Sunday, February 24, 2013

The Machete vs. The Scalpel: Why John Boehner is Playing It All Wrong

In the 2008 Presidential debates, Senator John McCain proposed across-the-board cuts the federal budget as a starting point on the road towards deficit reduction.

Then-Senator Barack Obama responded: "Senator McCain is looking to apply a machete to the budget when what is needed is a scalpel", essentially criticizing the indiscriminate nature of across-the-board spending cuts and making the point that he would be more surgical about what he would cut.

An aghast John McCain, having seen federal spending expand wildly across virtually every budget line item during George W. Bush's Presidency, responded, "I would apply a machete and THEN a scalpel."

The current hysteria in Washington over the sequester would make you believe that it is a big machete - that massive reductions to federal programs will take place, starving the poor, endangering national defense and putting food safety and clean air at risk.

What the sequester actually amounts to is $85 billion in cuts, material to be sure, but we are talking about a federal budget of $3.6 trillion, meaning the sequester essentially amounts to 2.4% reduction in planned federal spending.  If you had to take a 2.4% pay cut in your personal life, you wouldn't like it, but, it probably wouldn't mean that you wouldn't make the mortgage or car payments - it would probably be more akin to having to eat out once less in a month or moving from 93 octane to 87 octane gas.

It has been pointed out by some, correctly, that since entitlements are not impacted by the sequester, that the remaining elements of the federal budget will endure far greater percentage cuts than the overall 2.4%.  And they are right, to a point.  Entitlement spending makes up $2.1 trillion of the $3.6 trillion federal budget.  Federal interest payments, which obviously cannot be directly impacted by the sequester, makes up about another $200 billion.  Put those together and you have $1.3 trillion of discretionary spending across which the $85 billion reduction is spread.  This therefore equates to a 6.5% cut to other programs, across-the-board.

A 6.5% cut might sound more severe and that some of the hysteria is warranted, but let's place it in proper context.  Since the year 2000, discretionary spending has grown by 72%, or a compound annual growth rate of 4.5%.  Adjusted for inflation, this means real discretionary spending has grown by 39% over that time period.  It would seem that, being that most people would say government was relatively more functional in 2000 than it is today, that "only" being 32.5% higher in discretionary spending in real terms is a very small machete indeed.

So it was with a degree of shock that I read John Boehner's piece in the Wall Street Journal, bemoaning the sequester and laying blame at the feet of President Obama.

Speaker Boehner opens his editorial with the following line:
"A week from now, a dramatic new federal policy is set to go into effect that threatens U.S. national security, thousands of jobs and more."

This is utterly contradictory.  Isn't it Boehner and the Republicans that have always stated that government spending doesn't create jobs?  Aren't they the anti-Kenyes party?  Threatens national security?  A 6% cut in a defense budget that his TRIPLED since 2000?  Is he serious?

If the GOP is going to be the party of deficit reduction through spending cuts, getting hissy over a 6% cut in defense spending is a bit absurd.

The Speaker does make a legitimate point that entitlements must be dealt with.  At 61% of all federal spending, it is difficult to imagine a scenario that balances the budget with entitlement reforms.  The Speaker is also right that the sequester is a crude instrument, making no distinction between effective and ineffective programs.

But Republicans should be taking an AND approach to budget cuts - do the sequester AND eliminate ineffective programs AND reform entitlements.  While an across-the-board cut is a crude machete, it is a small one.  Lots of private corporations do similar exercises to control spending - think of how troubled companies do across-the-board pay freezes or cancel all travel, often not distinguishing between top and bottom employees or value-added versus non-value added travel.  Across the board approaches are a quick way to get cost containment.  THEN, you go after the tough trade-offs.

John Boehner opposes any and all tax increases.  If he is serious about cutting the deficit, he should be advocating for any-and-all budget reduction opportunities.  By sound hysteria over relatively small budget cuts, he just looks like an idiot.  The answer is machete AND scalpel.

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