What's The Cost Of Budget Gridlock?
RENEE MONTAGNE, HOST:
And the Supreme Court may be at their desks but much of the government remains shutdown. Now it's in its seventh day, that shutdown. Ripple effects are spreading throughout the economy.
And to talk about how much the overall economy is at risk, we turn now to David Wessel. He's economics editor of The Wall Street Journal. Good morning.
DAVID WESSEL: Good morning, Renee.
MONTAGNE: That shutdown, this shutdown is obviously an inconvenience - financially painful for many. But how much serious harm is it doing to the U.S. economy?
WESSEL: Well, it's a good question. Think of this as concentric circles. At the center, of course, are these federal employees, many of whom have been told not to work. All of whom have now been told they will be paid - some day but not now. Then there are private-sector employees in the next ring who depend on the government being open.
My colleagues at The Wall Street Journal talked to a guy who owns a bus company called Bailey Coach in York, Pennsylvania. It runs 11 buses to places like Gettysburg and the Liberty Bell. And he says when tour groups cancel, 'cause they can't get into these sites, the drivers don't get paid. He had to give $10,000 worth of refunds over the weekend.
And then beyond that there are people who rely on government services that are suspended; some Head Start programs are closed, some business loan programs aren't taking applications, farmers say they can't get the price data that usually government usually gives them to help manage their businesses.
Now, all the individuals are clearly hurt economically. But if you add it all up, the U.S. economy is so big that this problem isn't a huge effect. These direct effects may be three-tenths of a percentage point off the growth rate in the fourth quarter of this year.
MONTAGNE: Well, then does that add up to we don't have much worry about?
WESSEL: Well, we don't have much to worry about from the direct effects of the shutdown unless it's prolonged. Some of the harm to the economy will be offset when the government reopens, as it surely will. But it's really more complicated than that. Gallup takes a daily survey of consumers that it's found a sharp plunge in confidence to the lowest level in nearly two years among consumers. And that clearly is bad for the economy. And, of course, this isn't happening in isolation.
There's this growing angst about the need to raise the federal debt ceiling. The Treasury says it will run out of cash some time later this month. It won't be able to pay all the government's bills unless Congress lifts the ceiling on federal debt. And everybody says, well, they'll probably do it but they can't be sure. So that's another kind of big worry cloud over the economy.
MONTAGNE: And, David, can we look to the past for where we might be going here?
WESSEL: Well, we always do, of course. There was a three-week shutdown in the mid '90s. The damage then was bad, short-term, but was really offset by a rebound afterwards. I'm not sure that parallels really work. At that time, Bill Clinton and Newt Gingrich - the House speaker, seem to be able to negotiate. Raising the debt ceiling wasn't much of an issue and we didn't - it wasn't preceded by these across the board spending cuts, the sequester.
Two years ago may be a better parallel. In August 2011, Congress took it right to the brink before they raised the debt ceiling. They did but the anxiety over it took a real chunk out of the economy, just a time the recovery was beginning to get some momentum. And I think that actually did have long lasting effects.
MONTAGNE: And that was, of course, far more negative than what we've seen so far.
WESSEL: So far.
MONTAGNE: So far.
MONTAGNE: Well, let's talk about the financial markets. Are they showing any signs of anxiety?
WESSEL: Well, the stock market has been blissfully unconcerned. The bond market seems to be happy because it thinks the Fed will hold off on doing anything, as long as the government is in chaos
MONTAGNE: David, thanks very much.
WESSEL: You're welcome.
MONTAGNE: David Wessel is economics editor of The Wall Street Journal.
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