America’s political polarization could cost the U.S. economy

Despite it all — disputed elections and a Capitol insurrection, debt ceiling showdowns and massive fiscal deficits — global investors have shown unwavering confidence in the U.S. government.

The big picture: If that were to change, even just a little bit, it would be awfully expensive, warns a new paper from a former Biden White House economist.

Why it matters: The U.S. enjoys a "safe harbor premium." It is viewed globally as among the most sound and stable places on Earth in which to invest. That results in lower borrowing costs for U.S. citizens, companies and government entities, and more abundant foreign investment.

But if global investors start to view the U.S. political environment as creating economic risks, that could change abruptly, writes Ernie Tedeschi with the Yale Budget Lab.

Tedeschi, formerly chief economist at the White House Council of Economic Advisers, sought to quantify the potential cost of global investors' loss of confidence in U.S. political and economic institutions.

Zoom out: Investors in emerging markets are inherently making bets about the stability of countries where they consider buying bonds or building a factory.