By Dr. Ali Dadpay, assistant professor of Economics, Clayton State University
The political games are not free, they come at a cost to all of us.
These are exciting times. You might not be always thrilled by the events around you, but they sure make you anxious.
We had two weeks of a federal government partial shutdown, and then we almost fell down the default cliff. Now we are looking at another day, another unfolding drama.
A phrase is often used these days to describe our situation, which might be the title of a best seller soon: “kicking the can down the road.” We kicked the can down the road, again. Maybe this is a good time to remind our politicians of some basic business principles. It seems crisis has become a way of politicking and a governance technique. In doing this the United States is adopting some Third World mentality, whose cost is paid painfully by our economy. There is no action without economic cost. And we never stop paying for these costs.
The first concept we need to remind politicians is that of the opportunity cost. The simple definition of opportunity cost is the value of forfeited options. When you choose to delay an action you have forfeited the benefits of doing it in the present time. Although politicians want you to believe a free lunch is possible, there is absolutely nothing free. Every political action has a cost. Now we might be able to hide that cost, we might be able to confuse the people about it, we might even be able to claim there is a world where the United States economy can provide us with free lunches. However that will be false and simply untrue. If the government wants to provide a public service or go to war, then it needs to have more tax revenues. That will happen either by having a larger economy or by increasing taxes. There is no other way around it. There is no political choice without cost. It seems it has been found convenient, however, to ignore the cost of politicking or to underestimate it.
Look at the latest government shut down. Some call it partial shutdown, some refuse to even call it a shutdown. However, several agencies have reported that it cost the U.S.A. gross domestic production (GDP) a sum of $23 billion. Georgia’s GDP is 2.79 percent of national GDP. It is true that the shutdown did not affect all the states the same way. To gauge its true impact on the state of Georgia we need more detailed data. We must estimate the multiplier effect of seized spending and to see how large a share federal government has in our labor market.
Still, in the absence of this detailed data, we can claim an average estimator by using Georgia’s share of GDP. Based on this estimator the loss to the state of Georgia could be as high as $641.7 million. Of course, Georgia might not be among the hardest hit states and the real number might be much smaller. However, the fact is Georgia, along with the national economy, lost potential revenue. And no number can capture the despair and emotional drama federal employees felt in our state trying to look for a job and fearing the worst.
The U.S. economy also lost 0.6 percent of its potential quarterly growth due to the shutdown. In the past years the economy has been recovering from a catastrophic financial meltdown which hit Atlanta metro area very hard. The recovery pace has been slow and many wonder what can be done to speed it up. In the middle of this recovery, political crisis after political crisis has added to the economic uncertainty we face. This uncertainty has slowed down the business growth and damaged consumers’ confidence. Our economy does suffer from discouragement. The recent employment report demonstrates this fact very clearly. As the shutdown was approaching, labor markets across country slowed down, adding only 148,000 jobs in September in the best case scenario, much lower than its monthly average of 185,000 jobs for the last year. Customers held back on their spending and the economic volatility continued to hurt the economic growth threatening our jobs.
It is not a prophecy; we are already paying for the shutdown by even slower economic growth. Make no mistake; the economic growth we have lost cannot be retrieved. Even if the spending resumes and the federal employees are paid for their lost hours, the economy has lost two weeks. If you do not think that is important then you cannot be a good executive for any business operation anywhere in the world. No multi-billion dollar operation can afford two weeks of no activity.
For every decision made in DC, for every stalemate created between the executive and legislative branches, our economy pays in lost revenues, lost jobs and slower economic growth. Sometimes it is not enough to advocate the cause of businesses or preach the importance of good corporate governance. One needs to practice what he preaches. Any economist and any businessman can tell you that a good political system is the one which creates stability in the marketplace. Presently we cannot say that of our national political establishment. It is time for our politicians to remember the economy cannot cash the checks they write. Can they afford to be uncompromising?