A Very Expensive Tea Party

The recent government shutdown and confrontation over the federal debt ceiling gained the Republicans nothing, at best – and may have cost them politically as a party. But it slowed the economy and undermined confidence in public finances in a way that will have a significant negative impact on future budgets of the United States. None of this should make for an appealing strategy, but Tea Party Republicans are giving every indication that they want to do the same thing again early next year. …

If people really believe that the government could default on its debts or otherwise not make payments to which it is committed, that introduces a huge element of uncertainty into many economic calculations. When you are less certain about what is going to happen tomorrow, you tend to postpone big irreversible decisions – like buying a new car or building a factory. CONT.

Simon Johnson (MIT), New York Times