Government Shutdowns: The Economic Toll

When I started writing this week’s column, we (the USA) were in the 11^th hour on the brink of another “Government Shutdown!”  It turns out we have averted a shutdown by temporarily using a stripped-down band-aid bill to buy us another 4-5 weeks of time before Congress is back at the negotiating table in November. 

I intentionally worded the first paragraph as “another Government Shutdown” as many Americans see it as the latest dysfunctional attempt by two bickering parties to wait until the last minute to get what they want and/or what they think their constituents want.    

This is NOT the same situation as previous shutdowns!  Before I give you my take, let’s go back into recent Government shutdown history, who was the current President, why they shut down, and for how long.

1. 2018: Trump- 35-day shutdown (the longest in history) with the border wall being the primary issue.
2. 2013: Obama- 16-day shutdown based on disagreements on whether to dismantle Obama Care and the ACA (Affordable Care Act).
3. 1995: Clinton- 21-day shutdown (formerly the longest in history) after Clinton vetoed a budget-cutting bill that would reduce funding for education, the environment, and public health.

A November shutdown could trigger a catastrophe for our fragile economy!  We recently lost our AAA rating from Fitch.  These are different financial times, even from just 5 years ago.  Politicians need to check their swollen egos at the door as the ripple effects could bring severe long-term damage to our great nation!

The following are some of the primary reasons why:

1. The Military: This would be the first time ALL military service members would NOT get paid.  The majority would be forced to work without pay.  Ripple: Our military is already underpaid.  How fired up would you be to be working along the border dealing with migrants every day and NOT getting paid?  This also halts our replacement of old military drones and equipment sent to Ukraine and puts our national defense at risk, as all projects and Navy shipbuilding get halted.
   
2. Auto Industry: We are in the middle of the expanding UAW (United Auto Workers) strikes. Ripple: This would halt new auto production and raise the prices of new cars.  There are already auto parts shortages that would be exacerbated.
   
3. Oil and Gas Prices: Gas prices are tied to oil prices. Ripple: Since we no longer depend on Russia for a portion of our oil-exporting, we are at the mercy of Saudi Arabia, who recently cut oil production so they can make more money.  A Government Shutdown would raise the price well over $100 per barrel, which affects every American and will push up prices and inflation.
   
4. Travel & Transportation: There is already a shortage of air traffic controllers (ATC) with over 1000 currently in training. Ripple: A shutdown would halt ATC training and the shortage would get worse leading to delays and flight cancellations for the daily 1.6 million Americans that go through airports. 
   
5. Student Loan Repayment: As of October 1^st, students must start repaying their loans after the COVID-19 temporary reprieve that was extended several times. Ripple: Students have been spending freely.  They must now reallocate money that was flowing into the economy every month to pay off their loan.  It is estimated this would take $70B-$100B of consumer spending out of the economy over the next 12 months.

There are many more ripple effects, but you get the picture!  The bottom line is the government makes up 25% of our total economy!  This is not a “switch” that one can turn on and off.  You cannot shut down 25% of the U.S. economy without severely damaging the other 75%!

One last thing.  If the Government shuts down, Congress still gets paid!