October 8, 2025 • 25 mins
This week’s episode of Trumponomics explores why the current US government shutdown may be different from previous iterations, why it may last longer than most and how it could end up triggering a recession.
With the shutdown in its second week, host Stephanie Flanders, head of government and economics, and her guests Matthew Glassman, senior fellow at the Government Affairs Institute at Georgetown University, and Anna Wong, chief US economist for Bloomberg Economics, discuss how this standoff is actually a deeper struggle over presidential power.
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
A lot of people are saying Trump wanted this, that
I wanted this closing, and I didn't want it, But
a lot of people are saying it because I'm allowed
to cut things that should have never been approved in
the first place.
Speaker 3 (00:29):
I'm Steady Flanders, head of Government and Economics at Bloomberg
and this is Trumponomics, the podcast that looks at the
economic world of Donald Trump, how he's already shaped the
global economy and what on earth is going to happen next.
This week, we're asking why is this US government shut
down so different from others we've seen, and what could
(00:50):
it mean for the US economy. Now, government shutdowns in
Washington aren't new, but they have become more common in
a politically polarized country in which the two main parties
don't want to agree on anything. And his latest one
is the third shutdown under President Trump. He had two
in his first term, including one in twenty eighteen that
lasted thirty five days, the longest on record. Now, as
(01:12):
we record this on Wednesday, the eighth of October, the
shutdown is entering its second week, having started at midnight
on October first, when Congress failed to pass a stopgap
funding measure. But already it feels a bit different politically
and economically different politically because this time around, both sides
seemed to want to shut down, and the standoff between
(01:34):
them feels less like a dispute about funding than a
constitutional struggle over the relative strength of the executive in
America's political system. And that's a feeling that's intensified by
the body language of both sides and the Director of
the Officer Management and Budget, Russell Voyd, seeming to relish
the opportunity of talking about mass layoffs and holding up
(01:55):
billions of investment funds earmarked for projects in democratic controlled state.
There's one reason why the economic stakes also seem unusually
high this time. I mean, typically any economic impact of
the federal workers not getting paid during a shutdown gets
completely offset when the government reopens and they get the
money their own. If that doesn't happen, or if there's
(02:16):
deeper cuts, it could have a more lasting impact, and
at a particularly sensitive time for the economy, when the
labor market's already weakening and many think we could be
on the brink of a recession. Deepening government cuts and
heightened uncertainty could just push the economy over the edge.
But the longer the shutdown continues, the less likely we're
going to know what's really happening, because those crucial economic
(02:38):
statistics aren't being gathered by all those furloughed federal workers,
and neither with the Federal Reserve know what's going on
potentially as it goes into its next meeting at the
end of the month. So there really is a lot
at stake here and more than enough to talk about
with my guests. Matthew Glassman, a senior fellow at the
Government Affairs Institute at Georgetown University and former appropriation staffer
(03:01):
on Capitol Hill. Matt, thanks very much for joining us,
Thanks for having me, and as ever from Washington, our
own Anna Wong, chief US economist at Bloomberg Economics, and
reminding you she was also an economist at the Federal
Reserve before she joined us and on to comment to
the White House Council of Economic Advisors during President Trump's
first term. Anna, welcome back.
Speaker 1 (03:22):
Happy to be here again.
Speaker 3 (03:28):
Matt. One of the reasons that we invited you on
is you've written an excellent piece for Politico on this
topic and we allow people who listen to Trump nomics
to read non Bloomberg publications. Your big assertion there was
that this was a different kind of shutdown and we
should perhaps take it a bit more seriously than the
shutdowns we've seen in the past. So broadly, why do
(03:49):
you think there's so much at stake?
Speaker 4 (03:52):
I think in past shutdowns, we've typically had one party
trying to leverage the shutdown to achieve a policy goal.
So you can think about the Republicans in twenty three
they want to repeal Obamacare, right, so they're going to
proudly say we are not going to fund the government
until you do this. It did work, of course, and
in twenty eighteen, same thing with Trump and the Wall.
I am not going to vote for spending buil or
sign a spending bill until you give them my wall.
(04:13):
Or the Democrats with DACA, we are not going to
go with the spending bills till you give us DACA.
And those are all sort of like policy fights. Here
we have something a little deeper, and that is democratic
concern with Trump's unilateral spending moves. Right there are bargains
for proporations bills because they can be filled us from
the Senate, so the parties have to work together, and
those have been sort of undone by the Trump administration
(04:35):
this year through processes called recisions and also things called impoundments,
where the president is unilaterally trying to cancel some of
that spending and that makes bargaining for the next bills impossible.
How can you bargain if the president is just going
to pull the rug out from under you? And so
that's underlying what the Democrats are doing here, or real
fight over the very appropriations process, and that's something different
(04:56):
than sort of a policy hostage situation. It's a little
weird of cour because they have translated that into a
fight over healthcare where they're claiming they want to extend
ACA subsidies, which is sort of like a classic policy
hostage shutdown. But we do have this bigger issue in
the background, which is how can they bargain with someone
who is just going to turn around and cancel the bargain.
Speaker 3 (05:16):
I said at the beginning, both sides seem to want
the government to shut down. Why is that not being
the case in the past in pass shutdowns?
Speaker 4 (05:23):
The side that wasn't trying to sort of leverage the
shutdown to Win policies had had a clear message, reopened
the government and then maybe we'll negotiate with you. We
don't want a government shutdown. Here, it's more complicated because
the Trump administration sees this democratic and do shutdown as
a way for them to further their ideological project of
shrinking the federal workforce and increasing sort of presential control
(05:45):
over the agencies. So the administration, and this is President
Trump and omb Director of Vote Have you know, said
if you shut down the government, we are going to
do things like start cutting federal workers or potentially even
closing whole agencies or defunding things completely permanent. And so
there's a sense that this shutdown is not simply open
or closed, but can the Trump administration leverage this to
(06:07):
sort of further their own separate ideological ends, and that
gives both sides incentives. There is this big group of
Republicans caught the middle who really just want the government open,
like sort of a traditional anti shutdown view, but the
administration certainly sees this as an opportunity to take advantage of.
