WEBVTT - Why This US Government Shutdown Is Different 0:00:00.280 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.360 --> 0:00:10.600 A lot of people are saying Trump wanted this, that 0:00:10.680 --> 0:00:13.000 I wanted this closing, and I didn't want it, But 0:00:13.880 --> 0:00:15.760 a lot of people are saying it because I'm allowed 0:00:15.800 --> 0:00:19.560 to cut things that should have never been approved in 0:00:19.600 --> 0:00:20.280 the first place. 0:00:29.680 --> 0:00:32.520 I'm Steady Flanders, head of Government and Economics at Bloomberg 0:00:32.600 --> 0:00:34.960 and this is Trumponomics, the podcast that looks at the 0:00:35.000 --> 0:00:37.960 economic world of Donald Trump, how he's already shaped the 0:00:37.960 --> 0:00:41.200 global economy and what on earth is going to happen next. 0:00:43.240 --> 0:00:46.320 This week, we're asking why is this US government shut 0:00:46.360 --> 0:00:50.200 down so different from others we've seen, and what could 0:00:50.200 --> 0:00:53.680 it mean for the US economy. Now, government shutdowns in 0:00:53.800 --> 0:00:56.920 Washington aren't new, but they have become more common in 0:00:56.960 --> 0:01:01.360 a politically polarized country in which the two main parties 0:01:01.440 --> 0:01:03.880 don't want to agree on anything. And his latest one 0:01:03.920 --> 0:01:06.600 is the third shutdown under President Trump. He had two 0:01:06.600 --> 0:01:08.959 in his first term, including one in twenty eighteen that 0:01:09.040 --> 0:01:12.640 lasted thirty five days, the longest on record. Now, as 0:01:12.640 --> 0:01:15.880 we record this on Wednesday, the eighth of October, the 0:01:15.959 --> 0:01:19.880 shutdown is entering its second week, having started at midnight 0:01:20.000 --> 0:01:23.640 on October first, when Congress failed to pass a stopgap 0:01:23.680 --> 0:01:27.160 funding measure. But already it feels a bit different politically 0:01:27.240 --> 0:01:31.160 and economically different politically because this time around, both sides 0:01:31.200 --> 0:01:34.360 seemed to want to shut down, and the standoff between 0:01:34.400 --> 0:01:37.480 them feels less like a dispute about funding than a 0:01:37.520 --> 0:01:41.840 constitutional struggle over the relative strength of the executive in 0:01:41.880 --> 0:01:45.320 America's political system. And that's a feeling that's intensified by 0:01:45.319 --> 0:01:48.120 the body language of both sides and the Director of 0:01:48.160 --> 0:01:51.440 the Officer Management and Budget, Russell Voyd, seeming to relish 0:01:51.520 --> 0:01:55.200 the opportunity of talking about mass layoffs and holding up 0:01:55.200 --> 0:01:59.360 billions of investment funds earmarked for projects in democratic controlled state. 0:02:00.000 --> 0:02:03.120 There's one reason why the economic stakes also seem unusually 0:02:03.200 --> 0:02:06.680 high this time. I mean, typically any economic impact of 0:02:06.880 --> 0:02:10.240 the federal workers not getting paid during a shutdown gets 0:02:10.240 --> 0:02:12.720 completely offset when the government reopens and they get the 0:02:12.720 --> 0:02:16.000 money their own. If that doesn't happen, or if there's 0:02:16.080 --> 0:02:19.320 deeper cuts, it could have a more lasting impact, and 0:02:19.440 --> 0:02:22.320 at a particularly sensitive time for the economy, when the 0:02:22.360 --> 0:02:25.560 labor market's already weakening and many think we could be 0:02:25.600 --> 0:02:28.800 on the brink of a recession. Deepening government cuts and 0:02:29.200 --> 0:02:32.880 heightened uncertainty could just push the economy over the edge. 0:02:33.400 --> 0:02:36.040 But the longer the shutdown continues, the less likely we're 0:02:36.040 --> 0:02:38.880 going to know what's really happening, because those crucial economic 0:02:38.919 --> 0:02:43.079 statistics aren't being gathered by all those furloughed federal workers, 0:02:43.680 --> 0:02:46.160 and neither with the Federal Reserve know what's going on 0:02:46.240 --> 0:02:48.799 potentially as it goes into its next meeting at the 0:02:48.919 --> 0:02:50.639 end of the month. So there really is a lot 0:02:50.680 --> 0:02:53.959 