Tom Harkin

Mr. HARKIN

Mr. HARKIN. Mr. President, 16 months ago we had a debate on the nomination of Alan Greenspan as Chairman of the Federal Reserve System. I argued at that time that he was far too concerned about a possible increase in the rate of inflation and had far too little concern about the employment and incomes of working people. At that time, we had a number of Senators who came to the floor and said, with unemployment at 5.5 percent, a further decline in unemployment would likely lead to higher inflation. They seemed to believe that raising interest rates was the best course of action. In the last year, unemployment has dropped three-tenths of 1 percent. But that represents only a part of the increase in the work force. The pool of workers that can get jobs not only comes from the 4.9 percent who are unemployed now but also from those who are not considered part of the labor force, such as younger retirees, women at home, and people who have been discouraged from looking for work in the past, and, of course, persons on welfare. Our economy has brought an additional 400,000 of these persons into the work force over the year beyond those considered as unemployed. In the past year, the economy has grown at a rate of about 3.3 percent, roughly about 1 percent over what the Federal Reserve's target was to be. In terms of economic growth, a little means a lot. A 1 percent higher rate of economic growth in an $8 trillion economy means at extra $80 billion a year, year after year. That comes out to be $300 for every man, woman, and child in America. Now, unfortunately, the Fed seems intent on restraining the economy and keeping from building on its success. Many at the Fed, including the two nominees, Mr. Gramlich and Mr. Ferguson that will soon be before the Senate, believe in a concept called NAIRU--the non- accelerating inflationary rate of unemployment. If it sounds arcane, that is because it is. But it is still important nonetheless. It is important because so many people adhere to it and believe in it. NAIRU basically says, if the unemployment goes below a certain level, inflation will accelerate, not just increase, but will accelerate at such a rate that only unnecessarily high interest rates can slow it down. Just 3 years ago, it was widely accepted among the economic elites that the economy would shift toward higher inflation if unemployment fell below 6 percent. That was the NAIRU cutoff. But it fell below 6 percent, and actually some measures showed inflation dropping after unemployment went below that. Then the common wisdom was then if unemployment went below 5.5 percent for long, then inflation will accelerate. Greenspan and others insisted on this. Well, it fell below 5.5 percent. Then the magic point became 5 percent, below which inflation was sure to accelerate at dizzying speeds if we went below 5 percent. Unemployment has been under 6 percent for more than 3 years now and less than 5 percent since early this year, and no one, including the Fed Chairman, can point to any signs of accelerating inflation. Unfortunately, economic reality and the new world has yet to penetrate the thinking of those at the Fed. I was deeply disappointed with Mr. Greenspan's statement before the House Budget Committee on October 8 when he said, ``the performance of the labor markets this year suggests that the economy has been on an unsustainable track.'' In other words, a 3.3 percent rate of growth, he says, is unsustainable. Let me respectfully disagree. I disagree with the basic premise that Alan Greenspan and the nominees before us are promoting. Their focus seems to be on when we should raise interest rates--not ``if'' but ``when.'' I believe the debate should be broadened. Let us broaden it to consider lowering interest rates. A number of economic experts believe that unemployment could possibly go as low as 4.5 percent, maybe even lower, and economic growth increased beyond current levels without triggering any inflationary threat. Defenders of Fed policy constantly point to the inflation we experienced in the 1970's as the No. 1 reason why it is better to sacrifice higher unemployment for lower inflation. Let us take a look at the causes behind the inflation of the 1970's. We had massive Government spending, both on the Vietnam war and the war on poverty; there was a serious energy crisis; and American companies and their workers were no longer as productive as their foreign counterparts. Today, all that has changed. Congress and the President recently reached an agreement to balance the Government's budget by 2002. I might also point out that it was the 103d Congress--and I am very proud to say I was one of those who helped to cast the deciding vote in the Senate on the budget of 1993--that enacted President Clinton's budget package that helped put our Government's finances on the road to balance. However, we heard from the other side of the aisle saying, ``If this budget passes, disaster is going to happen. We're going to have recessions and people will be out of work.'' And on and on. Well, we passed that budget. What happened? The size of the budget deficit began to shrink dramatically. That, coupled with the Clinton administration's goal of downsizing Government and reorganizing Government, with the Clinton program of reorganizing welfare and restructuring welfare and making welfare-to-work, with the other constraints put on the Government side of the ledger, that budget, plus that, has led us through about 4 straight years of reducing the deficit to the point now where it is at the lowest point, I think, since the early 1970's, in fact, it might even be balanced as early as next year rather than the year 2002. So the Government's finances are getting in good order, thanks again to that budget we passed in 1993 and further actions taken by the Clinton administration. Also, oil and gas prices have been stable for quite some time. There seems to be no danger of any acceleration there. Our workers now are the most productive in the world. I will have more to say about that. In other words, our economy is much more able to ward off inflation and control its harmful effects than it was in the 1970's. Perhaps before I go any further, I want to explain how the Federal Reserve experts have tremendous influence on the economy. Some people say it is not the Federal Reserve; there are really a lot of other things going on. Simply put, the Fed sets the interest rates charged to banks for the banks' loans. In turn, that rate determines how much the bank charges to their consumers for auto loans, credit cards, home mortgages, and everything else --business expansion, new plants, and new equipment. By increasing the costs of borrowing money, the Federal Reserve is able to limit the number of new loans that are used to expand or start a business, buy a new car, finance the purchase of a home. If consumers cannot afford to purchase these items, demand will decline and the economy will slow down. So the Fed must realize that the gains from encouraging economic growth far outweigh the gains from needlessly increasing interest rates in order to fight the ghost of inflation. That is exactly what they are fighting--a ghost. They cannot point to any inflation. They cannot point to any accelerating inflation. Again, I will have more to say about that. Unnecessarily high interest rates that ensure a stagnant economy or an economy that is growing at less than its full capacity virtually assures that hard-working Americans will not get ahead. You cannot give everyone a pay raise simply by redistributing dollars within a stagnant economy. To increase incomes for everyone, you need a strong, growing economy. Last year, we enacted a very ambitious welfare-to-work program. If that is to succeed, we must have an economy that is creating new jobs that pay real well and provide benefits such as health insurance and retirement savings--most important, health insurance. The unemployment rate measures the number of people who are looking for work compared to the number of people who have jobs. That is the basic formula. Many of the persons counted as unemployed are actually underemployed and would jump at the chance for a better paying job. Again, I will later read from many articles around the country where job openings have shown up and, even in areas where we have low rates of unemployment, hundreds, thousands of people have shown up for these jobs because they are better paying jobs. Many unemployed are discouraged--the recently retired or those who are not now thinking of working but will start to do so should the opportunity arise. A growing economy and tight job market are the surest way to bring these people into the work force. We also have a reservoir of women that I will be talking about very shortly in terms of their coming into the market and what that might mean. In fact, referring to an article that appeared in the September 8 issue of Forbes magazine, I thought it was very good. It was written by Peter Huber. The title is ``Wage inflation? Where?'' I will read some parts of this. I do not know if I need to read the whole thing. I think it was very crucial and right on point in terms of what we are talking about here. There are reservoirs and things happening in our economy in the employment and work sector that were not there in the 1970's.

