Let's not do this ever again

The US government is back open

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »