Let’s not do this ever again

The US government is back open

The US government is back open. Museums will reopen their doors, tax refund checks will resume being sent, and 700,000 workers can go back to work — with pay, even!

Now that it’s over, let’s make a pact: Let’s not do this ever again.

Seriously, we have to stop doing this. The economy is just now really starting to recover from the Great Recession. Pointless political shutdowns are the quickest way to short-circuit that recovery and self-inflict pain. As comedian John Stewart put it, America is “sitting on its own [male private parts].”

MacroEconomic Advisors estimates the shutdown cost the economy US$12 billion. S&P used a broader forecasting model and estimates the 16-day shutdown cost the economy US$24 billion, or about US$1 million per minute. Since 2009, MacroEconomic Advisors estimates “fiscal uncertainty” — debt-ceiling fights, shutdowns, threats of default, etc. — have cost the economy US$150 billion in lost output and 900,000 jobs. Gallup’s Economic Confidence index suffered the largest drop since 2008 last week.

The need to tackle the nation’s long-term deficit is real. But there’s a term in economics called “false economy” that refers to short-term attempts to save money backfiring and costing more in the long run. Groups of Americans have spent the better part of the four years outraged at the cost of say, PBS and NPR’s US$450 million annual budget. But the shutdown cost the economy that much every eight hours. Surveys continuously show Americans are outraged at how much the government spends on foreign aid. But the actual amount spent on foreign aid — about US$56 billion a year — has been dwarfed by the amount of money sucked out of the economy by four years of political pranks.

And there are two dirty little secrets about the economy that were left mostly unspoken over the last two weeks of fighting.

One, the annual budget deficit as a share of GDP has plunged by more than 60% since 2009. Debt as a share of GDP is already on track to decline over the coming decade. Non-defense discretionary spending as a share of GDP is near a half-century low. None of this seems to change the rhetoric around talks of “runaway spending” and “exploding deficits.” As Ian Shepherdson, chief economist at Pantheon Macroeconomics wrote, “We are baffled by the idea that the pace of deficit reduction needs to be increased, given how rapidly the picture is improving already.”

Two, growth in annual health-care spending is near a 50-year low. The decline is persistent and can’t be explained by a slow economy alone. And it’s so large that the Congressional Budget Office is slashing its estimates of future entitlement spending. “The slowdown in health care cost growth has been sufficiently broad and persistent to persuade us to make significant downward revisions to our projections of federal health care spending,” CBO director Doug Elmendorf said last month. Estimated spending on Medicare and Medicaid in the year 2020 was recently revised down by more than US$200 billion. I didn’t hear anyone mention this during the shutdown when worrying about runaway entitlement spending.

America has problems, but there’s a tried-and-true way to deal with them: Win elections and pass laws. And more important, rely on facts. The more we govern by shutdown, standoff, threatening to default on national debt, and imaginary boogeymen, the harder it’s going to be to keep our fragile economic recovery afloat. Let’s not do this ever again.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

A version of this article, written by Morgan Housel, originally appeared on fool.com.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

More on ⏸️ Investing