Yesterday we assessed the current stalemate facing the US government, and the potential for a federal shutdown that would have a discernible impact nationwide. However, while opposing factions of government and personal persuasions are having a stalling effect on the negotiations, it is interesting to consider exactly what the consequences would be should a resolution fail to be reached by midnight on this coming Friday.
Of course the concept of a federal government shutdown, whether it be partial or more widespread, is one that causes great concern for citizens. However, it is a rather vague and ill defined notion, and one that gives little indication as to the exact implications for society at large. So, what would be the immediate or long term consequences of enforced government inactivity, both in terms of the nations financial performance and the welfare of its workers and citizens?
The Financial Implications for a Nation
Financially, the partial closure of government institutions would be especially troublesome, and would create specific issue with regards to tax assessments and the funding of public sector ventures and small business enterprises. In a depressed fiscal climate, the forced inactivity of public sector bodies and their workers will only serve to slow the processes of economic recovery, and create an unhealthy cycle of increasing unemployment and the subsequent closure of small and independent businesses.
With regards to enterprise, a federal shutdown would initially render the Small Business Administration temporarily impotent. This means that any growing organization or independent business would be unable to request or secure short terms loans and funding, with the inevitable consequence that they themselves will be forced to reduce staff or close their operation. Again, this would diminish the revenue that is reinvested into the ailing economy still further, and ultimately worsen the nations financial circumstances.
As for individuals, an estimated 800,000 public sector and government staff would be forced to stay at home, leaving a large faction of society temporarily without pay or salary to run their households. Given the furore that has already enveloped plans to amend the public sector working conditions and collective bargaining rights, this state of affairs would generate even more tension and discord between public representatives and those who employ their services.
A Perilous State for Citizens
These initial consequences will also cultivate longer term effects in society, and could ultimately delay the painstaking journey towards economic prosperity. If you imagine that nearly 1 million citizens in the US who would be left temporarily without work, in addition to the vast number who are permanently without employment, then the US becomes a nation with a largely reduced workforce with minimal revenue payable through income tax and worker contributions.
Although public sector staff may be able to claim back dated pay for their enforced absence, this is not guaranteed to be sanctioned by the US government, and can certainly not be expected within any given time frame. So, a significant percentage of public sector employees would be left without any genuine disposable income, and reduce consumer spending to little more than a negligible and token sum. Therefore, a secondary avenue of government revenue would be slashed, and the financial strain would be imparted onto private businesses and entrepreneurs alike.
This cycle of financial hardship is already in existence in the US at present, with individuals and organizations feeling the considerable pinch of a gradual economic recovery. This state of existence would only worsen in the aftermath of a federal shutdown however, and indeed drive many citizens and small enterprises towards the financial brink and beyond. This is a set of circumstances that cannot be allowed to flourish by the current government however, who must seek a compromise of even the less appealing kind in order to preserve some form of economic stability.
A Basic Rule of Economy
It is an accepted rule of economy that although cuts in expenditure and outlay save money in a fundamental sense, they do little to build and generate a prosperous economic recovery in the longer term. In some difficult financial instances however, such as those currently prevalent within the US, vast budget reductions and modifications to expenditure are both necessary and to be expected by tax paying citizens. It is when these proposed cuts and changes become so vast that they cannot be agreed upon that difficulties ensue, and the economy becomes vulnerable to the prospect of a state of indolence.
One would hope that this prospect is enough to drive an agreement between the political factions that be, even it is one which does not suit either party in its entirety. This is after all the nature of compromise, and something which is well practised and should be fully comprehended within the workings of a democratic government. As Friday’s deadline approaches, the hope must remain that the government can rouse themselves and deliver a fitting example of selfless teamwork in the face of extreme pressure.