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If the government shutdown drags on, it could take a bite out of the economy

Lots of key government services will be shuttered.

Spencer Platt/Getty Images

The US government shut down at midnight on Friday, and if it doesn’t reopen soon, it could have serious effects on the American economy.

When the government is shut down, it doesn’t come to a complete halt. Some parts of the government deemed essential keep running — active-duty military personnel report for duty, and the US Postal Service continues to deliver mail, for example.

But hundreds of thousands of government employees are prohibited from coming to work because they can’t be paid. Many government departments, agencies, and programs must operate with a barebones staff, and some services are shuttered completely, especially if the shutdown lasts for more than a few days.

That, in turn, can have a big impact on the way the government generates revenue for itself, economic activity that requires government approval, and the trust that markets have in the stability of the US political and economic systems.

When the government is closed, national parks, museums and zoos are shuttered. Passport and visa applications can be frozen. The IRS can’t verify the paperwork of people applying for mortgages, so mortgage approvals are delayed. Private companies that do business with the government have to suspend or cancel operations.

The Obama administration published a report in 2013 assessing the economic damage of the 16-day-long government shutdown that year — one of the longest shutdowns in American history. There were many tangible effects on important economic sectors.

The shutdown halted environmental reviews crucial for transportation and energy projects. For example, the Bureau of Land Management was unable to process about 200 applications for permission to drill federal lands in North Dakota and other states.

The shutdown also threw a wrench in government provision of licenses crucial for international trade. The Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau wasn’t able to issue export certificates for beer, wine, and distilled spirits, and over 2 million liters of product was left sitting at ports unable to ship during the shutdown.

A halt on government announcements on approved harvesting levels for fishers delayed the Alaskan crab fishing season. FDA approval of drugs were delayed. The list goes on.

Obama’s Council of Economic Advisers estimated that the shutdown resulted in the loss of 120,000 private sector jobs. Standard & Poor’s estimated in 2013 that it cost the US economy $24 billion and reduced national growth by .6 percent.

Those were the costs of a 16-day shutdown. Monday marks Day 3 of the current shutdown, and it’s unclear how long Democrats and Republicans will take to settle on a deal, which hinges largely on the two parties agreeing on legislation deciding the fate of unauthorized immigrants under the Deferred Action for Childhood Arrivals (DACA) program.

If the shutdown is short, it won’t necessarily take a huge bite of the US economy. But if it lasts long, the effects will be far from trivial.

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