The shutdown has exposed the disaster that is Trumponomics

Extract from The Guardian

Opinion

US economy

Robert Reich

When the president is proud to close government and proud to slash taxes for the rich, American workers get shafted

Sun 20 Jan 2019 17.00 AEDT Last modified on Sun 20 Jan 2019 17.03 AEDT

… but not, it turns out, for the American people. Photograph: Kevin Lamarque/Reuters

One of the least talked-about consequences of the partial shutdown of the US government – courtesy of Donald “I’m proud to shut down the government” Trump – is its negative effect on the US economy.

Federal spending accounts for just over 20% 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.

"The tax-cut steroid wore off within six months of its passage"

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% annual rate in the first half of 2018 but then slowed to 2.5% 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 more than 80% of stocks are owned by the wealthiest 10% 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.

"Trumponomics is an abject failure because its premises are flawed"

Meanwhile, American employers have continued to cut pension and healthcare 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% 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 people. That’s almost 30% of the wage-earning workforce.

This would generate $144bn 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 $1tn 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, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good.