When Politics Pause the Nation: Rethinking the Impact of US Shutdowns
- Lamees Zara Rahman
- Nov 12
- 5 min read
Updated: Dec 4
To what extent is the 2025 shutdown worse than previous government shutdowns?
On October 1, the US government entered its 11th shutdown triggered by disagreements over healthcare provisions. The Democrats insisted on an extension of the Affordable Care Act and the reversal of Medicaid funding cuts introduced under the “Big Beautiful Bill”. Now at 36 days, this shutdown has sparked widespread concern. However, this report aims to show through comparative analysis of the 2013 and 2018-19 Government shutdowns that while the short-term economic consequences are significant, they are not extraordinary to previous shutdowns. Rather, what is concerning is the increasing frequency of shutdowns.
Comparison
With all three shutdowns, the impacts were similar. Firstly, many federal employees were furloughed (800,000 (2013), 380,000 (2018-19), 900,000 (2025)). Additionally, many are forced to work without pay, with the expectation to be paid at the end of the government shutdown (1.3 million (2013), 420,000 (2018-19), 2 million (2025)).
In all cases, public services such as national parks, airports and loan distribution were shut down. A common disruption is that of the Supplemental Nutrition Assistance Program (SNAP) - a scheme that helps an average of 41.7 million (1 in 8 Americans) per month. The financial costs have also been comparable: $2-6 billion lost in 2013 and $8 billion lost in 2018-9. In comparison, the projection for the unrecoverable loss for the 2025 shutdown is $11 billion in a 6-week scenario and $14 billion in a 8 week scenario. As evident, the severity of different indicators is fairly consistent across all 3 shutdowns.
Crucially, whilst shutdowns do reduce the GDP for the following quarter, evidence has shown that generally it does bounce back. Once furloughed workers receive back pay and federal spending resumes, the spending round tends to offset the previous decline. Similarly, The Congressional Budget Office estimates that real GDP in the 4th quarter will
fall by 1.5% (6-week scenario) and 2% (8-week scenario) before rebounding by 2.2% and 3.1% respectively. After 2026, the level of output is likely to return to pre-shutdown projections.
A valid concern for the 2025 shutdown is that it could be more damaging due to a tougher economic environment (e.g. tariff increases and inflation). However, the 2013 shutdown similarly faced a tough economic environment - a severe debt ceiling crisis with a serious risk of default - a situation which would’ve severely disrupted global markets. Despite this the economy did recover and GDP did rebound. As such, whilst the current economic climate does make the shutdown more difficult, given past cases the US is likely to weather this shutdown as well.
Despite these similarities two features distinguish this shutdown. Firstly, Trump plans to permanently terminate 4,100 federal employees. Whilst this initiative has been temporarily blocked, if carried out then the anticipated bounce-back will be reduced as less employees come back and receive pay. Secondly, the shutdown spans the entire October month, key government data has been suspended which hinders decision making for policymakers and investors. Whilst investors are increasingly using private indicators, the absence of government data does add additional uncertainty.
Is There a Cause for Concern?
Whilst the economic concerns are valid, looking at previous cases suggests that the US will likely continue to grow in the long term. What is more pressing is the growing frequency of shutdowns. Budget disagreements are due to increase due to increased political polarisation which has encouraged more extreme positions. Government shutdowns are becoming a form of brinkmanship and a means of coercing opponents into conceding. Gerrymandering has also played a crucial role in lessening electoral accountability and therefore reducing the incentive to compromise due to their ‘safe’ congressional seats. Therefore, politicians have the incentive to reject the opposing party's bill and the impact shutdowns have on public services and US citizens has less influence.
This trend is only set to continue, so we can expect more frequent US government shutdowns which then will have a more long-term detrimental impact as it demonstrates a constant structural US weakness. Additionally, it may impact the federal government’s ability to retain talent if they have to frequently furlough non-essential workers.
Policy Recommendations
A key fault of the US budgeting system is a lack of default mechanism, which can be mitigated by adopting automatic continuing resolutions (Auto-CRs) which would shut. By having Auto-CRs, shutdowns are less likely and therefore confidence in the US economy can remain constant, federal employees are paid and government services can continue.
Some U.S. states already successfully employ Auto-CRs. Whilst the specifics – such as whether funding continues at nominal or inflation adjusted levels – require debate, the core principle remains to be supported bipartisanly.
Structural reform of the budget process could also help. Firstly, moving to a biennial budgeting process and staggering the deadlines for key appropriations. Budgeting over a two year period enables longer-term planning and more stability for federal agencies. However, it may not solve the root issue of polarisation – if more is at stake per cycle and so
disputes may be more intense.
Alternatively, staggering the deadlines for key appropriations (currently all 12 have to be approved all in one meeting), would ensure that a single disagreement would not halt all government operations. It could ensure at least some operations, in which the budgeting was agreed, continued to run. This would therefore mitigate the harm from a complete shutdown.
Conclusion
To conclude, by analysing the 2013 and 2018-9 government shutdowns and their recovery, the current shutdown should not be too much of an economic concern. In the long-term the US economy is likely to bounce back, albeit potentially less due to permanent layoffs. What is of concern though is the increasing frequency of the shutdowns, due to increasing
US polarisation and gerrymandering. This will likely degrade US confidence in their economy and in their government in the long term.
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