Let Them Eat Low-Interest Loans
The Trump administration is proving blind to the pain many workers are experiencing, and cavalier about the dangers that an extended shutdown poses.
The Trump administration insists that the government shutdown is not that big of a deal, and that it should continue until Congress appropriates billions of dollars for a physical barrier on the country’s southern border.
“People might have to pay a little bit of interest, but the idea that it’s paycheck or zero is not a really valid idea,” Commerce Secretary Wilbur Ross said on CNBC, suggesting that furloughed workers take out loans and saying that he did not understand why federal workers were going to food banks. He went on: “If they never got their pay—which is not the case, they will eventually get it—but if they never got it, you’re talking about a third of a percent” of GDP. “It’s not like it’s a gigantic number overall.” The effects will not be permanent, the White House economic adviser Larry Kudlow argued in a separate interview. “We’ll see a snapback right away,” he said.
These comments evince both a short-term obliviousness and a longer-term myopia—a Trump administration blind to the pain many workers are experiencing, and cavalier about the dangers that an extended shutdown poses to the economy. Kudlow and Ross are describing the shutdown as minor, manageable, temporary, and recoverable. But for hundreds of thousands of workers, it is already a crisis. And the longer it drags on, the more risk it poses to everyone.
For one, the shutdown is not a minor event for the dozens of communities with large proportions of federal workers or with a large number of businesses that rely on federal contracts. This is crystal clear in Donald Trump, Ross, and Kudlow’s temporary hometown. Everywhere you go in Washington, you see a miniature recession. The blocks surrounding the Mall, filled with half-shuttered federal buildings and empty cafés and darkened museums, are in a recession. Office parks in Reston, Virginia, are in a recession. “Roughly 7 percent of the daily economy is at risk” in the Washington region, said Stephen Fuller, an economist at George Mason University. “It is having an effect that cannot be made up and can be measured.”
The economic pain is diffuse, as well as acute. The federal government is so big, its reach so vast, its spending so extensive, that the shutdown is slowing down thousands of communities and business sectors a little bit as it also slows down a few of them a lot. “It does affect every single sector,” Fuller said. “Farmers are feeling it a little. The airline industry is feeling it a little. It begins to look like an interest-rate increase or some other financial change that makes the economy grow more slowly, since such a broad range of services and contracts get curtailed.”
The Trump administration has also egregiously underplayed how painful the shutdown is for the 800,000 affected workers. Ross suggested that they should take out loans to keep their consumption up. “The obligations that they would undertake, say borrowing from a bank or a credit union, are in effect federally guaranteed,” he said. “The 30 days of pay that some people will be out? There’s no real reason why they shouldn’t be able to get a loan against it.” Other parts of Trump’s government have advised workers to get temporary jobs, such as driving for Uber, or to negotiate with their landlords and creditors.
But gig jobs are not snap-your-fingers quick to get, nor do they tend to provide anything like a steady federal paycheck. Nor are loans a necessarily easy-to-secure and low-cost option, particularly not for the 14 percent of affected workers earning less than $50,000 a year. TSA agents and executive-branch administrative assistants are not likely to be taking out zero-interest loans from their parents, or low-interest collateralized loans from a major bank. More likely, they are putting groceries on their credit cards, taking penalties to withdraw from their retirement accounts, and heading to the local payday lender.
There is no hard data on the ways federal workers are managing their month-and-counting without pay, at least not yet. But food banks are reporting increased demand. Unions are reporting widespread hardship among their members. Federal workers are suing the Trump administration. GoFundMe and similar sites are filled with fundraisers for workers in need of help to keep the lights on and the rent paid. Evictions, repossessed cars, lower credit scores, smaller savings accounts—these are some of the inevitable results of the shutdown.
Still, Trump’s top staffers have argued that the damage is temporary and that the lost economic activity is recoverable. In this telling, the shutdown is an economic event like a hurricane. Federal workers go without pay and federal contractors experience business disruptions for a brief period of time, much as a big storm might seize economic activity when it hits the coast. Once passed, things quickly return to normal. The red ink gets covered over with black.
It is true: That is normally what happens. But this shutdown has gone on for so long, and has affected so many families and businesses, that its effects might be more permanent than in the past, economists have started to argue. The commonly cited estimate that each week of the shutdown translates into a 0.1-percentage-point hit to quarterly growth is misleading, as it is “linear,” Wilmington Trust warned clients in a research note. The longer the shutdown goes on—and this one has gone on for a very long time—the worse it gets and the less likely it is for families, and the economy as a whole, to bounce back.
That gradual and marginal pain stands to become something immediate and real. But Trump’s top staffers say, “Don’t worry about it.”