Doreen Greenwald (3:02)

The processing of tax returns will stop. Refunds will stop. We know that the people processing at the Office of Personnel Management, they process retirements. You're looking at Social Security checks. You're looking at, you know, inspectors who inspect food may be not able to do that. You're looking at people coming into offices and providing services, but not having funds. So that puts a stress on the people delivering those services. The national parks, they provide security. National parks may be closed. The people at the FAA who manage our skies, you know, we.

Ed Butler (3:40)

This is the air traffic controllers.

Doreen Greenwald (3:42)

Yeah, right, right. They're also going to be involved in a rift. So, I mean, across all of the many services that the federal government provides are all impacted. A shutdown hurts everyone. You're sending people home. There's a law on the books that pays them when they come back. So you've paid them for not doing the services. And yet every one of these federal employees want to go to work, but they're prohibited from doing that because Congress hasn't done their jobs.

Ed Butler (4:10)

Many on the federal payroll, though, like firefighter William, who we heard from earlier, are deemed essential. Someone has to put out the fires, so they still have to work.

William (Federal Firefighter) (4:21)

I have to show up to do my job whether I get paid or not. I'm a mandatory responder. We have to show up on our shifts.

Ed Butler (4:28)

But you're going to get back pay, right? I mean, for the weeks that you work now that aren't paid?

William (Federal Firefighter) (4:32)

Well, that's the fun part. We're essentially holding onto an iou, so we're showing up with a promissory note of being paid.

Ed Butler (4:41)

What do you earn as a federal firefighter?

William (Federal Firefighter) (4:46)

Well, right now, I'm under a government scale. I'm a GS5, and that roughly equates to about $16 an hour. And I'm gonna say it. It's criminal how low we're paid for what we actually do and what we actually respond to.

Ed Butler (5:01)

You have a family? You have children?

William (Federal Firefighter) (5:04)

I do. I have three children. I'm a single father. I have to work two jobs normally to just afford rent and food in this state. And now one of those incomes is taken away.

Ed Butler (5:15)

What is the mood like at work? Are you seeing emotion?

William (Federal Firefighter) (5:20)

Yeah. Anger, disgust, and in some cases, defeat. Like, we're all hanging on in quiet desperation. I have to work six to 10 days at my other job just to afford food, rent, and a car payment. I'm strapped. I'm stressed out. I'm doing too much just to get by. And it's ridiculous.

Ed Butler (5:46)

Then you're in debt.

William (Federal Firefighter) (5:47)

Yeah, I don't know anyone who's not in some way. I mean, some people have taken out the loans on their retirement to get by. Some people have taken credit cards and maxed them out just to keep eating. It's insane. I just want a paycheck and go home.

Ed Butler (6:03)

There's a lot of rage in Washington. I mean, who are people blaming for what's going on?

William (Federal Firefighter) (6:08)

Well, it's a mix. I mean, people blaming Democrats, people blaming Republicans. It just depends on who you're having to talk to at a certain time.

Ed Butler (6:17)

Congressional leaders are likewise at loggerheads. On the majority side, the Republicans are trying to pass a stopgap deal to keep the lights on. But the Democrats say they won't sign it without a compromise arrangement to stop imminent cuts to health care. And both sides, sides are blaming each other. Pete Aguilar represents the House Democratic Caucus, but before him, let's hear from Republican House Chair Mike Johnson.

Joseph Stiglitz (6:42)

Democrats could have worked with us in a bipartisan manner to avert this unnecessary and very harmful shutdown. But instead they prioritized taxpayer funded benefits for illegal aliens over keeping the government open for American citizens. They themselves position that as a binary choice and it's patently absurd. Republicans control the Senate, the House and the White House. They must have a plan to solve this.

William (Federal Firefighter) (7:10)

They need Democratic votes in order to fund government.

Mark Zandi (7:14)

So it is on them to engage us, talk with us, show up to work.

Ed Butler (7:21)

Both sides sound like they're settling in for a long political fight. And to make matters worse for the federal workforce, the President has now weighed in threatening Democrats that he'll be shutting down more government programs and laying off workers if they don't compromise.

Mark Zandi (7:37)

We can do things during the shutdown that are irreversible. So they're taking a risk by having a shutdown because we can do things including benefits. We can cut large numbers of people out.

William (Federal Firefighter) (7:50)

We don't want to do that, but.

Mark Zandi (7:51)

We don't want fraud, waste.

Ed Butler (7:55)

So that's what's happening politically right now. The question though is where does it leave the wider US Economy? It's calculated that each week a shutdown trims about one fifth of a percentage point off national growth. There have been other shutdowns before, of course, experience suggesting that the losses can be quickly reversed if and when the government reopens. Stephanie Roth is the chief economist at Wolff, an equity focused research firm in New York.

