Yes, Political Dysfunction Hurts the Economy and Costs Jobs
The federal government began its first partial shutdown in 17 years on October 1, after Congress failed to overcome a partisan disagreement over the temporary spending bill that would have funded operations for the beginning of the new fiscal year. The 16-day long closure gave America a front-row seat to a demonstration of how political dysfunction can damage business confidence, consumer confidence, and the economy as a whole. The manufactured crisis created climate in which businesses are hesitant to invest and hire new employees.
In order to quantify the effect the polarization of United States politics on business investment and job creation, economist Marina Azzimonti of the Federal Reserve Bank of Philadelphia created an index to measure the tone of the political debate and its impact on hiring, investment, and economic growth. “American politics have become increasingly polarized in recent decades. To the extent that political polarization introduces uncertainty about economic policy, this pattern may have adversely affected the economy,” she wrote in a September working paper released by the regional Fed branch. “Polarization significantly discourages investment, output and employment.”
To construct the index, Azzimonti measured the frequency of newspaper coverage of articles reporting political disagreement about government policy, normalized by the total number of news articles within a given period, from January 1981 to April 2013. The project did not include the recent government shutdown or the fight over raising the debt ceiling.