Economic and Fiscal Outlook

Peter R. OrszagCitigroup

• Recoveries tend to be sluggish following financial crises– In 2007, private sector borrowing was 28% of GDP; in 2009

it was -17% of GDP– The peak unemployment rate is reached from three to ten

years after the crisis• Housing is a key transmission mechanism

– Median housing prices are 15 to 20% lower in the decade after a crisis compared to pre-crisis levels

– Feedback loop: weak economy weak housing weak economy

• Political Polarization in the United States– Not caused by gerrymandering– Inertia does not lead to good outcomes (fiscal, climate,

etc.)– Learn to function with gridlock

Components of Growth

3/2006

6/2006

9/2006

12/2006

3/2007

6/2007

9/2007

12/2007

3/2008

6/2008

9/2008

12/2008

3/2009

6/2009

9/2009

12/2009

3/2010

6/2010

9/2010

12/2010

3/2011

6/2011

-10

-8

-6

-4

-2

0

2

4

6

Inventories Recovery ActNon-Inv, Non-Recovery Act Real GDP Growth

19701972

19741976

1978

1979/r1981

19831985

1987

1989/r1991

19931994

19961998

20002001

2002/r2004

2005

2006/r2008

20090

0.5

1

1.5

2

2.5

3

Homeowner Vacancy Rate, Single Units

Employment-Population Ratio

2012 2013 2014 2015 2016 2017 2018 2019 2020 20210.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Federal Deficit as % of GDP (CBPP policy assumptions, different economic assumptions)

CBO official economic as-sumptions

2.25 percent average growth

Medicare Spending Per Beneficiary by HRR, 2006