Is Congress hurting the U.S. economy?

WASHINGTON Tue Sep 6, 2011 11:23am IST

A flag hangs outside the New York Stock Exchange September 22, 2008. REUTERS/Eric Thayer/Files

A flag hangs outside the New York Stock Exchange September 22, 2008.

Credit: Reuters/Eric Thayer/Files

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WASHINGTON (Reuters) - With the U.S. economy facing a heightened risk of sliding back into recession, the country's elected representatives may be pushing it closer to the brink.

Democrats and Republicans say job creation is a top priority as they return to work this week, but there is a growing body of evidence that Congress is actually hurting the economy.

A protracted budget stalemate in the first half of the year caused nervous federal agencies to sit on billions of dollars that should have been circulating through the economy.

A vitriolic debate over raising the debt ceiling this summer spooked consumers, caused turmoil in financial markets and led to a first-ever downgrade of the United State's credit rating by Standard & Poor's.

A spat over subsidies for rural air services in late July idled airport construction projects across the country and threw thousands temporarily out of work for several weeks.

Businesses that had to suspend their airport construction projects are still trying to recover from the disruption.

In Wilkes-Barre, Pennsylvania, the Daniel J. Keating Co. has had to rebuild a partially built access road that washed away when they were forced to suspend work. The company is also trying to reschedule product deliveries and safety inspections and round up subcontractors who had moved on to other projects, said company treasurer Joe Maloney.

"I don't think they have any appreciation about what's going on out in the public," Maloney said of Congress. "They seem to be totally ignorant of how this economy is driven by employment."

Maloney's disgust is widely shared. Congress' public approval rating tied its record low of 13 percent in a Gallup poll in August, while those surveyed by the Pew Research Center used words like "ridiculous" and "childish" to describe the wrangling over the debt ceiling at its height in late July.

"I cannot recall an instance where voters were so demoralized," said Greg Valliere, chief political strategist at Potomac Research Group. "The debacle in late July seemed to reinforce a sense of resignation, not anger, that everyone in Washington is incompetent and recklessly partisan."

POLITICS INFECTING THE ECONOMY

Those bad feelings aren't just confined to cable TV news talk shows and Internet message boards.

Standard & Poor's cited the political environment as a primary reason for its decision to downgrade the country's credit rating. Stocks plunged after the downgrade, battering consumers' retirement holdings.

U.S. consumer confidence fell in August to its lowest level since the 2007-2009 recession. Some economists, businesses and pollsters say the debt-ceiling debate was a major factor.

"This collapse of economic confidence is not an independent event driven only by economic reality," Republican pollster Bill McInturff wrote in a blog post. "This sharp a drop in consumer confidence is a direct consequence of the lack of confidence in our political system and its leaders."

With consumers inclined to hold off on big purchases, that could spell trouble for manufacturers of durable goods like automobiles and refrigerators -- raising the risk of a double-dip recession.

Don't count on Congress to do much to help.

President Barack Obama is expected to unveil a job-creation package on Thursday, but analysts say the Republican-controlled House of Representatives is likely to torpedo many of its most ambitious elements.

Republican ideas for boosting the economy, centered around scaling back regulations, aren't expected to get anywhere in the Democratic-controlled Senate.

Government layoffs at the state and local level have undercut private-sector gains in recent months. Budget cuts attached to the debt-ceiling deal could force the federal government to lay off workers in the coming months as well.

Given the ideological chasm between the two chambers, Congress has had trouble passing even routine legislation that keeps existing projects moving forward.

The airport funding lapsed last month due to a squabble over $13 million in subsidies for rural air services.

That led to $400 million in lost ticket tax revenue and as-yet untallied disruption for contractors. Many are planning to bill the government for their expenses.

Those funds could expire again if Congress does not act by Sept. 16. Highway and mass transit construction projects could also face disruption if Congress does not renew them by the end of the month.

Doubts about Congress' ability to keep the money flowing might lead contractors to charge more for their services even at a time when work is hard to come by, one industry official said.

"If the certainty of being paid goes away, I think contractors are either going to start raising their bids to protect themselves against that uncertainty, or they're just going to drop out of bidding," said Ken Simonson, chief economist for the Associated General Contractors of America. "They're extremely frustrated."

(Editing by Ross Colvin and Christopher Wilson)

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