Mr. FRANK. I am in somewhat less agreement with the President than you are, although I don't wish to be totally in opposition. And I must say I look forward to supporting the President in his attack on bloated and inefficient and wasteful farm subsidies, and I am sure I will have strong support from these free market conservatives on the other side as we attempt to bring the free market principles to the largest sector of the American economy from which they have long been absent.

With regard to Social Security, I do appreciate the Chairman making it very clear, as others have, that the question of private accounts and the question of the solvency of the system are, in fact, quite separate; that the President himself has acknowledged this. So, yes, there are questions about solvency. They are separate from private accounts. And I will return to them.

But I want to talk about what I think is the overarching problem in the American economy today. And I want to congratulate the Chairman--there are some advantages to going second when the Chairman testifies, and one is that we don't have to worry about poaching on his right to be the presenter of hie own ideas. He testified yesterday in the Senate So I am not reluctant to call attention to page five of his testimony today in the last couple of paragraphs.

And I think what we have is a serious problem in America. The economy has begun again to grow, but it is growing in a way that is exacerbating inequality. We are getting, as the Chairman has noted--although there are some hopes this may improve in the future--fewer jobs for additional unit of GDP. We have a failure of wages on the whole to rise proportionate to the economy. We have--although it isn't commented on here, we have discussed it--the lack of health care and the falling away of health care for many people Some have said, "Well, don't worry about inequality; that is just a sign of pettiness. As long as everything is getting better, why do you worry about inequality?"

And I want to call attention to the quite profound remarks of Chairman Greenspan on this subject when he talks about the problem that we now have where skilled workers' wages, skilled in terms of this economy, are increasing and we have got a greater differential between people who are skilled and people who aren't. As he says, "If the skill composition of our work force meshed fully with the needs of our stock, capital stock, wage skill differentials would be stable. For the past 20 years, the supply of skilled, particularly highly skilled workers, has failed to keep up with the persistent rise in demand for such skills. the demand for Conversely, lesser skilled workers has declined." And this is quite profound.

"In a. democratic society," you say Mr. Chairman, "such a stark bifurcation of wealth and economic trends among large segments of the population can fuel resentment and political polarization."

And I think you have pointed to a central problem, and you repudiate those who 8ay don/t worry about it. And I think you' are right to worry about it, but here is my concern. You then go on to say that one of the most important tasks for the social stability of this country, as well as our economic future--because as you note, "A badly polarized
society is going to be one in which efforts to move forward toward economic rationality will be resisted sometimes when they shouldn't be; a new rationality may creep in, an anger, a resistance to economic rationalization."

And what you say is we need to increase the skills of lesser skilled people, reduce the excess of lesser skilled workers, expedite the acquisition of skills by all students both through formal education, by on-the-job training.

I would add that it is also important, since we know this isn't going to happen instantly, that we alleviate the negative effects of this while it happens. You are quite right to note that resentment will build up. With all the success we could expect in education and
on-the-job training, years will ensue before we make a substantial dent in this.

We have a couple of problems now. Public policy, particularly recently, has cut back in precisely those areas that alleviate the impact of inequality. We are doing less for those who get less. We are cutting back there. Similarly, our ability to go forward, the private sector will play a major role in on-the-job training and elsewhere But no one expects people trying to make a profit to fund all of that. Some significant part of that is going to have to be funded publicly through education, through community colleges, through payment through on-the-job training.

The problem we have is this. The Chairman [Committee Chairman Rep. Oxley] said you are a very famous deficit hawk. You may be one of the few consistent deficit hawks left here in the capital, because people's deficit hawkishness does appear to ebb and flow according to the programs. If however we maintain the current situation in which we have a high priority on reducing the deficit and we continue in existence all of the tax cuts, then the inevitable consequence is very substantial reductions in public spending.
With defense out of this loop, with homeland security out of this loop, all of the programs that either alleviate the consequences of inequality, or help us reduce this skill disparity in the future, are under the gun.

And so I fear-this is a question I would address to you-how do we, A, alleviate the effects of this inequality, so that you reduce the negative feelings that you correctly point out are a result; and how do we increase our ability to get these skills to people; how do we improve education; how do we improve on-the-job training?

Money is not the only answer. But no one, I think would say that you can do something of that magnitude in this society without additional resources. And the dilemma is, if you are going to deal with deficit reduction entirely through reductions in domestic public spending, at the state and local level and at the federal level, I think you have a situation in which the situation which you quite eloquently decry will get worse rather than better. And that is a subject I hope to pursue.