Sequester USA

Written By: - Date published: 8:35 am, March 3rd, 2013 - 35 comments
Categories: economy, us politics - Tags: , ,

How much power should the ruling faction in a country / political system have? Should it be relatively unfettered, as it is NZ, or buffered by “checks and balances” as it is in the USA? Each approach has its risks. The risk of the former is that power will be used destructively (as was the case with the desolation of Rogernomics). The risk of the latter is that power may not be able to be used at all (political paralysis).

The problem with checks-and-balances is that it assumes rational agents. For generations such a system more-or-less worked in America. But now the Republican / Tea Party (faced with a black president and the realisation that demographics are against them) has gone so certifiably nuts that they are willing to paralyse the political process. They are so determined to deny Obama any kind of outcome that might be construed as positive for him that they no longer care what gets wrecked in the process.

Case in point – the “fiscal cliff“. Back in January the issue of controlling America’s deficit was never resolved, it was just punted out a couple of months. The deadline was Friday, and this time the two sides didn’t even reach a compromise on further postponing it, let alone resolving the deficit issue. And so “sequestration” (spending cuts), one of the major components of the fiscal cliff, is going to go ahead:

The sequester was enacted during the bitter 2011 debt ceiling negotiations and is a part of the Budget Control Act. The debt ceiling was raised in 2011 in exchange for 1.2 trillion in spending cuts, which were to be determined by a bipartisan group of senators and representatives, a ‘super committee’, in 2013. If no deal is reached by this committee then automatic, across the board cuts of 10% will go into effect.

The sequester was intended to be a ‘last resort’ to ensure spending cuts that would hurt Democrats and Republicans equally. The huge cuts in defense spending are supposed to hurt the more hawkish Republicans, while the cuts in other sectors of government spending like research, education, the EPA and a potential 2% cut to Medicare providers are supposed to be anathema to the Democrats.

What weakens the sequester as a ‘last resort’ tool are the exemptions built into it. War spending and entitlement spending on programs such as Social Security, Medicaid are exempt from the sequester, which could leave it toothless.

Given the exemptions, it is hard to predict what the actual effects of sequestration will be – commentary varies from “catastrophic” to “no big deal”. But President Obama is certainly not pleased:

Obama blames Republicans before signing ‘arbitrary’ sequester order

President warns US to prepare for drawn-out standoff after futile meeting with congressional leaders over scheduled cuts

Barack Obama signed an order on Friday night to implement $85bn in spending cuts, a move he described as “dumb” and “arbitrary” and that he blamed on the intransigence of Republicans in Congress.

Speaking at a White House press conference after a futile meeting with congressional leaders, Obama warned Americans to prepare for a drawn-out confrontation that could last for months and will be painful for working-class people.

“We will get through this. This is not going to be an apocalypse, I think as some people have said,” Obama said. “It’s just dumb. And it’s going to hurt. It’s going to hurt individual people and it’s going to hurt the economy overall,” he said.

Federal agencies will spend the weekend redrawing their budget plans and beginning the process of sending out letters to federal workers giving them 30 days notice of shorter hours, furloughs and even lay-offs. The White House budget office also has to inform Congress of where the spending cuts are to be made.

The hardest-hit department will be the Pentagon, which will have to find more than $40bn in savings between now and September, about 9% of its overall budget. But almost every government department, from aviation to the park service, will be hit, with cuts amounting to about 5% of their overall budgets. Only Medicaid and welfare benefits such as food stamps are exempted.

A forced austerity program is really not what the American economy needs right now. You’d think that the voters would be lining up to punish those responsible, yet the Republicans are still talking tough:

In the sequester crisis, the Republicans want only cuts, on welfare rather than defence, and no new taxes. Obama wants cuts accompanied by closing tax loophole for the wealthy, in effect new taxes. Boehner, at the end of the White House talks Friday, was adamant that he will not contemplate any new taxes. “The discussion about revenue is over,” Boehner said.

I think any rational evaluation would tell Republican politicians that it is them, rather than the President (newly re-elected and obviously willing to compromise) that is going to get the blame for the pain that will now follow. Unfortunately, however, it looks like rational evaluation and the Republican Party have permanently parted company.

35 comments on “Sequester USA”

  1. Sanctuary 1

    I wouldn’t be so sure about the blaming the Republicans bit. I’ve been hosting some deep Americans recently (by “deep Americans” I mean they don’t live in the coastal, urban and outward looking parts of the USA that NZer’s generally would go to, they are from deepest Virginia). Their politcal views are… strange. The dominance of culture wars in these people thinking (everyone is in a culture war box. Jews are simply above criticism. I was told I must be a liberal because “I am OK with the gays”, one of the girls said she didn’t mind “going on a date with a black”, etc) over-arches everything and so their views seem infused with paranoia and conspiracy theories around race and identity.

    The sequester isn’t an intrasigent, radicalised and gerrymandered congress at loggerheads with the president within a corrupt system badly need of reform. It is a black president deliberately destroying the American economy because he is a closet communist who hates whites and is bent on reducing them to poverty.

