With congressional Republicans promising to create yet another standoff on the debt ceiling, Betsey Stevenson and Justin Wolfers, professors at the highly regarded Wharton School of Business, write in Bloomberg about the economic consequences of the first crisis last summer.
They note, for example:
“Growth in nonfarm payrolls decelerated to an average 88,000 a month during the three months of the debt-ceiling impasse, compared with an average of 176,000 in the first five months of 2011. Payroll growth subsequently recovered and has averaged 187,000 jobs a month since. Despite the rebound in job growth, employment is likely still below where it would otherwise have been.”
And consumer confidence — critical in this recovery — took an even greater and more spectacular tumble, as these numbers from Gallup demonstrate:
“All told, the data tell us that a debt-ceiling standoff is an act of economic sabotage. 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.
The next debt-ceiling battle could be worse, because the stakes are even higher. In addition to the threat of default, the U.S. is facing the so-called fiscal cliff: a raft of spending cuts and tax increases that will happen at the end of this year unless Congress acts to postpone them. Another stalemate would almost certainly plunge the economy into a deep recession.”
It’s also important to note that the standoff created an historic downgrade of the USA’s credit worthiness. And for what? Congressional Republicans got a budget-cutting agreement out of the standoff, but it’s a deal that they began to repudiate almost immediately after it was announced and that they are now actively seeking to undermine.
Maybe it’s just me, but I don’t trust the wisdom or patriotism of people who willing to risk the destruction of the economy to make a political point.
– Jay Bookman