Effects of a Government Shutdown

2956 words (12 pages) Essay in Politics

23/09/19 Politics Reference this

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Effects of a Government Shutdown

Introduction

 A government shutdown in recent years has been a common occurrence in the United States of America. A government shutdown is defined as a period where there is a funding gap resulting in the partial or full shutdown of the federal government agencies and its operations. The shutdown of the government in the U.S occurs mainly due to the failure of the Congress agreeing on certain budgetary items. For example, the 2019 government shutdown was due to Congress and President Trump administration not agreeing on budgetary allocation connected to the building of the Mexican-US border wall. The U.S government cannot spend money from public confers without the approval of Congress. Hence, disagreements in the Congress on the proposed budget items and expenditure in different areas contribute to the legislation approving government spending being temporary halted[1]. The outcome is usually a shutdown of the government. The same case happened during President Obama tenure; the budgetary standoff was connected to the Obama Care funding. Given that budget is a political, social and economic issues, there will always emerge issues of disagreement that are of interest to the American public or administration in power, and this results in delays in approval of the budget bill by the Congress[2].

 In most cases, the shutdown is partial to allow for the government to offer essential services to the public, such as security and emergency responses related services. The shutdown has huge implications, socially, economically and politically on the public. For example, during the government shutdown, employees working with federal government agencies do not receive their salaries, and they cannot meet their bills. The shutdown of the government has adverse effects on the business community, GDP growth, employees and consumers in the American market. The purpose of this paper will be to analyze in details how businesses, consumers, GDP growth and employees are adversely affected by the government shutdown in the U.S. 

Impact on the GDP and Economic Growth

  The economic shutdown has adverse effects on the GDP as well as the economic growth of the country. The government shutdown results in many federal workers being unpaid as well as small businesses not being able to access loans[3]. The contractors working for the government also, end up not being paid on time or some contracts being shelved until budgetary issues are resolved by the Congress, and this adversely affects the GDP.  The economic growth of a country largely depends on the immediate injection of money by consumers and businesses into different investment and consumption activities. However, when the source of income is delayed, then the outcome is the levels of economic growth slowing down. For instance, the GDP in 2013 following the October shutdown of the government slowed down by a margin of 0.1-0.2%.

 The inability of consumers who directly and directly depends on the federal government to meet their needs results in a reduction in the money flowing in the economy. If the shutdown goes for months, then it means most of the businesses would be forced to scale down their production activities, as there would be no adequate demand for their goods in the market. The shutdown also affects job creation in the economy. Many people get contractual and temporary jobs during the process of implementation of various federal government projects by independent contract on behalf of government agencies. In cases of the shutdown, the contractors have to halt their projects due to lack of funds, and this means that many people end up losing jobs, especially those who are employed on a temporal basis. When there is a slowdown in economic growth, many cases of the unfair and illegal firing of employees’ increases. The business people have to reduce the costs of running a business during this time, and some unethical business persons opt for firing some of the temporal or permanent workers illegally to save on costs. Also, cases of unfair compensation practices in the economy might arise, due to cost constraints, especially in businesses that do business with the government. They may be forced to reduce the wages of their employees, especially part-time payments and this might create legal challenges for the businesses. The legal challenges might arise due to the business failing to adhere to the law on compensation issues due to cash constraints.

Impact on Employees

  There are different social, economic and legal effects of the government shutdown on employees. There are about 800,000 employees who are on the federal government payroll. During the shutdown, the employees are forced to go to work for the period of the shutdown without payments[4]. When working without pay, it means that the employees on the federal government payroll depend on their savings or credit to survive. Guina indicates that 60% of the American population does not have adequate savings that can enable them to handle emergencies if they stay for long without receiving any form of income[5]. Hence, the employees without pay from the federal government agencies end up having a hard time economically. They end up using credit cards to survive, and this is an addition of a new cost burden on them. For instance, the credit cards charge certain interests and these impacts negatively on the financial status of the employees. Also, for those without access to credit cards and other forms of loans, they end up failing to meet their legal obligations, such as servicing their loans or making payment to creditors within the agreed time. The outcome in some instances is the said employees facing legal proceedings against them, for failing to meet their financial obligations with creditors, especially if the creditor involved is not understanding in nature.  The shutdown is not good for the federal employees who depend on the government salaries for survival.

