“America can never accept under pressure what it would not accept in free and open debate.” President Bill Clinton said that when Republicans in Congress shut down the government in order to cut education, environmental, and health care programs. Eighteen years later, President Barack Obama constantly faces similar crises. This month’s government shutdown and brinksmanship over the debt limit, which ended after Republicans backed down on Wednesady night, are only the most recent examples.
Governing under a constant state of crisis has taken a terrible toll on the American economy. It has to stop, which means that those who manufacture unnecessary crises cannot be rewarded. Ending the government shutdown and preventing a default on the national debt – without paying a ransom – is a big step towards ending government by crisis and providing the stability that the American economy needs to prosper.
A new report by Macroeconomic Advisers, “The Cost of Crisis-Driven Fiscal Policy,” lays out the economic losses from governing by crisis. According to the report, the uncertainty caused by constant crises has reduced economic growth by 0.3 per cent per year, as measured by gross domestic product. This slower economic growth means 900,000 fewer jobs, at a time when millions of unemployed Americans are looking for work. The report estimates that the two-week government shutdown reduced U.S. economic growth by another 0.3 per cent in the fourth quarter of this year. Macroeconomic Advisors expect that even a brief default on the national debt would throw the economy back into recession.
This was not the first time President Obama was threatened with either a shutdown or default. After gaining control of the House of Representatives in the 2010 midterm elections, Republicans threatened to shut down the government unless President Obama agreed to drastic spending cuts. He compromised by agreeing to some of those cuts, and the shutdown was averted.
Later in 2011, Republicans threatened to cause a default on the national debt. President Obama compromised again, agreeing to even more spending cuts, and the debt limit was raised to avoid default.
At the end of 2012, Republicans threatened to allow middle-class tax cuts to expire – even though they supported those tax cuts – unless President Obama also agreed to extend tax cuts for the wealthiest Americans. President Obama ended this crisis by agreeing to extend some tax cuts for the rich.
The United States may have resolved the most recent shutdown and default crises, but our economy and society continue to suffer the negative consequences from earlier crises. Macroeconomic Advisers estimates that the spending cuts demanded by Republicans to end those earlier crises have reduced annual economic growth by 0.7 per cent since 2010, and eliminated 1.2 million jobs.
The worst spending cuts are the automatic across-the-board cuts called “sequestration,” which force federal agencies to operate under constant crisis. Hundreds of thousands of federal workers have been furloughed, because sequestration makes it impossible to pay them. 57,000 children lost their seats in Head Start preschools. Groundbreaking scientific research has been scuttled for lack of funding.
The sequestration crisis is actually the product of an earlier crisis–the 2011 deal to raise the debt limit. Congress could not agree on a long-term budget framework to include in the debt limit package, and hoped that sequestration would force such an agreement in the future. Sequestration was designed to be so terrible that Congress would never let it happen. A future budget agreement was supposed to replace sequestration. But when no such agreement materialized, sequestration kicked in.
This is no way to run a country. During the most recent standoff, President Obama showed tremendous leadership to demand an end to governing by crisis. By holding firm, President Obama made it less likely that anyone will manufacture a future crisis. It is now clear that ransom demands will no longer be paid.
As Congress and President Obama try once again to negotiate a long-term budget agreement, both sides should reject governing by crisis once and for all. That means repealing the sequestration cuts that were never supposed to happen. It means keeping the government open. And it means never again threatening the full faith and credit of the United States.
Harry Stein is associate director for fiscal policy at the Washington-based Center for American Progress.