The Greatest Risk to the U.S. Economy Is Still the People in Charge of It

Reuters

The 16-day shutdown of the federal government cost the U.S. economy billions of dollars in lost economic activity, from an idle district, to lost personal income and higher interest payments. But exactly how many billions did it cost?

Counter-factual accounting is guess-work by definition, but a few research firms have tried to attach a number to the shutdown. Macroeconomic Advisers put the figure at $12 billion. S&P estimate the cost was twice as high, at $24 billion. Split the difference, and you're talking about $18 billion in lost work.

What's a good way to think about that kind of money—a sliver of the entire $15 trillion U.S. economy, but still, you know, $18 billion? In July this year, NASA funding was approved at around $17 billion for the fiscal year. So, there: The shutdown took a NASA-sized bite out of the U.S. economy. 

But that's just a nibble compared to the total cost of the budget showdowns stretching back to 2010. According to Macroeconomic Advisers, the total cost of Congress's assault on the economy going back to 2010—including the budget cuts, including sequestration, and fights around the budget cuts—was about 3 percent of our entire economy. That's $700 billion. That's not just NASA. It's one year's entire defense budget. 

According to the report, discretional spending cuts removed 1.2 million jobs from the economy, while policy uncertainty, graphed below by the New York Timescost another 900,000. Two-plus million net new workers is 12 typical months of job creation. So, if the recession delivered a loss decade, Congress has delivered a lost year.

There are a couple reasons to push back on the sheer size of these numbers, as Brad Plumer notes. Most importantly, the report makes little mention of the Federal Reserve, which has maintained its aggressive bond-buying program for this long specifically because of the budget wars. The spending cuts and congressional showdowns weren't just body blows to GDP. They were motivation for Ben Bernanke for continuing to stimulate the economy through monetary channels, and he said so, testimony after testimony. If you believe those programs have helped the economy, in a weird way, you should credit congressional belligerence for extending them.

But let's not give Washington (in particular, one faction of one party in Washington) too much credit. The upshot is that this was a horrible financial crisis and difficult recovery made more horrible and difficult by the government. Once again, the biggest risk to the U.S. economy are the people in charge of it.

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.


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