Committee for a Responsible Federal Budget

Bill Clinton Joins the Announcement Effect Club

May 16, 2012 | Economics

Former President Bill Clinton joined the Announcement Effect Club at the Peter G. Peterson Foundation's Fiscal Summit yesterday in a Q&A session with Tom Brokaw (you can see the video of it here). Our readers will recall that the announcement effect states that enacting a credible deficit reduction plan now but implementing the actual cuts with some lag will help the economy now by reassuring investors that we will have our debt under control. Here's the quote:

Brokaw: A year ago, you said it would be a mistake to try to fix the deficit when the economy is so broken. Do you still feel that way?

Clinton: Yes, but I also said I think we should pass a very tough deficit reduction plan now and provide for it to trigger when the economy has reached three percent growth for two quarters, because I think it would do an enormous amount to deal with the [weak economy].

He also went on to say that a deficit reduction plan will be very important when the economy recovers considering the debt we have accumulated in recent years. Interest rates will rise significantly at that point, he argued, so a plan to reduce the deficit would help ease that concern.

He also said that enacting a comprehensive deficit reduction plan would increase confidence in our political institutions, both from citizens and people around the world. Considering the showdowns and near-disasters that have defined the past few years, it would certainly be a help.

The Announcement Effect Club is a reminder that the fiscal policy debate isn't a black-and-white debate between focusing on the short term vs. the long term or stimulus vs. austerity. We gladly welcome President Clinton to the Club.

Video of the interview is below.