-term. Maybe I am wrong about that, and it will take care of itself. When you say you are concerned short-term, I don't know if you mean you are concerned enough to deal with one of the potential solutions which is out there or one which you might suggest. And I'm not saying we should. I am just curious as to what your opinions are, dealing with the strategic petroleum reserves, releasing those?
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    The President yesterday released more of the low-income heating assistance yesterday and suggested that Congress should approve even more within that area, I guess in endeavoring to help the low-income people and to some degree to keep prices down.

    I am interested in your comments with respect to the short-term, if there is anything we should do. Let me ask the other part of the question. We can just do it together. That is longer term.

    I and you and many others have seen the problems in the 1970's and 1990's caused by sharp rises in oil prices. We were more dependent. You have indicated we are not as dependent now. I don't know what your data is. We are clearly, by anybody's standards, less dependent on oil now than we were then. In the longer term we are going to be less dependent, and technology will help us take care of that. But we are still pretty dependent.

    I am not sure that I agree with the policies that the United States has. Unfortunately, I don't have an alternative to that that I can articulate to you, but I don't know if the Strategic Petroleum Reserve is really a good mechanism to deal with this.

    We deal with OPEC. OPEC is an oligopoly, I guess; but it is made up of a series of countries with which we have foreign relations, and in some instances we have military relations. In some cases we have excellent relations, and in some cases less excellent relations.

    I don't know if our trade representatives, our Secretaries of State, our Presidents, regardless of political party in this particular circumstance, are doing the right thing or not with respect to the long-term oil policy, because we keep coming back to this crisis.
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    Frankly, it has at least been a major factor in driving two recessions. I don't think it necessarily would this time, but it could; and it sure as heck is creating a lot of havoc for constituents of ours and yours and a lot of people in this country with respect to the higher prices.

    I am interested in that, too. In addition to the short-term question, I am interested in the long-term question, too, are our policies really correct, or should we be doing something more aggressively to prevent this from becoming a crisis, even in this time of perhaps declining dependency upon oil?

    Mr. GREENSPAN. Well, Congressman, as I said before, I believe that the long-term trends are going to gradually take care of this problem better than anything we are able to do.

    Mr. CASTLE. So our policies are satisfactory and we should not——

    Mr. GREENSPAN. I will try to respond.

    First of all, let me say that I have always viewed the Strategic Petroleum Reserve as a reserve in the event of a serious crisis. By that, I mean a shutdown in Middle East oil or something of that nature, because of a catastrophe of some form.

    I think it would be a mistake to try to move market prices by small additions or subtractions from the Strategic Petroleum Reserve. We are dealing with an overall world market which is huge relative to our Strategic Petroleum Reserve. It is foolishness to believe that we could have any significant impact short of a very major liquidation in the short term of that reserve, and I don't think anybody is arguing for that.
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    I think the way you phrase the problem is correct; there is more to this than economics. It is a diplomatic-security question which I think has engaged everybody.

    I want to say parenthetically that while I don't deny that there are numbers of oil producers around the world who view the short-term price as the only thing they look at, and the higher, the better, most of them do not. I think they recognize that their longer-term interest, meaning the maximum value of the reserves they have in the ground, is fostered by a price which is generally moderate from the point of view of consumers.

    So I don't think that there is a significant difference of opinion in a number of these crucial areas. I do agree with you: it is an oligopoly. Oligopolies have the capacity to restrict supply and affect price. They do that. OPEC does it. That is its purpose.

    I'm not terribly concerned over the longer term, nor do I think there are major changes in American policy in this regard that really are required.

    Mr. CASTLE. Thank you, Chairman Greenspan.

    Chairman LEACH. Thank you, Mr. Castle.

    Mr. Bentsen.

    Mr. BENTSEN. Thank you, Mr. Chairman.

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    Chairman Greenspan, I must say, from my perspective, I guess I am a little less startled about oil prices today than I was a year ago when they were around $10 or $12 a barrel, and $30 a barrel at least in my neck of the woods is close to a fair price.

    I would say from our perspective, we are more concerned about long-term than the short-term, because the short-term looks pretty good, but the long-term I think we see fluctuation in price. I think at least people in the oil business that I talk to see this more as a predatory or structural issue with respect to OPEC and some of the other large producers that eventually will break and we will go back to perhaps a glut.

    It is interesting, in a discussion I had with someone from the Energy Department recently, that their bigger concern is the natural gas market, and that the decline in EMP and natural gas could lead to a lack of stock in the medium term that could affect prices, particularly as we expand the utilization.

    I do want to talk about a couple of other things. I will just read off the questions, and if you could get to them, that would be great.

    I also would just say from your testimony, in what I read, it would appear to me that the Fed remains vigilant toward its interest rate outlook, and that at least from my perspective, it would appear that you all are perhaps not finished with tightening.

    I would like you to comment on your colleague in economics, Stephen Roach's, comments. He has written a number of articles recently where he is saying that perhaps we are misinterpreting productivity numbers. Mr. LaFalce referred to them.
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    Second of all, if you could comment, there has been a discussion about the Treasury market. If in fact we do pay down public debt by 2013, what do you view as will be the store of value to replace the Treasury for pricing purposes in the credit markets, and do you perceive any problem with that?

    And then with respect to Government spending—and this may be more of a comment—you state that we should pay down debt before anything else, and I agree with you on that. You then state in the absence of that, if Congress cannot control itself, that then we should pursue tax cuts rather than any spending increases. You state that the reason for that, one of the large reasons for that, is that it is easier to back away from tax cut policy if our surplus protections turn out to be wrong than open-ended spending commitments.

    As you know, we are having a major debate in Congress over what the budget baseline should be going forward and how we should project the surplus and how that fits into the tax-and-spending policies.

    First of all, I would say this: I think if you look at Congress' experience from 1980 to 1993, when we saw a quadrupling of the national debt, a lot of that was related to tax policy implemented in 1981 that took Congress over a decade to get a handle on the debt that was occurring.

    Now, there were spending decisions made as well, but in the context of that, if you look at discretionary spending, both defense and non-defense discretionary spending, it has gone down dramatically as a component of the Federal budget and as a percentage of the gross domestic product. In particular, nondiscretionary spending has declined quite dramatically over that period of time.
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    I guess my question is, while I know that you, from your philosophical standpoint, think that most Government spending is a drag on the economy, even though we have seen the economy perform quite well over these last nine years, I am not sure how your testimony adds up, given our experience with the 1980's and trying to dig out of this hole, which it did take many measures to do so in reversing some tax policy, and the fact that where you have basic functions of Government, be they defense and non-defense on the discretionary side, where we have really seen some declines in that area, that we should take this into consideration when we are looking to determine what our baseline is?

