The 2013 spending cuts known to horror fans everywhere as “The Sequester” are not really spending cuts, because the Continuing Resolution form of government financing allows annual increases of over $85 billion per year. These adjustments of the automatic budget increases are therefore only a cut in the rate of growth, which, anywhere but the Bizarro World in which we now live, would still be called spending increases.
Still, the WAY in which the money is being cut will have victims in the short term.
- There are government agencies that hired too many people because they thought they’d have more money this year; some of their employees will be cut, and not necessarily the newest hires.
- There are government agencies that negotiated bids for huge contracts because they thought they’d have more money this year; some of these will now be pulled, some of them even after work on them has begun.
- There are government agencies that have promised expanded benefits to expanded lists of people, because they thought they’d have more money this year; some of these benefits will be cut, leaving people with debit cards unfunded, or with tighter rules on qualification, or shorter periods of distribution.
The Executive Branch could be responsible, and spread the cuts in the rate of increase evenly. A net freeze in government spending at the prior year’s level would accomplish even more in cuts, with minimal pain. But the Executive Branch has instead chosen to gouge the programs with the most visibility, while leaving the rate of growth unchecked in areas less noticeable or less likely to tug at the heartstrings.
So, the President is cutting children’s milk programs, border security, and special ed…
…while the government will still spend billions in maintenance on empty buildings (55,000 government buildings are underutilized or utterly vacant, per the OMB)… billions more on research to learn lessons about democracy from fish… and hundreds more examples of outrageous waste, each ranging from the hundreds of thousands of dollars, to the millions, from research to welfare to idiotic purchases at home and abroad. We will still fund programs on how to make more flexible beef jerky in France, how to train prostitutes to drink more responsibly in China… the list is endless. This president doesn’t cut what needs to be cut, or even what can easily be cut; he cuts wherever it will inflict the most pain.
And inflict pain it will. The government is not spending $85 million this year, and the Left is banking on that loss being felt by the people who were expecting to get it. This administration relishes unemployment, poverty, and sudden loss of expected grants, loans, or other benefits, because these are all things that they can blame on the Republicans. It’s not fair – the president has broad powers to reallocate the cuts far more rationally – but they do it anyway, because blaming the Republicans is what modern Democrats do instead of governing.
The Law of Misplaced Priorities
There is a reason that Adam Smith coined the term “The Invisible Hand.” It stems from the recognition that the wise choices in an economy are those that are naturally made by individual citizens acting in their own best interest… unseen and unnoticed in specificity, but aggregating to move the economy in a positive direction, all on its own, without the meddling of government.
When government chooses to steer purchases in a preferred direction, and reward certain choices while punishing others, values get warped and bubbles are created. Years of a manic government steering the unemployed and unemployable to buy houses they couldn’t afford gave us a housing bubble that burst. Years of government rewarding only employers for providing health insurance gave us a healthcare funding mechanism that was crippling for the self-employed and the employee. Years of government making the drilling and refining of oil ever more difficult and expensive gave us a massive dependency on the oil production of countries that have no EPA of their own.
Just as, when government has money to spend, it will spend it unwisely, so too is the corollary clear: when government has money to cut, it will cut unwisely as well.
This administration’s goal is to inflict pain on as many “victims” as possible, so that these victims can be rounded up and displayed on television. “Look at the poor starving child.” “Look at the poor shuttered school.” “Look at the poor ill-equipped clinic.” Tug at the heartstrings, and never show pictures of the highly-compensated researchers working on how long it takes for fruit flies to lose interest in each other. Never show pictures of the well-paid college students who study how to improve your golf game. And all with our tax dollars.
Given the responsibility to allocate funds, this administration – like all administrations, only this one much more so than most – will misspend the money. So when we make them cut, they will cut badly, in the hope of convincing the country to rally for ever-more tax hikes. Thirty, forty, fifty percent, it’s never enough for that side of the aisle. They cut only in an effort to stir up a clamor among their acolytes for more tax hikes.
The Law of Unseen Consequences
But in all the focus on the cuts, it’s easy to forget that there are also unseen consequences of the government not spending this money. Remember, the government doesn’t have this money to spend in the first place. Since the government now borrows about forty percent of everything it spends, this $85 billion is all money that the government will now not be borrowing from the marketplace. That’s the whole point of the cuts, after all – to reduce the amount of deficit spending, the amount of money that the government drains from the private sector.
What will happen in the marketplace, as a result of the government not borrowing these $85 billion this year?
