Why “The Sky Hasn’t Fallen Yet” is a Bad Standard for Judging Policy Choices
by Nick Schwellenbach, 10/10/2013
There are many who are downplaying concerns about the October 17 deadline for approving a routine measure that allows the U.S. to manage its finances and pay the bills it already owes. Without approving an increase in the debt ceiling, it will be difficult for the U.S. federal government to pay its bills on time – likely leading to default. Because of the central role these regular payments play in the U.S. and global financial system, many experts say a default on U.S. debt, even it is for a short period of time and only on some bills, could create negative economic effects. Some believe it could be quite bad and could throw the U.S. economy and others back into a recession. The Treasury Department last week stated, “default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse.”
Yet some, especially conservatives, are taking another tack and are stating it would not be a big deal, dismissing the opinions of financial experts and economists.
Mike Konczal, a fellow with the Roosevelt Institute, interviewed conservatives at some of the main right-leaning think tanks in D.C. Michael Strain of the business-oriented American Enterprise Institute said he thought a default would be bad. But he also had this insightful comment:
When I do interviews with right-wing media there does seem to be a story that goes like this: they said the sequester would be horrible and the sky didn’t fall, they said that the government shutdown would be horrible, and the sky didn’t fall, and now they are saying going through the debt ceiling date would be horrible and why would we believe them this time?
Even if a default is not apocalyptic, that does not mean it would be a good thing. As with sequestration and the government shutdown, the federal government worked to soften the worst blows. Thus the worst case scenarios did not happen. However, just because the worst case scenarios did not arise does not mean Americans are getting good public policy; indeed, quite the opposite. Both the shutdown and sequestration have caused hardships, which will become more pronounced the longer they last. A default would have negative economic impacts; of course, if the ceiling is raised a few days after October 17 it will not be as bad as if a few weeks pass. Yet it would still be bad for the economy, which isn't exactly doing great these days. Unfortunately, people's expectations often lower as people adjust to the new normal. But we deserve far better.