Mr. HARKIN. Mr. President, I ask unanimous consent that I be allowed to speak in morning business for at least another 30 minutes.

Mr. HARKIN. Mr. President, I want to point out that just 2 weeks after this article appeared, the Fed launched one of its preemptive strikes, despite admitting the fact that there was no accelerated inflation, and raised interest rates again. The issues that are before us are much more important than just two nominees to the Federal Reserve system. It is about strengthening our Nation's economy and ensuring that all Americans have a better standard of living than their parents and their grandparents. It is about everyday Americans making everyday decisions, families trying to make a payment on their House, pay for their kids' college education, Main Street merchants paying for a loan for inventory to run their small business, and farmers making decisions on borrowing to put in next year's crop. The Federal Reserve policies affect families budgets and national budgets. The Federal Reserve policies shape the course of America's future. If we hope to reach and maintain a balanced budget and move people from welfare to work and ensure the solvency of Medicare and Social Security, we must have a vigorous, growing economy. Unfortunately, the Federal Reserve is standing in the way. As I have said many times, the Fed has kept its key interest rates, such as the Federal Funds rate, unnecessarily high and, as a result, sacrificed job growth and the living standard of hard-working Americans in the blind pursuit of fighting the ghost of inflation. The reason the Fed is willing to pay any price and bear any burden to fight the ghost of inflation is that the Fed's prime constituency is the Nation's largest banks. Bill Wolman, an economist for Business Week magazine and CNBC News, wrote in the Judas Economy: The Federal Reserve's anti-inflation hysteria is, pure and simple, special interest politics, practiced by an institution almost totally free of effective oversight. I will continue the quote by Mr. Wolman: As a class, Bankers are creditors who have a strong interest in making sure that the money they lend out--ranging from revolving credit, such as Visa or MasterCard, to thirty- year mortgages--is paid back in money that does not lose value through time. The central bank is most concerned to limit inflation because inflation depreciates the value of the assets held by commercial banks. When prices are rising (inflation), debtors can repay their loans to creditors in cheaper currency; for this reason creditors hate inflation. But when prices are falling, debtors are forced to repay their debts with expensive (harder to earn) currency. Thus, creditors benefit at the expense of workers. . . . As I previously noted, this mindset that we are confronting is largely based on this outdated and faulty concept called NAIRU, the Nonaccelerating Inflation Rate of Unemployment. As Robert Eisner wrote in his book, ``The Misunderstood Economy,'' which I recommend to all, the NAIRU concept is the purest example of the old saying, ``Statistics are the straightest line from an unreasonable assumption to a foregone conclusion.'' Again, NAIRU basically says that if unemployment goes below a certain level--once and for many years thought to be 6 percent--inflation will accelerate at such a pace that it will take excessively high interest rates and subsequent levels of unemployment in order to bring inflation under control. Describing NAIRU, Robert Eisner wrote: It tells us that if we persist in trying to get and keep unemployment (below its natural level) [whatever that is], we will have, not merely inflation, but accelerating inflation. Literally that might mean a very slowly accelerating inflation like one-tenth of one percent per year. But somehow the term is used to imply that inflation will accelerate rapidly, conjuring up visions of the Germans in the 1920's carrying marks in wheelbarrows and using money as wallpaper. The strongest and most unabashed supporter of NAIRU at the Federal Reserve is Fed Governor Meyer, an appointee of the Clinton administration. He said: I am a strong and unapologetic proponent of the Phillips Curve and the NAIRU concept. Fundamentally, the NAIRU framework involves two principles. First, the proximate source of an increase in inflation is excess demand in labor and/or product markets. In the labor market, this excess demand gap is often expressed in this model as the difference between the prevailing unemployment rate and NAIRU, the nonaccelerating inflation rate of unemployment. Mr. Mire goes on to say: Second, once excess demand gap opens up, inflation increases indefinitely and progressively until the excess demand gap is closed, and then stabilizes at the higher level until cumulative excess supply gaps reverse the process. Visions of Germany in the 1920's. Why, my goodness, if the unemployment rate goes a little lower, you will be taking your dollars to the banks in wheelbarrows. They will be worthless. We will have this huge inflation. That is the kind of fear-mongering done by those who adhere to this concept of NAIRU. Now, Mr. Greenspan has recently made some public statements kind of distancing the Fed from NAIRU. I guess, after 3 years, it has finally kind of come home to him that maybe a 5-percent rate of unemployment is not going to accelerate unemployment, maybe not 4.9 percent, and maybe not even 4.5 percent. In his July 22 Humphrey-Hawkins testimony, Mr. Greenspan said: The rise in the average workweek since early 1996 suggests employers are having a greater difficulty fitting the millions who want a job into available job slots. If the pace of job creation continues, the pressures on wages and other costs of hiring increasing numbers of such individuals could escalate more rapidly. Furthermore, the prospect of adding more employees to the workforce is equally unappealing to Mr. Greenspan who believes this will ignite inflation. He said this in July: Presumably, some of these early retiree, students, or homemakers might be attracted to the job market if it became sufficiently rewarding. However, making it attractive enough could also involve upward pressures in real wages that would trigger renewed price pressures, undermining expansion. To that, I say: Not true. Turn again to this chart. Median weekly earnings are going down and corporate profits are going up. All I am saying, and others are saying, is that more of the growth in our economy needs to go to those who are working and making weekly wages. More should be going to the bottom part of our economy who are falling further and further behind and who rely more than anyone else on interest rates. Well, again, Mr. Greenspan linked wage pressures, no matter how little to the specter of accelerating inflation in his October 8 testimony earlier this month before the House Budget Committee. He admitted, ``There is still little evidence of wage acceleration.'' But he said, ``If labor demand continues to outpace sustainable increases in supply, the question is surely when, not whether, labor costs will escalate more rapidly.'' I know Mr. Greenspan is a skilled economist, but I would like to point out a few things to him. First, you have increasing technology with the silicon chip; second, you have a lot of women who are in the pool that can come into the work force because they are homemakers, and as we develop more and more safe, affordable daycare in America, more of those women can come into the work force. Third, we have a global economy, Mr. Greenspan. Now, some may say it's odd for me, for this Senator, to be talking about this global economy as part of an element that contributes to economic growth in our country and the keeping down of wage demands. But it is true and it's a fact. All I am saying is that as long as it is a fact, then don't further penalize the workers in our economy by keeping unnecessarily high interest rates, which penalizes them in buying a home, or buying a car, or taking a vacation, or saving some money for a rainy day, or for their kids' college education. We can use the global economy