While we might not agree with everything he says, Peter Orszag makes a compelling argument for extending the 2001-03 tax rates for a few more years.

The former OMB director, writing in his new capacity as a New York Times columnist, today argued:

Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem — take a look at the remarkably low 10-year Treasury bond yield — there is little reason not to extend the tax cuts temporarily.

We couldn’t have said it better ourselves.

There had been some suspicion that the Director of the Office of Management and Budget, Peter Orszag, would announce support for the proposed “High Road Contracting Policy” in remarks at the Center for American Progress, a speech that addressed the Administration’s plans to reduce federal spending by managing costs at federal agencies.

This “high road” proposal would create a system where federal bureaucrats would score the employment practices of private businesses that seek contracts with the government. Proposals would be evaluated by these terms and would grant preferential treatment in award the bids on the basis of factors that aren’t related to the business’ ability to deliver the terms of the contract. Such a system creates barriers for smaller-sized employers to compete and driving up costs for taxpayers.

Thankfully, the OMB Director did not indicate support for the proposal in Tuesday’s remarks. We hope the issue’s absence means the Administration recognizes that such efforts would go counter to its stated goal of rein in federal spending.

Further the White House Taskforce on the Middle Class has expressed support for a policy proposal which would actually do the opposite of reining in federal spending – a goal that the OMB Director made quite clear in his remarks.

As we’ve noted previously, several groups have been pressuring the Administration to enact major policy changes by reconfiguring the way that the federal government does business with the private sector. “Progressive“ think tanks and labor unions have been clamoring for the President to sign an executive order that would create a “high road contracting policy” to place new requirements on companies that do business with the government. We hope that the Administration will recognize the flaws of such a misguided proposal.

From Kaiser Health News, a roundup of the big health care news from last week, “CMS Actuary: Health Reform Will Cover More People, Cost More Than Orginally Projected,” starting with a paragraph from AP:

Economic experts at the Health and Human Services Department concluded in a report issued Thursday that the health care remake will achieve Obama’s aim of expanding health insurance — adding 34 million to the coverage rolls. But the analysis also found that the law falls short of the president’s twin goal of controlling runaway costs, raising projected spending by about 1 percent over 10 years. That increase could get bigger, since Medicare cuts in the law may be unrealistic and unsustainable, the report warned.

In an April 1 blog post at OMB, Office of Management and Budget Director Peter Orszag took strenuous issue with critics of the health care bill who argued it would not “bend the cost curve downward.” Excerpt:

[In] response to some of the recent skepticism, OMB’s staff went back through the document that the Congressional Budget Office released last June entitled “Health Care Reform and the Federal Budget.” In this analysis, CBO discussed the potential effects of health reform on Federal government expenditures, and identified policy options that could increase efficiency in the health care system.

If you look at the policy options CBO assessed as having the biggest potential for reducing long-term health care cost-growth, you will see that a vast majority of these proposals are, in some form, part of the historic health care reform legislation the President signed into law…

More …

• Rep. John Kline (R-MN), “CMS Analysis Confirms Government Takeover of Health Care Will Increase Costs, Undermine Existing Coverage for Millions”
• Heritage Foundation, “Side Effects: It’s Official- Higher Health Care Costs“
• The Hill, “Government report: Health law could hike prices, make employers drop coverage “

Peter Orszag, director of the Office of Management and Budget, spoke to an audience of several hundred manufacturers today, presenting the Administration’s few on spending, health care and education.

Not sure there was any news. Orszag did acknowledge that the U.S. “fiscal trajectory” was unsustainable, but argued that it’s “a myth” that “somehow the Obama Administration has overseen a massive increase in spending that is the cause of our long-term and medium-term fiscal problems.”

The deficits are rather largely the result of the recession — projected before the Obama Administration took office — Bush tax cuts of 2001 and 2003, and the Medicare prescription drug benefit, none of which was “paid for,” Orszag contended.

The situation requires a three-fold response, he said.

The first core principle is to reinstate the Pay As You Go principle. Any new spending or any new tax cut must be offset by corresponding changes somewhere else in the budget so that we don’t make the situation worse. That is what is now embodied in law because the Congress passed and the President signed a statutory Pay As You Go law that requires those actions for any new policies.

The trouble is, Congress is always finding ways to circumvent PayGo.  A current point of dispute in the Senate is whether the extension of unemployment benefits and COBRA subsidies would be “paid for” by spending reductions elsewhere; the bill was declared an “emergency,” so it’s not offset. Just more spending and debt.

Orszag said the other two strategies for tackling the deficits were to cut budgets — as the Obama Administration has done — and develop a long-term plan through the work of the Deficit Commission led by Alan Simpson and Erskine Bowles.

