Explaining the Government Shutdown’s $11 Billion Impact on the Economy

It’s a number that’s been floated around: the economy reportedly lost $11 billion during the longest shutdown in history. And while it’s true that there has been a significant economic impact, it may not necessarily be as bad as it seems.

During the shutdown, $11 billion in economic spending did not occur. That’s a huge number. But due to backpay and renewed initiatives, it’s possible the entire economic weight of the shutdown may be only around $3 billion.

The partial shutdown of the government led to a total of 800,000 federal employees going unpaid, in addition to programs going temporarily unfunded. In addition to this, approximately 1,000 to 2,000 government contractors also went unpaid. As the government was shut down, certain things could not occur: section 8 buildings went without funding, state parks were not maintained, and new IPOs could not be processed.

All of these things had some direct and indirect economic costs. However, some of these costs were temporary. Other costs were permanent and will compound. It can be difficult to quantify what the true impact will be.

Federal employees received backpay from the government, which resulted in approximately $8 billion of the $11 billion being reintroduced into the economy. This means that this money will go into the economy to be spent, but it doesn’t account for things such as interest, late fees, and emergency expenses that could have been introduced to the federal employees as they struggled from paycheck to paycheck.

Nevertheless, it does reduce that $11 billion number to about $3 billion in money that has not been spent yet. Ultimately, the idea is that much of this money will be eventually spent, and therefore it will be introduced to the economy, only at a later date.

If much of the wages are already going to be paid out, what is the true cost of the economic shutdown? One such expense comes at the cost of contractors: cleaners, security staff, and other contract workers in the government. These contractors simply are not going to get paid. They have usually never gotten paid during a shutdown because they are not employees. This money will not be reintroduced into the economy.

Additionally, there are losses related to the damage the shutdown directly caused. Many state parks are saying that they experienced damage that will take hundreds of years to resolve and this damage is also going to cost a lot of money. Many regions of government-run land may now need to deal with prior issues of vandalism and theft.

Though the shutdown is being treated as though it is over, it really isn’t. An emergency order was initiated to fund the government for three weeks. If nothing can be resolved within those three weeks, the shutdown will just occur again. This leaves many people in an uncomfortable situation. Federal workers need to save their money in case they aren’t paid again. Contract workers may be looking for new jobs entirely.

These types of frustrations will not encourage consumer spending, which does mean that the economy will likely slow down. In this way, some of the costs of the shutdown may be immeasurable, because they have a chilling effect on the economy as a whole. Few people are interested in investing in everything from stocks to their first home when they aren’t sure whether the government is going to be in action the next day.

$3 billion certainly isn’t a trivial number, but it’s not as substantial as $11 billion. That being said, it’s also not the full story: there may be ripples throughout the economy later on. It’s impossible to know what the true economic impact of the shutdown is, especially since it is technically still at least partly in effect: the government is only working on borrowed time. Still, it may not be as doom and gloom as previously reported.

Regards,

Ethan Warrick
Editor
Wealth Authority

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