Americans Fear Economic Fallout of Default Even if They’re Tuning Out

Americans who understand or are paying very little attention to negotiations regarding the national debt are still quite anxious about the potential of defaulting on approximately $31.4 trillion of debt, according to a new poll by the Associated Press and NORC Center for Public Affairs Research.

President Joe Biden is facing the brunt of Americans’ economic unhappiness according to the survey, with just 33 percent of respondents approving of his handling of an economy mired with stagnant inflation and an uncertain housing market.

Biden and Republican House Speaker Kevin McCarthy continue to point the finger at one another as the economy teeters in the balance, and a failure to reach a resolution by the June 1 deadline looms. The president and Democrats seek to increase spending on certain programs and initiatives, while Republicans vow to cut spending almost across the board, except for military spending, border security and veterans’ care.

Americans Fear Economic Fallout
A billboard showing the national debt is seen in Washington, DC, on May 19, 2023. Republicans have paused crunch US debt default talks less than two weeks before a potentially catastrophic default.
Mandel Ngan/AFP/Getty

Of the 1,690 adults surveyed between May 11 and 15, 38 percent said they are paying attention to the debt negotiations “somewhat closely.” About 24 percent said they are “not very closely” following the talks, and 17 percent said “not closely at all.”

There was also a split of those who understand the debate surrounding the debt ceiling. While 41 percent said they grasp the issue “somewhat well,” a net of 39 percent said they either do not understand it very well or even at all.

However, 66 percent of respondents responded that they are “extremely or very concerned” if the national debt limit is not increased and the U.S. government defaults.

‘Bad taste in people’s mouths’

Daniel Alpert, a senior fellow in financial macroeconomics at Cornell University Law School, told Newsweek in a phone conversation that he believes most Americans still do not generally care or pay attention to such negotiations because they have occurred “too many times for anybody to take this very seriously.”

Alpert, also the managing partner of Westwood Capital, said Americans tend to notice inflation when it hits food and gas prices, pointing out that a barrel of gasoline is way down from its peak, while food prices have stabilized. Core commodities have also remained fairly stable in the last six months, he noted.

“The only other area that creates concern for Americans is housing,” Alpert said. “And housing clearly is continuing to cause pressure, and the Fed and the White House and Treasury and anybody on Capitol Hill who is not a Republican continues to put out there is the fact that the housing has been bound to adjust, just with a lag.

“But it is the bad taste in people’s mouths from spiking gas prices and spiking food prices that’s affecting, in my opinion, Biden’s approval rating. […] If you look at the correlation between gasoline spikes, food-price spikes and presidential approvals, they’re inversely correlated and they always have been.”

Existing home sales receded 3.4 percent in April to a seasonally adjusted annual rate of 4.28 million, according to the National Association of Realtors It added that sales are down 23.2 percent compared to a year earlier as fears of a widespread housing crash accelerate.

Wayne Winegarden, an economist and senior fellow at the Pacific Research Institute, told Newsweek via phone that while inflation may not be increasing, “the unaffordability of life hasn’t changed” and is causing a type of uncertainty that is driving Biden’s poor poll numbers.

He said chickens are coming home to roost, so to speak, based on years of questionable polices on both sides of the aisle compounded by blame and pointed fingers. But rightly or wrongly, the president will always get undeserved blame and undeserved credit.

“When you hear economists say: ‘People are wrong, they’re doing better than they think they are,’ I think people have a better sense of their own well-being than we economists,” Winegarden said. “And when someone’s saying: ‘Things are difficult’ then things are difficult.

“And that’s what’s happening. These are very difficult times, very scary times. You hit the bank headlines, they’re possibly in trouble. And so it’s overwhelming. […] It’s just that death of a thousand cuts that people are feeling.”

Alpert believes Biden and McCarthy will both attempt to placate their bases—with Biden at odds with his progressive caucus, while McCarthy’s speakership hangs in the balance.

“Biden is institutionalized,” Alpert said. “He is going to try very hard to make a deal without offending the progressives in his coalition, or in his party. And he is going to have a difficult time doing that, in my opinion.

“The degree to which he’s willing to tell the progressive wing that they have to take some pain is really going to be determined by the precise type of pain that McCarthy agrees to—and I have no idea what that’s going to be, quite frankly, and I don’t think either Biden or McCarthy know.”

Alpert said it is also important to keep in mind that, for the first time, there is a broad coalition of the Democratic Party—in addition to some moderate Republicans—who would like to see such debates absent from future discussions. Some have suggested Biden should invoke the 14th Amendment and raise the debt ceiling himself.

“I think the odds are very much in favor of a deal,” Alpert said. “But this was a major sea change in people’s attitude. It’s kind of like, fool me once, shame on you. Fool me twice, shame on me. Fool me a third time, rage over the head with a baseball bat.

“So, this is the third time and it’s a real problem. It’s very interesting to see how it comes down tactically.”

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