U.S. Economy Is Strong Despite Shutdown

COMMENTARY Markets and Finance

U.S. Economy Is Strong Despite Shutdown

Feb 1, 2019 3 min read
COMMENTARY BY

Former Senior Policy Analyst, Grover M. Hermann Center

Adam N. Michel focused on tax policy and the federal budget as a Senior Policy Analyst in the Grover M. Hermann Center.
The American people should be confident in the future. Alexander Spatari/Getty Images

Key Takeaways

Absent from all the-sky-is-falling anecdotes was any mention of how resilient the U.S. economy is — even in the grip of a partial shutdown.

Hourly earnings of workers across the country increased by 3.2 percent, the fastest growth since before the recession.

What's most impressive is that the lowest-income workers in the U.S. have benefited the most from the strong labor market.

Economics isn’t called “the dismal science” for nothing. The doom-and-gloom crowd tends to dominate, especially if their negativity can help push a political agenda.

The latest calamity supposedly befalling Florida’s economy was the government shutdown. The political spat was reportedly crushing Florida’s farmers, making it difficult to fly out of Miami, and disrupting South Florida recreation.

Absent from all the-sky-is-falling anecdotes was any mention of how resilient the U.S. economy is — even in the grip of a partial shutdown.

Shortly before the House and White House called a three-week truce, Kevin Hassett, the chairman of the Council of Economic Advisors, correctly assess the chances of entering a recession at “close to zero.” That’s because the shutdown will have no long-term effects on the primary determinants of growth.

Sure, first quarter economic numbers might be lower than expected, but that’s because government spending is included in GDP. Once federal workers get their guaranteed back pay, much of the loss will be recouped.

And even if some federal spending is held back or delayed longer than a few weeks, it is important to remember that government spending is not a primary determinant of economic growth. More often than not, government spending wastes money that would be better put to use by the private sector, employing Americans to produce things we value.

All of this is to say: The American people should be confident in the future.

The proof is in the numbers. Even as the federal government shutdown loomed at the end of 2018, the labor force participation rate continued to tick upward, the surest sign of a healthy labor market.

Hourly earnings of workers across the country increased by 3.2 percent, the fastest growth since before the recession. Higher wages and the over 300,000 new jobs that were added in December alone have created new opportunities for workers who were disproportionately hurt by the last recession. Black, Latino, young, and low-skilled workers have seen some of the largest drops in unemployment in recent years.

This isn’t happenstance. The 2017 tax cuts made American workers globally competitive again by lowering punitive business taxes to levels similar to most European countries. Coupled with sweeping reforms to outdated and unnecessary regulations, tax cuts have made the U.S. an easier place to do business and a more attractive destination for new investments. New business investments are what create new and better-paying jobs.

Florida’s local tax cuts have also helped the state further capitalize on the national growth spurt. Former Governor Rick Scott cut taxes by an estimated $10.3 billion since 2011. Florida's business tax climate now ranks as one of the best in the nation. The result? The state unemployment rate has fallen from a high of 10.7 percent to the current 3.3 percent.

What's most impressive is that the lowest-income workers in the U.S. have benefited the most from the strong labor market. Wage growth for rank-and-file, nonsupervisory workers has outpaced both inflation and wage growth in the rest of the economy. Our strong economy is truly benefiting all Americans.

Although not as sexy as reporting on the government shutdown, when we follow up on the results of tax cuts and regulatory relief we find a solid foundation for future economic growth that a government shutdown will not disrupt.

But let’s not get too cocky. Threats to American prosperity are on the horizon. They are threats that, rather than do less, the government will resume trying to do too much.

Trade wars, for example, could end up offsetting the good news of tax cuts. Tariff, after all, is just another word for tax increase. And tariffs hurt consumers and destroy jobs.

The national debt also continues to grow out of control, which should worry investors and taxpayers, who will ultimately have to pay for all our unfunded spending with higher taxes.

Finally, businesses owners and investors don’t care only about today’s policies. They also look down the road. If the “progressive” push for a top tax rate of 70 percent or some other confiscatory tax on wealth gains steam,, we could see a sharp downturn in the economic outlook. Indeed, simply rolling back the currently temporary 2017 tax cuts should worry Americans.

The economic threats of the future will not come from a partial government shutdown. They will come from Washington’s overreach through regulation or tax hikes.

This piece originally appeared in the Orlando Sentinel