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Bickering in Washington Could Hurt the Economy

ice moneyWith President Obama and Republicans in Congress facing a Dec. 11 deadline to pass a spending bill, the economy could suffer if a long-term solution is not passed, said Polina Vlasenko, senior research fellow at the American Institute for Economic Research.

The government could shut down if no bill is passed, but even if the government is funded for a month or two at a time, that would still be a drag on economic growth, she said.

“We will have a budget fight, with a threat of shutdown, every couple of months. Not a good situation, in term of being able to plan – both for businesses and for government agencies,” Vlasenko said.

Government agencies, a key portion of the economy, would not know what their funding levels will be beyond a couple of months, so normal operations would suffer, she said. That also makes it impossible to hire new people, and to start on longer-term projects, she said.

Businesses that get federal contracts would have a lot less certainty, being unable to sign long-term contracts with the government, she said. Even if a federal construction project will take a year, the contractor may not be able to hire the workers needed for the project for longer than funding is assured, she said.

Government agencies distribute grants for scientific research, but these grants cannot be awarded unless funding is assured, even if the research has already been approved, she said.

If there is actually a government shutdown starting December 11, there will be many people on furloughs, many government agencies will be closed or on limited operations, and government programs like child services and food stamps will be limited, right around the holiday season, she said.

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