Editor’s Note: Economists Michael Lewis and Gordon Parrish argue that while the shutdown’s economic damage will be minimal, its primary impact will be political. The bigger question: why not fix the debt ceiling and budget process—and end the endless kabuki on Capitol Hill?
The federal government has been “shut down” by a partisan conflict over spending for the current fiscal year. This is the 22nd such shutdown in the past 50 years. Many of those lasted barely a day. The longest was 35 days, during President Trump’s first term. We are now ten days into this shutdown. There are no signs of a speedy resolution. It could go on for a month or longer. Even if it does end sometime next week, the new agreement is only set to last until November 21. So we could see a return to the Carter and Clinton eras, when there was a series of intermittent shutdowns. (Join our subscriber poll below to take your best guess!)
💬 A likely outcome is that the government ‘reopens’ soon and then shuts down again on November 22
The current fight is not over fiscal policy, not directly. Republicans have offered a “clean” continuing resolution that would keep federal FY2026 outlays at the FY2025 pace until November 21, by which point the parties would have an agreement or the impasse continues. Democrats want to fight over FY 2026 now.
A very likely outcome is that the government “re-opens” soon and then shuts down again on November 22. Presidents Carter and Clinton also experienced on-again/off-again shutdowns.
Image: FMI Chicago
Nonetheless, the final outcome is already clear on most major points:
1. There will be minimal impact on the economy, just as the other 21 shutdowns had no visible effect on trend growth. “Lost” spending is simply delayed a bit. Only a tiny fraction of the nation will suffer any inconvenience or even notice the shutdown.
2. Every furloughed federal employee will be paid in full when the shutdown ends. No worker loses even a penny; many get a retroactive paycheck under the Government Employee Fair Treatment Act of 2019, though some legal debate now surrounds its automatic application in this shutdown.
3. Very little actually “shuts down.” Of the roughly 2.9 million federal civilian employees (excluding the Post Office), about 750,000- 900,000 are furloughed. Roughly half of those are classified as “excepted” workers who continue to work without pay until funding resumes. All entitlement checks (Social Security, Medicare, Medicaid) continue; veterans’ hospitals remain largely open; federal prisons stay staffed. Immigration enforcement and deportations continue.
Legislators, however, will be paid on time throughout, because their salaries are funded separately under the 27th Amendment. Active-duty military personnel are not expected to be paid on October 15th if the shutdown continues past this Monday.
🪖 Could Military Pay Force an End to the Shutdown Next Week?
Update (Oct 10, 2025) Active-duty service members received their Oct 1 paychecks, since that pay period ended before the shutdown began. However, they will not receive their Oct 15 pay unless Congress restores funding or passes a separate “Pay Our Troops” measure.
The Defense Department has confirmed that troop pay will be delayed beginning mid-October if the impasse continues, even though all personnel must continue to report for duty. Lawmakers are now under bipartisan pressure to act quickly to prevent missed paychecks for more than 1.3 million uniformed personnel.
As for the final FY 2026 appropriations, that will come in two parts:
Just to re-open the government, Democrats are demanding to roll back the Medicaid restrictions approved in the “One Big Beautiful Act” a few months ago and to extend the temporary extra subsidies on Affordable Care Act insurance premiums that will expire in December. Next, there is the additional ≈ $100 billion in so in spending cuts sought by the White House and GOP. Congress, as has become the norm, did not pass a single one of the required 13 appropriations bills. That will be addressed in a new omnibus bill.
Democrats’ Medicaid demands are a non-starter. Republicans fought hard to get those restrictions, which mainly prevent states from using Medicaid funds for illegal immigrants. As for the ACA subsidies, Democrats and President Joe Biden approved that temporary extension in 2021 as a “crisis” response to COVID; they provided subsides to people earning up to 400% of the poverty line in some cases. Democrats could have made the subsidies permanent back then, but the cost would have significantly expanded the deficit. Republicans will not do what Democrats themselves refused to do. Letting the Biden temporary extra subsides expire would return the ACA subsides to their “hellish” state under Obama in 2016.
Republicans may extend some subsidies because, well, fiscal resolve is not their strong suit. But only a fraction of the $385 billion that Democrats are seeking. In his FY2026 budget, Trump sought net spending cuts of $169 billion. Some were approved in the One Big Beautiful Act. The rest are on the table. Democrats oppose all spending cuts.
President Trump will likely get only a small fraction of his additional spending cuts. Even so, the shutdown increases his leverage by giving him the latitude to act on his threats to fire tens of thousands of federal workers, beyond the 150,000 who accepted his buyout offer to quit. These pink slips go to agencies that are not “priorities.” In 2025, targeted federal employees have rushed to sue, arguing that the President cannot fire them because Congress had appropriated funds for their salaries. Now without appropriations, those lawsuits face uncertainty. Democrats would need to scramble to get those employees reinstated. They will not save them all.
This is the fundamental weakness in the Democrats’ strategy. If Senator Schumer and his colleagues had just approved the clean continuing resolution, they could have kept the status quo in place until November 21, and likely longer. Maybe they could have run out the clock until the midterm elections. FY2025 funding levels would have stayed in place. “Their” federal employees would continue on the job. Now, with the funding lapse, the White House and Republican legislators have little incentive to end the shutdown quickly. Democrats need an exit strategy, sooner than later.
A Small % of US Employees Are Affected by the Shutdown
* Based on 163.4 million employed persons nationwide.Military salaries TBD
Conclusion
The number of workers currently missing a paycheck is relatively small: about 0.5 to 1 percent of all US employees. That is cold comfort to those directly affected, and the indirect effects, such as delayed flights due to air traffic controllers calling in sick, will test public patience. Just as the causes of the shutdown were political, not economic, its resolution will also be driven by politics, not fiscal policy.
The damage to the economy is likely to be minimal, but the political impact could be far greater. Midterm elections are little more than twelve months away.
Michael Lewis is the founder of FMI. Before founding FMI, Mr. Lewis was an economist at Data Resources, Inc. and Atlantic Richfield Co. He was Chief Economist from 1978 to 1982 at Stein Roe & Farnham. He is kno…
