The federal government is on the verge of a partial shutdown as Washington lawmakers haven’t reached a decision over whether to delay funding for the Affordable Care Act. The clock is ticking for Congress and President Barack Obama to agree on a continuing budget resolution before the federal government’s fiscal year 2013 ends at midnight on Monday. A resolution would buy lawmakers more time to reach a new budget decision; if the shutdown happens, hundreds of thousands of non-essential federal government employees across the U.S. would be furloughed.
To address how a possible shutdown would affect Missouri’s economy, Missouri Business Alert interviewed Joseph Haslag, Director of the Economic Policy Analysis and Research Center, based at University of Missouri. The interview has been edited and condensed.
Missouri Business Alert: What are the short-term impacts of a shutdown on federal government services in Missouri?
Joseph Haslag: Basically, there’s a number of people who are currently producing government goods. Some of them are consumed by Missourians. And the production of these government goods is going to be diminished. It’s like a short-term kind of productivity hit. I’ll give you the best analogy I can to be illustrative: Some farmers’ fields are just going to vanish. Not the whole crop, but just part of their fields are going to vanish. So production is going to go down.
Now where that analogy falls short is that the claim that’s being made is that somehow by shutting down the government in the near term and holding down future spending — that’s the critical part, that they’re able to hold down future spending — that will make the U.S. economy more productive in the future. It really is a trade-off about current, today and the near term and what the future is going to look like.
MBA: What are the potential positive effects of a shutdown on the economy?
JH: That’s the argument is that by cutting certain spending programs, by controlling the debt we’re accumulating, in a particular way that’s going to free up resources that are going to be used more effectively by companies and by individuals, and that’s going to lead to faster growth.
There seems to be some desire to have some clarification about what the costs of the Affordable Care Act are going to be. And in search of that clarification, it bears directly on what the future payment streams by the federal government are going to be. And the more resources the federal government takes up, the fewer resources that are going to be put into agriculture activity and production of automobiles, and all sorts of different services that the United States likes to consume as well. That’s the best way I know how to couch what the trade-off is regarding the government shutdown.
MBA: Could you talk a little more specifically about what a shutdown would mean to Missouri’s economy?
JH: Everything that I said in general would apply to Missouri. Some of the federal offices are going to be in Missouri. I don’t know what that proportion is. We raise about $7.5 to $8 billion on our own in that general revenue part, and we spend somewhere in the order of about $25 billion. So we raise about a third of what the state government spends on our own. And the rest of it is coming from other sources, and some of the big chunks of other sources are going to be from the federal government.
So it’s going to affect the state and what level of state services are going to be provided. So it’s the same kind of production shock we talked about earlier. Some state government services just aren’t going to be produced, and it’s going to adversely affect the near-term state economy. Whether that has an impact on the state economy growing faster in the future is an important academic question and ultimately an empirical question that we are trying to wrap out heads around.
MBA: If the continuing resolution is passed, how would that affect Missouri’s economy?
JH: If the continuing resolution is to pass, the Missouri economy is probably going to look a lot like it has in the past half dozen years or so. It’s going to be kind of a slow growth. I don’t see anything breaking out or anything materially different in terms of that outcome.
MBA: What would a shutdown mean for furloughed federal employees?
JH: They are the very people who are producing today and may not be producing tomorrow. In the near term, they are going to suffer more directly than just about everybody else. I mean, if I want to go a national park tomorrow, I’m not going to be able to, it doesn’t look like. But that doesn’t affect me adversely. But if I work at a national park, my income is going to be cut, starting tomorrow. And that’s a more significant loss.
MBA: Missouri’s job market is recovering over the longer term, but the unemployment rate has been going up in the past few months. How would the government shutdown contribute to the short-term job market in the state?
JH: If the government shuts down, it’s likely that the unemployment rate is going to be increasing. There are going to be people who are furloughed or laid off. They are going to be unemployed. They are going to be making guesses about whether it’s worth trying to draw unemployment insurance versus actually going out and searching for new jobs and for new matches in the labor market.