It’s been hailed by the media as the most contentious Congress and Executive ever!
It’s been tied to the race of our President, and it’s been described as the worst financial disaster our country will face. But is it really? Or, is it all just hyped out way out of proportion? I am standing by the latter assertion. A Government shutdown is not new. Just because we have narrowly escaped for the last four years, and it hasn’t happened in 17 years doesn’t mean it’s tied to any one thing, well, except for partisan politics and partisan political issues. The latest is the debate over health care reform which took effect on October 1, 2013. Identified as the Affordable Care Act (i.e. Obamacare), this is the latest partisan issue which drove the government to a standstill.
The blame game is so much fun for everyone. After all, what is politics if not one giant blame game. Sure, they are acting like spoiled children, not communicating effectively, and refusing to even sit down and figure things out. Rather, both sides are exercising power plays in attempts to push forth their agenda, not the agenda of a majority of their constituents. In any case, how bad is a government shut down on the economy? Well, let’s see for ourselves with a few background facts and some figures. Monday at midnight, September 30, 2013, the government came to a halt. The Executive Branch, led by its Chief Executive, the President, ordered the orderly and peaceful shut down of all non-essential functions. This totals about 800,000 federal employees across all the Executive agencies. When furloughed, these employees are sent home, and they are not allowed to work (unless excepted for specific projects) by law. During this time, these employees continue their health benefits but do not get paid. In the past, these employees have been paid retroactively, but that is not a guarantee. While Congress passed a measure to fund the military during said shutdown, this is limited to some civilian employees, active duty military, and military in certain combat zones, and it delays their pay. It also funds those in defense of the nation. That does not account for the other million federal workers who support the nation, nor accounts for active reserves and guardsmen. What this means for everyone else? Nothing, everything is just rolling along. Are parks and museums closed? But, that is a side effect, really. All other functions continue, and many civil servants are in the “exempt” category by virtue of their funding source.
Ironically, after this news, on the morning of October 1, 2013, the Dow Jones Industrial Jones opened high and went up 62 points. You read that right- the DJIA fared rather well, and averages were up despite the government shutdown. Meanwhile, the government spent almost 1.6 million dollars just preparing for a hypothetical shutdown. Later, if employees are paid back or reimbursed, the government takes a hit because during this time, no one is working. Also, museums, parks, and other monuments do not see business revenue they would otherwise see for the concession operations, entrance fees, boat rides, transportation, etc., Research and development can be halted, head-start and other educational programs come to a stop, and construction contracts are also affected which can lead to payment to contractors for delays, stop work orders, and such.
If you were freaking out about a government shutdown, fret not. The history of shutdowns is long and sordid. For example, during the Reagan administration (the 80s) there were eight (yes, 8), full government shutdowns.(1) Some lasting a day, two, up to three only. All of these were related to a budget deficit. What was the composition of the House then? Yep, Democrat-controlled. During the Bush administration, a shutdown lasted four days, and during Carter and Ford administrations, there were frequent partial shutdowns, often affecting certain executive agencies, and tied in with abortion funding (a political partisan hot button issue). The longest and most contentious shutdown in history is actually during Clinton’s presidency when the government shut down twice- once for five days and the longest for 21 days. Government employees didn’t even celebrate Christmas in 1996 because of lack of pay for four weeks! For you non-federal employees, 21 days is equal to two whole pay periods of pay or one month.
So, does it really matter if the federal government shuts down? Well, not short term, but here is what happens long term. In an already delicate economy, which the American economy is, it can have a ripple effect.(2) The consumer is already concerned about spending, so he or she spends less. At a time when the housing market was finally recovering, the risk to that market is high, and interest rates can be raised, which could further affect the housing market. As I stated before, the shutdown itself is considered a black mark on the American economy by foreign markets, and it affects tourism in our nation’s capital, and other federal places like national parks, monuments, buildings, and museums. The effects on the economy are cyclic so it will not be apparent right now, but in a few years we will feel the effects of this shutdown, especially if it carries more than a week. Now, add to that a perfect storm of sorts that we saw in 1996. Not only is there a budget (a basic thing) that needs to pass for “discretionary spending,” but there is a looming argument about the “debt ceiling.” This is the upper limit on the amount of money we can borrow before the nation defaults on its fiscal obligations. This can do so much more than just shutdown the government but I have to admit, I really do not understand the repercussions as much as others may. (3) Based on what I have seen over the past few years, I certainly do not have confidence that the idiots on Capitol Hill get it at all either. That is what worries me somewhat.
All in all, I am surprised based on the past 17 years, and the back and forth of the administration with Congress that we haven’t had more shutdowns. Think about it. Article I of the Constitution sets forth Congress’ power (Senate plus the House). Their basic responsibilities revolve around the power of the purse, and making laws. I am reminded of the school house rock video, “I’m just a Bill” and that video makes me smile. The power of the purse, the power to legislate, and the ability to fund are some of the greatest powers endowed in Article I, Section 7 to Congress. So, when it wants to advance a political agenda or make a point, why wouldn’t it use that power to wield other changes? That is what we are seeing here. Combine that with some other issues that are present and some unique personalities, lack of communication and common decency, and boom! It’s a recipe for shutdown and worse. Brace yourselves because even if they all agree to pass some short-term (30-45 days) bill to re-open the Government, the fight is not over, and so much more is at stake. Just know that what you are experiencing is not unique, unusual, and the world will not come to an end. I am surprised this does not happen more often. The shutdown showdown is not only history, it’s just part of the process.
* Sources: (1) You can read more about history of shutdowns here. (Wikipedia)
(2) Excellent blog post on the history of shut downs and implications this time. http://www.ritholtz.com/blog/2013/09/look-out-below-government-shutdown-edition/
(3) Excellent article on Shutdown v. Debt Ceiling