The news has been full of an estimate by Standard & Poor’s that the U.S. economy suffered a loss of $24 billion due to the government shutdown.
Interestingly, the reports contain few if any details of where those losses came from and the Standard & Poors website does not seem to have any report backing up the figure either.
I have found some of the suggested losses and they are all untrue.
Certainly, some people have suffered losses due to the shutdown, principally those business owners who depend on tourists visiting Washington, D.C. or a federal site that was closed (such as a national park).
Federal contractors who could not work and were not paid to work on other projects during the shutdown may suffer losses.
For all the tourist sites that lost money and visitors during the shutdown, there is a business somewhere that received or will receive more business than normal.
Business owners in those substitute locations become winners due to the shutdown.
All this lost spending is a perfect example of the famous broken window fallacy, just in reverse from the normal example.
In the broken window fallacy, people perceive money spent to fix a broken window as a gain to the economy because they do not realize the money would have been spent somewhere else until it had to be diverted to fixing the window.
As to lost wages, federal employees will get back pay completely covering their lost wages during the government shutdown.
In the wider view of the whole economy, the money just ended up in different cash registers.
The final item in the supposed $24 billion in losses to the economy due to the government shutdown is the value of lost government services.
It is true that many government services not performed during the government shutdown will never be replaced, as government workers will not all be able to make up the lost productivity.
However, national income accounts value government services at their cost since there is no other way to value them (given the common absence of a price to provide a market value).
Because the government workers are being paid for the days they did not work, the cost of government services will not decline and, therefore, neither will the government contribution to GDP.
Citizens will get less for our tax payments, but the official economic value of government will be the same.
Hopefully, this has provided a clear explanation that the economy will suffer no loss from the government shutdown, let alone a purported $24 billion.
People reporting these stories may not understand economics or they may not wish to acknowledge that government does not grow the economy.
Whatever the reason, the reality is that while the shutdown may not have accomplished anything other than disrupting many people’s lives, it did not cause damage to the national economy.
That usually happens when the government is open for business.
http://www.forbes.com/sites/jeffreydorfman/2013/10/22/there-will-be-no-24b-economic-loss-from-the-government-shutdown/
Interestingly, the reports contain few if any details of where those losses came from and the Standard & Poors website does not seem to have any report backing up the figure either.
I have found some of the suggested losses and they are all untrue.
Certainly, some people have suffered losses due to the shutdown, principally those business owners who depend on tourists visiting Washington, D.C. or a federal site that was closed (such as a national park).
Federal contractors who could not work and were not paid to work on other projects during the shutdown may suffer losses.
For all the tourist sites that lost money and visitors during the shutdown, there is a business somewhere that received or will receive more business than normal.
Business owners in those substitute locations become winners due to the shutdown.
All this lost spending is a perfect example of the famous broken window fallacy, just in reverse from the normal example.
In the broken window fallacy, people perceive money spent to fix a broken window as a gain to the economy because they do not realize the money would have been spent somewhere else until it had to be diverted to fixing the window.
As to lost wages, federal employees will get back pay completely covering their lost wages during the government shutdown.
In the wider view of the whole economy, the money just ended up in different cash registers.
The final item in the supposed $24 billion in losses to the economy due to the government shutdown is the value of lost government services.
It is true that many government services not performed during the government shutdown will never be replaced, as government workers will not all be able to make up the lost productivity.
However, national income accounts value government services at their cost since there is no other way to value them (given the common absence of a price to provide a market value).
Because the government workers are being paid for the days they did not work, the cost of government services will not decline and, therefore, neither will the government contribution to GDP.
Citizens will get less for our tax payments, but the official economic value of government will be the same.
Hopefully, this has provided a clear explanation that the economy will suffer no loss from the government shutdown, let alone a purported $24 billion.
People reporting these stories may not understand economics or they may not wish to acknowledge that government does not grow the economy.
Whatever the reason, the reality is that while the shutdown may not have accomplished anything other than disrupting many people’s lives, it did not cause damage to the national economy.
That usually happens when the government is open for business.
http://www.forbes.com/sites/jeffreydorfman/2013/10/22/there-will-be-no-24b-economic-loss-from-the-government-shutdown/