Gridlock Begets Uncertainty Begets Unemployment

Posted by & filed under An Independent Viewpoint, Culture of Corruption, Hyperpartisan, In the Press, WTF?


Thanks to like minded group No Labels for sharing this important story in their “Problem Solvers Daily” email, which you can sign up for at the link. 

There’s been lots of anecdotal evidence and playing the blame game by both Democrats and Republicans on our nation’s slow and continuing economic recovery after the 2008 financial crisis, and in truth, both sides are actually to blame. Not for their specific policies really, but more for their inability to work together. However, you won’t hear that from Democrats, who blame Congressional Republicans for obstructing Obama’s stimulus and Jobs Act. Likewise, Republicans blame Democrats for out of control government spending, as well as over regulation and taxation of business.

Now, there’s hard evidence for something independent voters deduced long ago – hyperpartisanship and gridlock are harmful to our nation’s governance, and our nation’s economy. As Homer Simpson would say — D’oh! In a new study, researchers Sylvain Leduc and Zheng Liu at the Federal Reserve branch in San Francisco have shown that the gridlock in Congress and our political system at large has hampered our economic recovery, and that without the uncertainty it produces, unemployment would likely be at 6-7% instead of it’s current levels near 8%:

Partisan gridlock in Washington is more than a political problem. Research now shows that a dysfunctional federal government has harmed the nation’s economy for at least four years and that making government work will put more Americans to work.

Researchers Sylvain Leduc and Zheng Liu of the Federal Reserve Bank of San Francisco quantify the negative economic impacts of gridlock in a Sept. 17 report titled “ Uncertainty, Unemployment and Inflation.” The most eye-catching of their conclusions is that, without the economic uncertainty caused by federal elected officials’ inability to pass a budget or agree on fiscal policy, the unemployment rate during the past four years would likely have been closer to 6 percent or 7 percent instead of above 8 percent.

“Heightened uncertainty lowers economic activity and inflation, and thus operates like a fall in aggregate demand,” Leduc and Liu write. “During the Great Recession and recovery, we estimate that higher uncertainty has boosted the unemployment rate by at least one percentage point.”

Uncertainty caused by government dysfunction inhibits hiring and investment. It also affects consumer confidence inordinately, according to Leduc and Liu, who created a model that confirms “high uncertainty has been a greater drag on economic activity in the Great Recession and recovery than in previous recessions.”

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2 Responses

  1. Amedar Consulting October 23, 2012 at 6:22 am

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