By Robert Reich
Former U.S. Secretary of Labor, Professor at Berkeley
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.
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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 is an e-book, “Beyond Outrage,” now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
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Posted February 23, 2013 at 12:00 pm, in Allied Approaches, From Robert Reich
February 24th, 2013 at 4:53 pm
I take exception to complaining about reinstating the Social Security tax..It sounds like he agrees with the Republicans who say the president raised taxes on the middle class.when he didn’t.
The Social Security tax is certainly necessary , and should never have been cut in the first place. We all know that sometime in the future , Social Security is going to require more money to protect it. The only funds in Social Security come from payroll taxes paid by employees , and employers.
How does Mr. Reich think we are going to maintain Social Security?
It seems too many in government and prominent positions think they should use Social Security funds for everything but what is there for. I especially resent the fact , that there are plans to cut S.S , to give tax cuts to the wealthy and corporations.