What A Drag
Paul Krugman, NYT
As many people have been pointing out, the economic costs of GOP attempts to rule by extortion didn’t begin with the shutdown/debt crisis, and haven’t ended with the (temporary?) resolution of that crisis. The now widely-cited Macroeconomic Advisers report estimated the cost of crisis-driven fiscal policy at 1 percentage point off the growth rate for three years, or roughly 3 percent now. More than half of this estimated cost comes from the “fiscal drag” of falling discretionary spending, with the rest coming from a (shaky) estimate of the impacts of fiscal uncertainty on borrowing costs.
I’ve been looking a bit harder at that report, and while I am in broad agreement with its conclusion, I think it’s missing quite a lot. On balance, I’d argue that the negative effect of the crazies has been even worse than MA says.
OK, first thing: I’m not too happy with the report’s reliance on the Bloom et al uncertainty index to measure costs. As Mike Konczal pointed out a while back, that index is a strange creature, driven to an important extent by the number of times politicians talk about uncertainty. It’s really not something you want to lean on, and if you take it out, MA’s estimates of the Republican drag fall.
But we shouldn’t stop there, because there are two important aspects of the story that MA leaves out.
(More here.)
As many people have been pointing out, the economic costs of GOP attempts to rule by extortion didn’t begin with the shutdown/debt crisis, and haven’t ended with the (temporary?) resolution of that crisis. The now widely-cited Macroeconomic Advisers report estimated the cost of crisis-driven fiscal policy at 1 percentage point off the growth rate for three years, or roughly 3 percent now. More than half of this estimated cost comes from the “fiscal drag” of falling discretionary spending, with the rest coming from a (shaky) estimate of the impacts of fiscal uncertainty on borrowing costs.
I’ve been looking a bit harder at that report, and while I am in broad agreement with its conclusion, I think it’s missing quite a lot. On balance, I’d argue that the negative effect of the crazies has been even worse than MA says.
OK, first thing: I’m not too happy with the report’s reliance on the Bloom et al uncertainty index to measure costs. As Mike Konczal pointed out a while back, that index is a strange creature, driven to an important extent by the number of times politicians talk about uncertainty. It’s really not something you want to lean on, and if you take it out, MA’s estimates of the Republican drag fall.
But we shouldn’t stop there, because there are two important aspects of the story that MA leaves out.
(More here.)
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