Committee for a Responsible Federal Budget

The Economist Joins the Announcement Effect Club

Nov 22, 2010 | Economics

The Economist joined the Announcement Effect Club last week in an article calling for leadership on the deficit. Following many other plans put out over the past few weeks, they offered some of their own preferred policies for putting the budget back on a sustainable path. And in discussing the timing of cutbacks, they said (as many others have) that long-term deficit reduction and short-term stimulus are not contradictory; in fact, they can work hand-in-hand. Here's the money quote:

There is legitimate concern that, done hastily, austerity could derail a weak recovery. But this strengthens the case for a credible deficit-reduction plan. By reassuring markets that America will control its debt, the government will have more scope to boost the economy in the short term if need be—for instance by temporarily extending the Bush tax cuts.

It's a close call, but we believe this statement qualifies for the AEC because even though they didn't explicitly state that medium/long-term deficit reduction would help short-term growth, they do imply that a plan would reduce upward pressures on interest rates (giving the government "more scope" to enact stimulus).

And the deficit reduction policies they support? Many. Block-granting Medicaid; increasing Medicare cost-sharing; raising the retirement age, lifting the payroll tax cap, and instituting progressive price indexing for Social Security; and enacting the type of base-broadening, rate-lowering tax reform that has come up recently in other plans. 

We'd like to welcome The Economist into the Announcement Effect Club and thank them for getting specific.