The economic impact of a federal government shutdown can be significant, affecting various sectors and leading to a loss in GDP. According to estimates by Goldman Sachs, each week of a government shutdown results in a loss of approximately 0.2 percentage points of GDP.[0] However, it's important to note that the shutdown only affects discretionary government spending, while mandatory services and debt servicing continue.[0]
With the looming possibility of a government shutdown, federal agencies are preparing to furlough hundreds of thousands of workers until funding is restored.[1] The infighting among House Republicans is driving the government to the brink of a potentially protracted shutdown.[2] If lawmakers fail to reach a deal by the end of the day on September 30, the U.S. will experience one of the largest government shutdowns in history.[3]
During a government shutdown, federal employees may be furloughed without pay, while others may be asked to work without pay.[4] The percentage of federal employees affected varies by department, but during the most recent shutdown in 2018-19, more than one-third of federal workers were impacted. However, after the passage of the Government Employee Fair Treatment Act, furloughed federal employees required to work are guaranteed back pay.[5] Nonetheless, the postponement of pay can have a significant impact on workers' ability to meet their financial obligations.[5]
In addition to federal employees, many others will be impacted by the shutdown. Services like food assistance will be suspended, national parks will be closed, and government contractors will be sent home without pay. Air travel may also be affected, causing further disruptions.
The impact of a government shutdown goes beyond immediate effects. It can lead to delays and disruptions in essential services, such as Social Security and Medicare benefit verification, card issuance, and the intake of new patients at the National Institutes of Health.[6] While Social Security checks, Medicare, and Veterans Affairs benefits will still be distributed, certain operations within these services will be affected.[5] The issuing of replacement Medicare cards will be paused, regional Veterans Affairs offices will close, and there will be no grounds maintenance at national veterans cemeteries.[6]
The length of the shutdown plays a crucial role in determining its severity. The effects become more severe the longer the shutdown lasts. If the shutdown extends beyond the usual duration, the impact could be even more significant.
The government shutdown occurs when Congress fails to pass a bill appropriating money for the next fiscal year before the current fiscal year expires.[7] This shutdown follows a familiar pattern, with Congress passing stopgap funding measures to keep the government functioning temporarily.[5] However, if no agreement is reached, the government will run out of money at midnight on September 30, forcing a shutdown.
The likelihood of a government shutdown is high, with estimates putting it at 90%.[8] The last government shutdown, which occurred from late 2018 to early 2019, was the longest in history.[4] It resulted from a dispute over funding for the border wall. With the increasing likelihood of a shutdown, concerns arise about its duration and the impact it will have on federal employees and the citizens who rely on government services.
Certain programs, such as the Supplemental Nutrition Assistance Program (SNAP), have enough funds to continue serving beneficiaries through October.[5] However, if the shutdown extends beyond that, there could be serious consequences. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) could run out of cash within days, affecting millions of Americans.[9]
The shutdown also has implications for national parks and institutions. Smithsonian facilities will close once funding runs out, impacting celebrations and events, such as the goodbye parties for the giant pandas at the National Zoo.[1] National Park Service sites will also face closures, affecting visitors and wildlife enthusiasts.
Apart from the immediate economic impact, a government shutdown can have long-term consequences. It can affect the U.S.'s credit rating, leading to increased interest rates for government loans. Fitch Ratings downgraded the U.S. credit rating in August, citing the high risk of partisan battles over the debt ceiling.[10] Moody's also warned that a shutdown would negatively affect the government's credit.[10]
In conclusion, a federal government shutdown has far-reaching economic consequences. It affects federal employees, disrupts essential services, suspends programs, and impacts various sectors of the economy. The longer the shutdown lasts, the more severe the effects become. It also poses risks to the U.S.'s credit rating and overall financial health. As the possibility of a shutdown looms, stakeholders must work towards reaching a resolution to mitigate the potential negative impacts.
0. “How Would a Government Shutdown Impact the Housing Market? Low Demand in D.C., Possible Temporary Dip in …” Redfin News , 25 Sep. 2023, https://www.redfin.com/news/government-shutdown-impact-housing-market
1. “Who is affected by a government shutdown?” NPR, 29 Sep. 2023, https://www.npr.org/2023/09/29/1202474725/2023-government-shutdown-update
2. “What stops if the U.S. government shuts down” Crain's Chicago Business, 29 Sep. 2023, https://www.chicagobusiness.com/politics/what-stops-if-us-government-shuts-down
3. “From Social Security to travel: Everything to know about a government shutdown” ABC News, 29 Sep. 2023, https://abcnews.go.com/Politics/social-security-travel-government-shutdown/story?id=103576115
4. “What was the longest government shutdown in U.S. history?” CBS News, 30 Sep. 2023, https://www.cbsnews.com/news/longest-government-shutdown-us-history/
5. “Government shutdown: How did we get here, and what could it mean?” The Christian Science Monitor, 29 Sep. 2023, https://www.csmonitor.com/USA/Politics/2023/0929/Government-shutdown-How-did-we-get-here-and-what-could-it-mean
6. “Government Shutdown Likely Amid Congressional Stalemate” Kiplinger's Personal Finance, 29 Sep. 2023, https://www.kiplinger.com/politics/government-shutdown-latest-news
7. “How Will the Government Shutdown Impact Hunting and Fishing?” MeatEater, 28 Sep. 2023, https://www.themeateater.com/conservation/public-lands-and-waters/how-will-the-government-shutdown-impact-hunting-and-fishing
8. “Federal Furloughs and Lower GDP Loom With No Shutdown Deal In Sight” Investopedia, 28 Sep. 2023, https://www.investopedia.com/federal-furloughs-and-lower-gdp-loom-with-no-shutdown-deal-in-sight-7976012
9. “How a government shutdown could affect you, from student loan payments to national park closures” NBC News, 29 Sep. 2023, https://www.nbcnews.com/politics/congress/government-shutdown-affect-you-student-loan-national-park-craft-beer-rcna117352
10. “With a US government shutdown imminent, what happens to the economy?” Al Jazeera English, 29 Sep. 2023, https://www.aljazeera.com/economy/2023/9/29/with-a-us-government-shutdown-imminent-what-happens-to-the-economy
