The U.S. Senate rejected bills that fund the government, causing a government shutdown when the United States budget year started Wednesday.
Economically, the government shutdown will have the greatest impact in and around Washington D.C., according to Liam Malloy, the chair for the University of Rhode Island department of economics. In this shutdown, social security and Medicaid payments will still be made but many workers have furloughed. This has a direct impact on the employees and indirectly on the economy.
In terms of broader impacts, it will depend on how long the shutdown lasts, according to Malloy. The longer it lasts the greater the economic impact. If it isn’t resolved quickly, there is the danger that this will tip the economy into a recession.
Historically, government shutdowns are short, so money lost during the period can be made up, according to Leonard Lardaro, a professor of economics at URI. This is because of layoffs from the Department of Government Efficiency.
People on government payrolls who were sent home usually received back pay once the shutdown was over depending on how long they were laid off, according to Lardaro.
Considering the high volume of workers who were laid off, restarting is difficult, according to Lardaro.
The senate didn’t reach a long term agreement on funding the government for a full fiscal year, according to Malloy.
Shutdowns happen when there’s split party control within the government, according to Malloy. The party majority, who controls the House, Congress and Senate, are Republicans. The control gives the Republican party a big incentive to make an agreement before a shutdown occurs.
If people supporting the Republican party were to switch sides, Democrats could’ve found a way out of the government shutdown, according to Lardaro. Shutting down the government would increase health insurance rates for people who aren’t affluent.
“As always this is just purely just power,” Lardaro said. “Each party is going to think the other one is to take the blame.”
Looking back at a shutdown in the mid-1990s, the government re-opened and workers were paid what they were owed, according to Malloy. Workers didn’t miss out on any income during the shutdown period from the government’s point of view but they had to wait until the shutdown ended in order to get their paycheck.
During that period of time, employees cut down on their spending for basic needs, which hurt them financially, according to Lardaro.
A government shutdown this year would be different from the past in terms of which party is controlling the presidency, according to Lardaro. Depending on the party, the shut down could be longer or shorter as far as duration goes, which could be weeks or months. A long term shutdown is painful for citizens; they don’t know what will be cut off.
“A lot of economists think we’re on the brink of a recession,” Malloy said. “If you’re the federal government, you don’t want to be the ones taking responsibility for it.”
The government is a significant portion of the economy, according to Malloy. Although their spending is a small percentage in terms of funding state and local governments, there are negative impacts including social security checks and paid out unemployment benefits for employees.
In previous shutdowns, federal employees always received back pay, according to Malloy. This means employees will either be sent home or work without payment. If a worker doesn’t have a savings account they can use if they aren’t getting paid, that could depress spending.
“One person’s spending is another person’s income,” Malloy said.
Besides federal workers, the average citizen will be hurt by a shut down, according to Lardaro. Accessing necessary services from the government will be complicated and citizens may not receive it. The shutdown will harm consumer sentiment, which is already weak in light of tariffs.
Since URI is funded by the government, there could be negative consequences with social services, according to Lardaro. Rhode Island is the second most densely populated state and 65% of the population is reliant on social services. If those are curtailed in a shutdown, there would be a material difference on the quality of life.
“The whole process is ridiculous because we shouldn’t have to agree to spending money and then pay for what we agree to spend,” Lardaro said. “No other country that I know of does that.”
To learn more about how a government shutdown affects URI, visit the URI communications federal action website.
