Lowdown on the shutdown: The economy will be fine

Most of the economic setbacks from a government shutdown would be contained in Washington

By , Guest blogger

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    The US Capitol is illuminated at night as Congress continues to work to avert a government shutdown on Capitol Hill Thursday, April 7, 2011 in Washington. If the government shuts down, there won't be substantial economic consequences, writes guest blogger Diane Lim Rogers.
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This morning’s Washington Post could be called the special “Ponder the Shutdown” edition–perhaps the first in a week- or month-long series. For federal workers, most of whom live here in the DC area, these are no doubt scary times, when one is not sure if one will be deemed “essential” and continue to get paid. (Here’s a good FAQ section from today’s Post.) I feel badly for my government-worker friends but continue to believe the adverse effects of a shutdown would be largely contained within the Beltway and that a shutdown would not cripple the economic recovery over the longer run or even immediately, simply because I doubt it would last very long or affect the neediest of households. (Safety-net benefits will still get paid, and although government workers really aren’t paid as highly as their private-sector counterparts, I think they still do well enough to survive any potential blip in their income stream.)

The threat of the shutdown is hardly about the federal dollars it would save from the shutdown, or even about the continued funding for the current fiscal year (through September) that the disagreement is supposed to be about. The threat of a shutdown amounts to a “shakedown” that each side is using to try to claim intellectual dominance or moral superiority over the other side on the federal budget more generally. And the amounts of attention currently given to the particular unresolved budget issues–about this week, this year, next year, and beyond–seem inversely proportional to the sizes of the problems.

Incidentally, speaking of both “intellectual dominance” and “moral superiority,” it appears that Paul Ryan made a serious blunder asking the Heritage Foundation to do the macroeconomic analysis of his budget plan. (And I would believe that even if Paul Krugman wasn’t the one, among many, to point it out.)

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