Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The recent government shutdown and confrontation over the federal debt ceiling gained the Republicans nothing, at best – and may have cost them politically as a party. But it slowed the economy and undermined confidence in public finances in a way that will have a significant negative impact on future budgets of the United States. None of this should make for an appealing strategy, but Tea Party Republicans are giving every indication that they want to do the same thing again early next year. Their more moderate colleagues need to take a firmer hand.

Today's Economist Perspectives from expert contributors.

On the political gains from recent tactics, it is hard to find any good news for the Republican side as a whole. Representative Thomas H. Massie, Republican of Kentucky, got it right when he said, “Goose egg, nothing, we got nothing,” in terms of policy changes. And opinion polls moved more sharply against Republicans than some had expected. Prominent Republicans including Senators John McCain of Arizona and the minority leader, Mitch McConnell of Kentucky, have now come out strongly against further shutdowns.

Unfortunately, they do not control Republicans in the House of Representatives.

The shutdown and debt ceiling brinkmanship did real damage to the economy. The immediate and direct costs are nicely summarized in a blog post by James H. Stock – an academic economist on the president’s Council of Economic Advisers. His assessment is that the effect is a

0.25 percentage point reduction in the annualized G.D.P. growth rate in the fourth quarter and a reduction of about 120,000 private sector jobs in the first two weeks of October (estimates use indicators available through Oct. 12th).

This is actually lower than the impact expected by some private-sector forecasters; after talking with people I trust, I would not be surprised if the overall impact ends up being closer to a 0.5 percentage point reduction in the fourth-quarter growth rate (annualized, as in the quotation from Mr. Stock.)



Does the country make up this growth later, for example because federal workers can now pay their bills? Probably not, because there is a persistent effect in terms of increasing uncertainty about public finances and about economic performance – and this will depress both some kinds of consumption and many forms of productive investment.

I’ve explained the point about uncertainty before – and I say the same on Capitol Hill at every opportunity. If people really believe that the government could default on its debts or otherwise not make payments to which it is committed, that introduces a huge element of uncertainty into many economic calculations. When you are less certain about what is going to happen tomorrow, you tend to postpone big irreversible decisions – like buying a new car or building a factory.

Scott Baker, Nick Bloom and Steven Davis have done really interesting work on the general issue of what causes policy uncertainty – and what kind of impact this can have. You can follow their daily data online; the latest available is from Oct. 23. Last week uncertainty increased and has now fallen back somewhat.

(I also recommend their interesting retrospective series on news coverage mentions of the terms “government shutdown” and “debt ceiling”; this confirms that the tactic has been much more prominent in the news recently than at any time since the mid-1980s, with the exception of the Gingrich shutdown in 1995-96.)

Look also at the Gallup Economic Confidence Index, which has fallen sharply to a level not seen since the last debt ceiling showdown in August 2011. (Thanks to Mr. Bloom for emphasizing this series.)

Members of the Tea Party movement express concern about the longer-run federal budget – and the potential negative impact of future debt levels. But their tactics are directly worsening the budget over exactly the time horizon that they say they care about.

The latest forecasts from the Congressional Budget Office (released in September) show a short-term improvement in the budget, i.e., a lower deficit, and then debt levels rising further down the road, with the debt-to-G.D.P. ratio reaching around 100 percent by about 2040.

The major long-term issue the United States faces is rising health-care costs (not just the part that the federal government pays for), but an important part of our projected future deficits is interest costs, i.e., what the government needs to pay holders of its debt.

The United States dollar is the world’s primary reserve currency and safe haven; the asset that major investors, such as central banks and big international companies, actually buy is United States Treasury debt. In the short term, when Congress acts in a crazy and irresponsible fashion that makes the world feel more unstable, investors “seek safety” and actually buy American government debt, pushing down yields (bond prices and yields move inversely to each other). The United States is the only country in the history of the world that has this feature; most countries, when they act irresponsibly, see their bond yields go up.

Over a longer period of time, of course, investors get the message: United States Treasury debt is not so safe and cannot be trusted as in the past. They should look for alternative assets. The euro may bounce back. The British pound, Swiss franc and Japanese yen have all been contenders in the past. And the most real threat over the next 20 years is probably the rising international role of China’s renminbi.

Unwittingly and perhaps inadvertently, the Tea Party is helping to fulfill the prophecies of my Peterson Institute colleague Arvind Subramanian, who has long predicted that the renminbi will eclipse the dollar – and that China is likely to surpass the United States, in terms of economic weight and political clout. Speeding up such a transition will directly increase the interest cost of the national debt and exactly run counter to what Tea Party representatives claim they want to do. The change would make the longer-run public finances of the United States worse, not better.

In a parliamentary democracy, this kind of careless approach would condemn the responsible party to a long period of fruitless opposition, like that experienced by Britain’s Labor Party in the 1980s and early 1990s.

In the American system, with its carefully conceived checks and balances, an organized and well-funded minority can do a lot more damage – as we have just been reminded. The only force that can rein in Tea Party extremism – and get the nation off the road to fiscal ruin – is resurgence among Republican moderates. Unfortunately, their recent performance has not been impressive.