Hearing of the House Budget Committee - Near-Term Economic Outlook

Statement

BREAK IN TRANSCRIPT

REP. JO BONNER (R-AL): Thank you, Mr. Chairman.

Mr. Chairman, welcome. I've sat here this morning listening to you, and I've had the privilege of doing so with your predecessor a few years ago. And I must tell you, it's an amazing country we live in. I have a nine-year-old son and a 12-year-old daughter, and I have a very difficult time, most times, convincing them that what I have to say has merit and value, and they need to listen to me.

And yet, as chairman of the board of governors of the Federal Reserve, the world is watching, certainly the people in this country, Wall Street and others, and we're hanging on every word you say and what color tie you wear and whether you feel good. And I think that's a statement about where we are as a country; I guess also a statement about the important role that you play in our country and as the world economic leader in the world.

There's been some conversation earlier about tax cuts. And you did say that tax cuts do cost money. I think most everyone here, Republicans and Democrats, concede that point. But I guess, from your perspective, do tax cuts cost the American people money or do tax cuts cost the American government money? And to that end, in your view, which -- historically, as we're talking about a short-term stimulus package, which historically have been most influential in making a difference in our economy, taxpayers or government spending?

MR. BERNANKE: First, let me say, my children don't listen to me either.

REP. BONNER: (Laughs.)

MR. BERNANKE: So tax cuts -- I think whether they pay for themselves is not the issue. The question is whether you have well- designed taxes that promote efficiency, promote growth, promote savings, promote productive economic activity. That's very, very important.

The challenge -- and I hate to fall back on this law-of- arithmetic point again, but, you know, government spending does have value, of course, and we all have programs that we think are producing good things for society and the military and national parks and many other things that we want to spend money on.

And the challenge is finding the right balance. How big a share of the nation's GDP do we want to flow through the government? If we really want low taxes -- and that certainly has benefits -- we also have to make a judgment about what -- be very tough about what government programs we're willing to spend on.

There are some who think that government programs can be very productive and point to many different things. That's fine. That's the prerogative of a Congress person to make that judgment in behalf of their constituents. But again, on that side, you then have to take the higher taxes that go with it.

So I'm just trying to say that you need to make a -- it's up to you, as representatives of the people, to make a judgment about how big a share of the economy should be voted through government spending. A lot does depend, not just the share of the economy that's controlled by the government, a lot of it depends on how well the money is used and how well taxes are collected. If you have an efficient tax system, that'll support growth. On the spending side, all else equal, you're better off if you put money into things that promote growth, like technology and education and things of that sort. So those are all tough decisions you have to make.

REP. BONNER: Could you also share -- just shifting gears briefly, at the beginning of this Congress, the average national price for a gallon of gas was $2.22. Today the average national is $3.04 a gallon, an 80-cent increase. Oil a year ago this time was $45 a barrel. It's today $89.60 in the United States. The world price is over that. And it's been over $100 a barrel.

What influence, in your view, if any, has the fact that we have not, Republicans and Democrats alike, taken a real bold step towards energy independence in this country in terms of its impact on the economic situation we find ourselves in today?

MR. BERNANKE: Well, certainly oil and gas are still obviously a huge part of our energy portfolio. And people are still driving and using oil and gas despite these high prices. I guess one of the advantages of high prices is that ultimately they're going to induce people to conserve, and it's going to make it profitable for firms to come up with alternative energy sources.

And I think the government should support that activity. Government can help support basic research, for example, that can help us find different ways to provide energy. Government can provide regulatory clarity and certainty so that, for example, if you want nuclear plants, can they be constructed, you know, without -- in a safe way that meets regulatory scrutiny? And, to some extent, you know, the government can try to encourage specific approaches.

But I think as painful as high oil prices are -- and they certainly are painful, and they're causing a lot of problems -- they do have one benefit, which is that they do provide a strong incentive both for suppliers and demanders to find alternative sources of energy. And I hope that's going to be the case over the next 10, 15 years.

REP. BONNER: Thank you, Mr. Chairman.

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