at stake here and more than enough to talk about 0:02:54.040 --> 0:02:57.040 with my guests. Matthew Glassman, a senior fellow at the 0:02:57.040 --> 0:03:01.480 Government Affairs Institute at Georgetown University and former appropriation staffer 0:03:01.520 --> 0:03:04.480 on Capitol Hill. Matt, thanks very much for joining us, 0:03:04.919 --> 0:03:07.640 Thanks for having me, and as ever from Washington, our 0:03:07.639 --> 0:03:10.640 own Anna Wong, chief US economist at Bloomberg Economics, and 0:03:10.680 --> 0:03:13.720 reminding you she was also an economist at the Federal 0:03:13.760 --> 0:03:16.280 Reserve before she joined us and on to comment to 0:03:16.320 --> 0:03:19.919 the White House Council of Economic Advisors during President Trump's 0:03:19.919 --> 0:03:22.040 first term. Anna, welcome back. 0:03:22.440 --> 0:03:23.520 Happy to be here again. 0:03:28.840 --> 0:03:30.920 Matt. One of the reasons that we invited you on 0:03:31.040 --> 0:03:34.080 is you've written an excellent piece for Politico on this 0:03:34.200 --> 0:03:37.120 topic and we allow people who listen to Trump nomics 0:03:37.120 --> 0:03:42.000 to read non Bloomberg publications. Your big assertion there was 0:03:42.080 --> 0:03:44.480 that this was a different kind of shutdown and we 0:03:44.520 --> 0:03:46.680 should perhaps take it a bit more seriously than the 0:03:46.680 --> 0:03:49.840 shutdowns we've seen in the past. So broadly, why do 0:03:49.880 --> 0:03:51.200 you think there's so much at stake? 0:03:52.120 --> 0:03:55.800 I think in past shutdowns, we've typically had one party 0:03:55.880 --> 0:03:58.320 trying to leverage the shutdown to achieve a policy goal. 0:03:58.400 --> 0:04:00.400 So you can think about the Republicans in twenty three 0:04:00.400 --> 0:04:02.720 they want to repeal Obamacare, right, so they're going to 0:04:03.040 --> 0:04:05.120 proudly say we are not going to fund the government 0:04:05.160 --> 0:04:07.040 until you do this. It did work, of course, and 0:04:07.080 --> 0:04:09.360 in twenty eighteen, same thing with Trump and the Wall. 0:04:09.680 --> 0:04:11.880 I am not going to vote for spending buil or 0:04:11.920 --> 0:04:13.680 sign a spending bill until you give them my wall. 0:04:13.880 --> 0:04:16.000 Or the Democrats with DACA, we are not going to 0:04:16.040 --> 0:04:17.640 go with the spending bills till you give us DACA. 0:04:17.839 --> 0:04:20.159 And those are all sort of like policy fights. Here 0:04:20.200 --> 0:04:23.080 we have something a little deeper, and that is democratic 0:04:23.160 --> 0:04:27.880 concern with Trump's unilateral spending moves. Right there are bargains 0:04:27.920 --> 0:04:30.280 for proporations bills because they can be filled us from 0:04:30.279 --> 0:04:32.480 the Senate, so the parties have to work together, and 0:04:32.640 --> 0:04:35.080 those have been sort of undone by the Trump administration 0:04:35.200 --> 0:04:39.760 this year through processes called recisions and also things called impoundments, 0:04:39.800 --> 0:04:42.480 where the president is unilaterally trying to cancel some of 0:04:42.560 --> 0:04:45.960 that spending and that makes bargaining for the next bills impossible. 0:04:46.000 --> 0:04:47.880 How can you bargain if the president is just going 0:04:47.920 --> 0:04:49.640 to pull the rug out from under you? And so 0:04:49.760 --> 0:04:52.400 that's underlying what the Democrats are doing here, or real 0:04:52.480 --> 0:04:56.360 fight over the very appropriations process, and that's something different 0:04:56.400 --> 0:04:59.520 than sort of a policy hostage situation. It's a little 0:04:59.520 --> 0:05:02.160 weird of cour because they have translated that into a 0:05:02.200 --> 0:05:05.680 fight over healthcare where they're claiming they want to extend 0:05:05.760 --> 0:05:09.560 ACA subsidies, which is sort of like a classic policy 0:05:09.600 --> 0:05:12.040 hostage shutdown. But we do have this bigger issue in 0:05:12.080 --> 0:05:14.000 the background, which is how can they bargain with someone 0:05:14.000 --> 0:05:16.120 who is just going to turn around and cancel the bargain. 