Speaker 3 (06:22):
We'll come back to you on the sort of constitutional
aspects of this. But Anna simply why the economic state's
particularly high.
Speaker 1 (06:30):
As you mentioned, the economy is in a particularly fragile
state right now, and it's even perhaps at a turning
point stage. Is it turning toward a deeper recession into
a new recession or is it actually in the phase
of recovery. And even before the shutdown, the economic picture
was particularly blurry. Economic data was sending various message and
(06:56):
now we are at a very sensitive point of the
mind Tarry policy cycle where the FED is on the
cusp of cutting again. But it's unclear whether this cutting
cycle would continue or would it be cut short because
of concerns of rising inflation or actual actually rising inflation.
(07:18):
So without the data, it's just very difficult.
Speaker 3 (07:22):
Just remind us how would you normally think about the
economic impact of all these furloughed workers.
Speaker 1 (07:29):
So for each week of shutdown, there's a rule thumb
that says it will knock off about zero point two
percentage point off the annualized quarterly GDP growth. However, once
the shutdown is over, then you'll see a commensurate rebound
in GDP. So as long as this shutdown is over
by mid November, the fourth quarter GDP should be relatively unaffected. However,
(07:53):
in terms of labor as statistics, furloughed workers would be
counted as temporarily unemployed if they're recorded correctly, And so
that means that seven hundred and fifty thousand furlold workers
will roughly translate it to an increase of the unemployment
rate from currently four point three percent to four point
(08:13):
six to four point seven percent in a non farm
payrolls for LOLd workers would still be counted as employed,
as they will be continued to be paid.
Speaker 3 (08:22):
And Matt, how do you view the sort of aggressive
posture of certainly Russell Voyd from the Office for Management Budget,
who's had this very kind of matcho stance writing memos
about accelerating the shrinking of the federal workforce. But it's
not supposed to be even possible to not pay furloughed workers,
(08:43):
and it's not even clear that he can fire workers
in response to a shutdown. So how do you think
that's going to play out? I mean, are we going
to see more cases going to the court.
Speaker 4 (08:52):
Perhaps, But the thing pushing back on this is sort
of the political position of the Republicans. The way to
sort of win a shutdown if someone else is trying
to use it against you is to just say, Nope,
we are not giving into your demands. We don't know.
We don't give into demands of hostage takers. Reopen the government.
We're negotiate votes. Actions are sort of undermining that by
(09:12):
doing things to leverage the shutdown from their own side.
And you saw the reaction of Republican senators when he
said they might not pay furloughed workers. That's totally off
message politically, and all of a sudden, it looks like
both sides are trying to leverage the shutdown. So I
think there was a pretty strong reaction on Capitol Hill
towards O and B director and the President just being like, stop,
stop trying to leverage this, and just let us tell
(09:32):
them to reopen the government. And you can see reflected
in public opinion. In past shutdowns, the side that just
wanted to reopen the government and then continue to negotiate
has always politically had the upper hand, and we're not
seeing that this time. The Democrats currently are doing better
in the polling than the Republicans, and I think that's
in part because the administration is muddy in the waters
by themselves trying to leverage the shutdown.
Speaker 3 (09:52):
To their own ends, and you've had this kind of
funny thing on social media. Well, on the one hand,
you've got Karlyn Levitt in the White House briefing room
saying no, no one is enjoying the shutdown, and at
the same time, the President tweeting out memes that suggest
that maybe he is having a bit of fun. But
you mentioned the public. You could say that the Democrats
are also not negotiating. There's been no negotiations happening on
(10:14):
the Hill. So is it What are the risks here
for the Democrats in terms of public opinion?
Speaker 4 (10:19):
The risks are that they will be perceived as the
party not wanting to just cleanly reopen the government. That's
always been the risk in pass shutdowns, and we've seen
this with the Republicans in thirteen and Trump in eighteen,
that you just lose the public if you try to
demand policy concessions in order to reopen the government. That said,
the Democrats have done an excellent job so far of
turning this into a fight over healthcare subsidies rather than
(10:41):
a fight over whether the government should be open or closed.
In pass shutdowns, it's been almost impossible for the party
shutting the government down to get their message through, and
the issue has always come down to should the government
be open or closed because of sort of the mixed
messages from the Republican side. I think the healthcare message
and the unity of the Democrats have brought that through
in a way that has really turned this into sort
of a healthcare subsidy debate rather than should the government
(11:04):
be open or close debate, And so for now I
think that's the Democrat's best issue. It's not a secret
why they're turning this into healthcare. It's by far their
best issue with voters. And to the degree that this
becomes a healthcare debate, they will benefit from it politically.
The degree it becomes a debate whether the government should
be open or closed, they will be hurt. But for
now they're doing fine. That's said. Shutdowns aren't static, like
(11:24):
they get worse and worse and worse in terms of
their impact on actual citizens, on agencies and federal workers.
Military paychecks are going to get missed next Wednesday, civilian
paychecks this Friday, and those sorts of things. Programs start
to run out of money, airport lines get longer, and
those sort of things build up the pressure and so
you could very easily see public opinion reverse in the
Democrats here and really start to hurt them.
Speaker 3 (11:46):
Yeah, we've been monitoring that on just on the airlines,
for example, because there's a core staff who are still working,
but then they're calling in sick, and we've seen some
delays at airports yesterday. It looks like the fear is
that could intensify. Matt you're describing something where for the
(12:13):
first time in a while, the Democrats are potentially losing
at least one small part of a political battle. It's
not been a good year for them. And I just
wondered the President's quite good at noticing those things and
you know, turning things around. I wonder how you read
what the comments he had at the beginning of the
week where he seemed to also recognize that it just
being about healthcare was not going to be good for him,
(12:35):
and that maybe if there was a deal to be done,
he could be the one to get the credit for it.
