Shutdown Economics The U.S. partial government shutdown is on track to be the longest in history. Whatever its political consequences, the economic costs to the private sector will increase the longer it lasts.
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Shutdown Economics

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Shutdown Economics

Shutdown Economics

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Hey, everyone. If you have been watching the news, or even if you have...


Been awake.

VANEK SMITH: (Laughter) Not in a coma, you know by now that the federal government has been shut down for the last three weeks, 21 days. And that is today's Planet Money indicator - 21 days. Now, the proximate reason for the shutdown is that President Donald Trump has been demanding money to build a wall along the U.S.-Mexico border. House Democrats won't agree to give him that money. And Senate Republicans are refusing to allow other parts of the government that are unrelated to the border to reopen.

GARCIA: But we're not here for the politics.

VANEK SMITH: Thank goodness (laughter).

GARCIA: There's a whole 'nother NPR podcast about politics called the NPR POLITICS PODCAST.

VANEK SMITH: It's a great podcast.

GARCIA: It's so good. We are here for the economics. And today is the right day to talk about the economics because it is the first paycheck Friday in which a lot of government workers are not actually going to get their paycheck because of the government shutdown. This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.

VANEK SMITH: And I'm Stacey Vanek Smith. Today on the show, how will the government shutdown affect the U.S. economy? Plus, we answer two great questions from our listeners about the shutdown. That's coming up after the break.


VANEK SMITH: OK. Here are the basics of the government shutdown. The president and Congress could not agree on a spending bill to fund the government. And so the government has been shut down since midnight on December 21. That includes parts of the Departments of Agriculture, Commerce, Homeland Security, Transportation and the Treasury.

GARCIA: Among others.

VANEK SMITH: Among (laughter) many others. And about 800,000 government workers are not getting paid. Slightly more than half of those workers are expected to keep working anyways because they provide services that are labeled essential. The rest of the workers have just been sent home. They've been furloughed until the government reopens.

GARCIA: And there are three rough ways in which the shutdown can have an economic impact. First, there is the direct effect on those 800,000 workers who are not getting paid. And of course, these workers have families. They also have bills to pay that suddenly they might not be able to pay.

VANEK SMITH: Second, the shutdown could also have a lot of indirect effects. Back in 2013, the president's Council of Economic Advisers studied those indirect effects. And they mostly have to do with the government services that will not be available during the shutdown.

GARCIA: Yeah. To give just one example, there's the travel industry. Tourism could be hurt because a lot of national parks are now closed. Plus, there are worries that some workers at the Transportation Security Administration won't show up to work at airports, and that could mean longer lines and more delays.

VANEK SMITH: Oh, my gosh.


VANEK SMITH: Even more - even longer lines...

GARCIA: Even longer lines. (Laughter) And then...

VANEK SMITH: ...And even more delays is what you mean. Wow.

GARCIA: Yeah. And also, people are going to be reading stories about the potential risk to flight safety because of the added stress for air traffic controllers who are not getting paid. And so take all that into consideration, and travelers might cancel some of their trips or their vacations. So again, the longer the shutdown goes on, the bigger a problem this threatens to become.

VANEK SMITH: And of course, it's not just the travel industry. Parts of the federal government also guarantee loans to small businesses and to farmers. And those loans are not being processed.

GARCIA: In addition, our NPR colleagues at ALL THINGS CONSIDERED spoke to Ashley Hinson. She's a web designer from Maine who was just about to close on her dream house thanks to a loan guaranteed by the Department of Agriculture when she then got a call from her loan officer.


ASHLEY HINSON: He called and said, actually, they do have to sign off on the final documents. And we were not able to extend the closing date, so it just all kind of fell apart on that day.

GARCIA: Ashley didn't get that house. But she'd already moved out of her old apartment, so temporarily she had to move in with her parents. On top of that, the Securities and Exchange Commission, the SEC, is also shut down.

VANEK SMITH: So if you want to get that insider trading in, get it done soon (laughter).

GARCIA: Immediately, as soon as possible. But what this really means is that private companies that want to go public and raise money on the stock market can't do it because there aren't enough people at the SEC right now to handle the paperwork. So those companies are just going to have to wait. The list of these disruptions to the private sector can go on for a while.

And that's before taking into account the third kind of effect, which is that the shutdown might diminish the confidence that people and businesses have in the economy. This confidence effect is really hard to quantify. It's even really hard to verify. But that doesn't mean that it doesn't exist. It is something that we should still be worried about.

