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Christina Romer’s Memo to Obama: “It Takes a Plan to Beat a Plan”

Fin - Daily Ticker - US

President Obama and Vice President Joe Biden met with Senate Majority Leader Harry Reid and Speak of the House John Boehner at the White House again last night.

But, yet again there was no compromise about how to fund the federal government for the rest of the year.

If you think this debate has gone on far too long, get ready for the battle over the 2012 budget!

Chairman of the House Budget Committee Paul Ryan released his proposal earlier this week. Rep. Ryan's plan would cut $6.2 trillion dollars more over 10 years than Obama has proposed.

"I certainly give him credit for coming forward with a bold and comprehensive plan," Christina Romer, former chair of President Obama's Council of Economic Advisers, tells Aaron in the accompanying clip. "But personally, I think it is a bad plan."

Ryan's plan tackles Medicare and Medicaid costs, which have spiraled into the stratosphere and account for large parts of the U.S. budget.

Romer again gives Ryan credit for being the first to propose serious entitlement reforms, but says he goes about it in the wrong way. "It really pushes a lot of risk onto individuals, where as now the risk is on the government."

You may not like Ryan's plan, but at least he has a plan to rein in entitlement spending and in turn our long-term fiscal deficits -- President Obama and Democrats have yet to do so: "It takes a plan to beat a plan," says Romer. (See: Budget Debate: Kudos To Paul Ryan and The GOP, Shame on the Dems)

If it were up to her, she'd like everyone to coalesce around the "more moderate, but still very substantive, still very important" plan put forth by the President's bipartisan fiscal commission late last year.

Coalescing around a 10-year plan seems pretty far fetched right now considering Democrats and Republicans are fighting over about $6 or $7 billion -- pennies when compared to the overall budget deficit, which stands around $1.6 trillion for this year.

Tougher Battles Ahead

President Obama and Democrats have agreed to cut about $33 billion, but Republicans want at least $40 billion in cuts, since their original plan to cut $61 billion was rejected by the Senate and would have likely been vetoed by the President anyway.

"There's no agreement on a number and there's no agreement on the policy," Boehner said. "But there's an intent to try to resolve this."

Time is running out. Congress has less than 40 hours to come to agreement on how to fund the federal government for the rest of fiscal 2011 or else the country faces a government shutdown.

That means roughly 800,000 federal workers will be asked to go home, military personnel will stop receiving paychecks, the IRS will stop processing paper tax returns and federal loans for small businesses and home loan guarantees will be put on hold.

Don't despair too much, Romer says. "It probably won't have a big impact on most Americans in the sense that I think we are pretty good at making sure Social Security check still come and things like that."

However, she is worried that a shutdown would tarnish consumer and business confidence, as well as knock our economic growth during this tenuous recovery. (See: Bring on QE3! "We Can't Afford NOT to Do More," Romer Says )

"If you look at the economy both this winter and last winter, it looked like we were starting to take off and then fairly small things started to dial growth back down," says Romer who is now an economics professor at Berkley University. "Last year it was troubles in Greece that really shaved off our growth and caused us to level out and this year it is everything from the tsunami [in Japan] to the troubles in the Middle East to more troubles in Europe. I think a government shutdown would be another thing that is going to take another small hit to growth and that is just something we absolutely cannot afford."

Both sides of this debate seem to think they can come to a deal by midnight on Friday. "There is no reason why we should not be able to complete a deal," Obama said after last night's negotiation talks. (See: As Shutdown Looms, Congress "Caught Between a Rock and a Hard Place," Tonelson Says)

Meanwhile, the House will vote on another stopgap measure today that would cut $12 billion from the budget and fund the government for another week and pay the military through the rest of this year. But President Obama has already made it clear that he does not want any more temporary resolutions — he wants funding for the rest of 2011 agreed upon and settled now.