Return to a deficit of 3% of GDP - is not the reason to go mad. The real reason for the madness - that the country needs a fiscal surplus of 5% of GDP to ensure the realization of large-scale social programs - Social Security (social insurance for the elderly), Medicare (health insurance program for the elderly) and Medicaid (health insurance program for the poor) .
The world economy is easy to panic and the syndrome of the crowd - in order to provoke a serious crisis for a long time quite some rumors about him. But economists and politicians pretend not to notice, and continue to seriously talk about the proximity of the next collapse, bringing about a crash
If the patient has lost his mind, do not aggravate his condition, telling of an incurable disease, and the end was near. This rule applies to those who are now taken to reason about the state of the economy and predict its future, convince colleagues and observers American economist and professor at Boston University's Laurence Kotlikoff.
Corporations and convince people that the crisis is inevitable, it is easier than it seems. But careless words can lead to actions of economic agents, which, in the end, and provoke deep recession.
Economists and politicians have been waiting for the 2008 financial crisis, he just could not happen. Now they are worn with a new horror story - "budget cliff" USA. Officially, this term is taken to mean a sharp reduction in spending and tax benefits, which will reduce the budget deficit and, in the long term - the national debt, but plunged the country into a deep recession.
How to bring the economy into hysterics
Imagine that you - the employer. Every day you hear the same phrase: "the economy is about to collapse with the" budget cliff "tax increases and spending cuts totaling $ 600 billion will kill the economy." Talks about it all: politics, media, economists, Federal Reserve, the Congressional Budget Office, IMF. It must be true. In theory, Republicans and Democrats can agree and save the world. But you know that these guys will never agree as to the economic doomsday - 1 January - just a few weeks.
What do you do in this situation? Wait, when your clients will disappear, and they will do it, or trying to play a proactive and begin to lay off employees, or, at least, just not to hire?
If you choose the latter, then the bad economic prophecy immediately begins to come true. Other companies state the decline in demand for their products, because your former and potential employees can no longer afford to be wasteful. And do the same thing as you - reduce their staff. And now you have fewer customers, and it seems that all the experts were right.
To go crazy, objective reasons not to
Economists use different expressions to describe the ability of the economy to fall into delirium and sudden decline, not based on nothing but rumors. Among the popular term - "Solar balance", "multiple equilibria", "coordination failure" and even the "herd instinct" - all they really mean is that, in the words of Franklin Roosevelt, scares us the most - fear itself.
In "Hysterical economy" Kotlikoff just described the problem, which is based on three simple propositions:
The economy can go crazy.
To go crazy, she does not have any objective reason.
A sense of confidence - a valuable public good.
The economy is definitely crazy in 2008. In the developed world, about 27 large financial companies on the brink of life and death. But only one of them - Lehman Brothers - really disappeared. Despite the fact that there was no real death, or loss of physical property, the bankruptcy of Lehman caused panic in the minds of many people, especially the leaders in Washington.
President George W. Bush once said about the economy: "This fool is going to explode." And of course, it was enough to make it really exploded employers immediately tried to forestall by firing 8.5 million in 19 months.
If they had fired 8.5 million on the day following the bankruptcy Lehman, everyone would understand that this is a coordinated panic. But the panic was growing gradually, however, as more and more "experts" and "leaders" continue to talk about the new "Great Depression" - the two words were the most popular searches in Google for many months after the demise of Lehman.
"Budget break" - a new reason for mass panic
Today we are entering in search Google "fiscal cliff" - the two words are linked together, Fed Chairman Ben Bernanke. Fiscal cliff ("budget break") leads to panic the public and used by politicians to justify endless decision on huge U.S. debt. But let's be honest, despite the mass hysteria, the economy will not collapse if the deficit will fall to 7% of GDP to 3% of GDP. The U.S. government has existed with such a large deficit of the postwar era, and economic heaven to fall on earth.
Return to a deficit of 3% of GDP - is not the reason to go mad. The real reason for the madness - that the country needs a fiscal surplus of 5% of GDP to ensure the realization of large-scale social programs - Social Security (social insurance for the elderly), Medicare (health insurance program for the elderly) and Medicaid (health insurance program for the poor) .
There are other projected costs, the growth of which is hard to reconcile with a low tax burden - to be honest, would together face is not "budget cliff" a fiscal abyss. Budget gap between the present value of all future costs and all future income is now at $ 222 trillion.
The budget gap continues to grow enormous pace, for the last year an increase of $ 11 trillion. So if we want to panic, let's panic on the real issue.
U.S. needs a leader, not a psychopath
Of course, the U.S. now need not panic, but real leaders. The President and other politicians should stop scaring people, because their speech only coordinate everyone's expectations of recession, thus increasing the likelihood that it will happen. Two three societies are convinced that the economy will face a larger problem of January 1. U.S. corporations are actively cutting investment and hiring employees.
If Congress and will not be able to break the deadlock (which is very likely), and the recession have yet to begin, both parties immediately said: "I told you so."
But they do not realize that the main cause of the recession they have not made any attempt to bring the budget in order. The U.S. economy is already quite mad, she does not need hysterical leaders, who continue to take her mind.
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