as it is with increasing technology, with a vast pool of women, early retirees, and the underemployed, to move into that work pool and hope at least to get some increase in the wages of those that are on the bottom, and at least give them a better ability to be able to increase their standard of living by not paying so much in interest rates. Mr. Greenspan, as recently as October 8, is warning us that if the labor demand--once again, that old NAIRU concept--out there continues a little bit further, then inflation is going to accelerate and take off. Another simple component of the NAIRU concept is, of course, the preemptive strike. It's when the Federal Reserve raises interest rates to fight inflation, despite seeing no signs of accelerating inflation. The justification behind a preemptive strike is the possibility of inflation increasing at some point in the future. Again, Mr. Greenspan said, in his Humphrey-Hawkins testimony this year: Given the lags in which monetary policy affects the economy, however, we cannot rule out a situation in which a preemptive policy tightening may become appropriate before any sign of actual inflation becomes evidence. That leads me to another change in Fed policy that I think we ought to enact and enact rapidly. There is no reason why the minutes of the Federal Reserve Board meetings need to be kept secret for 5 years. That's right. When the Federal Reserve meets and sets their policy, it's sealed for 5 years. We don't do that in Congress. We don't do that in the Supreme Court. There is no reason why the Fed has to have that capability to withhold important information. I grant that there may be some economic reasons--in terms of market stability--why their minutes may be kept sealed for a short period of time, but certainly no longer than a year. We ought to know from year to year why the Fed is making the decisions it is making. People ought to go back and read the minutes of the Fed meetings back in 1990 and 1991 when it was making some of its decisions. Then you will begin to see that their crystal ball is pretty cloudy indeed. Mr. Greenspan, as I have pointed out on many occasions, raised interest rates seven consecutive times in 1994 and 1995. Think about that--seven consecutive times. I say he doubled interest rates. The Fed fund rates went from 3 percent to 6 percent in less than 2 years--about 18 months. He did this despite seeing no signs of accelerating inflation. There never were any signs of accelerating inflation. For example, in his February 22, 1994, testimony given shortly after the first of the rate hikes, Mr. Greenspan said the current economic statistics ``do not suggest that the financial tender needed to support the ongoing inflation process is in place.'' Yet, they kept raising interest rates. So during a period of time when we had great economic growth in this country, the raising of those interest rates pushed a lot of our people on the bottom further down on the bottom and let the people at the top get more of the growth that we have had. Since the last of the seven rate hikes, Mr. Greenspan lowered the rate slightly and then put them back up again a quarter of a point--at about 5.5 percent right now. In July, Business Week published a cover story entitled ``Alan Greenspan's Brave New World.'' He said Greenspan has moved the Fed into ``uncharted territory * * * by allowing faster growth and lower unemployment than the Fed would have permitted in the past.'' I think we should continue on that track. But I am concerned about the recent testimony given by Mr. Greenspan just earlier this month. The pervasive fear of inflation still holds true to that. This is best shown as the preemptive strike launched by the Fed in March of this year, despite minimal signs of inflation and Greenspan's February Humphrey-Hawkins testimony, in which he said, ``This year overall inflation is anticipated to stay restrained.'' Mind you, in February, Mr. Greenspan said: ``This year overall inflation is anticipated to stay restrained.'' One month later the Fed increased its Fed funds rates by a quarter of a point. On April 24, Governor Meyer--again, the biggest proponent of NAIRU--gave a speech in which he said, ``The recent Federal Reserve policy action was clearly a preemptive one. This means that it was undertaken not in response to where the economy and inflation were at the time of the policy change, but in response to where the economy and inflation were projected to be in the future absent a policy change.'' Again, I would like to know exactly what the Fed is looking at when it makes these decisions. What is that future? What is the long run? One economist once said, ``In the long run we are all dead.'' What are we talking about in the future? One month the head of the Fed says inflation is going to stay restrained, and the next month they raise the Federal funds rate. The next month Mr. Meyer says it was preemptive because we projected that in the future sometime we would have inflation. Obviously, not this year, because just a month before, they said it was going to be restrained. And, yet, over the last several months, our consumers, our small businesses, our farmers, our homeowners, our manufacturers have had to pay a quarter point more interest rate. That hits everyone. It is just like a hidden tax; just like a nice little hidden tax on everyone. A lot of people believe that preemptive rate hike in March was totally unnecessary. In the April 14, 1997, edition of Barron's, David Ranson wrote an article entitled ``The Federal Reserve's Pointless Quarter Point: A Preemptive Strike Against a Non-Threat.'' Mr. Ranson said first: There isn't any inflation around to curb. Everyone, including Alan Greenspan, concedes that inflation is absent. Thus, the traditional pretext for Fed action is nowhere to be found. I am reminded of the two buzzards sitting on a tree limb. One turns to the other and announces: ``Patience, my foot. I'm going to kill someone.'' We have all seen that cartoon before. So it is like the old Fed sitting there. ``Well, patience my foot. We are going to raise interest rates. Inflation isn't there. By gosh, we are going to raise it anyway.'' According to the official story by Mr. Ranson, the Fed's action was a necessary preemptive strike against inflation before it becomes evident. If it is not evident, how do they know it? If it is not evident to a lot of preeminent economists in this country, how is it evident to the Fed? What is their basis for it? Again, we will not know for 5 years. We ought to know a lot sooner than that. Mr. Ranson said, The real enemy for now is not inflation itself but unwarranted angst about inflation brought on by stubborn adherence to basic misconceptions. Inflation is certainly detrimental to growth, but it is not true that growth must lead to inflation. This principle is observable worldwide. Low-inflation countries have tended to be economically successful while high-inflation countries have tended to stagnate. Fourth, increased interest rates do little to curb inflation; mostly they just ratify it. There is powerful evidence that an increase in interest rates slows the economy, but we find surprisingly little evidence that it curbs inflation. Inflation does not decline perceptively following a rate rise. Nor does inflation increase noticeably following a rate cut. Mr. Ranson concludes the article by saying: The notion that inflation is generated by economic success belies history and perpetuates the ``good news is bad news'' syndrome that bedevils government policy and the financial markets. The assumption that we need the Fed to tinker endlessly with interest rates needs to be challenged. Policymakers are prone to assume that the Nation needs them to take vigorous action . . . even when the pretext for action is elusive. It is unclear whether those clamoring for higher interest rates will be mollified by the Fed's token action. It is only more likely they will be encouraged to demand more. One policy mistaken facilitates another. Mr. President, I ask unanimous consent that Mr. Ranson's article be printed in the Record.

