Published Oct. 7, 2013
Because Congress could not reach a budget agreement, many government functions came to a halt last week. There has been a lot of discussion, and generally negative commentary in the press, about the potential impact of a government shutdown on the economy. Our sense is that this concern is greatly exaggerated.
|Stephen Slifer NumberNomics founder and Daniel Island economist|
However, if you need to apply for a passport, if you happen to be a foreigner in need of a U.S. visa, or you want to visit a national park, you are going to have to wait for a while.
These shutdowns have happened on numerous occasions in the past and they are typically short. The longest one in semi-recent history was back in December 1995 and January 2006 under President Clinton. It lasted for 18 days. So how much impact did the shutdown have on the economy in the mid-1990s. The answer is, not a lot.
In the year leading up to the shutdown, the economy had been chugging along at a 2.7% pace. In the fourth quarter of 1995 when the shutdown began GDP growth came in at 2.8%. In the first quarter of 1996 when it ended GDP growth was 2.6%. Looking at those numbers I have a hard time finding any negative impact. My conclusion is that however long this impasse continues, the economic effect is likely to be small.
What conclusions should we draw from this? What springs to my mind is that many of the things on which our government spends money currently are perhaps not all that necessary. What if this government shutdown convinced the public and our political leaders to cut the pace of government spending? Perhaps one could even make a case that the government shutdown is a good thing?
Stephen Slifer, the former chief U.S. economist for Lehman Brothers, is the founder of NumberNomics, a consulting an analytics firm on Daniel Island.