21 February 2013

Sequester, shmester...

We are facing a hard date when the government of the United States will be required to reduce spending immediately by about $85bn.  This is fraction of the massive economy of our nation, over $15.8 trillion and only a pittance of the annual federal budget, which is north of $2 trillion.  IS this a good thing or a bad thing?  I contend it is the latter.  The government continues to spend without restraint on programs of all types.  We routinely exceed the value of funds received, engaging in deficit spending which has pushed national debt over 100% of GDP.  What does this mean?  It means that if the United States did nothing but pay it’s debt, it would consume the next six to eight years of all government revenues.


Government debt is not like consumer debt.  It is essentially an open ended gamble on the viability of a government and its economy.  In the case of the United States, it has been a winning bet since nearly the inception of the nation.  Even in the worst of times, the economy of the United States has been the strongest, most resilient and most free of any other economy in the world.  It is diversified and driven by enormous flows of capital (both monetary and intellectual).


As a nation we have been spending more than 20% of GDP via the government.  This is about 6% above historical norms and represents the perceived economic need for stimulative spending.  The impact of this additional spending has been nominal at best.  It is now time to reset our spending levels to ones which are affordable in the long term and representative of a less invasive type of government. 


Part of the expenditure is the growth of the “social safety net”.  In tough economic times, there is a valid and vital reason to support citizens who are broadly affected by downturns.  This support should be self limiting and focused upon returning people to productive positions in the society.  Retraining programs and small business support are some of the most effective.  Healthcare programs , different from the sporadic needs like unemployment, must be structured to be cost controlling while delivering maximum value with limited resources (remember the death panel hype?  In a truly well managed program, there would be restrictions on care offered).  Social pension programs also must be means tested and aligned to the changing life styles of the citizens who benefit from them.  All of this must be supported by a revenue stream which is predictable and as equitable as possible.  The United States has a very progressive tax scheme which is immensely complex and skewed to favor both higher income and lower income citizens.


In short, folks, we need a complete overhaul of our financial structures in the United States.  The blunt instrument of the sequester is a great place to start.  It should provide some clarity to just how insane our budgetary and government programs have become. 


Sequester is Pro-Growth