Economists Warn of GOP Threat to U.S. Economy
While all eyes have been focused on the worldwide stock market plunge, a recent survey of economists by the Wall Street Journal identified a different threat to the vitality of the U.S. economy. But it's not the instability of Chinese stock prices, the devaluation of its currency, the Eurozone's Greek tragedy or even a premature Fed interest rate hike that has WSJ's economists so concerned. Instead, the fear is that the GOP-controlled Congress will once again precipitate a fiscal crisis this fall.
Despite pledges from Senate Majority Leader Mitch McConnell that his party will not shut down the government or once again hold the debt ceiling hostage, the Journal's round table ("WSJ Survey: Economists Cite Budget Battle as a Top Threat") isn't convinced:
After watching Congress repeatedly crash into fiscal deadlines in recent years, a majority of economists are expecting a repeat performance, with 55% of respondents to the latest Wall Street Journal survey of 62 economists--not all of whom answered every question--predicting at least some disruption to the economy and financial markets in the months ahead.
And that potential disruption could have a real impact on their forecast for 2.2 percent GDP growth and a 5.1 percent unemployment rate by the end of 2015. As the chart above shows, three-quarters of the respondents said the debt ceiling crisis of 2011, the fiscal cliff showdown to start 2013 and the GOP shutdown that fall produced mild or significant damage to the American economy. But with Uncle Sam needing a new budget and new borrowing authority for the start of the fiscal year that begins on October 1, Republicans as diverse as Sens. Ted Cruz (R-TX) and John McCain (R-AZ) are threatening to shut down the government if Planned Parenthood is not defunded. The effect of that posturing?
Jim O'Sullivan, chief U.S. economist of High Frequency Economics, a forecasting firm in Valhalla, N.Y., said the past episodes have damaged the economy by harming consumer confidence.
O'Sullivan is exactly right. The GOP's unprecedented debt-ceiling brinksmanship that began four years ago didn't just cost the Treasury billions of dollars in higher borrowing costs. American consumer confidence nose-dived during standoff in the summer of 2011:
Why has the job market cooled so much? An important factor, many economists say, is that signals from government lately have been hurting rather than helping confidence. The protracted talks over the nation's debt ceiling this summer appeared to dampen the spirits of consumers and businesses alike.
On that point, S&P left little doubt in pointing the finger at the kamikaze conservatives in Congress:
A Standard & Poor's director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default -- a position put forth by some Republicans. Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that "people in the political arena were even talking about a potential default," Mukherji said. "That a country even has such voices, albeit a minority, is something notable," he added. "This kind of rhetoric is not common amongst AAA sovereigns."
And S&P didn't just blame Republican default deniers for the Tea Party downgrade of 2011. In June 2013, the rating agency worried about continued GOP skullduggery even as it raised the outlook for U.S. debt:
Although we expect some political posturing to coincide with raising the government's debt ceiling, which now appears likely to occur near the Sept. 30 fiscal year-end, we assume with our outlook revision that the debate will not result in a sudden unplanned contraction in current spending--which could be disruptive--let alone debt service...
We believe that our current 'AA+' rating already factors in a lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling. We expect these debates, however, to conclude without provoking a sharp discontinuous cut in current expenditure or in debt service.
Why those "divisive debates" are continuing into the fall of 2015 is an irony-filled topic. After all, as the reliability Republican Wall Street Journal acknowledged two week ago, "Spending Battle Looms Even as Deficit Shrinks." That's exactly right. Uncle Sam's annual budget deficit has been slashed by two-thirds since President Obama entered the Oval Office. Adjusting for inflation, federal spending has been lower every year than when Barack Obama first took the oath of office on January 20, 2009. That's why even House Speaker John Boehner (R-OH) and Rep. Paul Ryan (R-WI) admitted over two years ago that the United States faced "no immediate debt crisis."
But there is a final irony. Since 2011, the GOP has been the first modern party with both the intent and the votes to trigger a U.S. default. Republicans like Ted Cruz and Marco Rubio have willing to kill the American economy they held hostage unless the ransoms they demanded (i.e. massive spending cuts, Obamacare repeal, no funding for Planned Parenthood, etc.). And they did this despite the dire warnings of GOP leaders. As I noted in January:
You don't have to take my word for it. Just ask Republican leaders like Rep. Paul Ryan (R-WI), Sen. Lindsey Graham (R-SC) and House Speaker John Boehner. In 2011, Ryan acknowledged that "you can't not raise the debt ceiling." Graham warned "the consequences for the entire global economy" resulting from a first-ever American default "would be catastrophic." Four years ago, Speaker-elect John Boehner issued this dire assessment if Congress did not increase Uncle Sam's borrowing authority to pay bills the federal government had already incurred: "That would be a financial disaster, not only for our country but for the worldwide economy."
Now, the GOP has a double-deadline on the budget and the debt limit. It's no wonder economists are worried.