Key members of the Obama Administration economic team Tuesday sought to defend the administration's spending and tax priorities before the House panel that ultimately allocates federal dollars for spending.
Speaking before the House Appropriations Committee, Treasury Secretary Timothy Geithner, Chairwoman of the Council of Economic Advisors Christina Romer and White House Budget Director Peter Orszag all made the case that the Obama Administration faced an unprecedented crisis on taking office.
Romer said that the economic shocks that hit the economy in recent years were actually more severe than those that triggered the Great Depression.
"The disturbances to credit markets, the decline in wealth and the rise in uncertainty were larger in late 2008 than those that hit the economy in late 1929 and early 1930," she said. "The threat of a second Great Depression was frighteningly real."
She added, "That the shocks did not precipitate a second Great Depression is a testament to the swift and strong policy response."
While Romer recognized that the economy is "obviously" far from healthy, with unemployment still close to 10 percent, she said, "But over the past year, its trajectory has changed from uncontrolled freefall to approximate stability."
Romer said that the administration's economic projections point to the need for additional measures to boost hiring and production, similar to what Congress has already considered, including extensions of unemployment and additional aid to state and local governments.
"A measure that could have a strong effect on job creation in particular is a payroll tax credit for new hiring," she said. "These proposals rely on the basic economic principle that if you want more of something, in this case hiring, you should lower the price."
She added, "Such credits have the potential to have a large impact on job creation at a relatively moderate budgetary cost."
It is "essential" that Congress take further action, she said.
Geithner also categorized the situation as critical, with some signs of progress but many daunting challenges yet ahead.
"Right now it is important that Congress act to reinforce this expansion and make sure that it translates into job creation and broad based income growth across the country," he said. "The best way to do that is for Congress to authorize targeted additional investments."
He added, "First we want to ramp up support for small businesses. … Second we need to boost investment in the nation's infrastructure so we can help enlist the private sector to take on public works projects. … Third we need to continue supporting state and local governments so they can avoid further cuts to essential services and personnel."
In the longer term, however, Geithner cautioned that the nation must take steps to restore its sense of fiscal discipline.
"As we pursue investments and reforms that are vital to the economy and our future, we need to return, again, to living within our means," he said. "Deficits matter. Ours are too high. They are unsustainable."
He added, "The American people as well as investors around the world need to have more confidence in our ability to bring them down over time."
Orszag noted that Obama's proposal to freeze federal spending at 2010 levels is already a greater level of deficit reduction than has been proposed by any administration in a decade.
"Even with that very significant deficit reduction, however, the hole is so deep that we do not get to our fiscal target," Orszag said. "The key to our long-term fiscal future has to be linked to the rising cost of health care. It is absolutely essential that we move towards paying for quality rather than quantity in health care."
He added, "What we are putting forward is a dramatically different vision in which we are trying to address not only the fiscal deficit, but also … the opportunity deficit, the jobs deficit."
by RTT Staff Writer
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