VANEK SMITH: If the shutdown were to end over the weekend, the effects on the economy would be really small - they'd be tiny - because just like in past shutdowns, government workers will probably be paid back for the time they weren't receiving a paycheck. Travelers will just reschedule their vacations. Small businesses will get their loans. And companies will list on the stock market, maybe a couple weeks later than they wanted to.

GARCIA: Yeah. But that's not the case if the shutdown continues for a while because then, some of those small businesses that aren't getting loans could just go out of business. A lot of those 800,000 workers who aren't getting paid would eventually start looking for other jobs. And then all the parts of the private sector that depend on the federal government for things like oversight, or to approve things like new drugs or licenses, to export goods or to inspect food to make sure it's safe, these things will all be in a kind of limbo.

VANEK SMITH: Yeah. I have to say, the Food and Drug Administration not doing its normal food inspections on fruits and vegetables has been one of the most visceral, kind of disturbing things that I've heard about the shutdown so far.


VANEK SMITH: And, you know, not to make light of this - because it's really serious obviously, especially right now - but our colleague Sam Sanders had a really great joke that now he's just going to have to eat Pop-Tarts (laughter) until the shutdown ends.

GARCIA: Right.

VANEK SMITH: And he's not wrong.

GARCIA: It's like Pop-Tarts, Twinkies, Twizzlers.

VANEK SMITH: Yeah, that's your safe food.


VANEK SMITH: Everything else, like - I don't know. Are you brave enough to eat spinach? Probably not a good idea.

GARCIA: It's a shutdown diet.

VANEK SMITH: (Laughter) Shutdown diet. Get out your elastic pants. It's time for the shutdown diet.

GARCIA: (Laughter) So yeah, we'll emphasize one more time that the damage could be really big if the shutdown lasts for a long time. And that is a point that even Federal Reserve chair Jerome Powell made earlier this week.


JEROME POWELL: A longer shutdown is something we haven't had. If we have an extended shutdown, then I do think that that would show up in the data pretty clearly.

GARCIA: Which raises another point - the data. The Federal Reserve and other policymakers benefit from knowing how the economy is doing. So does THE INDICATOR podcast, by the way.

VANEK SMITH: I know. You sound really worked up right now (laughter).

GARCIA: (Laughter).

VANEK SMITH: Forget everything else. Forget...

GARCIA: Right, food safety, whatever.

VANEK SMITH: (Laughter).

GARCIA: Economic data...

VANEK SMITH: There's no data coming out.

GARCIA: Yeah. And the thing is that policymakers really do need the data that's published by different agencies within the government, but some of those agencies are also partially closed. So here's one example. The Census Bureau - right now, we're not getting data on the housing market, like the sales of new homes and construction spending, or data on the manufacturing sector or even statistics on global trade.

And if the shutdown goes on long enough, we might not even find out how much the economy grew in the fourth quarter from the Bureau of Economic Analysis, which is also closed. Without this data, policymakers have only an obstructed view of how the economy's doing.

VANEK SMITH: So in summary, if the shutdown ends soon, the harmful effects it had on the economy will probably be reversed. We'll barely notice. But the longer it lasts, the more it threatens to have a lasting impact. And it is hard to know how much of an impact.

GARCIA: Yeah. But we're not done just yet because in fact we got a couple of really smart listener questions about the shutdown that we're going to answer now. The first question comes from Jacqueline Mahoney (ph). She asks, how do furloughed employees as a result of the government shutdown affect the jobs report?

VANEK SMITH: That is a great question. And the answer is that those furloughed employees, the ones who are both unpaid and not working, will not count as employed workers in the next jobs report. So the unemployment rate will probably be a little higher in that report than if the government had been open.

GARCIA: And the last question comes from Andrew West (ph). He asks, since unemployment is so low and the labor market's so tight, what is keeping an employee who is furloughed or working without pay from quitting to work in the private sector? Well, Andrew, as far as we know, nothing. And there have been isolated reports of some employees doing just that. But this question raises another good point about the economy in which the shutdown is taking place.

VANEK SMITH: Specifically, unemployment is very low, and the economy is still adding jobs. And this means that there are more options for frustrated government workers than there would be if the economy were weak, which also means that probably the best way to prevent government workers from quitting is for the shutdown to end soon.

GARCIA: Yeah. And if you want to know what the chances are that that's going to happen, you are once again listening to the wrong podcast.

VANEK SMITH: (Laughter).

GARCIA: Yeah. NPR POLITICS to the rescue.


GARCIA: We referenced a lot of great work by other journalists in this podcast. And we'll link to their articles at if you want to read more. This episode was produced by Darius Rafieyan and edited by Paddy Hirsch. THE INDICATOR is a production of NPR.


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