    Mr. GREENSPAN. Congressman, first of all, I would reach over a much longer period, going back into the 1960's and even the 1950's. If you take the full context of the period—and I might add, the most recent year or two, especially the handling of the budget last year—what that suggests to me is that the bias is far more the problem on expenditures than on taxes. I would conclude that while my first priority, as indicated before, is to get the debt down and allow the surplus to run, if somebody tells me that that is politically infeasible, I think we are far better off lowering taxes than allowing new programs with long extended potential projections to be put into place.

    With respect to the first question you raise relevant to the issue of our productivity data being distorted by the fact that a lot of people work overtime and they don't get recorded, I wish to say that if that is true, that is, if there are hours which are uncounted, so to speak, and therefore output per hour is being overestimated as a consequence, you would also get a far lower level of compensation per hour, and indeed, if there is any significant change in the productivity data, there must be exactly the same change in average hourly compensation.
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    And we have independent estimates of that which suggest that there is very little range in which the real hourly compensation could have changed, and as a consequence of that, I find the notion of a real bias as a result of underestimating hours most unlikely.

    On the Treasury issue question, I would merely say that monetary policy can be run in a number of different ways, and I don't perceive this as an imminent problem in any respect whatever. Clearly, if we had to, we could invest in private securities or quasi-private securities.

    Mr. BENTSEN. That was not my question. My time is up, but if you could answer for the record, what I am more interested in is today most private debt and other types of public debt is priced off of intermediate and long-term Treasury debt.

    Now, in the event that there is no public Treasury debt, what replaces that in the marketplace for pricing stability in that area? It is not a question related to——

    Mr. GREENSPAN. There will emerge benchmark private issues which will be created by the marketplace and fulfilled substantially by individuals or companies who will find, for example, the ability to create triple A-plus private issues. And if there is a market deficiency in that regard, it will become profitable for numbers of people in the financial industry to supply it. I have no question whatever that that will occur if we significantly reduce the total debt to the public.

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    Mr. BENTSEN. Thank you.

    Chairman LEACH. Mr. Royce.

    Mr. ROYCE. Thank you.

    Mr. Chairman, actually, marginal rate reduction, the rated tax reduction as a result of that, the total revenues doubled between 1980 and 1990. As I recall, it was Congress increasing spending by 2.3 times that brought about the increase in the deficits. The spending was going up faster than the revenue increase. I think that would argue for your point.

    But I want to ask you about one of your arguments about the movement from non-market economies to market economies, this evolution of free enterprise around the world and open market access that you argue is leading to keeping inflation in check by creating competitive cost pressures and also that you argue is leading to greater productivity by a more effective application of assets to more productive uses.

    We have a decision to make here in the Congress in terms of certain trade bills: the Africa trade bill, the Caribbean Basin Initiative, whether or not we have China move into the World Trade Organization.

    My question is, What would be the effect of these initiatives on economic growth in the United States, in your opinion, and what would be the effect on net job gains or losses in the United States if we go down this road of continued trade liberalization?

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    Mr. GREENSPAN. Trade liberalization in my judgment, Congressman, has been a significant net positive for the American economy and the American standard of living, for all the reasons you suggest.

    I have never argued that it is a job-creating program. I don't think that is what the purpose of trade is. The purpose of trade is to create a competitive environment which improves productivity and induces lower costs of goods to consumers. There should be no significant employment effect one way or the other, or at least that is what most academic evaluations have concluded.

    The effect on real growth and on standards of living around the world is unquestionably very significant, and I would argue very strenuously that the more that we in this country can do to be the leader in enhancing free trade, as we have been since the end of World War II, the better it will be for the United States and all of our trading partners.

    Mr. ROYCE. Let me ask you two other questions: What Government policy is the biggest impediment to continued economic expansion, in your view? And second, as you know, productivity growth is an important element of the GDP forecast that Congress gets from the Administration and from the Congressional Budget Office.

    These forecasts suggest that the rate of productivity growth, according to them, is expected to fall from 3 percent per year to 1 1/2 to 2 percent per year as we move out toward 2005.

    Based on what you know, is this a reasonable assumption on the part of the Administration and the Congressional Budget Office, or are they being unduly pessimistic here?
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    You have spoken of accelerating rates of growth, and this would be counterintuitive. What they are giving us here is a forecast that is very pessimistic only compared to that.

    Mr. GREENSPAN. With respect to your last question, as I say in my prepared remarks, I raise the possibility that there is a much wider range of potential productivity gains than is implicit in the average forecasts, because the average forecasts all look the same.

    The trouble is that each one of them has a wide potential range; but all they publish is the average, so what we see is that each forecast looks very close to the other. So I think we have to be prepared for the fact that we may get a fairly broader range.

    Having said that, I don't think, from the point of view of an average forecast, that either the CBO or OMB forecasts are particularly inappropriate.

    Mr. ROYCE. They might have been prudent conservatism?

    Mr. GREENSPAN. They might. Or, they might also prove accurate or too high. That is a long projection period, and there is a substantial uncertainty there. But more important is not so much the forecast of productivity, but the issue I raised before, namely, translating the behavior of economy into revenues. That is where the real issue is.

    With respect to the issue of impediments to the continued expansion, I am sure there are a lot of them, but you know something? I am inclined to answer the question in a different context in that what we have observed in the last fifteen or twenty years, is a major move toward free market economies in the world and especially in the United States. There has been a major move toward deregulation, and we have unbound a lot of Government impediments. This has been true irrespective of which party has been in power.
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    So rather than look at the issue of what remains to be done, I think it is important for us to recognize that what has been done is really very impressive. The fact that we have heard very little about it is that it has been noncontroversial. The trouble with non-controversial issues, as important as they are, is that you never hear them discussed.

    Mr. ROYCE. Thank you, Mr. Chairman.

    Thank you, Chairman.

    Chairman LEACH. Thank you, Mr. Royce.

    Mr. Sherman.

    Mr. SHERMAN. Thank you, Mr. Chairman.

    Mr. Chairman, I would ask—and you may have done this beforehand—that we may have five days to submit questions for the record and ask the Chairman and his staff to answer those for the record.

    Chairman LEACH. Without objection, that request is granted.

    Mr. SHERMAN. Thank you.

    Mr. Chairman, in the limited amount of time, I don't have a chance to ask the questions orally that I would like to, and in the written questions I will ask about the oil price rise and whether that is a reason to tighten monetary policy, because it is inflationary, or to loosen that because the oil price rise is such a drag on economic expansion. I will ask about the trade deficit.
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    I will ask whether a deficit hawk like Chairman Greenspan would advocate, even though he does not want us to spend money, perhaps spending $100 million or so more on gathering economic statistics and getting those out sooner.

