What Happens After a Government Shutdown? It's Complicated.

The recent shutdown of the federal government impacted the US economy and stoked fears in many Americans who depend on critical social services.

Amid new uncertainty about the future of the government, a Chicago Booth economist, a nonprofit leader, and an advisor to philanthropists and impact investors recently tackled the question of who or what suffers in absence of government.

On January 29, sector experts discussed some of the shutdown’s lingering impacts and consequences during an event for University of Chicago students hosted by Chicago Booth’s Rustandy Center for Social Sector Innovation at the Harper Center.

“The Shutdown Dilemma: Who Steps Up When the Government Steps Out?” featured Erik Hurst, the V. Duane Rath Professor of Economics at Chicago Booth, deputy director of the Becker Friedman Institute, and John E. Jeuck Faculty Fellow; Kate Maehr, CEO and executive director of the Greater Chicago Food Depository; and Kate McAdams, managing director of Arabella Advisors.

The discussion was moderated by Caroline Grossman, ’03, adjunct assistant professor of strategy at Booth and director of programs at the Rustandy Center, which works at the intersection of business and social sectors to further research, promote social innovation, and develop people and practices to tackle complex problems.

Here are four takeaways from the speakers:

The shutdown caused a ‘sense of scarring’

Hurst, a leading economist studying U.S. labor markets, said the costs of the shutdown were “very localized.” Approximately 1 million people were deeply impacted, while other Americans hardly felt a thing, he said. In the short term, the shutdown created a $5 billion loss to the U.S. economy, which only translates to a small effect on GDP, according to Hurst.

“When there are large costs to a small amount of people, we tend to go on with our day,” he said, noting the lack of protesting from those who didn’t miss paychecks. Unlike a recession, there wasn’t a spillover effect on the rest of the economy. “For those who were impacted, there’s a permanent sense of scarring. It is immensely disruptive to miss a paycheck.” Credit scores, for example, could be affected for years to come, Hurst said.

Food insecurity will grow

Most families getting food assistance through the government’s Supplemental Nutrition Assistance Program (SNAP) are still feeling repercussions from the five-week shutdown, according to Maehr. February SNAP benefits were allocated early, which means low-income households won’t receive more food assistance until March.

As a result, Maehr said nonprofits like the Greater Chicago Food Depository are stepping in to fill the “SNAP gap” by anticipating increase need for food assistance through February. According to the Center on Budget and Policy Priorities, about 15 million households (about 30 million people) could experience a gap between monthly SNAP payments of more than 40 days.