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America in Denial as Fiscal Tsunami Approaches

February 26, 2013 in Economics

By Gene Healy

Gene Healy

It’s hard to hear yourself think over all the caterwauling on Capitol Hill about the looming sequestration “crisis.” For opponents of the spending cuts — at $85 billion, 2.3 percent of the $3.6 trillion federal budget — the rallying cry is half Lord Keynes, half St. Augustine: “Grant me chastity and continence — but not yet.”

But the time for a little fiscal continence has long since arrived. Economists have found that when a country’s debt-to-GDP ratio surpasses 90 percent, you see slower economic growth; we’re currently above 100 percent.

True, the sequester is somewhat ham-fisted in its execution; departments cannot prioritize the across-the-board percentage cuts. Still, too much discretion results in too little restraint, as we’ve learned from the 2011 budget deal, which cut $38 billion on paper.

Two weeks ago, the Washington Post looked at that deal, which President Obama called “the largest annual spending cut in our history.” “Stuffed with gimmicks” and “phantom cuts,” the deal was “an epic kind of Washington illusion,” the Post reported. At least $17 billion of the ballyhooed $38 billion in reductions “cut nothing at all”; the feds absorbed the reductions “without losing a single employee.”

The fiscal reality-based community remains far too small.”

The sequester may be a rough tool, but it doesn’t allow for as much cooking the books.

Stories like this that encourage us to believe that our fiscal dilemma stems in the main from “weak-willed politicians.” But as New York Times economics columnist and Washington Bureau Chief David Leonhardt writes in his crisp and informative new e-book “Here’s the Deal,” that lets the rest of us off too easily: “The problem is us — the voters.”

I don’t agree with many of the solutions he proposes but I can’t fault his diagnosis: “[T]he coming deficits stem, above all, from the fact that most Americans are scheduled to receive far more in Medicare benefits than they have paid in Medicare taxes. Social Security contributes to the problem, too, as do the world’s largest military” and an electorate that has decided “Republicans have won the debate on taxes, and Democrats have won the debate on benefits.”

A new survey from the Pew Research Center underscores Leonhardt’s point: “As Sequester Deadline Looms, Little Support for Cutting Most Programs.” “For 18 of 19 programs tested,” the survey finds, “majorities want either to increase spending or maintain it at current levels.”

Of the 19 programs tested, not one earns …read more
Source: OP-EDS

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