the state of the US economy...

CBO Budget Director:

I testified yesterday before the House Budget Committee regarding the state of the U.S. economy. I emphasized the following points:

• In CBO’s judgment, the economy will stop contracting and resume growing during the second half of this year, but the hardships caused by the recession will persist for some time. We now expect that the recovery will be more tepid than we had projected earlier. In particular, the growth in output later this year and next year is likely to be sufficiently weak that the unemployment rate will continue to rise into the second half of next year and peak above 10 percent. Economic growth over time will ultimately bring the unemployment rate back down to the neighborhood of 5 percent seen before this downturn began, but that process is likely to take several years.
• On the positive side, the fiscal stimulus provided by the federal government is now beginning to boost the economy, and financial markets show clear signs of improvement since the fall and winter. However, many factors will likely temper the strength of the recovery: the loss of household wealth, the fragility of financial institutions, persistently weak growth in the rest of the world, a surplus of housing units on the market, and low utilization of manufacturing capacity.
• Even if the economy returns to positive growth this year, the loss in output and income during this downturn will be huge. In CBO’s March forecast, the difference between the economy’s actual and potential output will average 7 percent of GDP (which is equivalent to about a trillion dollars) this year and next, and that gap in output will not close until 2013. CBO’s forecast in August is likely to show even larger shortfalls in output over the next few years. By this measure, the current recession and its aftermath will be the most severe economic downturn of the postwar period.

 

• The persistence of high unemployment in CBO’s forecast does not stem from a “failure” of fiscal stimulus. We expect that the stimulus legislation will boost GDP a little more than dollar-for-dollar of reduced tax collections and increased outlays. However, as large as the stimulus package is, the contraction in underlying demand is far larger, so the stimulus will offset only part of the contraction.
• Most experts believe that larger budget deficits are appropriate during recessions, because higher spending and lower taxes can bring the levels of resource use and output closer to the economy’s potential. Therefore, the extremely large deficit this year—roughly $1.7 trillion, or nearly 12 percent of GDP, in CBO’s March projection—serves a purpose. However, most experts also believe that persistent large deficits reduce capital accumulation and thereby slow the growth of output and incomes over time. Thus, the large deficits that CBO projects for the years after the economy has returned to full employment are more worrisome. Moreover, the sharp increase in debt this year and next raises the risk that investors might lose confidence in U.S. government debt as a safe haven. This risk heightens the importance of putting the budget on a sustainable path as the economy returns to full employment.

 

 

 

 

 

 

 

 

 

 

 

 

 

Its important to note in the first chart the economic recovery with and with/out the stimulus package as there were some people who claimed government stimulus would slow our recovery, and the reality seems to be playing out in the opposite direction of their predictions... people should be warry of their claims on the long term deficit as well as they use the same logic and economic theory to try oppose health care reform that would create more competition in the marketplace and give consumers the choice of a public plan if it fits their health care needs.  A public choice is vital.

I've posted on this a number of times-- Remember its the health care crisis that is the long term drag on the budget...  and Obama is not the problem... underfunded government and a heath care crisis are... and Health Care Reform Reality Check

Its vital that we join the rest of the industrialized nations with major health care reform that includes a government option which is proven to be more effective.  But don't believe me, look at CEPR's deficit calculator which puts our long term deficit in perspective:

The enormous budget deficits projected for future years... are driven almost entirely by projections of exploding private sector health care costs.

The government pays for approximately half of the country's private sector health care through programs like Medicare and Medicaid. Therefore, if the projections of exploding private sector health care costs prove accurate, then the government will face a serious deficit problem. However, if health care costs can be contained, then the budget problems are easily manageable.

CEPR's Health Care Cost-Adjusted IOUSA Deficit Calculator (below) allows you to see what the projected U.S. budget deficit would be, as a percentage of GDP, if the United States had the same per person health care costs as any of the countries in the list below, all of which enjoy longer life expectancies than the United States. All of the other budget assumptions are the ones used by the Congressional Budget Office (CBO)...each country is listed with its life expectancy in parentheses.

go check out the calculator.  Lets get health care reform.  Lets not be 37th in the world for health care--in a country that spends two to three times as much as other industrialized nations (for worse health care outcomes for its citizens!)

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