Given the current vitriol in Washington, D.C., the likelihood of another government shutdown this fall seems high. So the question is, how serious will the economic damage be? The answer depends entirely on the length of the shutdown and its frequency.
There have been only three budget-related shutdowns of more than a week in U.S. history: one in 1995-1996, which lasted 21 days; the second in 2013, which lasted 16 days; and most recently One was in 2018-2019 and lasted 35 days. sky.
In each case, cries of anguish from across the country, especially from federal workers showing up in food lines as hundreds of thousands of people went without paychecks during the shutdown, put pressure on Washington and led to government The closing ended quickly.
However, for these three shutdowns, the damage to the economy was estimated to be minimal.The $21.4 trillion U.S. economy suffered huge losses amid the 2019 government shutdown Losses are expected to reach $3 billion– only 0.01% of GDP.
Of course, government operations are temporarily disrupted by the shutdown. It affects Small Business Administration loans to small businesses, the processing of federal mortgage loan applications, export licenses, loans and guarantees, and the processing of small business federal contracts, among other things. It brought delays in passport processing and the closure of national parks, leaving thousands of holidaymakers disappointed. It halted distribution of critical food and cash assistance, such as the Supplemental Nutrition Assistance Program (SNAP), the Temporary Assistance for Needy Families (TANF) program, and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). It even raises the specter of travel delays as it affects the availability of Transportation Security Administration agents and air traffic controllers.
A government shutdown is a political and legislative negotiation tactic. One party strongly opposes spending on a program and has the voting power to block budget approval unless the program is reduced or eliminated; or the other party insists on adding a program and has the voting power to block budget approval unless the program is included. It’s a political game of who will blink first and give in to the other side – unless there’s some kind of major compromise.
A central premise in the arguments for reducing spending that led to a government shutdown is that rising government debt will create a crisis and the government will be unable to obtain additional funds through debt. In fact, in August 2023, Fitch Ratings downgraded U.S. debt by one notch, from AAA to AA+, citing “deterioration” of the country’s finances, growing debt burden and “erosion of governance.” Standard & Poor’s made a similar move in 2011. However, these moves had essentially no impact, and there was never any indication that the U.S. government would be unable to fund its debt.
That being the case, it’s not unreasonable to expect more such closures in the future. Like presidential impeachment, government shutdowns are likely to become a recurring feature of American political life.
While past government shutdowns have had virtually no impact on the U.S. economy, the political fallout has negatively impacted those deemed to be the cause of the shutdowns. Georgia Representative and House Speaker Newt Gingrich’s political career was adversely affected by the 1996 government shutdown. Some believe that Donald Trump gained more than he lost from the 2019 government shutdown, which had some impact on the 2020 election.
Still, the severity and depth of political divisions in Washington mean we can expect more government shutdowns in the future. While future shutdowns will be disruptive, the economy will continue to shrug them off if they last as short as those in 1996, 2013 and 2019.
Real risks arise if these tough negotiating tactics become routine. If that happens, negotiators will start testing the shutdown period, and one day it will be far longer than the 35 days in 2019. The economy can afford to be shut down for a few weeks. If political hardball tactics result in a shutdown that lasts for months, real and lasting harm can be done.
Richard WiggHis career spans banking, energy, government and the arts. He most recently served as Pennsylvania Secretary of Banking and Securities. Vague previously served as managing partner of early-stage venture capital firm Gabriel Investments, co-founder, chairman and CEO of electric and natural gas supply company Energy Plus, and co-founder and CEO of two banks: First USA, was sold to Bank One, and Juniper Networks, which was sold to Barclays.he is the author of The Debt Paradox: A New Path to Crisis-Free Prosperity.
More must-read comments by wealth:
- Indeed CEO: “Artificial intelligence is changing the way we find jobs and the way we work. People like me shouldn’t have to make decisions alone that affect millions of people.
- Why critics love to hate Elon Musk — and why his fans love him
- Burnout is attacking our brains, making it harder for us to perform well at work. “Deliberate calmness” can help us adapt
- The U.S.-China trade war backfires—Huawei P60’s chip is just one of its many unforeseen effects
The views expressed in Fortune Star review articles represent solely those of the author and do not necessarily reflect the following views and beliefs: wealth.
Svlook
