The US shutdown was very similar to the caretaker government standoff in Bangladesh, but instead of being over the structure of politics, it was about government spending and therein was uniquely ideological.
In short, the opposition Republican Party refused to allow an increase in US government borrowing. The Republican Party has dominated the House of Representatives since winning the House in 2010; this gives them the power to veto an enlargement of US government debt limits. The solution that conservative Republicans such as Ted Cruz offered was to cut Obama’s health care plans to cover all the Americans; a plan which is common in the developed world, but has proved particularly difficult for Obama to institute in the US.
The US government is about $17tn in the red. Bangladesh’s gross domestic product (GDP) or the value of the economy as a whole is about $115bn. To put that into perspective, after the debt limit was opened up and a deal was reached on October 16, the US government debt grew by $328bn – almost twice the size of Bangladesh’s entire economy – in a single day.
Where does all that money go? While the Republican politicians are using the health care issue to push for a reduction in government spending, military spending has been the big growth area. In 2000, the US government’s annual spending on the military stood at $350bn. That figure now stands at $670bn, equivalent to around 42% of the world’s total defence spend. Indeed, the night before “the shutdown,” on September 30, the US government spent $5bn in a single night, just before the end of the fiscal year. To put that into perspective again, this is around $1bn more than what the 160 million people in Bangladesh spend in a year on health care, both public and private. Obama plans to cut military expenditure to around 30% of the global total, back to the year 2000 levels of around $350bn.
Medicare and Medicaid, two similar programmes together, make up around 20% of the US government expenditure. These two are the sticking points for the Republicans, who object to the state providing free health care to poor people. These are means-tested, whereby to be eligible, as around 40 million people in the US are, you have to prove low income to receive this “social safety net.” This costs the US government around $800bn a year.
US health services are some of the most expensive in the world. Because they are private, the US spends about $8,608 per person, per year. Compare this with one of the “healthiest” countries on the planet, say Sweden, and it’s around a third less at $5,331, despite achieving far better results. This is partly down to US health insurers not spending money on treating patients. Private insurers often spend on insurance professionals, mostly trained doctors themselves, whose job it is to find out reasons for ineligibility of subscribers to their policies, or on paying shareholders of the insurance company. Obamacare, or the Affordable Care Act, attempts to penalise health insurers who spend less than 80% on patients care as a means to cut the excessive per person “health spend.”
What the shutdown did The shut down meant that for around two weeks, all non-essential staff of the US government went home on unpaid leave. This is said to have cost the US economy around $24bn, about as much as Bangladesh’s annual earnings from its most lucrative export industry – garments.
This saw national parks shut, as government staff were not able to work in looking after them. This included tourist attractions such as the Statue of Liberty in New York, the Smithsonian Institution, which runs a zoo in Washington DC, and a number of museums.
However, perhaps of more concern was the question it asked of the viability of the US as a borrower. The country borrows large amounts of money from countries like China, who have lent the US around $1.28tn as of July.
If the US had not reached a deal, this would have had serious repercussions for the global economy, as the US would have had most likely have slipped into a recession as government spending withdrew. Celebrated economist Paul Krugman further notes: “Failure to raise the ceiling would mean missed payments on existing US government debt.” This would have had several repercussions, which Krugman labels as potentially “terrifying.”
It would have undoubtedly raised the cost of US borrowing as lenders would have lent at less competitive rates, and it would be viewed as a less safe bet. The country already spends around $223bn servicing those loans, around 6% of annual government budget. But, as Krugman says, it would also have disrupted the global economy, which relies on the “green back” as security. It would have been quite possible that default would create a huge financial crisis, worse than that of 2008, says Krugman.
How it all ended With just a day to go before defaulting on their loans, a deal was signed with a number of Republicans siding with the Democrats to allow the government to borrow more than $16.7tn. This came after stern warnings from the likes of China on the reckless tactics that hard-line, right-wing Republicans had deployed. Just like with the issue of the caretaker government here, the opposition challenged the actions of a democratically elected executive in order to make a point. In Washington, this was precisely to object to the economic idea that a government should protect the health of those most in need.
