If You Think the Sequester Cuts Will Tank the Economy, I've Got a Bridge In Brooklyn You Might Want to Buy



Or some prime real estate in Florida. Really, it's not swamp land at all. And those aren't alligators, they're dogs.

Our story thus far: Back in August 2011, as a condition of raising the debt limit by as much as $2 trillion, Congress and the president agreed to cut about $900 billion in anticipated spending. They also created a committee that was charged with coming up with an additional $1.2 trillion in cuts over the next decade to expected spending by the end of 2011. If Congress didn't pass those cuts, then come January 1, 2013, automatic cuts—a sequester—would kick in, split between defense spending and non-defense discretionary (with a light sprinkling of some even smaller cuts to entitlements). Congress failed to pass anything and then, when the 2013 deadline arrived, it pushed the deadline for the cuts to start to March 1.

Widely quoted as $85 billion for spending in fiscal year 2013 (which ends on September 30), the Congressional Budget Office (CBO) underscores that just $44 billion of spending reduction are slated for 2013, with the rest coming in later years. So what we're talking about is trimming $44 billion from total federal spending expected to be $3.6 trillion this year. If you use the $85 billion number, that's about 2.4 percent of the budget. If you use the $44 billion, you're looking at 1.2 percent.

For The New York Times, the sequester signals "an era of government austerity." For the White House, it's the end of the world. As USA Today reports, President Barack Obama has made it clear that everything from unemployment insurance to school lunch programs to cops on the beat will be scaled back.

In his weekly Saturday radio address, Obama said the cuts will slow the economy, eliminate jobs and "leave many families who are already stretched to the limit scrambling to figure out what to do."

courtesy Mercatus Center

The unkindest cut? Energy Secretary Steven Chu has revealed that sequestration would reduce the number of houses being "weatherized" by the feds by "more than a thousand."

We should try to define austerity. In its latest budget document, the CBO notes in table 1-1 (look at outlays) that, assuming sequestration happens, there will be a slight dip from 2012 to 2013 in discretionary spending levels. Then discretionary spending rises every year through 2023. Total federal spending is projected to rise from $3.5 trillion in 2012 to $5.9 trillion in 2023. Good luck matching that sort of austerity in your salary gains over the next decade.

Here are three questions for folks wetting their pants about the sequester:

1. Under what sort of math do you figure that cutting $44 billion or $85 billion from a total tab of $3.6 trillion is anything more than a rounding error? Half of the cuts are slated for defense spending, which has grown massively over the past decade-plus. Do you really think that the military can't cope?

courtesy WB

2. Do you really believe that the sequester cuts will tank a $16 trillion economy? And if so, what's the multiplier on that? GDP is counted in such a way that most government spending automatically gets counted as increasing the amount of economic activity (the same doesn't hold for private spending, where different conditions hold). Do you at least agree in theory that government spending has been cut in the past without ruining the economy (and if you don't, why not)?

3. When will conditions be right to actually cut spending? There's a raft of anti-sequester people—such as Barack Obama—who pay lip service to the idea that government spending (especially government deficit spending) needs to stop or be reduced at some point in the future. But like St. Augustine in his partying period, they don't want to get straight just yet. So when might that be? If we can't afford to cut a tiny fraction of current spending now—after a year-plus of knowing this was coming and a major punting on the original deadline—when might we?

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  1. Half of the cuts are slated for defense spending, which has grown massively over the past decade-plus. Do you really think that the military can’t cope?

    John McDepends thinks so.

    1. there is a reasonable argument to be made re: proportion. At least defense is cited in the Constitution as a federal responsibility. Welfare, not so much.

      1. Actual “defense” of the nation is a federal responsibility. Having hundreds of bases around the world seems more like an elective.

        1. WHch doesn’t even to begin to address the idea of whether ANYTHING the military has done over the last 4+ decades has anything at all to do with national defense.

          We must learn to differentiate between defense spending and military spending. They are not the same.

      2. Our founders didn’t allow government to engage in welfare. A better word is stealing by government, in the name of the poor, but really to buy votes.

    2. just as Alan implied I am in shock that any body can profit $6783 in a few weeks on the computer. did you read this web page…

  2. It doesn’t have to tank dick. All that is required if the sequester goes through unmolested is for news media hairdos to tell everyone that the economy suddenly got bad and the draconian cuts are why.

