Peter Orszag, the bizarro David Stockman
Peter Orszag never really seemed to want the job as President Barack Obama’s budget chief. His successor should be just as reluctant, having to deal with the fiscal aftermath of the stimulus and healthcare plans.
But there is little doubt Orszag will depart as the most consequential Office of Management and Budget director since the notorious David Stockman nearly torpedoed Reaganomics in the early 1980s by calling supply-side economics a sham. In hindsight, of course, Reaganomics looks pretty good, including 17 million net new jobs and a collapse in inflation.
But Orszag was no whistle-blower of some perceived fiscal sleight-of-hand. Instead, it was just the opposite. He was a facilitator and enabler, providing the intellectual firepower and energy behind Obama’s drive for healthcare reform. Orszag made the case to the president that reducing healthcare costs was an important element to slashing the long-term budget deficit. More importantly, he persuaded Obama the U.S. healthcare system was so inefficient, overall spending could be restrained while also providing near-universal health insurance coverage. In effect, “bending the curve” was a free lunch. Or at least close enough for government work.
It was an audacious claim, mostly based on a single controversial academic study. Republicans never bought into the theory, and neither did Orszag’s successor at the Congressional Budget Office, Uncle Sam’s fiscal scorekeeper. In the end, Obama was forced to cut future Medicare spending and raise taxes to make the numbers balance out — at least on paper. Few Washington observers think those cuts will happen, meaning that the budget deficit could explode if Orszag’s novel theories don’t pan out. And even if the cuts occur, many budget hawks were counting on them to make Medicare sustainable over the long-term, not create a new entitlement.
Too bad Orszag didn’t use his considerable political skills – Larry Summers was supposedly warned to be careful of the guy “wearing the cowboy boots and bad toupee” – to make the case for entitlement reform first. In that regard, Orszag’s legacy is uncertain at best.
The next head of OMB will need 24-carat credibility and authority. The president’s confidence won’t be enough. A potentially more Republican Congress will be needed to pass any fiscal austerity reforms recommended by Obama’s deficit panel. And voters will need to understand those painful fixes, while U.S. bond and currency investors will need to believe they’ll really happen.
One option would be a disciple of Bill Clinton, the last president to balance the budget. A bolder choice would be David Walker, the government’s former chief auditor. He now runs a foundation created by Blackstone Group co-founder Peter Peterson devoted to fiscal sustainability issues. Walker is a fire-and-brimstone preacher on the deficit, albeit one with a penchant for folksy aphorisms. He could both crunch the numbers and communicate them. But given the magnitude of the challenge, getting him might take some convincing.