Thomas Davidoff, a business economics professor at UBC’s Sauder School of Business, discusses the shutdown of the U.S. government and what it might mean for Canadians.
Why are we facing a potential shutdown of government services?
The U.S. government faces two deadlines: Non-essential services have no authorized funding starting Oct. 1. If a shutdown was to continue, the government will run out of cash and would have to stop honouring debts by roughly mid-October. That’s a form of uncertainty that the world has not seen.
How did the U.S. government get to this point?
Congress cannot agree on a budget to send to President Obama. Funding comes from a series of continuing resolutions. When a resolution expires, a new resolution must be passed to keep funding the government. The Republicans, who control the House, now refuse to pass a “clean” continuing resolution. Rather, they wish to force some policy proposals through before authorizing new funding. High on their list is delaying the implementation of “Obamacare.”
What are the short and long-term implications on both sides of the border?
Missing the Oct. 1 deadline for non-essential services would be somewhat painful. The U.S. economy has still not fully recovered from the late 2000s crash, and reducing the federal budget shrinks economic activity. Further, the uncertainty associated with government activity is painful. The long-term effects could be large, but need not be if the situation is resolved, say, within a week.
Missing the Oct. 17 “debt ceiling” deadline would be worse, but it is not easy to give anything like a dollar amount. The problem is that failure to honour debts by the U.S. government creates a form of uncertainty that the world has not seen. It could be quite serious for financial markets, and this would likely impact Canada. A persistently slowed U.S. economy is quite bad for Canada as well.
Find more UBC political scientists and economists for commentary on the potential U.S. shutdown here: http://news.ubc.ca/2013/09/30/ubc-experts-for-comment-on-looming-u-s-shutdown/