## Monday, September 30, 2013 ... //

### Partial U.S. government shutdown

There may be two looming "U.S. government dysfunction" stories coming this month.

The first one is the partial government shutdown. Unless some fix appears within hours, and it seems more likely than not now that no fix is coming, the U.S. government will have to tell about 1/3 of its 2 million public employees – the non-essential personnel – to relax for a little while. The G.O.P. that dominates in the House was trying to use the opportunity to delay the Obamacare health law. However, the shutdown was found more acceptable to Obama and the Democrat-controlled Senate.

This would not be the first such shutdown but the most recent one occurred in 1996, during Clinton's reign. The battles that led to that shutdown were similar: health expenses played a role. The whole Congress had been controlled by the G.O.P. at that time.

It seems that the shutdown that took almost a month in total during that one-year period was actually quite a healthy thing. It forced the Clinton administration to balance the budget and the shutdown may therefore be partially credited for the record budget surpluses at the end of the 20th century, too.

Note that only 700,000 people or so would be temporarily fired. It's just 0.2% of the U.S. population or so. The word "government" sounds impressive but it's sort of illuminating to realize how small a group of people – and how small an amount of activities done by these folks – is being paid from those 20% or so of the people's incomes that are stolen from the people's pockets in the form of taxes for the government.

The government is still very far from being the "bulk" of the economy, thank God. At least in the U.S.

Later in October, there may be a much more dramatic and unprecedented (but less likely) event which is an independent one, the collision with the debt ceiling. The need to raise the debt ceiling is a regular event in America's internal political battles and this blog has discussed it repeatedly, too. Some people say that the default is more likely now than it was 2 years ago; other pundits say exactly the opposite.

I tend to think that the default is more likely now than it was before. The debt is really huge and a further increase of it seems more pathological than before. The debt ceiling divided by the GDP has visibly increased, too – close to the Greek proportions, so to say. Moreover, people don't seem to be panicking this time – an indication that many people may have prepared themselves for the shock.

The blame game for these possible events has already begun. Clearly, one needs some compromise between both parties (and groups inside the parties; the G.O.P. seems particularly fragmented in this situation). Each party may say that the shutdown or even default would be the other party's fault.

This blame game may look rather symmetric but I would still say it's much more sensible to claim that a smooth functioning of the government is primarily the government's job – and the government is controlled by Obama and the Democrats. So it's primarily their duty to guarantee that they have the required political support and tools to avoid bad events – and at least the default would be a bad one, for sure. Another question is whether the generic U.S. voter shares my evaluation – she possibly doesn't and she is more important for the fate of the future elections than your humble correspondent.

The Obamacare is undoubtedly a highly controversial bill – one that is rather likely to be reverted as soon as the Democrats will lose most of the branches of the government. It's a matter of their basic political intelligence and responsibility to realize that it's controversial and they don't really have the sufficient support or power to make it happen while avoiding many other risks. If there is a disagreement and some compromise is needed for the elementary functions of the government to continue, it should be clear that the default scenario should be one without a new monstrous social-engineered bill on the health care or anything else.

It seems rather plausible that the Democrats will agree and delay the Obamacare by one year, as demanded by the Republicans. This may actually make the Obamacare more acceptable and well-behaved because as some experts, even in the Democratic Party, admit, the infrastructure isn't ready for the new system of the healthcare. To admit that things are not ready and postpone the Obamacare could be too humiliating for the Democrats but if the postponing is done by the G.O.P., it could turn out to be a profitable coincidence for the Democrat Party.

The Republican politicians are surely thinking about these subtle consequences of their decisions, too.

#### snail feedback (26) :

That phrase 'non-essential personnel' always amazes me, You have to ask, so why do we taxpayers fund these jobs in the first place? In private business people would be nervous and unhappy to be considered 'non-essential', the implication being that their role is expendable and probably will be terminated to free resources for more essential activities.

Dear Shannon, perhaps. Minutes ago, i couldn't avoid thinking of you because I went shopping to the local Lidl supermarket and there is usually a thematic week - American, Mexican etc cuisine. Today, they began French cuisine. Hundreds of food products and wines of all sorts with French names etc., very funný and probably yummy. ;-)

Exactly. Note that you or me find it bad that that the redundant people are employed because we tend to think of ourselves as the payers of their income.

But there are many people who are thinking in the opposite way. So they think that the government is oh so great, sweet, generous, and well-organized because it gives work and income even to those who aren't needed! ;-)

Dear Lubos, I'm afraid you may be disappointed. Here I found a French restaurant for you in Pilsen: La Tartelette, Namesti Republiky 18.

Nice ;-). I hope they didn't forget ze fromages !

Sorry to break it to you, Lubos, but this is pure theater. The
Republicans are only doing this to get you to vote for them. It is a
calculated move to make it appear that they stand for something. If they
actually wanted to do something, they would simply refuse to raise the
debt ceiling, but I can 100% guarantee they will allow it to be raised
because their true masters are not the voters, but the Wall Street
oligarchs. They don't actually do anything for the people other than
lord over all of us, and laugh at us for falling for their complete and
utter bullshit show.