Speaker 4 (12:39):
Yeah, for sure. And I think this is one spot
where you see differences between Trump and the congressional Republicans
quite starkly. They each have sort of their own ideological projects,
and Trump's has been going after his enemies, which he
I think largely perceives as this professional liberal class of
government workers are very often in his target zone. Whereas
Republicans on the hill, their ideological project has for a
(13:00):
long time been sort of cribbing or reducing or eliminating Obamacare.
The President is perfectly happy to compromise on healthcare, just
as he seemed perfectly happy to compmise on things like abortion.
He doesn't have sort of that traditional Republicans streak about
those things that throws them off message because they are
caught between sort of their ideological view of health care
and then their desire to be in line with Trump,
particularly in the House. I do think a healthcare compromise
(13:22):
is coming. One of the weirdest things about this shutdown is,
in the past shutdowns, the policy demand of the people
shutting the government down has been a non starter. Like
President Obama was never going to sign a law repealing Obamacare, right,
and the Democrats were never going to go for a
border wall. But a healthcare compmise to extend these subsidies
is something a lot of the moderate Republicans want and
I think is going to happen, whether there's a shutdown
(13:43):
or not. So this shutdown is about, like now turned
into an issue that is actually solvable through compromise, and
that makes it a little bit different than pass shutdowns too.
Speaker 3 (13:53):
I mean, just sort of switching back to the economy.
I mean, it obviously is going to make a difference
in people's cost of living if some of these big
increases in health insurance come through, but we won't know
what's going to happen with that for a few months.
If you're the Federal Reserve, and we've talked about the
FED a lot in different contexts than the threats to
its independence and other things over the last few months,
but even if they weren't facing a quite aggressive White
(14:13):
House in the last few months, they'd be facing a
tough choice when it comes to the economy. So talk
us through how problematic it is for them if some
of these sort of core economic data are not available
when they go into that next meeting at the end
of the month.
Speaker 1 (14:27):
So the next meeting is October twenty eighth to twenty ninth,
and before that, we were supposed to have received the
September CPI report on October fifteenth, and also weekly jobless
Claims OUR reports and also of course the non farm
payroll for September. And if the shutdown last beyond October eighteenth,
(14:50):
for example, then the collection of the unemployment rate for
October would be disrupted and price quotes for CPI for
October would also be disrupted. So basically the FED would
be going into not just the October meeting, but also
going into the December meeting sort of flying blind on
(15:11):
both inflation and jobs. And this is quite different than
the twenty eighteen shutdown, for example, because back in twenty eighteen,
the BLS was actually funded, so CPI and non farm
pay was not actually disrupted. And so to see how
shutdown affected collection of economic statistics, you have to go
back to twenty thirteen. But even then the shutdown lasted
(15:35):
only two weeks, and that already reduced the CPI price
quotes by twenty five percent for collection in October, and
also disrupted or reduced the number of responses in the
unemployment survey, causing more error in the unemployment survey.
Speaker 3 (15:52):
And just to be clear, what happens if you've just
not collected the data the labor for survey, for example,
that goes uncollected for that month, right, I mean, what
would they normally do.
Speaker 1 (16:04):
Yeah, So for the Unemployment rate survey in twenty thirteen,
a BLS resumed collection a week after they normally do it,
and they have to kind of ask the responders what
was your status two weeks ago? So they're basically asking
people to recollect something that happened in the past, as
opposed to asking them what happened just you know, just now, right,
(16:28):
So this is a sampling error.
Speaker 3 (16:30):
And again in practice, how could that affect what the
Federal Reserve does at the end of October or do
you think that their decision is kind of baked in
at this point.
Speaker 1 (16:39):
So in the last FMC meeting, they flagged in the
dot plot the median wanted to cut fifty basis points more.
It was a very close call, and without a shutdown,
I would have thought that given indications of many inflation
measures edging up again, they would not be cutting in October.
But because of the shutdown and the uncertainty to economic
(17:03):
activity and also increased upside risk to employment, I think
they will follow through with a twenty five paces point
cut this October.
Speaker 3 (17:12):
Interesting, well, Matt, I mean that would be an upside
for the president from all this. The tradition of the
podcast these days, At the moment you decide to talk
about the shutdown, the government's going to reopen again. So
even even as people are listening, something miraculous might have
happened on late Wednesday night or something. But given your
experience and given the analysis of what's going on and
(17:33):
how much each side has at stake, but also, as
you said yourself, the fact that it's actually over something
quite doable on both sides, the sticking point, even though
there's these very high stakes, Actually the single thing that
the Democrats are focused on is something that could be fixed.
How do you think this is going to end?
Speaker 4 (17:49):
I mean, I think how it ends is relatively clear.
You will get a Democrats voting to reopen the government
unconditionally and Republican promising a good faith negotiation over the
healthcare subsidies which will be extended. And so that sort
of allows everybody to win in some sense politically. Leader
(18:10):
Schumer of the Democrats will get sort of the credit
for having fought that his liberals want, and the Republican
moderates will get their healthcare subsidies. The Republican leaders will
have not just given away the healthcare subsidies angering their base,
and Trump will end up with no further restrictions on
sort of executive spending encroachments that have gone on. That's
(18:31):
sort of the terms that I think are mostly imaginable
as to how long it goes. I think there's a
bunch of pressure points, and the first one is really
next Wednesday with the military pay and the eighteen shutdown.
In the long shutdown, DoD was funded so we didn't
have this issue of soldiers missing checks. But that pressure point,
to me is sort of the front end window of
when this would end sometime middle of next week. If
(18:53):
they go through that and they're still on a stalemate,
then you start to talk about longer term. But I
do think there's a good pressure point to end this
sometime next week.
