09/30/2013 01:32 pm ET Updated Sep 30, 2013

A Government Shutdown Will Only Make The Budget Deficit Worse


House Republicans are willing to shut down the government to stop Obamacare and lower the federal budget deficit. In fact, a shutdown would fail on both counts.

Shutting down the government will "likely add to the budget deficit," Bank of America Merrill Lynch economist Ethan Harris wrote in a research note on Monday. That's because a shutdown could hurt the economy, undercutting tax revenues. At the same time, stopping and starting the massive gears of government is "costly," he added.

Those two factors combined to add $1.4 billion (or about $2.5 billion in today's dollars) to the budget deficit during the 1995-96 shutdown, Harris estimates. That shutdown was the longest in recent decades. Any shorter shutdown would have less of an impact, but almost certainly would not help the government's finances.

To double the stupidity and irony of this situation, the shutdown would come at a time when the federal budget deficit has shrunk to its lowest level since 2008.

At the same time, a shutdown will have no effect on Obamacare, which will start rolling out on Tuesday with the launch of health-insurance exchanges, shutdown or no, The Huffington Post's Jeffrey Young points out. That's because Obamacare is an entitlement like Medicare, noted Harris. Those keep going even when the rest of the government doesn't.

That's not to say a shutdown would have no effect: In fact, depending on its duration, the shutdown could do noticeable damage to the entire economy. Harris estimates that a month-long shutdown could shave 2 percent from gross domestic product in the fourth quarter. Last week, economist Mark Zandi of Moodys Analytics estimated a one-month shutdown could hit GDP by 1.4 percent.

This wouldn't be as catastrophic as a breach of the debt ceiling -- House Republicans' next trick. But for an economy grinding along at just 2.5 percent growth at last check, that is a significant hit.

And it would be all for nothing.



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