I met this morning with the budget conference committee led by Chairman Paul Ryan of the House Budget Committee and Chairman Patty Murray of the Senate Budget Committee. I was invited to the committee meeting to review the economic and budget outlook and to answer questions from the conferees.
My brief opening comments reviewed the key economic and budget challenges facing the country in both the near term and the long term (see the slides).
- In the near term, the weak recovery from the recent severe recession has led to slow job growth: We estimate that employment is now about 5 million jobs short of where it would be if the unemployment rate was back down to its sustainable level and participation in the labor force was back up to its trend.
- For the long term, the prolonged weakness in the economy has lowered its productive capacity for years to come, while the aging of the population, the expansion of federal subsidies for health insurance, and rising health care costs will put increasing pressure on the budget. Under CBO’s extended current-law baseline, federal debt held by the public, which is already quite high by historical standards, is projected to reach 100 percent of GDP 25 years from now, even without accounting for the harmful economic effects of rising debt.
I noted that those challenges are related to fiscal policies in different ways: The long-term challenges can be addressed, in part, by reducing future deficits, whereas the short-term challenge has been exacerbated by the recent sharp reduction in deficits.
I finished by noting that, when I make presentations like this, I worry that my toting up of all those challenges can make the problems seem so large that it actually discourages people from tackling them. That would be unfortunate. Of course, a clear resolution of the long-term budgetary concerns would be beneficial. But even if that is not feasible right now, reallocating elements of the budget to comport better with the country’s priorities as lawmakers view them, while reducing uncertainty about fiscal policy next year and improving or at least not worsening the long-run budget outlook, would be a good thing—even if it left significant challenges to be addressed in next year’s budget process.