    1. CNBC didn’t get the memo, I guess. The people who run the stock markets are worried about the Fed, not the so-called cuts.

  3. It is not the cuts that will tank the economy. It will the President using the cuts as an excuse to stop the few actually necessary things the government does that will tank the economy. If the economy doesn’t tank, Obama has failed.

    1. Yes, they will go for the Firemen First tactic: “OMG, we’ll have to cut ESSENTIAL SERVICES!!” When belts have to be tightened, no government ever says: “OK, we’ll have to cut that junket to our sister city in Europe.” So we can be sure that the FDA’s magician’s rabbit inspectors will not be threatened, nor will the million-dollar government employee suffer any hardship.

    2. How much will shutting down airports due to traffic controllers being furloughed cost this country? But for some reason this is one of the first positions to get scaled back. If that’s not a big “fuck you” to the American people, I don’t know what is.

  4. When will conditions be right to actually cut spending?

    Ha, what a hilarious question. You know the answer to this, Nick. When the reaction to the tiniest reductions in future spending are apocalyptic claims that the world will end; when implementing sequesters that Congress itself passed are claimed by the president to be going to end all services; you know they have no intention, ever, of cutting jack or shit, and Jack left town.

    The train may be barreling out of control, but guess what? It’s still barreling. So every scumbag parasite politician is going to be on for the ride as long as it keeps moving forward, and they have no intention of applying the brakes.

    1. How do you make serious cuts in this media environment when they allow the idea to percolate that we’re all doomed if we even slow the growth of spending? You don’t. At least, not until the collapse is evident to everyone.

      1. No kidding. Look at the hysteria about Paul Ryan’s budget which actually allowed for an increase in spending.

      2. Given how insane the media goes when “cuts” to proposed increases are put on the table, I think the odds of actually cutting spending might be the same. The average person doesn’t know the specifics of the sequester. They just know the media is saying that devastating draconian cuts will be enacted

        1. “Given how insane the media goes when “cuts” to proposed increases are put on the table”

          The media only goes insane because this is their current marching orders. If Obama was backing the cuts, the media would be portraying the issue as a minor blip that only effects 0.25% of GDP.

          1. It’s not just that the media simply follows the Obama position, it’s also that they insist, like the President, that the Obama position is the ONLY reasonable position.

            They mocked Cheney when one of Woodward’s Bush books revealed that the VP had said ‘deficits don’t matter’. Now that Obama has adopted a more extreme version of the same statement (‘trillion dollar deficits don’t matter’) what was once unreasonable is now the only reasonable position. How can anybody not named Chris Matthews not see the hypocrisy?

      3. You don’t

        Now you’re getting it, ProL. That’s exactly it. They don’t.

        There will be no cutting of spending. People need to get this through their thick skulls. We’re past that point. The scumbag parasite politicians will do whatever they have to to keep the gravy train rolling for as long as possible and are banking on not being the ones holding the bag when it all grinds to a screeching halt.

        There will be no cuts. Count on it. It doesn’t matter how many times someone says there have to be. Because every day that they can keep it going is just another reinforcement to the politicians that they don’t have to cut shit.

        1. It’s one of those things that is physically possible–all it would take is a popular outcry for cuts that’s bigger than the one for goodies–but not politically likely. Because we’ve subsumed our decision-making, even during crises, to dishonest, inept people. Instead of leaving control of our lives to ourselves.

          1. But we have seen spending cutbacks or at least a severe decrease in the rate of increase at the city and (to a lesser degree) the state level. I guess Liberals just put their attention on their priority: Federal uber alles.

            1. Local and state government lack some of the gimmicks the feds have–that’s part of the difference. And yes, I think the left tends to focus on control of the national government.

            2. And Canada found itself in a similar situation in the early ’90s and cut spending. Granted, we had the best central banker ever but still government does get cut. Sweden is another example.

              1. Like I was saying to Episiarch, it’s not impossible. In fact, if we had a sudden and extremely obvious to even stupid people downturn, it could happen right now. But it’s not likely without a disaster of some sort.

