Billions in economic losses from United States govt shutdowns


High cost: Federal workers demonstrate against the government shutdown in front of the US Capitol in Washington on Oct 4,2013. The US government had shut down for the first time in 17 years on Oct 1 that year after lawmakers failed to reach a budget deal by the end of the fiscal year. - AFP

Government shutdowns in the United States due to disagreements between lawmakers to pass the federal budget before a deadline are not uncommon.

These funding gaps have occurred 20 times in the past 44 years, according to an article on Vox.com.

However, the first six funding gaps did not result in the shutdown of government agencies, until attorney-general Benjamin Civiletti issued a set of opinions in the early 1980s on the situation.

This resulted in 241,000 government employees being furloughed for a day on Nov 23,1981, during a funding gap under the administration of president Ronald Reagan.

Thereafter, funding gaps resulted in partial government shutdowns ranging from half a day to the better part of a month.

A notable one was the 21-day shutdown from Dec 16,1995 to Jan 6,1996 during the presidential term of Bill Clinton when 284,000 workers were furloughed.

Next was a 16-day shutdown from Oct 1 till 17,2013 under president Barack Obama when some 800,000 federal employees were furloughed.

The longest to date is the 35-day shutdown from Dec 22,2018 till Jan 25,2019 under president Donald Trump when Congress refused to approve funds to build a new wall along the United States-Mexico border.

S&P Global Ratings says based on its analysis, the longest shutdown in US history had cost the economy at least US$6bil, more than the US$5.7bil that the White House had requested for the border wall.

The American credit rating agency has noted in another report that the impact from a shutdown has both direct and indirect economic costs. Indirect costs include canceled vacations to national parks, museums and monuments that are closed, or lost business to contractors that do jobs for the government.

The S&P report says with government sites closed, such as the Smithsonian Institute or National Zoo, people may cancel their vacation plans, costing the government fee revenue, and restaurants and hotels, which thrive off these visitors, will lose revenue, which increases the chance that they will need to cut back on staff.

Contractors that do business for the government may need to reduce staff as well.

It also points out that the partial closure of the Securities and Exchange Commission (SEC) means that companies that are planning to file for a listing will have to wait.

While some indirect costs may be regained once the government reopens, direct costs from the shutdown are lost forever.

Economic activity from lost productivity from furloughed government employees will not be recovered.

The S&P report grimly notes that turning the government off and on comes at a cost.

It says based on estimates adjusted for inflation, the three earlier government shutdowns (in 1995,1996 and 2013) cost the federal government billions.

“This doesn’t begin to account for lost federal-worker productivity and lost trust in the federal government, not to mention lost economic activity (and lost taxes) on money never spent by businesses and households while the government is closed”.

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