'Black Swan' Author Taleb: Fiscal Cliff Is Good for the US in the Long Run

Thursday, 29 Nov 2012 09:36 AM

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The rapidly approaching fiscal cliff will benefit the country in the long run by wiping out complacency when it comes to managing the economy, said Nassim Taleb, the author and financial guru whose 2007 book “The Black Swan” predicted the current financial crisis.

At the end of the year, the Bush-era tax breaks and other benefits are set to expire at the same time automatic cuts to government spending are due to kick in, a one-two punch known as a fiscal cliff that could send the country into a recession next year if left unchecked by Congress.

Households, businesses, investors and policymakers worldwide are keeping an eye on Congress to see if lawmakers can put political differences aside and steer the country away from the cliff.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

In the long run, today’s uncertainty will lead to a more resilient economy tomorrow.

“For me, it is a good thing because the economy requires once in a while to be shaken and people to be scared. Otherwise we’ve got trouble, sort of like the equivalent of a forest that hasn’t had forest fire in a while,” Taleb told CNBC.

“You need once in a while to jolt the market so people realize that there is something wrong and we have to do something about it. And we need these fiscal cliffs and similar situations to shake politicians.”

Politicians have less skin in the game than do taxpayers who suffer more from flawed policy, and a situation like the fiscal cliff that puts Congress under the microscope benefits all.

“There’s some category of people who have the up side and no downside,” Taleb said.

“The downside is borne by us on April 15, tax day. We pay the bill.”

Both Democrats and Republicans have expressed a willingness to work with each other and avoid a preventable recession.

House Speaker John Boehner, R-Ohio, has said his party will consider tax hikes if Democrats will consider GOP proposals to cut spending.

“I am optimistic that we can continue to work together to avert this crisis sooner rather than later,” Boehner said, according to Reuters.

“We [Republicans] put revenue on the table as long as it is accompanied by serious spending cuts to avert this crisis.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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