There is plenty of blame to go around for politicians on both sides of the aisle, but what matters is that we are running out of time. The sequester spending cuts — about $85 billion per year in cuts to defense and a bunch of vital government functions — are set to go into effect Friday, unless Congress and President Barack Obama take action to stop them. Back in the summer of 2011 when we bumped up against the debt-ceiling limit, Congress and Obama agreed to the Budget Control Act, which matched $2.4 trillion in debt-ceiling hikes with a similar amount of deficit reduction over the following decade.
Of the total deficit reduction, $900 billion was to be achieved through spending caps affecting all government functions outside of entitlement programs. For the rest, Congress was to explicitly decide on how to make the reductions through a bipartisan commission of lawmakers known as the “supercommittee.” That group was supposed to cut at least $1.2 trillion, but had a goal of $1.5 trillion, with the possibility of going even further. It failed to come up with a viable plan in time, which triggered the sequester — $1.2 trillion in automatic, across-the-board reductions in nearly all government operations over the next decade, or again about $85 billion each year.
The sequester cuts were intended to be so painful that they would act as an incentive for the supercommittee to come up with a deal. The committee members obviously did not feel enough pain, either before the sequester cuts were originally scheduled to go into effect — Jan. 1, 2013 — or before the new deadline of March 1. Now, with only a few days remaining before the automatic cuts, we have to ponder the possible negative implications to our government’s operations and to the economy as a whole (or should I write “hole,” as in black hole).
Obama has a 55 percent popularity rating, the highest of his presidency. Congressional Republicans, according to most polls, are taking the brunt of the blame for the current state of the debate on spending cuts. It is probable that Republicans will be blamed, at least in the short run, if nothing is done and bad things happen. In the long term, however, Obama is ultimately responsible for what happens to the economy, and pretty much everything else. (Anyone on the left who disagrees with this should recall that the left blames Obama’s immediate predecessor, President George W. Bush, for everything that happened during his presidency).
Regardless of which party holds the presidency, this has always been the case. Obama should also recognize that we will hit the debt ceiling, yet again, in May, so there will be more blame to go around if (when) those discussions fail to produce positive results.
Beyond assigning blame (which solves nothing and helps no one), the more important issue is avoiding massive damage to the economy and the furlough or loss of thousands of government employees, which will occur if nothing is done about the sequester.
What worries me the most is not the government’s spending programs to buy long-term bonds, which they are pursuing like drunken sailors on a 24-hour liberty pass; it’s not the possible dire consequences to the economy, which is teetering on a double-dip recession; it’s not the flu, which sounds silly, but could crush GDP growth this year; and it’s not the obvious stalemate in Washington that is likely to not only fail to come up with any viable solution to the sequester spending cuts, but also to the debt-ceiling debate and pretty much everything else that matters. What worries me the most is that the average investor doesn’t even know what the sequester spending cuts are, and doesn’t seem to care. Investors continue to throw more money at the stock market as if everything in the world is rosy.
Back in the summer of 2011, when Congress and Obama could not agree on the debt ceiling, stocks dropped 30 percent. Today, we are very near all-time highs for stocks, and are at multiyear (five-year) highs. It seems that if anyone out there understands what the sequester cuts are, they are convinced that the government will pull a rabbit out of a hat and come up with another 11th-hour “solution” that will avoid any meaningful damage.
While I appreciate the optimism, I just can’t buy into it. There will be plenty of time for academics and political pundits to discuss and debate whose fault it was that nothing was done about the sequester cuts, the budget deficit and the national debt. We don’t have plenty of time for our Congress and Obama to find a viable, real solution to these very frightening issues, and the clock is ticking. Unfortunately those in Washington tend to see things within a very narrow field of view and only from a political perspective.
The vast majority of U.S. citizens are not very worried about who is going to win the next election; we are worried about earning a living and providing for our families. I would love to be more optimistic about the possible outcome of this debate, but given the track record of Congress and Obama to date, I fear for the worst.