    Now, these are perfectly lovely people. I really like them. I just don’t talk politics, although I took great delight in pointing out in painstaking detail every aspect of Auckland hospital as we drove to the War Memorial Museum and telling them with live under the tyranny of socialised medicine. And ACC might as well be a concept from the planet Vulcan. (BTW – The Great War really has no penetration in the American consciousness, they were puzzled as to why we would have built such a building as the Auckland museum).

    But Americans seem more interested in hating each other than engaging in a sober analysis of their own institutions. No woder the corporations run America – if my tiny sample is any guide, the inhabitants are to busy tearing each other apart to do anything to stop them.

    • Colonial Viper 1.1

      Fascinating. Reminds me of a friend who spent time in upstate NY with a lovely farming family. Whos members practiced regularly with assault weapons on their own home made rifle range, and while very hospitable nice people, would have serious objections to anyone taking away their rights to use such weapons.

      On the Archdruid Report both Greer and his commentators have remarked on a simple truth: culturally, the USA is not one nation, it’s five or six nations with quite clear geographical boundaries, tied (chained?) together in a Federal system of government.

      The poisoning and polarised nature of the US news media and political debate does not help of course.

      (BTW – The Great War really has no penetration in the American consciousness, they were puzzled as to why we would have built such a building as the Auckland museum).

      I think this amnesia has set in more recently. From ‘Where Eagles Dare’ to “The Great Escape’ to ‘Saving Private Ryan’, to the Manhattan Project, WWII used to be a very big deal in the US.

      • Sanctuary 1.1.1

        I am talking about WW1, not WW2 🙂

        • Colonial Viper 1.1.1.1

          Gawd I’m ignorant. Cheers 🙂

        • Colonial Viper 1.1.1.2

          On another note – it’s always funny to ask a group of Americans – “hey, have you heard of the American War of Independence?” to which they invariably say “of course”

          Then you ask them – “who did the Americans fight that war against: the French, the British, the Spanish or the Mexicans?”

          Enjoy the resulting look of confusion and disarray.

        • Murray Olsen 1.1.1.3

          As a side note on WW1, I was on a QANTAS flight once which showed a short documentary claiming that Australia had won that war. We all know the seppos won WW2, so maybe they’ve done a deal with Canberra and let the Aussies have WW1.

    • David 1.2

      @Sanctuary, your second paragraph is a portrayal of these Americans views is it, Not your own? Just had to clear that up. Yeah the thinking, or lack thereof from that country is astounding, many Americans will not just own up to being rascist. I hope they somehow get a gay black woman as their president sometime, who has a spouse who is of Asian descent that are both members of the green party. Poetic justice indeed.

    • BM 1.3

      America is really 4 separate countries.
      I’d be surprised if it didn’t split in my life time.

    • Foreign Waka 1.4

      Deliverance…..

  2. muzza 2

    As with these things, the question to ponder is: What is the sequester situation providing cover for!

  3. Sanctuary 3

    “…The sequester is an intrasigent, radicalised and gerrymandered congress at loggerheads with the president within a corrupt system badly need of reform…” <— My view

    "…It is a black president deliberately destroying the American economy because he is a closet communist who hates whites and is bent on reducing them to poverty…." <— their (very slightly paraphrased) view.

    I don't think America will break up. They genuinely see themselves as the greastest nation on earth and are hyper-patriotic. There is no apetite to break up the country, except on the fringes.
    But the only state institution anyone seems to like and trust is the military and I can easily see the military eventually taking over if the political establishment can't reform the political system over the next generation or two.

  4. Draco T Bastard 4

    Ah, the US proves just how bad a dual house system really is – again.

    We need checks and balances but not ones ruled over by warring political parties. Referendums that get the politicians to do what the people want are a far better idea.

  5. ianmac 5

    Thanks ROB. A very puzzling situation in USA explained.
    But then even their Federal Elections seem puzzling to me. Democracy? A model to teach the World? Huh?

    • Dr Terry 5.1

      ianmac – no, “democracy” is only a nice sounding word which by no means can be applied to America today (if it ever was) – democracy is what America wants for all those countries other than itself (they might even teach Key and his lot what it means!)

      American people, I know for sure, can be extremely gracious and think intelligently, though this seems to be becoming less the case. Of course “nice people” does not necessarily indicate “good people” – as too many New Zealanders appear to assume (you only need to be “a decent bloke” and all that crap).

      Americans (“the world’s top country” etc) are amazingly deluded as they persist in their colonising ways.

      You will note in any budget cut, that “Defence” remains incredibly high and untouchable. Against what or whom does America so desperately need to “defend itself”? This budgetary item badly needs to be entitled “the budget for OFFENCE”.

  6. pollywog 6

    The prevailing need to feel if worse comes to worst they can still kick anyone’s arse fuels their paranoia and insecurity and overrides any sort of collective common sense.

  7. Ad 7

    Anyone got any global economic forecasts on the cumulative effect of a flatlining US and EU together? Particularly studies about whether we are in for about a decade of what we’ve currently got in terms of economic rebuild from the GFC?