    It is ridiculous in this Information Age that we don't know why we have a revenue increase and won't know for several more years, and certainly his advocacy for his advocacy on spending more and getting statistics out quicker would be useful.

    I will also ask about whether we should take into account in our monetary policy the fact that lower interest rates in the United States could lead to stability in Russia, whose nuclear weapons may pose a greater threat to us than all of the economics that we are talking about here today.

    I agree with Chairman Greenspan, that we are just on the beginning of a wave of increase in private technology. The issues before us are, first, how we can avoid screwing that up, but second, how we allocate those benefits.

    One economic standard that I would propose is the Joe Hill standard, that is, whether a person with a high school education, perhaps one or two years beyond that, can support a family in forty hours of work. By that standard, we may not be as well off today as we were thirty-five years ago.

    We have with us here today elements of the huge and expanding business news industry that is aimed as those who have capital. Those reports have seeped into our consciousness. They always go something like this: wages are up, that is bad; unemployment is down, that is bad; immigration will help keep labor costs down, so immigration is good.
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    It is not surprising that media aimed at those with capital focuses on those conclusions. What is of concern is that that kind of thinking seeps into the pores of decisionmakers, both the Fed and in Congress.

    My constituents tend to think that the whole purpose of the study of economics is to raise wages. That is what my constituents rely on. In fact, they are bemused that when they do tune into economic discussions, higher labor costs are thought to be a bad thing.

    Mr. Chairman, you commented on the fact that it is possible in the future that labor costs will rise more quickly than productivity, and this would squeeze profits; and you implied that, therefore, it would be a bad thing. Yet in your testimony you talk about the wealth effect.

    I would say that if profits were to go down and wages were to go up, if anything, you would have a decline in demand, because the wealth effect would not apply to working people the way it does now, a slight increase in the profits of a corporation leading to a huge increase in the stock of that corporation, leading to the owners of that corporation being able to spend more.

    The question that I would like you to answer is what fiscal policy, what congressional policy, what immigration policy could we adopt if the whole purpose of our policy were to have higher wages for working families?

    Mr. GREENSPAN. First of all, I look forward to answering the previous questions in writing.
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    Our goal shouldn't be higher wages; it should be higher real wages, that is, wages adjusted for purchasing power.

    Mr. SHERMAN. That is my question.

    Mr. GREENSPAN. Our specific goal, as we have enunciated before this committee on many occasions, is maximum sustainable economic growth. That means maximum sustainable real wages. So our concern is not that wages go up; our concern is if wages go up more than productivity it will create an inflationary imbalance which undercuts the economy and the ability of real wages to grow.

    So, while I certainly agree with you, much of the rhetoric which is employed in a number of discussions is a little loose on this question, because clearly it would be a mistake to view the issue of lower wages per se as being of value. It cannot be the case if our goal is maximum sustainable economic growth.

    So, I would suggest to you that an appropriate monetary policy which endeavors to contain inflation and thereby maximize economic growth is wholly consistent with the maximum sustainable real wage growth, as well.

    Mr. SHERMAN. I may have misstated my question. I realize we have to go on. But perhaps for the record you will be able to explain not only how we can adopt policies that give us the maximum real sustainable economic growth, but how we allocate the fruits of that growth to working families, as opposed to seeing what appears to be the bulk of those fruits go to those with capital and with stock ownership.
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    Mr. GREENSPAN. Shall I answer that in written form?

    Mr. SHERMAN. Unless the Chairman——

    Chairman LEACH. It would be preferable.

    Mr. GREENSPAN. I will be glad to.

    Chairman LEACH. Dr. Paul.

    Dr. PAUL. Thank you, Mr. Chairman.

    Good morning, Mr. Greenspan. I understand that you did not take my friendly advice last fall. I thought maybe you should look for other employment, but I see you have kept your job.

    I am pleased to see you back, because at least you remember the days of sound money, and you have some respect for it. Even though you do describe it as nostalgia, you do remember the days of sound money. So I am pleased to have you here.

    Of course, my concern for your welfare is that you might have to withstand some pummeling this coming year or two when the correction comes, because of all the inflation that we have undergone here in the last several years.

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    But I, too, like another Member of this committee, believe there is some unfairness in the system, that some benefit and others suffer. Of course, his solutions would be a lot different than mine, but I think a characteristic of paper money, of fiat money, is that some benefit and others lose.

    A good example of this is how Wall Street benefits. Certainly Wall Street is doing very well. Just the other day, I had one of my shrimpers in my district call me and say he is tying up his boat. His oil prices have more than doubled and he cannot afford it, so for now he will have to close down shop. So he suffers more than the person on Wall Street. So it is an unfair system.

    This unfairness is not unusual. This characteristic is well-known, that when you destroy and debase a currency, some people will suffer more than others. We have concentrated here a lot today on prices. You talk a lot about the price of labor. Yet, that is not the inflation, according to sound money economics.

    The concern the sound money economist has is for the supply of money. If you increase the supply of money, you have inflation. Just because you are able to maintain a price level of a certain level, because of technology or for some other reason, this should not be reassurance, because we still can have our mal-investment, our excessive debt and borrowing. It might contribute even to the margin debt and these various things.

    So I think we should concentrate, especially since we are dealing with monetary policy, more on monetary policy and what we are doing with the money.

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    It was suggested here that maybe you are running a policy that is too tight. Well, I would have to take exception to that, because it has been far from tight. I think that we have had tremendous growth in money. The last three months of last year might be historic highs for the increase of Federal Reserve credit. In the last three months, the Federal Reserve credit was increasing at a rate of 74 percent at an annual rate.

    It is true, a lot of that has been withdrawn already, but this credit that was created at that time also influenced M3, and M3 during that period of time grew significantly, not quite as fast as the credit itself, but M3 was rising at a 17 percent annual rate.

    Now, since that time, a lot of the credit has been withdrawn, but I have not seen any significant decrease in M3. I wanted to refer to this chart that the Federal Reserve prepared on M3 for the past three years. It sets the targets. For three years, you have never been once in the target range.

    If I set my targets and performed like that as a physician, my patient would die. This would be big trouble in medicine, but here it does not seem to bother anybody. And if you extrapolate and look at the targets set in 1997 and carry that set of targets all the way out, you only missed M3 by $690 billion, just a small amount of extra money that came into circulation. But I think it is harmful. I know Wall Street likes it and the economy likes it when the bubble is getting bigger, but my concern is what is going to happen when this bubble bursts? I think it will, unless you can reassure me.

    But the one specific question I have is will M3 shrink? Is that a goal of yours, to shrink M3, or is it only to withdraw some of that credit that you injected through the noncrisis of Y2K?
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    Mr. GREENSPAN. Let me suggest to you that the monetary aggregates as we measure them are getting increasingly complex and difficult to integrate into a set of forecasts.

