by Rodger Malcolm Mitchell, www.nofica.com
After I wrote the post about “Go Big,” (the Committee for a Responsible Federal Budget’s demand that the deficit be reduced by even more than the deficit reduction “super committee” mandate), I initiated the following correspondence with the CRFB, thinking in advance it would be useless. (But I felt like pecking them a bit).
From RMM: Now that the “fiscal cliff” (a puny $500 billion reduction) has everyone alert to the dangers of deficit reduction, whatever happened to your famous “Go Big” deficit reduction of $4 trillion?
Surprisingly, I received an answer:
Thank you for contacting. CRFB believes, as we write in our paper: Between a Mountain of Debt and a Fiscal Cliff, “At the end of 2012 and the beginning of 2013, many major fiscal events are set to occur all at once. They include the expiration of the 2001/03/10 tax cuts, the winding down of certain jobs provisions, the activation of the $1.2 trillion across-the-board “sequester,” an immediate and steep reduction in Medicare physician payments, the end of current Alternative Minimum Tax (AMT) patches, and the need to once again raise the country’s debt ceiling.
At the end of 2012, we face what Federal Reserve Chairman Ben Bernanke calls a “fiscal cliff.” Taken together, these policies would reduce ten-year deficits by over $6.8 trillion relative to realistic current policy projections – enough to put the debt on a sharp downward path but in an extremely disruptive and unwise manner.
Gradually phasing in well thought-out entitlement and tax reforms would be far preferable to large, blunt, and abrupt savings upfront. Policies set to take effect at the end of the year could seriously harm the short-term economy without making the changes necessary to address the drivers of our debt or strengthen the economy over the long-term.”
If you are interested in helping out with our national debt, I encourage you to visit www.fixthedebt.org. There you can find information about a new campaign we have launched, the Campaign to Fix the Debt, a bipartisan effort to get a comprehensive debt deal enacted. The campaign has a petition to sign and even volunteer opportunities available.
Todd S. Zubatkin
Policy Analyst, Committee for a Responsible Federal Budget New America Foundation
1899 L Street NW, Suite 400, Washington, DC 20036; Email: [email protected]
The correspondence continued this way:
Thank you for your note. I’d love to help your efforts to grow the economy and reduce unemployment. An accounting rule is: deficits = credits. So when the federal government runs deficits, who receives the credits? That is, when the government has an outflow of dollars, who receives the dollars? So far as I can tell, the answer is: The economy receives the dollars.
Similarly, when deficits are reduced, the economy receives fewer dollars. So the question that keeps nagging at me: How does less money going into the economy, help grow the economy and reduce unemployment?
And he answered:
Zubatkin: Please see the following: This Time Is Different: Eight Centuries of Financial Folly, Carmen M. Reinhart & Kenneth S. Rogoff,
The Announcement Effect Club,
Federal Debt and the Risk of a Fiscal Crisis – Congressional Budget Office,
Regards, Todd Zubatkin
Instead of answering a simple question, they typically will tell you to read a book, or multiple books. It’s a form of evasion. But one thing did catch my attention: “The Announcement Effect Club.” It was formed two years ago, but somehow I missed it:
Committee for a Responsible Federal Budget
ANNOUNCING THE “ANNOUNCEMENT EFFECT CLUB”January 14, 2010
Since CRFB called for a Fiscal Recovery Plan in July, a growing number of prominent economists, organizations, and opinion leaders have joined us in suggesting we create a viable fiscal plan now to be implemented as the economy recovers. To this end, we are compiling a handy-dandy list of members of the newly formed “Announcement Effect Club.”
As we explained in July, the U.S. could aid the economic recovery without exacerbating a debt crisis by “continu[ing] with stimulus policies as necessary, but… announc[ing] a plan to reduce the deficit and close the long-term fiscal gap.” The Peterson-Pew Commission of Budget Reform reiterated this point in Red Ink Rising, discussing that “the ‘announcement effect’ of such a commitment, if credible, can have positive economic effects by signaling that the United States is serious about reducing its debt.”
In other words, while aggressive debt reduction in the short term might imperil the fragile recovery, the announcement of future deficit reduction can actually strengthen it.
Got it? The so-called “viable plan” is based on this: While deficit spending is necessary, announcing a plan to reduce the deficit will strengthen the economy. Think about that.
Amazed that any rational human being could believe such nonsense, I wrote back:
RMM: Thanks Todd, So, even though reducing deficits sends fewer dollars into the economy, the psychological effect (“announcement effect”) of reducing deficits will grow the economy?
