August 27, 2013
That was the missing sentence in a Washington Post article on the battle over the debt ceiling. The article referred to the 2011 battle that brought the country within days of hitting the legal limit on borrowing. It told readers:
“Many economists say that episode led to uncertainty that harmed the economy.”
It’s hard to find evidence for this assertion in the data. The economy grew at a 2.3 percent annual rate in the second and third quarters of 2011, the period most immediately affected by the crisis. This is slightly higher than its 1.9 percent rate over the last three years. Non-residential investment, the category of spending that might be most responsive to such fears, rose at a 13.3 percent annual rate over these two quarters.
There also was no evidence of a lasting effect on the credibility of the government as a debtor. The interest rate on Treasury bonds plummeted following the crisis (they should have risen if people were fearful), although this was primarily due to the euro-zone crisis. When investors became fearful about the future of the euro they turned to Treasury bonds as a safe alternative.
Comments