Saturday, we broke the record for the longest government shutdown in history--now 23 days and counting -- which was set in 1995-96 when President Bill Clinton refused to accept Medicare premium hikes and program cuts proposed by a Republican-majority House and Senate, and the government shut down for 21 days. What are the chances of a settlement? You need a little bargaining theory to predict a deal. Deals are made when both sides are hurting and the "costs" of settling are less than the costs of a stalemate. If the President, for instance, feels the shutdown helps him, the shutdown will continue. Same thing about the Democrats. If there is significant gain from the shutdown to at least one party, the shutdown will drag on.
The shutdown's economic harm to us all may not be apparent but it is real. On Friday, 800,000 federal workers did not receive paychecks, even though many must keep working as a condition of their employment. Many federal contractors and their employees (including small businesses) also are not being paid. Consumers are losing. Planning to travel? Avoid Miami International Airport, where the shutdown-induced shortage of TSA workers caused a partial closing of a terminal. Expect these air-travel problems to spread. Last week I was coming back from the American Economics Association convention in Atlanta, and the unpaid TSA workers looked beleaguered or stoic or a mixture of both. Two days ago they were angry and organized a protest against the shutdown. Will militancy spread?
So the largest and most direct losses from the shutdown are borne by lower-income and middle class federal workers, many of whom live paycheck to paycheck. The TSA militancy was clearly predictable. The protest contradicts the claim of President Trump's economic adviser's, Kevin Hassett, that furloughed workers are "better off" due to the shutdown because they didn't have to use up vacation days in December. Next on the scale of intensity of losers are communities and businesses who depend on federal workers.
But the costs are beginning to add up as the shutdown supresses aggregate demand and increase input costs--we all are losing. Government shutdowns can hurt the economy just like recessions. The Office of Management and Budget estimated the cost of 2013’s 16-day shutdown at between $2-6 billion of lost output (their mid-range estimate is .02% of GDP overall). Based on those estimates, a shutdown lasting into February could cause up to a .07% loss of GDP, similar to losses in a significant downturn. And as SP Global already noted last week, a shutdown running into late January would cost the economy $6 billion in lost output--greater than the $5.7 billion Trump wants for the wall.
Will political parties stop the shutdown? The answer is not while Republicans benefit from the public's frustration with government.
There is good historical and on-the-record evidence on how the President and Republicans may be perceiving gains and losses from the shutdown. The government shutdown could be part of their long-term government slowdown. Government dysfunction causes the public to lose faith in government. And, the Republicans are on record as the anti-government party.
Exhibit A: President Trump took ownership of the looming shutdown saying “I am proud to shut down the government for border security” suggesting he perceives the stalement is to his advantage. Just like Bill Clinton held fast to preventing Medicare cuts.
Yet the wall remains Trump's bottom line while public support for it falls. A new NPR/Ipsos poll reports 70% of Americans think the shutdown will hurt the economy, and 71% want Congress to reopen the government while negotiations keep going. Trump sees the same polls we do. So his holding fast suggests he gains something else besides the wall by not settling. He and the Senate Republicans who are backing the President might be gaining a long-term advantage as the shutdown becomes an extension of historic pressure by Republicans to, in their own words and actions, weaken support for government.
Exhibit B: In 1990, the then-leader of the Republican party Newt Gingrich urged Republicans in Congress to be "divisive, combative, and disruptive." Political scientist Thomas Mann describes the Gringrich-led process: “Gradually, it went from legislating, to the weaponization of legislating, to the permanent campaign, to the permanent war."
The Trump Administration is the logical heir to this double-decade effort by his party to weaken government's effectiveness. The administration has not nominated senior-level staff for government agencies to go through normal Congressional confirmation processes. Trump often prefers to put temporary appointees into the jobs or leave key offices unfilled.
Bottom line: A lasting effect of this government shutdown and the ongoing government slowdown is further eroding respect for the federal government’s reliability. For example, the Republican party has always sought to weaken Social Security. Last year the administration accelerated shuttering Social Security offices (just when demographics mean service demand is up), reducing service and responsiveness. Mark Miller summarizes the historical erosion of Social Security services in a November New York Times article. And the erosion continues--when SSA workers come back to work they won't get any raises.
The President and Republican leaders in the Senate may perceive the shutdown helps them win the long game against government and the destabilizing and shrinking of the economy is worth it. But we all are paying a recession - like cost from the shutdown.