Speaker 3 (19:03):
But what you've described is something that they could do tomorrow.
If you think the Democrats are actually willing to give
in without having a solid assurance on the health insurance subsidies,
then it just seems odd that they would hold out
this far and make that their point and then only
accept a sort of good faith promise from an administration
and from a Republican leadership that is not they would
(19:25):
say not shown them a lot of good faith, you know,
with the rescinding of past funding and other things.
Speaker 4 (19:30):
Yeah, I mean, And that sort of highlights how sort
of this shutdown is both very high stakes over these
constitutional issues of executive power and also very low stakes.
It's over a healthcare policy that was probably going to
be compromised anyway in the next couple of months, whether
there was a shutdown or not. And so part of
what you're seeing here is that the sort of going
through the motions of the shutdown is a exercise in
(19:53):
coalition management. Remember, Schumor did not go to shut down
the government last March, and that really had much of
the liver wing of his party sort of nipping at
him pretty bad over the last six months, and for
him to not engage in a shutdown now probably would
have lost them forever and maybe cost him his job,
if not his seat in the Senate going forward. And
so part of what both sets of leaders are doing
(20:15):
right now is fighting for their basis admiration. And yes,
you could end the shutdown today, but is the left
flank of your party for Schumer or the right flank
of your party for Johnson and Thune. And in some
ways Trump going to accept that as a worthy effort
and a worthy fight. And I think the answer today
is no, And I think the answer next week might
be maybe, And I think in a month the answer
(20:35):
would definitely be yes.
Speaker 3 (20:37):
And what will the public think about it? Who will
benefit in the end? Do you think?
Speaker 4 (20:41):
Unknown? I mean, the one thing we do know about
shutdowns is traditionally the party trying to leverage it has
lost politically. But in every case, both parties have seen
blame taken upon them. It's kind of like you know, war, right,
you can't increase, sort of like the overall happiness with
both parties. Both parties are going to see a negative.
It just who sees a more negative. And I think
(21:02):
we're seeing that in the polling right now, like the
typical citizen is not thrilled with either party in these situations.
I suspect, you know, the longer it's dragged on, the
more it would tend to shift to hurt the Democrats.
But so far they've defied that, and they've done an
excellent messaging job. And I think the President has made
some sort of errors in judgment about how to approach this,
such that right now, if it ended, it would probably
call it a draw, but no harm to the Democrats,
(21:24):
which would be exceeding expectations in these things where going
into this, I don't think anyone thought sort of the
Democrats were going to come out better on the other
side of this.
Speaker 3 (21:32):
Interesting. I remember when I was in the US treasurer
in the late nineties, and there was one time when
we thought we were heading into a shutdown, and of
course the big debate internally was about everybody wanted to
be considered an essential worker, and it was kind of
insulting not to be an essential worker. But it does
seem like the definition of an essential worker has been
much tighter this time around. Even in this conversation, we've said,
(21:55):
you know, previously the Pentagon was funded, this time it isn't.
Previously the BLS was that, this time it isn't. I mean, Matt,
is there a sense of which the administration has heightened
the cost of this?
Speaker 4 (22:05):
Yeah, I mean, and I think that's that's something all
administrations do on the margins. If you think about the
twenty thirteen shutdown. Obama was against the shutdown, of course,
and so what did he do. He immediately made sure
the national parks were closed, the Washington Monument was closed
so that would inconvenience tourist who would publicly see it.
And then in the twenty eighteen shutdown, when Trump was
in favor of the shutdown, he left those things open,
(22:26):
left the parks open, and left the monuments open and
things like that. So the president has some wiggle room.
The key question, and the key discretion is about what
is an accepted or sometimes people say essential worker. And
in the laws Congress have written about this essentially comes
down to people doing sort of life safety things, so
that's soldiers, law enforcement, people feeding the animals at the zoo.
But there's also an exception for people essential to the
(22:48):
constitutional process, so aiding the present or aiding Congress in
sort of ending the shutdown, right, and so that definition
can be stretched so widely. Is some person at Treasury
important to that that's really in the eye of the beholder.
And so presidents absolutely do use this discretion to help
them politically and substantially in these shutdowns. And the Toy
administration certainly is, like with many things, using that latitude
(23:11):
to stretch it beyond perhaps what sort of a neutral
reserver would say is reasonable.
Speaker 3 (23:16):
Although these days it seems like soldiers are much more
essential to curb crime and disarray in our cities settle
on anything else. But that's a whole other issue. Anna,
I guess the last word for you. I mean, if
just listening to Matt, it does sound like there will
be a sort of decision point coming in the middle
of next week around the military pay. Do you think
that could also be significant in terms of the economic
(23:38):
impact and the lack of economic data. You know you're
going to get bigger aera statistics all of those things.
Speaker 1 (23:43):
Yes, absolutely, If the shutdown does end next week, sometime
next week, then we'll basically get barely a blip in
terms of the sampling error that I mentioned just now,
and also the jobless claims. If so far from the
state level jobless claims, the shutdown has not led to
a spike, but with next week's jobless claims, we were
(24:04):
expecting that we would start seeing a drift shop. So
if the shutdown resolved by then, I think things will
go on as usual.
Speaker 3 (24:13):
And not get the extra cut or the cut that
you might you wouldn't have expected to have otherwise.
Speaker 1 (24:17):
Well, I still think that there will be a cut,
because it's already mid October, and I think the job
report is still going to be pretty modest enough to
warrant some concerns to buy insurance for the labor market.
Speaker 3 (24:30):
Anna Wong, Matthew Glassman, thank you so much. Thanks for
listening to Trumponomics from Bloomberg. It was hosted by me
Stephanie Flanders. I was joined by Anna Wong, chief US
economists for Bloomberg Economics, and Matthew Glassman, a Senior Fellow
at the Government Affairs Institute at Georgetown University. Trumponomics was
(24:56):
produced by Samasadi and Moses and Them, with help from
Andrew Derker and Chris marklou Amy Keen is our executive producer,
and sound designers by Blake Maples and Kelly Gary Sage.
