As time continues to run out before Congress must raise the debt ceiling — Treasury Secretary Jack Lew has pegged February 27 as the date on which the “extraordinary measures” funding the government will be exhausted — a new report has confirmed the damage that previous standoffs have done to the U.S. economy.
According to the report from the Peterson Institute for International Economics — titled “Flirting With Default: Issues Raised By Debt Confrontations In The United States” — the debt ceiling standoffs of 2011 and 2013, the threat of falling over the fiscal cliff in 2012, the imposition of sequester cuts in March 2013, and the government shutdown in October 2013, had a tangible negative economic effect. Author David J. Stockton, a senior fellow at the Peterson Institute, writes that fiscal policy uncertainty caused by the governing crises “depressed the level of real GDP by about one percentage point and correspondingly raised the level of the unemployment rate by a bit more than 1/2 percentage point.”
That translates to a loss of $150 billion per year, and 750,000 jobs.
This is not the first attempt to quantify the damage of the various crises that have paralyzed Washington throughout the Obama administration; in October, Standard & Poor’s estimated that the government shutdown cost the economy $24 billion.
“There is no need for America’s legislators to behave as badly as their counterparts in far poorer and less solidly democratic countries do,” Peterson Institute president Adam S. Posen writes in the report, “and there certainly are significant costs of even threatening to do so.”
Whether Republicans will heed Posen’s advice is unclear. The GOP majority in the House of Representatives has been steadfast in its opposition to raising the debt ceiling without receiving some concession from Democrats, but Republicans can’t seem to agree on which hostage they should take. Over the past several weeks, proposals to tie a debt ceiling raise to changes to the Affordable Care Act, approval for the Keystone XL pipeline, or the reversal of cuts to military benefits have failed to gather enough support to pass without the nearly unthinkable prospect of Democratic help.
House Speaker John Boehner has hinted that he will eventually relent and partner with Democrats on a “clean” debt ceiling bill. But as the Peterson Institute study makes clear, even this strategy could have a detrimental impact on the economy if Boehner and his caucus once again wait until the last minute.
AFP Photo/Nicholas Kamm