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Federal government shutdown could hurt businesses, workers

ALBUQUERQUE, N.M. — There was a nice little restaurant across the street from the Journal that sold killer breakfast burritos.

Most mornings, there was a line of people waiting to place their orders. At lunch time, the tables were full.

There were no lines for two weeks in early October 2013. The tables were empty. The usual staff of cooks and cashiers was nowhere to be seen. The owner worked by himself for most of the day.

Much of the little restaurant’s business came from the nearby U.S. Forest Service administrative services operation, which employs hundreds of people. Congress and the White House got into an argument over funding of the Affordable Care Act, Congress did not authorize spending before the fiscal year began Oct. 1, and non-essential government personnel, like the people who work for the Forest Service, were furloughed. The government shutdown lasted 16 days.

When the Forest Service workers got back on the job, they once again bought their breakfast burritos, but, naturally, they didn’t buy the burritos they weren’t around to eat during the previous 16 days. That revenue was lost forever. So were the wages the restaurant would have paid its employees over those two weeks had there been enough business.

The restaurant closed the next year, though I don’t know that it was because of the shutdown.

Congress is once again threatening a shutdown later this year, ostensibly over the usual debt ceiling dispute and disagreements over a spending bill. Political experts say it is mostly because 40 Republican representatives who call themselves the Freedom Caucus want to reduce the power of the speaker of the House. The businesses and workers punished by the shutdown, should it occur, probably won’t much care what the reason is.

Economists estimated fourth-quarter 2013 growth in gross domestic product was 0.6 percentage points lower than it would have been without the shutdown, according to the Congressional Research Service. The Bureau of Economic Analysis says growth that quarter was 2.6 percent. Had the government kept operating, fourth-quarter growth would have been 3.2 percent.

The shutdown affected businesses in obvious and not-so-obvious ways. Obviously, businesses that relied directly on government spending to do things like provide computers and paper to government agencies made no sales over those 16 days.

Not so obviously, when 600,000 to 800,000 federal workers aren’t getting paid, the effect reverberates throughout the economy.

A Moody’s Analytics report said chain store sales growth “came to a standstill” and car buyers became more cautious about spending. Federal permits required for imports and exports weren’t issued over the 16-day shutdown, and that dampened trade. Mortgage loans were delayed because lenders couldn’t get information they needed about borrowers from the IRS and the Social Security Administration, according to Moody’s.

“Small-business loans backed by the Small Business Administration did not go through, and tourist destinations across the country were hobbled as national parks, museums and monuments were closed,” Moody’s Analytics reported.

The most insidious effect was the uncertainty businesses and consumers felt when they realized the federal government was not reliable.

“Uncertainty is corrosive to growth,” the Moody’s Analytics report says. “Businesses grow more reluctant to invest and hire, and entrepreneurs become less likely to attempt startups. Financial institutions grow cautious about lending, and households are more restrained in spending.”

Especially hard hit, according to the report, are research and development firms. The risks involved in creating the next great new thing are high enough without having to predict what an unreliable government might do next.

Once the 2013 budget impasse was resolved, federal employees returned to work and, for the most part, received the pay they missed while furloughed. Should a shutdown occur again, economists quoted by Bloomberg say, it won’t be a very big deal for the economy as a whole. The economy is stronger than it was just two years ago, they say. Growth probably will slow 0.2 percentage points for each week the government is shuttered, but the economy should regain the lost ground in the next quarter, Bloomberg reported.

And indeed, for an economy with GDP of $18 trillion the economic cost of beating the stuffing out of the leadership of the House of Representatives is not all that high, unless it’s your restaurant we’re talking about.

I do miss those burritos.

UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 823-3896 or wquigley@abqjournal.com. Go to www.abqjournal.com/letters/new to submit a letter to the editor.

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