jueves, 6 de diciembre de 2012

jueves, diciembre 06, 2012


OPINION
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December 4, 2012, 7:04 p.m. ET
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Alan Blinder: How to Get a Budget Deal Instead of the Cliff
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Does 11% unemployment sound good to you? That's where we're headed if Congress doesn't hurry.

By ALAN S. BLINDER 
Dear Congress,




Please don't drive our economy off the fiscal cliff.



First of all, I really hate recessions—and you should, too. If you take between 3% and 4% of total spending out of an economy, a recession is very likely to follow. People like me won't lose their jobs, or even take a pay cut. Neither will youat least not until the next election. But millions of Americans will, and that's the main point. Millions of jobs will be destroyed, incomes and wealth will fall, and businesses will fail in drovesall because a bunch of politicians couldn't agree.




In case you're wondering, a typical U.S. recession pushes the unemployment rate up more than three percentage points. Even small recessions raise it more than two points. If we fall into another recession in early 2013, while we are still digging out from "the big one," the unemployment rate will begin its climb from a base near 8%.




How does 11% unemployment sound to you?




Not so many months ago, the only group threatening to drive the economy of the cliff was the Republican right—the same people who have advocated crashing into the national debt ceiling, shutting down the government, or even defaulting on the national debt. It's a fringe group, I hope. But now, talk of deliberately going over the cliff seems to come also from the Democratic left.



Please don't listen to either. There is far too much at stake.




Some so-called political experts (a well-known oxymoron) assure us that the budget debate won't last more than a few days, or weeks at most, after we fall off the cliff. If they're right, that would do the economy little harm and might help us break the budget logjam.




But what if they're wrong? Remember the old joke about the guy who jumped off a 50-story building? Everything went fine for the first 49 floors. Suppose we jump off the fiscal cliff and the budget impasse drags on for months. A recession will almost surely follow. Seems like a bad gamble.



One interesting historical parallel makes me cringe. In mid-March 1980, President Jimmy Carter, desperate to stop inflation, invoked long-standing (but never-used) powers to institute credit controls. It was an ill-advised experiment, but many political types had been urging him to do it. Financial markets quickly gave the controls a Bronx cheer. Soon the growth of money and credit stopped dead in their tracks, which was good news if your only concern was inflation. But unfortunately, and not coincidentally, the economy also stopped dead in its tracks.




The second quarter of 1980 was the third worst in history for U.S. GDP growth (quarterly data go back to 1947). In just two months, from March to May, the unemployment rate leapt to 7.5% from 6.3%. The implosion was so frightening that credit controls were already being lifted by May.




The economy's sharp reaction in 1980 was far stronger than expected. But not because the controls were especially draconian or thorough. Rather, it appears that policy makers grossly underestimated the psychological impact, particularly on American consumers. The specific controls on the use of consumer credit were relatively mild, but consumers reacted by putting away their credit cards. Spending dropped like a stone.




Maybe nothing like that will happen if we fall off the fiscal cliff at the end of this month. Maybe our sluggish recovery will somehow survive the large tax increases and sharp spending cuts that give the cliff its name.




Maybe the world's financial markets will shrug off the apparent zaniness of the U.S. government. Maybe seeing their government so utterly dysfunctional won't shake up American consumers enough to curb their spending.




Maybe. But do you want to run the experiment?




Some Democrats argue that going over the cliff is the only way to end the hated Bush tax cuts for upper-income Americans, cuts that we never could afford in the first place and should be rid of. They point to Grover Norquist's notorious no-tax-increases pledge, noting with glee that once the Bush tax cuts expire on New Year's Eve, Democrats can introduce a bill cutting taxes on the lower 98% of Americans instead of raising taxes on the upper 2%. (In fact, such a bill has already passed the Senate.) Then, since no member would have to vote for a tax increase, Republicans would happily join arms with Democrats.




Really? Are we to believe that the same Republicans who were willing to default on the national debt and risk shutting down the government rather than raise taxes on the upper 2% will now accept that same result because now it comes in two steps rather than one?




OK, so how do you avoid the fiscal cliff? Reaching a full "grand bargain" within weeks is a nice dream, but it's probably just that—especially if the deal requires significant revenue from tax reform.




Although both parties agree that our tax code is a national disgrace, fixing it is both technically demanding and politically contentious. The Reagan-era tax reform took more than two years to work out. Meanwhile, the fiscal cliff looms just weeks ahead and may already be undermining growth. You need to act soon.



Time pressures demand stopgap measures that avoid going over the cliff. Many reasonable solutions can be built around the following three elements.




First, avoid the cliff by settling on the broad outlines of a budget agreement and then kicking some cans down the road. Specifics can come later. (By the way, please don't kick all the cans to the same stopping point again.)



Second, as "earnest money" toward an eventual deal, join hands and enact something Republicans dislike and something Democrats dislike. It will show you are serious.




Third, extend the debt limit at least until the budget deal is completed, which could easily take months.



A skeleton plan like that leaves many blanks to be filled in, so you'll still have plenty to argue about. But please hurry. We want you home for Christmas.



Sincerely yours,



A Concerned Citizen




Mr. Blinder, a professor of economics and public affairs at Princeton University, is a former vice chairman of the Federal Reserve.

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