It has not been a merry Christmas for US residents, with the partial government shutdown which began on December 22 stretching on. Lasting 23 days, it is now the longest shutdown in the country’s history, which may have wider economic implications.
What is it?
Governments, like middle-class households, need regular infusions of cash to carry on their work. In democracies, the cash that keeps the government going is drawn from the central budget with the parliament’s approval.
In the US, it is the Congress that controls the purse strings to the government. The US Congress usually passes appropriation bills before September 30 each year to take care of government expenses for the next fiscal year. When this doesn’t happen, it approves stop-gap arrangements to keep government departments going until the budget can be passed.
If the President and the Congress cannot agree on the budget or on stopgap arrangements, this triggers a federal government shutdown, in which non-essential government departments down their shutters. But shutdowns are quite a frequent occurrence in the US with 21 federal shutdowns since it first began its budgeting process.
The current shutdown came about after President Trump sought $5.7 billion from the Congress, as part of a resolution bill, to finance his pet project of putting up a wall on the Mexican border. The Democrats scotched this proposal. Trump retaliated by refusing to sign the bill until they gave in, and the stalemate continues.
But the saving grace is that this shutdown is a partial one, affecting only a fourth of government departments.
Why is it important?
When in shutdown mode, the US federal government suspends non-essential services and stops its pay-cheques to its employees in all the affected departments.
This one has impacted nine US government departments including Homeland Security, State, Agriculture, Commerce, Housing and Urban Development, Interior, Justice and Transportation. Food safety inspections, environmental clearances and the upkeep of national parks and museums are some of the ‘non-essential’ services that are suspended, with their workers asked to go on leave.
Defence, national security border control, air traffic control et al are deemed essential services and remain open. But employees in these services have had to report for work without pay and many have been reporting sick in protest.
But the more worrying aspect is that salaries of over 8,00,000 such employees are on hold, and they have been left high and dry to meet their household expenses, rent, loan repayments, school fees and medical expenses. Over a 1,000 of them have launched crowdfunding campaigns to raise emergency money. Sub-contractors or companies dealing with the US government are seeing their orders and payments drying up. The consumption-driven US economy may see a blip in its GDP this quarter if this impasse stretches on.
Why should I care?
If you’re planning a US visit now, you may need to leave national parks and museums out of your itinerary as they may be shut. The US embassy has clarified that visa processing is unaffected as of now. Indian companies supplying goods or services to the US federal government may face payment delays and business uncertainty.
The US stock market has so far been quite blasé about the shutdown, with the S&P 500 gaining some 10 per cent from its low on Christmas eve. But if the uncertainty prolongs and begins to impact companies, markets may react.
The bottomline
We Indians may yearn for ‘less government’, but zero government can be quite unpleasant too.