For my very first post, I will do something from U.S. politics—the upcoming sequestration, set to be enacted in January 2013.
There has been so little coverage of the upcoming sequester in the media that I wonder how many Americans are actually aware of how much of an impact it will have if it should occur.
Let me start with answering the question: what is sequestration?
This is a question that even people working on Capitol Hill are having a hard time answering, but it is one of the hot topics in political D.C. right now. As a fellow working at a lobbying firm that deals with public policy issues, I’ve been doing a lot of work on mitigating the effects of the impending sequestration, so it’s a concept I deal with everyday of late. I will give a simplified explanation.
At its essence, sequestration involves cutting the federal budget across the board, meaning that all programs being funded by federal money will take cuts. The total number in cuts: $1 trillion. That’s right: $1,000,000,000,000.
Sequestration is the result of the Budget Control Act of 2011 (BCA), which was legislated in response to the debt ceiling crisis that occurred that year. At the time, U.S. government was on the verge of hitting its debt spending limit, known as the “debt ceiling”. However, under federal law, the government is prohibited from spending if there are insufficient funds in the treasury. Hence, the ensuing panic and crisis. After much headache and negotiation, both houses of Congress, the Senate and the House of Representatives, agreed to raise the debt ceiling coupled with spending cuts. The resulting agreement was the BCA.
Sequestration, in a way, was provisioned as a way to scare Congress into cooperating on drafting a balanced budget that would be acceptable to both major political parties. However, it is now mid-September 2012 and still no agreement has been reached. A Continuing Resolution has been passed by the House that will maintain current spending levels for certain budget items until March 2013, but will not stop sequestration itself. The Senate is taking up this issue this Wednesday (September 19th).
Just last week, the Office of Budget and Management (OMB) released a report projecting the cuts under sequestration. You can download a pdf copy of the report below:
Unfortunately, it is very vague. The cuts shown here in general are rather large, sweeping budget items (now consider that the report is almost 400 pages long, you get a glimmer of an idea of just how much spending the government does!) However, the REAL effects of the sequester will be felt at what is called the PPA level (program, project, activity). Particular categories get the same percent in cuts en masse, so all programs and organizations falling under a particular category will get the same percent in budget cuts.
I can definitely give you a better idea of the kinds of effects it will have with a personal anecdote.
Last week (my first week on the job), I attended a town meeting here in D.C. that discussed the effects of sequestration on organizations and programs that fall under the category “non-defense discretionary” (NDD), which funds various executive departments and government agencies. This includes a broad range of entities, most particularly scientific/health support and research institutions (the NIH and NCI included), among many others; many of these do a lot of good work for the general public and for certain sectors of the public, such as those afflicted with cancer and other serious diseases. NDD is generally not only the first to take a hit when budget cuts occur but they also are subjected to the largest cuts. The current level of NDD spending is so low that spending like this hasn’t been seen since the days of President Eisenhower.
The town meeting was revealing in that I got a good idea of how lobbyists operate (often through coalition-building) and the efforts that are made to make voices heard and to get changes made. It was made very clear that all those who fall under NDD have to make a stand as one coalition. To have any one program or organization make a unilateral appeal to the government would not only be self-defeating but ultimately ineffective.
Many of the programs are going to be taking 8% or more in funding cuts, while their funding is very low already. Imagine how much progress in cancer research will be stifled due to lack of funding. What about environmental protection efforts? The arts? Public transportation?
The general consensus is that sequestration will result in economic disaster. My inner economist agrees. Sequestration is, in effect, indiscriminate budget cuts. If the goal is a more balanced budget, well, this is not the way to get it. You can’t neatly prune a tree blindfolded, hacking at whatever branches come in your way, and you might end up cutting off healthy branches rather than dead ones. It will harm the tree and it will look a mess.
The White House and Congress are well aware of this. They are well aware that this would be a disaster. And they are working towards eliminating the sequester altogether. But they are running out of time, with the upcoming election and Congress in session for a limited time before that.
In the short term, sequestration needs to be dealt with, plain and simple, and a more balanced agreement needs to replace it.
I worry about the long term, however. How should the government get a balanced budget?
My instinctive response is actually rather counter-intuitive. But follow my logic here, simplified though it may be. The government is in debt and needs more money. How do you get more money? You stimulate the economy. There are several ways of doing this, depending on the nature of the economic situation. At the moment, the economy is in a bad place (not as bad as in several points over the past few years, but still bad). Why? Is it a demand problem? A supply problem? Both?
I feel much of the poor state of the economy is due (in large part) to a demand problem, rather than a supply problem, for a very simple reason. With the economic recession, many people lost jobs and prices of many important commodities rose. With both a lowering of aggregate income and a rise in price level, people’s dollars have less reach and they therefore spend less because they can’t afford what they used to.
Let’s go back to basic macroeconomic theory. How does the government increase aggregate demand? With government spending.
I feel that in order for the government to ultimately attain a balanced budget in the long term, spending needs to happen. But like cuts, spending needs to occur judiciously, not indiscriminately. Spending that goes towards long-term investments in the public good have the most reach per dollar and the most positive impact.
Oh, if only it were that simple. Politics just loves to get in the way of itself, especially party politics.
We can’t forget that there are many special interest groups out there who will work to get their causes funded and that Democrats (who currently dominate the Senate) and Republicans (who currently dominate the House) disagree on what should serve as budgetary priorities. Without fiscal and financial accountability and responsibility, government spending will not be as effective in stimulating demand. That is where our duty as U.S. citizens kicks in: we must make our voices heard. It is our tax money being spent; we should have the final say in how it is used. This requires people to get involved and to make an effort. Not an easy thing to do, but if government leaders take charge and listen to the needs of the people, it can happen.
For some this is quixotic, but I hope it’s not. I don’t think it is. People are unaware they can be the impetus for change, but once they become aware, the wheels are more easily set in motion.
Breaking the Chaos in the New World Order 