A quick reflection on the current upheaval in DC politics: what are its larger costs?

October 9th, 2015 at 12:44 pm

The House speakership debate is like the implosion of a dysfunction neutrino. It’s like a Russian stacking doll with ever deeper levels of dysfunction. It’s House Republicans basically showing the world that they can’t even figure out exactly how they’re going to remain dysfunctional. They’ll figure it out, but it’s going to be messy. They’re dysfunctional in their dysfunction.

But what I’m interested in is the economic impact of all of this, and not just this round of meta-dysfunction, but the broader impact of a federal sector that’s working very poorly in an $18 trillion economy.

Spoiler alert, I don’t have the answer, but I don’t think anyone else does either. It’s actually a hard thing to figure out. There are various indices that purport to measure economic uncertainty but it’s a very abstract concept, one I’m not sure is even very useful.

That is, there’s always uncertainty in economies (not to mention life). We never know what the Fed’s going to do next. Our guesses on GDP or next month’s payrolls are basically statistical looks in the rear-view mirror. That means we’ll generally be in the ballpark as long as where we’re headed is much like where we’ve been. Catching turning points or even secular shifts still eludes us.

I’ll stipulate that there’s more of this sort of uncertainty now than in past periods (the index cited above shows the current level to be one std deviation above its mean, which is less than one might have guessed), particularly regarding discretionary actions the federal government must take. There’s the highway bill, the Ex-Im Bank, the debt ceiling, tax extenders and spending levels that expire later this year.

Then there’s the nervousness about problems in the real economy: dis-inflation (slower-than-normal price growth), slow productivity growth (a truly fundamental concern), interest rates stuck at low rates, wage trends unresponsive to low unemployment, the prospect that job growth may be slowing, the very low levels of labor force participation. And, of course, longer-term structural issues including job quality, inequality, immobility and the absence of full employment.

To what extent does dysfunctional federal government cause or exacerbate these real economy problems? It’s not, of course, just the list of stuff above that they must do but are consistently avoiding until the last minute. It’s actions they could be taking to address these challenges; there are sins of commission and omission.

Why are we in this mess? Surely, the interaction of wealth concentration, money in politics, and our unique, non-parliamentarian system, which allows a small group to block compromise, all play a role. The result is politics over policy. Politicians are increasingly motivated to do the bidding of their funders.

Paul K was noodling on similar matters this AM and he landed in part on the role of the media in failing to recognize that debates over Benghazi or the public debt are not really policy debates about national security or fiscal policy at all; they’re pure politics.

He’s right, but, in fact, much of the coverage really is political. Even before Kevin McCarthy confused his “outside words” with “inside words” (you must, MUST, watch this clip, btw), pretty much everyone following the Benghazi hearing realizes they are, at this point, politically motivated attacks on former Sec’y Clinton.

In my view, what’s missing is only partially sober analyses of what’s actually going on with public policy. Paul himself goes there regularly, as do many, many more of us. Ezra Klein’s outfit at Vox, e.g., is a mouseclick away with a full spate of balanced policy analysis in digestible form.

But what’s really missing is the question I’m admittedly not answering here: the cost of dysfunction. What harm is all of this dysfunction doing to the economy? How is it hurting the quantity and quality of jobs? What role is it playing in low productivity growth, dis-inflation, inequality, slack in the job market?

Those of us in the analytic community have yet to develop such metrics. We can tell you all day about the extent of regressivity and revenue losses from the Trump tax plan. We can show the billions cut due to the sequestration budget caps. We can connect our troubled public infrastructure with our lack of action on its behalf.

Yes, those are pieces of the puzzle, but I don’t think we’re helping people understand the costs of dysfunction in any sort of a holistic manner. In fact, I don’t think we really know those costs ourselves. What’s left then is the horse race–who’s up, who’s down, who said something outrageous and how has that affected their poll numbers.

So that’s the challenge that this latest episode in the House raises for me and, I hope, for many others: analyzing the costs of dysfunction and, if they’re as significant as I suspect they are, promulgating them and making sure people understand them.

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3 comments in reply to "A quick reflection on the current upheaval in DC politics: what are its larger costs?"

  1. Robert Salzberg says:

    The American Society of Civil Engineers has estimated the cost of one part of Congressional dysfunction, our rotting infrastructure. Other costs include failure to raise the minimum wage, failure to have some form of reasonable universal health care which would save us around 8% of GDP a year, failure to enact reasonable gun laws,etc..

    But by far the biggest cost is from failure to enact a carbon tax and confront global warning head on. The historic flooding in SC is just the latest example of the kind of havoc that climate change will increasingly create.

