Donald Trump has branded himself a champion of the Working
Man. He claims that he can create jobs, more jobs, by applying supply side economics
to give “job creators”, or large corporations, tax benefits and other
incentives to remain in the U.S. or expand their operations here. I hypothesize
that supply side economic policies designed to expand job growth will be more
ineffective in the post-2008 economy than before due to a lean, efficient
workforce born from hard cuts during the recession, and a reticence from
employers to overreach in hiring and be forced to lay off more people in the
event of a second recession.
Supply side economic policies function by reducing the
regulatory and tax burdens on corporations, increasing their available stream
of revenue, and theoretically giving them a greater chance to expand and hire
new employees. The phrase “a rising tide lifts all ships” springs to mind. At a
glance, this seems like sound logic. However, I think that the current business
culture needs to be taken into account before it can be assumed that businesses
will take all their profits and put it back into the company.
During the recession many companies were forced to reduce
their workforces when the markets collapsed. The long and deep recession was a
bottleneck event. Only companies that could become lean, efficient machines
survived the recession and they took the lessons learned from those experiences
with them into the post-recession economy. I think proof of this can be found
in the percentage of people working multiple part-time jobs because they cannot
find full time employment. Why hire a full-time employee with benefits when you
can pay lower wages to a part-timer with no benefits? Even more, part-time
employees are often easier to fire and would have lower severance costs.
Companies are very aware of the liability of excess or under utilized employees
and have kept hiring tightly in check post 2008.
Even though the recovery after 2008 was the quickest
non-wartime economic comeback in history, growth is relatively slow and the
markets still have lingering doubt over whether or not the gains made since
2008 are permanent or if a relapse is immanent. I think this mood is
exacerbated by de-regulation of financial and banking industries, which has
precipitated the last two significant recessions.
This is not helped by the mixed economic messages coming
from the Trump Administration, which vacillate between complete protectionism
and cautious participation in free trade with the caveat that the U.S. be the
largest benefactor in any deal, which is a decided deviation from all previous
modern foreign economic policy. Uncertainty is the bane of the stock market and
employers are reticent to make large investments in labor because they are
uncertain of the future of the economy. They are unwilling to risk the large
liabilities related to employment if they will need to lay them all off in the
near future.
With the combination of these two conditions, I believe that
the efficacy of supply side economics will be significantly hampered. Already
corporations are announcing that they will be using the tax benefits to give
out bonuses, buy back stock, or fluff up their rainy day funds. I do not
believe there will be above average job growth compared to the growth rate of
the economy as a whole. There is too much uncertainty in the markets, and
employers are too good at efficient work force management to grow quickly.
