>> rose: welme to the broadct. tonight, a looat our economy, first wi the director of office of management and budget, peter orszag. >> concern abouthe deficits widespreadut all of the specific steps thayou could ta to address th deficit run into eithe constituency politics or other problems. it's soery popular to complain about the defitbut many of the specif steps that you uld take to addresst are unpular. that is th fundament challenge that we ar facinand this w need help th from the american public and congressn addressing. >> re: then popularr thor distorian neal fergus. >> the u.s. continue t run the deficit over a tenear horizon. and ifou look fther than ten years-- because it's very portant to do tha- and take in account the unfunded liabilitys of th medicare and social security syems, the position of the unitedtates verges on bankruptcy. becauselthough we have a $10 illion debt, the unfunded abilities are $100rillion. th's something that see to me one can likely dismiss. >> rose: program note. we intded to show you this eveng interviews with our friends malcolm glad well and job hn grisha but because of the onomic story, we will show u those interviews at aater me. tonight, orszag and ferguson when we continue. captioning snsored by ro communications fr our studios in new york city, this is chare rose. >> rose:eter orszag is here, he is e director of the offe of magement and budget. called more than just the budget dictor by the "neworker" magazine, he's deeply invold in predent obama'smbitious domeic agenda as well. that includes healthcare, energyolicy and entitlement reform. he's focus tongountry's long-term fiscal health. the adnistration rectly released proctions showing deficitsrowing by $9 trillion over the next ten years. speaking at new york unirsity earlier today, peter orszag said e government is permitted to putting the coury back on firm fiscal footing i'm pleased to have h back at this table to tell us how they're going to do that. welcome. >> thanksor having me. >> rose: everywhe we go, whver wealk to, says in the d on main seet on wal stre, among foreign leaders who stop atthis table the worry about e deficit. does america have o much debt that i cannot bring the political willo do something about it. >> rose:ell, let'sealize we actually have two deficits. onisthe fcal defit this which we need t bring down, but we also havehis g.d.p. deaf which were trying to work our way out of. rose: explain the g.d.p. deficit meaning. >> there's a gap between how much the ecomy could proce d how much it's currently proding which at the beginning of this year was estimatedo ount to more than a trillion dollars. to start to fill tt hole, we had take steps like the recovery act to try to get the ecomy back on its feet. so the problem wouldbe challenging if it were just a fiscal one. buwe have theual deficits and ne to address both. and that mak it even more challenging. >> rose: because t current accounts deficit a well. >> which is a refction... now one of the string things is we really are livg in an exceptional time. normally higherudget deficits-- and, again, last year we had1.4 trillion deficit... >> rose: this ishe fiscal year that ended in stember 31 of 2009? >> correct would show up as some combinion of higher intest ras and increas borrowing fr abroad. some combinaon thereof. instead wee seen veryow inrest rates and a declinin the currt accountdeficit from 6% of the economy in 2006 to under now. >> rose: because of t economic cris we're going throu. >> because of the ecomic crisis that we' going through in a sen, for rht now, at least,he treasury ishe last borrower las standing. and if you look at total borrowg, public and private combed, it's dow dramatically er the pass three years. the reon, however, and that reflects the exceponal economic downturn th we've been experncing, the reason need t addressoureficits on a goingorwardasis is as private borrowing srts to pick upgain, as consumption and buness investment start to pick up again, that will no longer be the casend at that point financing th deficit will be crowding out private invest or causing more borrowing from abroad, and that's a problem we need to.... >> re: that's a daster. >>hat is... we need to... as i id this morningthis is the serious problem and the outyear deficits a unsustainable th have to ce dn. i also, though, think recognizing th problem and the need for action, it is worth pausing and remeering how we got here. you mentioned that $9 trillion projected decit over the next decade. that basically reflects three things: the first the failure to pay forwo policies in particular, the 20 and 2003 tax cutsnd the medicare prescription drug befit. those were deficit fanced. over the next decade they account for $5rillion. seco, t economicdownturn because it triers the so-called automatic stabilizer which is raisenemployment benefits, raise food stamps they cause... revenue nds to declinduring an ecomic downturn. all of