A truce, not a strategy

The Hill reports that Senate appropriators reached a funding agreement on Sunday to prevent a government shutdown at the end of September, extending funding through part of December. One notes, with a mixture of relief and exasperation, that the crisis has been postponed rather than resolved. Postponement is not nothing — a shutdown is a genuine harm, a self-inflicted contraction of public services — but it is a long way from the deliberate, purposeful fiscal planning that a modern economy requires.

Let me address, first, the argument on the other side, because it deserves its full hearing. The concern runs: government debt accumulates, compound interest is remorseless, and eventually the creditor calls the loan. A household that spent beyond its means year after year would be ruined. Why should a government be different? It is a reasonable instinct. It is also, as macroeconomics has established at considerable cost, wrong in its application to a currency-issuing sovereign state operating below full capacity.

The error lies in the analogy itself. When a household saves in a recession, it protects itself. When every household saves simultaneously — and businesses alongside them — aggregate demand collapses, incomes fall, and the savings that seemed prudent become impossible to sustain. The paradox of thrift is not a curiosity; it is the central mechanism of a slump. A government that responds to this collective contraction by cutting its own spending does not resemble a prudent householder. It resembles a fire brigade that, alarmed by the cost of water, turns off the hose.

What concerns me more than the shutdown itself is the framework within which these negotiations occur. Each continuing resolution — each short-term patch — signals to businesses and households alike that the state cannot be relied upon as a stable partner in the economy. Animal spirits, as I have long argued, are not irrational noise; they are the mechanism by which uncertainty translates into deferred investment. A Congress that routinely governs by deadline and brinksmanship is, in effect, manufacturing uncertainty as a byproduct of its procedural habits. The investment that does not happen, the hire that is postponed, the contract that is not signed while a shutdown looms — these are real costs, diffuse and unmeasured, but no less real for that.

The deeper question, which the Hill's report does not fully surface but which I would press, is what this funding deal actually funds, and at what level. Continuing resolutions typically freeze spending at prior-year levels, which means that in a period of elevated need — infrastructure arrears, workforce shortages in public services, the energy transition — the state is effectively retreating in real terms while performing the pantomime of fiscal responsibility. That is not prudence. It is abdication dressed in the language of prudence.

What would I recommend, were my counsel sought? First, the fetish of the debt ceiling and the continuing resolution should be abolished or radically reformed — these are not constitutional safeguards but legislative self-harm mechanisms with no parallel in any comparably sophisticated economy. Second, public investment — in infrastructure, in the green transition, in the human capital of an ageing workforce — should be treated as what it is: an asset on a national balance sheet, not a line item to be trimmed when political theatre demands sacrifice. Third, and most importantly, the United States should set a fiscal framework anchored to employment and productive capacity, not to an arbitrary debt-to-GDP target whose economic foundations are, to put it charitably, contested.

A government shutdown averted is better than one allowed to occur. But let us not mistake the fire brigade's arrival for the elimination of the fire risk. The underlying confusion — that the state must behave like a household, that austerity is virtue, that uncertainty is a cost someone else bears — remains embedded in the political culture. Until that confusion is corrected, these negotiations will recur, the deadlines will multiply, and the economy will pay, in deferred investment and foregone employment, for a lesson in macroeconomics that was available at considerably lower cost.