Commentary Magazine


Topic: government workers

Exaggerating the Shutdown’s Cost

The federal government of the United States, the largest fiscal entity on the planet, was shut for 16 days. What was the economic impact?

The mainstream media, of course, is always happy to report bad news that they can blame on Republicans. The New York Times, for instance, reported today “economists said that the intransigence of House Republicans would take a bite out of fourth-quarter growth, which will affect employment, business earnings and borrowing costs. The ripple from Washington will be felt around the globe.” The intransigence of Harry Reid and Barack Obama, apparently, had nothing to do with it.

To be sure there were costs. Hotel reservations in Washington, D.C., were down about 8.3 percent (but liquor sales, always robust in the District, were up about 3 percent.) Enterprises dependent on shuttered national parks, such as restaurants, hotels, and souvenir shops, certainly took a hit. Furloughed federal employees did not receive their salaries, and their travel and other expenses ceased.

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The federal government of the United States, the largest fiscal entity on the planet, was shut for 16 days. What was the economic impact?

The mainstream media, of course, is always happy to report bad news that they can blame on Republicans. The New York Times, for instance, reported today “economists said that the intransigence of House Republicans would take a bite out of fourth-quarter growth, which will affect employment, business earnings and borrowing costs. The ripple from Washington will be felt around the globe.” The intransigence of Harry Reid and Barack Obama, apparently, had nothing to do with it.

To be sure there were costs. Hotel reservations in Washington, D.C., were down about 8.3 percent (but liquor sales, always robust in the District, were up about 3 percent.) Enterprises dependent on shuttered national parks, such as restaurants, hotels, and souvenir shops, certainly took a hit. Furloughed federal employees did not receive their salaries, and their travel and other expenses ceased.

According to ABC News, Moody’s Analytics says that the shutdown cost $23 billion, or $1.4375 billion per day. The country’s GDP is about 46 billion a day. Standard and Poor’s, which had estimated 4th quarter growth at 3 percent, now says it will be closer to 2 percent. Others have different figures. IHS  Global Insight, according to NBC News, cut its 4th quarter GDP estimates from 2.2 percent growth to 1.6 percent growth. These figures, especially this early after the end of the shutdown, are guesstimates at best.

But the important point is how much of that lost GDP is lost forever? The trip to the Great Smoky Mountains National Park that was cancelled last week might well be rescheduled for next week, or next year. Government orders for goods and services were put on hold, but they will be ordered now that the shutdown is over. The furloughed federal workers will now be paid for the days they were idled.

The last shutdown, which lasted 17 days in 1995-96, caused a hit to the GDP in those quarters. But the next two quarters saw above average economic growth, so that the long-term economic growth was essentially unaffected. Indeed, the only real loss here in the long term may be the work product of the furloughed federal workers. But I’ll guess that the productivity of federal bureaucrats is not one of the wonders of the world.

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