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How Washington Ruined Christmas

·Senior Columnist
In this Tuesday, Dec. 18, 2012, photo, a person passes a retail store with sale sign displayed in the window in Philadelphia. When it comes to big discounts, better late than never. This holiday shopping season, stores haven’t been offering the same big discounts as they did in previous years as they tried to lure shoppers in with other incentives,but during the final days leading up to Christmas, shoppers will see more of those jaw-dropping “70 percent off” sale signs as stores try to salvage a season that so far has been disappointing. (AP Photo/Matt Rourke)

If your elected officials wish you happy holidays this year, don’t assume they mean it.

It’s shaping up as an unusually weak holiday shopping season, and this year’s antics in Washington have a lot to do with it. Retail sales between Thanksgiving and Christmas are likely to rise only about 3% or so from last year’s levels, according to forecasting firm IHS Global Insight. That would be the weakest growth since 2009, when the economy was barely out of recession. Retailers such as Macy’s (M) and Best Buy (BBY) have warned shareholders that fourth-quarter profits could be weak. Soft sales are already forcing retailers to offer sharp discounts — such as Walmart’s famous $98 flat-screen TV — which is great for shoppers but lousy for anybody hoping for a robust economic rebound that will bring back jobs.

More than four years after the Great Recession officially ended, the private sector is doing its share to help the economy bounce back. Washington isn’t. “The private economy has made enormous strides in correcting the problems that triggered the Great Recession,” writes Mark Zandi of Moody’s Analytics. “Business balance sheets are about as strong as they have ever been, the banking system is well-capitalized, and households have significantly reduced their debt loads. The key missing ingredient is confidence in Washington.”

Crisis of confidence

This crisis of confidence has been building for years, of course, but 2013 has highlighted Washington’s ineptitude. The year began, as most of us would like to forget, with the “fiscal cliff” staredown that resulted in tax hikes that shaved about 0.8 percentage points off GDP growth, according to Moody’s Analytics. Those tax hikes were mostly the expiration of cuts that were supposed to be temporary, so in a way they were appropriate. What was screwy was the brinkmanship over whether to rescind them or not and the last-second resolution of the problem, which wreaked havoc with many people’s year-end tax planning and budgeting for 2013.

A few months later came the “sequester” spending cuts, which are still in effect and will trim GDP by about $85 billion this year. Again, Washington is still running large deficits and it needs to cut spending. The problem is the indiscriminate nature of the sequester, which cuts all spending more or less equally and does nothing to prioritize which programs are most valuable. And like other big policy decisions in Washington, the last-minute bargaining left everybody wondering what would happen. Putting every big decision off till the very end would be a poor way to run a child’s lemonade stand, let alone the world’s largest economy.

It goes without saying that the 16-day government shutdown that occurred in October and the threat of a default on U.S. debt were abominations only the richest, cockiest, most self-absorbed and reckless legislators would dare impose on their constituents. It now appears the shutdown did little overt damage to the economy, but it crushed consumer confidence, as this chart shows:


Shutdown advocates like to think confidence bounces right back once the government reopens. But that didn’t happen -- confidence readings show the national mood remained sour even after the shutdown ended on October 16. At least part of the reason is that Congress didn’t actually resolve anything when it decided to reopen the government. What it did instead is set new deadlines for negotiating a plan to cut federal spending (December 15), funding the government (January 15, 2014) and raising the government’s borrowing limit again (February 7). Another three months in a row of fiscal skullduggery is nobody’s idea of a clean slate.

Despite all this, the economy is still growing, which is somewhat remarkable. But lopping even 1 percentage point off GDP growth can have a huge impact on the job market and disposable income, and it’s likely Washington has done more harm than that so far this year. Zandi estimates that, if political uncertainty had remained at 2007 levels during the past few years instead of skyrocketing on account of fiscal mud-wrestling, the unemployment rate would be 6.6% today instead of 7.3%. That’s a lot of additional people with disposable income, and a lot fewer applying for unemployment aid or other government benefits.

The October shutdown was so unpopular there’s now hope no such thing will happen again, if only because it could ruin the electoral prospects of whoever’s behind it. If the politicians in Washington were doing their jobs, they’d be looking toward instituting new policies to jump-start the sputtering economy in 2014. But if they’re unable to do that, we can at least hope they do no harm next year. Unlike this year.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success . Follow him on Twitter: @rickjnewman.