White House Office of Management and Budget Director Peter Orszag addressed the Council on Foreign Relations today, outlining the Administration’s response to the economic crisis, and how the Administration is working to build a new foundation for economic growth and broadly shared prosperity.

Orszag reminded the audience that when President Obama was elected in November, the economy was in a freefall.  The administration had to work to restore confidence. This is why the administration has been looking to the future, and laying the groundwork for a stable foundation, so that we will be prepared for future shocks.  The Capital Assistance Program, the Homeowner Affordability and Stability Plan, and the Recovery Act were all part of this approach. From his prepared remarks:

In designing the Recovery Act, we also recognized that the economic situation we inherited was so severe that we needed to assure producers and consumers that aggregate demand would be boosted not just for a few months, but for a sustained period.  That is why we envisioned a Recovery Act that would ramp up rapidly in 2009, have its peak impact in 2010, and lay the groundwork for further growth thereafter.

Now, the Recovery Act has encountered some criticism in recent days – from all sides. And a piece of legislation of this size and import should be scrutinized.  In conducting this debate, however, we need to understand what the Act was designed to do.

Remember that the Recovery Act was designed to take effect over a two-year period with about 70 percent of all funds going out in the first 18 months.

As a result, and since job growth typically lags behind economic activity, both Administration and independent forecasts have predicted that only a very small part of the total job creation expected from the Recovery Act would take place by the end of the second quarter.  Therefore evaluating how well the Recovery Act is working based on recent movement in employment numbers is misleading.

Implementation of the Recovery Act is on schedule, and the $220 billion in relief has already had a direct impact. Orszag explained how the Recovery Act is helping our economy rebound:

Goldman Sachs, for one, projects that the Recovery Act will add about 3 percentage points on an annualized basis to GDP in the second quarter and have a similar effect in the third quarter.  To be sure, other analysts may reach slightly different quantitative conclusions than Goldman Sachs – and in any case we have a way to go before anyone should become satisfied with our economic performance.  Nonetheless, it is becoming increasingly clear that the economy is no longer on the brink of disaster.

The equity markets have rebounded, and credit markets have thawed.  The TED spread—an indicator of stress in private credit markets—was typically below 50 basis points before the crisis. In October of last year, it peaked at over five times that, at 460 basis points.  It has now settled back under 50 basis points.   And the consensus among private forecasters is that the economy will return to positive growth this year.

But even as progress is made, this year will continue to be difficult for American workers, as the unemployment rate typically lags behind other parts of the economy. He argued that recovery is not just about rescue, but about rebuilding our economy so that we can have long-term, sustainable growth -- and that health care reform is an essential element to building this new foundation:

The evidence is clear that the biggest threat to our fiscal future is rising health care costs. If health care costs grow at the same rate over the next four decades as they did over the previous four, Medicare and Medicaid spending will go from about 5 percent of GDP to about 20 percent by 2050. That was about the size of the entire federal government last year.

Our fiscal future is so dominated by healthcare that if we can slow the rate of cost growth by just 15 basis points a year, the savings for Medicare and Medicaid would equal the impact from eliminating Social Security’s entire 75-year shortfall.

The fiscal importance of health care reform is indisputable.  Yet in the current debate, there’s been a lot of controversy surrounding whether the bills that are emerging from Congress accomplish our fiscal goals or not.  So let me be clear: the President will not sign a health care reform bill unless it is deficit neutral with hard, scoreable savings over the next decade and on a stable trajectory as the decade ends.

In addition to reforming health care in a deficit-neutral way, the President has also insisted that we take additional steps to transforming our system to one that delivers better care, rather than more care.

Because if we fail to do more to move towards a high-value, low-cost healthcare system, we will be on an unsustainable fiscal path no matter what else we do.  As it stands now, the health care system does the opposite of what it should -- creating incentives for doctors and hospitals to provide more care, not the best care.    


 

Today the President spoke in the East Room of the White House, bearing good news for the taxpayer. The President’s intention was to discuss all of the progress already underway on the fiscal responsibility front, from ending the kind of wasteful no-bid contracting we have all come to know, to cutting unnecessary programs, to eliminating subsidies lavished on health insurance companies through Medicare. 

At the top of the list was codifying the PAYGO principle, stating that government cannot spend an additional dollar without saving it somewhere else, into law. As the President often notes -- and noted again today -- it is a principle that families are forced to live by and one that helped balance the government’s books for years before it was abandoned.

But as it happened, there was even more good news before he discussed those issues:

THE PRESIDENT:  Thank you.  Thank you all for joining us here in the White House.  Before I begin, I want to comment briefly on the announcement by the Treasury Department with regard to the financial stability plan.

