By Michael A. Fletcher
Wednesday, November 4, 2009
NEW YORK -- With the nation's unemployment rate at its highest point in 26 years and projected to rise, the Obama administration is intensifying its search for policies that can stoke job creation without adding significantly to the nation's crippling budget deficit.
One day after top economic advisers met at the White House with President Obama to discuss strategies for creating jobs, the Office of Management and Budget Director Peter Orszag warned an audience at New York University that the nation's unemployment problem could have a long-term impact that the administration must work to minimize.
"The recession hits young people hard, knocking them off course for years to come," Orszag said, saying that children of laid-off workers typically earn less money and complete fewer years of school than otherwise comparable students.
Orszag said that even as the Obama administration grapples with how to mitigate that impact, it is increasingly concerned about the federal government's perilous fiscal situation as swelling deficits threaten 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 projected for the current fiscal year. Over the next decade, he said, the federal government is projected to run up additional red ink of $9 trillion.
"Deficits of this size are serious and ultimately unsustainable," Orszag said.
Navigating the tension between the need to pump up economic growth and also tend to fiscal deficits is the central conundrum confronting Obama's economic aides as they do budget planning for next year, Orszag said.
Orszag's speech comes as the nation's gloomy employment picture pushes the administration closer to embracing new job creation ideas. On Monday, the Presidential Economic Recovery Advisory Board, a panel of economists, labor and business leaders, recommended advancing ongoing federal efforts to retrofit and weatherize homes and public buildings, possibly by partnering with mayors.
Members also urged establishment of an infrastructure bank, an idea Obama advocated during the presidential campaign. The bank, which would be seeded with federal money, would allow the federal government to float long-term bonds to help finance large projects, such as transit systems, housing developments, water distribution networks, roads and bridges. While the federal government issues bonds to finance its deficits, it does not issue bonds to pay for specific projects. Under the proposals endorsed by Obama during the campaign, and embodied in proposals on Capitol Hill, an independent board would determine which projects are funded.
The bank, which would supplement the current pay-as-you-go infrastructure spending, would allow the federal government to tap into private money to attack the nation's huge infrastructure needs, which reach into the trillions of dollars, according to estimates. The bank could multiply federal investments and create a huge number of jobs, supporters say.
The two days of high-profile activity by Obama's top economic advisers underscore the tension the president confronts as he tries to steer the recovering but still shaky economy toward a new era of growth. On one hand the country needs a bounty of new jobs to make up for the 8 million jobs lost since the recession began 22 months ago. Given the growth in the working-age population, economists say it would take 10.7 million new jobs to return unemployment rates to prerecession levels.
But even as economic conditions call for new federal action to create jobs, the soaring federal deficit threatens to lead to higher interest rates, and a weaker dollar, while posing a political vulnerability for the Obama administration.
"Financing is an issue obviously," Obama said during Monday's meeting. "We are moving into an era of greater fiscal restraint."
Congressional Democrats also are struggling to balance concerns about the rising deficits and against the continued need to stimulate the economy.
The Senate this week is likely to pass an extension of unemployment benefits, as well as an extension of the $8,000 tax credit for first-time homebuyers. They are also considering tax cuts for small businesses. At the same time, party officials are wary of deficit spending, and recently more than a dozen Democrats joined congressional Republicans to oppose a measure that would have averted cuts to doctor payments under Medicare. The bill, which would have cost $247 billion over 10 years, was sharply criticized by Democrats who said it wasn't paid for.
The Obama administration is struggling to enact policies to rein in spending while encouraging the creation of jobs even as the economy is showing signs of having pulled out of the nation's deepest recession in more than 70 years.
Last week, the Commerce Department reported that the economy had expanded for the first time in a year in the third quarter of 2009, growing at an annualized rate of 3.5 percent.
Despite the return to economic growth, jobs continue to dwindle and the unemployment rate of 9.8 percent is expected to crest next year at well above 10 percent. "We anticipate that we are going to continue to see some job losses in the weeks and months to come," Obama said.
Obama said "given the severity of the job losses that took place at the beginning of the year and the need for us to make up a whole lot of job loss, is going to require I think some bold, innovative action on our part and on Congress's part and on the private sector's part."
Staff writer Perry Bacon contributed to this report.