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The Shutdown Isn’t Painless Anymore – Effects Ripple Through Economy

After 32 days of the longest partial government shutdown in US history, effects are starting to cascade throughout the US economy. Many parts of the government are operating on a limited basis or closed entirely and about 800,000 federal workers have been affected. About half of these workers have been furloughed and the other half, which ironically includes the Border Patrol and Coast Guard, are being forced to work without pay.  

The Wall Street Journal today provided a rundown of how the shutdown is affecting the economy. While many conservatives are happy about the shutdown on the theory that the government is too large and much of it needs to shut down permanently, the reality is that shutdowns and hurt businesses cost taxpayers more money than keeping the government open. Here are a few examples of why this is so:

  • Partial closure of the Securities and Exchange Commission means that IPOs are delayed.
  • Business loans from the Small Business Administration are not being approved.
  • Approval of mergers by the Federal Trade Commission and the Justice Department has been slowed.
  • The Food and Drug Administration has cut back inspections of food processing facilities. Unpaid inspectors are have resumed inspections of high-risk products such as fruits, vegetables, seafood, and dairy products.
  • Businesses cannot obtain approval for new alcoholic beverages from the FDA.
  • The FDA will run out of money for pharmaceutical approvals in early February, potentially delaying new cancer treatments.
  • Generation of new tax identification numbers has been delayed by the IRS, which is holding up some business deals. The IRS is understaffed during the shutdown, making it difficult for tax preparers to be able to determine if paperwork has been received.   
  • The Consumer Product Safety Commission is not supporting companies issuing product recalls. The CPSC typically assists in spreading the word about the recall and monitoring its progress. Companies that issue recalls without the CPSC could be forced to repeat the process again later.
  • Lockheed Martin said that government furloughs may delay the approvals needed for satellite launches.
  • The National Transportation Safety Board has suspended all investigations into aviation and rail accidents.
  • Government contractors involved in highway and bridge construction are not getting the money to complete their work. Some defense contractors are also not being paid.
  • Airline revenues are expected to fall based on government travel cancellations. The shutdown has reportedly cost Delta Air Lines $25 million already.

Just this morning, the shutdown affected me as well. In my job as a professional pilot, I have to get a flight physical from an FAA-designated Aviation Medical Examiner. Normally, this is not a problem, but last year I had skin cancer. The stage 1 melanoma was completely removed and seemed to meet FAA guidelines for office issuance of a medical certificate, but the AME had some additional questions. Unfortunately, the FAA’s aeromedical offices at their headquarters in Oklahoma City were closed and the workers furloughed due to the shutdown. Currently, the issue is unresolved and if the AME cannot be satisfied by the end of this month, I may be going without paychecks myself and my company will be without the services of one of its pilots.

Far from being painless, the White House Council of Economic Advisors admitted last week that the shutdown was more than twice as expensive as had been estimated. President Trump’s economic team originally forecast that the shutdown would reduce economic growth by 0.1 percentage points every two weeks. The new estimate is that economic growth will slow by 0.13 points each week.

Barron’s wrote last week that the shutdown had already cost more than the entire price tag for President Trump’s wall. More than $5 billion of taxpayer money may as well have been set on fire or flushed down some colossal government toilet because a large part of it will go to pay back wages for furloughed government employees and services that the taxpayers will never receive.

Through it all, both President Trump and Speaker Nancy Pelosi are standing firm. The president made a pitch to Democrats over the weekend, offering a three-year extension of DACA in exchange for wall funding. Democrats refused the deal.

As the US economy slows, the leaders of both parties seem to be engaged in a game of budgetary chicken, although the situation could also be likened to an economic suicide pact. The economic effects of the shutdown are combining with President Trump’s tariff war to overcome the positive effects of the tax reform. Forbes predicted that if the shutdown lasts into February and March, it is possible that the Trump Administration could find itself saddled with a negative growth rate for the first quarter. This would be the first quarter of negative growth since 2014 and a far cry from President Trump’s promise of six percent growth.

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