CHARLIE ROSE:  Peter Orszag is here.  He is the director of the Office 
of Management and Budget.  Called more than just the budget director by 
"The New Yorker" magazine, he’s deeply involved in president Obama’s 
ambitious domestic agenda as well.  That includes health care, energy 
policy, and entitlement reform.  

	He’s begun to focus on the country’s long-term fiscal health.  The 
administration recently released projections showing deficits growing by $9 
trillion over the next ten years.  

	Speaking at New York University earlier today, Peter Orszag said the 
government is permitted to putting the country back on firm fiscal footing.  
I’m pleased to have him back at this table to tell us how they’re going to 
do that.  Welcome.  

	PETER ORSZAG:  Thanks for having me.  

	CHARLIE ROSE:  Everywhere we go, whoever we talk to, says in the end, 
on Main Street, on Wall Street, among foreign leaders who stop at this 
table, they worry about the deficit.  Does America have too much debt that 
it cannot bring the political will to do something about it?  

	PETER ORSZAG:  Well, let’s realize we actually have two deficits.  One 
is the fiscal deficit this which we need to bring down, especially in the 
out years.  We also have this GDP deficit which we are trying to work our 
way out of.  

	CHARLIE ROSE:  Explain the GDP deficit meaning.  

	PETER ORSZAG:  Well, there’s a gap between how much the economy could 
produce and how much it’s currently producing, which at the beginning of 
this year, was estimated to amount to more than $1 trillion dollars.  

	To start to fill that hole, we had to take steps like the Recovery Act 
to try to get the economy back on its feet.  So the problem would be 
challenging if it were just a fiscal one.  But we have the dual deficits 
and need to address both.  And that makes it even more challenging.  

	CHARLIE ROSE:  And then there is the current accounts deficit as well.  

	PETER ORSZAG:  Which is a reflection -- now one of the striking things 
is we really are living in an exceptional time.  Normally higher budget 
deficits -- and, again, last year we had a $1.4 trillion deficit -- 

	CHARLIE ROSE:  This is the fiscal year that ended in September 31 of 
2009?  

	PETER ORSZAG:  Correct.  It would show up as some combination of 
higher interest rates and increased borrowing from abroad, some combination 
thereof.  

	Instead what we’ve seen very low interest rates and actually a decline 
in the current account deficit from 6 percent of the economy in 2006 to 
under 3 percent now.  

	CHARLIE ROSE:  Because of the economic crisis we’re going through?  

	PETER ORSZAG:  Because of the economic crisis we’re going through.  In 
a sense, for right now, at least, the Treasury is the last borrower left 
standing.  And if you look at total borrowing, public and private combined, 
it’s actually down dramatically over the past three years.  

	The reason, however, and that reflects the exceptional economic 
downturn that we’ve been experiencing, the reason that we need to address 
our deficits on a going forward basis is as private borrowing starts to 
pick up again, as consumption and business investment start to pick up 
again, that will no longer be the case, and at that point financing the 
deficit will be crowding out private investment or causing more borrowing 
from abroad, and that’s a problem we need to -- 

	CHARLIE ROSE:  That’s a disaster.  

	PETER ORSZAG:  That is -- we need to -- we, as I said this morning, 
this is a serious problem and the out year deficits are unsustainable.  
They have to come down.  

	I also, though, think recognizing that problem and the need for 
action, it is worth pausing and remembering how we got here.  You mentioned 
that $9 trillion projected deficit over the next decade.  That basically 
reflects three things.

	The first is the failure to pay for two policies in particular, the 
2001 and 2003 tax cuts and the Medicare prescription drug benefit.  Those 
were deficit financed.  Over the next decade they account for $5 trillion.  

	Second, the economic downturn, because it triggers the so-called 
automatic stabilizers, which raise unemployment benefits, they raise food 
stamps, they cause -- revenue tends to decline during an economic downturn, 
all of which is beneficial because it helps to mitigate that GDP deficit 
that I was talking about.  But it also over the next decade adds $3.5 
trillion to the deficit.  

	And then finally, the Recovery Act accounts for less than 10 percent 
of that total.  

	So basically, the $9 trillion projected deficit can be entirely 
accounted for by the failure to pay for policies in the past, the economic 
downturn, and the steps we’ve had to take to combat that downturn, which is 
not to say action isn’t necessary, it absolutely is.  But it’s also 
important to realize we didn’t get here by accident.  

