Senator WYDEN. One other question, if I might. I heard a lot of concerns in Oregon last week about our policy with respect to the dollar, and the concern was that our policy on the dollar was hurting Oregon companies, United States companies, in terms of being able to cap export markets. In our part of the world, one out of six jobs depends on that kind of export opportunity, and they pay well. Do you have any thoughts about what kind of policies would be appropriate with respect to the dollar so as to get the most opportunities for United States businesses to get more exports overseas? Mr. GREENSPAN. Senator, those of us who are involved in financial policy in the United States Government are acutely aware of the fact that we can only have one voice on exchange rate policy, because if you get a number of people or a cacophony of people talking about it, it would tend to undercut markets. So the Secretary of the Treasury has been our designated spokesman, and I have tried to adhere to not commenting on the issue of the dollar. And I hope that that policy over the years is to work to our benefit. I suspect it has. Senator WYDEN. Thank you, Mr. Chairman. Chairman CONRAD. Senator Allard. Senator ALLARD. Thank you, Mr. Chairman. And, Chairman Greenspan, it is good to hear from you again. A couple years ago, you cautioned the Congress about irrevocable or almost irrevocable programs that were being put in place, and I heard in your comments today kind of a reference to continued concern in that regard. And then yesterday we heard from the Director of the Congressional Budget Office, Dan Crippen, who testified before this committee that since January 2001, Congress has increased discretionary spending to the tune of $44 billion in 2002, $49 billion in 2003, and over a 10-year period, a total up to about $550 billion. I would like to have you share your opinion on the long-term risks involved in continually increasing discretionary spending, and then I have a second question. Mr. GREENSPAN. Senator, I think if there is one lesson we have learned from these most recent experiences, it is that while caps on discretionary spending actually work remarkably well in periods of deficit, they do not in periods of surplus. And, indeed, it is very evident that as the deficits turned into surplus, those caps eroded very rapidly. And I would hope that when the expiration of the existing caps, which is this September, occurs, that the Congress will be able to extend them and, indeed, trust that they work as well as they did in the past. I suspect they have a good chance of doing so, and I would think that that to me would be the best program that one could focus on to constrain the type of numbers you are talking about. Senator ALLARD. Second question. I would like to hear your comment on creation of new programs and more spending as a stimulus for the economy as opposed to tax cuts. And, more specifically, is this an appropriate time to consider reducing the capital gains tax even further because of its potential stimulatory effect on the economy? Mr. GREENSPAN. Well, Senator, as I have testified-I didn't realize it was 18 times, but I think you will find the one consistency 80-544 D-4 through those 18 appearances is that I have always stipulated that I thought that if long-term fiscal balance is the basic purpose, that one should focus on holding spending down, and if you run into available surpluses, to try to remove them by reducing taxes. So I would say basically I would be mainly focused, as I have in the past, on that issue. Senator ALLARD. Comment a little bit on capital gains, if you would, please. We look at increased revenues Mr. GREENSPAN. Yes, I have in the past argued that the capital gains tax is in my judgment an inappropriate means to raise revenue because its effect on the capital stock is very substantial, and that there is a big dispute within the economics profession because it is very difficult to actually make a determination whether the statement I just made is true. Having worked in the business arena for most of my life, I am convinced that it is. I think it is far better to raise revenue by other means. So I have always been in favor of eliminating the capital gains tax. Obviously, reducing it is preferable to not eliminating it, so I would always be interested in moving in that direction. If it turns out that you need revenues-if it creates serious fiscal problems, then I would argue pick up the revenues by another means. Senator ALLARD. Mr. Chairman, I see I am going to turn back 30 seconds for my colleagues. Chairman CONRAD. You are a hero. [Laughter.] Chairman CONRAD. Senator Murray. Senator MURRAY. Thank you very much, Mr. Chairman. Thank you, Chairman Greenspan. It is an honor to see you here again today, and I just have to say, before I ask you a question, that it is amazing what a difference a year can make. I remember sitting in this committee a year ago when we were looking at surpluses and we had estimates showing that we would be able to buy down the publicly held debt by 2009, that we could strengthen Social Security and Medicare, that we could return a significant portion of the surplus to the taxpayers, and we were told that based on 10-year budget projections that we could have it all. And