The Shutdown Shuts Down

Jonathan Ernst/Reuters Visitors at the Capitol on Thursday after official tours resumed with the end of the government shutdown.

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

With a lot more Republican votes than I expected in the House â€" 87 (and 27 in the Senate) â€" a clean bill to temporarily finance the government and lift the debt ceiling was signed by President Obama on Wednesday night. The budget patch lasts through mid-January; the debt ceiling increase through early February, prompting this exchange at the end of a brief statement by the president on Wednesday night:

Q. Mr. President, isn’t this going to happen all over again in a few months?

THE PRESIDENT: No. (Laughter.)

Now, that laughter could be relief or it could be: yeah, right.  I suspect it’s the latter.

How about a little of our own Q. & A.?

Q. Why such a short-term deal?

A. I’m afraid that’s the best they could do.  The longer that clean funding and ceiling bills were slated to last, the more Republicans injected deal-breakers into the process.

Q. What happens next?

A. A group of legislators from both sides will get together in what’s called a budget conference (sounds fun, right!?) where they’ll supposedly try to hammer out the differences between the House and Senate budgets with the goal of coming up with a real budget bill that appropriates funding for 2014.

More likely, since those budgets are irreconcilable, they’ll work on short-term issues, like replacing sequestration.  I’d guess that Democrats will push for a replacement that balances cuts and revenues, while backloading any cuts to reduce some of the fiscal drag on growth.

They’ll find some Republicans who agree with them that sequestration should be replaced, especially since the 2014 version reduces military spending by about $20 billion (this isn’t a matter of singling out defense for more cuts â€" it’s taking back some added military spending in the first year of the sequester).  Also, it should be lost on no one that House Republicans were unable to appropriate to the levels in the current budget deal.  That is, they were happy to prove their fiscal fierceness by lowering the overall budget caps, but when it came to paying for specific bills, like transportation, they couldn’t squeeze their spending desires under their own caps, a good example of ideology colliding with reality.

From what I’ve heard so far, the Republican version of what happens now goes like something like this: we’ll let the Democrats replace sequestration, but they have to pay for restoring some money to defense and nondefense programs with entitlement cuts.

And Democrats won’t accept that.  Replacing one set of cuts in programs they care about with another set of cuts in programs they care about even more is unlikely to garner much support.

Q. So … um … what happens next?!

A. Probably more patches at current levels, which locks in sequestration, which stinks, but there it is.  But let’s see what happens over the next few days.  Who knows?  Maybe that higher-than-expected number of House Republicans on the bill that passed on Wednesday night is indicative of more cooperation to come (laughter …).

Q. So what’s the economic damage from the shutdown?

A. The shutdown maybe shaved half a point off economic growth this quarter, so maybe we post a 2 percent growth rate instead of 2.5 percent.  And probably some spending that didn’t happen this quarter bleeds into next quarter, so we’ll make some of that loss up later.

If we ever get an October jobs report â€" and weirdly, we might not; the government was closed during the survey week; maybe the Bureau of Labor Statistics can ask respondents in November about their payrolls and job market status in October, but that would create a notable inconsistency â€" it will surely show a weaker labor market than in prior or coming months. All those furloughed workers are counted as unemployed, and most businesses related to the federal government were hurt.

Anyway, that’s all the conventional wisdom.  Me, I think there’s extra downside risk here.  We got close enough to the debt ceiling that some short-term investors sought risk premiums (higher interest rates) on Treasury notes.  Let’s see how quickly those increases melt away.  Especially with the next debt ceiling a few short months away (early February), I expect we’ll see some upward pressure on rates.

If so, the Fed might well continue to hold off on the start of the tapering of its stimulus efforts.

That’s the macro.  I wonder how many parents’ economic lives were messed up by the loss of Head Start slots and other service lapses associated with both shutdown and sequestration.  That may not show up in gross domestic product, but it hurts nevertheless.

Q. So does Speaker Boehner lose his leadership job for allowing a clean vote to come to the House floor â€" isn’t that what people were saying would happen?

A. I’d guess not.  Though it was to the detriment of the nation, he can truthfully say he dragged this out for as long as he could.

Q. This is all so depressing.  Don’t you have anything positive to say?  Aren’t you glad it’s over?

A. Look, I’ve been a documentarian of Congressional dysfunction for too long to be buffeted much by ups and downs.  Still, I’m pleasantly surprised by those 114 Republican votes (House and Senate); that’s 38 percent of the House Republican caucus and 59 percent on the Senate side. And I’m very glad the partial shutdown is over.

Perhaps coming days will reveal that more moderate voices within the Republican caucus have learned that they must cordon off the Tea Party if we’re to avoid being back here again in a few months.  Perhaps Senator Ted Cruz and Heritage Action, both of whom were summarily ignored on Wednesday night, will continue to be shunned.  It does seem as if a majority of Republicans at least recognize that repealing Obamacare is a strategic loser for them.

But what I mostly see here is that the patient is simply moving from the I.C.U. back to the sick ward.  We’ve just ended a two-and-a-half-week shutdown of the federal government with the nation teetering on the edge of a sovereign debt default for absolutely no good, or even intelligible, reason.

So, pardon me if I’m not jumping for joy.