New report says Trump's shutdown is even worse than we thought — and it could send us into recession

It was obvious from the start that President Donald Trump's rash decision to shut down the federal government was callous, destructive, and strategically obtuse. But a new report from the New York Times late Tuesday night revealed that the shutdown will be much more economically harmful than initially believed — and the White House knows it.

The White House confirmed, the Times reported, that it had originally underestimated the negative economic impact of the shutdown, which Trump has said could last for months or "even years." In light of these more negative predictions, the shutdown itself could cause the economy to contract, according to the report.

"The White House is predicting that the White House's decision to shut down the federal government could drive the economy into recession," noted Washington, D.C., correspondent Binyamin Appelbaum. Ironically, he added: "I guess that's one way to convince the Fed to stop raising rates."

Trump's top economic adviser Kevin Hassett has tried to put a positive gloss on the shutdown, but he couldn't avoid admitting the fundamental dangers to the Times:

Mr. Hassett said it was possible that the damage could grow. He also said much of the damage should be repaired once the shutdown ends and workers get back pay. But he acknowledged that the shutdown could permanently reduce growth expectations if businesses and markets begin to expect that Congress and the president will repeat the experience again and again.

Politico had previously noted the serious economic risk of the shutdown:

The long-term economic impact of the impasse should still be relatively small, assuming workers get back pay and contracts ultimately get executed. But now that the partial shutdown is the longest on record, it will begin to impact first quarter numbers. And in the worst-case scenario, it could wipe out Q1 growth entirely.

Via Pantheon’s Ian Shepherdson: ““[I]f reported GDP growth was headed for an annualized 2.5% rate … before the shutdown, then the direct effect of all 800K workers being out for the whole quarter would be directly to reduce it to just .25 percent or so” …. [I]f the shutdown were to last through the whole quarter, we would look for an outright decline in first quarter GDP.’”

And as the Washington Post has reported, small business owners are already struggling to get loans because of the ongoing gridlock in the federal government.

The administration has been trying to reduce the substantial impact of the shutdown by asking federal employees to work without pay on jobs that help the economy sustain itself But these efforts are mere band-aids on the larger problem, and forcing people to work without pay carries its own risks.

Earlier in the day, a report in Bloomberg explained that we can expect the negative effects of the shutdown to pile up quickly.

“Shutdowns don’t get bad linearly; they get bad exponentially,” said Sam Berger, a senior adviser at the Center for American Progress, told Bloomberg.

All this means that the pressure on Trump and Congress to end the shutdown will only grow. Since Democrats have repeatedly passed bills to reopen the government — measures that Republicans supported until Trump pulled the rug out from under them — they should be able to avoid giving in to Trump's demands. The only question is when Trump realizes that the economic consequences are really doing damage to his standing, and whether Senate Majority Leader Mitch McConnell decides to break the impasse first.