Shutting Down the Government

Much discussion has taken place this week about the debt ceiling. Many of the tea partiers are arguing for not raising the ceiling which essentially would shut down government unless spending cuts were instituted. The Obama Administration is screeching that shutting the government down would be a disaster. And on Thursday, Treasury Secretary Timothy Geithner said, "Even a very short-term or limited default would have catastrophic economic consequences that would last for decades… For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent." But this suggests that Congress has never failed to pass a debt ceiling. Congress failed to pass a debt ceiling increase in 1973, 1979, 1983, 1985, 1987, 1995 and 2007. And there was no crisis in the economy nor any default. Instead, the government was forced to temporarily stop borrowing and cut spending to align expenditures with revenues.
Even the two shutdowns when Newt Gingrich was battling Bill Clinton, five days in late November 1995 and then a few weeks in December 1995 and January 1996 -- did not lead to a default. They do not seem to have damaged the economy either as there was no increase in unemployment during either December 1995 or January 1996.
There is no doubt that a shutdown can affect some people. In 1995-1996, some Federal employees had to miss a paycheck or two. This can be a hardship for individuals who did not have any money saved up. But with a debt of $14 trillion and deficits expected to be over $1 trillion and grow to $2 trillion a year in just a few years, something dramatic has to be done.