Mr. HARKIN. Again, Mr. President, because of the new labor pool that is there and because of the international marketplace, because of increasing technology and productivity, I believe the economy can continue to expand for some period of time, at least at its current pace, without causing a significant rise in inflation. Second, we need to do more to increase the wages and incomes of average Americans. This should be one of our Nation's very top priorities. So we have an economy growing 3.3 percent. That is good, but who is taking part in it? The Federal Government should complete a very good year from a budgetary perspective, as I said. In February, the White House said there would be a $125 billion deficit. CBO, our budget estimator for Congress, said it would be $115 billion in March of this year. In fact, it looks like it will only be a $23 billion deficit this year. So why do we have the good news? Because the economy grew faster than the traditional economists perceived likely. I am pleased with the growth. I am pleased with that growth and the lower deficit level and the fact that prices are not rising. But I am disappointed that a fairly small share of the gain went to average Americans. Look at this chart which says it all. Look what has been happening in the last several years in the recent economic boom in this country. If you look at the corporate profit rates, they are really going up. Especially since 1992 and 1993 they have gone up tremendously. Look at the median weekly earnings during the same period of time. They keep going down. Corporate profits are going up and median weekly earnings are going down. The reality is that the incomes of average Americans are not rising very much. Median household income remains lower than in 1989, before the last recession. The poverty rate is still higher than in 1989, and the number of persons considered very poor, earning less than half the poverty threshold, actually increased. The poverty rate is still higher than in 1989, and the number of persons considered very poor--that is, earning less than half of the threshold poverty rate, actually increased. At the same time, corporate profits are soaring. If the Fed clamps down and the economy ceases to grow at a reasonable rate, there will be no real chance that wages will grow at anything more than a minimal rate. This line will continue to go down even more. If we allow the economy to move forward, then, workers may achieve some real income growth. That means a higher standard of living for all Americans. That really should be our bottom economic line, a higher standard of living for all Americans, including those at the bottom who are falling further and further behind. If someone asked me what I would want, I would say I just want average Americans to be able to buy a home with decent mortgage rates, low monthly payments, to go on a nice vacation every year with the family, treat their kids to a ball game, go out and have a nice dinner at a restaurant with their spouse on their anniversaries or birthdays, be able to save some money for a rainy day or for their kids' education. In other words, to improve their quality of life. This should be our fundamental goal. To not allow a chance of an improved standard of living because of an innate fear of a possible rising inflation is not only unfair to Americans, it flies in the face of economic reality and it fails to recognize basic changes that have taken place in the global economy. A little history. Back in 1933 the Congress set the Federal Reserve policy goals as ``the maintenance of sound credit conditions, and accommodation of commerce, industry and agriculture.'' In 1946, the Congress passed the Employment Act of 1946 which set out a shared Federal Reserve responsibility, the goal being ``responsibility of the Federal Government to use all practical means * * * to promote maximum employment, production and purchasing power.'' It was only in 1978 that the law was modified to add the goal of containing inflation, interestingly. Not until 1978--we had some pretty good years before 1978, but it was in 1978 that the law was modified to add the goal to the Federal Reserve's policy of containing inflation. That goal did not replace maximizing employment and production. It didn't say in lieu of maximizing employment and production, but in addition to maximizing employment and production. In the last Congress, Senator Mack, my good friend from Florida, introduced a bill to make fighting inflation the sole principal goal of Federal Reserve policy, to undo everything it has been doing since 1933, to take what was done and added in 1978 as another goal, and make that the only goal of Fed policy. Alan Greenspan supports this proposal and said in open testimony that he supported taking out of the Federal Reserve's consideration ``promoting maximum employment, production and purchasing power, the maintenance of sound credit conditions to accommodate commerce, industrial and agriculture,'' all of which has been in there at least since 1933 and 1946--do away with all that and have only one goal for the Federal Reserve--to fight inflation. Mr. Greenspan supports formally shifting the focus of the Fed to controlling inflation and achieving price stability. Well, I do not think this policy is a wise course of action. Alan Greenspan may want to change the Fed's mandate, but that does not relieve the Federal Reserve of its responsibility to carry out the law and its mandate which is not just inflation but ``to promote maximum employment, production and purchasing power.'' Unfortunately, under the leadership of Mr. Greenspan, the focus has become only oriented toward a fear of fighting the ghost of inflation. I say ``a fear of fighting the ghost of inflation'' because there is no inflation. But out there sometime around Halloween the ghost of inflation that might actually appear, and we need to be worried about that, according to Mr. Greenspan. I recently met with the two nominees for the Federal Reserve board that will shortly be before the Senate, Mr. Gramlich and Mr. Ferguson. We had two very productive and informative meetings. I found them both very learned individuals and fine individuals. They also have good career backgrounds. But what American families need at the Federal Reserve are Board members who will not simply follow the prevailing wind at the Fed but follow what is set out in law, and that is balancing the goals of sustaining rates of growth from employment, production and purchasing power as well as minimizing inflation. Unfortunately, our two nominees before us still adhere to that outdated consent of NAIRU, nonaccelerating rate of unemployment, and I am afraid that they will fail to aggressively challenge many of the current assumptions at the Fed. We need a good healthy debate at the Fed and we need a good healthy debate outside of the Fed about economic policies. I also believe that the nominees are just not likely to push for this kind of debate prior to risking the upward movement of the economy with an interest rate increase. That, in my view, is unfortunate. The Federal Reserve seems to look at the economy solely through the eyes of lenders. They need to look at the needs of manufacturers and builders, entrepreneurs and hard-working families, as the law requires. These are the people that move the economy, the people that make things, that take the risks, that sell things for whom the Federal Reserve policy should aim to benefit. The nominees before us, unfortunately, I believe share that view of just simply looking at the economy through the eyes of the lenders and the bankers. Lastly, and while this is not being talked about very much, I believe we are facing an increasing risk of deflation--deflation. While the Fed focuses on getting inflation down to zero, I think and fear they may overshoot it and send the economy into a deflationary spiral. Inflation as measured by the CPI for the past year has been 2.2 percent. Unemployment is below 5 percent, and the economy is moving at a GDP rate of around 3.3 percent. Most of the members of the Federal Reserve seem to feel the CPI overestimates inflation by a percentage point or more. If that is the case, then inflation is somewhere down around 1 percent, maybe less. Maybe inflation is really somewhere between zero and 1 percent. These people at the Fed fear inflation might rise because the unemployment rate is so low, 4.9 percent. If it does, we can react, but there is nothing in our history that points to our inability to slow down and reverse inflation due to an overheated economy. But the preemptive strikes launched by the Fed do not restrain inflation. Instead, this reaction to the remote possibility of accelerating inflation has tremendous costs to our nation. A preemptive strike blocks the chance of people to be more employed; it blocks the chance of people, on average, to see their incomes truly rise; and it increases the risk of recession. A recession in the current economic environment creates a real possibility of deflation. I believe that right now we are very close to zero inflation, but if we go into recession, that could slip down below zero, and indeed we would have inflation. That would deepen the recession and make it even harder to come out. Because of this excessive fear of inflation at the Fed, we now live in a world where good economic news for working families is bad news on Wall Street and at the Fed. I don't know how many times I have seen that if there is some good news out there for working families, they say stocks will fall, the Fed is going to have to raise interest rates. I will read from an article written by Mr. Robert Reno earlier this year, entitled ``Economic Prosperity Not Fully Shared,'' to underscore this point. Mr. Reno said in his article of March 14, 1997, talking about the unemployment rate falling to 5.3 percent and below. Wall Street held its breath recently, fearful that one of the greatest bull markets in history was about to be handed the excuse it was looking for to crash. He said that was because early in March the U.S. Bureau of Labor Statistics was ready to release the report on unemployment. It could have been another Black Friday. But closer inspection of the employment report showed things weren't all that dreadful. Average earnings rose just 3 cents an hour. No sign there that wage inflation was any threat except in the minds of those who use a Hubble telescope to see inflationary signs invisible to everyone else. Moreover, there were ``healthy'' signs that American workers are still scared witless. The percentage of workers holding down two jobs, seen as a barometer of job insecurity, was 6.2 percent, about the same as it was a year ago. And the percentage of job quitters-- those who felt confident enough to strike out in search of new employment--fell significantly. . . . It says something weird about the economic culture of the 1990s that the docility of the American labor force has come to be regarded as the chief barometer of the Nation's economic health, the indicator that causes the largest holders of wealth to prosper even as wage-earner incomes stagnate. Again we see it here, wage earners going down, corporate profits going up. Still, the alarmists continue to talk about a ``tight'' labor market. This is not the same labor market viewed by most American wage earners. They see an economic landscape littered with the victims of downsizing, a corporate strategy that has institutionalized the process of maximizing short-term share values by minimizing worker security. They also see a system in which health-care coverage, especially the fear of losing it, is increasingly a factor in workers' decisions to change jobs or to hang on for dear life to the one that they have. These and other factors, including the weakening of the labor movement, combine to make workers less likely to demand higher wages even as they see their CEO's taking home grossly swollen compensation packages that are an embarrassment to capitalism. I think that paragraph needs repeating. These and other factors, including the weakening of the labor movement, combine to make workers less likely to demand higher wages, even as they see their CEO's taking home grossly swollen compensation packages that are an embarrassment to capitalism. I ask unanimous consent that the full text of Mr. Reno's article be printed in the Record.