0:05:16.520 --> 0:05:18.600 I said at the beginning, both sides seem to want 0:05:18.600 --> 0:05:21.160 the government to shut down. Why is that not being 0:05:21.279 --> 0:05:23.720 the case in the past in pass shutdowns? 0:05:23.720 --> 0:05:25.680 The side that wasn't trying to sort of leverage the 0:05:25.720 --> 0:05:29.040 shutdown to Win policies had had a clear message, reopened 0:05:29.080 --> 0:05:31.320 the government and then maybe we'll negotiate with you. We 0:05:31.360 --> 0:05:35.080 don't want a government shutdown. Here, it's more complicated because 0:05:35.120 --> 0:05:39.120 the Trump administration sees this democratic and do shutdown as 0:05:39.120 --> 0:05:41.960 a way for them to further their ideological project of 0:05:42.080 --> 0:05:45.479 shrinking the federal workforce and increasing sort of presential control 0:05:45.520 --> 0:05:48.520 over the agencies. So the administration, and this is President 0:05:48.560 --> 0:05:52.200 Trump and omb Director of Vote Have you know, said 0:05:52.279 --> 0:05:54.000 if you shut down the government, we are going to 0:05:54.080 --> 0:05:56.720 do things like start cutting federal workers or potentially even 0:05:56.800 --> 0:06:01.000 closing whole agencies or defunding things completely permanent. And so 0:06:01.320 --> 0:06:04.239 there's a sense that this shutdown is not simply open 0:06:04.320 --> 0:06:07.359 or closed, but can the Trump administration leverage this to 0:06:07.440 --> 0:06:10.760 sort of further their own separate ideological ends, and that 0:06:10.800 --> 0:06:13.440 gives both sides incentives. There is this big group of 0:06:13.440 --> 0:06:15.760 Republicans caught the middle who really just want the government open, 0:06:15.839 --> 0:06:18.560 like sort of a traditional anti shutdown view, but the 0:06:18.600 --> 0:06:21.880 administration certainly sees this as an opportunity to take advantage of. 0:06:22.400 --> 0:06:24.880 We'll come back to you on the sort of constitutional 0:06:24.920 --> 0:06:29.080 aspects of this. But Anna simply why the economic state's 0:06:29.200 --> 0:06:30.120 particularly high. 0:06:30.920 --> 0:06:35.200 As you mentioned, the economy is in a particularly fragile 0:06:35.240 --> 0:06:38.960 state right now, and it's even perhaps at a turning 0:06:39.000 --> 0:06:42.839 point stage. Is it turning toward a deeper recession into 0:06:42.880 --> 0:06:46.200 a new recession or is it actually in the phase 0:06:46.320 --> 0:06:50.719 of recovery. And even before the shutdown, the economic picture 0:06:50.839 --> 0:06:56.720 was particularly blurry. Economic data was sending various message and 0:06:56.800 --> 0:06:59.719 now we are at a very sensitive point of the 0:06:59.760 --> 0:07:03.359 mind Tarry policy cycle where the FED is on the 0:07:03.480 --> 0:07:08.679 cusp of cutting again. But it's unclear whether this cutting 0:07:08.720 --> 0:07:13.520 cycle would continue or would it be cut short because 0:07:13.520 --> 0:07:18.320 of concerns of rising inflation or actual actually rising inflation. 0:07:18.800 --> 0:07:22.720 So without the data, it's just very difficult. 0:07:22.960 --> 0:07:25.400 Just remind us how would you normally think about the 0:07:25.440 --> 0:07:28.160 economic impact of all these furloughed workers. 0:07:29.000 --> 0:07:32.840 So for each week of shutdown, there's a rule thumb 0:07:32.880 --> 0:07:35.200 that says it will knock off about zero point two 0:07:35.240 --> 0:07:39.880 percentage point off the annualized quarterly GDP growth. However, once 0:07:39.960 --> 0:07:43.800 the shutdown is over, then you'll see a commensurate rebound 0:07:44.080 --> 0:07:47.200 in GDP. So as long as this shutdown is over 0:07:47.280 --> 0:07:52.920 by mid November, the fourth quarter GDP should be relatively unaffected. However, 0:07:53.080 --> 0:07:57.200 in terms of labor as statistics, furloughed workers would be 0:07:57.280 --> 0:08:02.440 counted as temporarily unemployed if they're recorded correctly, And so 0:08:02.560 --> 0:08:06.040 that means that seven hundred and fifty thousand furlold workers 0:08:06.360 --> 0:08:09.880 will roughly translate it to an increase of the unemployment 0:08:09.960 --> 0:08:13.120 rate from currently four point