The national economy is in danger in part because the administration of President George W. Bush ’68 has failed to recognize the problems the current federal budget deficit poses, a former senior economic advisor to President Bill Clinton LAW ’73 said at a talk Wednesday.
Peter Orszag, the Joseph A. Pechman Senior Fellow of Economic Studies at the Brookings Institute, spoke on the character of the budget deficit as well as what he thinks the best solution to the problem is to an audience of around 40 at St. Anthony Hall.
It is crucial to leave behind a good federal legacy to future generations, Orszag said.
“I think it is a particularly important time to be looking at the federal budget deficit, we are at a point where we need to make some choices about the future,” he said. “In 2008, the baby boomers begin to collect social security and after that the economy will deteriorate rapidly.”
Orszag said he does not believe that the general public has become aware of the problem.
“We did have a temporary period of surplus and it takes a while for the public to catch up,” he said.
The Bureau of the Public Debt reports that the budget deficit currently exceeds seven trillion dollars.
The Bush administration’s claim that the budget deficit will be cut in half in five years is unrealistic, Orszag said.
“There are several flaws in these numbers that make them completely unreliable,” he said.
Orszag said the Bush administration has not accurately accounted for the alternative income tax, a tax that targets higher-income taxpayers, when making its predictions. As a result, he said, the administration’s budget outlook is not reliable.
But Orszag said he thinks even if one follows the Bush administration’s budget predictions, the real problem will come later.
“Even if the budget deficit were cut in half over the next five years, so what? We reach 2009 and fall off a cliff,” Orszag said. “The issue is not short-term deficits when the economy is weak, rather the issue is sustained long-term deficits even after the economy has recovered.”
Of the two most popular ways offered to fix the budget deficit problem, Orszag said he thinks only one is tenable. The first, which he called “starving the beast,” involves solving the fiscal problem by first making it worse and creating a crisis that forces restraints on spending and eventually produces a net improvement. Orszag said he does not think method is logical and instead said restraints on both spending increases and tax reductions are necessary for fiscal discipline.
“It doesn’t work to impose restrictions on one part of the budget and not the other,” Orszag said.
When asked about the upcoming presidential elections and how to warn voters without economics backgrounds as to the danger of a large budget deficit, Orszag was not optimistic.
“Pretty much any long term problem we face is very difficult to express on the campaign trail,” Orszag said.
Rebecca Kysar LAW ’04 was one of many audience members who said she was impressed with the talk.
“I think he has a salient view of the problems in estimating budget revenues,” she said.
Other students said Orszag’s forecast worried them.
“Numbers don’t lie,” Philip Levin ’06 said. “[The predictions] terrified me.”
Orszag has written several books, the most recent of which is titled “Saving Social Security: A Balanced Approach.”