Monday, February 25, 2013

Dogs And Cats Living Together

Just as Bill Murray prophesied catastrophes of Biblical proportions in Ghostbusters, including "dogs and cats living together" so we now are faced with similar predictions about sequestration if it occurs, as scheduled, on March 1.  My advice - calm down.

(White House Spokesperson Jay Carney)

As THC pointed out in The Fiscal UnCliff - A Guide For The Perplexed, sequestration only triggers a $9 billion reduction in the federal budget year over year.  That is a 0.25% reduction out of a $3.6 trillion budget - in other words, instead of $100, the government can only spend $99.75.  All of the other figures you see tossed out are using baseline budgeting which always assume increased spending and counts as a cut anything less than that inflated number.  This has nothing to do with the real world - you know what I'm talking about if you've ever had to manage a household or business budget.

Let's take an example from ABC News about how this really works.  The Department of Transportation (DOT) has a 2013 budget of $74.2 billion.  If sequestration occurs its budget will be reduced to $73.2 billion.  However, in 2012 DOT spent $72.6 billion so even if sequestration occurs its spending still increases by 0.8% but despite that the Administration is claiming DOT's budget is being cut!

This chart sets out the longer-term consequences which are minimal:

The "bad consequences" you are reading about are from the bureaucratic playbook on how avoid budget cuts - threaten to cut the things in your budget that people like the best while refusing to cut those things that are truly expendable.

As Jonah Goldberg has written:

"Democrats are saying that if Uncle Sam doesn't get a bigger raise, government won't be able to function . . . That's junkie logic. It's the mindset that says you can't cut back on beer but if you don't get more money you'll have to cut back on the kids' diapers."
Also remember that when the President speaks about a "balanced solution", which always seems to rely heavily on yet more tax increases, that his math is also not related to the real world.  Although he would like people to forget it, the Republicans already agreed to a $60 billion annual tax increase at the end of 2012.  If you take that $60 billion and add the $9 billion in sequestration cuts you have a total of $69 billion in annual deficit reduction of which 87% comes from increased revenues.  It's the spending side where there is a lack of balance.

Sequestration was President Obama's idea during the 2011 budget negotiations and he was the one who insisted on it because, as Bob Woodward reported on page 339 of The Price Of Politics, half the cuts would come from Defense and thus, "There would be no chance the Republicans would want to pull the trigger and allow the sequester."

Although Defense is only 18% of the Federal budget it will take 50% of the reductions in sequestration.
Sequestration can work if the Administration wants it to work instead of using it to panic the public with horror stories.  Here's hoping the Republicans have the guts to let it happen.


  1. Posturing, once again. I'm watching sports! dm

  2. Excellent blog, thanks MArk