On the Brink of a Government Shutdown over Obamacare

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?

The government’s share might go up 2 or 3 percent, private insurers might pay 1 percent less, and our out-of-pocket share will go down a couple of percentage points.

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/