The OMB Director also spoke about elevating higher education as a federal priority, an issue the manufacturing audience appreciated.

We have two soundfiles:

• Orzag speech to National Association of Manufacturers
• Orzag Q&A

UPDATE (3:53 p.m.): We forgot the key paragraph from his speech:

There’s been a lot of confusion and, I think, misinformation put forward, so I want to be very clear. I strongly support and join Chairman Bernanke in noting that we are on an unsustainable fiscal course. The key question is what we do about it, and we need to be very clear about what causes that fiscal gap over the medium and long term before we can be realistic about how we address it.

The Wall Street Journal’s reporter also identified Orszag’s comments about the fiscal trajectory as the news: “Orszag Tells Manufacturers US On ‘Unsustainable Fiscal Course’”

It’s Day Two of the Manufacturing Summit, the National Association of Manufacturers’ fly-in and forums that have brought more than 350 manufacturers to town to meet with their members of Congress.

The day begins at the Hyatt Regency with Sen. Jon Kyl (R-AZ) as the breakfast speaker. The Senator is GOP Whip, so we expect him to hit all the hot issues. Senate Minority Leader Mitch McConnell on Wednesday gave a floor speech detailing Republican objections to the proposed financial reform legislation, so that could well be a major point of discussion. Health care remains topical.

Our NAM business activists then head to Capitol Hill for more discussions with their elected representatives, who represent the policy-making branch of government.

Peter Orszag, director of the Office of Management and Budget, is the luncheon speaker back at the Hyatt. The OMB is the switching yard of the Obama Administration, so there are plenty of issues to talk about. Director Orszag has been making the case recently that the health care legislation really does “bend the cost curve” downward, which is not the view of the NAM; that could be a good discussion.

And it’s tax day, isn’t it? Taxes may just come up.

In any case, the Administration has always treated the NAM well in providing speakers and keeping lines of communication open, and we’re delighted Director Orszag is coming.

Both speeches are open press, so there should be coverage from the various media outlets. We’ll be posting about the remarks here at Shopfloor.

Tweeting from NAM staff will also continue throughout the day @Shopfloor_NAM, and we’ve given the Manufacturing Summit a hashtag to identify it — #mfgsmt. The Society of Manufacturing Engineers — @SocMfgEng — has joined along, and we’re getting lots of good, albeit short, reports from the field.

The National Association of Manufacturers’ 2010 Manufacturing Summit gets under way at noon tomorrow, and we’re pleased to report that Office of Management and Budget Director Peter Orszag will speak to the group of 350-plus manufacturers at our Thursday lunch event.

Sen. Jon Kyl (R-AZ) is the breakfast speaker that morning.

The summit brings leaders of manufacturing companies from all around the country to Washington, primarily for the purpose of talking to their members of Congress about federal policies that allow manufacturers in the United States to compete in the global economy.

In planning for the fly-in, the NAM identified three major issues that our members wanted to talk about: labor policy, taxes and jobs creation, but manufacturers have plenty of concerns they are not shy about sharing.

We’ll be blogging the speeches here at Shopfloor.org, and we hope to have a flurry of Tweeting at the NAM’s Twitter feed, @Shopfloor_NAM. The hashtag identifier for the event is #mfgsmt.

As expected, today the Office of Management and Budget announced that its 10-year estimate of the federal deficit had risen from a total of $7.2 trillion to $9 trillion. From OMB Director Peter Orszag, writing on the Mid-Session Review:

[With] regard to the out-year deficits, the changes are primarily driven by changes in our economic assumptions. In line with the current consensus among professional forecasters, the Administration’s economic projections show that we inherited a deeper recession than projected in February. These revisions are based on new data on the severity of the recession that weren’t available last winter.
As a result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection.  Although these effects help to ameliorate the economic downturn by stimulating demand, they also lead to higher medium-term deficits both directly and indirectly (through higher interest costs on a higher level of public debt). Over the next 10 years, the net impact is to add $2 trillion to the projected deficit, compared to our last projection made based on February’s economic assumptions. That brings the projected 10-year deficit for 2010-2019 to $9.05 trillion – in line with CBO’s June projection.

• Washington Post, “White House Sharply Increases Projections of Future Deficits“
• Reuters, “SCENARIOS: Impact of U.S. budget reports“

Yet the CBO today reduced its 10-year deficit forecast to $7 trillion. As Fox News summarizes:

In a reflection of how colossal Uncle Sam’s credit card balance has become, two top budget offices on Tuesday gave long-term deficit projections that were $2 trillion apart.

The discrepancy underscored how difficult it is to peg the path of the U.S. economy. But with a $2 trillion margin-of-error, it also showed how unwieldy the figures have become.

