The most trending topic in the U.S. right now is the federal government shutdown. But many people don’t fully understand what that means, how it affects ordinary citizens, and – especially relevant for SSE Riga students – what consequences it carries for the U.S. economy.
Beginning October 1, 2025 (with no end date confirmed at the time of writing), the U.S. federal government entered a shutdown. Senate Republicans (who hold a 53–47 majority) and Senate Democrats failed to agree on a funding resolution for the upcoming fiscal year, causing the government to run out of legal authority to spend money. To put things simply, the two major parties could not settle on how to allocate taxpayer funds, as in practice, major spending bills need 60 votes in the Senate to advance. Democrats in particular pushed to preserve Affordable Care Act tax credits and prevent deep cuts in Medicaid, while Republicans insisted on a so-called “clean” continuing resolution and resisted tying funding legislation to broader policy changes. So, what happens now?
During the shutdown, agencies that rely on government funding stop receiving cash. As a result, agencies must suspend “non-essential” operations and send hundreds of thousands of federal employees home without pay. Others who perform essential work, such as air traffic controllers, border agents, and military personnel – must continue working but are not paid until the shutdown ends. It is to be noted, that not the entire government “stops”, as necessary personnel are still obliged to show up to work, social programs such as Social Security, Medicare, and Medicaid keep running because they receive money from separate, permanent funding. The main question remains – how does this affect the U.S. economy.
To understand the potential impact, it is useful to examine previous shutdowns and what can be inferred from them. Since the start of this century, the U.S. government has faced three shutdowns, excluding the current one in 2025. The two most significant occurred in 2013 and 2018-2019.
According to the Committee for a Responsible Federal Budget, the 2013 shutdown under the Obama administration lasted 16 days and reduced real GDP growth in the fourth quarter by 0.6 percentage points – an estimated $24 billion loss. Much of this came from missed paychecks and delayed fees, with at least $2 billion attributed directly to lost productivity from furloughed workers.
The most recent shutdown, in 2018-2019, was the longest in U.S. history, lasting 35 days. A dispute between Democrats and Republicans over funding for the U.S. – Mexico border wall placed a heavy burden on the economy. The Guardian estimated the total cost at $11 billion, while the wall itself was projected to cost around $19 billion. The shutdown also delayed $18 billion in federal spending and left roughly 800,000 federal workers without pay.
What can be expected now?
It is crucial to highlight the key point, that the GDP losses from previous shutdowns were relatively modest for an economy as large as that of the United States, and recovery typically followed quickly once the government reopened. However, this time may be different. In past shutdowns, nearly all federal employees eventually returned to their jobs. Now, according to BBC, President Donald Trump and his administration have suggested that many of these layoffs could become permanent. Such a shift would carry far more serious implications for both the U.S. economy and financial markets. For now, only simple deductions can be made – analysts expect U.S. GDP to contract by roughly 0.2 percentage points for each week the shutdown continues. With the economy already in a fragile position, the potential impact cannot be overlooked. The full effect of this government halt will become clear only after operations resume – and once it is known whether the administration will follow through on its promise of permanent cuts to the federal workforce. In the end, the shutdown serves as a reminder that political stalemates carry real costs beyond Washington. Keep that in mind.
– Benas Brazaitis
