One of the least-talked-about consequences of the partial shutdown of the U.S. government – courtesy of Donald “I’m proud to shut down the government” Trump – is its negative effect on the U.S. economy.
Federal spending accounts for just over 20 percent of the total economy. When that spigot is turned halfway off, as it is now, demand for goods and services necessarily drops. The result is less investment and slower growth.
Right now some 800,000 government employees aren’t collecting paychecks. Nor are hundreds of thousands of government contractors being paid. None of them can buy as much as before.
It’s just another aspect of Trumponomics, which stands for the highly dubious proposition that prosperity comes from cutting taxes on corporations and the wealthy while squeezing American workers – the people who do most of the buying.
A year ago, Trump and congressional Republicans predicted that their corporate tax cut would cause business investment to soar, which would lead to faster economic growth and higher wages.
It was classic supply-side rubbish. Rather than invest more, American corporations have been scaling back their investment plans.
The tax-cut steroid wore off within six months of its passage. Corporate investment rose at a 10 percent annual rate in the first half of 2018 but then slowed to 2.5 percent in the third quarter. According to the Institute for Supply Management, new orders for manufacturing equipment plunged 11 points in December.
The logical explanation is that corporations won’t invest unless they expect an adequate return on such investments. That return depends on there being enough buyers for the goods and services they produce.
But there aren’t enough. Besides all the government workers and contractors who aren’t being paid, American consumers as a whole have seen little if any rise in their paychecks, adjusted for inflation. Jobs are plentiful, but typical pay is still in the dumps.
When Trump slashed taxes on corporations, he promised everyone else a wage boost of $4,000. It never happened. Instead, the benefits of the giant corporate tax cut went largely into the pockets of top executives and big investors.
Corporate stock buybacks fueled a temporary stock market boom, but its benefits didn’t trickle down because over 80 percent of stocks are owned by the wealthiest 10 percent of Americans.
Unlike typical workers, the wealthy spend only a tiny fraction of what they earn. So when money flows to the top, total demand falls behind.
Meanwhile, American employers have continued to cut pension and health-care benefits. Jobs are less secure than ever. One in five is now held by a worker under contract, without any unemployment insurance, sick leave or retirement savings.
Trump’s response? Allow employers to do more outsourcing. Make it harder for workers to form unions. Don’t even enforce labor laws on the books.
Trump continues to undermine what’s left of the Affordable Care Act. Over the past two years, some 4 million people have lost health insurance coverage, according to the Commonwealth Fund. This undermines their capacity to buy anything else.
Trump and his fellow Republicans refuse to raise the federal minimum wage, which would put money into the pockets of people who’d spend it. At $7.25 an hour, the minimum wage is now more than 25 percent below where it was in real terms half a century ago.
The Economic Policy Institute estimates that raising it to $15 an hour would directly or indirectly lift the wages of 41.5 million working people. That’s almost 30 percent of the wage-earning workforce.
This would generate $144 billion in additional income for families who need it most, including 23.1 million women and 4.5 million single parents. Talk about buying power.
Nor has Trump moved an inch toward his campaign pledge to spend $1 trillion to reconstruct the nation’s roadways, waterworks and bridges. Infrastructure remains near the end of the legislative line.
So where will demand for goods and services come from? Don’t count on exports. The global economy is slowing. And the Chinese aren’t buying lots of things produced in America these days. That’s the fallout from Trump’s trade war.
Trumponomics is an abject failure because its premises are flawed. Cutting taxes on big corporations and the wealthy doesn’t stimulate investment. It only creates a bigger national debt that has to be paid off somehow, sometime.
And who’s going to have to pay it off, either in higher taxes or fewer government services? You guessed it. Average Americans, who are already being shafted by Trump’s policies.
Robert Reich’s latest book is “The Common Good,” and his newest documentary is “Saving Capitalism.”
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