To Sequester or Not to Sequester, That is Sequestion

Federal government budget deficits, per se, don't matter. They matter only to the extent that if aggregate demand in the economy is too high (deficits too high), unwanted inflation results, and if aggregate demand in the economy is too low (deficits too low), unwanted excess capacity (e.g. unemployment) results. Thus, demanding spending cuts simply to reduce the deficit is illogical.  If there is no inflation, there is no problem.

That being said, I think the sequester is a good thing.  It's really an interesting experiment to see whether government spending can be cut arbitrarily by a small percentage without anybody really noticing except the bureaucrats whose livelihood depends on growing government. It's an exercise, really, and even though many lament the "obvious" idiocy of doing across-the-board cuts, I think it's a useful one. I submit there is not a single federal program that doesn't have at least 10% easy-to-remove waste. There has to be.  Bureaucrats have been thoroughly trained to pad their budgets by at least this amount, compounded each and every year, until a mandate from on high comes to implement severe cuts.  And that mandate simply has not issued for as long as I can remember, and certainly not in the last 15 years.

What makes the looming sequester particularly interesting (and delicious) is that the Obama administration has been running around like Chicken Little claiming that the sky will fall because of a 2.3% cut to the budget, which admittedly is a 5-10% cut to discretionary programs because the entitlement programs are immune (on a side note, is this why it's called a sequester - that discretionary programs are isolated from the budget and subject to cuts?).  As George Will pointed out, Obama's theory is that the size of federal government is so finely tuned that just a few % points in spending is what's separating us from chaos and economic collapse. And the fact is, this is a time-honored trick of bureaucrats, used at all levels of government. I've seen it referred to as the Washington Monument strategy. The bureaucrats threaten to close the Washington Monument to visitors if their budget requests aren't met. That is, they threaten to make the cuts to spending in those areas which are most painful and most highly visible to the public. In fact, our embarrassing Secretary of Transportation has threatened air travelers with significant flight delays if the sequester cuts are passed through to the FAA.

Every time I have seen the Washington Monument strategy threatened, it has been a bluff. I saw it here in my own city, where the mayor asked for a $12MM property tax override to increase spending on the schools. The school board (and teachers' union) threatened parents with much larger class sizes if the override was defeated. Opponents of the override claimed that the school board was bluffing - that the money simply was not needed and there was plenty of money in various slush funds. I was actually a proponent of the override, but when it was defeated, and class sizes remained the same, and news articles came out about money being shifted around from various slush funds and new cost savings miraculously being found, I had to admit the override opponents were absolutely right.

I suspect that Obama will play hardball and will try to make the most painful cuts to the military possible, but there will be room for compromise with House Republicans because Obama will also realize that the cuts to other programs will go unnoticed by the public (a very dangerous development for someone whose main goal is growing government). So my prediction is that they'll compromise on a half a sequester, with a more detailed list of things that will be cut and things that will be spared.