 Importantly, there are also employees who do not depend on payment from the federal government but private sector, who are affected directly by the shutdown. Curren indicates that government shutdown results in the government being unable to pay its bills and contracts on time to contractors and other service providers[6]. It means that people employed by these contractors who do business with the government have to stay for a certain period without pay. In some instances they may receive payment, but not full ones, especially if the contractors have some cash flow constraints, arising from delayed payments from the government for the services already delivered. The private sector employees, in this case, would be forced to survive on little money or credit as they wait for the government shutdown to be resolved. The spending patterns of the employees during the government shutdown are adversely impacted, as they have to spend money only on essential things[7]. In the long run, the government shutdown has negative implications financially on the lives of its employees and others who indirectly depend on its expenditure to get paid in the private sector. The credit they take to survive during the shutdown period makes them slaves of loans that would have been avoided, has the government operations being fully in operational.

Impact on Consumers

  Consumers are also adversely affected in different ways by the government shutdown. There are different ways that the government shutdown impacts consumers. First, the consumers dependent on government funds for survival, through salaries and support in the form of social welfare are adversely affected by the shutdown. The consumers who depend on government salaries for survival have to change their consumption patterns. Given that the people have to live on loans or credit during the period of the shutdown until payments are resumed after government becoming operations fully, non-essential spending is reduced[8]. People are forced to consume only basic things, such as food, healthcare services. For example, during the period of the shutdown, the number of trips taken by individuals directly dependent on the government reduces. For example, the money spent on leisure by federal employees reduces significantly, and this impacts negatively on the leisure industry. The consumers are also impacted negatively as they cannot meet some of their wants, especially those related to happiness and self-belonging. Also, the consumers dependent on the government are inconvenienced, particularly those on the government social welfare programs. Millions of Americans get financial support from the government, those who live in poverty or unemployed with families. During the period of shutdown, their consumptions on basic needs are adversely impacted. These groups of individuals end up not being able to meet basic needs, due to lack of cash, which they usually receive from the government.

 On the other hand, there are a group of consumers who are not dependent on the government but seek certain services from it. Individuals who consume government services, such as social work services, end up failing to receive them during the shutdown period, and this adversely impacts on their schedules. For instance, if an individual was seeking a certain data from the government to meet a certain need and during the period of the shutdown that data cannot be provided, then, the consumer of the services offered by the federal government end up being inconvenienced. Apart from not receiving government services, consumers who get services from contractors and businesses that do business with the government also end up being inconvenienced. The consumers end up failing to get the services they deserve on time, due to delays in the release of funds to keep these businesses operational. Business people are also consumers, and they largely depend on income generated from selling services and goods to employed people in the private sector or by the federal government[9]. The business people as consumers, consumption behaviors are adversely affected by the government shutdown. They have to cut down on unnecessary spending on certain goods and services.

Impact on Businesses

  Businesses are the ones adversely impacted by the government shutdown. This section discusses two natures of businesses affected by the shutdown, namely private businesses, and government contractors. Contractors who work with the government depends largely on funds released by the government to meet their operational needs, such as paying salaries for their employees, and this is halted when there is a government shutdown. Curren indicates that due to Anti-deficiency Act, government agencies cannot spend money allocated to different programs and projects without approval of the Congress[10]. When agencies are not able to spend their funds due to the government shutdown, it means that they cannot make payment to contractors who have offered certain services, whose payments are due. The outcome is the contractors ending up being hit by the government shutdown, as they are unable to meet their operational needs. The contractors during the period of shutdown do not have access to certain government properties, and this makes it hard for them to offer services to their clients efficiently. The reputations of the contractors who are unable to serve clients satisfactory are damaged. The outcome is the contractors’ at times seeking legal protection from the delayed payments from the government.

 The contractors can use contract clauses in pursuing legal remedies against the failure of the government to meet certain contractual obligations as a result of the government shutdown. Curren, notes the Sovereign Act concept makes it hard for the courts to find government liable for failure to meet contractual obligation10. The government is protected from being sued in cases where the failure to meet its obligations is beyond its control. The government when faced by a legal battle over its failure to meet certain contractual obligations following the shutdown, can invoke what is regarded as termination for convenience clause. However, a contractor can seek remedy through Stop-Work Order terms, a way of forcing the government responsible for the damages suffered during the shutdown. To win a case involving failure of the performance of the government in meeting contractual obligations, the way risk is allocated in the contract is critical, especially in clauses related to cost-reimbursement, fixed-price contracts. Hence, shutdown results in a contractor having to engage in litigation battles with the government due to failure on its part to contractual performance obligation adversely affecting contractors’ business operations and reputation in some instances.

