Partner Sites

Logo BusinessBecause - The business school voice
mobile search icon

The US Budget Crisis: How Does It Affect MBAs?

The US Government failed to pass a new budget for the first time in 17 years. How will this affect the MBA world? Professors and MBAs from top US b-schools have their say!

Wed Oct 2 2013

The two houses of Congress remained at odds as Americans woke this morning to the news that a midnight deadline to pass a new budget had sailed by. Around 800,000 government workers have been left in limbo without pay as America suffered its first government shutdown in 17 years.

The Republican-led House of Representatives has set out a condition of delaying President Barack Obama's healthcare reform as a condition for passing the bill. On Monday, the Democratic-led Senate rejected two bills from House Republicans that would have funded the government, only if funding for President Obama's healthcare law was delayed for a year.

It is unclear whether the shutdown will last days or weeks. Goldman Sachs estimates that a three-week shutdown would cost America 0.9 per cent GDP this quarter.

As Congress remains at logger heads, Obama remained defiant. He tweeted: “They actually did it. A group of Republicans in the House just forced a government shutdown over Obamacare instead of passing a real budget.”

80 per cent of the Treasury department has been sent home, while 87 per cent of the commerce department remains on leave. The biggest-hit department was defence, where 800,000 civilian employees are expected to remain out of work until a new budget is approved.

While the Dow Jones has risen slightly, there is deep concern that the budget gridlock will foreshadow further battles when the Government is set to reach a $16.699 trillion debt ceiling on October 17. If the approval to raise the debt limit is not passed, the US would be left unable to pay its bills for the first time in 80 years.

US-based MBAs and b-schools in North America have reason for concern. While debates rage on Capitol Hill in the US capital, MBA scholars at Washington-based Georgetown McDonough School of Business think that the political turmoil will negatively affect the economy in which many MBAs seek to launch their careers.

James Angel, Associate Professor of Finance at Georgetown, said: “Political turmoil and uncertainty are never good for the economy. The partisan gridlock demonstrates that the US government is not capable of executing its basic obligations in a rational way. This bodes ill for the US economy and the US standing in the world.”         

Robert Shapiro, Senior Policy Scholar at Georgetown McDonough Center for Business and Public Policy, accused the Tea Party of single-mindedness. “If they don't recover quickly, much of the national government could remain closed for a long time,” he wrote. “The White House and congressional Democrats have simply accepted the arbitrary cuts of the sequester process, despite evidence that they're slowing the economy.”

We spoke to US-based MBAs from some of the top business schools on how the budget crisis affects career prospects in America.

Jared Larkin spent time studying his MBA at Dartmouth Tuck in New Hampshire. Before b-school, he worked in the US Senate and the State Office for a year.  He has a keen interest in finance and politics, and identifies with the Democrats.

“I do not think that House Republicans setting a delay of the ACA as a condition to passing the budget was an intelligent decision," he said. "Polling suggests that a majority of people are angry that a shutdown is occurring, and blame Republicans more than Democrats.

“A longer shutdown will have more severe consequences for federal employees. Markets by and large like stability and the systemic risk that could arise from an unpredictable Congress will not be appreciated by markets. 

“It is bad for the business community to have political instability. It will probably hurt our reputation in the global economy. A weak economy leads to less jobs, or often underemployment. This increases competition for MBA grads.”

Steve Hooper is an MBA graduate from Tuck. He runs his own start-up restaurant business in Seattle, Washington. The business, Kigo Kitchen, was set up with fellow MBAs with an entrepreneurial interest.

“It is insane that the daily functioning of the government would be held in jeopardy over one of those disagreements,” he said. “Obamacare is the law of the land and defunding it doesn't solve anything.  If the Republicans want it repealed, then they need to win an election, own all three parts of the government and repeal it.

“People will miss mortgage payments and paying bills because of this, which hurts credit ratings and the economy. The members of congress that are ‘listening to their guts’ need to start listening to reason instead.

“If the Republicans don't see their way to raising the debt ceiling, and the US government defaults on its loans, then I think that could have far reaching and exceptionally negative impacts on my business as well as the world economy. These would be much more detrimental than a temporary partial shutdown.”

Andrei Stephens studied an MBA at Oxford’s Saïd Business School in the UK. He is from Portland, Oregon in the US where he works as a Marketing Director. He has a background in economics.

“To pretend that this is still an issue because some in Congress find it a convenient proxy to attack President Obama, and then to put thousands on furlough is irresponsible and tiresome,” he said.

“Not having a pay check is difficult for anyone and the shutdown itself is such an absurd and unreasonable position that the workers have little clarity on.

“A weakening US economy will affect US-based MBAs quite significantly. If the shutdown really impacts GDP, making companies even less flush than they have been, obviously high-ticket hires like MBAs will be impacted. I imagine that the effect would be kind of like 2008-2009, when hiring slowed a lot and enrolment exploded.”

Nick Hwang is a US national currently studying at HEC Paris Business School. Before b-school, he studied engineering in California. He worked on an MBA consulting project with the Gates Foundation, in collaboration with Wharton, the ivy-league US b-school, and was one of the vice presidents of the HEC MBA Consulting Club for six months.

"A minority with a lack of good sportsmanship is taking an entire country hostage because they can't manage to live with their repeated losses in Congress, at the Supreme Court, at the presidential election," he said. "There doesn't seem to be many historians in their ranks... otherwise they would have taken a look at how the shutdown gimmick in the '90s worked out.

"This last move will inconvenience them (Americans) and will likely get a rise out of them. And, like protesters blocking the streets during rush hour, those who engineered the shutdown won't get much sympathy."