The probability seems fairly high that the federal government will shut down in December or January when Congress fails to pass appropriations bills or a continuing resolution. Previous research suggests:
GDP growth might lose .1 percentage point per week, up to about .6 points in a quarter. Of course, that prediction is very uncertain and leaves aside the possibility of shocks. (Labonte, Marc. “The FY2014 Government Shutdown: Economic Effects.” Library of Congress, CRS, 2013)
Certain communities that are dependent on relevant discretionary behavior (e.g., tourism in national parks) may see substantial economic losses. Gabe, Todd. “Effects of the October 2013 US Federal government shutdown on National Park gateway communities: the case of Acadia National Park and Bar Harbor, Maine.” Applied Economics Letters 23.5 (2016): 313-317.
In most state and federal shutdown examples, both parties lose popularity. However, popularity is usually more valuable to the incumbent party than to the minority party, and that gives the minority an incentive to force the shutdown. Also, in the 2013 shutdown, Republicans lost much more popularity than President Obama did, although he did see some decline. Gamage, David, and David Scott Louk. “Preventing Government Shutdowns: Designing Default Rules for Budgets.” 86 Colorado Law Review 181 (2015) (2015).
In general, a budget impasse is best modeled as a Chicken game (Gamage & Louk). In “Chicken,” the best strategy is to pre-commit: to take a position that you can’t back off of. The Democratic leaders may have been signalling a pre-commitment when they canceled yesterday’s meeting with Donald Trump. From a PR perspective, I’m skeptical that canceling was a smart statement, but as a move in a Chicken game, it may have been very smart.
During the 1996 shutdown, reporters chose among the following “frames” for describing the unfolding events: “talk,” “fight,” “impasse” and “crisis.” They also increased the amount of attention that they devoted to the budget negotiations. The amount of coverage plus the predominant frame affected public opinion. Jasperson, A. E., Shah, D. V., Watts, M., Faber, R. J., & Fan, D. P. (1998). Framing and the public agenda: Media effects on the importance of the federal budget deficit. Political Communication, 15(2), 205-224.
State budget shutdowns were traditionally rare but have become quite frequent. Rubin, Irene S. The politics of public budgeting: Getting and spending, borrowing and balancing. CQ Press, 2016. I suppose this context may affect the public’s response to a federal shutdown.
Observers tend to interpret a government shutdown in identity terms: as our side versus their side. Observers’ tolerance for compromise depends on whether they perceive the other side as respecting their identity. Thus allowing the other side to “save face” can promote compromise. Bendersky, Corinne. “Resolving ideological conflicts by affirming opponents’ status: The Tea Party, Obamacare and the 2013 government shutdown.” Journal of Experimental Social Psychology 53 (2014): 163-168. Implication: the Democrats should hold fast to important policy goals but look to give symbolic victories to GOP base voters if they want to win on the policy. On the other hand, if their goal is for Republicans to lose face, they may need to sacrifice on policy to extract more symbolic concessions. This is not as simple a choice as it may seem, because costing Trump a lot of face could help the Democrats win the Congress in 2018, giving them more policy leverage.