Economic Impact of the 2018-2019 United States Government Shutdown
Amid the United State’s longest-running partial government shutdown at 35 days, questions and concerns about immediate and lasting economic effects occupy the nation. Perhaps the most pressing issue for many Americans involves those 800,000 federal employees across numerous departments and agencies who remain either furloughed or working without pay. Legislation has already been passed which promises backpay to all federal exempt employees when the shutdown ends, but that does little to soothe those living paycheck to paycheck and need income presently. About 14% of the Department of Homeland Security’s 240,000 employees are working with pay. Farmers cannot have loans processed by the Department of Agriculture. The Department of the Interior can no longer keep up adequate maintenance of our national parks and hemorrhages up to $400,000 a day. Without adequate funding, these and other government agencies have become hard-pressed to perform their critical and non-critical responsibilities.
Outside of the government itself, the shutdown has caused many problems throughout the country. The USDA National School Breakfast and Lunch program which reimburses schools for providing meals to students is no longer adequately funded, and it is projected that what funding is left will last only to the end of February. In the area of transportation, many Americans travelling during the shutdown have experienced numerous delays as approximately 51,000 Transportation Security Administration officers have threatened to quit or are not reporting for work upon being withheld pay. The TSA Council president for the American Federation of Government Employees, Hydrick Thomas, released a statement that “the loss of officers, while we’re already shorthanded, will create a massive security risk for American travelers since we don’t have enough trainees in the pipeline or the ability to process new hires”. Travelers have also reported longer security lines, closed security checkpoints, and even entire terminals that have been shut down. Business sectors are also feeling the impacts of the shutdown, especially small businesses that wanted to go public in the coming weeks. The closing of the Securities and Exchange Commission and the Small Business Administration has necessitated such companies to postpone IPOs and has kept them from getting loans. Negative effects of the shutdown on businesses are pervasive in every sector, and each day the shutdown lasts will make the damage more difficult and expensive to fix.
The total cost of the partial government shutdown was estimated, as of January 22, to be $26 billion. This figure is derived from calculations by the Committee for a Responsible Federal Budget and the Council of Economic Advisors. With a projected 0.13% weekly loss in GDP, analysts explained that that loss will manifest itself in both direct and indirect ways. Direct effects will be the reduction in hours worked by federal employees, while the indirect effects include a loss of government contracts and reduced consumption by government employees as a result of reduced disposable income. Another economic cost is the loss of consumer confidence over the course of the shutdown. One indicator, the University of Michigan Consumer Sentiment Index dropped nearly 10 points (98.3 to 90.7) in the time between December and January. Leading economic indicators such as these could very well have the negative impact of self-fulfilling their own poor projections.
Obviously the implications of the shutdown are matters of concern, but comparison to the previous major government shutdown in 2013 shows that the impact is not as large this time based on services affected. This impact reduction can be contributed to improved management methods. One such example is the IRS, which Congress enacted legislation to direct tax refund payments through a permanent appropriation. National parks in 2013 were closed, whereas they remain open today, albeit with reduced funding and maintenance.
However, a reprieve is in sight with the passing of a stop-gap spending bill on January 25 which would temporarily reopen the government for three weeks as President Trump and lawmakers continue in negotiations concerning appropriation of money for President Trump’s U.S.-Mexican border wall. President Trump insisted that should results of these talks be unsatisfactory at the end of the three weeks, either the government shutdown would resume or he would declare a national emergency in order to get the border wall money without congressional approval. Nancy Pelosi, when asked for a statement on the matter, remarked, “I can’t assure the public about anything that the president will do, but I do have to say I’m optimistic”. Until February 15 arrives, there is only speculation as to what he will do, but it is important that Americans remain optimistic (albeit cautiously) about future economic health.
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