Government shutdown isn't our biggest worry. It's the coming fiscal train wreck.

The economic consequences of a government shutdown can’t be calibrated on a spreadsheet with an economic model. It all depends on who wins public opinion – congressional Republicans or the president and Democrats.

Federal spending is out of control. From 2007, the last full year before the financial crisis, to 2011, the second full year of economic recovery, spending has jumped $1.1 trillion – 40 percent, when only a $200 billion increase would have kept pace with inflation.

For any other country, a deficit exceeding 10 percent of GDP would force austerity by sending interest rates on government bonds through the roof. Alas, the United States prints the world’s currency – the dollar – so it can inflate its way to solvency, and the bond market is starting to take that bet.

Enter the tea party – that troublesome bunch of youngsters pushing elder Republicans to stand up for fiscal solvency, end the madness, or halt funding for the government. 



Closing federal offices for a few days will have not a great, lasting impact. On reopening, the checks will go out. What counts, though, is whether the newly elected conservative majority in the House of Representatives keeps its mandate as measured by the polls.

Republicans don't have all the answers

Through 2022, the projected cumulative deficit is $11 trillion, and House Republicans have just released a plan to cut that figure by roughly $6 trillion over the next decade.

But the means for getting there are hardly attractive – vouchers for poor folks to purchase health care and block grants to the states to replace and reduce much of federal Medicare spending. That would morph President Obama’s vision of universal coverage into a victimization plan for the poor and even bigger budget crises for the states.

Americans pay too much for health care, spending 18 percent of GDP for less effective service than the Germans and Dutch receive spending only about 12 percent of GDP. Instead of taking on higher US drug prices, bloated health insurance and hospital administrative costs, and malpractice abuse, Republicans will tell the poor and the states to bargain with the big guys directly. Good luck with those ideas.

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