Budget chief says administration is ‘changing the culture in Washington’

NEW YORK -- The Obama administration has undertaken a litany of legislative and economic policy reforms to "change the culture in Washington" and to improve how the government spends taxpayer dollars, the head of the Office of Management and Budget said Tuesday during a speech at New York University.

OMB Director Peter R. Orszag cited proposed federal acquisition reforms, which the administration has said will save $40 billion annually through the reduction of sole-source and high-risk contracts; the termination of funding for the F-22 fighter jet; and the passage of pay-as-you-go legislation, as movement in the right direction.

"These are all-important steps to reining in waste and creating a government that uses taxpayer dollars more effectively and efficiently," Orszag said. "But these steps alone will not fill the shortfall that we face.

Orszag said the administration is "working on a range of options" to improve efficiency and trim the deficit as it prepares to release the fiscal 2011 budget in February.

A former visiting scholar at NYU, Orszag spoke to a nearly packed house of several hundred people for less than one hour on the causes of the recession, the current state of the economy and the long-term fiscal picture. The speech also focused on how the economic downturn will affect students, who made up about half the audience.

Orszag pinned much of the blame for economic woes on the previous administration. He argued that Obama inherited a nearly $5 trillion projected deficit because the Bush administration failed to pay for the 2001 and 2003 tax cuts and the Medicare prescription drug benefit. An additional $3.5 trillion in the deficit can be attributed to "automatic economic stabilizers" such as unemployment insurance and food stamps, Orszag said.

The Recovery Act represents 10 percent of the deficit, "despite what you may have heard to the contrary," he said.

"Now, assigning blame never solves a problem, but it is important to understand that we didn't get where we are merely as a result of bad luck," Orszag said. "It was the result of decisions -- conscious, but unfortunate -- and it will take deliberate action for us to work our way out of this situation."

Once the administration gets through health care reform, it will renew its focus on reducing the long-term deficit, which is expected to reach $9 trillion during the coming decade, the budget director added. Officials are considering a number of proposals to decrease that figure, he said, without offering specifics.

"Deficits of this size are serious and ultimately unsustainable," he said.

Orszag was somewhat more optimistic about the short-term fiscal outlook, crediting economic growth in the third quarter of 2009 to the effects of the $787 billion Recovery Act. He noted that recent estimates indicate the Recovery Act added 3 to 4 percentage points to economic activity in the third quarter, which ended Sept. 30. During that same period, Orszag said, the gross domestic product grew by 3.5 percent.

"In other words, effectively all the growth in real GDP during the third quarter could be attributable -- either directly or indirectly -- to the Recovery Act," Orszag said. "To economists, these statistics may provide a small measure of optimism. But let's be clear: to the millions of Americans who remain out of work, these numbers are cold comfort."

Last week, recipients of Recovery Act contracts, grants and loans reported to a federal Web site that they had created or saved 640,000 jobs through about $160 billion in stimulus spending. The administration calculated that indirect stimulus spending not reported by recipients created or saved an additional 400,000 jobs.

Even with the economy showing signs of life, national unemployment, considered a lagging indicator of an economic recovery, hovers around 10 percent. Orszag suggested unemployment figures might not improve in the short term and that "the coming months will continue to be difficult ones for American workers"

The budget director noted that the typical progression in a recovery is growth in productivity followed by an increase in hours worked by those already employed. The last step, he said, is the hiring of additional workers. Orszag said the country is now somewhere between the first and second stages of this process.

"Far too many workers who would rather be earning a paycheck are forced to accept unemployment, and are worrying about how to pay their mortgage, keep their health insurance and continue to provide for their families while they try to find another job," he said.