Stephanie Roth (8:21)

So we've had about 21 funding lapses in the US since 1976. 2013 is the closest analog because that was also a full shutdown, which is what's happening today. It was estimated that about $85 million per day of lost output.

Ed Butler (8:38)

So that is the past. But the record is not that a shutdown is a disaster.

Stephanie Roth (8:43)

Yeah. And that's why usually markets look through it, because the workers that are furloughed are given back pay and the economy can continue on. Of course, I'm not expecting the shutdown to last all that long, but if there were a situation where it would be prolonged beyond a couple weeks, then sure, this becomes a much bigger issue.

Ed Butler (9:03)

You're listening to Business Daily from the BBC World Service.

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Ed Butler (9:41)

I'm Ed Butler and in today's program we're assessing the potential hazards for the US Economy. If for example, the the shutdown does endure. Can America cope? There have been some rather mixed signals of late. We've had some less than brilliant job numbers, for instance, and surveys suggest low consumer confidence at the moment. With the recent upheaval to global trade triggered by President Trump's tariff policies and his latest threat to lay off thousands more workers, some economists have been speaking darkly of the risks of recession. On the other hand, though, the most recent GDP figures for the second quarter have shown a relatively healthy sounding 3.8% economic growth. So what's really going on?

Mark Zandi (10:25)

Let's just assume that half the 750,000 non essential workers got laid off or fired. That would add 3, 4, 10 of a percent to unemployment. And then of course there would be all kinds of knock on consequences from that. So that would be consistent with the recession.

Ed Butler (10:42)

That's Mark Zandi. He's the chief economist at Moody Analytics. He reckons we shouldn't be fooled by the recent growth figures which have been distorted upwards, he says by a pre tariff spending spree.

Mark Zandi (10:55)

For the first half of the year, GDP was up 1.5% to 2%. So that's, you know, that's growth, that's not a recession. But it's not that great. This economy that's struggling and it's certainly not enough to keep creating a lot of jobs. Certain industries are doing okay and obviously at the top of the list is artificial intelligence. AI is kind of driving the economic train, both in terms of all the capital spending that's going on, all the data centers, that kind of stuff. Healthcare is also good. But then you got on the other side of the ledger, you've got manufacturing, it's in recession, you've got agriculture, that's in recession, you've got mining, that's in recession, you've got transportation, distribution, distribution, wholesaling, and that all goes back to the tariffs. And then you've got a bunch of other industries that are trying to figure things out. With the restrictive immigration reform, it's really crimping their ability to do what they do. So you net it all up and it shows you an economy that's not in a recession, at least not yet, but one that's not going anywhere quickly.

Ed Butler (11:53)

How does immigration policy right now affect the economy?

Mark Zandi (11:59)

Well, it slows growth, weakens growth, and it raises inflation. It slows growth because there's not enough people out there to work in certain sectors, you know, in construction trades, manufacturing, hospitality, retailing, healthcare. And then as a result, it's causing labor costs to rise and adding to inflationary pressures. It's really doing a lot of damage.

Ed Butler (12:23)

Does that explain this differential between what we're seeing in those headline growth numbers with how Americans are feeling? Because most Americans have been feeling pretty rotten, haven't they? Well, many of them for the last two or three years, yeah.

Mark Zandi (12:38)

And that goes to another dynamic that's playing out and that is the haves versus the have nots. You know, the so called K shaped economy, the folks at the top part of the income distribution, wealth distribution, they're doing fabulously well. They got a job, they've got pay increases and bonuses and they own stocks, they have a lot of cash in their checking accounts, so they're doing really well and they're powering growth. And here's a statistic for you that the folks in the top 10% of the income distribution in the US account for almost half the spending. So the economy continued to move forward, but the rest of the population, you know, the bottom 80% of the distribution is really having a tough time financially. Their pay and their spending has barely kept pace with inflation. Inflation's up a lot. And it's for stuff they need, right? It's food, it's, it's electricity, it's rent. You know, all those things are up a lot. So the vast majority of Americans saying things aren't going all that great.

Ed Butler (13:34)

I guess a lot of this feeds into a curious question that's affected by the shutdown, which is the numbers. I mean, the data itself, I guess, could be challenged by a long shutdown because the government's going to stop producing numbers. Is there a problem with data itself, do you think?

Mark Zandi (13:51)

Well, well, yes, there is. I mean, so far it's been largely because of the cuts, the staffing cuts that have occurred, you know, since the beginning of the year under, under the Doge, so called Doge cuts. And now here we are, government shutdown, and the statistical agencies are shut, they're shuttered, they're not going to produce any data. And that's problematic because for the Fed, what do they do with interest rates? Should they cut again, should they not cut? A lot of that depends on the data that they're not going to get. So, yeah, this thing drags on for a month or two. The disruption to government services, including the economic data, is going to be a real problem.

