ECONOMICS SEPTEMBER 20, 2013
If you enjoy silence, a good place to camp out for the next couple weeks is the room in the Capitol Building designated for Congressional negotiations on the budget. No talks are scheduled, as House Republicans attempt a kamikaze mission designed to “defund” Obamacare as a “line in the sand” condition for keeping the government running. Never mind the inconvenient detail that 80 percent of the spending in Obamacare is mandatory and thus would be unaffected by a government shutdown.
We’re likely to see a scenario similar to what Rep. Alan Grayson predicted in a recent interview with me: Today the House passed their continuing resolution to fund the government (“It doesn’t matter what that bill is," Grayson said, "they could legislate a ham and cheese sandwich”). Now, the Senate will strip out the offensive bits and pass it back to the House, and sometime around midnight on September 30, John Boehner will relent and pass the Senate bill with mostly Democratic votes.
But the important context here from Grayson is his expectation, along with everyone else’s, that the continuing resolution will enforce sequestration limits into the 2014 Fiscal Year. Nobody expected sequestration to trigger this year, until it did at the end of February. With those negotiation rooms silent and no movement on a budget deal, the big, dumb, arbitrary cuts to discretionary programs appear locked in place for the duration of President Obama’s term, and probably beyond. And that’s terrible news for the economy.
The new fiscal year, which begins October 1, is the natural moment to assess the harm sequestration has wrought, and fix it to prevent more damage. But the extreme nature of the House Republican demands has made a “clean” budget resolution with spending cuts intact the compromise position in the debate. As a result, the deal that emerges from the process will likely total $967.4 billion in defense and non-defense discretionary spending on an annual basis, which includes the capped spending level for Fiscal Year 2014 ($1.058 trillion), minus $90.6 billion in sequestration cuts. The Senate initially ignored sequestration in their 2014 budget, but $967.4 billion looks like the only number that could come out of the Senate without facing a filibuster and attract even the minimal number of votes needed from House Republicans to pass. Harry Reid already agreed once to a reduced topline number from the Senate budget, so there’s little hope he would hold the line. House Democrats would likely concede to voting to preserve sequestration limits as a least-worst alternative to a government shutdown. And the president has not made any demands to cancel the sequester, calling only for replacing it with smarter cuts in a budget deal. And there’s simply no political space for that, as the two parties are far apart on their goals for what would replace it. The longer sequestration remains in effect, the harder it will be to remove it.
This is a terrifying scenario. Sequestration was never supposed to go into effect because it blindly takes a swing at the entire discretionary budget, whether the programs are worthwhile or wasteful. Combined with the spending caps, this austerity removes any flexibility to match federal spending to constituent needs. And though sequestration has fallen off the radar as a media concern, it has nonetheless hampered the economic recovery in significant ways, a point that most economists agree on. In July, the Congressional Budget Office (CBO) estimated that keeping sequestration cuts in place through 2014 would cost the country up to 1.6 million jobs. The Huffington Post has done remarkable work explaining how the sequester has damaged government watchdogs, scientific research, public health, law enforcement, public defenders, Head Start and the overall federal workforce. Canceling sequestration and bringing public spending in line with historical levels would increase GDP by 0.7 percent, says the CBO.
Over the past several years we’ve experienced a public sector depression, with consistent year-over-year job losses since mid-2009 (2009 through 2011 were the worst three years for public sector jobs on record). The private sector labor market is growing at a steady rate, but the drag from the public sector continues to make job growth tepid at best. And sequestration, with its across-the-board cuts, adds to that dismal record. This is artificially holding back the recovery for both GDP and employment.
In a recent speech, Treasury Secretary Jack Lew bragged that “our deficit has fallen faster than at any point since the demobilization after World War II,” and then lamented that “too many Americans cannot find work.” He ignored the fact that the two points are related. The deficits are falling, in part, because of spending caps and sequestration, policies having a debilitating effect on growth. Jack Lew knows this: He said it himself back in May. The clear economic imperative is to cancel sequestration, which would create close to a million jobs, increase consumer spending and tighten the labor market with likely positive effects on wages. And even if you’re still a holdout deficit hawk—even though CBO projections show the deficit as stabilized for close to the next decade—the truth is that full employment is the only scenario that has meaningfully reduced the deficit in America over the past 50 years. But this isn’t anywhere close to the conversation as the clock winds down. In fact, the boasting about deficit reduction has made sequestration more popular in the eyes of the public. Sequestration now gets 43 percent support, up from 35 percent in May. The case has simply not been made to cancel it.
You could describe John Boehner’s set of choices on the budget as “lose-lose.” You can just as easily describe the inevitable outcome for the country that way. Sequestration is sapping the potential of the economy, limiting the ways in which all sorts of worthwhile projects get executed, and costing the country massive numbers of jobs at a time when we can least afford it. It’s yet another way in which Congress has become a demonstrably harmful force for our economy.
David Dayen is a contributing writer at Salon.