    • muzza 7.1

      The GFC is still in its early stages – Unless someone can show that the global financial structures have been altered in such a way as to halt the decline, and to *return to growth*.

      Remember that the monetary supply = debt, so until that is changed, nothing changes.

      People will keep dying because of the squeeze, thats a given!

      • Draco T Bastard 7.1.1

        Remember that the monetary supply = debt, so until that is changed, nothing changes.

        97% Owned

        People will keep dying because of the squeeze, thats a given!

        Yep, and the rich will keep getting richer because of it.

        • muzza 7.1.1.1

          Thats right B – the 2-3% of notes and coins in the system, aside, the remainder enters as debt with an interest rate attached to it.

          As the interest amount does not enter the system with the principle loan, the interest payments need to be found in various ways, by those who owe the loan amount .

          This is where it all goes wrong, unless you own the credit creation system!

    • Foreign Waka 7.2

      Excerpts: General
      “This pace of growth will be far from sufficient to overcome the continued jobs crisis that many countries are still facing. With existing policies and growth trends, it may take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of 2008-2009”
      Concerns NZ:
      The economic woes in Europe, Japan and the United States are spilling over to developing countries through weaker demand for their exports and heightened volatility in capital flows and commodity prices.

      And this is the report: http://www.un.org/en/development/desa/news/policy/wesp2013.html

      • Colonial Viper 7.2.1

        With existing policies and growth trends, it may take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of 2008-2009

        Did somebody declare the Great Recession over? From what I can see, it’s going about as strong as ever. Even the US budget retailer Walmart is compaining of disasterously dropping sales.

        • Foreign Waka 7.2.1.1

          Depends who you ask. My view, when China slows down in the next couple of years things will really get tough. Wait for the war drums to be beaten by then. This is what happens when the hording of wealth has finally reached the breaking point.

    • bad12 8.1

      Gosh no more invasions by the US military while sequestration is the norm, sounds good from that point of view…

  8. Dr Terry 9

    Tom – yes, I stand corrected, at last it does appear that expenditure on American military is being restricted, which one hopes will mean they will get out of Afghanistan altogether as soon as possible, and stop eyeing up new prospects for invasion in other places.

  9. emergency mike 10

    “Obama wants cuts accompanied by closing tax loophole for the wealthy, in effect new taxes. Boehner, at the end of the White House talks Friday, was adamant that he will not contemplate any new taxes.”

    ‘Closing a tax loophole’ = ‘new tax’? Rich people say the darndest things.

  10. Craig Glen viper 11

    The sad thing about America is their education system does not promote critical thinking. This leaves the average American very vulnerable to blatant propaganda. So legislation to control the improper use of assault weapons on innocent people becomes “Obama’s like Hitler because Hitler made it illegal for citizens to own guns just like Obama is doing”. The lack of objectivity is astounding.
    I seriously doubt that Republicans will be blamed for the cuts.

    Americans totally believe the way their country does things is the only way period and yup they think they are the world leaders in everything.

  11. We need a freeze of governement expenses. We should only maintain essential spending. After all, if it’s not absolutely necessary, why are we spending money on it? Our children are drowning in debt before they are even born…

Recent Comments

Recent Posts

  • Membership: Australia and New Zealand Electronic Invoicing Board
    The Governments of Australia and New Zealand have announced the membership of the Australia and New Zealand Electronic Invoicing Board (ANZEIB) today. This is an important step towards implementing e-Invoicing across both countries to help businesses save time and money ...
    2 weeks ago
  • An end to unnecessary secondary tax
    Workers who are paying too much tax because of incorrect secondary tax codes are in line for relief with the passage of legislation through Parliament late last night. The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) ...
    2 weeks ago
  • Chatham Islands pāua plan approved
    Efforts to reverse the decline in the Chatham Islands pāua fishery are the focus of a new plan jointly agreed between government, the local community and industry. Fisheries Minister Stuart Nash says the plan was developed by the PauaMAC4 Industry ...
    2 weeks ago
  • Bill introduced for synthetics crackdown
    The Police will get stronger powers of search and seizure to crackdown on synthetic drugs under new legislation, which makes the two main synthetics (5F-ADB and AMB-FUBINACA) Class A drugs. The Government has today introduced the Misuse of Drugs Amendment ...
    3 weeks ago
  • Blasphemous libel law repealed
    The archaic blasphemous libel offence will be repealed following the passing of the Crimes Amendment Bill today, says Justice Minister Andrew Little. ...
    3 weeks ago
  • Coalition Government lassos livestock rustling
    New rules to crack down on livestock rustling will come into force following the passing of the Crimes Amendment Bill says Justice Minister Andrew Little. ...
    3 weeks ago
  • Medieval law axed
    The ‘year and a day rule’ rule will be repealed following the passing of the Crimes Amendment Bill, says Justice Minister Andrew Little. ...
    3 weeks ago
  • Further steps to combat tax evasion
    Further steps to combat tax evasion Revenue Minister Stuart Nash has announced New Zealand is expanding its global ability to combat tax evasion by joining forces with authorities in 30 countries and jurisdictions. Cabinet has agreed to add another ...
    3 weeks ago