We live in a political world where no action is ever seen as having consequence. Republicans blocked the extension of unemployment benefits for over a month in the second quarter. GDP in the second quarter tanked. In a more rational world the media would see a relationship between these two events.
Consumers are not spending. Let us assume for a minute that most American consumers are economically rational people. In holding up the extension of unemployment benefits Republicans did two things. Unemployment benefits consist of one state funded award and a number of federally funded extensions. The mess earlier this summer blocked the unemployed from moving from one extension to the next. This showed a vast swath of unemployed Americans that Congress can cut off their benefits randomly, even if they have not yet exhausted them. Secondly, the Republicans have made it clear that be benefits will not extend beyond 99 weeks.
The American consumer is not stupid. Workers worried about a layoff have been told that unemployment benefits are unreliable. At the end of the day workers need to know that they have some way of feeding their family after a layoff. Randomly getting back benefits checks, weeks after running out of money, is no help. If the government will not provide a safety net then the only option is savings. Not surprisingly then, consumers are cutting back in every way possible in order to bolster savings. This is not a good thing for the economy as a whole. In order to win this election the Republican party has created a double dip recession and Democrats are going to let it pass without comment.