Boston University’s Kotlikoff: We’re Suffering from ‘Hysterical Economy’

The widespread panic over the fiscal cliff has given us a “hysterical economy,” says Boston University economist Laurence Kotlikoff.

“You’re an employer. Every day you hear ‘the economy’s going over a fiscal cliff. Tax hikes and spending cuts will kill the economy,’” he writes on Forbes.com.

That fear makes companies start firing their workers. Other firms see less demand as a result, and they start doing the same thing, Kotlikoff says.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

This collective freak-out then creates the hysterical economy.

The government would do well to address our budget problems, Kotlikoff says.

A key issue is the $222 trillion fiscal gap between projected future government spending and tax revenue.

“[I]f we want to panic, there is something real to panic about,” he writes. “It’s the fiscal abyss, not the fiscal cliff.”

It would be better if Washington stopped scaring the public about the cliff and instead provided real leadership on the budget issue, Kotlikoff says.

Average Americans too are critical of the government’s approach to the cliff.

"Somebody's gotta have some smarts," 63-year-old New Hampshire business owner John Pfeifle told The Associated Press. He’s displeased that both President Barack Obama and House Republicans appear to be willing to jump off the cliff.

"I have no faith at all they'll do the right thing," he said of Congress.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.