    The problem we have is not that money is unimportant, but how we define it. By definition, all prices are indeed the ratio of exchange of a good for money. And what we seek is what that is. Our problem is, we used M1 at one point as the proxy for money, and it turned out to be very difficult as an indicator of any financial state. We then went to M2 and had a similar problem. We have never done it with M3 per se, because it largely reflects the extent of the expansion of the banking industry, and when, in effect, banks expand, in and of itself it doesn't tell you terribly much about what the real money is.

    So our problem is not that we do not believe in sound money; we do. We very much believe that if you have a debased currency that you will have a debased economy. The difficulty is in defining what part of our liquidity structure is truly money. We have had trouble ferreting out proxies for that for a number of years. And the standard we employ is whether it gives us a good forward indicator of the direction of finance and the economy. Regrettably none of those that we have been able to develop, including MZM, have done that. That does not mean that we think that money is irrelevant; it means that we think that our measures of money have been inadequate and as a consequence of that we, as I have mentioned previously, have downgraded the use of the monetary aggregates for monetary policy purposes until we are able to find a more stable proxy for what we believe is the underlying money in the economy.

    Dr. PAUL. So it is hard to manage something you can't define.
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    Mr. GREENSPAN. It is not possible to manage something you cannot define.

    Chairman LEACH. Is the gentleman finished?

    Dr. PAUL. Yes.

    Chairman LEACH. Thank you very much, Dr. Paul.

    Mr. Watt.

    Mr. WATT. Thank you, Mr. Chairman.

    Chairman Greenspan, it is good to see you again. I always have to reiterate my constant state of confusion about the matters that you testify about probably a lot more, because I just don't understand the language that by and large you are communicating in and because of any problem that you are having with it is just my own problem. But that is not unusual.

    You cautioned, Chairman Greenspan, in the last bit of your oral presentation about bouts of euphoria and disillusionment. I confess that to some extent I found your presentation, the first part, pretty disillusioning and the second part, at a minimum, optimistic, if not euphoric. So it may be that what is happening with the human expectations taking a cue from that kind of dichotomy that you seem to be projecting. The question I wanted to ask, though, and I am sure you are always reluctant to comment on the stock market, but when you talk about the wealth effect, I take it that the primary aspect of that is the buying of and bidding up of stock. And I am wondering whether the approximately 9 to 10 percent correction that has taken place in the market during the first month or so of this year in any way reassures you or leads you to believe that maybe that wealth effect may be beginning to diminish some.
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    Mr. GREENSPAN. Congressman, I think you are quite correct that I have been and will continue to be reluctant to answer questions of that sort. Let me just say——

    Mr. WATT. Does that mean that I am not going to get an answer to that? Go ahead.

    Mr. GREENSPAN. I guess that is right. Let me add, however, that the wealth effect is a much broader issue than strictly stocks. For example, it is certainly the case that stock prices move around fairly quickly. But a not insignificant part of the wealth effect is coming out of housing. We estimated roughly about a sixth of it. And the reason is that the average turnover of a home is about nine years. So even though annual percentage changes may not be all that large, with the increase in values over a nine-year period, you begin to pick up some fairly substantial capital gains, so that upon the sale of the house there is a fairly large capital gain that comes out of the transaction which is unencumbered by debt to the seller after the down payment on the next home, which means there is a substantial amount of liquidity which we estimate is about a sixth of the total wealth effect.

    Mr. WATT. What are the other components to the wealth effect? You have housing, you have stock values, what are the other factors?

    Mr. GREENSPAN. If fact, what we actually measure the wealth effect by is the ratio of household wealth to household income. And so we don't get a wealth effect if the aggregate assets of the household go up about the same amount as income. It is only over and above that do we measure the so-called wealth effect. It is a definition that we employ which gives us the ability to separate the effects of income on consumption and wealth change.
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    Mr. WATT. You talked about housing being one-sixth of that wealth effect has occurred. What are some of the other components of it?

    Mr. GREENSPAN. The main other component is equities. But there are debt instruments which could be part of it. Obviously any instrument whose market value doesn't change is not particularly relevant. For example, a savings deposit, whose value doesn't change, a short term bond whose value changes very, very little, is in the net assets of households, but it rarely has any impact that we consider a wealth effect.

    Mr. WATT. I appreciate your not answering the other part of my question. I am sure the stock market appreciates it even more. They probably don't want you to answer that question either.

    Chairman LEACH. Thank you, Mr. Watt.

    Mr. WATT. I yield back.

    Chairman LEACH. Mr. Hill.

    Mr. HILL. Thank you, Mr. Chairman.

    Chairman Greenspan, thank you very much for being here. In reading your testimony and the report that you gave to Congress basically I would summarize it by saying that it is your intention to continue to raise interest rates until the aggregate demand is more in line with the output of the economy, is that a correct summation?
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    Mr. GREENSPAN. I tried to phrase exactly what we meant in the words that are in the testimony. And I choose not to go any further.

    Mr. HILL. Part of aggregate demand is Government spending, is that right?

    Mr. GREENSPAN. That is correct.

    Mr. HILL. So an important part of the effort to get aggregate demand back in line with output is to continue the constraints on the rate of growth of Government spending; you agree with that?

    Mr. GREENSPAN. Yes.

    Mr. HILL. And an earlier question was asked you of whether or not your position has changed with regard to what ought to be done with surpluses. I believe you stated no, that position hadn't changed. I just want to clarify for the record what that position is because it is in your testimony. And in it you said that ''I recognize that growing budget surpluses may be politically infeasible to defend. If this proves to be the case, as I have testified previously, the likelihood of maintaining a still satisfactory overall budget position over the long run is greater, I believe, if surpluses are used to lower tax rates rather than to embark on new spending programs.''

    It continues to be your position that the choice is between increasing spending or reducing taxes with surpluses. You believe lowering taxes would be better for the economy.
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    Mr. GREENSPAN. I do, Congressman.

    Mr. HILL. And there is a difference between projected surpluses and I think you have testified that we shouldn't be doing anything with surpluses we don't know we are going to realize, which are protected.

    Mr. GREENSPAN. We should not make long-term commitments to surpluses we don't feel secure about.

    Mr. HILL. But on the alternative there are surpluses, that this year's budget we know fairly well that we are going to have a $20-some billion surplus in the fiscal year we are in now and I think reasonably accurately can project that we are going do have a significant surplus in the next fiscal year, the budget we are working on now. Would you say it is appropriate that we can make decisions with regard to that, the three decisions being pay down the debt, reduce taxes or additional spending?

