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Faculty on topic: Boschen and Hewitt on the ‘fiscal cliff'

{{youtube:medium|ACN5hthCu3U, Deborah Hewitt says an immediate downgrade by credit-rating institutions would force U.S. politicians to act.}}


As "fiscal-cliff" conversations began dominating post-election political debate, two economists in William & Mary's Mason School of Business shared their unique insights with W&M News. 
 

Deborah Hewitt, Assistant Dean of MBA Programs and associate professor of economics and finance

Hewitt remains optimistic that the United States will escape out of the corner it's been backed into by recurring fiscal crises, but she believes the cure is essentially a decade-long prescription that includes a dose of austerity. Other nations, meanwhile, increasingly are looking away from the United States and toward countries such as Brazil and Mexico as they create their own economic models. The loss of the American dream is not out of the question, she said. What does she tell her students in class? "Don’t wait for Washington. Make a plan for yourself."

Video quips (see right)

Effects on the 'American dream'
Unfortunately this tight corner we have boxed ourselves into is forcing people to just more "satis-fice" than really maximize. That's a blow to the overall American dream—to say you'll just have to settle for what you can get rather than aspiring to greatness.

Fiddlin’ away the future?
We [Americans] have come to take for granted that people will always buy our bonds. That we will always be the leader in certain fields. That just isn’t reality. I think the United States still has enough innovation and entrepreneurial spirit that we can rekindle this leadership position, but we really have to get to it.
 

John Boschen, Brinkley-Mason Professor of Business

Boschen says that even if we go over the 'cliff,' we will recover, and rather quickly. Both the Republicans and Democratics want spending cuts, but those cuts will not push the country back into a recession. He suggests there will be a 'political stalemate' through the end of the year and into January. "There will be a vote at that time to cut taxes for the bottom 98 percent," he predicted. "Who is against that?"

Video quips (see right)

'Horde of cash' held by private businsess
We use that term ‘prime the pump.’ We start with federal government spending, then we count on the private sector chugging along behind it and starting to pick up and seeing the investment now makes sense. That’s where the really big spending occurs.

Economic recovery after the fall
[Tax rates and spending cuts] represent a more contractionary fiscal policy. It will slow the economy down. It won’t push us back into a recession.