White House Economist: Debt-Ceiling Standoff Might Be Bigger Threat to Economy Than Past Showdowns

The partisan standoff over the government shutdown and U.S. debt ceiling may represent a greater threat to the U.S. economy than similar showdowns in the past, a top White House economist said in an interview Thursday.

“There’s a perception right now that Washington always does this type of thing, this is business as usual, and people get their act together at the last moment so there’s no need to pay attention to all the bumps and wiggles along the way,” Jason Furman, chairman of the White House’s Council of Economic Advisers, told Wall Street Journal reporters and editors.

“It’s not obvious to us that this time is business as usual,” Mr. Furman said. “We think that’s something that people need to understand and appreciate.”

The Obama administration has been ramping up warnings to investors about the threat of a U.S. default in coming weeks as lawmakers remain locked in a battle over funding the government. President Barack Obama, Treasury Secretary Jacob Lew and other officials have suggested that markets are brushing off the threat of a government default too easily.

The White House is trying “to inform people about what’s going on in Washington and how that might affect the economy,” Mr. Furman said, and “let the chips fall where they may when people understand that.”

The Obama administration has said the U.S. could fail to pay all of its bills sometime after Oct. 17 unless Congress raises the debt ceiling. Yet the stock market has been hovering around record highs for weeks.

Citing the experience from mid-2011, when Congress pushed the fight over raising the debt limit until the last minute, Mr. Furman said the economy and markets could face damage from the brinkmanship.

“Last time around we actually raised the debt limit, we never defaulted, and that was still bad for the economy just getting up until midnight” before raising the debt ceiling, Mr. Furman said.

The shutdown, which entered its third day Thursday, threatens to hurt an economy that has been otherwise picking up, Mr. Furman said. He credited the U.S. energy boom, rebounding housing and auto sectors and stabilization in the European and Chinese economies for some of the recent gains.

“We have a whole lot of really positive things going on in our economy,” he said. “All of them are a wind at our backs’ being countered by government cutbacks and a potential hit to business and consumer confidence from the latest fight.

Mr. Furman said the White House is open to negotiating over government funding for the coming fiscal year, once Congress passes legislation to end the shutdown and raise the federal borrowing limit.

House lawmakers should take up Senate legislation soon and then move on to a broader budget negotiation. “If you get that bill to the floor and allow members to vote their conscience, that bill will pass,” he said.