Winners and Losers From the Government Shutdown

Winners and Losers From the Government Shutdown


It’s finally over. Shortly after midnight on October 16th, President Obama signed into law the Continuing Appropriations Act, 2014. This legislation, which was passed with a majority of Democratic votes in the House, and bipartisan support in the Senate reopened the government and funded it at sequester levels through January 15th, and raised the debt ceiling through February 17th. The final vote count was 81 – 18 in the Senate and 285 – 144 in the House.

Even before the legislation had passed both houses of Congress, pundits and reporters began scrambling to determine the “winners” and “losers” of the shutdown and debt ceiling deal, despite protestations from President Obama and others that “there were no winners”.  Some “winners” were rather obvious: Senate Majority Leader Reid and President Obama, both of whom were largely able to maintain their position of not negotiating with “hostage takers”. Similarly, some “losers” were fairly obvious: chief among them was John Boehner who appeared woefully unable to hold together a fractured party, and ultimately capitulated to Senate Democrats by breaking the Hastert rule in order to allow the deal to pass. However, to figure out who many of the other “winners” and “losers” are, it’s necessary to take a more nuanced look at what happened during the shutdown and the deal that ended it.

Is it far too early to begin placing people and things into cut and dry winner and loser columns before the dust on this agreement has even settled? Of course it is. Is that going to stop me trying? Not a chance. Over the course of two articles I’ll chronicle the winners and losers of the government’s sixteen-day partial shutdown. First up, the losers:


John Boehner

 Poor, poor Boehner. After a shutdown that lasted sixteen days and a tense stand off over the looming debt ceiling, House Speaker John Boehner brought to the floor a Senate passed resolution which would re-open the government and allow the debt ceiling to be raised. After failing to defund Obamacare, after failing to delay Obamacare, and after failing to achieve entitlement reform provisions, Speaker Boehner allowed the bill to pass with only a single minor concession from democrats: a slight modification to the income verification process for Obamacare. While Boehner’s negotiating technique seemed to have collapsed from within, I’m not entirely certain that there was much of anything which Boehner could have done to have come out of this scuffle as a “winner”. Assuming that President Obama would have stuck to his word and refused to negotiate over the debt ceiling and shutdown (and thus far we have every reason to believe that’s the case), John Boehner only had two real choices when the shutdown began on October 1st. He could remained beholden to the Tea Party members of his caucus and hold out as long as possible, or he could have given in to what President Obama and Senate Democrats were asking for and brought a “clean” continuing resolution to the House floor for a vote. In one scenario Boehner jeopardizes the Republican Party and the GOP brand, and in the other he jeopardizes his speakership.


Ted Cruz

It’s not easy to determine whether or not this counts as a win for Sen. Cruz. There are compelling arguments on both sides. Those who cite this as win for Mr. Cruz note that his twenty-one hour filibuster which kicked off this entire affair helped propel himself into the national spotlight and make his name a household one. Achieving widespread name recognition outside of his home state of Texas will certainly be a boon when the campaigning for the 2016 presidential begins. Another reason why, if viewed from the right angle, Ted Cruz is one of the “winners” of this shutdown is that this shutdown helped establish him as the standard bearer for the Tea Party movement. To see evidence of his newfound status within the Tea Party movement, one needs to look no farther than last week’s Values Voter Summit straw poll which Cruz won with 42%. Then again, there was a time when Michelle Bachhmann won the Ames Straw Poll only to receive 5% of the vote in Iowa and then drop out after a single contest, so it’s important not to read too much into that.

All is not well for Mr. Cruz, however. In the process of becoming a Tea Party favorite, Sen. Cruz did quite a number on his relations with the rest of the party; in particular with many of his peers in the Senate. Sen. John McCain (R-AZ) was one of the first to criticize Cruz for his filibuster and his attempts to defund or delay Obamacare. McCain stated ‘We fought as hard as we could in a fair and honest manner and we lost” in reference to the original debate which took place over Obamacare – a debate which occurred before Mr. Cruz was elected to the Senate. The criticism of Cruz only continued with other GOP lawmakers taking either tacit or overt jabs at Mr. Cruz and the GOP strategy which they believe he was responsible for crafting. Rep. Devin Nunes (R-CA) made his now infamous comparison between House Republicans who supported Sen. Cruz’s strategy and “lemmings with suicide vests”. At the end of the day, having Sen. Mike Lee as one of your only allies isn’t a place where you want to be as a freshman senator.

Lastly, while I think it’s important to not lend too much credence to polls taken a full three years before the next presidential elections, it’s worth noting that Sen. Cruz’s poll numbers and favorability ratings have slipped considerably. A new poll released by Gallup found that even though Sen. Cruz’s name recognition may have increased, his favorability has plummeted. Those who see him unfavorably doubled from eighteen to thirty-six percent and his net favorability rating stood at -10% compared to 6% in June. Without some sort of reversal between now and when the 2016 Republican primary field begins to shape up, it seems very like that Sen. Cruz won’t make it too far in the primary process – especially if Republican primary voters place an emphasis on electability when choosing their candidate. (Yes, that’s a big if.)


The Economy

The economy, and the millions of Americans that are affected by it, is the biggest loser of the protracted government shutdown. A cursory glance at the most commonly cited economic indicators can be rather misleading in this case. On Wednesday night, the NASDAQ closed at 3839, which is an increase of 68 points or 1.8% from where the market was at the start of the government shutdown. The same is true for the Dow Jones Industrial Average, which gained 1.6% during the course of the shutdown, and the S&P 500 which increased in value by 2.38% from it’s close on Sept 30th to it’s close on Oct. 16th. However, these numbers ignore the tremendous volatility which occurred during that sixteen day span. More importantly however, such an analysis overlooks the lost economic productivity and the long term economic impact of the government shutdown.

