I sure am glad that’s over—that is—the debt ceiling standoff, even though Congress simply “kicked the can down the road.”  Maybe next time cooler heads will prevail.  Maybe some lessons have been learned, such as

  • The debt limit is out of bounds.
  • The debate next time should be on legitimate budgetary issues, not on the de-funding of The Affordable Care Act.
  • Real economic damage has been done by “scorched earth” tactics.

This week we review economic lessons from the current and past budget stand-offs.  The first article estimates that 0.6 percentage points have been shaved off of fourth quarter growth.  The second article places the cost at $24 billion lost in the shutdown.  The third article estimates economic output growth since 2010 has been reduced about 0.7 points a year.

None of the deeper problems with American government was solved.  Not only did the deal that ended the partial shutdown of the U.S. government fail to fix any big problems, it also positions the economy for another serious setback, according to The Economist.  “Just as America’s economy seems to be recovering, with the promise of

[gross domestic product] growing by 2.7% in 2014, it could face another shutdown of the kind that has just sent consumer confidence to a nine-month low and knocked back growth in the fourth quarter by an estimated 0.6 percentage point….the country’s long-term fiscal problem is immense:  it taxes like a small-government country but spends like a big-government one.  Eventually demography—and the huge tribe of retiring baby-boomers who expect pensions and health care—will bankrupt the country…great damage has been done [with the shutdown], but barely any ground gained.”  The Economist (tiered subscription model)

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$24 Billion Lost in Shutdown.  Partial closure of the government has dragged down U.S. economic growth and cost at least $24 billion, according to an analysis by Standard & Poor’s.  “The bottom line is the government shutdown has hurt the U.S. economy,” the credit rating agency said.

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The shutdown and default dance have economic consequences.  “Macroeconomic Advisors reckons that lower discretionary spending caused by fiscal policy uncertainty has reduced economic output growth at about 0.7 points a year since 2010—a painful amount when total growth is in the range of 2.5%,” according to the Financial Times.  Financial Times (tiered subscription model)

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And in case you missed it, click here to read last week’s blog post which discusses our dysfunctional government.

We hope you enjoy reading these articles along with us and that you find them informative.  Please forward this to your friends and family.

 

J. Mark Nickell & Co.

 

Disclosure – The articles mentioned in This Week with J. Mark Nickell & Co. are for information and educational purposes only. They represent a sample of the numerous articles that the firm reads each week to stay current on financial and economic topics. The articles are linked to websites separate from the J. Mark Nickell & Co. website. The opinions expressed in these articles are the opinions of the author and not J. Mark Nickell & Co. This is not an offer to buy or sell any security.  J. Mark Nickell & Co. is under no obligation to update any of the information in these articles. We cannot attest to the accuracy of the data in the articles.