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200+ Top US Economists to Congress: Raise Debt Ceiling or Face 'Frightening' Crisis
Failure to raise the borrowing limit, the economists warned, could spark "a swift and severe economic downturn" and "unnecessary layoffs across the economy."
Mar 03, 2023
More than 200 top U.S. economists warned congressional leaders Thursday that a failure to raise the debt ceiling would likely spark a devastating economic crisis, rattling global financial markets and killing jobs nationwide.
"The economic consequences of a federal default are unpredictable, but frightening," the economists warned in a letter to House Speaker Kevin McCarthy (R-Calif.), House Minority Leader Hakeem Jeffries (D-N.Y.), Senate Majority Leader Chuck Schumer (D-N.Y.), and Senate Minority Leader Mitch McConnell (R-Ky.).
"A swift and severe economic downturn could follow, with unnecessary layoffs across the economy," the experts wrote. "Chaos in world financial markets is highly likely. Higher borrowing costs for the federal government, and indeed for all Americans, could remain with us for a long time—an unwanted legacy of a foolish decision. We should not run the experiment."
The list of letter signatories includes Joseph Stiglitz, a recipient of the Nobel Memorial Prize in Economic Sciences, as well as former Federal Reserve Vice Chair Roger Ferguson, former Labor Secretary Robert Reich, Groundwork Collaborative chief economist Rakeen Mabud, and former Fed Chair Ben Bernanke.
"We have a wide range of views on economic policies, some 'conservative' some 'liberal,'" the economists wrote, "but we all agree that Congress should raise the debt limit promptly and without conditions in order to eliminate the risk of default."
\u201c\ud83d\udea8 More than 200 top economists, including Nobel laureates, former Fed & cabinet officials (and Groundwork's @rakeen_mabud!) urge Congress to raise the debt limit "promptly and without conditions in order to eliminate the risk of default"\n\nhttps://t.co/aE6gjbGFzD\u201d— Groundwork Collaborative (@Groundwork Collaborative) 1677855690
The letter was sent as congressional debt ceiling talks remain at a standstill, with the House Republican majority refusing to drop its push for deep federal spending cuts in exchange for lifting the borrowing limit. In 2011, congressional Republicans leveraged the debt ceiling to push through an austerity measure that—according to one economist—helps explain "why the recovery from the Great Recession was so agonizingly slow."
The current impasse has forced the Treasury Department to take "extraordinary measures" to prevent the federal government from defaulting on its obligations, which include Social Security and Medicare benefits.
But the department's actions can only buy lawmakers so much time. Last month, the Congressional Budget Office said the U.S. will default this summer unless a deal is reached to raise the debt limit.
One analysis released during the last congressional debt ceiling standoff in 2021 estimated that a U.S. default would wipe out upwards of $15 trillion in household wealth and eliminate nearly 6 million jobs.
"It's clear that defaulting on the national debt would not only imperil the progress we've made over the past three years toward an equitable and long-lasting recovery, but would also risk a completely avoidable and historically severe economic crisis," Shayna Strom, president and CEO of the Washington Center for Equitable Growth, said in a statement Thursday.
"Economic research tells us that austerity measures can have negative long-term effects on workers, their families, and the economy," Strom added. "By raising the federal debt limit, Congress can avoid bringing unnecessary hardship on Americans and the economy and, in doing so, will take another needed step toward ensuring economic growth in the future is stronger, more stable, and more broadly shared."
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Progressive Economists Warn of 'Catastrophic Outcomes' for Workers as Fed Hikes Interest Rates
"Memo to the Fed: Interest rate hikes aren't working because inflation is being driven by corporations using it as cover to price gouge the people," argued former U.S. Labor Secretary Robert Reich.
Nov 02, 2022
As the U.S. Federal Reserve on Wednesday raised interest rates--the fourth consecutive 0.75% increase and the sixth hike of the year--progressives stressed that Fed policy boosts the likelihood of a global recession and disproportionately harms low-income workers and other marginalized people.
"Working people should not be the target of lowering inflation, it should be corporations that are earning record profits."
Fed Chair Jerome Powell explained that the move was necessary to ease inflation, which has hit a 40-year-high due to factors including corporate profiteering, Russia's invasion of Ukraine, and the climate emergency.
"We've always said it was going to be difficult," he said, "but to the extent rates have to go higher and stay higher for longer it becomes harder to see the path" to avoiding recession.
"I would say the path has narrowed over the course of the last year," Powell added.
Progressive economists and activists refuted the Fed's approach.
Accountable.US spokesperson Liz Zelnick noted in a statement that "a chorus of economic experts have warned hiking interest rates again is a recipe for millions of Americans receiving pink slips, yet the Fed has decided to triple down on what is not working."
\u201cRelying on the Fed to raise interest rates puts the burden of fighting inflation mostly on lower-wage workers, who are already hurting most from rising prices.\n\nStop raising interest rates.\n\nWhy not target an actual driver of inflation? Price-gouging corporations. Hello?\u201d— Robert Reich (@Robert Reich) 1667414746
"Throughout the pandemic, the Fed should have been acting as stewards of the fragile economic recovery but instead have prioritized demands from big banks, hedge funds, and other Wall Street special interests at the great expense of average working families," she contended.
"If excessive interest rate hikes hasten the arrival of an otherwise avoidable recession, will the Fed take responsibility," added Zelnick, "or try to pass the buck as they keep making matters worse?"
\u201cFed Chair Powell is on record saying these interest rate hikes aren't designed to lower prices but to lower wages.\n\nThe strategy is clear: increase unemployment + increase employers' power. If the Fed doesn't slow down they will force a recession. https://t.co/CMlBVICwFO\u201d— Demand Progress (@Demand Progress) 1667404736
AFL-CIO president Liz Shuler said the Fed's latest rate hike "will have a direct and harmful impact on working people and our families" and "will not address the underlying causes of inflation."
