The Shutdown’s Surprisingly Small Economic Impact
Concrete Evidence (November 3, 2025)
As I write, it’s been about a month since the federal government “shut down.” I use scare quotes because most of the federal government is actually still going.
Social Security checks are still going out. Medicare cards still work. Food stamps were funded through October, and while they paused on November 1 amid some legal wrangling, the Trump administration appears likely to restart them this week under pressure from the courts. Soldiers are still defending the country. Around half of federal employees are still working, in fact, although mostly without pay. Missed paychecks will be made up, including for furloughed workers, when the government starts back up.
Also still running is the Congressional Budget Office, which is in the ironic position of being a federal agency … putting out federal reports … during a federal shutdown … about what happens to the economy when the federal government is allegedly shut down.
According to a handy eight-page analysis released last week, the economic impacts of the shutdown will be modest and mostly temporary. That’s because most of the economic activity that doesn’t happen during a shutdown is made up subsequently upon reopening.
A four-week shutdown, for example, would do $18 billion in damage to GDP during the fourth quarter of 2025, but about $11 billion of that would be made up, mostly in early 2026. And while $7 billion is certainly a lot of money to an individual, it’s a tiny fraction of America’s quarterly output (which is in the trillions) amounting to about $20 per person in the country. If the shutdown extends through November, the per-person cost rises to about $40.
The CBO identifies three factors behind the impacts: “Fewer services will be provided by federal workers, federal spending on goods and services and SNAP benefits [starting in November] will be temporarily lower, and a temporary reduction in aggregate demand will lower output in the private sector.” Most of that missed spending will be made up once the government starts up again, but there’s no getting back the missed work of furloughed employees.
Shutdowns make our government look ridiculous and dysfunctional, they are a bad way to litigate important policy issues, and they are a horrible way to treat workers—especially the ones still going to work but not getting paid. When they drag on long enough, they can even threaten poverty-relief programs.
But since so much keeps going when the government “shuts down,” and since so much of the rest is caught up after the fact, the impact on the overall economy is surprisingly small, for a country where federal spending is about a fifth of GDP.
From the Manhattan Institute
Jennifer Weber makes the case for mayoral control of New York City education: “This makes it possible to carry reforms across a large city, ensure stable leadership, and follow through on long-term plans.”
Other Papers of Note
New issue of the Journal of Controversial Ideas. With good timing—given Helen Andrews’s recent viral discussion of the topic—the issue includes Cory Clark on the “cultural rise of women.”
The Tax Foundation ranks U.S. states on tax competitiveness. Wyoming, South Dakota, and New Hampshire lead the pack, while California, New Jersey, and New York rank at the bottom.
The share of Americans who think crime is rising has fallen for the past two years. So, incidentally, have most categories of crime.
Where do police patrol when they have discretion? This study looks at GPS data from cop cars in Manchester, N.H., to find out. Alarmingly, discretionary patrol time doesn’t seem to be used where crime is highest, so focusing police on crime hot spots will require more direction from above.
Nearly a decade ago, Cook County, Ill., instated and then repealed a penny-per-ounce tax on sweetened beverages. The tax “reduced purchases by 22.5% for all taxed beverages, 16.5% for high-calorie taxed beverages and a 33% for low-calorie (e.g. diet) taxed beverages.”
A while back, there was a big fad around “nudging” people to do what we want—make everyone an organ donor by default unless they deliberately opt out, for example. Now, a study of changes in countries’ organ-donation policies suggests there can be unintended consequences. When countries switch to a default of organ donation upon death, people become less likely to donate organs while they’re still alive. With support from some lab experiments, the authors propose that, under this regime, folks might assume there’s less need for organs and thus be less willing to donate, especially to strangers or more distant social connections. Notably, though, the confidence interval for the living-donor decline is pretty wide (it could be a very huge drop, or a rather small one), the paper’s estimate of the impact on total donors is statistically insignificant, and it’s not clear how to trade off donations from the living vs. the dead anyway. (The dead can give more organs per person and don’t require doing surgery on someone who’s still alive, but organs from the living seem to improve survival more.)
Does ethnic diversity reduce charitable giving?
KFF Health News explores some nuances around the claim that fraudulent “phantom” enrollees are common on the Affordable Care Act exchanges, in response to Paragon Health Institute research I featured here a few weeks ago.
The Affordable Care Act requires insurers to spend 80-85% of premium revenue on medical care (depending on the type of plan), and to refund enrollees the difference if they don’t. A Health Affairs analysis points out that a lot of “refunds” are going to folks whose premiums were paid by the federal government, and that the policy can backfire in important ways, such as by discouraging low-premium, high-deductible plans (which tend to have low claims and struggle to meet the required thresholds).
Contraceptive subsidies have “large and persistent effects on the choice of contraceptive method, resulting in significantly fewer pregnancies and abortions within two years. Subsidizing contraception negatively affected births, but the effect was not significant at two years.”
What drives trends in electricity prices?
“Certificate of need” laws make it harder to build or expand health-care facilities. Getting rid of them is “associated with short-run reductions in cancer mortality, primarily from reductions in lung cancer mortality,” per one new study. According to another, certificate-of-need repeals also “increased the number of long-term acute care hospitals by 69 percent and added an average of 558 certified beds per million elderly residents,” while improving health outcomes.
In a small survey of jail inmates, “the most sexually frustrated offenders reported significantly greater struggles with aggression and self-control. Offenders with higher sexual frustration scores were also significantly more likely to have been arrested for murder/attempted murder, or violent crimes in general, after controlling for demographics.”
Patrick Brown of the Ethics and Public Policy Center proposes steps to improve child-care options.
I don’t envy whoever had to collect discarded cigarette butts for this study.
On that note, I’ll see you next week.
Before I start reading this newsletter regularly, I'd like to know whether links to other studies are nearly exclusively those with findings supportive of the City Journal writers' most common political positions and assumptions or whether there are a healthy supply of articles that call into question those positions and assumptions. I'm always interested in the latter, whether from the left or the right.