It is hard to imagine a political strategy less likely to
achieve its intended outcome while simultaneously harming the economy than shutting down the government to
prevent the implementation of Obamacare.
But that probably won’t
stop Senator Ted Cruz from trying. And
unless cooler Congressional heads prevail this week, while he will do no real
harm to Obamacare, he may well do harm to the economy.
Obamacare is the law, shutdown or not. And no matter what, on Tuesday you will still
be able to go to any hospital in the country and get treated, your doctor’s
office will still be open, and your insurance company will still expect you to
pay your premium.
But when the government
is shut down, the stock market suffers.
And a few points on the downside in our stock market that
are attributable to a single event may be more significant than you think.
Let’s go back to 1995.
The Newt Gingrich-led House shut down the government twice – on November
14, 1995 for a week and on December 16, 1995 for three weeks.
Until then, 1995 had been a boom year for the U.S. economy. The S&P Index rose 34 percent for the
year. But on the day of the first
shutdown, the S&P was down 3 points, or one-half of one percent. And on the next trading day after the second
shutdown, it crashed 9 points, or 1.5 percent.
What is a one-half of
one percent drop in the markets worth today?
We can do the math for Senator Cruz.
At the end of 2012, the
total market value of every company listed on our U.S. stock markets was $18.6
trillion. The markets are even
higher now, so we can estimate that today all those companies combined are
worth around $20 trillion.
So one half of one percent – or about 9 points on today’s
S&P – would subtract around $100 billion from the value of those companies. That is roughly equivalent to the annual cost
of Obamacare!
So isn’t it
ironic? A shutdown won’t shut down
Obamacare, but it could hit businesses harder in one day than Obamacare would
in an entire year. And that’s on the
conservative side.
People like Senator Cruz don’t want to think about this, so
they might look at it another way.
They will tell you that we spend around $3 trillion annually
on health and healthcare in the United States.
That is about 15 percent of the market value of all of the companies that
are publicly traded on our stock exchanges.
They will argue that this is way too high.
I agree. We can probably do it much less expensively if we
put more resources into prevention and public health, like other countries do.
Of those $3 trillion, federal
state, and local governments directly or indirectly pay about 71 percent of the
bill. We pay another 12 percent out
of pocket. The remainder is paid by
privately funded private health insurance.
So can Senator Cruz assume
that if we repeal Obamacare, we won’t have to pay that 71 percent? The answer is no, because these are pre-Obamacare
percentages.
And what effect will this government
takeover of healthcare formerly known as Obamacare have on these
percentages?
It is hardly seems worth working up a Congressional lather
over this.
But consider something
to which all members of Congress ought to be paying attention.
If our stock market were to go down just 1.5 percent because
of a shutdown, as it did after the last shutdown, then $300 billion will be lost
to publicly-traded American companies. That
is equal to the total
market value of every publicly traded company in Belgium, Turkey, or Chile. It is twice the market value of every publicly-traded
company combined in Israel, and three times the market value of all the
publicly-traded companies in Ireland, Austria, or Kuwait.
Remember the years-long effect that the collapse of the
Greek economy has had on the European and world economy? $300 billion is approximately four times the
total value of every publicly-traded company in Greece before the meltdown.
That’s something to think about on the brink of a shutdown.
Paul Gionfriddo via email: gionfriddopaul@gmail.com. Twitter: @pgionfriddo. Facebook: www.facebook.com/paul.gionfriddo. LinkedIn: www.linkedin.com/in/paulgionfriddo/
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