Committee for a Responsible Federal Budget

New Members Join the Announcement Effect Club

Sep 27, 2010 | Economics

Recently, two prominent figures have joined CRFB’s Announcement Effect Club. Joining the Announcement Effect Club requires a statement that taking action now to put in place measures to reduce future deficits can actually help the recovery by limiting upward pressure on interest rates that would be expected otherwise as the economy gains steam. By keeping a lid on the competition for financial resources between the government and private sector as the recovery takes hold, we will minimize the “crowding out” of private sector investment through higher interest rates. By keeping interest rates down, government interest payments will be lower. Michael Ettlinger and Michael Linden of the Center for American Progress released an extensive report on the deficit entitled “A Thousand Cuts” (see our blog on it here) in which they argue that:

"Fortunately, avoiding the most serious of the deficit-related risks does not require instituting massive, recession-inducing austerity measures. It does require setting out a plan to achieve sustainability within a reasonable time frame. Laying out such a plan would increase confidence, ease investor fears, and offer some certainty that our budget woes are only temporary."

CRFB can't agree enough with their statement. What is essential is that our policymakers agree upon and announce a credible Fiscal Recovery Plan to put our nation on track for fiscal sustainability within a reasonable time frame (say by the end of the decade), but taking the economy’s weakness into account. Tackling our immediate challenges but also addressing our future challenges can be accomplished through the announcement now of future but credible steps to get our fiscal house in order, if done within the framework of a Fiscal Recovery Plan.  This is what the Announcement Effect Club is all about.