Solutions Economic and Market Watch

Welcome to the Economic and Market Watch podcast for the week of December 01, 2025. This is Antony Davies.

Since 1990, the federal government has shut down seven times. Only four of those lasted for at least two weeks. When the government shuts down, federal spending stops until the president and Congress can come to agreement.

There's a lot of upheaval that comes along with shutting off the federal money spigot. Almost 1,000,000 federal workers were furloughed in the most recent shutdown, the largest number in US history.

But one might look for a silver lining. All those furloughs and government office closures should go a long way to reducing the budget deficit. After all, the government spends around $6,000,000,000,000 per year. That's $16,000,000,000 per day.

A reasonable person might conclude that each day the government is shut down, the deficit declines by $16,000,000,000 because that's a day the government isn't spending money.

Not quite. Almost two thirds of the government spending involves mandatory items like Social Security and Medicare payments and interest on the debt. Whereas discretionary spending doesn't happen unless Congress and the president enact legislation, mandatory spending happens automatically unless Congress and the president enact legislation.

This means that mandatory spending items continue to be funded during a shutdown. Remove the $4,000,000,000,000 of mandatory spending, and that leaves only $2,000,000,000,000 in discretionary spending or around $5,000,000,000 per day. Fine, says the reasonable person. Then every day the government is shut down, the deficit declines by $5,000,000,000.

Not so fast.

A decent chunk of that discretionary spending is wages for civilian workers and service personnel. Furloughed federal workers aren't paid during the shutdown, but they will be paid retroactively when the shutdown ends. That's around $380,000,000 of spending per day that gets deferred but not cut. Once the shutdown ends, all the unpaid wages that had built up during the shutdown go flying out the door all at once.

Okay, says the reasonable person. The government continues to spend on mandatory items and the furloughed workers get back pay, but there's all sorts of other spending that gets shut down. And every bit we can shave off the deficit is a good thing. Right? Yes. But after you've taken the mandatory spending and employee wages off the table, pretty much the only thing left to shut down are the physical government facilities themselves.

And there, weird things emerge. I visited Washington DC during the 2013 shutdown. White House tours were closed as well as national monuments and parks. Among these was the Lincoln Memorial.

Now think about that. The Lincoln Memorial is an open air site. It's just a monument. You walk up to it and look at it.

There is a bookstore and public restroom, but shutting those down only requires locking a door. To shut down the monument required erecting hundreds of metal barriers around the monument and then posting guards to make sure that no one crossed the barriers. It actually cost the government more money to shut it down than it did to leave it open.

Add to this the interest penalties and late fees that accrue from not paying for things on time. These can run into the tens of millions of dollars, and when you're done, a shutdown might actually add to the deficit. A 2019 senate report said that the shutdowns of 2013, 2018, and 2019 cost the government around $4,000,000,000. In other words, it cost around $50,000,000 more per day to shut the government down than it cost to keep it running.

But that's not the end of the story. The Congressional Budget Office estimates that the economy itself slows by around $250,000,000 for each day that the government is shut down. That loss doesn't appear on the government's books, but the rest of us feel it.

Shutdowns can ripple hardest through rural economies. Every suspended paycheck or delayed grant disrupts small town hospitals, nonprofits, USDA offices, and local contractors who anchor rural infrastructure.

Federal farm and energy programs often pause mid project, incurring additional costs and delays. And because rural areas have thinner private sector cushions, temporary pauses in Washington can translate into longer term losses on Main Street.

When the federal government shuts down, rural America feels the economic breaks first and then releases them last.

This is Antony Davies for the Economic & Market Watch podcast. Thank you for listening.

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