Shutdown Hype


White House officials declared today that a government shutdown would stop federal approval of mortgages and government-backed loans for smaller businesses, furlough 800,000 workers, delay soldiers’ paychecks, close symbolic national parks and monuments, prevent refunds for mail-in tax filers, restrict services for veterans and shut down many federal websites.

But the impact of those shutdowns will be offset by the many other government operations that will continue. Police, border-control and emergency services will continue, Social Security checks will be mailed, the postal service will deliver letters, air-traffic controllers will report for duty, employees will clock-in for every very task deemed essential, and the private sector will continue largely untouched for a while.

Until late last night, White House officials had done little to hype the impact of a shutdown. But President Obama visited the White House press-room at 9.33 to raise the political temperature, “800,000 families — our neighbors, our friends, who are working hard all across the country in a whole variety of functions — they suddenly are not allowed to come to work.” he told the waiting reporters. “That obviously has a tremendous impact [and]… you then have millions more people who end up being impacted because they’re not getting the services from the federal government that are important to them,” he said.

That’s much stronger language that offered during the midday press conference, when Jeff Zients, the deputy director for management at the White House’s Office of Management and Budget, said “the impact on the economy could be relatively significant.”

In a $15,000 billion economy, a short-term shutdown “will have approximately zero impact,” responded Mark Calabria, the director of financial regulation studies at the libertarian Cato Institute. There’s even a case, he said, that a shutdown would reassure investors that the government is getting serious about deficit spending. “If they can do something to [make investors] say we are taking the deficit seriously, I think that will have a positive impact,” Calabria said.

The impact of the shutdown, however, might be increased if the media focuses on a few symbolic cases. The closure of passport office, and of picturesque national parks and monuments, likely will be highlighted, along with interviews of disappointed tourists on the national mall. Reporters will also have many opportunities throughout the city to film unhappy people effected by the budget shutdown because the city is receives much federal funding. If there’s a federal cut-off of funding, city residents won’t be able to update their car-registrations and drivers’ licenses, have their trash removed or visit a library, according an April 5 statement from by the city’s Democratic mayor, Vincent Gray. Parking enforcers will be furloughed, but the local police will still issue tickets, according to the city’s plan.

Legislators’ paychecks are another symbolic issue. Some Democrats legislators, including California’s Sen. Barbara Boxer, and Virginia’s Jim Moran, have pushed bill to stop legislators’ pay during a shutdown. Republicans, and some Democrats, have resisted, and various any pay-freeze for legislators would have to overcome several procedural and legal hurdles. The political impact of the issue will likely be muffled, however, if legislators follow the example of West Virginia’s Democratic Senator Joe Manchin, who has promised to donate his pay to a charitable cause.

Zients spoke at a press-conference at the White House, and began his lists of shutdown-effects with a prediction that a shutdown would halt operations at the Federal Housing Administration and the Small Business Administration.

The President stuck to the same list, but used more dramatic language. “Small businesses aren’t seeing their loans processed.  Folks who want to get a mortgage through the FHA may not be able to get it, and obviously that’s not good as weak as this housing market is.  You’ve got people who are trying to get a passport for a trip that they’ve been planning for a long time — they may not be able to do that.  So millions more people will be significantly inconvenienced; in some ways, they may end up actually seeing money lost or opportunities lost because of a government shutdown.”

But if the FHA has to shut down its approval of mortgages, that will impact perhaps 20 percent of near-term mortgages, said Calabria. But there are many alternative commercial institutions that can back profitable mortgages, he said. “The people who are going to be hit have bad or marginal credit, or have low down-payments” that make the mortgage risk, he said. If the SBA stops offering federal funded loans, private lenders wold step in, he said. “There are probably some loans that would not be made, but they’d be fairly risky loans” that commercial lenders would decline, he said.

The furloughing of 800,000 government workers would have an “anti-stimulative effect,” said a White House official. But if the non-working employees are confident they’ll get paid once the slowdown ends, they might use their time off to spend more on consumer goods and services than if they were working, said Calabri.

When asked at the press conference if the relatively short list of shut-down operations merely amounted to a federal slowdown, rather than a shutdown, Zients dodged the question. The slowdown term is being promoted by Republican Rep. Michele Bachmann, who says she will oppose a budget deal for 2011 spending unless Congress also cuts off funding for implementation of the Obamacare health revamp. Jay Carney, the White House spokesman, then stepped up to declare that “a government shutdown would be harmful.”

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