Outlook: What a Bunch of Wimps!

The radicalism of a certain right-wing group in the United States demonstrates ad absurdum the opposite of what it pretends: We are talking about the importance of government in assuring the smooth functioning of the economy.

If the goal of the tea party members elected to the House of Representatives was to show Americans and their finances they could be better off if the government were less invasive in their lives, they have failed. Only a few days were necessary before America, the big economic powerhouse, began to feel the impact of the shutdown, as 800,000 federal employees, who were considered to be “nonessential,” were forcibly furloughed.

The problem did not only stem from the unfortunate public sector employees whose purchasing power has suddenly waned, nor from national parks having been closed and seeing their earnings plummet, but from hundreds of other unsuspected facets of the U.S. economy. Although the American right is usually abreast of the country’s industrial-military needs, it was undoubtedly surprised to learn that United Technologies Corp., which manufactures the engines of Black Hawk combat helicopters, would be forced to furlough 2,000 employees because of the lack of availability of government inspectors to approve their production. The industry heavyweight, Boeing, has also complained that development of the new and longer 787 Boeing airliner has been disrupted for the same reason.

According to experts, the U.S. economy will experience a downturn of 0.1 to 0.2 percent for every week the federal government is shut down: It seems that the shutdown could go on until mid-October at least, stunting economic growth by at least 0.5 percent in an economy that has not made great strides since the end of the Great Recession.

Nobody Is Laughing Anymore

The biggest concern of analysts is focused on another aspect of the budget process — raising the debt ceiling, which also risks exasperating political divisions in Washington. The Department of the Treasury has declared the stance taken by Republicans in Congress to be “catastrophic.” Republicans, who are against Obama’s health care reform and the federal government in general, have resorted to “guerrilla tactics” in the hopes of preventing Obama’s administration from borrowing beyond its means and forcing it to choose between making cuts in public spending or letting its creditors down.

The last time Congress was this close to the edge was in the summer of 2011, when the Consumer Confidence Index declined by 22 percent, Wall Street fell by 17 percent and the United States was stripped of its AAA rating, and interest rates on long-term debt securities rose by 70 basis points.

This week the International Monetary Fund warned that the threat, however, is not limited to the United States. If the mere suggestion of tightening the Federal Reserve system’s monetary policy were able to turn markets upside down, imagine what the idea of nonpayment would provoke — or even just an increase in default risk — on debt securities, which represent the main source of collateral and liquid assets on these same markets for the United States.

From the Economy to Politics

This situation is both absurd and worrying and has led economists to become political commentators this week. They asked themselves what the Founding Fathers thought of American democracy. They looked for a procedural to constitutional sleight of hand to get America out of the situation. They tried to understand how the political debate could have become so polarized and how elected officials could appear so unaware of the risks they were running concerning the economy.

Many people have compared the situation to a scenario explained in game theory — the study of conflict and cooperation between intelligent, rational decision-makers — in which two people drive their cars toward each other head on, at breakneck speeds. Known as the game of chicken, this scenario considers the driver that forces the other to yield the winner, but if nobody yields and the drivers collide, both drivers are considered complete losers.

Perhaps our economists have also remembered how badly they spoke, just recently, of European governments and their inability to rise above their differences to find solutions to their sovereign debt crisis. This week, they made fun of Silvio Berlusconi’s latest escapades, which threatened to bring down the Italian government, and how Berlusconi’s sole purpose was to delay the lifting of his parliamentary immunity. This time, however, elected Italian officials have been able to show themselves more reasonable than their American counterparts. (How embarrassing!)

Politics keep coming up in important economic issues, no matter what those who believe the economy would be stronger without the state think. All of the major economic stakes, such as the environment, stabilization of public finances, population growth, competitiveness and wealth distribution require collective strategies and actions that only governments can organize. The challenge would be even greater because many of these policies require, as in the European crisis, concerted action by all governments.

There is nothing left but to hope that the next democratic debates will take place in the most reasonable and intelligent way possible, if complications are to be avoided.