three percent to four point 0:08:13.160 --> 0:08:16.080 six to four point seven percent in a non farm 0:08:16.120 --> 0:08:19.360 payrolls for LOLd workers would still be counted as employed, 0:08:19.440 --> 0:08:21.400 as they will be continued to be paid. 0:08:22.000 --> 0:08:25.720 And Matt, how do you view the sort of aggressive 0:08:25.800 --> 0:08:30.040 posture of certainly Russell Voyd from the Office for Management Budget, 0:08:30.040 --> 0:08:34.240 who's had this very kind of matcho stance writing memos 0:08:34.280 --> 0:08:38.280 about accelerating the shrinking of the federal workforce. But it's 0:08:38.320 --> 0:08:42.760 not supposed to be even possible to not pay furloughed workers, 0:08:43.040 --> 0:08:46.080 and it's not even clear that he can fire workers 0:08:46.120 --> 0:08:47.920 in response to a shutdown. So how do you think 0:08:47.960 --> 0:08:49.240 that's going to play out? I mean, are we going 0:08:49.320 --> 0:08:51.480 to see more cases going to the court. 0:08:52.000 --> 0:08:54.960 Perhaps, But the thing pushing back on this is sort 0:08:54.960 --> 0:08:57.880 of the political position of the Republicans. The way to 0:08:58.000 --> 0:08:59.920 sort of win a shutdown if someone else is trying 0:09:00.080 --> 0:09:02.640 to use it against you is to just say, Nope, 0:09:02.679 --> 0:09:04.920 we are not giving into your demands. We don't know. 0:09:05.000 --> 0:09:08.000 We don't give into demands of hostage takers. Reopen the government. 0:09:08.000 --> 0:09:11.960 We're negotiate votes. Actions are sort of undermining that by 0:09:12.080 --> 0:09:14.480 doing things to leverage the shutdown from their own side. 0:09:14.520 --> 0:09:16.480 And you saw the reaction of Republican senators when he 0:09:16.480 --> 0:09:19.320 said they might not pay furloughed workers. That's totally off 0:09:19.360 --> 0:09:21.560 message politically, and all of a sudden, it looks like 0:09:21.600 --> 0:09:23.400 both sides are trying to leverage the shutdown. So I 0:09:23.400 --> 0:09:25.680 think there was a pretty strong reaction on Capitol Hill 0:09:26.160 --> 0:09:29.480 towards O and B director and the President just being like, stop, 0:09:29.760 --> 0:09:32.480 stop trying to leverage this, and just let us tell 0:09:32.480 --> 0:09:34.920 them to reopen the government. And you can see reflected 0:09:34.960 --> 0:09:37.840 in public opinion. In past shutdowns, the side that just 0:09:37.880 --> 0:09:40.120 wanted to reopen the government and then continue to negotiate 0:09:40.320 --> 0:09:42.920 has always politically had the upper hand, and we're not 0:09:42.960 --> 0:09:45.800 seeing that this time. The Democrats currently are doing better 0:09:45.840 --> 0:09:47.719 in the polling than the Republicans, and I think that's 0:09:47.720 --> 0:09:50.120 in part because the administration is muddy in the waters 0:09:50.360 --> 0:09:52.160 by themselves trying to leverage the shutdown. 0:09:52.200 --> 0:09:54.400 To their own ends, and you've had this kind of 0:09:54.400 --> 0:09:56.199 funny thing on social media. Well, on the one hand, 0:09:56.240 --> 0:09:59.160 you've got Karlyn Levitt in the White House briefing room 0:09:59.240 --> 0:10:02.160 saying no, no one is enjoying the shutdown, and at 0:10:02.200 --> 0:10:05.280 the same time, the President tweeting out memes that suggest 0:10:05.320 --> 0:10:07.360 that maybe he is having a bit of fun. But 0:10:07.720 --> 0:10:10.440 you mentioned the public. You could say that the Democrats 0:10:10.480 --> 0:10:14.280 are also not negotiating. There's been no negotiations happening on 0:10:14.320 --> 0:10:16.800 the Hill. So is it What are the risks here 0:10:16.840 --> 0:10:18.720 for the Democrats in terms of public opinion? 0:10:19.600 --> 0:10:22.480 The risks are that they will be perceived as the 0:10:22.520 --> 0:10:25.719 party not wanting to just cleanly reopen the government. That's 0:10:25.720 --> 0:10:27.880 always been the risk in pass shutdowns, and we've seen 0:10:27.880 --> 0:10:30.760 this with the Republicans in thirteen and Trump in eighteen, 0:10:30.840 --> 0:10:32.720 that you just lose the public if you try to 0:10:32.760 --> 0:10:36.520 demand policy concessions in order to reopen the government. That said, 0:10:36.559 --> 0:10:39.160 the Democrats have done an excellent job so far of 0:10:39.200 --> 0:10:41.960 turning this into a fight over healthcare subsidies rather than 0:10:41.960 --> 0:10:44.520 a fight over whether the government should be open or closed. 