Who Benefits From a Government Shutdown

The news has been talking about the government shutting down if Republicans and Democrats cannot agree upon a fiscal budget for the upcoming year. The last time the government shutdown was in 1994 and 1995 for about 3 weeks – the longest shutdown in modern history. The battle in 1994 was also over the budget. To keep the government running at deficit levels, it periodically requires Congress to raise the debt ceiling. But in 1994, and now in 2011, the Republicans are rightfully balking at raising the debt ceiling further, but instead want the federal government to rein in spending. Republicans have seen the Obama administrations budget proposal for this year and they understand it will lead to nearly 10 trillion dollars in increased debt over the next decade. Democrats are generally willing to make small cuts to discretionary spending, but would rather raise taxes on the wealthiest Americans. Most knowledgeable Americans understand even if (and this is a big if) increased taxes on the wealthy leads to more government revenue; it does not correlate to less debt. Defense spending is one area where Democrats would love to make massive cuts and I concur. Republicans, on the other hand, would like to lower taxes while making deep cuts in entitlement spending (the sacred cow) and discretionary spending. And when neither party is willing to compromise on their core fiscal beliefs – the government faces a potential shutdown.

In 1994, the government shutdown occurred on two separate occasions and led to thousands of government employees being furloughed. Clinton estimated it cost the taxpayers about 400 million dollars to make payments to furloughed workers. Off course Clinton and the Democrats blamed Republicans, in particular, Newt Gingrich for the shutdown. Although Clinton’s poll numbers decreased during the budget fight and the shutdown, his numbers improved dramatically once the shutdown ended and he was subsequently re-elected in 1996. The main reason for Clinton’s increased popularity was because Gingrich was caught on record saying he got into the financial fight with Clinton because he made him sit in the back of Air Force One on a trip. While Clinton’s poll numbers increased to their highest levels since he was elected into office, the Republicans and Gingrich’s image took a huge hit as Americans blamed them for the shutdown.

Sixteen years later we are having the same political fight. Many prominent Democrats (Schumer and Dean to name a few) are on record stating they would prefer a government shutdown and to politically blame Republicans, in particular, Tea Party influence, as the reason for the shutdown. Obama is on record of denouncing a shutdown claiming it would dramatically hurt the economic recovery. This is, in itself laughable, to think that government intervention is a necessary component to aide economic recovery. However, some economists claim a government shutdown leads to higher interest rates. Meanwhile, most prominent Republicans are on record stating a shutdown would be bad for everyone. It seems both Democrats and Republicans are aware of the 1995 outcome of the government shutdown – Democrats want for history to repeat itself and Republicans are afraid of history repeating. But, I do not see the 1995 and 2011 situations as being similar. Yes, both are over budget fights and both are over what to cut, but the economy in 2011 is in much worse shape than in 1995. Whereas Republicans are trying to reform spending and make the government solvent for years to come, the Democrats want to continue with the status quo of spending our way further into debt. For this reason, I cannot see a government shutdown working in the favor of the Democrats unless, of course, some leading Republican makes a dumb statement.

In reality, the American public benefits from a government shutdown. In 1996, both parties finally agreed upon a budget that eventually led to a surplus. The same can happen in 2011, and this would be good for every American citizen. After all, if the government is shutdown, they are not around to muck things up.