Friday, 12 April 2013

The Headhunters' Guide to the Sequester

In our pick of last week's political media, we chose this article from The Huffington Post as one of our favourites of the week. In it, the writers present 100 alarming effects of the sequester in the US. Sequestration is something you hear a lot about in the US at the moment. But what is it? Well, for the benefit of readers who don't quite get it (and for our non-US readers who just love knowledge for its own sake), here's our explanation of what the sequester is and why it matters.

In short, it's a series of across-the-board cuts.

Now for the in long version.

To keep some kind of lid on the national debt, there is a legislative limit on how much debt the US is allowed to amass. Upon reaching it, the US would have to default on anything it owes. Of course, the US keeps racking up more and more debt, so this ceiling is actually increased fairly often.

In 2011, it went and hit the debt ceiling. The Budget Control Act of that year was passed in an attempt to deal with it. It extended the debt ceiling a bit, and established a committee to come up with a plan for deficit reduction (proper name: Joint Select Committee on Deficit Reduction, fun name: Supercommittee). The committee failed to reach agreement, with the Democrats wanting tax increases included and the Republicans wanting to include tax cuts.

In the case that the Supercommittee couldn't come to an agreement, the Act mandated some across-the-board cuts. Sure enough they couldn't agree, and so here's the cuts and it's these that they call the sequester.

And boy, will those cuts hurt! I mean, look at that HuffPo article! They've found 100 things that will be seriously affected! These cuts must be vast, right?

Well, it's all explained by this handy chart:

That yawning chasm between the blue and red lines is the difference due to the sequester. It's actually a cut in the rate of spending increase over the next 8 years. Which means, spending will continue to rise, just by less than it would have. And how much less will it rise by? 6%. So these deep, horrible cuts mean that spending will rise by 94% of what it otherwise would have. Painful, huh?

There's a school of thought that thinks President Obama is making the cuts as painful as possible to turn people against the idea of cutting ever again. Why would he do that? Well, it's the Republicans who shout the most about wanting spending reined in, and if these cuts hurt and it's the GOP who advocates cutting, the hope is people will keep voting for Democrats to spend them into oblivion.

But as well as that, Obama just loves to spend. The US national debt was $10.5trillion when he came into office. Nearly $5trillion of that was due to George W Bush, who you'll know is the cause of all past, current and future economic woes. You'll know that if you've ever listened to a Democrat on the economy, anyway.

But Bush raised the debt by $5trillion over 8 years and Obama has managed $6trillion in 4 years. Now that some cuts have to happen, Obama needs to make his vastly increased spending look necessary. For example, there'll be no more tours of the White House for the public, and that's something they'll immediately notice. Does this seem to you like they've gone through the budget line by line and cut out every bit of waste? It's only a little over 4 years ago that Bush left office, and he was only spending roughly $4.5trillion a year on average. Obama's average yearly spend isn't far shy of $6trillion. An average increase in spending of a third and the first thing he can find to cut is White House tours?

Worse still, news of how they should pretend that these are serious cuts took a while to reach Vice President Joe "comedy" Biden. He picked the worst possible time to pop off on holiday at the height of sequestration fever, and it was then revealed an earlier trip to London had cost $459,000 for one night's hotel stay.

The spending by politicians is an insignificant drop in the ocean when it comes to national budgets, but then so are the news-grabbing items like White House tours. In the UK, the MPs' expenses scandal had added clout because it followed the economic crisis and preceded a general election when both major parties promised big cuts. Obama eventually decided to take a 5% pay cut a week ago, though that symbolic $20,000 is dwarfed by Biden's one night hotel stay.

Look, the sequester is slight. Never mind a 6% reduction in the rate of spending growth, the federal budget would have to suffer an immediate 20% cut now just to equal what it was when George W Bush left office. Take a look again at that HuffPo article. They were overstretching themselves trying to find 100 different things considering how minor some of them actually are. And even then, look at all the mights and mays in there.

If the argument for responsible spending is lost now due to the propaganda war over these minor cuts, can it ever be won? We should all dread the consequences if it can't be.

By Jonathan Headington

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