HEIDI SHIERHOLZ
Shierholz is president of the Economic Policy Institute.
In February, Heidi Shierholz gave testimony to the House Committee on Education and the Workforce, where she argued that the Trump-Vance administration has “inherited unquestionably the strongest economy for an incoming administration in a quarter-century.” That strength, she said, “was driven in large part by economic policy choices by the prior administration and Congress.” Yet the new administration will be “profoundly destructive to the incomes and economic security for both the most vulnerable families and the broad middle class.”
Shierholz told the Institute for Public Accuracy: There are already signs “flashing red or yellow as far as the economy goes. The stock market is way down, Treasury bonds are down, consumer sentiment is down. Inflation expectations are way up and measures of economic policy uncertainty are through the roof. When we look at time series of surveys that ask people and businesses what their sense of policy certainty is, we’re seeing numbers we have never seen before. Seven-day moving averages have spiked enormously.
“These things will start having real effects on the economy. In an environment where things are really uncertain, businesses pull back in investments and hiring. Businesses are feeling bad about the chaos and instability that the Trump administration is sowing at key economic institutions like the Treasury. People aren’t going to make big investments if they think a recession is coming.
“Then there are the more direct cuts, like the draconian cuts being made in the federal workforce. The federal workforce only makes up about 2 percent of total employment, but the workers at private sector companies that receive federal contracts––that’s 10 times as big. The administration is going to undermine essential public services, make us less healthy and less safe, and undermine economic health. If we have a pullback in business investments because of policy uncertainty, and you add draconian budget cuts on top of that, then those things together will create a drag on demand that could be too big for the Fed to handle. Interest rates aren’t near zero right now, and the Fed will be able to reduce them further to stimulate demand, but there’s a limit to that. It’s really good that interest rates aren’t currently near zero. If they were, anything could quickly tip us into a recession because of the extent of what the administration is doing.
“The administration is planning to cut critical services to the most vulnerable households in order to give massive tax cuts that will overwhelmingly go to the wealthy. Those tax cuts are so massive that they won’t even be covered by the draconian cuts, so they will add trillions to the deficit. Our economy is strong right now, so adding to the deficit will either cause higher interest rates or higher inflation. Increasing deficits to give tax breaks to millionaires when you have a strong economy is terrible economics––and it’s cruel and inhumane.
“The public still doesn’t understand just how unbelievably strong the economy was that Trump inherited. Unemployment had been at or below 4.2 percent for 39 months when Trump took office, which hasn’t happened since the 1950s. Real wages are also growing. Inflation spiked because of pandemic and war, and that absolutely affects living standards. There is still a maddening gap between what the economy could deliver for working people and what it does deliver. But real wages––the purchasing power for wages after taking inflation into account––were higher in 2024 than they were in 2019. That is because for the last year and a half, wages have been growing a lot faster than inflation. Purchasing power in 2024 was higher than it was in 2019. That is also true across the board: for low, middle, and high wage workers. Low wage workers saw the biggest gains in real, inflation-adjusted wages over this period.
“If we have a recession, it will be 100 percent because of the administration’s absolute mishandling of the economy through cruelty and mismanagement.”