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Consumption Drops, Unemployment Rises, and DC Politicians Are Clueless

February 28th, 2013 · No Comments

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Truth-out | News Analysis 25 February 2013
Consumption Drops, Unemployment Rises, and DC Politicians Are Clueless:
Here’s Why
By Robert Reich

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

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

This is why January’s retail sales rose at their smallest rate in three

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

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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