Debt Ceiling debacle
May 31, 2012 2 Comments
Now correlation is not causation, but the best explanation for last summer’s serious dip in the economic recovery? The Republican-induced debt ceiling “negotiation” (i.e., hostage-taking of the American economy). Check out these graphs from a nice Bloomberg piece from economists Betsey Stevenson and Justin Wolfers:
Of course, now they are threatening to do this again. Here’s Stevenson and Wolfers:
In other words, congressional Republicans are taking the government’s creditworthiness hostage when they threaten not to increase the debt ceiling. Politically advantageous as this may be, it is terrible economics. To understand why, let us consider the economic effects of last year’s debt-ceiling debate. If we know our history, perhaps we will not be doomed to repeat it…
High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later. (Disclosure: We have a consulting relationship with Gallup.)
Businesses were also hurt by uncertainty, which rose to record levels as measured by the number of newspaper articles mentioning the subject. This proved far more damaging than the regulatory uncertainty on which Republican criticisms ofBarack Obama’s administration have focused (more on that subject in a Bloomberg View editorial today). Employers held back on hiring, sapping momentum from a recovery that remains far too fragile.
All told, the data tell us that a debt-ceiling standoff is an act of economic sabotage. [emphasis mine] The only way to avoid this conclusion is to argue that consumers and employers were reacting to some other economic factors. But the debt ceiling was the dominant economic story at the time. No other news fits the data as well. Although the European debt crisis was a rising concern throughout 2011, the real trouble in Europe arose in the period when consumer confidence and employment were recovering.
First, let’s be clear– this is simply talking about paying bills we’ve already committed to. It’s like getting your credit card bill for $1000 and saying, no, you think you should only have to pay $900. Are the Republicans willing to seriously damage the US economy on purpose again while Obama is still president? You betcha. Rumblings from the WH suggest that Obama won’t let himself get totally rolled on this again. Here’s hoping because that economic damage/sabotage means real pain to the real lives of many, many Americans. But, hey, maybe they should just stop sucking all the lifeblood out of rich people and get a job.