As the federal government shutdown enters its third week, BBTW editor Peter S. Green spoke with Jeffrey Campbell, the Frances D. Rasmus and Jerome A. Castellini Professor of Economics at the University of Notre Dame, about the impact of the shutdown on the U.S. economy. Mr. Campbell is also a former senior economist at the Chicago Fed.

Peter Green: How is this shutdown different from any previous shutdowns, and will it have a big effect on the U.S. economy, or real-world implications for people?

Jeffrey Campbell: In previous shutdowns it was very clear that federal employees would be not only made whole but better off than they would have been because they got a vacation and then they got paid. [Here], it’s very difficult to see that happening.

But still you’ve got 1.4 million federal employees not getting paychecks. Landlords are already worried that rent won’t be paid.

Most of those workers will get paid retroactively and will be able to pay back rent but some landlords are probably going to take this on the chin. The equity holders and the rental companies are going to end up taking the hit. Suppose that we need a refrigerator to be up to code. The rental housing company is going to install the refrigerator because they’ve got to be up to code regardless of who they rent it to. So a cash flow can impact individuals’ expenditures when that individual doesn’t have a lot of savings or doesn’t have a lot of credit, but a larger rental company generally does have access to both savings and credit and their equity holders are the ones who are going to take it on the chin.

And what about credit card companies and banks that might see greater defaults?

They’re going to have markdowns on that, absolutely , and again it’s going to be the equity and security holders that are going to take the hit.

Will there be a knock-on effect?

The damage is going to be to the very specific people who are involved and a set of people I’ll call their creditors, which is if you rent your house you’re a creditor to those people, if you issue the credit card to a federal employee you’re a creditor, small businesses in Maryland and Virginia will probably be hit because that’s where all the federal employees work, but is this going to impact Kentucky? No, not really.

If the shutdown drags on, how does the federal government carry out necessary functions, like paying FDA inspectors to check the meat or the FAA making sure more doors don’t fall out of Boeing 737s?

There’s a difference between being funded and getting your inspection, and they’re going to maximize that wiggle room. Paying soldiers is a great example of that. The Trump administration has proven with their flood the zone strategy that they’re quite willing to do things that lawyers would advise against in order to threaten their opponents. The classic one right now is paying the military, finding the money and then asking their political opponents, okay sue me for paying our soldiers. That’s not a good look. They’re going to try a lot of that to keep the shutdown going.

How is it going to impact economic growth?

For things like this I would always say two-tenths of a percentage point. I don’t think it’s going to be that big of a deal compared to the private sector growth. What’s fueling private sector growth is technological change, that we figure out new and better ways of doing things and that’s what allows us to become wealthier and wealthier. Look at Joel Mokyr’s Nobel Prize. The manifestation of that right now is AI. We’re figuring out how to deploy AI to make us richer essentially to give us the things we want at lower cost to us and in that i would say if anything having the government shut down is probably a bonus because they’re probably going to obstruct the deployment of new technology, slowing down technological deployment that’s a perfectly reasonable thing to do it’s just it slows down back on the growth and government is the tool for that and so i’m making a prediction that if government’s not available to be a tool for that economic growth will be higher.

This interview has been condensed and edited.

—Peter S. Green

Watch Big Business This Week on Cheddar—and YouTube!$ORCL ( ▲ 3.08% )   $MSFT ( ▼ 0.53% )   $AAPL ( ▼ 1.13% )   $RYN ( ▲ 3.31% )   $PCH ( ▲ 2.89% )   $WY ( 0.0% )   $STLA ( ▲ 0.79% )   $UBS ( ▼ 0.23% )   $JEF ( ▼ 10.18% )   $AZO ( ▼ 0.26% )  The usual suspects

• Kid Talk: Meta $META ( ▼ 1.09% ) says it’s going to keep teens under 18 away from content that’s “sexually suggestive,” violent or shows pictures of bongs. Movie-like PG13 and special PG13+ restrictions, moderated by a panel of thousands of parents and newly-trained AI chatbots will keep kids from viewing “risky stunts” and other material the panel considers inappropriate. And users will have to show ID to open an Instagram account. OK, boomer.
• Bubble, Schmubble: Oracle’s $ORCL ( ▲ 3.08% ) new co-CEOs are defending the company’s plan for massive new investments in data centers to run AI applications, even as the AI bubble appears ready to burst. Oracle’s shares jumped 40% last month after the company said it had signed a contract with OpenAI for $300 billion. But OpenAI says it won’t make a profit until 2029, and doesn’t have anything like that much cash on hand. Moody’s called the dependence on OpenAI “risky,” and Oracle needs to show it can make a profit offering AI applications despite the massive cash investment required and the inevitably short lifespan of each generation of AI chips. 
• Nobel-nomics: Joseph Schumpeter, the Austrian economist whose theory of “creative destruction” and the role innovation plays in economic progress underpins much of the modern economy, never won a Nobel prize. But this week, the award went to three economists who built on Schumpeter’s work and explained how innovation and science lie at the heart of the technological revolution that has created unprecedented growth and prosperity for the past 200 years. Joel Mokyr at Northwestern University won half the $1.2 million prize money, and Pierre Aghion at the London School of Economics split the other half with Peter Howitt of Brown University. The award comes as economists, businesses, investors and policy makers are trying to understand how the explosive growth in AI may reshape the economy, and whether business is ready to take advantage of AI.

