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Shutting down the U.S. government costs a ton of money

$80 million per day and upwards


 

How much does a U.S. government shutdown cost?

The last one came down to about $1.4 billion, according to an estimate provided by the White House Office of Management and Budget. The year was 1996, the president Bill Clinton and the federal government had been partially paralyzed five days in November 1995 and 21 more days between December of that year and January of the following one. In today’s dollars, that would be roughly $2.1 billion for just under four weeks, or $80 million a day. Below is OMB’s detailed cost estimate (pages 268-270):

Admittedly, in a $15.7 trillion economy with a $16 trillion public debt, that looks like a drop in the bucket. It’s worth keeping in mind, though, that as of late September of this year, Democrats and Republicans were pulling each others’ hair out about a difference in their respective funding authorizations of no more than $1.6 billion.

Besides, the actual tab of this government paralysis is likely to come down to considerably more than $80 million per day, for two reasons. First, the second, three-week hiatus of the Clinton shutdown was a rather small affair in terms of the size of the workforce that was furloughed. It involved only 260,000 federal employees, a third of the 800,000 people who were forced to stay at home in the November 1995 hiatus and today.

Second, OMB’s 1996 estimate was strictly about money moving out of, or not making it into, government coffers. Washington shelled out about $1 billion to pay federal employees — paycheques, that is, in exchange for no work — and $400 million in penalties it owed contractors for late payments, as well as revenue lost from, for example, seven million national park visits that never happened. There is nothing in the agency’s calculations about the shutdown’s effects on the broader economy.

Once you factor in spillovers to the private sector, the price tag rises dramatically. IHS Global Insights, for one, figures the shutdown could cost as much as $300 million a day in lost economic output.

Arguably the worst this government funding crisis could do is trigger a drop in consumer confidence. Consumer spending still accounts for about 70% of the U.S. economy and persistent pessimism among American shoppers is one of the main reasons this recovery has been so slow.

Admittedly, the real kiss-of-death for U.S. consumer sentiment is more likely to come from bickering over the debt ceiling, not the shutdown. When the U.S. threatened to default in 2011, consumer confidence plunged as low as it had been during the worst of the financial crisis. By contrast, when the government actually shut down in 1995-1996, confidence dipped only slightly and recovered quickly. But then, again, a “small dip” today would start from consumer confidence levels that are far below Christmas of 1995:

This article appeared first on CanadianBusiness.com


 

Shutting down the U.S. government costs a ton of money

  1. Stupidity always costs more than intelligence, but humans carry on with it anyway.

    • Yep, anyone with intelligence and studies economic history know there is no easy way out for the failing J CU PIIIGGGS in debt countries and their currencies. As stupidity loves company. While most people see the immorality of adding debt to the kids and grand kids mortgaging the future for bailout and debt greed today, together as a collective they ignore it….just more debt.

      And it never ends well. Can’t keep squeezing people for government bloat or they will in time revolt. As that makes for revolutions and decay.

      • Dave….money is a fiction. One that can mean anything we want it to or nothing at all.

        So is your economic theory.

        • Today, yes, fiat money isn’t really worth the paper it is printed on, its is an illusion. Money today no longer has long term value, and why it should only be used as a temporary marker to exchange good. Real savings is buying physical in your hand gold as it will preserve value over the pending economic failure of out governments.

          In the end the people who will suffer the most are the people who profess debt, profess the use of other peoples money, have little value to society as in any new system that ultimately replaces this corrupt system, it will demand other peoples money for nothing types produce something more valuable than whine.

          A correction is a coming, and it is too late to stop it. See Greece, Ireland, Iceland, Spain, Cyprus and others falling from grace. These countries are failing, people move away from them as their is no economic future to them.

          Like Detroit, tax ’em productive sheep more only goes so far until they move away leaving only rot and decay.

          • All money is fiat…..including gold.

          • No, gold is not fiat money. The supply of gold cannot be expanded at will by governments.

          • Gold is only worth what we say it is. Same as everything else.

          • And that worth is determined by peoples’ desire for it. Not by government.

          • No it’s not. If the govt says gold is valuable, people will want it.

            Same thing would happen if the govt chose coconuts.

          • The government just announced that fruitcake is valuable

            So Emily, we’d better get you into a safety deposit box, immediately.

  2. Actually this story must be old, closer to $17 trillion not $16T, but hey, debt addiction and spiral debt economic destruction do tend to grow fast, faster then bang, your currency is only worth the cost of toilet paper considering it is still made with paper.
    Consumer sentiment is only temporary, reality matters more. An all economic indicators and reality have J CU PIIIGGGS in debt countries debasing their currency for debt. Fact is this is a policy guaranteed to fail and drop the standard of living is guaranteed. People will pay more and get less. And getting less also means less jobs and goods, not GDP drive jobs.

    GDP is about money exchanging hands and is not and indicator of wealth nor it is an indicator of employment. If GDP goes up 1.2%, but the goods delivered goes down 5% for inflation, then you have a negative value economy and job losses. THis is what really happened, as Berbanke money print for debt is inflationary even if you don’t see it right away.

    Currency inflation for just more government debt is nasty, as people without real raises in income end up losing value fast. Goes for pensions, savings and incomes. Everyone losses value as if it were a compounding inflation tax. But because you can’t keep charging people more for less, the result is a depressed economy that doesn’t have the elasticity to prosper.

    But hey, lets insanely start the musical chairs again with just more debt. As in musical chairs, few win and most lose.

    If they can’t balance up, then there is no good future for USA.

  3. Shutting down government may cost a lot of money. But keeping it open costs even more.

    Hey liberal spenders and liberal debtors taking the kids futures for debt today, how long do you think Bernanke or BoC for that matter can print money for just more debt before our money, pensions, incomes and wages become worthless?

    But hey, I made a lot of money seeing 2008 a coming, I look forward to the second hit of the “Great Government/Bank Debt Fraud Depression of 2006-20xx”.

    But hey, like heroin, just one more debt fix that slowly kills you economic health. When this fails outright, I expect the world should mandate pay as you go to all governments. But that is 10 or 20 years out.

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