Photo by Caleb Perez on Unsplash
* UPDATE: On September 30th, the US congress passed a continuing resolution that helped to avoid a partial shutdown up till November 17th. This article was written on September 29th, where there was great speculation that a shutdown was inevitable.
References: https://www.reuters.com/world/us/us-congress-tees-up-votes-last-minute-scramble-avert-shutdown-2023-09-30/
On Oct 1st, the United States (US) Federal Government is expected to be headed for a shutdown following the house’s inability to agree on funding for the government. Now, a shutdown occurs when congress is unable to pass a funding legislation to be signed into the law by the President. The implications of a shutdown could be severe, with many sectors deemed “non-essential” being paused. Many sectors are deemed “non-essential”, meaning that many Americans working for these sectors will be implicated. Key services like food inspections, food assistance, business loans and government benefits could be delayed. The US’s economy will suffer as well with workers not showing up and even economic data not being able to be obtained by the government due to these statisticians not working as well. This essay seeks to cover the reasons for the shutdown and the economic and social impacts of the shutdown.
First, to provide context on the issue, the reasons for the shutdown will be covered. Mainly, the ongoing divide between the hardline republicans and the rest of the house have caused this to occur, with these two parties unable to come to an agreement on the funding bills. As of when this article was written, congress has yet to pass any of the 12 appropriations bills needed to be signed into the law to prevent a shutdown. However, this is nothing new, as it has happened before in the US, with either the republicans or the democrats using the shutdown as leverage to make deals with the other party. This time, with barely a few days before a shutdown can be prevented, it seems more than likely that both parties would not be able to prevent a shutdown. Usually, shutdowns are temporarily avoided with continuing resolutions (continued funding based on existing pre-agreed levels), this time, many of these conservative republicans do not wish to vote for continuing resolutions. This is so as a vote for continuing resolutions would mean voting for funding clauses that they voted against last year. What is causing such a deadlock? Funding towards Ukraine. Several far-right republicans are against the idea of injecting funds for Ukraine, despite the majority of republicans and democrats agreeing to continue funding Ukraine. The amendment to prohibit military assistance to Ukraine only won 93 Republican votes, while 126 republicans and 213 democrats voted against it. In recent days, the issue of funding for border security has also been a problem, with these same conservative republicans pushing for increased funding for border security. Now, even though these republicans are the minority and speaker of the house Kevin Mccarty are part of the republicans who are pushing to pass the bill, he is in a difficult position with the far right republicans threatening to oust him from his position should he pass the bill. As such, the conflict between the house and these hardline republicans is very complicated and the inability to come to an agreement is expected to lead to a shutdown that can last for weeks.
Economically, a shutdown in government services could be fatal towards the US economy. To start, a federal reserve shutdown would mean Americans working in National Security and essential Federal organisations will not be able to be paid, which could lead to stoppages in work. Some key sectors include the military, with military personnel among a group of federal workers that may not receive their paychecks. Now, there is a promise for workers to have their checks reimbursed but the uncertainty among the workers remains. These workers continue to have uncertain incomes, and that affects their ability to plan their finances and could affect their livelihoods. While some workers who have savings can tide through this period of time, workers living from paycheck to paycheck will struggle greatly. Debts for short-term loans or credit cards might pile up. In addition to that, public confidence towards the government will continue to plunge as the shutdown prolongs.
Next, economic data like employment reports, inflation data and GDP data might not be collected. Without such financial data, it could be damaging for the Federal Reserve, an organisation that observes inflation and GDP data to ascertain the type of monetary policy it should run for the country. This would mean that policymakers would be basically blindfolded, crafting policies without adequate data. In addition to that, companies in the country who rely on government spending could be impacted, with loans from the government being either delayed or paused. To put things into perspective about the economic costs of a shutdown, we can look into how the last shutdown in 2018-19 that lasted 34 days affected the US. In the short term, it cost the US $11 billion, and while they were able to recover the majority of that, they still lost $3 billion. Back in 2018, the 34 day long shutdown affected about 800,000 federal workers, with 38% of federal workers being furloughed. According to a study by Goldman Sachs, it estimates that for every week a shutdown lasts, the US’s GDP contracts by 0.2 percentage points. Though, the GDP can again grow back by the same percentage points after government services resume. Certainly, the full economic impact of the shutdown depends on the duration. The longer the shutdown, the more detrimental it is. Given the deadlock between a republican-controlled House and a democrat-controlled senate, it would be difficult for congress to negotiate and pass all 12 bills. Furthermore, the hardline republicans are determined to keep the government shut down until all 12 bills are negotiated. Historically, it is known that negotiation for these 12 bills will take a long time, possibly stretching all the way to December. Hence, with many bracing for a shutdown that could last for weeks, it is evident that the economic impacts of this shutdown could be fatal for the US.
Socially, the stoppage in the federal government could lead to facilities run by the government being shut down. These facilities include national parks, museums, as most of these facilities rely on funding from the federal government. A cut in funding would mean a temporary closure of these facilities, and many travellers and tourists would not be able to visit these areas. This affects both the American society who frequent these places and tourists. As it affects tourists, it would bring economic costs, with tourist spending on these parks dropping. In 2013, a government shutdown that lasted 16 days led to a $500 million drop in visitor spending nationwide on parks. An extensive blow certainly. As for scientific research in the US, these research projects could also take a hit. The National Institute of Health, National Science Foundation, National Oceanographic and Atmospheric Administration and the National Aeronautics and Space Administration are all expected to furlough their workers, which would certainly delay projects and research in these organisations. For example, important clinical trials for medical treatment in the National Institute of Health could be paused. In addition, public health and safety in the US will suffer, with food and water inspections being limited as the Food and Drug Administration would have to limit their inspections, leading to delays in scheduled inspections. This would mean people might be exposed to drinking water and food that has not been inspected for contaminants and it could be a huge public health risk. Moreover, Americans receiving food assistance through the Supplemental Nutrition Assistance Programme could be affected. About 7 million pregnant women, new mothers, and infants rely on daily support from this programme, but with a shutdown, meal deliveries would be disrupted, leading to a lack of nutritional assistance for these individuals. As such, a crisis in many areas like food assistance, public health, research and recreational facilities is expected to happen when the shutdown occurs.
In conclusion, the US is expected to brace for a shutdown that could last for weeks due to conservative republicans holding out strongly on their position regarding the funding for Ukraine and Border security. Its impact is expected to be fatal both economically and socially when considering that the shutdown will last for months, possibly up till December.
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