Ed Butler (14:26)

And the Fed, as you mentioned, has two mandates. One is to keep employment high and the other is to bring inflation down. Those two are kind of in conflict right now, perhaps.

Mark Zandi (14:38)

Yeah, you know, you're right. There's dual mandate, and that's tough to do when you have tariffs and you have restrictive immigration cut policy, because those things work to slow growth, which would suggest cutting rates, but also raise inflation, which would suggest raising rates. So what do you do with that? And then you throw in the mix. No data, so they don't know. I'm sorry, I'm laughing because it's so painful to even think about. But the metaphor in my mind is, you know, the economy is a plane. The Fed is the pilot. Pilot's got all these instruments in front of them to try to guide the plane. And now all the instrumentation is out and they're flying the plane in a storm. So that doesn't augur well.

Ed Butler (15:17)

Mark Zandi of Moody's. Well, I've also been speaking with Professor Joseph Stiglitz. He's a world famous economist and political campaigner. He's a recipient of the 2002 Nobel Prize for Economics for his analysis of distorted markets. He says that the current shutdown does make the US Economy look increasingly fragile.

Joseph Stiglitz (15:38)

It looks prolonged. It worsens a situation that I think many of us thought was a little bit precarious. Confidence is low. This will clearly undermine confidence even more. Workers who are told that they aren't going to be paid if it's a prolonged shutdown may call in sick, even if they will get paid eventually. And that was one of the worries about the people doing security at the airport if they don't show up for work. Long lines at the airport would discourage people from flying. That could lead to a whole set of tangles. I'm sure that a lot of the elderly dependent on Social Security checks are going to be worried. So this has induced a very peculiar interruption into the economy.

Ed Butler (16:31)

So how bad does it get, then? I mean, do you think that eventually that malaise, that sense of concern, lack of optimism, low confidence, is inevitably going to feed into the headline numbers?

Joseph Stiglitz (16:48)

Yes. I find it hard to believe that the enthusiasm of AI can carry us through all these difficulties, particularly the shutdown of the government. If it extends, that will cast a big power over the economy, over our society. It will provide further evidence about Trump's governing in a chaotic way, not knowing how to manage the normal process of compromised. And if he follows through on his threat to fire workers, they're going to say, you know, not only are not we not getting needed government services during the shutdown, we're not going to get them afterwards.

Ed Butler (17:29)

You seem very confident that this is going to rebound on Donald Trump more than it is on the Democrats. There are others who think that they will be the ones taking the blame for congressional gridlock.

Joseph Stiglitz (17:41)

You know, there's always uncertainty about how political events will be interpreted. But the narrowness of the demands that the Democrats have made for ordinary Americans, the restore the cuts to Medicaid for the poor, Obamacare for America's middle class, you know, this is the very narrow demand that I think almost all Americans are sympathetic with.

Ed Butler (18:11)

Professor Joseph Stiglitz. And in fact, the most recent polling has suggested that ordinary Americans, if they blame either side, are marginally more inclined to point the finger at the Trump administration, not the opposition Democrats. But back at home, though, in Washington State, William the firefighter doesn't really care either way. He reckons that firefighters should be safe from the latest threats of redundancy. But other workers he knows might not be so lucky. He's trying to put on a brave face in front of his children, even as the bills and the stress of an unpaid job mount.

William (Federal Firefighter) (18:47)

You know, the way my circumstance is, I need the income and honestly, the retirement and the benefits, like, you know, federal fire has a pretty good benefit program and a pretty good retirement. But the thing that sucks is there's barely enough compensation to make it really worth it. Right now I'm working at a fire academy to make ends meet. Maybe I'll get into another department and have better pay. That's kind of all I can hope for at this point.

Ed Butler (19:14)

What age are your children?

William (Federal Firefighter) (19:17)

They range from 11 years old down to almost being born. I'm trying to keep things light, you know, keep a positive attitude. I'm trying to just not give them any more stress than they need to. I mean, kids are already on YouTube. They're already on social media. I'm doing my best to keep a positive attitude for my kids.

Ed Butler (19:36)

How come you're talking to me about this? I mean, could you not get into trouble for going on the record about being a federal worker in this situation?

William (Federal Firefighter) (19:44)

How come I'm talking to you? Because, quite honestly, you're listening. I mean, it's almost like we're all gagged to just take it. And I'm not that kind of guy. I'm not a person who's just going to stand by and take things, no matter who it is.

Ed Butler (19:59)

Would you get into trouble if they knew you were talking to the media?

William (Federal Firefighter) (20:02)

Maybe. I don't know.

Ed Butler (20:04)

Has this changed your attitude to the idea of public service?

William (Federal Firefighter) (20:09)

The idea of public service? No, but maybe. Who for?

Ed Butler (20:15)

That's the firefighter William, speaking to me after the start of the latest U.S. shutdown. And that's it for this edition of Business Daily from me, Ed Butler and the rest of the team. Take care.

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