How would a government shutdown affect the U.S. economy?

This article discusses how a government shutdown could affect the US economy in the long run. A short term closure could erase at least $24 billion in economic activity and lead to a decrease in economic growth by 0.4%. From an employment standpoint, eight hundred thousand federal employees would be affected without pay until the government shutdown crisis is resolved. Without receiving a consistent salary, their expenditure and overall spending would also decrease thereby lowering aggregate demand.

A capital Economist mentioned in a research note that "If a shutdown were to begin now and goes on for longer than 10 days, it would also prevent the processing of tax refunds by the IRS, which would otherwise be filed beginning in late January, with payments scheduled to go out from mid-February onwards”. This would greatly affect taxpayers in the longer run. Also, federal infrastructure like parks would be shuttered since there would be no source of revenue from these operations. Also, shutting down operations is time consuming and costly.

Federal agencies like the Federal Aviation Administration and the Centers for disease control would have to lay off workers to cut down costs, causing temporary unemployment. As for the Federal Aviation Administration, personnel necessary for security background investigations, financial operations and budget functions, inspections and the development of safety standards would be adversely affected.

A shutdown would further destabilize the US budget policymaking, or brinkmanship over the federal debt limit. In the article, it is stated that even if the congress lowers the budget for another month with a controversial short-term extension, the expectation in the eyes of the world indicates that it could get worse in the long run. With low consumer confidence, this could have a negative impact on the economy in terms of growth and marginal propensity to consume. It is also stated that stock prices have tumbled slightly following the government shut down. In the long run, there is a risk the treasury will default on its debts or fail to make a social security payment.

Therefore, as clearly stated in the article, a government shutdown could adversely affect the economy in the long run, leading to federal unemployment, lowering aggregate demand and GDP, along with a fall in the stock market in the long run.

https://www.cbsnews.com/news/how-would-a-government-shutdown-affect-the-u-s-economy/