The cries that blind
Why a cut is not a cut when it comes to federal spending
The following reprint is a guest editorial I wrote that was published in the Arkansas Democrat-Gazette on February 23, 2013. The context was a widely publicized Congressional budget battle over cuts in federal spending that were set to automatically take effect on March 1 and continue until 2021 if Congressional Republicans and the Obama White House couldn’t agree on an alternative. It was not unlike the current battle over Trump’s Big Beautiful Bill.
The Obama-friendly media hyped the coming “sequester”, as it was called, as a looming disaster - a “fiscal cliff” — that was wholly the fault of the relatively few Congressional Republicans who wanted to do something about the ballooning federal debt. Because Republicans had only a narrow majority in the House, these budget hardliners could torpedo a GOP capitulation and were an effective block to an agreement.
In the editorial, I point out that the uproar was absurd because what was called a “cut” in Washington DC was not what people think of as a budget cut — spending less in one year than the year before. Congressional “baseline budgeting”, a parlor trick adopted in the 1980s, meant that an increase was considered a cut in spending by the DC establishment.
In the end, no deal was reached and the so-called cuts went into effect. Still, total federal spending went up year over year during the sequester period, which was eventually extended to 2023. The $16 trillion federal debt I refer to in the article has now ballooned to $36 trillion, and is still growing. Trump’s budget bill would make it grow even faster, even as his administration tries to make the case that it would cut spending. The Obama-era tactics I describe here are the same ones that allow Trump to make this claim today.
On this one, at least, Elon Musk is right. Nothing has changed and we’re still sleepwalking into bankruptcy as a country.
The cries that blind
Sequester debate obscures reality
February 23, 2013 by RICHARD GRAHAM SPECIAL TO THE DEMOCRAT-GAZETTE
LITTLE ROCK - Few things strike terror into the heart of Washington like the prospect of a spending cut.
Although American households have become accustomed to them since the onset of the 2008 financial crisis, the federal government, aided by an accommodative Federal Reserve ever-ready to monetize new mountains of public debt, has taken deficit spending to record heights. Now, as the March 1 deadline for the “sequester” approaches and automatic reductions loom, the usual hand wringing and cries of alarm from the Beltway have begun in earnest.
The cuts are the result of a deal between the White House and congressional Republicans to increase the debt ceiling while forcing compromise on deficit-reduction. Split between defense and nondefense cuts, they were to be so severe that members of both parties would be forced to work together to find more palatable alternatives. That theory now appears to be breaking down as Republicans, jaded by a string of strategic defeats at the hands of the president, have said they’re willing to accept defense cuts if the alternative is another tax increase.
If Republicans hold their ground this time against the onslaught by Democrats and their media allies, they’re on firmer ground than you might think. Here’s the dirty little secret about the sequester: These cuts that are supposedly so draconian that no one would dare let them happen aren’t really cuts; government spending will continue to increase year after year, and after 10 years, even defense spending will have increased.
In fact, based on the latest figures from the Congressional Budget Office that assume the sequester, by 2023 the record $16 trillion official debt will have grown to $26 trillion. And the CBO almost always ends up overstating revenue and understating spending, so the actual figure is likely to be even worse.
How is Washington able to consistently confuse and, in some cases, mislead the public when it comes to deficits and debt? Part of it is that the terms are easy to confuse. Even longtime members of Congress sometimes conflate the deficit with the debt. Not a dime of debt is paid down until deficits become surpluses, and yet, listening to Washington rhetoric, you’d think the occasional slight downtick in the deficit is a major accomplishment.
Another way is with something called “baseline budgeting.” Since the 1980s, the process Congress uses to develop a budget is based upon 10-year spending projections made by the CBO. This baseline assumes the previous year’s funding levels and then builds in automatic increases averaging around 7 percent, supposedly for inflation and population growth.
Because these built-in increases are so ingrained into the budgeting culture, the entire conversation in Washington is expressed in terms of this automatically increasing baseline. If spending ends up growing more slowly than projected, that increase is considered a cut. The absurdity of this Orwellian budget-speak is such that if through some act of enlightened insanity Congress simply kept the same spending levels — a true budget freeze — in a 10-year span in which spending was projected to grow $9 trillion, that would be considered a $9 trillion cut in spending.
With this institutional bias toward spending, Ronald Reagan’s words have never been truer when he said the nearest thing to eternal life on earth is a government program.
We can no longer afford this largesse. With gross domestic product stubbornly holding just above recession levels despite unprecedented amounts of Fed pump-priming, counting on higher growth rates to substantially increase revenue or to absorb the ballooning debt is the height of irresponsibility. This is especially true when you consider that tens of trillions more in future contingent liabilities aren’t even counted in the official debt projections.
Advocates of Keynesian stimulus will counter that this fragile state of the economy is in fact the prime reason not to cut spending now, arguing that GDP will inevitably take a hit. Never mind that government spending is actually a component of the GDP figure itself. To say cuts will cause a reduction in GDP is like saying ceasing to exhale will cause a reduction in breathing.
What matters is growth in the private sector, and a government that crowds out investment there will not foster an economy that can sustain unparalleled levels of debt.
Although continued low interest rates and foreign appetite for our Treasurys have lulled us into complacency, the extent to which historically accommodative central bank policy is propping up a weak economy in need of restructuring is not fully appreciated. It can’t be many years before the fields of IOUs that Congress has sown begin to reap a bitter harvest.
If Republicans can’t persevere on this measure, so minor as to be largely symbolic, they should stop insulting our intelligence, drop their pretense of opposition, and turn fiscal policy over to the party whose actions at least conform to their rhetoric.
Richie Graham is based in Little Rock Arkansas USA and writes from a free-market libertarian, anti-interventionist perspective.