Chief Economists of Budget Committees Cite Challenges

By Eric Robins
Associate
Williams & Jensen PLLC
Washington, D.C.

During the Policy Conference, Matt Salomon, chief economist of Senate Budget Committee, and Timothy P. Flynn, chief economist of the House Budget Committee, spoke March 9 on the U.S. budget in a panel discussion moderated by Stan Collender, managing director, Qorvis Communications.  Following their presentations, both panelists addressed questions on: (1) increasing the savings rate and (2) “pay as you go” legislation (PAYGO).

Salomon noted that the deficit was down from $1.4 billion and was projected to further decline by 2015.  He noted that the budget was large, though a bit of dip was expected.  Noting that world economies were emerging from the recession, he said that advanced economies were coming out at a slower pace, with a recovery beginning in the middle of last year.  He noted that both fiscal and monetary policy were very helpful, with most forecasting a recovery.  Still, he suggested that there would have been a deeper recession had the American Recovery and Reinvestment Act (ARRA), the fiscal stimulus package, not been passed. 

He suggested that moving forward, debt-related problems will prevent a withdrawal of the stimulus.  He added that the United States will neither grow its way out of debt since the growth path is weak nor will it monetize the debt.  So he believed the result will be reform and more on this can be learned from the international experience in this area.  Overall, he claimed that it is about political will versus arithmetic.

Flynn suggested that the shift to the “new normal” has been swift and dramatic.  He explained that it is tough to be economic policymakers this year because they face the need to get the market moving again through deficit spending.  He commented that there was no guarantee that the recommendations of the bipartisan National Commission on Fiscal Responsibility and Reform, set up President Obama in a February 18 executive order, will make it through Congress. [The order sets a December 1, 2010, deadline for issuing recommendations.] Flynn claimed the primary issue is how to address growth and spending and bring them under control. He asserted that there is a need to reduce debt, as foreign investors mask costs in the United States, costs that will not continue forever.

Increasing the Savings Rate

Flynn noted that the national savings rate has gone up on its own, but that there should be incentives for people to save more.  He suggested promoting tax-deferred accounts or taxing consumption to help with increasing savings.  Salomon noted that the savings rate has shown some increases, though they have been small and coming at a time when more consumption was desired. Still he questioned whether there would be a new level of thrift.

PAYGO

Salomon stated that the Senate has PAYGO in statutory effect.  He added that PAYGO is a good development as it keeps a lid on spending and forces a way to pay for it to the extent that it works.  Flynn explained that the problems with PAYGO are the loopholes in it for emergency spending. 

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