President Bush’s top economic adviser said Tuesday that the massive federal cost of recovering from Hurricanes Katrina and Rita should not deter the White House from its goal of halving the federal budget deficit by 2009.
“Every effort needs to be made to try and offset the costs of Katrina and Rita by reductions in other government programs, especially those that are wasteful, duplicative and ineffective,” White House economic adviser Ben Bernanke told the National Association for Business Economics annual meeting.
He suggested that Congress look to President Bush’s 2006 budget proposal, which calls for the reduction or elimination of 150 programs.
“The president still remains committed to halving the federal budget deficit by 2009,” Bernanke said. “I think that’s still feasible. That is certainly something I will work toward.”
Before Katrina hit, the budget deficit had been on track to fall from a record $412 billion in fiscal 2004 to about $330 billion in the current fiscal year, which ends Friday. Congress already has allocated more than $62 billion in emergency hurricane spending, and some officials say the federal costs of rebuilding the Gulf Coast region could rise to $200 billion.
Bernanke said the hurricanes would have a “palpable effect” on U.S. economic growth in the short term, although he expects gasoline prices to drop in the next several months to levels near where they were before Katrina hit.
But noting that no new oil refineries have been built in this country for 30 years, he said the two hurricanes have “demonstrated the potential vulnerability of our existing capacity."
“The experience of Katrina suggest we should take another look at the issue of refinery capacity in the United States,” he said. “Refineries are running at full capacity and we are importing more and more gasoline.”
Bernanke also said natural gas prices would remain elevated longer because of serious damage to processing plants. The United States currently has little or no ability to import natural gas from overseas.
Even if energy prices revert to where they were over the summer, they are still very high and “obviously are hurting household budgets,” said Bernanke.
“The good news so far is that the impact of high energy prices on the U.S. economy appears to be relatively modest,” he said. And Bernanke noted that the world’s biggest economy has come through several major shocks successfully over the past five years.
“I am confident that as we recover from this set of hurricane disasters going forward the economy is going to continue to be strong,” he said.