I remember cautioning every member of this Budget Committee to be very careful because what I saw happening in my own State a year ago I felt would soon be seen by the rest of the country. At that time we were facing a major energy crisis, as the entire West Coast was. We were worried about increased costs for all consumers in terms of energy and job loss. And I warned our comrades about that as we began the budget discussions about having a huge tax reduction at that time. And many of those predictions that I was concerned about have come true in my State. We have had tremendous job loss, especially in any industry that has high energy costs. Our aluminum companies, our cold-storage facilities have been shut down. Many of our small communities have high unemployment rates right now as a result of that—and that was before the effects of September 11thon the aerospace industry that sits in my State, and 30,000 Boeing employees are now being laid off. We have the second-highest unemployment in the Nation right behind my neighbor Oregon to the south, as Ron Wyden alluded to. Consumer confidence in my State is very real. People are very concerned about whether they are going to keep their job or not. The dotcom industry has had a tremendous impact in all of our region. Our farmers have not been able to sell their products in Asia, which has been the market that they have counted on. So consumer confidence is way down, and I am extremely worried about that because everyone I know knows someone who has lost their job or has been given a pink slip. As we talk about this economic policy that we are-stimulus package that we are debating here in the Senate, I hear a lot about the stimulative impact of a tax cut and the debate on both sides of that. But I think it is also important that we deal with the consumer confidence. Extending the unemployment benefits, taking care of those people who have been laid off, who are concerned that they can't pay health care, establishing that kind of confidence that if you are laid off, that you won't be emptied of your bank account, that you will be able to hold it together for a while until things get back on track is very important to people in my State and I think across the country. What do you think of the stimulative effect of us making sure that those who have been laid off have extended unemployment benefits or health care coverage while they are out of work? Mr. GREENSPAN. Senator, I have always been in favor of extending unemployment benefits during periods of rising unemployment, largely because the purpose of having the 26-week limit, which is standard, is essentially not to get people involved in long-term unemployment insurance as an alternate to work. And, indeed, it works exceptionally well when the job market is functioning normally, but, clearly, you cannot argue that for somebody who runs past the 26-week level it is because of sloth or not looking for a job or not actively seeking to get re-employed. There just are no jobs out there. Consequently, to adhere to the 26-week limit doesn't serve its actual purpose, which is essentially to prevent a misuse of the unemployment insurance system. So I have always been in favor of extending benefits when the job market itself begins to dry up. Senator MURRAY. And the health care? Because that is an outof-pocket expense that most people cannot afford. Mr. GREENSPAN. Well, I don't want to get into detailed general budgetary questions. Those are issues which I try to avoid if I can, and Senator MURRAY. But you would agree that consumer confidence in their ability to survive tough times is an important part of economic recovery? Mr. GREENSPAN. I would say consumer confidence in general is clearly important, and the source of consumer confidence is broadly determined by an expectation that the economy is improving, that job prospects are favorable, that one can function and plan in an economy in which one is not concerned about losing one's job. Senator MURRAY. Thank you. And the other fear that I see now, for the first time in my life, is people's fear of retirement. That has been fueled by an Enron scandal that means people don't believe or are fearful that their pensions may not be there. They hear about a budget deficit here, that the long-term prospects for Social Security and Medicare will be impacted by that. We still have the whole issue of prescription drugs that are an increasing out-ofpocket expense for senior citizens who aren't covered. And for the first time, I am hearing people who fear retiring. It is an issue of confidence that those protections will be there. And as we talk about now coming to a point where we have a budget deficit, from your point of view can we still protect the solvency of Social Security and Medicare? And how important is that as we look at our budget? Mr. GREENSPAN. Well, Senator, it depends on how one looks at those programs. I don't believe that, in the event that the Social Security Trust Fund were to go to zero, which would require a delay in the payments for Social Security, that it would ever actually occur in that sense. In other words, I don't believe that people really have need to be seriously concerned about getting Social Security benefits, because in my judgment I do not think that