A few thoughts on the political economy of a gov’t shutdown

January 18th, 2018 at 10:14 am

I’d put the odds of a government shutdown at a little below half at this point, say 45%. To be clear, what we’re really talking about is a partial shutdown; less than half of federal workers are considered non-essential, so most (~60%) stay on the job; those furloughed typically get paid retroactively.

You can read about the latest details here, including a curve-ball tweet this AM from the president that seems to mess a bit with the R’s strategy: get D’s on board for a short-term budget patch by extending the CHIP program as part of the stopgap package (Trump’s tweet suggested he wants to resolve CHIP outside of the short-term deal; I doubt this changes much, as Congress will and should ignore him; his position has probably flipped n times by now). D’s in the Senate are under pressure to oppose a package that fails to reinstate DACA.

Should a shutdown occur, the economic impact is a function of its length, though much–not all–of what is lost tends to get made up in later quarters post-shutdown. GS Researchers (no link) “estimate that each week of shutdown would reduce real GDP growth in Q1 by 0.2pp…annualized. The effects would be reversed the next quarter however. Shutdowns have also tended to have modest effects on financial markets.”

But what about the political fallout? I think there’s a short-term and longer-term game in play. In the near-term, though it’s hard to know which side will take the hit, shutdowns can and do hurt the party blamed for it by the majority of the public. My guess is the R’s would get blamed this time, just based on the extent to which the public is aware of their chaotic politics. But that’s a weak prediction.

A much stronger prediction stems from the contention I made in this interesting WaPo piece: “These government shutdowns feed into a narrative that is not politically neutral.” The more people believe the government is fundamentally dysfunctional, the more they’ll be OK with de-funding and shrinking it (cutting tax revenues), turning federal programs over to states (“block grants”), and generally accepting the R’s narrative of a feckless government sector that wastes your tax dollars. Why, they can’t even keep the lights on!

This leaves me pretty wary of any short-term advantages from blaming the other side for the shutdown, should it occur.

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3 comments in reply to "A few thoughts on the political economy of a gov’t shutdown"

  1. Kevin Rica says:

    The last shutdown was more than four years ago. The Feds need to clean their garages again by now.

    No matter how many times Dick Durbin claims he is defending the”interests of the American people,” DACA has nothing to do with voting Americans. They are a relatively sympathetic group of foreigners who need the same jobs that Americans want and need. Trump gets to claim he’s willing to legalize DACA in exchange for a wall and better enforcement so he can defend American jobs from foreigners who aren’t even here yet..

    I’m not sure that without Bannon some House Republicans can get political messaging and shoe-tying straight. But they are on the political high ground and the game is theirs to lose.