A federal shutdown has economic consequences

The West Wing of the White House is seen before U.S. President Barack Obama in Washington on April 6, 2011 before Obama held dramatic late-night talks which failed to break a budget impasse with Republicans, though he said the two sides were creeping towards a deal to avert a government shutdown.

Bob Moon: Still no budget agreement. Negotiations continue. House Republicans did approve a one-week budget extension.

But the White House and Senate Democrats aren't playing ball. They say that interim budget includes spending cuts and other things they just can't accept. So government agencies are preparing to turn out the lights at midnight Friday. Our D.C. bureau chief John Dimsdale has been looking into economic consequences.


John Dimsdale: Starting Saturday, up to 900,000 government employees wouldn't get paid. That goes for the same number of government contractors. After the latest failed negotiations at the White House today, Senate majority leader Harry Reid warned of the detrimental consequences of closing the government.

Harry Reid: Including, as we've learned from an economic report this morning, just a shutdown of no matter how long it is, will be .02 percent drop in our domestic product.

That report from Goldman Sachs concludes that a shutdown would siphon $8 billion a week from the economy. Most of that would be made up later when funding and paychecks flow again. But not so for one vital industry in Washington.

Stephen Fuller: Tourism is vulnerable.

Stephen Fuller directs the Center for Regional Analysis. He says restaurants, hotels and vendors would suffer from the lack of customers usually here for spring break.

Fuller: We would see the impacts and individual businesses would feel them and probably not be able to recover those losses by increasing business next month.

And given how delicate the overall recovery is, Moody's economist Mark Zandi worries about the psychological effects of a long shutdown.

Mark Zandi: A lot does depend on how this affects confidence. The collective psyche is very fragile and if we start to lose faith again, then you can construct some pretty dark scenarios.

For example, what if Congress doesn't authorize back pay for government workers this time around?

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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