The Congressional Budget Office predicted deficits over the next decade will add up to $7.1 trillion. The White House Office of Management and Budget earlier increased its 10-year-budget projection to more than $9 trillion, an increase of about $2 trillion.

Here’s the CBO’s latest Budget and Economic Outlook. The opening paragraph is a startler:

The Congressional Budget Office (CBO) estimates that the federal budget deficit for 2009 will total $1.6 trillion, which, at 11.2 percent of gross domestic product (GDP), will be the highest since World War II.

Somebody better hurry up and determine which “moral equivalent of war” we happen to be fighting.

The Hill ran a story, “White House eases stimulus lobbyist restriction,” with this thesis:

In a significant change, the Obama administration will now allow lobbyists to meet and have telephonic discussions with government officials regarding economic recovery projects…[snip]

In March, President Obama announced that government officials would not be allowed to consider the views of lobbyists regarding specific stimulus projects unless the requests are put in writing. The materials also had to be posted on an agency’s website within three business days of receipt. Lobbyists have said that the policy was one more example of the administration’s disdain for their industry.

Now, the just-revised rules will allow government personnel to accept meetings and calls from federally registered lobbyists on the implementation of stimulus projects. The head of the Office of Management and Budget, Peter Orszag, issued a new guidance late Friday regarding the administration’s communications with registered lobbyists about economic recovery funds.

The release of the guidance on the cusp of a summer weekend tells you that the Administration did not want to draw attention to the memo, probably for fear of being accused of hypocrisy or yet more OBama è mobile. Glenn Reynolds gibes, “Didn’t see that one coming, did you?”

We wanted to congratulate the Administration for realizing it went too far. But in reading the guidance, we see many continued restrictions on free speech and the ability to petition the government for redress of grievances. The Obama Administration is still being cavalier about the First Amendment rights of U.S. citizens, including but not limited to registered lobbyists.

During the period of time commencing with the submission of a formal application by an individual or entity for a competitive grant or other competitive form of Federal financial assistance under the Recovery Act, and ending with the award of the competitive funds, you may not participate in oral communications initiated by any person or entity concerning a pending application for a Recovery Act competitive grant or other competitive form of Federal financial assistance, whether or not the initiating party is a federally registered lobbyist. This restriction applies unless:

(i) the communication is purely logistical (Part A above);
(ii) the communication is made at a widely attended gathering (Part B above);
(iii) the communication is to or from a Federal agency official and another Federal Government employee;
(iv) the communication is to or from a Federal agency official and an elected chief executive of a state, local or tribal government, or to or from a Federal agency official and the Presiding Officer or Majority Leader in each chamber of a state legislature; or
(v) the communication is initiated by the Federal agency official.

So this remains forbidden: “Hi, John? I do hope you’ll take a look at Project 42. It will save the taxpayers $10 million. Thanks!”

And from the FAQ:

Q: I have received a request to meet with representatives of a corporation that has filed an application for a competitive grant. The representatives want to discuss the merits of the corporation’s proposal. The representatives are not federally registered lobbyists. May I speak with them?
A: No. Because the corporation has filed an application for a competitive grant, its representatives may not initiate communications with you orally about the merits of the application or proposal.

Bottom line: The White House forbids legitimate advocacy as improper. And, it’s depriving itself of useful information.

Earlier posts:

• “How Dare You Petition the Government, Expanded”
• “Shut Up“

UPDATE (5:24 p.m.): The anti-business activists at Citizens for Reponsibility and Ethics in Washington, which protested the original rules, call the revised guidelines “smart policy.” They don’t really say why, though: “It is just good policy that once an application for a competitive loan or grant has been filed, no one – registered lobbyist or not – can lobby the government official responsible for handing out the taxpayer funds.” That’s just an assertion, which in effect endorses this position: One someone applies for a grant or loan under the stimulus, they no longer can petition the Executive Branch.

And they call that policy smart?

CBO Director Peter R. Orszag does a nice job using the budget office’s blog site for updates about his presentations, speeches, testimony, etc. (Although…Director Orszag, put your name on the home page! It’ll help the spelling-challenged.) This post, “Lecture on health care policy at Stanford,” pointed to a very interesting talk at the Center for Health Policy and the Center for Primary Care and Outcomes Research at Stanford University, with lots of discussion of the causes of rising health care costs.

My remarks touched upon a theme that I will be discussing in more detail in other lectures later this fall: that just as the field of economics suffered because it mostly ignored psychology for too long, so too much of medical science and health policy has been largely ignoring the crucial role of expectations, beliefs, and norms. Perhaps the most compelling example involves the placebo effect, which tends to be dismissed as a statistical annoyance rather than examined in and of itself as a powerful force — often more potent empirically than the ‘medical’ intervention formally being studied.

Orszag’s slides are here .