Mar 5th 2013

Seven Sequester Lessons for the Pundit Class

by Robert Creamer

Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.

 
A day doesn’t go by that a group of pundits doesn’t gather on a news show to hold forth about the automatic budget cuts contained in the so-called “sequester.”  Many spend much of their time obsessing on some morsel of insider minutiae, or unthinkingly restate assumptions that are just plain wrong.  Here are seven lessons that are key in thinking out the budget standoff.
 
Lesson #1 – America is not trying figure out how to adjust its budget to a “time of scarcity” as one pundit suggested on one of the weekend’s Sunday shows.
 
America as a society – and an economy – is not in a “time of scarcity.”  Defined in terms of Gross Domestic Product per person, we are still the richest nation in the world.  Ask the gang on Wall Street – where stock prices just set a record – if they are living in a time of scarcity. 
 
We are living in a time of enormous inequality.  Ordinary people haven’t had a raise in 20 years, while the wealthiest among us have accumulated unthinkable riches.  As a percentage of national income, corporate profits have risen to their highest levels since the 1950’s – 14.2% in the third quarter of last year.  At the same time, the percentage of national income going to wages dropped to 61.7% -- almost to its low point in 1966.
 
We are also living in a time of scarcity for government budgets because Republicans in Congress slashed taxes on the wealthy, opened up new loopholes for big corporations, and obstruct policies that would put everyone back to work and generate new tax revenue.
 
Real Gross Domestic Product per capita – the best measure of the sum of the goods and services produced by our economy per person –increased over eight times between 1900 and 2008.  That means the standard of living of the average American today is over eight times higher than it was in 1900.  Average Americans today consume eight times more goods and services than they did at the beginning of the last century.  We are eight times wealthier today than we were then.
 
And note that GDP per capita has increased six times since Social Security was passed in 1935 and 2.3 times since Medicare was passed in 1965.
 
The skills of our people and the natural resources of our country that are the basis for our economic well-being did not magically evaporate after the financial collapse in 2008.  The system we use to organize production and distribution did collapse because of the recklessness of the big Wall Street Banks and the Republican policies that allowed the most massive expansion of economic inequality since the Great Depression.
 
Our problem over the last four years has not been the need to “tighten our belts” in order to accommodate a “time of scarcity.”  It has been to restart the system of production and distribution – to put all of our many resources back to work at the same time we assure that the fruits of our economy are more equitably shared among our people.
 
The problem for the pundits is that if you begin with the assumption we are in a “time a scarcity” you get austerity and stagnation.  If you begin with the assumption that our economic system collapsed because of the decisions of living, breathing human beings, you get policies aimed at fixing the problem and putting people and resources back to work.
 
Lesson #2 – $85 billion is not “just 2% of Federal Spending so it won’t really matter.”
 
First, the $85 billion cut by the sequester must be absorbed over seven months – six for many of the cuts in personnel that require 30 day furlough notices.  That means for this fiscal year – right now when the economy is just getting some momentum – the cuts will have double the impact.
 
But the most important point is that economic growth – and its effect on the job market – occur at the margins.  As anyone who has ever run a business can tell you, there is a huge difference between making a little every month and losing a little every month.  The same is true for the economy.
 
There is a massive difference for our long-term economic prospects – and ironically the size of the deficit – if the economy is growing at 2% or 3% or if it is shrinking by even 1%.  
 
The non-partisan Congressional Budget Office has estimated that the sequester will cost America 750,000 new jobs and about half a percent of annual GDP growth this year.  That will in fact make us poorer and reduce the quantity of good and services that would have been otherwise been available for our people – and the loss compounds over the next decade.  
 
In fact, with compounding, if the sequester continues to be a .5% drag on economic growth each year, by the tenth year, it will cost the American economy about $750 billion in lost goods and services annually -- and our standard of living will be about 5% lower than it otherwise would have been.
 
Lesson #3 – As the sequester unfolds, it will force the Republicans and the pundits to recognize that you can’t be in favor of “spending cuts” and “belt tightening” in general, without being forced to tell us what you want to cut specifically.
 
A recent Pew poll found that while the public favors “spending cuts” in general, it overwhelmingly opposes virtually every specific cut.  Eighty-seven percent opposed cuts to Social Security, eighty-two percent oppose cuts to Medicare, 60% support increases in spending on education.
 
The sequester has forced the discussion of  “spending cuts” in general to become very specific – and very personal.  As we watch cuts to food inspections, or longer lines at airports, or teacher layoffs, the ground under the Republican position – such as it is – will likely collapse.
 
Lesson #4 – Tax expenditures, like tax breaks for the oil industry, constitute “spending” every bit as much as outlays for education or food programs.
 
The billions of dollars paid as tax subsidies to the oil companies each year are “spending.   The Administration’s position that tax loopholes have to be part of any balanced solution to cut deficits assumes that “tax expenditures” are in fact “expenditures” – and should not get special treatment just because most of them go to the wealthy and big corporations.
 