As you know, through this plan and its predecessor, taxpayer dollars were used to stabilize the financial system at a time of extraordinary stress.  And these funds were also meant to be an investment -- and they were meant to be temporary.  And that's why this morning's announcement is important. 

Several financial institutions are set to pay back $68 billion to taxpayers.  And while we know that we will not escape the worst financial crisis in decades without some losses to taxpayers, it's worth noting that in the first round of repayments from these companies the government has actually turned a profit.

This is not a sign that our troubles are over -- far from it.  The financial crisis this administration inherited is still creating painful challenges for businesses and families alike.  And I think everybody sees it in their own individual districts. But it is a positive sign.  We're seeing an initial return on a few of these investments.  We're restoring funds to the Treasury where they'll be available to safeguard against continuing risks to financial stability.  And as this money is returned, we'll see our national debt lessened by $68 billion -- billions of dollars that this generation will not have to borrow and future generations will not have to repay.

I've said repeatedly that I have no interest in managing the banking system -- or, for that matter, running auto companies or other private institutions.  So today's announcement is welcome news to me.  But I also want to say the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds.  It's critical that as our country emerges from this period of crisis, that we learn its lessons; that those who seek reward do not take reckless risk; that short-term gains are not pursued without regard for long-term consequences.

This morning the President signed legislation that seems an obvious step, and yet it is one that has not been taken despite all of the incidents that have cried out for it: reform of the defense procurement and contracting system.  This accomplishment for American taxpayers ,and for our military who can now stretch every dollar that much further for those who serve our country, was made all the more gratifying by the bipartisan consensus that it finally found.

The President recognized Senator McCain in particular in his remarks:

Last year, the Government Accountability Office, or the GAO, looked into 95 major defense projects and found cost overruns that totaled $295 billion.  Wasteful spending comes from exotic requirements, lack of oversight, and indefensible no-bid contracts that don't make our troops or our country any safer.  To put this in perspective, these cost overruns would have paid our troops' salaries and provided benefits for their families for more than a year. 

At a time when we're fighting two wars and facing a serious deficit, this is unexcusable and unconscionable.  As Secretary Gates has said, one dollar of waste in our defense budget is a dollar we can't spend to support our troops, or prepare for future threats, or protect the American people.  Well, it's finally time to end this waste and inefficiency.

Already, I've announced reform that will greatly reduce no-bid defense contracts and save the government billions of dollars.  And Secretary Gates, working with our military leadership, has also proposed a courageous set of reforms in our defense budget that will target waste and strengthen our military for the future.  In taking on this enormously difficult task, he's done a tremendous job, and I want to publicly commend Secretary Gates for that.

The bill I'm signing today, known as the Weapons System Acquisition Reforms Act, represents an important next step in this procurement reform process.  It reforms a system where taxpayers are charged too much for weapons systems that too often arrive late -- a system that suffers from spending on unproven technologies, outdated weapons, and a general lack of oversight. 

The purpose of this law will be to limit cost overruns before they spiral out of control.  It will strengthen oversight and accountability by appointing officials who will be charged with closely monitoring the weapons systems we're purchasing to ensure that costs are controlled.  If the cost of certain defense projects continue to grow year after year, those projects will be closely reviewed, and if they don't provide the value we need, they will be terminated.  This law will also enhance competition and end conflicts of interest in the weapons acquisitions process so that American taxpayers and the American military can get the best weapons at the lowest cost.

And this legislation is long overdue, and it's been a long time coming.  But we're finally signing it into law because of the dedication and commitment of a few key members of Congress who've been fighting for years for this reform:  Senators Carl Levin and John McCain; Representatives Ike Skelton, John McHugh, Rob Andrews, and Mike Conaway.  I'm very proud of the extraordinary work that all these gentlemen have done who are standing behind me today.  Senator McCain couldn't be here today because he's making sure he has a good seat to watch his son graduate from the Naval Academy in a few hours, and that's where I'm headed as soon as I catch my ride over here.

But I will tell you that defense procurement reform was one of the issues that John McCain and I discussed in our first meeting after the election.  We pledged to work together to get it done, and today I'm extraordinarily proud to stand here and sign a bill that passed with unanimous support from both parties at every step of the way.

 
(President Barack Obama hands a pen to U.S. Rep. Robert Andrews (D-NJ) as he signs the Weapons Systems
Acquisition Reform Act in the Rose Garden at the White House Friday, May 22, 2009. Standing from left are:
Andrews, Rep. John McHugh (R-NY), Sen. Carl Levin (D-MI), Rep. Ike Skelton (D-MO) and
Rep. Mike Conaway (R-TX).   Official White House Photo by Samantha Appleton)

 

Today the President hosted a meeting that marked one of the most promising signs for health reform to date, and not only because the topic was saving more than $2 trillion on health care costs. Representatives from hospitals, the insurance industry, medical device and pharmaceutical companies, labor and physicians came to the White House to discuss major steps being taken to lower health care costs across the board.  

