The economic damage will at first be modest. Each week the government remains shuttered will knock an estimated 0.1-0.2% off the annualised fourth-quarter growth rate—nasty, but not a calamity.
Until some agreement can be reached, all government functions deemed non-essential are suspended. To get a sense of where that line is drawn, consider NASA. The agency is closed but the people supporting the astronauts currently on the International Space Station are going to work. Panda-loving members of the public are shut out of the National Zoo, but the pandas will still be fed. In all, 800,000 federal workers are staying at home with no pay. A further 1.3m are expected to work but will not be paid on time. The position of a large number of workers contracted to work for the government is uncertain.
As a condition of passing a budget, Republicans insist that Barack Obama’s health reform be defunded or delayed. Some threaten to apply the same conditions to raising the debt ceiling (the limit of how much money the federal government may legally borrow) later this month.
Many Republicans believe that this is their last chance to stop Obamacare, a big part of which started operating on October 1st (see article
). The most ambitious shake-up of America’s health-care system since the 1960s involves, among other things, big subsidies for the impecunious and the sick. History suggests that such entitlements, once granted, are politically impossible to take away. So many Republicans think they cannot afford to wait until 2017, when they might (perhaps) control the White House and the Senate and be in a position to repeal the law through normal legislative means.
Republicans are sure that they are on the right side of a long-term trend. Support for the idea of government providing a safety net is declining. Towards the end of Ronald Reagan’s presidency, 71% of Americans agreed that it is the government’s responsibility to take care of people who cannot take care of themselves, according to the Pew Research Centre. By last year this had dropped to 59%. Some House Republicans believe that the hostility to Obamacare that shows up in opinion polls gives the party a mandate to kill the thing by any means necessary, even if that means closing a national park or 59.
Democrats are equally sure they are right. Their opponents have just asked them to blow up the most important reform of the Obama era in exchange for an agreement to fund the government for a little bit longer. They are inclined to tell their opponents to get stuffed. Some Democrats may be worried that Obamacare will hurt them electorally, but they also think that to allow House Republicans to rule by intimidation would set a terrible precedent.
“Imagine”, said Barack Obama, “if you had a Republican president and a Democratic Speaker, and the Democratic Speaker said, well, we’re not going to pass a debt ceiling unless we raise corporate taxes by 40%; or unless we pass background checks on guns; or whatever other list of agenda items Democrats were interested in.”
Furthermore, Democrats remember the previous government shutdown, which lasted for 26 days in 1995-96, with some fondness. In 1994 President Bill Clinton looked in a weak position after a huge swing to Republicans in the mid-term congressional elections. But by 1996 he had recovered sufficiently to thump Bob Dole and win a second term in the White House. Now, as then, Democrats think voters will blame Republicans for the kerfuffle.
Rather than negotiate an end to the shutdown, both parties are therefore putting a lot of energy into explaining why it is the other side’s fault. Harry Reid, the Senate majority leader, denounced “banana Republicans”. John Boehner, the House Speaker, described the president’s position as: “I’m not gonna negotiate. I’m not gonna negotiate. We’re not gonna do this.” To make their point, some House Republicans posed for the cameras sitting on one side of a table, opposite eight empty chairs.
House Republicans have proposed mini-bills to fund some things for which money is currently frozen, including the national parks and bits of the Department of Veterans’ Affairs, daring Democrats in the Senate to keep them closed. On October 2nd Mr Obama met Republican leaders to discuss the stalemate, but neither side budged.
How does Congress extricate itself from this swamp? One possibility is that polls conducted in the wake of the shutdown will reveal which side is getting the blame. If a clear loser emerges, then one party will have a powerful incentive to back down. Alas, that seems unlikely to happen soon. Before the shutdown, most polls showed that voters would lean towards blaming Republicans, but not by much. Many people see two sides unable to reach an agreement, each blaming the other for intransigence, and conclude that they must be equally at fault.
This is troubling because the longer the fight continues, the greater the chance that the modest economic harm of the shutdown will turn into something much worse. Around October 17th the federal government will hit the debt ceiling. This ceiling has been raised 74 times before, and raising it again should be routine. But what if no one backs down?
America has never before found itself unable to meet its obligations. If the debt ceiling is breached, the government will have to rely on tax revenues, which currently cover a mere 84% of its expenditures, to pay for everything. It may be able to stiff pensioners while still paying interest on the national debt, thus avoiding a cataclysmic default. But no one has tried this before, so no one knows if the Treasury’s systems would cope. In any case, slashing federal spending by 16 cents on the dollar would fairly swiftly cause a recession, and no politician wants to explain to Grandma why he stopped her Social Security cheque. So the odds are that none of this will happen. But looking at the mood in Congress, it is hard to be sanguine.
– The Economist