JUDY WOODRUFF: And we return to the shutdown of most of the federal government with a closer look at the economic fallout.
For that, we turn to a pair of economists who have been watching and writing on this, Diane Swonk of Mesirow Financial in Chicago and Mark Zandi of Moody's Analytics.
Welcome back to the program.
Mark Zandi, to you first.
MARK ZANDI, Moody's Analytics: Yes.
JUDY WOODRUFF: Is there an effect on the economy? We're only in the second day of this.
MARK ZANDI: Yes. Federal employees aren't going to work.
I was in D.C. today. It's pretty quiet, talking to a taxicab driver who said he had to work 14 hours yesterday and he couldn't get the earnings that he normally gets. Tourist destinations are being affected. Independence Hall in Philadelphia, my hometown, is shut down and that's affecting people.
Pretty soon, it's going to be tougher to get an FHA mortgage loan, a Small Business Administration loan for a small business, student loans. I think it's more of a nuisance so far, but it's starting to have economic consequence.
JUDY WOODRUFF: Diane Swonk, what are you seeing in terms of impact so far?
DIANE SWONK, Mesirow Financial Holdings, Inc.: Well, I agree with Mark.
There's a lot of the near-term impact that we're seeing that's more of an inconvenience, but certainly is still a cost to the economy. But as the shutdown gets longer, the costs of it tend to compound over time. They get more into the private sector, more spillover effects. We also don't know for sure yet whether or not these federal employees who are furloughed not by any choice of their own would be paid retroactively. That would be the first time they weren't paid retroactively, but if they're not they will be down all that amount of money that they could have been earning while they were actually -- if they had been working and the government had been open.
So, we really start to see this effect cascade. And I think the important issue is the spillover to the private sector, as Mark said, cab drivers, restaurants. I know about a case in Kentucky where 4,000 IRS agents didn't show up for work. Usually people don't worry about the IRS, but they certainly do now. The Chamber of Commerce -- the president of the Chamber of Commerce in that little town in Kentucky said none of the restaurants, they were all dead and all of the retail establishments around there were all dead.
And each week that this goes on, we could see starting to shave real growth off of GDP. We could see as much as three-tenths with a two-week shutdown and I think up to a percent or more -- and I know Mark has had similar estimates -- as you go into a month of a shutdown.
JUDY WOODRUFF: What about sector by sector, Mark? As you look at this, is there one sector in particular? We reported earlier, Gwen reported the defense industry has already taken a hit in investment. What do you look for?
MARK ZANDI: Yes, I think obviously defense sector is hit hard. The travel, tourism, leisure, hospitality industries are getting hit hard. People don't place much emphasis on that, but these are a sector of the economy that creates a lot of jobs.
In fact, if you look since the recovery began, this is the one sector that's added the most jobs to the economy.
JUDY WOODRUFF: Which -- the -- you mean the...
MARK ZANDI: So, travel destinations, all of the restaurants, everything that caters to people who just go see the Liberty Bell or see the Washington Monument.
JUDY WOODRUFF: What other sectors, Diane, would you look at? And also geographically, how would you look at this? One thinks, of course, of Washington. We have mentioned that. What about military bases and the area around those?
DIANE SWONK: Absolutely.
And, yes, we also see these workers, census workers are all across the country; 85 percent of federal workers workout side of Washington, D.C., so as bad as it is in Washington, these are workers that vote all across the country, which, believe me it's having an impact, like I mentioned, the 4,000 workers in Kentucky. We have got workers here in Illinois that clearly aren't working at this stage of the game. The roads are not as clogged and all the retailers that get the fallout.
But also the auto industry is very concerned. I have gotten several calls from Detroit already, concerned about the uncertainty created by this, people not knowing what this means. And as the events continue to fall out as we approach the debt ceiling as well, that can really rock financial markets and that causes hesitation. Hesitation in an economy that's already weak is our greatest enemy.
When consumers are uncertain, they don't buy big-ticket items or luxury items. They don't spend on that extra meal out or going out to the movies. On the flip side of it, we also see more importantly businesses not willing to pull the trigger and hire, which is something that Mark was talking about. We have already seen the largest hiring in the sort of leisure and hospitality industries, but you are not going to see much of that at all. That pullback right as we enter into the holiday season I think is really critical.
JUDY WOODRUFF: I think people -- some of the people looking at this, Mark Zandi, are wondering, OK, what's the effect on ordinary people, and what potentially -- and, again, this assumes this is a shutdown that continues, and we have no way of knowing how long it is going to last at this point, but the effect on ordinary people vs. the effect on markets, Wall Street, investors.
