Economy  
comments_image Comments

Sequester Insanity: Why Are We Flushing Economic Recovery Down the Toilet?

We have to kill austerity before it kills us.
 
 
Share

Photo Credit: Shutterstock.com

 
 
 
 

We have been strangling the economic recovery through economic incompetence -- and worse is in store because President Obama continues to embrace (1) the self-inflicted wound of austerity, (2) austerity primarily through cuts in vital social programs that are already under-funded, and (3) attacking the safety net by reducing Social Security and Medicare benefits. The latest insanity is the sequester -- the fourth act of austerity in the last 20 months. The August 2011 budget deal caused large cuts to social spending. The January 2013 "fiscal cliff" deal increased taxes on the wealthy and ended the moratorium on collecting the full payroll tax. The sequester will be the fourth assault on our already weak economic recovery. We have a jobs crisis in America -- not a government spending crisis and the cumulative effect of these four acts of austerity has caused a certainty of weak growth and a serious risk that we will throw our economy back into recession. The Eurozone's recession -- caused by austerity -- greatly adds to the risk to our economy because Europe remains our leading trading partner.

President Obama and a host of administration spokespersons have condemned the sequestration, explaining how it will cause catastrophic damage to hundreds of vital government services. Those of us who teach economics, however, always stress "revealed preferences" -- it's not what you say that matters, it's what you do that matters. Obama has revealed his preference by refusing to sponsor, or even support, a clean bill that would kill the sequestration threat to our nation. Instead, he has nominated Jacob Lew, the author of the sequestration provision, as his principal economic advisor. Lew is one of the strongest proponents of austerity and what he and Obama call the "Grand Bargain" -- which would inflict large cuts in social programs and the safety net and some increases in revenues. Obama has made clear that he hopes this Grand Betrayal (my phrase) will be his legacy. Obama and Lew do not want to remove the sequester because they view it as creating the leverage -- over progressives -- essential to induce them to vote for the Grand Betrayal.

Further evidence of Obama's continuing support for the sequester was revealed in an odd fashion today. Bob Woodward is in a controversy because of his column about sequestration. His column made two primary points. First, the administration authored the sequester. Second, Woodward claimed that Obama was "moving the goal posts" by asking for revenue increases. Woodward was criticized by many Democrats for this column and created a further controversy by saying that the administration threatened him. It turned out that the purported threat was based on a statement by Gene Sperling, Obama's economics advisor. David Weigel's column summarizes the dispute.

Weigel comes out where I do on each of the three issues. Yes, the administration created the sequester and has fought to keep it alive when Republicans tried to kill it. (The Republicans "started it" by their obscene extortion in 2011 in which they threatened to force a default.) No, Obama has not moved the goal posts. No, Sperling did not "threaten" Woodward. I raise this background simply to provide a context for Sperling's comments about the reasons that the administration created and continues to support the sequester.

The idea that the sequester was to force both sides to go back to try at a big or grand bar[g]ain with a mix of entitlements and revenues (even if there were serious disagreements on composition) was part of the DNA of the thing from the start. It was an accepted part of the understanding -- from the start. Really.... There may have been big disagreements over rates and ratios -- but that it was supposed to be replaced by entitlements and revenues of some form is not controversial. (Indeed, the discretionary savings amount from the Boehner-Obama negotiations were locked in in BCA [Budget Control Act of 2011]: the sequester was just designed to force all back to table on entitlements and revenues.)

Obama continues to want to "force" a "grand bargain" in which he proposes to make large cuts to social programs, some tax increases, and reductions in the safety net. Again, Obama can easily break with this strategy of choking our economic recovery by supporting a clean bill that would kill the sequester instead of our economy.