Debt Ceiling, Obamacare Debates Will Boost Government’s Role

Popular Economics Weekly

Tea Party Republicans apparently aren’t aware of the damage they inflict on their own party and constituents in attempting to shut down the federal government, if Obamacare isn’t delayed or repealed. For a shutdown will prove once and for all the importance of government, that institution feared and loathed in equal parts by Tea Partiers.

For starters, government spending and contracts contribute about 20 percent to economic activity, while consumers contribute some 70 percent. This is not just defense contracts, social security and Medicare, but up to $2.2 trillion in deferred infrastructure improvements such as ancient bridges and unpaved roads estimated by the American Society of Civil Engineers, in education programs and private research and development.

In fact, without the impact of federal cuts and higher taxes already passed, Mesirow Financial economist Diane Swonk estimates annual economic growth would be close to 4 percent, above the 2.5 percent pace she is expecting in 2013. Like most economists, Ms. Swonk says she does not think the economy will fall back into recession or experience a pronounced rise in unemployment, unless the shutdown is prolonged.

But we have an example of what could happen with the 1995 shutdown engineered by then House Speaker Newt Gingrich, says Ms. Swonk. In late 1995, the government closed for five days in November and again from mid December to early January 1996. If this happens again, all government employees are vulnerable to furloughs (forced, unpaid leave).

Essential workers in national security, public health and safety, including air traffic control workers, may be forced to work without pay. That would mean a hit to employment and income as we approach the critical holiday season. Social security and other transfer checks were also delayed 18 years ago, as those few left in government offices to work without pay couldn’t process the volume necessary to cut the checks.


Graph: Business Insider

And Chicago Fed President Charles Evans provided this chart to show the sharp drop in government consumption that has largely been responsible for subpar economic growth after the Great Recession.

Yet Obamacare will proceed on October 1, because it’s funding is already mandated and outside the province of Republicans to obstruct.

The New York Times said it best in a recent editorial. “That means the country will be stuck with the sequester-level cuts for the foreseeable future. It means more than 57,000 students will not get their Head Start seats back, and 140,000 low-income families who lost their federal housing assistance will be stuck in unaffordable or substandard homes. Thousands of scientists have been laid off and vital medical research projects have stalled. More than 85 chief Federal District Court judges signed a letter last month saying their cuts have been so deep that public safety is now at risk.

“A continued sequester will force unnecessary and damaging furloughs of all F.B.I. employees, and of 650,000 civilian employees of the Defense Department. And it means the economy will continue to sputter. The Congressional Budget Office estimated that ending the sequester could create up to 1.6 million jobs.”

It was conservative stalwart President Reagan who first lamented the fact that Republicans and Democrats couldn’t compromise in earlier budget battles, when he posited that it might take another war or alien invasion to get them to work together. Then he realized he could win the Cold War by out-arming Russia, and government spending came to the rescue once again.

Harlan Green © 2013

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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