Government Shutdown’s Economic Toll Discussed
Senator James Lankford (R-Okla.) recently joined a discussion alongside Bernie Sanders regarding the ongoing government shutdown, along with the implications of China’s restrictions on rare earth exports and their effect on U.S. security and the economy.
In a press conference on Wednesday, Treasury Secretary Scott Bessent addressed the economic ramifications of the shutdown, suggesting it could cost the U.S. economy up to $15 billion daily as it approaches its third week. The shutdown began on October 1 when funding legislation was not passed by Congress and the White House as the new fiscal year commenced.
Bessent urged moderate Senate Democrats to “step up” and support the Senate Republicans’ proposal to reopen the government, emphasizing the need for bipartisan action for the benefit of the American people.
Federal Workforce at Risk
According to Trump administration officials, over 10,000 federal employees are expected to be laid off during the shutdown, although a judge has currently put this on hold.
Democrats have faced another setback with a failed vote that rejected nine proposed short-term funding measures on Wednesday. They are advocating for an extension of health insurance subsidies under the Affordable Care Act, which are set to expire this year. These subsidies, introduced in the American Rescue Plan of 2021, were extended until 2025 under the Inflation Reduction Act, helping those with incomes above 400 percent of the poverty line access subsidized insurance rates.
Government shutdowns have been a recurring issue since 1995, particularly after Republicans gained control of Congress. Non-essential workers will be furloughed during the current shutdown, but neither those laid off nor essential workers will be compensated until the funding issue is resolved.
Unclear Economic Impact
While previous shutdowns have generally had a minimal economic impact, the current situation is still ambiguous in terms of potential damage. Austan Goolsby, the president of the Chicago Federal Reserve, discussed the consequences of the shutdown earlier this month. He mentioned that historically, shorter and less severe shutdowns tend to have little effect on consumer spending, mainly because people anticipate receiving their paychecks eventually.
Goolsby pointed out that the length and breadth of the shutdown will ultimately dictate its impact on the economy. If this shutdown proves to be different from past occurrences, it would warrant a reconsideration of the approach.
Speculation on Shutdown Duration
Goldman Sachs economists conducted an analysis which revealed that most government shutdowns tend to be brief. The longest one, which occurred in 2018, lasted for 35 days but impacted only about 15% of the federal government operations at that time. They projected that each week of shutdown correlates with a decline in federal furloughs and estimated a reduction in GDP by approximately 0.15 percentage points in the fourth quarter if the standoff persists.
Additionally, while an uptick in unemployment rates is expected, the effect may be minimal, as furloughed workers are reported as unemployed due to layoffs. The Office of Management and Budget has also highlighted operational disruptions during past shutdowns, such as delays in permits, reviews, and the suspension of various financial services.