which is benefici because it helps to mitigate the g.d.p. defit that i was talking about. it alsodds $3.5 trillion to the defit. finally, the rovery act accounts foress than 10% that total. so basically, the $9 trillion projected deficit c be entily accounted for by the failure to pay f policiesn the past, the economicdownturn, and the ste we'vead to take to combat that downturn. which is not to say action isn't necessary, it absolely is. but it's impornt toealize we didn't get here by accident. >> rose: is this administration in favor of extendi unemployment benefits? >> there are whole serie of questions that we ar facing as we come the end of the year includg unemploymt benefits. i pect there will be some exnsion of umployment benefits. >> rose:ecause people like arianna huffington are going around saying to mend others that the problem is with the administrations larry summers is against extending unemployment befits. i don't want to speak about the vie of iividual members of the enomic or other parts ofhe administration, but i don't think at's the view coming from the administratio or, fnkly, from any members of the economic.... >> rose: anybo. because the decion had been made or because tt would not be the decision? i don't think... have not hearany commentary suggting that any one is oosed to extending unemployment benefits. >> rose: so larry summers or anyone ee... >> ain, i don't want to get into specific intern discussions, but ion't think th. >> rose: when u look at $1.4 trillion deficit for the mt recent yea last year, 2009, you are by the end of the first term of this admistration-- t knowing whether ere will be aecond term or not-- saying you're goin to half tt deficit. >> yes. that's a commitmen the president made and we arin the mit of a policy process. we have a buet cominout in february. that budget will include proposals to puts back on a fiscally sustainable coue and also reflect cutting t deficit in half by the end ofhe president's fit term. >> rose:nd what a those proposals? >> without speaking tohe internal process.. >> rose: fair ough. >> ...ther are both process suggestions. for example, tre's lots of discussion ithe congress about whether aiscal commission would help and wean talk more about.... >> rose: a deficit commission, essentially. >> a deficitommission. nator conrad, for exale, has been a leader in putting that idea forwa. others are comi forward with specific ideas about how to save money. i' give you a simple example. we went t and aed federal employs "what would you do to make your ageies work more efficiently." througthe what we call the save award. weot tens of thousands of responses and we're reading those. members of congressre also writing letters and feeding to this pcess. sohere's lotsf ideas floating around. so in february we'll come forwd with our judgment out the best way forward. >> rose: tell mehow you feel about alue-added tax as an additionalource ofevenue. >> that is an idea that ha been talked about in academic circles. i han't heard any direct policy dcussion of tha kind of propol. >>ose: does it hav merit? >> there are academic arguments in favor of it; therere argunts against it. >> rose: well, people like rer altman comto this program, formereputy secretary of t trsury... >> ...and tal about it. again, look, the arguments that have been put forward f a vae-added tax, other countries do it, it c be inhose other countries a sufficit way of raisinrevenue. on the other hand, there's concerns out its regressivety and abou how it would interact with the rest of the taxode heren the united states. anwe don't have a value-added tax. so,gain, i don... again, it's been dcussed in academic circles. i ha not heard serious policy diussion of it en coming from citol hill. so it seems likeore of an academic idea at thi point tn an idea that's directlyn the mix in terms of policy. >> rose: what's going to be the biggest contributoto dicit reduction? >> well, over the long term i thk we need to be ver clear that it is not possible t tax your way out of the fcal trajectory that we're on. and further more,it's not possible to reduce spending outside of health care sufficientlyo addressur.... >> re: that means defse d... >> rht. our longerm fiscal problem is dispportionately influenced by the rate at which heah care costs grow. >> rose: right. >> over th next five or ten years, the sittion is a little bit different and the mixmay vary. buover the next 20, 30, 40, 70 100 years, the key thing is lping to reducehe rate of growth in health ce cts. wiout that, notng elsee do will matr. >> ros and so the bill is that's goi to come out of the congress is going to be deficit neutral. you've guaranteed that. >> the bill..and, in fac, you've alrey seen in tms of the scoring from the congressional budgetffice, bothhe sene... the bill that came out of the senate finance committee and the bill beg consered by the house of representatives is not only deficit neutral over t first