Trump's Shutdown Is Costing Billions and Screwing the Middle Class

"If the refunds don't go out, then you really see a ripple effect..."

Jan 23 2019, 7:04pm

Not good. Photo by Al Drago/Bloomberg via Getty Images

The United States may still boast the largest economy on Earth, but it's not exactly behaving like a global juggernaut of wealth and prosperity. The partial government shutdown—which amounts to a fit of class warfare engineered by Donald Trump over his deluded project to erect a "big, beautiful wall" along his country's southern border with Mexico—is now in its second month, with no end in sight. Two votes scheduled in the Senate this week that would reopen the government were both expected to fail, and Senate Majority Leader Mitch McConnell continues to refuse to break with the president. As for Trump, he doesn't appear to have a strategy to win this obscene political fight. (There was also word Wednesday from House Democrats of an offer of $5 billion for "border security," but with the stipulation that no new structures, and therefore no wall, be built—bound to be a hard sell for a wall-fixated president.)

This is all going on as new reports come in detailing the economic damage that goes beyond the fear and pain of government employees either working without pay or on furlough. (These workers were set to miss a second paycheck as of this week.) If the shutdown continues through this week, one analysis concluded, it may cost the US economy at least $5.7 billion—the same amount Trump initially demanded be earmarked for his wall. TSA staff are calling in sick at record numbers, businesses that directly cater to federal employees and other contractors—the latter likely will not receive back pay, even after the shutdown ends—are hurting, and hundreds of IRS workers have received permission to skip work, which could slow or complicate the issuing of tax refunds.

But what does $5 billion essentially vanishing from the economy actually mean? How bad, in the larger scheme of things, is this own-goal by a president who ran on bolstering the economy? Could it actually help tip the country toward a recession?

For perspective, I called up Jared Bernstein, who served as chief economist to Vice President Joe Biden and is now a senior fellow at the left-leaning Center on Budget and Policy Priorities. He explained what Trump is actually doing to the economy, and how you might feel it in your own life.

VICE: What is the shutdown like from the perspective of government workers?
Jared Bernstein: I think it's bad. You've got a lot more people than you'd think who have trouble making ends meet if they miss a paycheck or two. The Federal Reserve has this renowned statistic that 40 percent of people can't raise $400 in an emergency without selling something or borrowing. If you look at the research on family budgets, which is how much people need to get by in different parts of the country, if you're a parent with a couple of kids, you need to be earning $40,000 to $80,000 depending on whether you live in a cheap or expensive place. Compare that to the wages of some of the furloughed workers [or those] working without pay, and you'll understand why missing a paycheck or two becomes a disaster for them.

What about the larger economy? The stock market seemed to rebound over the last week or so, and some GDP forecasts don't seem to be much changed. But I also know the Bureau of Economic Analysis estimated that federal employees' lost hours during a 16-day shutdown back in October 2013 reduced fourth-quarter GDP by 0.3 percentage points.
First of all, government is of course a big player in the economy. It employs 20 million people at the federal, state, and local level. It is a significant chunk of GDP. So if the government is partially shut down, that means it's spending less both on its own functions and on its contractors, and of course that feeds into GDP.

Now, how large an effect that is is under scrutiny, and it's important to remember that a lot of what doesn't get done during a shutdown does get done afterwards. Some of what you lose, you regain later [when people get back pay]. But some of it you don't. And when it goes on as long as this one has, I'm sure it is shaving some fraction of a percent off GDP growth. It's easy to exaggerate this [though]—it's not a recessionary event by a long-shot.

I've seen the figure that roughly four million private-sector workers are contractors and other related workers, who—if they are sitting idle or otherwise missing out on wages—will not receive backpay. That is, their productivity will be lost permanently. How big of a deal is that, and what are the ripple effects?
It's really the accumulation of a bunch of people who are either out of work or spending less. I work in an area where there's a large government agency that shut down, and I talked to somebody in one of the restaurants there and they said they laid off a couple of people. It's kind of a classic negative multiplier effect: There are many fewer folks having lunch at these restaurants, so they don't need as many workers. That's someone who's losing a bit of income that they're not going to make back. They'll be rehired when demand picks up, but they won't get back pay. That's a negative spillover effect.

if you multiple that by millions of people across the country, you get to those aggregate numbers.

Some workers affected directly by the shutdown seem to be taking on more debt in response. Does that have longer-term ripple effects?
It depends on how long it persists—in many cases, those are going to be temporary loans that will be quickly repaid. But there's a risk that if this drags on, they could be more long-lasting.

How real is the treasury shutdown threat from an income tax refund and stimulative perspective?
If a large enough group of people didn't get their refunds, you would probably see that in consumer spending. But from everything I'm hearing, they're trying—the government, the Trump administration—to put those folks back to work. There's questions about the legality of that—I think very good questions—but the administration is trying to cherry-pick some of the more painful aspects of [the shutdown] so average people don't feel it as much. I think that's a very problematic practice: We actually need to feel the pain from this thing so there's some pressure or leverage to end it.

I think one of the quickest ways to end this insufferably stupid shutdown would be for TSA workers to have a massive sickout or strike. I guarantee you this would be over in hours if that occurred.

Wouldn't that be like Reagan and air-traffic controllers in 1981, with Trump possibly firing them?
That is a risk. It's easy to tell somebody else to take that chance. I don't take that lightly. [But] as long as the administration tries to numb the pain of this to average people, it can be prolonged.

How much does it matter and what does it mean, exactly, that consumer sentiment has reached its low point under Trump? How much worse could this get?
If it went on for months, it could really hurt growth, macro growth, in a recognizable way, and really start dinging the monthly job numbers, and just have pervasive downsides from the perspective of dysfunction and lack of confidence.

Initially it's tourism and all of the strands there: airplanes, restaurants, hotels. But then I think it becomes—at this point it's becoming a lot of pervasive exporters, farmers, [the] housing sector being hit by mortgage delays. And if the refunds don't go out, then you really see a ripple effect. At that point, you feel it everywhere.

This interview has been lightly edited and condensed for clarity. Sign up for our newsletter to get the best of VICE delivered to your inbox daily.

Follow Matt Taylor on Twitter.

Vice Channels