A new economic analysis has concluded that the U.S. has significantly damaged its economy over the last several years by lurching from one financial crisis to the next.
The report said repeated down-to-the-wire government spending and tax decisions have resulted in more than 2 million lost jobs and have pushed the U.S. unemployment rate six-tenths of a percentage point higher than it otherwise would be. Although it gradually has been falling, the U.S. jobless rate is still at an elevated 7.3 percent as the American economy struggles to regain strength from the depths of its worst economic downturn since the 1930s.
The author of the report, economist Joel Prakken, said Washington’s long-running conflict over the role of government in American life has led to continual legislative disputes over spending and taxation policies.
“There’s a dispute in Washington about the longer-run vision of the role of government in American society. And since no agreement can be reached on that long-run view, we’re left with a laser-like focus on near-term fiscal policy because of the need on a regular basis to re-appropriate funds for the discretionary part of the federal budget,” he said.
U.S. President Barack Obama, a Democrat, and his Republican opponents in Congress are facing twin financial crises at the moment. They are trying to reach an agreement on ending a 15-day partial government shutdown and increasing the country’s $16.7-trillion borrowing limit by Thursday so the U.S. avoids defaulting on its financial obligations.
Prakken said the government shutdown already has cost the U.S. economy three-tenths of a percentage point of growth in the last three months of the year, and that failure to increase the debt ceiling would be calamitous. He said a short-term default would push the jobless rate to 8.5 percent and cost 2.5 million jobs, while a longer default would be even worse.
He said no one knows with certainty what might happen if the U.S. endures a large-scale default, but that the world economy and financial markets could be left in turmoil.
“It’s a scary scenario, one we don’t want to learn about first-hand. It’s true that the results and these kind of estimates are speculative, but we don’t want to find out,” said Prakken.
The current Washington dispute over government spending priorities and increasing the U.S. borrowing limit follows a contentious debt ceiling dispute in August 2011 that slowed economic growth at the time and led one financial services firm to downgrade the U.S. credit rating.
At the end of last year, Obama and Congress engaged in a lengthy debate over tax rates that was settled at the last minute with taxes being increased on the wealthiest Americans.