Nobody Wants to Invest in an Unstable Country
Jobs, exports, infrastructure; the list of economic fallout will be a long one if political violence in the U.S. is prolonged.
On guard against more violence.
Photographer: Daniel Slim/AFP via Getty Images
Political violence in the U.S. can reduce confidence in the country’s stability, adding a risk premium to Treasury bonds and thus undermining the financial system. But that fallout, which I wrote about earlier this week, is far from the only possible economic consequences of the Jan. 6 attack on the Capitol and threats of continuing mayhem. Exports, investment and many other features of the physical economy could be directly affected.
Research has drawn a clear and consistent link between political instability and economic slowdowns. In 2011, the International Monetary Fund looked at a large sample of countries and found that various measures of political instability were correlated with lower subsequent economic growth from 1960 through 2004. An earlier paper by economist Alberto Alesina found similar results. In unstable countries, investment is somewhat lower and productivity growth is substantially reduced.