President Obama talked a lot about the “sequester” in his State of the Union speech. This is the trillion dollars’ worth of budget cuts that will automatically go into effect this year if the federal government doesn’t reach a new budget agreement. As the President pointed out, “Democrats, Republicans, business leaders, and economists have already said that these cuts … are a really bad idea.”
And they are.
The U.S. economy is recovering, but slowly. The severity of the Great Recession has left the economy weak. Unemployment has dropped from the 10 percent it was at in 2009 to less than 8 percent now, but it’s still higher than it should be. The economy’s growing, but only at 2 to 3 percent a year.
Decreasing the deficit now will just slow the recovery even more. Economists estimated that the deficit reduction agreed to in January will shave more than 1 percent off of economic growth. Cutting further would make things worse. The European Union is in its second recession in 5 years, mostly because of cutting their own budget deficits too much when their economies were already weak. The U.S. so far has avoided a second recession so far, but we might not if we follow the same path.
Also, the sequester cuts would be arbitrary. They would cut spending without regard to which programs or departments might be best. Random cuts make for bad government. But then, that might be what Republicans are really after. Making government less effective lets them point and say, “See – government is bad. We need less government.”
It’s normal for deficits to increase during recessions. Governments receive less taxes because people and companies have less income. And governments spend more because more people are in need. A deficit during a recession actually is good for the economy, because it offsets decreased spending by businesses and consumers.
The deficit / debt does have longer-term costs, of course. For one, we have to pay interest on the debt. But then, with interest rates at 2 percent, now’s not a bad time for the government to be borrowing money.
But contrary to popular belief, governments never really have to pay off their debt. People mistakenly think of the government like a household. Households have to pay back any money they borrow, so they think governments work the same way. In fact, governments can keep borrowing money to pay back what they borrowed earlier. So long as the total debt doesn’t grow faster than the economy, the debt becomes smaller and smaller relative to GDP.
It’s not that deficits don’t matter at all. But they don’t matter nearly as much as most people think.
The real problem with the debt is that we don’t pay it down during expansions. Unless there’s a full-scale war, there’s no justification for deficit spending during expansions. And yet the U.S. ran huge deficits during the 80s and during the 2000s.
Why? Politics. Both Reagan and Bush the Younger hated taxes and any federal government programs that didn’t benefit their corporate cronies. Their modus operandi is to cut taxes, creating enormous deficits, which they then use to argue for decreased government spending. This destructive, self-serving tactic left us with increased debt and less capacity to deal with economic downturns.
President Clinton proved we don’t have to have deficits during expansions. By the time he left office, we had a budget surplus. Of course, that only lasted until Bush the Younger pushed through his sweeping tax cuts, which threw us right back into deficit.
Republicans don’t care about deficits when they cause them. Just when others do.
The bottom line is that the sequester is a bad idea. Even worse is Republicans’ threat to no raise the debt ceiling unless they get their way. Playing games with the full faith and credit of the United States, whatever the reason, verges on treason. They’re threatening to harm the entire country if they don’t get what they want.
In truth, the federal deficit already is decreasing, even without any dramatic austerity measures. Yes, the federal government needs to take reasonable steps towards gradually reducing the deficit, as the economy continues to recover. But not with knee-jerk spending cuts in the middle of a fragile recovery.
The deficit isn’t a crisis right now, and we don’t need extreme measures to deal with it. The only crisis is the debt ceiling one that Republicans have manufactured for their own purposes.