Mr. HARKIN. Mr. President, again, I am also concerned that the nominees that will be shortly before us to the Board of Governors seem equally frightened by this ghost of inflation. For example, nominee Roger Ferguson said in his testimony before the Senate Banking Committee, ``Therefore, I agree with the Fed's historic approach''--I would challenge that word ``historic approach''--``to reduce monetary stimulus before the emergence of obvious and strong inflationary pressure. Unfortunately, the timing and appropriate amount of change in monetary policy involves some guesswork and some risk taking.'' He agrees with the Fed's historic approach. It seems to me the historic approach of the Fed back in 1933 was to facilitate commerce and keep employment high. Only in 1978 was it added to keep inflation in check. Mr. Ferguson's view is not a comforting thought given that we have a chairman of the Federal Reserve System who has echoed that comment when he said, ``economic understanding is imperfect and measurement is imprecise.'' That is interesting. Mr. President, if measurements are not perfect, can we assume the Fed knows what it is doing when it launches one of its preemptive strikes? Maybe all it is doing again is simply raising the corporate profit rate and cutting down median weekly earnings. This is what is happening. Change in the share of income received by each quintile from--look what is happening. The lowest quintile, the lowest 20 percent of our population, their share of income received is going down. All of it is going down. But in the top 20 percent it is going up--their share of the income. So I suggest that what the Federal Reserve is doing is not stopping inflation at all. What they are doing is shifting who gets the money; who gets the biggest share of this great growth that our country is now engaged in. Furthermore, I submit that their policy inhibits that rate of growth and keeps it from being even greater than it is. So we have a Fed that has used a method to fight inflation when we may not even be sure if inflation actually exists in the economy. Well, Mr. President, I believe I have used up my 30 minutes. I see others who are on the floor who want to speak. But I will have more to say about this as the week progresses if the nominations are put before the Senate for consideration. I have a number of other charts that I am going to use to illustrate how the Federal Reserve policies, I believe, are hurting the working families in America, how their policies are mistaken in bending this country toward higher interest rates when those higher interest rates are not needed, when they are not legitimate, and when those higher interest rates benefit the top 20 percent of the people of this country and hurt everyone else. The Fed's policies, in short, are keeping growth restrained more than should be. Second, the Fed's policies, I believe, are keeping wages from keeping up with productivity in this country. Third, the Fed's policies are skewing who gets whatever the growth is in our economic pie. In other words, we know and all of the figures show--and I will release those later on this week--that in our country the richer are getting richer and the poor are getting poorer. We know that. All we have to do is look at this chart. So the Fed's policies are destroying the broad middle class in America, that middle class that has always been the ladder of opportunity for those who ascend. I fear that if we do not stop the policies of the Fed, that rather than accelerating inflation, what we will have is an accelerating spread between the rich and the poor in our country, an acceleration of depressing wages, an acceleration of pushing people in the middle class down further on the economic scale, and that I submit will be harder to turn around and more dangerous for our country, more fraught with the possibilities of deflation and severe recession than any fear of a small increase in inflation that might come about if the Fed were to actually reduce interest rates. Mr. President, I yield the floor.

