The 'Seinfeld' government shutdown is coming at a terrible time for the economy
It's never a good idea to shut down the federal government.
But when, as feels likely, the government enters into a shutdown this weekend, it will feel especially silly — and have the potential for significant cost to the US economy and the stock market.
I've covered several shutdown fights — some that were just threats, and some that ended in lengthy shutdowns. What makes this one unique is that there's not a great sense of what the fight is even about.
It's a shutdown about nothing.
Or, as Neil Bradley, the executive vice president of the US Chamber of Commerce, termed it, it's the "Seinfeld" shutdown.
The 2013 shutdown, perhaps most remembered for Sen. Ted Cruz's rendition of "Green Eggs and Ham" on the Senate floor, was about a (misguided) effort to defund the Affordable Care Act, or Obamacare, before a big chunk of the law went into full effect.
The most recent shutdown, spanning parts of 2018 and 2019, was about a (misguided) effort from former President Trump to secure more funding for his proposed border wall.
The theme here is that Republicans have had a lot of misguided shutdown-related efforts — even when they have been in full control of the government, as they were in 2018. This time, they don't even appear to be aligned on what they want out of it.
There's a helpful guide in here about the various demands House Republicans have made over the past month or so. They want to build more wall along the border. That one turned out great last time.
They oppose a "blank check for Ukraine." That's fine, but there are very specific levels of spending set for Ukraine. They want to "lower spending levels" — the spending levels that were set in a bipartisan agreement during the last hostage-taking situation over the debt ceiling.
It's a good thing the Senate had time to figure out a solution to the weekslong debate over its dress code, or that could also have become a demand in these negotiations.
All this brinkmanship is coming at a precarious time for the US economy and the stock market. As you may have heard, stocks are down lately.
As Gregory Daco, the chief economist at EY, has pointed out, US economic outlook is facing a quadruple threat for the economy at large — in addition to the shutdown, the United Auto Workers strike, the resumption of student loan payments, and rising oil prices are all looming.
This has come amid other headwinds for the economy, most notably the Fed's firming positioning that interest rates will need to remain "higher for longer."
A shutdown feels like the most unnecessary risk — every other headwind has an end goal or was largely unavoidable.
And the consequences of this unforced error wouldn't be trivial: Though effects to the stock market vary, they're never great. Daco has estimated that each week of a shutdown would cost the US economy around $6 billion, while shaving GDP growth by 0.1 percentage points in the fourth quarter. Goldman Sachs economists are even more pessimistic, estimating a 0.2 percentage point GDP subtraction.
And for what? Even the people set to shut down the government don't know.
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