Wash Post and FT Call For Medium-Term Deficit Reduction Plan

Aug 31, 2009

Recently, both the Washington Post (Bad-News Budget) and the Financial Times (Fiscal Challenges for a Recovering US) have written excellent editorials recommending that the U.S. adopt a medium term consolidation (deficit reduction) plan. We have been calling for something similar in recent months and continue to believe in the importance of announcing a Fiscal Recovery Plan.

While it would be premature to withdraw economic stimulus by reducing near-term budget deficits, announcing a credible medium-term plan to be phased in once the economic is strong enough would reassure our creditors as well as financial markets that we are not headed towards a fiscal crisis. Similar announcements have worked in many countries when they faced their own debt challenges.
 
Ideally, the White House would work with Congress to achieve a plan over the next few months. One possibility is that they use next year's budget submission in February as the opportunity to unveil such a plan, though it will have to have bipartisan support to be credible, and thus working with a bipartisan group of lawmakers now to develop the plan would make it more likely to succeed.
 
The sooner we get started on this, the better.