deca, but both ofhem reduce the ficit in the second decade. and i think it's impornt to emphasize that's witht counting anyf the steps th will help transform the alth care system a move it towar onehat's oriented towds ality rather than quantit so it's basically to first proximation, at least,ot really counting the effes of moving tards bundling payments accountae care oanizations, the affect on quality from a variety of chaes that are included in the legislation. >> re: do i hear you saying the most impornt thing we can do is to g r... get heah careosts in control under control? >> in terms of the long-term fisc as opposed to the medium-term, aolutely. more will be necessary we face a deficit in social security and therere other problems. rose: medicare and.. >> dicare and medicaid are the key drivers ofour long-term fiscal problem. in order to help contn their cost growth erhe long term, need a newealth care system th has digitized information, so health informaon technology in which tt iormation is used to assess what's working d what's not more intelligently and which we're paying for quality rather an qutity, ile also encouraging prevention andellness. >> rose: on this pgram with you is neil ferguson, who you ow well... or roh of, know his ideawho basically is arguing that we ve a huge problem facing ubecause we can't deal with our defit and some point the chinese fefkally are nogoing to take our debt anymore, they'll fi other places to investheir money. and wh that happens, there no political to deal with the deficit. >> let's first be clear about the immediate situation an why we'reager to addss our medium tm deficit. first, with trrd the medium situation, long-term rates rema quite low,under 4 if that's coinued throughout the rest of this yea, it thery lowest nominal interest ra since the 1950s. the current count deficit whh is a refleion of how much we're borrowing from abroad has fallen in half as a share of the econy over the past thr years. >> ros how much of that is because of t global economic receptn. >> my point is for right now u.s. treasury securities rein the safestnvestment in the world a we are addressinghe immediate economic cris as we should be. and i thinkin my discussions with chise and other creditors there's recognition of that there's also recognition that we need taddress the key driver of our long-term deficits, health care. one of the reans, however, that we nt to get ahead and as soon as we're done with health re turno reducing our meum-term deficitss to me re we don't wind in the situation in which investo confence starts to turn and there are concer about the trajectory wre on. we need d are committed to getting ahe of that sothat we don't face a fiscal crisis. nooil. >> is the belief of the administration tt the idea of defit has traction as a huge problem inain street in and it's n just an idea that is talked aut by people w have a great knowledge of nance. >> i think so, the problem is not lack of conce about the decit, there's plenty of concern about the deficit the oblem is concernbout the deficit is widespread, but all of the specific eps that you could take to address the deficit run into eher constitucy politics or other probms. it's so ver pular to complain about the deficit, but many of thspecific steps that you could take to address it e unpopular. anthat is the fundamental challenge that we are face d that we need hel both from the ameran public and the ngress in addressing. >> rose: what ar your numbers for next year? for 2010 in terms of economic growth? >> well, we are acally going to be dating our economic sumptions as part of the budgethat we put out in february and i'd like to reserve an upted set of proctions for thatoint. >> rose: i it ave 3%? >> it is worth noting that currently theast quarter, as you kw.... >> rose: 3.5%. >> ...the economy grew at 3.. one of the thing looking forwd in 2010 that we are moniring is state andlocal governments ce significant deficits and that will be a drag on the econy. th inventor cycle,hich will help to push economic growth... propel economic growtlater this year and into early next year maytart to reverse. >> rose: there's also this queson, and it' raised about th chineseprojections and raed about other projections. whose assumptions d you use? what numbers are vooiblo base your decisions? >> wl,e... theost recent seof projections that we used for mid-session review we very much in ne with the blue chi private sector forecas >> rose:kay, this is goldman sachs and j.p. morgan and a whole variety of peoe that do that. >> and without pre-judging exactly where wind up for the february budget, i wouldxpect them again be in lin with private sector forecast. and i think that is...hat helps to providcredibility to the effort tt we'r undertaking. our numbers are in line with other outsiders, so tt there's no conrn they're bei lted one way or another. >> rose: wt's happened to yog people in thisecession? >> well,ne of the things