Bowman is Bloomberg's head of podcasts and to help others
find us, please rate and review us highly wherever you
listen to podcasts.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
A lot of people are saying Trump wanted this, that
I wanted this closing, and I didn't want it, But
a lot of people are saying it because I'm allowed
to cut things that should have never been approved in
the first place.
Speaker 3 (00:29):
I'm Steady Flanders, head of Government and Economics at Bloomberg
and this is Trumponomics, the podcast that looks at the
economic world of Donald Trump, how he's already shaped the
global economy and what on earth is going to happen next.
This week, we're asking why is this US government shut
down so different from others we've seen, and what could
(00:50):
it mean for the US economy. Now, government shutdowns in
Washington aren't new, but they have become more common in
a politically polarized country in which the two main parties
don't want to agree on anything. And his latest one
is the third shutdown under President Trump. He had two
in his first term, including one in twenty eighteen that
lasted thirty five days, the longest on record. Now, as
(01:12):
we record this on Wednesday, the eighth of October, the
shutdown is entering its second week, having started at midnight
on October first, when Congress failed to pass a stopgap
funding measure. But already it feels a bit different politically
and economically different politically because this time around, both sides
seemed to want to shut down, and the standoff between
(01:34):
them feels less like a dispute about funding than a
constitutional struggle over the relative strength of the executive in
America's political system. And that's a feeling that's intensified by
the body language of both sides and the Director of
the Officer Management and Budget, Russell Voyd, seeming to relish
the opportunity of talking about mass layoffs and holding up
(01:55):
billions of investment funds earmarked for projects in democratic controlled state.
There's one reason why the economic stakes also seem unusually
high this time. I mean, typically any economic impact of
the federal workers not getting paid during a shutdown gets
completely offset when the government reopens and they get the
money their own. If that doesn't happen, or if there's
(02:16):
deeper cuts, it could have a more lasting impact, and
at a particularly sensitive time for the economy, when the
labor market's already weakening and many think we could be
on the brink of a recession. Deepening government cuts and
heightened uncertainty could just push the economy over the edge.
But the longer the shutdown continues, the less likely we're
going to know what's really happening, because those crucial economic
(02:38):
statistics aren't being gathered by all those furloughed federal workers,
and neither with the Federal Reserve know what's going on
potentially as it goes into its next meeting at the
end of the month. So there really is a lot
at stake here and more than enough to talk about
with my guests. Matthew Glassman, a senior fellow at the
Government Affairs Institute at Georgetown University and former appropriation staffer
(03:01):
on Capitol Hill. Matt, thanks very much for joining us,
Thanks for having me, and as ever from Washington, our
own Anna Wong, chief US economist at Bloomberg Economics, and
reminding you she was also an economist at the Federal
Reserve before she joined us and on to comment to
the White House Council of Economic Advisors during President Trump's
first term. Anna, welcome back.
Speaker 1 (03:22):
Happy to be here again.
Speaker 3 (03:28):
Matt. One of the reasons that we invited you on
is you've written an excellent piece for Politico on this
topic and we allow people who listen to Trump nomics
to read non Bloomberg publications. Your big assertion there was
that this was a different kind of shutdown and we
should perhaps take it a bit more seriously than the
shutdowns we've seen in the past. So broadly, why do
(03:49):
you think there's so much at stake?
Speaker 4 (03:52):
I think in past shutdowns, we've typically had one party
trying to leverage the shutdown to achieve a policy goal.
So you can think about the Republicans in twenty three
they want to repeal Obamacare, right, so they're going to
proudly say we are not going to fund the government
until you do this. It did work, of course, and
in twenty eighteen, same thing with Trump and the Wall.
I am not going to vote for spending buil or
sign a spending bill until you give them my wall.
(04:13):
Or the Democrats with DACA, we are not going to
go with the spending bills till you give us DACA.
And those are all sort of like policy fights. Here
we have something a little deeper, and that is democratic
concern with Trump's unilateral spending moves. Right there are bargains
for proporations bills because they can be filled us from
the Senate, so the parties have to work together, and
those have been sort of undone by the Trump administration
(04:35):
this year through processes called recisions and also things called impoundments,
where the president is unilaterally trying to cancel some of
that spending and that makes bargaining for the next bills impossible.
How can you bargain if the president is just going
to pull the rug out from under you? And so
that's underlying what the Democrats are doing here, or real
fight over the very appropriations process, and that's something different
(04:56):
than sort of a policy hostage situation. It's a little
weird of cour because they have translated that into a
fight over healthcare where they're claiming they want to extend
ACA subsidies, which is sort of like a classic policy
hostage shutdown. But we do have this bigger issue in
the background, which is how can they bargain with someone
who is just going to turn around and cancel the bargain.
Speaker 3 (05:16):
I said at the beginning, both sides seem to want
the government to shut down. Why is that not being
the case in the past in pass shutdowns?
Speaker 4 (05:23):
The side that wasn't trying to sort of leverage the
shutdown to Win policies had had a clear message, reopened
the government and then maybe we'll negotiate with you. We
don't want a government shutdown. Here, it's more complicated because
the Trump administration sees this democratic and do shutdown as
a way for them to further their ideological project of
shrinking the federal workforce and increasing sort of presential control
(05:45):
over the agencies. So the administration, and this is President
Trump and omb Director of Vote Have you know, said
if you shut down the government, we are going to
do things like start cutting federal workers or potentially even
closing whole agencies or defunding things completely permanent. And so
there's a sense that this shutdown is not simply open
or closed, but can the Trump administration leverage this to
(06:07):
sort of further their own separate ideological ends, and that
gives both sides incentives. There is this big group of
Republicans caught the middle who really just want the government open,
like sort of a traditional anti shutdown view, but the
administration certainly sees this as an opportunity to take advantage of.
