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Debt Ceiling debacle

Originally posted on Fully Myelinated:

Now correlation is not causation, but the best explanation for last summer’s serious dip in the economic recovery?  The Republican-induced debt ceiling “negotiation” (i.e., hostage-taking of the American economy).  Check out these graphs from a nice Bloomberg piece from economists Betsey Stevenson and Justin Wolfers:

Consumer Confidence

Non-Farm Payrolls

Of course, now they are threatening to do this again.  Here’s Stevenson and Wolfers:

In other words, congressional Republicans are taking the government’s creditworthiness hostage when they threaten not to increase the debt ceiling. Politically advantageous as this may be, it is terrible economics. To understand why, let us consider the economic effects of last year’s debt-ceiling debate. If we know our history, perhaps we will not be doomed to repeat it…

High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around…

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