0:10:44.800 --> 0:10:47.520 In pass shutdowns, it's been almost impossible for the party 0:10:47.559 --> 0:10:49.880 shutting the government down to get their message through, and 0:10:49.920 --> 0:10:51.760 the issue has always come down to should the government 0:10:51.800 --> 0:10:55.400 be open or closed because of sort of the mixed 0:10:55.440 --> 0:10:57.840 messages from the Republican side. I think the healthcare message 0:10:57.840 --> 0:10:59.680 and the unity of the Democrats have brought that through 0:11:00.040 --> 0:11:01.679 in a way that has really turned this into sort 0:11:01.720 --> 0:11:04.240 of a healthcare subsidy debate rather than should the government 0:11:04.240 --> 0:11:06.880 be open or close debate, And so for now I 0:11:06.920 --> 0:11:09.360 think that's the Democrat's best issue. It's not a secret 0:11:09.360 --> 0:11:11.559 why they're turning this into healthcare. It's by far their 0:11:11.559 --> 0:11:13.560 best issue with voters. And to the degree that this 0:11:13.600 --> 0:11:16.720 becomes a healthcare debate, they will benefit from it politically. 0:11:16.880 --> 0:11:18.640 The degree it becomes a debate whether the government should 0:11:18.640 --> 0:11:20.760 be open or closed, they will be hurt. But for 0:11:20.880 --> 0:11:24.480 now they're doing fine. That's said. Shutdowns aren't static, like 0:11:24.520 --> 0:11:26.679 they get worse and worse and worse in terms of 0:11:26.720 --> 0:11:30.360 their impact on actual citizens, on agencies and federal workers. 0:11:30.520 --> 0:11:33.160 Military paychecks are going to get missed next Wednesday, civilian 0:11:33.200 --> 0:11:37.000 paychecks this Friday, and those sorts of things. Programs start 0:11:37.040 --> 0:11:39.240 to run out of money, airport lines get longer, and 0:11:39.240 --> 0:11:41.160 those sort of things build up the pressure and so 0:11:41.320 --> 0:11:43.920 you could very easily see public opinion reverse in the 0:11:43.920 --> 0:11:46.360 Democrats here and really start to hurt them. 0:11:46.960 --> 0:11:50.400 Yeah, we've been monitoring that on just on the airlines, 0:11:50.440 --> 0:11:53.280 for example, because there's a core staff who are still working, 0:11:53.320 --> 0:11:55.640 but then they're calling in sick, and we've seen some 0:11:55.720 --> 0:11:58.800 delays at airports yesterday. It looks like the fear is 0:11:58.840 --> 0:12:13.400 that could intensify. Matt you're describing something where for the 0:12:13.440 --> 0:12:17.200 first time in a while, the Democrats are potentially losing 0:12:17.440 --> 0:12:20.040 at least one small part of a political battle. It's 0:12:20.080 --> 0:12:21.960 not been a good year for them. And I just 0:12:22.000 --> 0:12:25.199 wondered the President's quite good at noticing those things and 0:12:25.600 --> 0:12:28.520 you know, turning things around. I wonder how you read 0:12:28.600 --> 0:12:30.520 what the comments he had at the beginning of the 0:12:30.559 --> 0:12:32.880 week where he seemed to also recognize that it just 0:12:32.920 --> 0:12:35.000 being about healthcare was not going to be good for him, 0:12:35.000 --> 0:12:36.640 and that maybe if there was a deal to be done, 0:12:36.760 --> 0:12:38.600 he could be the one to get the credit for it. 0:12:39.400 --> 0:12:41.959 Yeah, for sure. And I think this is one spot 0:12:42.000 --> 0:12:45.480 where you see differences between Trump and the congressional Republicans 0:12:45.520 --> 0:12:48.960 quite starkly. They each have sort of their own ideological projects, 0:12:49.200 --> 0:12:51.920 and Trump's has been going after his enemies, which he 0:12:52.040 --> 0:12:54.920 I think largely perceives as this professional liberal class of 0:12:55.000 --> 0:12:57.800 government workers are very often in his target zone. Whereas 0:12:57.840 --> 0:13:00.040 Republicans on the hill, their ideological project has for a 0:13:00.120 --> 0:13:03.880 long time been sort of cribbing or reducing or eliminating Obamacare. 