Dog, meet Pony. Time for the show!

Hi Scooby, I share your wish. And also a coup d'ëtat... 4 more years with these socialists assholes is too much to bear.

Agreed Shannon. Off with their heads. We did it before, we can do it again 8).

The US government won't shut down, but just imagine for a moment if it did: The fleets would sail
back to port; the armies would return from a thousand overseas bases; the prisoners would
march out of a hundred prisons; the nuclear missile silos would go dark;
the vast surveillance machinery would go silent; the politicians and
lobbyists would leave Washington in search of honest work...

Just vote FN Scooby ;-). Even if they are nuts, at least it will change and they are not communists.

...no tax office...
Dear Cynthia, I'm sure politicians would be ok to keep exercising power for free ;-)

I'd much prefer a coup d'état.

Well, the last time it was tried in France the 1st Parachute Regiment of the Foreign Legion was disbanded :-( (http://en.wikipedia.org/wiki/1st_Foreign_Parachute_Regiment ) so maybe the next time will bring it back :-)

This comment is ridiculous. When unions go on strike in private businesses, a large number of "non-essential" management personnel were assigned to fill in for their jobs. So there were clearly lots of non-essential personnel in private companies then. (Explanation: there's a big difference between essential for the short term and essential for the longer term.)

Interesting point. Isn't there still a difference? With gov shutdowns (including local governments during bad storms) the non-essentials just appear to not go to work at all, they stay home. In the private sector strike scenario, it would seem workers are doing different work from their normal duties, but are still working.

Yes, but in a strike when management replaces workers, the "non-essentials" in business are not doing their regular jobs. You can't conclude that their regular jobs are unimportant ... just that they're not urgent.

LOL, lots of ze fromages and I bought some, too.

As I said
before, there is no need to doubt that this is anything more than
theater. Sure, they may 'shut down' but all it will really mean is
they'll pass some kind of emergency appropriations measure or whatever
they call it so everything continues as it has been, and by 'as it has
been' I mean, the government will continue to spend money it doesn't
have on special interests that it serves. In fact, this is probably
better, since the more the spending is by emergency measure, probably
the less it counts against the (meaningless, barely even symbolic) debt
ceiling.

The only
real significance this could possibly have is if, somehow, even the most
ardent and indoctrinated Treasury and USD supporters start to question
the wisdom of allowing a country that has devolved to a point where
they're continually passing 'special measures' to fund their absurd
deficit spending, the privilege of owning/printing/managing the world
reserve currency.

"the politicians and lobbyists would leave Washington in search of honest work..."

Now you're just being ridiculous, Cynthia.

Agreed, Cynthia. A useful exercise for those who might disagree would be to scan Matt Taibbi's essays in Rolling Stone (all online) over the last year or so.

I fully agree, Gordon. I also don't see any reason for Republicans to capitulate on the shutdown as long as the markets are calm. In fact, they probably prefer much of the government being shut down. If
the Bernanke "put" keeps the markets calm, the Republicans could drag this on for weeks. It seems to me that the Fed has actually helped the Republicans be able to drag this on longer.

Bernanke and Draghi both keep substituting monetary policy to counterbad fiscal policy, but all it does is mess with market mechanisms and allow politicians to not do their jobs. When will these super-educated people with PhDs realize they aren't helping when they make it so politicians don't have to fix their problems. Congress is the drug addict and the Fed is the drug dealer that is more than happy to
continue supplying the drugs.

However, when Dope Pusher Ben stops injecting high-grade monetary heroin into the
veins of Wall Street, hedge funders and other high-stake gamblers will
be lying on the floor in the white room with black curtains, seeing
silver horses ran down moonbeams in your dark eyes and other sorts of
strange things:

But hey, as any dope addict on the street knows, detox, though excruciatingly
painful and sometimes deadly, is the first step towards functioning
without heroin and other sorts of highly addictive drugs from the Fed.

Luckily then, debt is NOT an (real) issue. Debt default or not, who cares. Detroit did it, US government can do it.

But the question remains - why people, corporations, governments go into the debt? Why, if its not important?

Alex

Dear Alex, it's a good question, one that you should have asked when you were attending a kindergarten but given your mind, it's not bad when you ask it at the age of 30, either.

People and towns and countries borrow money because they want to spend, consume, or invest now, before they actually earn the money that pays for those things. It has many advantages.

The disadvantage is that if they borrow too much, more than they will actually be able to repay when they're supposed to repay the debt, they go bust.

Got it?

Luboš,

thanks for explaining - thats why I hold NO (or minimum) debt, since I actually think about theses issues much more, than 99,9 % percent of Homo sapiens ;-)

So I cannot default and wreck people's lives in the proces...

Best,

Alec