Tuesday, February 26, 2013

It Takes a Sequestration of Billions to Hold the U.S. Back

If you've been following the story on the budget sequester cuts, you've probably heard about how most economists predict it will result in yet another self-inflicted wound to the economy. The following graph from the Bipartisan Policy Center sums up the projected effects of the sequester cuts:

The budget sequester: not simply just a public sector enemy...

Here's another graph from the Bipartisan Policy Center showing how little these sequester cuts will actually change our long-term budget picture.

Interestingly, some economic analysts like Matt Yglesias, have argued that liberals should learn to love the sequestration cuts because roughly 50% of the reductions are cuts to Defense:

The thinking is this frees up the budget in the future to address other liberal priorities. I'm a little skeptical of this reasoning, though, since Defense spending ultimately always seems to increase. But funding for programs like Head Start, et al, may not be re-appropriated, even during boom times. Again, the best solution is to do none of the cuts right now.

If the economy does stall badly or even slips back into recession it won't be due to unforeseen circumstances; it will be because of misguided policy choices. History will not be kind to the elected officials who decided, in spite of high long-term unemployment and borrowing costs near 0% (yes, American debt repayment is considered such a sure thing to the rest of the world that they are willing to lend us money at practically 0% interest), that long-term fiscal policy was more important than short-term economic growth and job creation.

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