Deficit limits Obama's options for battling sluggish economy

A bleaker-than-expected report on new jobless claims has the White House defending its economic policies, even as persistent deficit worries threaten President Obama's larger policy agenda.

And there could be more trouble ahead for Obama as the holiday season approaches and scrutiny of his efforts on the economy intensify. A big concern for economists is how the unemployment rate will hurt consumer spending — a major part of the economy.

On Capitol Hill, Christina Romer, chairwoman of the president's Council of Economic Advisers, urged the Joint Economic Committee to resist any move to cut off federal stimulus spending.

“The economic trauma of the past year has been extreme and has led to unprecedented and sometime unpopular government actions,” Romer said. “As the immediate crisis fades, there may be a tendency to wish to return to more normal policy positions.”

But a challenge facing both Obama and members of Congress is the staggering $1.4 trillion federal deficit. Obama has promised to cut it in half during his first term in office, without raising taxes on the middle class.

He also has said that job creation is a good measure of the success of his fiscal policies, notably the $787 billion stimulus program passed earlier in his administration.

Jobless claims last week were more than double what most economists had expected, increasing by 11,000 to 531,000, according to the Labor Department.

Already, deficit concerns have taken a bite from Obama's legislative priorities. The Senate earlier this week blocked action on a bill that would have delayed a cut in Medicare payments to doctors.

The item was a top legislative priority for the American Medical Association — a powerful group Obama wants on his side in the looming health care reform battle. But at $247 billion over 10 years, the price tag was too much for lawmakers.

The White House, stung by the vote insisted the Medicare fix was covered in Obama's budget.

“The president included in his budget fixing for and paying for that fix,” said White House press secretary Robert Gibbs. “We don't want to do anything that harms Medicare patients, and the president is still hopeful that we can fix this formula for doctors this year.”

The incident, however, underscores the deep interrelation between the economy and everything else the president wants to do.

Romer, meanwhile, told lawmakers that that government has so far spent about $194 billion of the total stimulus allocation. Previously criticized for her overly optimistic economic growth projections, Romer played it safe by saying stimulus spending is not likely to spur significant growth.

She said unemployment “is likely to remain at is severely elevated level” into next year.

Rep. Kevin Brady, a Texas Republican who sits on the joint panel, said he is worried that any growth in the economy this year will prove “transient.”

“Those in Washington should not kid themselves,” Brady said. “A jobless recovery is no recovery for American workers.”

jmason@washingtonexaminer.com

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