	CHARLIE ROSE:  Is this administration in favor of extending 
unemployment benefits?  

	PETER ORSZAG:  There are a whole series of questions that we are 
facing as we come to the end of the year, including unemployment benefits.  
I expect that there will be some extension of unemployment benefits.  

	CHARLIE ROSE:  Because people like Arianna Huffington are going around 
and saying to me and others is that the problem with the administration is 
Larry Summers is against extending unemployment benefits.  

	PETER ORSZAG:  I don’t want to speak about the views of individual 
members of the economic team or other parts of the administration, but I 
don’t think that’s the view coming from the administration or, frankly, 
from any members of the economic team.  

	CHARLIE ROSE:  Anybody, because the decision had been made or because 
that would not be the decision?  

	PETER ORSZAG:  I don’t think -- I have not heard any commentary 
suggesting that any one is opposed to extending unemployment benefits.  

	CHARLIE ROSE:  So in other words Larry Summers nor anyone else.

	PETER ORSZAG:  Again, I don’t want to get into specific internal 
discussions, but I don’t think that.  

	CHARLIE ROSE:  When you look at the $1.4 trillion deficit for the most 
recent year, last year, 2009, you are by the end of the first term of this 
administration -- not knowing whether there will be a second term or not -- 
saying you’re going to half that deficit.  

	PETER ORSZAG:  Yes.  That’s a commitment the president made and we are 
in the midst of a policy process.  We have a budget coming out in February.  
That budget will include proposals to put us back on a fiscally sustainable 
course and also reflect cutting the deficit in half by the end of the 
president’s first term.  

	CHARLIE ROSE:  And what are those proposals?  

	PETER ORSZAG:  Without speaking to the internal process.

	CHARLIE ROSE:  Fair enough.  

	PETER ORSZAG:   . there are both process suggestions.  For example, 
there’s lots of discussion in the Congress about whether a fiscal 
commission would help.  And we can talk more about.

	CHARLIE ROSE:  A deficit commission, essentially.  

	PETER ORSZAG:  A deficit commission.  Senator Conrad, for example, has 
been a leader in putting that idea forward.  

	There are others who are coming forward with specific ideas about how 
to save money.  I’ll give you a simple example.  We went out and asked 
federal employees "What would you do to make your agencies work more 
efficiently" through what we call the "save award."  

	We got tens of thousands of responses and we’re sorting through all of 
those.  Members of Congress that are also writing letters and feeding into 
this process.  

	So there’s lots of ideas floating around.  And what we will be doing 
is in February coming forward with our judgment about the best way forward.  

	CHARLIE ROSE:  Tell me how you feel about a value-added tax as an 
additional source of revenue.  

	PETER ORSZAG:  That is an idea that has been talked about in academic 
circles.  I haven’t heard any direct policy discussion of that kind of 
proposal.  

	CHARLIE ROSE:  Does it have merit?  

	PETER ORSZAG:  There are academic arguments in favor of it.  There are 
arguments against it.  

	CHARLIE ROSE:  Well, people like Roger Altman come to this program, 
former deputy secretary of the treasury.

	PETER ORSZAG:  And talk about it.  Again, look, the arguments that 
have been put forward for a value-added tax -- other countries do it.  It 
can be in those other countries a sufficient way of raising revenue.  
	
	On the other hand, there are concerns about its regressivity and about 
how it would interact with the rest of the tax code here in the United 
States since we don’t have a value-added tax.  

	So, again, I don’t -- again, it’s been discussed in academic circles.  
I have not heard any serious policy discussion of it even coming from 
Capitol Hill.  And so it seems like more of an academic idea at this point 
than an idea that’s directly in the mix in terms of policy.  

	CHARLIE ROSE:  What’s going to be the biggest contributor to deficit 
reduction?  

	PETER ORSZAG:  Well, over the long term I think we need to be very 
clear that it is not possible to tax your way out of the fiscal trajectory 
that we’re on.  And furthermore, it’s not possible to reduce spending 
outside of health care sufficiently to address our.

	CHARLIE ROSE:  That means defense and.

	PETER ORSZAG:  Right.  Our long-term fiscal problem is 
disproportionately influenced by the rate at which health care costs grow.  

