One on One with Orszag
Day four of the Aspen Ideas Festival kicked off with an exciting interview with Peter Orszag, White House Office of Management and Budget Director.
Here's a sampling of what they talked about:
It’s Okay to Double Dip
Will there or won't there be a double dip? Although Orszag admits that that has been some degree of softening over the past month, he says it's normal. During a recovery, as things begin to improve, there is usually a tendency to fall back a little bit, and then improve again.
Orszag adds that the important thing is that the economy is seeing slow and positive growth adding, the risk of a double dip is better than "sluggish growth."
What A Drag
While the economy has some self-propelling momentum behind it, here are what he says are four big forces that can drag it down.
1) The inventory cycle will be coming off. What happens as the economy starts to recover is that firms that had drawn down their inventory begin to start them up again. This had added to economic growth, but by the end of this year, "it will add zero."
2) The Recovery Act. Even though it had added 2% this year, the effects of this act are tapering. That 2-3% will fall to maybe 1% next year.
3) State and local governments are facing $140 billion in deficits. The steps these governments will have to go through to rectify those deficits will drag on the economy.
4) Europe. The situation in Europe has a complicated impact on the US.
The direct impact is that about 20 to 30% of US exports are to Europe. As the economy weakens overseas, this will definitely affect the US in exports, as well as exchange rates. Indirectly, the US is benefiting from the crisis in Europe because this "flight to safety" has caused the 10-year bond deal to go south of 3%.Public Doubts
Orszag has participated in creating both the health careand recovery acts. The real question, he says, is whether the American public has lost faith in the ability of the government to deliver the thing the people want.
One example he used is that a lot of Americans are used to having easy access to sophisticated information technology and yet they can’t some online appointments with agencies like social security administration.
He also said, there is also an increasing polarization of viewpoints that exacerbates this situation.Unemployment v. Deficit
Should there be more focus on stimulating the fiscal economy or on unemployment? Orszag says that the right policy combination would include more support for the economy today when the unemployment rate is above 9%, and more medium and long-term fiscal consolidation. Supporters for either side should agree and acknowledge these problems.
Playing Devil’s Advocate
If the US cannot get the deficit down, a few things can happen.
Orszag says that if you are in an unsustainable fiscal course, and you don’t tackle it in time, investor confidence shifts. This can weigh heavily on interest rates and exchange rates. The bottom line is that there will be sharp pain for the economy and very little maneuvering room to help get around the issues.
To Cut or Not to Cut
Orszag said based on the Congressional Budget Office’s analysis, the health actwill reduce the deficit by about half a percent of GDP in the second decade of its existence. By design, the effects grow over time and about 2% to 3% of the GDP in reduced fiscal gap if the act is fully implemented.
Life After The White House
Orszag had announced that he will be stepping down and leaving the administration in July after only 17 months on the job. "The median tenure for an OMB director is about 18 months…so this is not unusual," Orszag said, adding, "I know myself well enough to know that when you get burned out, that’s the worst time for anyone, and you’re more likely to make mistakes. And I think for the administration too, it just made sense."
Crystal Lau contributed to this article.
More from Aspen:
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- Getting Schooled by Walter Isaacson
- Greenspan and Bartiromo
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