This morning I testified before the House Budget Committee on The State of the Economy and Issues in Developing an Effective Policy Response (click here for full text of my written testimony). My testimony discussed both the basis for CBO's forecast (released earlier this month, click here for text) and reviewed the financial and nonfinancial developments that have occurred since that forecast was finalized. So far, the news has been generally consistent with the agency's expectations-- and does not alter the bleak outlook.
I touched on three key points this morning:
- The economy is currently weathering a recession that started more than a year ago, and absent a change in fiscal policy, CBO projects that the shortfall in the nation's output relative to potential levels will be the largest-- induration and depth-- since the Depression of the 1930s.
- Most economists agree that both significant fiscal stimulus and additional financial and monetary policy approaches are needed.
- H.R. 1, the American Recovery and Reinvestment Act of 2009, would, in CBO's judgment, provide a substantial boost to economic activity over the next several years relative to what would occur without the legislation. (For the CBO cost estimateof H.R. 1, click here)
As the possibility of another round of fiscal stimulus is debated, it is not a surprise that employment effects of stimulus have emerged as a key measuring stick. According to CBO's estimates, with enactment of H.R. 1,the number of jobs would be between 0.8 million and 2.1 million higher at the end of this year, 1.2 million to 3.6 million higher at the end of next year, and 0.7 million to 2.1 million higher at the end of 2011 than under current law.