Ruminations, September 22, 2013
How bad is a government shutdown?
If the House of Representatives does not abandon its plan to defund Obamacare and the Senate and President do not abandon their plan to defend Obamacare, it could be bad. On the other hand, it could be not so bad. A lot of it depends on how it’s played out by the participants and who gets the political blame.
To put things in perspective, what exactly does a “government shutdown” mean? When there is no budget, an 1884 law (modified in 1950 and 1982) called the Anti-Deficiency Act kicks in. This act, according to the Government Accountability Office (http://www.gao.gov/legal/lawresources/antideficiencybackground.html), prohibits government employees from:
• making or authorizing an expenditure … in excess of the amount available
• involving the government in any obligation to pay money before funds [are available]
• making obligations or expenditures in excess of an apportionment or reapportionment
The president has some flexibility in what would be shut down and what would remain open. Since the impasse is between the Democratic President and Senate versus the Republican House of Representatives, we can expect that the closures will be designed to have maximum impact on voters while not actually threatening the security and well-being of the country. For example, air traffic control will remain open, the armed services will be paid, and Social Security and Medicare will be paid. Closures will apply to passport and visa offices, national parks and museums, and government bureaucracies.
How bad would this be? Congressional Budget Office Director Douglas Elmendorf said last week that it could weaken the economic recovery. There may be some truth to that but, on the other hand, it could move us closer to a balanced budget, make the dollar stronger and could obviate the need for the Federal Reserve to print more money.
Also opposing the shutdown are Republican governors Chris Christie (NJ), Bobby Jindal (LA) and Scott Walker (WI). They concluded that a government shutdown would violate the public trust.
Even Federal Reserve Chairman Ben Bernanke weighed in, stating that "a government shutdown and, perhaps even more so, a failure to raise the debt limit could have very serious consequences for the financial markets and for the economy." Well, Bernanke is a financial expert and should be listened to, although his monetary policy has failed to live up to his expectations.
History. We’ve been here before. In 1995 and in 1995-1996, the government shut down twice for a total of 28 days. We survived. But the political ramifications can be read a couple of ways.
From the Democratic perspective, the Republicans took a severe beating. The media, which tends to be liberal and supportive of the Democrats, did indeed castigate the Republicans. And while polls during the shutdown showed that the public blamed President Bill Clinton, in the aftermath Clinton’s approval ratings soared. And Clinton went on to win re-election and to produce a balanced budget with surplus.
From the Republicans’ perspective, the shutdown was a blip on the economic path. While the Republicans did have a net loss of eight seats in the House of Representatives (but retained a majority), they did gain two in the Senate. As for the presidency, did anyone truly believe that Bob Dole was going to beat Bill Clinton? And, according to former house speaker Newt Gingrich, the shutdown positively impacted the balanced budget agreement between the Republicans and Clinton in 1997, which balanced budget and created a surplus.
Who is more stubborn? The narrative playing out is that the Tea Party Republicans are digging in their heels and refuse to do the right thing and pass the budget. But one side cannot be stubborn all by themselves. Cannot one say that if only the Senate and the President would stop being stubborn and do the right thing and agree to defund Obamacare, both sides could then approve the budget. It seems that both sides are stubborn and sticking to their principles.
What’s the likely immediate outcome? There is likely to be a government shutdown -- for a while. The opposing sides in the Republican Party are reading from two different playbooks. The left-center side of the Republican Party’s book says that shutting down the government will be a political disaster for Republicans whom the public will blame. While they may agree in principle, the political losses that they perceive the Republicans suffering would be such that their legislative power would be diminished and they would be unable to enact any conservative legislation.
The conservative/Tea Party side of Republican Party feels that cutting spending and defunding Obamacare is what they were elected to do. And they point to the political repercussions from the 1995 and 1996 and call the losses that we are told the Republicans suffered as myth. Though they are not naïve enough to believe that they will not be excoriated in the press, they believe that the public will be able to see through this. After all, were we not told that sequestration would be the end of the civilized world, the military would not be paid and Social Security checks would not be sent out?
What’s the likely eventual outcome? The only realistic outcome is for both sides to give a little. A few months ago, Obama delayed for one year the employer mandate provisions (which we note is illegal but it is questionable as to who would have the standing to bring suit in the Supreme Court). The delayed provision required employers to offer health insurance or pay a fine. At the same time, Obama left in place the mandate requiring individuals to purchase health care. Some conservatives have now proposed that a delay of one year for the individual mandate would be acceptable.
If the Democrats accept this (and there is a good chance that they would, since the individual mandate will not be popular and Obama will be portrayed as a statesman for compromising), a deal will be struck.
Quote without comment
Then-Senator Barack Obama, in a Senate floor speech, March 16, 2006: “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.”