So. We are now officially into sequestration, and I don’t see
any immediate incentive for either side to get us out. The thing was designed to contain at
least one thing that each side disliked, to force them to the table to
compromise, but the designer, probably Jack Lew, made a mistake: he also fenced
off for each side the one thing they simply could not accept, the one thing
they not only disliked but abhorred.
The Republicans are afraid that any new compromise will raise taxes, and
the Democrats (at least the more progressive Democrats) are afraid that any new
compromise would devastate support for the old, the sick, and the poor. For each side sequester, sour as it is,
is still sweeter than the compromise they fear.
In my last post on sequester I
waited until the end to say this, and from a facebook conversation I know that
there are people who didn’t read to the end. Not surprising.
I do the same kind of thing whenever I try to read Charles Krauthammer;
I can never get past the first paragraph of pompous sneer and misdirection
before revulsion pushes me on to the next column. For all I know Krauthammer may say brilliant and insightful
things in the third and fourth paragraphs, but I never get that far. So let me put this quote from the end
of my last sequester post right up front here:
“For the
average person in an average day, going to the job he or she still has and
going home, cooking dinner and watching TV, caring for children, there will be
no immediate cataclysm they can point to and blame on sequester.”
Translation: I think it’s a
serious mistake for Obama to overstate the short run cost of sequester, in part
because most people won’t really feel any significant short run cost.
The consensus estimate is that it
will reduce economic growth this year by one half of one percent. So it will slow growth down, but on its
own it probably won’t sink us into a new recession. It will just mean that the long slow recovery will just be a
little longer, and a little slower,
a little more grinding, and a little more fragile to external
shocks. With interest rates at the
zero lower bound, I don’t think the Federal Reserve can do much to save us if
external shocks---say, an economic crisis in Europe---do come along. But if the world continues to limp
along as it has been doing, there is no impending cataclysm.
The house Republicans have
created a long series of crises, and we still have at least two ahead of us
over the next few months.
But if they had to pick one of their crises to allow to ripen and bear
fruit, this was the one to choose.
The others would either shut down the government completely (if they
fail to pass a budget or a continuing resolution), or throw the Treasury into
default (if they fail to pass a debt ceiling increase), so this is the one that
will cause the least damage, and for most people the least pain.
But if it’s a mistake for Obama
to overstate the costs, it’s also a mistake for others to understate them. in that former sequester post
I also said that:
“I
expect the usual jokes about how the government shut down and no one
noticed. But those jokes are
ignorant, and dangerous.”
And of course we are already
hearing those jokes, and seeing them in political cartoons. And we’re seeing columnists and others
(such as George Will here,
or today’s interesting op-ed piece by a former Republican hill staffer named
Mike Lofgren here)
claiming that the sequester is trivial, that the $85 billion total that will be
cut from our $3.6 trillion budget is only 2.3%, so it’s nothing to worry
about.
Yes, the total budget is
huge---we’re a huge country---and compared to that huge budget the sequester is
small. But the sequester cuts
don’t come from the total budget. They can’t. We can’t at a
whim just cut the interest payments on our national debt, for example, or our
Medicare or Social Security payments, or military retirement, or military pay
for active duty personnel, or a host of other non-discretionary spending. The sequester spending cuts have to
come out of a much smaller pie.
And as a result the great majority of federal civilian employees will
face unpaid furloughs, generally of one day per week, starting in late April. That’s not 2.3%. That’s a 20% cut in income, and so for
the whole of the federal government’s labor force the sequester, if it endures,
creates a quick and significant hurt. And for the rest of the country, those furlough days
will create risk and stress, not for everyone, but in patches here and
there. Food inspection is one area
that has had a lot of play in the news.
The result of fewer food inspectors will not be riskier meat, because
risky meat cannot be sold. The
result will be less meat available,
smaller supply and so, at least in theory, eventually somewhat higher
prices. Not catastrophe, but
irritating to us omnivores. And
other scenarios will play out in many areas where public services will
diminish. Border security, embassy
security, FAA, FEMA, wildlife fire management, child nutrition, student
financial assistance, and on and on.
Refugee assistance. Aging
and disability services. Air
marshals. $372 million from the
FBI; $102 million from the DEA.
$45 million from the Small Business Administration disaster loan
programs, and $24 million from the SBA business loans program. On and on. A few million here and there, as the total $85 billion gets
parceled out to the lowest level.
You can download the whole list here;
this is a PDF of the letter sent to John Boehner outlining the specific
sequester cuts.
Do all of these cuts spell
disaster? No, certainly not, at
least not for those who are not directly effected by furloughs or sudden loss
of services or support they need.
Not in the short run, anyway. Vegetarians won’t care if there is less
meat. People who don’t fly much
won’t care if the FAA budget is decreased. Those who do won’t even notice the absence of air marshals,
unless there is a hijacking that could have been prevented; in an ordinary
flight we don’t notice when they are on the plane, so why would we notice when they are not? It’s all just a little more grit in the gears for most people. Is it 2.3% more grit? Is the pain greater than the cost
savings? I don’t know. I would guess yes, probably a good deal
more. 2.3% increased pain, or even twice that, isn’t Armageddon though.
But the half-percent growth
slowdown that is the consensus forecast is just the short run, just this year
or next year. That’s just the loss
of demand, and presumably, hopefully, we will recover from that eventually. But the impact that concerns me most is
long run, not short run. The
general Republican urge to make the government small and powerless, so small,
as Grover Norquist is famous for saying, that they can “drown it in a bathtub”,
means that we are all left with less power to cooperate in investing in long
term research, in infrastructure improvements, and in general in providing
public goods, or suppressing public bads.
And that can mean lower growth and create more meager prospects not just
this year or next year, but forever.
Republicans in the House are
concerned about a few percentage points in the tax code; they would count it a
great victory to reduce the top tax rate by, say, 10%. But if the determined pursuit of
reduced taxes also reduces public investment in infrastructure and research,
the money they save in lower taxes in the short run would very quickly be
overwhelmed by the loss of income growth in the longer run.
At least one real difference
between my view and the view being expressed by a lot of the Grover Norquist
branch of the Republican party who want to shrink government until they can
drown it in a bathtub is that one. I think there are public investments that matter, and that
can increase growth, and that only government is likely to make those
investments. They don't think that, or at least they think that those government investments are displacing private investments that would provide an even bigger return to us.
If they're right, then what just happened hardly matters. It's only 2.3%, after all.
If I'm right, then it’s foolish to slash wildly away at government expenditures without considering what future costs are implied by current savings. The long run costs could be much bigger than the small cost savings that are visible on the surface.
If they're right, then what just happened hardly matters. It's only 2.3%, after all.
If I'm right, then it’s foolish to slash wildly away at government expenditures without considering what future costs are implied by current savings. The long run costs could be much bigger than the small cost savings that are visible on the surface.