Long term debt:
The national debt is already over $16 trillion, measured by the usual rules of what has already been spent, growing annually with interest. A more proper way to look at debt, however, is to count the unfunded mandates of our government. When we count promised Social Security spending, promised Medicare spending, and all the other promised grants, promised benefits, promised largesse that people are already counting on from the government over the years to come, the real national debt is in the range of $100 trillion.
As small a figure as $85 billion sounds in comparison to such numbers, with the compounding of interest, this $85 billion alone will make a difference of trillions of dollars in our national debt over the course of our and our children’s lifetimes. That’s not chump change. If we honor the commitment to cut spending by this annual volume for ten years as intended, these cuts will reduce the growth in our real long term national debt by as much as $10 trillion over the next century, making an immense positive difference in the standard of living of future generations.
Immediate borrowing on the grand scale:
News stories continue to report that housing and business startups are still sluggish; in this period of economic stagnation, there just isn’t the money available for banks to lend safely. The idiocy of Dodd-Frank’s restrictions on banks make it infinitely more difficult for banks to dare to lend money, and the growing size of the national debt continues to make the economic prognosis shaky. Banks don’t have the money to lend because the federal government is borrowing so much of it, and that borrowing effects a concurrent downward pressure on our hopes of future success.
So when we take $85 billion out of the picture, that’s not only an $85 billion improvement in the nation’s fiscal prognosis, as mentioned before, but it also frees up $85 billion to be loaned to private borrowers. Suddenly, the good risks in our economy are now competing to borrow from a larger pool of available capital, because the federal government is draining that pool at a slower pace.
It’s certainly not perfect – it doesn’t accomplish as much in this direction as a complete elimination of deficit spending would – but it’s still a major help. More money is available to be borrowed by everyone else.
Immediate borrowing on the personal scale:
So here’s what that means to you and me, in the short term: If we want to buy a house, we will have more banks to choose from who can afford to loan us a mortgage, so we have better odds of finding the best interest rate. If we want to start a business, we will have more banks to choose from who can open a line of credit for us.
If we want to sell a product or service, our customers have better odds of getting the credit needed to buy it from us. If we want to sell our home, or sell our family business, or sell anything else, this $85 billion in reduction in the rate of government growth will make these efforts easier, by making it easier for our customers to get the funding they need.
The biggest complaint from the American Left over the past four years has been that banks aren’t loaning money the way they think the banks should. They don’t understand that as long as the federal government borrows every dollar that’s available to be borrowed, there’s nothing left for private citizens – nothing with a comparable risk factor, anyway. Now, if the federal government starts defaulting, that would make private borrowing more attractive on the margin… but of course that would come with its own severe implications!
If we want the private sector to grow – if we want personal savings and wealth to climb again, if we want businesses to succeed, joblessness to drop, and home values to increase – then we must reduce the role that the federal government (and every level of government, for that matter) plays in our economy.
This $85 billion reduction in borrowing is therefore a pathway to prosperity for our country. We may see pictures of people who won’t get a check, and now will have to get a job, true. We may see video of researchers who now won’t get some government grant and will have to leave the academy for the private sector, true. We may even see longtime civil servants who thought they could stay in government all their lives and will now have to get a real job for the first time. All too true. And we can certainly feel some compassion for anyone who suffers such an unexpected disruption.
But let’s not feel so much compassion for these temporarily inconvenienced people that we forget the superior value of any cut in government overspending. A more responsible president would certainly have made different cuts; many of the ways that this administration has chosen to implement the sequester (such as the illegal mass-release of thousands of illegal aliens) are impeachable offenses.
But don’t lose sight of the prize. An $85 billion reduction in irresponsible borrowing is a great start. Now they need to double down and cut even more.
Even this isn’t enough – the most important things for our government to do are to reduce the tax and regulatory burdens on our business sector, burdens that have been driving employers out of business or to foreign shores for decades. Our true recovery cannot begin until we restrain the regulation generators of the federal (and state, in many cases) bureaucracy. Obamacare and Dodd-Frank must be repealed; the regulations that have suppressed the energy sector and driven out the manufacturing sector must be undone.
But an $85 billion reduction in theft from our children and our children’s children is, at long last, one very positive step.
Copyright 2013 John F. Di Leo
John F. Di Leo is a Customs broker and international trade compliance trainer. A former campaign activist and minor party official (Milwaukee County Republican Chairman in the days before Scott Walker transformed southeast Wisconsin), Di Leo has now been a recovering politician for over fifteen years. But like any addiction, you’re never really cured.
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