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Is Congress to blame for a downshifting US economy?

Evidence is mounting that the economy is taking a hit because Congress can't – or won't – deal with the 'fiscal cliff' looming at year's end. The fight on Capitol Hill last summer over the national debt limit also took an economic toll. 

By Staff writer / July 3, 2012

The inability of Congress to act on myriad issues is hurting the US economy, say analysts, including the Congressional Budget Office itself.

Jacquelyn Martin/AP

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Washington

A rising chorus of voices, inside and outside Washington, is warning that political gridlock in Congress is now so severe that it has actually done damage to the economy – and threatens to do a lot more.

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President Obama, of course, is the chief "blame Congress" finger-pointer, perhaps to be expected as he fights to win reelection as the economy flails. But plenty of others – Federal Reserve Chairman Ben Bernanke, the US Chamber of Commerce, and Congress's own budget office, to name a few – also cite Congress as a factor that is inhibiting economic recovery, though they put it more diplomatically than does Mr. Obama.

Consider Mr. Bernanke's reply to lawmakers when asked June 7 about Fed efforts to stimulate the economy via low interest rates: "I'd be much more comfortable," he said, if "Congress would take some of this burden from us and address those issues."

Or take this complaint about how "uncertainty" is causing small businesses to refrain from hiring and investing. "Most of this uncertainty ... is coming out of Washington," concludes a June 14 report from the National Federation of Independent Business.

Then there's this tart assessment from the Congressional Budget Office about the consequences of lawmakers leaving unresolved some pressing decisions about future taxes and government spending. "Uncertainty about the resolution of fiscal policy early next year is weighing on the economy, we think, diminishing people's and businesses' spending this year," said CBO Director Douglas Elmendorf in June.

Wait a minute, you say? What about the debt crisis in Europe? What about the long-suffering housing market and the costs of "Obamacare"? What about layoffs in state and local governments? What about lack of presidential leadership, perhaps? Are they not to blame for the US economy running out of steam?

True, say many economists, some or all of the above contribute. But evidence is mounting that Washington's food fight last summer over raising the nation's debt limit and the "fiscal cliff" that looms at year's end are taking a toll on economic growth and employment. And both are crises manufactured in large part by an ineffective Congress.

"This economy can gain traction and really swing into full gear if we just nail down what we're going to do about the fiscal cliff and attaining fiscal sustainability," says Mark Zandi, chief economist of Moody's Analytics.

That's a big "if," if recent history is a guide.

That was then

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