Yesterday at about 2pm AEST, the American government shutdown.
It sent home more than three-quarters of its workforce (about 800,000 workers), closed all but the most essential offices, and sat twiddling its thumbs while America’s lawmakers debated how to pass a budget bill one side of politics thinks is too generous, and the other thinks is essential.
How did it get to this, and what does it mean for you and your business here in Australia? Here at SmartCompany, we’ve got you covered:
So what’s the big holdup?
America’s congress has a majority of right-wing Republicans in its seats, while America’s senate and presidency are controlled by the left-wing Democrats.
The Democrats have come up with a budget bill. And the Republican House of Representatives refuses to pass it.
Instead, the House wants to see President Obama’s signature healthcare reforms, which for the first time will provide the possibility of health insurance to more Americans than ever, defunded.
(It’s worth noting at this point the healthcare reforms were passed way back in 2009 when the Democrats controlled both the House and Senate – ‘Obamacare’ is fully legislated.)
As a shutdown loomed, the Republicans offered a compromise bill: defund the healthcare reforms for a year, and they would pass a budget. This was voted down in the Senate yesterday along party lines.
Unless Congress agrees on a new budget, or at least a resolution to provide a bit of funding for a while, on October 1, the government must shut down. And, as the clock struck 12 in America last night, the shutdown began.
Has this happened before?
Yes. 17 times. The first American government shutdown was in 1976, and the most recent shutdown was in 1995-96 under president Bill Clinton.
So what now?
Everyone keeps talking and hopes to find a compromise.
Meanwhile, here are some of the things currently not working in America:
- Many public health programs – there better not be any disease outbreaks
- Tourism facilities – zoos, museums, the Grand Canyon
- Economic data – the Bureau of Labor Statistics has gone home
- The Securities and Exchange Commission is deemed non-essential as well
Americans still have to pay their taxes though. And thanks to a last-minute bill passed by both houses, the army will stay on.
What does this mean for Australia?
It means the Australian dollar will become more expensive.
It’s currently buying 93 US cents, but as one analyst told us on Monday, it will most certainly rise the longer this goes on.
This also has an important effect on consumer confidence.
The American government is the country’s largest employer. And most of its workers are now home without pay.
This will impact the American economy, by forcing many people to curtail their spending and run-down their savings. In the lead-up to Christmas, it will limit spending.
America is just coming out of the worst recession since the Great Depression, and needs every bit of wind in its sails it can get.
The global economy is all connected. If the American economy sneezes, so will our major trading partners, and so will we.
Will this save the government money?
Shutting down a government is very, very expensive when you consider lost revenue from things like tourism, and the backlog of work that means public servants will have to work overtime when they get back.
How long will this last?
For all the reasons listed above, this is a big deal. And it’ll get bigger the longer this goes on. The last time this happened, in 1995-96, the government shutdown for a total of 28 days. But most shutdowns only last a day or two.
Why are the Republicans acting like children? Don’t they realise this is stupid?
Plenty of them do.
In many countries, such a situation would see a handful of the opposition peel off and vote with the Democrats to get some sort of bill passed. But House Speaker John Boehner is prevented by Republican Party rules from allowing any bill to reach the floor for a vote that the majority of the party does not support. If he ignores this rule and puts a bill likely to pass both houses to a vote, it would probably pass, but he would almost certainly lose his job and be replaced by someone more conservative.
Most of the Republican Party is far less welcoming of compromise than Boehner. Because of voting laws intended to disenfranchise minorities and gerrymandering of district boundaries intended to keep them as safe seats (in America, electoral boundaries are drawn by partisan governors and not an independent commission as in Australia), America’s democracy tends to elect ideologues who worry more about a pre-selection battle from their own party than they do about winning an election.
As long as America’s elected representatives remain so insulated from the democratic will of the American people, we can expect gridlocks like this from time to time.
On that note, it’s been over 1000 days since the American Senate has passed a major new law.
Could it be worse?
Yes. On October 17, America is scheduled to breach its debt ceiling. This is a law that says if America ever reaches more than $US16.7 trillion in debt, it will default on much of its debts to other countries. And that would be truly catastrophic.
America has raised its debt ceiling 47 times in the past, but that might not happen this time. Some Republicans have already suggested they would only agree to raise the debt ceiling if that bill is tied to one defunding the healthcare reforms. So if a compromise is reached today, we could do this all again in two weeks.