Ted Kaufman - United States Senator for Delaware

Sen. Kaufman Addresses America's Economic Challenges

September 27, 2010

Mr. President, although we have come a very long way since January 2009, our Nation faces profound short-term and long-term fiscal and economic challenges. In the short term, we need to do more so our economy will grow significantly again. This should include the small business jobs bill, the extension of middle-class tax cuts, and additional spending on infrastructure, as the President has proposed. In the longer term, we need to shore up our fiscal balance sheet and develop policies, including investment in innovation, research and development, clean energy and science, technology, engineering and math--STEM education--that promote sustainable growth and job creation.

   Unfortunately, instead of distinguishing between our distinct short-term and long-term problems, we have conflated them, focusing most of our attention on our immediate fiscal deficits.

   Sometimes overlooked is that these deficits are, in a large part, legacies of unpaid-for policies of the previous administration, whether they be the wars in Iraq and Afghanistan, not paid for, tax cuts for the wealthy, which were passed and not paid for, or Medicare Part D, which was passed and not paid for. In addition, the economic fallout from the financial crisis, a primary driver of our current fiscal deficits, was itself a product, as you well know, Mr. President, of governmentwide deregulation.

   While we all support cutting wasteful government spending, it is not, by itself, a solution to our fiscal woes. Indeed, if we were to eliminate all nondefense discretionary spending in the next fiscal year--Department of Justice, Department of Education, Department of Energy--we would still have a deficit of more than $700 billion; that is, if we eliminate all of them. We hear people coming to the floor and talking about cutting that, that is going to save us. If we eliminate the whole thing, go down Constitution Avenue and close down every building, we would still have a deficit of more than $700 billion.

   This focus on Federal Government spending is shortsighted and even counterproductive, since it distracts us from the real problem of addressing our weak economic fundamentals.

   All too many Americans are painfully aware of the current economic conditions in which we find ourselves. It is clear these conditions would even be worse if not for the Recovery Act. It saved us from another full-blown depression and allowed us to rebuild our economy and add jobs. The nonpartisan Congressional Budget Office concluded that the American Recovery and Reinvestment Act resulted in anywhere between 1.8 million and 4.1 million more jobs.

   The CBO also estimated that our gross domestic product was 1.7 percent to 4.2 percent higher in the first quarter of 2010. Other economic indicators show similarly strong results, following the passage of the Recovery Act. After the passage of the Recovery Act, the markets hit bottom, with the Dow 6,547, on March 9, 2009, just about the time we passed the Recovery Act. Since we passed the Recovery Act, the Dow has risen dramatically, climbing above 11,000 early this year, even remaining above 10,000 amidst recent market turmoil, and most recently spurting higher by more than 7 percent in the month of September alone. All that happened after we passed the Recovery Act.

   The Purchasing Managers Index, a leading indicator of business confidence, has also been generally trending upward since the passage of the Recovery Act. That we are not where we want to be is testament to the magnitude of the problems inherited by the President and this Congress. Indeed, millions of Americans are without jobs and overburdened with debt. Although large corporate balance sheets are generally strong, many small businesses have limited access to credit, a condition which will be helped with the small business jobs bill, which the President signs today.

   What is more, many businesses will simply not invest without consumer confidence. In such an environment, where consumer and business confidence is low, there are obviously limits to the effectiveness of monetary policy, irrespective of the creativity of the economists and policymakers at the Federal Reserve.

   Fiscal policy, whether through direct government spending or through tax or other incentives, is the one lever we have to spur growth. As Olivier Blanchard recently stated: ``If fiscal stimulus helps reduce unemployment and thus avoid an increase in structural unemployment, it may actually largely pay for itself and lead to only a small increase in debt relative to the alternative of doing nothing.''

   Conversely, policies aimed at an immediate spending cut and a tightening of the proverbial fiscal belt could actually harm our economy. Therefore, it is critical we extend middle-class tax cuts and expand, not contract, stimulus measures.

   In addition, the President's $50 billion of infrastructure investment is a good way to put more Americans back to work, to make a downpayment on rebuilding our infrastructure.

   Of course, our need to promote economic growth in the short term does not make the need to address long-term fiscal problems any less urgent.

   Former OMB Director Peter Orszag said in late July:

   It would be foolish to dramatically reduce the deficit immediately, because that would choke off the nascent economic recovery. But it would be equally foolish not to reduce the deficit significantly by, say, 2015, because that would imperil continued economic growth at that point.

   Accordingly, while we should not be raising taxes on middle-class families in the midst of a recession, we should also not make permanent the Bush tax cuts on the top 2 percent of Americans. Doing so would cost close to $700 billion over the next 10 years. That is not a policy of fiscal discipline.

   The path to fiscal sustainability will require tough choices and tradeoffs. We, therefore, need to be supportive of efforts and decisions of the new bipartisan debt commission. But as important as it is to put our fiscal house in order, our Nation's future prosperity will not be determined by accountants in green eyeshades. If we hope to promote sustainable economic growth and job creation, it is critical that we seize the initiative on clean energy and that we support science, technology, engineering, and mathematics fields.

   If we want to get the most bang for our buck now and long into the future, we should invest in clean energy. Studies show that a $1 million investment in clean energy will create more than three times the number of jobs than if those dollars were invested in fossil fuel-based energy projects.

   The truth is that clean energy is the future of the global economy, and we should be investing in it today. Since 2005, global investment in clean energy has exploded, growing by 230 percent. But the United States is not keeping up with the global clean energy revolution. Last year, 10 G20 countries invested a higher percentage of gross domestic product in clean energy technology than the United States did. These investments created many jobs--over 1 million jobs in China alone. This growth is a direct result of policy decisions that commit to a clean energy future. The United States has failed to make a significant commitment to clean energy. Over the recess, Ernst & Young announced that for the first time, China had overtaken the United States as the most attractive country for renewable energy projects.

   We need to provide certainty in the energy market for investors, businesses, and industries. They tell us that none of this will happen without a price on carbon. Pricing carbon will reflect the true cost of our energy sources and enable market forces to drive American ingenuity to develop clean energy technologies that will create jobs, enhance U.S. competitiveness, and establish the long-term economic security we need. Pricing carbon is the most effective policy tool available to transition the Nation away from dirty fossil fuels. It will create incentives for businesses and industries to find the lowest cost solutions to reducing carbon pollution. Again, this is a market-driven solution. Leave it to the private sector. Give them the incentives to do the right thing and develop clean energy.

   In addition to investing in clean energy, we need to promote STEM--science, technology, engineering, and math--education. STEM jobs will be the jobs of the future. Whether it is energy independence, global health, homeland security, or infrastructure challenges, STEM professionals will be at the forefront of the most important issues of our time. In fact, according to a new study released by Georgetown University's Center on Education and the Workforce, by 2018 STEM occupations are projected to provide 2.8 million new hires. This includes over 500,000 engineering-related jobs.

   We must also continue to support research and development--a challenge that requires significant Federal as well as private investment. In our current economy, it is often hard to imagine investing more in anything, but more research and development funding is fundamental to high-tech job creation. A recent report from the Science Coalition features 100 companies that can be directly traced to influential research conducted at a university and sponsored by a Federal agency. Examples include Google, Cisco Systems, and SAS.

   It is imperative that we get our economy growing again so that we are in a strong position to tackle the very real challenges of the future. In the long term, our task will not be simply to get our government's finances under control. As important as that is, it will also involve making the needed investment in areas such as clean energy and STEM that will ensure long-term growth and job creation. We face complex challenges in the 21st century. They include harnessing eco-friendly sources of energy and providing efficient and effective health care for an aging population. By making these investments in our future, I am confident we can foster the innovation necessary to successfully address these problems and reestablish our leadership in an increasingly competitive global economy.

   Finally, Americans always had the ingredients for success, and I am confident that in the coming months and years, the American ethic of innovation and hard work will once again return our economy to the path toward prosperity.

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