Scary Numbers About the Cost of the Government Shutdown

I do not have much professional opinion about the pros and cons of the government shutdown.

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Digression: This actually points to one of the practical problems in interpreting policy as a macroeconomist. That is, much political debate seems to be about “cheap talk”. A problem with any risk-averse committee is that difficult issues are not discussed enough, and easy issues are discussed too much. In this case, the costs of a wall are a tiny part of the budget. There’s already a wall along the most traveled parts of the border. And walls work, even if they’re not very nice. However, a wall in this case is going to do little to alleviate the problem of flailing and perhaps failing states in Central America. Oh, and Democrats used to be in favor of wall funding, except they’re not anymore … just … because … or something like that.

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I do have a professional opinion about the costs of the shutdown.

A problem in doing this sort of analysis seriously is that you have to separate anecdotes from data. What we see in the legacy media are mostly anecdotes.

A more serious estimate of the costs of the shutdown has been released by S&P Global. Based on that report, the public radio show 1A touted a figure of $7B this morning.

That’s a scary number: $7,000,000,000. (cue the Halloween noises).

Or is it?

At a minimum, it’s not good. But let’s ballpark it a bit.

It actually comes from a figure of $1.2B/week, since the start of the shutdown.

The U.S. federal government lays out about $4,000B/yr. That works out to roughly $80B/week. Of that, only about a quarter is actually shut down, so $20B/week.

And don’t forget that this is not money that will never be spent. In fact, almost all of the total that’s been accumulated will be doled out as soon as the shutdown ends, in addition to the normal spending for that week. So this is really about timing of payments.

Realistically, could the costs of mistiming spending amount to a 6% additional cost (1.2/20 = .06). That seems reasonable to me.

But, going further, the U.S. economy produces roughly $20,000B/yr in GDP. That’s about $400B/wk.

Is a cost of $1.2B/wk a lot when it comes out of $400B/wk? No, probably not. Thus the need to make numbers seem scary, and to emphasize emotional anecdotes about particular people.

Another way to look at it, is in a country of 300 million people, $1.2B/wk amounts to $16/wk for a family of four: that’s like skipping a fast food lunch for two. I wouldn’t be happy about that, but it isn’t a big deal.