Steven Pearlstein Joins the Announcement Effect Club

After the addition of the Fiscal Commission to the Announcement Effect Club last week, Steven Pearlstein of the Washington Post kept the membership growing with an op-ed in Friday's Post. 

Pearlstein's article calls the Commission plan the "grand budget compromise" that the country sorely needs. While the left and the right have been throwing stones at the plan (although, to their credit, some have offered alternatives), Pearlstein says that they must realize the lack of political viability that an all-tax or all-spending side solution has. That is, that people will need to swallow their pride and accept some changes they don't like in order to formulate a credible budget path.

As for the Announcement Effect part of his op-ed, here's the money quote:

In fact, I'd argue that pushing through a grand budget compromise would be the most effective thing we could do for the economy, even in the short run. Lifting that black cloud and demonstrating to ourselves and the world that our political system can function would provide a big boost to the confidence of consumers, investors and business executives whose "animal spirits" have been in hibernation.

How large a boost? Here's a wild guess: 1,500 points on the Dow Jones industrial average, half a percentage point off the yield on 30-year Treasury bonds, 750,000 jobs created and an extra percentage point of gross domestic product growth in 2011.

It's unclear where he gets the numbers (by his own admission, it's a wild guess), but his point is well taken. Short-term economic growth can be helped by a medium/long-term deficit reduction plan, provided that it phases in changes gradually.

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