Mr. HARKIN

Mr. HARKIN. Yes.

Mr. HARKIN. Mr. President, reserving the right to object, I might inquire of the distinguished majority leader, what were the Executive Calendar numbers?

Mr. HARKIN

Mr. HARKIN. Mr. President, might I then inquire as to if there are any constraints on time, limits on Senators speaking in morning business?

Mr. HARKIN. Mr. President, what is the parliamentary situation?

Mr. HARKIN. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. HARKIN. Mr. President, I have more than 10 minutes of remarks that I want to make on Fed nominees and on the economy in general. It is going to take certainly more than 10 minutes. I will speak for my allotted time of 10 minutes and then ask unanimous consent at that point to extend it beyond that.

Mr. HARKIN

Mr. HARKIN. Mr. President, just this week, we in the U.S. Senate have been confronted with two strong reminders of the importance of renewable fuels to this country. This emerging industry, potentially lucrative for American farmers and agribusiness, can help solve two key problems that we face: the impact of greenhouse gases on the global climate, and the growing dependency of the American economy on the import of foreign petroleum products. On Wednesday, President Clinton, announced the U.S. position with respect to the climate change treaty to be negotiated in Kyoto in December. Under his instructions, American negotiators will seek to fashion an agreement that will commit, on an equitable basis, the nations of the world to reducing emissions of greenhouse gases over the next several decades. If implemented, our ability to meet such goals will depend greatly on the development and adoption of new technologies which are more energy efficient. The President's proposal to provide tax incentives for more energy efficient technology should be important in spurring such development efforts. Renewable fuel technologies, especially those derived from agricultural products, will be a crucial component of such activities. Many forms, such as the energy that will be produced from the switchgrass project underway in Centerville, IA, offer the added benefit of actually withdrawing carbon from the atmosphere. Expansion of production of renewable fuels also increases income for the farm sector, and creates new jobs. In keeping with a key theme voiced at the recent White House Conference on Climate Change, with renewable fuels we can do well by doing good, for American agriculture and the whole country. If that were not enough, Mr. President, Tuesday's announcement by the Commerce Department that record oil imports caused our merchandise trade deficit to increase in August gives added urgency to the promotion of renewable fuels. It is clear that even if no treaty on climate change comes out of Kyoto, our dependence on oil imports still looms on the horizon. The share of imports in U.S. oil consumption has been climbing steadily over the last few years, and the Energy Information Administration of the Department of Energy projects that the share could reach 75 percent within the next 10-15 years. Increased production and use of renewable sources of energy could help to stem that tide, and reduce our need to rely on energy sourced in large part from a politically unstable region of the world. During this session of Congress, we can begin to respond to these events in at least one concrete way, by passing into law the proposed extension of the ethanol tax credit to the year 2007. I urge my colleagues to seize this opportunity now to show our confidence in agriculture's ability to make a positive contribution in these areas by producing renewable energy for American consumers to use.

