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OMB Director Orszag to the House Chairmen: Fiscal Responsibility Still Matters, Even Now

January 28th, 2009 . by economistmom

President Obama’s Office of Management and Budget Director, Peter Orszag, sent a letter to the leaders of the committees of jurisdiction on the House economic recovery bill yesterday.  I haven’t been able to either find a copy posted anywhere on the internet, or figure out how to post the pdf file on my own here, but here are a couple key passages (emphasis added):

[T]he President urges you to pass a final bill that has at least 75 percent of the funds spending out over the next year and a half (the rest of fiscal year 2009 and fiscal year 2010).  At the same time, the recovery package should include those provisions that have been shown to provide the most effective support to the economy…For example…direct spending…[which] provides the largest “bang for the buck”…[combined] with other particularly fast-spending components (such as middle-class tax cuts [and low-income assistance programs])…[which will] enable us to meet our spend-out goal while also providing the most effective support to the economy possible over the next year and a half…

[W]e need to recognize that focusing only on the short term is part of why the economy is in such dire straits today.  That is why as we address the pressing demands of lifting the economy out of recession, we must also look to the future and begin the process of reinvesting in priorities like clean energy, education, health care, and infrastructure so that the United States can enhance its long-term growth and thrive in the 21st Century…

Finally, we need to recognize that this recovery and reinvestment plan is an extraordinary response to an extraordinary crisis.  It should not be seen as an opportunity to abandon the fiscal discipline that we owe each and every taxpayer in spending their money–and that is critical to keeping the United States strong in a global, interdependent economy.  Although it is not feasible to avoid any spillover whatsoever of the recovery package on out-year spending, the Administration believes that the package should minimize such effects on out-year spending as much as possible.  Furthermore, the President is committed to paying for any of the temporary tax cuts included in the recovery plan that he would like to make permanent, and will detail the manner of doing so in his budget submission.

Moving forward, we need to return to the fiscal responsibility and pay-as-you-go budgeting that we had in the 1990’s for all non-emergency measures.  The President and his economic team look forward to working with the Congress to develop budget enforcement rules that are based on the tools that helped create the surpluses of a decade ago.  Putting the country back on the path of fiscal responsibility will mean tough choices and difficult trade-offs, but for the long-term health of our economy, the President believes that they must be made.

Peter R. Orszag, Director, Office of Management and Budget, January 27, 2009.

This letter suggests to me that the Obama Administration is hoping that the “final bill” will do better than the House version up for vote today, regarding both the timing of its deficit spending (more needs to be within the first two fiscal years), and the effectiveness/”bang per buck” of its policies (more direct spending and household assistance, fewer business tax cuts).  It also suggests to me some misgivings on the part of the Administration on how political “compromise” (or more accurately, “getting everyone on board”), combined with our operating in “crisis” mode, seems to be producing a package which demonstrates that “haste makes waste.”  I think that deep down the Administration’s economic team is worried that this is already slipping out of their control, no matter how well-reasoned and calm their President remains. 

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