In marking down Washington’s credit-worthiness, Dagong Global Credit Rating specified that the move was not a response to the 16-day partial government shutdown but to the federal government’s mounting debt and rampant spending. Dagong said the theatrical battle over the partial shutdown merely “highlights the deterioration of the government’s solvency,” revealing a cycle wherein “the debt crisis evolves into a political crisis, which in turn exacerbates the debt crisis.”
It is far from clear how much, or even if, the shutdown made America’s debt situation worse, but Keynesian macro-economists have been busily making far-fetched claims about how the U.S. economy was hurt by a stalemate that temporarily stopped a mere 17 percent of public spending.
For example, Macroeconomic Advisors has published a report claiming that the contraction in deficit spending has cost the economy $12 billion. Standard & Poor’s, meanwhile, estimates that the shutdown cost $24 billion.
How to reconcile such disparate estimates? The Atlantic senior editor Derek Thompson finds a highly scientific way:
“Macroeconomic Advisers put the figure at $12 billion,” Thompson writes. “S&P estimate the cost was twice as high, at $24 billion. Split the difference, and you’re talking about $18 billion in lost work.”
The head of The Atlantic’s “Business Channel” goes on to guesstimate that the entire cost of the debt debate since 2010 is three percent of the entire U.S. economy.
“Counter-factual accounting is guess-work by definition,” business expert Thompson allows.
Budgeting, on the other hand, is by necessity precise. Dagong’s downgrade announcement, which eschews macro-economic pseudoscience for more practical measurements, notes that since President Obama took office, the ratio of the federal government’s stock of debts to fiscal income has grown from 4.0 to 6.6, and that while debt stock increased by 60.7 percent during the same period, nominal GDP increased by only 8.5 percent. Meanwhile, fiscal income — despite the Obama tax hikes and a widely discussed economic “recovery” that should have raised tax revenues — decreased by 2.9 percent.