Standard & Poor’s, the credit rating agency which was responsible for downgrading the United States’ credit rating to AA+ after the wake of the 2011 debt ceiling debate, released a report which found that this current shutdown cost the economy $24 billion.  In their report, S&P reduced their forecast for fourth quarter annualized GDP by 0.6%, revising it downward from three percent. Exacerbating this lost productivity is the effect the shutdown had on consumer confidence. While consumer confidence figures for the month of October have not yet been released, S&P noted that the 2011 debt ceiling debate caused consumer confidence to plummet and hit a 31 year low in August of 2011. It’s not unreasonable to assume that this close brush with the debt ceiling will have a similar, if not necessarily as magnified, impact on consumer confidence and spending.

The most harmful aspect of this shutdown is that it appears to be part of a broader trend in fiscal policy. A recently released report  from the Peter G. Peterson Foundation found that crisis-driven fiscal policy such as the fiscal cliff, sequester, and budget battles has cost the United States one percent of annualized GDP since 2010. Because this loss in GDP is cumulative each year, the total economic cost of this decrease in GDP growth is around $700 billion. The report also concluded that the combined impact of fiscal policy uncertainty and reductions in discretionary spending (something which this agreement will continue) hampered employment and job growth. These two factors resulted in a reduction in employment by 1.4% which translates to roughly 2.1 million jobs lost due to fiscal policy uncertainty  and sequester style spending practices.


Government Contractors

The agreement reached between Democratic and Republican members of Congress included a provision which would provide back pay to all furloughed workers. The same can’t be said for individuals working for government contractors who were either furloughed or laid off as a result of the government shutdown. As the Congressional Research Service notes, the Federal Government contracted out $513.6 billion worth of business and services in 2012 with military contracting alone totaling over $360 billion last year. Adjust that number to fit the length of the shutdown, and you have $22.5 billion worth of government contracts which were affected by the shutdown. While certain military contractors were deemed essential, many other contractors were not, and a number of contractors had their status left in limbo with no clear indication of whether or not their services were considered essential or not.

The problem here is that since contractors aren’t going to be receiving any form of back payments by the government, there’s no guarantee that those contractors will be able to pay their workers. Stan Soloway, president of the Professional Services Council stated “The smaller the company, the more difficult it is. Absent revenue, it almost doesn’t matter the size of a company at a certain point.” This concept that paying furloughed workers will be particularly difficult for smaller companies which rely on government contracts for the majority of their work was echoed by Rob Levinson, an analyst at Bloomberg Government when he stated “So then the question is, does a company … still pay them? That’s up to them. Big companies probably will. For smaller companies, they may not have the cash”. The bottom line here is that thousands of individuals who work for government contractors and were furloughed as a result of the shutdown aren’t going to receive pay or any other form of compensation for the work they were forced to miss.


 The GOP’s chances of taking over the Senate in 2014

Much has been said about how redistricting after the 2010 census provided Republicans with an electoral advantage when it came to retaining the House. More recently pundits, Congressional Democrats, and the President himself have cited redistricting as one of the factors that enabled the shutdown to take place in the first place. The argument they made was that enough republicans came from districts which, thanks to redistricting, were reliably red and thus they could cause a shutdown without facing significant repercussions at the polling booth in 2014. While I tend to disagree that redistricting precipitated the shutdown, I’m more sympathetic to the argument that redistricting will blunt the impact that this shutdown may have on the GOP’s electoral prospects in 2014.

The logic behind this is rather simple. This shutdown drew to a close almost thirteen months before any congressmen or women have to face voters for re-election. Most people’s political memories aren’t that long. While this shutdown may have been a bona fide “game changer” had it occurred next October, that’s simply not the case in this scenario. There was a time when the Fiscal Cliff, the Hurricane Sandy relief vote, Benghazi, and most recently Syria, occupied the political limelight and were believed to be the salient issues that would sway voters towards one party or another when the next election came around. It’s more than likely that by November 2014, this incident will have been replaced in the minds of many voters by a more recent standoff or some other issue that one party makes as a focal point of their campaign. The end result is that House incumbents will only be affected at the very margins. With partisan gerrymandering by both parties as well as natural geographic shifts having have reduced the number of swing districts by two thirds since 1992, enough republicans come from districts where they can afford to lose a percent or two at the margins and still win re-election.

While gerrymandering may enable the Republican Party to hold on to the House for quite some time, the same isn’t necessarily true for the other chamber. Before the shutdown began, 2014 was already shaping up to be a critical year for the Republican Party. The possibility of retaking the Senate for the first time since 2006 finally seemed like a plausible, even realistic scenario. The class of Senators that soared to victory as part of President Obama’s victory in 2008 are all set to face voters for the first time since then. In order for them to maintain control of the Senate, democrats need to hold on to a number of seats, (a five seat gain is the magic number for republicans) including seven seats which are located in states which Mitt Romney carried in 2012. This task became significantly easier after the shutdown. Two of the democratic senators who come from traditionally red states include Sen. Mary Landrieu in Louisiana and Sen. Mark Pryor in Arkansas. Both of them are likely to face challenges from republican representatives who stood by Boehner throughout the course of the shutdown. These are races where the margins will matter and where even a small drop of anti-GOP sentiment may go a long way.


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