Zubatkin: Rodger, The Announcement Effect Club’s idea is that there is an economic benefit in announcing a plan to fix our debt. Regards, Todd Zubatkin
Not being able to let go of this hilarious and frightening concept, I wrote back:
RMM: And does that economic benefit of the announcement overcome the actual loss of dollars?
So far, no response. Anyway, I can say nothing to improve upon the entertainment value of an idea that essentially tells you: “Deficits are necessary to grow the economy, but promising to cut deficits will grow the economy.”
Addendum: Here is the shameful list of people whom Zubatkin and the CRFB claim believe this utter rot:
Inductees into the Announcement Effect Club in chronological order. If you have a nominee for the club, let us know:
Members of the Committee for a Responsible Federal Budget* (Time to Develop a Fiscal Recovery Plan 7/9/09)
Ben Bernanke, Chairman, Federal Reserve Board (Congressional Testimony 7/21/09)
Washington Post Editorial Board (Washington Post 8/26/09)
Financial Times Editorial Board (Financial Times 9/28/09)
Marvin Phaup, Director, The Pew Charitable Trust’s Federal Budget Reform Initiative (Albany Times-Union 9/30/09)
Angel Gurria, Secretary-General, Organization for Economic Co-operation and Development (Statement before the International Monetary and Financial Committee 10/4/09)
Donald Marron, former acting CBO director (Blog 10/12/09)
C. Fred Bergsten, Director, Peter G. Peterson Institute for International Economics (Foreign Affairs Nov/Dec 2009)
Peterson-Pew Commission on Budget Reform (Red Ink Rising 12/14/09)
International Monetary Fund (Report 12/16/09)
John Podesta, Center for American Progress (Financial Times 1/4/10)
Michael Ettlinger, Center for American Progress (Financial Times 1/4/10)
Laura Tyson, Haas School of Business at UC Berkeley, former chair of the President’s Council of Economic Advisors (Bloomberg News, 1/8/10)
Bruce Bartlett, former Deputy Assistant Secretary for economic policy, U.S. Dept. of Treasury (Forbes.com 1/8/10)
Diane Lim Rogers, Concord Coalition, former House Budget Committee chief economist (EconomistMom.com 1/10/10)
Leonard Burman, Syracuse University (Paper 1/11/10)
Jeffrey Rohaly, Urban Institute (Paper 1/11/10)
Joseph Rosenberg, Urban Institute (Paper 1/11/10)
Katherine Lim (Paper 1/11/10)
James R. Horney, Center on Budget and Policy Priorities (CBPP Report 1/12/10)
Kathy Ruffing, Center on Budget and Policy Priorities (CBPP Report 1/12/10)
Kris Cox, Center on Budget and Policy Priorities (CBPP Report 1/12/10)
National Research Council and National Academy of Public Administration (Choosing the Nation’s Fiscal Future 1/13/10)
Nick Clegg, Leader, UK Liberal Democrats (Financial Times 1/14/10)
Timothy Geithner, Secretary, Department of the Treasury (Congressional Testimony 2/3/2010)
André Meier, International Monetary Fund (After the Stimulus, the Big Retrenchement 2/5/2010)
Giancarlo Corsetti, European University Institute (After the Stimulus, the Big Retrenchement 2/5/2010)
Gernot Müller, University of Bonn (After the Stimulus, the Big Retrenchement 2/5/2010)
Carmen Reinhart, University of Maryland (Senate Budget Committee testimony 2/9/10)
Thomas Hoenig, President, Federal Reserve Bank of Kansas City (Knocking on the Central Bank’s Door 2/16/2010)
Richard Berner, Co-Head of Global Economics and Chief U.S. Economist, Morgan Stanley (Peterson-Pew Event 2/16/2010)
Clive Crook, Senior Editor, The Atlantic Monthly (Peterson-Pew Event 2/16/2010)
Tim Besley, Professor of Economics and Political Science, London School of Economics (Blog 2/25/2010)
Andrew Scott, Professor and Joint Subject Area Chair of Economics, London Business School (Blog 2/25/2010)
Stephen Cecchetti, Bank for International Settlements (Report 3/2010)
