Consequences of the government shutdown

The U.S. government shutdown is still going on after Republican and Democratic politicians again failed to agree how to resolve a budget dispute. It is clear that the situation in Washington DC is more dysfunctional than ever and the two parties are not able to compromise and come to agreements of anything of substance. The shutdown means that some, but not all, U.S. government services are temporarily suspended, and 40% of the federal workforce, about 750,000 people, are on unpaid leave. Although budget confrontations are common in U.S. politics, this spending fight is especially tense because Trump has drastically reduced the size of the national government since taking office, and has suggested he may use the current impasse to make further cuts. It is estimated by some conservative observers that the government could slash between one-fourth and one-thirds of its workforce and still be functional. This has happened in many private corporations in the name of cost cutting and driving efficiencies. Under the U.S. system, the different branches of government have to reach an agreement on spending plans before they can become law.

The Republicans currently control both chambers of Congress. But in the Senate, they are short of the 60 votes needed to pass the spending bill, which gives Democrats some negotiating power. The Democrats want to see an extension of expiring tax credits which make health insurance cheaper for millions of Americans, and for a reversal of Trump’s cuts to Medicaid. Democrats also oppose spending cuts to government health agencies. The Democrats also want to restore ACA eligibility for legal immigrants. Their bill would reverse a provision from the “One Big Beautiful Bill Act” that excludes many legal immigrants from qualifying for ACA coverage starting in 2027. A stopgap bill designed to avoid the shutdown was passed in the House, or lower chamber, but did not clear the Senate.

Not all aspects of government stop during a shutdown. Services deemed essential continue as normal, although in many cases staff are not paid for the duration of the suspension. Border protection and law enforcement staff, Immigration and Customs Enforcement (ICE) agents, and in-hospital medical care workers are expected to operate as usual.

However, thousands of flights have been cancelled or delayed because of shortage of air traffic controllers, who are also expected to work without pay. Transportation Secretary Sean Duffy said lots of workers have called in sick, and estimated that staffing levels have dropped to 50% at times in some areas. Social security and Medicare cheques are still being sent out, although benefit verification and card issuance work may stop. Government employees deemed non-essential have been furloughed, temporarily put on unpaid leave. Contractors who work for federal agencies but are not directly employed by the government are missing out on work too. Several agencies, like the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH) have also furloughed many workers, affecting ongoing research projects. Services like the food assistance program and federally-funded pre-school and institutions like the Smithsonian museums have been reduced or closed. The National Park Service said its 433 sites would remain partially open, but with limited facilities for visitors, after more than half of its employees were put on leave. During the previous shutdown between December 2018 and January 2019, National Parks were kept open with no staff, which led to vandalism and looting at a number of historical sites.

Most American schools are state-funded, but the federal government is responsible for billions of dollars in grants and student loans, which could effectively come to a halt. However, because the grants are typically awarded during the summer, schools are expected to be largely unaffected during this shutdown, according to the education secretary.

In the past, lengthy government shutdowns were usually seen as politically dangerous, hampering voters’ everyday lives and the reputation of lawmakers and the president. After previous shutdowns were resolved, government operations mostly returned to normal, with staff receiving back pay for the period, and government spending largely going back to previous levels. However, this time, the White House appears more than happy to shutter large parts of the US government for an extended period. After all, this is in line with Trump’s desire to reduce the size of the government. Over the past nine months the Trump administration has slashed government spending and sacked many federal workers, testing the boundaries of presidential power. Officials have threatened to use the shutdown to identify more non-essential workers who could be permanently let go. The administration has also warned that furloughed non-essential workers may not receive their unpaid salary after the shutdown finishes.

So far, the Trump administration has been unwilling to offer substantive concessions. It believes the Democrats will bear the brunt of the public’s blame because it argues the party’s demands caused the shutdown. Many Democrats seem to be itching for a bigger fight this time around and funding the government is one of the only places where the party has some leverage.

In terms of economic impact, analysts estimate it could shave roughly 0.1 to 0.2 percentage points off economic growth for each week that it continues, although much of that could be recouped, as has happened after previous shutdowns. That relatively muted impact may be why the stock market seems to be shrugging off this latest threat. Everyone is patient at this time, but this might take time to resolve. After all, the last shutdown which began in late December 2018 lasted 35 days, the longest in history. It was brought about by disagreements over funding a wall on the Mexico border. It finally ended in part because large numbers of air traffic controllers, who had been working for a month without pay, began calling in sick, as has started to happen during the current shutdown. This time, it will likely end when real people, important people and groups like air traffic controllers have had enough and refuse to work. Bottom line is that the shutdown is a reflection of the political situation in Congress, where the two parties are unable to work together and resolve matters in a mature fashion. The parties are becoming increasingly extreme, and the atmosphere is full of hate instead of willingness to cooperate. The shutdown will eventually stop but not because of smart, intelligence, cooperative and thoughtful politicians.