0:13:04.040 --> 0:13:06.680 The President is perfectly happy to compromise on healthcare, just 0:13:06.679 --> 0:13:09.040 as he seemed perfectly happy to compmise on things like abortion. 0:13:09.160 --> 0:13:12.360 He doesn't have sort of that traditional Republicans streak about 0:13:12.360 --> 0:13:15.000 those things that throws them off message because they are 0:13:15.000 --> 0:13:17.760 caught between sort of their ideological view of health care 0:13:17.840 --> 0:13:20.040 and then their desire to be in line with Trump, 0:13:20.080 --> 0:13:22.880 particularly in the House. I do think a healthcare compromise 0:13:22.960 --> 0:13:25.400 is coming. One of the weirdest things about this shutdown is, 0:13:25.440 --> 0:13:28.439 in the past shutdowns, the policy demand of the people 0:13:28.440 --> 0:13:30.920 shutting the government down has been a non starter. Like 0:13:31.000 --> 0:13:34.400 President Obama was never going to sign a law repealing Obamacare, right, 0:13:34.440 --> 0:13:36.160 and the Democrats were never going to go for a 0:13:36.160 --> 0:13:39.199 border wall. But a healthcare compmise to extend these subsidies 0:13:39.320 --> 0:13:41.720 is something a lot of the moderate Republicans want and 0:13:41.760 --> 0:13:43.480 I think is going to happen, whether there's a shutdown 0:13:43.559 --> 0:13:46.120 or not. So this shutdown is about, like now turned 0:13:46.160 --> 0:13:49.679 into an issue that is actually solvable through compromise, and 0:13:49.720 --> 0:13:51.800 that makes it a little bit different than pass shutdowns too. 0:13:53.360 --> 0:13:55.560 I mean, just sort of switching back to the economy. 0:13:55.679 --> 0:13:57.880 I mean, it obviously is going to make a difference 0:13:57.960 --> 0:13:59.640 in people's cost of living if some of these big 0:13:59.640 --> 0:14:01.800 increases in health insurance come through, but we won't know 0:14:01.840 --> 0:14:03.560 what's going to happen with that for a few months. 0:14:03.800 --> 0:14:05.720 If you're the Federal Reserve, and we've talked about the 0:14:05.720 --> 0:14:07.640 FED a lot in different contexts than the threats to 0:14:07.679 --> 0:14:09.920 its independence and other things over the last few months, 0:14:09.920 --> 0:14:13.760 but even if they weren't facing a quite aggressive White 0:14:13.800 --> 0:14:15.840 House in the last few months, they'd be facing a 0:14:15.840 --> 0:14:18.440 tough choice when it comes to the economy. So talk 0:14:18.480 --> 0:14:22.040 us through how problematic it is for them if some 0:14:22.080 --> 0:14:24.920 of these sort of core economic data are not available 0:14:24.920 --> 0:14:26.720 when they go into that next meeting at the end 0:14:26.760 --> 0:14:27.240 of the month. 0:14:27.840 --> 0:14:30.920 So the next meeting is October twenty eighth to twenty ninth, 0:14:31.040 --> 0:14:34.640 and before that, we were supposed to have received the 0:14:35.080 --> 0:14:41.119 September CPI report on October fifteenth, and also weekly jobless 0:14:41.160 --> 0:14:44.280 Claims OUR reports and also of course the non farm 0:14:44.320 --> 0:14:50.040 payroll for September. And if the shutdown last beyond October eighteenth, 0:14:50.080 --> 0:14:54.120 for example, then the collection of the unemployment rate for 0:14:54.440 --> 0:14:59.200 October would be disrupted and price quotes for CPI for 0:14:59.520 --> 0:15:04.000 October would also be disrupted. So basically the FED would 0:15:04.040 --> 0:15:07.560 be going into not just the October meeting, but also 0:15:07.880 --> 0:15:11.240 going into the December meeting sort of flying blind on 0:15:11.320 --> 0:15:15.240 both inflation and jobs. And this is quite different than 0:15:15.560 --> 0:15:19.400 the twenty eighteen shutdown, for example, because back in twenty eighteen, 0:15:19.520 --> 0:15:23.560 the BLS was actually funded, so CPI and non farm 0:15:23.600 --> 0:15:27.440 pay was not actually disrupted. And so to see how 0:15:27.520 --> 0:15:31.160 shutdown affected collection of economic statistics, you have to go 0:15:31.240 --> 0:15:35.240 back to twenty thirteen. But even then the shutdown lasted 0:15:35.280 --> 0:15:38.920 only two weeks, and that already reduced the CPI price 0:15:39.040 --> 0:15:42.840 quotes by twenty five percent for collection in October, and 0:15:43.040 --> 0:15:47.640 also disrupted or reduced the number of responses in the 0:15:47.720 --> 0:15:52.000 unemployment survey, causing more error in the unemployment survey. 