Obama budget chief warns of lingering economic ills
By Michael A. Fletcher
NEW YORK -- As the economy struggles toward recovery, the nation is still likely to endure a sustained period of high unemployment that will have a long-term impact on laid off workers and their children who will, on average, earn smaller salaries and have lower educational levels, according to President Obama's budget chief.
"The recession hits young people hard, knocking them off course for years to come," said Peter R. Orszag, director of the White House Office of Management and Budget.
Speaking at New York University, Orszag said that even as the Obama administration grapples with ways to mitigate that impact, it is increasingly concerned about the federal government's perilous fiscal situation as swelling deficits threatening the nation's long-term economic health.
Last year, the federal deficit was $1.4 trillion and a budget shortfall of a similar size is already projected for the current fiscal year. Over the next decade, he said, the federal government is projected to run up $9 trillion more in red ink.
"Deficits of this size are serious and ultimately unsustainable," Orszag said.
Navigating the tension between the continuing need to pump up economic growth and tend to fiscal deficits is a difficult dilemma that is occupying economic aides as they plan the federal budget for next year, Orszag said.
Orszag was quick to say that Obama's policies -- including his $787 billion economic stimulus plan -- account for only a small part of the nation's deficit problem. Instead, Orszag blamed former president George W. Bush, who enacted tax cuts and a Medicare prescription drug benefit that together account for more than half of the nation's long term budget shortfall, Orszag said.
"We didn't get where we are merely as a result of bad luck,"Orszag said.
To date, he said, the federal government has avoided the worst effects of deep budget deficits. The federal government has been able to borrow money at unusually low interest rates because the economic crisis has caused many private borrowers to pull back from credit markets. Also, foreigners have been financing a smaller share of the nation's debt than in the recent past, Orszag said.
But, he warned, that situation could change quickly, causing interest rates to rise and foreign investment in U.S. debt to increase, adding new strains to the economy.
Consequently, he said, there is a need for the federal government to take serious action to reduce future shortfalls.
Orszag offered no clues for what could be in the offing. Instead, he said, health care reform would help the long-term budget picture by encouraging a slow down in the rise of health care costs. He also said that Obama is determined to cut wasteful spending.
"We are currently considering a number of proposals to put our country back on firm fiscal footing," he said. At the same time, he said, the government must craft policies to offer a "hand up" to people likely to be hurt by the lingering effects of the economic downturn.
"None of this will be easy," Orszag said.
Posted at 1:39 PM ET on Nov 3, 2009
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