"Sequester" Panic

There seems to be a bit of fiscal panic now in Washington DC because of automatic across-the-board discretionary spending budget cuts of around 9% that will kick in at the first of 2013 as a result of the August 2011 Budget Control Act and subsequent failure of Congress to pass a budget meeting criteria established in it.  This is about the least important fiscal issue I can think of for the Legislative Branch, the Executive Branch, the media, and concerned citizens to be focused on.  At least it is bi-partisan because the cuts apply across the board to defense and farm bills and everything else in the "discretionary" category.

There are three major sections of federal spending. 

1. There are the mandatory, legislated, items including Social Security, Medicare, Unemployment, and Food Stamps, the so-called entitlements.  That part is around 60% of federal spending, increased almost 40% between 2007 and 2011, and is projected to continue unabated destructive growth under current legislation. 
2. There are interest payments on the national debt, about 8.6% of 2011 federal spending, and, thanks to the artificially low interest rates, not growing much now.  (But look out!)
3. And there is discretionary spending, around 30% of the total and about half defense and half non-defense.  Discretionary spending increased about 25% between 2007 and 2011.  All the cuts required by the Budget Control Act must come from that discretionary section of the budget.  And that is the reason for panic and pleas for mercy.

Hopefully, this chart will put the three major sections of spending and the current crisis in perspective.  Click on the chart for a high resolution view.  It is that little drop in the Discretionary spending between 2012 and 2013 that is currently causing stress.

Those “mandatory” items are, of course, not truly mandatory.  They can be changed anytime by courageous legislative process.  But, unless our elected officials show a willingness to deal with that major issue, forced annual cuts in only the “discretionary” spending will eventually result in the United States of America being a weak welfare state with inflated currency, crumbling infrastructure, and no credible defense against someone who wants to launch a hostile takeover, believing they can do a better job managing our resources and people.

Three points need to be made here about the current uproar: 

1. These are budget cuts and not spending cuts.  It is almost always true that when the Executive and Legislative Branches talk about reducing spending, they are not talking about actual reductions but about elusive smaller projected increases in future spending. 
2. Unless there has been an atmosphere of frugality, and there has not been any such atmosphere in Washington, any large and complex organization can stand carefully managed cuts of 8% to 10% without seriously handicapping its ability to perform its essential functions. 
3. To combat the possibility of cuts, organizations always trot out the most politically sensitive spending to threaten and intimidate the decision makers.  They never point out their own areas of waste and redundancy.

So, my suggestion is to quit complaining, take the self-prescribed cuts in the smartest possible way, and get to work on the critical issue, all that “Mandated” spending.

All the data are from a Whitehouse website, http://www.whitehouse.gov/omb/budget/Historicals/ Tables 8.5 and 8.7.

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