there is any likelihood that should the budgeted resources currently in place, which is essentially the Social Security Trust Fund, run out, that the Congress would allow benefits to somehow be altered in a significant way. I consider there are certain types of things we have in Government which are structures which will never be employed, and that particular rule, in my judgment, will never be employed. Senator MURRAY. Well, I would agree that the social conscience of the Senate would make it difficult for us to not do that, but I do think we have to look at it, Mr. Chairman, as part of what we have to protect in our budget as we move forward. Chairman CONRAD. Thank you, Senator. Let me just say we are doing a little backsliding now on both sides. So if we are going to stay on for 12:30, we have got to try to be closer. Senator Snowe. Senator SNOWE. I realize the pressure is on, Mr. Chairman. Chairman Greenspan, earlier in response to the chairman's question regarding a trigger, you outlined some of the benefits that could be accomplished by such a mechanism. In fact, I recall a year ago you, in fact, suggested it in your testimony to this committee. Actually in response to that suggestion, Senator Bayh, Senator Stabenow, and I and others worked in a bipartisan fashion to establish a trigger that would tie spending and tax cuts to get reduction targets, and it would kick in in 2004. So even with this recession, it wouldn't send, I think, the wrong message and kick in. It would be forward-looking. Do you think it makes a difference in how we structure this type of trigger? Mr. GREENSPAN. Not really, Senator, so long as it accomplishes its goal. The principle I would apply here is to be certain that there is a judgment of the Congress involved in the implementation of the trigger, unless you can find a trigger which is unrelated to policy decisions. In other words, you cannot, for example, make a CBO determination an automatic trigger on any program of the Federal Government, or put more exactly, you shouldn't. If you are going to do it-some States, for example, have triggers which effectively are determined by actual events within the State which are not subject to political manipulation-you have to be careful to be sure that something like fast-track would be the model I would think, if you are looking at a budgetary issue. You can't use a trigger in which something happens without the Congress doing something. But I do think that what a trigger ought to do is enforce that action be taken and probably be an up- or down-vote of a certain type, in a similar type of legislation, but not exactly, as fast-track. And the crucial issue there is to make certain. that the rules of the Senate and the rules of the House are employed in such a manner that they come together at the right-I should say approximately the same time. Senator SNOWE. I see. So, in other words, that Congress obviously should be in a position-you have a mechanism in place so that Congress has to take a proactive action on such a trigger. You know, so if we have to suspend either spending or a tax cut that may be kicking in in the next year, that the House and Senate would both have to take that action. Mr. GREENSPAN. Correct. Senator SNOWE. Vote on it. OK. Thank you. That is helpful. Last year, you mentioned that a tax cut may not prevent a recession, but it could lessen the impact or shorten the direction. You know, a tax cut could be helpful in that sense. Do you think that the passage of the tax cut at the end of May in the Congress had any role at all potentially in shortening the duration of this recession and mitigating the impact of this recession? Mr. GREENSPAN. I think it did, Senator. I think that the evidence of consumer markets in August and even early September was that there was some impact of that. Obviously, with September the 11th, the whole situation changed very dramatically, so it was very difficult to trace the effects after that. But from what I could see, it did have an effect. Senator SNOWE. You mentioned that an economic recovery obviously is going to happen in any event. I think the real question is: What type of recovery? And one of the major concerns that we all have, of course, is this unemployment rate. So we could emerge from this recession and yet the effects could be benign because of the unemployment rate, and that that could continue to rise or jobs not created that will help those who have lost their jobs. So do you think a stimulus package of some kind could help to really turn around the behavior of this economy so it could mitigate those effects sooner rather than later? Mr. GREENSPAN. Well, Senator, I did respond to that question earlier and concluded that it is very difficult to judge. Clearly, as you point out, with the potential at least that the economy may be more tepid than we would like, later in this year some form of stimulus program probably would be useful. But we don't know that yet. In other words, it is very difficult to judge exactly how this year is going to develop. I think we do know one of the very few things that economists know-is that inventories cannot get below zero. And that may seem like sort of a simplistic statement, but it does mean that inventory liquidation, which has been very |