Experts: shutdown could have long-term economic impact

Hadas Kuznits
January 18, 2019 - 12:39 pm
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Dreamstime

PHILADELPHIA (KYW Newsradio) — With the government shutdown now approaching the one-month mark, experts can point to the impact it is having on the economy.

When people don't have money, they tend not to spend. Mark Stehr, associate professor of economics at Drexel University, says that has an impact on small businesses.

"Economists sometimes call this a 'multiplyer effect,'" Stehr said. "They'll continue to buy certain things, but many of them will cut back. So the businesses that they patronize will start to feel this for sure."

David Fiorenza with the Villanova School of Business says when workers don't get a paycheck, the government does not get their cut.

"If federal workers are not working right now, even though they will get paid, it means that the taxes they're paying to the states, to the cities, the wage tax, the sales taxes are all deferred."

He says the American economy is built on that earn-spend cycle.

"We are so much into spending money in this country — consumption, investment, government spending — that I think it's very important to keep that going," Fiorenza said.

Stehr says those most likely to feel the impact of the shutdown are low-paid contractors without adequate savings and, eventually, low-income Americans relying on government assistance.

"They may run up credit card debt that hurts their credit rating in the long run, hurts their ability to get mortgages," Stehr said.

He says, eventually, secondary businesses like restaurants, taxis, even banks — if people defer on mortgage payments — will be impacted as well:

"If it persists longer than you have this continued lower level of spending which reduces the growth rate of the economy."

And since the American economy relies on working class spending dollars, he said, "it means that the money's not going to be spent, which will eventually show up in our GDP. I don't think it's going to have an impact where we see a recession, but I do see an impact where there's going to be a downturn."