Here’s why the shutdown should be resolved as quickly and comprehensively as possible.
The shutdown costs $300 million a day, $1.6 billion a week.
That’s the amount analyst firm IHS Global Insight estimates the shutdown is costing in terms of lost economic output. According to research firm Macroeconomic Advisers, a two-week shutdown would decrease gross domestic product growth by 0.3 percent. Three weeks would raise that to 0.5 percent. A shutdown lasting the entire month of October would decrease the GDP by 0.7 percent. Moody’s Analytics estimates a higher cost, saying a three- or four-week shutdown will decrease growth by 1.4 percent. Yes, $1.6 billion a week is miniscule compared with the $16 trillion U.S. economy. But it will add up as the shutdown continues.
But that decrease in GDP could be recovered if Congress votes to give furloughed employees back pay.
More than 800,000 workers are furloughed during the shutdown. But if they were to get paid for their time away from work, GDP would rebound. “Following a shutdown, real compensation would simply return to its previous level, temporarily boosting GDP growth by roughly the same amount that the decline in real compensation reduced it,” Macroeconomic Advisers explains. While there is precedent for Congress to give workers back pay after a shutdown, it’s no guarantee.
If the shutdown drags on, it can take consumer confidence down with it.
The longer the shutdown goes on, the more uncertainty arises in the economy (especially as the debt ceiling approaches). Consumer confidence is a tricky thing to predict, but analysts from IHS, Oxford Economics, TD Securities USA, and others are all telling reporters the same thing: A long shutdown could only erode confidence.
If the government back pays its workers, it will be out a lot of cash. The longer the shutdown, the more money it will lose by the time it’s over.
The economy will probably rebound if the government pays its workers for their furloughs — but that’s all wasted money. Essentially, the government will be paying for paid vacations. The Congressional Research Service, citing the Office of Management and Budget, says the 28-day shutdown of 1995-96 cost the government $1.4 billion. And independent research suggests that number should be even higher. In today’s dollars, that would be more than $2 billion.
The shutdown also costs some money itself, figuring in the security needed to close off usually open areas such as memorials and national parks, and strange protocols such as replacing a website with a “We’re closed” notice even though it may be cheaper just to leave the site up and un-updated.
By trying to defund a program, Republicans will be throwing out a lot of government cash.
Opening the government would allow lawmakers to solve the more pressing problem — the debt ceiling.
Treasury Secretary Jacob Lew put in no uncertain terms that the U.S. government could begin defaulting on its debts starting Oct. 17 if the debt ceiling isn’t raised. This threatens the full faith and credit of the country and it would rattle markets, increase interest rates on U.S. Treasury bonds, and upset the notion that the U.S. economy is the most stable in the worldwide economy.
In other word: Congress, get a move on!
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