Congressional Budget Office compares downtown to the Great Depression

Congressional Budget Office compares downtown to the Great Depression
January 27, 2009
McClatchy Blog

The nation's current recession is likely to be the longest since World War II, and by some measures could be the worst since the Great Depression, a new Congresional Budget Office forecast said Tuesday.

Without a major economic stimulus plan, "the shortfall in the nation's output relative to its potential would be the largest _ in terms of both length and depth _ since the Depression of the 1930s," said new CBO Director Douglas Elmendorf in testimony prepared for the House Budget Committee.

The analysis is sure to add important momentum to the effort to enact an $825 billion stimulus by mid-February. President Barack Obama is meeting Tuesday morning with House Republicans and plans to meet with Senate GOP members in early afternoon. The nonpartisan CBO is highly regarded by both parties.

The House is expected to begin debating the measure later with a final vote liked Wednesday.

CBO already gave House Democrats good news Monday night, estimating that about 64 percent of the funds would go into the economy by Sept. 30, 2010. Earlier, it had said only 38 percent of key spending programs would be used, but it broadened its analysis to include the entire bill.Republicans had seized on that low figure to argue the bill was loaded with unnecessary spending.

Tuesday, it took a look at the overall economy, and found it badly in need of the stimulus.

The bill, Elmendorf said, "would provide a substantial boost to economic activity over the next several years relative to what would occur without any legislation."

With the bill, CBO figured economic output would be between 1.3 percent and 3.6 percent higher at the end of this year, higher by a similar amount at the end of 2010 and even higher in 2011.

The help is needed to reverse a downturn that CBO estimates will easily surpass the 1981-82 and 1873-74 recessions, each of which last 16 months, by mid-year.

"It could also be the deepest recession during the postwar period in terms of the difference between actual and potential output," Elmendorf said. By his estimates, output over the next two years will average 6.8 percent below normal.