The President explained the significance of having so many diverse stakeholders at the table:

And that's what makes today's meeting so remarkable -- because it's a meeting that might not have been held just a few years ago. The groups who are here today represent different constituencies with different sets of interests. They've not always seen eye to eye with each other or with our government on what needs to be done to reform health care in this country. In fact, some of these groups were among the strongest critics of past plans for comprehensive reform.

But what's brought us all together today is a recognition that we can't continue down the same dangerous road we've been traveling for so many years; that costs are out of control; and that reform is not a luxury that can be postponed, but a necessity that cannot wait. It's a recognition that the fictional television couple, Harry and Louise, who became the iconic faces of those who opposed health care reform in the '90s, desperately need health care reform in 2009. And so does America.

In short, the coalition has agreed to reduce the annual health care spending growth rate by 1.5 percentage points for the next 10 years, a change that could result in savings of roughly $2,500 for American families. Some of the changes the coalition is working on, explained fully in the fact sheet, include:

·         Improving Care after Hospitalizations and Reduce Hospital Readmission Rates.
·         Reducing Medicare Overpayments to Private Insurers through Competitive Payments.
·         Reducing Drug Prices.
·         Improving Medicare and Medicaid Payment Accuracy.
·         Expanding the Hospital Quality Improvement Program.

The President closed his remarks making clear that this was just the beginning, and certainly no stopgap measure: "So the steps that are being announced today are significant.  But the only way these steps will have an enduring impact is if they are taken not in isolation, but as part of a broader effort to reform our entire health care system." And while so much debate over politics and policy can get lost in the mire of facts and figured, the President made clear that his focus is squarely on one thing:
 

Ultimately, the debate about reducing costs -- and the larger debate about health care reform itself -- is not just about numbers; it's not just about forms or systems; it's about our own lives and the lives of our loved ones. And I understand that. As I've mentioned before during the course of the campaign, my mother passed away from ovarian cancer a little over a decade ago. And in the last weeks of her life, when she was coming to grips with her own mortality and showing extraordinary courage just to get through each day, she was spending too much time worrying about whether her health insurance would cover her bills. So I know what it's like to see a loved one who is suffering, but also having to deal with a broken health care system. I know that pain is shared by millions of Americans all across this country.

Today is a hopeful day.

 

 

We're doing everything that we can to create jobs and to get our economy moving while building a new foundation for lasting prosperity -- a foundation that invests in quality education, lowers health care costs, and develops new sources of energy powered by new jobs and industries.

 

But one of the pillars of this foundation is fiscal responsibility.  We can no longer afford to spend as if deficits don't matter and waste is not our problem.  We can no longer afford to leave the hard choices for the next budget, the next administration -- or the next generation.

 

That's why I've charged the Office of Management and Budget, led by Peter Orszag and Rob Nabors who are standing behind me today, with going through the budget -- program by program, item by item, line by line -- looking for areas where we can save taxpayer dollars.

 

He referenced the 100-program volume of Terminations, Reductions, and Savings released by OMB Director Orszag in his blog post this morning, and went on to give a few examples of how these programs represent the long-standing bad habits in Washington. He mentioned an obsolete navigation system that still gets funding, a literacy program that devotes half its budget to overhead, an a Department of Education outpost in Paris whose work could easily be accomplished here at home.

 

In addition, we're going to save money by eliminating unnecessary defense programs that do nothing to keep us safe, but rather prevent us from spending money on what does keep us safe.  One example is a $465 million program to build an alternate engine for the Joint Strike Fighter.  The Defense Department is already pleased with the engine it has.  The engine it has works.  The Pentagon does not want and does not plan to use the alternative version.  That's why the Pentagon stopped requesting this funding two years ago.  Yet it's still being funded.

 

These are just a few examples.  But the point to remember is that there are consequences for this kind of spending.  It makes the development of new tools for our military, like the Joint Strike Fighter, more expensive -- even prohibitively so -- and crowds out money that we could be using, for example, to improve our troops' quality of life and their safety and security.  It makes government less effective.  It makes our nation less resilient and less able to address immediate concerns and long-term challenges.  And it leaves behind a massive burden for our children and grandchildren.

 

He closed by reiterating all of the ways the Administration has fought for fiscal discipline already, from supporting "pay as you go" rules, to ending sibsidies for insurance companies, to empowering government employees to find and suggest efficiencies. He pledged that this was just the beginning.