Saturday, March 2, 2013

An Austere Spring?

Well, this is lovely. The United States is now undergoing austerity.

To be sure, it’s a fairly mild form of austerity, i.e. over a ten-year period $44.8 trillion will be spent instead of $46 trillion. Most countries would love to be suffering this kind of austerity.

Here’s an unfair comparison, but I’ll make it anyway. The sequester amounts to a much smaller hit proportionately than the recent income tax increase, which the president argued was the wealthy’s “fair share” and which they could easily afford. It is becoming clear that the government will actually have to work hard at keeping any bad side effects (layoffs, transportation delays, safety problems) from looking like they are merely the results of bad management.

The fact that the dreaded sequester is small potatoes compared to the austerity Ireland has been undergoing for years now has not stopped the Irish (and British) press from echoing the U.S. president’s line that the spending pullback will be devastating. In fact, they have continued this line even while the president himself has drawn back and acknowledged that the sequester’s effects will be more subtle and drawn-out than he was previously suggesting.

BBC radio has been particularly interesting to listen to. When its business reporters are questioned by a show’s host, they tell a tale of impending doom for the U.S. economy because of the sequester. They are then sometimes followed by an actual economist who invariably explains that, no, it won’t really be that big a deal.

Make no mistake, a cut in spending—even a cut that is merely in the rate of spending, as this is—will have an effect on U.S. growth, as the president keeps telling us. The question is: is there a better alternative? Simply continuing to ignore the increasing imbalance between government revenues and expenditures might keep things feeling better in the short term, but it’s disastrous in the long run—and maybe even sooner than the long run.

What the U.S. is doing is a faint echo of what many European countries have been doing. When the numbers get too hard to ignore, politicians argue with each other whether to cut spending or increase taxes. Finally, in the apparent spirit of compromise, they often wind up doing both—which pretty cancels out the benefits of both. And that is what the U.S. has done. In January taxes were increased (although not by a huge amount) and now spending is being sort of reined in (by an even less degree).

But not only will it make little difference (beyond the benefit one or other of the political parties can accrue by successfully making the blame stick to the other) but it distracts from the real problems, which are entitlements that grow faster than revenues can keep up with and a tax system that has grown so complicated that it is worse than unfair; it is inefficient.

The good news is that there are people in both parties who see the problems for what they are and would like to work to solve them. The bad news is that the president, who does not have to face reelection, has shown no real interest in entitlement reform or tax reform. He gives lip service to both, but in more than four years has made no move to push either.

Even legendary Washington reporter Bob Woodward, who literally wrote the book on how the sequester came about, has been causing waves by speaking the obvious truth. The president has not negotiated with Republicans in good faith. He keeps moving the goal posts, and in doing so accrues political victories for himself.

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