From a microeconomic perspective, there is some genuine disruption for affected federal bureaucrats, even if they eventually will get full – and lavish – compensation for their involuntary vacations. And some federal contractors are being hit as well.
There’s also a debate about the macroeconomic impact, with some making the Keynesian argument that government spending is somehow a stimulant for the economy.
In this interview, I tried to make a more nuanced point, explaining that we should focus more on gross domestic income (GDI), which measures how we earn our national income, rather than gross domestic product (GDP), which measures how we allocate national income.
Harold Furchtgott-Roth, in a column for the Wall Street Journal, analyzes the potential macroeconomic consequences of the shutdown.
Does the U.S. government shutdown endanger economic growth? It has led to missed paychecks… Yet these employees represent approximately 0.5% of all American workers… The effect of the furloughs on gross domestic product is likely small. …U.S. GDP is more than $20 trillion annually, or approximately $55 billion daily. The daily compensation of furloughed federal workers is about $52.5 million, or less than 0.1% of GDP.
“United States would be almost as poor as Mexico today if growth was just one-percentage point less every year starting in 1895.
That was just a hypothetical exercise.
There are some very sobering real-world examples. For instance, Nima Sanandajipointed outthis his country of Sweden used to be the world’s 4th-richest nation. But it has slipped in the rankings ever since the welfare state was imposed.
Venezuela is another case study, as Glenn Reynolds noted.
Indeed, according toNationMaster, it was the world’s 4th-richest country, based on per-capita GDP, in 1950.”
“Governments should copy Switzerland and impose a spending cap. Iexplained this systemin a column for theWall Street Journalback in 2012.”
…85% of its voters approved an initiative that effectively requires its central government spending to grow no faster than trendline revenue. The reform, called a “debt brake” in Switzerland, has been very successful. Before the law went into effect in 2003, government spending was expanding by an average of 4.3% per year. Since then it’s increased by only 2.6% annually. …politicians aren’t able to boost spending when the economy is doing well and the Treasury is flush with cash. Equally important, it is very difficult for politicians to increase the spending cap by raising taxes.
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In this interview, I tried to make a more nuanced point, explaining that we should focus more on gross domestic income (GDI), which measures how we earn our national income, rather than gross domestic product (GDP), which measures how we allocate national income.is about $52.5 million, or less than 0.1% of GDP.