              2. New Zealand, too IIRC.

              3. Canada suffered much slower growth in those years. The only thing that saved us from a recession was the fact that the US was booming.

                TBS, the cuts did prevent a Greek-style crisis and led to years of strong economic growth thereafter (and are also part of the reason that our present Federal Deficit is 3% of GDP rather than 10% of GDP.)

        2. They call tax hikes in Europe “austerity” for chrissakes.

          1. And Krugman to boot.

        3. The scumbag parasite politicians will do whatever they have to to keep the gravy train rolling for as long as possible and are banking on not being the ones holding the bag when it all grinds to a screeching halt.

          You can’t just blame the politicians. How many millions receive a check from the government or work for a company which does? We are a society of thieves. Why would politicians cut anything when they continue to get re-elected for stealing more?

    2. Here’s how it works: When times are tough, cutting is heartless because it would only increase suffering among the needy. When times are good, cutting is heartless because there’s lots of money around and yet there are still needy people. So there are really no conditions when spending cuts are the right thing to do.

    3. The train may be barreling out of control, but guess what? It’s still barreling.

      So if I’m understanding you right, you’re saying that Jethro Tull foretold all of this. Will there be flutes after sequestration?


        1. And we are the guy telling the cokeheads to watch their speed.

          1. So can we start a new acronym?

            *Better Watch Your Speed

            or is TA/TB* better?

            *Trouble Ahead/Trouble Behind

            I vote for TA/TB

      2. I approve of this handle change.

  5. So what we’re talking about is trimming $44 billion from total federal spending expected to be $3.6 trillion this year.

    That is the mathematical equivalent of trimming $44 from a $3,600 budget.

    1. I know when I can’t blow 44 bucks on craft beer a month, I feel like slitting my wrists. First world (soon to be third!) problems.

      1. Last time I took the family out for lunch the bill was $44. $54 with the tip.

        1. Tight bastard.

          Why do you hate waitresses?

        2. McDonald’s charges for eating out of their dumpster?

    2. Or it’s like trimming $440 from a $36,000 (after tax) household budget. You’ll notice it, but not enough to really matter. Anyone netting ~$18/hr can find $440 in discretionary spending to cut over an entire year.

      1. Like what most working people had to do when the payroll tax holiday expired?

        1. and look at all the crying that ensued at dailykos and dem-underground over that. Those are the folks who are being targeted with this ‘the end is nigh’ message.

      2. More like cutting $440 from your budget when you spend $36,000 a year but only bring in $21,600.

        1. And have a $160,000.00 mortgage which just happens to be underwater.

          1. If our debt is 16T$ and our unfunded liabilities are ~60T$, then our household comparable debt (including mortgage) would be… ~$760,000. I don’t think even the big banks would willingly lend out that much money to someone who takes in $21,600 a year.

        2. But it’s OK because the head of household can force his kids and grand kids to pay off anything he borrows. It’s all an investment for their futures anyway…

        3. More like cutting $440 from your projectedbudget when you spend $36,000 a year and only bring in $21,600 but were originally planning to spend $40,000.

  6. When will conditions be right to actually cut spending?

    When interest rates on Treasury bonds return to their historical average.

    1. When there are no more cheques in the chequebook.

      1. As long as you have the license to steal that comes with being the last word in violence, there will always be checks in the checkbook.

      2. When we are out of ink.

      3. What’s a cheque?

    2. When interest rates on Treasury bonds return to their historical average.

      Just for those interested, Treasury bonds returning to their historical average will increase Federal expenses by around:

      $500 Billion per year.

      A curious person might ponder how many investors will be willing to lend an extra $500 billion per year to cover those payments. Or will it cascade into a Greece/Spain type scenario?

  7. That is the mathematical equivalent of trimming $44 from a $3,600 budget.

    Why do you want the precious little schoolchildren to go without a hot lunch? What about the poor, poor, lunch ladies?

  8. I keep hearing these administration mouthpieces talk about vast sums of money slashed from the budget by the Fingerpointer-in-Chief.

    I know it’s foolish and naive of me, but I would really like to see somebody ask for specifics, one of these days.

    1. People do, all the time. They just get ignored.

  9. At least some in the media are calling the president out for his tactics and general idiocy.…..aspx#page1

    1. Some…but not enough.

    1. Yeah. “Even with sequester, spending will be up this year” is soooooo hilarious.


        I laughed.

