A government shutdown isn't just bad news for people hoping to visit our national parks, or who filed paper tax returns and are awaiting a refund. It's also bad news for the economy--especially if it lasts a while.
A shutdown would force around 800,000 non-essential federal workers off the job without pay, meaning the loss of around $2 billion in wages. Like all income, that money typically filters into the economy via consumer spending, mortgage payments and the like--so turning off that spigot would adversely affect consumer demand.
In addition, cuts in government services could make it harder for entrepreneurs who rely on government help to make investments. And tourist spots such as Yellowstone National Park and the Grand Canyon would close, depriving restaurants and hotels nearby of substantial revenue from tourists.
Of course, the Washington, D.C. area economy--which until now has been relatively unscathed by the downturn that's affected most of the rest of the country--would be hit especially hard.
The three-week 1995 shutdown cost the economy around 0.09-0.17 percentage points of growth per week. No one knows how a 2011 shutdown would last, but a similar hit to the economy would be especially damaging at a time when the recovery is still fragile.
The irony is that the likely shutdown is the result of disagreements between Republicans and Democrats over the size of spending cuts, with the GOP arguing that massive cuts are needed not just to reduce the deficit but to return the economy to health. Most economists say spending cuts will hurt growth, not help it. But it turns out that's true of the shutdown itself, too.
(A sign at Maumelle Park, a U.S. Army Corps of Engineers campground, near Little Rock, Ark., Nov. 13, 1995.: Danny Johnston/AP)