    Mr. GREENSPAN. I would say it applies both to the short term and the long term.

    Mr. HILL. One last question and that is with respect to the situation in Japan, there are some indications that Japan has experienced its second quarter of negative economic growth. That is an economic term, negative economic growth. Should that concern us with regard to how the economy in Japan might impact aggregate demand in the United States?

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    Mr. GREENSPAN. Well, it is certainly the case that early indications of fourth quarter GDP in Japan are negative, at least according to the people who produce the data. And they are usually a good source for that sort of thing. I believe they publish their figure on March 10th or some time earlier in March, so the official figure is not yet out. There are some conflicting data, however, about the extent of weakness in the Japanese economy in the sense that their GDP to be sure is negative, but their industrial production is not, at least not as negative. As a result of this, it is not terribly clear how one should characterize the period they are going through. It is a sluggish period. It is one in which they are struggling to work their way through the huge overhang that has occurred in the economy following the collapse of the real estate and equity bubbles of 1990, which has worked through the financial system and created very considerable havoc, because the collateral that was used in the banking system has gone down well over 50 percent and that has created a huge backing up of non-performing loans and the credit system has been in serious trouble. They are gradually working out of that, and working very hard at it I might add. And there is evidence to suggest that they are coming out of this. I would not characterize what has occurred at this stage as falling back into recession, but there is no question that they are struggling.

    Mr. HILL. Thank you, Mr. Chairman.

    Chairman LEACH. Thank you, Mr. Hill.

    Mr. Moore.

    Mr. MOORE. Chairman Greenspan, last year, July 22 of last year, you testified to this committee, ''If I was asked what our first priority should be, it would be to let the surplus run and reduce the Federal debt. If I was asked what my second priority is, it would be to cut taxes rather than expand spending.'' And essentially you have reiterated that today, maybe in a little different words. And this is not a direct quote, but I think you said something to the effect, ''be patient, let the surpluses run and let surplus run and let debt decline.''
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    Is that essentially correct, Mr. Chairman?

    Mr. GREENSPAN. Yes, Congressman.

    Mr. MOORE. Shortly after your testimony in July of last year, Chairman Greenspan, Congress passed a $792 billion tax cut which was subsequently vetoed by President Clinton. This year, just last week in fact, the House passed about a $180 billion marriage penalty tax relief bill. And it appears, and this is not clear yet, with we don't have a budget resolution, but it appears that maybe the intention of the Majority party is to bring out one tax cut bill at a time for passage, and I don't know what their intention is as to a total.

    The concern that I have, and I guess what I want to ask you a question about is assuming that—and there have been proposals by some figures on the national level and some Presidential contenders that there be tax cuts totaling between $700 billion and a trillion dollars. My question, Chairman Greenspan, is that consistent with your recommendation to Congress or do you still believe that our first priority should be to let the surplus run?

    Mr. GREENSPAN. I still believe that the first priority should be to let the surplus run. I don't want to comment on any particular proposals of anybody, and I would just let the statement that I have made stand, if I may.

    Mr. MOORE. You have heard, at least I have heard projections, the projections for real surplus may range somewhere between $750 billion on the conservative side and I think that figure as I believe, as I understand it, at least is if Congress adheres to the spending caps which we don't seem to be able to do, and if it is not adjusted for inflation, the $750 billion surplus figure over the next ten years, then I have heard other projections as high as $2 trillion. I am sure you have heard the same projections.
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    Do you have a crystal ball or have you ventured any guesstimate as to what an accurate figure might be as far as a ten-year projection, sir?

    Mr. GREENSPAN. The answer is no, I do not. And I tried to address that very specifically in my prepared remarks, trying to point out why it is so difficult to do so. And the major reason is not so much the economic forecast, it is that we do not understand precisely why the revenues that we have had in the last several years are as high as they are, or very specifically why the ratio of individual tax revenues relative to taxable individual incomes moved up as high as they have, even with pretty good estimates what the capital gains tax would be and bracket creep would be.

    So there is a substantial excess of revenue, the underlying cause of which we do not yet fully understand. And we don't know whether it will continue, whatever it is, or if it is a surprise, could just reverse, go in the other direction. And that is a large enough number to really impact very significantly on these various estimates. And that is the reason why I think you have to be cautious about the employment of long-term commitments of budget surpluses when you really do not yet have any real feel as to how solid they are.

    Mr. MOORE. Would that uncertainty then cause you some concern about—and not commenting on any particular tax cut proposal—but tax cuts in the range of $750 billion to $1 trillion over the next ten years?

    Mr. GREENSPAN. I don't want to get involved in the specific discussion of that nature if you don't mind.
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    Mr. MOORE. Thank you, Mr. Chairman.

    Chairman LEACH. Thank you, Mr. Moore.

    Mr. Ryan.

    Mr. RYAN OF WISCONSIN. Thank you, Mr. Chairman.

    Thank you for being here. Good to see you again, Mr. Chairman. Actually I would like to follow up on my colleague from Kansas. The difference in the surplus estimates between the Administration and Congress is not over the revenues; it is over the spending. The Administration will admit that they are estimating essentially a $2 trillion non-Social Security surplus. The difference is that they are also estimating that we are going to increase spending by $1.3 trillion.

    Now given the fact that we have heard you consistently repeat that the first priority ought to be debt reduction, second priority ought to be, if that is politically infeasible, tax reduction, and the last priority ought to be new expenditures, given the fact that we can't operate in that policy vacuum that we have to operate here in Congress, we have already accomplished a very historic agreement, I believe, with the Administration, which is to dedicate all of the Social Security surplus, the $2 trillion toward debt reduction. I think that is something that is a great accomplishment of this Congress and this Administration.

    On the non-Social Security surplus, the Administration just gave us a budget ten days ago, which calls for increasing spending by $1.3 trillion, specifically $800 billion increase in discretionary spending and a $500 billion increase in mandatory spending partly to pay for the creation of 84 new Federal spending programs. That is what the President's budget does. So if you are to juxtapose a $1.3 trillion spending increase over the next ten years, as the President's budget proposes, versus say a $700- to $800-billion tax cut, I think under your standard the tax cut may be preferable.
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    But I would like to ask you a question about which kind of tax cuts. Because clearly not all tax reductions are created equal. I would like to bring your attention to a chart over here. If we look at the capital gains tax rate, that we have seen, and this is a fairly simple crude chart that we had the Budget Committee put together, the capital gains tax rate over the last number of years, we had a 28 percent tax rate, that was reduced in the 1997 tax bill to 20 percent. But it is also interesting to note that under the most recent IRS income data that capital gains tax revenues actually increased, whereas in 1996 we had $66 billion coming in from capital gains tax receipts; 1997, $79 billion coming in from capital gains tax receipts; then after the rate was actually cut from 28 to 20 percent for the top rate, we actually had an increase in capital gains tax revenues to $91 billion in 1998 to a $101 billion in 1999, based on these most recent statistics that we have from the IRS.

