What budget cuts? U.S. sequestration is not as bad as feared


In March, U.S. President Barack Obama called sequestration “just dumb.” Many others said it would destroy the U.S. economy. Well, that hasn’t happened—not yet, at least.

Sequestration, the broad cuts that will slice $85 billion from the country’s budget this fiscal year, became reality after Republicans and Democrats failed to reach a budget consensus three months ago. Since then, 810,000 jobs have been added in the U.S. (175,000 in May). The unemployment rate rose in May to 7.6 per cent from 7.5 per cent, but that’s because more people entered the workforce. (It was 7.9 per cent before sequestration). Rising house prices and soaring markets have kept the economy climbing.

That’s not to say there hasn’t been pain, but the effects appear to be isolated to the sectors directly hit by the cuts, such as the public sector. The Pentagon has imposed 11 unpaid days off on about 650,000 civilian employees between July and September, for example. And concerns remain that the rest of America isn’t out of the woods. Some spending cuts dependent on local approvals, such as rent hikes, have yet to come into play.

Goldman Sachs estimates that the toll the sequester will take on growth will be 0.6 per cent by the fourth quarter of 2013. Still, maybe austerity isn’t so bad after all.


What budget cuts? U.S. sequestration is not as bad as feared

  1. Wow. So when the people finally have some faith in the government getting it’s budget under control, the private sector has the confidence to invest. Who’d have ever thought of that?!

    When the government is telling people that it’s the only viable employer, it’s not surprising that people without government jobs stopped looking. Now that the private sector has a sliver of confidence in the federal budget, they’re hiring and more people are looking for work.

    Tell me again that austerity doesn’t work.

    • The US unemployment rate has been slowly, but steadily, declining from a peak of 10% during the 2009 recession. The article suggests the damage is not as bad as some thought it would be. (Although it’s too early to tell.) There’s no evidence the sequestration austerity has boosted confidence in the private sector to invest. (If anything it has been the loose monetary policy of the Fed that slowly brought the economy around, austerity measures dampening the effect.)

      The “expansionary austerity” hypothesis has been thoroughly debunked (a huge failure in the UK, Greece, etc.), including the Rogoff-Reinhart paper it was founded on that was comprised of falsified statistics.

  2. There’s nothing wrong with austerity. It’s a great way to tackle high inflation (when fiscal policy is aligned with monetary policy, which is the Keynesian system.) It’s austerity in a slump that is self-defeating. It’s now 2013. The recession was in 2009. The US economy is still slowly recovering from that recession. That’s nothing to brag about. It’s also foolish to claim that bad economic policy is good economic policy because it is not as big a hindrance on the economy as some expected. The drag on GDP growth still means less tax revenues coming in and less money reducing the deficit. It means less demand for goods and services which means slower GDP growth.

    In the post-war era, countries like the US and Canada were facing terrible debt loads (higher than present.) But we used centrist economics to create an economic boom that allowed us to pay down most of our government debts (Canada: 100% to 17%; now 85%; US: 135% to 35%; now 107%.) Austerity in a slump amounts to taking a cut in pay to pay down a big credit card debt. It makes no sense. And there are plenty examples around the world to show that it doesn’t work.

  3. The US economy would have done a lot better if they had let the fiscal cliff happen. The right wing policies of shortfall of revenues caused by tax rate cuts have been the cause of deficits, fiscal problems, and economic problems since President Reagan’s Voodoonomics in 1980, WW Bush’s Voodonomics in 2000, and Harper’s Voodoonomics in 2006.
    The economy does better, deficits disappear, real capitalism vs. corporatism/crony capitalism/casino capitalism prospers, and most people’s income grow when the government finances are good, or at least improving, because corporations and rich individuals pay much higher (appropriate) rates of taxation.
    WWII to the mid 1970s and the 1990s in the USA prove that. Fiscal conservatives like Clinton and Chretien that brought back higher rates of taxation to pay down debt and increased prosperity prove that. Fiscal libertine right wingers like George W Bush and PM Harper prove that deficits go to hell, prosperity reverses, and real capitalism is discredited.

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