Speaker 3 (06:22):
We'll come back to you on the sort of constitutional
aspects of this. But Anna simply why the economic state's
particularly high.
Speaker 1 (06:30):
As you mentioned, the economy is in a particularly fragile
state right now, and it's even perhaps at a turning
point stage. Is it turning toward a deeper recession into
a new recession or is it actually in the phase
of recovery. And even before the shutdown, the economic picture
was particularly blurry. Economic data was sending various message and
(06:56):
now we are at a very sensitive point of the
mind Tarry policy cycle where the FED is on the
cusp of cutting again. But it's unclear whether this cutting
cycle would continue or would it be cut short because
of concerns of rising inflation or actual actually rising inflation.
(07:18):
So without the data, it's just very difficult.
Speaker 3 (07:22):
Just remind us how would you normally think about the
economic impact of all these furloughed workers.
Speaker 1 (07:29):
So for each week of shutdown, there's a rule thumb
that says it will knock off about zero point two
percentage point off the annualized quarterly GDP growth. However, once
the shutdown is over, then you'll see a commensurate rebound
in GDP. So as long as this shutdown is over
by mid November, the fourth quarter GDP should be relatively unaffected. However,
(07:53):
in terms of labor as statistics, furloughed workers would be
counted as temporarily unemployed if they're recorded correctly, And so
that means that seven hundred and fifty thousand furlold workers
will roughly translate it to an increase of the unemployment
rate from currently four point three percent to four point
(08:13):
six to four point seven percent in a non farm
payrolls for LOLd workers would still be counted as employed,
as they will be continued to be paid.
Speaker 3 (08:22):
And Matt, how do you view the sort of aggressive
posture of certainly Russell Voyd from the Office for Management Budget,
who's had this very kind of matcho stance writing memos
about accelerating the shrinking of the federal workforce. But it's
not supposed to be even possible to not pay furloughed workers,
(08:43):
and it's not even clear that he can fire workers
in response to a shutdown. So how do you think
that's going to play out? I mean, are we going
to see more cases going to the court.
Speaker 4 (08:52):
Perhaps, But the thing pushing back on this is sort
of the political position of the Republicans. The way to
sort of win a shutdown if someone else is trying
to use it against you is to just say, Nope,
we are not giving into your demands. We don't know.
We don't give into demands of hostage takers. Reopen the government.
We're negotiate votes. Actions are sort of undermining that by
(09:12):
doing things to leverage the shutdown from their own side.
And you saw the reaction of Republican senators when he
said they might not pay furloughed workers. That's totally off
message politically, and all of a sudden, it looks like
both sides are trying to leverage the shutdown. So I
think there was a pretty strong reaction on Capitol Hill
towards O and B director and the President just being like, stop,
stop trying to leverage this, and just let us tell
(09:32):
them to reopen the government. And you can see reflected
in public opinion. In past shutdowns, the side that just
wanted to reopen the government and then continue to negotiate
has always politically had the upper hand, and we're not
seeing that this time. The Democrats currently are doing better
in the polling than the Republicans, and I think that's
in part because the administration is muddy in the waters
by themselves trying to leverage the shutdown.
Speaker 3 (09:52):
To their own ends, and you've had this kind of
funny thing on social media. Well, on the one hand,
you've got Karlyn Levitt in the White House briefing room
saying no, no one is enjoying the shutdown, and at
the same time, the President tweeting out memes that suggest
that maybe he is having a bit of fun. But
you mentioned the public. You could say that the Democrats
are also not negotiating. There's been no negotiations happening on
(10:14):
the Hill. So is it What are the risks here
for the Democrats in terms of public opinion?
Speaker 4 (10:19):
The risks are that they will be perceived as the
party not wanting to just cleanly reopen the government. That's
always been the risk in pass shutdowns, and we've seen
this with the Republicans in thirteen and Trump in eighteen,
that you just lose the public if you try to
demand policy concessions in order to reopen the government. That said,
the Democrats have done an excellent job so far of
turning this into a fight over healthcare subsidies rather than
(10:41):
a fight over whether the government should be open or closed.
In pass shutdowns, it's been almost impossible for the party
shutting the government down to get their message through, and
the issue has always come down to should the government
be open or closed because of sort of the mixed
messages from the Republican side. I think the healthcare message
and the unity of the Democrats have brought that through
in a way that has really turned this into sort
of a healthcare subsidy debate rather than should the government
(11:04):
be open or close debate, And so for now I
think that's the Democrat's best issue. It's not a secret
why they're turning this into healthcare. It's by far their
best issue with voters. And to the degree that this
becomes a healthcare debate, they will benefit from it politically.
The degree it becomes a debate whether the government should
be open or closed, they will be hurt. But for
now they're doing fine. That's said. Shutdowns aren't static, like
(11:24):
they get worse and worse and worse in terms of
their impact on actual citizens, on agencies and federal workers.
Military paychecks are going to get missed next Wednesday, civilian
paychecks this Friday, and those sorts of things. Programs start
to run out of money, airport lines get longer, and
those sort of things build up the pressure and so
you could very easily see public opinion reverse in the
Democrats here and really start to hurt them.
Speaker 3 (11:46):
Yeah, we've been monitoring that on just on the airlines,
for example, because there's a core staff who are still working,
but then they're calling in sick, and we've seen some
delays at airports yesterday. It looks like the fear is
that could intensify. Matt you're describing something where for the
(12:13):
first time in a while, the Democrats are potentially losing
at least one small part of a political battle. It's
not been a good year for them. And I just
wondered the President's quite good at noticing those things and
you know, turning things around. I wonder how you read
what the comments he had at the beginning of the
week where he seemed to also recognize that it just
being about healthcare was not going to be good for him,
(12:35):
and that maybe if there was a deal to be done,
he could be the one to get the credit for it.
