Greg Mankiw on the US government shut down and GDP:
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.
I reckon that is a very safe assumption. What does that mean?
If that were really the case, we should give them all shorter work weeks, so they can enjoy more leisure.
The first thing to note about the so-called government shut down is that the US government is still collecting income tax. It is still maintaining tariff barriers to international trade. It is still waging war against business and entrepreneurship though excessive regulation. What has happened is that the US government has stopped spending some money.
Back to Mankiw:
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.
The solution to that problem is privatisation. Why does the US federal government own parks? Then there are substitution effects. If you can’t go to a national park, go to the movies. Go to a private park. A few years ago I was in the US military cemetery in Normandy and I asked the tour guide if anyone ever visited the German military cemetery. Apparently only when the US government is in “shut down”.