Two Economists Join the Announcement Effect Club
In a blog post today on Voxeu.org, European economists Tim Besley and Andrew Scott joined the Announcement Effect Club, stating that a switch to tight fiscal policy risk could derail the recovery, but "continuing deficits are spooking markets." Besley and Scott argue for continued expansionary policies in the short-term, but also urge policymakers to develop independent assessments of fiscal consolidation plans in order to make them credible:
"One of the principal problems of running a structural deficit is the heightened risk that a government will have to make economically and politically difficult adjustments to its tax and spending plans — precisely the situation that the UK now faces. Independent fiscal assessments of a credible plan to manage the deficit should help to provide necessary reassurance to the markets. This would minimise the risk of further changes being necessitated by a downgrade in the UK’s credit rating, whether justified or not. It is important that fiscal adjustment is managed as far as possible by long-term economic factors."
That's what we've been arguing for: a credible plan to manage the deficit once the economy recovers to both reassure our creditors and bolster the economic recovery.
Click here for a full list of members in our Announcement Effect Club.