Tech troubles

• The Windows 10 disaster: On Tuesday, Microsoft $MSFT discontinued updates and security fixes for Windows 10, telling users to just upgrade to Windows 11. Sounds like an easy fix? Well, no. As the Public Interest Research Group’s Right to Repair campaign points out, some 400 million PCs are physically incapable of upgrading. It’s the biggest eWaste stream in history. PIRG calls that “a bad deal for both users and the planet.” The biggest losers? Schools, government agencies, non-profits, and similar groups that can’t afford to buy new tech. The biggest winners? Hackers, of course. Microsoft is offering a year’s paid support to keep Windows 10 machines safe, but so far, that’s not really working out.
• Apple’s $AAPL incremental obsolescence strikes again, with a new M5 chip that powers a new laptop, iPad and set of VR glasses, all for a few hundred dollars more than the previous version. The new Vision Pro goggles are more than $3,000, of course. The chip is four times faster than the M4, adding a boost to AI workloads, the company said. It’ll also boost Apple’s bottom line, the company hopes. Net income fell 3.36% last year, and 2.8% in 2023. Shares are up only 2.25% this year.

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The short stack

• TIIIIMBER!Two of the largest U.S. timberland owners, Rayonier$RYN ( ▲ 3.31% ) and PotlatchDeltic$PCH ( ▲ 2.89% ) have agreed to merge to form the second-largest U.S. landowner after Weyerhaeuser$WY ( 0.0% ) . The timber industry has been on a roller-coaster ride this year, as tariffs on Canadian wood, now 35%, help U.S. tree fellers, but an oversupply of softwood in the U.S. southeast has slashed profits for landowners. At the same time, thousands of clear-cut acres are being leased to solar power developers at 10 times the return from growing trees.
• Go East, Young Man!  With viewership declining in the U.S., the NBA is looking back to China, where it had been attracting a growing audience before Covid and some pushback from the Chinese government. The NBA has 425 million social media followers in China, more than 5,000 partner retailers, and a new deal with online retailer Ali Baba, whose chairman, Joe Tsai, owns the Brooklyn Nets. The Nets play the Phoenix Suns in Macao on Friday, and tickets are going for as much as $3,000, CNBC reports.
• Grindr Buyback: Two of Grindr’s largest shareholders say they just can’t quit the gay hookup app, and want to take the company private. There’s no formal offer yet, but then that’s often how Grindr works (I’m told). Semafor reported that the offer would value the firm at $15 a share, or about $3 billion. Grindr’s focus on same-sex partnering has seen usage and revenue rise, even as Gen Z users have tired of online dating, eschewing apps like Tinder and Hinge, which have seen paying users decline.
• FlyBy: Boeing $BA ( ▼ 1.43% ) , America’s largest manufacturer, delivered 55 planes in September, putting it on track to deliver the most planes in a year since 2018, when all its troubles began, with the first of two back-to-back crashes of the 737MAX. CEO Kelly Ortberg says Boeing expects to up production of the lucrative 737 series to 42 a month, under an accord with the FAA, which limited production after a door panel fell out of a 737 last year. Shares in Boeing are up 24% this year, although they’re still yet to go back up to their 2020 prices.

