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    Real Impact of US Govt Shutdown Limited, Perception Has Larger Effect – Scholar

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    A partial shutdown of the US government that began on Saturday is set to stretch on through Christmas with no endgame it in sight. A standoff between Republicans and Democrats intensified after President Donald Trump said he would not sign a spending bill unless it includes $5 billion for building a wall on the US-Mexico border.

    Sputnik talked about the US government shutdown with Scott Baker, assistant professor of finance at Northwestern University's Kellogg School of Management.

    Sputnik: It seems that previously, Donald Trump was criticizing Barack Obama for government shutdowns and this is the third one that we're seeing in 2018 in the first two years of Trump's presidency. When Obama had shutdowns Trump said the president must lead. What do you think is happening and do you have any idea of how long this could be drawn out?

    Scott Baker: This seems to be basically a continuation of the hugely polarized politics we've seen in the last several years. It is kind of just difficult for Congress to come to an agreement in a lot of different areas and certainly President Trump's statements and some of his own policies are likely not helping on that score.

    On how long it might be. If you look back in time there have been about 20 shutdowns previously in US history and over the past 30 years or so most of them have been pretty short on the order of a few days.

    There have been a couple that have been two or three weeks. So we’re hoping that this will be a short one, but it’s a little unclear on how long it will be. Hopefully, just a week or so, if that.

    Sputnik: If we talk about political strategy, what are your thoughts regarding assertions that after the holiday break we are going to see a Democratically-controlled House? Isn’t it foolish to draw this out as it will be much more difficult to pass anything favorable to Trump's wall once it is a Democratic majority House?

    Scott Baker: Maybe a kind of a last effort to try to force some kind of negotiation on Republicans terms right now.

    I think you’re right. It’s a dangerous strategy and sometimes these shutdowns end very quickly once one side realizes who might be blamed for the shutdown then they might come back to the bargaining table.

    Sputnik: What can you say about the financial impact of the shutdown? Do markets go crazy when you have a government shutdown or are they already stressed because of what’s happening with the stock market and recent huge losses?

    Scott Baker: I think for this particular shutdown there’s been a lot of tumultuous activity in the stock market in general. I think it would be hard to pin down the exact relationship or whether this announcement caused any real additional fall.

    It probably had some negative impacts. I think usually the biggest relationship with the stock market to a shutdown is going to be kind of a broader sense of political uncertainty and unease with what Congress or the president is doing. If they don’t have complete control or if they don’t have a clear path forward, financial markets are not going to like that as much.

    The direct impact on the economy is usually relatively minor because folks will get repaid their back wages and most folks are still going to be not furloughed and still going to be working. So the direct impacts are usually limited but the perception can have larger effects, I think.

    Sputnik: Impacts are limited when these shutdowns don’t last very long and they typically don’t last very long, but Trump is threatening to hold out until he gets what he wants, claiming that it could be a long time. Can we believe him when he says this, as he also said it’s going to be his fault if the government shuts down, that he would take responsibility and then turns around to claim that it is now the responsibility of the Democrats.

    Scott Baker: Certainly the effects kind of get magnified as things go longer and people are maybe nominally working without pay now but if you don’t even miss a paycheck then the effects won’t be felt too much even by the affected federal workers.

    And I agree, Trump has been a bit inconsistent with his messaging. He said it’s might take a long time then yesterday he said it hopefully won’t last long.

    So it’s a bit unclear what to expect, but you’re right, as things get longer, more deadlines get missed, more paychecks get missed and there is certainly more of an economic and political impact.

    Sputnik: Do members of Congress also miss paychecks, does this shutdown affect them as well?

    Scott Baker: No, they still continue to get paid. There’s been some suggestions occasionally that congresspeople have tried to pass bills that say they won’t get paid, but those have generally failed.

    Some congresspeople will donate their paycheck to affected workers or something. That happened in the two-week long 2013 shutdown. So statutorily they still get their paychecks.

    Sputnik: Media reports are saying that nearly 1 million government employees will have to either wait for their pay or be put on temporary leave, how does that affect morale and the productivity of these workers, particularly around Christmas time?

    Scott Baker: Absolutely. Like I said, I think a lot of this is going to be about perception. If some paychecks do get missed that’s going to cause a lot bigger impact and on these workers directly being furloughed they can do some kind of substitution in some sense.

    They can forgo paying the babysitter because they can be home with the kids now. Some research has shown that home production increases when these folks get furloughed. But you're right, that during Christmas if they are trying to do some last-minute shopping it could be difficult for them to think about spending a lot of money when they are a bit more uncertain about if they’re going to have the next paycheck.

    Thankfully, the Congress did just pass a bill saying that they would be repaid even if you get furloughed. So hopefully being close to Christmas a lot of these agencies are already operating on smaller staffs and more people on vacation that might actually act to mute the economic impact relative to having a shutdown at a different time of the year.

    Views and opinions expressed in this article are those of Scott Baker and do not necessarily reflect those of Sputnik.

     

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    effect, Democrats, Republicans, shutdown, impact, Scott Baker, Donald Trump, United States
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