Blog Post - Views on the Economy and the World

The End of Republican Obstruction

| Jan. 19, 2015
CAMBRIDGE – What a difference two months make. When the Republican Party scored strong gains in last November’s US congressional elections, the universally accepted explanation was that voters were expressing their frustration with disappointing economic performance. Indeed, when Americans went to the polls, a substantialshare thought that economic conditions were deteriorating; many held President Barack Obama responsible and voted against his Democratic Party.

Now, suddenly, everyone has discovered that the US economy is doing well – so well that Senate Majority Leader Mitch McConnell has switched from blaming Obama for a bad economy to demanding credit for a good one. Recent favorable economic data were, he claimed, the result of “the expectation of a Republican Congress.”

But the improvement in US economic performance began well before the November election. Indeed, it began well before September, when polls started to indicate that the Republicans were likely to do exceptionally well, taking control of the Senate and enlarging their majority in the House of Representatives.

The fact is, job growth was vigorous throughout 2014, averaging 246,000 per month – three million for the year – bringing the unemployment rate down to 5.6% in December 2014 (from 6.7% a year earlier). This represented an acceleration relative to the monthly average of 185,000 in 2011-2013, and it looks even better compared to the previous economic expansion of 2002-2007, when monthly job creation stood at 102,000. Indeed, the recent numbers recall the halcyon days of Bill Clinton’s presidency.

Similarly, GDP growth began to pick up in the spring of 2014, running above the rate of the preceding three years. Partly as a result of income growth, the US budget deficit last year was lower than forecast, at about 2.8% of GDP. This represents a record improvement relative to 2009, when the budget deficit amounted to nearly 10% of GDP.

The mystery, until recently, was why economic performance had been so weak. There were four types of explanations.

The first account relied on the view, most closely associated with the economists Carmen Reinhart and Kenneth Rogoff, that recovery from a recession takes longer if the cause was a crash in housing and financial markets. But this historical pattern is more a statement about the magnitude of the initial decline and the time needed to recover fully than a prediction about the annual rate of growth during the recovery phase.

The second explanation was that the slow recovery was part of a longer-term trend, attributable to secular stagnation or a dearth of important technological innovations. It is true that productivity growth and labor-force growth have slowed since 1975. Still, the economy should have been able to achieve a stronger recovery than the 2.1% growth rate recorded in 2011-2013.

The third interpretation for slow growth during these three years is that the depressed investment and long-term unemployment caused by the deep recession of 2008-2009 had taken a toll on the capital stock and the size and skills of the labor force.

But the fourth explanation seems the simplest: America’s dysfunctional fiscal politics in 2011-2013 – years that featured the “fiscal cliff,” debt-ceiling standoffs, flirtation with federal default, a government shutdown, and budget sequesters. One does not need to assume big Keynesian “multiplier effects” to conclude that the combined impact of these conflicts shaved at least one percentage point from growth each year, especially if one believes that the risk created by such behavior discourages firms from hiring or investing. (According to one measure, the 2011 debt-ceiling crisis and the 2013 government shutdown caused uncertainty comparable to that sparked by the September 2001 terrorist attacks and the 2008 collapse of Lehman Brothers.)

This explanation also accords with stronger US economic performance in 2014, which was the first year since the Republicans gained a House majority in November 2010 that dysfunctional fiscal policy did not actively impede economic recovery. Having borne the brunt of the blame for the government shutdown of October 2013, Republican leaders decided to stifle their more radical “Tea Party” members and refrain from similar dead-end showdowns in 2014.

One could have predictedthat a year in which Congress stopped actively impeding economic recovery would be a year in which the pace of expansion in output and employment picked up. If the new Congress in 2015 refrains from standoffs, sequesters, and shutdowns, there is no reason why the economy cannot continue to do well.

Of course, shortcomings remain. Wage growth continues to be slow. Median household income has barely begun to recover, and is still well below its 2000 level. This is because most of the gains from economic recovery have gone to people at the top of the income distribution.

Indeed, of the various possible reasons why the electorate in 2014 did not perceive the economic recovery that was underway, the most plausible is that the typical American had not benefited from it. The irony is that rising inequality is usually thought to play to the Democrats’ electoral advantage.

For more information on this publication: Please contact the Belfer Communications Office
For Academic Citation: Frankel, Jeffrey.The End of Republican Obstruction.” Views on the Economy and the World, January 19, 2015,