Mr. HARKIN

Mr. HARKIN. Mr President, I want to express my appreciation to the chairman of the VA-HUD Subcommittee and to Chairman of the Subcommittee on Housing for working with me to address the special difficulties concerning the treatment of rural elderly housing projects under the new Multifamily Housing Restructuring Program contained in the conference report. As the statement of managers states A large portion of the properties in the upper Midwest are elderly facilities in rural areas, which are particularly disadvantaged under the Department's fair market rent system because these properties were built to a different standard compared to general rental properties, and the nature of the rental housing depresses the FMR's. The statement of Managers clearly recognizes the situation confronting a large number of projects in my state of Iowa and in other states in the Midwest. There are a variety of factors causing an especially difficult problem for many rural elderly projects. First, they were logically built with common rooms, elevators and other amenities to serve their elderly occupants which added to construction costs and are rarely found in the rental housing surveyed by HUD for FMR-setting purposes. Second, the nature of rural rental housing in much of the rural upper Midwest creates very low FMR's. Third, a very large share of the projects built in the late 1970's which are now coming up for renewal were rural elderly projects in many States. That means that those States will see a large number of projects needing exceptions from the rent limitations requiring actions by the Secretary. The measure provides for some waiver authority with limits set by geographic areas. I want to clarify that the waiver authority and other requirements placed in the legislation during conference are intended to provide maximum flexibility for restructuring projects to ensure that elderly projects, and especially rural elderly projects, are preserved as project-based, low-income housing. This valuable resource is needed to ensure the availability of affordable, low-income housing for the elderly and disabled.

Mr. HARKIN

Mr. HARKIN. Mr. President, I will respond to my friend from Tennessee who made the argument. He said it would create a huge center at NIH. I am sorry. The Office of Alternative Medicine has 14 employees, the last count I had, and its budget next year is $13 million out of $13 billion at NIH. That is one-tenth of 1 percent. Huge? I beg to differ. There are only two changes under this amendment. It provides that it could make grants, that it could do its own grants, and could have peer review. That is the only difference. We are not creating anything new and huge. It is up to the Congress to decide later on if they want to expand it or not. I am just changing its status. Also, Mr. President, I want to say that if it were not for this point of order this amendment would pass. The cosponsors are Senators Hatch, Daschle, Craig, Mikulski, Lugar, Specter, Grassley, Durbin, Wellstone, Moseley-Braun, and a number of others. I am not going to read them all. This amendment would pass, if the point of order were not raised. The Senator says it should go through the committee structure, that we have not had hearings, and stuff. I say in all friendship--and he is a great friend of mine, the Senator from Tennessee--that just a couple of weeks ago the Senator voted on the Gorton amendment that cut out title I--vocational education, safe and drug-free schools, education technology, bilingual education--knocked it all out. And, yet, we never had one hearing on it. It never went through our committee, of which the Senator and I both sit. We never had any hearings on that. Yet the Senator from Tennessee says fine. He stepped up and voted to abolish all of those without going through the hearing process. But I would say to my friend from Tennessee, you want more testimony. Look at the Record. Our subcommittee on both the appropriations side and on the authorizing side have had hearing after hearing after hearing on this. We have had all kinds of testimony come in. But the most compelling testimony, Mr. President, for this amendment is that more and more Americans are using alternative practices in medicines than they are using with mainstream doctors. They are spending billions of dollars a year. At last count it was over $13 billion in 1 year. It is up to us to make sure that we do the adequate scientific research to find out what alternative medicines are working and what are not. That is why this center is needed. It may not be germane to this bill. But I will tell you. It is needed. It is drastically needed today--not next year or 2 years or 3 years from now. We have had enough testimony basically from the American people. Mr. President, I ask unanimous consent to have printed in the Record a letter from a number of organizations supporting the amendment.

Mr. HARKIN. Mr. President, I have a couple of minutes.

Mr. HARKIN. I appreciate that.

Mr. HARKIN. Reserving the right to object, Mr. President. I was hard- pressed to hear the numbers. Was amendment No. 1131 included in that?

Mr. HARKIN. I yield myself 5 minutes. Mr. President, there are many positive provisions in this bill that I am pleased to support. However, I am disappointed that an essential element has not been included in this bill. A major goal of FDA reform is to ensure that the public has access to medical innovations without compromising public safety. But the multimillion-dollar cost of obtaining FDA approval often excludes from the review process all medical therapies not promoted by major corporations, those that are nonpatentable or low cost. Very few sponsors of alternative medicines and treatments have the resources to go through this process. Unfortunately, this means that millions of Americans are denied access to important alternative medicines and treatments every day. In committee, I proposed and withdraw an amendment that would improve the access to medical care. It was called the Access to Medical Treatment Act. It was introduced this spring by Senator Daschle, cosponsored by the majority leader, Senator Lott, Senators Hatch, Inouye, myself, and many others. It would allow greater freedom of choice and increased access in the realm of alternative medical treatments, while preventing abuses of unscrupulous practitioners. However, it appears that we may not be ready to move on this important consumer reform. Mr. President, while we may not be ready for this, we cannot delay in moving to assure and improve and expand rigorous scientific review of alternative and complementary therapies. That is the purpose of my amendment. Mr. President, increasingly Americans are turning to alternative medicine. A study done by Harvard University showed, in 1990, American consumers spent over $14 billion on these practices. In that year, there were over 425 million visits to alternative practitioners, more than visits to conventional practitioners. In light of that, in 1992, the Congress passed a bill setting up the Office of Alternative Medicine at the National Institutes of Health. We now have 4\1/2\ years' experience with that office operating. It has done some good things, but it has been severely hampered by the fact that it must go through the entire process at NIH, through the institutes at NIH, for its peer review and for its grant-making authority. The amendment I have before the Senate now would simply change the status of the Office of Alternative Medicine from an office under the Director to a center for complementary and alternative medicine. It would not be an institute but a center. As such, that center could set up a peer review process and make its own grants. Now, why is that important? Mr. President, every year since we established the office, we put in the legislation that the office's responsibility was to investigate and validate treatments, practices and medicines. That has been in there every year--to investigate and validate--because what we want is scientific analysis done of these treatments. Now, I have always heard, ``There are a lot of quacks out there practicing alternative medicine.'' While that may be true, there are a lot of good people out there doing good things with alternative medicine. We need the review and the science to let us know what is good and what is working. I asked the Director of NIH a few months ago, who was in my office, how many treatments, or practices, or medicines they had investigated and validated since 1992. I was met with a deafening silence. The answer is, none. Yet, next year we are putting $13 million into the Office of Alternative Medicine. One might rightly ask, where is it going? What is happening? So the purpose of my amendment was to set up a center to elevate its status so that that center could do its own peer review and have its own grant-making authority. That way, we can cut through and save a lot of money and save a lot of time, without in any way compromising rigorous scientific review. That is what this amendment does. It also incorporates within that center the Office of Dietary Supplements, which was also set up at NIH, to bring the two of them together in a new center which would provide more independence, assure economies of scale and efficiencies without in any way denigrating good scientific research. That is the purpose of the amendment. Now, I understand that the Senator from Tennessee is going to raise a point of order that this amendment is not germane. Under the rules of cloture, I admit that it is not germane. That doesn't mean it is not important. It is very important. It is critically important. It should be passed. Mr. President, I understand my 5 minutes are up. I yield 2 minutes to one of my chief cosponsors, the Senator from Maryland.

