No Quick End to Joblessness

The title of this blog is quoted from The Economist’s FreeExchange, one of the best free sources of macroeconomic information.  The chart below extracts the data out of the narrative.  These forecasts were given during a press conference held by Peter Orszag, head of the OMB for Christina Romer, head of the Council of Economic Advisors. 

Deputy Director of the OMB, Rob Nabors, noted that “in 2010, the administration was focusing on putting Americans back to work.  Then in 2011, when the economy is on a more stable footing, the president will turn his attention to working toward a sustainable budget situation.”  The blog goes on further to say the difficulty in reducing a large budget deficit (around $1.349 for this fiscal year) during a weakened economy.  “one of the primary factors causing current high deficits is the revenue-reducing effect of a weak economy combined with the automatic increase in spending on social programmers associated with the weak economy.  It’s very difficult to balance a budget while the economy is weak, because every contractionary policy move further reduces economy activity, thereby trimming revenues and putting upward pressure on automatic stabilizer spending (potentially deficit spending).”  However, if the deficit does not get addressed at all, “then markets eventually get worried an interest rates rise, choking off recovery”.  The OMB is focusing on cutting the deficit down to 5% of GDP by 2015.  With President Obama only proposing to cut about $2 trillion dollars by 2019, with a $250 billion cut currently in motion with the recent "non-security discretionary spending freeze", and the stable growth projected in the table above, the OMB’s goal of decreasing the deficit to 5% of GDP will solely rely on the strength of the economy (if GDP rises and the budget gap remains the same, the deficit as a percentage of GDP will decrease, thus achieving OMB’s goal but not reducing budgetary gaps).  Furthermore, once defense spending and social welfare programs are stripped out, less than fifth of the budget is left to freeze, which will be counteracted by the jobs bill that President Obama swaying Congress to pass.

For the full article, see Economist Free Exchange link on my side bar.