So why has the United States federal government shutdown?The simple answer is that the federal government cannot spend money unless it is appropriated and Congress and the president have not agreed on spending for approximately 25% of the federal government’s functions. This means that for about one-quarter of the federal government there is no legal authority to spend money and therefore it must close down.
We seem to have a lot of federal government shutdowns in recent years, why?
The federal government process is broken and there is a political polarization over how to spend money. This is the general answer. But now, there is a fight between Donald Trump who insists on funding for his Mexican wall and Democrats who refuse to appropriate money for it. However, to understand why so many shutdowns it is useful to understand something about the history of federal budgeting in the US.
Take us back in time before WW I, there was no federal budget. If money was needed for something then the president asked for it and Congress simply allocated money for it. Essentially, when money was needed Congress effectively wrote a check. Such a process worked okay when the US government did not spend much money. However, World War I pointed to the need to have a budget so that the government could spend more efficiently.
The 1921 Budget Act was the first effort to create a budget process for the US government. It created congressional budget committees to centralize budgetary process, and it created the Bureau of the Budget (later the Office of Management and Budget) in the executive branch to bring some order to federal spending.
The Act helped but increased spending starting during the New Deal and then World War II, the Korean War, and then the Vietnam War led to a dramatic explosion of federal spending. But something else happened while this spending increased, the philosophy and view about the role of the federal government changed.
What do you mean the philosophy and role of the Federal government changed?
There are two parts to this answer.
First, really prior to the New Deal the federal government had a limited role in the economy and in domestic politics. Fighting wars and providing for the defense were generally accepted as federal government functions, but providing for the retirement benefits (Social Security), welfare, health care, or other social welfare issues were not considered to be federal functions until the 1930s. The New Deal seemed to change that. With a new philosophy about what the federal government should do, that meant more federal spending and therefore a need to have a budget to spend this money.
Second, , let’s think about what budgets are. On one level budgets are simply tools to tell us the sources of federal revenue and how we wish to spend out money. But budgets are more than that.
Political scientist V.O. Key once argued that budgeting is about the concept of opportunity costs–should we give money to A versus B? His point was that budgeting is really about an issue of values. How we spend money reflects normative choices. Do we want to spend money on defense, health care, roads, or in the case of the current dispute, a wall along the Mexican border, or something else. Budgetary politics is difficult because it is a fight over values.
But budgeting is also complex because of the multiple purposes attached to budgets. Budgets are ways to spend money, but they are also tools for planning and measurement. Budgets are also at the center of interest group politics and varying groups seek spending for their projects or interests. Finally, for those of us schooled in economics, budgets and federal spending can be tools for economic development. By that, there is a branch of macroeconomics tracing back to John Maynard Keynes in the 1930s who argued that federal spending can be used to stimulate the economy. A discussion of Keynesian or social welfare economics is beyond the discussion here, but the point is that there are multiple purposes connected to federal spending.
So why is all this relevant to the present crisis?
By the time Nixon became president in 1969 a major dispute began to emerge, contesting how the federal government should spend money. The Vietnam War and the Great Society programs of the Johnson presidency came together to create significantly larger federal spending and, with that, disputes over it. Nixon refused to spend money allocated by Congress, and this led to the passage of the 1974 Congressional Budget and Impoundment Act.
What did this Act do?
The 1974 Congressional Budget and Impoundment Act is the basis of modern US budgeting. It created the Congressional Budget Office, , it created time dates for budget passage, it required a presidential budget. This law took effect in 1976.
In summary, the President proposes a budget and Congress is supposed to pass it. Congress is supposed to pass an annual budget before October 1, every year. (On a personal note, I was in college taking a macroeconomics class when this law passed and as required reading we had to read the very first budget of the president submitted to Congress under this law)
The Federal budget is composed of 12 appropriation bills, and different committees in Congress are assigned the task to adopt them, with final votes required of both Houses of Congress and a signature by the president.
If budget not passed, either there is a government shutdown or Congress and president can agree to a continuing resolution to keep government funded. A continuing resolution simply is a temporary funding mechanism agreed to by Congress and the president to keep the government funded until they can reach agreement on a budget or another continuing resolution.
However, the government has never really shutdown completely. By that, approximately 75-80% of the federal budget is composed of legal entitlements or longer term contractual agreements that mandate spending. Thus, for what is often called mandatory spending the government cannot shutdown because there is legal authority to spend money. This is the case with Social Security–there is ongoing legal authority to spend for this and therefore grandma should never have to worry that she will not get her check. The same is true now.
The current fight now is over that 20-25% of the budget which is referred to as discretionary spending. This is money that Congress and the president have to authorize every year.
How well has the 1974 law worked?
Not well. A good budget process only works if there is a consensus on values and spending. But since 1976 the two parties have become more polarized, leading to more and more disagreements over taxing and spending priorities.
Since 1976, only four budgets passed on time (the last time 1997).
Most of time operating on continuing resolutions.
Since 1976, there have been 20 budget or funding gaps, some have resulted in government shutdowns, other unnoticed.
Under Reagan three one day funding gaps not noticed.
Under George H.W. Bush a 1990 weekend shutdown.
Under Clinton two shutdowns. In 1995 for 5 days over budget disputes, and in 1996 for 21 days over budget disputes.
Under Obama there was one shutdown in 2013 that last for 15 days over a fight over the Affordable Care Act.
Under Trump there were two prior shutdowns to this one. In 2018for two days in January and an overnight funding gap in February.
Are there costs associated with a shutdown?
Yes. There are costs with the government closing down, laying off people, and then rehiring and starting up again. In 2013 the shutdown cost the economy and GDP more than $24 billion and it affected the US bond rating. The current shutdown is affecting confidence on Wall Street, the stock market, and leading to additional economic problems. Forecasters were already predicting an economic slowdown in later 2019 and 2020 and this shutdown could hasten or worsen the problem. Simply put, everyone pays for the shutdown.
What do we know about the current shutdown and dispute?
The current dispute is over spending for Trump’s Mexican wall. Remember, when he ran for president he said he was going to build a wall and Mexico was going to pay for it. Now he wants taxpayers to pay for it. Trump has made funding for the wall a non-negotiable item. Congress, including Democrats, have offered enhanced border security but in a Twitter message on Sunday Trump rejected that compromise.
In many ways, Trump understands that this may be his last chance to get funding for the wall. With Democrats taking over the House in January there will be even less of a chance to get this funding Trump has made the border wall a campaign promise and wants it to appease his base, Democrats oppose it in part to appease their base, but also because less than a majority of Americans support it.
How long with the partial shutdown last?
It will go until late this week but I could see the current Congress simply passing this problem down the line to the next Congress (and Democrats in the House) to solve. For the outgoing Republican majority, they have nothing to lose by not resolving the partial shutdown and they can then pass the problem on to the Democrats. The recipe here is for a long partial shutdown.
Who are the winners and losers?
Federal employees and taxpayers are the clear losers. Generally the party who is tagged with the responsibility for the shutdown pays politically which is why the blame game now. Republicans in the House can escape responsibility since they are no longer in the majority in a week. Trump at one time claimed ownership of the shutdown but now he is trying to blame Democrats, especially in the Senate. If it lasts till next year, he will blame House Democrats. In some ways, if Trump does not get the wall he gets to use it as an issue in 2020, but if he does get funding then he loses it as an issue.
Final question, assume the money is appropriated, is the wall feasible?
No. From an engineering perspective it is impossible to build along rivers and lakes, and it poses environmental problems. In addition, even in the places where the wall already exists, people dig under it or find ways around it. The wall will have little impact on immigration.
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