Tuesday, October 22, 2013

Why Is Government So Important?

Popular Economics Weekly

So it turned out to be true, contrary to those who believed less government is better. The government shutdown proved just how important government is to our daily lives. Not only its cost—upwards of $24 billion in lost output over the next 10 years, for starters. Standard & Poor’s said the shutdown “to date has taken $24 billion out of the economy,” equaling $1.5 billion dollars a day and “shaved at least 0.6 percent off annualized fourth-quarter 2013 GDP growth.” And probably the future loss of jobs, as well, because employers have cut back on future hires over the uncertainty of another shutdown.

“As a consequence (of the shutdown), you may expect fourth-quarter growth in gross domestic product to be shaved by a half-point or more – bringing the rate of growth down to 2 percent or less”’ said Marketwatch economist Irwin Kellner. “Some of this might also carry over into the first quarter – especially since this brouhaha could well see a return engagement come early 2014.”

Economists are already speculating on why just 148,000 payroll jobs were created last month, in a report delayed some 2 weeks because of the shutdown. The 7.2 percent unemployment rate was lower because more were dropping out of the workforce, not because more were employed in the household study.


Graph: Calculated Risk

According to the Bureau of Labor Stat’s household survey, the labor force rebounded 73,000 after dropping 312,000 in August. However, the pool of available workers fell another 183,000 after a plunge of 532,000 in August-resulting in the fourth decline in a row. Again, a low labor force participation rate is at least partly behind the lower unemployment rate.


Graph: WSJ Marketwatch

The bottom line is that government provides too many services, and employs too many people in the private and public sectors, to be shut down for any length of time. That is the overriding lesson learned from this shutdown.

And the public knows it. In the aftermath if this shutdown, 8 in 10 Americans say they disapprove of the shutdown, according to a new Washington Post-ABC News poll. Two of three Republicans, or independents who lean Republican, share a negative view of the stalemate. And even a majority of those who support the tea party movement disapprove.

Does that mean it can’t happen again, or will history continue to repeat itself?

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

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