Economic Uncertainty Surrounding Government Shutdown
It has been one year since the US federal government shutdown last December, and the government appears to be embroiled in no less problems and disputes. What are the ultimate economic consequences of a government deadlock, and how will they potentially affect us? It is worth looking at this reflection on the economic side of the last government shutdown.
—Editor’s note
In December 2018, the United States experienced the longest government shutdown in history, which lasted for 35 days. Approximately 800,000 federal employees were furloughed or forced to work without pay. The impasse was caused by President Trump and Congress not being able to agree on appropriating funding for the federal government for 2019. Specifically, the center of this disagreement is funding for the construction of a US‐Mexico border wall that the President persistently demanded, which would cost $5.7 billion. Although a stopgap bill passed on January 25 temporarily ended the government shutdown, the cost was severe to the workers directly affected as well as the US economy as a whole.
The livelihood of many of the 800,000 federal employees were impacted, to the extend that many were not able to pay for mortgages, food, and other essentials. While they could withdraw from their savings in the beginning, many would deplete their accounts quickly and inevitably reduce spending as this crisis lasted. In one instance, a tax examiner working for the Internal Revenue Service did not buy his penicillin due to uncertainty of when his next paycheck will arrive. Some had to use their credit cards and withdraw from their pension funds, both of which would accrue interest debt. All in all, even though these employees would eventually receive back pay, the shutdown had led to unnecessary losses that they never had to shoulder if it did not happen.
Indirectly, the economy at large also suffered losses, some of which could not be recouped. The CBO (Congressional Budget Office) estimated that the 5‐week shutdown led to $11 billion of reduced GDP. Although subsequent quarters in 2019 would compensate approximately $8 billion, the US economy permanently lost $3 billion, which was roughly estimated to be 0.02% of projected GDP in 2019. These, however, are only costs that can be estimated tangibly; there are still other negative side effects. For example, some private enterprises which depend on the federal government’s services might lose income because of the shutdown. Fitpacking, a business hosting backpacking vacations, lost sales since National Parks were closed or limiting their services. Furthermore, since the Small Business Administration was closed, small businesses could not obtain loans. The US economy as a whole, therefore, was far from escaping this episode unscathed.
Apart from political implications, this crisis serves as a reminder of how deeply the economy could be affected by decisions and disagreements within the government. Federal employees and businesses had no power to improve their financial situations and had to rely on their own ingenuities to stay afloat, which for some cost dearly. To prevent similar consequences from happening again, the public ought to be more prepared for the possibility of a government shutdown in terms of their financial planning. But more importantly, politicians should start to devise mechanisms to eliminate this defect in the design of the government or at least curb its effects. After all, this is the direct opposite of a win‐win.
Written By Ng Xiang Yang, Undergraduate Economics Student
https://www.cnbc.com/2019/01/02/amid‐the‐shutdown‐federal‐workers‐worry‐about‐paying‐for‐rent‐ food.html
https://www.usatoday.com/story/news/politics/2019/01/16/government‐shutdown‐2019‐furloughed‐workers‐ receive‐back‐pay/2596671002/
https://www.usatoday.com/story/news/politics/2019/01/25/despite‐deal‐end‐government‐shutdown‐federal‐ workers‐still‐hurt/2676630002/
https://www.cbo.gov/publication/54937