Saturday, 01 November 2014 / TRUTH-OUT.ORG

Consumption Drops, Unemployment Rises, and DC Politicians Are Clueless: Here's Why

Monday, 25 February 2013 11:50 By Robert Reich, Robert Reich's Blog | News Analysis

A Senate Appropriations Committee hearing on "The Impacts of Sequestration" on Capitol Hill, in Washington, Feb. 14, 2013. Republicans have said they will not accept any new taxes in a deal to head off the so-called sequester – across-the-board cuts to defense and domestic programs totaling about $1 trillion over 10 years. (Photo: Christopher Gregory / The New York Times) A Senate Appropriations Committee hearing on "The Impacts of Sequestration" on Capitol Hill, in Washington, Feb. 14, 2013. Republicans have said they will not accept any new taxes in a deal to head off the so-called sequester – across-the-board cuts to defense and domestic programs totaling about $1 trillion over 10 years. (Photo: Christopher Gregory / The New York Times) Truthout needs your support to produce grassroots journalism and disseminate conscientious visions for a brighter future. Contribute now by clicking here.

Can we just put aside ideology for one minute and agree that businesses hire more workers if they have more customers, and fire workers if they have fewer customers?

There are two big categories of customer: One is comprised of individual consumers. The other is government.

We tend to think of the government as a direct employer — of teachers, fire fighters, civil servants.

But government is also a major customer of the private sector. It buys school supplies, pharmaceuticals, military equipment, computers. It hires private companies to build roads and bridges, dredge ports, manage data.

One out of every five Americans works for a company whose customer is the government.

Here's the problem: Both categories of customer are buying less.

Individual consumers are buying less because they have less take-home pay. Their wages are dropping (the median wage is 8 percent below what it was in 2000, adjusted for inflation). And their taxes have gone up. The expiration of the Social Security payroll tax cut will shrink the typical paycheck by more than $1,000 this year.

Less take-home pay is causing 45.7 percent of consumers to pull in their belts, according to a survey released Thursday by the National Retail Federation. A quarter of consumers are putting off big-ticket purchases. A third are cutting back on eating out. A fifth are spending less on groceries.

This is why January's retail sales rose at their smallest rate in three months.

What about the other big customer – government? It used to be that when consumers spent less, government stepped into the breach and spent more in order to keep people employed. That's what we were supposed to have learned from the Great Depression.

No longer. Government is cutting back, too. Deficit hawks and government-haters are insisting on it.

Last year, President Obama agreed to $1.5 trillion of spending cuts, which have already begun.

Unless Republicans and Democrats reach a budget agreement before next Friday, another $85 billion of spending cuts go into effect this year. They'll begin almost immediately.

With consumers and government both spending less, businesses won't hire more workers; they'll fire more workers. That's likely to happen in coming months.

Anyone with half a brain should be able to understand all this. But apparently many in Washington don't have half a brain.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Robert Reich

ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers “Aftershock" and “The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.


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Consumption Drops, Unemployment Rises, and DC Politicians Are Clueless: Here's Why

Monday, 25 February 2013 11:50 By Robert Reich, Robert Reich's Blog | News Analysis

A Senate Appropriations Committee hearing on "The Impacts of Sequestration" on Capitol Hill, in Washington, Feb. 14, 2013. Republicans have said they will not accept any new taxes in a deal to head off the so-called sequester – across-the-board cuts to defense and domestic programs totaling about $1 trillion over 10 years. (Photo: Christopher Gregory / The New York Times) A Senate Appropriations Committee hearing on "The Impacts of Sequestration" on Capitol Hill, in Washington, Feb. 14, 2013. Republicans have said they will not accept any new taxes in a deal to head off the so-called sequester – across-the-board cuts to defense and domestic programs totaling about $1 trillion over 10 years. (Photo: Christopher Gregory / The New York Times) Truthout needs your support to produce grassroots journalism and disseminate conscientious visions for a brighter future. Contribute now by clicking here.

Can we just put aside ideology for one minute and agree that businesses hire more workers if they have more customers, and fire workers if they have fewer customers?

There are two big categories of customer: One is comprised of individual consumers. The other is government.

We tend to think of the government as a direct employer — of teachers, fire fighters, civil servants.

But government is also a major customer of the private sector. It buys school supplies, pharmaceuticals, military equipment, computers. It hires private companies to build roads and bridges, dredge ports, manage data.

One out of every five Americans works for a company whose customer is the government.

Here's the problem: Both categories of customer are buying less.

Individual consumers are buying less because they have less take-home pay. Their wages are dropping (the median wage is 8 percent below what it was in 2000, adjusted for inflation). And their taxes have gone up. The expiration of the Social Security payroll tax cut will shrink the typical paycheck by more than $1,000 this year.

Less take-home pay is causing 45.7 percent of consumers to pull in their belts, according to a survey released Thursday by the National Retail Federation. A quarter of consumers are putting off big-ticket purchases. A third are cutting back on eating out. A fifth are spending less on groceries.

This is why January's retail sales rose at their smallest rate in three months.

What about the other big customer – government? It used to be that when consumers spent less, government stepped into the breach and spent more in order to keep people employed. That's what we were supposed to have learned from the Great Depression.

No longer. Government is cutting back, too. Deficit hawks and government-haters are insisting on it.

Last year, President Obama agreed to $1.5 trillion of spending cuts, which have already begun.

Unless Republicans and Democrats reach a budget agreement before next Friday, another $85 billion of spending cuts go into effect this year. They'll begin almost immediately.

With consumers and government both spending less, businesses won't hire more workers; they'll fire more workers. That's likely to happen in coming months.

Anyone with half a brain should be able to understand all this. But apparently many in Washington don't have half a brain.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Robert Reich

ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers “Aftershock" and “The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.


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