0:15:52.760 --> 0:15:55.240 And just to be clear, what happens if you've just 0:15:55.360 --> 0:16:00.600 not collected the data the labor for survey, for example, 0:16:00.920 --> 0:16:02.960 that goes uncollected for that month, right, I mean, what 0:16:03.000 --> 0:16:03.840 would they normally do. 0:16:04.520 --> 0:16:08.080 Yeah, So for the Unemployment rate survey in twenty thirteen, 0:16:08.400 --> 0:16:12.840 a BLS resumed collection a week after they normally do it, 0:16:12.840 --> 0:16:16.000 and they have to kind of ask the responders what 0:16:16.680 --> 0:16:20.240 was your status two weeks ago? So they're basically asking 0:16:20.280 --> 0:16:23.400 people to recollect something that happened in the past, as 0:16:23.400 --> 0:16:27.680 opposed to asking them what happened just you know, just now, right, 0:16:28.040 --> 0:16:30.520 So this is a sampling error. 0:16:30.600 --> 0:16:34.480 And again in practice, how could that affect what the 0:16:34.520 --> 0:16:37.320 Federal Reserve does at the end of October or do 0:16:37.320 --> 0:16:39.080 you think that their decision is kind of baked in 0:16:39.120 --> 0:16:39.800 at this point. 0:16:39.960 --> 0:16:42.760 So in the last FMC meeting, they flagged in the 0:16:42.840 --> 0:16:47.360 dot plot the median wanted to cut fifty basis points more. 0:16:48.080 --> 0:16:50.880 It was a very close call, and without a shutdown, 0:16:51.040 --> 0:16:54.680 I would have thought that given indications of many inflation 0:16:54.840 --> 0:16:59.359 measures edging up again, they would not be cutting in October. 0:16:59.400 --> 0:17:03.080 But because of the shutdown and the uncertainty to economic 0:17:03.120 --> 0:17:07.480 activity and also increased upside risk to employment, I think 0:17:07.480 --> 0:17:10.120 they will follow through with a twenty five paces point 0:17:10.119 --> 0:17:11.280 cut this October. 0:17:12.040 --> 0:17:14.440 Interesting, well, Matt, I mean that would be an upside 0:17:14.480 --> 0:17:17.240 for the president from all this. The tradition of the 0:17:17.440 --> 0:17:19.880 podcast these days, At the moment you decide to talk 0:17:19.880 --> 0:17:22.040 about the shutdown, the government's going to reopen again. So 0:17:22.240 --> 0:17:25.320 even even as people are listening, something miraculous might have 0:17:25.400 --> 0:17:29.440 happened on late Wednesday night or something. But given your 0:17:29.480 --> 0:17:33.239 experience and given the analysis of what's going on and 0:17:33.280 --> 0:17:36.040 how much each side has at stake, but also, as 0:17:36.080 --> 0:17:38.320 you said yourself, the fact that it's actually over something 0:17:38.760 --> 0:17:41.880 quite doable on both sides, the sticking point, even though 0:17:41.880 --> 0:17:44.359 there's these very high stakes, Actually the single thing that 0:17:44.359 --> 0:17:46.760 the Democrats are focused on is something that could be fixed. 0:17:47.280 --> 0:17:48.760 How do you think this is going to end? 0:17:49.400 --> 0:17:53.679 I mean, I think how it ends is relatively clear. 0:17:54.160 --> 0:17:58.040 You will get a Democrats voting to reopen the government 0:17:58.119 --> 0:18:03.960 unconditionally and Republican promising a good faith negotiation over the 0:18:04.000 --> 0:18:07.120 healthcare subsidies which will be extended. And so that sort 0:18:07.119 --> 0:18:10.720 of allows everybody to win in some sense politically. Leader 0:18:10.760 --> 0:18:14.000 Schumer of the Democrats will get sort of the credit 0:18:14.000 --> 0:18:17.960 for having fought that his liberals want, and the Republican 0:18:18.040 --> 0:18:21.520 moderates will get their healthcare subsidies. The Republican leaders will 0:18:21.560 --> 0:18:24.920 have not just given away the healthcare subsidies angering their base, 0:18:25.240 --> 0:18:28.080 and Trump will end up with no further restrictions on 0:18:28.440 --> 0:18:31.119 sort of executive spending encroachments that have gone on. That's 0:18:31.119 --> 0:18:33.760 sort of the terms that I think are mostly imaginable 0:18:33.960 --> 0:18:36.240 as to how long it goes. I think there's a 0:18:36.240 --> 0:18:38.760 bunch of pressure points, and the first one is really 0:18:38.800 --> 0:18:41.800 next Wednesday with the military pay and the eighteen shutdown. 