How Budget Battles Keep The Economy In Limbo

Oct 2, 2011
Originally published on October 2, 2011 11:37 am

Welcome to Fiscal Year 2012...such as it is.

On each Sept. 30, the nation wraps up its old budget, and on Oct. 1, it starts a fresh spending cycle. Or at least, that's what is supposed to happen.

But once again, Oct. 1 has come and gone, and the country still has no formal budget in place. Instead, Congress last week approved a stopgap funding bill to keep the government operating temporarily, just as it has done time and again since the 1970s.

For the more than 2 million civilian federal workers, it has become the norm to start work on the first Monday of October not knowing what will happen to their agencies' budgets: Will there be spending cuts? Will there be money to purchase new equipment? Will there be raises?

In fiscal 2011, Congress did not complete the final budget until April 15, 2011 — a full 61/2 months into the 12-month cycle.

This year, Congress had to punt again. On Thursday, the House approved a stopgap spending bill to keep the government open — until Tuesday. That marked the 157th temporary spending bill used to plug a budget hole since 1977, according to the nonpartisan Congressional Research Service.

When lawmakers resume their work on Tuesday, they will take up yet another spending extension — this one lasting until Nov. 18.

The lack of a final budget is particularly troublesome for the weak U.S. economy, says Diane Swonk, chief economist for Mesirow Financial, a financial services firm in Chicago.

"We're already skating on thin ice," Swonk says. "The last thing you need now is more uncertainty."

Matthew Slaughter, a Dartmouth professor and an economist with the National Bureau of Economic Research, says the annual budget mess hurts the economy in several ways.

First, it dampens the consumer confidence of millions of government workers and contractors.

"To varying degrees, they have to worry about the stability of their paychecks," he says. "That kind of risk tends to make those households more uncertain, and that surely matters" when workers are deciding whether to purchase, say, a home or car.

Slaughter says the budget battles also hurt workers in the private sector.

"The annual drama and the countdowns make people worry about the basic competence of the government, and that hurts overall confidence in the economy," he says.

Budget battles have other hidden costs, Slaughter adds. For example, federal agency leaders who should be developing policies to help the economy are instead "putting their energy into contingency planning in case there is a government shutdown," he says. Also, the most highly skilled federal workers may decide to leave government because they may become demoralized, he notes.

And finally, agencies cannot move forward with major projects that could improve infrastructure, Slaughter says. For example, the Federal Aviation Administration could be delayed in purchasing equipment to upgrade the air-traffic-control system because of budgeting uncertainty, he says.

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Welcome to the program, Marilyn.


CORNISH: So, before we talk about the broader economic impact, please remind us, where is Congress on the fiscal 2012 budget?

GEEWAX: Last week, lawmakers agreed to a stopgap spending bill to keep government open until Tuesday. And then on Tuesday, they'll take up another extension, and this one would keep government operating through mid-November. But it'll be months before the full budget process is completed.

CORNISH: The annual budget process has become such a circus.


CORNISH: And it's so routine that that it's a circus and we all pretty much accept it as normal. But what do economists say about the impact of that?

GEEWAX: I called up a bunch of top economists this past week to ask them that question, and see what they're thinking. And I got very consistent response: They all say that this is a broken process that's hurting individuals and businesses very directly.

CORNISH: OK, what does that mean in detail? How?

GEEWAX: And that put a damper on their spending. Should they go ahead and buy a car? Do you make a down payment on a new house? At the time when car dealerships and realtors really need people to be feeling as confident as possible, that kind of uncertainty certainly didn't help.

CORNISH: Okay, but most people are not federal employees. So how does this affect the rest of us?

GEEWAX: And it's not just the money, it's also the squandering of time and talent.

CORNISH: So what do you mean by that? I mean how could you quantify that?


GEEWAX: Well, you know, FAA leaders can't focus on planning for next generation technology when they have to spend their time making contingency plans for shutdowns, deciding which workers are essential, which ones are non essential. And, of course, that's pretty demoralizing for the employees who have to go through that process. The best ones may end up leaving government just to avoid this constant drama that involves Congress.

CORNISH: Is this problem though really any worse than usual?

GEEWAX: I think that economists would say yes, it really is worse this year because the economy is so fragile right now. The European governments are struggling, they have all kinds of political problems with their economy. So investors around the world would like to see some clarity and direction from Washington. The fact that we're starting another fiscal year without a budget is a confidence killer.

CORNISH: NPR senior business editor Marilyn Geewax. Marilyn, thanks.

GEEWAX: You're welcome, Audie. Transcript provided by NPR, Copyright NPR.