On January 20, 2018 at 12:01 AM, the US Federal Government, like an overwhelmed college student during finals week, missed its biggest deadline. Congress failed to pass another emergency funding measure that would extend Congress’ deadline to secure a bipartisan spending bill. As a result, parts of the US Federal Government remained shut down until Congress this Monday January 22, 2018 when Congress passed another emergency spending bill. Congress has until February 8th to vote on another spending bill, and if they are unsuccessful the federal government will shut down again. While critical services will remain intact, like Social Security and Medicare, hundreds of thousands of federal employees will be furloughed per day as they were during the 2013 shutdown. Regardless of which side of the aisle you’re on, a government shutdown should be a good thing, right? Plus, it’s what President Trump wanted back in May of 2017. It’s like the federal government looked at its credit card statement for the month and decided to start packing lunches from home instead of buying Chipotle and Starbucks for lunch, right? Not quite. Shutdowns actually cost taxpayers, and the economy quite a lot. In fact, Goldman Sachs analyst Alec Phillips believes that for each week the government is shut down, Q1 (January 1st to March 31st) real GDP growth will decrease by 0.2 percent. It’s important to remember that real GDP growth per quarter usually hovers around the 2.5 to 3.5 percent.
So, how exactly does a government shutdown slow the throttle on the economy? Imagine you want to go for a lovely drive on a Saturday afternoon. You startup your car, drive around the block and turn off the engine. Rinse and repeat ten times to have the most inefficient drive you’ve had since your drive through a Walmart parking lot on Black Friday. When the government shuts down, it’s a lot like turning off your car engine after a short drive. When the engine turns off, key federal agencies like the Food and Drug Administration can no longer issue decisions to companies on the health and safety of their drugs and medical devices. Defense suppliers like Lockheed Martin—the Pentagon’s largest supplier—would be hit too. Delays in production and delivery would add costs not only to the company, but to their customers—most notably the US Government. In addition, investors also will not receive valuable economic information used to make investment decisions. As a result of the engine turning off, companies that rely on the regulatory decisions of the federal government will have to wait, and further incur costs.
If there is a government shutdown, federal employees will go into work for four hours to learn if they will be furloughed, and to set up signs and notices that they are closed. Federal employees who are furloughed will be required to turn in phones and other technology, as they are unsure of the shutdown's termination date. Furloughed employees will go without pay, although after a spending decision is reached, they may be back-paid as they were in 2013.
Nonetheless, when the key is turned, and the engine begins to warm-up again, both private companies and federal agencies will be hit with the added costs of reopening and starting up. Estimated by the Office of Management and Budget, the 2013 government shutdown cost the economy $2 billion in lost productivity. It’s important to remember that this does not include the $2.5 billion in compensation costs for furloughed workers. Furthermore, the US economy saw a 7 percent decrease in consumer spending during the 2013 shutdown.
So while an unfunded government does not mean that the country will fall into fire and brimstone, it does pose some speed bumps for future economic growth. As the government hits the political equivalent of playing “Closing Time”, it will be interesting to see which party is blamed for the shutdown—the majority holding Republicans or the Democrats. With the key issue of the spending bill being immigration policy and the future of DACA, it may take some time for the two parties to come into agreeance In addition, there may be added turbulence as the Senate needs 60 votes to pass a spending bill. Nonetheless, we’ll if the government goes belly up on February 9th we’ll probably see the shutdown be a key issue in the 2018 midterm elections.
Sources:
Davidson, Kate. “What Happens in a Shutdown?” Wall Street Journal, January 19, 2018, sec. Politics. https://www.wsj.com/articles/what-happens-in-a-shutdown-1516400831.
Dupuy, Beatrice. “How Much Does A Government Shutdown Cost? It Could Cost U.S. Economy Billions.” Newsweek, January 20, 2018. http://www.newsweek.com/heres-how-much-government-shutdown-could-cost-786073.
“Everything You Need to Know about a Government Shutdown.” PolitiFact. Accessed January 21, 2018. http://www.politifact.com/truth-o-meter/article/2018/jan/19/everything-you-need-know-about-government-shutdown/.
Housel, Morgan. “Will a Government Shutdown Actually Save Money?” The Motley Fool, April 8, 2017.
“How Will a Government Shutdown Impact the U.S. Economy? Here’s What the Analysts Say.” Fortune. Accessed January 20, 2018. http://fortune.com/2018/01/19/government-shutdown-2018-what-happens/.
Savransky, Rebecca, and Jordan Fabian. “Trump: US ‘Needs a Good Shutdown.’” The Hill, May 2, 2017. http://thehill.com/homenews/administration/331512-trump-us-needs-a-good-shutdown.
Stone, Mike. “U.S Government Shutdown Would Increase Pentagon’s Weapons Costs.” Reuters, January 19, 2018. https://www.reuters.com/article/us-usa-congress-shutdown-pentagon/u-s-government-shutdown-would-increase-pentagons-weapons-costs-idUSKBN1F82V4.