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Cuts too deep? No, not deep enough

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Story highlights

  • Matt Welch: Politicians have been squawking about dire fallout of forced spending cuts
  • He says Congress and Obama agreed on them in 2011 deal, and they're necessary
  • He asks: What have we gotten from huge increase in federal government's budget?
  • Welch: Debt at 100% of GDP, with boomers getting ready to queue up for benefits

As any ex-jock can tell you, any time you try exercising a muscle that has gone unused for a decade or more, something predictable happens: It barks like hell.

This is what we're seeing in this last pathetic run-up to the forced spending cuts agreed to by Congress and the president in July 2011 as a fail-safe in case the federal government couldn't agree on a totally necessary but politically difficult settlement to address the country's long-term fiscal unsustainability.

"Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings," President Barack Obama warned. (PolitiFact verdict: half true. "There is no indication that Americans will lose their insurance coverage or access to all primary care because of the sequester," said PolitiFact, but added "pretty close to 'hundreds of thousands'" could lose flu vaccinations and cancer screenings.)

A trio of Republican senators (John McCain, Lindsey Graham and Kelly Ayotte) jointly bemoaned "the calamitous effects that budget sequestration would have on our nation's economy and security."

Politicians have been trying to outdo each other in deploying what the neoliberal Washington Monthly founder Charles Peters coined in 1976 as the "firemen first" principle -- the notion that "the public will support (the Clever Bureaucrat's) valiant fight against the budget reduction only if essential services are endangered. Thus, C.B. always picks on teachers, policemen, firemen first."

Matt Welch

So an already rattled nation is being spooked by horror stories of three-hour airport security lines, delayed background check for gun purchases and criminals running freely through the streets. All this for a spending cut that the Congressional Budget Office estimates will be around $44 billion in 2013, a tiny sliver of the federal budget. Imagine the squeals if it included significant cuts.

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    No doubt there will be those who find such fear-mongering persuasive. But for the rest of us, it suggests a rather pressing and relevant question: Just what, precisely, did we get from doubling the cost of the federal government between 2000 and 2010?

    If the bureaucrats can't produce an explanation for the price increase of government, then they should not expect their budgets to be rubber-stamped by an already suffering public.

    So the squawking you hear is from a government money-machine having difficulty adapting to a political universe that no longer accepts automatic annual increases. And we'll keep hearing it until the moment politicians have the courage to align government expenditures within miles of revenue.

    The Nobel Prize-winning economist James Buchanan, who died in January, warned us three decades ago about the "permanent disconnect" between revenue and spending, brought about by politicians scared of charging taxpayers full freight for government goodies.

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    "The attractiveness of financing spending by debt issue to the elected politicians should be obvious," he wrote. "Borrowing allows spending to be made that will yield immediate political payoffs without the incurring of any immediate political cost."

    We are living with the results: National debt greater than 100% of annual gross domestic product and no end in sight, just as the baby boomers stop working and start sucking down expensive federal entitlements.

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    Even if borrowing costs remain at their historic lows in perpetuity, this kind of debt overhang is more dangerous than any mild bureaucratic shuffle necessitated by the 1% trim. Why? In their controversial April 2012 National Bureau for Economic Research working paper, economists Carmen M. Reinhart, Vincent R. Reinhart and Kenneth S. Rogoff concluded that when countries carry debt of more than 90% of GDP for five or more consecutive years, economic growth gets chopped down by more than a whole percentage point each year for decades.

    What's the best method for reversing a debt crisis? In a 2009 paper (PDF), Harvard economists Alberto Alesina and Silvia Ardagna examined more than 100 debt-reduction efforts worldwide since 1970, and asserted that "spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns." The authors found "several episodes in which spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions."

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    Taxpayers shouldn't be fearing the forced spending cuts, they should be fearing that the cuts don't go nearly far enough. And politicians should realize that short-term debt service and long-term entitlements are going to keep shrinking the money left over for doling out goodies. Like other things that can't go on forever, fiscal irresponsibility won't. Time to get those muscles in shape.

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