Government Shutdown Won’t Cost Republicans or the Market

Senate Majority Leader Sen. Mitch McConnell (R-KY) walks toward the Senate chamber with aides. Alex Wong/Getty Images

The only thing the Beltway media likes more than Jim Acosta’s hissy fits is the prospect of blaming Republicans for a federal government shutdown. Given this week’s shutdown tempest du jour that the aforementioned are trying to blame on the House and Senate Republican majorities and the president—even though Senate Minority Leader Chuck Schumer is encouraging Democrats to filibuster the short-term spending bill—it’s a good time to ask if a government shutdown actually matters, either electorally or to markets.

Conventional wisdom, mostly dictated by talking heads on cable news networks, suggests Republicans would bear the brunt of the electoral backlash. But is this true? The short answer is that there is no historical precedent that suggests a shutdown would harm the party in power in Congress. Moreover, markets also don’t seem to care; they’re far more focused on the debt limit.

These are the shutdowns during which federal employees were actually furloughed.

  • Reagan administration. The Gipper liked shutting down the government, but only for short durations. While the government was technically closed on eight occasions during the Reagan years, only three—in 1981, 1984 and 1986—led to actual furlough periods. In each of these three cases, federal employees were furloughed for one day or less. During the six years in which the eight closures happened (1981-1987), Reagan won with a massive electoral landslide in 1984, and the GOP maintained control of the Senate in two out of the three elections. The GOP was never really in contention for control of the House in those years.

  • Bush 41 administration. The 1990 shutdown occurred over Columbus Day weekend, when then-House Minority Leader Newt Gingrich led a Republican revolt against the president. The deficit reduction package negotiated by President Bush and the Democratic majorities contained tax increases. This led to the infamous “Read My Lips: No New Taxes” moment that was used against Bush during the Republican primary and by Independent Ross Perot. Because the shutdown occurred over the weekend, the effects of the work stoppage were minimal. At the time, Democrats maintained robust majorities, particularly in the House, and held both legislative bodies during the entire Bush administration.

  • Clinton administration. The most memorable government funding standoffs happened when Bill Clinton was president. Not only was the duration of the two shutdowns longer than previously experienced, but the GOP picked an explicit fight over the debt ceiling. The government was shut down twice: from November 13-19, 1995 and from December 15, 1995 to January 6, 1996. This was the first time the GOP controlled the House in 40 years, so Congress was united under GOP control. While there were numerous issues disputed (Medicare, education and the environment, to name a few), Clinton’s initial veto was due to Gingrich’s threat to not raise the debt ceiling and add language to the government funding legislation that would limit the debt. Immediately following the shutdown, a series of Public Laws (PL 104-103, PL 104-115, and  PL 104-121) addressed the debt ceiling. The first two legislative actions temporarily extended obligations until a longer-term agreement was reached and passed in March that extended debt obligations to August 1997. Despite the tumultuous shutdowns and negative publicity the GOP received during these debates, Republicans maintained control of the House and Senate for five straight elections and won two presidential victories.

  • Obama administration. The government was most recently shut down from September 30 to October 17, 2013. Congress funded the government on October 17 and suspended the debt limit until February 7, 2014 until a longer-term debt deal could be reached. During the 2014 election cycle, the GOP maintained control of the House and regained control of the Senate for the first time since 2006.

The point is that these shutdowns did not have an effect on electoral outcomes. Part of the reason for this is that since 1995—when the GOP gained control of House and Senate—government shutdowns have occurred well in advance of the normal election calendar.

However, there hasn’t been a government shutdown in modern times while one party controlled the government. So, if there is political risk for congressional GOPers, aside from Trump’s fumbles and current poll numbers, it’s that they are in uncharted political waters.

Shutdown Impact On The Market

LPL Financial tracks the stock market during government shutdowns. In the cases above, the S&P was not highly affected by a shutdown:

  • Reagan  1981       -0.1%

  • Reagan  1984       -2.2%

  • Reagan  1986       -0.3%

  • Bush       1990       -2.1%

  • Clinton    1995        1.3%

  • Clinton    1996        0.1%

  • Obama    2013        3.1%

Government shutdowns have never cost the stock market more than a few points, thus they haven’t been something to worry about. Wall Street knows Washington is dysfunctional and that shutdowns have always been resolved in relatively short order.

Here’s a look at the markets a month before the shutdown and the day after the shutdown.

  • October 19, 1981          118.98       November 20, 1981    121.71      2.29%

  • September 4, 1984       164.88       October 4, 1984          162.92         -1.19%

  • September 15, 1986      231.94      October 16, 1986        239.53      3.27%

  • September 5, 1990        323.09      October 8, 1990          313.48          -2.97%

  • August 30, 2013            1,632.97   October 1, 2013          1,695         3.80%

Here’s a look at the markets a day or so before the shutdown and then again one month out.

  • November 19, 1981    120.71         December 21, 1981     123.34         2.18%

  • October 3, 1984          162.44         November 5, 1984       168.58         3.78%

  • October 15, 1986        238.80         November 17, 1986      243.21        1.85%

  • October 5, 1990          311.50         November 5, 1990        314.59         0.99%

  • September 30, 2013   1,681.55      October 31, 2013          1,756.54      4.46%

Whether you look one month before or after the shutdown, the market does not seem to be affected much. Only in 1990 was there about a 2.6 percent decline from a month before to a month after.

Finally, though a shutdown while one party holds the House, Senate and White House is unprecedented, history indicates that a shutdown will not spell added trouble for the GOP in the 2018 elections, nor should it upset the markets. While a shutdown could affect the timing of other priority items, it is not toxic from an electoral or market standpoint. There have been four government shutdowns since 1995 that actually led to government employee furloughs, and can anybody actually remember them aside from the federal employees who got the extra paid vacation time? Exactly.

Todd A. Boulanger is a longtime Republican operative who frequently appears across all cable networks to give his thoughts on the political and policy stories of the day. Read his full bio here.

Government Shutdown Won’t Cost Republicans or the Market