If you have not heard, by the end of this week, the Sequester will go into effect.
The Sequester cuts roughly $1.2 trillion in government spending over 10 years. The White House is projecting massive detrimental impacts.
A simplistic approach is to say that the roughly $80B in annual spending cuts are roughly 0.5% of GDP. That means that with the velocity of money, the impact is likely somewhere around 0.7% - 0.8% of GDP. That will likely not cause a recession, but it will cause a slow down.
But, is the sequester a good idea? And what will happen? Well, the answer isn't very simple.
The GOP case for the sequester:
The case against the sequester
Here is a detailed state by state impact analysis of the sequester.
While everyone is moaning various services that'll be cut, the real issue with the sequester are the massive cuts to R&D and Infrastructure Here is an estimate of the cuts:
That's a $54B cut in R&D spending over 5 years. The long term impact of this could be HUGE, yet there would be no visible effect immediately. It's a little akin to the GOPs decision in the early 1990s to cancel the US's new particle accelerator, virtually ensuring that Europe and not the US would be the center of fundamental physics for the next 20 years.
Similarly, cuts to education while small, reduce the long term GDP potential of the country.
However, the issue with finding a solution is that while everyone believes that a more intelligent way to do this, the GOP and the Dems have very different priorities and it turns out that at the moment, neither is in a mood to compromise.
The Sequester cuts roughly $1.2 trillion in government spending over 10 years. The White House is projecting massive detrimental impacts.
A simplistic approach is to say that the roughly $80B in annual spending cuts are roughly 0.5% of GDP. That means that with the velocity of money, the impact is likely somewhere around 0.7% - 0.8% of GDP. That will likely not cause a recession, but it will cause a slow down.
But, is the sequester a good idea? And what will happen? Well, the answer isn't very simple.
The GOP case for the sequester:
Well, you have a bloated government. We want to cut costs. Yes, the sequester is stupid, but it does dramatically cut costs. So, it's good right. That is why so many in the GOP, Eric Cantor included, are running to take credit for it.
The Dem case for a sequester
It turns out that most of the truly massive spending problems, the "entitlements" that the Dems support such as Medicare, Medicaid, Social Security, Veterans Benefits, etc. are all excluded. Meanwhile, defense spending is included. Net net, the Dems are getting much deeper cuts in the programs the GOP cares about and they don't and are protecting most of the programs they care about and the GOP does not. It is very unlikely they'd have it this good in a more precisely negotiated deal between the parties. In fact, Howard Dean said precisely this recently.
The case against the sequester
Here is a detailed state by state impact analysis of the sequester.
While everyone is moaning various services that'll be cut, the real issue with the sequester are the massive cuts to R&D and Infrastructure Here is an estimate of the cuts:
That's a $54B cut in R&D spending over 5 years. The long term impact of this could be HUGE, yet there would be no visible effect immediately. It's a little akin to the GOPs decision in the early 1990s to cancel the US's new particle accelerator, virtually ensuring that Europe and not the US would be the center of fundamental physics for the next 20 years.
Similarly, cuts to education while small, reduce the long term GDP potential of the country.
However, the issue with finding a solution is that while everyone believes that a more intelligent way to do this, the GOP and the Dems have very different priorities and it turns out that at the moment, neither is in a mood to compromise.