that i touched upo my speech in this rn sthag recessions hit young people particular hard. not only if thr parents are la off in which there's an effect on high school dropo tes, but even for those who are not directly affted. their parents or famil members are not unployed. graduateing into a receion has an adver impact on your wages and is affect persists and rticular the evidence suggests for each percentagepoint increase in the unemployment te, initial ges are depressed by 6% upon graduation and even 15 years after graduation are sti 3% lower than otherwise similar gduates in other years. and that's fo each percenge poinincrease in unemployment. for those who a college seniors today, when they entered college, the unemployment rate was about 5%... rcentage points lower an it is tay. so you can multiply those gures to get the ultimate impact. >> rose: how do y factor in two thing one is interest rates and where ey might be in a desion by the feder reserve. and also how do you factor in what will be the dollar which will have an influence on exports and imports? >> in these econoc projections? >>ose: in your projections. again, a variety ofeconomic variles, not just the ones that you mentioned t also inflation and whole sers of otherassumptions go into the macroeconomiprojections that form a key part of our budget ojections. >> re: when you look ahead, wh boar reis you the most. >> well, balancg the key competing defits. e very real deficit weace in terms of economi actity becae in terms of prospects for youngraduates, they're ing directly affecte by how aggressily we attack that oblem. unfounately, there's se teion between those two issues. how qukly one should move towards fiscal deficit redtion d away from trying to address our short-term economic crisis is one of the key thing th.... >> rose: show mow me how that tension takes place. >> in partular in theshort ruin an economi crisis lik we have faced, is a higher deficit helps to bolster maoeconomicdemand, there, foexample, helping aten wait e effect on new graduat. in other words, in an economic isis like we face hi,er benefits promote macroeconomic activi. over theedium term,owever, the situation flips. imagine a bids, for example, at had a business pn of rapid growth for a year or two to address some crisisand then dramatic decli. that would be a very difficult business plan to execute off. that's precisy what we need to do as a nation. >> rose: do we need a stimulus? >> again, growth was 3.5% in the thirquarter, the laborarket remains unacceptably weakwe e constantly reassessing our options withegard to boosting job growth but for rightow, at least, we are in the mode of carelly monoring and asssing options. >> rose: here's wh paul krugmasaid on monday. hat i keep hearing fro washington is one of two arguments, eitherhe stimulus has failed so we shouldn't do anymore two e stimulus has succeed, g.d.p. isrowing so we don't need do anyme. th truth isthe stimus was too little of a good thing, it help but wasn't big enough, seems to be too comicated for an era of soundbite polics? can we afford doore? we can't affordnot to." paulkrugman. >> well, again, i think whate did was aery aggressive step, much moreggressive than many people wanted. it's yielding befits. we're eing it play out and assessing the situation. >> rose: what n't you know that you wish you knew. >> oh, boy, how long do yo have. (laughs) rose: it will hp us understand your lemma if u'll tell us that. >> i think there we twor ree things that if i had a crystal ballould be.... >>ose: enmously helpfulo you in your job. >> b we need to realizethat crystal ball doesn't est, at least with perfect clarity. one is t path of economic recory and whether we will or wot face anssue in 2010. e of the things we want to the avoid, and i think it's crucial to avoid ise don't want to repeat the mistake of 1937 en fiscal support forconomic for the onomy, thatfirst catory we're talking about, was withdrn too quickly a we threw the economyack inton ecomic downturn. that would n be good for anyone and we ne to avoid tha tcome. so cominback to t discussion we had earlier, if knew for sure how much the escape locity was in ter of economic activity and whether that wld outweigh the drag from state and local deficits, the inventory cycle and other forcesthat would be enormously helpful designing thept malphtor best path forward to move from a period in which we need hhereficits temporarily in order to help support the economy, in needingower deficits to avoid harming t ecomy. >> rose: anoer thing argued by niall firsdegree swhon ion this proam that i taped earlier, it is at... he says that.. he asks this question. do the pple in washington unrstand that inevitably china is going to ha a lger economy than the united stat and a me donant economy than the united states. >> wl, there are a series of academ analyses that ggest wh that potential crossover point could be. >> rose: somewhere bween2025 and050. >>