        1. You always were a cheap date.

          1. With our new definitions of “austerity”, a cheap date includes a diamond ring.

  10. Hello out there…the economy is already in the tank.

  11. Remember when “BUSH IS TALKING DOWN THE ECONOMY!!!”? Anybody? Bueller?

    Ergo, I blame Bush.

    1. You could’ve just started and finished with ‘Blame Bush’.

      1. The word “Blame” is implied by “Bush.”

  12. The Pentagon is loudly proclaiming that Aircraft Carriers can’t deploy, that Fighter Squadrons will be grounded, that radars used to detect incoming ballistic missiles will be shut down

    However they do have money to start ground breaking on Feb 20 2013 for a new $12.5 million fitness center at Ansbach Army base in Germany

    1. A dank basement with some rusty barbells and a chinup bar costs considerably less than $12.5 million. I would even be willing to set it up for the Army for as low as $10 million.

      1. And they don’t even have to buy cages for their victims like you do for your gym.

      2. I’ll do it for $8 mil. Bidding war!

    2. Different pot of money.

      You don’t really think Congress allows the military to decide where best to spend the money do you?

      1. Exactly. Some Congresscritter is buddies with the contractor in Germany. Or he got a campaign contribution.

      2. Probably. Being a fitness center, some or most of the money came out of the MWR slush fund from AAFES customers.

  13. Under what sort of math do you figure that cutting $44 billion or $85 billion from a total tab of $3.6 trillion is anything more than a rounding error?

    It’s a lot bigger than 1%, which coincidently is more than the number of libertarians. And the rest of us wouldn’t be unhappy if you people got “sequestered” on a Carnival cruise ship with no engine either. Maybe the currents will take you to Somalia anti-government paradise.

    1. Maybe the currents will take you to Somalia anti-government paradise.


    2. 1.2% is “a lot bigger” than 1%?

      1. Well it “feels” a lot bigger. BTW, mustard is a worse troll than Tony or BP, can we please ignore the cunt?

        1. mustard is T o n y.

    3. sarcasm? please tell me its sarcasm?

    4. What the He!!, Leave the Libertarians alone! They’re the only ones that make sense anymore !!!

  14. “Do you at least agree IN THEORY that government spending has been cut in the past without ruining the economy (and if you don’t, why not)?”

    Huh? Don’t you mean, “Do you at least agree AS A FACTUAL MATTER that government spending has been cut in the past without ruining the economy (and if you don’t, why not)?

  15. The economy is going to tank anyway. The sequester provides a convenient excuse to blame it on the GOP when it happens (despite BO’s signing of the sequester in the first place).

    1. I believe you are onto something there. It’s coming. Everybody who understands ANYTHING about economics knows it. Blame sequester and he has an out.

    2. Exactly…

  16. Although mustard is all wet, it IS true that it’s wrong to call a 3% cut a “rounding error”, unless your idea of precision is plus/minus 10%. But these aren’t really 3% cuts, they’re 3% decreases in schedules increases. If people like mustard are continually terrified of such minor decreases in spending, they should explain the fortuitous coincidence that for decades now the government has managed, during periods of control of both parties, to raise spending JUST ENOUGH to continually stave off utter catastrophe!

    1. When you work for government and expect a 9% increase in pay, but only receive a 6% increase in pay, that 6% larger paycheck represents a 3% decrease in pay.

    2. In fairness, the “cut” issue is valid in the context that having already gone through (by Mar. 1) the amount from the previous level, they end up having no money to finish out the rest of their fiscal year. It’s like planning on having 12 bottles of Scotch (1 per month) and finding out after 7 months that you are only gonna get 11 – the last month is gonna be a bitch!
      Also, this doesn’t even include the 60% “non-discretionary” spending.
      We be fucked!

  17. The President calls the sequester cuts “arbitrary.” No, they are not. And he approved them.

    $85 billion in budget cuts in a government that spends over $3.5 trillion is a piece of cake. And $85 billion in context of a $15 trillion economy is little more than a rounding error.

    And if the States want the teachers that will go, they should pay for them.

