Trump offers cold comfort as he amputates economy’s engines of growth
(Originally published March 6 in “What in the World“) For his next trick, Trump plans to make at least 70,000 more federal employees vanish.
Citing an internal memo, the Associated Press says that the Dept. of Veteran Affair’s chief of staff Christopher Syrek told top officials to prepare to work with the White House’s ad hoc “Department of Government Efficiency” to reduce by August its head count to 2019 levels—399,957 employees. That will require eliminating tens of thousands of employees added during the administration of former President Joe Biden. The AP suggested the reorganization would result in 80,000 layoffs; The Wall Street Journal says 70,000. Ten-thousand livelihoods here, ten-thousand livelihoods there. Who’s counting?
This haphazard dismemberment of the federal bureaucracy—the nation’s largest employer—is among several factors leading an increasing number of economists and investors to predict stagflation for the U.S. economy. The VA layoffs would follow the voluntary resignations of more than 70,000 federal employees who accepted U.S. President Donald Trump’s offer to pay them eight months’ pay to resign, on top of other widespread layoffs.
The other worry, of course, is that Trumps rising tariffs on imports will raise costs for consumers and businesses without stimulating the kind of investment needed to compensate. Tariffs are likely to reduce U.S. consumer’s after-tax income by 1%. Rising import costs and supply-chain pressures are likely to hit Food companies profits. And rapidly vacillating policies are making it increasingly difficult to make any investment plans.
“There’ll be a little disturbance,” Trump told the U.S. Congress Tuesday. “But we’re okay with that.”
Time, as they say, will tell. Trump’s latest round of tariffs is likely to reduce U.S. economic growth by 0.6 percentage points, credit ratings agency S&P Global said in a revised forecast. According to the U.S. Federal Reserve’s survey of regional American economies, eight of the country’s 12 districts saw flat or negative growth in February. The Federal Reserve Bank of Atlanta’s GDP tracker predicts a 2.8% contraction in the U.S. economy this quarter.