"The Fed seems determined to raise interest rates, though it openly admits those rates could ruin our current economy as unemployment remains low and people are able to find jobs," she continued. "A recession would instead cause companies to hire fewer people, making it harder for young workers, workers of color, and others who have greater barriers finding jobs, and put downward pressure on the wages of all working people who will bear the brunt of an overactive monetary policy."
"Working people should not be the target of lowering inflation," Schuler added, "it should be corporations that are earning record profits."
\u201cFor the 6th time this year, the Fed jacked up interest rates \u2014 and for the 6th time pushed us precariously closer to a recession that will depress wages, kill jobs & hurt millions of families.\n\nThe cure is certainly worse than the disease.\n\nhttps://t.co/gN0y3ZuCT3\u201d— Groundwork Collaborative (@Groundwork Collaborative) 1667414296
Anticipating Wednesday's rate hike, Groundwork Collaborative chief economist Rakeen Mabud argued Tuesday that the move is a "misguided policy with catastrophic outcomes for the millions around the country who are already struggling to make ends meet."
"The Fed's rate-hiking frenzy is doing everything but lowering prices," she said. "Wage growth is slowing and mortgage rates are the highest in 20 years. If Powell wants to be taken seriously as a responsible steward of the economy, he should think twice before raising rates again."
Progressive former U.S. Labor Secretary Robert Reich tweeted: "Memo to the Fed: Interest rate hikes aren't working because inflation is being driven by corporations using it as cover to price gouge the people."
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Economists Warn More Fed Rate Hikes Would 'Push Millions Out of Work'
In the wake of a higher-than-anticipated inflation reading, experts implored the Federal Reserve not to pursue more "aggressive interest rate hikes."
Jul 13, 2022
Hotter-than-expected inflation data published Wednesday intensified fears among progressive economists that the Federal Reserve--in its single-minded drive to tame price increases--will needlessly lock in another major interest rate hike at its policy meeting later this month, further suppressing economic demand and moving the country closer to a recession.
"This morning's report highlights the fact that aggressive interest rate hikes by the Fed have done little to combat the inflation that continues to take a toll on workers, families, and small businesses across the country," said Dr. Rakeen Mabud, chief economist at the Groundwork Collaborative. "Additional rate hikes would push millions out of work and... raise the risk of a recession that would only worsen economic pain."
"I'm deeply concerned that the Fed is ill-equipped to respond and rate hikes could cause a recession."
While the Labor Department's consumer price index (CPI) figure for June landed above analyst forecasts at 9.1% year over year--an indication of sustained inflationary pressures across the economy--experts stressed that the numbers don't reflect key developments that could signal a slowdown in price surges, which have eaten away at workers' wages and increased economic strain for households in the form of higher rent, grocery costs, and other expenses.
"A similar reading last month led to a large overreaction by many, including the Federal Reserve, who raised policy rates by 0.75 percentage points," noted Josh Bivens, research director at the Economic Policy Institute. "There is even less reason this time to overreact to a hot inflation reading."
"We all know that the main drivers of today's large number is commodity prices (mostly energy and food)," he added, "and we also know that many of these prices have fallen sharply in recent weeks."
The average price of gas in the U.S., for instance, has declined for 28 consecutive days, hitting $4.66 per gallon on Tuesday--significantly lower than the unprecedented $5.01 national average recorded in mid-June.
"It is hard to feel good about this report, but with wage growth slowing sharply in the last six months to around 4% (compared to 3.4% in 2019), it's hard to see how an inflation rate north of 9% can be sustained," Dean Baker, senior economist at the Center for Economic and Policy Research, wrote in a brief analysis of the newly released price data. "Lower gas prices should pull July inflation lower."
There's little indication that Fed officials will be moved by such arguments, however.
At its July 26-27 meeting, the central bank is widely expected to enact another rate hike of at least 75 basis points--and there's some concern that the Fed will go even further with a 100-basis-point increase.
The central bank appears hellbent on imposing additional rate hikes even though top officials, including Fed Chair Jerome Powell, have admitted that the blunt policy tool will do nothing to tackle sky-high energy and food prices.
Rate hikes also won't repair supply chain snags stemming from the coronavirus pandemic or tackle corporate profiteering, which progressive economists and lawmakers have argued is a major factor in persistent inflation.
But rate hikes are virtually certain to have deleterious impacts on investment, wages, and employment--and they could ultimately hurl the economy into recession, something the Fed has done before in the name of fighting inflation.
"If the Fed unnecessarily jacks up rates, it can throw millions out of work. It will also mean lower pay for tens of millions," Baker warned over the weekend. "It will take a hell of a lot of anti-poverty programs to offset the negative impact of a 2-3 percentage point rise in the unemployment rate."
As the Fed appears set to pursue its fourth rate increase of the year, there's already plenty of evidence indicating that the economy has slowed substantially in recent months, further heightening concerns of an imminent recession that could unravel the still-incomplete labor market recovery.
"An energy shock from Putin's war, supply chains still reeling from a pandemic, and corporate monopolies raising prices are all driving inflation," Sen. Elizabeth Warren (D-Mass.) said Wednesday. "I'm deeply concerned that the Fed is ill-equipped to respond and rate hikes could cause a recession."
"Congress needs to step up, too," Warren added. "Congress can fight inflation by making billionaire corporations pay a minimum in taxes, invest in affordable child care, and empower Medicare to negotiate lower prescription drug prices. We must use every tool to lower costs for working families."
Mabud of the Groundwork Collaborative echoed Warren, saying in a statement that "policymakers must tackle inflation at its source: by addressing the rampant corporate profiteering and snarled supply chains that are causing significant financial hardship across the country."
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