    1. Look, the president has about as much fiscal responsibilty as my 14 yr old grandson… both believe that “money grows on trees”.

  18. what Marjorie answered I am stunned that some one able to earn $4029 in 1 month on the internet. did you see this website.. WOW92.COM

  19. Go Sequester Go !!!! How about the ‘Ole Balanced Budget Amendment as well. Fiscal Responsibility….Ye haw!!! What a novel idea….I guess that why God made Republicans…..

  20. This clown masquerading as a president sees himself as the “Master of Manipulation”. In truth, he is no more than the infamous “Wizard of Oz”. A Sham Artist that is confident that he has conned the Media and the populace that his opposition is what obstructs his great plan for prosperity for all suffering persons. Oh Please !! He is inept fiscally, has no idea about what makes an economy work successfully, and believes that government assistance for life, is the answer to all. If he had ever worked a real job, sweated out 8 hours or so, he may have had a different outlook. This guy was “prividged” from his birth. It’s a joke he plays on all Blacks and minorities.

  21. Ironic how much sequester is going to harm the economy, yet Obamacare tax increases and the payroll tax increase were nothing to consider. Meanwhile, thousands of jobs have been lost as a direct result of the Obamacare tax increases, and the payroll tax increases have reduced people’s discretionary income, which reduces demand, which hurts the economy. But we all know it doesn’t fit the narrative.

  22. Dems…pathetic

  23. The graph from OMB proves what I had suspected:

    The various bailout/stimulus packages (financial bailout by Bush, then stimulus and auto bailout by Obama), that were supposed to be “temporary, targeted and timely” have been compounded into our spending baseline.

    That means that anything less than the higher projection caused by the bailouts/stimulus look like “austerity” when it should be described as undoing extraordinary spending.

  24. While you’re point around the increase in govt spending is a valid one, the biggest issue that you’ve completely missed is the reason why everyone is crying foul about this sequester: IT DOESN’T TOUCH ENTITLEMENTS. I’d rather govt cut Medicare, Social Security and Medicaid than a lot of other discretionary cuts. While discretionary spending has gone up under Obama, in the context of the budget it doesn’t really matter at all!

    If we don’t bring entitlements under control, its all for naught. But the seniors who depend on these entitlements, will not allow that to happen, and they tend to vote Republican, and the younger people who have been paying for them for many years don’t want them to change because they feel they have a right to benefit from the same benefits as seniors currently do.

    Best thing to do would be to privatize social security (see Australia’s superannuation schemes as an example of worlds best practice), but then ensure tough regulations on the the privatized savings accounts. Enforce saving out of employee salaries that will then pay for future costs. Scrap SS, its a defined benefit plan that will bring down this country. Stop allowing younger people into the SS fund and get them to set up enforced savings accounts. Make getting access to US citizenship require for undocumented immigrants to put in an extra 2% to continue to fund SS.

  25. On the medicare side, something will need to be done, and urgently. While i generally shy away from advocating govt intervention in most things, I swing far left on the medical system. The US Health system, while definitely being one of the finest in terms of top end care, fails too many of its citizens and is too expensive. Almost every developed country on the planet has some form of universal govt funded healthcare, time for the US to scrap this half baked system, and go single payer, with additional privatized health insurance schemes for additional coverage if you want better than the bare minimum.

  26. Continuing on the funding note, I think immigration can really help solve a large number of funding problems. Make it a condition for citizenship, that if you entered this country illegally, and now want to apply for citizenship, that you need to pay for the privilege. This means:
    1. No SS benefits, and you set aside 9% of your salary into a market linked fund (mix of shares and fixed income products)
    2. No Medicare benefits, but you need to pay an additional 2% of your salary to assist with the ongoing funding of Medicare.
    3. Any other number potential benefits. It will all be fairly easy to implement as each undocumented person will newly be assigned identification. These options may also be something that existing US citizens need to transition to over time as well. Move away from the Defined Benefit Social Security fund to a superannuation scheme, and watch deficit drop away.

  27. 1: under this math (the cost is 700,000 jobs) http://macroadvisers.blogspot……-1_19.html
    2. No, but see answer to question nr. 1
    3. when the economy is no longer against the lower zero bound (private sector starts to make investments en masse).

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