  Furthermore, the operations of private businesses are adversely affected by the government shutdown. There are certain operations of private businesses that depend on access to certain government resources, such as data systems and others. During the government shutdown, the federal government resources are not usually available to the public. The outcome is private businesses that depend on these resources for their smooth operations being impacted negatively. The business finds itself in situations where they cannot manage to serve its customers fully. Also, private businesses employees might end up going home without pay, especially if the business offer services to the government, but end up not receiving payment due to the shutdown[11]. The government shutdown, hence, results in a scenario where private businesses that do business with it, find themselves in positions where they are unable to pay their employees on time for their services.

Conclusion

 In summary, this paper demonstrates that government shutdown has ripple effects on different aspects of life in the economy. The shutdown is associated with a slowdown in economic growth, due to lack of injections of loans and payments that are used on consumption by employees in federal government or private sector, dependent on government funds to receive payment. When shutdown goes for long, it can hurt the GDP, slowing down its growth, due to lack of incentives for employment creation, consumption and production enhancement in the economy. The paper also shows that government shutdown impacts the consumption behavior of individuals who depend on it or non-dependent ones negatively. They are forced to change their consumption patterns inconveniencing them. The employees also are forced to go for days without pay, and this creates financial problems for them in the long-term. Businesses end up failing to get payments on time and also find themselves in legal battles with the government for the failure of it honoring contract obligations due to shut down.

Bibliography

  • Curren D, ‘Government contracting in the shadow of the October 2013 federal government shutdown’ (2014). Pub. Cont. LJ.
  • Fleming SB Fox, ‘Government Shutdown Begins To Harm US Economy’ (Ft.com, 2019) <https://www.ft.com/content/b4970904-1907-11e9-9e64-d150b3105d21> accessed 24 February 2019.
  • Gelman M and others, How Individuals Smooth Spending (National Bureau of Economic Research 2015).
  • Guina R, ‘The Financial Impact Of The Partial Government Shutdown On Federal Employees’ (Forbes.com, 2019) <https://www.forbes.com/sites/ryanguina/2019/01/12/financial-impact-of-government-shutdown-on-federal-employees/#16f9f75b5d41> accessed 24 February 2019.
  • Stewart E, ‘The Shutdown’S Effect On The US Economy, Explained’ (Vox, 2019) <https://www.vox.com/policy-and-politics/2019/1/18/18188262/government-shutdown-economy-recession-workers-gdp> accessed 24 February 2019.
  • Wilson W, Congressional Government A Study In American Politics (Project Gutenberg 2011).

[1] Michael Gelman and others, How Individuals Smooth Spending (National Bureau of Economic Research 2015).

[2] Woodrow Wilson, Congressional Government A Study In American Politics (Project Gutenberg 2011).

[3] Emily Stewart, ‘The Shutdown’S Effect On The US Economy, Explained’ (Vox, 2019) <https://www.vox.com/policy-and-politics/2019/1/18/18188262/government-shutdown-economy-recession-workers-gdp> accessed 24 February 2019.

[4] Sam Fleming and Brooke Fox, ‘Government Shutdown Begins To Harm US Economy’ (Ft.com, 2019) <https://www.ft.com/content/b4970904-1907-11e9-9e64-d150b3105d21> accessed 24 February 2019.

[5] Ryan Guina, ‘The Financial Impact Of The Partial Government Shutdown On Federal Employees’ (Forbes.com, 2019) <https://www.forbes.com/sites/ryanguina/2019/01/12/financial-impact-of-government-shutdown-on-federal-employees/#16f9f75b5d41> accessed 24 February 2019.

[6] Curren D, ‘Government contracting in the shadow of the October 2013 federal government shutdown’ (2014). Pub. Cont. LJ.

[7] Michael Gelman and others, How Individuals Smooth Spending (National Bureau of Economic Research 2015).

[8] Michael Gelman and others, How Individuals Smooth Spending (National Bureau of Economic Research 2015).

[9] Michael Gelman and others, How Individuals Smooth Spending (National Bureau of Economic Research 2015).

[10] Curren D, ‘Government contracting in the shadow of the October 2013 federal government shutdown’ (2014). Pub. Cont. LJ.

[11] Emily Stewart, ‘The Shutdown’S Effect On The US Economy, Explained’ (Vox, 2019) <https://www.vox.com/policy-and-politics/2019/1/18/18188262/government-shutdown-economy-recession-workers-gdp> accessed 24 February 2019.

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