Right Opinion

The Government Shutdown Was Expected to Damage the Economy. It Didn't.

Jeff Jacoby · Feb. 7, 2019

A frequent theme during the recent partial government shutdown was the terrible toll it was taking on the American economy.

Media coverage adverted repeatedly to the ways in which the five-week closure of some federal facilities and the furloughing of federal workers would “hurt the wider economy” (Time), inflict pain “on businesses across all sectors” (Fox News), and potentially result in “zero economic growth” (CNN). “The entire US economy is faltering,” lamented the Los Angeles Times. The shutdown was putting “stress on [the] financial sector,” reported The Hill. It was “causing far greater damage to the economy than previously estimated,” NPR told its audience. Economists feared it might “nudge the economy toward the next recession,” Politico observed.

Even the government’s reopening didn’t douse the pessimism. On Jan. 28, shortly after the shutdown ended, The New York Times noted mournfully that “not all the economic damage will be undone” and “the effects of the shutdown will linger.” Approximately $3 billion had been permanently lost to the economy, the Congressional Budget Office estimated. That prompted Chuck Schumer, the Senate Democratic leader, to declare that the shutdown had “caused serious and lasting damage to our nation’s economy.”

Then came the Labor Department’s January jobs report, and the gloom and doom went poof.

Far from suffering a grievous blow because of the 35-day standoff, the US economy had surged. A whopping 304,000 jobs were added during January, making it the 100th consecutive month in which payrolls expanded.

“Hiring in the private sector was strong and broad-based, with manufacturers, retailers, and construction companies all adding jobs,” reported the same New York Times that three days earlier had bewailed the shutdown’s lingering damage. “Wage growth … remained solid, and the strong labor market continued to pull in workers from the sidelines.” Moreover, the economy appears to be “on a strong, sustainable footing. More jobs means more income for consumers, which leads to more spending, and in turn more hiring.”

The stock market came alive too. December had been a rough month for shareholders, but stock prices surged by 7 percent in the month that followed — Wall Street’s biggest January gain in more than 30 years.

Of course, this economic growth cannot last forever. Expansions are inescapably followed by downturns, and by historical standards the current expansion is very long in the tooth. President Trump will have every right to boast during his State of the Union address about the economic growth over which he has presided — a “Trump boom” that confounded the predictions of sages like Nobel laureate Paul Krugman, who said Trump’s accession to the White House would trigger a global recession. But sooner or later, the animal spirits unleashed by Trump’s election will run out of steam.

In a Commentary magazine essay in December, the historian John Steele Gordon laid out the reasons why the economy is flourishing under Trump. Tax reform dramatically expanded investment opportunities for US corporations at home, fueling a stock-market rise and increasing the pool of American capital. The administration’s focus on repealing onerous federal regulations has also helped power the economy to heights it never reached during the Obama administration. So did Trump’s reversal of Obama-era policies restricting energy production.

On the other hand, Trump has done nothing to rein in federal budget deficits and the national debt. “By far the biggest problem for the American economy is the inability of the federal government to live within its means,” Gordon warns. So perhaps the reduction in government spending caused by the shutdown actually strengthened the economy.

The latest jobs numbers are a fresh admonition that pundits and talking heads aren’t very good at prophecy — especially when their forecasts are colored by prejudice or partiality, as those involving presidents generally are.

But there’s a more fundamental lesson here. The unexpectedly positive jobs report is a reminder that economic life in the United States operates on a scale orders of magnitude greater than the canvas of Washington politics. More often than not, it is folly to treat a narrow political skirmish as the cause of a broad economic effect. The government shutdown may have been a big story. Measured against a $20 trillion national economy, however, it was little more than a sidebar.

(Jeff Jacoby is a columnist for The Boston Globe).

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