Sunday, December 23, 2012

Behavioral macroeconomics

Given the slow economy, it is undesirable to reverse all or even most of the Bush tax cuts. A small but publicly trumpeted clawback of some of the cuts would send the right message to voters, while minimizing the macroeconomic fallout. The nice thing about symbols — single shots across the bow — is that they often can suffice. 
If people already rationally expect these tax increases, this signal would do neither good nor harm, but perhaps such an approach would nudge political expectations closer to reality without draining the economy.
Interesting. A way to pander to misguided good intentions while the substantive policy does the right thing?

I'm not whether I like where this leads, but it's interesting...

I do like this, for sure:
In our country, the typical approach to fiscal deadlines is to kick the can down the road. But that assumes we are kicking a can, not a grenade. It’s time for at least one party — and why not the electoral loser? — to do something just a little shocking. It can give in on much of the negotiations, but insist that both sides start stressing the fiscal truth.

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