Kevin Hassett is a really, really, really bad economist. He’s so bad that he’s basically Megan McArdle’s idea of someone who is good at math. This wouldn’t be a problem if he wasn’t also the chair of the President’s Council of Economic Advisors. First Hassett made this really tone deaf remark in a TV interview:
How out of touch must @WhiteHouse Economic Adviser Kevin Hassett be to say this about government workers not receiving a paycheck today?
“In some sense, they're better off.”
— Chuck Schumer (@SenSchumer) January 11, 2019
We now know that that was only the shot, here’s the chaser:
— Paul Krugman (@paulkrugman) January 16, 2019
Here’s the video if you want to see it with your own eyes and hear it with your own ears:
lol Top White House Economist Admits They Didn't Figure in the Impact of Government Contracts When Estimating the Damage the Shutdown Would Do To The Economy. pic.twitter.com/mD2L1UST9K
— Josh Marshall (@joshtpm) January 16, 2019
I’ve been hesitant to write about the shutdown, especially its effects on contractors, because I am one. But I think it is important that people realize that Hassett’s failure to be even remotely competent at his job by not accounting for the effects of contractors being out of work is actually worse than he’s now owned up to. Does anyone know, by any chance, what happens when a veteran owned or minority owned or Native American owned or Native Alaskan owned or some combination of those owned small business gets a contract award from a part of the government, say the Department of Defense, that is not shutdown right now? The answer is quite simple. In order for the contract award to be finalized so that actual people waiting for start dates and on boarding dates can be issued, the Small Business Administration has to verify that the small business is indeed a small business. This is routine paperwork. Unfortunately, the Small Business Administration is currently closed because of the shutdown. As a result that routine paperwork certifying that small businesses are, indeed, small businesses cannot be issued. This means that every contract award to a small business, whether owned by a veteran or a minority or a Native American or a Native Alaskan or by some combination, can’t be finalized. The people lined up to fill the positions in those contracts can’t start. And the ripples through the economy get larger.
This effects everything from new contracts for maintenance and janitorial services to food service to IT to a whole range of other technical specialties – many of them essential for national security. And it is important to remember that a lot of these companies and the people that work for them have been stretched thin over the past five years because of the combination of the Budget Control Act (doing business as the sequester), as well as the inability of the GOP majority Congress to pass a budget and regular appropriations from 2015 through 2018 or the GOP majority House to actually do its job in terms of appropriations from 2011 through 2014 because they were using the budget as leverage against President Obama. Every time the US has approached a shutdown or a rolling, short term Continuing Budget Resolution (CR) is passed, it effects whether people start new contract assignments. And because of the sequester, when this happens repeatedly, contract award money for specific positions can be, and often is, clawed back to fund other needs that aren’t provided by contractors. All of these budgetary failures, from those created by the GOP majorities in the House and the Senate from 2015 through 2018 and the House GOP majority’s budgetary brinksmanship from 2011 through 2014.
Another major issue is that the longer the Small Business Administration is closed and these contracts awarded to small businesses can’t be finalized, especially for essential functions, the more likely that the government agencies that need the work done will seek an exemption to policy and make a default no bid award to one of the non-small business companies that have prime contracts with that department, agency, and/or office. Not only does this mean that the contractors expecting to start these jobs will never do so, the small businesses that employ them will lose the award, but that the point of having laws and regulations that privilege small businesses in these awards will be thwarted.
The simple reality here is that nothing will happen to get Senate Majority Leader McConnell to actually function as he was the leader of one half of a co-equal branch of government until something catastrophic happens. Not even Congresswoman Ocasio-Cortez’s excellent social media skills. As I wrote yesterday, McConnell is immune to the type of pressure that she and her colleagues tried to bring to bear today. Until or unless something really bad happens, civil servants and contractors are going to continue to either have to work without pay or are going to be on furlough. That money, as well as money that should have started flowing into the economy through new contract awards to small businesses, but can’t because the Small Business Administration is closed because of the shutdown, will continue to not circulate through the economy. And the failure of that money to be circulated, through mortgage and rent payments, through the purchase of groceries and clothes, through car payments, gas purchases, and paying for mass transit to get to work, for haircuts delayed, and for non-essentials like movies, the occasional dining out, or other social activities, will have a massive effect on both the macro and micro economies of the US. And those effects won’t be positive.