Congress permitted a partial shutdown of the federal government on Tuesday and Wall Street shrugged. The stock market finished the day a tad higher. The furlough of 800,000 federal workers did not bring the economy to its knees.
Past experience, though, suggests that the White House and Congress are playing with fire. Political brinkmanship in Washington creates economic uncertainty.
The last time the government shut down, for 21 days beginning on Dec. 15, 1995, the United States lost about 1 percentage point from its annualized gross domestic product. Employers lost confidence, and as a result fewer jobs were created.
Moody's Analytics chief economist Mark Zandi, a centrist, told the Senate Budget Committee last week that even a brief shutdown would reduce U.S. economic growth in the fourth quarter by 0.2 percentage points, to 2.5 percent. A three- to four-week shutdown would reduce growth by 1.4 percentage points. That would effectively cut the economy's expected growth rate in half for the balance of the year.
The risk grows if the acrimonious budget standoff staggers along until the government bumps into the federal debt ceiling. The Treasury has said it will start to run out of money on Oct. 17. The government eventually won't be able to make debt payments, send out Social Security checks or meet other financial obligations.
Oct. 17 is a soft deadline, and some take comfort that, while Democrats and Republicans threaten war, they're unlikely to be so irresponsible as to actually let the U.S. default on its debt.
We know, though, what happened when the government came close to default in 2011.
Consumer and business confidence plunged to the worst levels since the financial crisis in 2009. The stock market plunged by more than 10 percent as negotiations between Congress and the White House went nowhere for weeks. America's credit rating suffered its first downgrade.
In a research study published earlier this year, the University of Chicago's Steven J. Davis and two other leading economists found that sustained uncertainty over government policy puts a significant drag on the economy. An increase in uncertainty akin to what America experienced between 2006 and 2011 stands to reduce industrial production by about 2.5 percent and employment by 2.3 million jobs, they found.
We're debt hawks. The unconscionable failure of Democrats and Republicans to deal with the growth of entitlement spending that has fueled the nearly $17 trillion in federal debt creates its own economic peril. The most frustrating thing is that a resolution of this impasse almost certainly won't deal with that entitlement crisis.
The standoff, largely built around partisan efforts to protect or to dismantle the Affordable Care Act, makes it less likely that this Congress and this president will have any prospect of an agreement on the nation's staggering debt.
While President Barack Obama is intent on protecting one legacy - Obamacare - he's cementing another. He will be remembered for eight years of staggering expansion in federal debt.
America is creating too few jobs to sustain robust economic growth. Wages are stagnant. Consumer confidence is flagging. Yet Washington's manufactured political crisis threatens to make things worse.
We can find no heroes in this government shutdown. We can find victims, though: the American citizens whose jobs and standard of living have been put in jeopardy.