    The American Society of Civil Engineers estimated that if we continue our current spending path, our infrastructure will cost the average American family $28,000 between 2013 and 2020 or an average of $4,000 a year.

    http://www.infrastructurereportcard.org/a/#e/how-we-use-infrastructure

    “ASCE’s economic report on surface transportation, released in July 2011, found that our deteriorating infrastructure will cost the American economy more than 876,000 jobs and suppress the growth of our GDP by $897 billion by the year 2020.

    We are facing a funding gap of about $94 billion a year with our current spending levels.

    The good news is that with a modest investment, roughly equivalent to 60 percent of what Americans spend on fast food per year, we can protect jobs, save travel time, and keep about $1,060 a year in the bank account of American households each year.”

    http://www.asce.org/infrastructure/report-card/economic-study/

    “Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure shows that an investment in our nation’s generation, transmission, and distribution systems can improve reliability, reduce congestion, and build the foundation for economic growth. Based on current investment trends, the national electricity infrastructure gap is estimated to be $107B by 2020, or just over $11B per year. By 2020, shortfalls in grid investments are expected to account for almost 90% of the investment gap with nearly $95B in additional dollars needed to modernize the grid.

    Closing the electricity investment gap would lead to fewer brownouts and blackouts and save US businesses $126 billion, prevent the loss of 529,000 jobs and $656 billion in personal income losses for American families.”

    http://www.asce.org/Infrastructure/Failure-to-Act/Electricity/


  2. readerOfTeaLeaves says:

    Dr B,

    Saw an item that I wanted to draw to your attention and will put it below, but it links IMVHO to this post, and also to an analysis of today’s politics-economics by Dylan Ratigan: what we are seeing is ‘the Ultimatum Game’ playing out:
    https://www.facebook.com/DylanRatigan/posts/10153584249685758
    —————————-
    It’s starting to look like between gerrymandering, poll testing, issue pandering and the vile influence of a few people’s money dominating our entire political system that we’re starting to see the play out of something called the ultimatum game, which, I’m not sure you’re familiar with it, but I’d remind you very quickly in case you may have forgotten. The ultimatum game is a game in which one person decides what both people get. Think of it as five pieces or ten pieces of bread. And if I give you five pieces and I keep five pieces for myself, everybody is happy. I keep six, you get four, you’re not happy, but you’re not gonna blow up the whole game up. I keep seven, you keep three now you start to get very irritated with me. Now the counter-party, you, in this instance, has one option, which is either to accept what I give you no matter what or blow the whole thing up so neither of us get anything. It is irrational because one or two or three pieces of bread is better than no pieces of bread. But the whole point of the ultimatum game is that if you abuse people and their intelligence too much they would sooner burn the place to the ground than take a bad deal. Even if it’s against their own self interest. And that’s what we’re seeing play out here because the political system has become so abusive to so many people you’re starting to see actual decisions that are counter on the maximum level to your own interests being played out simply to try to bring the entire thing to its knees.
    —————————————-

    IMO, ‘the Ultimatum Game’ is playing out (in part) as political dysfunction, as well as economic stagnation. And I feel it myself. I’m reasonably situated, but I am fed up with the lack of prosecution on Wall Street, and with tax havens, and with the outsized role of finance. What are my taxes producing? $500,000,000 to ‘train’ all of 5 fighters in Syria, when my local schools and universities have had years of budget cuts?!

    I assume that the GOP House members have grievances that are different from mine. However, IMVHO, their behavior is one more illustration of ‘the Ultimatum Game’ playing out – but they’re playing it out in Congress. They are cutting off their noses to spite their faces (and ours). That dynamic never ends well.

    FWIW, I spotted this at Stockman’s site, and thought it did a nice job of showing HOW concentrated wealth has become over the past 35 years, post Reaganomics, trickle-down. Things like this are another thing driving ‘The Ultimatum Game’:
    http://wolfstreet.com/2015/10/09/household-incomes-across-time-divergence-at-top/


  3. Smith says:

    But you’re blind to the truth. With few exceptions (Sanders, Warren, and Durbin on my list), there is no opposition to the Republicans. No calling them out. The Democrats for the most part let the Republicans do their thing. The reason is because by and large it serves the Democrats interests to do so. Not the voters mind you, but the leaders and office holders and seekers. The proof of this is that they wouldn’t hold office or power presently if this system of acquiescence didn’t work. This is self-evident in the extreme. The same goes even doubly more so for the press who must attract advertisers and viewers and are much more susceptible to the pressures of self-interest. It doesn’t matter if they are leaders or followers, all that matters is survival. One doesn’t have to endorse social Darwinism as a benefit to society to admit that it exists.
    The Democrats and press don’t make Republicans pay a price for their obstructionism because it’s not in their self interest to do so. Start with that and figure how to change it. Don’t blame the conservative opposition for their, big surprise here, conservative opposition. Who’s opposing them?


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