Though the debt ceiling crisis was averted by a deal in Congress to raise the ceiling and cut some spending, Ford School economics professor Betsey Stevenson argues that there will be long-term costs for the U.S. economy.
In a guest column in The New York Times, Stevenson notes that the total costs of the previous debt ceiling crisis in 2011 were significant. "The cost to service our debts made more expensive by the crisis lasted for years, and one estimate suggests that it may have come in close to $20 billion. When you head out for vacation, realize that Congress likely blew more taxpayer dollars on political fighting than they have appropriated to the National Park Service over the past five years," she writes.
Stevenson asserts, "The higher borrowing costs that were endured and the kinds of indiscriminate cuts in government spending that occur through the spending caps required to reach a deal also will be likely to slow economic growth." And though the economy is stronger now, some groups, particularly rural, white Americans, will suffer from that slower economic growth.
But the real damage caused by the 2011 standoff "was the fact that it helped establish debt standoffs as the new normal. In 2011 Republicans realized just how much political leverage threatening a default could get them. Democrats failed to learn this lesson and solve the problem as Treasury Secretary Janet Yellen advised two years ago. The real losers from the 2023 debt deal are American taxpayers, who can expect a similar debt standoff, with all of its costs, in two years if we still have a divided government then."
"Removing the threat of default and replacing it with a plan that balances across the board spending cuts and revenue increases puts both parties on more equal footing, regardless of who is sitting in the White House. It’s long past time for policymakers to abandon debt ceiling shenanigans permanently and concentrate on responsible fiscal policymaking. Lawmakers across the aisle claim to want a stronger, more stable economy — but manufactured debt crises achieve the exact opposite," she concludes.