    So given the fact that that tax reduction actually led to an increase in revenues and an increase in economic activity, wouldn't it be prudent to follow this kind of policy for the future, rather than a new spending increase like the Administration is calling for, and more importantly, wouldn't these kinds of tax reductions fuel more surpluses which will give us more money to actually produce more debt reduction?

    So I would like if you could comment on that, and given the fact that the alternative here in Washington outside of the policy vacuum is the President's budget which is to increase spending from the non-Social Security surplus to the tune of $1.3 trillion.

    Mr. GREENSPAN. Let me just say first that there is no question that if you lower capital gains tax rates, as you do, then you will unleash a good deal of potential capital gains sales or sales of capital assets and create revenues.
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    A goodly part of the increased revenues obviously has got to be the rise in asset values that has occurred as a consequence of all of that.

    There is the notion that certain cuts in taxes can engender income increases and tax revenues which make them engender more revenues than existed before. In other words, you would cut taxes and get higher revenues, but obviously there has got to be a limit to that and indeed we don't know where we are in the curve, because if you continue to cut taxes, revenues cannot continue to increase, because at one point you are going to get to a zero tax rate, and you won't get any revenues. So the issue cannot be a general statement.

    The broad notion, however, that there are certain tax cuts which engender revenues and economic activity better than others I would certainly agree with. And as I say in my prepared remarks, I am a strong supporter of cuts in marginal tax rates as a vehicle for increasing economic activity. I think, however, in today's context that that is better served by reducing the debt and getting a lower cost of capital to create the same process. But I would readily acknowledge that on other occasions tax cuts would be superior to reducing the debt. I don't believe that is the case now, but I do think it is clearly feasible at other times.

    Mr. RYAN OF WISCONSIN. I am interested that you mentioned the curve. I don't know if you are mentioning the Laffer curve or not. We may be in the prohibitive range right now. But given the fact that rates surged after the last capital gains tax cut and the capital gains tax cut before then, do you believe that we are still in a prohibitive range on the tax curve subject to capital gains so that if we do continue to cut capital gains taxes such as last year's tax bill did by 2 percentage points or simply index the capital gains tax, that we would actually extract more revenues?
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    Mr. GREENSPAN. I don't know the answer to that. And one of the reasons I don't know the answer is we don't actually have data for 1999 yet. Those are estimates.

    Mr. RYAN OF WISCONSIN. These are preliminary.

    Mr. GREENSPAN. Not even preliminary, they are rough estimates which could be significantly off. So I don't think we have the evidence of this at this particular stage.

    Mr. RYAN OF WISCONSIN. If I could ask one quick question, if we have a choice here in Congress, one choice, increase spending by $1.3 trillion out of a non-Social Security surplus as the President is proposing, or to add more money to debt reduction, say $300 billion in debt reduction and let's say just for sake of argument a trillion dollar tax cut, would you choose more debt reduction and tax reduction versus the President's call to increase spending by $1.3 trillion?

    Mr. GREENSPAN. I would find a way not to answer the question.

    Mr. RYAN OF WISCONSIN. Thank you very much. That is all I have, Mr. Chairman.

    Chairman LEACH. Thank you, Mr. Ryan.

    Mr. Inslee.
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    Mr. INSLEE. Thank you, Mr. Chairman.

    I would like to share some good news along with yours, which we appreciate hearing from you, and that is that I really think the American people are with you on this issue of giving debt reduction the highest priority. I just want to report to you I think we had a real good test of this last fall when there was a proposal by some in Congress that in fact would have ripped the heart out of our ability to maintain those surpluses to reduce the Federal deficit. I just want to report to you that that proposal which would have prevented us from paying down the debt was rejected in the East and the Midwest and the Rockies and the West Coast and certainly in my neighborhood, my neck of the woods, because people really do get this on Main Street. They understand that this has the virtue of reducing our interest obligations, and it is not something lost on them.

    So, I just want to share that good news with you that people get this argument that you are prevailing and I hope that we will follow in that regard.

    I would like you, if you can, you made an interesting comment in your written testimony, I don't know if you talked about it this morning, about really maybe in a sense questioning whether we really have a unified surplus today if you look at it from an accrual basis. And I wonder if you could just describe to us what you mean by that, how should we look at this surplus issue from an accrual basis?

    Mr. GREENSPAN. I didn't cover this issue in my oral remarks, but I have in my written remarks. The agreement that has been fairly quick and fairly impressive by the Congress and the Administration to take the Social Security surplus off-budget, I think is a remarkably wise judgment. We may bicker on the margins of a lot of different programs, whether it is tax or spending or what have you, but the judgment to agree on taking that off the budget was really an extraordinary decision which is going to have very positive consequences, in my judgment, for years to come.
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    So, I would just basically say that we are making progress in this area.

    Mr. INSLEE. We appreciate that. Let me allude if I can, switching gears a bit, one of my constituents has been referred to several times in the testimony today, and that is the wealthiest person on earth who happens to live in my district, who got there due to incredible creativity and now is becoming the most prolific philanthropist in world history, which we also appreciate. But there is another side of some constituents I represent. I go to one side of a lake in my district and I find some incredibly economically effective people, I go to another side of the lake in my district and I recently visited a food bank where I met a whole bunch of folks who were working hard, had full time plus jobs, and were coming into the food bank to get food literally to feed their children.

    And I think they would want me to ask this question of you, is there something, something structurally going on where some working people, people who are in fact hard working, dedicated, get up in the morning, go to work kind of folks are not realizing the productivity gains that in fact are being realized? Is there something going on structurally in our economy where we are not allowing these working people to get the fruits of their productivity increases? Because I think by all measure we are finding some extraordinary increases in productivity, largely because of the technology that is being developed, much of it in my district.

    But I guess the question I have for you, is there something going on that we need to be concerned about that we are not allowing those working people to capture some of those benefits associated with their productivity increases? If so, what are they? Tell me your genus on how we move ahead on that front.
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    Mr. GREENSPAN. I think one of the problems that we have is that as you move towards, first, an increasingly concept-based economy, as we have for generations, where an increasing proportion of the GDP is more value-created through ideas rather than physical brawn or materials or physical things. That has been the long-term trend. Second, superimposed on that has been the really dramatic synergies of these numbers of technologies which have been so extraordinary in the last decade, I guess even longer than that, but not much.