	CHARLIE ROSE:  Right.  

	PETER ORSZAG:  Over the next five or 10 years, the situation is a 
little bit different and the mix may vary.  But over the next 20, 30, 40, 
70, 100 years, the key thing is helping to reduce the rate of growth in 
health care costs.  Without that, nothing else we do will matter.  

	CHARLIE ROSE:  And so the bill is that’s going to come out of the 
Congress is going to be deficit neutral.  You’ve guaranteed that.  

	PETER ORSZAG:  The bill -- and, in fact, you’ve already seen in terms 
of the scoring from the congressional budget office, both the Senate -- the 
bill that came out of the Senate Finance Committee and the bill being 
considered by the House of Representatives is not only deficit neutral over 
the first decade, but both of them reduce the deficit in the second decade.  

	And I think it’s important to emphasize that’s without counting any of 
the steps that will help transform the health care system and move it 
towards one that’s oriented towards quality rather than quantity.  

	So it’s basically to a first approximation, at least, is not really 
counting the effects of moving towards bundling payments, accountable care 
organizations, the affect on quality from a variety of changes that are 
included in the legislation.  

	CHARLIE ROSE:  Do I hear you saying the most important thing we can do 
is to get our -- Get health care costs in control, under control?  

	PETER ORSZAG:  In terms of the long-term fiscal as opposed to the 
medium-term, absolutely.  More will be necessary.  We face a deficit in 
Social Security, and there are other problems.  

	CHARLIE ROSE:  And Medicare and...   

	PETER ORSZAG:  Medicare and Medicaid are the key drivers of our long-
term fiscal problem.  

	In order to help contain their cost growth over the long term, we need 
a new health care system that has digitized information, so health 
information technology, in which that information is used to assess what’s 
working and what’s not more intelligently, and in which we’re paying for 
quality rather than quantity while also encouraging prevention and 
wellness.  

	CHARLIE ROSE:  On this program with you is Niall Ferguson, who you 
know well -- or you know his ideas.

	PETER ORSZAG:  Yes.

	CHARLIE ROSE:  Who basically is arguing that we have a huge problem 
facing us because we can’t deal with our deficit and at some point the 
Chinese specifically are not going to want to want to buy our debt, not 
going to take our debt anymore, and they’ll find other places to invest 
their money.  

	And when that happens, it’s going to feed the disaster, and there’s no 
political will to deal with the deficit.  

	PETER ORSZAG:  Well, let’s first be clear about the immediate 
situation and also why we’re eager to address our medium term deficit.  

	First, with regard to the medium situation, long-term rates remain 
quite low, under 4 percent, and if that’s continued throughout the rest of 
this year, it will be lowest nominal interest rate since the 1950s.  

	The current account deficit, which is a reflection of how much we’re 
borrowing from abroad, has fallen in half as a share of the economy over 
the past three years.  

	CHARLIE ROSE:  How much of that is because of the global economic 
reception?  

	PETER ORSZAG:  A significant part, but that’s my point, is for right 
now U.S. treasury securities remain the safest investment in the world, and 
we are addressing the immediate economic crisis as we should be.  And I 
think in my discussions with Chinese and other creditors there’s 
recognition of that.  

	There’s also recognition that we need to address the key driver of our 
long-term deficits, health care.  

	One of the reasons, however, that we want to get ahead, and as soon as 
we’re done with health care turn to reducing our medium-term deficits, is 
to make sure we don’t wind up in the situation in which investor confidence 
starts to turn and there are concerns about the trajectory we’re on.  

	We need and are committed to getting ahead of that so that we don’t 
face a fiscal crisis.    

	CHARLIE ROSE:  Is it the belief of the administration and you included 
that the idea of deficit has traction as a huge problem in Main Street, and 
it’s not just an idea that is talked about by people who have a great 
knowledge of finance?  

	PETER ORSZAG:  I think so.  And the problem is not lack of concern 
about the deficit.  There’s plenty of concern about the deficit.  

	The problem is concern about the deficit is widespread, but all of the 
specific steps that you could take to address the deficit run into either 
constituency politics or other problems.  

	So it’s so very popular to complain about the deficit, but then many 
of the specific steps that you could take to address it are unpopular.  

