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U.S. Opinions: Chicago

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The real shutdown stakes

From an editorial in the Chicago Tribune on Wednesday:

Congress permitted a partial shutdown of the federal government on Tuesday and Wall Street shrugged. The stock market finished the day a tad higher. The furlough of 800,000 federal workers did not bring the economy to its knees.

Experience, though, suggests that the White House and Congress are playing with fire.

The last time the government shut down, for 21 days beginning on Dec. 15, 1995, the United States lost about 1 percentage point from its annualized gross domestic product. Employers lost confidence, and as a result fewer jobs were created.

Moody’s Analytics chief economist Mark Zandi, a centrist, told the Senate Budget Committee last week that even a brief shutdown would reduce U.S. economic growth in the fourth quarter by 0.2 percentage points, to 2.5 percent. A three-to-four-week shutdown would reduce growth by 1.4 percentage points. That would effectively cut the economy’s expected growth rate in half for the balance of the year.

The risk grows if the acrimonious budget standoff staggers along until the government bumps into the federal debt ceiling. The Treasury has said it will start to run out of money on Oct. 17. The government eventually won’t be able to make debt payments, send out Social Security checks or meet other financial obligations.

Oct. 17 is a soft deadline, and Democrats and Republicans are unlikely to be so irresponsible as to actually let the U.S. default on its debt.

We know, though, what happened when the government came close to default in 2011.

Consumer and business confidence plunged to the worst levels since the financial crisis in 2009. The stock market plunged by more than 10 percent as negotiations went nowhere for weeks. America’s credit rating suffered its first downgrade.

In a research study published earlier this year, the University of Chicago’s Steven J. Davis and two other leading economists found that sustained uncertainty over government policy puts a significant drag on the economy.

We can find no heroes in this government shutdown. We can find victims, though: the American citizens whose jobs and standard of living have been put in jeopardy.

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