(Grammatical note:  I can’t figure out whether a shutdown should be feminine, “la”, or masculine, “le”, so I went with the default gender, biologically and otherwise.  We’re all designed to be female; it is only the unfortunate half or so of the population who receive a Y chromosome that suffers a change in the underlying design.)

The government is shut down.   Or at least is partially shut down.  About 800,000 nonessential workers have been furloughed.  Here’s a question you won’t often hear in the rancorous debate over who’s to blame for their layoff:  Why does the government have 800,000 nonessential workers in the first place?   Doesn’t nonessential also mean “not necessary”?

A few more questions:

Can you tell that the government is shut down?  Neither can I. 

Do you know why the government is shut down?  Because it hasn’t any money.

But I thought it printed money? 

Indeed, it prints money.  But it also has some rather queer rules through which it accounts for its activities that make it appear right now that the government has run, or is dangerously close to running, out of money, and not because it can’t afford paper and ink.  The government hasn’t taken in enough in taxes to support its spending since Clinton (and then only very briefly did it run a surplus).  Basically since World War Two, the federal government has relentlessly spent more than it takes in.  But it needs two things to keep spending, by dint of its queer accounting rules: 1) continuing Congressional authority to spend; 2) continuing Congressional authority to borrow.   Superficially at least, this political impasse that has the government shut down turns on the first requirement.  Soon enough, the second requirement will also be an issue, albeit of lessening importance the longer the shutdown obtains.  There’s not as much need to borrow money if very little money is being spent. 

What is the source of the political impasse that led to the shutdown? 

Ostensibly it is over Obamacare, or less colloquially, the Affordable Care Act.  In reality, the political impasse is the result of the ongoing demographic shift in the US.  The people of European ancestry (i.e., the people referred to as “white” in the US, which are the melted pot of European nationalities, i.e., the same nationalities who were slaughtering themselves on the battlefield about three score and ten ago) who founded the country and propelled it to greatness are being squeezed out through immigration and their own low birth rates, declining to about two-thirds of the electorate now, whereas fifty years ago they were closer to four-fifths.  The impasse is part of a cultural and political power struggle they are fighting as a rearguard battle against their fading relevance.   The newcomers have formed alliances with blacks and some measure of white urban intellectuals to supplant the power and culture of the old guard whites.  The fight over whether or not to fund Obamacare, which has resolved to whether or not the government gets partially shut down, is thus only one battle in a much larger war for political power.  It is not–absolutely, positively not– about ideology.  Ideologies are just the swords and shields making up the weaponry on the political battlefield.  Like all political fights, this fight is about power.  Nothing more and nothing less.  The old guard whites are fighting to preserve theirs; the new alliance is fighting to expand theirs. 

What might be the effects of this government shutdown?

This is where things get juicy.  One Bloomberg article posits that the Shutdown [is] Threatening [the] Housing RecoveryAnd what a glorious effect that might be!  Imagine, a perfectly timed shutdown luffing the sails of a housing recovery that had already started to list a bit too far leeward behind the massive stimulus at its rear quarter.  The shutdown would not impact the flow of money to the housing sector.  Instead, it would slow things down by the nicks of a thousand bureaucratic cuts.   Without the people who man the various agencies (the IRS, the FHA, the VA, etc.) the housing market depends upon in receiving its massive amounts of government largesse, there would be time delays, i.e., increased transactions costs, which the Coase theorem tells us, could reduce the number of transactions, making the market less liquid and thereby less valuable.  I know.  It’s all a bit of a stretch.  But it’s at least something hopeful on the horizon, where before the shutdown, the only possible outcome in the housing market was a repeat of the disastrous past.  Doing the same thing and expecting different results…well, you know the rest.  Apply this analysis to the rest of inflated markets (stocks, bonds, etc.), and you have an idea of what the total effects might be.  In other words, if the shutdown precipitates a deflation of all the bubbles the Fed is trying to inflate, what a marvelous, wonderful thing will have obtained as a result.

But economists predict the shutdown will cost the economy $300 million dollars per day.  Won’t that hurt everyone?

First, economists can barely get it right nine times out of ten that the sun will rise in the east.  And every dollar not spent by the government in the shutdown is a dollar potentially spent in the private economic system.  There is precious little that the government does which creates value, and presumably all those value-creating activities (defense, communications, etc.) are more or less fully operational, manned by those employees not considered “nonessential”.    It may well be that there will be $300 million in lost income with a furlough of 800,000 government employees.  A well-trained chimpanzee could do the math to figure out exactly how much income it is that the furloughed workers are losing.  It is the follow-on effects of having 800,000 fewer government nannies, meddling bureaucrats and bumbling technocrats that are harder to value.  It is emphatically not the case that the economic impact of the shutdown can be accounted for solely by looking at the reduced income to government workers. 

What if the political impasse bleeds into the need to raise the debt ceiling on October 17th?  Couldn’t that potentially cause a catastrophic default by the government on its obligations?

Did the United States borrow any of its obligations in foreign currencies?  No.  Does the United States print its own currency, thereby controlling its output and supply?  Yes.  There is therefore no possible way that the United States will formally default on its obligations.  Every bondholder will receive all the dollars they have lent.  Their only risk is that the Federal Reserve turns the printing presses to eleven to do so, thereby inflating away the value of their holdings.  And nothing of whether a default by inflation occurs or not has a thing to do with whether politicians find their impasse intractable at the time the debt ceiling needs to be raised.  The coming debt ceiling melodrama is less important to welfare of the republic than the shutdown, and though it is day two on the shutdown, the sun continues coming up in the east, much to the chagrin of at least one of ten economists.

What benefits might accrue because of the shutdown?

There is a remote possibility, if the impasse lasts long enough, that people will slowly begin to realize how relatively unimportant is the US government to the continuing function of the country, which might thereby slow the expansion of the federal Leviathan.  

In this unipolar, US dominated world, there is very little need for the US government’s incessant meddling in the lives of its citizens.  Its charge should be to protect and defend the Constitution of the United States, and little else, which is roughly where it stands with the shutdown.  In its striving for post-Cold War relevancy, the US government has tried to become a one-stop shop for resolving all of life’s individual challenges.   Never mind the unsustainability of the enterprise, in the process of becoming the people’s nanny, it has become as over weaning and suppressive of initiative as the Soviet politburo that it defeated in the Cold War had once been.

If the republic fares as nicely in the coming days and weeks as it has initially with the shutdown, the polity might just come to the realization that government is not as necessary as once believed.  They might even awaken to the notion that the government is, more often than not, the problem, not the solution. 

One can only hope.  Vive la Shutdown!

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