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Summary of Joint Economic Committee Hearing on Challenges Facing the Middle Class
Date: 2/8/2007

The Joint Economic Committee of the 110th Congress held a hearing on January 31 to consider the growing challenges facing the middle class. Members present included the chairman, Senator Schumer (D-NY), Senators Bennett, Klobuchar, Webb, and Casey, and Representative Saxton.

 Four witnesses testified: former Treasury Secretaries Robert Rubin and Lawrence Summers, Alan S. Blinder, Professor of Economics at Princeton University and Richard Vedder, Professor of Economics at Ohio University. The focus of the hearing was on the changes occurring as a result of the dramatic advances in technology as well as the effects of globalization on the domestic economy and the middle class. The committee and three of the four witnesses believed economic inequality has eroded the middle class. Technology proliferation has given advantages to other countries, leaving middle class Americans to search for jobs outside of their technology fields. Some witnesses felt that technology advances have had more of an effect over the middle class than international trade. In addition, another large contributing factor to the economic challenges of the middle class has been the lack of educational resources and opportunities to train younger generations in other professional positions.
Perhaps the most pressing issue is the decline in sustained economic growth which, as was mentioned by Sen. Klobuchar, causes financial instability for the middle class. Sustained economic growth is imperative for the middle class because it provides jobs with competitive wages that are needed to support the middle class. Fluctuations in the economy harm U.S. investments in foreign countries, and make foreign investors apprehensive about investing in the U.S. Former Treasury Secretary Lawrence Summers stated that the substantial trade deficit begs the question of “how long foreign investors will be prepared to lend us funds on such generous terms to support deficits of this magnitude.” The repercussions of a deteriorating relationship between foreign investors and the U.S. economy could lead to foreign investors seeking capital investments in other countries due to the current condition of the U.S economy, further weakening economic growth in the U.S.

Globalization has brought about a profound change in the American economy.  As former Treasury Secretary Rubin pointed out “the global economy is undergoing change of historic proportions, including technological development, globalization, effective productivity policies […], and, as a consequence of all this, the emergence of China and India as potentially large markets but more immediately, as powerful competitors.” Senator Webb agreed that the impact of globalization was affecting the American workforce, especially in blue and white collar professions. Rubin also argued for more effective use of trade adjustment assistance for workers who had been dislocated from their jobs as a result of outsourcing to other countries like China and India.

In the future, more jobs will be outsourced to Asian countries, leading to a scarcity of jobs in the manufacturing and high technology sectors in the United States. This will potentially affect wages and future job security, widening the gap of income inequality. Interfering with the markets will not stop the effects of globalization; as a matter of fact, erecting trade barriers may inflict more harm on the U.S. economy. Sustaining economic growth involves continuing to welcome foreign investment. Enacting policies that draw foreign investors into the U.S. creates more jobs for middle class Americans, most of which make up a majority of the manufacturing and technology sector. If the middle class benefits from these policies promoting international trade, they will be more receptive to foreign investments. If however, the middle class ends up supporting protectionist policies, there will be a loss of economic productivity, decline in imports, and U.S. exporters may face retaliatory measures. Free trade facilitates sustained economic growth, which provides a strong domestic market for U.S businesses, and in turn, provides a strong job market for American workers, especially those in the middle class.

Professor Blinder argued that income inequality is not rooted in globalization or outsourcing; it stems from wage inequality. Of the forty million jobs in the technology sector, fewer than a million have been outsourced, suggesting that another reason must explain the economic inequality within the middle class. Globalization, he argues, is not a struggle between higher and lesser skilled workers, nor is it between more or less educated workers but between different professions. Based on his research, Blinder predicts between 22 to 29 percent of current American jobs could potentially be outsourced in the future. To rectify the problem, governments must be willing to “repair and extend the social safety net” for dislocated workers, create employment insurance and trade adjustment assistance. The U.S labor force and businesses must be willing to maintain a supply and demand for jobs remaining in the U.S.

In contrast, Professor Vedder argued economic sustainability was in decline due to increased government expenditures; in the fiscal years from 2001-2006, government expenditures increased by 42.4 percent for national security and non-defense issues. The government needs to curb its spending habits in order to regain economic growth.

With regard to the middle class, he believes workers shared in the nation’s prosperity and are living better than they have in the past. Americans were consuming more than ever, and wage inequality and outsourcing were not the central challenge to the middle class. Excessive spending over consumer products was a central reason for the economic challenges faced by the middle class.

To the extent there was consensus, it was that policies that permitted free international trade would aid in regaining economic growth and alleviate the burdens felt by the middle class.