Orszag Urges Patience on Recovery

By CHRISTOPHER CONKEY

WASHINGTON -- White House budget director Peter Orszag said President Barack Obama's recovery plan needs time to take effect, as Republican congressional leaders stepped up criticism of the president's handling of the economy.

Associated Press

Budget director Peter Orszag, left, and President Barack Obama walk to the Eisenhower Executive Office Building.

Senate Republican leaders on Sunday criticized the proposed fiscal year 2010 budget, called for the government to allow more troubled banks to fail, and suggested that General Motors Corp. should face bankruptcy. The criticism followed another week of bad news, with stock prices continuing to fall, and the Labor Department announcing that another 651,000 people had been laid off in February, pushing unemployment to a 25-year high of 8.1%.

"Look, it's very clear the economy is facing some tough times," Mr. Orszag said on CNN's "State of the Union" Sunday. "But we acted quickly. … The money is starting to flow. Let's give it some time to work.

He added that Mr. Obama's approach to bolstering the economy doesn't just include his $787 billion economic-stimulus plan, but, "frankly, turning in a new direction, investing in health care and education and energy." "Things have not worked," he said. "We need a change in course.

Mr. Orszag also defended the projections upon which the proposed 2010 budget is based, including that the economy would grow at 3.2% next year and unemployment would be 8.1% for 2009 -- numbers that some economists believe are overly optimistic. He said the projections are in line with the Congressional Budget Office's and other outside experts.

"I don't think we should be chasing our tail, constantly revising assumptions. Let's see what happens, let it work," Mr. Orszag said. He said the administration would have a mid-session review later in the year. "We'll have an opportunity to revise the assumptions at that point."

House Minority Leader John Boehner (R., Ohio), speaking on CBS's "Face the Nation," said the budget "spends too much" and "taxes too much" and that people want to "see the government tightening its belt."

Mr. Orszag defended the administration's proposal to increase taxes and reduce certain tax deductions on upper-income Americans. Pressed to say whether the White House would reconsider its plan to lower tax deductions on items such as mortgage interest, Mr. Orszag said: "They're going to come around to our proposal."

He also predicted that a major health-care reform bill would be completed this year, but he declined to say whether the White House would say push for a second bout of economic stimulus.

Sen. John McCain (R., Ariz.), speaking on "Fox News Sunday," said that in its early efforts to stabilize the banking system, the Obama administration has "started off badly with a message that was not specific." Sen. Richard Shelby (R., Ala.), ranking member on the Senate Banking Committee, said on the same show that to he thinks the Treasury Department's efforts to stabilize major banks "will not work."

The Treasury Department is rolling out a plan to reduce foreclosures and is continuing a policy started during the Bush administration of injecting capital into troubled financial institutions, including Citigroup Inc. and insurer American International Group, Inc. It is also considering further aid for two of Detroit's three ailing automakers, GM and Chrysler, LLC.

Both men urged Mr. Obama to close banks that can't survive without government aid, particularly if they are perceived as too big to fail. "If they're dead, they ought to be buried," Mr. Shelby said. Asked if there were any specific banks that should be closed, and if Citigroup Inc. is one of them, Mr. Shelby said: "Citi has always been a problem child."

Mr. McCain said bankruptcy would be "the best thing that could probably happen to GM" so it could emerge "stronger, better, leaner."

Mr. Orszag defended the Obama administration's support for a budget bill that contained earmarks, depicting it as last year's business and saying future legislation would cut back on such pet projects of lawmakers.

Senate Republicans on Thursday blocked a $410 billion bill that would fund government operations through September, objecting to some 8,500 earmarks it contains. Some Democrats like Indiana Sen. Evan Bayh and Missouri Sen. Claire McCaskill also opposed the pet projects. The White House has been criticized for supporting the bill.

Mr. Orszag said Sunday on CNN that the Obama administration is committed to reducing earmarks. But when it comes to the budget bill, he likened the White House to "a relief pitcher stepping in" during "the ninth inning." Going forward, he said, future spending bills would significantly curb earmarks. "The game's going to be a lot different," he said.

Meanwhile, Mr. McCain told "Fox News Sunday" said Iran's reported firing Sunday of a long-range test missile would spark a "serious international crisis before it's over." The White House did not respond to immediate requests for comment on the reporting missile firing.

Write to Christopher Conkey at christopher.conkey@wsj.com