MARK ZANDI: Well, you know, as this drags on, it is going to affect people more directly in terms of getting loans, in terms of getting passports, those kinds of things.
But the key thing here is, if this extends for another week, the concerns about the debt limit are going to come into play and that's much more significant than the shutdown. The shutdown, it is no big deal if it's few days. But if we get to the debt limit, that's a huge issue.
JUDY WOODRUFF: Well, how? What sectors are we talking about then? Where does the worry show up?
MARK ZANDI: Well, it's everybody then, because if we hit the debt limit, what that means is that the Treasury can only pay the bills for which it has enough cash. So it won't have enough cash to pay all the bills and there are a lot of bills.
Now, they're going to make their payments to the debt holders, the people who own the Treasury bonds. But that's going to leave less for everyone else. And so that means Medicare-Medicaid recipients, if they -- if we don't settle this by November 1, it means Social Security recipients won't get their check on time.
JUDY WOODRUFF: Diane, how do you distinguish though between the worry about what might happen and then what happens if we actually -- the country actually doesn't meet the debt limit?
DIANE SWONK: If we don't raise the debt limit, you're talking about a self-inflicted financial disaster. And we already had one five years ago, and one may argue it was self-inflicted.
However, it was collateral damage that came from that came from many areas of the country. This is purely self-inflicted by Washington's own inability to act if we don't raise the debt limit, and it has reverberations that go around the world. It's a shot that is going to be heard around the world again and again, because we won't be able to value what many people see as a riskless asset, the risk-free asset, which is the Treasury bond.
When you can't value that, you can't value any other asset in the world. And that's destabilizing to global financial markets, as well as the U.S. And we saw as in 2008 this was an unprecedented event. This would be another unprecedented event. And I just don't think we need to go there at this stage of the game.
MARK ZANDI: The cash shortfall is so significant.
DIANE SWONK: It is huge.
MARK ZANDI: And the bills that won't get paid are so large, that it is going to send our economy into immediate recession.
And investors are going to know this right away. And so stock prices are going to decline, interest rates are going to rise. That hurts everybody very rapidly.
JUDY WOODRUFF: Yes, but, again, this assumes that the debt limit is not raised.
MARK ZANDI: Right. But this scenario is so dark that it's hard for me to imagine that policy-makers won't come to terms before we actually hit this debt limit...
DIANE SWONK: Right.
MARK ZANDI: ... because it's catastrophic to the economy, and you would think to their own political futures, that they would get this together.
JUDY WOODRUFF: You both have mentioned consumers, but it's been pointed out to me that the country has now been -- in the last few years been through several of these sort of blows where Congress has come right up to the brink, has been through the kind of thing that we're going through now, even though the government hasn't completely shut down.
Does there come a point, though, Diane Swonk, when consumers get used to it? Is it possible they could get so accustomed to Washington hitting one of these moments when we know it's going to take days or weeks to figure it out?
DIANE SWONK: Well, you know, we have seen Washington already turn a deaf ear to Capitol Hill, and they didn't really -- I'm sorry -- Wall Street already turn a deaf ear to Capitol Hill, where they didn't really react initially that much to the government shutdown.
But I think Mark's very correct. It's unimaginable what would happen because the recession would be immediate and you would feel it very quickly. And I don't think consumers can ignore it forever. I think there's an inconvenience and if you're in one of these places, you certainly feel it right away. And those consumers are also workers who feel it right away, as the cab driver that Mark mentioned at the beginning of the show.
So I don't think it's something you can completely turn a deaf ear to. And that said, we are getting weary of this, and I think everyone sort of feels that Washington's played -- cried wolf too many times.
MARK ZANDI: Look, you know, if all we're talking about is a government shutdown, this isn't going to affect many consumers. They're not going to react.
But if we get to the debt limit, they are going to know it because everything is going to be going south pretty quickly.
DIANE SWONK: Right.
MARK ZANDI: And they are going to be pulling back very rapidly because they are going to be scared like everybody else.
If they even sense that a Social Security payment is not going to be made on time, can you imagine the bedlam that is going to create among people?
DIANE SWONK: Yes.
MARK ZANDI: They are going to stop spending. So there's no doubt in my mind that they would pull back.
DIANE SWONK: Right.
JUDY WOODRUFF: We hear you both.
Mark Zandi, Diane Swonk, thank you.
MARK ZANDI: Thank you.
DIANE SWONK: Thanks, Judy.