The possibility of a government shutdown is brewing in the United States as Congress struggles to pass a spending bill that can garner a majority in the House. White House officials are reportedly preparing for a shutdown and are confident that the public will blame the GOP for the stalemate. While President Biden’s aides are in communication with congressional leaders, they are not working as urgently to avert a shutdown as they did earlier in the year to prevent a breach of the U.S. debt ceiling.
Economists suggest that a government shutdown may have moderate short-term impacts on economic growth due to reduced federal spending. However, they argue that it could lead to greater growth once the shutdown ends, potentially benefiting the Biden administration as the 2024 presidential election approaches. From a political standpoint, a shutdown may work in the White House’s favor, as the blame will likely fall on the GOP, given their internal division on the spending bill.
Despite the potential political advantage, a government shutdown could create uncertainty and negatively impact the country. It could lead to the closure of national parks and the loss of vital economic data produced by federal agencies. While the White House is not ignoring the possibility of a shutdown, the responsibility primarily lies with Congress to pass a spending bill. However, the administration is expected to be more engaged as the deadline approaches.
The current deadlock in Congress stems from House Republicans failing to adhere to a debt ceiling agreement reached in June. The agreement set spending levels for the next fiscal year, but some GOP members are pushing for even deeper cuts to federal agencies. If the House manages to pass a temporary bill to fund the government past the deadline, negotiations with the Senate and the White House can begin.
Compared to breaching the debt ceiling, a government shutdown may have less severe economic consequences. If the debt limit was not raised, the U.S. Treasury Department would be unable to borrow money to fulfill its financial obligations, including payments to government services and debt holders. This could have led to job losses, a decline in household wealth, and potentially a global financial crisis. In contrast, a government shutdown would involve the suspension of payments for federal agencies, but preexisting plans and provisions would ensure that essential services continue.
In the past, government shutdowns have had limited impact on the broader U.S. economy. The Congressional Budget Office found that a 35-day shutdown during the Trump administration resulted in a decrease in economic output by around $3 billion. However, federal workers who missed paychecks and contractors who did not receive backpay were particularly affected. Therefore, while a shutdown may cause temporary disruptions, the persistent economic effects are small and difficult to discern from the data.
Ultimately, the possibility of a government shutdown looms as Congress grapples with partisan divisions. While the White House may see political advantages in placing the blame on the GOP, a shutdown could create uncertainty and have localized impacts across the country. As the deadline approaches, negotiations between congressional leaders and the White House will be critical to avoid a shutdown and ensure the smooth operation of the federal government.