President Trump has already made it abundantly clear that he’s willing to let the government shut down once more if he reaches another impasse with the Democrats on border negotiations. With less than than three weeks to go and congressional Democrats unwilling to relent to Trump’s border funding demands, Trump is effectively left with four options: shut down the government again, declare a state of emergency, reopen the government again without funding, or put all his cards on the table to strong-arm House Speaker Nancy Pelosi, D-Calif., into a deal.
While the latter would obviously be best, all indications point toward another shutdown. Trump would be wise to abandon this idea at once, not just for the sake of political expediency, but given the extraordinary costs already incurred by the first shutdown.
The immediate costs to the federal government won’t be felt for long. Lost revenues and consumption spending by workers who went without pay will be quickly and completely recouped. Even sunk costs to the federal government, like lost revenue to national park admissions, will amount to just half a million here and there. But the shutdown’s reverberation into the greater economy will burn the waning economic boom under Trump’s tenure.
Although economic growth, which took a $3 billion hit in 2018 and $8 billion hit in 2019 due to the shutdown, will rebound in later quarters this year, the Congressional Budget Office found that $3 billion of that will be lost permanently. The CBO also says that federal workers denied pay lost a total of $1.8 billion per week, and nearly half of those workers were furloughed, meaning that taxpayers will now have to issue $3 billion in back-pay for no work.
But the CBO’s estimate doesn’t tell the whole story of the federal leviathan’s stranglehold over private business. The CBO accounts for federal output, spending, and effect on demand, but it doesn’t speak to any of the opportunity costs lost by the stagnation of our regulatory state.
The CBO couldn’t quantify the effect of agencies ceasing operations overseeing private industry. For example, the Alcohol and Tobacco Tax and Trade Bureau stopped approving new beer labels and warehouses during the shutdown. And the Commerce Department ceased processing requests from companies seeking exemption from Trump’s tariffs. And it’s almost impossible to say how the shutdown will reverberate throughout the airline industry.
Furthermore, access to federal loans hindered private industry, and investor confidence was surely shaken. We’ve long been overdue for a recession, and follow-up market corrections to last year’s deep dive seem imminent given the economy’s cyclical slowdown. Republicans, especially those wary of Trump’s messaging on immigration and protectionism, have rightly stood by him for deregulating the economy, passing tax reform, and generally instilling consumer and employer confidence. The factors out of his control seem troubling enough to our economic prospects, and for Trump to add another shutdown into the mix would only exacerbate the economy’s thinning profit margins. Between the broad public disdain for the last shutdown and the economic risks of another, Trump ought to consider the ramifications, economic and political, of yet another shutdown showdown.