	And that is the fundamental challenge that we are facing and that we 
need help both from the American public and the Congress in addressing.  

	CHARLIE ROSE:  What are your numbers for next year, for 2010, in terms 
of economic growth?  

	PETER ORSZAG:  Well, we are actually going to be updating our economic 
assumptions as part of the budget that we put out in February, and I’d like 
to reserve an updated set of projections for that point.  

	CHARLIE ROSE:  Is it above 3 percent?  

	PETER ORSZAG:  It is worth noting that currently in the last quarter, 
as you know ...  

	CHARLIE ROSE:  It’s 3.5 percent.  

	PETER ORSZAG:  ... the economy grew at 3.5 percent.  

	One of the things looking forward in 2010 that we are monitoring is 
state and local governments face significant deficits, and that will be a 
drag on the economy.  The inventory cycle, which will help to push economic 
growth -- propel economic growth later this year and into early next year, 
may start to reverse.  

	CHARLIE ROSE:  There’s also this question, and it’s raised about the 
Chinese projections and raised about other projections -- whose assumptions 
do you use?  What numbers are viable to base your decisions?  

	PETER ORSZAG:  Well, we -- the most recent set of projections that we 
used for the mid-session review were very much in line with the blue chip 
private sector forecast.  

	CHARLIE ROSE:  OK, this is Goldman Sachs and J.P. Morgan and all those 
people that do that.  

	PETER ORSZAG:  And I would expect, without prejudging exactly where we 
wind up for the February budget, I would expect them again be in line with 
private sector forecast.  

	And I think that is -- that helps to provide credibility to the effort 
that we’re undertaking.  Our numbers are in line with other outsiders so 
that there’s no concern they’re being tilted one way or another.  

	CHARLIE ROSE:  What’s happened to young people in this recession?  

	PETER ORSZAG:  Well, one of the things that I touched upon in my 
speech in this morning is that recessions hit young people particularly 
hard.  

	Not only if their parents are laid off, in which there’s an effect on 
high school dropout rates and college attendance rates, but even for those 
who are not directly affected, so their parents or family members are not 
unemployed, graduating into a recession has an adverse impact on your 
wages, and that affect persists.

	And in particular the evidence suggests for each percentage point 
increase in the unemployment rate, initial wages are depressed by 6 percent 
upon graduation, and even 15 years after graduation are still 3 percent 
lower than otherwise similar graduates in other years.  And that’s for each 
percentage point increase in unemployment.  

	For those who are college seniors today, when they entered college, 
the unemployment rate was about 5 percent -- percentage points lower than 
it is today.  So you can multiply those figures to get the ultimate impact.  

	CHARLIE ROSE:  How do you factor in two things?  One is interest rates 
and where they might be in a decision by the Federal Reserve.  And also, 
how do you factor in what will be the dollar, which will have an influence 
on exports and imports?  

	PETER ORSZAG:  In these economic projections?  

	CHARLIE ROSE:  Yes, in your projections.  

	PETER ORSZAG:  Again, a variety of economic variables, not just the 
ones that you mentioned, but also inflation and a whole series of other 
assumptions go into the macroeconomic projections that form a key part of 
our budget projections.  

	CHARLIE ROSE:  When you look ahead, what worries you the most?  

	PETER ORSZAG:  Well, again, it’s balancing these two competing 
deficits, getting your deficits under control, but also the very real 
deficit that we face in terms of economic activity, because in terms of 
prospects for young graduates, they’re being directly affected by how 
aggressively we attack that problem.  

	And unfortunately there’s some tension between those two issues.  How 
quickly one should move towards fiscal deficit reduction and away from 
trying to address our short-term economic crisis is one of the key things 
that...  

	CHARLIE ROSE:  Tell me how that tension takes place.  

	PETER ORSZAG:  In particular, in the short run, in an economic crisis 
like we have faced, a higher deficit helps to bolster macroeconomic demand 
and helps to mitigate the economic downturn, thereby, for example, helping 
attenuate the effect on new graduates.  

	So in other words, in an economic crisis like we face higher deficits 
have the benefit of helping to promote macroeconomic activity.  

	Over the medium-term, however, the situation flips.  Imagine a 
business, for example, that had a business plan of rapid growth for a year 
or two to address some crisis, and then dramatic decline.  That would be a 
very difficult business plan to execute on.  That is precisely what we need 
to do as a nation.  

