How has the Government Shutdown affected the economy?: Here at Wealthlenial, we don’t typically review recentt events in the news. However, due to the huge economic impact of the recent partial government shutdown, we felt that it would be appropriate to address in a post. Disclaimer: This is NOT a political post. This is simply an overview of the impact of the shutdown and its effects on the average American (federal employee or not). As of a few days ago, the shutdown has ended until February 8th.
What is a government shutdown?
A government shutdown occurs when non-essential government offices cannot remain open due to a cut in government funding. This is usually due to a delay in the federal budget approval (typically for the upcoming fiscal year).
Without bringing politics into this, the facts about this are clear: this was the longest government shutdown in U.S history,and for the time being, it has ended. Government shutdowns have occured many times in recent years: 1980, 1981, 1984, 1986, 1990, 1995, 1996, 2013, and 2018.
The shutdown typically remains in effect until both parties can compromise and agree on a budget. However when there is gridlock in Washington, the budget will not pass. Needless to say, this directly affects thousands of federal employees as they don’t receive a paycheck during a shutdown. In addition, essential employees are still required to report to work despite not receiving a paycheck.
Here are some basic and important facts to remember:
- Many government agencies will close during a government shutdown.
- Long duration government shutdowns affect the entire U.S economy.
- Essential workers must continue to work but may not be paid for this work until the shutdown has ended (e.g. TSA, security officers).
How has the Government Shutdown affected the economy?
The U.S. government maintains a significant level of involvement in daily operations of our econony. So when the government shuts down, the effects will be quite noticable. JP Morgan estimates the U.S economy is losing more than $1.5 billion/week due to this shutdown. Just think about that. That is an enormous amount of money that most of us cannot even fathom.
In addition, here are some other effects of the shutdown:
- Delaying of business permits
- Decreased service hours for multiple agencies
- Delayed inspection of food products by the FDA
- Travelers will not receive new passports
- Center for Disease Control Prevention (CDC) will be unable to identify and track outbreaks of illnesses
You get the idea. The government shutdown not only impacts our economy. It spreads into various areas of our lives, down to the food we eat! If there is a disease outbreak, the CDC will not be able to track it during a shutdown. This is critical, especially during cold/flu season.
How has the Government Shutdown affected the average American?
The shutdown has affected the average American in the following ways:
- Will you get your benefits? If you receive social security, supplemental security income (SSI), unemployment insurance, and food stamps, you will continue to receive your benefits.
- Will you get a tax refund? According to recent information – there will be a tax refund even if the government is in shutdown.
- Will you get your mail? Yes, the USPS still operates during the partial government shutdown.
How has the Government Shutdown affected federal employees?
For this portion, I spoke with a federal employee regarding the direct effects of a shutdown. He explained to me that there are essential employees and furloughed employees. Essential employees are still required to report to work (e.g. TSA employees), while furloughed employees are not. Furloughed employees are able to apply for unemployment but rely on Congress to enact backpay following a shutdown. Essential employees cannot apply for unemployment benefits. However, they are guaranteed backpay after the shutdown has ended. In addition, there is no lapse in health coverage during a shutdown.
He told me that being a federal employee gives you security but it’s a double-edged sword, particularly during the longest shutdown in U.S. History. When I asked how the shutdown has affected him, he said that he is one of the lucky ones as it is only him and his college-age daughter. He said that he made sure all of his autopays were caught up, and he has a rainy day fund. In addition, creditors have provided exceptions for federal employees with documentation.
Many of us have seen news reports of federal employees going to food banks in Washington because they have no money to buy food. Some have had to negotiate with landlords regarding their monthly rent. It’s basically a waiting game for federal employees until a budget is passed.
Now that the shutdown has temporarily ended, hopefully, they will be able to catch up and prepare in case the budget does not pass on February 8th.
Conclusions on the Government Shutdown
Whether you are a federal employee or not, the consequences of the shutdown are highly visible and palpable to the general population. A temporary opening has restored some order, but I am curious to see if a more permanent solution arises. In general, the philosophies of living below your means and staying in charge of your finances still rings true.
Like this post? Here are links to other related articles: