Debt Ceiling debacle

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:

Consumer Confidence

Non-Farm Payrolls

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.

About Steve Greene
Professor of Political Science at NC State

2 Responses to Debt Ceiling debacle

  1. Mike says:

    Considering the number of Republicans and Right Wing Nuts who have said Obama is deliberately trying to destroy the US they come off more then a little hypocritical when it was good old Bush Jr. who lied to the US people and took them into a war which has cost trillions of dollars. When it was Bush Jr. who blocked states from taking action on corrupt financial institutions and their poisonous mortgages which led to the worst depression since the Great depression.
    It was the Bush Jr.’s administration that blocked attempts by a federal government agency to regulate the financial industries destructive derivatives, leading to a required massive bailouts of the same financial industries, including an AIG.

    Now the Republicans are blocking what little financial and banking regulations Democrats managed to pass when they controlled the house.

    Republicans will block negotiations because they know they will be able to blame Obama and a lot of people are stupid enough to believe them. They will dress it up in many different ways, by “Forcing good governance”, or just take out a birth certificate to wave at all the morons.

    They will block negotiations because they know a sure way to the white house is for the economy to tank. The Republicans are more then willing to dump any number of bodies onto their political bonfires to get the white house. Their masters, the exceptionally rich won’t be hurt by a short blip in the economy (in fact will be an opportunity to buy investments at low cost) and Republicans are now so completely corrupted by group think they once again believe themselves to be infallible. Just a few short years after many of their ideas were proven wrong.

    If it all turns to hell and another major depression occurs as they continue to sacrifice the American people on their alter of politics, they will simply blame it all on Obama and his treasonous activities. Look at how many people have already fallen to their propaganda machine and blame Obama for Bush and Cheney’s work.

    Same thing, different day.

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