My Thoughts on the Government Shutdown

The Republican-led House caused the US government to shut down today. They did it because they think the US debt is too high and because they oppose ObamaCare.

Here are my thoughts:

Deficit Spending

Deficit spending can continue forever as long as the deficit is smaller than the increase in GDP. Why? Because the amount that the aggregate debit impacts the value of the dollar is based on the numerator (debt) and denominator (GDP or potential GDP if you're an economist). In fact, the US grew out of the post WW2 debt not by paying the debt down, but by building a bigger economy.

Also, Obama has decreased the deficit and the deficit as a percent of GDP every year that he's been in office. The deficit and the debt were inherited from an all Republican government. In fact, since WW2, every Republican President has increased the debt as a percentage of GDP and every Democratic President with the exception of Obama has decreased the debt as a percentage of GDP (Paul Krugman has a number of pieces on this.)

It's the role of the federal government to do counter-cyclical spending (this was economic dogma up through the early 90s… I refer to a paper I wrote when I was 12). The economy hasn't returned to either full employment or to potential GDP. Until both of those things happen, it's better for the country for the federal government to borrow and spend because each person who is unemployed is reducing our aggregate wealth. There are also the social and economic costs of long term employment (basically the new entrants into the workforce during a slump and the long term unemployed earn below expectations for the rest of their life.)

Finally, we run deficits in our households and in local government as a normal course. In our households, we call these deficits things like going to college and retirement. At the local and state level, we call these deficits bond issues. But each of these are accounted for in a palatable way. All levels of business and families and government borrow more than they make from time to time. At the macro level, we have to look at the macro drivers which is aggregate debt and potential GDP.


Putting aside the legality of something that passed the tests of all three branches of government, ObamaCare is working. If it was actually going to be a failure, the Republicans would use it as a boat anchor around the Democrats' neck for a generation to come just as the Republicans have branded the Democrats "Tax and Spend." The reason the Republicans want to stop ObamaCare is that it's going to work, just like Social Security and Medicare. It will be another social program associated with Democrats.

Let's take a look.

The aggregate cost of health care is going down, now, even before ObamaCare goes into effect because the insurance companies are being forced to compete on a level playing field. This is also due to the fact that a fixed percentage of overall health care costs can go to profit and marketing.

But the larger argument for universal health care is the same as the argument for universal K-12 education, police, fire, and military. There is an aggregate benefit to having a society where choices of employment are made based on personal choices, not health care choices.

For example, my cousin (a very nice Lutheran who has been faithfully married to the same man for 26 years… just in case anyone wanted to make the morality judgement) has had 3 brain tumors in her life and other nasty medical issues. She cannot be without healthcare for even a minute because (up until today), the second she was off health care, she could never obtain it again and she and her husband would go bankrupt because of the ongoing costs of her care. Her husband has very limited job mobility because he has to keep a job with full health care… and his bosses know this and exploit him.

But beyond the individual rhetoric, every advanced country other than the US has some form of universal health care. And every one of those systems has better outcomes and lower per person costs than the US.

So, for those that don't want fire and police services, you can move to the woods. But you still have to pay taxes to support the military. And now, you still have to pay taxes to support the health of every American. So, yes, the radical libertarians lose out and the other 99% of Americans win.

Put another way, for every person in the top 5% that will have a higher nominal health care bill (and I say nominal because the value to the top 5% of having a better functioning workforce because there is greater preventative care and because the cost of goods will go down because the percent of aggregate spend on healthcare will go down), there are 19 people who will have lower health care costs and better health.

Or put in other terms, anyone who is making a healthcare vs. toy purchasing decision will have a higher bill and everyone who is making a healthcare vs. food or shelter decision will have a lower bill and better health care.

Bottom Line

But the bottom line here is that holding the government and the value of the dollar hostage (which is what the Republicans are doing) is not part of having a functioning government. Yes, balancing the interests of 330 million people is very hard… just think about how hard it is to balance the interest of a household, a school, a workplace. That's why we have both the embodied Constitutional checks and balances as well as the legislative norms. There is nothing that I can see about the deficit spending or health care that requires going outside of these norms. Even issues that I'm very passionate about (the NSA spying for example) do not rise to the level of breaking down a functioning government to get resolved.

Some additional thoughts that I put down around the Sandy Hook massacre. But they are germane to this discussion as well.