Insights & Advice

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The Nation’s Largest Lay-off

As the shutdown progresses through its first week, the Federal government, the nation’s largest employer, is laying off between 800,000 and one million employees. In an economy that is already coping with a 7.3% unemployment rate, that’s bad news.

The cost to the nation will be minimal at first but as the shutdown continues those costs will mount.  HIS Global Insight, an economic consulting firm, estimates that it will cost the country $1.6 billion a week, $300 million per day, or $12.5 million an hour. That’s the price tag for just the cost in lost work and services the government is not providing the nation.

Those costs and layoffs do not include government service providers, such as defense contractors. One such contractor has already said that if the shutdown lasts more than a week, they plan to lay off 2,000 workers or more. Others will follow suit if the situation persists. A two week shutdown could slice as much as half a percentage point off the 2.6% annualized rate of economic growth expected in this, the fourth quarter.

Clearly, this unfortunate state of affairs is occurring at exactly the wrong time. Unlike the last government shutdown back in 1995-1996 when the economy was growing strongly, this shut down is happening while the economy and labor market are struggling to maintain even a modest rate of growth.

The longer this fiasco continues the more likely it will impact consumer confidence, which is already on shaky ground. There are already concerns that at some point this shutdown could begin to affect Christmas sales. As the days go by, I expect even more horror stories to appear. None of this is by accident.

It started with the Tea Party, the right-wing faction representing the radical elements of the Republican Party, which is financed by a small group of multi-billionaires. Their objective is to take over the seats of every moderate Republican candidate in the 2014 primary elections. In an effort to accomplish this, they insisted that Obama care be delayed a year and then followed up with a list of demands that have little to do with the budget.

They knew full well that these demands were unreasonable and would result in a government shutdown unless some moderate republicans voted along with the Democrats to oppose them.  It was simply a ploy to trap moderate Republicans into going on the record as “soft” on Obama care while voting with Democrats to keep the government open. But moderates in the GOP, stuck between a rock and a hard place, voted for the shutdown instead.

The ramifications of this strategy for the Republican Party’s future could be damaging, in my opinion. Voters are outraged and rightfully so. Even big business, traditionally staunch supporters of the Republicans, has abandoned them over these issues. Congressional Democrats, led by President Obama, are driving the message home that it is no longer “the congress” that is obstructing the ability to steer the nation into recovery but the Republicans within congress that are the problem.

It appears, with the pressure building, the odds favor capitulation by the house republicans in the days ahead. In which case, this week’s angst in the markets will have been much ado about nothing.

Posted in A Few Dollars More, Macroeconomics