Government shutdown 2013, if it happens, could surpass the impact of the 1995-96 shutdowns. For one thing, the economy today is much softer than it was in the mid-1990s.
If the government shuts down at midnight Monday – as now seems likely – the effects on the US economy and political system could be profound. In fact, 2013 might be the most consequential shutdown ever, surpassing the impact of the Bill Clinton/Newt Gingrich standoffs of 1995 and 1996.
For one thing, the economy today is much softer than it was in the mid-1990s. Back in ’95, the Federal Reserve’s biggest worry was that the go-go years had gone too far and the economy was in danger of overheating, resulting in an inflation spike. So the Fed hiked interest rates, cooling things down at the end of year.
That produced a “soft landing” from which growth of US gross domestic product took off in ’96. GDP growth was 4.7 percent for the second quarter, after the brief shutdown period was over. Overall GDP growth for the year was about 3 percent, and unemployment fell to 5.4 percent.
Nowadays, the jobs picture is much bleaker. Unemployment is 7.3 percent as the economy continues to struggle to recover from the Great Recession. Second quarter GDP growth was 2 percent, and economists are predicting a 2013 GDP rise of 1.5 percent, or a bit higher.