More on why US political gridlock threatens the economy

UMKC Economics head Stephanie Kelton was on Chris Hayes’ show to talk about US fiscal politics along with three other guests. They discuss the political gridlock in the US and what it means for the economy.

My take on the US fiscal situation in a nutshell is this:

  1. Despite evidence to the contrary, many continue to see the US government as constrained in the way households are and see deficits as irresponsible.
  2. Others want to cut the size of government despite the high level of unemployment and underemployment. This is an ideological view, not necessarily an economic one.
  3. Given the foregoing, I believe austerity in the US was inevitable from a political perspective given the size of the deficits and have argued since 2009 that we would get fiscal consolidation by 2012 or 2013.
  4. The Republicans’ base is very much against tax and spending increases. Republicans in the house all have had to fear getting ‘primaried’ in 2014, having let taxes go up in the fiscal cliff negotiation, having failed to rein in spending during the debt ceiling debate, and then cutting a deal on the sequester that did not cut spending. This remains the major problem in getting a sequester deal done and avoiding a shutdown.
  5. The question now is whether the US economy has enough oomph to avoid recession under all political scenarios. And if not, what happens to the housing market, household balance sheets and the banking sector. 
The UP with Chris Hayes video is below.

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