Brief #33—Economic Policy

Policy Summary
After more the four long weeks, the longest government shutdown in the history of our nation has ended. This past Friday saw Donald Trump sign into a bill that would temporarily reopen the government and allow most furloughed American workers to return to their jobs. Backing down from his initial demands for additional government funding for his desired border wall, he accepted a deal that offered no funds for the wall. When the shutdown went into effect on December 22nd, the pushback from political figureheads on both the left and right was monumental but it doesn’t compare to anger of the  800,000 federal employees who were most affected. Forced to work without pay with their wages frozen, they began the year facing an economic future steeped in tremendous uncertainty.

Now that the shutdown has  ended, at least on a temporary basis, the uncertainty hasn’t really subsided. Yes, plenty of federal employees are resuming working their positions but there’s still the possibility that in just a few weeks, the nightmare could continue. Democratic politicians refused to move forward with negotiations regarding the proposed wall unil the government had been reopened but as recent history has taught us, negotiations with our President can be unpredictable and erratic. It doesn’t help that multiple times, he threatened to declare a national state of emergency to procure the funding he claims to need. The most pressing economic concerns that have stemmed from the shutdown have little to do with funding for a wall and much more to do with the problems that arose from 800,000 employees being forced to work without pay, including members of the Coast Guard, Secret Service and air traffic controllers.

Policy Analysis
The financial woes that these federal employees encountered during the shutdown were well documented in the national media and not without reason. Thee many workers who saw their wages frozen were unable to spend on basic necessities, which quickly affected small businesses across the nation, particularly in industries such as food services and retail. A recent analysis from S&P Global Ratings indicates that the damage to our economy will add up to more than $6 billion in total, a larger sum the original $5 billion that Trump initially demanded for the wall’s construction. We should also not forget that when economic activity is severely reduced, as we saw during the shutdown, it can shave a significant amount off of a nation’s real GDP (gross domestic product) and this time is no exception. It has been estimated by the Congressional Budget Office that real GDP for the fourth quarter of 2018 has been reduced by up to $3 million.

The shutdown also resulted in another economic consequence that many news sources don’t seem to be paying as much attention. The payday loan industry has been steadily growing for years but during the shutdown, it saw a boom that should have worried everyone. Payday loans are essentially a debt trap. While they provide consumers with the quick cash that they need to take care of looming financial obligations, they ensnare them with interest rates that can be as high as 300% if not higher. This system may call to mind the subprime loan crisis in the early 2000’s when lenders prayed on low income borrowers with poor credit. Many financial advisors advised furloughed federal employees not to turn to these lenders during the shutdown, but for many workers struggling to make ends meet, they likely seemed to be the most sensible solution, particularly as for most of the shutdown, there was no clear end in sight, further adding to the aspect of economic uncertainty that continues to plague our nation.

Both consumers and markets share a mutual dislike of uncertainty in their economic forecasts. Now consumer confidence is down and with it, investor confidence. These two areas paired together are a dangerous combination for an economy that was already turbulent to begin with before the shutdown took hold. The shutdown may be over but the damage that it has caused will continue for the foreseeable future and likely for longer

Resistance Resources:

  • The Professional Services Council is an advocacy organization that has created a Government Shutdown Resource Center for furloughed federal employees.
  • The American Foreign Service Association is an association of workers created to represent members of the U.S. Foreign Service that is providing information and resources for workers affected by the shutdown.
  • The U.S. Office of Personnel Management (OPM) is an agency that provides resources and support to federal agencies and employees and is providing resources for furloughed workers.

This Brief was submitted by USRESIST NEWS Economic Policy Analyst Samuel O’Brient: contact

Photo by Andy Feliciotti

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