The Case for Some Shutdown Urgency

The danger of the shutdown isn’t that it happened. The danger is that it continues.

A US Senate employee walks through the Capitol Crypt at the US Capitol in Washington, DC, September 25, 2013.
National Journal
Brian Resnick
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Brian Resnick
Oct. 3, 2013, 8:37 a.m.

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.

At The At­lantic, Mat­thew O’Bri­en, points out that eco­nom­ic con­fid­ence already began to drop as the shut­down be­came more likely, as seen in this chart from Gal­lup.

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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