Ed Dolan's Econ Blog

What May be Good about the Sequester

The Sunday morning talk shows this week were full of hand wringing about the sequester. Depending on who you listen to, it’s either dumb or stupid. Everyone seems to agree there has to be a better way. So could there be anything good about it? Maybe. As a diagnostic exercise, the sequester could turn out to be a stroke of genius.

Let me give an analogy. When my horse comes up lame, the vet has a problem. She can’t just ask the horse, “Where does it hurt?” Instead, she starts pinching up and down his leg until he flinches. She doesn’t want to hurt him, but it’s the only way to find out where the sore spot is.

The sequester is like that. Everyone agrees that there are sore spots in the budget, but not exactly where they are. Everyone is against waste, fraud, and abuse, but no elected politician dares come up with a list of what should go and what should stay. Why not perform an economic experiment: Pinch everything 10 percent, then see which pinches cause a flinch, and which do not?

Can’t we just ask? No. We can’t expect government departments to tell us where the sore spots are in their budgets any more than we can expect a horse to talk. For weeks, every department has been thinking up the nastiest things they could do to their constituents and telling us that is what they will cut first. The Justice Department will save money by letting terrorists out of jail. The Agriculture Department will save money by putting the e-coli back in our food supply, and so on. We won’t know where these agencies have reserves to tap and where they do not until we start pinching them.

Even when agencies start making cuts they think will hurt, it is hard to judge what the public reaction will be. Suppose security lines at airports get longer. Will that be a source of widespread outrage? Or will we just find out that most people don’t fly anywhere in any given month. What if they open Yellowstone Park two weeks late, as they are threatening to do? Will nearby motels really go bankrupt, or will they find that for those early season weeks, what they save in costs will make up for what they lose in revenues? We’ll find out who really flinches.

My guess is that some of the cuts will hurt more than others, because some lines of the budget have already been cut closer to the bone. We may, for example, find that putting air traffic controllers on furlough causes a lot more disruption than furloughing meat inspectors, or meat inspectors more than park rangers. Then we’ll know. We’ll have better data to bring to the bargaining table when the next round of negotiations starts. That could be a good thing.

We may find that quite a few of the cuts to the discretionary budget are painful. The public, by and large, does not seem to recognize what a small part of the total budget discretionary spending is, or how much it has been cut already. Budget analysts on both the right and the left, however, agree on some basic facts. The following chart from the Heritage Foundation shows how entitlements and interest are crowding out discretionary elements of the federal budget, both defense and non-defense. The same Heritage report notes that discretionary spending grew by 60 percent from 1992 to 2012, but that is less than the 69 percent increase in real GDP over the same period. What is more, as Jeffrey Sachs pointed out in a Financial Times op-ed last week, discretionary spending has passed its peak and is on its way down. Under President Obama’s proposed budget, it would fall from a stimulus high of 9.8 percent of GDP in 2010 to just 6.3 percent by 2019, its lowest since the 1950s. That is what the Democrats are proposing, not the Republicans.

What we don’t know is whether these cuts to discretionary spending are what the public wants. Quite possibly the only way to find out is to do some vigorous pinching. Will we get a big, collective flinch, or not? Maybe people will say, “Ouch! No! We’d rather have higher taxes than long lines at the airport!” Maybe they will say, “Go ahead and cut my Medicare if you have to, just keep Yellowstone open.” Maybe they won’t flinch at all, they’ll just suck it up and say, “Well, we wanted a smaller government, now we’ve got it and I guess it’s something we can live with.”

We’re about to find out. Then, after we sort out our spending priorities, maybe we can move on to tax reform.


7 Responses to “What May be Good about the Sequester”

BurkMarch 4th, 2013 at 12:49 pm

But your horse gives rapid feedback.. while the "public" gives long-delayed feedback, and with such little transparency, may give none at all. Quality of life declines, complex systems fall apart, and in the end, we may find that we have lost far more than we have saved. Strong management is hard to find in government, true, but I'd bet more on increased transparency than on meat-cleaver cuts to do an intelligent job of it.

Ed Dolan EdDolanMarch 4th, 2013 at 1:17 pm

Yes, feedback in a democracy can be slow. However, it does come, as we see in the backlash against austerity in Southern Europe.

At the moment, both of our political parties in the US are committed to austerity, with only the mix of tax increases vs. spending cuts at issue. Does the public really support that? I think we will have to implement the austerity program before we find out.

Maybe the American public will really be more accepting of the results than in Europe, or maybe there will be a shake up (eventually) of the currently gridlocked fiscal policy machine.

benleetMarch 4th, 2013 at 3:53 pm

Maybe you haven't fed your horse and it's mal-nourished? Maybe it's diet is too rich in vitamin D, as in Defense (spending)? It has a systemic inflammation and it's sore all over? Having the vet examine Cyclone, well, it's about time. More likely it has been feeding on a weed called Campaign Contributions.

ThomasGrennesMarch 4th, 2013 at 10:57 pm

According to political economy, government policies may represent special interest groups with disproportionate political influence rather than the true preferences of the population. For example, in January Congress gave new tax breaks to owners of NASCAR
racing tracks at the same time teachers were being layed off. The high level of protection on sugar represents the interests of a small number of producers, not those of the masses. So when services are reduced, people will complain, but the most influential
complaints may come from the same special interests (racetrack owners) that were responsible for the programs in the first place. Complaints by politically connected people may be a very biased sample of the general population.

Skip MonkMarch 5th, 2013 at 4:28 am

Ed, Great article but I am very frustrated that the politicians are afraid to do anything because of their own self interest. Senator Tom Coburn is one of the few that has been pointing out waste, fraud and abuse for a long time with specifics, but no one talks about it because they will get blamed in their district or just don't care. Maybe I am wrong but it is logical that you start by cutting really stupid spending on duplication and just maybe the news media might understand and report the facts, just maybe. But it is worth a try because I believe that there would be a great increase in public confidence which would have a multiplier effect and help to boost the economy.

John BallardMarch 5th, 2013 at 7:14 am

Interesting analogy and to some extent okay. But in the end the heavy hitters will remain standing having yielded little. Finance, drugs, insurance, and the various (name)-industrial-complexes — prisons, medical, education, communications, firearms, fossil fuels, etc. These are the grizzlies who never get more than a little scar or two.

A more apt comparison would be comparing whatever "pains" are discovered during the next few weeks and months with a letter to Thomas Jefferson from the overseer at Monticello, assuring him that all was going well, that "the whippings have stopped."

Only much later — well over a century, in fact — did the truth get told.

Discussions of the national budget have become little more than water-fountain gossip. Real decisions are still made far distant from ordinary people, behind closed doors, crafted not by those who elected them but those who pay them (or don't).

TomMarch 7th, 2013 at 7:33 pm

Nice theory, but this isn't how the administration is implementing the sequester. It's making a publicity stunt out of it, being very public about furloughing people and the threats of permanent layoffs, to try and use it to win support.