Why John Boehner’s Resignation Could Be Bad News For The Economy

John Boehner Resignation

Speaker John Boehner’s surprise resignation on Friday shocked Washington and American politics. Coming just a day after Pope Francis’ historic address to Congress, a high point of the Catholic speaker’s career, the move threw the House of Representatives into a chaotic scramble for power.

Republicans vied for pole position in the various leadership fights opened up with Boehner’s announcement, while many conservatives also sounded celebratory notes in the wake of the news.

But the longtime Ohio representative will leave a vacuum that could have terrible repercussions for the economy.

Why did Boehner resign?

The most obvious cause: perpetually irksome pressure from the right wing of his party. While Boehner was first elected as a conservative bomb-thrower in his own right, decades ago, his speakership has been weighed down by constant infighting and pressure from the tea party wave that brought the GOP into the majority back in 2010. Many of those Republicans have never fully trusted Boehner, and one of their most vocal leaders, Senator Ted Cruz of Texas (and a presidential candidate), has frequently called for a turnover in party leadership in both chambers of Congress.

In fact, Cruz crowed about the resignation on Friday, telling a gathering of conservative activists that he has “long called on Republican leadership to do something unusual, which is lead.” But in the words of former majority leader Eric Cantor, who was shockingly upset in a primary race last year: “I have never heard of a football team that won by throwing only Hail Mary passes, yet that is what is being demanded of Republican leaders today.”

Boehner grew especially tired of the right-wing antics following 2013’s government shutdown. In an angry press conference later that year, he said:

“[Conservative lobby groups] pushed us into this fight to defund Obamacare and to shut down the government. Most of you know that wasn’t exactly the strategy I had in mind. But if you recall, the day before the government reopened one of these groups stood up and said ‘Well, we never really thought it would work.’ Are you kidding me?!”

The possibility of another shutdown loomed large this week when many of his rank and file members threatened a coup if he allowed a government funding bill to come to the floor including money for Planned Parenthood. Boehner was unwilling to allow a shutdown, which proved politically damaging to the GOP last time around (in terms of public opinion anyway; Republicans still went on to win the Senate last November), or rely on Democratic support.

So he announced his resignation as speaker and retirement at the end of October. A long career, now burdened by deep frustration at what he seems to consider an impractically inflexible element in his party, comes to an end. And Boehner no longer has to deal with that right-wing bloc.

What does this have to do with the economy?

But somebody does.

And that’s why Boehner’s resignation could have big consequences for the economy. The speaker has proven himself able to manage – if not fully control – an unenviable situation. Taking him out of the equation after five years at the helm of the House suddenly throws policymaking into deep uncertainty.

Will the next speaker – likely Rep. Kevin McCarthy, the current majority leader – be able to wrangle right-wing support for legislation like raising the debt limit? Or will he prove less able than Boehner at challenging the tea party members and preside over an even more acrimonious House?

It’s unlikely anything extreme will actually become law – while the House and Senate are both controlled by Republicans, they don’t have veto-proof majorities and a Democrat still sits in the Oval Office. But a paralyzed Congress has been the problem for the last five years and that problem could get even worse over the next few.

And political uncertainty often breeds economic caution, a potentially disastrous development in the wake of positive news on growth, jobs, and construction over the past several months.

The biggest concern will probably not be a government shutdown – that should get taken care of by a clean funding bill Boehner told his caucus he would bring up for a vote next week. While it doesn’t meet the demands of many conservatives, it will almost certainly pass with the help of Democratic votes.

But after that, Congress will have to raise the debt ceiling – the amount the federal government is authorized to borrow – at some point before the end of the year. That has been a major issue for Republicans in recent years, with many arguing that raising it only perpetuates the spending problem they have diagnosed as a fundamental concern. But if the limit is not increased, the United States won’t be able to borrow any more money and will likely default on its existing debt, causing widespread market turmoil. Even if the Treasury Department tries to get by for a time, by paying some bills and not others, that will mean prioritizing among several obligations, including to the elderly receiving Social Security benefits and active duty service members.

What does the speaker have to do with this? Well, Joel Prakken of Macroeconomic Advisers told the Washington Post’s Wonkblog that “changing leadership in the middle of the process is sure to be an extra complication.”

Consider that the process has already been plenty complicated during the Boehner era and you begin to see why more complication could lead to some dire consequences.

But it isn’t just the possibility of another round of torturous debt ceiling politics that is causing concern. The unpredictability surrounding the next few months is perhaps more troubling. At least with Boehner, there was probably an expectation that everything would work out in the end even if there was plenty of drama along the way. But even in that environment, the legislative morass likely harmed the economy – or at least held it back. As the Wall Street Journal pointed out, many economists think exactly that:

About 77% of economists in a Wall Street Journal survey last month said that the repeated bouts of uncertainty from Congress have dragged down the economy in recent years. That includes the 14% of economists who said fiscal uncertainty has been one of the primary reasons for slow U.S. economic growth since the end of the recession.

But to circle back: that uncertainty seems to manifest itself most troublingly in the case of the debt ceiling vote, something many financial analysts pointed to on Friday.

And perception is as important in economics and finance as it is in politics. Chris Krueger of Guggenheim Securities told Politico that “winter is coming”:

“There is much more risk of a real accident occurring around the need to raise the debt limit. Whoever is speaker and whip and in the rest of leadership will determine a lot of it. But under any circumstances, conservatives in the Freedom Caucus and the tea party movement are going to have an awful lot of juice.”

Oh, and if McCarthy does become speaker, that could spell doom for the Export-Import Bank, the controversial (on the activist right, if not the business right) agency that helps secure foreign business for American companies through loan programs. McCarthy is a strong opponent of the Bank, so its loss of authorization earlier this year could end up being permanent.

So how will Boehner’s successor deal with this?

That’s a great question. And somewhat difficult to answer since we don’t know yet who that successor will be.

McCarthy, the majority leader who looks likely to get the top spot, is respected but also seen as politically underwhelming given his relative lack of experience (no speaker has served as few terms as McCarthy since the 1890s). Many also question whether he has the chops to get deals done or corral votes from difficult members.

But ultimately, as political scientist Sarah Binder argues, whether the next speaker is McCarthy or someone else, he will probably treat the situation the same as Boehner would have. That is to say, struggle to find consensus but ultimately push through a deal that angers the right wing by relying on moderate Republicans and Democrats. Why? Because the next speaker will still need to have gained the support of most Republicans – pulling him to the middle – and the tensions that existed under Boehner will not have magically disappeared.

That’s the likely outcome, but things could change depending on how the new leadership team comes to power and who it’s composed of. For example, as Jim Tankersley and Max Ehrenfreund say at the Washington Post, “if [the new speaker] comes to power vowing no more debt limit increases ever,” that throws a big political wrench in the legislative works. That person will have staked his power and legitimacy on the debt ceiling issue, making a deal with the White House much more difficult to reach.

Ultimately, if this year has been any indication with the rise of Donald Trump in the Republican presidential polls, the dynamics at play in internal GOP politics are difficult to pin down and will prove just as uncertain as the party picks a successor to John Boehner.

That uncertainty means the economic effects will likely either take the form of mildly inhibiting growth – businesses might be more cautious in investing – or devastating – if the debt ceiling gets breached – but hardly positive.

Written by Gene Giannotta

Gene Giannotta is a writer based in Washington, D.C. He reports on economic policy, finance and business news.