Here's an eye-catching claim: A new report from Macroeconomic Advisers argues that Congress's budget battles, debt-ceiling stand-offs, and spending cuts have cost the U.S. economy nearly 3 percent of GDP since 2010.
That's roughly $700 billion in lost economic activity and more than two million lost jobs— all thanks to Congress. And that's before we even factor in the losses caused by the recent federal government shutdown....
1) Spending cuts have taken a bite out of economic growth. First, the report estimates that spending cuts enacted by Congress since 2010 have shaved 0.7 percentage points off annual U.S. economic growth over the past three years:
In the chart above, the dashed red line is an estimate of what U.S. growth would have been if discretionary spending had stayed constant as a share of GDP since 2010.
But spending didn't stay constant. Various stimulus programs began winding down. And then, in August of 2011, Congress enacted the Budget Control Act, which set hard caps on discretionary spending and set things in motion for the sequestration budget cuts of 2012. All told, discretionary spending shrunk from 9.4 percent of GDP in 2010 to 7.3 percent today.
The report argues that this sort of fiscal drag is harmful when the U.S. economy is still far below full employment. As a result, the spending slowdown cut annual GDP growth by 0.7 percentage points and cost "the equivalent of 1.2 million lost jobs."...
2) Increased "policy uncertainty" due to congressional showdowns has also hurt growth. But the report isn't done yet. They also estimate that all the turmoil and uncertainty due to Congress's fights over the debt ceiling and the "fiscal cliff" has put a smaller dent in growth. Here's their second chart:
...Their implication is that growth would be higher without all this brinkmanship. The increased policy uncertainty, the report argues, "lowered GDP growth by 0.3 percentage points per year, and raised the unemployment rate in 2013 by 0.6 percentage points, equivalent to 900,000 lost jobs."
When you add these two effects up — and account for compounding growth, as Paul Krugman does — then the report essentially implies that Congress's budget battles have cost the United States roughly 3 percent of GDP, or around $700 billion of wasted economic potential and more than 2 million lost jobs since 2011.
R There was a stand-down order.
