Paul Krugman, PhD, Nobel Laureate
The House Republicans, led (or maybe followed) by John Boehner, R, Ohio, are ready to shut down the government in order to force President Obama to delay implementation of various components of the Affordable Care Act, aka “Obamacare.”
They are not shutting down the entire government. The government will halt so-called “non-essential services.” The EPA, FDA, IRS help desk will be furloughed. This is precisely what Grover Norquist, Charles and David Koch and other big Republican donors want. It’s what they mean by “Starve the Beast.” Oddly enough the shutdown does not include Congress, which will remain in session, so our Representatives in the House and the Senate can continue to work, or at least draw paychecks.
According to Nathaniel Popper, writing on DealB%K, NY Times, here,
Many on Wall Street think the direct hit of a shutdown would be relatively minimal to the factors that drive stocks. An estimated two-thirds of the government — the so-called essential functions — will continue operating on Tuesday.
But several economists have said the shutdown would most likely have a broader impact on market psychology if it lasted for more than a few days, and could drag down an economic recovery that has had trouble gaining traction.
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If there is no agreement, the government would be forced to immediately operate on a balanced budget and could default on its debt — something that has never happened before.
Paul Krugman, PhD, economics professor at Princeton and Nobel Laureate (Press Release / lecture), in Rebels Without A Clue, wrote,
a U.S. government default, which will happen unless Congress raises the debt ceiling soon, might cause financial catastrophe. Unfortunately, many Republicans either don’t understand this or don’t care.
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hitting the ceiling would force a huge, immediate spending cut, almost surely pushing America back into recession…. failure to raise the ceiling would mean missed payments on existing U.S. government debt. And that might have terrifying consequences.
Why? Financial markets have long treated U.S. bonds as the ultimate safe asset; the assumption that America will always honor its debts is the bedrock on which the world financial system rests. In particular, Treasury bills — short-term U.S. bonds — are what investors demand when they want absolutely solid collateral against loans. Treasury bills are so essential for this role that in times of severe stress they sometimes pay slightly negative interest rates — that is, they’re treated as being better than cash.
Now suppose it became clear that U.S. bonds weren’t safe, that America couldn’t be counted on to honor its debts after all. Suddenly, the whole system would be disrupted. Maybe, if we were lucky, financial institutions would quickly cobble together alternative arrangements. But it looks quite possible that default would create a huge financial crisis, dwarfing the crisis set off by the failure of Lehman Brothers five years ago.
No sane political system would run this kind of risk. But we don’t have a sane political system; we have a system in which a substantial number of Republicans believe that they can force President Obama to cancel health reform by threatening a government shutdown, a debt default, or both, and in which Republican leaders who know better are afraid to level with the party’s delusional wing. For they are delusional, about both the economics and the politics.
On the economics: Republican radicals generally reject the scientific consensus on climate change; many of them reject the theory of evolution, too. So why expect them to believe expert warnings about the dangers of default? Sure enough, they don’t: the G.O.P. caucus contains a significant number of “default deniers,” who simply dismiss warnings about the dangers of failing to honor our debts.
And while Obamacare is not perfect, it does have a few very important components. It requires people to make a decision: Buy medical insurance or pay a fine. It requires each state to create a marketplace, called “Exchanges” in which people can buy insurance. It also requires insurers to a) pay for preventive care such as annual physicals and related diagnostic tests b) cover children up to age 26 on their parent’s policies, c) provide care in the face of expensive treatments, and d) provide coverage in the event of pre-existing conditions. The Supreme Court has ruled that it is Constitutional.
Many say that Obamacare is “socialized medicine.” They seem deliberately ignoring the fact that we have, in the United States, another protocol which can equally be considered to be “socialized medicine.” As President George W. Bush, Senator and Presidential Candidate John McCain and other conservative Republicans have said, “anyone in the United States can get treatment – all they need to do is go to the hospital emergency room.” So if someone without insurance is sick they can get help, paid for by society. The problem with this approach is that it uses valuable emergency room resources and does so in a very inefficient and non-cost-effective manner. And when those resources are used in non-emergencies, actual emergencies are ignored.
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Series on the Shutdown.
- L. Furman, Popular Logistics, 9/30/13, Government Shutdown – Partial – Ok, But What’s Next? Default?
- L. Furman, Popular Logistics, 10/2/13, The Gold Standard, 1945 to the Recent Past.
- L. Furman, Popular Logistics, 10/2/13, Real Shutdown increases Real Unemployment by 800,000 Real Americans.
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Larry Furman is a candidate for General Assembly (Site / Join / Contribute) to represent NJ Legislative District 12, which stretches from Matawan to New Hanover and includes Old Bridge, Manalapan, Englishtown, Roosevelt, Millstone, Jackson, and various other towns (click here). He is also an analyst with Popular Logistics. He holds a Bachelor’s in Biology, and an MBA in “Managing for Sustainability” from Marlboro College, Vermont. He also has experience in information technology. He can be reached at ‘Larry” at Furman For New Jersey. com.