When there is a shock to the economy, social safety nets dampen the pain significantly. Local and state governments would never be able to provide a reliable social safety net, because they have to operate on the same principles as every other user of a currency. The federal government can operate on the principles of an issuer of the currency. That is a big difference.

In fact, you can see this difference play out in slow motion in the Eurozone, which still has not recovered from the financial crisis. Things would have played out very different had their been a Eurozone federal government that provides at least the basic components of the social safety nets.

What if these "stabilizers" (i.e. money creation) are doing more harm than good, or even causing the business cycle? What if social safety hammocks decrease growth? What if welfare provided by prudent local governments through savings, or even private means, are sufficient? What if there are a ton of differences between the Europe and America other than the Federal Reserve?

One important point though is that welfare provided by local governments cannot be sufficient. Local governments are entirely dependent on tax revenue and the goodwill of creditors. If a local government is hit badly enough by an economic crisis, they will be unable to continue providing this welfare.

This is especially true if other local governments in the same currency zone are less badly hit by the crisis. In this case, creditors will "flee" towards those other local governments, which creates a vicious cycle.

The previous paragraph is exactly what happened in the Eurozone, except that national governments played the role of local governments.

http://research.stlouisfed.org/fred2/series/W022RC1A027NBEA?... http://research.stlouisfed.org/fred2/series/GDP

Fact 2: State and municipal governments have subsidized borrowing costs via the federal tax exemption. I don't know where you live, but are your state and local governments borrowers? What about the road money from the Federal Government?

Fact 3: Private savings come from public deficits

http://research.stlouisfed.org/fred2/graph/?g=mzu

What if, what if, what if...

Well, you will discover in due time what all of this nets out to and no one will enjoy it. The forces of deflation are far mightier than the forces of inflation for inflation requires persistent and exponentially increasing consumption, fueled by net-borrowing of the combined public and private worlds.

As it turns out, the zombie apocalypse isn't triggered by an infectious disease or rapidly mutating virus. Instead, it's capital destruction via chaining debt defaults.

I don't understand this argument. Are you claiming that there's no social safety nets in Europe? There are and have been and will still be without a federal government (although I like to argue we already have a defacto federal government).

Just because individual member states provide their own social security and finance it through borrowing money from the central bank(s), doesn't really seem that different from a federal government directly providing social safety nets. In fact, most member states have a way better social security net than United States. I could, in theory, just stop working today and get paid about $1200/month in addition to things like practically free health care and university education. Of course, there are poorer member states that have worse social security.

I would add the following: If there had been a federal government, then that government would not even have had to do anything that looked like "printing money" in public discourse.

This is because this federal government would not have had any trouble issuing new debt in the form of bonds. Why not? Because everybody would have known that the European Central Bank would effectively guarantee those bonds under any condition, and therefore there would not have been a panic about the debt in the first place. It's all a psychological game.

As evidence, consider that the fiscal policy part of the US federal government has not done anything that looks like "printing money" up to this point. All they have done is issue bonds, i.e. get loans from creditors.

Yes, the Fed has done things that look like "printing money", but that's monetary policy which has nothing to do with social safety nets.

You may not like the extent of their protection, or how they go about protecting, but it is childishly naive to suggest the country does not need protection.

But I know it is cool these days to pretend that the military is 100% evil and every dollar spent on it is a total waste.

With 46 million people dependent on food stamps, the only thing separating the US from great depression style bread lines right now is that single program. Especially with the huge plunge in the labor force participation rate and the U6 being at 14%.

The downside to that is program is, the Federal Government is masking just how bad the US economy really is, with a trillion dollars a year of stimulus help from the Fed. Many people believe the economy is healthier than it really is when they read the fake unemployment number of 7.3%.

School lunches and breakfasts would continue to be served, and food stamps, known as the Supplemental Nutrition Assistance Program, or SNAP, would continue to be distributed. But several smaller feeding programs would not have the money to operate.

http://usnews.nbcnews.com/_news/2013/09/29/20745618-a-govern...

The USDA said food stamps would not be affected in October.

http://www.huffingtonpost.com/2013/09/28/government-shutdown...

And it is not stupid theater. It is our government NOT at work. We may temporarily recover some of our debt. In fact, if they keep this going for an extended period of time, it might actually help- a lot. Our country has become much too dependent on our government, and now that the two political parties can't get along, there may actually be room for another socially moderate, somewhat fiscally-conservative, deficit hawk, constitutionalist, semi-libertarian party with common sense to come along and bring the country together. Unfortunately, it hasn't organized yet (and no, it isn't the Libertarian party- not with its current leaders- and even with better leadership, Libertarians are incapable of getting the debt under control because they won't allow raising taxes to cover for past debt).

And tell me, when was the nation not dependent on its government? When did this era of "rugged individualism" you speak of exist? Right from its very inception, the US government has been intervening in the economy and subsidizing things that the voters deemed desirable. If the US government has grown, it is because the US has grown. You need a larger government when there are 300 million people in the country than when there are 30 million.

there may actually be room for another socially moderate, somewhat fiscally-conservative, deficit hawk, constitutionalist, semi-libertarian party

So... you want a party of magic faerie unicorns to come along and set everything aright. Er, well, good luck with that.

