Friday, March 01, 2013

Some not so random thoughts on the sequestration

One of the amazing things about the discussion about sequestration is the entire lack of perspective for the debate.   For the past week or so we have been subjected to both dire warnings and economic nonsense.   The chart at the right compares three numbers.   The middle column is the total sequestration for the current year. (As I mentioned in an earlier post - which amounts to 2.6% of the federal budget.)    The Fiscal Cliff settlement raised taxes to the tune of several times the amount of spending reduced in the sequestration.  

But the Washington critics ignore a more important number.   Were sequestration to take full effect, 40% of it would be with borrowed money.  Presumably, if we did not spend it we would not borrow it. Thus simultaneously reducing the deficit, and reducing the trend line on our national debt.   Both of those are positive for economic growth.   IF you have to borrow it to spend it, you depress future prospects for growth.

A number of Washington savants (from my perspective idiot savants) have argued that this very tiny cut would torpedo the meager economic recovery.   But think for a moment how even the full amount (not discounting it for the reduction in borrowing) relates to the GDP.   The relationship is $82 billion for this year in a $15.7 trillion economy.    The group that believes this tiny change in government spending (further reduced because of the foregone borrowing) would derail the economy.   I guess they also believe "you did not build it" or that Solyndra was good use of tax resources.  But then we already knew that.

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