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Will The Federal Government ‘Shut Down’ At Midnight? And If It Does, Will It Affect You?

September 30, 2013 by  

The answer to the first question is looking more and more like a “yes” with each hour that passes. President Barack Obama said nothing new (and took no questions) at a press conference today, reiterating the harm a shutdown would do to the U.S. economy and to “our neighbors” who work for the Federal government – the Nation’s largest employer – who’d be furloughed.

Obama also repeated his rhetorical device Monday of marginalizing recalcitrant House Republicans (despite their representative majority), claiming that “one faction of one part in one house of Congress in one branch of government doesn’t get to shut down the government just to re-fight results of the last election.”

The House GOP spent Monday criticizing the Senate for taking Sunday off in the face of a government shutdown, as well as to repurpose a continuing resolution to temporarily fund the government with a proviso that would require a one-year delay in Obamacare’s individual-coverage mandate. That bill also seeks to strip members of Congress, White House officials and political appointees of any Obamacare subsidies, effectively forcing lawmakers to live with the same legislation they’ve passed on to the public.

Democratic leaders from Obama to Senator Harry Reid (D-Nev.) to Senator Tom Harkin (D-Iowa) uniformly vowed any bill that attempts to attach Obamacare restrictions to the Federal budget would get no traction.

In short: last-minute deals can always happen, but there’s been nothing in the rhetoric to indicate either side of the argument is approaching a compromise that will avert a shutdown with only hours left on the deadline clock.

As for the second question? Well, if you aren’t a Federal employee in a “nonessential” role (more on that in a moment), history would indicate that a shutdown is more likely either to help you a little, or to have no effect on you at all, than to cause you financial harm – despite Obama’s dire talk of an imploding economy.

Russell Price of Ameriprise Financial wrote Monday:

The most notable government shutdown of recent memory was the closure of government offices during the budget battle of 1995. Similar to the current circumstances, then-President Clinton battled with the Republican-led House of Representatives over the fiscal 1996 federal budget.

… How did the economy and markets react? Quite well, actually. Stock prices moved steadily higher throughout the period, likely on the perceived prospect of deficit reduction. The S&P 500 was 5.4 percent higher on a price-only basis from the end of October through the end of January.

Meanwhile, consumer spending was also fairly unaffected through the period, although consumer confidence did drop significantly. Confidence levels had improved in early November with the Conference Board’s index rising to 101.6 from 96.3 in October. But by the time of the January reading, the index had dropped more than 13 points to 88.4.

Ultimately, the U.S. economy surged in 1996 with Real GDP growing by 3.7% versus 2.5% in 1995.

In addition, Democrats’ claims that a shutdown will harm soldiers, mailmen, people on Social Security, unemployment and people who eat meat that someone from the FDA hasn’t inspected – to name only a few nightmare scenarios – are either exaggerated or completely false. National Review sets the record straight here.

A separate NR article also points out what many small-government conservatives have maintained all along: that a “shutdown” as defined by Congress isn’t really a shutdown at all. Rather, it’s a paring back of government bloat that leaves intact, in some form, those functions of Federal government that crucially serve the interests of all Americans, as opposed to specialized entitlements and regulations that benefit (or harm) only the few.

NR’s Hans A. von Spakovsky, a senior legal fellow at the Heritage Foundation, writes:

The truth from the experience of prior shutdowns, applicable federal laws, Justice Department legal opinions, and Office of Management and Budget (OMB) directives, is that crucial government services and benefits would continue without interruption even if Congress fails to agree on a continuing resolution (CR) or President Obama vetoes it. That includes all services essential for national security and public safety — such as the military and law enforcement — as well as mandatory government payments such as Social Security and veterans’ benefits.

In fact, as the Justice Department said in a legal opinion in 1995, “the federal government will not be truly ‘shut down’ . . . because Congress has itself provided that some activities of Government should continue.” Any claim that not passing a CR would result in a “shutting down” of the government “is an entirely inaccurate description,” according to the Justice Department.

Such a lapse in funding would be neither catastrophic nor unprecedented. There have been 17 funding gaps just since 1977, ranging in duration from one to 21 days. Under applicable federal law, operations and services would continue for those essential for “the safety of human life or the protection of property” as well as those programs funded through multiyear or permanent appropriations such as Social Security.

Even furloughed employees are likely to receive their back pay, and some are already using the union apparatus to clamor for it. That kind of collateral expense points out the self-perpetuating fallacy of big government. Democrats’ urgent criticisms that a shutdown will ultimately be costly to the government are true – from Democrats’ point of view. That’s because Obama and his followers invoke the lost opportunity cost of unpaid wages and unspent Federal funds as a harbinger of economic loss for average Americans.

But that’s a very progressive way to approach the “problem” of paring back Federal spending. As Reason’s Scott Shackford writes:

To my perpetual annoyance, the president – like any government official defending employee spending – invoked the concept of economic multipliers, the notion that wages generate and grow a local economy as the money is spent in the community, thereby creating wealth. It’s frustrating when government officials invoke economic multipliers because the money they spend is forcibly taken from the community in the first place. These are not voluntary exchanges where the consumer receives something of value in exchange for the producer receiving more than the cost to create that thing (in fact, ithe exact opposite often happens given the lack of incentives for efficiency). When a government official invokes economic multipliers, he or she inevitably doesn’t consider what might have been done with that money if the government never collected it in the first place.

So here’s an idea: stop calling it a “shutdown” and make it permanent. Let dollars stay in the hands of people who earn them instead of being handed over to the Federal government to propagate a never-ending bait-and-switch game of “taxpayer-funded” entitlements that are actually funded on wave after wave of limitless, currency-debasing money printing.

Of course that won’t happen anytime soon. But if the government does “shut down” after midnight, it will be interesting to see whether the private sector responds as it did during the Clinton years.

Ben Bullard

Reconciling the concept of individual sovereignty with conscientious participation in the modern American political process is a continuing preoccupation for staff writer Ben Bullard. A former community newspaper writer, Bullard has closely observed the manner in which well-meaning small-town politicians and policy makers often accept, unthinkingly, their increasingly marginal role in shaping the quality of their own lives, as well as those of the people whom they serve. He argues that American public policy is plagued by inscrutable and corrupt motives on a national scale, a fundamental problem which individuals, families and communities must strive to solve. This, he argues, can be achieved only as Americans rediscover the principal role each citizen plays in enriching the welfare of our Republic.

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