WASHINGTON — Many people are breathing a sigh of relief after the U.S. Congress reached a last minute agreement to end the fiscal stalemate. But relief carries a large price tag. The credit ratings agency Standard and Poor’s estimates that the 16-day shutdown took $24 billion out of the economy and shaved more than half a percent from fourth quarter GDP growth. But Yale University professor and Nobel Laureate Robert Shiller says the damage goes beyond dollars and cents.
Thousands of federal employees are back to work. Investors who bet Congress would not allow the U.S. to default - took their profits. And businesses hurt by the shutdown welcomed back their customers.
But Nobel Laureate Robert Shiller says harder to quantify is how much the Washington-manufactured crisis has damaged international trust.
“Our reputation is obviously a very important thing," he said. "It’s a little bit upsetting to see it threatened as it is now.”
More worrisome, says Shiller, is the impact of Washington's dysfunction on the middle class. For example its failure to pass a jobs program.
He's proposing steps to narrow the rapidly increasing gap between rich and poor. Recent studies by the University of California show income for the richest one percent has risen more than 31 percent since 2009 -- while incomes for the other 99 percent grew less than one percent.
"We ought to be able to reach an agreement, let’s define an inequality level that’s much worse than today and let’s say - we’re going to draw the line there, we’re not going to let it get any worse and how do we stop that? Well it has to be some form of taxation of the rich," Shiller said.
It's a controversial proposal that would likely face strong oppostion from conservatives in Congress.
Shiller says the same ideological divide that caused the shutdown will further erode trust in the U.S. economy -- and potentially hasten the end of the dollar as the world's reserve currency.
That status means the dollar is held in large quantities by foreign governments to facilitate trade and currency exchange. It makes the dollar more desirable to foreign investors and allows the U.S. to borrow at lower costs.
“Well, we're in danger of losing the status even if it doesn’t continue," said Shiller. "The euro is becoming a more important currency. The nations of the world don’t view it as their ultimate objective to be holding dollars.”
Russia and China have proposed replacing the dollar with a so-called "super-sovereign reserve” of various currencies. Experts say those proposals could gain traction if U.S. lawmakers drag the country back into another fiscal crisis -- three months from now.