Will Sequestration Cause the Sky to Fall (Defense Edition)? Not even close.


Reason columnist and Mercatus Center analyst Veronique de Rugy has a sharp post up at National Review's The Corner. Despite the bipartisan pants-wetting from folks such as Democrats Leon Panetta and Barack Obama, the Heritage Foundation's James Carafano, Sens. John McCain and Lindsey Graham, and others, de Rugy says that cutting defense spending by an estimated $55 billion will neither kneecap our national security nor crush the economy.

On the first score, de Rugy notes that previous defense drawdowns typically are much starker in absolute and relative terms. That is, when the U.S. cuts defense spending after wars, spending has typically declined by about 30 percent over 10 years. Not so in this case:

The CBO projections (see Table 1.3 here, or Table 1.5 in the new CBO projections) about the impact of sequestration show that in the worst-case scenario (if all the cuts are applied to the baseline in the law), there will be initial reductions between FY 2012 and FY 2013, but that defense spending will continue to grow in nominal terms for all years after. After sequestration, the FY 2013 defense budget will be comparable to its FY 2006 level (in real terms). Adjusted for inflation, over the next ten years, the spending is projected to remain relatively constant.

And recall that total defense spending has jacked up some 70 percent in the 21st century, so we're relatively loaded for bear when it comes to military power. It's also worth noting that the U.S. currently spends something like 40 percent of the planet's spending on defense. Finally, can defense hawks answer a simple question: Is there ever a legitimate time to reduce defense spending year over year? If the answer is no, then they are simply being dogmatic that spending must always increase (or at least stay at the same level). Talk about an empty argument. 

As for the larger economy: Will cutting $55 billion out of government spending between now and the end of the fiscal year in September crush GDP? The GDP figures include most (though not all) government spending, so GDP will take a hit whenever the government turns off the spigot. But it's a major mistake to think that government spending automatically helps grow the economy; much of it is simply a waste of dollars that needs to be covered by current or future taxes (or inflation). To this point, de Rugy quotes her Mercatus/GMU colleague Tyler Cowen from his recent New York Times column:

In the short run, lower military spending would lower gross domestic product, because the workers and resources in those areas wouldn't be immediately re-employed. Still, that wouldn't mean lower living standards for ordinary Americans, because most military spending does not provide us with direct private consumption.

Read de Rugy's whole thing here.

Sequestration is a stupid, blunt weapon. It slices spending across the board without any discrimination or cost-benefit analysis. Its very reckless nature is precisely why it was used as a threat to get Congress' ass in gear to arrive at more precise and surgical cuts. It didn't happen, so now Congress is stuck with it. Or at least, let's hope so. They've already postponed it once. And if they want to offer alternatives before March 1, they can always do that by calling for specific cuts that satisfy the $85 billion or so in total cuts to this fiscal year's budget.

Despite John Boehner's insistence that House Republicans have done so, they have not. The bill he touts as doing that, H.R. 6684 or The Spending Reduction Act of 2012, doesn't actually cut spending. As Rep. Justin Amash (R-Mich.), one of 21 no votes on the measure, wrote at Facebook, "Contrary to its title, the bill increases spending and debt by tens of billions of dollars."

Indeed, H.R. 6684 not only exempts defense from any cuts, according to the CBO's scoring, it actually increases deficits in 2013 by $45 billion (see "Net Changes in Deficits" line on page 2). That's appalling, of course, but it also is one more example of how most bills do the exact opposite of their titles.