Guest post from MN Gordon at Economic Prism:
No little boy or girl says they want to be a stiff at a government agency when they grow up.
Suppose you were an average student in high school without any real academic focus. Your guidance counselor told you that college graduates earn more over their working lives than their peers who only graduated high school.
So, you took the logical step and enrolled at your local state university. There you majored in history, or sociology, or psychology and social behavior.
You didn’t really know what you wanted to do with your life. But your uncle told you that government jobs are more stable than the private sector, and that they have better benefits and guaranteed retirement plans.
Upon graduation you went to work for the Bureau of Land Management, the Department of Education, the Internal Revenue Service, the Environmental Protection Agency, or some other federal agency that administers some obscure law that was passed over 60 years ago. You learned the ropes and it felt good to have a purpose and to be part of something bigger than yourself.
One day, about ten years into your career, as you’d advanced within the organizational hierarchy, it dawned on you that what you were doing was pointless minutia. A complete waste of your time and your life.
By this time, however, you were in too deep. It would be difficult to start over in another profession. Plus, at your agency job, the pay was generous, the work was easy, and you had a mortgage and a family to support. Your consolation was that after 35 years you’d have a cush retirement to look forward to.
Another decade goes by, and each day you count the years until you’ll be able to start enjoying those pleasant Florida winters in Tampa.
But regrettably, it was not to be…
You’re Fired!
Along comes Trump, the dark horse winner of the 2024 Presidential election. With the odds stacked against him and the legacy media determined to destroy him, he somehow pulled off the victory.
Quickly you discover that this Trump is much different than the Trump that was in office several years ago. He means business.
He has that whacky billionaire Elon Musk – and a team of computer geeks – working to cut waste from the federal government. And in the blink of an eye, Musk placed a bullseye on your job.
Several weeks ago, you got an email from Musk’s DOGE with the ultimatum to either quit or be fired. A week later you got an email on a Saturday requesting you provide five bullet points on what you accomplished that week.
Several more days go by, and you learn via email that you’ve been fired. To pack up your stuff and get on down the road. Now what?
You go home and update your resume and peruse job listing on LinkedIn and Indeed. You find that your skill set as a civil servant doesn’t align with most private sector jobs. You also notice that the jobs that you may have a shot at, like administrative billing at United Healthcare, only pay about 60 percent of what you were paid by the federal government.
Because you live in the DC metro area many of your neighbors who worked for the federal government were also fired. Thus, the competition for these job postings is fierce.
Your online applications are ignored. When you do receive a reply, it is a form response that the company is in the process of evaluating applications and that you may hear more in about four to six weeks.
Distortions
You see new “For Sale” signs popping up in your neighborhood almost daily. You wonder if you should list your house too, and at what price.
‘Where did I go wrong?’ you question. ‘I did everything I was told to do, and now after 20 years the rug has been yanked out from under me. I thought my civil servant job was guaranteed for life.’
Alas, sometimes in life things don’t work out the way you want them to. Stuff happens. Things fall apart.
Many career federal workers are discovering that they’re caught up in something beyond their control. Their fantasy lives, doing pretend work for considerable pay, have been shattered. The gravy train is over. They will have to start over in conditions that are more demanding.
Quite frankly, the time for America’s bureaucratic bloat to reverse was several decades ago. But instead of contracting, it expanded on a rising tide of debt. Trump, for his part, is doing what should have been done at the turn of the century.
Now these former federal workers will have to struggle with the realities that private sector workers contend with. Namely, competition, job insecurity, and compensation that is tied to profit and loss.
In essence, over many decades there has been a mammoth misallocation of capital. This misallocation, directed through government spending, has created huge distortions within the economy.
Countless programs, jobs, and incomes, which never should have existed, were financed with unsustainable debt. And as they’re taken away, a painful adjustment must occur. While this will ultimately place the economy on a firmer footing, the immediate consequences will be brutal.
Federal Workers Sing the Blues
Washington, even with Trump as President, doesn’t likely have the will to eliminate the deficit. However, the termination of several hundred thousand federal workers could have impacts in and around regions with an abundance of federal agencies.
Federal worker incomes are generally above average. As federal workers go from spending to singing the blues, consumption in those regions will falter. Services that were supported by the incomes of federal workers will take a hit.
Restaurants, coffee shops, dry cleaners, auto insurance, big box retailers, and many others, will see their sales decline. There will also likely be a shake-out for government contractors.
In addition, with all the employment uncertainty out there, in both the public and private sector, consumers will start tightening their belts. Less consumer spending means less economic growth, which also means less jobs and, in turn, less consumer spending. Can you see the vicious cycle that is developing?
This is all happening at a time when stocks are extremely overvalued. Moreover, it’s not just technology stocks that are expensive. The stocks of consumer discretionary and staples businesses are also at extremes.
Consider Costco. The company’s share price trades at about $1,021. That’s down from $1,078, which was marked several weeks ago.
Five years ago, Costco shares traded at $281. Even with the recent decline, the stock’s up over 263 percent over the last 5 years. Year to date it’s up by over 12 percent. Its price to earnings ratio is a sky high 60. Yet it pays a paltry dividend yield of 0.44 percent.
Costco reported net sales of $249.6 billion for FY2024. Net sales reported for FY2020 were $163 billion. Thus, between 2020 and 2024 net sales increased by 53 percent. Not bad.
Still, this is nowhere near justifying a 263 percent increase in share price over this time.
What will happen to Costco’s share price if net sales are flat, or if they decline?
We may find out later this year. Certainly, there are many distortions to purge from the system. Costco is but one example.
When the inevitable downturn arrives, it will be one for the history books.