    The consequence of this, until very recently—the last two or three years— has been an opening up or dispersion of incomes in the country which reflects the degree of education. The so-called college premium in the market has opened up and the premium of high school versus those with less than high school education has opened up. And it is part of the problem. It strikes me that the solution is education, to find means by which you can increase the education capacity of individuals so that they can share in the fruits of what is an increasingly conceptual high tech economy. That doesn't mean that everyone has to be a computer programmer or a nuclear physicist or whatever, but you have to be in a position where you are part of that overall structure and everyone can be. And that is, I think, the challenge: that we have to create an educational system which enables people coming out of high school or college to move into productive activities in those particular areas.

    If we can't do that, I don't think we are going to solve the problem which you put on the table.

    Mr. INSLEE. Thank you, Mr. Chairman. I will relate your answer to my eighth grader when he works on algebra next week.
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    Mr. GREENSPAN. It will be helpful.

    Chairman LEACH. Mr. Ose.

    Mr. OSE. Thank you, Mr. Chairman.

    Mr. Greenspan, I note on page 10 of your written testimony your comments about factoring in the unified budget on an accrual basis as it relates to the revenues flowing in. And if we did that accounting for the obligation, the future obligations of Social Security, we would be arguably in a deficit as opposed to a surplus. We in Congress have spent a lot of time talking about paying down the publicly-held debt. And I notice in your other locations in your written testimony a difference, very subtle, in some of your comments about debt versus public debt.

    Now, we have engaged in a long discussion here about paying down the publicly-held debt, those of us on this side of the testimony table. Your comments are inescapable in terms of actually retiring debt, rather than substituting one creditor for another. And I would appreciate any comments you might have as it relates to substituting in this discussion about paying down the publicly-held debt, substituting, for instance, members of the general public as the creditor in lieu of say the Social Security Trust Fund. I don't happen to believe to the extent that we are using Social Security Trust Funds to buy T bills and T notes that we are having an appreciable long term impact on the overall claim on the U.S. Treasury. I understand the short term consequence in the financial markets from a crown-out effect, but I would be curious about your remarks in this regard otherwise.
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    Mr. GREENSPAN. I think that what we have to be aware of is we have differing types of accounting systems which serve different purposes. We have moved from the unified budget to an on-budget system by effectively agreeing that the Social Security Trust Fund is off-budget. On-budget is a good way toward a full accrual system which is the norm in the private sector. The appropriate accounting for an accrual system would have receipts generally as they are, outlays would be accrued outlays, where when the credit was earned in Social Security, it gets recorded at that time. It shows up not in the debt to the public or even in the public debt which is a different issue, it shows up as a contingent liability. So that if you look at the Government's balance sheet in this accrual sense, you end up with debt to the public and contingent liabilities.

    To the extent that we have moved from a unified budget to on-budget, we have moved toward the accrual system. The reason it is important is that if you go beyond the year 2030, when we are still building up the Social Security Trust Fund, depending on which assumptions you make, certainly when we get out to mid-century we are getting into a huge deficit on the unified basis. And what an accrual system would do is fully recognize the very much longer term so that commitments would be made and funded for an accrual system at the time they are made in precisely the same manner as a private insurance system does.

    So, the point that I raised within my testimony was merely not to argue that we should go to an accrual system right now—I don't think we can—but we should recognize that when we are talking about paying off the debt, we are talking about paying off the debt to the public, but contingent liabilities are still rising. And in one sense unless the Congress repudiates those obligations—which we have never done and nobody believes we will ever do, which is one of the reasons we have the credit in this country that we have—we will have a very substantial amount of liability as the decades go on.
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    So, I do think it is important to keep in context that these types of budgets have different uses. From an economist's point of view, the unified budget is what we find the most useful, because it tells us exactly what is happening to the cash flow of the Government. And as you know, if you run a unified surplus, which is solely from the Social Security Trust Fund, we will be reducing the debt by that amount. And that is very important to the economic structure of the economy. On-budget is a more useful budget for purposes of forward planning for Government revenues. The accrual system is to carry the on-budget still further to completion.

    Mr. OSE. I want to thank the Chairman for that very clear explanation. I got it, and I do appreciate it. Because it is a point that is lost amongst the many of us on this side of the aisle, or this side of the table, excuse me. Thank you, Mr. Chairman.

    Chairman LEACH. Well, thank you, Mr. Ose.

    Mrs. Biggert.

    Mrs. BIGGERT. Thank you, Mr. Chairman.

    Mr. Greenspan, on page 2 of your remarks you talk about the sharp rise in the amount of consumer outlays relative to disposable income and the corresponding fall in consumer savings. And I think the latest reports show that personal savings rate continues to decline and it has fallen from 8.7 percent in 1992 to 2.4 last year. And I would like just to know what effect this can have on our economy. Will the worsening of the savings rate sidetrack our current economic expansion at all? And I wonder if you could comment on what we need to do to spur increased saving rates. And is there something within the Government such as tax incentives that would help to do this. I remember back in the Reagan days we had the All Savers Accounts that seemed to be very popular that people put money in and didn't have to pay the interest rates on them, that certainly savings accounts they do now.
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    Mr. GREENSPAN. Congresswoman, the savings rate has gone down basically, because individuals perceive that they have purchasing power beyond their disposable incomes, which is capital gains, unrealized capital gains very specifically against which they borrow. Because they perceive it as real wealth, it may go down some, but it is not going to go to zero. So they borrow against it or capitalize it in one form or another.

    What that means statistically is the consumption that they make out of those capital gains is included in the aggregate consumption figure we have and lowers our measure of savings out of income.

    We have to be a little careful here, because if you ask the average person in that context have you lowered your savings rate, they will say no. We are in fact spending the same proportion of our resources that we have always spent. And we have saved some. So the problem is this tricky accounting issue of how to account for the amount of consumption which doesn't relate to income. In part it is also an issue of the fact that in disposable income, there are capital gains taxes. As you know, capital gains are not included in income, but the taxes are. And as a consequence disposable personal income from which you subtract consumption to get savings is reduced still further.

    And so I am not concerned about the level of published savings. It is in large part being offset by a marked increase in Government savings to finance the capital investments that we need. I do think, however, as we get down the road, as we get beyond this big bulge in wealth and we get back to more normal rates in a lot of these relationships, that we ought to relook at the issues that you raised; namely, to maintain incentives to save. And I think that we should do that now, but we have to recognize that the results are very significantly being distorted by these very large changes in wealth that we have seen in recent years.
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    Mrs. BIGGERT. Are you concerned about, for example, the high tech companies that have come into existence and their rapid growth at the time and then those capital gains could disappear very shortly if that——

    Mr. GREENSPAN. Oh, I assume there are going to be a lot of ups and downs in some of these companies. There is one very famous one which everyone now likes to cite. It was a brochure for an IPO that came out in which the company said, ''We don't produce anything, we don't do anything,'' and they sold their stock.

