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Here’s a question about the shutdown submitted by an Associated Press reader, Ryan S.:
How might the shutdown affect the U.S. economy?
Federal government shutdowns typically do not cause significant economic harm. However, the current shutdown, which began on Wednesday, appears to be more concerning, mainly because President Donald Trump is considering using the situation to permanently remove thousands of government positions. This comes at a time when the economic landscape is already unstable.
At the moment, the financial markets are largely dismissing the deadlock as just another instance of the ongoing inability of Republicans and Democrats to agree on a budget and keep the government operational.
Let’s take a look at a range of possible economic effects:
1. Short-term: Financial markets may see some fluctuations, but unless the funding delay is prolonged, these effects are not expected to be substantial. Once funding resumes, employees are reimbursed, minimizing any economic delay.
2. Medium-term: During a shutdown, federal employees may be furloughed and government expenditures postponed. However, with the restoration of funding, workers return to their jobs and receive back pay, while the government eventually spends the money it held back. The impact is generally neutral.
3. Long-term: Extended disruptions in critical sectors, like air travel, could pose larger problems. For example, during the 2018-2019 shutdown, security personnel and air traffic controllers reporting sick caused significant disruptions. Yet, even throughout that 35-day shutdown, the longest in U.S. history, the Congressional Budget Office reported a mere 0.02% reduction in the 2019 U.S. GDP, which measures the country’s total economic output.
Additionally, Trump has suggested permanently cutting thousands of government jobs amid the current shutdown. If such layoffs occur, leading to an immediate increase in unemployment, this could further destabilize the already fragile economy. However, it remains uncertain whether these job cuts will take place.
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