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US : Efficient spending key to strengthening public finances, says OECD survey

Mon, 09/20/2010 - 6:22am
OECD

Supported by substantial stimulus measures, the US economy has started to grow again after one of the most severe economic crises it has faced since the Great Depression, according to the OECD’s latest US Economic Survey.

After shrinking through the first half of 2009, US GDP began to increase again and is now projected to be 2.6% higher in 2010 than the year before. Employment has also started to rise, although the unemployment rate is likely to stay above the pre-crisis level for an extended period and long-term unemployment remains a concern.

Presenting the Survey in New York City, OECD Secretary-General Angel Gurría said: “It is becoming increasingly clear that the economy has entered a soft patch, but this is not inconsistent with previous recoveries. We don’t see a risk of a double-dip recession. That said, we don’t see either a recovery that is strong enough to put a significant dent in unemployment.”

He stated that support from monetary and fiscal policy is still necessary and welcomed the announcement from Federal Reserve Chairman Ben Bernanke to provide additional stimulus if needed. Mr. Gurría also welcomed the extension of unemployment benefits, job training and tax credits for hiring workers, and the Administration’s target of reducing the deficit to 3% of GDP by 2015.

The establishment of the bipartisan National Commission on Fiscal Responsibility and Reform by President Obama with a mandate to propose additional measures to achieve fiscal consolidation also goes in the right direction. Mr. Gurría stated that “even if measures are to be implemented only at a later stage, spelling them out now is an important signal”.

The United States entered the crisis with a budget deficit (in per cent of GDP)

 

Source: OECD (May 2010), OECD Economic Outlook 87 Database.

The Survey argues that the best way to strengthen the public finances would be to make public spending more efficient, in particular health-care programs. In this respect, the recent health-care reform, which includes measures to reduce the growth in health-care spending, is an important landmark, Mr. Gurría stated.

The Survey also recommends that training and education programs for the unemployed be prolonged to help workers adapt to the post-recession economy. Such programs could potentially play an important role in facilitating the return to the job market of workers whose skills have been affected by a long spell of unemployment.

Moreover, the Survey argues that the United States needs to play a pivotal role in a global agreement to reduce greenhouse gas emissions. In that respect, according to the report, government support for emission-reducing technologies is important but insufficient without the right incentives in place.

Putting a price on carbon, either through a carbon tax or a cap-and-trade scheme, is the key to providing the correct incentives for a greener economy. It would also be less economically costly than purely regulatory approaches.

>> A summary of the Economic Survey of the United States can be found at www.oecd.org/eco/surveys/us

>> For more information or to obtain a full copy of the report, journalists are invited to contact, susan.fridy@oecd.org or matthias.rumpf@oecd.org

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