Cutting budget deficit should be top priority, says GOP's Holtz-Eakin

Economist and budget expert Douglas Holtz-Eakin was director of the Congressional Budget Office and a senior adviser to John McCain's presidential campaign. He is president of the American Action Forum, a center-right think tank in Washington.

On the outlook for the US economy:

"For the remainder of 2010 ... growth [measured by gross domestic product] will look slower than it has in the first two quarters, and as a result job creation will remain stubbornly stuck in the 80,000 to 120,000 range [per month] and the unemployment rate will remain high."

On the debate over whether to start curbing government spending now, despite weak economic growth, to address looming federal debt:

"We cannot move too quickly to commit to reducing the deficit. So action now. I find it implausible to think that this political system could produce such dramatic action it would actually endanger the recovery."

On whether reducing the federal deficit might cause nonfinancial companies to spend some of the $1.1 trillion in cash they have set aside:

"They have said very plainly that the uncertainty about the vast policy agenda – welfare, energy, financial services reform, future deficits, tax increases – is so great that they are holding onto their money to figure out where they are. So deficit reduction is one part of resolving the future of their business model so they can get on with hiring people and building plants."

On the congressional debate over renewing extended unemployment benefits, which recently expired:

"There are benefits and costs to every policy. And in this case, I think the net benefit to helping those workers out of work outweighs the other costs, which are extending the duration of unemployment and, in some cases, causing people to move past jobs they should take.

On what has surprised him during his ongoing service on the Financial Crisis Inquiry Commission:

"Personally, I have been stunned at the widespread prevalence of bad internal risk management [at financial firms]. Again and again we hear this story: Oh my goodness, a tidal wave I never would have imagined hit us. Citigroup said it. Fannie Mae said it. AIG said it. But when you drill down and say, 'What were you doing to measure and control the risk from your balance sheet,' the answer is not much. If each had done that, there would have been no tidal wave."

On how his think tank – which advocates a smaller, smarter government functioning in areas "where the government has a unique role" – fits into the current Republican climate, with its antigovernment "tea party' component:

"There are some who ... think that debate is a luxury – you've got to just go beat Democrats.... I don't think, in the long term, the Republican Party restores itself as a broad-based, nationally prominent party without a next generation of ideas and people [who] can give life to them. That is what we are trying to do."

On the financial reform legislation now awaiting a final Senate vote:

"My expectation is that it will pass, whether anyone likes it or not. So much of it has been kicked to regulatory implementation, we don't really know what we have yet."

Related:

• Obama's triumphs are also his weaknesses: Health care, stimulus, financial reform
• Are unemployment benefits getting an undeserved mugging?
• As Senate takes up financial reform bill, a look inside the sausage