0:18:41.800 --> 0:18:44.399 In the long shutdown, DoD was funded so we didn't 0:18:44.400 --> 0:18:48.480 have this issue of soldiers missing checks. But that pressure point, 0:18:48.560 --> 0:18:50.480 to me is sort of the front end window of 0:18:50.480 --> 0:18:53.520 when this would end sometime middle of next week. If 0:18:53.560 --> 0:18:56.200 they go through that and they're still on a stalemate, 0:18:56.680 --> 0:18:59.679 then you start to talk about longer term. But I 0:18:59.720 --> 0:19:01.720 do think there's a good pressure point to end this 0:19:02.280 --> 0:19:03.439 sometime next week. 0:19:03.960 --> 0:19:06.359 But what you've described is something that they could do tomorrow. 0:19:06.440 --> 0:19:09.560 If you think the Democrats are actually willing to give 0:19:09.600 --> 0:19:15.040 in without having a solid assurance on the health insurance subsidies, 0:19:15.640 --> 0:19:17.920 then it just seems odd that they would hold out 0:19:17.960 --> 0:19:20.280 this far and make that their point and then only 0:19:20.320 --> 0:19:22.920 accept a sort of good faith promise from an administration 0:19:23.000 --> 0:19:25.680 and from a Republican leadership that is not they would 0:19:25.680 --> 0:19:27.439 say not shown them a lot of good faith, you know, 0:19:27.480 --> 0:19:30.280 with the rescinding of past funding and other things. 0:19:30.720 --> 0:19:32.800 Yeah, I mean, And that sort of highlights how sort 0:19:32.800 --> 0:19:35.600 of this shutdown is both very high stakes over these 0:19:35.680 --> 0:19:38.920 constitutional issues of executive power and also very low stakes. 0:19:39.160 --> 0:19:41.639 It's over a healthcare policy that was probably going to 0:19:41.640 --> 0:19:44.359 be compromised anyway in the next couple of months, whether 0:19:44.359 --> 0:19:46.560 there was a shutdown or not. And so part of 0:19:46.600 --> 0:19:49.880 what you're seeing here is that the sort of going 0:19:49.880 --> 0:19:53.399 through the motions of the shutdown is a exercise in 0:19:53.480 --> 0:19:57.160 coalition management. Remember, Schumor did not go to shut down 0:19:57.200 --> 0:20:00.560 the government last March, and that really had much of 0:20:00.600 --> 0:20:02.800 the liver wing of his party sort of nipping at 0:20:02.840 --> 0:20:04.760 him pretty bad over the last six months, and for 0:20:04.840 --> 0:20:07.720 him to not engage in a shutdown now probably would 0:20:07.760 --> 0:20:09.760 have lost them forever and maybe cost him his job, 0:20:09.800 --> 0:20:12.359 if not his seat in the Senate going forward. And 0:20:12.400 --> 0:20:15.160 so part of what both sets of leaders are doing 0:20:15.200 --> 0:20:19.600 right now is fighting for their basis admiration. And yes, 0:20:19.640 --> 0:20:22.000 you could end the shutdown today, but is the left 0:20:22.000 --> 0:20:24.080 flank of your party for Schumer or the right flank 0:20:24.119 --> 0:20:26.040 of your party for Johnson and Thune. And in some 0:20:26.119 --> 0:20:29.120 ways Trump going to accept that as a worthy effort 0:20:29.200 --> 0:20:31.520 and a worthy fight. And I think the answer today 0:20:31.560 --> 0:20:33.360 is no, And I think the answer next week might 0:20:33.400 --> 0:20:35.200 be maybe, And I think in a month the answer 0:20:35.240 --> 0:20:36.240 would definitely be yes. 0:20:37.119 --> 0:20:39.760 And what will the public think about it? Who will 0:20:39.800 --> 0:20:41.280 benefit in the end? Do you think? 0:20:41.960 --> 0:20:43.639 Unknown? I mean, the one thing we do know about 0:20:43.640 --> 0:20:46.280 shutdowns is traditionally the party trying to leverage it has 0:20:46.320 --> 0:20:49.920