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posted by King Minos in Money / Career

Sequester Right Move?

February 23, 2013

“Sequestration,” that arcane budget term consuming Washington in recent weeks, is about to move from political abstraction to objective reality for tens of millions of Americans. Barring an extremely unlikely last-minute deal, about $85 billion is set to be cut from military, domestic and certain health care programs beginning Friday.

http://www.nytimes.com/2013/02/24/us/politics/hard-budget-realities-as-a...

***

Well, these "automatic" cuts were put in place because lawmakers could not agree on specific cuts or revenue increases; in effect, they said "we need to cut;" and because we can't agree, we'll institute across the board cuts!

Unfortunately, major portions of federal spending remain exempt from cuts, and the process is likely to stoke infighting between different constituencies. What's more, if the liberal media can stoke political protests, then the early cuts may actually reverse the entire course and see, instead of cuts, healthy increases in spending, and growth in revenues (taxes).

With a fragile economy, are cuts coming at a bad time? Will these and future cuts return the U.S. economy to recession?

A better time to cut would have been when the economy was strong; and, yes, sequestration by itself ought help tip the U.S. economy back into recession.

(Neither Republicans, nor Democrats wish to see cuts; both parties are home to leaders who wish to have as much spending authority as possible. A good analogy might ask a department head if he'd like to cut his spending authority by cutting his budget. In both political parties -- no matter what they say -- the honest answer is "no!")

An even worse problem ...

U.S. policy-makers continue to leave the economy on "autopilot." Just as sequestration provides a sort of robotic policy response, effectively, the Congress and White House have placed the entire U.S. economy on that same course!

Boils down to ...

Neither the White House nor the Congress know how to plot a better course for the U.S. economy. The Fed's "automatic pilot" simply keeps interest rates low; and, of course, low interest rates, more than anything else, created the housing boom and bust; and the financial crisis and unemployment crisis.

Leaders do NOT know how to assist the U.S. economy, and boost employment. The present course, like the old one, seems likely to stoke, again, unsustainable economic bubbles destined to rise-up and pop, just like the previous ones.

I have repeated over-and-over my own prescription for the U.S. economy: U.S. leaders ought to challenge the conventional wisdom on issues relevant to the mobility of trade goods, capital and labor. This would be an attempt to reverse "globalization" and recapture, within the U.S., parts of the labor market we have outsourced. The truth, as I see it, remains that our leaders are NOT going to challenge these conventions; and this means the U.S. -- albeit with the benefits of temporary bubbles -- remains firmly on course towards greater support for globalization, rising income inequalities, a lower standard of living for the masses, higher debts, and a crumbling ability to project hegemeny and order around the world!.

So-called "free trade" treaties will not be torn up; instead, they will be extended to more nations with easier terms. The influx of cheap labor to the U.S. will not be slowed; it will be increased with promised "amnesty"; and with the invitation extended to non-citizen "educated" labor by changes to the H1 Visa program. A higher minimum wage, too, should help boost the influx of illegal labor looking to exploit the higher wage differential created by higher wages for legal workers. (Illegal workers are not subject to the minimum wage or any other state or federal wage and labor standards!) Nor are U.S. policy-makers likely to impose "capital controls" either that restrict U.S. capital from heading around the globe; or ones that attempt to keep out of U.S. markets the so-called "hot" capital so key to speculative, bubble investments.

The political reality and the economy remain on par; what you see is what you are likely to get in the future. Absent some major shock or threats of a major war, U.S. policy-makers -- Democrats and Republicans -- are content to allow most things to stay as they are. In fact, clearly, we see a coming together of the separate voices. Our political leaders -- who are empowered via their ability to spend either tax revenue, or borrowed money -- are circling the wagons in Washington, and in Atlanta, against a perceived threat from the actual voters, and constituencies who gave them power. It is "us" v. "them!" They think they can divide citizens, single-out critics, and manage to keep their hold on power!

Clearly, "sequestration" is their admission of their own inability to govern; and their acceptance of the fact that, economically, they have no clue, what to do, to fix the American economy.

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