America Realizes It Likes Federal Spending After All

Originally posted at Capital Gains and Games. [1]

There’s about to be a big change in the federal budget debate. In the end, the big winner will be the part of the budget that supposedly is so unpopular — federal spending — that a candidate for office this year cannot currently say he or she supports it without risking massive political condemnation and reprisals.

It’s been relatively easy to be anti-spending up to now because the reductions being proposed have mostly been theoretical and weren’t really likely to happen.

They also were mostly discussed in statistical terms that don’t typically strike fear into the hearts of most voters. After all, what does it really mean to reduce federal spending as a percentage of gross domestic product, to keep spending to its historical average or to implement an across-the-board cut?

And if all that has to be done — as some wishful thinkers have repeatedly said — is to eliminate waste, fraud and abuse and you’re sure what you care about doesn’t meet any of those definitions, then cutting federal spending isn’t really that worrisome.

The irony is that this is about to change because of something that spending cut proponents themselves demanded. The sequester — the spending-cut-only alternative they insisted on if the anything-but-super committee failed — that will occur on Jan. 2 is the opposite of most of the plans that have been part of the federal budget debate up to now: It’s in place and will happen unless Congress and the president take some action to prevent it.

And it’s forcing companies, industries and voters to face the reality that the spending cuts could actually occur and, despite what they’ve been saying publicly, that they really don’t want it to happen.

This is not a guess. The military community has been so actively opposing the spending cuts the sequester will impose that you can almost feel the desperation in its rhetoric and tactics. The Aerospace Industry Association has released reports about the economic turmoil and lost jobs the spending reductions will cause and has been at the forefront of what is a highly coordinated public relations and lobbying effort to block the cuts.

The same type of effort is taking place on the domestic side of the budget, with everyone from medical schools to state and local governments to local chambers of commerce organizing to prevent the sequester-imposed reductions that will hit their favorites.

In addition, it’s been clear for months that Federal Reserve Chairman Ben Bernanke is concerned about the economic damage the spending cuts and other policy changes that will occur at the end of 2012 could do to the economy. Bernanke’s concerns have begun to be so frequently echoed that the phrase “fiscal cliff” is now commonly thought of on Wall Street and elsewhere as an economic and financial four-letter word.

Some of the opposition to the spending cuts is not new. Polls have shown for years that while Americans strongly want to cut federal spending when it’s described in general terms, there’s remarkably little support when specific parts of the budget are mentioned.

In fact, with the exception of foreign aid and sometimes NASA, most polls typically show significant and often overwhelming support for at least maintaining the current level of every area of federal activity. There’s also often a great deal of support for Washington, D.C., spending more on specific programs and for certain purposes. This is regardless of whether those being polled are a representative cross-section of voters or those who identify themselves as fiscal conservatives.

The change now is that, in addition to them being more likely to occur than most other spending cuts that have been mentioned in recent years, the reductions that will go into effect because of the sequester are beginning to be seen by diverse groups that don’t always work together as being in their joint interest to oppose.

While defense contractors and their trade associations have been leading the charge against the Pentagon sequester, unions in those industries are also working to stop the spending reductions from happening. In addition, investors with an interest in companies that work with the Pentagon have been expressing their own concerns about the impact of those cuts on the economy, not to mention on the price of their stock.

Add to that the growing worry on Wall Street that the cuts are too big and will occur at the wrong time and polling results that show less support for specific reductions than is assumed, and you get the start of the new federal budget reality that spending cuts aren’t really all that popular.

This is going to put federal spending cut proponents on the defensive in the months ahead as it becomes increasingly obvious that their position is not aligned with a majority of the country. It will be a humbling experience for many of those who have been so sure of themselves on this issue that they insisted on a spending-cut-only sequester that caused the change.