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How the Govt Shutdown Affects GDP

Summary:
In this interview, CEA chair Kevin Hassett (around minute 4:00) dismisses the adverse impact of the government shutdown on real GDP. It seems to me that he is more wrong than right. Kevin appears to be assuming that government workers don't produce anything of value when they are at work, or that they will make up all the undone work when they return, so making them stay at home has no significant economic impact. If that were really the case, we should give them all shorter work weeks, so they can enjoy more leisure.To me, that does not seem tenable. Take, for example, the national parks that are now closed because of the shutdown. Those families that would otherwise be enjoying them are suffering a true reduction in economic well-being that is forever lost.My very rough

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In this interview, CEA chair Kevin Hassett (around minute 4:00) dismisses the adverse impact of the government shutdown on real GDP. It seems to me that he is more wrong than right. Kevin appears to be assuming that government workers don't produce anything of value when they are at work, or that they will make up all the undone work when they return, so making them stay at home has no significant economic impact. If that were really the case, we should give them all shorter work weeks, so they can enjoy more leisure.

To me, that does not seem tenable. Take, for example, the national parks that are now closed because of the shutdown. Those families that would otherwise be enjoying them are suffering a true reduction in economic well-being that is forever lost.

My very rough calculation is that economic cost of the government shutdown is in the ballpark of about $100 million per day.

Greg Mankiw
I am the Robert M. Beren Professor of Economics at Harvard University, where I teach introductory economics (ec 10). I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.

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