Thursday, October 17, 2013

The Cost of the Government Shutdown

What did the government shutdown cost? It was a costly distraction. Roughly speaking, the United States lost close to one day of GDP during the actual time of the shutdown, but other costs are spread out over a longer period. Some employers, for example, will freeze staffing levels at current levels until the government budget problems are definitively resolved — that is, for at least one more quarter. And so, the lingering economic damage over the coming months will be roughly another day of GDP. In total, the loss was less than one percent of annual GDP, and that might not sound like much when you look at it that way, but if you describe it as two to three months of normal economic growth — so that a political stunt set the whole country back by two to three months — then you start to realize how big it is.