February 3, 2013
THE BIGGEST PROBLEM IS THAT THE SEQUESTRATION IS TOO LENIENT:
Nips and Tucks and Big Budget Cuts (TYLER COWEN, 2/03/13, NY Times)
One common argument against letting this process run its course is a Keynesian claim -- namely, that cuts or slowdowns in government spending can throw an economy into recession by lowering total demand for goods and services. Nonetheless, spending cuts of the right kind can help an economy.Half of the sequestration would apply to the military budget, an area where most cuts would probably enhance rather than damage future growth. Reducing the defense budget by about $55 billion a year, the sum at stake, would most likely mean fewer engineers and scientists inventing weaponry and more of them producing for consumers. [...]On a practical note, the military cuts would have to be defined relative to a baseline, which already specifies spending increases. So the "cuts" in the sequestration would still lead to higher nominal military spending and roughly flat inflation-adjusted spending across the next 10 years. That is hardly unilateral disarmament, given that the United States accounts for about half of global military spending. And in a time when some belt-tightening will undoubtedly be required, that seems a manageable degree of restraint.The other half of sequestration would apply to domestic discretionary spending, where the Keynesian argument against spending cuts has more force.But here, too, much of the affected spending should be cut anyhow. Farm support programs would be a major target, and most economists agree that those payments should be abolished or pared back significantly. Regulatory agencies would also lose funds, but instead of across-the-board cuts, we could give these agencies the choice of cutting their least valuable programs -- or, for that matter, we could cut farm subsidies even further.
We'd still just be trimming fat, when we need to get down to the excess muscle.
Posted by Orrin Judd at February 3, 2013 8:56 AM
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