	CHARLIE ROSE:  Do we need a stimulus?  

	PETER ORSZAG:  Again, growth was 3.5 percent in the third quarter.  
The labor market remains unacceptably weak.  We are constantly reassessing 
our options with regard to boosting job growth, but for right now, at 
least, we are in the mode of carefully monitoring and assessing options.  

	CHARLIE ROSE:  Here’s what Paul Krugman said on Monday, quote, "What I 
keep hearing from Washington is one of two arguments, either, a, the 
stimulus has failed and unemployment is still rising so we shouldn’t do 
anymore, or, two, the stimulus has succeeded, GDP is growing, so we don’t 
need to do anymore.  

	"The truth, which is that the stimulus was too little of a good thing, 
that it helped but wasn’t big enough, seems to be too complicated for an 
era of sound bite politics?  Can we afford do more?  We can’t afford not 
to"  -- Paul Krugman.  

	PETER ORSZAG:  Well, again, I think what we did was a very aggressive 
step, much more aggressive than many people wanted.  It is yielding 
benefits.  We’re seeing it play out and we’re just assessing the situation.  

	CHARLIE ROSE:  What don’t you know that you wish you knew?  

	PETER ORSZAG:  Oh, boy, how long do you have?  

	(LAUGHTER)

	CHARLIE ROSE:  It will help us understand your dilemma if you’ll tell 
us that.  

	PETER ORSZAG:  I think there were two or three things that if I had a 
crystal ball would be...  

	CHARLIE ROSE:  Enormously helpful to you in your job.  

	PETER ORSZAG:  ... enormously helpful.  But we need to realize that 
that crystal ball doesn’t exist, at least with perfect clarity.  

	One is the path of economic recovery and whether we will or won’t face 
an issue in 2010.  One of the things we want to avoid, and I think it’s 
crucially important to avoid, as we move to reducing our deficits, is we 
don’t want to repeat the mistake of 1937 when fiscal support for economic -
- for the economy, that first category we’re talking about, was withdrawn 
too quickly and we threw the economy back into an economic downturn.  That 
would not be good for anyone and we need to avoid that outcome.  

	So coming back to the discussion we had earlier, if we knew for sure 
how much the escape velocity was in terms of economic activity and whether 
that would outweigh the drag from state and local deficits, the inventory 
cycle, and other forces, that would be enormously helpful in designing the 
optimal pat or the best path forward to move from a period in which we need 
higher deficits temporarily in order to help support the economy to needing 
lower deficits to avoid harming the economy.  

	CHARLIE ROSE:  Another thing that is argued by Niall Ferguson, who was 
on this program, I taped earlier, and will be part of this hour with you, 
it is that he says that -- he asks this question.  Do the people in 
Washington understand that inevitably China is going to have a larger 
economy than the United States and a more dominant economy than the United 
States?  

	PETER ORSZAG:  Well, there are a series of academic analyses that 
suggest when that potential crossover point could be.  

	CHARLIE ROSE:  Somewhere between 2025 and 2050.  

	PETER ORSZAG:  One of the things that of course becomes difficult is 
projections at far out often are subject to significant uncertainty.  

	I think rather than trying to pinpoint that date, the more important 
thing for us to do is to be investing in as much as we can in making our 
economy as productive as possible.  

	And that means not only addressing the problems we have already 
discussed, but importantly things like things like continuing to improve 
our educational system.  

	CHARLIE ROSE:  Climate change, infrastructure.  

	PETER ORSZAG:  Addressing what we have, and what have you.  So there’s 
actually another set of deficits that we haven’t touched upon in terms of 
investing in key priorities like education, like infrastructure, like 
protecting the planet.  

	CHARLIE ROSE:  That was part of what the stimulus program is supposed 
to be about, wasn’t it?  

	PETER ORSZAG:  A big part of the Recovery Act involved starting to 
address some of those issues.  Not all of them.  It’s not a panacea.  

	CHARLIE ROSE:  If you look at the economic growth rate of the last 
quarter, how much of it was because of the stimulus program?  

