I want to say this as directly as possible: The sequester – the Jan. 2 across-the-board spending cut that was triggered when the anything-but-super committee failed to agree on a deficit reduction plan last November – needs to be canceled.
In case there’s any doubt about what I mean, note that I said “canceled” rather than postponed, delayed, kicked down the road, modified, revised or anything else short of completely stopping the sequester from happening. And I mean both the military and domestic spending cuts, not just one or the other.
The sequester needs to be canceled because it’s the wrong fiscal policy at the absolutely wrong time that, as the Congressional Budget Office has said (and no one has seriously disputed), will hurt the economy at a point in the recovery when the other components of gross domestic policy won’t be able to absorb the blow.
Other than that, it’s a great idea.
Remember that I’m generally considered to be a deficit hawk who thinks spending reductions have to be part of a serious deficit reduction plan. But unlike some in the budget Falconiformes community, I am not a reduce-the-deficit-any-time-for-any-reason-no-matter-what-the-economic-effect hawk. That’s why I have no trouble making what some of my feathered fiscal friends will say is the heretical statement that we will be better off if the sequester’s spending cuts don’t occur.
The economic argument is quite simple. With corporations, consumers, trade and state and local governments still not adding as much as we need to economic growth, it makes no sense for the only remaining positive gross domestic product contributor – the federal government – to cut its spending significantly in January.
Not only are the major players in the U.S. economy not demanding that the sequester spending cuts take place as scheduled, they are doing the opposite by strongly indicating or stating directly that they should not.
This includes the bond market, whose alleged vigilantes have used low-interest rates for quite some time to demonstrate they are now deficit cheerleaders; the chairman of the Federal Reserve, who for months has repeatedly said that the sequester and the rest of the fiscal cliff will be harmful and should be stopped; the CBO, which has issued a series of substantive analyses that have sounded alarms about the negative effect of the cliff; and many of the companies that will be affected by the sequester spending cuts, which have warned about substantial layoffs and national and local economic calamities if they happen.
The sequester madness also includes what has to be seen for what it really is: ridiculous to the point of being absurd politics. Consider just the following.
There is little support outside the Beltway for any of the specific spending cuts that will go into effect if the sequester occurs, and that’s before most people even realize the effect the reductions will have on them and their communities. There will be political hell to pay if the cuts go into effect and House Members and Senators from both political parties will scramble to repeal them as quickly as possible. Economically and politically, not to mention in terms of managing programs, it will be far better to stop the cuts from happening in the first place rather than to have them start and then stop.
The sequester cuts are so unpopular that repealing them has become a Republican presidential campaign issue even though the law that set them in motion – the Budget Control Act – was adopted with substantial GOP support in both chambers.
Few Members of Congress want the sequester to happen. But it’s hard to find one who will talk positively about the higher deficit that will result if the cuts don’t happen because that would be the budget equivalent of Lord Voldemort from the “Harry Potter” books: something that dare not be spoken. Federal Reserve Chairman Ben Bernanke coined the phrase “fiscal cliff” so he could avoid saying out loud what he really meant – that the deficit needs to be higher next year than will occur if the sequester and the rest of the fiscal cliff policies go into effect.
The political silliness reached a low point last week when the White House was criticized for missing the deadline for releasing a report to Congress that explains which programs will be cut by how much if the sequester that so few really want occurs. Not only was Congress not in session on the official date the report was due, the report will provide details on an event that won’t take place for almost four months. In other words, the delay of a few days means nothing.
Put all this craziness together and you realize just how mad this situation really is. No one wants the sequester to happen, but the alternative – a higher deficit – is not politically acceptable. Everyone would like someone else to get blamed for the cuts that will occur if the sequester happens, but they still want to get credit for reducing federal spending.
The sequester is a campaign issue in an election that presumably will be decided almost two months before it’s scheduled to happen. And the negative effects of the spending cuts are disputed by few, even while some on the Hill continue to insist that the federal budget can be cut without harming the economy.
In other words, the January sequester is neither good economic policy nor good politics. That’s practically the prototypical definition of fiscal madness.