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| Chart from the Wall Street Journal |
Comments about the latest budget crisis:
1) The sequester mandates cuts of $85 billion--about 2.4%--from a $3.55 trillion budget. This is equivalent to a middle class family coming up with savings of $120 on an income of $5,000 per month. It might be difficult in some cases, but catastrophic? Please.
2) Because the sequestration occurs in the middle of the government's fiscal year, much has been made of how "these cuts must be achieved over only seven months instead of 12" (from the first page of the OMB report). This assertion assumes that the sequester took everyone by surprise; managers with any experience in the ways of Washington should have been underspending their first-half budgets to prepare for this eventuality, and it would be very surprising if most of them did not.
3) Yes, the sequester is dumb because it leaves no room for judgment. Back to the example of the $5,000-per-month family trying to cut $120 from its spending: the family can not cut its mortgage payments, rent, or health insurance premiums by even a dime because of the severe consequences of a default, yet across-the-board sequester-like trimming could well trigger such an outcome. Nevertheless, I have a hard time believing that essential services won't somehow be funded, given potential workarounds afforded by the vast sums flowing through the government.
4) If a federal buyer went to suppliers and asked if, say, 90-day payment terms could be stretched to 180 days temporarily, most suppliers would assent. It would be nice for them to be owed a favor by a government manager. From the government's point of view, what good is monopsony power unless you're willing to use it?
5) Personal prediction over when the sequester and the debt ceiling will be resolved: Earliest - April 15 (symbolic); Latest - September 30 (end of the fiscal year). © 2013 Stephen Yuen
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