Car Talk

• Stellantis $STLA ( ▲ 0.79% ) , the Italian-based group that owns Chrysler, says it’s moving some Jeep production from Canada to the U.S., which Canadian officials say could cost 3,000 jobs. Stellantis, which didn’t mention Canada in announcing the investment in the U.S., says it will spend $13 billion in the U.S., launching five new models and adding 5,000 jobs (well, 2,000 new ones, if you’re counting), even as its profits keep falling. Meanwhile, the Canadian government says it will sue Stellantis, after it gave the company some of a 15 billion Canadian dollar benefit package to build EVs and batteries in Canada. “Auto jobs are being sacrificed on the Trump altar,” said Canadian autoworker union leader Lana Payne. Why is Stallantis ditching Molsonville? In July, Stellantis said U.S. tariffs had already cost its Canadian operations $350 million, and it saw profits plummet to $20 billion last year from $38 billion a year earlier. Stellantis’ share price is down 34% this year. 
• Fired up: Ford $F ( ▼ 0.55% ) has halted production on its lucrative three-row SUVs, including the Lincoln Navigator, after a fire destroyed an aluminum car parts factory in upstate New York last week. The plant produced about 40% of the sheet aluminum used in U.S. cars, and the F-150 pickup is going to be hardest hit, as one of the most aluminum-filled cars in the U.S. It can take several months for a supplier to meet the exacting demands of a modern carmaker. Meanwhile, a key U.S. auto parts supplier, First Brands Group, has filed for bankruptcy, unable to account for about $2 billion in spending after borrowing more than $10 billion in a series of convoluted financial arrangements that have left Swiss bank UBS $UBS ( ▼ 0.23% ) and Jeffries Financial Group $JEF ( ▼ 10.18% ) exposed to big losses through loans made off its balance sheet and guaranteed by revenue it expected to get from customers like Auto Parts Zone $AZO ( ▼ 0.26% ) , the Wall Street Journal reported.

Trumplandia

• The Cut: Is the Fed on track to make another rate cut this month? Sure looks like those are the signals emerging from a recent speech by Fed Chair Jerome Powell, who told an economics conference in Philadelphia that cutting rates too quickly could “leave the inflation job unfinished,” but moving too slowly to reduce borrowing costs could spur “painful losses in the employment market.” The Fed’s Open Market Committee, which sets the rate, meets next on October 28-29, but with the ongoing shutdown, the FOMC doesn’t have precise data on either jobs or inflation. Not that seems to be stopping Pres. Trump‘s latest appointee to the Fed, Stephen Miran, who argues that tariffs don’t contribute to inflation. 
• Tariff Turmoil: China’s playing hardball with President Trump on tariffs, and giving no sign of stepping back. Last week, just ahead of a planned U.S.-China summit, China restricted exports of rare earths vital to the U.S. electronic and EV industries, and Trump responded with a threat to put 100% tariffs on Chinese imports. But China’s supreme leader, Xi Jinping, may have some sharp insight into what makes Donald run. Xi appears to be betting that Chinese sanctions could start to tank the U.S. stock market, and that Trump’s fixation on the market will force the U.S. to roll back many of the tariffs Trump imposed last Spring. Those tariffs are not working out too well for U.S. consumers, Powell noted in his Philadelphia speech (see above). With inflation at a stubborn 2.9%, he said, “Available data and surveys continue to show that goods price increases primarily reflect tariffs rather than broader inflationary pressures. Consistent with these effects, near-term inflation expectations have generally increased this year.” 
• Gloom and Doom: Consumers believe things are going to get worse. That’s the feeling among U.S. consumers surveyed by consulting firm Deloitte, which found 57% said they expect the economy to weaken in the next six months, the most negative outlook since the survey began in 1997. Consumers said they plan to spend about 10% less than they did last year on holiday gifts. Worst hit are Gen Z shoppers who will spend 34% less than last year. Trump’s tariffs have been sapping the resiliency of the U.S. consumer, Deloitte said. 
• Argentina for Fun and Profit:  More details are emerging on the U.S. bailout of the world’s fiscal nightmare Argentina, and they are raising questions about what now appears to be $40 billion spent by the U.S. Treasury to prop up Argentina’s peso. The spending is effectively a bailout, and among the people it’s helping is Treasury Secretary Scott Besent’s former colleague at George Soros’ hedge fund, Robert Citrone. Citrone owns a pile of Argentine debt, and without the U.S. bailout, Argentina could default on that debt. Argentine President and Trump bestie Javier Milei took his remarkable hairstyle to Washington this week to thank Trump for the bailout. But in Congress, despite the shutdown-initiated recess, Democrats asked why the U.S. is bailing out Argentina, when Milei has been selling so many soybeans to China at such a great discount that U.S. farmers have sold nothing to China this year and are getting a bailout, instead. “It is inexplicable that President Trump is propping up a foreign government, while he shuts down our own,” said Senator Elizabeth Warren, the Massachusetts Democrat. 
• More drug deals: Add U.K. pharma giant AstraZeneca $AZN ( ▼ 1.37% )  to the list, after U.S.-based Pfizer $PFE ( ▼ 0.33% )  , of pharma companies that have agreed to stop charging Medicare higher prices than they charge European countries. Both Biden and Obama tried to cut drug prices, but a well-lobbied GOP-controlled Congress stymied both those efforts. The drugmaker also agreed to invest $50 billion in U.S. manufacturing over five years, and won a three-year reprieve from tariffs on imported drugs. The agreement will cut into profits, but be less of a hit than if Trump had followed through with new tariffs on pharma imports.

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