Speaker 4 (12:39):
Yeah, for sure. And I think this is one spot
where you see differences between Trump and the congressional Republicans
quite starkly. They each have sort of their own ideological projects,
and Trump's has been going after his enemies, which he
I think largely perceives as this professional liberal class of
government workers are very often in his target zone. Whereas
Republicans on the hill, their ideological project has for a
(13:00):
long time been sort of cribbing or reducing or eliminating Obamacare.
The President is perfectly happy to compromise on healthcare, just
as he seemed perfectly happy to compmise on things like abortion.
He doesn't have sort of that traditional Republicans streak about
those things that throws them off message because they are
caught between sort of their ideological view of health care
and then their desire to be in line with Trump,
particularly in the House. I do think a healthcare compromise
(13:22):
is coming. One of the weirdest things about this shutdown is,
in the past shutdowns, the policy demand of the people
shutting the government down has been a non starter. Like
President Obama was never going to sign a law repealing Obamacare, right,
and the Democrats were never going to go for a
border wall. But a healthcare compmise to extend these subsidies
is something a lot of the moderate Republicans want and
I think is going to happen, whether there's a shutdown
(13:43):
or not. So this shutdown is about, like now turned
into an issue that is actually solvable through compromise, and
that makes it a little bit different than pass shutdowns too.
Speaker 3 (13:53):
I mean, just sort of switching back to the economy.
I mean, it obviously is going to make a difference
in people's cost of living if some of these big
increases in health insurance come through, but we won't know
what's going to happen with that for a few months.
If you're the Federal Reserve, and we've talked about the
FED a lot in different contexts than the threats to
its independence and other things over the last few months,
but even if they weren't facing a quite aggressive White
(14:13):
House in the last few months, they'd be facing a
tough choice when it comes to the economy. So talk
us through how problematic it is for them if some
of these sort of core economic data are not available
when they go into that next meeting at the end
of the month.
Speaker 1 (14:27):
So the next meeting is October twenty eighth to twenty ninth,
and before that, we were supposed to have received the
September CPI report on October fifteenth, and also weekly jobless
Claims OUR reports and also of course the non farm
payroll for September. And if the shutdown last beyond October eighteenth,
(14:50):
for example, then the collection of the unemployment rate for
October would be disrupted and price quotes for CPI for
October would also be disrupted. So basically the FED would
be going into not just the October meeting, but also
going into the December meeting sort of flying blind on
(15:11):
both inflation and jobs. And this is quite different than
the twenty eighteen shutdown, for example, because back in twenty eighteen,
the BLS was actually funded, so CPI and non farm
pay was not actually disrupted. And so to see how
shutdown affected collection of economic statistics, you have to go
back to twenty thirteen. But even then the shutdown lasted
(15:35):
only two weeks, and that already reduced the CPI price
quotes by twenty five percent for collection in October, and
also disrupted or reduced the number of responses in the
unemployment survey, causing more error in the unemployment survey.
Speaker 3 (15:52):
And just to be clear, what happens if you've just
not collected the data the labor for survey, for example,
that goes uncollected for that month, right, I mean, what
would they normally do.
Speaker 1 (16:04):
Yeah, So for the Unemployment rate survey in twenty thirteen,
a BLS resumed collection a week after they normally do it,
and they have to kind of ask the responders what
was your status two weeks ago? So they're basically asking
people to recollect something that happened in the past, as
opposed to asking them what happened just you know, just now, right,
(16:28):
So this is a sampling error.
Speaker 3 (16:30):
And again in practice, how could that affect what the
Federal Reserve does at the end of October or do
you think that their decision is kind of baked in
at this point.
Speaker 1 (16:39):
So in the last FMC meeting, they flagged in the
dot plot the median wanted to cut fifty basis points more.
It was a very close call, and without a shutdown,
I would have thought that given indications of many inflation
measures edging up again, they would not be cutting in October.
But because of the shutdown and the uncertainty to economic
(17:03):
activity and also increased upside risk to employment, I think
they will follow through with a twenty five paces point
cut this October.
Speaker 3 (17:12):
Interesting, well, Matt, I mean that would be an upside
for the president from all this. The tradition of the
podcast these days, At the moment you decide to talk
about the shutdown, the government's going to reopen again. So
even even as people are listening, something miraculous might have
happened on late Wednesday night or something. But given your
experience and given the analysis of what's going on and
(17:33):
how much each side has at stake, but also, as
you said yourself, the fact that it's actually over something
quite doable on both sides, the sticking point, even though
there's these very high stakes, Actually the single thing that
the Democrats are focused on is something that could be fixed.
How do you think this is going to end?
Speaker 4 (17:49):
I mean, I think how it ends is relatively clear.
You will get a Democrats voting to reopen the government
unconditionally and Republican promising a good faith negotiation over the
healthcare subsidies which will be extended. And so that sort
of allows everybody to win in some sense politically. Leader
(18:10):
Schumer of the Democrats will get sort of the credit
for having fought that his liberals want, and the Republican
moderates will get their healthcare subsidies. The Republican leaders will
have not just given away the healthcare subsidies angering their base,
and Trump will end up with no further restrictions on
sort of executive spending encroachments that have gone on. That's
(18:31):
sort of the terms that I think are mostly imaginable
as to how long it goes. I think there's a
bunch of pressure points, and the first one is really
next Wednesday with the military pay and the eighteen shutdown.
In the long shutdown, DoD was funded so we didn't
have this issue of soldiers missing checks. But that pressure point,
to me is sort of the front end window of
when this would end sometime middle of next week. If
(18:53):
they go through that and they're still on a stalemate,
then you start to talk about longer term. But I
do think there's a good pressure point to end this
sometime next week.
Speaker 3 (19:03):
But what you've described is something that they could do tomorrow.
If you think the Democrats are actually willing to give
in without having a solid assurance on the health insurance subsidies,
then it just seems odd that they would hold out
this far and make that their point and then only
accept a sort of good faith promise from an administration
and from a Republican leadership that is not they would
(19:25):
say not shown them a lot of good faith, you know,
with the rescinding of past funding and other things.