	PETER ORSZAG:  Well, estimates suggest that the Recovery Act added 
three to four percentage points of economic activity in the third quarter, 
and overall economic growth was 3.5 percent.  So one can say that all of it 
can be attributable to the Recovery Act directly or indirectly.  

	But you need to remember that 3 percent to 4 percent estimate for the 
Recovery Act involves effects indirectly on consumption for households.
	
	And it’s not -- people think Recovery Act -- government spending.  And 
instead a lot of the effect is tax relief, which then spurs household 
consumption, or added economic activity, which helps businesses invest.  
And so a lot of the effects are indirect.  

	CHARLIE ROSE:  There has been a release of people from the business 
community who visited the White House -- and by that I mean not necessarily 
the president but include the president -- and it’s executives like Jeff 
Immelt and Lloyd Blankfein and others.  It’s all public out there on the 
record now.  

	What are they telling you, these business people?  You just came from 
meetings in New York with business people.  Are they telling you you’re not 
doing enough, we want you do more?  Get your hands off the economy?  What 
are they saying?  

	PETER ORSZAG:  It varies, as you would expect.  

	CHARLIE ROSE:  Or get your hands off the private sector?  

	PETER ORSZAG:  No.  It varies, as you would expect.  

	I think they are, like us, monitoring the labor market and whether job 
growth is picking up.  

	CHARLIE ROSE:  But do they see the world like you see it for the most 
part?  

	PETER ORSZAG:  Well, for the most part in terms of understanding the 
dynamics, they will often reach somewhat different judgments, but that’s 
natural, and their judgments are not all consistent with one another.  

	CHARLIE ROSE:  I understand that.  But what’s the great divide?  Is 
there a basic divide between what you’re hearing from the business 
community and what you’re doing?  

	PETER ORSZAG:  I don’t know that I would point to a big divide.  I 
think, again, there’s been a significant amount, and, frankly, one of the 
things that’s beneficial in terms of outreach not only to business leaders 
but also to progressives and unions is to make sure we’re hearing their 
concerns and can deal with them.  

	CHARLIE ROSE:  That you’re listening.  

	PETER ORSZAG:  That we’re listening.  

	CHARLIE ROSE:  What’s the great debate within the administration about 
where to go?  We clearly know, sort of, what the -- we know what the 
discussion is about Afghanistan.  It’s clear.  We’ve heard.  There’s been 
enough reports about this reconsideration of a strategy.  

	What’s the.

	PETER ORSZAG:  Well, I hope the economics team is enough of a family 
that we’re not going to air our laundry with you.  

	CHARLIE ROSE:  It’s not laundry.  It’s a question of helping us 
understand the debate of what’s going on.  

	PETER ORSZAG:  Look, I think I actually would like to protect the 
internal discussions.  I think that allows...

	CHARLIE ROSE:  I’m not asking you to tell me who’s doing what.  I want 
you to tell us, my audience, exactly what’s the push-pull that you guys are 
trying to figure out.  

	PETER ORSZAG:  Some of the tension we face, addressing that short-term 
macro hole at the same time we face a long-term fiscal problem, constantly 
assessing the state of the labor market and whether additional effort is or 
is not warranted.  
	
	A set of decisions that, again r not surprising about whether various 
provisions that are expiring at the end of this year should or should not 
be extended.  

	CHARLIE ROSE:  Like tax cuts?  Unemployment benefits, right.  

	PETER ORSZAG:  Those expire at the end of next year.  

	CHARLIE ROSE:  Right, exactly.

	PETER ORSZAG:  And then, of course, there’s just a whole series of 
other policy issues that are constantly in the mix, from implementation of 
the Recovery Act.  We have important investments in health information 
technology and broadband which there are policy discussions going on.  

	So a very active -- let me put it this way, a very active internal 
discussion.  

	CHARLIE ROSE:  I hope you’ll come back and tell us about it.  

	PETER ORSZAG:  I will come back.  I don’t know how much I’ll tell you 
about it.  

	(LAUGHTER)

	Thank you.  

	CHARLIE ROSE:  Thank you very much.  It’s a pleasure to have you on 
the broadcast.  

	PETER ORSZAG:  I appreciate being here.  

	CHARLIE ROSE:  Peter Orszag.  He is the director of Office of 
Management and Budget.  He’s the man that between now and February will put 
together your budget.  Then once he puts together your budget, the Congress 
will consider it.