AP Interview: Orszag Says Economy Still Needs Help

While the economy is beginning to come out of recession, it has yet to show evidence that it can grow without the help of the government's $787 billion infusion of taxpayer money, President Barack Obama's top budget adviser said Monday.

Peter Orszag, director of the White House's Office of Management and Budget, also said unemployment _ now at 9.8 percent _ is running about half a percentage point higher than the administration expected.

In an interview with Associated Press reporters and editors, Orszag said the economic stimulus that Congress approved early this year added 2 to 3 percentage points, on an annualized basis, to the economic activity in the second and third quarters of this year.

"That may well be the entirety of any positive growth," Orszag said.

For the administration, that is a mixed blessing. It counters doubts about the success of the one-time economic jolt, but it also indicates that the economy is still in a delicate condition, unable to perform on its own.

Orszag did not commit the White House to any additional economic stimulus once the current spending begins to run out next year. But he said the administration is monitoring the pace of economic activity and the unemployment rate, which is at its highest level since 1983,

"If the economy remains fragile, additional options will be considered," he said.

Orszag acknowledged that legislation revamping the nation's health care system cannot meet certain cost limits and, at the same time, achieve the goal of providing coverage for all. The latest version of a Senate Finance Committee bill would require people to buy insurance but exempts middle-class households who cannot afford it and who also are not eligible for government subsidies.

"There's no doubt there's a trade-off," he said. "The cost of adjusting the hardship exemption to make it easier to be exempted is that you do reduce coverage, there's no doubt about it."

Orszag downplayed concerns by governors that they will face increased financial burdens due to possible expansions of Medicaid, the federal-state health insurance program for the needy and disabled. "This is taking place in 2013 and thereafter when, according to almost every economic projection, the economy should be back on its feet and state government finances should be recovered, too," he said.

He said states also would benefit over the longer term from a reduction in overall health care costs, another goal of the legislation.

On the economy, Orszag said the critical period will be next year when the impact of the economic stimulus begins to fade and as industries replenish their inventories.

The question policy makers are facing is whether household consumption, private business investment and confidence are strong enough "to become self-fulfilling and provide enough momentum" to drive the economy on its own.

Orszag's comments came after a weekend in which Obama himself said he was exploring "additional options to promote job creation." Administration officials and members of Congress have been discussing another extension of unemployment benefits for many people out of work more than nine months, as well as tax credits now due to expire Dec. 31 for first-time home buyers and for laid off workers to purchase health insurance.

Unemployment typically remains high after an economy begins to recover from a recession. But the jobless rate is higher than administration officials had initially predicted and has become fodder for Republican critics of Obama's economic policies.