Speaker 4 (19:30):
Yeah, I mean, And that sort of highlights how sort
of this shutdown is both very high stakes over these
constitutional issues of executive power and also very low stakes.
It's over a healthcare policy that was probably going to
be compromised anyway in the next couple of months, whether
there was a shutdown or not. And so part of
what you're seeing here is that the sort of going
through the motions of the shutdown is a exercise in
(19:53):
coalition management. Remember, Schumor did not go to shut down
the government last March, and that really had much of
the liver wing of his party sort of nipping at
him pretty bad over the last six months, and for
him to not engage in a shutdown now probably would
have lost them forever and maybe cost him his job,
if not his seat in the Senate going forward. And
so part of what both sets of leaders are doing
(20:15):
right now is fighting for their basis admiration. And yes,
you could end the shutdown today, but is the left
flank of your party for Schumer or the right flank
of your party for Johnson and Thune. And in some
ways Trump going to accept that as a worthy effort
and a worthy fight. And I think the answer today
is no, And I think the answer next week might
be maybe, And I think in a month the answer
(20:35):
would definitely be yes.
Speaker 3 (20:37):
And what will the public think about it? Who will
benefit in the end? Do you think?
Speaker 4 (20:41):
Unknown? I mean, the one thing we do know about
shutdowns is traditionally the party trying to leverage it has
lost politically. But in every case, both parties have seen
blame taken upon them. It's kind of like you know, war, right,
you can't increase, sort of like the overall happiness with
both parties. Both parties are going to see a negative.
It just who sees a more negative. And I think
(21:02):
we're seeing that in the polling right now, like the
typical citizen is not thrilled with either party in these situations.
I suspect, you know, the longer it's dragged on, the
more it would tend to shift to hurt the Democrats.
But so far they've defied that, and they've done an
excellent messaging job. And I think the President has made
some sort of errors in judgment about how to approach this,
such that right now, if it ended, it would probably
call it a draw, but no harm to the Democrats,
(21:24):
which would be exceeding expectations in these things where going
into this, I don't think anyone thought sort of the
Democrats were going to come out better on the other
side of this.
Speaker 3 (21:32):
Interesting. I remember when I was in the US treasurer
in the late nineties, and there was one time when
we thought we were heading into a shutdown, and of
course the big debate internally was about everybody wanted to
be considered an essential worker, and it was kind of
insulting not to be an essential worker. But it does
seem like the definition of an essential worker has been
much tighter this time around. Even in this conversation, we've said,
(21:55):
you know, previously the Pentagon was funded, this time it isn't.
Previously the BLS was that, this time it isn't. I mean, Matt,
is there a sense of which the administration has heightened
the cost of this?
Speaker 4 (22:05):
Yeah, I mean, and I think that's that's something all
administrations do on the margins. If you think about the
twenty thirteen shutdown. Obama was against the shutdown, of course,
and so what did he do. He immediately made sure
the national parks were closed, the Washington Monument was closed
so that would inconvenience tourist who would publicly see it.
And then in the twenty eighteen shutdown, when Trump was
in favor of the shutdown, he left those things open,
(22:26):
left the parks open, and left the monuments open and
things like that. So the president has some wiggle room.
The key question, and the key discretion is about what
is an accepted or sometimes people say essential worker. And
in the laws Congress have written about this essentially comes
down to people doing sort of life safety things, so
that's soldiers, law enforcement, people feeding the animals at the zoo.
But there's also an exception for people essential to the
(22:48):
constitutional process, so aiding the present or aiding Congress in
sort of ending the shutdown, right, and so that definition
can be stretched so widely. Is some person at Treasury
important to that that's really in the eye of the beholder.
And so presidents absolutely do use this discretion to help
them politically and substantially in these shutdowns. And the Toy
administration certainly is, like with many things, using that latitude
(23:11):
to stretch it beyond perhaps what sort of a neutral
reserver would say is reasonable.
Speaker 3 (23:16):
Although these days it seems like soldiers are much more
essential to curb crime and disarray in our cities settle
on anything else. But that's a whole other issue. Anna,
I guess the last word for you. I mean, if
just listening to Matt, it does sound like there will
be a sort of decision point coming in the middle
of next week around the military pay. Do you think
that could also be significant in terms of the economic
(23:38):
impact and the lack of economic data. You know you're
going to get bigger aera statistics all of those things.
Speaker 1 (23:43):
Yes, absolutely, If the shutdown does end next week, sometime
next week, then we'll basically get barely a blip in
terms of the sampling error that I mentioned just now,
and also the jobless claims. If so far from the
state level jobless claims, the shutdown has not led to
a spike, but with next week's jobless claims, we were
(24:04):
expecting that we would start seeing a drift shop. So
if the shutdown resolved by then, I think things will
go on as usual.
Speaker 3 (24:13):
And not get the extra cut or the cut that
you might you wouldn't have expected to have otherwise.
Speaker 1 (24:17):
Well, I still think that there will be a cut,
because it's already mid October, and I think the job
report is still going to be pretty modest enough to
warrant some concerns to buy insurance for the labor market.
Speaker 3 (24:30):
Anna Wong, Matthew Glassman, thank you so much. Thanks for
listening to Trumponomics from Bloomberg. It was hosted by me
Stephanie Flanders. I was joined by Anna Wong, chief US
economists for Bloomberg Economics, and Matthew Glassman, a Senior Fellow
at the Government Affairs Institute at Georgetown University. Trumponomics was
(24:56):
produced by Samasadi and Moses and Them, with help from
Andrew Derker and Chris marklou Amy Keen is our executive producer,
and sound designers by Blake Maples and Kelly Gary Sage.
Bowman is Bloomberg's head of podcasts and to help others
find us, please rate and review us highly wherever you
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