Due to the lapse in federal funding, many services have stopped functioning

Hopefully, by the time you read this, the U.S. government would have sorted out the delicate issue of whether it should continue running. If the situation drags on, most of the world will be in for another big-bang economic shock.

A little over a week ago, U.S. lawmakers were supposed to pass the federal budget. Much like the union budget that is passed by the Indian parliament every March, the federal budget is the U.S. government’s estimate of how much it plans to spend in the coming year and where its income will come from. This budget needs to be approved by a majority of lawmakers for the government to go ahead with its spending and revenue-raising plans.

But the passing the Federal Budget is proving to be tricky this year. The U.S. Congress (what we here would call the parliament) has two arms – the House of Representatives and the Senate. For a Bill to be made law, it has to be passed by both houses of congress. But because of the way lawmakers have been voted in, the House of Representatives has a Republican majority while the Senate is controlled by the Democrats. And the two parties never agree on anything.

The Republicans and Democrats are ideologically different political parties. The Republicans believe in a laissez-faire (French for ‘let them do (as they like)’) market system where the role of the government in economic affairs is minimal. The Republicans usually call for lower taxes and abolition of social welfare programmes and minimum wages for workers, since a freely-operating market, they say, would automatically take care of these needs.

The Democrats, or the Liberals, on the other hand, hold exactly opposite views. For them, the government has a clear role as the regulator and welfare-provider for the country. Democrats believe in a system of progressive taxation, under which the richer you become, the more you pay as taxes to the government. It also believes in providing social welfare to citizens – like, free public education, minimum wages for workers, pensions for the old and disabled and benefits and services (like an employment exchange) for those who can’t find jobs.

What’s bothering the Republicans a lot right now is a new law that Barack Obama (who is a Democrat President) has passed. Obama’s Affordable Care Act promises to provide health insurance to all Americans and make trips to the hospital less expensive to ordinary people. To achieve this, the government will play quite a large role in offering subsidies, mandating what diseases must be covered and penalising people, employers and insurance companies that don’t follow these rules.

The jury is still out on how much Obamacare, as the law has been nicknamed, will cost. Will it dramatically increase government spending on social welfare? Will the government hike taxes to finance this extra spending? The Republicans think it will, so you see why they are irritated with their President.

The Republicans have refused to pass the federal budget. Without the budget, the government does not have the authority to spend money or to take loans to fund projects. As a result, the U.S. government has been forced to partially or fully close non-critical services. Many national parks and museums were closed to visitors but are now re-opening. Local government offices, like those of the agriculture department, have downed shutters. So farmers, who heavily depend on the department’s advice, aren’t sure which crop they should be sowing this season. What’s more, some sources even say that 70 per cent of even spying operations by the US have come to a standstill because of the shutdown.


Q for the week

Because of the shutdown, many U.S. government workers have been forced to go on unpaid leave. What’s the official term to describe this leave?

Send in your answers to school@thehindu.co.in with subject ‘money’. Add your name, class, school and city.

Last week’s answer: Satyam Computer Services is the name of the Hyderabad-based software company which admitted in 2009 that it had inflated its assets by over Rs 5000 crore. The question last week incorrectly mentioned the figure as Rs 50 crore. The error is regretted.

Kudos to Praveen Kumar Sinha, Class 12, Ramjas School, R.K. Puram, New Delhi, for getting the answer right.