Skip to main content

Brace yourselves, The effects of the so-called "Budget Sequestration" are about to hit.  The two parties aren't going to compromise so the automatic budget cuts are going to hit and hurt the economy.  The media will probably ultimately blame the two political parties for not coming together to fix something that EVERYONE knows is going to be bad for the economy.

The actual economic damage is compounded by the other deficit-reduction measures that have already slowed growth, including a 2 percent payroll tax increase. All told, economists expect the sequestration plus last month’s fiscal-cliff deal to slow the pace of GDP growth by 1.5 percentage points. That’s no small change for an economy growing about 2 percent a year, particularly one that appears to have lost steam in the fourth quarter of 2012.

The reality is that they are equally at fault: Both sides accepted the across-the-board cuts if they couldn’t agree to more sensible ones.

I don't blame the two parties for this mess.  I blame bad economics.  John T. Harvey has a good write-up of why this is going to be bad and why it's all unnecessary in his article Suicide by Sequestration.
As suggested above, many others have already gone into detail on where cuts will hit and how bad it will be. But, the overwhelming majority of this has been written based on the assumption that we do, in fact, need to cut the debt and deficit, just not this way. I therefore want to do what I’ve done so many times before in this blog: explain why this is a false and terribly dangerous premise. ANY reductions in the deficit are a mistake, not just those forced by sequestration. Below, I attack a number of the fallacies on which these contrary opinions are based (many of these have appeared before in this column–I’ll keep repeating it until President Obama listens!):

For God’s sake, we have so many difficult problems facing us today. Why add to that by shooting ourselves in the foot–no, the head–by purposely reducing economic activity even more? To see how well this brilliant economic-recovery strategy works, just look at Greece, Spain, and the UK. Better yet, look at the US in fourth quarter of 2012. That negative growth, correlated as it was with a big drop in government spending, is a precursor of things to come.

I highly recommend reading the rest.  John explains better than I could so I won't repeat his points.  Instead, I'll try to answer his question of Why do we keep trying to do this to ourselves?.

The economists that our leaders listen to keep telling them that budget deficits are always bad.  It's always bad to have debt for a household or business, so in theory, it should be bad for a national government.  It's a very powerful and emotionally convincing theory backed up by the metaphor of a household or business budget.  The people who keep pointing out that The Federal Budget is not Like Your Budget keep getting drowned out.

How powerful is this theory?  It's so powerful it drowns out common sense.  Let's take a different situation.  Let's say someone at the pet store tells you your fish tank should have no more than 3 snails for every 5 fish.  But your fish tank has 4 snails and 5 fish.  So you take away one snail.  But you notice that a week later your fish starting looking sickly and the water gets dirty.  You add back a snail and everything starts slowly recovering.  When you tell this to the pet store owner, he assures you "no no, you gotta take that snail away.  Your tank will get 'too clean'.  The 3 snails will eventually learn to clean more.".  So you go home and take the snail away again, but sure enough your tank gets dirty and the fish sickly.  How many times would you keep trying to take a snail away before you conclude that the pet store owner doesn't know what the hell he's talking about?  Well, if you're a congressman, at least more than 5 years!

We have experienced nearly 5 years of a trillion plus dollar budget deficit.  The entire time our economy has been slowly recovering.  The only times it has faltered is when congress has another budget or debt ceiling fight to cut the budget.  How long can this go one until more people start realizing that the economy is recovering and falters when we prematurely try to balance the budget?  If we were scientists and observed this many countervailing examples of our theory, we'd throw it out in a heartbeat.

But, we don't throw out the theory that "Budget Deficits are always bad".  Why?  Because the metaphor of the federal budget being like a household budget is just too strong.  We'll just keep telling ourselves that we "cut the 'wrong' things".  Apparently, we'll never conclude that it's the cutting itself that is 'wrong'.

Cross Posted at Our Dime

Originally posted to MoneyLiberty on Thu Feb 28, 2013 at 10:54 AM PST.

Also republished by Money and Public Purpose.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site