Is the Government Shutdown Hurting U.S. Economic Confidence?

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The federal government began its first partial shutdown in 17 years Tuesday morning after Congress failed to overcome a partisan disagreement over a temporary spending bill that would have funded operations for the beginning of the new fiscal year.

When the U.S. government last shut down for a total of 26 days between November 1995 and January 1996, the closure cost the federal government $1.4 billion, an amount equivalent to more than $2 billion in 2013 dollars. It was the most protracted government closure and the most costly in history. But as massive as that number is, the consequences for which no dollar amount can be assigned were just as large: the intangible losses in worker morale and confidence in the federal government.

Rather than forcing the government to save money, a shutdown causes a backload of expenses and work, and revenue is lost.

According to Doug Holtz-Eakin, the former director of the Congressional Budget Office, a disruption of government operations similar in length to the one that occurred in 1995 and 1996 would have a fairly small economic impact. As he told CBS, “a short government shutdown is not a very important event; it’s a hiccup.” In his opinion, the bulk of the costs, like reimbursing the salaries of furloughed workers, are transitory, and they are paid back later. “That’s really what happens. There’s some distraction costs that never go away and they’re real,” he said.

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