    Mrs. BIGGERT. Thank you very much.

    Chairman LEACH. It wasn't called the Federal Reserve.

    Mr. Toomey.

    Mr. TOOMEY. Thank you, Mr. Chairman.

    And thank you, Chairman Greenspan, for your patience this morning. I have to ask to indulge your patience for one last question about the fiscal year 2000 budget surplus, but I can assure you that it will indeed be the final question, if only because I am the last person to be asking questions this morning. And I will try to be brief.

    As we discussed earlier, there is a reasonably high degree of certainty now that for fiscal year 2000, anyway, we have a budget surplus that will be fairly substantial considering last year's spending levels. I am very concerned that the forces for ever-greater spending in this town are well underway in an attempt to spend much, if not all, of this $23 billion. I think it would be a terrible precedent to do that with this surplus. I frankly think we already spent too much money last year in the appropriation bills that were signed into law. And I am very concerned that by adding now to fiscal year 2000 spending, we decrease future surpluses because spending tends to grow, always as a function of the previous year's level.
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    I have a bill that is designed to increase the likelihood that as much of the fiscal year 2000 surplus as possible will go toward either paying down public debt, lowering taxes, or in the event of a miracle, structural reform of Social Security or Medicare, which I doubt will take effect in fiscal year 2000. I am not asking you to comment on my bill obviously, but is it fair to say that these are in your judgment the right goals and that all of this surplus should be used for some combination of those purposes?

    Mr. GREENSPAN. Well, as I said previously, and just to repeat, I do think there are very great benefits by allowing the surpluses to run and the consequent reduction in debt occur. I also think we have to be a little careful about this question of what we mean by Social Security reform. When we used to talk about that years ago, we always presumed, at least when I was Chairman of the Social Security Commission at that time, which was almost twenty years ago, it is remarkable, but there was a very strong notion that Social Security should be a social insurance system, which meant that benefits should be paid only out of Social Security taxes. I am not saying that there is not an argument at this particular point about whether in fact in these particular times general revenues should be put in the system to finance benefits as distinct from taxes.

    I would think, however, that there would be more discussion on that issue. It is remarkably absent today from the debate as to whether in fact we should restrict benefits only to tax receipts or to general revenues, meaning shall taxes from non-Social Security be applied to fund Social Security benefits.

    I repeat, I am not saying that it is clear to me which argument is good or bad, but I do think before the issue of the social insurance nature of Social Security is abandoned, which is what happens if you bring general revenues onto the scene, that there at least should be some objective discussion of the fact that it is being done.
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    Mr. TOOMEY. I agree with that. I think that discussion will take place before any such reform is likely to get enough support to actually pass. Personally I think it could very well be justified as a transformation, as a means of providing the financing for a transformation of the Social Security system to one that would be more geared toward a personal savings system.

    I did have one other question I was wondering if you would comment on. And it seems to me fiscal conservatives, and I consider myself one, have often argued against excessive Government spending using sort of derivative arguments. In the 1980's we talked about not being able to afford more spending because of our debt and our deficits, more recently we have made the point we need to restrain spending so as not to spend Social Security monies on other Government programs, both of which I agree with, but both of which miss the central point of whether or not we are at the appropriate level of Government spending itself. Now, whether Government spending can be virtually unlimited, perhaps, if it is not funded with deficits or from other programs.

    And I was wondering if you would comment on the question of in order to reach the goal that you described earlier of maximum sustainable real growth, do you believe we are more likely to achieve that level if a greater share of our GDP is in the private sector and therefore less in the Government at all levels than the current level; in other words, should we be moving in the direction of lesser Government spending as a percentage of our economy?

    Mr. GREENSPAN. I have always argued that particular point. There are economists who don't agree with that. In other words, it is very difficult analytically to make judgments as to the optimum level of Government spending with respect to economic growth as an example. My own view is not based on definitive econometrical analysis, because the data just don't enable you to infer that, but on watching the way an economy functions. How individual companies function and how Government works and how Federal funds are dispersed and what happens to them, I have concluded, personally, that the less the share of economy that goes to Government, the better. But what I do want to emphasize is that that is not a view which is universally held. And indeed I am not certain that I would be representative of the center of the economics profession by any means. But it is probably the most important broad fundamental issue which the Congress and the Administration has to deal with: that is, what is the size of Government, what is the optimum size to fulfill the role of Government and to maximize economic growth. And in that regard, I think that, as I indicated before, relevant to the issue of marked trends toward deregulation of markets, there has been in this country a very significant shift, irrespective of party, toward the view that the private sector is the primary force creating economic substance and growth.
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    Mr. TOOMEY. Time for a quick question?

    Chairman LEACH. Yes, sir.

    Mr. TOOMEY. And while it may be very difficult to quantify that precisely through an economic model, I think there is tremendous empirical evidence if you compare the economic performances of relatively free economies to the economic performances of relatively unfree or less-free economies, that evidence seems to be overwhelmingly in favor.

    Mr. GREENSPAN. I think that is generally accepted in the economics profession.

    Mr. TOOMEY. Thank you.

    Chairman LEACH. Well, thank you. Our final questioner has just presented his question. I would just like to end with a kind of a large query in terms of the role of monetary policy, and that is we are in a period of economic growth, we are in a period which ''steady as you go'' seems to be a mantra that we all appreciate. And yet, is there such a thing as monetary policy hubris; that is, are we better off with a system that grows 3 percent a year for three years or might we be better off with a system that grows 6 percent one year, zero the next and 4 percent the third? Can you comment on that, particularly in relationship with what appears to be some breaking point in the economy when you have testified that per unit economic labor costs are actually going down? Is that a credible question to ask?

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    Mr. GREENSPAN. Clearly, stability engenders maximum growth. In other words, you can demonstrate, I believe, that if the goal is maximum sustainable economic growth, that a volatile economy or a volatile monetary policy is not likely to contribute to that.

    And I should think that the issue of a stable incremental policy for monetary authorities is always best if that is feasible. There are occasions when events occur which are not continuous, they occur unexpectedly and monetary policy becomes a reflection of that phenomenon. But I think history will demonstrate that the less volatile policy changes are, the less volatile fluctuations in the financial system are, the greater is the long-term sustainable economic growth.

    Chairman LEACH. Well, thank you very much. And your testimony is very much appreciated. And certainly this committee would be remiss not to go on record again with: A, support of your renomination; and B, more importantly, support for the independence of the Federal Reserve System. Thank you very much.

    Mr. GREENSPAN. Thank you very much, Mr. Chairman.

    Chairman LEACH. The hearing is adjourned.

    [Whereupon, at 12:54 p.m., the hearing was adjourned.]