M.S. Mohanty, Bank for International Settlements (Report 3/2010)
Fabrizio Zampolli, Bank for International Settlements (Report 3/2010)
Kent Conrad, U.S. Senator and Chairman of Senate Budget Committee (Chairman’s Mark of FY 2011 Senate Budget Resolution 4/21/2010)
Paul Ryan, U.S. Congressman (Peterson Foundation Fiscal Summit 4/28/2010)
Alan Blinder, Professor of Economics and Public Affairs at Princeton University and former Vice Chairman of the Federal Reserve (Op-Ed 5/20/2010)
Carlo Cottarelli, Director of Fiscal Affairs, IMF (Second Executive Fiscal Commission Meeting 5/26/2010)
Larry Summers, Director, National Economic Council (Washington Post 6/14/2010 and Speech 5/24/2010)
Edmund Andrews, Former New York Times Correspondent (Blog 6/20/2010)
European Central Bank (Monthly Bulletin 6/22/2010)
Erskine Bowles, Co-chairman, National Commission on Fiscal Responsibility and Reform (Commission Meeting 6/30/2010)
Robert Rubin, Former Treasury Secretary (CNN.com 8/8/2010)
David Chavern, Chief Operating Officer, Chamber of Commerce (ChamberPost 10/14/2010)
Christina Romer, Former Chair, Council of Economic Advisors (New York Times 10/24/2010)
The Economist (Article 11/18/2010)
Pete Davis, Capital Gains and Games (Blog 11/27/2010)
National Commission on Fiscal Responsibility and Reform (Fiscal Commission) (Final Proposal 12/1/2010)
Steven Pearlstein, Washington Post columnist (Op-Ed 12/3/2010)
Tom Coburn, Senator (R-OK) (Fox News Interview 12/26/10)
Ezra Klein, Washington Post Contributor (Bloomberg Op-Ed 6/8/11)
Joseph Lieberman, Senator (I-CT) (Washington Post Op-Ed 6/9/11)
Steny Hoyer, U.S Congressmen (D-MD) (CBS Interview 6/12/11)
President Barack Obama (Speech 6/13/11)
Glenn Hubbard, former Chair of the Council on Economic Advisors (Bloomberg Op-Ed 9/19/11)
Douglas Elmendorf, director of the Congressional Budget Office (Hearing, 10/26/2011)
Micheal Bloomberg, Mayor of New York City (I-NY) (Speech, 11/8/2011)
Mark Zandi, Moody’s Analytics (Op-Ed 11/15/2011)
Former President Bill Clinton (Fiscal Summit Interview 5/15/12)
Bill Bradley, Former Senator (D-NJ) (Interview 6/3/12)
* Members of the CRFB Board are: Bill Frenzel, Tim Penny, Charlie Stenholm, Maya MacGuineas, Barry Anderson, Roy Ash, Charles Bowsher, Steve Coll, Dan Crippen, Vic Fazio, Bill Gradison, Jr., William Gray, III, William Hoagland, Douglas Holtz-Eakin, James Jones, Lou Kerr, Jim Kolbe, James Lynn, James McIntyre, Jr., David Minge, Jim Nussle, June O’Neill, Marne Obernauer, Jr., Rudolph Penner, Peter G. Peterson, Robert Reischauer, Alice Rivlin, Martin Sabo, Eugene Steuerle, David Stockman, Paul Volcker, Carol Cox Wait, David Walker, and Joseph Wright, Jr.
Individual statements of CRFB members include:
Alice Rivlin, Brookings Institution and former CBO director (Bloomberg News 1/7/10)
Charlie Stenholm, former Member of Congress (Fort Worth Star-Telegram 12/28/09)
James R. Jones, former Member of Congress (Tulsa World 12/27/09)
Jim Kolbe, former Member of Congress (The Hill 12/18/09)
Tim Penny, former Member of Congress (St. Paul Pioneer-Press 12/14/09)
Bill Frenzel, former Member of Congress (Sphere.com 12/13/09)
Robert Reischauer, President of the Urban Institute and former CBO director (Urban.org 9/10/09)
Eugene Steuerle, Urban Institute Fellow (Urban.org 7/15/10)
Presumably, all of the above people believe a federal deficit is necessary to grow the economy, but announcing a future deficit reduction is necessary — to grow the economy.
You just can’t make this stuff up.
Rodger Malcolm Mitchell
About the Author
Rodger Mitchell, MBA is a “turnaround specialist”, who saves troubled companies. He is the author of the book, “Free Money, Plan for Prosperity” and founder of his own blog, Rodger M Mitchell.com.
Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.