Edit: spelling

It's no coincidence that the most rural, most Republican states are massive consumers of federal funds (via farm subsidies and transportation subsidies, mainly) and the most urban, most Democratic states are net producers of federal funds.

A transportation subsidy might be local (maybe - interstates are national, not local), but farm subsidies end up being distributed nationally since they basically just mean that certain types of food are cheaper than they otherwise might be. So you can't count farm subsidies as "consumers of federal funds".

(It's definitely an artificial distortion of the market, but that's a different argument.)

I'm not sure how the conclusion follows from the premises. Farm subsidies do consume federal funds. Where do you think the funding for the massive pork-barrel farm bills comes from? Moreover, those dollars aren't necessarily passed on to consumers. In theory, the market for farm products is a perfectly competitive market and any subsidy to the market would result in cheaper prices for everyone. In practice, well, Cargill exists. Large agribusinesses are quite capable of taking subsidy rents and stashing them away as profit rather than using them to compete on prices if their market is more like a cartel and less like a perfectly competitive free market.

What does this have to do with a subsidy? You can do this identically without a subsidy (assuming you can do it at all). The subsidy just lowers the starting price.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

If we didn't have these unwanted government services (or wanted services provided very poorly or at excessive cost), then the taxpayers would spent their money on something else -- something that is wanted -- and it would generate just as many jobs or economic activity in some other way.

Besides, which services do you believe are "unwanted?" I agree there are many unnecessary "paper pushers" and managers, but the shutdown affects entire departments. One can't simply stop paying the redundant middle managers, and continue paying prison guards and air traffic controllers.

http://www.motherjones.com/politics/2013/09/who-gets-screwed...

Some things that surprised me:

* Campers: People living (or vacationing) in national parks and forests will have 48 hours to relocate.

* People who make money off tourists: Shuttered national parks are bad news for the hotels, restaurants, and other attractions that feed off them.

* Employers: The Department of Homeland Security's e-Verify program will be offline for the duration of the shutdown.

* @CuriosityRover: 98 percent of NASA's staff will be furloughed, and the agency's website and live-streams will go dark.

and plenty of more serious things mentioned in the article like

* People on food assistance: The USDA's Supplemental Nutrition Program for Women, Infants and Children (WIC) will stop making payments on October 1.

http://www.cnn.com/2013/09/23/politics/government-shutdown-d...

  - http://www.nbcnews.com/id/39516346/ns/us_news-life/t/no-pay-no-spray-firefighters-let-home-burn/#.UkpUgGSidTp

  - http://www.huffingtonpost.com/tina-dupuy/firefighting-in-the-1800s_b_247936.html

It's not as if they paid the firefighters, but the firefighters refused to act--if that were the case, there would be a serious civil lawsuit to recoup the cost of the lost home, its sentimental value, and punitive damages.

He didn't pay for fire-fighting. He didn't have enough insurance. And somehow, this is someone else's fault.

A city firefighting crew would not refuse to put out this fire so it is an example of a service that was provided at a lower quality in the private market due to market incentives.

Some addition fun facts you want to know before making up your mind about what happened in this "disaster":

* The structure that burned down was on unincorporated land outside the tiny town of South Fulton, which is about as far as you can get in Tennessee away from any major metro area (it's approximately equidistant from Memphis and Nashville, near the equally rural southern tip of Illinois and Indiana).

* The owner of the structure deliberately chose to live in an area that had no fire coverage, unlike people who live in incorporated South Fulton and thus contribute directly to the South Fulton FD.

* The owner had no fire coverage because they refused to pay a $75 annual fee to extend coverage to their property.

* The structure that burned down was a doublewide trailer whose value might not have been that much higher than the assessable cost of firefighting service (when this discussion last came up I found numbers ranging from 20k to 50k). You can find estimates on the internet of fire department costs for one incident hovering in the mid-thousands, assuming no complications, and that's the FD's cost basis, not the chargeable cost.

Ultimately I don't think there's much to learn from what happened in Obion County. It will always be possible to situate your home far from the reasonable service area of a fire department, and it seems unreasonable to suggest that merely by doing so, the nearest municipality should be on the hook for providing coverage.

2. Markets that state and local governments dominate are large. Do you really think Waste Management would hesitate to take new markets that were previously controlled via government contract? Or that private prisons wouldn't purchase and run ones that were previously state-controlled? Or that power and water companies wouldn't realize the incredible opportunity to expand into new areas that were previously monopolized through government interference?

Your example of waste, power, and water are a few cases where people, I think, support the government granted monopoly status. These industries have huge fixed costs and generate large externalities. Reliable waste management is a communal concern with clear risks to public health. I'd rather not have the trash company decide my neighborhood is too far to service weekly and switches to monthly pickup.

Government exists as a function of the people to balance externalities. Does it go to far sometimes? Sure. But when people are actively engaged though government can be a force for good.