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Pay attention to the government’s budget constraint. The nation faces a long-term imbalance between government spending and tax revenue. The fundamental problem is that the federal government has promised the elderly more benefits than the tax system can support. This fiscal imbalance will become acute as more baby boomers retire and start collecting Social Security and Medicare.Yet during the campaign, you promised that you would cut taxes for 95 percent of Americans, that you would vastly expand health insurance coverage, and that you would never cut Social Security benefits or raise the retirement age. You will almost surely have to renege on some of these promises. As your economic team will often remind you, even if the laws of arithmetic are ignored during campaigns, they provide a real constraint when making actual policy.

Read the rest here from Greg Mankiw.

And Tyler Cowen chips in:

Often we respond to negative events badly, so we need to be especially careful when we are in a losing or risky position.

Very bad events can cause a panic among the citizenry or its leaders, which translates into subsequent bad decisions. For a classic example of a negative policy dynamic, look at 9/11. The United States lost 3,000 lives and a great deal of wealth and confidence. The government then took actions, most of all the Iraq war, which led to even greater losses.

We are in danger of getting stuck in another negative dynamic, but this time in the realm of economics. We might follow up the financial crisis with some worse responses and policies.

It’s not just the country’s future that is on the line. Despite the commonality of anti-American rhetoric, the United States sets the tone for much of the world.

In what will be the start of my “be nice to the government week” I think that by merely being elected, President Obama has brightened a lot of people’s moods. And that is good in the world Cowen describes above.

One Response to “Economic Advice to the POTUS-Elect”

  1. Becky says:

    After reading, “Bad Decisions,” by Chris Burns, I have come to understand better, why some people make better decisions
    than others. I have also learned how to better train my brain to make better decisions. Maybe some of the leaders in our government should take a look at this book!

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