There’s still quite a bit of confusion out there with regard to exactly what it is that lawmakers are debating in Washington.
Americans are an apathetic bunch and unless something directly impacts their lives, they generally don’t care. That’s understandable and indeed, it’s entirely forgivable under most circumstances. Because it’s not always clear what’s “apathy” and what’s “given the rigors of day-to-day existence, I literally don’t have time to care about that.”
Separating those two things is important. If you confuse them, you’re led to all kinds of ridiculous conclusions like this one, trotted out by quite a few Right-wing bloggers and even some African American commentators last month: “black people never spoke out about Confederate statues until Charlottesville, therefore black people are being disingenuous to demand the removal of monuments to slavery.”
Here’s how we debunked that completely absurd assertion:
Society is full of examples of things that probably should be abolished but are generally tolerated by the people they harm (psychologically or even physically). The reason for that apparent apathy is self-evident: lacking some catalyst that adds a sense of immediacy to the cause, people aren’t predisposed to act because for the vast majority of Americans, just making it through the week is a struggle that consumes nearly every waking hour. That’s especially true for minorities.
Implicit in the above is the idea that after a certain amount of time, people resign themselves to their fate. For instance: America is a racist country. That’s not likely to change. So after a while, African Americans just kind of throw in the towel and go on about their business (sad, but undeniably true).
It’s the same thing with Americans and politics. Lawmakers are inept. They are terrible at their jobs. Seemingly, there’s nothing anyone can do about that because no matter who we elect, it never changes. So you know, “to hell with it.”
Here’s BofAML underscoring this point by way of a chart that shows consumer confidence and payrolls around the last government shutdown:
Looking back at the data for this period, the shutdown had surprisingly little impact. The S&P 500 hit a mini-peak on September 18, and fell 7% by October 15, but was back to pre-shutdown highs just two weeks later. However, beyond a big drop in visitors to national parks and a dip in government outlays, it is hard to find any impact on the economy. For example, consumer confidence slipped, but payroll growth accelerated (Chart 4).
Why such a small response?
In our view, constant threats of defaults, cliffs and shutdowns have made consumers, businesses and markets more resilient in the face of discord in Washington. Repeated brinkmanship moments have brought repeated last minute deals, leaving only small scars in the economy. Resilience to discord in Washington is probably even stronger today as confidence indicators remain strong despite very volatile political discourse. The 2013 shutdown had a bigger impact on public opinion of the two political parties.
Again, people knew who to blame (politicians), but other than blame casting, no one really cared for two reasons:
- unless you were one of the furloughed workers or were planning a vacation to a national park (Clark Griswold), it didn’t have an impact on you, and;
- we’ve become desensitized to incompetency from our politicians.
So what’s different this time? Why should anyone care?
For one thing, there are epochal political shifts going on here. But let’s just leave that aside and cut to the more pressing issue: if the U.S. were to default (as always, this would be a “technical” default, as it’s for all intents and purposes impossible for the country that prints the world’s reserve currency to default in any real sense), it would risk a recession and it would crash markets with obvious implications for Main Street.
Much like 2008 then, it would be one of those scenarios where the (justifiably) oblivious masses are suddenly saddled with problems that they didn’t think were theirs.
And so, in the interest of explaining things in terms that regular people can understand, we present the following decent summary from BofAML…
Via BofAML
Why do we care about these deadlines? For the economy, violating the debt ceiling is a much bigger deal than failing to pass a budget. The latter triggers a partial shutdown of the government. Roughly 800,000 workers are furloughed, national parks are closed and contracts with private contractors go unsigned. However, mandatory payments like Social Security and essential services continue. A shutdown causes a drop in government spending of roughly 1% of GDP. Over a few weeks, this is not a big deal; over a few months, it might trigger a recession.
By contrast, violating the debt ceiling is a very big deal. It threatens the credit worthiness of the US government and almost surely would trigger a downgrade by all the credit rating agencies. It also forces a much bigger and more erratic government shutdown. Without the ability to issue debt the government must immediately balance its books on a day-to-day basis. On average that means cutting government outlays by about 3 ½% of GDP. However, in months with low tax collections, the cuts would have to be about twice as big, although some of this could be mitigated with very aggressive cash-flow management. In our view, a violation of the debt ceiling would push the economy into a major recession if sustained for more than a month.
Budget brinkmanship is also important politically. Shutdowns are unpopular and historically have tended to be blamed on the Republican Party. An August 24-28 poll taken by Politico and Morning Consult found that 69% of respondents disagreed and only 16% agreed with the idea that “members of Congress should allow a temporary government shutdown if it helps them achieve their policy goals.” Three quarters were either “very concerned” or “somewhat concerned” about the impact of a shutdown. Only 14% of respondents “strongly” supported shutting the government down to force funding of a border wall, while another 14% said they “somewhat” supported this proposition.
