Some Impacts of the Government Shutdown

The ongoing government shutdown has been a great source of debate within the country and a great dissatisfaction for the nation's elected representatives, Congress.  This shutdown has had negative impacts on various stakeholders, whether directly or indirectly.  For example, furloughed governmental employees and military personnel have been obviously been affected, yet certain businesses that rely on governmental land or operations have also been impacted.  An article entitled “Shutdown Costs at $1.6 Billion With $160 Million Each Day” discusses, among other things, an individual business’s loss in revenues due to the Grand Canyon being shut down.  This business provides guided raft tours down the Colorado River (through the Grand Canyon) and has lost an estimated $80,000 in revenues from just one week.  Unfortunately, this loss of revenue will not be reimbursed (unlike some of the government furloughs) once the shutdown is over.  If the shutdown continues, then the firm will have a more difficult time covering its fixed costs and could eventually leave the industry.  There are surely many other examples of private, small firms that have been negative externalities of the government shutdown.

The shutdown has also impacted consumer expectations for the future.  Another article entitled “Economic Confidence Plummets as Gov't Shutdown Begins” discusses the plummeting economic confidence, which is based on two important components: first, one’s individual assessment of the current economy, and second, which direction the individual feels the economy is headed.  The plummet in consumer confidence implies that consumers have a bleak assessment for the current and/or future of the economy. This impacts current consumer purchasing trends.  In this case, consumers are likely to save more of their discretionary income and spend less.  The author of the article suggests that the direction of economic confidence will reverse and improve once the government shutdown is resolved.  However, If the shutdown is not resolved, then consumer purchases will continue to drop, which will continue to decrease demand of normal goods and hurt sellers of products and services, especially luxury goods.


Quinn said...

I agree with Bob that there are a lot of companies, especially in Southern Utah that will suffer from the shutdown of national parks. This is one of the most traveled times in Bryce and Zion Parks and will most certainly affect the companies ability to pay costs of operation.

While I do believe that consumer confidence is lacking I think that most luxury good companies (Lexus, Apple) have seen increased sales the last few years in spite of the current economy. We live in a generation that could care less if their mortgage gets paid as long as they have the latest electronics and vehicles.

Dave Tufte said...

Bob: 100/100
Quinn: 50/50

Bob: I'm playing the devil's advocate here. I don't think this is a minor issue. Having said that, the media have bought in so deeply to governement-worship that they don't know any other story.

In the case of the Grand Canyon, the government is actually preventing commerce that might have taken place anyway. One could argue that the government and the river-runner are "partners" and that you can't do the one without the other. But, the thing is, if a private entity acted that way, we'd quickly point out that the government's actions were the unfair practices of a monopolist. A good analogy is a plaza owner and a tenant: the tenant wants to stay open on Sunday, and the plaza owner says they can't (and offers no workaround as suggested by Coase). No one in the media would take the side of the plaza owner in a dispute like this, but they'll take the government's side as a reflex in a similar case.

The case of consumer confidence is merely one-sided: how does the author know that confidence won't actually go up? The way to find out is to measure the elasticities, but my guess is that they didn't.

Quinn: not much economics in the first paragraph.

But, in the second paragraph, you're confusing a bunch of things.
Firms don't want sales, they want profits. Markups for firms like that still haven't recovered from 2007-9. And just because sales have gone up doesn't mean much: it's normal for them to go up with nominal GDP growth, but are they beating it? Then when you say people "... could care less ..." you're saying that these demands are inelastic with respect to a wide variety of causes. That's not the experience of brand-sensitive companies over the last 6 years at all: in most cases they've been hurting the worst.