Mr. HARKIN

Mr. HARKIN. Mr. President, reserving the right to object. I ask the manager of the bill, would the 10 minutes under my control occur prior to the vote on the Reed-Kennedy amendment or after the vote?

Mr. HARKIN. I appreciate that. I have no objection.

Mr. HARKIN

Mr. HARKIN. Mr. President, I rise to pay tribute to the work of Jim Wengert--a good friend and great fighter for working people across the state of Iowa and around the country. For well over a generation, Jim Wengert has been a leader at the Iowa Federation of Labor. From 1966 to 1979, he was Secretary-Treasurer of the statewide organization. And from 1979 until his retirement this year, Jim has been at the helm of the Iowa Federation of Labor serving as its President. Prior to his years at the Iowa Fed, Jim worked at Swift and Company in Sioux City. In 1952, he joined Local 71 of the United Packinghouse Workers of America and he wasted no time rising up the ranks. He served as Vice President and Steward of his local--and Recording Secretary and President of the Woodbury County Labor Council. In addition, Jim has been a legislator in the Iowa General Assembly, and a member of the United States Commission on Civil Rights, the University of Iowa Labor Advisory Committee, and the Iowa Workers' Compensation Advisory Committee. Mr. President, Jim Wengert has had a long and distinguished career but there is a common thread that weaves all his work together. For almost half a century, Jim Wengert has been on the frontlines of the battle for dignity and economic and social justice for the working people of this country. That fight has not been easy--far too often, the deck has been stacked against working people. But Jim never picked his battles because the odds were on his side. He did it because America's best values were on his side. Values like dignity, justice and fair play. Time and again, Jim Wengert put it on the line for workers on the line. To Jim, it's simple. Fighting for working people is a labor of love. That's why he has used his position and his platform to speak out for good jobs, a living wage, secure pensions, and a better future for our children and grandchildren. And if one looks across the landscape of Iowa and at all that's happened that's been good for working people, I guarantee you'll find the fingerprints of Jim Wengert. Because whether it's passing legislation, electing progressive candidates, or changing attitudes, Jim helped make it happen. Mr. President, Jim Wengert is an optimist, a doer and a believer. He believes with his head and his heart that tomorrow can be better than today. And the power to make that happen isn't in the hands of ``them''--the powerful and privileged. The power to make the future brighter rests with us--by organizing and working together. That is what a union is all about. And that's what Jim Wengert is all about. I know the Senate joins me in wishing Jim many more years of health and happiness. And even though his retirement is a loss for the working people of Iowa, it is truly a gain for the Wengert family--for Jim's wife Joanne, his children and, of course, his grandchildren. Once again, Mr. president I want to thank Jim Wengert for his commitment and service. We owe him an enormous debt for a lifetime of building our communities and advancing the cause of justice and dignity for the working people of Iowa and our Nation.

Mr. HARKIN

Mr. HARKIN. Mr. President, the Senator from Texas may say she wants to preserve and keep the National Endowment for the Arts, but this really is a stealth amendment. This is the stealth amendment that will kill the NEA. It will do great damage to a lot of our small States like Iowa, States that may not have a lot of money. We have a lot of budding artists, and we need the national commitment to the arts program to ensure that these young poets and these young writers and these young musicians and these young painters and these young artisans know that there is a national commitment and they have the kind of support and the kind of encouragement and the kind of role models that they need to encourage them in their efforts. No, Mr. President, this stealth amendment would do drastic damage to the NEA. It would kill the NEA, and we cannot afford to do that. I urge its rejection.

Mr. HARKIN. Mr. President, I ask unanimous consent that a letter from Americans United to Save the Arts and Humanities be printed in the Record. They also say they endorse the present distribution of moneys.

Mr. HARKIN. I reserve the remainder of my time. Mrs. HUTCHISON addressed the Chair.

Mr. HARKIN. Mr. President, let me just say that we have a lot of budding artists in Iowa, a lot of them musicians. I can tell you, when the Chamber Music of America came out and spent 2 years in our small towns, it was wonderful. These wonderful artists went to these small towns. They got these kids excited about music and about chamber music. I can't tell you how many hundreds of Iowa kids, I say to the Senator from Texas, were enthused and got involved in music and are progressing now because of that. That would not have happened without the National Endowment for the Arts. It just simply could not have been funded by the State and wouldn't have been, and I don't think the State of Texas would have funded it either. Yes, there are a lot of budding artists out there, and that is why we need a national program to reach out to these budding artists. Mr. President, I ask unanimous consent that a letter from Jonathan Katz, CEO of the National Assembly of State Arts Agencies, be printed in the Record, in which he says they are opposed to this amendment and that they are endorsing the current distribution of agency funds.