We’ve all heard the stories by now: On March 1st, if the government doesn’t act to prevent it, the dreaded “sequestration” will happen. On March 2nd, babies will be thrown in the snow. Old people will die of spontaneous combustion. The rest of us be will be fighting over the odd can of dog food that some compassionate rich guy throws in the street. In short, it will be a disaster.
Nothing of the kind will take place, of course, assuming the sequestration actually happens. I am concerned, however, that those things might eventually take place if it doesn’t. Well, okay, maybe old people won’t spontaneously combust, but we are in deep fiscal trouble as a country. Failure to implement something as minimal (yes, I said minimal) in its austerity as is sequestration suggests that we are indeed fiscally doomed.
As I’ve written before, I think more people are starting to catch on to this, but these across the board “cuts” in Federal spending aren’t really cuts at all. They are merely reductions in the rate of growth. It’s never reported that way by the media, and, other than guys like Rand Paul and Tom Coburn, the politicians don’t speak in those terms either. So how does this work?
The big problem here is baseline budgeting. The Federal government has been using it in one form or another for decades now. It assumes an automatic increase in the Federal budget of roughly 3% plus the rate of inflation. The budget projections are now done over a ten year period as well. The Congressional Budget Office’s baseline budget projection from 2012 through 2022, for example, would increase annual spending by around two trillion dollars (to well over $5 trillion per year) by 2022. And, so far as I can tell, this assumes no spending for future government programs that might be created along the way (a dubious assumption if there ever was one), although it does take into consideration future spending mandated by existing legislation.
So when you hear a politician say they’ve “cut” a trillion dollars out of the budget, what they are really saying is that they have reduced the rate of growth of government by $100 billion per year. Sounds like a lot until you realize that the Federal deficit has exceeded a trillion dollars for each of the last four years, and that the baseline increase for a given year is twice the amount that they just claimed to “cut”.
You’ve probably heard by now that sequestration will cut $85 billion (or roughly 3%) from where Federal spending otherwise would have been in 2013. The reality is (according to the CBO) that the cut will be around $44 billion (or 1.2%). Does anyone really think that a 1.2% reduction in the rate of spending growth is Draconian?
And, given our debt situation, if we can’t even stomach something as pathetically insufficient as the sequester, how can we possibly avoid the fiscal train wreck that much of Europe has become?