Partisanship has already cost us our AAA-rating. The politics of stalemate can still cost us so much more.
The best-case scenario for the S&P downgrade was the market laugh it off and lawmakers don't. In other words, the Dow would have a hum-drum Monday, and politicians would convene to implement a plan to increase growth immediately and reduce debt over time.
Naturally, we got the opposite.
In the Sunday morning talk shows, Republicans and Democrats used the new news to make an old point. Republicans to Democrats: The deficits are all your fault. Democrats to Republicans: You're all lunatics. Then this morning, the Dow quickly fell by more than 300 points and finished the day with a loss of 634 points.
But the fact that interest rates on U.S. debt also fell post-downgrade suggests the market isn't sweating our big debt. It's panicking about small growth. The recovery has all but stopped. Employment is still growing slower than population. GDP grew less than 1% in the first half of this year. All indicators are returning to stall speed. And rather than discuss ways to turn those numbers around, Washington spent the last month flirting with the idea of not paying our debt.
The last time we were falling in 2008, Congress and the Fed put out a mattress stuffed with trillions of dollars of bank guarantees and fiscal stimulus to soften the landing. If we fall this time, it's not clear who provides the cushion.