SAN ANTONIO — A former White House official delivered a predominantly pessimistic view of the challenges facing the U.S. economy to executives attending PSCU Financial Service’s 2011 Senior Leadership Workshop and Member Forum last week.
Peter Orszag, former director of the Office of Management and Budget and current vice chairman of the Institutional Clients Group at Citigroup Inc., laced his remarks with humorous anecdotes about his career in Washington, but still left a fairly grim picture of the economic challenges facing the U.S. at this time.
Among them, he said, was the reality that a double-dip recession in Europe is highly possible and that an increasing degree of political polarization hobbles U.S. efforts to combats its fiscal crises.
He called these the immediate crisis, the 2015 crisis and the 2050 crisis.
The immediate crisis is what to do about this year's and next year's federal budgets. The 2015 crisis is what do about the fact that even if near-term budgets are addressed with all their proposed cuts intact, the combined savings will not drop the deficit enough. And the 2050 crisis, he described as being primarily about health care, in particular Medicaid and said that fixing it would mean making choices among steadily less popular options.
Orszag put a good amount of the responsibility for the three on the nation's political polarization that he said impacts all of them. He said polarization particularly infests the immediate crisis because this is primarily a social crisis masquerading as a fiscal problem. "Even when there is relative agreement about the amounts that could be cut [from the federal budget]," he said, "the existence of those riders about different social issues complicate the situation and make solving it very difficult."
He described how political partisanship and polarization have increased in the U.S. since after World War II to reach their highest point today and how researchers were starting to see evidence that people were segregating themselves along political lines, even in their choices of neighborhoods in which to live.
"And one thing we have seen is that when people surround themselves only with those of like mind, their views get more extreme," he told the group.
Orszag said the political polarization is taking place at a particularly bad time for the U.S. because of the near-, medium- and long-term fiscal crises that the country faces. This, he said, was primarily because neither of the major political parties were courageous enough to face up to the truth about the fiscal situation and raise revenues. He said that the country had gone as far as was likely possible toward getting its fiscal house in order solely by making budget cuts, even if all the budget cuts currently on the table for this fiscal year and the next were passed.
This stalemate will have particular impact on credit unions, Orszag said while answering questions after his address.
When asked about the prospects for a measure to roll back the cap on debit interchange, Orszag was discouraging.
"In light of the problems I have described, I think any political move that has any measure of controversy whatsoever will face a very high threshold," Orszag said.
He attributed his skepticism to what he called political inertia about many aspects of the legislative process which he predicted would remain in place until policy makers are able to confront the next three looming economic and fiscal challenges facing the U.S.
But he acknowledged that the 2015 crisis could be mitigated if the economy improves enough to lower the deficits in 2013, 2014 and 2015.