Hearing of the Senate Budget Committee: Congressional Budget Office Budget and Economic Outlook
Interview
Hearing of the Senate Budget Committee: Congressional Budget Office Budget and Economic Outlook
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SEN. PATTY MURRAY (D-WA): Mr. Chairman, thank you. Thank you very much. And I apologize for being late. I had three hearings at the same time this morning. This is obviously a very important one.
I had a number of questions about the short-term economic stimulus. I understand you just announced that there is some kind of deal, and many of those questions have been covered. So I won't dwell on that too much.
I did want to ask you one question regarding short-term economic stimulus. It's an issue that I have been looking at very closely and that is the issue of what's called Summer Jobs for Youth Program that helps bring some money into the economy quickly, clearly helps businesses with getting some workers -- solid workers -- but has an additional impact of giving skills to young people when we have a rising number of young people that can't get into the work force. And the unemployment rate for African-Americans 16- to 19-year-old has increased last month just by 5 percent, and the unemployment rate for all teens rose to 17 percent, up from 13 percent a year ago.
So I just wanted to ask you that one small piece, if you agree that putting some money into a summer youth employment jobs program would help bring some stimulus to the economy.
MR. ORSZAG: Well, I think, two things: First, let me just underscore that there are significant problems and challenges associated with unemployment rates and lack of labor force attachment among teenagers and the serious long-term consequences that can flow from that. But we might want to think about programs like that in the camp of sort of long-term economic performance, and the question becomes whether you can effectively and efficiently dial that program up in a short period of time to deliver stimulus in the near term. And I think that's a little less clear.
SEN. MURRAY: Right. And we do have already have a WIA -- Workforce Investment Act -- program that gets those dollars out to the communities. It's already there. I think beefing it up will, I think, make a tremendous impact. I know it's not short-term. It's like next summer, but even the rebate checks that we're talking about, I think, will take several months to enforce and get out into the economy.
Let me go back. You know, one of the reasons we're facing this economic stimulus package -- the crisis everyone is talking about -- is the issue of the rising foreclosures, particularly in the subprime market, and major write-downs in the subprime-backed securities in the financial sector that have led to this sort of crunch in the credit market. Some people are talking about raising the conforming loan limit that set today at $417,000 as sort of a means of providing liquidity into the market. Do you believe a temporary increase in that conforming loan limit would be helpful?
MR. ORSZAG: It depends what else was done. And it depends, "helpful" in what part of the market? We have experienced some difficulty in the so-called jumbo market above those conforming loan limits as a spillover from other problems in the mortgage markets. Raising the conforming loan limit would tend to help bring down rates, especially on jumbo -- that is mortgages that are above the conforming loan limit.
But it also depends on whether you're changing the overall limits on the portfolios that the GSEs -- Fannie Mae and Freddie Mac -- are allowed to hold. If you just raise the conforming loan limit and don't change the aggregate amount of mortgages that they're allowed to either securitize or hold on their own books, you're then just merely shifting things around from one part of the market to another.
If you temporarily raise the limit the issue then becomes whether you're concerned about increased risk associated with those entities.
SEN. MURRAY: So do you think it's a good idea or not?
MR. ORSZAG: I'm not allowed to say things like that anymore. (Laughter.)
SEN. MURRAY: All right. Well, what other actions do you think we should consider to help provide liquidity into the markets and bring some stability to the housing market?
MR. ORSZAG: We go through a whole variety of options in the back end of the stimulus report that we provided to the committee. And as I indicated earlier the problem at this point is there's no perfect solution. A set of imbalances arose for a variety of reasons and it's a mess now. And cleaning up a mess is difficult. So it's messy. And I can't give you, you know, one option that just clearly stands out as having benefits that far surpass potential costs, because everything has, unfortunately, got both costs and benefits in that area. It's just -- we are -- I don't have an elixir here.
SEN. MURRAY: Okay. Well, we're talking about a short-term boost to the economy. What actions do you think we should be looking at for a longer-term stability and boost to the economy?
MR. ORSZAG: Longer term the key issues facing the economy involve things like our significant fiscal imbalance, and especially bending the curve on health care costs so that we're not only avoiding a very rapid increase in expenditures but also getting more for health care dollars. There's a lot more value and efficiency that we can get out of money they were putting into health care.
Relatedly, raising our nation's national saving rate is essential over the long term, because we cannot continue saving just 1 or 2 percent of our income. That's something, again, I want to emphasize, long-term. We don't want to be doing that right now because it would exacerbate the economic downturn. Part of that has to do with the increasing household saving. And I think there are things that have now been shown to really work in terms of boosting both retirement and other saving for households, mostly by making saving more automatic and easier for households to do.
Beyond that, I mean, we can keep going down the list, but we have a --
SEN. MURRAY: What about investment in infrastructure?
MR. ORSZAG: Investment in infrastructure is part of the physical capital that helps to improve productivity. And I think there are questions both about the amount of infrastructure investment that we are undertaking over the long term and also how we're allocating and pricing the infrastructure that we currently have. So a question not only about how much but also where and how well we're using what exists.
SEN. MURRAY: Okay. Thank you very much, Mr. Chairman.
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