Lesson #5 – All “spending” is not created equal.  That’s why the “sequester” is so stupid.
 
The sequester requires everything to be cut by exactly the same amount.  That assumes that every outlay is just as important as every other outlay.  But that defies common sense.
 
Cutting some kinds of spending has a greater impact on our long-term welfare than cutting other spending.  And just as importantly, some cuts are simply fairer than others.
 
The Republicans want to cut Social Security benefits over the long run.  Which do you think is fairer – cutting Social Security spending for people who have a median income of $22,000 per year, or ending the tax loophole (tax expenditure) that allows speculators who run hedge funds -- and sometimes make billions -- to pay 15% to 20% lower tax rates than people who produce goods and services for a living?
 
Very few Americans would agree that requiring middle income people who work as contractors to the Federal Government to take a 20% cut in pay would have the same impact on the people involved as cutting the tax subsidy we give to big oil  companies that are making record profits.
 
Fewer still believe that a tax subsidy for executives who fly around in corporate jets is a better use of taxpayer money than feeding poor children.
    
Lesson #6 – These arbitrary, automatic spending cuts did not result from a “failure to communicate” in Washington.
 
Many pundits seem obsessed with the notion that the sequester is simply a result of the poor communication or negotiating skills of Washington politicians. Frankly that is simply ridiculous.
 
In 2011 the Republicans made a conscious decision to refuse to raise the debt ceiling – to pay the country’s bills – unless they could ring budget concessions from the President.  They were willing to blow themselves – and the economy -- to pieces to get their way.  The sequester was part of the deal that was struck to avoid that man-made catastrophe.
 
Now the Republicans are once again holding the country hostage to its demands to “cut entitlements” – meaning Social Security, and Medicare – and to maintain tax loopholes for the wealthy. They have resorted to hostage-taking because their positions are so unpopular that they believe they have no chance of passing them them through a normal democratic process. So they refuse to compromise one inch when it comes to a fix that might avoid the arbitrary cuts that even they admit will hurt the economy.
 
Better “communication” or “negotiating skills” will not affect this intransigence one iota.  As today’s Washington Post makes clear, their unwillingness to compromise stems directly from a deal between the Republican leadership and their far right wing.
 
The GOP’s supporters on Wall Street had a big role getting them to back off their threat to default on the nation’s debts.  Wall Street believed that default could lead to another worldwide financial market meltdown.  Not so with the sequester.  In fact, many on Wall Street have actually been crusading for more austerity and stock prices have remained high. 
 
Many Federal contractors are, of course, directly affected by the sequester and are certainly weighing in with the Republican leadership.  In fact, the GOP sequester strategy carries many risks for the Party, but these risks will not materialize as a result of anything that goes on exclusively inside the Beltway.
 
Lesson #7 – Between now and the next election, the only thing that will force the GOP to compromise on fiscal issues is pressure from their districts around the country that highlights the concrete effects of draconian budget cuts. 
 
The only way to change the equation for the Republicans is to mobilize people in their districts to demand action to prevent the concrete results of the sequester.
 
That will happen if the media is forced to focus on specific, palpable cuts – rather than the generic notion of “federal spending.”  It’s one thing to be in favor of “cutting federal spending.”  It’s another to favor eliminating one meal per day from the diet of senior citizens served by Meals On Wheels.
 
You can’t blame the Republicans for criticizing the President for making his case outside of the Beltway.  They know if he can focus the public on iconic consequences of their policies he can force them to compromise, and that they have the upper hand if all the action takes place in Washington.
 
There are three groups of Republicans in the House.  There are many Members who will never vote for a compromise that closes tax loopholes for the wealthy. There is a smaller group of Members who believe it is in their interest to support such a compromise.   But there is also a group of Members who may or may not be convinced to cast a vote for a compromise, but can be convinced that it is in the interests of the GOP brand for Boehner to allow a vote on a compromise that passes both houses and ends the sequester.  
 
That third group of Republican Members is critical of the outcome of the sequester saga. If Progressives and the White House can make these issues personal and concrete, it will begin to tarnish the Republican brand among swing voters.  
 
A recent Public Policy Polling survey found that voters considered Congressional Republicans less popular than head lice, root canals or colonoscopies. It’s hard to imagine their image declining much further, but it is certainly possible.  As the concrete effects of the Republican sequester become more and more visible, wiser heads in the Republican Party may very well decide that a compromise that looks impossible today, is very possible tomorrow. 
    
 
          Robert Creamer is a long-time political organizer and strategist, and author of the book:  Stand Up Straight: How Progressives Can Win, available on Amazon.com. He is a partner in Democracy Partners and a Senior Strategist for Americans United for Change. Follow him on Twitter @rbcreamer.
 
 
 

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