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The Republicans or the Democrats: who is to blame for the budget impasse?

February 27, 2013

Neither!  I just came back from my behavioral economics presentation at the University of Valencia, Spain. Based on various email responses it is clear to me that the problem of national and personal budgeting is universal among most politicians and the classical economists who serve them. Here is an opportunity for you to understand about budgeting more than the people you vote for!

It’s education, dummy! Most Departments of Economics in Universities all over the world (Tbilisi may become an exception) teach Economic rationalism: If you have a financial deficit, you reduce the gap to prevent recession, unemployment, inflation or worse. You reduce it by raising taxes and cutting spending. Contrary to common sense, the real reason for the fight between the Democrats and Republicans in congress is not political. It is a battle between Democratic logic and republican logic. Each side believes that it knows what spending to cut and what taxes to raise.  Your representatives are not stupid. They just don’t know. The only reason they don’t get it is that they were raised in educational systems that teaches classical economics based on Adam Smith’s Wealth of Nations, a libertarian paternalism economic system according to Dr. Richard Thaler, a behavioral economist, who was recently hired by David Cameron to improve the economic system in the UK (it will take time). It isn’t only in America. I experienced it in Spain, everywhere. I want to commend Dr. Ia Natsvlishvili, an Associate Professor Senior Specialist Quality Assurance Agency School of Economics and Business Tbilisi State University, Republic of Georgia, who approached me after my speech and asked for my ideas about helping their new graduate program in Behavioral Economics. Do it right, Doctor, and your parliament may never have the bitter fight over budget like the Democrats and Republicans have in the US right now!

Behavioral economics rules works and it is easy to implement.

*You do not balance budgets at any costs. There is a concept called a “healthy deficit.” Keep borrowing for productive returns.

*You do not cut programs that add to GDP. You tax charities that do not add to GDP.

*You do not cut programs in manufacturing and infrastructure. You  impose a moratorium on government financing in the arts, never in the sciences.

*You cut waste in government big time, freeze hiring, let go of optional government jobs through attrition, trim entitlements, subsidies, etc.

*You triple community college certificated training programs. A big behavioral economic issue. You develop a degree in Behavioral Economics.

*You form a presidential commission how to trim government overpayments to insurance companies, hospitals and doctors, etc.

All these BE measures (plus 100 more) are designed first to create productive jobs needed in the economy and only second to reduce the deficit. Get your priorities right, politicians and economists.

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